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Can Molecular Diagnostics Affect Archaic Reimbursement Protocols?


At A Glance

Name: Joseph Ferrara

Age: 40

Title: Vice president of consulting at Boston Healthcare Associates

Education: Master’s degree from Harvard in architecture and design.


After several years of rapid growth and growing application of its technologies, the molecular diagnostics industry has found itself in a bit of a pickle. More tests and larger patient populations have resulted in greater revenue for innovators, which is good. More revenue has helped companies develop newer technologies, and newer technologies have emboldened clinicians and labs to run a greater number of tests — also good.

But all this good is in danger of running into a brick wall of anachronistic reimbursement schedules that may limit the use of molecular diagnostics and dampen technology development.

“As the potential of many new [molecular diagnostics] technologies is beginning to emerge, there is an urgent need for diagnostics stakeholders to collaborate to reform and design a reimbursement structure that will make the promise of these technologies a reality, Joseph Ferrara, vice president of consulting services at Boston Healthcare Associates, recently wrote.

SNPtech Reporter caught up with Ferrara and talked about ways in which molecular-diagnostics players can better navigate, as he put it, “the maze of coverage, coding, and payment.”

What are some of the challenges facing molecular diagnostics from a payor’s perspective?

One of our focuses as a firm is on reimbursement. And so a lot of the things we do are really coming from that angle of what the payor’s perspective is. Reimbursement is definitely a challenge in the molecular-diagnostics arena now.

In my opinion, the current coding and payment structure in the United States is really kind of reaching its limit in terms of molecular-diagnostics technologies. It’s really strained. And there are a lot of groups that are trying to work together to modify and accommodate new technologies, but these changes are coming slowly. Because of this, I think a lot of innovators have really had to examine carefully the valuation of their technology through the lens of the limitations.

It sounds like this phenomenon has caused many vendors to cut back on developing new technologies.

We work with [innovators] that have decided not to pursue certain technologies because of the opacity of the reimbursement environment. If you identify a novel marker for, say, some kind of cancer, and you decide to deliver it as an immunoassay test, the average immunoassay test is reimbursed in the low $20s by Medicare. If you have a test for a limited audience, and you take a quick look at the numbers, it becomes pretty hard to invest millions of dollars in discovery and development.

Describe some of the changes you mentioned.

I think on the molecular-diagnostics side right now there are very few disease-specific molecular-diagnostic codes. The way that these tests are coded is by stacking codes that represent the various amplification steps — amplification, isolation. And what the problem with that is that it doesn’t matter what has gone into the marker or the test; the tests essentially are going to be reimbursed the same, at least by Medicare, because reimbursement is tied to operational laboratory steps. So, if I develop a test for multiple sclerosis, it may end up being reimbursed because of these operational steps similarly to cystic fibrosis, even though one costs much more to develop.

So, there’s no accommodation in the current coding structure for reagent-specific differences. This is a real challenge for innovators. And I think this is holding back some innovation. For example, if somebody goes to the trouble of developing a novel immunoassay — the tests could have been done on a nucleic-acid platform, let’s say, but they end up taking the trouble of putting it into an ELISA-based format — they’re actually penalized for doing that from a reimbursement perspective. Because the average reimbursement for an immunoassay, as I said, is about $20, and in a new nucleic-acid format you can perhaps be reimbursed in the $100 range.

So, there are a lot of inconsistencies and incongruities in the system. And it’s prompting [groups] to get involved to try to restructure this. Actually, the American Medical Association is driving this along with some other organizations like the American College of Medical Genetics. In this case, there are working groups that have been set up to look at these very problems and challenges and looking at perhaps restructuring the coding system to accommodate new technologies more easily and readily, and to accommodate them in such a way that doesn’t penalize them.

It’s all about trying to more accurately reflect the work that’s being done; after all, that’s what the CPT [current procedural terminology] system is all about. There’s a lot of new technologies that are emerging, and they’re simply not described in the CPT book.

Do you think one component of the issue is that payors are simply unaware of cheaper technologies?

Yes, although I think the big question is, let’s say you do have a new technology that’s an alternative to PCR and therefore can save you money in royalties, does that mean the laboratory passes that savings on to the payor? Not always. I think from a payor’s perspective, molecular diagnostics is in its infancy. They’re paying for very few of these tests, and when they are paying for them, they’re for a very select group of patients.

I think the real challenge for the payors will be when some of these tests are developed that address broader audiences. I think Digene’s HPV test is a good example of a test that’s addressed to broad audiences and that uses a hybrid-capture system. But here you have a situation where you have excellent reimbursement for that test, but there aren’t many others because the patient volumes have historically been so small.

Plus, many of these tests are for predisposition; they’re not true diagnostics. The other real development here over the next few years is the evolution of true molecular diagnostics being launched — actual detection of disease.

Can you identify a parallel to this phenomenon within health care that has already been resolved?

You can certainly make parallels to novel specialty drugs to some extent. These drugs are very expensive; the paradigm for treating many chronic conditions has shifted to very expensive products. Where that market is evolving, from a payor’s perspective, is much more tightly managed than they have been — even shifting the drugs from a medical benefit with a very large dollar limit to a pharmacy benefit that ends up being managed by a formulary.

The same thing can happen with really expensive diagnostics. Payors, if they start to see heavy utilization of expensive diagnostics they will do what they’ve always done, which is to attempt to put clinically practical restrictions around the use of the tests by developing really selective patient criteria.

And we tell clients to get out in front of this. It’s important for companies to recognize that this is an issue, and not try to hit a home run and say that the test is going to be used by every patient that walks through the door, but for a select groups of patients where it will be the most cost effective.

Do you see these ‘true’ molecular diagnostics facing the same kinds of challenges experienced by the predisposition segment?

I think there’s probably fewer challenges in the sense that, theoretically, a test that actually detects a disease is going to have greater clinical impact and, therefore, greater value overall. But I think it really is important for innovators, manufacturers, and marketers to address the health economics and cost benefit of these tests early on in the game.

It’s something that hasn’t really been done aggressively for diagnostics by the [innovator companies] as much as by the pharmaceutical companies, but it’s really becoming an issue.

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