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Latest Draft of Hatch IVD Bill Contains New Regulatory Proposals; Pricing Reforms under Discussion


By Turna Ray

The latest version of a draft bill on the regulation of in vitro diagnostic products includes new provisions and clarifications that attempt to address the complex ecosystem in which molecular diagnostics are developed, marketed, and used.

As the US Food and Drug Administration ponders how best to regulate laboratory-developed tests and companion diagnostics, a bill called the "Better Evaluation and Treatment Through Essential Regulatory Reform for Patient Care Act," or BETTER, is being developed by the office of Senator Orrin Hatch (R-Utah) with input from personalized medicine advocates. The draft legislation calls for a single, business-model-neutral regulatory pathway for IVD products. If this bill is eventually introduced in Congress and passes muster with legislators, it would essentially remove confusion over whether the FDA has the legal authority to regulate LDTs.

"We started working on this legislation in response to FDA's initial guidance [on in vitro diagnostic multivariate index assays] issued a couple of years ago," said Risa Stack, partner at Kleiner Perkins Caufield & Byers, a venture capital firm that has invested in many life sciences companies, such as Genomic Health. "Our view was that this [IVDMIA] guidance may not be optimal, but if the world is heading in this direction, let's see whether we can participate in this process of trying to develop a clear pathway with something that we think that the FDA might be open to," said Stack, who has advised Hatch's legislative team crafting the bill.

Since issuing its initial IVDMIA guidance in 2006, the FDA has decided to oversee all LDTs, which have traditionally been under the purview of the Centers for Medicare & Medicaid Services. Although for many years the FDA has regulated test kits and practiced "enforcement discretion" over tests developed by labs, the agency announced last year that the diagnostics landscape had changed, necessitating new regulatory approaches.

In an effort to craft a regulatory framework that meets the needs of all stakeholders, the FDA held a public hearing on LDT regulation a year ago, where agency officials proposed several ideas, such as downgrading the risk classification of certain regulated tests; phasing in regulation of LDTs that aren't currently regulated; collaborating with the National Institutes of Health to develop a test registry that could serve FDA's purposes for keeping an eye on all test developers; and possibly enlisting the help of third-party inspectors to help the agency with its increasing regulatory responsibilities (PGx Reporter 07/21/2010).

A recent version of the BETTER Act incorporates many of these ideas. "We've had informal dialogue with the FDA and the agency has said things more formally" during its public hearing on LDTs, Stack told PGx Reporter. "I think we're getting closer to developing a clearer path."

An earlier iteration of the bill drafted last year proposed to create a new division within the FDA specifically charged with reviewing diagnostics and diagnostic components, reasoning that these products are distinct from devices currently overseen by FDA's Center for Devices and Radiological Health (PGx Reporter 06/23/2010).

The most recent version of the bill, reviewed by PGx Reporter, maintains the overarching goal in the first draft to create a "business-neutral" regulatory pathway for all IVD products under which such tests would be reviewed by a new FDA division, called the Center for Advanced Diagnostics Evaluation and Research. However, fresh ideas have been incorporated into this iteration of the bill, such as a system for bringing to market so-called "follow-on" IVDs and procedures for grandfathering in diagnostics that are already on the market, including both LDTs and test kits.

Currently, there are placeholders in the bill to include proposals for incentivizing diagnostics development and restructuring the reimbursement system for so-called "advanced personalized diagnostics," or APDx. The Hatch legislative staff is still mulling ideas in these areas.

In an effort to get a snapshot of where the draft bill currently stands and new proposals that may be included going forward, PGx Reporter spoke with several regulatory, reimbursement, and legislative experts who are knowledgeable of the bill's current language and overall intent. Since the BETTER Act has yet to be introduced in Congress and is still very much a work in progress, several sources who provided information on the bill for this article have asked to remain anonymous.

Currently, there is no set date for when the BETTER Act might be introduced in Congress. There is speculation among Capitol Hill insiders that depending on the political climate in Washingon, DC, the bill may be introduced later this year or some time in 2012.

