New ADLT Payment Rate May Force Lab to Close

California lab company has clinical trial results, yet faces steep Medicare price cut of almost 80%

CEO SUMMARY: Four Medicare Administrative Contractors currently pay $2,821 for CareDx’s AlloMap test. But under the proposal that CMS issued last month to overhaul the clinical lab fee schedule, CareDx would get only $644. Such a steep price cut would put the lab out of business because the payment would be lower than the cost of doing the test, the lab’s CEO explained. Heart transplant patients on Medicare would be denied a non-invasive blood test and instead would be treated with an invasive surgical procedure. Also, closing the lab would put 100 employees out of work.

HEART TRANSPLANT PROGRAMS are at risk of losing access to a clinical laboratory test used in about half of the nation’s 2,500 heart transplants each year if CMS moves forward with a preliminary pricing determination for the 2016 Clinical Lab Fee Schedule (CLFS).

CareDx, Inc., of Brisbane, California, said the federal Centers for Medicare & Medicaid Services recommends cutting what it pays for its FDA-cleared AlloMap test by 77% under the proposal CMS issued September 25. If the rule is implemented as written, the fee schedule will go into effect January 1, 2016. CareDx said it will be forced to close if CMS approves the proposed price next month.

In an interview with THE DARK REPORT, CareDx CEO Peter Maag, PhD, said the company has annual revenue of $27 million to $28 million, but is not yet profitable. Until last year, the company was supported by venture capital. In July 2014, CareDx had an initial public offering that raised $40 million at $10 per share. On October 22, the stock was trading at $4.50 per share, down from $6.80 on September 24.

“AlloMap is used to determine the risk that a transplant patient will reject a new organ,” stated Maag. “Transplant centers use our test about 12,000 times each year.

“Among the 130 heart transplant centers in the United States, 110 use the AlloMap test,” he added. “That’s because it’s noninvasive, less stressful, and more affordable than the alternative, which requires an invasive surgical biopsy.”

Deep Lab Test Price Cuts

The 130-page proposal CMS issued last month describe Medicare’s plan to overhaul the CLFS as PAMA requires. CMS intends to establish a market-based system to set clinical lab fees. This new approach will cut what CMS pays labs by $360 million in 2017 and $5 billion over 10 years. CMS’s annual budget for Part B CLFS payments is $8 billion. (See TDR, October 5, 2015.)

There are many contentious issues in CMS’s proposal rule. One section of the rule would make severe cuts of 33% to 91% to nine codes for advanced diagnostic laboratory tests (ADLTs), including AlloMap. (See related articles in this issue here.)

“Currently, four Medicare Administrative Contractors pay $2,821 for the test,” noted Maag. “However, under CMS’ proposal, CareDx would get only $644.

“That amount would put us out of business because the payment would be lower than the cost of performing the test,” he explained. “Should CareDx cease operations, transplant patients would be forced to use the more invasive and stressful biopsy procedure. Using a biopsy to test these patients could cost Medicare significantly more than it pays for AlloMap.”

At issue is how Medicare officials priced the test. CMS used the crosswalk method, which involves analyzing what CMS charges for tests that have similar steps and for which a lab uses similar resources. Some lab directors have criticized the crosswalk method, saying it does not reflect the actual steps and resources a lab must use to run tests. What’s more, CMS crosswalked AlloMap to a colorectal cancer screening test that looks at a single gene. AlloMap is a complete test that analyzes 20 genes to determine risk of heart transplant rejection.

Labs Favor Gapfill

The other way to set lab test prices is to use the gapfill method. This method is to be used when, as is the case with AlloMap, there is no comparable test existing on the CLFS. With gapfill, officials evaluate charges, payments, and discounts for the test in question; the resources required to perform the test; what other payers pay for the test; and what resources labs use for comparable tests.

CMS recently convened the Advisory Panel on Clinical Diagnostic Laboratory Tests. This panel represents clinical labs and makes recommendations to CMS on pricing and other PAMA implementation issues.

After the panel’s first meeting in August, CMS did not follow the panel’s recommendations to gapfill the ADLTs, Maag said. On October 19, the panel held its second meeting, and Maag presented data showing the flaws in the crosswalk method.

The panel voted unanimously to reject the CMS proposal to use the crosswalk method for AlloMap and the other eight ADLTs because there are no comparable tests available on the CLFS, Maag said. CMS is not expected to announce a decision until it issues the final Medicare clinical lab fee schedule in late November.

Rejected Recommendation

“The October 19 meeting was the second one in which the panel recommended CMS use the gapfill method,” noted Maag. “The first time, CMS rejected the recommendation.”

