Molecular testing remains a hot spot for investment in the global in vitro diagnostics (IVD) market that has seen stretches of achingly slow progress over the last decade. With the number of research and development (R&D) dollars dedicated to molecular testing—and the returns for market leaders—clinical laboratories might expect to find a parallel, positive trajectory for reimbursement and coverage from payers.
However, not only have public payers, such as the Centers for Medicare and Medicaid Services (CMS), and private payers lagged behind scientists’ innovation in this area, new warning signs are appearing that point to an even more complex and uncertain fight for reimbursement and coverage.
As Congress and President Obama tout the power of precision medicine, payers are requiring definitive evidence of a test’s value to patient care—a moving target that is getting more difficult for diagnostics to reach, according to Genevieve Tang, director of strategic product planning at Quorum Consulting.
“The reimbursement environment for molecular diagnostics is rapidly evolving, and you need to be able to adapt on the fly in order to survive,” Tang said. “The trend for regulators and payers is to place increased value and emphasis on proprietary, single-source tests with strong evidence of clinical utility. This is in contrast to commodity testing, where the perceived value and reimbursement rates are decreasing.” Tang spoke during a January 29 AACC webinar, Molecular Diagnostics: 2015 Market Trends and Reimbursement Outlook.
Even with the high risks and regulatory uncertainties, IVD companies continue to bet on the molecular space as a key driver for their businesses. Tests for infectious diseases and cancer dominate, and will likely sustain the estimated 5% compound annual growth for the molecular sector this year, according to Kerri Weinert, CEO of Boston Biomedical Consultants (BBC), who also spoke during the AACC webinar.
Roche still leads the market, but has lost some ground due to the “enormous” amount of investment by competitors, Weinert said. “The investment in R&D for molecular diagnostics is very costly, and companies that are willing to develop automation and ongoing assay improvements will also have to invest heavily in customer education, physician education, and deal with regulatory and reimbursement challenges.”
A key to success for IVD companies will be reliable automation, an area with impressive innovation, according to Weinert. “When you consider that the first moderately complex molecular test was introduced in 2006, and we just had the first CLIA-waived molecular test approved this month, I think the industry is capable of anything in terms of innovation,” she said. The Alere i Influenza A&B assay received CLIA-waived status from the Food and Drug Administration (FDA) in January.
As companies continue to invest in automation, they will confront price erosion as competition among manufacturers stays strong, Weinert added. To find success in the molecular space, IVD businesses will have to meet clinical laboratories’ needs. That means offering a strong test menu that is consolidated on a single, automated platform.
Innovation vs. Commoditization
For many years, the most significant economic challenge facing the clinical laboratory arena has been the intense, downward pressure on reimbursement to labs, and in turn, on pricing for IVD manufacturers. As traditional laboratory tests have moved to an automated, high-volume model, payers now see any vendor’s—or any laboratory’s—test as essentially the same. As tests have become commoditized, payers shop by price alone, choosing a lower-cost alternative whenever possible. Commoditization has led to private payers cutting deals for prices as low as half the Medicare rates.
Until last year, it appeared that CMS at least would remain a reliable anchor of decent—though nowhere near generous—payment. Now, with Congress’s overhaul of the lab fee schedule under the Protecting Access to Medicare Act of 2014 (PAMA), Medicare rates will reset to the median of private payer rates beginning in 2017. CMS has a deadline of June 20, 2015 to publish rules for how labs will report private payer payment information to the agency. This reporting phase begins January 2016.
The bright spot for molecular tests under PAMA will be the law’s provision for advanced diagnostic laboratory tests (ADLT). CMS will reimburse ADLTs at their list price for the first 9 months beginning January 2017. PAMA defines ADLTs as tests provided by a single laboratory and involving the analysis of multiple biomarkers or unique algorithms, but CMS has wide latitude to include other “advanced” tests as well.
Especially now that FDA is taking steps toward a plan to regulate laboratory-developed tests (LDTs), ADLTs may have a significant advantage compared to “commodity tests,” Tang noted.
“For ADLTs, the fact that the lab performing the test will be the only contributor of private payer payment data means that it will have the opportunity to maintain excellent pricing,” Tang said. “In contrast, we expect that under PAMA, commodity tests will most likely continue to see decreases in payment.”
Furthermore, if FDA begins regulating LDTs, those tests that make it through FDA clearance may be perceived as having more value than non-FDA approved tests, leading to more favorable reimbursement and coverage determinations.
Payers Demand Link
to Improved Patient Care
While some new, innovative tests will receive special treatment under the PAMA reimbursement scheme, another hurdle still awaits, Tang emphasized: how much an insurer might pay for a test doesn’t matter if it won’t pay at all. In fact, her experience shows that coverage determinations are becoming more and more difficult to obtain.
Payers look for three levels of evidence when they decide whether or not to cover a test, Tang explained. “The first is analytical validity, which refers to the accuracy, precision, and reproducibility of the test results. The second is clinical validity, which is the correlation of the test results with the clinical outcomes of interest,” Tang said. “Third is clinical utility, which may seem an abstract concept, but essentially refers to how use of the test influences clinical decision-making and/or improving patient outcomes. This third level of evidence is what payers are really looking for.” For example, Palmetto GBA, a CMS contractor, now requires prospective clinical utility studies before evaluating a test for coverage under its MolDx program.
But even when a company invests in expensive clinical utility studies, there still is no guarantee of coverage. Tang offered the example of the Corus CAD test marketed by CardioDX. The test is a multi-analyte gene expression assay intended to aid physicians in identifying patients who are likely to have coronary artery stenosis of at least 50%. “The value proposition is that you can potentially avoid unnecessary and useless coronary angiography and other expensive or invasive tests, which then reduce the costs for the payer,” Tang said. CardioDX scientists published three clinical utility studies, ultimately winning Medicare coverage through the Palmetto MolDx program. However, only two Medicare administrative contractors followed Palmetto’s lead with definite coverage for the test. CardioDX faced even tougher odds with private payers: only one of the top 10 payers—Aetna Health—so far has decided to cover the test.
In what is likely a portent of problems for other labs, the reason private payers did not cover the test was that the CardioDX studies did not link changes in clinical decision-making to patient outcomes.
“Securing payer coverage is increasingly going to require clinical utility studies that clearly demonstrate how use of the test improves patient outcomes,” Tang said. “I think it’s clear that in order to thrive in this new environment, labs must be prepared to invest in high-quality evidence. This is a very high bar to meet, but it is the reality of the new era of precision medicine that we’re now in.”
Even when a company invests in expensive clinical utility studies, there is no guarantee of coverage.