1. The Place We’re In: Updates on the Current Environment for Clinical Labs Rina Wolf, Vice President of Commercialization Strategies, Consulting & Industry Affairs, XIFIN, Inc. Kyle Fetter, VP, Advanced Diagnostics, XIFIN, Inc.

2. www.XIFIN.com2

3. Areas of Concern www.XIFIN.com3 PAMAToxicology Pricing GSP ADLT FDA Commercial Payers

4. PAMA

5. Labs Must Report “Applicable Information” For Each CLFS Test Every procedure code on the CLFS should be reported The rate each private payor “allowed”* for that procedure code Volume at each private- payor rate www.XIFIN.com5 Note: Payments made under capitated arrangements are excluded * Allowed rate includes the paid amount by payor as well as any patient-cost sharing amounts

6. Private Payors www.XIFIN.com6 Health insurance issuers (fully insured commercial) Group health plans (ERISA / self-insured commercial) Medicare Advantage plans Medicaid managed care plans Include: Medicaid fee-for-service Other government payors Do NOT include: Discounts Rebates Chargebacks Price Concessions Must be Reflected in Reported Prices:

7. How CMS Will Determine New Rates CMS will use only the “applicable information” reported for each procedure code from all “applicable laboratories” CMS will array the data from all labs by rate, from low to high. Each rate will be weighted by volume of tests furnished at that rate. CMS will determine the volume weighted median by selecting the middle rate in this array Volume weighted median will become new Medicare payment rate in 2017 subject to PAMA reduction CAPs –No adjustment for geography –Rates are still subject to sequester –Rate cuts are limited to 10% each year between 2017-2019 –Rate cuts are limited to 15% each year between 2020-2022 Cross-walking or gap-filling will be used to set initial payment rates for new tests where no payor data is available o r for tests where no payor data is reported (e.g., tests only performed by non-applicable labs) Advanced Diagnostic Lab Tests paid using list price at launch for 3 quarters www.XIFIN.com7

8. Timeline for CMS and Laboratories www.XIFIN.com8 Proposed Rule Comment Period CMS Drafts Final Rule CMS Develops New Rates Data Collection Period Reporting period New Rates July 1 2015 Dec 31 2015 Sept 25 2015 March 31 2016 Nov 2016 Jan 1 2017 Nov 24 2015 Date? March 31 2016 Nov 2016 Jan 1 2017 July 1 2015 CMS releases reporting guidance? CMS Publishes New Rates

9. Post-2017 Rate Setting 2017 rates will be used in 2018 and 2019, unless the weighted average median rate exceeded the annual reduction CAP –Weighted median rates exceeding the reduction CAP will continue to be reduced each year up to the CAP No additional annual adjustments will be made –No inflation update –No “productivity” decrease Labs will need to report again in 2019 ( on 2018 data) so that rates can be recalculated for 2020 www.XIFIN.com9 Exception for new Advanced Diagnostic Laboratory Tests – reporting (by a single lab) and rates revised annually

10. Getting REPORTING right The devil is in the details

11. Compliance Rules President, CEO, or CFO, or designee who reports to one of these and who has appropriate delegated authority. Data provided are accurate, complete, and truthful, and meet all the reporting parameters. www.XIFIN.com11 Certification by Laboratory Executive Civil Monetary Penalties If CMS determines that an applicable laboratory has failed to report, or made a misrepresentation or omission in reporting, applicable information, a civil monetary penalty of up to $10,000 per day per violation may apply.

12. Clarifications That Need to be Provided CMS has not specified the manner for reporting private payor rates and volumes to the Agency; it intends to do so in subregulatory guidance prior to January 1, 2016, when the first data reporting period is scheduled to begin. –CMS intends to make available a secure portal to load the data –Extremely tight timeline considering comment period ends late November What assurances will be in place that calculations are correct? Are payment rates just for contracted amounts, or do they also include non-contracted amounts for non-network laboratories Is rate after appeals or on initial payment amount? Are $0 payments/allowables going to be factored in? What is date? DOS or date paid? What will be the criteria for identifying an excludable service fee? www.XIFIN.com12

13. Importance of Financial Management Systems Imperative to capture necessary information either through a billing system that properly accounts for allowables on paid claims or directly from the ERA/EOB Labs should have been reviewing 2015 data to ensure accuracy of payments prior to reporting To comply with deadlines, system must routinely have captured and retained historical payment detail & flagged payments inconsistent with contract Data points will need to be refined when final instructions released System must be able to capture at minimum: –DOS –Date paid –Payor type –Number of tests for each procedure code –Amount allowed - $ paid by insurer plus patient share of cost –Contractual rates, where applicable, including volume and other discounts –Aggregate data in timely buckets: e.g., 7/1/15-12/31/15 www.XIFIN.com13

