Health Policy & Regulation
The Business of Diagnostics: Reimbursement, PAMA & Innovation with Quest CMO Dr. Yuri Fesko
January 29, 2026
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How does a flawed government policy threaten the very foundation of modern medicine? Nearly every clinical decision, from a routine check-up to advanced cancer treatment, begins with data from a lab test. But the system that determines the value and payment for these critical services is under threat. In this episode, we explore the complex world of clinical laboratory services policy and payment with an unparalleled expert, Dr. Yuri Fesko, Chief Medical Officer of Quest Diagnostics. We uncover how a poorly designed law could cripple patient access to testing, especially in rural communities, and stifle the life-saving innovation happening in diagnostics.
This deep-dive conversation with Dr. Yuri Fesko breaks down the most pressing issues facing clinical laboratories today. We start with the Clinical Laboratory Fee Schedule (CLFS) and the disastrous impact of the Protecting Access to Medicare Act (PAMA). Dr. Fesko explains how PAMA’s flawed data collection, which surveyed only the largest, most efficient labs, has led to proposed reimbursement cuts of up to 15% annually, threatening the viability of smaller hospital and independent labs across the country. We then discuss the bipartisan RESULTS Act, a proposed solution to create a more accurate and equitable system. The discussion also tackles the immense administrative burden of prior authorization for lab testing, a major friction point for clinicians that delays diagnoses and care. We explore how technology, like Quest’s adoption of the Epic EMR system, aims to streamline this broken process. A significant portion of our conversation focuses on the challenges surrounding reimbursement for advanced diagnostics. Dr. Fesko provides a fascinating look into cutting-edge innovations like Minimal Residual Disease (MRD) testing in oncology, a revolutionary tool that can detect trace amounts of cancer DNA in the blood to help guide treatment decisions and avoid unnecessary, toxic chemotherapy. We also navigate the intricate landscape of laboratory-developed tests (LDT) regulation, weighing the pros and cons of proposed FDA oversight versus the existing accreditation framework. Finally, we touch on patient-centric improvements like price transparency, the power of lab data in public health initiatives, and the critical importance of interoperability in ensuring patients own and control their health records. This episode is an essential guide to understanding the policy, payment, and innovation that will define the future of diagnostic medicine.
Episode Resources:
Introduction and Guest Overview
Dr. Anthony Paravati: We are back with another episode of Value Health Voices. Normally, it is Dr. Amar Rewari and I to chat as we introduce the episode, but I am solo tonight.
We have a very interesting episode for the first time on Value Health Voices, which, as you all know, is a health policy and healthcare finance focused podcast where we break down various elements of the U.S. healthcare system in a way that anyone can understand.
We are going to talk about clinical lab services, how they are paid for, all the regulation around them, and the innovation. It is an area of rapid innovation. If you are looking for something to feel positive about, this is it.
People who aren't physicians can easily gloss over the fact that almost every clinical decision in medicine starts with the data that come from laboratory testing. This includes everything from basic labs to next-generation sequencing in cancer, minimal residual disease testing, and sophisticated testing for Alzheimer’s and metabolic syndrome.
We are very fortunate on the podcast tonight to have Dr. Yuri Fesko, who is the chief medical officer of Quest Diagnostics. There is nobody more expert to talk about the money flows in laboratory services, the various frictions we face in medicine, and the impacts of prior authorization and other regulations.
We are going to go deep into how the laboratory services industry establishes trust, transparency, and the shared use of data. Because the data they generate ultimately come from patients, Quest has come up with an impressive way to handle that data to provide substantial public value through public health-related data on communicable disease and insulin resistance.
Dr. Amar Rewari and I want to say that this is not a sponsored episode. Quest reached out to us, and we are seeing more large players in the healthcare system reaching out because they want to be on the podcast.
We are not taking money. We are bringing them on to talk about elements of their business, what patients face, and the regulatory side to make our listeners smarter. Without further ado, we are going to get into it with Dr. Yuri Fesko.
The Landscape of Laboratory Services
Dr. Yuri Fesko: I am Yuri Fesko, the Chief Medical Officer here at Quest Diagnostics. By training, I am internal medicine, hematology, and oncology. I currently lead many of the medical groups within Quest Diagnostics, as well as payer access, reimbursement, research activities, and our clinical teams.