Clarifications and Additions

APDx is defined in the bill as an FDA-regulated product "distinct from a device" that provides analysis of DNA, RNA, a chromosome, a protein, or a metabolite and that is used for diagnosing, preventing, or treating disease. Although the definition remains largely consistent in the different versions of the bill, APDxs are now considered a subset of IVD products, defined as a medical product "distinct from a device," including related equipment and protocols, intended to be used in the diagnosis of disease, and that examine specimens taken from the body.

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The bill's language has been clarified to note that the new FDA center would regulate the "accuracy and reliability" of all IVD products, just as CDER ensures that drugs are "safe and effective." According to sources involved in crafting the bill, these new terms are meant to distinguish IVDs from devices and drugs and establish regulatory criteria that address the unique characteristics of such products.

Similarly, instead of FDA's current Class I, II, and III device risk classifications, the BETTER Act proposes three categories of IVDs based on their public health impact. Low impact or well-established tests fall into category 1; tests with a moderate health impact that are intended to be used with other tools in patient care are designated category 2; and high health impact diagnostics, such as pharmacogenomic tests, are deemed category 3.

The bill includes a formal system for establishing the appropriate category for a particular test. A sponsor can submit documentation claiming a particular category for its test, which the agency can affirm or deny. If the FDA assigns a higher category than that proposed by the test maker, the sponsor can appeal the agency's determination.

All IVDs, regardless of their category, must be registered within an IVD databank. This publicly accessible databank will include all claims for an IVD product that the FDA has approved, as well as those claims for which the agency has found insufficient evidence. Sponsors would not have to list proprietary data to this database. There is a $2,000 registration fee that would be required per IVD listed in the databank, but small companies and tests developed by a government entity can receive a waiver.

Recognizing that the NIH is developing a genetic testing registry, the BETTER Act instructs the NIH and FDA to work together to develop the IVD databank and registry as a single resource. However, while the NIH's registry is voluntary, the IVD databank section would be a mandatory regulatory requirement for all IVDs.

As for FDA's submission requirements for IVD sponsors, tests in the first category are exempt from premarket review, while for category 2 and 3 tests, sponsors must submit "competent and reliable" scientific evidence establishing their clinical and analytical validity.

Meanwhile, for "follow-on" IVD tests, the BETTER Act now includes a new proposal by which sponsors can commercialize such a test without any premarket review. According to the bill, a follow-on diagnostic is one that doesn't differ from an FDA-approved IVD product, the so-called "reference IVD," in its intended use, analytical and clinical claims, reagents, instrumentation, lab processes, or report.

Sponsors wishing to market follow-on tests will have to petition the FDA, notify the sponsor of the reference test, and register the diagnostic with the IVD databank. Once the FDA has approved the petition for the follow-on test, the sponsor can commercialize the diagnostic one year after the agency has granted marketing approval for the reference test.

This new section is "bracketed for more discussion among stakeholders. It is a placeholder for now because Hatch's office is seeking more input on how to best craft the provision," Sheila Walcoff, former FDA associate commissioner and senior HHS official, told PGx Reporter via e-mail.

"The section was added to address questions about the process for rapidly clearing higher-impact tests with no clinically meaningful differences from already cleared tests in the absence of the medical device 510(k) process (which is ill-suited for advanced molecular diagnostics review given the challenges with actually identifying a 'predicate Dx' and the number of de novo reviews anticipated)," said Walcoff, who is currently the founder of the consulting firm Goldbug Strategies and who provided technical and policy expertise to Hatch's team regarding the BETTER Act. "The goal [in adding this section on follow-on IVD products] is to encourage innovation and investment in personalized medicine, but to also enable the market to flourish to the benefit of patients."

Another area that has been further clarified in the latest version of the bill is how currently marketed IVD products, both LDTs and kits, may be grandfathered in after new IVD regulations are promulgated under the BETTER Act. Diagnostics developers have expressed concern that they will be burdened with additional regulatory requirements for already commercialized tests under FDA's new LDT guidelines.

In the bill, category 2 and 3 tests that FDA has already greenlighted as devices and LDTs that have been approved by the New York State Department of Health can remain on the market without sponsors having to submit any additional premarket data to the agency, though they might be asked for post-marketing data. As a minimum requirement, sponsors will have to register grandfathered tests with the IVD databank. Additionally, the FDA can ask sponsors to submit evidence on category 2 and 3 IVD tests for which the agency has a specific public health concern, according to the bill.

