Skip to main content
Premium Trial:

Request an Annual Quote

CareDx Eyes Wider Coverage, Adoption of Transplant Tests Despite Medicare Billing Article Impact


NEW YORK – Revised Medicare billing articles related to solid organ transplant molecular testing impacted CareDx's quarterly test volumes, but between completing the necessary compliance changes and strong financial discipline, the company expects growth to pick up in the fourth quarter, it said Tuesday in the midst of reporting its second quarter earnings results.

The decision by the MolDx test assessment program from Medicare Administrative Contractor Palmetto GBA to limit reimbursement to one test per patient encounter, introduce new coding for surveillance and for-cause testing, and cover surveillance tests only for patients enrolled in centers using such protocols caused widespread confusion in the transplant space and played a decisive role in a roughly 17 percent year-on-year decline in AlloSure and AlloMap testing during the second quarter, CareDx said.

That in turn contributed to an approximately 13 percent fall in Q2 revenues, compared to the same quarter last year.

"Approximately 80 percent of the volume decline was from our kidney testing services," CareDx CFO Abhishek Jain said in an after-market call with investors. He added that this was largely driven by hesitancy from clinics, which were often unsure of how to interpret the billing article changes.

Because of this uncertainty and the need to adapt operational practices to comply with the article revisions, CareDx withheld submissions for approximately 3,200 kidney tests in Q1 2023, representing an unrealized revenue of approximately $8.9 million.

The firm has since submitted those claims and received payment amounting to some $7.8 million in Q2 revenues and resulting in total testing service revenue of $53.4 million for the recently completed quarter, compared with $67.1 million a year ago.

Despite the tumult of "an action-packed quarter," CareDx beat analysts' average revenue estimation of $61.8 million, rounding out the three months ending June 30 with approximately $70.3 million, a 13 percent dip from $80.6 million a year ago.

During the conference call, company CEO Reg Seeto noted the company's ability to rapidly implement the changes needed to comply with the revised billing article, beating the firm's estimated rate of adoption of the revised test requisition forms (TRFs).

"We started in April at a 50 percent" adoption rate, he said, and "ended May at 70 percent. And in June, we ended at over 80 percent. As a result, we delivered our Q4 target earlier by two quarters."

In parallel to adapting its operations to comply with the revisions, Seeto noted that CareDx continues to look at other options for addressing Palmetto's decision.

"We do not believe that the billing was permissible under the coverage policies, and we're working to see how that can be addressed," he said.

Seeto said that the better-than-expected TRF adoption rate enabled the firm to set a 2023 financial guidance of between $240 million and $260 million. The billing article revisions had previously caused CareDx to withdraw full-year financial guidance, as it cited the uncertainty related to those sudden changes.

Jain noted that the lower end of the guidance range took into account remaining uncertainty over Medicare contractor Noridian's response to the billing article and how test volumes will settle post-revision. Meanwhile Medicare coverage of the multimodal HeartCare heart transplant surveillance test and of the AlloSure Lung transplant rejection monitoring test helped push the higher end of the range.

"We anticipate Q3 to be the potential low point for testing services revenue quarter in 2023," Jain said, "with a return to growth in subsequent quarters. But this is also partially dependent on when Noridian adopts the billing article revision."

Seeto called HeartCare coverage a "major milestone in heart transplant care," saying that the decision establishes a path toward multimodality reimbursement.

"It removes any doubt on this topic of multimodality," he said.

Following the HeartCare decision, the firm is gathering data needed to seek coverage for KidneyCare, as well.

"Our initial goal is to obtain independent coverage for the tests as we continue to generate data that would support a multimodality coverage from Medicare," said Robert Woodward, senior VP for research and development.

Seeto also praised the firm's financial discipline over the quarter, attributing CareDx's strong cash position — the firm ended the quarter with approximately $87.8 million in cash and cash equivalents, $194.9 million in marketable securities, and no debt — at least in part to its ability to reduce operating expenses.

Expense reductions came in part from completing a 12 percent "workforce reduction" and reprioritizing R&D projects, leading to lower clinical study-related expenses.

Overall, CareDx's R&D spending fell approximately 11 percent to $20.3 million from $22.6 million in the same quarter last year.

While its overall SG&A expenses fell roughly 2 percent to approximately $51 million from $52.2 million in Q2 of last year, Jain noted that within that number, legal expenses rose. CareDx has been engaged in multiple ongoing lawsuits, particularly with respect to patent and false advertising litigation with Natera.

"Our current assessment is that the legal expenses will stay elevated during [the] third quarter and will start to normalize during the fourth quarter of '23 onwards," Jain said.

CareDx's Q2 net loss was approximately $24.9 million, or $.46 per share, compared to a net loss of $21.7 million, or $.41 per share, in the same quarter last year. Non-GAAP loss per share was $.18 for Q2 2023, beating the consensus Wall Street estimate of a loss per share of $.31.

CareDx shares were up just over 1 percent to $11.16 in morning trading on the Nasdaq Wednesday.