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Lack of Coverage Decisions, Contracts Leaves Foundation Medicine With Thousands of Unpaid Tests

NEW YORK (GenomeWeb) – As Foundation Medicine seeks to grow revenues from its clinical cancer profiling tests, the company has been hampered by a lack of coverage decisions from Medicare and no contracts with most commercial payors, resulting in payment delays and tens of thousands of unpaid tests.

The firm provides two clinical tests for cancer patients, FoundationOne for solid tumors and FoundationOne Heme for hematologic malignancies, each assaying several hundred genes for mutations that may impact treatment decisions.

In the third quarter, Foundation conducted about 8,000 clinical tests and recognized $13.7 million in test revenue, which included tests conducted in prior quarters but not reimbursed until the third quarter. The average reimbursement per test — which only includes tests that received payment — was $3,200, meaning the company only recognized revenue for about 4,300 clinical tests in the quarter.

Reimbursement throughout 2015 did not look any better. During the first nine months, Foundation delivered about 24,700 clinical test results and recognized $37.2 million in test revenue, an average of $3,300 per test, so it only collected payment for about 11,300 tests.

Overall, there is a "significant lag between the time the test is reported and the time we actually recognize revenue from such a test," the company said in a quarterly regulatory filing with the US Securities and Exchange Commission this month, and it has not collected any payments from Medicare so far.

Over time, the number of unpaid clinical tests has built up substantially: as of Sept. 30, Foundation had billed commercial insurers for more than 17,000 tests and reported test results for more than 15,000 Medicare patients without receiving payment so far, according to the filing.

"Our efforts in obtaining reimbursement based on individual claims, including pursuing appeals or reconsiderations of claim denials, take a substantial amount of time, and bills may not be paid for many months or at all," the company said, and it may never receive payment when an insurer denies coverage after a final appeal.

Much of the payment backlog stems from the fact that the company is currently not a contracted provider for most commercial payors, and has no local or national coverage decision for its tests from Medicare, though it has been "reasonably successful in securing reimbursement from many commercial third-party payors" on a case-by-case basis.

Commercial payors that reimburse Foundation's claims currently do so based on stacked CPT codes or other methods, such as percentages of charges, while a small number outsource its claims to preferred provider organizations or third-party administrators that pay negotiated rates.

The company is a participating provider in the Medicare program and has been submitting claims to its local Medicare Administrative Contractor, National Government Services, since the end of 2013, but it has not generated any revenue from Medicare so far and is in the process of appealing these unpaid claims.

It currently submits claims to Medicare using a miscellaneous CPT code rather than the stacked CPT codes it uses for commercial payors, which provides "the means of reporting and tracking services and procedures until a more specific CPT code is established," it said.

But the backlog from Medicare claims is starting to build up: About 31 percent of patients who received FoundationOne or FoundationOne Heme test results during the first nine months of this year were Medicare patients, the company said.

Last month, National Government Services issued a draft local coverage decision (LCD) for the use of genomic sequencing panels in certain patients with non-small cell lung cancer that was unfavorable to Foundation, but the firm is lobbying to have that changed before it becomes final. "Pending the outcome of the finalized LCD, FoundationOne may or may not be covered by National Government Services for this subset or any other subset of patients with cancer," the firm said in the filing.

Obtaining a positive coverage decision from Medicare — either locally from National Government Services or nationally from the Centers for Medicare and Medicaid Services — would have more far-reaching consequences than receiving payment for Medicare patients. Such a decision "will be a necessary element in achieving material commercial success," Foundation said in the filing. Physicians and patients may not order the tests unless commercial and government payors authorize and pay for them, and "certain commercial third-party payors may not agree to reimburse FoundationOne and FoundationOne Heme if CMS or our local [MAC] does not issue a positive coverage decision."

"We expect that our current lack of significant coverage decision and the general uncertainty around reimbursement for our products will continue to negatively impact our revenue and earnings," Foundation said, both because tests performed are not paid for and because physicians may not order "a meaningful number of tests" in the absence of coverage decisions.

In the third quarter, the company already saw a 10 percent sequential decrease in test orders from oncologists, which officials attributed to a lack of reorders, saying that community oncologists in particular are unwilling to order tests if they are not reimbursed by insurance.

In addition to seeking reimbursement from payors, Foundation receives payments for tests from hospitals, cancer centers, and patients. While the company helps patients obtain reimbursement from insurance, including appealing initial denials, "we ultimately do bill patients for amounts that we have been unable to collect from their third-party payors," it explained, though it does assist patients with low incomes and provides them with extended payment terms depending on their economic situation.