EDITOR’S NOTE: Our new column, Virchow, is written by anonymous insiders working within the managed care world. The column aims to help clients of The Dark Report better understand the decisions, policies, and actions of payers as they manage their laboratory networks, establish coverage guidelines, process lab test claims, and audit labs.

Genetic testing laboratories throughout the United States are still reacting to the May 4 announcement by UnitedHealthcare (UHC) that, beginning Aug. 1, 2023, its commercial plans would “require Palmetto GBA’s DEX Z-codes for molecular diagnostic test services on facility and professional claims for the claims to be considered for reimbursement.”

According to a recent update from UHC on July 20, enforcement of Z-code requirements will begin on Oct. 1 to allow labs more time to request their codes.

Genetic testing labs were not the only ones caught flat-footed by UHC’s announcement of this new policy. My colleagues in the managed care industry tell me that other private health plans now must decide two things:

  • One, should they adopt their own Z-code requirement for genetic test claims?
  • Two, if yes, how quickly should they roll out their Z-code policy?1

My point here is UnitedHealthcare’s new mandate impacts not just genetic testing companies, it also raises the competitive bar for health plans. Obviously UHC—one of the nation’s largest health insurance companies—believes its Z-code policy is a necessary move to benefit its patients and the employers it serves.

UHC also gets one more tool to prevent payment for medically unnecessary or inappropriate genetic tests while speeding payment for those genetic test claims that meet its coverage guidelines.

Payers Copy Policies

It is typical for a new Medicare or private payer coverage policy—including pricing—to be studied by other health plans and copied shortly thereafter. Thus, the odds are good that pathologists and clinical laboratory managers will see other payers implement their own Z-code requirement for genetic test claims.

Because of the complexities of genetic CPT codes, and this somewhat novel use of Z-codes in processing what are rather high numbers of claims, I anticipate that major payers will want to watch and learn from UHC as it processes genetic test claims after Aug. 1. These are reasons why I think other private payers will implement their own Z-code requirements for genetic test claims, but only after they see what happens with UHC’s Z-code requirement in the coming months.

It is important to understand the market forces that drive growing payer interest in Z-codes. I can tell you that the volume of genetic tests on the market is time-consuming for payers when it comes to billing and payment policies. Part of the reason for that is the fact that Current Procedural Terminology (CPT) codes simply have not kept up with the genetic testing market.

New molecular assays come out every month. Often these new tests are connected to a particular pharmaceutical drug as part of a long-term treatment plan for a patient. That means if a patient tests positive for a particular genetic test, then physicians will want that patient to take a specific drug because it’s going have the best outcome. So, there are substantial business interests with a stake in this genetic testing.

The CPT codes are so old that they can’t keep up with ever-growing, modern genetic testing demand. Meanwhile, doctors don’t always know what tests they order. And let’s face it, sales reps of the genetic testing companies are well-paid to go out and persuade the doctors to order their genetic test panels. These economic push-and-pulls are embedded in lab testing and reimbursement.

Awareness of Genetic Tests

Payers are concerned because genetic testing is getting very expensive and that con- strains reimbursement funds. Therefore, when a genetic test claim is presented to a health plan for reimbursement, that health plan wants to know:

  • Is this genetic test appropriate for the patient’s diagnosis (ICD-10 code) and physician’s description of symptoms?
  • Does this genetic test accurately measure its biomarkers?
  • Will the test results guide the doctor to get a better patient outcome?

Answering those three questions upon receipt of a claim is just one challenge for the payer. Historically, if a payer takes the same test from different labs and lays those tests side by side, they’re not all the same. That raises questions about what components of a genetic test panel are medically necessary. (See TDR, “Optum and Avalon Discuss Genetic Test Claims Review,” June 19, 2023.)

There’s also an increased public awareness of genetic testing, such as for prenatal screening and rare genetic disorders. But payers don’t know what all of these thousands of genetic tests in the marketplace truly do. That is why health plans are working to establish a system to provide them with that information, whether through Z-codes or other systems. Concert Genetics’ coding engine comes to mind, for example.

The big goal for payers is to reduce their expenses related to genetic testing reimbursement while also making sure that a genetic test is the right one for the patient. Payers have teams working to solve this problem.

Spotting Spikes in Claims

Many payers staff a whole genetics department, with an analytics team behind it. They run reports monthly that analyze what the company paid for genetic tests. If something looks odd, the claim may go to payment integrity for investigation. From there, the plan breaks down payments by individual labs—not only the total dollar amount the plan reimbursed the genetic testing lab, but also the specific tests that made up that dollar amount.

Let’s suppose the plan noticed an upswing in claims for a molecular assay called the “Jupiter Test” from Genetic Lab A. That lab did not run the Jupiter Test in 2020 or 2021. Next, in 2022, the lab ran a few of those tests, with each one costing $1,000. Now in 2023, suddenly Genetic Lab A is doing 10,000 Jupiter Tests a month.

To a payer, this situation indicates one of two things about the genetic test: One, the lab is bundling the test incorrectly, or two, the lab is committing fraud. (See TDR, “Feds Target Genetic Test and Telemedicine Fraud,” Sept. 19, 2022.)

At that point, a payer is going to take a deep dive into Genetic Lab A, all the way down to the CPT code level. The health plan will ask the contracting agent who has a relationship with the lab to make a phone call. Unfortunately, when those types of calls happen, the genetic testing company will often play dumb and say, “Oh, we don’t know what you’re talking about.”

