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Keith Batchelder, Genomic Healthcare Strategies CEO on Oncotype Dx Reimbursement


Name: Keith Batchelder

Position: CEO and founder, Genomic Healthcare Strategies

Background: Chief technical officer, WorldCare International Clinical Trials

Education: MD, Hahnemann University School of Medicine

Postgraduate work in Medical Informatics, Boston VA Hospital

Genomic Healthcare Strategies is perhaps the only consulting firm that advertises a focus specific to pharmacogenomics. The firm opened its doors last year to begin conducting market research, advising clients on market positioning and public relations, and "developing and managing relationships," as it claims in a statement on its website.

Pharmacogenomics Reporter spoke to Genomic Healthcare's CEO, Keith Batchelder, this week to discuss the potential bellwether of Genomic Health's reimbursement by a California Medicare contractor (see story, this issue).

What do you see as the important aspects of the Oncotype Dx test's reimbursement?

Existing diagnostics are reimbursed at a rate that is determined by their perceived procedural difficulty. And what I mean by this is [that] it's not in accordance with their relationship to the value in a clinical setting in terms of changing therapy.

And there was a concerted effort by many people who were working in quantitative imaging to get different CPT codes — or additional CPT codes for using quantitative measures. They succeeded in getting different CPT codes, but the reimbursement was only nominally different than non-computer, non-quantitative things like immunohistofluorescence.

An intriguing aspect of this is that Genomic Health had a strategy of saying that it didn't fit within any existing CPT codes, even though at first pass, it might look like a combination of some PCR stuff, some in situ [hybridization], and FISH stuff. As far as I can see, the significant value-add that Genomic Health did was to allow conventional biopsy methodologies to send them material. [Clinicians] didn't have to freeze it, they didn't have to do anything — all they had to do was get formalin[-fixed] samples and send them through the traditional biopsy analysis chain. In other words, they didn't have to use any special or unique sample preps.

And I think that's actually nice and interesting. But in the grand scheme of things, in the traditional method of diagnostics, it probably would have gotten just a small, incremental increase in reimbursement, in the sense that 'Oh my gosh, now you don't have to do anything special, and so you can do these diagnostic tests with more convenience,' therefore that might add some nominal value.

It seems very intriguing that they were able to get reimbursement from Medicare and Medicaid for their diagnostic. I think that's very intriguing. I wonder who, on the Medicare side, decided that.

Decided that it was to be reimbursed?

That it was to be reimbursed. Let me tell you an interesting parallel. The FDA is making a lot of noise about changing the label of warfarin to include a genetic test for first-time dosing of patients who need warfarin.

Well, the intriguing part is — is Medicare going to pay for that diagnostic?

I expect it will.

Well, that's true. But my guess is that the warfarin manufacturers, since there's only one — Coumadin — that's still on patent, the manufacturers aren't going to spend as much time seeking CPT-code reimbursement. It will be interesting to see what the genetic test for warfarin is, versus the relative reimbursement rate for the Oncotype Dx test. Because if you wanted to do an economic analysis, one could say that, while warfarin isn't as potentially costly as breast cancer, there are a lot of people that take warfarin — more than people who get breast cancer. And I'm sure somebody's done an analysis of how much it costs when you don't dose people right with warfarin — how long you have to stay in the hospital, how long it takes to titrate the right dose [so] you don't bleed and get a clot, all that kind of stuff. So, it will be interesting to see if there will be able to be done an apples-to-apples and an oranges-to-oranges comparison, in terms of the reimbursement rate.

There's an implicit thing here, and that's that the charge for a genetic test for warfarin is not $3,600.

Because the test — CYP450 2C9 — is very common and simple?

Exactly. So, the point I'm making there is that that's going to be in the sub-thousand-dollar range, easily. And Oncotype Dx is going to be in the multi-thousand dollar range. So how are they going to price it, since I started by saying that traditionally diagnostic tests didn't get an incremental increase in their reimbursement rate just because they did something a whole lot better — it was how much labor was involved in it, not their relevance in the clinical diagnostic paradigm.

Would you consider Oncotype Dx's experience a precedent for the reimbursement of pharmacogenomic tests?

The Herceptin test [Herceptest, by DakoCytomation] is getting reimbursed, so you can't say that Oncotype Dx [is a novel case]. Estrogen receptors have been tested for 20 years.

The dilemma is, do you know what the Herceptin test is getting reimbursed at, the rate? The Herceptin test's going rate is $450. It's getting reimbursed at $80, which is exactly what any FISH test gets reimbursed at.

The $450 is what happens if you go to Mayo, and they're one of the major providers of the diagnostic test outside of LabCorp and Quest [Diagnostics]. If you are a healthcare delivery network and decide to send your test to the Mayo for their clinical expertise and it costs you $450, you only get $85. So you lose money on that test.

But isn't there something interesting about a molecular diagnostic product achieving reimbursement?

I want to be very specific, because this is actually, I think, important. There's nothing array-like in the uniqueness of the Genomic Health test. It was the fact that they could take standard biopsy specimens, and then apply their technology to do it.

Let me put it this way. If I wanted to sidestep the patent for Genomic Health's Oncotype Dx, all I would have to do is look up the published results, get their 21 genes, and run it on my own array, and do it. The biggest problem is that I'd have to bring the patient in, because I'd have to get live samples, and I'd have to do it essentially on-site instead of mailing it away.

I bet I could run those 21 genes for less than $3,600. What I'm saying is that the test price of Oncotype Dx is building in its perceived value in the clinical diagnostics space. That's what interesting. It might get reimbursed for its value in the clinical space, whereas no other test, as far as I can see, has been reimbursed in consideration of its value in the clinical diagnostics space.

The rest are reimbursed according to the labor expended, then?

The Herceptin test gets $80! If you have a really good Herceptin test, you could tell the people who shouldn't get Herceptin, and therefore you could save $60,000 a year.

Now, it doesn't turn out [that] it's 100 percent accurate, but there are some ways to get closer to that. So, in the current thinking, you'd still only get paid $80. Let's say the Herceptest had 100 percent sensitivity and specificity. The way I read it right now, you'd still get paid $80. And that might give you the insight you need not to spend $60,000 worth of Herceptin on a patient for a year, but you wouldn't get reimbursed at a higher rate.

The interesting part is that somehow it seems as though Genomic Health — especially if they're getting reimbursed more than $80 or $100 — this is the first time that a diagnostic will be reimbursed at a rate that is related to its value in the clinical setting.

[Did they] get reimbursed at $80, which is like the FISH rate? [Did they] get reimbursed at $150, which is sort of the catchall category of immunohistochemistry that's not already got a very narrow CPT code? Or did they get reimbursed at a much higher rate — in the thousand or multi-thousand-dollar range? So where do they come in?

If they came in at a very high rate, that would obviously offer other diagnostics companies an incentive.

That's one of the problems that the diagnostics companies have — they're all sitting on their butts because they all go, 'Oh my god, we're going to do something really good and we're going to get paid $80!' You don't get the pop that you get on the pharma side.

So what that's done is, it's made the people who have the diagnostic really need to couple really tightly up front with a therapeutic, because therefore the therapeutic can use cost sharing, or whatever you want to call it. But if you can see that somebody's gotten reimbursed at a rate that makes it sensible, then it's good to shoot for something with a bigger dollar amount.

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