Quest Diagnostics is a large lab, but we also do pathology services. We have the largest pathology group in the country. We do everything from next-generation sequencing in laboratory medicine to pharma services contracts to owning laboratories in Canada and Mexico. There is a lot about Quest that many folks may not know.
Dr. Anthony Paravati: I have no doubt, and that is one of the reasons we wanted to have you on. We want to fill a gap this podcast has had for its entire year of existence: talking about the mechanisms of payment and policy that surround laboratory services.
Many physicians listen to the show, but those who don't practice medicine may not realize that while you start by taking a patient's history, it isn't long before you need data to take care of that patient. That data is largely laboratory results.
The policies governing diagnostics seem to be some of the least understood policy components in the U.S. healthcare system. Dr. Yuri Fesko, tell us about that.
Dr. Yuri Fesko: I would agree. For many folks, their interaction with their doctor usually has a lab component. They get their blood drawn and remember the needle stick and the results, but they aren't quite sure who did the testing, where it was done, or how the results were integrated.
A lot of that can take place in many different places. It can take place in a hospital-owned laboratory, at a company like Quest Diagnostics or LabCorp, or within a large physician practice in the community. These are all options, and it is just not well understood.
The Clinical Laboratory Fee Schedule (CLFS)
Dr. Anthony Paravati: Medicare and other payers are the ones determining the value of this diagnostic data. We want to start by explaining what is called the Clinical Laboratory Fee Schedule (CLFS) and the key regulatory things that impact it.
Dr. Yuri Fesko: Medicare helps dictate the Clinical Laboratory Fee Schedule. For about 800 common laboratory tests, Medicare determines the value. Often, they will crosswalk it to something very similar to determine that value.
This is important because that fee schedule helps set the rates for many private payers as well. While the CLFS is really for government payers like Medicare, it influences private payers like UnitedHealthcare, Aetna, and Humana. That is where it all starts.
Dr. Amar Rewari: I serve as our RUC advisor for radiation oncology where we value procedural services. When you talk about this fee schedule for labs and crosswalking it to other services, where did those original laboratory valuations come from? Are there building blocks where they looked at components to create that value?
Dr. Yuri Fesko: There can be a crosswalk based on methodology. Was it an immunoassay or a mass spec test? They will understand the different components and the cost associated with those technologies.
If there is something established in the market, like an older test done by immunoassay, and you bring a similar test to market, you do a crosswalk to the existing test. If it is a newer test, they will ask about the methodology and the closest equivalent.
As a laboratory, you try to submit your cost of reagents, patient transport, and the bioinformatics required to get the answer. All these components are taken in to determine the cost.
The Impact of PAMA on Lab Reimbursement
Dr. Anthony Paravati: There is an ongoing issue with the Clinical Laboratory Fee Schedule regarding the Protecting Access to Medicare Act, or PAMA. Tell us about this, as it seems to be a huge deal for your fee schedule.
Dr. Yuri Fesko: The concept when it was initiated was to ensure Medicare was getting good value for laboratory testing. We all agree we don't want Medicare overpaying. The concept was that all labs performing these common tests would submit data to CMS to determine Medicare rates.
The issue was that it was quite onerous to get all this data together. It ended up being a voluntary system. You were supposed to do it, but it was more onerous than HEDIS measures. As a laboratory, you had to submit all your claims.
The large laboratories did this, but many hospital-based labs, independent labs, and physician-owned labs did not. The problem is that only Quest and LabCorp really submitted the data.
Because of our volume, we may be at or below Medicare rates with some private insurers. Just like a hospital may get a discount for high volumes of radical prostatectomies, the same goes for large laboratories.
The issue is you're not getting an accurate assessment of the cost of laboratory testing because you are only getting data from high-volume laboratories. You aren't getting data from hospitals that don't have those same efficiencies.
It turned out that only about 1% of laboratory data was actually submitted. Based on this, they proposed cuts to the clinical laboratory fee schedule. It is very difficult for the industry to absorb that based on the low rates that were submitted to begin with.
