February 15, 2010 (Vol. 30, No. 4)

Currently, Rates of Reimbursement Are Based Solely on the Method of Test and Not on Its Value

Companion diagnostic tests enable physicians to recommend safer and more effective treatment plans where therapeutic selection is based on the genetic makeup of the patient. Many companies are eager to participate in the currently nascent companion diagnostics market; there is a lot of industry buzz, interest, and intent. However, market leaders are few and far between, and most prospective players are either learning the rules of the game or following a wait-and-watch policy with respect to reimbursement.

Because companion diagnostic tests help to reduce or eliminate adverse events associated with certain treatments, they can save reimbursement agencies hundreds of millions of dollars associated with ineffective or harmful treatments. Accordingly, payers are eager to support companion diagnostics that enable clear decision-making and provide clinical utility.

There is no clear or standardized method of setting a reimbursement rate for a companion diagnostic test. Instead, reimbursement is set on a case-by-case basis whereby payers determine what is best for their beneficiaries in terms of improving their quality of life and treatment outcomes. Additionally, reimbursement requires evidence-based prognostic clinical trials data, as retrospective analyses alone are not sufficient to show improved patient outcomes.

A companion diagnostic that provides information regarding whether to proceed or halt a particular medical procedure allows for immediate costs/benefits analyses. The costs and cost savings associated with a test that enables a yes/no decision regarding drug therapy can be determined with relatively straightforward calculations. Dosing and outcomes based on drug-metabolism tests, however, remain uncertain.

Moreover, there is no clear line in performance for manufacturers to demonstrate to payers for reimbursement. A 10% improvement in response rates versus an 8% or 5% improvement may or may not justify a particular price. Instead, payers look at all available data and try to make as sound of a decision as possible.

While data on costs and benefits serve to support the reimbursement of the companion diagnostic test in question, rates of reimbursement are based solely on the method of test (e.g., immunoassay and  PCR) and not on its value. Payment is arguably set by the largest payer, the Centers for Medicare & Medicaid Services (CMS); and Current Procedural Terminology codes managed by the AMA help standardize reimbursement among all the payers. The CMS can set precedence for other payers to follow suit but it does not guarantee that health insurance companies will set a higher reimbursement rate.

Reimbursement for companion diagnostic tests can range from tens to thousands of dollars. The widely marketed HER2, Invader UGT1A1, and CYP450 warfarin tests are generally sold as kits for lab customers to readily use and are reimbursed for $50 to $100.

Other companion diagnostic tests are offered as laboratory-developed tests whereby samples are sent to an in-house laboratory that negotiates with each payer for reimbursement, and there is high reimbursement due to labor and service involved, often greater than $1,000. A third category of companion diagnostic tests, such as KRAS and EGFR, are sold as analyte-specific reagents, whereby elite lab customers perform QA/QC and validate the test themselves with each test priced from $100 to $200.

Clinical utility of companion diagnostics

Jonathan Witonsky ([email protected]) is a senior analyst at Frost & Sullivan. Web: www.frost.com.

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