We at Kalorama Information have just released the Eleventh Edition of our flagship publication,The Worldwide Market for In Vitro Diagnostics. This report has been updated for two decades, keeping readers informed about developments in all areas of the IVD industry, around the world, in one volume. At 1,800 pages, the report provides market size estimates and projections for the entirety of the clinical diagnostics testing market. It also profiles hundreds of competitors, notes significant acquisitions and other deals, discusses trends and breaks out regional and country markets. The latest edition provides market size and forecasts to 2023 for defined segments of the IVD market and various sub-segments.
The Centers for Medicare and Medicaid Services (CMS) introduced revised payments, effective January 1, 2018, for clinical diagnostic laboratory tests based on median values that will be reported during 2016 and 2017. All laboratories that have more than $12,500 in Medicare revenues from lab services and who receive more than 50% of their Medicare revenues from laboratory and physician services during a data collection period are required to report both private payor rates and volume data. Payments for lab services through Medicare are maintained in the Clinical Laboratory Fee Schedule (CLFS), and the Physician Fee Schedule (PFS).
Companies are expecting a reduction in payments due to the upcoming changes but the results and how they affect each company will vary. For the three year period after the prices are established a test price cannot be reduced by more than 10% per year and for 2021-’23, a test price cannot be reduced by more than 15% per year.
According to CMS, approximately 55% of independent laboratories and about 95% of physician office laboratories will be excluded from reporting private payor data but the remaining laboratories reporting account for 99% of CLFS lab spending and 92% of physician lab spending. The regulation allows for civil monetary penalties of up to $10,000 per day for failure to report or for reporting fees incorrectly.
Signed into law in 2014, PAMA establishes a market-based pricing system for lab tests where Medicare payment for a test equals the weighted median of private payor rates. In implementing a process for collecting the information needed to establish pricing, CMS said only “applicable labs” could report test payment rates and volumes from private payors.
PAMA is intended to introduce a more organic methodology to reimbursement adjustments for lab testing under Medicare and will replace uniform cuts implemented across the Clinical Laboratory Fee Schedule (CLFS) with the Affordable Care Act (ACA) and other past legislation. The recent CMS final rule delays implementation of market-based pricing to 2018 and expands the body of reporting labs in order to make prices more reflective of the entire lab market. The law has the potential to significantly cut Medicare reimbursement prices on routinely performed, highly automated tests – sparking further consolidation in the clinical lab services market – and increase IVD industry emphasis upon the development of new biomarkers and sophisticated and esoteric assays. In a blog post on its website, Kalorama Information expects the new law to hit smaller labs the hardest.
ACLA files suit
CMS sought public comments on its draft payment rates until late October 2017, intending to publish final rates in November. The segment of the lab community that largely fared well in the PAMA pricing process, makers of single-source, multianalyte algorithm-based assays, or ADLTs, supported the timeline.Over 6,000 comments were submitted, with many asking the agency to delay PAMA implementation and reevaluate the data collection process; in December 2017, the American Clinical Laboratory Association did just that. ACLA filed a request for an injunction against HHS to delay PAMA implementation and for CMS’s data collection process to be reevaluated. ACLA argued that CMs instituted a flawed data reporting process that excluded the majority of laboratories from reporting private payor data. To wit, 90% of CMS’s data came from independent laboratories, while 7.5% came from physician office labs; only 21 out of seven thousand hospitals reported payor information, representing just one percent of the data collected, while they accounted for nearly a quarter of the Medicare payments made under the Clinical Laboratory Fee Schedule.
CMS performed a simulation to gauge whether including more independent, physician office, and hospital labs would have significantly impacted rates, and concluded that it wouldn’t have made much difference. According to CMS, based on information collected from applicable labs, payment for lab tests would decrease by 21.9 percent in 2018, compared to the national limitation amount it paid for lab tests during 2017. According to the simulations it performed, allowing more labs to report would have decreased payments by around 20 percent.
According to the lawsuit, most of the data was collected from two companies: Quest Laboratories and Laboratory Corporation of America, whose lab facilities are primarily located in urban areas and have lower cost structures. However, both companies have issued statements in support of the lawsuit, agreeing that the data collection method employed by CMS was indeed flawed.“Hospitals and physician office labs comprise half of Medicare clinical lab fee schedule volume and lab spending, but only accounted for 8.5 percent of the reported lab volume used by CMS to calculate the rates,” said Quest CEO Steve Rusckowski. “The new PAMA rates published by CMS do not reflect the intent of Congress when it directed CMS to implement market-based Medicare rates for lab testing,” said David P. King, chairman and CEO of LabCorp. “We join with the American Clinical Laboratory Association (ACLA) and others in our industry in calling on Congress to take swift action to prevent the harm that will occur if these rates take effect.”
