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ADLTs Become a Small but Persistent Part of CMS Reimbursement Landscape


NEW YORK – Some six years after its introduction, the Advanced Diagnostic Laboratory Test (ADLT) status provided for by the Protecting Access to Medicare Act (PAMA) has become a small, but persistent, part of the US Centers for Medicare and Medicaid Services (CMS) reimbursement landscape.

Only a small number of clinical tests meet the requirements for ADLT status, making the pathway relatively little used, but for tests that do qualify, the ALDT route has proved attractive, providing diagnostic companies with more control over pricing and, according to one firm, confirmation of these tests' novelty and value in patient care.

ADLTs were created as part of PAMA partially in response to lab concerns about what some considered were low proposed crosswalk prices for certain assays. 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.

To be eligible for ADLT status, tests must fit a narrow set of criteria. They must be either a sole-source US Food and Drug Administration-cleared assay or a sole-source Multianalyte Assay with Algorithmic Analyses (MAAA). Additionally, ADLTs must be clinically unique, providing information that is not already provided by existing tests.

At the American Clinical Laboratory Association (ACLA) annual meeting last month, Jason Bennett, director of the technology, coding, and pricing group at CMS, provided details on the ADLT program. He said that since the launch of the ADLT program, CMS has received around 22 applications, of which around two-thirds have been successful. (CMS currently lists 16 tests that have received ADLT status.)

Diagnostics consultant Bruce Quinn said that participating in the ADLT program was perhaps a "little below" his expectations "but not far below."

He noted that the program requirements mean that the number of ADLT-eligible tests in the marketplace is relatively low. Most sole-source FDA-cleared tests have ADLT status, he said. Additionally, Quinn said, there are relatively few sole-source MAAA tests with CMS coverage.

Bennet said during the ACLA meeting that ADLT applications most commonly fail due to a test's lack of novelty.

"One of the complexities that I think we see is around the concept of telling us what new information the test is bringing relative to other tests," he said. "It's important to be able to describe in many respects what the test is saying about the patient and how that is supposed to effect care… and why there isn't somewhere else they would have gone to receive that same type of information."

Derek Maetzold, president and CEO of Castle Biosciences, which has five tests with ADLT status, more than any other company, said that this requirement around a test's novelty makes the ADLT label an endorsement of sorts, indicating that an assay provides new and meaningful information. He said the designation has proved useful in conversations with physicians about adopting the company's tests.

"Medicare has already evaluated it and said it is doing things that [there are not] any tools for today," he said, noting that this can make doctors more willing to listen to the company's pitch. "There is a halo effect."

Maetzold said Castle also sees benefit in the clarity regarding pricing the designation gives the company.

"I don't mind getting paid by Medicare at the median allowable rate that I'm paid by commercial payors," he said. "That [rate] isn't something we can necessarily control but we can live within parameters that are much clearer than going through a more opaque gapfill or crosswalk process."

Maetzold said that while there was initially some nervousness from investors regarding the fact that ADLTs are repriced on an annual basis, they have, by and large, become comfortable with that process after seeing good price stability for most ADLTs over the years.

"I think the investor community is more settled that you are not going into a lottery every year," he said.

Indeed, Quinn compiled data on ADLT pricing trends that shows highly stable pricing for these tests. Of the 14 tests with multiple years of pricing data, only three are now priced differently from their initial price. The price of Myriad Genetics' MyChoice CDx BRCA test fell from $4,040 in 2019 to a current price of $3,030; the price of Natera's Signature MRD test rose from $3,500 in 2021 to $3,590 today, and the price of Castle's TissueCypher Barrett's Esophagus Assay rose from $2,350 in 2022 to a current price of $4,950.

Regarding the TissueCypher test's jump in price, Maetzold said this was due to Castle positioning the test for a new, more valuable intended use following the company's acquisition of the assay through its purchase of Cernostics.

Maetzold said that while the ADLT application is fairly straightforward, organizing the application to best demonstrate an assay's novelty "takes a little bit of foresight."

He cited the example of the ADLT application the company submitted last year for its DecisionDx-SCC test.

"When we were writing out the initial clinical validation studies, writing up the methods, and deciding what to put in the results of paper one versus paper two, we did constantly think about what will [CMS] want to read that is simple to understand," he said, "so we made sure we thought through that checklist of [ADLT criteria]."