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CareDx Mobilizing Response Team After CMS Initial AlloMap Pricing Threatens Business

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NEW YORK (GenomeWeb) – Facing a 77 percent slash in Medicare revenues, molecular diagnostics firm CareDx has assembled a team of legal and industry heavyweights to try to convince the Centers for Medicare & Medicaid Services that its heart transplantation test is worth more than the government payor is proposing to pay.

In a preliminary document, CMS recently said it would pay for several multi-analyte algorithm-based assays (MAAAs), such as CareDx's AlloMap, significantly below prior levels.

For AlloMap, CMS said it would pay $645, down from the $2,821 that Medicare contractors are currently paying. The agency wants to pay $211 for Vectra DA, the rheumatoid arthritis test marketed by Myriad Genetics' subsidiary Crescendo Bioscience, compared to the present rate of $575. And CMS wants to cut Veracyte's Afirma Gene Expression Classifier for differentiating benign nodules from suspicious thyroid cancer from $3,200 to $2,152.

The diagnostic industry's reimbursement trouble is not new, but the payment community and the diagnostics industry seem to be clashing more frequently in an era of personalized medicine and complex in vitro diagnostics. Seeing rapid growth in the molecular diagnostics market in recent years, payors have become concerned about lowering costs and paying only for tests with clinical evidence showing they are medically necessary. Diagnostic firms want coverage for tests that are increasingly critical for guiding patient care and treatment decisions at a rate commensurate with their value.

But these groups understand terms like "value" and "evidence" very differently, often making it difficult to arrive at a mutually agreeable end. "We often see large cultural differences between developers, clinicians, guideline committees, Medicare contractors, and Medicare’s central office pricing staff," Bruce Quinn, a Medicare expert and senior director at the law firm Faegre Baker Daniels, told GenomeWeb.

"AlloMap already has well-established guideline positions, negotiated commercial pricing, and contractor pricing," Quinn said. "The proposed AlloMap price is only that, a proposal for comment, and reflected some missed communications and information as CMS internal staff attempted to price very large numbers of tests at once." Labs have 60 days to appeal CMS' initial pricing.

CMS' proposed pricing could hit CareDx particularly hard among MAAA developers, said CEO Peter Maag, since the firm markets only one test, AlloMap, and 50 percent of its revenues come from Medicare. AlloMap gauges the expression of 20 genes in blood and determines whether a heart transplant patient is at low risk of rejecting their new heart, with a negative predictive value of 99 percent. The noninvasive test, although not intended for monitoring patients at high risk for rejection, can help low-risk patients reduce the number of endomyocardial biopsies that would normally be performed to keep tabs on whether the immune system is attacking the transplanted organ.

The company has performed 75,000 commercial tests to date, but if CMS maintains its proposed pricing, "we will not be able to offer AlloMap going forward," Maag told GenomeWeb. "This is an event that's threatening to the company."

With the company's future on the line, CareDx has formed what Maag calls the "CMS response dream team" to try to get CMS to reverse its position. The squad includes Alston & Bird lawyer Peter Kazon, a prominent name when it comes to complicated reimbursement matters; Brook Byers, a venture capital investor who has backed many biotech firms and sits on CareDx's board; and Lanny Davis, lobbyist, attorney, and former special counsel to President Bill Clinton.

If the $645 pricing is allowed to stand, it will mean that "the only remaining alternative for heart transplant patients would be biopsy," which is "more invasive, more stressful, and more expensive to Medicare and taxpayers, since it is a procedure performed in a hospital," Davis said in a recent statement.

Of the 110 heart transplant centers in the US that use AlloMap, 35 have so far expressed support for CareDx's cause. The firm is also encouraging patients, physicians, and other industry stakeholders to write to legislators to bring attention to the company's plight. "This is a significant mistake" on CMS' part, Maag said, "and it needs to be corrected."

There doesn't seem to be any appreciation for the clinical and regulatory rigor that went into the test.

No crosswalk

CareDx has written to CMS asserting that the appropriate methodology for pricing AlloMap is through the gapfill, and not the crosswalk process. "Crosswalk is not applicable because there are no tests in the clinical lab fee schedule like AlloMap," Maag said. CMS determines lab test pricing using the so-called gapfill process, when no comparable technology exists, or through the crosswalk method, which pegs payment to rates for comparable technologies and CPT codes.

CMS arrived at the $645 price for AlloMap by crosswalking it to MLH1 assays for Lynch syndrome. Today, at a meeting of CMS' Advisory Panel on Clinical Diagnostic Laboratory Tests, CareDx argued that CMS cannot crosswalk AlloMap to MLH1 testing, since the two tests are radically different in indication, technology, analytical approach, and regulation. 

The potential pricing slash comes at a crucial juncture for CareDx, a firm on the verge of being profitable, but not quite there yet, according to Maag. The company went public last year and reported close to $26 million in annual revenues from AlloMap. Maag estimated that CareDx, since its founding in 1998 as XDx, has accumulated $150 million in losses to get the company to where it is today.

In the decade that AlloMap has been on the market, CareDx has focused on demonstrating the test's validity and utility in multiple large-scale trials, garnering 510(k) de novo clearance from the US Food and Drug Administration, getting the test accepted as part of treatment guidelines, and making inroads with insurers to extend broad coverage for the test. "We're trying to do the right thing and somehow [we] didn't get the benefit," Maag said. "There doesn't seem to be any appreciation for the clinical and regulatory rigor that went into the test."

The company estimates it has penetrated 30 percent of the $100 million addressable market in heart transplantation with AlloMap. Maag said it is possible for CareDx to capture as much as 60 percent of the market, but not with Medicare payments as low as $645 per test.

