"The Dark Index"

Automated Pap Smear Screening Expected to Build Market Share

EXPECT 1999 TO BE A PIVOTAL YEAR in automated Pap smear screening. This new technology is now poised to enter general clinical usage.

As it does, an increasing volume of clinical data will make the case: either automated screening of Pap smears is clinically effective and economically justified—or it is not.

Evidence that automated Pap smear screening is on the increase comes from the year-end financial reports of NeoPath, Inc., based in Redmond, Washington. Revenues for fourth quarter were $2.3 million, of which 65% originated from fee-per-use payments. These are “per click” charges paid by lab customers for each Pap smear run through AutoPap systems located at their laboratories.

Shipping New Systems

NeoPath also disclosed that it had shipped a minimum of 15 AutoPap® units per month during the fourth quarter. Most are heading for SmithKline Beecham Clinical Laboratories (SBCL). SBCL is in the midst of a major contract with NeoPath to implement AutoPap screening throughout its national laboratory system. (See TDR, November 9, 1999.)

Financial analysts at SG Cowen Securities Corporation report that there are now over 70AutoPap systems at SBCL alone, capable of doing primary screening. They estimate the SBCL units can perform approximately 3 million screens annually, or about 5% of the U.S. market.

These developments in the marketplace are reflected in the changing financial situation at NeoPath. “Our fee-per-use revenue climbed 50% from third quarter to fourth quarter,” said Alan Nelson, Ph.D., NeoPath’s President and CEO. “This demonstrates that our customers are moving increasing numbers of Pap smears onto our automated screening systems.

“The shipment of 45 new AutoPap systems during fourth quarter is a positive sign,” he continued. “As these units enter clinical use, they will generate increased fee-per-use revenue for us in coming quarters.

“Other financial signs are healthy,” added Dr. Nelson. “Our costs are down and are declining quarter by quarter. At the same time, our goss margins are increasing. There is improvement in our average per-slide pricing under our fee-per-use contracts. Finally, we are seeing an increase in the number of slides processed per instrument as customers gain experience with their AutoPap systems. These are all positive trends for our company.”

THE DARK REPORT continues to believe that various automated cytology technologies entering the marketplace will eventually transform cytology practices. There will be less reliance on manual diagnosis performed at the microscope.

As the sophistication of these technologies improves, cytotechnologists and cytopathologists will become interpreters of increasingly more precise data assessments from test specimens.

This should be seen as a positive development in the science of cytology. Cytotechs and pathologists will discover that their services have greater value to both clinicians and patients. The precision of their diagnostic efforts will generate improved reimbursement from managed care companies.

Clinical Milestones Ahead

That scenario remains in the future. Automated cytology technology is still in its infancy. There are considerable clinical milestones yet to be achieved. However, pathologists and laboratory executives should understand that the clinical capability and the economic justification for today’s generation of technology is not constant, but improving.

Specifically, enhancements to computer hardware and video imaging systems will continue to improve the performance of automated cytology systems. This will take place in tandem with forward strides in software algorithms and improved understanding of how these algorithms interact with the range of situations encountered in screening wide segments of the female population.

Free Market Economics

The cytology field is a lesson in free market economics. Companies developing automated cytology systems are motivated by the potential to sell such technology and generate profits. But they can only succeed by demonstrating that such technology truly enhances both the quality of healthcare and the cost of that care.

In that respect, pathologists who track how the market for automated cytology systems evolves are observing a living laboratory, albeit one based as much on economics as on science. That is the new paradigm for healthcare: improved science which improves care at an economically feasible cost.

It should also be noted that NeoPath is not the only company developing automated cytology systems for Pap smear screening. Neuromedical Systems, Inc. is repositioning its PapNet® system for FDA approval as an in-lab primary screener. AutoCyte, Inc. continues to nurse its Screen™ through the FDA approval process.

Pathologists and lab executives should follow the evolution of these companies and the science they are developing. There will come a time when labs will find it profitable to acquire and offer this technology to clinicians.

Reimbursement Evolving for New Pap CPT Codes

Financial analysts at SG Cowen recently commented on the reimbursement situation for new automated pap smear CPT codes which became effective on January 1, 1999.

“On the first of the year,” wrote SG Cowen, “NPTH’s [NeoPath’s] electric [electronic] CPT reimbursement code was established for both the no-review and review population with rates ranging around $12 and $16, respectively. Prior to the first, reimbursement was determined via miscellaneous CPT codes in the $20 range. A more solid rate is expected to be set after 90-120 days in which a trend evolves between the miscellaneous and electric [electronic] billing codes. As such, the early trends for reimbursement have been good, in the range of $15-$25 during this “gap fill” period. On the government side, the rate is still $7.15 [for the conventional Pap smear], but HCFA will make a statement in April or May in the Federal Register reevaluating the current status.”

Assuming the accuracy of SG Cowen’s research, it demonstrates that government and private payers are willing to improve reimbursement as the clinical benefits of automated cytology systems are validated in actual clinical use. This is a good trend for the lab industry.

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