Analyst Amanda Murphy of William Blair & Co., agreed with Maag, writing in an advisory to clients, “For most of the [lab test] codes being priced in 2016, the panel [again] unanimously recommended against CMS’ recent preliminary determination to crosswalk new multianalyte assays with algorithmic analyses (MAAA) codes being priced for 2016 (including Veracyte’s Afirma assay and Genomic Health’s Oncotype DX test for colon cancer).

“In many cases, CMS did not appear to incorporate the panel’s recommendations when it published preliminary determinations for how codes proposed for 2016 should be priced; therefore, it continues to be unclear how much authority the panel has,” added Murphy. “Some panel mem- bers suggested that crosswalking to existing CPT codes that represent different technical tests shows that CMS’ crosswalk proposals do not make sense.”

In addition to hearing Maag’s comments, the panel also heard from representatives of Genomic Health and Veracyte, and discussed the definition of ADLTs under PAMA.

“For the past 10 years, this test has made an important contribution to patient care,” commented Maag. “There is no substitute. Plus, AlloMap is a precision medicine tool that gives data to physicians that improves decisions on how to treat heart transplant patients.

“Precision medicine is the future of healthcare,” he continued. “Yet, our lab company, with ample clinical data to support this lab test, is at risk of going out of business if CMS implements this proposed rule as written.”

Contact Peter Maag at 415-287-2300 or


Lab Company’s CEO Explains Reasons to Use Gapfill over Crosswalk to Establish ADLT Prices

FOR ONE LAB CEO, a plan to slash prices for Advanced Diagnostic Laboratory Tests (ADLTs) by as much as 77% defies logic.

Peter Maag, PhD, is the President and CEO of CareDx, a molecular testing laboratory in Brisbane, California, that markets AlloMap, a gene-expression profiling test. Physicians use AlloMap to stratify patients for organ-rejection risk following transplantation. The FDA-cleared test has been shown in a randomized controlled trial to be as effective as the conventional biopsy method of risk assessment, said Maag.

Results of the trial were published in 2010 in the New England Journal of Medicine (“Gene-Expression Profiling for Rejection Surveillance after Cardiac Transplantation,” N Engl J Med 2010; 362:1890-1900).

AlloMap looks for the presence of donor derived cell-free DNA in the bloodstream for patients who have had solid organ transplants. CareDx also is developing a test that will be useful for all transplant patients.

On September 25, the federal Centers for Medicare & Medicaid Services proposed to pay CareDx $644 for the test instead of the current $2,821. Since then, Maag has said the company will need to close, putting 100 employees out of work and depriving half of the 2,500 patients who get heart transplants every year the opportunity to have a non-invasive test rather than an invasive biopsy test.

About 40% of transplant patients are on Medicare. Thus, CareDx bills Medicare’s administrative contractors directly.

AlloMap is one of nine advanced diagnostic laboratory tests (ADLTs) that CMS designated for deep price cuts of 33% to 91% when it proposed overhauling the clinical lab- oratory fee schedule last month. Currently, four MACs pay CareDx the full $2,821. Yet, CMS used the crosswalk method to set a price of $644.

“When setting the new, proposed prices for the nine ADLTs, CMS used the crosswalk method,” noted Maag. “CMS officials chose a test that they said was closest to AlloMap. But they overlooked the fact that there is no test comparable to AlloMap on the clinical laboratory fee schedule. Comparing AlloMap to the other test is incorrect because the other test is not as complex or as useful as AlloMap.”

The gapfill method would have been a more accurate way to price AlloMap, he added. “Gapfill uses the existing price that the four contractors pay. CMS would simply need to survey the MACs, identify which ones are paying for the test and what prices each is using. Once that was done, CMS would see that four MACs cover AlloMap at $2,821.”

When Maag presented to the Advisory Panel on Clinical Diagnostic Laboratory Tests, which advises CMS on pricing issues under PAMA, he observed how, when CMS officials fail to understand the complexity and clinical value of these assays, the price-setting process CMS uses can go awry.

“On the staff level at CMS, there appears to be a lack of understanding about ADLTs,” he said. “They seem to think that a lab test is simply a number of analytes plus an algorithm,” he observed. “But the advisory panel points out that these assays are highly-studied, evidence-based, outcomes-changing diagnostics. They are not simply analytes plus an algorithm. These are highly-sophisticated diagnostic tools that inform precision care and help physicians achieve significantly better patient outcomes while reducing the overall cost of care.”


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