When Science Outpaces Payers: Molecular Diagnostics Pose Reimbursement Dilemmas

Mary K. Caffrey
Published: Wednesday, Sep 17, 2014
Of course, molecular diagnostic testing companies are just one part of cancer care and a sliver of the healthcare system. This spring, their cause was tucked into a louder drama over the effort to scrap the SGR in favor of value-based reimbursement. On April 1, 2014, Congress enacted a final fix, or “patch,” to forestall drastic cuts to Medicare payments, which would have covered shortfalls in forecasting. The patch came with a provision, “Improving Medicare Policies for Clinical Diagnostic Laboratory Tests,” which stabilizes prices and gives everyone a time-out to develop a long-term payment structure. The law calls for a transition to “market-based” pricing, which some have called “value-based.”

Come January 1, 2015, the law will strip CMS of its authority to apply annual CLFS changes based on “technological changes,” as announced in December. But, the law comes with price tags, in the form of significant reporting requirements—and fines of up to $10,000 a day for failure to comply.5 From afar, the law appears to provide more time, along with outside expertise and oversight, to the process CMS attempted in 2013. Key deadlines include:
  • An expert advisory panel must be in place by July 1, 2015
  • Labs must start reporting payer rates by January 1, 2016
  • CMS must start filling in codes for certain existing tests now paid under miscellaneous codes by January 1, 2016
  • A market-based system for advanced diagnostics will be effective January 1, 2017.5
Overall, molecular diagnostic companies are cautious, but optimistic. A typical response came from Genomic Health:

“We are encouraged to see value-based pricing included in the SGR Patch legislation that passed in March, with a new reimbursement methodology designed to align private managed care and public Medicare rates. We believe this will provide transparency and predictability to the reimbursement process under the Medicare program for diagnostic tests like ours,” said Emily Faucette, vice president of corporate communications and investor relations at Genomic Health.

Myriad’s Capone said attracting investment requires certainty in what he called “the three Rs” of the field—reimbursement, regulation, and “rights to intellectual property,” which covers whether a company’s discoveries can be patented and refers to interpretations from multiple Supreme Court rulings. While Capone believes these interpretations are a step in “the wrong direction,” on the intellectual property front, he is more optimistic about progress on the first two Rs in light of the new law. “As always, the devil is in the details, but we’re very confident this legislation is good for the industry,” Capone said. A movement toward market- based pricing will take ambiguity out of reimbursement. But that doesn’t mean the process will be easy. Some industry sources said they would be watching who makes up the advisory panel.

Others said recent turnover at CMS, coupled with the agency’s duties to implement healthcare reform, might make it hard to retain focus. And that’s on top of a fundamental question: Just what is “market-based” pricing? Said Palmetto GBA’s Barlow, “This is not a service that is truly market driven. To say that you are developing market-based pricing is going to require significant effort to determine, ‘What is the market?’”

Apart from implementing payment, the process may yield discussion on what gets covered in the first place, and what levels of evidence should be required. This is where the industry may see great divergence, with more established companies taking advantage of their ability to raise capital for studies. Barlow indicated that scientific bar would remain high, not go lower. “The days of ‘do more, get more’ have to come to an end,” Barlow said. “The utilization of services has to be based on need for the services. It has to be good for the patient.”

How Much Regulation? Different Views

All the uncertainty has raised the question: Would FDA regulation of more of the market, cumbersome as that might be, bring more certainty of scientific acceptance and prompt payment?

The FDA has had its eye on the industry for some time, and issued a report in October 2013, “Paving the Way for Personalized Medicine: FDA’s Role in a New Era of Medical Product Development,”17 outlining its potential role in nurturing molecular diagnostics. In fact, industry experts like Bruce Quinn, MD, PhD, of FoleyHoag LLP, have highlighted the contrast between the FDA’s view of the role of molecular diagnostics compared with CMS’ stands. In a February presentation in San Diego, California,18 Quinn pointed to the FDA’s 60-page report, which was being prepared while CMS was issuing five new proposals to cut prices for molecular diagnostics.

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