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Clinical Labs, Victorious in Squelching Healthcare Reform Tax, Promote PGx-Based Cost Savings

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By Turna Ray

In the wake of
the clinical lab industry's recent reprieve from a proposed $750 million annual performance tax to pay for the $900 billion healthcare reform effort, laboratory industry stakeholders are highlighting the potential of diagnostics to incur healthcare savings by advancing personalized medicine.

When Sen. Max Baucus, chairman of the US Senate Finance Committee, proposed earlier this month that the government levy a tax on laboratories based on market share as a means of paying for healthcare reform proposals, the laboratory industry began working on Capitol Hill to make its dissatisfactions known.

Most openly critical of the Senate Finance chairman's plan was Alan Mertz, president of the American Clinical Laboratory Association, who publicly stated that Baucus' $750 million in taxes on clinical laboratory testing services would be disproportionate and unfair for an industry already facing cuts as a result of healthcare reform proposals.

The Senate Finance Committee has been drafting the chamber’s version of a healthcare reform package sought by the Obama Administration. Baucus’ decision to remove the new fees came two weeks after they appeared as part of a draft proposal to pay for the committee's healthcare reform proposals. The $750 million tax on laboratories would have been levied based on clinical labs' market share and was projected to incur savings of $6 billion in 10 years.

In modifications to Baucus' mark-up of "America’s Healthy Futures Act of 2009," the lab tax has been dropped, but there is still a separate provision in the Senate bill that would cut the Medicare lab fee schedule by 1.75 percentage points from 2011 through 2015.

As the healthcare debate continues, stakeholders in the clinical lab industry are emphasizing that the cuts being faced under healthcare reform proposals by the nation's 40,000 clinical labs would hobble the industry from protecting the public's health and keeping up with innovations. That being said, industry players feel they can better contribute to healthcare reform and lower costs by focusing on personalized healthcare and prevention strategies.

ACLA and the device manufacturers’ trade association Advamed this week published a new report on the potential of diagnostic tests to lower healthcare costs by advancing personalized medicine, one of the goals of the Obama Administration's healthcare reform agenda.

According to the report conducted by the Lewin Group and commissioned by ACLA and Advamed, tests for conditions as diabetes, cervical cancer, drug-resistant infections, and metastatic colon cancer enable early detection and diagnosis, which improves health outcomes for patients and incurs greater savings and economic efficiencies for the health system.

For instance, according to the report, rapid diagnostic tests for hospital-acquired MRSA infections can help reduce a significant healthcare burden, since hospital-acquired infections cause 99,000 deaths and between $20 billion and $45 billion in costs annually.

Similarly, KRAS gene mutation testing prior to prescribing certain colon cancer drugs can help avoid serious side effects and could save as much as $740 million per year, the report estimates. Other examples cited in the report are HbA1c blood glucose testing to reduce the $174 billion per year annual burden of diabetes care, and HPV DNA testing for cervical cancer to improve disease-free survival, quality-of-life, and reduce progression to advanced cancers.

While groups like ACLA have been highlighting clinical labs' role in personalized healthcare as a better way of getting involved in healthcare reform, industry players have not remained quiet about reform proposals they feel unfairly penalize the clinical labs.

At the UBS Life Sciences conference last week, David King, CEO of Laboratory Corporation of America, spoke out against Baucus' plan to tax the industry, calling the proposal "draconian," "enormously outsized," and "confiscatory." King said that industry players, including LabCorp, had put forth alternate amendments to the lab tax, which would have heavily affected the company.

LabCorp is one of the largest clinical laboratory services providers in the world with 36 primary labs in the US. The firm netted $4.5 billion in revenues last year.

While King believes the "lab community should contribute to healthcare savings," he added "there are ways of contributing … that will achieve the kind of savings the government seeks to achieve without the necessity of the imposition of an additional tax on our industry."

He said the proposed lab tax, which would essentially be paid out of laboratory profits, was unfair to levy on the laboratory industry, which he portrayed as the "lowest cost and most efficient provider of laboratory services, and in general … the lowest cost component of the healthcare system."

As an alternative, LabCorp put forth a suggestion that would adjust fee schedules that would impact labs' revenues, but not their profits.

At the UBS conference, a member of the audience during a Q&A session suggested proposing measures to incur savings through personalized medicine strategies, by encouraging prevention and screening, and by reining in unnecessary testing.

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To that, King said: "I don't subscribe to the notion that there is great over-utilization of laboratory tests."

At least one national payor, United Healthcare, has noted instances of inaccurate or over utilization of lab tests. The insurer has implemented measure to ensure that companies like Genomic Health and Myriad Genetics are testing patients who really need it [see PGx Reporter 08-12-2009].

"It is a challenging proposition to tell doctors what is the right test for the right patient at the right time," King said at the UBS conference, adding that diagnostics-guided prevention strategies would take too long to incur healthcare savings, and as such, wouldn't be a convincing proposal in terms of the industry's role in the healthcare reform debate.

Meanwhile, LabCorp has said it intends to grow the company's focus on personalized medicine, growing its capabilities from providing laboratory services to developing and marketing diagnostic tests. In line with this strategy, LabCorp acquired Monogram Biosciences, a company with several key pharmacogenetic tests in HIV and HER2-positive breast cancer [see PGx Reporter 06-24-2009]. LabCorp also markets several PGx tests, including tests for abacavir hypersensitivity and KRAS mutation testing for response to certain targeted colorectal cancer drugs.

Furthermore, King said that the company is looking to expand its presence in Asia and southern Africa in order to grow its clinical trial capabilities. According to King, limited reimbursement potential for diagnostics in single-payor systems in many international markets have previously discouraged LabCorp from penetrating markets outside the US. However, the company is now looking to partner with clinical trial labs in Asian and southern African regions since a presence in those markets would allow LabCorp to compete for large safety studies for pharma partners.

Instead of putting in measures to check for inaccurate or unnecessary testing, King suggested implementing electronic medical records to reduce costs in the overall healthcare system.

Furthermore, Kind said that a major contributor to high healthcare costs is the lack of an emphasis on prevention, including a failure to regularly screen people for certain diseases or conduct regular testing for monitoring chronic conditions.

Quest, the largest clinical lab in the country with $7.2 billion in revenues last year, told Pharmacogenomics Reporter this week that it "supports the goal of reform to expand access to quality healthcare." While Quest would not comment specifically on Baucus' lab tax proposal, a spokesperson for the company noted that "greater emphasis on wellness and prevention and the expanded use of healthcare IT are also vital healthcare reform goals that will fulfill the potential of diagnostic testing to improve patient outcomes and reduce costs."

Regardless of where healthcare reforms end up, LabCorp's King sought to reassure analysts and investors at the UBS conference that clinical laboratories would continue to play an integral part in public health.

"I have often said during this healthcare debate that I'm not aware of any country in the world that has a healthcare system that is not lab focused, in which clinical labs do not play a critical role," King said. "We will continue to be a vital part of the healthcare system.