12:00 AM
Jul 15, 2013
 |  BioCentury  |  Regulation

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 LDTs, although it has long asserted its authority to do so.

In parallel, a jury-rigged Medicare coding system made it impossible for payers to make distinctions between lab tests based on their medical value.

This combination made it possible to launch molecular diagnostic LDTs and receive Medicare coverage with little or no clinical data, persuade key opinion leaders to prescribe the tests, and then use the endorsement of those KOLs to market the tests more broadly.

Regulation stalemate

Labs have been sparring with FDA for at least a decade over the agency's attempts to regulate LDTs, and so far they've kept the regulators at bay.

FDA Commissioner Margaret Hamburg opened the latest front at the American Society of Clinical Oncology meeting in June, when she announced the agency plans to eliminate the regulatory distinction between LDTs and in vitro diagnostics marketed to multiple labs or physicians that have long been subject to premarket review.

The agency has developed a draft guidance that would "regulate all in vitro diagnostic tests in the same risk-based framework the agency currently uses, whether or not they are performed by a single laboratory," FDA spokesperson Susan Laine told BioCentury.

Prospects for this approach still are clouded. According to Laine, the guidance is under review by the White House Office of Management and Budget, where it has been bottled up since before last year's elections. FDA must obtain OMB clearance to publish a draft guidance.

This isn't the first time FDA has proposed a regulatory scheme for LDTs. An agency attempt to extend its regulation to LDTs was shot down by the George W. Bush White House.

If the Obama administration approves the draft guidance, FDA may find it difficult to implement.

Antipathy to government regulation, bolstered by assertions from labs that imposing premarket clinical utility requirements would hinder innovation, has persuaded House Republicans to try to thwart any attempt by FDA to regulate LDTs.

The FDA Safety and Innovation Act requires FDA to inform Congress 60 days before publishing guidance or rules regulating LDTs - more than enough time for Congress to kill the effort.

Breaking the code

While FDA will find it difficult to use guidance documents or rules to impose clinical utility requirements on...

Read the full 3756 word article

User Sign in

Trial Subscription

Get a 4-week free trial subscription to BioCentury

Article Purchase

$150 USD
More Info >