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PMC Report Tackles Complex Challenges of Reimbursement, Pricing of MDx

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Originally published on July 10.

NEW YORK (GenomeWeb) – The Personalized Medicine Coalition's latest report explores in depth the payment and reimbursement coverage struggles facing molecularly informed healthcare.

In the report, entitled "The Future of Coverage and Payment for Personalized Medicine Healthcare," the PMC focuses on three major public policy concerns: federal pricing of innovative molecular tests; inconsistent and unpredictable evidence evaluation standards for predictive, prognostic, and diagnostic genomic tests; and lack of incentives for advancing genomic medicine. The paper was written by Bruce Quinn, senior health policy advisor at the law firm Foley Hoag and an authority on reimbursement policy.

In recent years, there have been significant changes in the way molecular diagnostics are priced and covered. First, the American Medical Association issued new analyte-specific CPT codes for molecular tests. Then, CMS decided it would use the seldom used gapfill process to price those new codes, which many industry observers complained ended up treating long-existing tests as new technologies. The prices CMS issued for these codes were low, according to lab industry players – often lower than the cost of performing the tests.

Meanwhile, CMS also instated a controversial program called MolDx through its contractor Palmetto GB to create a process through which the payor could get a better sense of the specific tests it was paying for. Under MolDx, labs also had to provide Palmetto data on the clinical validity and utility of their tests. Despite pushback from the lab industry and many complaints that Palmetto's evidence review process for molecular tests was not transparent, the contractor has only recently issued guidelines on its evidence review processes under MolDx.

Still, much uncertainty about pricing and reimbursement remains among molecular diagnostic developers, particularly with regard to multi-analyte algorithm based assays – tests conducted at one lab but that analyze multiple markers and employ an algorithm to yield a score – and about next-generation sequencing tests.

According to PMC's report, despite recent changes in Medicare reimbursement with regard to molecular tests, the basic system of coverage and pricing personalized medicine diagnostics remains fundamentally flawed. In the report, Quinn highlights the fact that Medicare reimburses the final provider of a service an amount that CMS has deemed reflects the cost of delivering the service, but not more than that.

"For example, an oncology drug may cost $50,000 to purchase (more than its cost of production), but Medicare would pay only a few percent above that purchase cost to the oncologist or clinic that provides the drug and bills Medicare for it," Quinn explains. "Similarly, a pacemaker may have a purchase price of $10,000 or more above its cost of production, but Medicare would pay the hospital only a bit more or less than the cost of providing the pacemaker to a patient."

This payment method is sustainable as long as it doesn't hinder innovation, the report notes. "But if the agency attempts to set payment to marginal costs as soon as something is invented and introduced, there is no opportunity to recoup R&D costs," the PMC explains in the paper. "And if real costs are systematically underestimated –through the application of routine laboratory 'indirect costs' to next-generation sequencing or by omitting the costs of bioinformatics investments and software – then a real barrier to innovation is created."

Pricing tests based on the costs of performing them severely undercuts payment for advanced tests such as MAAAs and NGS tests, which stand to add the most value to personalized medicine in the future. "Simply assessing the raw chemistry cost in order to set the price of next-generation sequencing would fall far short of the actual costs of bringing the test into existence," Quinn writes. "So far, it has been difficult for CMS to allocate the costs of bioinformatics and sophisticated computer equipment, at least for its physician fee schedule."

PMC's main criticism remains that the current payment system is one that fails to capture the value molecular tests add to healthcare, a sentiment that is echoed industry wide. The group, in the report, recognizes, however, that defining "value" will require much collaboration, foresight, and creative thinking in policy making, which is not easily achieved among industry players and policy makers with disparate interests.

"The previous head of the Medicare agency articulated the need to try to foresee unintended consequences in technology," Quinn states in the report. "We need to take this advice while trying to foresee unintended consequences of our policy decisions."

One key advance for industry players, after several years of troubling changes on the reimbursement and pricing policies for molecular tests, came with the passage of "Protecting Access to Medicare Act of 2014." The bill, which was recently signed into law, stipulates that as of 2017, CMS will pay labs based on a market-based system – according to the weighted median of rates from private payors for tests.

Labs will have to begin reporting rates from payors to CMS in 2016. Although the market-based pricing provisions apply to all clinical labs, HR 4302 sets up a new category of advanced diagnostic laboratory tests – defined as a test that gauges multiple markers based on an algorithm or a test approved or cleared by the FDA. An advanced diagnostic must be a single-source test; that is, it has to be sold by the lab that developed it. According to the new law, CMS will update pricing annually for advanced tests. For all other diagnostics, pricing will be updated every three years.

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