A Molecular Diagnostic Perfect Storm

1. A Molecular Diagnostic Perfect Storm V.M. Pratt, PhD, FACMG

2. Regulatory and Reimbursement • FDA oversight • Coverage and reimbursement • Will precision medicine survive?

3. 2003: Human Genome Completed • International consortium published draft sequence http://www.genome.gov/11007569

4. Public Attitude • Increased benefit and potential use of genetic testing • People more interested in own genetic make-up. European Journal of Human Genetics (2013) 21, 793–799; doi:10.1038/ejhg.2012.271; published online 19 December 2012

5. US Diagnostic testing impact on health care • Trend towards more precision medicine

6. Estimated US spending on molecular diagnostics and genetic testing, 2011

7. Bench to bedside New and timely approaches for establishing analytical and clinical validity as well as FDA and CLIA regulatory review merit consideration to ensure timely, high quality patient care Chin et al. Nature Medicine 17, 297 (2011)

8. Wave of changes in Healthcare • Lack of stakeholder agreement • Increased cost pressures; ambiguous transition to new CPT codes; more stringent reimbursement decisions • Increased role of CLIA testing with concordant decrease in contribution of IVD products because of pace of medically validated associations • Narrower subsets of patients eligible for targeted therapies • Increased roles of EMR evidence that lacks quality of randomized controlled trials but perhaps sufficient for initially narrowly targeted patient management

9. FDA • Companion diagnostic tests • Proposed LDT oversight

10. FDA Oversight • Ensure safety and effectiveness • “device” to include any ‘… in vitro reagent, or other similar or related article, including any component’ “(2) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals” (21 U.S.C. § 321) • Traditionally applied to medical device manufacturers

11. Draft Guidance for Oversight of LDTs • 60-day to Congress on 31 July 2014 • Notice by the Food and Drug Administration on 10/03/2014 in federal register • Goal to ensure analytical and clinical validity

12. FDA Oversight of LDTs: Phased and Risk-based

13. Operational issues • Conflicts between CLIA and FDA regulations • FDA restriction of off-label promotion versus CLIA allows clinical consultation • CLIA regulation versus FDA’s quality system regulation (QSR) • Laboratory service directory versus package insert • Malpractice versus product liability insurance

14. Regulatory Experts Needed Jobs Available in Clinical Labs!

15. FDA Medical Device Process Limited Patient Access Broad Patient Access Pre-submission process FDA submission 24-36 mo 3-9 mo 510(k) 3-9 mo 121 day ave (2011) 12-24 mo PMA 12-24 mo 360 day ave (2010) IDE (PMA) 9-36 mo

16. FDA Companion Diagnostics • Drug and test are approved together • Currently promotes one test per one instrument • Constrains laboratory infrastructure

17. Labs and Test platforms • Many tests to a single platform • Reduces capital equipment costs • Reduces maintenance costs • Optimizes competency and training • Utilizes space efficiently

18. LDPs highly regulated • CLIA Certification • State law (eg, NYSDOH, CA) • Accreditation (eg, CAP) • ISO 15849

19. Modification of IVDs • Often related to specimen type or stability • Now considered LDTs • Will require FDA review in proposed framework • Permitted under CLIA [CFR § 493.1253(b)(2)]

20. Laboratory Professional Service • Designing and validating test • Purchasing manufactured products and instrument • Interpreting results Promotes patient safety

21. CMS • New MolPath CPT codes • Non/limited-coverage decisions • Lack of reimbursement in 2013 • Technology assessments required by some MACs

22. CMS • Pays for approximately 50% health care • Laboratory testing • <5% hospital costs • 1.6% of all Medicare costs

23. Skyrocketing healthcare costs • Unhealthy lifestyles • Obesity • Lack of exercise Diabetes, Type 2 IU.edu

24. Sequencing cost going down • Relative to cost of human genome • Reagent cost – YES • Infrastructure – NO • Personnel - NO

25. Avalere study 2012 • Commissioned by ACLA • Compared private market and Medicare rates • Medicare paid lower than private non-government health plans • CBC: commercial $20.26, CMS $11.02 • Drugs screen: commercial $69.48, CMS $25.57 • Payment differences higher in rural areas compared to large metropolitan cities

26. New MolPath CPT codes • AMA created new codes in response to payers • Analyte-specific codes (Tier 1) • Level of complexity code (Tier 2) • Implemented 1 January 2013 • Placed on CLFS • Gap-filled • Year-long process to determine reimbursement

27. Coverage decisions • Some CPTs not applicable to Medicare population (65+) • Many other insurers (eg, Medicaid, private) follow Medicare decisions • Reimbursement lower than cost of IVD

28. Medicaid • States generally pay for services through fee-for-service or managed care arrangements  • States may develop their fee-for-service payment rates based on: • - The costs of providing the service • - A review of what commercial payers pay in the private market • - A percentage of what Medicare pays for equivalent services http://www.medicaid.gov/medicaid-chip-program-information/by-topics/financing-and-reimbursement/financing-and-reimbursement.html

29. Protecting Access to Medicare Act 2014 • Designates up to 4 MACs to establish coverage policies • Labs must report market data to determine CLFS prices • Huge fines if fail to report • Constrains Medicare from dropping prices for any given test (limited to 55% over 6 year period)

30. PAMA

31. PAMA Advanced Diagnostic • The test is an analysis of multiple biomarkers of DNA, RNA, or proteins combined with a unique algorithm to yield a single patient-specific result • The test is cleared or approved by the FDA • The test meets other similar criteria established by the Secretary

32. PAMA Advanced Diagnostics • Assignment of temporary HCPCS code • 1st 3 quarters reimbursed at list • Application of market rates after initial period • Requires payback if overpriced

33. PAMA Advanced Diagnostics • If FDA oversight of LDTs • Would MolPath panels (eg, NGS tests) get CPT code? • CMS would have to cover test • Private payors may not cover test

34. OIG: Comparing Lab Test Payment Rates: Medicare Could Achieve Substantial Savings https://oig.hhs.gov/oei/reports/oei-07-11-00010.asp

35. 2014 PFS • CMS proposes to bundle all lab testing to hospital outpatient fee visit • Exception is genetic tests • Controls over utilization • Promotes “across the street” testing

36. Palmetto MolDX Program • Pilot program • McKesson-owned Z-codes • Assigned based on laboratory and method • Designed to complement current CPT codes • Allows differential reimbursement based on test • Must submit technical assessment to Palmetto • Reviews analytical validity, clinical validity and clinical utility

37. If labs close, what happens to precision medicine? • Medical pathology training? • Proficiency testing? • Translation of bench to bedside? • Innovation?

38. Which one is better? • Local restaurant • Caters to locale • High quality • FDA regulated supplies • Health Department inspection • National chain • National menu • High quality • FDA regulated supplies • Health Department inspection

39. Conclusion • Laboratories are important partners in innovative precision medicine • Changes in regulation and reimbursement will cause labs to shut down → Loss of precision medicine