When Science Outpaces Payers: Molecular Diagnostics Pose Reimbursement Dilemmas

Mary K. Caffrey
Published: Wednesday, Sep 17, 2014
Mark Capone

Mark Capone

As precision medicine continues to evolve in cancer care, the development of highly sophisticated tests that leverage the explosion of knowledge about the molecular and protein characteristics of an individual patient’s tumor has emerged as its own scientific frontier. Scientists and companies pushing these edges say when personalized therapy succeeds, it’s worth every dollar spent, not only in lives saved but also in costs avoided—on expensive chemotherapies that would not have worked, or hospital costs from avoidable adverse events, or both.1

“Personalized medicine can change the trajectory costs in our healthcare system,” said Mark Capone, president of Myriad Genetic Laboratories. Based on his meetings with payers, he believes they are seeing the value.

But not everyone agrees. Many see the industry at a crossroads, with reimbursement issues at the center. The future of molecular diagnostics is both entwined in the broader discussion of paying America’s healthcare tab and constitutes its own separate beast, for reimbursement issues present a steep scientific and regulatory challenge. Most of the experts who spoke with Evidence-Based Oncology predicted an industry shakeout would occur, with some promising small companies joining large ones while others will disappear.

Right now, the divide looks like this: Payers have seen a new cost category explode across their balance sheets, and they are determined to understand what they are funding and whether tests are necessary. Molecular diagnostic companies, meanwhile, say they can’t understand what they call a penny-wise, pound-foolish approach. Why, they say, should insurers pay ever-rising sums for cancer therapies, with prices measured in tens and hundreds of thousands of dollars, but balk at a $3000 test2 that would tell doctors whether the drug is likely to work?

“We overtreat people continuously in this country,” said Macey Johnson, vice president of managed care and reimbursement at bioTheranostics, based in San Diego, California. “It’s overkill to give people all these drugs, with oncology being the poster child.”

As both regulators and testing companies implement a new reimbursement law, many stakeholders see opportunities for change. “It brings the industry into the bright light,” said Mike Barlow, vice president of operations at Palmetto GBA of South Carolina, the Medicare contractor that developed the MolDx program to create billing expertise around an emerging industry. “Too often, the lab industry has been operating as an afterthought.” What’s harder to gauge is how much the recent reimbursement woes are driving the science— either by slowing new discoveries or directing research toward tests for which payment is perceived to be easier. Some say there’s no doubt that venture capitalists who make decisions on whether to invest in molecular diagnostic companies find the current landscape unsettling.

There’s a direct connection between science and the funding that pays for it, said Rina Wolf, vice president of commercialization strategies, consulting, and industry affairs at XIFIN, a California- based firm that provides research, technical, and health economics support for the molecular diagnostics industry. Today’s uncertainty can make venture capitalists nervous, Wolf said, especially as the bar for reimbursement gets higher. “You can have a company that has a tremendous protocol from a scientific standpoint, but if they can’t raise the money to validate it, especially the clinical utility piece, it’s not going to go anywhere.” Most of the focus on reimbursement for molecular diagnostic testing has been on the Centers for Medicare & Medicaid Services (CMS), for obvious reasons: First, most commercial payers use CMS payment schedules as a benchmark3; second, many new, sophisticated tests involve cancer diagnoses, and cancer increasingly strikes individuals over the age of 55 years.4

The recent adoption of a federal law aims to put molecular diagnostics on a path to certainty.5 However, unhappiness over current CMS reimbursement policy prompted a lawsuit to be filed on April 16, 2014.6 The California Clinical Laboratory Association, on behalf of some members and an unnamed Medicare beneficiary, sued the US Department of Health and Human Services in federal court in the District of Columbia, asserting that today’s interim billing practices place too much control in the hands of regional Medicare contractors. As a result, the suit alleges, contractors are using pricing policy gaps to make decisions about whether a test should be covered at all, which unfairly denies patients access.6

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