Envisioning a Post-FFS Future for IVD

Envisioning a Post-FFS Future for IVD

In vitro diagnostic (IVD) lab technology has aided healthcare systems worldwide in directing treatment and improving public health and patient outcomes; lab technology has also played a significant role in healthcare cost escalation. Single payer systems and government health insurance systems throughout the developed world are increasingly strained by the rising costs of health services and treatments. Developing countries expanding coverage and care availability similarly have been concerned with containing costs. A common target for reform and source cost savings has been the prevalent fee-for-service (FFS) in healthcare systems.

The world’s largest IVD market - the United States - has been a principal forum for how to manage lab operations and clinical testing within a challenging, transitional healthcare environment. Introduced Medicare price cuts for molecular tests and impending cuts for all lab services have invited discussion of FFS-alternative models:

As CMS seems to be trying to make fee schedules nearly unbearable for physicians and labs, moving away from fee-for-service has at least the potential for positive financial impact on advanced diagnostics, with healthcare systems and payers determining how much they’re willing to pay for tests based on outcomes, rather than the strange brew of economic inputs and formulas that CMS has so much trouble with.

Both CMS and providers need to think some new thoughts, according to Quinn. “If it’s a fee-for-service system, people will have to segregate out the things that take a lot of R&D innovation and not try to price them just based on the cost per test tube,” Quinn said. “In the future, if we move to more integrated systems that are like Kaiser or accountable care organizations, running within global budgets, then a test can live or die based on whether it’s effective and whether it’s cost-effective in that system. Congressmen are grandstanding saying that we have to kill the fee-for-service system. While that’s far from certain, if we do somehow eliminate fee-for-service, these tests will survive based on their own value as judged by real people.”

Under the Medicare FFS model, molecular tests, companion diagnostics and personalized medicine have struggled as of late with many tests negatively impacted by lower reimbursement rates. Recent analysis concluded that the median price for molecular tests dropped by 15% in January 2013, some procedures more than 50%. Tests such as flow cytometry, FISH, IHC could also be cut by more than 75%, impairing basic treatment of cancer patients, for example, where such procedures are essential. Outside of the lab industry, a U.S. physician-led commission has already proposed a solution the growing disconnect between clinically useful procedures and the recognition of their value through reimbursement payments:

The incentive inherent in fee-for-service payment arrangements to increase volume can be mitigated by incorporating quality metrics into the negotiated reimbursement rates. This is already being done in programs conducted by the federal government and private insurers. On a budget-neutral basis, the modifier will increase or decrease payment rates to physicians on the measures of quality and cost. Although to date the overall evidence on the effectiveness of pay-for-performance programs based on quality measures is mixed, some programs are showing positive results.

The commission noted that FFS models will remain a fixture in the U.S. healthcare system for the foreseeable future. However, alternative payment methods are being pioneered through ACA programs, bundled payment systems, accountable care organizations, and other patient-centered or integrated care programs. The impact of these programs on test and product consumption will be felt by IVD manufacturers prior to any nationwide transition away from FFS payments. Recovery in the demand for advanced diagnostics can be expected as payments are aligned with a test’s value in patient outcome, though core lab test demand may be affected by several factors. Preventative care and disease management figure to emphasize regular screening and testing in many cases, intensifying demand for core lab and other basic IVD tests. However, clinical overuse of such tests can be claimed in other cases, for example unnecessary repeat chemistry panels or blood counts.