Labs face reimbursement headwinds as CMS weighs national regulation

On February 27 CMS began asking a straightforward question with complex implications:

Should the requirement for labs to register in the MolDX program be expanded nationwide to reduce the risk of fraud, waste, and abuse in genetic and molecular diagnostics?

While the policy debate unfolds, labs are already feeling the financial squeeze. Since mid-February 2026, laboratories across the U.S. have seen a consistent spike in denials for CPT 87798. This is the catchall code labs use to identify infectious organisms when no dedicated code exists for the specific pathogen. It shows up in respiratory panels, UTI panels, wound infection testing, anything that runs molecular ID across multiple potential pathogens.

Some labs have observed a significant increase in L3 Explanation of Benefits denials on claims, often marked as a "penalty." The bottom-line effects are already being felt, with large hits to reimbursement and, in turn, revenue across the board. Industry estimates show a 10 percent cut in reimbursement results in a 3-4 percent drop in laboratory profit margins.

This is all part of CMS's "CRUSH" (Comprehensive Regulations to Uncover Suspicious Healthcare) Request for Information, which took in public comments through the end of March. In addition to lab scrutiny, the package of actions also included a six-month moratorium on enrollment of new DME, prosthetics, and orthotics companies in Medicare.

Industry responses‍

The American Clinical Laboratory Association (ACLA), which represents major lab companies, filed an 18-page comment that took a nuanced position. ACLA supports stronger anti-fraud efforts and warns against treating growth in molecular testing as evidence of fraud itself. Their members want clarity and consistency in coverage policies, though they're concerned about bureaucratic delays that could hurt legitimate testing.

ACLA is cautious about MolDX, arguing that mere registration isn't a strong anti-fraud solution on its own. Their main criticism is speed – MolDX often takes an inordinate amount of time to address coverage requests, with some stalled for more than 2 years.

The College of American Pathologists (CAP), representing the physicians who oversee lab operations, filed 7 pages of detailed objections to MolDX's registration requirements.

Pathologists are the ones who actually order these tests for patients, so their primary concern is patient access. CAP worries that MolDX's Z-code registration system creates barriers that could delay access to new diagnostics their patients need. Under MolDX, a test is effectively non-covered until an LCD exists, leaving no claim-by-claim reimbursement pathway in the interim.

Labs want clearer rules and worry about bureaucratic delays. Pathologists want to ensure their patients can access the tests they need when they need them.

The data behind 87798

‍The CMS/MAC enforcement seems to be focused on the top biller. Twenty-eight states already require labs to register each genetic test through MolDX and prove clinical validity before billing. The other 22 have historically paid first and audited retroactively.

As seen above, 87798 Medicare FFS volume nearly doubled in pay-first regions, going from 694K to 1.3M claims, while staying essentially flat in MolDX regions.

Additionally:

• The number of labs billing to Medicare moved the same way: From 402 to 501 labs in pay-first regions, and from 435 down to 358 in MolDX regions.
• Two of the three non-MolDX MACs (Novitas and First Coast) account for nearly all of the growth. The third, NGS JK, actually declined 7% over the same period. 
• Texas (Novitas) alone grew 244%, from 165K to 569K claims, accounting for roughly two-thirds of all non-MolDX growth.

This is what regulation does to a market… capital, lab capacity, and billing volume go to wherever the path to reimbursement is clearest.

The 87798 boom is also the second time this exact pattern has played out in a similar code in the last few years. CPT 81408, used for rare-disease genetic testing, ran the same trajectory in permissive jurisdictions before. OIG flagged $888 million at risk of improper payment in its 2023 audit on that single code. Contractors tightened, denials picked up, and 81408 volume dropped close to zero.

87798 became the next code with a similar profile, and the volume migrated.

The broader lab industry is caught in the middle

ACLA acknowledges that when MolDX eventually issues LCDs, those policies tend to contain specific medical necessity requirements, and that specificity can improve appropriate claims filing. Some non-MolDX jurisdictions sometimes lack equally specific medical necessity requirements. ACLA's central criticism remains speed and access, as under MolDX a test is effectively non-covered until an LCD exists, leaving no claim-by-claim reimbursement pathway in the interim.

If CMS moves forward with national MolDX-style requirements, a lab running 87798 legitimately for respiratory panels, UTI workups, wound infection testing where there's no pathogen-specific code would need to register each test and wait for coverage determination.

Next up

The RFI offered health care stakeholders an opportunity to provide feedback on potential regulatory changes that might be included in a future proposed rule, as well as other federal health care program changes.

There's no specific timeline, but any formal rulemaking would require a separate proposed rule with its own comment period.

For diagnostic companies that run infectious disease testing, coverage strategy for any test or device paired with molecular ID should assume that more consistent national rules are coming.