Reimbursement Coding for Molecular Diagnostics

Virtually everyone in the clinical laboratory business is now acquainted with Z-Code Identifiers. The concept is straightforward. Each unique laboratory test should have a unique tracking code, even if more than one Z-Code Identifier is reported with a corresponding American Medical Association’s Current Procedural Terminology (CPT) billing code. The uniqueness of each test is determined primarily by the methodology of performing the test, although other factors, such as specimen type, may also be considered.

Z-Code Identifiers were created and are maintained by McKesson Corporation as the initial step in creating a single national catalog for all commercially available tests that are molecular in nature. This catalog, which is part of the McKesson Diagnostics Exchange, can be viewed by anyone who creates a free user profile at

Approximately 4,500 Z-Code Identifiers have now been assigned, with a steady stream of applications for new codes in the pipeline. It’s important to understand that, as a tracking code, the Z-Code Identifier is not validating or credentialing the test accuracy or value. It is simply a unique identifier for each unique test, as documented by the clinical laboratory requesting a code.

The significance of this tracking function can be highlighted by several examples. More than 20 different versions of KRAS testing have been documented with unique Z-Code Identifier assignments, based on subtle differences in test methodology. A process for confirming the equivalence of each of these test methodologies has not been established. In contrast, if a different clinical laboratory performs the same test in multiple geographical locations, following the same stringent protocol, only a single Z-Code Identifier is assigned.

The process for initial registration of a test can yield a Z-Code Identifier assignment within weeks of completing the application. However, this does not mean that a test is ready for ‘prime time’ and immediately available for use. The Clinical Laboratory applying for a Z-Code Identifier retains some control over the submitted data and determines whether this data will be made available through the Diagnostics Exchange to other entities (e.g. health plans and the AMA/CPT workgroup) for further coding, clinical coverage and pricing considerations.

How many unique tests will we need to catalog? No one really knows. We do know that the National Institutes of Health has registered more than 16,000 assays, including experimental and investigational purposes, in its Genetic Testing Registry. This registry is limited to human gene tests only, whereas Z-Code identifiers may be assigned to any test that is molecular in nature.

Are Z-Code Identifiers competing with CPT or HCPCS codes? The simple answer is, “No.” Think of Z-Code Identifiers as tracking codes only for the unique identification of each test. The appropriate CPT or HCPCS code is still required on a medical claim for reimbursement purposes. The mechanics are straightforward. On an 837 electronic claim, the Z-Code is reported in the free text claim line comment field and the CPT or HCPCS charge code is reported in the usual procedure code location.

The CPT code set is also evolving to meet the challenge of molecular diagnostic coding. The CPT Editorial Panel recently added ‘Tier 1’ codes, where each CPT code specifies the gene and methodology for commonly ordered tests. They also created ‘Tier 2’ codes for less commonly ordered tests, where nine levels (or families) of codes are defined, based on the testing methodology and similar work effort. Approximately 500 tests are now identified as Tier 1 or Tier 2 tests. But this is just a fraction of the 4,500 Z-Code Identifiers that have already been assigned.

A crucial component of the process for assigning a CPT code is to establish a clear, evidence-based justification for any code in the CPT set. This is a slower, more methodical process than assigning a Z-Code Identifier. For emerging technology, it can take some time to develop the objective evidence needed for a CPT code justification. For the special challenges of the new frontier in molecular diagnosis, using Z-Code Identifiers as tracking codes provides a new and efficient pathway for code development.

By breaking the code assignment process into well-defined, incremental steps, a test inventor can now obtain a unique identifier during the clinical evidence justification process. This permits specific communication and publication of data and documentation regarding the new technology during the evidence development phase.

This is significant. Now test inventors can talk specifically about new technology, the evidence needed to establish clinical validity and clinical utility, and pricing, well in advance of documenting requirements for a full-fledged CPT or HCPCS code.

Lastly, the CPT process has acknowledged some of the unique features of emerging laboratory technology by creating an accelerated protocol for evaluating clinical evidence needed for CPT validation. This process, named CPT CodeBridge, will:

1. Evaluate test inventor data submitted in the initial application for a Z-Code Identifier.

2. Consider additional research and utilization data as it becomes available.

3. Map the Z-Code Identifier to the appropriate CPT code, with published updates three times a year, instead of annually, as occurs now. Prior to a CodeBridge mapping, a laboratory can still bill an unmapped code using the unlisted molecular diagnostic CPT code, 81479.

Using this approach, clinical laboratories may reduce the time it takes to get a Z-Code Identifier for a new test from years to months (potentially), when the evidence is compelling. The value to payers can be a significant jump-start in evaluating and embracing new technology, and a reduction in administrative costs and hassles. The value to physicians is rapid access to credible, objective information about a test and what it does, when documentation and clinical indications for the new test is published in connection with the catalog listing.

And most importantly, the value to patients is that they can receive the most appropriate and evidence-based diagnostic tests.

Douglas J. Moeller, MD, is a Medical Director with McKesson Health Solutions. Dr. Moeller has provided clinical coding and content management expertise since the launch of the McKesson Diagnostics Exchange, an online test registry and shared workflow solution that payers, laboratories and other stakeholders use to understand the clinical and financial impact of molecular diagnostic tests.

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