Dr. Anthony Paravati: So the survey was enriched for the lowest-cost players. Now, PAMA is going to set off a series of cuts that would be year-over-year reductions in reimbursement.
Dr. Yuri Fesko: That is exactly right. If you start with the lowest of the low, you can't just adjust the schedule based on that. It has to include all comers.
Dr. Amar Rewari: The people that may be hurt the most are not necessarily Quest and LabCorp, but smaller labs that are more inefficient.
Dr. Yuri Fesko: There is a lot of concern for the smaller independent laboratories and smaller health systems. They don't have the scale to get reagents at a very good cost.
If you go into rural communities, it is going to take some time to get results. If a local health system or a hospital is struggling, those are the areas where you are going to have real issues getting laboratory testing.
The SALSA Act: A Proposed Legislative Solution
Dr. Anthony Paravati: The waiting times to get lab results back are going to be much longer if capacity is reduced because only low-cost providers can stay in the game. I see research suggesting 15% annual cuts. Is a solution in the works?
Dr. Yuri Fesko: The solution we have been talking about is the SALSA Act. It takes parts of PAMA but puts a third party in the works. It says all labs have to submit claims, and a third party will analyze the data.
You will get a representation of hospital-based labs, independent labs, and physician-owned labs. This removes the administrative burden from smaller labs that don't have the staff to do this.
The idea is that you will get a much better representation of the actual cost of these tests. That has been proposed as the fix: to delay the cuts until you have an accurate representation.
Dr. Amar Rewari: I see there is a lot of bipartisan support for this. What is the cost of creating this commercial claims database, and what is the counter-argument?
Dr. Yuri Fesko: There hasn't been a lot of opposition. There is an understanding that the original proposal didn't work. The difficulty in Washington is finding a bipartisan road forward.
Initially, there was concern that if PAMA went through, it would save the government money. It has only been recently that the damage of these cuts, particularly to rural America, has come to light.
The cost of running the program would come out of the Medicare program so that there is still savings. The CBO score would remain favorable.
Clinical folks understand HEDIS measures where there is a reward and a penalty. With PAMA, there was no reward; it was just an administrative burden on a low-margin business.
Challenges with Prior Authorization in Diagnostics
Dr. Anthony Paravati: It seems it was set up to fail. Payment is one thing, but upstream from that, we have to have prior authorization. Tell us about the current state of prior authorization on the laboratory testing side.
Dr. Yuri Fesko: Prior authorization is a real issue, particularly for complex testing. As a hematologist-oncologist, I can tell you that we often see cases where we have a suspicion of a diagnosis, but the patient is referred with abnormal blood counts.
We are being asked to do a prior authorization for cytogenetics or next-generation sequencing before we even know the diagnosis. Compounding that is the high volume in the clinic.
You are trying to see a new patient in 40 minutes, counsel them, and answer questions, all while trying to justify a rationale for testing required to make the diagnosis for their follow-up visit. It is a perfect storm.
Electronic Integration and Post-Testing Denials
Dr. Anthony Paravati: Cancer clinics are overflowing, and administrative headaches like prior authorization add no value. We now have federal rules that require electronic prior authorization. How is Quest thinking about that?
Dr. Yuri Fesko: We are abiding by it. Quest announced this year that we are going to use the Epic system as our EMR. Many physicians are already on Epic.
Electronic prior authorization allows a standardized format so physicians can work within their workflow without jumping between different screens. We want to make it as easy as possible so that the codes necessary are all in one system and the doctor isn't hunting for data.
Dr. Anthony Paravati: In the laboratory space, how often do you hear about post-testing denials?
Dr. Yuri Fesko: We do face them. As a commercial laboratory, we are not allowed to change a code. The doctor sees the patient and puts in the ICD-10 codes.
On the back end, when we bill it, they may say the ICD-10 code doesn't justify the testing. It is a difficult position for labs because we provide a service but aren't seeing the patient. We are obligated to run the test because the physician felt it was medically necessary.
Dr. Amar Rewari: In an ideal world, how would you design the system to fix these processes?
Dr. Yuri Fesko: I remember the 21st Century Cures Act and the idea that we were all going to be on an electronic medical record. We didn't quite standardize what that record is.
