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New Firm MetaDiagnostic Moves in to Help Dx Developers, Payors as PBMs Shift from Personalized Rx

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Originally published Aug. 27.

As pharmacy benefits managers back away from making the system-wide investments needed to advance personalized medicine, newly launched company MetaDiagnostic has stepped in to help test makers gather the clinical evidence they need to facilitate adoption and coverage of their products and third-party payors in figuring out which tests they should reimburse.

Rick Schatzberg, former CEO of CVS Caremark's Generation Health subsidiary, founded MetaDiagnostic in July immediately after leaving his position as CEO of Generation Health, PGx Reporter has learned. In addition to Schatzberg, MetaDiagnostic involves four other former Generation Health employees.

Since the end of 2009, pharmacy benefits management firm CVS Caremark had held a majority stake in Generation Health, which was providing PGx testing services for around 1.5 million covered lives, as well as running programs aimed at diagnostics firms and payors. At the end of June, CVS Caremark paid a total of $31 million to buy out the remaining shares of Generation Health from minority shareholders and employee option holders. The move was part of CVS Caremark's plan to maintain its pharmacogenomic testing services with existing internal capabilities, but end the diagnostics and payor-focused efforts. Under this strategic shift, CVS also laid off around 30 Generation Health employees (see related story, in this issue).

In launching MetaDiagnostic, Schatzberg is essentially offering the services that CVS Caremark has chosen to drop due to strategic disinterest. The company has a dual focus: collaborating with test developers to design and conduct clinical utility and cost-effectiveness studies for biomarker-based diagnostics; and tracking utilization of and crafting coverage policies for molecular tests for third-party payors.

"These two programs are very interrelated," Schatzberg told PGx Reporter. "The [personalized medicine] market is becoming increasingly interested in having these services."

A Good Start

The startup is already working with a number of diagnostics developers to design clinical trials, according to Schatzberg. The firm has prospective trials in progress and retrospective analyses completed, he said. Although Schatzberg couldn't name the diagnostic partners due to contractual agreements, he noted that MetaDiagnostic is currently planning a clinical utility study with a firm developing a targeted next-generation sequencing based clinical diagnostic and is in advanced discussions regarding study design with test developers who are targeting several different therapeutic categories.

"Some firms have dozens of test validation studies completed and they're always thinking about the next one, but they haven't done anything to show that their test has clinical utility … or is cost effective," Schatzberg said. "Just because it has utility, doesn't mean there isn't a cheaper way to get the same result. So, you need to do both types of studies."

As it turns out, whether a test is useful in improving patient outcomes and is cheaper than the standard of care are among the main considerations for payors when determining coverage. "We bring a payor orientation to the types of studies test developers need to do," Schatzberg said.

Then, for third-party payors, MetaDiagnostic plans to offer a range of information and consulting services. Initially, to establish metrics that can be used by clients as a baseline, the firm will decipher Current Procedural Terminology codes to assess which tests payors are reimbursing and in what volume. Based on the clinical evidence on those tests, MetaDiagnostic will advise payors on coverage policies.

Healthcare providers use CPT codes to claim reimbursement from payors for medical services they've rendered. However, payors have found that the codes, which are submitted in a bundled format, don't allow them to track utilization for specific tests with the granularity they need to inform coverage guidelines. "There aren't really good test codes. Even the new [molecular pathology] codes being developed by the American Medical Association has its limitations," Schatzberg said. "If you asked UnitedHealthcare or Aetna or any of the other players, 'What do you spend on molecular diagnostics and give us your top 20 by cost, then by volume, and by disease category,' they can't do it."

After figuring out what tests third-party payors are spending on by unpacking CPT codes, MetaDiagnostic will advise them on their coverage policies. In turn, the work with insurers and employers will feed back into MetaDiagnostic's clinical trials business, where the company can better guide test developers on what types of studies they need to conduct to garner coverage.

Filling a Gap

One of the reasons CVS Caremark decided to cut Generation Health's molecular diagnostics and payor-focused programs was likely due to the fact that these efforts didn't align with the firm's more traditional, core efforts around dispensing drugs. Troyen Brennan, CVS Caremark's chief medical officer, previously told PGx Reporter that he felt such activities might be better placed at an independent firm like MetaDiagnostic.

CVS' decision to focus just on its PGx program follows a similar move by Express Scripts. Since it acquired Medco in April, Express Scripts is offering PGx testing services for a more limited list of drugs, and industry insiders believe that the company will not continue with the clinical utility studies Medco was conducting in collaboration with diagnostic companies. Several employees affiliated with Medco's personalized medicine programs, including Robert Epstein, chief medical officer of the Medco Research Institute, left the company once the acquisition was finalized (PGx Reporter 5/9/2012).

With CVS Caremark and Express Scripts curbing their investment in the personalized medicine space, there is no longer a convergence point where disparate stakeholders — drug developers, test makers, payors, and employers — can come to figure out how to advance products for individualized care within a health delivery framework. Meanwhile, as more molecular diagnostics and targeted drugs come to market, the evidence demands from health regulators and payors are increasing, and in turn, the cost of developing personalized treatments is also rising.

Industry players need help navigating the changing regulatory and reimbursement landscape, and according to consultant Jorge Leon, MetaDiagnostic is in a good position to meet that demand. Currently, "there is a need to validate [biomarker-based] tests further, beyond the level that diagnostics companies were doing before," said Leon, head of Leomics Associates, a firm that advises companies on molecular diagnostics and tests for personalized medicine. "It's a much more expensive workup to do health economic studies, cost-effectiveness studies, and develop a test that will be used at two or three sites," he added.

For example, the Centers for Medicare & Medicaid Services has charged contractor Palmetto GBA to review molecular diagnostics in terms of the value they add to patient care and establish pricing accordingly (PGx Reporter 2/29/2012).

Under its MolDx Pogram, Palmetto is "looking at 3,000 tests, and they need to see data," Leon said. "And companies don't have the data." Leon was previously a consultant to Generation Health and has advised a number of other firms in the personalized medicine sector, such as US Diagnostics Standards, a company that has developed a standardized process for evaluating the validity and utility of diagnostics tests.

He estimated that the regulatory and reimbursement challenges are adding between $1 million and $2 million on top of already significant development costs for diagnostics developers. "Clearly there is a huge need for data on the payor front that test makers aren't able to present," Leon said. "Groups like MetaDiagnostic specialize in creating the team that can craft studies … in a real-world setting" that analyze and measure why physicians may or may not use a test.

MetaDiagnostic is attempting to facilitate greater integration of biomarker-based tests and personalized medicine into mainstream healthcare by simultaneously helping test makers develop diagnostics that add value in terms of improved patient outcomes or cost savings, and advising payors on how to identify and define that value.

In the first months of its launch, MetaDiagnostic will focus on getting more traction in its clinical trials business, conducting studies for tests that can impact treatment strategies and save costs in cancer, and then branch out to other disease settings. "We became very interested in oncology because it's where so much research is being done and so many interesting tests are being developed, but these firms don't really have a great commercialization strategy," Schatzberg reflected.

Schatzberg, who was a senior executive at Medco for nearly 20 years before co-founding Generation Health in 2008, is funding MetaDiagnostic for the time being, but after the company has had more time to get off the ground, he is planning to seek angel and strategic investors, as well as venture capital. The firm's diagnostic partners are footing the bill for the clinical utility and cost-effectiveness studies.

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