Under this proposal, tests like Genomic Health's Oncotype DX, which was among the firs laboratory-developed IVDMIAs to receive notification from the FDA about possibly having to submit a PMA, would be grandfathered in. Oncotype DX has been on the market since 2004 as an LDT, and Genomic Health has never received a warning letter from the agency requiring the firm to file a PMA for the test. According to a Genomic Health spokesperson, both the breast cancer and colon cancer recurrence tests that operate on the Oncotype Dx platform have approval in New York.

Additionally, similar to FDA's current user-fee process for devices, the bill discusses establishing a system for collecting fees from labs and diagnostics developers that would, in addition to congressional appropriations, fund the agency's review of IVD products. There are provisions in the bill to also form an advisory committee, which would provide FDA advice on scientific and regulatory issues related to IVDs.

A Separate Path

One of the most sensitive portions of the BETTER Act deals with regulatory proposals for IVD products developed by labs. Recognizing this, the Hatch legislative staff has solicited input from laboratories and diagnostic firms to try to craft proposals that can appease both communities.

Generally, the bill paints a scenario in which the FDA would evaluate the clinical and analytical validity of IVDs developed by labs, while CMS would oversee day-to-day laboratory operations and validation of test modifications that don't change the intended use claims.

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"The bill is not intended to get FDA into the lab itself (CLIA's role) or change CLIA record-keeping requirements, or, importantly, [change] interactions between the laboratory director and the physician ordering the test (the practice of lab medicine), including discussion related to individual test results and the like," Walcoff wrote in an e-mail. "This is one of the most challenging areas to address … because laboratory tests integrate the practice of laboratory medicine."

For example, there is a section in the bill that permits labs performing IVDs to continue to have "patient-specific consultations" with physicians, in which the lab can disseminate published, peer-reviewed information that is important for interpreting the test result for a particular patient. This literature could contain data that has not been reviewed by the FDA, but the agency would not consider this unlawful advertising in this limited context.

Yet, despite Hatch's efforts to have broad stakeholder input in advancing a common framework for regulating all IVD products, a lab advocacy group is taking steps to advance a separate legislative proposal that would keep LDTs under CMS' oversight. The American Clinical Laboratory Association has proposed that LDTs continue to be overseen by CMS, with enhancements to its regulatory powers, such as giving the agency the funding and staff to review the clinical validity of LDTs (PGx Reporter 05/04/2011).

ACLA President Alan Mertz previously told PGx Reporter that LDTs "are not machines" that fit within FDA's device regulations, but "more of a process, and the practice of medicine," which the agency has no authority over. Specifically, Mertz believes that since CLIA is funded entirely by lab user fees, the community would be willing to pay additional funds to give CMS oversight capabilities it currently doesn't have and keep FDA regulation at bay.

According to sources that PGx Reporter spoke with, however, the fact that CMS hasn't kicked up too much fuss since FDA announced its intent to lift "enforcement discretion" over LDTs suggests that ACLA may not have support for its proposal. Furthermore, given the contentious nature of user fee negotiations and public interest groups' objections to industry-funded regulatory reviews under FDA, ACLA may receive pushback on its proposal to expand laboratory user fees to cover enhanced regulatory reviews.

ACLA hasn't yet taken a public position on the Hatch bill, since it has yet to be introduced in Congress. But according to those knowledgeable of the process, the lab advocacy organization has provided some input on the BETTER Act to Hatch's staff.

Incentives and Reimbursement

Currently, the BETTER Act contains blank sections addressing IVD reimbursement reforms and incentives for innovative diagnostics, topic areas that are still under development.

Paul Radensky and Eric Zimmerman, partners in the law firm McDermott Will & Emery who represent the Coalition for 21st Century Medicine, have been working with various stakeholder groups to establish a market-based pricing model — a so-called average reimbursement test price — for APDxs, particularly multi-analyte gene-expression tests that many feel are key technologies for advancing personalized medicine.

"Hatch's office has certainly indicated to us that [reimbursement reform] is an area that they're interested in, together with regulatory oversight," Radensky told PGx Reporter. "They’ve asked us, as well as other stakeholders, for input and ideas to help them start to think through some proposals."

