Rare Very Highly Paid Tests May Drive Industry Profitability

One of the features of the PAMA raw data is that some tests (especially CYP testing and drug tox testing) had an outlying minority of very highly paid tests - e.g. >$10,000 for tests with median prices around $500.

With so much price transparency industry-wide under PAMA, both for volume and for market price distributions, there may be compression of pricing in the future.

For a hypothetical test, I modeled the impact of reducing outlier high prices on profitability.

The model test has a median price of $500, but a price range of $50 to $2000.   (This doesn't match any one test, but is realistic given actual data I sampled).   There is a normal volume distribution, as shown in the table, with 50 cases at the median price and 5 at the farthest outlier prices; there are 160 total tests.   The cost (COGS) of the test is $250.

In this model, the lab currently has $85,750 revenue, $40,000 costs for 160 tests, and $45,750 gross profit, or 53% gross profit.  Interestingly, 35% of gross profit comes from just the 15 high outlier tests.

In a future year, with so much price transparency on the table, we assume that market price ranges are considerably compressed, now falling between $250 and $750.   Revenue drops to $77,500  - there are fewer super expensive tests, but fewer dirt cheap ones.  Gross profit is now $37,500, or a fall in gross profit of 18% from $45,750 initially.

Table of PAMA Prices for GSP Codes

This represents my "informal" table of PAMA prices for GSP codes.  

2017 CLFS "NA" and 2018 PAMA price means that these codes are getting CLFS prices for the first time through the normal PAMA process.  They are old enough to be in the 2016 PAMA payment prices but were never given CMS prices.

Blue typically is codes priced in 2016 by crosswalk for first use in 2017.  They don't get PAMA prices - since they weren't in use in 2016 - so CMS generally assigns the 2018 price to be a continued crosswalk.  

Purple typically is codes that were around in 2016 but NEITHER had been priced by CMS, NOR had PAMA data.  These are new in-house crosswalks being proposed by CMS.  CMS also considered the alternative of leaving them off the fee schedule since they had neither CMS prices nor PAMA data.

81416 Exome Compare $12K omitted

	Code	Text	Genes	2017 CLFS	2018 PAMA
1	81410	Aortic dysfunction	9 or more	NA	$504
2	81411	-- Dup, Del	4 or more	NA	$1350
3	81412	Ashkenazi associated gene panel	9 or more	$602.10	$2448
4	81413	Cardiac ion disorders gene panel	10 or more	$802.33	CW to Lynch which ?? Drops to new $38
5	81414	-- Dup, Del	2 or more	$802.33	CW to Lynch Dup Del new $574
6	81415	“Exome”		NA	$4780
7	81416	Comparator exome		NA	$12,000
8	81417	Reevaluation of exome		NA	$320
9	81420	Fetal Aneuploidy (maternal blood) (non-branded) (cf 81507 = Ariosa Harmony = PAMA $795)		$802.33	$759
10	81422	Fetal microdeletions		$802.33	Cont. CW 81436 (Lynch Dup Del, new $574)
11	81425	“Genome”		NA	Never priced and No data; CW to 81445, $600
12	81426	Comparator genome		NA	Never priced and No data; CW to 81445, $600
13	81427	Reevaluation of genome		NA	Never priced and No data; CW to 81445, $600 X 50%
14	81430	Hearing Loss	60 or more	NA	$1625
15	81431	-- Dup, Del	2 or more	NA	$679
16	81432	Breast cancer related gene panel	14 or more	$931.48	$136
17	81433	-- Dup, Del	5 or more	$602.10	$425
18	81434	Retinal disorders gene panel	15 or more	$602.10	Cont. CW to 81432, NEW $136
19	81435	Colon cancer related gene panel	10 or more	$802.33	$38
20	81436	-- Dup, Del	5 or more	$602.10	$574
21	81437	Neuroendocrine cancer related gene panel	6 or more	$602.10	$93
22	81438	-- Dup, Del	4 or more	$602.10	$250
23	81439	Inherited cardio-myopathy gene panel	5 or more	$802.33	Cont. CW to 81435 Lynch (New $38)
24	81440	Nuclear encoded mitochondrial genes	100 or more	NA	$3324
25	81442	Noonan spectrum gene panel	12 or more	$602.10	$2143
		Tumor Panels:
26	81445	Somatic cancer mutation panel	5-50 genes	$602.10	$597
27	81450	Hematopoietic cancer gene panel	5-50 genes	$652.94	$759
28	81455	Tumor mutation panel	>50 genes	NA	$2919
29	84160	Whole mitochondrial genome		NA	$1287
30	81465	-- Large deletion analysis		NA	$936
31	81470	X-linked disabilities, at least 60 genes		NA	Never priced and no data; CW 81445, NEW $597
32	81471	--Dup Del		NA	Never priced and no data; CW 81433 Dup Del, NEW $425