1. Jill Strassler Douglas J. Moeller, MD Executive War College April 29, 2014 Understanding the Newest Rules for Showing Clinical Utility of Molecular Tests and How They Shape Payer Decisions

2. PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries. Market Challenges Advanced Diagnostics and implications of PAMA, Utility How the Diagnostics Exchange supports this: o What it is o What it does o What a Z-Code identifiers is Z-Code Identifier Collaboration: CPT CodeBridge TM, Palmetto GBA Q&A Agenda

3. PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries. Challenges and Promise of Advanced Diagnostics 3 Nearly 30% of MDx claims paid incorrectly Lack of test specificity and identification makes it difficult to determine coverage or analyze what is being paid The MDx market is exploding, over 3000 MDx tests exist now Molecular Diagnostics (MDx) are rapidly growing: Diagnostics have significant downstream cost impact Tests and their processes are complex and the science is progressing rapidly Nearly 30% of MDx claims paid incorrectly 1 Lack of test specificity and identification makes it difficult to determine coverage or analyze what is being paid The number, type, and complexity of MDx tests are growing rapidly 10,000 2 and counting Impact Problem Cause Source: 1. Diagnostics Information System, www.diagnosticinformationsystem.com/learn.html, accessed Aug 28, 2013www.diagnosticinformationsystem.com/learn.html 2. GeneTests database, 2011, http://www.ncbi.nlm.nih.gov/projects/GeneTests/static/whatsnew/labdirgrowth.shtml.http://www.ncbi.nlm.nih.gov/projects/GeneTests/static/whatsnew/labdirgrowth.shtml

4. PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries. Tier 1 Codes are gene specific but not test specific  Example: 81257 is used for the following specific tests Alpha thalassemia targeted mutation analysis of HBA1 Alpha thalassemia targeted mutation analysis of HBA2 Alpha thalassemia sequence analysis of HBA1 Alpha thalassemia sequence analysis of HBA2 Alpha thalassemia known family-specific mutation analysis Tier 2 Codes are methodology specific but not test specific  Example: 81401 (Level 2) is used for these disparate tests (germline & somatic) Achondroplasia Mutation Analysis ColoVantage® (methylated Septin 9) Huntington Disease Mutation Analysis Mantle Cell Lymphoma, bcl-1/JHt(11;14), Real-time PCR, Cell based Need for Greater Granularity 4

5. PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries. 5 CPT CodeCode DescriptionExplanatory Text 81275 Tier 1 KRAS (v-Ki-ras2 Kirsten rat sarcoma viral oncogene) (e.g., carcinoma) gene analysis, variants in codons 12 and 13 81403 Tier 2 Molecular pathology procedure, Level 4 (e.g., analysis of single exon by DNA sequence analysis, analysis of >10 amplicons using multiplex PCR in 2 or more independent reactions, mutation scanning or duplication/deletion variants of 2-5 exons) KRAS (v-Ki-ras2 Kirsten rat sarcoma viral oncogene) (e.g., carcinoma), gene analysis, variant(s) in exon 3 (e.g., codon 61) 81405 Tier 2 Molecular pathology procedure, Level 6 (e.g., analysis of 6-10 exons by DNA sequence analysis, mutation scanning or duplication/ deletion variants of 11-25 exons) KRAS (v-Ki-ras2 Kirsten rat sarcoma viral oncogene homolog) (e.g., Noonan syndrome), full gene sequence CPT Coding Reform Helps, but Not Test Specific CPT 2013: KRAS 5

6. PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries. Traditional Payer programs require expensive, manual resources and do not engage Providers Traditional Silo ProgramsChallenges Utilization MgmtReluctantly comply to get permission and/or reimbursement; necessary evil Case & Care MgmtMinimal Payer-Provider Adoption Asking for decision support, inside their workflow Network DirectionNot informed, not actionable Complex Benefit CoverageStruggling with administration, transparency, consistency Lack of Collaboration How do we get all parties to the table for a better solution? 6

7. PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries. Market Pressure/Reform Shifts Volume to Value Model Mercer National Survey of Employer-Sponsored Health Plans Average Health System per Advisory Board 7 Reimbursement Reduction Tiered Networks CAGR 72% Number of entities Pursing VBC Value Based Payment

8. 8 Value-Based Care Model Value-Based Shared Metrics Value-Based Delivery MEASURE DELIVER Value-Based Reimbursement and Administration ADMINISTER Payment driving delivery based on performance PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries.

9. Impacts of Protect Access to Medicare Act (PAMA) 9 Shift to Market Based Payments HCPCS, Unique Identifiers, CPT Clinical Utility Assessments

10. PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries. Payers, Labs, Providers have the same problem… 10 Balancing Cost & Quality of Care … we need a new way to collaboratively work together to solve it Balancing Value Cost & Quality of Care How do we give patients the right care without the administrative burden? How do we ensure patients get the right care at the right cost without administrative burden?

