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Q&A: ACLA President Alan Mertz on Regulatory, Reimbursement Issues Impacting Testing Space

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Update: On Dec. 14, ACLA announced that Alan Mertz was retiring as president and would play an advisory role at the organization, and Executive VP Julie Khani would take over the role starting next year. 

NEW YORK (360Dx) – For years it has seemed the lab testing industry has been operating under the threat of potential regulation from the US Food and Drug Administration and deep reimbursement cuts from the Centers for Medicare & Medicaid Services.

But things have started looking more favorable for members of the American Clinical Laboratory Association, a non-profit organization that for more than 40 years has been advocating for regulation and laws that encourage innovation in the lab industry. Its 37 members include large reference labs such as Quest Diagnostics, Laboratory Corporation of America, and ARUP Laboratories, and specialized molecular diagnostic players such as Myriad Genetics, Genomic Health, and Exact Sciences.

The organization was a key player in staving off indiscriminate Medicare cuts for lab tests in 2014, and building industry support behind a new law that will advance a market-based payment system in 2018 and provide more predictability in terms of the pricing reductions CMS could impose. The group also has persistently opposed FDA's desire to oversee lab-developed tests (LDTs), challenging the agency's legal authority to regulate lab procedures, which have been historically regulated by CMS under the Clinical Laboratory Improvement Amendments.

Amid shifting political alliances and priorities in Washington, DC, following the presidential elections, the FDA recently announced it would hold off finalizing a draft guidance it released two years ago that had outlined a nine-year, phased-in plan for regulating LDTs. In a statement, ACLA President Alan Mertz called FDA's decision a victory for diagnostic innovation and patients. Without the overhang of FDA regulation, now there could be "transparent discussion on meaningful reform," he added.

In an interview with 360Dx, Mertz discussed ACLA's willingness to consider legislation that would create an entirely new pathway for regulating LDTs, and the potential impact of forthcoming payment reform. Below is an edited transcript of the interview.


There are different estimates of how big the US lab testing market is. Does ACLA have an estimate of how many tests are on the market

There are a lot of different metrics we can look at. Probably the most comprehensive and current estimate is that for solely genetic tests — the estimate is that there are more than 60,000 distinct genetic laboratory-developed tests currently performed in the US. That doesn't include a large number of laboratory-developed tests that labs perform, and if you add those, it would certainly be over 100,000. There are figures in terms of the number of tests performed, and the best estimate we have is from G2 Intelligence that there are 10 billion individual tests performed per year, which amounts to more than $70 billion in revenue.

ACLA embraced FDA's decision to delay the draft guidance as positive news for its members, since your position is that the agency lacks statutory authority to regulate LDTs. So, what's next for ACLA in terms of the broader issue of LDT regulation?

We were pleased to hear that the FDA would not issue the final guidance at this time. We thought that was the right decision. From our perspective, we didn’t ever think they should regulate LDTs as medical devices. Certainly, given a new administration and Congress, we think this is the absolute wrong time to put out the guidance.

Since last year, the House Energy & Commerce Committee has been working very hard on a new legislative pathway for all diagnostics to really bring it into the 21st Century. Senator Lamar Alexander, the chairman of the Committee on Health, Education, Labor, & Pensions, had a really renewed interest in this over the summer and fall. With that leadership continuing in Congress, I think it's going to be a good opportunity next year to look for an entirely new approach to this through legislation.

The FDA's guidance would have really conflicted with this process and been very confusing. The guidance would have created obstacles to innovation. So, we're pleased with their decision.

Your statement in response to FDA's announcement was that it "has paved the way for a transparent discussion on meaningful reform that would protect diagnostic innovation and patient access." But will there actually be transparent discussion in the current political climate and with an incoming president who has promised less regulation in general? For example, Senator Alexander issued a statement saying FDA's guidance "could have halted more than 60,000 lab-developed tests in their tracks." But that's not really true, because as we've discussed previously there are an estimated 60,000 genetic tests that are LDTs, but more than 100,000 LDTs. And FDA had said that its plan included provisions for grandfathering and lessening the burden for a large swathe of the LDTs on the market.

Well, you'll have to talk to Chairman Alexander about that quote. But I was at the HELP hearing last September, and what he's referring to is that he asked one of the witnesses [representing] one of the academic labs that if FDA regulated LDTs in the way they were proposing in the draft guidance, would [the lab] continue to be able to innovate and continue to perform these tests, and [the witness] said, 'No.' So, there was some testimony that was of great concern that academic labs thought they'd have a hard time continuing to innovate and create all the new tests they're creating under that guidance. That's what that was referring to.

At that meeting in September, that you're referring to, FDA wasn't even at the table. The FDA has said that the HELP committee didn't ask the agency to attend the hearing as a witness or submit written testimony. So, do you think any discussion going forward on a legislative solution to LDT regulation would have FDA at the table?  

This year we were involved in the discussions with the House Energy & Commerce Committee and the FDA was there, as were other groups, including [the medical device trade organization] AdvaMed and some patient groups. So, FDA has been at the table and they have provided comments on various legislative proposals.

I can't speak for the Senate HELP committee. The FDA said they would be releasing some of their thinking on this topic. So, we'll hear some of their views, and I assume they would comment on the legislative approach as well. I'm sure they'll be part of the discussion.

Some legal experts have pointed out that there are still mechanisms that FDA can use to exercise enforcement over certain tests. For example, in the past, FDA has said that when a test doesn't meet the definition of a traditional LDT — a test developed, performed, and marketed at the same lab — then it's a device that falls outside of its historical enforcement discretion. Would ACLA have a problem with FDA taking enforcement action against tests using this rationale, as it did in the case of LabCorp's ovarian cancer test and Exact Sciences colorectal cancer test many years ago?

