ONE BY ONE, A HANDFUL OF PROGRESSIVE LAB COMPANIES is finding financial success with a strategy of pricing genetic tests at levels that are affordable and attractive to the general public. These labs report an added benefit: They find it easier to get health insurers to pay their genetic test claims.
This reflects one new reality in healthcare. Under the old model of care delivery, a clinical lab could set a high price on its assays. It would then negotiate managed care contracts, knowing that insurers would pay only a percentage of the lab’s bills. Under the new model, high-deductible health plans (HDHPs) make that process obsolete and financially unsustainable for clinical labs.
Patient-Friendly Test Prices
In the new healthcare model, clinical labs focus on meeting each patient’s needs while setting test prices at consumer-friendly levels. Keeping prices high no longer works, for two reasons. First, payers are rebelling against the high prices many genetic testing labs charge. Second, tens of millions of patients must now meet high deductibles and they become angry or frustrated or both at having to pay what they consider to be exorbitant prices for genetic tests and other healthcare services.
Another common patient complaint related to these points is the lack of transparency around pricing. It is difficult for a patient to get the simple answer to this question: “How much will this test cost?”
Recognizing these new dynamics, one lab company has adopted a consumer-centric approach to meet and exceed patients’ expectations. It is Color Genomics, a startup lab in Milbrae, Calif.
The company was founded last year by tech entrepreneurs Elad Gil, PhD, and Othman Laraki, along with Taylor Sittler, MD, and Nish Bhat. The initial goal was to offer affordable genetic breast and ovarian cancer screening to women.
Previously, Gil and Laraki built some of the top products at Google. They next created and sold a company called Mixer Labs to Twitter, then worked at Twitter as the social media company grew rapidly. Their work in consumer products and social media is visible in Color’s approach to consumer-friendly payment.
The privately-held, venture-capital-backed genetic test company has not sought reimbursement from health insurance companies, though it may in the future.
Last year, Color Genomics launched a physician-ordered breast and ovarian cancer risk test analyzing 19-genes, including BRCA1 and BRCA2, for $249. In April, Color Genomics expanded the number of genes it analyzed by offering a 30-gene panel for testing men and women for risk of developing eight of the most common hereditary cancers and kept the price at $249.
“From day one, we have adopted a simple, direct-pay model,” Laraki said in an interview with THE DARK REPORT. “We did not put a lot of effort into pursuing insurance payment because our focus has always been on improving patient access to these genetic tests.
“For consumers, the $249 price is dramatically lower than the $1,000 to $4,000 that many labs ask for similar tests,” noted Laraki. “This comparison is somewhat unfair, of course, because those labs priced tests at thousands of dollars with the idea that only a subset of patients qualify for an insurer to pay that amount.
“We don’t have any aversion to insurance,” Laraki conceded. “From the start, we thought the most direct route to make our genetic test accessible to patients through their physicians was to offer it at a low price. We thought that was a better business decision rather than attempting to get insurance coverage and then going back into direct pay if insurance payment failed.
“It is also why our strategy was to design our genetic tests to be a high-quality and physician-ordered product that is offered a price point that is not a barrier for people,” he explained. “That’s how we started. We intend to continue striving for simplicity and transparency in pricing.”
So far, Color’s methods have been successful. “Much of the attention we get is organic, in part because of the many challenges involving access to genetic testing,” Laraki explained. “Physicians and their patients have been interested in getting these tests for a long time. And since we launched, we’ve had continuing strong interest from patients and their doctors.
Payer Guidelines are Barrier
“Not only was the cost of genetic testing an issue, but the payer guidelines around who could get reimbursed for a test created a barrier as well,” he said. “Patients were required to demonstrate an extensive personal or family history of cancer. This is despite the fact that a number of published papers have found that about 50% of carriers of BRCA1 and BRCA2 don’t have enough evidence in their family history that would enable them to get tested.
“And those papers make sense from this perspective,” noted Laraki. “For example, half of women with mutations in BRCA1 or BRCA2 inherit the mutation from their fathers. For that reason, that part of the family history doesn’t jump out as starkly as it does when it comes down the female line.”
Physicians interested in ordering the test from Color can do so online and track their orders through its online provider platform. Consumers can also purchase a test online and indicate a physician’s name who would place the order and review the results. The test analyzes genes for the most common hereditary cancers, including breast, ovarian, colon, and pancreatic cancer. The $249 cost includes genetic counseling to help consumers understand their results and next steps.
Once Color receives payment, it sends a kit to collect a spit sample. The patient follows the directions and returns the specimen to Color’s CLIA-certified, CAP-accredited automated lab in Burlingame. There, Color uses next-generation sequencing (NGS) systems, including the Agilent SureSelect method and Illumina’s NextSeq 500.
“Even though Color Genomics works with consumers in addition to physicians, it does not consider itself a direct-to-consumer company,” said Laraki. “We are more of a traditional clinical lab, the difference being that we use direct pay and include genetic counseling as part of the test.
“Using the direct pay model has saved us the substantial cost and effort that would normally go into billing payers,” he continued. “Instead, we have a simple payment funnel that allowed us to launch and be financially sustainable.
“As the business grows, we would consider working with insurance companies,” noted Laraki. “But in our start-up mode, we found that beginning with direct pay made our lives and the lives of our patients much easier. It’s a straightforward and simple payment model.”
Contact Meghan Hughes at 415-963-2552 or email@example.com.