Winners and losers
Not all the news was bad. PAMA created a new category of assays, called advanced diagnostic laboratory tests (ADLTs), which CMS has defined as tests developed and offered by a single lab that use a unique algorithm to analyze multiple DNA, RNA, or protein markers, and which provide new clinical diagnostic information that can’t be obtained by any other test. Each test will be identified by codes unique to them, but the ADLT definition is controversial among industry players. Test developers are awaiting further clarification from CMS regarding the requirement that ADLTs must provide new clinical diagnostic information.These tests will be paid full list price for three quarters after their introduction, then payment will be based on weighted median private payor rates like all other tests are.In this category, Veracyte’s Afirma Gene Expression Classifier, for distinguishing which thyroid nodules are benign and which are suspicious of cancer, had a price increase from $3,222 to $3,600, while CareDx’s AlloMap test for gauging cardiac transplant rejection risk increased from $2,841 to $3,240.
Other winners— or “less less-fortunate”—include Myriad Genetics, as its myRisk Hereditary Cancer test received an initial price of $2,949, up from $2,781 in 2017, and the company’s Vectra DA rheumatoid arthritis test also saw a pricing bump to $841, compared to $591. However, CMS’ proposed pricing could be 10 percent lower for Invitae’s hereditary cancer panel, which is currently being paid at $931 and got a 2018 PAMA price of $838. Exact Sciences’ Cologuard saw a slight dip from $512 to $509. Illumina and Natera’s Noninvasive prenatal testing is currently paid at $802 and its proposed reimbursement was reduced to $759.
Genetic sequencing procedures (GSPs) designated for diseases affecting the Ashkenazi Jewish community shot up from $602 this year to $2,449.However, there appears to be no relation between reimbursement and the cost of GSPs, as a panel for Lynch syndrome fell from $802 to $722. Genomic Health’s Oncotype DX breast cancer recurrence test, previously paid at $3,443, has increased to $3,873; the company’s Oncotype Colon Cancer test saw a miniscule reduction from $3,126 to $3,116. Pricing for next-generation sequencing panels of 50 genes or less got a tiny bump from $598 to $602; panels of greater than 50 genes, being listed for the first time, get $2,920.
Infectious disease testing took a huge hit, from antibody assays to nucleic acid amplification tests, for a whole host of targets, with rate reductions in the 30-35% range. Multiplex respiratory syncytial virus DNA testing saw a range of cuts, going deeper with the number of pathogens being detected—now a test that detects 12-25 targets only rates $11.10 more in reimbursement than one that targets 6-11, eliminating any economic advantage of greater multiplexing. Rates for immunoglobulin M antibody tests forChlamydia trachomatisdrop nearly 39%, while a NAAT for the pathogen falls just over 35%. An HIV-1 quantification and reverse transcription test loses 36.35% of its reimbursement value, while a simpler antibody test falls by “only” 30.22%. Generic DNA amplification tests fell over 37%, and hit particularly hard areTrichomonas vaginalisandStreptococcusA NAATs, rates for both reduced by well over 40%.
Other problems impeded fair pricing. There were some chasmic ranges in pricing for some non sole-sourced procedures; for example, the median price for BRCA genetic testing was reported to be $2,395, but the high end of the spectrum showed payments of up to $30,000. CMS had to use gapfill and crosswalk methods to post preliminary pricing for 58 CPT codes for which the agency had received no reports; CMS treated some of these procedures, some of which were not well enough understood for their pricing determination, like existing procedures the agency perceived to be in some way similar. CMS is proposing to remove some of these from the CLFS, but there is no provision in PAMA to do so.
For the source of these rate changes and more, see CMS’s page on 2018 PAMA regulations.
According to AACC, clinical labs are going to be suffering cuts of up to 30% over the next three years; the most efficient, financially healthy, and strategically diversified labs will be the ones to survive, and smaller labs will be feeling the most pain. Among them are those that serve nursing homes and those that receive most of their testing payments from Medicare and Medicaid, and they are not likely to survive. For example, Aculabs, a laboratory testing company that tests for over 300 nursing and assisted living facilities, will lose 30% of its revenue over the next three years; elderly patients will have to be moved to more costly hospitals for their testing.
While laboratories that offer proprietary testing will fare better—Genomic Health’s Oncotype DX Breast Cancer test will be reimbursed $3,873 and CareDX’s AlloMap test will get $3,240—private payors will not be willing to pay such prices, and this will diminish over time. Overall, results are mixed; the outlook varies for physician office labs, as rates for some tests like HbA1c and specimen cultures will get a boost over the coming three years, while they will fall for others, like complete blood counts. To compensate, labs may perform customized test profiles that Medicare will pay on an individual test basis, as it had announced it would do beginning on the first of January. Hospital outreach labs will not fare so well with the coming cuts, and many health systems have already sold their labs to Quest or LabCorp last year.
Whether ACLA’s lawsuit changes outcomes or not, AACC asserts that laboratories will have to become more streamlined in order to survive. Many are already consolidating, reducing test costs through economies of scale, and they may also form networks to gain leverage by negotiating contracts as larger entities. Outsourcing billing to a commercial vendor can also save money, costing as little as half of in-house billing. Automation increases efficiency and reduces costs, not only through increasing speed and throughput, but also by reducing errors and the use of manual labor.