The payer will also look at Genetic Lab A’s claims for the Jupiter Test and compare similar claims from Genetic Lab B, which also runs the Jupiter Test but submits a more reasonable number of claims. Based on that comparison, the health plan may ask Genetic Lab B if it will partner with the payer to do some “redirection”—in other words, to move test business away from Genetic Lab A.

To help redirect these tests, the payer sends out nastygram letters to providers asking that they please stop using Genetic Lab A and instead use Genetic Lab B. Sometimes that move will bring Genetic Lab A to the negotiating table.

Will Other Payers Follow?

I’ve been asked recently by people in the clinical lab industry whether other major payers will follow UnitedHealthcare’s lead on requiring Z-codes for genetic tests under private health plans. (See TDR, “UHC’s Z-code Requirement to Commence on Aug. 1,” May 30, 2023.)

Although that might happen, there’s no guarantee. As noted earlier, I think other payers will likely take a “wait and see” attitude before instituting Z-codes for their own private plans. Let me explain my thinking further, based on developments outside of clinical laboratory testing.

There are rumblings in reaction to an external brouhaha caused by pushback from providers about UHC’s proposed colonoscopy prior-authorization requirements. The pushback came from the gastroenterology societies, who argued that it’s hard enough to get patients scheduled for colonoscopies, and now physicians potentially needed to get a prior authorization from UHC for the procedure.

On June 2, STAT reported, “After weeks of protest from physician organizations and patients, UnitedHealthcare has put a controversial new prior-authorization policy for gastroenterology procedures on hold. The policy, which requires physicians and patients to get approval from the insurance giant for nearly all gastroenterology procedures, including diagnostic and surveillance colonoscopy, or potentially face paying out of pocket, would have gone into effect on June 1.”

Just to be clear, colonoscopies are not genetic tests. But the colonoscopy flareup caused tension in the market. UnitedHealthcare created that tension because of a new policy.

Does that mean UHC will step back from their new Z-codes policy? Maybe. Does that mean UHC is going to scrap Z-codes for commercial claims? I don’t think so. There is an undercurrent of concern because of what various laboratory advocacy groups are discussing regarding labs not getting paid by UHC and other payers, as well as because of what the gastro societies are saying about prior authorization for colonoscopies. People are up in arms about what UnitedHealthcare is doing across the board.

In July, UnitedHealth Group— UHC’s parent company—reported its Q2 earnings. Among the interesting numbers was $5.7 billion in profit for the quarter, up nearly 9% year over year.

Adding to the frustration is UHC’s mergers and acquisitions strategy. People in the lab industry are questioning how UHC can talk about reining in costs for genetic test claims while at the same time recently agreeing to acquire Amedisys, a home health and hospice company. The deal was worth $3.3 billion, as reported by Reuters on June 26.

Reuters wrote, “Interest in the home health sector has been rising since the pandemic as more patients and caregivers prefer accessing medical services from the safety of their homes.”

Some naysayers argue that if UnitedHealthcare can spend $3.3 billion to purchase a home health and hospice company, then why can’t UHC pay laboratories whose diagnostic results make up a significant part of every member’s medical record?

That’s the buzz out there with UHC. There is plenty of provider displeasure with UnitedHealthcare right now. So, the other payers are keeping a careful eye on the situation with UHC’s Z-Code requirement for genetic test claims.

Employers May Take Notice

For many patients—especially those who need a genetic test quickly if they’re suddenly ill or stricken by disease—all of this debate about Z-codes will go over their heads. They are focused on their illness and won’t care.

But an external party that will care about Z-codes is at-risk employers. If an employer’s health coverage is paying for genetic testing, they may want these Z-codes for more clarity on what they’re paying for.

Employers are looking at their bottom line, particularly if genetic test claims from their employees have skyrocketed. This scenario will be repeated at different companies as employers add genetic testing options to their health insurance benefits to attract younger job candidates.

In conclusion, I think it’s likely that UHC will follow through on its new Z-code policy, but it does so at the risk of upsetting an already agitated provider side. Other payers are closely watching how UHC handles any resistance it gets to the Z-code mandate. Based on how that response goes, other payers will proceed accordingly.

The bottom line is genetic testing claims have exploded, and both government and private payers are looking for a way to better manage reimbursement for the tests. Z-codes appear to be UnitedHealthcare’s answer.

Solid Logic for Z-codes Encourages Adoption

DESPITE THE DRAMA, Z-codes seem to be a sound approach for genetic test claims.

As some of you know, the DEX Diagnostic Exchange registry administers Z-codes in states for Medicare Advantage claims under the Molecular Diagnostics (MolDX) Program. Many, if not all, payers are already familiar with Z-codes for genetic tests for Medicare Advantage patients. In that significant regard, Z-codes seem to be the most logical next step for private plans to better manage genetic test reimbursement.

Let’s face it: All health plans are worried about their financial situation for 2023 and 2024. Using Z-codes is going to save payers a ton of money. Right now, when a new genetic test claim comes in to UHC, they’re not sure what the test does. It may have an ambiguous CPT code on it, but there’s no Z-code. So, UHC and other payers must ask for medical records to review, and that costs money and wastes time for the lab, the ordering physician, and the health plan.

On the other hand, Z-codes would spell out for payers a test’s components and the diagnostic matches that are needed for reimbursement. And a claim with a Z-code should be able to go through the adjudication process without invoking medical records review. Z-codes can save plans money by quickly letting them see that a test may not be appropriate for a person at this time.