The Pro's and Con's of Pricing Approaches

Current Pricing Approach +   Private payors – free hand to contract at market prices; more often than not, payments near CMS fee schedule (IOM, 2000). +   Rarely (so far), use of risk-sharing contracts (see white paper) +   Medicare – priority to price molecular diagnostics by “code-stacking” +   When code-stacking is not possible, entirely different rules appear (e.g. median of invoiced charges)  +   Market forces define exchange prices +   Innovative pricing systems are possible +   Total costs for lab tests highly predictable across CMS +   Administratively efficient  +     Complexity of services, volume of services, and relatively small charge-per-service makes negotiations cumbersome +   Fee schedules for some molecular lab steps vary sharply (5X) among states
Pricing Proposal 1: +   Competitive bidding  +   Natural market process for private payor (e.g. Megalab X and Y compete for Insurer X) +   Some limited experience in the Medicare system +   Congress requires demo projects in Medicare system  +   Coding system does not allow precise specification of molecular tests +   “Competitive bidding” fails to work well for sole-source  (e.g. monopoly) products
Pricing Proposal 2: +   Medicare – price by market surveys (similar to drugs/ASP)  +   Assumes market prices are fair and competitive  +   Administratively cumbersome +   Does not leverage “pricing power” of government vis a vis sole source products
Pricing Proposal 3: +   Medicare – set “code-stack” price and adjust upward to account for development costs  +   Avoids marginal pricing which could prevent new product development  +   Administratively cumbersome +   Assumes a “fair” composite price can be established +   Requires rules for choice of “add-on” value above “code-stack” price
Pricing Proposal 4: +   Creative contracting  +   Optimize incentives for both lab and payor  +   Little experience with this process +   Administratively cumbersome