While different stakeholders might disagree about which reimbursement reform scheme may be the best way forward, Zimmerman believes that the diagnostics community is united in its recognition that the current coding and payment system for molecular diagnostics is broken. There is consensus in the testing community "that the current system is not working well and that it does not appropriately incentivize the development of these tests," he said.

The American Medical Association has proposed a new coding structure addressing commonly performed analyte-specific tests and less-commonly performed resource-specific tests (PGx Reporter 03/1/2011). However, these codes don't address multi-analyte gene-expression panels, such as Oncotype DX. The AMA plans to hold a meeting on July 20 to address the coding structure for these types of tests (PGx Reporter 06/22/2011).

Currently, most sponsors use unspecified CPT codes to bill payors for laboratory-developed multi-analyte gene-expression tests, also known as IVDMIAs. While, by using unlisted codes, sponsors have been "reasonably successful in gaining payment rates that they felt were an adequate return on investment," Radensky noted that each payment rate has to be negotiated contractor-by-contractor, which creates an unpredictable reimbursement environment.

In determining payment for LDTs, CMS places most tests under the clinical lab fee schedule (generally tests performed in a clinical lab that don't require physician interpretation), with some tests falling in the physician lab fee schedule (generally tests that fall in the surgical pathology, hematopathology, or cytopathology services category). CMS hasn't yet issued a decision as to which fee schedule most molecular diagnostics would fall after the promulgation of new codes issued by AMA, but the agency is holding a meeting on July 18 to discuss genetic testing reimbursement and coding.

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For the time being, industry analysts feel that most LDTs, such as Myriad Genetics' BRACAnalysis test, will be able to maintain current reimbursement levels under CLFS. But going forward, as genetic tests start to be more commonplace in the delivery of personalized care, there is general agreement within the diagnostics industry that the current fee schedule system will increasingly undervalue complex molecular diagnostics.

Under CLFS, CMS reimburses tests at a fixed rate based on CPT codes, which don't necessarily account for the added interpretive services experts at laboratories provide with regard to molecular tests. Moreover, the use of "miscellaneous" codes that work well for certain LDT developers, are usually troublesome for kit manufacturers who sell their tests to multiple labs and have to negotiate payments with individual contractors, including each lab partner in the payment setting discussions.

Unlisted codes "create a lot of uncertainty when you go in different areas and [it's unknown whether] a new Medicare contractor will interpret the rules and come up with a rate similar to what the last contractor did," Radensky said. "Based upon that, we've been looking at options to have a more predictable system in place to assign different payment rates and codes [for APDxs], because with the unlisted procedure codes you're not really saying what it is you're doing, and then you have to provide extra information so the payor actually knows what it is they're paying for."

Radensky and Zimmerman's strategy is to first propose changes to the payment structure for APDxs and work backwards to see that the existing codes facilitate such a payment model. Looking ahead, their overarching proposal to develop an average reimbursement test price – akin to the idea of the average-sales price for Part B drugs – appears as if it would work well for APDxs that already have codes under AMA's current proposal.

Part B drugs – generally treatments that are given by the physician such as chemotherapy or drugs administered through "durable medical equipment" such as asthma inhalers – are reimbursed by CMS based on average-sales price, or ASP, calculations. The Medicare Modernization Act of 2003 defines ASP as the manufacturer's sales of a drug to nonexempt purchasers in a calendar quarter divided by the total number of units of the drug sold in that same quarter.

Although the idea of an average reimbursement test price is inspired by the ASP structure for Part B drugs, the business model for developing and marketing diagnostics is substantially different from therapeutics. As such, there are unique challenges to establishing a workable, market-based average pricing structure for APDxs.

"Sometimes you have a manufacturer develop a kit, other times a lab develops a test. Even when you have a kit, it's not like some fixed fee would work as the margin because the service component on top of it can be quite variable from test to test and may not relate at all to the price of the kit," Radensky explained. "You can have a kit where the kit costs more because they've automated more of it and because it requires less in terms of staff, while something that is cheaper may actually require more [staff]."

