The Reimbursement Outlook for Biomarkers in Combination Drug/Diagnostic Products

By Michael Goodman, Editor-in-Chief, CHI Insight Pharma Reports (www.insightpharmareports.com),

Although much attention has been focused on the utility of biomarkers in pharmaceutical R&D and, less so, in medical practice, not much attention has been paid to how biomarkers will fare in the world of plans and reimbursement. The Secretary’s Advisory Committee on Genetics, Health, and Society stated in its 2005 draft report Coverage and Reimbursement of Genetic Tests and Services: “While advances in genetics and genomics are driving the development of new genetic tests and services, problems with coverage and reimbursement are limiting their accessibility and integration into the health care system.” This judgment holds equally for non-genetic tests such as endogenous protein or biochemical markers.

Biomarkers are analytes; however the devices that detect and measure them are subject to regulations governing the approval and coverage of diagnostic products. Biomarkers will reach the market via several pathways. One route that holds particular interest for the pharmaceutical and diagnostics industries is to bring them to market as combination drug/diagnostic products. In this scenario, a biomarker might identify a patient or subpopulation and authorize the use of a specific therapy. In CHI Insight Pharma’s May 2007 report “Combination Drug/Diagnostic Products: Pathways to R&D and Commercial Success” we surveyed individuals involved with combination drug/diagnostic R&D about their views and plans with regard to drug/diagnostic development.

The current level of activity in combination drug/diagnostic models is surprisingly high and is expected to increase dramatically. In its proprietary survey, CHI asked its respondents the number of drugs that they currently have on the market or in development that will be paired with a diagnostic. Approximately 9% stated that they currently have at least 4 paired drugs and diagnostics (N=82); about 30% said that at least 2 or more drugs are in development. The volume of paired drugs/diagnostics increases when respondents are asked about the situation 3 years from now, as the mix of companies having 4 or more drug/diagnostic combinations rises sharply to 19% (N=79). 

The U.S. Diagnostic Market – Historically Low Expectations

Unlike the drug sector, there is no model for a “blockbuster diagnostic”. Moreover, the US Medicare coding and payment mechanisms for diagnostics are labor-intensive, inflexible, opaque, and inconsistently applied. However, momentum is building to reform the regulation of diagnostics. In vitro diagnostics require significant investment in research, clinical validation, and marketing if a diagnostic venture is to have a chance of succeeding with a new test, and yet the margins to justify this expense are simply not there. 

These problems are intensified in the case of molecular diagnostics by uncertainties about the enforceability of gene patents and the complications this poses for licensing negotiations over key technologies. However, these added risks are more than offset by the commercial potential for biomarker-based molecular testing in conjunction with drug therapy, potential that conventional clinical diagnostics cannot show to a comparable extent.

Although the potential returns for diagnostics are generally less inviting to investors than therapeutics, the sector does offer several advantages. For example, development of a diagnostic does not require the lengthy clinical trials process that a drug company must comply with to obtain marketing approval. Consequently, development timelines are shortened and time to market accelerated.

Diagnostic Coding Requirements: An Outdated Hurdle to Adoption?

Diagnostic coding and payment procedures in the United States do not recognize innovations in technology nor do they reflect a diagnostic technology’s value to patient healthcare. Typically, a new diagnostic is assigned an existing CPT code (current procedural technology). This is true even for one using a novel technology and demonstrating superior product attributes such as greater accuracy or resulting in enhanced clinical insights. Consequently, a new diagnostic technology is often compensated at the same dollar amount as, or in some cases less than, previous diagnostics that share the same code. Physicians and testing laboratories, therefore, have little incentive to prescribe newer tests, which in turn restricts patient access to innovative diagnostic technology and, consequently, tailored, or “personal” therapeutics.

However, there are signs that, on a case-by-case basis, negotiations with insurers based on clear and compelling clinical data will result in more favorable reimbursement rates for innovative diagnostics. Genomic Health’s Oncotype DX test (see case study, below) is reimbursed at a cost of approximately $3,500 ― an order of magnitude higher than conventional in vitro diagnostic tests. Also, the Advanced Laboratory Diagnostics Act of 2006, which aims to “establish a new payment system for molecular diagnostic tests designed to more appropriately reflect the value of these important technologies to patient care management,” is working its way through the US Congress. 

Reimbursement incentives are probably the most important determinant of the market opportunity for combination drug/diagnostic products, and will drive the allocation of financial and human capital toward enabling this approach. The CHI survey and direct interviews clearly state the views of industry regarding reimbursement: “Sufficient reimbursement or premium on diagnostic/drug combination to provide ROI [return on investment] for additional investment” and “specific and clear regulatory approval thresholds and processes” were the two most significant incentives for pursuing a combination strategy, with 32% and 28% of survey respondents (N=69) stating that those were the most important, respectively (See figure below). Less attractive on a relative basis, but clearly important, is the possibility of “patent extension” chosen by 19% of total respondents. Interestingly, the public and private capital markets focused on this opportunity drew a relatively low response rate, with 15% of total respondents viewing this sector as an “attractive incentive”. 

Incentives that Will Drive Industry Adoption of Combination Rx/Dx Products

Source: Cambridge Healthtech Institute. Insight Pharma Reports. Combination Drug/Diagnostics Survey—4th Quarter, 2006. ©2007. www.InsightPharmaReports.com 

A Case Study in Reimbursement for a Molecular Diagnostic: Genomic Health’s Oncotype DX

Genomic Health’s Oncotype DX test helps predict the likelihood of breast cancer survival in a community setting that represents approximately 1% of the US population. Oncotype Dx is one of the first commercialized gene expression RT-PCR diagnostic tests. It analyzes gene expression of 21 genes that have known associations with distant disease recurrence. It is intended for use in patients with newly diagnosed breast cancer. By providing a quantitative assessment of the likelihood of distant recurrence, the assay can help clinicians predict the benefits of certain types of chemotherapy. Recent studies demonstrate that Oncotype DX can also test for estrogen receptor (ER) status, another important biomarker in breast cancer. Quantitative analysis by Oncotype DX of ER and progesterone-receptor (PR) status can demonstrate differing prognosis and prediction of benefit from Nolvadex (tamoxifen) among node negative cancer patients.

Several regional payers support reimbursement for Oncotype DX and have entered into agreements to pay for it at a certain price under certain terms. For example, the Kaiser Foundation Health Plan and Medicare’s California contractor, the National Heritage Insurance Company, have entered into a national clinical laboratory services agreement to reimburse Oncotype DX tests performed for their patients. (Kaiser Permanente was instrumental in conducting a large clinical study that confirmed the benefits of Oncotype Dx.) A press release from Genomic Health (February 6, 2007) stated that the company signed a national payer contract with United Healthcare in January 2007, establishing coverage for Oncotype DX across all its plans. This agreement followed a national payor contract with Aetna announced in the 4th quarter of 2006. Moreover, several regional Blue Cross plans have established reimbursement policies for Oncotype DX test services.

In early February 2006, Genomic Health obtained its first reimbursement coverage outside of the United States with Clalit Health Services, the largest government payer in Israel, which covers 60% of the population. The test is offered in Israel through an agreement with Teva Pharmaceuticals. Reimbursement rates for the test are more than $3,100. As other payers and providers of diagnostic tests perceive the benefits of this model, they will raise its revenue and profit-generating capability to a new, higher plateau.

The incentives that are driving increased adoption of combination drug/diagnostic products are clearly economic reimbursement and regulatory consideration for the pathway pursued. If a combination strategy can be profitable for the diagnostics company and for the payer providing the test, then we believe that reimbursement potential certainly exists.

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