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Creating Value-Based Diagnostic Test Pricing

August 1, 2018

Value-based healthcare is now a focus of our national health policy. In this context, value is defined as the patient health outcomes achieved per dollar spent. The goal, of course, is better health, better care, and lower costs.

Laboratories and other diagnostic service providers, while facing economic pressures due to revenue compression and regulatory requirements of the current system, are still required to find new ways to contribute to the reduction in the overall cost of patient care. This means that the value of a laboratory test must be determined. The factors that are likely to go into this determination are clinical utility, cost, and most importantly patient outcomes.

Value-based systems require a mechanism to incorporate clinical outcomes in provider reimbursement. The amount of the payments would be made based on performance, as opposed to test methodology. Reimbursement might, for example, be linked with meeting specific performance criteria with consideration for the cost of the test. While there is general agreement that for clinical utility results need to be consistent in varying clinical environments, disagreements tend to arise around how it is measured.

Attributing quantitative outcomes causally to clinical laboratory tests is not simple. We cannot run randomized, controlled clinical trials because laboratory diagnostic services cannot be withheld from some patients as a control group. Instead, we are left to evaluate clinical performance, meaning does the test correctly distinguish between patients who had disease versus those who did not or patients who will respond to specific treatments. Another dimension for evaluating a new test is whether it does a better job than the previous methods for such testing. Ultimately though, we want to know how much patients benefit from having a specific test performed. Health plan executives frequently bemoan the huge waste in their pharmaceutical costs, but still do not seem to see the relationship between appropriate use of testing and the results generated by those tests, and the most efficient use of drugs and better patient outcomes!

As new, innovative, diagnostic tests are developed and brought to market, they enable more precision. This allows appropriate therapies to be delivered sooner, resulting in better outcomes and less waste, which in turn makes their relative value greater. However, not all of these new tests are classified as advanced diagnostic laboratory tests (ADLTs), a new subcategory under the Protecting Medicare Act of 2014 (PAMA), for which there are generally higher healthcare reimbursements. Discussion at last month’s CMS Stakeholders meeting for the 2019 CLFS reinforced that there is currently no mechanism in our reimbursement system to reward clinical value.

In the value-based model, a new diagnostic should be reimbursed at a rate appropriate for the value it delivers. When the clinical utility is anticipated but not proven, the diagnostic initially can be reimbursed at cost plus, until clinical utility and overall health economic value is determined. At this time the test should be reimbursed based on its value. If the clinical utility is known, then a value-based price with cost consideration would be appropriate.

The move toward value-based healthcare reimbursement is being driven by the exploding costs of healthcare and is being enabled by the relative ease of data sharing. Advances in technology that helps securely exchange information in combination with the vast amounts of data created by diagnostics, there is an opportunity for the leaders of the diagnostics industry to recommend a market-driven, value-based approach to healthcare diagnostic reimbursements. Diagnostic developers—labs—have the most complete information about when to order their diagnostics and diagnostic imaging and how the results should be interpreted.

Perhaps it is time for a new industry working group to bring together the leaders of the diagnostics industry to develop a united point of view on how to design a value-based laboratory test pricing framework. As an industry, we need to work together to influence the policies that will be affecting us for years to come.

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