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Obtaining Diagnostic Test Reimbursement In The Age Of Evidence

Contributed Commentary by Bonnie Anderson

January 11, 2019 | The biggest challenge that most diagnostics companies face in commercializing their tests is getting Medicare and private health insurers to pay for them. With the healthcare industry’s growing focus on improving the quality of healthcare and reducing costs, this struggle has become even more intense in recent years.

To help understand the cost pressures that health insurance companies face, consider the simple fact that healthcare costs are rising significantly faster than insurance premiums—at a compound annual growth rate of 5% versus 3%, respectively, between 2013 and 2016, according to a recent report from McKinsey & Company.

At the same time, the number and sophistication of diagnostic tests is expanding rapidly. Researchers at the University of California, San Francisco (UCSF) reported recently that since March 2014, over 10,000 new genetic tests entered the market, with approximately ten new tests appearing each day.

Additionally, whereas previous gene-based tests typically looked for individual genes and were used for single indications, the field has evolved quickly, with the advent of next-generation sequencing and the move to multi-gene panels, tests that look for mutations to inform pan-cancer therapies, and the use of advanced machine learning methodologies.

All of these advances are stretching the ability of health insurers to keep up with the volume, science, and technology as they try to determine which diagnostic tests to pay for and how much for each. This has, not surprisingly, resulted in variability in insurance coverage, and, as the UCSF researchers point out, some insurers have gone further by, in some cases, instituting more utilization management strategies, such as requiring prior authorization, to manage the influx of new tests.

In other cases, insurers are taking positive steps to streamline and standardize the rate-setting process for diagnostic tests. The Centers for Medicare and Medicaid Service, or CMS, which sets Medicare pricing, has led the charge on this in the last year. In January 2018, CMS implemented the Protecting Access to Medicare Act, or PAMA, which now bases its payment rates for advanced genomic tests on those set by private insurance companies. This market-driven approach is bringing much-needed transparency and predictability to the industry.

As the reimbursement landscape continues to evolve, it becomes even more imperative for diagnostics companies to follow best practices in clearly establishing their tests’ value. This approach will help differentiate their tests from others vying for reimbursement dollars and will also facilitate decision-making by payers. Insurance providers need—more than ever—solid evidence that paying for new tests will benefit patients in terms of better outcomes and will reduce healthcare costs. Here are key strategies to keep in mind for obtaining reimbursement.

Find the Right Question

The first is to answer a relevant clinical question. Make sure your solution will answer a clinical question that will change what happens next for the patient. This may sound simple, but, looking backward, the diagnostics landscape is littered with companies that failed to take this point into account and instead started with a technology that never found a viable problem.

Determining the right question to ask is not always obvious. For example, consider the clinical challenge of patients with lab test results that are inconclusive for cancer who then often undergo invasive diagnostic procedures, even though most cases ultimately prove to be benign. When considering how to address this problem, many diagnostics companies might start with determining who has cancer. In this case, though, that approach won’t change what happens next for the patient because those patients were already going to surgery. The better solution would be to identify which patients are benign—because those are the patients who could ultimately avoid an unnecessary and costly procedure.

Strong Studies

The second strategy is to build the clinical evidence. This means making the investment in high-quality studies—prospective multicenter, double-blinded clinical validation trials—that compare your test’s performance against clinical truth and whose results are published in peer-reviewed journals. This level of clinical rigor is what is needed for diagnostic tests to gain incorporation into practice guidelines, which are what payers really pay attention to. Cutting corners to save time or money when it comes to validating diagnostics tests simply won’t cut it.

Additionally, insurance companies want evidence of a test’s clinical utility. This requires thoughtful studies demonstrating that—in the real world—your test changes practice as intended. These studies should be initiated early in commercialization and, as appropriate, should continue over time to show the durability of your test’s results. Cost-effectiveness studies are also critically important for health insurers and should ideally capture real-world experience.

Needed Evidence

The third strategy is to begin with the end result in mind. Smart diagnostics companies “bake” the need for evidence into their tests’ development and commercialization, rather than address it as an after-thought. You should determine your clinical utility study protocols as you develop your validation trials in order to maximize efficiency and increase your likelihood of receiving reimbursement earlier upon commercialization.

Even further, before your idea for a test even makes it into the R&D lab, you should know what evidence you will need to obtain reimbursement and how you will get it. For example, if your test is intended to find cancer in its early stages in order to save lives, you should be prepared to undertake a multi-year prospective study involving patients at risk of developing the cancer to determine your test’s performance and utility.

The bottom line is that determining whether a health insurance payer will pay for your test is a good litmus test for whether you have a viable test that will succeed in the marketplace.

Bonnie Anderson is chairman and CEO of Veracyte, Inc. Since its founding in 2008, the company has developed three genomic tests that are transforming the diagnosis of thyroid cancer (Afirma), lung cancer (Percepta) and idiopathic pulmonary fibrosis (Envisia). Afirma and Percepta are currently covered by Medicare, and Envisia has received a draft local coverage determination, anticipated to be finalized in January 2019. She can be reached at