In Tough Reimbursement Climate the Promise of Value-Based Pricing Harder to Realize

Specialized laboratories are caught in a catch-22. Value-based pricing of tests remains an alluring economic salvation, but in an environment in which reimbursement for previously covered tests is not guaranteed, value-based pricing models are being skeptically examined by payers intent on reining in health care spending. In the recently released white paper, 2013-2014: Evolving Challenges for Value-Priced LDTs, Bruce Quinn M.D., Ph.D., a senior health policy specialist at the law firm Foley Hoag, re-examines the case for value-based pricing nearly 10 years after the influential launch of Oncotype DX (Genomic Health), which has been credited with changing the reimbursement landscape for novel diagnostics. “Working in a field that is dominated by commodity pricing, the value-based model is seen as a panacea by lab industry executives. . . . However, this model requires not only value pricing argumentation on paper, but a market monopoly in practice,” writes Quinn. “My experience in watching the reactions of payer policymakers to value pricing economic models suggests that the value pricing scenario is often viewed by the listener as too artificial.” While heralded as a success, Oncotype DX took six years from the test’s launch for the company to achieve profitability. The hope is that more recently launched tests will face a shorter road to profitability given the rapid signs of positive reimbursement decisions by major insurers for coverage of noninvasive, cell-free fetal DNA testing. However, the true economic success of recently launched value-based tests won’t be realized for several years and the next crop of tests (including algorithmic, multianalyte tests and next-generation sequencing-based tests) are likely to endure tough scrutiny in a payer landscape confounded by increased transparency with the new molecular pathology codes and failure of the Centers for Medicare and Medicaid Services to recognize the value of algorithmic tests beyond the sum of their component parts. Quinn highlights the fact that most emerging tests fall into a gray area of value-based scenarios, compared to the black-and-white scenarios lauded in textbook cases. “It is rare that new tests address a clinical area where there is a dearth of information and in which the new test being developed promises to have a sole source position,” Quinn explains. “More typically, the clinical scenario comprises multiple and uncertain patient presentations, heterogeneous patients, and multiple therapeutic choices, and the new information provided cannot be regarded as a ‘monopoly’ type of information that can be framed in only ’one’ scenario for care (either X without our test or else Y with our test.).” In truth, blockbuster advances in any area of medical technology are rare, and most advances are incremental, leading payers to be skeptical because some novel diagnostic tests that are brought to their attention have relatively little advantage over existing practice, Quinn says. Additionally, despite the claims of cost savings, it is rare for a test to truly be cost-saving. Usually, the test simply is proposed to have an “acceptable” cost-effectiveness ($40,000 per quality adjusted life year), which means it is actually cost-increasing for the payer. From 2008 to the present, local Medicare contractors (particularly Palmetto GBA through its MolDX program) have been “early adopters” of these tests and have served as a great evidence base, but it remains to be seen whether this trend will continue, Quinn cautions. “The question for labs in 2013 and in years forward is whether the bulk of the market will step up to coverage relatively quickly after local Medicare coverage (the conventional diffusion model) or else, whether Medicare LCD decisions will appear more as ‘early adopter’ actions that are followed by a ‘chasm’ that needs to be crossed using deliberate and different strategies,” writes Quinn. This potentially increasing chasm will be difficult for laboratories to bear as converting each individual adopter into general market acceptance will require a substantial number of individual hearings with insurers. Quinn cites the fact that it now takes over 50 individual payer registrations, relationships, and contracts (traditional Medicare, 38 Blue Cross Blue Shield plans, and up to 10 different Medicare Advantage plans) to access the same 150 million covered lives previously covered under a local Medicare contractor and the Blue Card. The evidence that test developers must bring to these hearings is also highly disputable. Quinn says that while necessary, a dossier summarizing peer-reviewed publications is inherently viewed with skepticism because it is written by the company. Additionally, the evidence from technology assessments needed to win positive coverage is often biased against diagnostic tests since they are not evaluated in double-blind trials and survival may not be the best metric of tangible benefit. Companion diagnostic tests, which are studied in U.S. Food and Drug Administration trials for their corresponding drug candidate, are the most straightforward and often have the strongest evidence, while multianalyte tests reporting a single result based on an algorithm will be subject to greater scrutiny. “Technological change is only accomplished when adventure and investment are repaid; that is, when market prices are above marginal cost,” Quinn concludes. “Providing the appropriate, and hopefully socially optimal, repayment for the breakthroughs in molecular testing [is] a challenge that deserves to be faced head on.” Takeaway: While test developers are hopeful that value-based testing will win favor with payers, there will be increasing scrutiny of the evidence base to prove true cost savings to an increasingly fragmented payer market.