Reimbursement Strategy for Diagnostics: CPT Codes, LDTs, and Coverage Decisions

Reimbursement is where diagnostics businesses succeed or fail, and it is the domain that founders engage with last despite it being the domain that should shape decisions from the earliest stages of product development. The reimbursement landscape in the United States is governed by a set of overlapping systems — Medicare and Medicaid at the federal level, commercial payers at the private level, and a code assignment infrastructure administered by the American Medical Association — that interact in ways that are genuinely complex and that reward companies who understand them deeply. A product built without a reimbursement strategy is a product built for a market that may not exist.

Current Procedural Terminology codes, universally called CPT codes, are the billing language of US healthcare. Every diagnostic test performed in a clinical setting is assigned a CPT code, and that code determines what Medicare and commercial payers pay for the test. CPT codes are assigned by the AMA's CPT Editorial Panel through a formal application process. New codes are granted for tests that are novel and not adequately described by existing codes. Existing codes, called crosswalk codes, can be applied to tests that are sufficiently similar to already-coded procedures. Using an existing code when a new code is warranted results in underpayment; applying for a new code when an existing code applies wastes time and signals regulatory naivety to payers.

The Medicare reimbursement rate for a CPT code is set through a payment determination process administered by the Centers for Medicare and Medicaid Services — CMS. For laboratory tests, this rate is established under the Clinical Laboratory Fee Schedule, or CLFS. For novel tests that do not map to an existing code, CMS assigns a rate based on the pricing of comparable tests, and the company submitting the test has the opportunity to provide gapfill pricing data — actual laboratory cost and market pricing information — to support a higher rate. The rate set by Medicare is not the end of the reimbursement conversation; it is the floor that commercial payers use as a reference point.

Laboratory-developed tests, or LDTs, are tests designed, manufactured, and used within a single laboratory rather than sold as a kit to external customers. Until recently, FDA exercised enforcement discretion over LDTs — meaning it had the legal authority to regulate them but largely chose not to. In 2024, FDA finalized a policy that phases in oversight of LDTs under its medical device framework. This is a significant regulatory shift for the diagnostics industry because thousands of high-complexity molecular and genomic tests have historically operated as LDTs without FDA clearance. Companies that have been offering LDTs now face a timeline for compliance with the same analytical validation and quality system requirements that apply to cleared IVDs.

Coverage and reimbursement are related but distinct concepts that founders consistently conflate. Coverage is a payer's determination that a test is medically necessary and appropriate for a defined clinical indication — essentially a policy decision about which patients qualify for the benefit. Reimbursement is the payment amount when a covered service is billed. A test can have a CPT code and a Medicare payment rate and still be denied payment if the payer does not have a positive coverage policy for the indication the test was ordered for. Large commercial payers publish local and national coverage policies — called Local Coverage Determinations at CMS and medical policies at commercial payers — that specify the clinical criteria under which they will pay for a test.

Obtaining a positive coverage policy from a major payer typically requires submitting a formal evidence dossier that includes the same clinical utility and comparative effectiveness evidence described in the previous lesson. Payers evaluate dossiers using health technology assessment frameworks that weigh clinical evidence quality, population health impact, and cost-effectiveness. The timeline from evidence submission to coverage decision ranges from six months to several years depending on the payer, the evidence quality, and the complexity of the clinical question. Companies that begin payer engagement after product launch routinely discover that they are one to three years away from covered reimbursement even after a successful regulatory clearance.

Breakthrough coverage pathways exist at both the federal and state levels. At the federal level, the Medicare Coverage of Innovative Technology program — MCIT — was designed to provide faster Medicare coverage for FDA Breakthrough-designated devices, though its implementation has been inconsistent. At the commercial payer level, some plans participate in pilot programs that reimburse novel diagnostics while evidence accumulates, often with outcomes tracking requirements attached. Understanding which coverage pathways are available to your product category and building the evidence program to qualify for them is the most important strategic work a diagnostics company can do between regulatory submission and commercial launch.