IN THE FINAL WEEKS OF 2013, the federal Centers for Medicare & Medicaid Services (CMS) announced that it would reduce the price it pays for the BRCA genetic test by 49%, to $1,438, effective on January 1, 2014.
For Myriad Genetics, Inc., this was not welcome news. Its share price fell by as much as 20% over the fall months, based on earlier guidance by CMS that the agency intended to pay significantly less for CPT codes 81211 and 81214. These are the two codes which cover the BRCA 1 and 2 gene tests.
However, of greater concern to pathologists and clinical laboratory executives is what CMS may be signaling to the lab testing industry about the process and criteria it wants to use to determine coverage guidelines and establish prices for individual molecular diagnostics tests going forward.
For Myriad Genetics, the CMS decision to slash the price it pays for BRCA tests is another negative consequence to the Supreme Court ruling issued last June. In a 9-0 decision, the Supreme Court said that natural genes could not be patented.
Following that decision, several lab companies announced their intention to offer gene tests based on the BRCA 1 and 2 genes—and at much lower prices than what Myriad charges. For its part, Myriad declared it would defend its intellectual property and filed lawsuits against several competing lab companies.
However, due to the Supreme Court decision, the cat was already out of the bag. Myriad now faces competition from labs willing to charge much less for a BRCA gene test. Myriad’s stated price for its most comprehensive BRCA test is $3,340. Medicare reimbursed the BRCA test at $2,795 during 2013.
Quick To Enter The Market
Competitors such as Ambry Genetics and Quest Diagnostics Incorporated were quick to enter the market. For their respective BRCA 1/2 tests, Ambry said it would charge $2,200 and Quest Diagnostics posted a price of $2,500. DNATraits priced its test at $995.
CMS and the Medicare Administrative Contractors (MACs) noticed what was happening in the competitive marketplace. In explaining its decision to set the national limitation amount (NLA) for BRCA tests at $1,438.14, CMS said, “Prior to a Supreme Court decision earlier this year, only one laboratory was providing tests for the BRCA gene.
“Following the Supreme Court decision, additional laboratories began providing the test,” continued CMS. “The MACs received data on the pricing by the laboratories offering the test. Based on that new information, the MACs submitted pricing information for CPT code 81211 that resulted in a NLA of $1,438.14.”
CMS used the gap-fill method to establish the BRCA test price. On its website, CMS wrote that, based on information provided by the MACs, it understood “laboratories are offering the CPT code 81211 test for prices that range from approximately $900 to $2,900.”
Molecular Test Chaos In 2013
As clients and long-time readers of THE DARK REPORT know, 2013 was a chaotic year for molecular diagnostics and genetic testing. CMS and private payers were not ready to implement the new molecular CPT codes that became effective on January 1, 2013. As a consequence, labs went unpaid for their molecular test claims many months into the year. (See TDRs, April 15 and May 28, 2013.)
For these and other reasons, the lab industry is on high alert as to what procedures CMS is using to establish coverage guidelines and prices for individual molecular test CPT codes. Experienced laboratory executives and consultants are calling for more transparency on these matters by CMS officials.
That is why the use of the gap-fill procedure by CMS to lower the price the Medicare program pays for the BRCA gene test is being questioned. Essentially, CMS is saying that its gap-fill process may have been based solely on looking at the prices charged by competing labs (who themselves have not been in the market more than a few months) and not on any other consideration, including clinical value.
Lab Industry Concerns
Both the clinical laboratory profession and the in vitro diagnostics industry have valid concerns that CMS is not giving appropriate consideration to the clinical data and R&D investment associated with the development and validation of these molecular and genetic tests. Further, a number of recent actions taken by CMS, when viewed collectively, show a pattern of more aggressive steps to reduce the cost of lab testing to the Medicare program.
How this plays out in the next few years remains to be seen. After all, experience shows that any industry that wants to challenge its federal regulator enters a game with most of the rules stacked against it.
Myriad Faces Competition For BRCA Gene Testing
FOR THE FIRST TIME IN ALMOST 20 YEARS, Myriad Genetics of Salt Lake City, Utah, faces competition in the market for BRCA gene testing. Several lab companies now offer their own version of a BRCA gene test at a much lower price.
Medicare officials used those lower BRCA gene test prices as part of their gap-fill process for CPT codes 81211 and 81214, the BRCA test codes. For 2014, CMS will pay just $1,438.14 for the BRCA test.
Wall Street analysts estimate that 10% of Myriad’s BRCA test volume comes from Medicare patients. Based on that number, several analysts reduced their estimates of fiscal year 2014 revenues at Myriad from about $715 million to about $695 million.
What is likely to be of greater impact—and of more significant interest to pathologists—is how quickly private health insurers follow Medicare’s lead. Because BRCA testing makes up about 80% of Myriad’s annual revenue, were private payers to also cut the price they pay for BRCA testing by 40% to 50%, this would substantially reduce the company’s annual revenue.
However, it should be noted that Myriad Genetics has ample resources it can call upon to respond to these developments. Not only does it have a strong gene-sequencing and interpretation capability, but it has $500 million of cash on its balance sheet and 400 people on its sales force ready to promote other gene testing services.