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Vermillion Shareholder Alleges Medicare Denying Over 80 Percent of OVA1 Reimbursement Claims


This story originally ran on Dec. 22.

By Adam Bonislawski

A Vermillion shareholder this week accused the company’s management of not disclosing high Medicare denial rates for reimbursement of its ovarian cancer diagnostic OVA1.

In a letter to shareholders, Switzerland-based investment advisor George Bessenyei wrote that he had learned “from persons with knowledge” that Medicare has been denying OVA1 claims at a rate of more than 80 percent. If true, this could significantly lower the revenues expected from the OVA1 tests Vermillion has reported as performed in its 2011 earnings reports.

Bessenyei said in his letter that Medicare is responsible for the reimbursement of approximately 50 percent of all OVA1 sales. In a document filed this week with the US Securities and Exchange Commission, Vermillion CEO Gail Page responded that this figure was incorrect. Medicare billings, she said, accounted for only around 18 percent of the OVA1 tests performed in 2010. She added that the company believed that number had dropped below 18 percent for the first three quarters of 2011.

According to numbers from an investor presentation on Vermillion’s website, as of Sept. 30, Medicare and Medicare Advantage plans cover 45 million, or roughly 55 percent, of the 82.5 million US lives covered for OVA1.

Page’s response did not address the 80 percent denial rate Bessenyei claimed in his letter. In an e-mail to ProteoMonitor addressing her comments, he said that Vermillion’s “response was notable mainly for what it did not dispute. To wit, the high Medicare denial rate of over 80 percent, which was the essence of my original letter. To the contrary, the company’s response struck me as an implicit admission that reimbursement rates across the board are in this same ghastly range.”

Requests for comment from Vermillion were not returned.

Page did acknowledge in her response to Bessenyei’s original letter that reimbursement has been a problem for OVA1. The company continues “to advise investors to be mindful that, at this stage of market adoption, reimbursement for the OVA1 test remains a significant challenge for the company,” she said, adding that “this is true not only for Medicare, but for all payers.”

Indeed, during Vermillion’s Q3 2011 earnings call, William Creech, the company's vice president of sales and marketing, called reimbursement the primary impediment to wider adoption of OVA1 (PM 11/11/2011). He noted that reorders had suffered from the fact that some doctors had been less likely to reorder "when they see patient bills" for the test, presumably after reimbursement was denied. The list price for the OVA1 test is $650.

Bessenyei said, however, that a denial rate of more than 80 percent “is not a ‘challenge’ but more like a ‘disaster,’” and that investors should have been provided this information.

In the company’s SEC filing, Page said that Vermillion hasn't provided payer-level denial rates or reimbursement data to its shareholders for several reasons, including the fact that "this is indirect information from Quest and proprietary to Quest."

In addition, "there is significant volatility of reimbursement rates from period to period and, therefore, it is not a reliable short-term measure of performance; and management has not viewed any one payer’s denial rate as material to Vermillion’s financial performance to date given Vermillion’s relatively modest revenue and the fact that only Vermillion’s variable rate portion of its revenue is dependent on Quest’s reimbursement experience.”

Under Vermillion’s licensing deal with Quest, the company receives an upfront fee of $50 for every OVA1 test performed plus 33 percent of Quest's gross profit. It is this latter portion, as Page noted in the filing, that could be affected by reimbursement rates. Vermillion receives from Quest cash each month representing an estimated payment of this variable rate revenue, and once a year the parties go through a “true-up” process to determine the precise amount of variable rate revenue owed.

Vermillion has in the past claimed that this arrangement limits its visibility on the reimbursement front. For instance, during the Q3 call, Creech told investors that because “billing and collection [for OVA1] is done by Quest … we really have very little visibility except once a year when we get that annual true-up.” The ‘true-up” figures for 2011 are due at the end of February 2012, he added.

Bessenyei asserted, however, that Vermillion has known “exactly how bad the situation [is].” He said he believes the company has not disclosed this information to investors because of fears it would make it more difficult to raise funding. He cited, in particular, the $21.8 million it raised in February via a public offering of 4 million shares of common stock at $5.45 per share (GWDN 2/15/2011), claiming that the company sold shares to investors “who had no idea that claims on OVA1 tests performed by Quest were being denied and/or grossly reduced.”

This is the second time this year that a Vermillion investor has made public his displeasure with the company’s management. In April, James Besser, a managing member of Boston-based hedge fund Manchester Management, sent a letter to Vermillion's management and board, claiming that they had eroded the value of the company's shares and calling for a change in its corporate governance and a vote by shareholders on the continuing service of its six directors (PM 4/22/2011).

In November, Besser and Manchester sold roughly half their Vermillion shares, taking their combined holdings from nearly 10 percent of the company’s stock to less than 5 percent. In an SEC filing accompanying the sale, Besser said he and Manchester anticipated that they would continue to reduce their Vermillion holdings and that they “continue to disagree with the direction [Vermillion’s] management and board of directors are taking … and do not believe [they] are acting in the best interests of the shareholders.”

Vermillion stock closed Thursday at $1.04 per share, down 89 percent from its 52-week high of $9.49 per share.

Have topics you'd like to see covered in ProteoMonitor? Contact the editor at abonislawski [at] genomeweb [.] com.

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