The Reimbursement Landscape for Novel Diagnostics: Current Limitations.

The success of personalized medicine is dependent on the healthcare industry’s ability to overcome several clinical, economic, and logistical challenges to commercialization.
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Executive Summary

Personalized medicine has the potential to revolutionize patient care. The fundamental goal in advancing our healthcare system through personalized medicine is to deliver the right treatment to the right patient at the right time. Novel diagnostics hold great promise as tools that allow physicians to differentiate patient-specific characteristics, design personalized treatment approaches, and ultimately improve patient outcomes. The successful delivery of novel diagnostics is the foundation of personalized medicine in our evolving healthcare system.

However, the success of personalized medicine is dependent on the healthcare industry’s ability to overcome several clinical, economic, and logistical challenges to commercialization. Some of the most pressing challenges relate to the reimbursement system, specifically in obtaining affirmative coverage, appropriate coding, and value-based payment for novel diagnostics.

The current reimbursement system was designed to support relatively simple diagnostic tests that formed the basis of the traditional diagnostics industry. The system was not designed to support novel complex diagnostics, and research suggests that its shortcomings are compromising the progress of personalized medicine today. This report offers stakeholders a clear description of the current reimbursement system, its limitations, and an examination of how these limitations impact investment in novel diagnostics and may ultimately impede patient access to personalized medicine.

Finally, this report offers a critical exploration of potential solutions for reform.

Key Findings:

Significant limitations exist in the current reimbursement system for novel diagnostics.

  • The coverage evaluation process for novel diagnostics lacks transparency, varies across payers, and is inefficient in many ways. These problems lead to inconsistent coverage decisions that limit and delay patient access to personalized medicine.
  • The current coding and payment systems do not accurately describe novel diagnostics, reflect the value of these tools to patients, or account for the need for increased development resources to support highly impactful claims.
  • In an attempt to capture a reimbursement amount that reflects a diagnostic’s true value to patients and providers, many developers use a method known as “code stacking” or pursue a miscellaneous code.
  • These coding practices have led to increased payer scrutiny, in turn pushing developers to generate economic studies geared towards payers and providers to justify value-based pricing. However, without standardized approaches, these studies are often met with skepticism, leaving true value-based pricing elusive for many tests.

These limitations impede investment and the development of novel diagnostics, and they ultimately reduce patient access to personalized medicine.

  • Novel diagnostic developers do not have a clear set of expectations for the level of evidence that is necessary for reimbursement, including specific clinical trial requirements and optimal outcome measures. This has created inefficiencies in the development of novel diagnostics and a ballooning in research and development (R&D) costs.
  • Additional sales and marketing costs are also incurred by diagnostic developers as the payer community must be educated on the utility and value of these novel diagnostics. The current coverage decision-making process often requires developers to devote costly resources to securing coverage payer by payer, in addition to education and marketing efforts directed towards providers.
  • These costs help drive the need for higher pricing and earlier product launch to allow for quicker revenue generation. Without a clear regulatory system in place, some tests are launched prematurely without extensive data on clinical utility. These trends, in turn, increase payer scrutiny on all novel tests and force developers to outlay more resources, further feeding the cycle.
  • Investment and innovation are affected by these limitations. Venture capital, alliance deals, and acquisitions are key sources of development funding for novel diagnostic companies and are declining at a rate faster than therapeutic deals. Investors recognize and point to the uncertain reimbursement environment as the key factor behind this trend.
  • In addition, uncertainty around coverage can keep some physicians from ordering a novel diagnostic that could improve patient care.
  • These limitations reduce patient access to novel diagnostics and, ultimately, to personalized medicine.

An array of potential reform options has been raised within the personalized medicine community. Stakeholder support and a commitment to advance personalized medicine will be key drivers of reform.

  • A continuum of niche, moderate, and broad reform solutions offer different levels of beneficial impact and feasibility of execution.
    • Niche solutions address specific issues in the short- to mid-term. Examples include establishing a set of complex analytics codes, a system of test-specific codes, and a set of economic study standards for novel diagnostics.
    • Moderate solutions impact multiple issues in the mid-term. Some examples involve facilitating diagnostic coverage with evidence development and/or risk-sharing payment schemes.
    • Broad reform solutions require significant time and resources but provide the most impact, such as the establishment of a single coverage and value assessment body for novel diagnostics.
    • No individual reform measure can positively impact the entire system. A multi-solution approach to the current system’s limitations can provide short-term benefits while building towards broader diagnostic reimbursement reform.

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