By Gary Tufel

This is an online-only companion article to the CLP June feature, “Personalized Medicine Progresses.” 

Susan Hertzberg, Boston Heart Diagnostics Corp

Susan Hertzberg, Boston Heart Diagnostics Corp

Venture capitalists and other investors see the benefits of next-generation diagnostics, but are leery because of uncertainty about whether a payment model will provide an adequate return. “This creates a lot of risk. We can develop a diagnostic procedure that’s a clear winner, but a payor can say it’s a ‘loser’ without saying why. That’s not the case with pharmas,” says Susan Hertzberg, president and CEO of Boston Heart Diagnostics Corp.

The laboratory-payment system was built on a cost-plus platform (procedural codes). As the science behind diagnostics has gotten more complex and expensive, diagnostic firms have increased need for a value-based reimbursement system like pharma and device manufacturers now have. So far, it hasn’t materialized, Hertzberg adds.

“Traditionally, with diagnostics, a specific analyte is identified as being important, so an assay is developed for it. The assay is subject to rigorous analytical validation to ensure its accuracy and specificity,” says David Brunel, CEO of Biodesix, which develops products for clinical decision-making and patient care. Such assays are commonly used in oncology, cardiovascular, and other disease areas. While useful, they often don’t capture the complexity of the patient’s disease and thus serve as relatively simple tools.

With personalized medicine comes, potentially, an increase in specific guidance. But because of the complexity of the tests, they require significantly more validation beyond just their accuracy in performing a measurement. They require prospective clinical studies to validate their utility. They are also often more expensive to perform and can only be performed in a specialty clinical laboratory. Conventional CPT coding for diagnostics is based on the procedures involved rather than the utility of the test or the cost associated with discovery and validation. And with personalized medicine technology evolving so rapidly, Medicare reimbursement policies and coding have had trouble keeping pace.

David Brunel, Biodesix

David Brunel, Biodesix

Personalized medicine reimbursement is unique and different from, say, pharma reimbursement, Brunel notes, because there are more hurdles to overcome. In addition, unlike with pharma, historically, CPT coding did not allow for branded products that would reward companies that invested heavily in research, development, and then clinical validation. And the research and development that goes into developing personalized medicine diagnostics is done, effectively, on spec, meaning that investment is necessary to accomplish everything required to get a diagnosis approved and to market, Brunel says.

At the end, it’s all about improving patient outcomes, he says. With the advent of new tools for measuring a large number of analytes (genes, gene expression, proteins, metabolites, etc), the prospect of developing much better diagnostic tools is here. This leads to better results but also to higher costs, says Brunel. “Many of the newer personalized medicine diagnostics have cost well over $100 million to get to market,” he says. And if your resultant product is reimbursed based on the “cost to run the test,” it’s hard to get investors to see how they can get a return on their investment, particularly given the risk of discovery, says Brunel.

Offering Value

To make headway in such a marketplace, developers like Brunel must convince payors that they offer diagnostics that provide significant clinical value, improving outcomes, and, hopefully, saving money by avoiding costly complications because of poor diagnosis and decision-making.

“Perceptions are reality; it’s been an uphill climb, and the bar keeps rising. In personalized medicine, better patient outcomes are measurable, but prospective, randomized, studies are needed to prove it,” says Brunel. “And payors also want to have concrete demonstration that the tests have actually changed doctors’ behavior, which requires post-marketing studies to be performed before you are approved for reimbursement.

“Companies like ours are happy with raising the bar, but we also want to be sure we’re ultimately reimbursed,” Brunel says. He notes that the Coalition for 21st Century Medicine has been instrumental in presenting the case to Congress for improvements in reimbursement for personalized medicine products and that the recently passed reforms to Medicare’s Clinical Laboratory Fee Schedule reflects that success, allowing advanced diagnostic procedures to have their own specific billing codes and be branded as well.

“We hope that this new legislation will permit a more open process in negotiating prices and encourage investment and innovation as well,” says Brunel. “Innovation should have a high bar, but if products improve clinical decision-making and save money for the overall health system, then those who have taken the risk should benefit,” he says. However, more education still needs to take place about the value that personalized medicine can bring, says Brunel.

Gary Tufel is a contributing writer for CLP. For further information, contact chief editor Steve Halasey via [email protected].