Coding for utility

Medicare clinical utility demands killing model for molecular diagnostic LDTs

New, tougher requirements for obtaining Medicare coverage are increasing the cost and time needed to get laboratory-developed molecular diagnostics onto the market and decreasing the certainty that they will be covered.

Empowered by a new CMS coding system that for the first time gives payers information about the molecular diagnostic tests they are being asked to cover, Medicare contractors are increasingly making coverage contingent on evidence of clinical utility - evidence that in many cases labs do not possess.

The cost of demonstrating clinical utility, along with the lack of clear or consistent standards, is killing a business model that had made it possible for small companies to commercialize molecular diagnostics quickly and cheaply.

The fate of these laboratory-developed molecular diagnostics companies, and especially the conclusions investors draw about the viability of the space, could shape the future of personalized medicine. Higher barriers to entry are likely to reduce the number of new tests and keep startups out of the diagnostic space.

Venture-backed labs contend that Medicare administrators are creating an untenable situation by requiring data packages similar in scope to those needed for drug approvals, while setting reimbursement rates at levels that are not commensurate with the expense and risk associated with extensive clinical testing.

The demand for evidence of clinical utility as a precondition for Medicare coverage has put at least one molecular diagnostic company, Predictive Biosciences Inc., out of business.

Payers, however, say it is reasonable for Medicare to cover tests only if there are data demonstrating clinical relevance, broadly defined as information leading to improved patient outcomes or physician decision making.

Some diagnostics companies, especially those with products subject to FDA approval, support the emerging requirements. They contend labs have unfairly benefited from regulatory loopholes and obsolete accounting procedures that granted a competitive advantage over companies that must conduct large premarket studies to demonstrate clinical utility to obtain FDA approval.

Both sides agree that by ratcheting up requirements for labs to demonstrate clinical utility, Medicare is tearing up an autobahn that allowed molecular diagnostics performed in a single lab - known as laboratory-developed tests (LDTs) - to get onto the U.S. market cheaply and quickly.

Molecular diagnostic LDTs had maneuvered into the fast lane because they largely bypassed both FDA review and payer scrutiny.

FDA has not historically exercised oversight over

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