Moreover, such a large hit to its AlloMap revenues would hamper the company's ability to grow its business. CareDx is currently eyeing the kidney transplantation rejection space, which Maag estimates is a tenfold bigger market opportunity than heart transplantation. Researchers at the firm are also in the midst of conducting two studies to develop a cell-free DNA test for monitoring heart and kidney transplant patients.

Swaying payors

CareDx has seen its share of difficulties in commercializing AlloMap. For several years after AlloMap's launch, doctors in heart transplant settings were not using it, despite studies showing the gene expression test was non-inferior to cardiac biopsy-based monitoring for transplantation rejection, and can reduce the need for such procedures.

In the first year after a heart transplant, a patient can undergo a dozen or more endomyocardial biopsies, which involve inserting a catheter called a bioptome through the jugular vein down into the right ventricle of the heart, from where the tiny jaw-like end of the catheter is used to grab a piece of tissue. Such procedures can cost between $4,000 and $10,000, and doctors can receive between $200 and $300 for each endomyocardial biopsy they performed.

CareDx officials suspected that cardiologists were balking at using AlloMap because they did not want to limit their earnings from performing biopsies. Other experts thought the company had to do more studies to prove the utility of their tests. It took CareDx a while to get past this challenge but currently the majority of heart transplantation centers perform AlloMap.

In 2007, 50 heart transplant centers used the test. Today, the test is performed at 110 of 129 transplant centers in the US. The company emphasized that there are protocols in place at these centers, making the test a part of the standard of care for patients.

The challenge now is not convincing doctors to use the test, but swaying payors that the test deserves its premium pricing. CareDx's lobbying effort on the Hill, however, is not just a bid to save the company and ensure that shareholders get a return on their investment. While that is important, Maag is more fired up about raising awareness among legislators and in the payor community about how innovative diagnostics are being undervalued.

The truth of the matter is this — you're not going to get Walmart to pay for discovery.

The industry group AdvaMedDx estimates that only 2 percent of global healthcare spending is on diagnostics, but these tests influence 70 percent of medical decisions. Moreover, the diagnostics industry invests a bigger slice from revenues on R&D than pharma — 35 percent compared to 16 percent. But when it comes to pricing, a cancer drug can cost more than $100,000 a year, but a companion test that identifies which patients should receive that drug is reimbursed at a few hundred dollars.

"This is the moment that we diagnostic companies have to look into the mirror and reflect on the fact that somehow there seems to be a perception that it's the treatments that are innovative but the methods to stratify patients are not considered that valuable," Maag said. "That's what I think we need to change. We have not done a good job as an industry in communicating the value of patient stratification."

With increasing use of advanced molecular diagnostics — such as next-generation sequencing panels in cancer — payors are concerned about overutilization and have become more vigilant about when tests are performed and at what price. CMS has put in place the MolDx program to evaluate the clinical evidence underlying molecular tests. But even when tests have been investigated in multiple studies, labs say they are unable to effectively communicate the evidence to payors, resulting in coverage denials or payment so low that they cannot sustain the testing service.

In its presentation to the CMS advisory panel today, CareDx presented calculations showing that the $645 rate would not cover its cost to perform the test, including the sample processing at the site where blood is drawn ($100), shipping ($45), and labor costs ($505). This does not even begin to account for the cost of R&D, the multiple clinical trials showing the analytical and clinical validity and clinical utility of the test, education efforts, clinical management, bioinformatics, reagents, materials, and PCR licensing fees, the firm noted.

"We don't pay for an iPhone for the chips and the glass," Maag told GenomeWeb, and in the same way, basing diagnostic payment on the cost of testing "is a counterproductive argument."

This does not square with how payors ascribe value to diagnostics. At a conference hosted last week by the Personalized Medicine Coalition and the Biotechnology Industry Organization, Michael Kolodziej, Aetna's national medical director of oncology solutions, dismissed reimbursement comparisons between drugs and tests. "Innovators in the testing space have unfortunately been dragging this millstone around their necks, which is the cost of therapeutics," said Kolodziej at the meeting. "It's not the cost of the test, actually, it's what you do with the results of the test that makes the health plans really anxious."

Kolodziej said that his comments should not be interpreted as Aetna policy, but he was speaking at the meeting because he is considered an authority on reimbursement matters. He went on to suggest that the reimbursement that diagnostics firms are getting for next-generation sequencing panels is likely above the cost of goods to perform testing.

Maag, who participated in a panel discussion with Kolodziej at the PMC/BIO meeting, disagreed. "There needs to be an understanding that these tests are not just the cost of goods of doing an analyte out of a sequencer," he countered. There's a whole service being provided, he explained, involving the clinician, patient, and the platform provider, there is validation work, education, and studies to improve the test.

But Kolodziej also did not back down from his stance: "The truth of the matter is this — you're not going to get Walmart to pay for discovery … You're not going to get employer-sponsored health insurance to pay for discovery. Whether that's right or wrong, that's just reality."

After the meeting, Maag reflected on his exchange with Kolodziej, which he said demonstrated payors' limited understanding about advanced diagnostics and the industry's failure to effectively communicate with payors.

"This notion that there's a [drug] tablet and this tablet won't change, that's not applicable for the type of test we're doing. … We're making advances on technology, bioinformatics, and clinical utility," he said. "If we are expected to present outcome data at the time of reimbursement, it's like a catch-22. There's an associated cost that will need to be recouped, otherwise the business model doesn’t work."

It will be critical, he stressed, for diagnostic firms to be able to distinguish for payors the investment needed to build evidence on a test and provide a complete testing service, from the cost of goods to analyze a limited set of markers. "Doing a clinical trial in transplantation over many years and having a New England Journal of Medicine publication, there is value in it," Maag said. "We obviously have not done a good job communicating with people like Michael."

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