I'd have to refresh my memory of those cases before commenting more specifically.

Does ACLA have a definition of what constitutes an LDT?

We're all operating under the same definition, that a laboratory-developed test is a test that is developed within a single laboratory, and more importantly, it is performed within that lab. These tests are not sold to a different lab or multiple labs. Some labs might have more than one CLIA number, because for each facility there is a different CLIA number, but it's one lab even if it has different facilities. I think 99.9 percent of LDTs are developed and performed that way and not sold to another lab.

ACLA hired lawyers to make the case that LDTs are outside FDA's statutory authority. But if FDA continues to take action against certain tests that it considers a risk to public health or tests that it doesn't consider to be traditional LDTs, will you push back against the agency in those instances? 

We've made our position on litigation clear in the Citizen Petition we filed and in the white paper our lawyers Laurence Tribe and Paul Clement wrote almost two years ago now. We haven't litigated. If the FDA were to move forward with the guidance, certainly one option we'd consider would be litigation, and we keep that on the table should they move forward with the guidance.

In the molecular diagnostics space, some would say reimbursement is a bigger issue than regulation. What are the biggest concerns in the lab industry?

The implementation of the Protecting Access to Medicare Act of 2014 is a high priority at ACLA. We want PAMA implemented in a way that reflects the pricing across the entire commercial market, and it doesn't reflect the commercial pricing for just a certain sub-sector of labs. The proposed PAMA rule would have excluded most hospitals, which make a significant portion of the commercial market. The final rule would include more hospitals, because of the way it would define applicable labs. We're still looking at that. We want to make sure that it does include as much of the market as possible. 

We're also very concerned about the valuation of the new innovative tests: the multi-analyte algorithm-based assays and genomic sequencing procedures. Those kinds of tests present challenges under the new system in setting prices. We've been living with gapfilling and cross-walking rates, [while] setting up methodologies for new codes. CMS has produced some interim and even final rates that are pretty irrational and severely low.

It's really important that we have both PAMA implemented in a way that reflects pricing across the whole market, and that's particularly important for the more common tests, though the esoteric tests are also going to be impacted by PAMA. Then, with the new tests we have to make sure that the advanced diagnostic laboratory test [determination] process under PAMA, as well as the gapfilling and cross-walking process, is done in a rational way.

Can you explain why ACLA in 2014 decided to back PAMA? What was happening then and did PAMA offer a better alternative?

The memory of all that is very clear in my mind. In life, in business, and in government policy, the options are not always between having a perfect world and an imperfect world, and you pick the perfect world. We were faced with two options in 2014. The situation we were facing in the spring of 2014 before PAMA was enacted was quite clear based on what CMS had put out in proposed rulemaking that starting in January 2015. Over a five-year period, they were going to review all 1,250 [CPT] codes under the clinical lab-fee schedule and they were going to make adjustments to those, based on what they determined were commercial rates.

There was no limit on how much [payment] they could cut. They could have gone after the high-volume tests first, and there was no limit. We were very concerned because of the experiences we'd had with CMS cuts in anatomic pathology on the physician-fee schedule. There were just incredibly deep cuts on some of the tests. We would already be in the second year of cuts under that.

Congress told us very clearly that if we didn't come up with a market-based pricing system, in addition to the CMS cuts, they were also going to do across-the-board cuts that would have also started in 2015. That's why we looked at PAMA as a better alternative. Not perfect, but better. It provided some predictability and stability, and it wasn't going to start until 2017. And now, it's 2018.

We've had four years of no additional cuts, and there is a limit on how much CMS can cut prices. After the first cuts [scheduled to take place under PAMA] in 2018, there is another three years before the next cuts are due, and that gives us time to fix any problems with the first round of cuts.

But it really was a pretty clear choice.

Now that CMS has laid out its plan for implementing PAMA, industry observers are saying that it does favor big reference labs like Quest and LabCorp, and disadvantages small labs. What might the impact be on medium-sized labs?

Whether you are a small, medium, or large lab, they all bill Medicare and are reimbursed under the same fee schedule. Everyone is paid the same for a hemoglobin a1c. Everyone is paid no matter what size the lab. Test by test, price by price, they're all going to get the same reimbursement. So, it doesn't advantage one lab over another as far as Medicare pricing, whether it's a hospital, a physician office, or an independent lab — and that's why we've encouraged that it's in the interest of all sectors to report their pricing and be an applicable lab.

Obviously, the higher the portion of a lab's revenue that comes from Medicare, if there are cuts, then it's going to impact you more. Our membership at ACLA includes the largest national labs, the smallest nursing home labs, and we all have the exact same position on PAMA. In the beginning, all our members supported it, and we've all worked together to fix it by having the whole market represented. There is no dissension among our members in terms of what our position has been on this.

Some industry observers are predicting that the added responsibilities that labs will face for reporting pricing for reimbursement will drive further consolidation. Do you agree?

As far as commercial consolidation, ACLA doesn't get involved or comment on that. It remains to be seen what happens with PAMA. We don't know what the rates are going to be, and we're still a year and a half away from cuts, if there are going to be cuts. So, it's too premature to be pessimistic about it.

We've been fairly successful on both the reimbursement and regulatory front. It's up to us in the lab industry to keep fighting on both these issues, and we've not thrown in the towel, yet. And we're not going to.