Payers

Success of precision medicine hinges on reforming black box of diagnostics reimbursement

There is zero consensus on the level of evidence a diagnostic must show in order to prove clinical utility but establishing the right systems for coverage and reimbursement would allow modern diagnostics to drive a future of widespread precision medicine.

When asked by the Personalized Medicine Coalition about the top challenges facing precision Mmedicine in 2017, Alexis Borisy of Third Rock Ventures voiced the diagnostic industry’s collective frustration when he said, ‘reimbursement, reimbursement, and reimbursement.’

The reimbursement issue in diagnostics is finally in the spotlight, and not a moment too soon. After all, investor returns on investment, commercial success of diagnostic companies and further investment in the field is based on positive reimbursement.

Healthcare stakeholders are racing to solve the reimbursement challenge, because one of the biggest opportunities in the industry awaits them on the other side. Three realities point to diagnostics as the next big arbitrage opportunity in healthcare. First, we spend 150 percent more on healthcare per capita than the other 34 countries in the OECD on average, but achieve lower than OECD average rates in life expectancy, ischemic heart disease, obesity, and asthma and COPD admissions. Second, the majority of therapies we pay for have no positive impact. The 10 highest-grossing drugs in the US only improve the conditions of 4-to-25 percent of patients. Related, diagnostics account for less than 5 percent of reimbursable healthcare costs while guiding more than 65 percent of clinical decisions. The keys to precision medicine are massively undervalued.

Diagnostics are the keys to precision medicine. Advanced diagnostic tests can stratify patients for response, non-response, and adverse events to costly therapies and interventions that do not yield improvement or positive outcome for patients. They can reduce diagnostic odysseys, monitor patients during drug holidays, and identify disease progression in time to intervene. Advances in technology related to sample processing, genomic sequencing, and data interpretation enable diagnostics to make our current practices of medicine personalized and precise. Diagnostics will also be responsible for future innovation in precision medicine – identifying populations for whom existing therapies don’t work and determining new druggable targets in a given disease. But the diagnostics industry is held back from achieving this future today, because there are no acceptable industry standards for the two thresholds that gate a diagnostic’s market access: coverage and reimbursement.

The current process of assigning reimbursement value to diagnostics devalues the industry and disincentivizes innovation. Medicare’s Clinical Laboratory Fee Schedule, the rate-setting database for diagnostic tests sold in the US today, was originally designed to price the commonplace metabolic panels and blood cultures that Medicare covers by the millions annually. For reference, the weighted average reimbursement rate of the top 10 lab tests Medicare paid (more than 151 million claims) for in 2017 was $20.25. These tests are not at all comparable to the complex, multi-analyte algorithmic assays that can determine what kind of costly targeted therapy a patient should receive, or what type of rare disease they have. But the logic of the Clinical Lab Fee Schedule is the same – a ‘cost of goods’ analysis based on identifying the raw cost to a lab of running a diagnostic, and pegging the price of innovative tests to existing procedures they most closely resemble. This has led to a system that pays $120,000 for a cancer drug like Erbitux, but pays less than $600 to determine whether a patient has all 8 guideline recommended genetic mutations required for response to Erbitux. So our healthcare system gets what it pays for — a stream of high cost therapies, and a diagnostic industry unable to serve as the checks and balances.

Where the reimbursement system for diagnostics is outdated, the threshold for coverage is a black box. In the U.S. today there is zero consensus on the level of evidence a diagnostic must show in order to prove clinical utility, and exceed the magic threshold of coverage. With no guidelines regarding what they must do to become a covered benefit for patients and gain access to the market, diagnostic companies concoct their own model – the Reimbursement Sandwich. In the words of a premier U.S. healthcare billing company, “The reimbursement sandwich is the pressure created by the combination of the demand by the appropriate ordering physician providers for access to your test and the pressure of the appeals that drive a payer’s willingness to reluctantly reimburse the test.” This model exists because the only way to determine if an insurer will cover a test is to run one and bill them. At that point of billing, the money developing the test and running clinical trials to prove its value has been spent, with no knowledge of whether the data will be deemed sufficient for coverage. The only avenue available is to pressure the insurer from both sides to pay for the asset invested in, which has led to a broken relationship between payers and the diagnostics industry. This is the status quo that Mr. Borisy and his colleagues rail against, because there is no clearly defined pathway for success. Investing in diagnostics without appropriate coverage and reimbursement standards is a giant gamble.

Paradoxically, rare interspersed wins in diagnostics draw stakeholders into believing the market is improving. Widespread coverage of the Oncotype DX test or the recent FDA- CMS parallel approval of FoundationOne CDx are certainly positive events, but they are not indicative of an upward trend or a path that all can follow. Both Genomic Health and Foundation Medicine – and the select other diagnostic companies that have garnered more than niche coverage for key indications – spent hundreds of millions of dollars and years of time obtaining landmark positive coverage policies, and years on the market without coverage. And in many instances, Medicare coverage wins have not yet translated to commercial payer coverage. Coverage gaps like the Medicare- commercial divide take additional years and investor funds to fill. Each coverage decision from each independent payer is uncertain, both in terms of time and the level of evidence required for a positive decision.

For the diagnostics industry to realize its market potential and for precision medicine to scale, clear thresholds need to be established and agreed upon between and among payers. The industry requires clear guidance around the levels of evidence required to garner coverage for various high impact indications, and nationally recognized pathways to value based reimbursement.

Enabling diagnostics to optimize therapeutic regimens is in the interest of the patient and the insurer. “Today, insurers operate primarily on an annual business model – one that must evaluate over the course of one year what percentage of claims made toward healthcare costs are reasonable and necessary – while much of health care is experienced by the patient on a multi-year basis”, says Blake Long, MD, MBA, the former Chief Clinical Officer at Echo Health Ventures, in a conversation.

This is a reactive business model, one that waits for claims to be submitted and then judges the healthcare tools used based on their appropriateness. Empowering the diagnostic industry enables a proactive approach, one that allows insurers to identify areas of high costs and poor outcomes in their member populations, and set the criteria a diagnostic would need to meet in order to be used in the member population to the benefit of all.

Evolve or die, goes the adage. The enormous market opportunity for diagnostics to impact the US healthcare system compels re-examination of the mistakes of the past diagnostic era. Establishing the right systems for coverage and reimbursement would allow modern diagnostics to drive a future of widespread precision medicine – one that patients, providers, investors and payers can participate in clinically and financially.

Photo: hqrloveq, Getty Images

 


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Lena Chaihorsky

Lena is VP of Payer Innovation at Alva10dx. Lena has spent her career studying reimbursement and the managed care industry from the perspective of diagnostics.

Leveraging her background in biology and mathematics, Lena is working to match the price of new diagnostics to payer value through improvements in the reimbursement process. Lena most recently led the reimbursement strategy of QIAGEN’s global molecular diagnostics portfolio and has broad experience in diagnostics commercialization, sales, contracting, and reimbursement. Earlier, she held multiple leadership roles at AmniSure International until its successful strategic sale. She has personally performed every step in the reimbursement spectrum of a diagnostic, and takes both a product-specific and portfolio-wide view of the healthcare products she brings to payers. She is passionate about driving reimbursement toward value-based care, and bringing clarity and change to a field that healthcare reform has put into flux.

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