1 Regulatory And Cost Containment Issues Affecting Molecular Diagnostics Jennifer L. Hunt, MD, MEd Aubrey J. Hough Jr, MD, Endowed Professor of Pathology Chair of Pathology and Laboratory Medicine University of Arkansas for Medical Sciences

2 Agenda Oversight of molecular tests Laboratory developed tests Companion diagnostics Payment for molecular tests New coding and fee schedules Local coverage determination

3 Regulatory System Issues Laboratory Accreditation CAP Joint Commission Regulatory oversight CLIA regulations FDA regulations Companion diagnostics Laboratory developed tests (LDTs) Digital microscopy

Regulatory regime that can only retard and not accelerate innovation Fineberg HV, A successful and Sustainable Healthcare System, N Engl J Med 2012;366:

5 Different Types of Molecular Tests FDA approved commercial kit Laboratory developed test (LDT) Commercial proprietary testing - multi-analyte algorithm-based assays (MAAAs) Traditional single analyte laboratory developed test (almost all IHC stains…) FDA kit that has been modified

6 LDT Timeline 2010: FDA notice of reconsideration of enforcement of LDTs 2014: FDA draft guidance released for public comment (October) 2015: Multiple organizations formulate positions CAP AMP

7 Why Does this Matter? Many molecular diagnostics tests are laboratory developed tests Regulation of LDTs will increase expense and decrease availability of testing Most agree to oversight of high risk testing But, don’t agree on definition of high risk testing

8 Other Issues from FDA Companion diagnostics and package labeling

9 BRAF Companion Diagnostic Drug Link in Therapeutic AreaBiomarker Label Sections with Pharmacogenomic Information Vemurafenib Vemurafenib 1 OncologyBRAF Indications and Usage Warning and Precautions Clinical Pharmacology Clinical Studies Patient Counseling Information

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12 The Risk of FDA Drug Labeling

13 Regulatory Update Oversight of molecular tests Laboratory developed tests Companion diagnostics Payment for molecular tests New coding and fee schedules Local coverage determination

14 Payment for Molecular Testing In the past Molecular testing was billed with stacking codes October 2009 Payers (CMS and private) complained 2009 – 2011 The community responded

15 January 2013 New CPT coding system enacted for molecular testing in pathology Tier 1: High volume, common clinical molecular tests Tier 2: Lower volume, less common clinical molecular tests

16 What Happened? There were no dollar values given CMS used gap-fill where each MAC set the price for their own region (LCDs) Highly varied prices No relationship to cost (many undervalued) Price included only technical fees Final CMS pricing was finally set Highly varied prices (compared to cost) No RVU or professional payment for most

17 Coverage Determination No payment may be made for any…services which ‘‘are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member.’’ Federal Register / Vol. 67, No. 163 / Thursday, August 22, 2002 / Proposed Rules Federal Register / Vol. 78, No. 152 / Wednesday, August 7, 2013 / Notices

18 Coverage Determination A determination of what Medicare will pay for. National Coverage Determination (NCD) For all Medicare Beneficiaries in the US Governs all Medicare Administrative Contractors (MACs) Local Coverage Determination (LCD) State or regional determinations of coverage Federal Register / Vol. 67, No. 163 / Thursday, August 22, 2002 / Proposed Rules Federal Register / Vol. 78, No. 152 / Wednesday, August 7, 2013 / Notices

19 National Coverage Determination Initiation: Internal and external Evidence review and draft development Internal resources Technical assessment committee MEDCAC Public open comment period Open and transparent Response to questions Defined process for reconsideration/appeal

20 Local Coverage Determination Developed by Medicare Administrative Contractors (MACs) Apply only to the local jurisdiction Developed when there is no NCD or there is a need to further define an NCD But…MACs share and collaborate Backdoor work-around to the rigor of NCDs

21 LCDs

22 Example: Palmetto IHC LCD 10/ /10/ /25/2014 1/29/2015 3/2015 6/2015 Draft document Comment period opened Comment period closed Final LCD published Effective date Revision date

23 Example: Palmetto IHC LCD Reflex templates or pre-orders for special stains and/or IHC stains prior to review of the routine hematoxylin and eosin (H&E) stain by the pathologist Use of special stains and/or IHC stains without clinical evidence that the stain is actionable or provides the treating physician with information that changes patient management Use of added stains when the diagnosis is already known based on morphologic evaluation of the primary stain.

24 Example: Palmetto IHC LCD Scientific data demonstrates that the combined number of gastric biopsies requiring special stains or IHC is roughly 20% of biopsies received and examined in a pathology practice. GI specialty practices with a large GI referral base or GI consultant pathologists may sometimes exceed this relative number of special stains/IHC, but one would not expect to see routine high utilization of special stains or IHC.

25 Problems with LCD Process issues identified Lacks transparency and response to comment No unbiased process for reconsideration Specific issue identified Usurps pathologist’s medical judgment Lack of specificity about when these ARE reasonable and necessary Impossible to determine whether service will be covered Lack of scientific rigor

26 Summary Oversight of molecular tests Laboratory developed tests Companion diagnostics Payment for molecular tests New coding and fee schedules Local coverage determination