14. Sample PAMA Reimbursement Analysis Report www.XIFIN.com14 Source: XIFIN, Inc. Proprietary Report from XIFIN RPM

15. Sample PAMA Reimbursement Analysis Detail Report www.XIFIN.com15 Source: XIFIN, Inc: Proprietary Report from XIFIN RPM

16. Data Reporting for ADLTs www.XIFIN.com16 Launch Price Q1 Median Private Payer Rate Q4 Medicare Pays Launch Price for 3 Quarters From Launch Date to Q1, Lab Negotiates Rate with MAC* *Medicare Administrative Contractor ADLTs Report Private Payor Data Every Year Thereafter If list price > 130% of payment rate determined by private payor data, CMS will recoup entire difference Launch Price Q2 Launch Price Q3 Begin Reporting Private Payor Data End of Q2

17. Lab Payor and Volume Data Confidentiality By law, CMS may not disclose “applicable information” in a manner that would explicitly identify a specific payor or laboratory or prices charged or payments made to a laboratory Exceptions include permission to disclose to GAO, CBO, MedPAC CMS proposes to disclose applicable information to the HHS Office of Inspector General and the Department of Justice under general authority to administer and enforce PAMA Name of an applicable laboratory exempt from disclosure under FOIA This information is not explicitly protected from disclosure under PAMA confidentiality provision or through Freedom of Information Act (FOIA) requests ADLT applicants “should be aware” that information in an ADLT application may not be protected from public disclosure even if it is marked as confidential and proprietary Laboratory would need to expressly claim and demonstrate (to CMS) that substantial competitive harm would occur from disclosure of trade secrets www.XIFIN.com17

18. Next Steps and Opportunities to Engage www.XIFIN.com18 Note: Timeline might change if CMS delays deadlines for reporting data or for initiation of new rates Watch for CMS sub-regulatory guidance for more detail on reporting and related details May not come until after final rule CMS Laboratory Advisory Panel quarterly meeting October 19 Update Comment process on proposed rule Comments due November 24 Watch for final rule – probably not before end of year

19. Commercial Insurance Impact- 2015 The need for clinical justification and agile billing processes continue

20. Commercial Payor Concerns/Issues Commercial payors more reasonable, but must be able to document medical necessity and clinical utility –Concerns over VUS (Variants of Unknown Significance) Payors worry that physicians get too much information and feel compelled to “act” –Defeats purpose of sequencing? “N of 1” increasingly important with so much individualized genotype information available –Large scale clinical trials not feasible –Randomized clinical trials don’t represent experience in real world populations Should referral to a treatment in clinical trials qualify as actionable? Importance of databases and data sharing across large populations increasingly critical Appeals success rates on NGS testing in oncology trending above a 50-60% win rate www.XIFIN.com20

21. Real world, cont’d Commercial Payor Audits –“Pre-Pay” audits – verifying information As part of this process, we must review records for the patients on the enclosed claim list to verify adherence to standard billing practices. The records should include, but not be limited to, progress notes, laboratory, pathology and radiology reports and correspondence or any other supporting documentation for the services billed… Additionally, please provide the patient's intake form and documentation of the initial visit/consultation, regardless of the date range specified in the enclosed claim list. UHC now requiring medical records for 81479 and 81599

22. Real World, cont’d Verification that patient shares of cost were billed! …submitting proof that our member paid their co-pays, coinsurance and/or deductible for each of the claims…Acceptable proof of payment includes a cancelled check or a credit card receipt. If you did not collect the patient responsibility, please provide the reason why and any supporting documentation you have such as Financial Hardship documents. -Go back a year or more! Considered false claim if provider has no intent of billing patient (that also makes payor responsibility $0) Payors visiting websites –e.g. UHC saw a statement on a lab website that indicated patients would only be held accountable for $100 for a $3,500 test. Told lab they would only pay an out of network benefit of 60% of $100. Recoupments of difference between capped pricing and what was actually paid Follow the money –Management responsible for all actions, statements that result in $$ paid to lab – even if not by W2 employees

