Reimbursement of Personalized Medicine Diagnostics: What Path Forward?

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By their nature, diagnostic tests play a central role in the personalization of medicine: one can only better characterize a disease process, or predict who might respond well or poorly to a treatment, by measuring some biological characteristic of the patient. In fact, the explosion of human genetic information and advances in diagnostic technology platforms over the past decade have at last permitted real progress in personalized medicine.

This scientific progress is yielding notable successes. For example, use of certain therapies for colorectal cancer is now linked to testing for the KRAS gene mutation based on evidence developed by the therapeutics manufacturers.

However, despite the dramatic growth in the number and power of advanced diagnostic technologies, the increasing clinical and economic value of the tests derived from them, and the therapeutic power of the drugs whose use can and should be guided by those tests, the reimbursement system for diagnostic tests has not evolved to accommodate the development and adoption of personalized medicine diagnostics (PMDs). 

Reimbursement for diagnostic tests is grounded in decisions made and systems developed decades ago.  It reflects outmoded patterns of health care delivery and increasingly antiquated payment mechanisms.  It relies on timelines that progress far more slowly than the pace of PMD development, evidence standards that are ill-suited to the clinical and economic realities of PMD development, and payment methodologies that reflect neither the purpose nor the clinical and economic value of PMDs.

Consequently, many PMDs are not reimbursed appropriately. Such inappropriate reimbursement inevitably leads to inadequate access. If there is uncertainty about the ability to recoup the cost of developing or performing a PMD test, then the laboratory will not offer it, if indeed anyone even invests in its development. If the physician must provide an elaborate justification of medical necessity, then the test will not be ordered. If the patient is told that Medicare is unlikely to reimburse, then the test will be refused. In all cases, the patient will be denied the benefits of personalized treatment – the right medicine, at the right time, for the right indication.

What, then, can be done to improve this situation? Because appropriate reimbursement results from a complex interplay of codes, coverage decisions, policies, and payment amounts, addressing any of these aspects individually is inadequate. Instead, obtaining the full benefits of PMDs will require a fundamentally different reimbursement paradigm. This paradigm will require a system of PMD coding capable of distinguishing among PMDs with subtly different technical or clinical characteristics. It will require a payment methodology capable of delivering payment commensurate with the clinical utility and health economic value provided by PMDs. And it will require a coverage process and evidence requirements compatible with the realities of the clinical uses and market sizes of PMDs.

How we move from the current state to this new paradigm is not yet clear. We may need to carve PMDs out of the current reimbursement system.  Novel statistical methods for projecting clinical utility on the basis of small clinical data sets may need to be developed. Ultimately, legislation may be required to address shortcomings in Medicare’s reimbursement of PMDs.

What is clear is this: companies developing PMDs face significant reimbursement hurdles, particularly in cases where the PMD is not developed jointly with a companion therapeutic. If we want more PMDs, the required investment in product and clinical development must be recoverable through appropriate reimbursement, evidence requirements – whether at FDA or CMS – must be appropriate to the PMD being assessed, and reimbursement uncertainty must be reduced. It is critical that we address these issues, and soon, if we are to see personalized medicine continue to advance, and enjoy its benefits.

For a more in depth analysis of the reimbursement landscape facing PMDs, I invite you to read “The Adverse Impact of the US Reimbursement System on the Development and Adoption of Personalized Medicine Diagnostics” available for download on the Personalized Medicine Coalition website.

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