The National Heritage Insurance Company, a Medicare contractor, has decided to cover Genomic Health's Oncotype Dx test â€" a move that could guide the course of reimbursement decisions for future pharmacogenomic diagnostics.
Redwood, Calif.-based Genomic Health sends all of its Medicare bills through the NHIC, the state's Medicare contractor. "Effectively, a local coverage decision by [the carrier] has the impact of essentially providing Medicare coverage for patients all across the US, because those samples are sent from all 50 states" although they are all run in Genomic Health's laboratory, Randy Scott, the firm's CEO, told Pharmacogenomics Reporter last week.
The Oncotype Dx test is not truly a pharmacogenomic test. It is prognostic, using the expression level of 21 genes to estimate the chance of cancer recurrence and 10-year patient survival, as well as the likely benefit of early-stage chemotherapy, in node-negative, estrogen-receptor-positive breast cancer patients.
But as a molecular diagnostic that can help guide therapy, Oncotype Dx may offer important lessons for successor products that are more closely tied to pharmaceutical response. The test also has the odd distinction of receiving public recognition by Larry Lesko, director of the US Food and Drug Administration's Office of Clinical Pharmacology and Biopharmaceuticals, who cited Oncotype Dx as an example of a promising model for pharmacogenomics-based diagnostics during a keynote address outlining the FDA's current pharmacogenomics initiative at the May Bio-IT World conference in Boston. In a remark that was likely off-hand, Lesko said the agency would "like the company to bring it in" for FDA evaluation.
"Effectively, a local coverage decision by [the carrier] has the impact of essentially providing Medicare coverage for patients all across the US, because those samples are sent from all 50 states."
Corroborating the point, Felix Frueh, associate director of the CDER and head of the FDA's Interdisciplinary Pharmacogenomics Research Group, told Pharmacogenomics Reporter in May that his group "would like to see more of these [tests], and review the performance of these, because this is very early in the game, and we're thinking that this might be setting a trend for seeing more of these."
The NHIC's reimbursement will begin will take effect on Feb. 27, 45 days after its posting to the Medicare website, said Scott. He credits support from the oncology community for the reimbursement decision, which the firm received after its test had been on the market for about two years.
NHIC representatives were unable to comment before deadline.
Medicare-affiliated patients made up approximately 15 percent of the company's business during the third quarter of 2005, Scott said. "It's growing a little bit, but that's probably a good average to take over the history of the test," he said.
The Oncotype Dx list price is $3,460. During the first three quarters of 2005, the company conducted about 5,000 Oncotype Dx tests, said Scott.
The interesting part of this deal is that it seems as though Genomic Health may be receiving reimbursement at a higher rate than is typical for diagnostics, said Keith Batchelder, CEO of Genomic Healthcare Strategies, a consultancy specializing in pharmacogenomics. "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," he said.
"[Did they] get reimbursed at $80, which is like the FISH rate?" asked Batchelder. "[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 â€" in the thousand or multi-thousand-dollar range? So where do they come in?"
A Genomic Health spokesperson said the company was getting reimbursement at a rate that was "very close to list price and consistent with other policies" covering Oncotype Dx. She declined to elaborate on the exact rate.
Genomic Health made its initial public offering on the Nasdaq exchange a scant three months ago, and it appears to be doing fine financially thus far. The firm reported revenues of $1.5 million for the third quarter of 2005, compared to $167,000 during the third quarter of 2004, an increase driven by growth of Oncotype Dx product revenue and contract revenue, which rose to $1,376,000 in the third quarter of 2005 from $67,000 a year ago. However, the increase in testing drove the company's costs up to $1.6 million in the third quarter of 2005, from $343,000 in the prior-year period. The company's net loss increased 31 percent to $7.45 million from $5.67 million year over year.
Genomic Health reported contract revenue of $216,000 in the third quarter of 2005, and $100,000 of contract revenue during the similar period in 2004.
Analysts from investment banks Piper Jaffray, JMP Securities, Lehman Brothers, and JP Morgan began covering Genomic Health in early November.
None of the analysts contacted for this article were available for comment.
Genomic Health signed reimbursement contracts in the third quarter with Kaiser Permanente and several regional Blue Cross-Blue Shield plans, including Highmark in Pennsylvania, Primera in the Pacific Northwest, and Harvard Pilgrim in Boston, Scott said, adding that the company still has "significant" work ahead in lining up further reimbursement partners. These private plans so far cover an estimated 4 percent of the company's business, in addition to the approximately 15 percent covered by Medicare, he said.
"Hopefully, with the news from Medicare and the fact that we have Kaiser â€" those are two very strong, well thought of insurers, so we hope that will be influential to the rest of the payor community, plus we have additional publications that we hope to get out this year that we think will help to drive other payors," said Scott.
Scott declined to estimate the financial impact of NHIC's reimbursement decision, "but certainly we'll see growing and improving cash collections based on the news as well," he said.
However, molecular diagnostics companies interested in duplicating the reimbursement path taken by Genomic Health have their work cut out for them. "I don't think this was a coincidence or any sort of short circuit," said Scott. "It was the fact that we had done multiple large clinical studies â€" [more than] 2,600 patients, four different major clinical studies all backing the test â€" and I think it was really the amount of clinical evidence that really drove physician adoption, and it's the physicians now who are arguing vehemently on our behalf for reimbursement," he said. The company is targeting oncologists with a sales force of approximately 30 representatives, Scott added.
â€" Chris Womack ([email protected])