The promise was there, but it’s currently like trying to work in an iPhone environment while getting a text on a different device. We are all on different platforms, which causes drops in clinical information.
It has to be done in real-time. If you understand the information and the rationale, you can take the barriers down. If it is justified, get the testing done so the patient can get on the right clinical pathway.
Enhancing Patient Transparency and Access
Dr. Anthony Paravati: Let’s focus on the patient experience and transparency. What are you doing on that end?
Dr. Yuri Fesko: We are doing a lot of work there. One pillar is consumer-initiated testing. For patients who are uninsured or have high deductibles, a physician is still involved in ordering the test, but the price is totally transparent.
You go into it knowing what a CBC or chemistry test costs. Common tests like PSA are on there as well.
The other thing we are working on within the Epic platform is real-time adjudication. You would know your out-of-pocket portion at the time of your appointment. There is no surprise $250 bill at the end.
It is complex because there are many ways to get blood drawn, but in outpatient settings, we are working to make sure patients understand their components.
Dr. Anthony Paravati: This testing is often a patient's first interaction with the healthcare system and their first time facing real financial toxicity. Transparency and fair pricing are huge.
Dr. Yuri Fesko: It is a valid point. When you are younger and well, your only interaction might be an annual visit or a lab test. We are getting better at explaining what testing means and making it easier to schedule. We want the results to come back in a format they can understand beyond just a low sodium value.
Dr. Anthony Paravati: Do you have a patient-facing scheduling platform?
Dr. Yuri Fesko: We have all of that. If you want to get drawn in a Quest service center, you schedule the appointment, and it tells you the nearest location. As the patient has become the center of the medical experience, this has really developed. None of this existed when I was a resident.
Innovation in Advanced Diagnostics and Oncology
Dr. Amar Rewari: Let's transition to innovation and advanced diagnostics. How is reimbursement dealing with new tests like molecular oncology or minimal residual disease (MRD) detection?
Dr. Yuri Fesko: MRD testing is revolutionary. In traditional oncology, you looked at the stage and pathology to determine if chemotherapy was needed to prevent recurrence.
These tests look for very low frequencies of cancer DNA in the blood to determine if surgery got everything or if cancer is left behind. This helps the physician and patient make real decisions.
In oncology, we were trained on scans, but by the time something is detectable on a scan, there are already many cells present. I used to describe adjuvant chemotherapy like dandelions. You pull the dandelion and the root, but if there are seeds in the lawn, it could come back. This testing looks for those seeds.
Immunotherapy is another area. These medications can cause the cancer to look worse before it gets better, which we call pseudoprogression. Having a laboratory test takes the subjectiveness out of it. It allows us to pick the right therapy and see that it is working.
It is game-changing, similar to how Oncotype DX changed breast cancer treatment.
Dr. Anthony Paravati: Is it a fight with insurers to get this testing covered?
Dr. Yuri Fesko: With private insurers, there is a lot of back and forth. Some payers are starting to use "coverage with evidence," where they pay for some claims but want to see the medical records to show necessity.
Quest has an MRD test that was part of a Phase 3 clinical trial for colorectal cancer. The trial determined that MRD testing did much better than the previous standard of care.
When it picked up a signal, the patients had residual disease; when it didn't, they didn't have recurrences. We now have about four years of data on those patients. That is the kind of data required for adoption.
Dr. Amar Rewari: With Oncotype DX testing, there was the Medicare 14-day rule where we couldn't order the test until 14 days after discharge. Does that apply here?
Dr. Yuri Fesko: It is similar. We take the resected sample as the gold standard. After surgery, we get the block and send it for next-generation sequencing to find the mutational profile. We then make a bespoke assay to look for that signal in a blood test.
The 14-day rule has more to do with inpatient versus outpatient settings. Most of this is done as an outpatient. We want to speed it up because adjuvant therapy has the most benefit within a certain timeframe. Generally, this is done outside of the 14-day rule.
Dr. Anthony Paravati: In 2026, with our computing power and AI, it should be possible to produce data showing that this testing results in cost savings by ruling out unnecessary therapy and avoiding complications.
Dr. Yuri Fesko: I 100% agree. We have had discussions with payers and Medicare about this. We need to see that it works in different tumor types, but in principle, it would be fantastic to eliminate the toxicity and cost for patients who don't require additional therapy.
