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Amid Deepening Reimbursement Challenges, MDx-Focused Bill MODDERN Revived in Congress

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Personalized medicine proponents have revived legislation seeking to improve the reimbursement system for diagnostics and to incentivize the development of companion tests that pick out best responders to drugs.

Congressman Leonard Lance (R-NJ) last week reintroduced the "Modernizing Our Drug and Diagnostics Evaluation and Regulatory Network Cures Act," or MODDERN, in the House of Representatives. The bill, HR 3091, expands the criteria that the Centers for Medicare & Medicaid Services should factor in to establish the payment rate for new clinical diagnostics and extends the exclusivity period for drugs personalized with the help of a companion test.

In 2011, Lance introduced a version of MODDERN focused on these same issues, and the following year, Rep. Peter Roskam (R-Ill.) introduced the bill again as HR 6446.

Patient advocacy organization the National Health Council has been lobbying for the passage of this legislation for several years and trying to educate stakeholders about the issues hindering greater implementation of precision medicine. However, the bill hasn't made it to the floor.

Last year, the bill failed to move ahead within Congress despite strong support from numerous disease-focused organizations, such as the ALS Association, the medical diagnostics manufacturers' interest group AdvaMedDx, the Academy of Physicians in Clinical Research, and Roche Diagnostics. However, since 2012 was an election year and Congress was divided on every conceivable issue before it, there was little chance for a healthcare-focused bill to make much headway (PGx Reporter 10/3/2012).

Some stakeholders had hoped to attach the provisions in HR 6446 to the Prescription Drug User Fee Act, but many didn't believe this was the correct strategy. "That made a lot of folks skittish, including many of the folks that were strong supporters of MODDERN Cures, and, if anything, we were a little concerned that [attaching the bill] would slow that process down," Marc Boutin, chief operating officer at NHC, told PGx Reporter. "So, we consciously essentially took it off the table, which then necessitated going back to the table to get people on board with the bill."

However, over the past year, the reimbursement policies for molecular diagnostics have seen drastic changes. And test developers have grown more vocal about their dissatisfaction with the CPT coding and reimbursement changes that CMS has instituted for the fast growing industry. The increasingly difficult environment may place more attention on MODDERN, which NHC and other supporters are hoping will work as a catalyst in favor of the bill.

"The backing [for the legislation] is still as strong and getting stronger, because more and more people are involved in this from industry and other sectors," Boutin said. "Again, it speaks to the education that's happened because people are starting to understand the magnitude of the problem."

NHC over the years has educated patient groups, healthcare providers, and insurance companies about the reimbursement and incentive challenges facing the personalized medicine space. The group is relaunching lobbying efforts around the reintroduced bill and, as such, Boutin couldn't confirm that all the organizations backing the previous version of the legislation will again extend their support. "But I assume they will," he said.

Intensifying dissatisfaction

Since MODDERN was first introduced two years ago, the reimbursement process for molecular tests has shifted dramatically. Before 2013, healthcare providers submitted claims for performed diagnostics by bundling or stacking different codes describing each step or process used to perform a test.

However, payors didn't like this system since they couldn't discern the specific tests they were paying for within the bundled codes and if these tests were medically necessary. Similarly, developers of diagnostic kits and branded tests wanted a unique identifier that would allow payors to distinguish which specific test is being performed, track its utilization, and set a payment level that captures the value it provides to patient care.

The AMA, which owns the copyright to CPT codes – the primary coding system used for claims processing in the US – attempted to solve this problem by developing a set of new codes for the most commonly performed molecular tests that describe the analytes being gauged (i.e. a code would describe all tests that gauge mutations in the KRAS gene). The association issued a second tier of codes for less commonly performed tests based on the resources required to perform them.

Still, payors and test developers complained that this coding system doesn't provide the level of granularity they desire. When health technology firm McKesson stepped in to try to encourage the use of unique identifiers, called Z-codes, for MDx claims processing, the move was hotly contested by the AMA, which received royalties from the use of CPT codes. AMA and McKesson earlier this year entered into a licensing agreement to map the new MDx CPT codes to Z-Codes, and address industry demands for a claims processing system that specifically captures which tests are being conducted (PGx Reporter 3/6/2013).

Many labs also don't like Z-codes, because they feel that unique identifiers would undercut payment for their unbranded or generic lab-developed tests and allow inflationary pricing for boutique tests, such as Genomic Health's multi-gene expression breast cancer recurrence test Oncotype DX.

CMS has claimed that tests like Oncotype DX, categorized by CMS as multi-analyte algorithm-based assays, don't fit its traditional definition of diagnostics performed at laboratories, since they use a mathematic formula to analyze multiple markers associated with patients' risk for disease or their need for particular healthcare interventions. As such, CMS has said it will not pay for the algorithm portion of MAAAs via its CLFS pathway for traditional lab tests (PGx Reporter 9/18/2012). Given the significant investment required to develop MAAAs, this is particularly concerning for many players within the molecular diagnostics industry.

