The Reimbursement Landscape for Novel Diagnostics: Current Limitations, Real World Impact and Proposed Solutions

The Biotechnology Industry Organization (BIO) recently released a report entitled, “The Reimbursement Landscape for Novel Diagnostics: Current Limitations. Real-World Impact, and Proposed Solutions.” The report, which was conducted by Health Advances, examines the limitations of the nation’s reimbursement system for novel diagnostics and the impact of these limitations. The report also catalogs potential reforms that have been proposed by an array of stakeholders.

The report found that significant limitations in the current reimbursement system for novel diagnostics lead to inconsistent coverage decisions and impede the investment necessary for the development of the next generation of diagnostics. These limitations reduce patient access to novel diagnostics and, ultimately, to personalized medicine.

Executive Summary

Personalized medicine has the potential to revolutionize patient care because it can deliver the right treatment to the right patient at the right time. “Novel diagnostics hold great promise as tools that allow physicians to differentiate patient-specific characteristics, design personalized treatment approaches, and ultimately improve patient outcomes. The successful delivery of novel diagnostics is the foundation of personalized medicine in our evolving healthcare system.”

Despite the clear promise that novel diagnostics hold for achieving the success of personalized medicine, a number of obstacles stand in the way, such as challenges to the reimbursement system, specifically in obtaining affirmative coverage, appropriate coding, and value-based payment for novel diagnostics.

 As the report notes, “the current reimbursement system was designed to support relatively simple diagnostic tests that formed the basis of the traditional diagnostics industry. The system was not designed to support novel complex diagnostics, and research suggests that its shortcomings are compromising the progress of personalized medicine today.” The report is organized to offers stakeholders:

–       A clear description of the current reimbursement system

–       Limitations of the current reimbursement system

–       An examination of how these limitations impact investment in novel diagnostics and may ultimately impede patient access to personalized medicine; and

–       A critical exploration of potential solutions for reform

Key Findings:

Significant limitations exist in the current reimbursement system for novel diagnostics.

–       The coverage evaluation process for novel diagnostics lacks transparency, varies across payers, and is inefficient in many ways, all of which lead to inconsistent coverage decisions that limit and delay patient access to personalized medicine.

–       The current coding and payment systems do not accurately describe novel diagnostics, reflect the value of these tools to patients, or account for the need for increased development resources to support highly impactful claims.

–       In an attempt to capture a reimbursement amount that reflects a diagnostic’s true value to patients and providers, many developers use a method known as “code stacking” or pursue a miscellaneous code.

–       These coding practices have led to increased payer scrutiny, in turn pushing developers to generate economic studies geared towards payers and providers to justify value-based pricing. However, without standardized approaches, these studies are often met with skepticism, leaving true value-based pricing elusive for many tests.

These limitations impede investment and the development of novel diagnostics, and they ultimately reduce patient access to personalized medicine.

–       Novel diagnostic developers do not have a clear set of expectations for the level of evidence that is necessary for reimbursement, including specific clinical trial requirements and optimal outcome measures. This has created inefficiencies in the development of novel diagnostics and a ballooning in R&D costs.

–       Additional sales and marketing costs are also incurred by diagnostic developers as the payer community must be educated on the utility and value of these novel diagnostics. The current coverage decision-making process often requires developers to devote costly resources to securing coverage payer by payer, in addition to education and marketing efforts directed towards providers.

–       These costs help drive the need for higher pricing and earlier product launch to allow for quicker revenue generation. Without a clear regulatory system in place, some tests are launched prematurely without extensive data on clinical utility. These trends, in turn, increase payer scrutiny on all novel tests and force developers to outlay more resources, further feeding the cycle.

–       An uncertain reimbursement environment has led to a declining rate of investment, venture capital, alliance deals, and acquisitions.

–       In addition, uncertainty around coverage can keep some physicians from ordering a novel diagnostic that could improve patient care.

–       These limitations reduce patient access to novel diagnostics and, ultimately, to personalized medicine.

An array of potential reform options has been raised within the personalized medicine community. Stakeholder support and a commitment to advance personalized medicine will be key drivers of reform.

–       A continuum of niche, moderate, and broad reform solutions offer different levels of beneficial impact and feasibility of execution.

–       Niche solutions address specific issues in the short- to mid-term. Examples include establishing a set of complex analytics codes, a system of test-specific codes, and a set of economic study standards for novel diagnostics.

–       Moderate solutions impact multiple issues in the mid-term. Some examples involve facilitating diagnostic coverage with evidence development and/or risk-sharing payment schemes.

–       Broad reform solutions require significant time and resources but provide the most impact, such as the establishment of a single coverage and value assessment body for novel diagnostics.

–       No individual reform measure can positively impact the entire system. A multi-solution approach to the current system’s limitations can provide short-term benefits while building towards broader diagnostic reimbursement reform.

Discussion

In a press release announcing the report, Kristin Pothier, a partner at Health Advances and co-author of the report asserted that “Novel diagnostics hold great promise as tools that allow physicians to differentiate patient-specific characteristics, design personalized treatment approaches, and ultimately improve patient outcomes.” Accordingly, she recognized that it is “critical to identify barriers to the development and utilization of these innovative products in order to overcome them.”

“Novel diagnostics form the foundation of personalized medicine. At this time in our nation’s mandate to reform healthcare delivery, stakeholders have a vital responsibility to patients and to society to advance personalized medicine, beginning with reforming the reimbursement system for novel diagnostics,” stated Sara Radcliffe, Executive Vice President of Health at BIO.

Ultimately, the report urged stakeholders to “take action and begin the reform process for the greater medical and economic good.” Since these novel diagnostics hold such great promise as tools to allow physicians to treat patients with personalized medicine, policymakers, industry, and the public should work together to ensure these products make their way into practice in order to improve patients lives.