It also ensures we use limited healthcare resources appropriately for metastatic patients by ensuring their therapy is working.
The Regulation of Laboratory-Developed Tests (LDTs)
Dr. Anthony Paravati: An area where the rules are unclear is laboratory-developed tests (LDTs).
Dr. Yuri Fesko: Most physicians are familiar with FDA approval for drugs, but lab is a hybrid. There are accrediting bodies like CAP and CLIA and New York State accreditation that look at quality.
There were proposals to have all LDTs go through the FDA. The government has good intentions, but they had no idea the volume involved. There are 8,000 or 9,000 of these tests out there.
How would you get them all through the FDA while maintaining infrastructure? Is it warranted given that bodies like CAP and CLIA already exist? It would just be duplicating what is already being done.
Dr. Anthony Paravati: It seems like an area where the government is not well-suited to keep up.
Dr. Yuri Fesko: The rate of change is incredibly fast. If you have to do life cycle management, are you then going to have to take it through the FDA again? The cost would be astronomical. Only big players could survive that environment.
Dr. Anthony Paravati: The smaller labs wouldn't be able to do it.
Dr. Yuri Fesko: Hospital laboratories wouldn't be able to do it either. There was talk that IVD manufacturers like Roche or Siemens would take up the slack, but there are too many tests for them to do everything. It is very complicated.
Laboratory Data as a Public Health Asset
Dr. Anthony Paravati: Laboratory services are generating an enormous quantity of data. Large labs have essentially become national data platforms.
Dr. Yuri Fesko: That is a fair description. Quest data is used for planning clinical trials and for public health. You can understand STD rates or cardiovascular disease markers in specific communities.
It allows for a macro-level view so policymakers can decide where to place their bets. I underappreciated how valuable this data was when I was in the clinic.
Dr. Anthony Paravati: Is Quest providing that insight to government agencies to build goodwill?
Dr. Yuri Fesko: Absolutely. We set up a public health division within my group a little over a year ago. It came out of the pandemic and the understanding that a large commercial laboratory has the infrastructure to provide testing at scale.
We work with the CDC and local health departments. We have a partnership with the CDC to have testing ready for something like avian flu so we aren't scrambling if a pandemic happens.
We've developed dashboards for STD testing and insulin resistance. You can target programs to populations before a person even develops diabetes.
Data Ownership and Interoperability
Dr. Anthony Paravati: Ultimately, the origin of this data is the patient. How do you deal with the ownership of that data?
Dr. Yuri Fesko: Different states have different privacy laws, especially regarding genetics. Ultimately, it is the patient's data.
One reason we chose the Epic platform was to allow the patient to take their data with them no matter where they go. People are very mobile. You want your laboratory record to go with you. If you are admitted to a hospital, your clinical team can access that data to see a better picture of your health.
Dr. Amar Rewari: Promoting interoperability.
Dr. Yuri Fesko: Total interoperability. Lab is the glue that holds this fabric together. We are trying to make it accessible no matter where you are.
The Future of Laboratory Services and Precision Medicine
Dr. Anthony Paravati: A lot of patients don't know they can download their entire record from MyChart.
As we close, where do you see the most risk to the laboratory services business? Where can policymakers do the most good or the most hurt?
Dr. Yuri Fesko: The biggest risk is stifling innovation. Medicine is going through a precision medicine revolution. We want to identify disease at the earliest stages before clinical manifestations.
If we over-contract the laboratory industry, we won't get that development for biomarkers in Alzheimer’s or rheumatologic disorders.
The biggest promise is using the laboratory industry to understand risk in populations using AI. We can identify people before they show up to the ER with a heart attack.
Policymakers need to embrace public-private partnerships. Use the data Quest and LabCorp have to make effective policy and lower healthcare costs by tackling real risks. That is the message I would leave you with.
Dr. Anthony Paravati: I don't think I could have done a better job with a closing. We really appreciate the time with you tonight. This was a great foray into the details of clinical laboratory services. Thank you so much, Dr. Yuri Fesko.
Dr. Yuri Fesko: Thank you for having me. It's been my pleasure.