Given these unique aspects of the diagnostics industry, it has been challenging to establish a pricing system that captures the value that APDxs provide to patient care. The difficulty in establishing value-based pricing for APDxs is figuring out "what metric do you use to assign value?" Radensky posited. "Who is the one that is the arbiter of that? Again, it's fairly subjective and the methods can be quite variable."

In their proposal, Radensky and Zimmerman are considering enhancing the gapfill process for APDxs. Insurers set payment for tests that cannot be pegged to a similar diagnostic through the gapfill mechanism. To set pricing under this system, contractors currently consider charges for the test, routine discounts, resources required to perform the test, what other payors are paying, and costs associated with other tests that may be similar.

"Many times, when we talk to contractors, some like that approach and some don't," Radensky said, adding that contractors similarly don't seem to want to peg pricing to R&D costs because they believe that current regulations wouldn't allow it.

Radensky and Zimmerman's average reimbursement test price for APDxs would consider factors such as what payors want to pay for the test, copayments, and the total revenue of a covered test. The test price would not be affected by certain factors, such as if a payor decided to not cover a diagnostic and whether labs are providing tests for free through patient-assistance programs. Additionally, there would need to be a system for payment for diagnostics before sponsors can gather the clinical utility data with which payors can set a rate.

As Radensky and Zimmerman work through these issues, they are cognizant of the fact that when it comes to reimbursement reform, not all stakeholders will support the same plan of action. As a result, they're meeting with different groups and inviting input on their proposal to figure out a system that the myriad entities comprising the diagnostics industry can get behind.

While Zimmerman acknowledged that it will be challenging to reach a consensus around reimbursement reform within the testing community, he noted that "there is a lot of overlap in the ideas proposed by various stakeholders."

Health Advances issued a report earlier this year on the reimbursement landscape for novel diagnostics. The report, funded by the Biotechnology Industry Organization, recommends coverage of diagnostics with evidence development or risk-sharing payment schemes. Additionally, the authors of the report also recommend creating a "single coverage and value assessment body for novel diagnostics," noting that this proposal would require significant time and resources.

Political Delays?

Although the BETTER Act is being carefully crafted with significant input from diverse players in the diagnostics industry, as well as reimbursement and regulatory experts, there is no set time frame for when the bill will be introduced in Congress.

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The fallout from the healthcare reform law has created a volatile legislative environment for any new bill that addresses the healthcare system. Furthermore, the draft proposal has been criticized for contributing to government spending at a time when legislators are under pressure to cut costs.

"I think that those who criticize the draft BETTER Act as 'too costly' in this era of budget constraints fail to recognize that the cost is already going to be borne by the FDA if they move forward, as announced, with expansion of LDT review under its existing medical device framework," Walcoff said. She added that if lab groups set up a "somewhat parallel and potentially duplicate framework at CMS," that plan also stands to face similar cost criticisms.

FDA's $107 million increase to its FY2011 budget was hard fought, and many predict that a budgetary increase in FY2012 may be unlikely. Limited resources may impact the FDA's ability to keep up with the growing number of complex molecular diagnostics and companion tests that the agency expects will come its way in coming years.

Some sources predict that the political climate on Capitol Hill may keep the BETTER Act from being introduced until Hatch's seventh-term reelection is secure for 2012. Although Hatch is Utah's longest-serving senator, having held office since 1977, political organizer FreedomWorks has been vociferously campaigning against him for not being fiscally conservative enough.

Meanwhile, Hatch's supporters value his willingness to work with Democrats on legislative issues, a quality that is evident through his work drafting the BETTER Act. Although the advancement of personalized medicine isn't necessarily a partisan issue, some have pointed out that because the bill would create a new FDA center and likely require additional congressionally appropriated funds, it could turn supporters of limited government against Hatch.

However, according to those who have been involved in crafting the BETTER Act, Hatch is attempting to create what many conservative legislators claim they want from the FDA: an efficient regulatory system that incentivizes innovation and fosters investments. "Without a better suited and more transparent and predictable regulatory pathway for ensuring confidence in all IVD tests, we lose the economic and health outcomes value of [having] better informed healthcare decision making and continued investment in innovation in medicine," Walcoff said.

Have topics you'd like to see covered in Pharmacogenomics Reporter? Contact the editor at tray [at] genomeweb [.] com.