Meanwhile, CMS has instructed Medicare contractors to use the seldom-utilized gapfill method to set pricing for the newly issued MDx CPT codes. Under the gapfill system, Medicare contractors set reimbursement for test codes based on a number of factors, such as local pricing patterns, the resources needed to perform the test, and how other payors price them. After one year, CMS uses the median rate from contractor-specific amounts to issue a national reimbursement rate for each code.

The developers of most lab tests had hoped CMS would use the more commonly used crosswalk process to set pricing, which pegs rates for newly coded tests to existing tests. According to a newly formed interest group, called the Coalition to Strengthen the Future of Molecular Diagnostics, gapfill pricing by Medicare contractors has led to cuts in payment rates of around 20 percent for many tests, and a reduction of as much as 80 percent for some tests, compared with 2012 levels. Given these reductions, test developers say the reimbursement rates for many molecular tests are below the cost of performing them, placing businesses under financial pressure.

Ultimately, while industry stakeholders may stand divided on specific reimbursement and coding proposals, there is little disagreement that the payment system needs fixing and the intensifying discontentment in this regard may provide the push MODDERN needs within Congress.

"What's interesting with this bill is that the problems that it addresses are very complex and hard to get your arms around," Boutin said. "But once you understand the problems, you see how the bill solves them in a fairly straightforward, common sense way."

MODDERN would have the HHS Secretary bring more transparency to the rate-setting process for molecular tests by establishing an advisory committee that informs pricing through public meetings and by analyzing the current process for needed changes. The bill would also require the Secretary to include a number of additional factors in setting payment rates for diagnostics under the gapfill process, such as the impact the test has on patient care and the technical aspects of the test.

The legislation also asks the secretary to establish an expedited process for issuing temporary unique claims codes for new tests on a quarterly basis until a permanent code is issued. Currently, it takes several years for a new test to receive a CPT code.

"When you explain these issues to people with chronic conditions, they actually get angry that we haven't solved these problems or we've allowed them to exist," Boutin said. For example, "with the coding situation, there's a lot more understanding and clarity on Capitol Hill about the problems associated with it."

'Herculean effort'

Past iterations of MODDERN were backed by developers of complex lab-developed tests performed by a single lab and diagnostic kits that can be placed at labs and hospitals, but were not supported by many lab groups. This was probably because most generic, non-branded lab-developed tests are often performed in low volumes for rare conditions and require totally different business models and economics than diagnostic kits.

Boutin said that NHC has made a "herculean" effort to get the support of lab groups for MODDERN. NHC has reached out to the American Clinical Laboratory Association and several other groups, and experts from these organizations have provided feedback on the diagnostics provisions in MODDERN. According to Boutin, NHC and other drafters of the bill carefully considered these recommendations when writing the legislation.

"The effort that we put into crafting the language so carefully was like threading a needle to try to balance the different competing issues," Boutin said.

One of the proposals in MODDERN would allow a drug developer a year of additional data exclusivity for a treatment if the sponsor develops a companion test that identifies best responders. If the drug developer can point to the need of a diagnostic test for therapy based on the published literature, then the sponsor is awarded six months of additional data exclusivity.

Currently, the FDA awards sponsors five years of data exclusivity when it approves a new chemical entity, and tacks on another three years for a supplementary new drug application. For orphan drugs approved for rare diseases affecting fewer than 200,000 people, the exclusivity period is seven years. An approved drug that receives a pediatric indication has six months of additional exclusivity. Following FDA approval of a new drug, the agency cannot green-light a marketing application from another sponsor for an agent with the same chemical composition during the period of exclusivity.

The provisions under MODDERN would award the added data exclusivity for companion diagnostics regardless of whether the tests are kits or LDTs. "Clearly, the bill is focused on high-quality companion diagnostics and tests that would really help identify the right population for a treatment or exclude a population from a treatment," Boutin said, adding that the bill's language was "carefully crafted" so drug sponsors would benefit from the companion testing incentives even if they used an LDT.

This part of the bill leaves open the possibility that in the future, next-generation sequencing technologies may be much more readily used to make pharmacogenomic treatment decisions. "There are going to be times when a lab-developed test could be the entity that solves that conundrum" as to which patients should receive the drug, and therefore, "should received the six months to a year data exclusivity," Boutin noted.

Although reimbursement barriers for molecular tests are a point of growing concern for the diagnostics industry, lab groups such as ACLA have chosen to place their immediate attention on thwarting FDA regulation for LDTs. In June, ACLA filed a citizen petition objecting to the FDA's stated intent to regulate LDTs, and argued maintaining regulatory oversight for such tests under CMS' Clinical Laboratory Improvement Amendments (PGx Reporter 6/12/2013).

NHC hasn't taken a position on the regulation of LDTs. "We carefully crafted the legislative language [for MODDERN] so it would not interfere with that issue," Boutin said. Similarly, although lab groups such as ACLA haven't actively supported MODDERN, they also haven't opposed it.

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