11. Strategy to Overcome Challenges 11 Measure Understand current variances by provider, plan product, member Manage Exception-based approach to focus care interventions and resources Refine Make policy changes to enhance, incentivize optimal care quality and cost and payment Shift in the way we understand, utilize diagnostics PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries.

12. McKesson Diagnostics Exchange™ - DEX 12 2. Registry Test Catalog, Registration and Z-Code™ Identifier Assignment 3. Assessment Configurable Evidence Support & Coverage Determination Workflow 4. InterQual ® MDx Clinical Evidence Summaries 1. Marketplace Lab, Payer, Provider Collaboration 1. Marketplace Lab, Payer, Provider Collaboration McKesson Diagnostics Exchange

13. McKesson Z-Code TM Identifiers 13 Unique 5-character alpha-numeric identifier codes associated with each specific advanced diagnostics test Generated when labs register tests in the McKesson Diagnostics Exchange (DEX) They address test identification issues by: Identifying unique tests when used in conjunction with a CPT® code Enabling consistent identification across systems by labs, providers, payers and policy makers PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries. TestHuntington Disease Mutation Analysis Alpha Thalassemia Z-Code IdentifierZBA44, ZBO84, ZBE21 ZB896,ZB897, ZBE43,ZBE42 CPT Code8140181257

14. DEX Enables Unique Value Evidence-driven Benefits Unique Identification Able to clearly tie value to specific test Access to clinical evidence Evidence requirement clarity Value Clear process to submit information needed to determine necessity, utility Test differentiation Reduced denials/appeals Improved clinical satisfaction/decision making

15. PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries. McKesson Diagnostics Exchange (DEX) Functionality 15 Transparently identify and evaluate tests Determine coverage and reimbursement Labs register tests Z-Code TM Identifiers assigned Registry Module Access to McKesson InterQual Evidence Summaries for education and support of policy decisions

16. PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries. Clinical Evidence Summary (CES) 16 128 CES families covering 680+ molecular and genetic tests Represent much of the molecular and genetic test volume Content updated quarterly Helps inform medical policy

17. PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries. McKesson Diagnostics Exchange (DEX): Test Measurement and Reimbursement Process 17 Match the uniqueness of the test on the back end as you do on the front end Test code for ordering the test; unique in the LIS Missing in BIS if only tracking by CPT code Request a Z-Code identifier (4-6 weeks with detailed submission) Z-Code identifiers can be: Used to run management reports from the BIS for tracking and measurement Included on claim submissions in the S101-7 comment field as support to the CPT code in S101-2

18. PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries. 18 McKesson Diagnostics Exchange (DEX) : Simplifying the Coverage Determination Process Standardization and consistency of content needed/provided Convenient vehicle for communication One time preparation -> multi-payer review

19. PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries. Mapping Z-Code™ Identifiers to AMA CPT ® codes will help to: Bring clarity, consistency, and transparency to MDx testing Allow greater specificity for use, identification, reporting and tracking of MDx tests Connect clinical and financial data across claims systems, EHRs and other healthcare systems Enable informed MDx test selection, coverage and payment decisions Support goal of improving health outcomes and enabling broader adoption of personalized medicine AMA-McKesson Collaboration: CPT CodeBridge TM 19

20. PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries. Lessons Learned: Palmetto GBA pilot 20 What is it? Use of Z-Code identifiers for unique test identification and The Diagnostics Exchange for coverage decisions Launched as part of MolDx Program for 2011 in Jurisdiction 1/E, 11 Unique identifiers improve the process Helps the payer better understand the test you performed Reduces the denial/rejection rate Reduces pend for review claims Labs that demonstrate clinical utility get paid

21. Strategy to Overcome Challenges 21 Measure Understand current variances by provider, plan product, member Manage Exception-based approach to focus care interventions and resources Refine Make policy changes to enhance, incentivize optimal care quality and cost and payment Shift in the way we understand, utilize diagnostics PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries.

22. 22 Bring unique identification to MDx where growth exceeds the ability to keep up with traditional coding structures Provides the labs the ability to differentiate their tests and ensure awareness of their utility Reduce medical costs for unnecessary or miscoded tests by enabling precise matching of reimbursement to the exact test performed Clearly adjudicate claims by eliminating variances in coding and more easily make and manage coverage policies Develop a well-informed UM program by effectively measuring utilization of diagnostics McKesson Diagnostics Exchange Helps

23. Questions 23 PROPRIETARY AND CONFIDENTIAL. Copyright © 2014 McKesson Corporation and/or one of its subsidiaries.