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CMS Meeting Suggests Growing Lab Interest in ADLT Status

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NEW YORK – The Advanced Diagnostic Laboratory Test (ADLT) status provided for by the Protecting Access to Medicare Act (PAMA) has seen little uptake by clinical labs thus far, but recent developments suggest that could be changing.

In May, three tests received ADLT approval, bringing the total number of ADLTs from two to five, and at the recent Centers for Medicare & Medicaid Services Clinical Lab Fee Schedule, several firms discussed pursuing the designation, including Myriad Genetics, which is exploring ADLT status for its MyPath Melanoma assay.

While this doesn't represent a tremendous uptick in labs pursuing ADLT approval for their assays, it does suggest that the designation is drawing increased interest.

ADLTs were created under PAMA partially in response to lab concerns about what they considered low proposed crosswalk prices for certain assays, said Bruce Quinn, head of consulting firm Bruce Quinn Associates and an expert in reimbursement.

ADLTs undergo a pricing process separate from the larger PAMA regime, in which pricing for new tests is based on a test's list price for its first nine months on the market and then a weighted median of private payor prices after that. If the initial list price proves to be greater than 130 percent of the median private payor price, CMS can recoup the difference.

For existing tests, ADLT pricing is simply based on the weighted median of private payor prices.

In the case of both new and existing tests, ADLT pricing is recalculated annually, as opposed to every three years for all other tests governed by PAMA.

Because pricing of new ADLTs is based on the lab's list price, firms are able to avoid the crosswalk process, which many have complained does not assign fair value, particularly for newer molecular assays. However, despite this advantage, few labs have applied for ADLT status for their tests.

Quinn suggested several possible factors underlying the apparent lack of interest in ADLT status. For new tests and tests under development, ADLT status could be attractive in that it theoretically provides a company and its investors with a level of transparency around its initial pricing, as rates are set by the company as opposed to by CMS. However, Quinn noted, there are "relatively few eligible [new] tests."

To qualify for ADLT status, a test must either be a sole-source, US Food and Drug Administration-cleared assay or a sole-source Multianalyte Assay with Algorithmic Analyses (MAAA).

"Only a relative handful of sole-source new MAAA tests are approved for coverage each year," Quinn said. "And very, very few sole-sourse lab tests are FDA approved."

He noted that while there is a larger set of existing tests that could apply for ADLT status, the benefit of ADLT status for these assays was not obvious. Their rates would be set based on existing private payor rates, just as rates are set for non-ADLTs under PAMA.

However, because these rates would be recalculated annually, rather than every three years as under the standard PAMA process, ADLT status would likely increase a firm's uncertainty around pricing, providing "little upside risk for established tests, since the price increase in each single year is unlikely to be high, but [providing] downside risk, because price and market are always somewhat uncertain," Quinn said.

He added that a company might apply for ADLT status for an existing test if it knew that private payor reimbursement for the test substantially exceeded its Medicare reimbursement rate.

However, he said, "we observe that this almost never happens, so that scenario probably doesn't occur often."

In a March 2018 blog post, Quinn did suggest a route that labs might potentially take to goose their private payor data and thereby garner higher payments for their ADLTs.

CMS bases private payor rates on tests for which a final payment amount is determined during the data collection period. This, Quinn noted, could incentivize labs to appeal any lower-priced payments received for an ADLT during the collection period so that these payments don't become finalized during that period leaving only data from high-priced payments available for establishing the weighted median used over the next billing period.

Brian Carey, a partner at law firm Foley Hoag focused on healthcare, suggested that a major reason few labs have applied for ADLT status for their test is the newness of the designation.

Though it was passed in 2014, PAMA didn't go into effect until 2018, meaning companies have only had a little over a year to apply for the designation.

Additionally, Carey noted, in order to apply for an ADLT, a test must be covered by CMS, "and to get covered by a Medicare contractor can take a year or two years."

"You are really just looking at new tests that have come out since 2018 and have been able to get covered by Medicare that would be eligible," he said.

In 2018, two tests received ADLT designation — Foundation Medicine's FoundationOne CDx test and Biodesix's Veristrat. The former was new to the market, and Foundation Medicine saw its stock jump after the test received approval as an ADLT priced at an initial rate of $3,500.

Biodesix's Veristrat, on the other hand, had been on the market for several years and so was priced using private payor data.

Like Quinn, Carey said that there is probably little benefit for tests already on the market to secure ADLT status.

"The advantage for existing tests really was that back in 2014 the way the law was written it was possible that CMS could have implemented the existing ADLT provision in 2015 or 2016 before PAMA reporting went into effect," he said.

This would have allowed existing tests that qualified as ADLTs to avoid the crosswalk or gapfill process and base their pricing on private payor rates.

"Instead, CMS delayed the whole law until 2018, and then most of the existing tests just got a rate through the standard triannual PAMA reporting, so the ADLT provision was not important for the existing ADLTs," Carey said. "Given where we are now in 2019, it will be primarily new tests that seek to apply for ADLT status and will have their initial payment rates set based on private payor data rather than crosswalk or gapfill."

He said that based on increased FDA clearance or approval for new tests, he anticipated the number of new tests applying for ADLT status would grow despite the slow ramp up thus far.

The June 24th CMS public Clinical Lab Fee Schedule meeting showed an uptick in approved ADLTs, with three additional tests receiving ADLT approval on May 17, 2019—Biodesix's BDX-XL2 proteomic test for assessing the probability of malignancy of lung nodules; and Castle Biosciences' DecisionDx-UM and DecisionDx-Melanoma tests.

The BDX-XL2 test and DecisionDx-Melanoma test were both new to market and were priced at $3,520 and $7,193, respectively. The DecisionDx-UM test was already on the market and priced according to private payor data.

In a post following the meeting, Quinn noted that in addition to these three new approvals, several labs presenting at the meeting said they had tests currently in the ADLT process. Among these companies was Myriad Genetics, which has applied for ADLT status for its MyPath Melanoma assay. Myriad declined to comment for this story.

As for whether this activity indicates an inflection point in the ADLT story, Quinn remained circumspect.

"There are certain circumstances where ADLT's might be favorable, and so some companies seem to be hitting [upon] that," he said via email. "Although it's [just] several new tests, not a landslide."