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

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

2003: Human Genome Completed International consortium published draft sequence

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: /ejhg ; published online 19 December 2012

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

Estimated US spending on molecular diagnostics and genetic testing, 2011

Bench to bedside Chin et al. Nature Medicine 17, 297 (2011) 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

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

FDA Companion diagnostic tests Proposed LDT oversight

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

Draft Guidance for Oversight of LDTs 60-day to Congress on 31 July 2014 Notice by the Food and Drug Administration on 10/03/2014 in federal register Goal to ensure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

FDA Oversight of LDTs: Phased and Risk-based

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

Regulatory Experts Needed Jobs Available in Clinical Labs!

FDA Medical Device Process Concept and Design Preclinical development Clinical trialsFDA review CPT code assignment mo3-9 mo510(k) 3-9 mo 121 day ave (2011) PMA mo 360 day ave (2010) IDE (PMA) 9-36 mo mo Pre- submission process FDA submission Limited Patient Access Broad Patient Access

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

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

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

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

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

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

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

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

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

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

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

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

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

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)

PAMA YearTheoretical reimbursement Reduction 2016$ % 2017$ % 2018$ % 2019$ % 2020$ % 2021$ % 2022$ %

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

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

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

OIG: Comparing Lab Test Payment Rates: Medicare Could Achieve Substantial Savings HCPCS* Code23 Description Number of Medicare- Allowed Tests in 2010 Percentage of All Medicare- Allowed Tests in 2010 Total Medicare- Allowed Amount in 2010 Percentage of Total Medicare- Allowed Amount in Medicare National Limitation Amount per Test 80048Metabolic panel, total calcium9,355, %$94,325, %$ Comprehensive metabolic panel27,232, %$319,935, %$ Lipid panel20,970, %$310,596, %$ Urinalysis, automated, with microscopy 6,709, %$30,435, %$ Urinalysis, nonautomated, without microscopy 4,416, %$16,008, %$ Urinalysis, automated, without microscopy 4,805, %$15,435, %$ Vitamin D, 25 hydroxy5,333, %$223,366, %$ Assay of urine creatinine4,362, %$32,023, %$ Vitamin B-123,334, %$71,897, %$ Assay of ferritin4,361, %$84,963, %$ Glycosylated hemoglobin test12,652, %$175,307, %$ Assay of iron5,455, %$49,960, %$ Iron binding test4,297, %$52,653, %$ Natriuretic peptide1,135, %$54,491, %$ Assay of parathormone3,582, %$211,655, %$ Assay of prostate-specific antigen, total 3,651, %$96,028, %$ Thyroid stimulating hormone14,728, %$353,395, %$ Complete blood count with automated differential white blood cell count 31,930, %$351,630, %$ Prothrombin time22,020, %$123,445, %$ Urine culture colony count4,610, %$53,112, %$

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

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

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

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

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