23. Patient Billing By The Numbers Back end denials related to non-network coverage, medical necessity, frequency edits, additional information required, etc- – Up by 62% (last year: 42%) since 2011 Focus on: Reason-code workflow that much more critical »Reason-code workflow Specific to Claim status is a big focus in 2015 Average Patient Responsibility –Up by 44% (last year:36%) since 2012 Focus on: Patient Responsibility Workflow, Patient Portal, Use of Revenue Advantage products Increase in “100” reason-code denials: payments made to patient –Payments to patient growth has stabilized and is slightly lower than last year www.XIFIN.com23

24. Narrow networks keep labs out-of-network so out-of-pocket patient responsibility for most labs is high Lack of conformity across payors in how they define patient responsibility (incorrect use of PR- codes, incorrect use of reason codes to identify patient deductible amounts) –Need to use Payor Specific Reason Code Over-Rides www.XIFIN.com24

25. Toxicology

26. Proposal at 8/26 PAMA Advisory Meeting Industry suggested crosswalk to 82542 @ $24.63: –$197.04 for Tier 2 –$246.30 for Tier 3 –$295.56 for Tier 4 With CMS's preferred G6058, you get: –$144 for Tier 2 –$180 for Tier 3 –$216 for Tier 4 www.XIFIN.com26

27. Proposed Fees Four codes for definitive testing: (Drug test(s), definitive, utilizing drug identification methods able to identify individual drugs and distinguish between structural isomers (but not necessarily stereoisomers), including, but not limited to GC/MS (any type, single or tandem) and LC/MS (any type, single or tandem and excluding immunoassays (eg, IA, EIA, ELISA, EMIT, FPIA) and enzymatic methods (eg, alcohol dehydrogenase)); qualitative or quantitative, all sources(s), includes specimen validity testing, per day, 8-14 drug class(es), including metabolite(s) if performed) The four definitive codes are to be paid at –(2x82542 + 5x82542x.1) –(2x82542 + 12x82542x.1) –(2x82542 + 32x82542x.1) –(2x82542 + 48x82542x.1) –82542 is $24.58 $61.46, $78.68, $127.88, $167.24 Rationale: –“We accepted the recommended crosswalk of 82542 but modified the multiples of that CPT code based on the CY 2014 Annual Lab Meeting recommendations. We crosswalk the first two codes at 100% and the remaining codes in that tier at 10%. Since the fourth tier does not have a maximum number of tests, we selected 50 tests as that is in the middle of the range of the number of tests that many commenters suggested would be in the top tier.” Advisory Panel recommendations on 10/19 reiterated appropriate multiplier for presumptive testing should be.75 vs..5 and.25 for confirmatory www.XIFIN.com27

28. Reference Table www.XIFIN.com28

29. GSPs Genomic Sequencing Procedures & ADLTs

30. Proposed Rates for Existing ADLTs www.XIFIN.com30

31. Noridian Proposed Rates HCPCSModifierNational LimitCA1CA2HINV 1112118212121312 LOC 00 81161Duchenne Muscular Dystrophy $140.00 81246FLT 3$82.96 81287MGMT$83.01 81288MLH1 (colon cancer)$159.48 81313PCA3/KLK3 prostate$260.00 81435inherited colon$795.95 81436inherited colon$795.95 814455-50 genes$597.31 81450>51$647.75 81519Oncotype DX breast$2,900.00 0008MProSigna$3,416.00 www.XIFIN.com31

32. FDA

33. On the Table FDA LDT Draft Guidance – ACLA initiated sign on letter Hybrid – initial clearance through FDA but oversight through CLIA –Group led by ARUP, Mayo, LCA others –Energy and commerce considering proposed legislation Modernize CLIA FDA NGS considerations - Next meeting 11/12-13 –Design Concept Standards Approach In Design Concept Standards, each lab is required to document a NGS' test components including sample collection (storage, shipping and processing), library preparation, sequencing/base calling (read length as well as mean and minimum coverage allowed), mapping, alignment and variant calling. In addition to documenting the NGS protocol, the lab must complete analytical and clinical validity studies. –Performance Standards Approach In Performance Standards, the FDA or a third party (such as CAP) would create NGS test standards for different clinical uses including disease diagnosis in symptomatic populations, treatment selection, non-sympomatic carrier screening, prenatal testing, etc. –For example, a prenatal NGS test would have different standards (sample collection, library prep, sequencing coverage, etc.) than a carrier screening panel. –The standards would not require the use of a specific sequencing platform, chemistry or software. –Additionally, this approach could also set minimum analytical and clinical validity standards (e.g., the test must have a sensitivity and specificity of at least 90%) or if analytical/clinical validity studies are required. Role of databases www.XIFIN.com33

34. www.XIFIN.com34