5


Perspectives of Payers and Regulators

Important Points Highlighted by Individual Speakers

•   The regulation of diagnostic medical devices should be performed by FDA, which should use a risk-based approach.

•   IVDs and LDTs that claim equivalence should be subject to the same regulatory scrutiny.

•   A decision should be made between either an FDA-based or a CLIA-based pathway to market.

•   Payers’ concerns center not on a diagnostics path to market, but rather on whether the test is safe, clinically effective, and cost-effective.

•   Next-generation sequencing presents a challenge for making payment decisions because collecting extra information is not traditionally covered unless it is shown to be safe and useful, regardless of any potential cost savings.

Several regulators, legal consultants, and payers present at the workshop, offered unique perspectives on how co-developed companion diagnostics should be regulated—exclusively by FDA or exclusively through CLIA or via a combined approach in which FDA determines which tests need further review and which can enter the market under CLIA. Private payers who are responsible for reimbursing the costs of diagnostics are not concerned with the specific pathway used in regulation; instead they



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5 Perspectives of Payers and Regulators Important Points Highlighted by Individual Speakers • The regulation of diagnostic medical devices should be per- formed by FDA, which should use a risk-based approach. • IVDs and LDTs that claim equivalence should be subject to the same regulatory scrutiny. • A decision should be made between either an FDA-based or a CLIA-based pathway to market. • Payers’ concerns center not on a diagnostics path to market, but rather on whether the test is safe, clinically effective, and cost-effective. • Next-generation sequencing presents a challenge for making payment decisions because collecting extra information is not traditionally covered unless it is shown to be safe and useful, regardless of any potential cost savings. Several regulators, legal consultants, and payers present at the work- shop, offered unique perspectives on how co-developed companion diag- nostics should be regulated—exclusively by FDA or exclusively through CLIA or via a combined approach in which FDA determines which tests need further review and which can enter the market under CLIA. Private payers who are responsible for reimbursing the costs of diagnostics are not concerned with the specific pathway used in regulation; instead they 41

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42 THERAPEUTIC AND DIAGNOSTIC CO-DEVELOPMENT are concerned with whether a test has clinical utility, is innovative, and is cost-effective. Allow the Current System to Work In the current co-development pathway, different stakeholder groups gather different types of evidence. CLIA assures analytical validity and the quality of tests performed in accredited laboratories in the United States, and this regulation is broad in scope, said Steven Gutman, strategic a ­ dvisor for Myraqa, Inc. FDA, on the other hand, assesses analytical and c ­ linical validity for commercially distributed IVD kits. Gutman argued that a unique aspect of FDA as a regulatory authority is that it performs an in-depth, hands-on review of tests. The challenge with the current regula- tory system, Gutman said, is that “FDA does not currently provide [this type of review] for laboratory-developed tests.” In the current regulatory environment, it is the third-party payers, the practitioners of evidence-based medicine, or the guideline developers that are evaluating the clinical utility of tests, but, Gutman said, “this work is unfortunately non-standardized, non-coordinated, and is performed with variable transparency.” As a starting point for the regulatory oversight of companion diag­ ostics, n Gutman provided what he called a “modest proposal”—that FDA, CLIA, and third-party payers should be allowed to “do their jobs.” CLIA should regu- late laboratories to “assure a quality operation and to allow for a sampling of evidence that analytically valid systems are in place,” but CLIA should not be expected to regulate medical devices pre- or post-market because the Centers for Medicare & Medicaid Services (CMS) lacks the authority, experi- ence, and resources for this additional regulation. FDA should continue to regulate diagnostic medical devices, and this regulation should be risk-based. The role of third-party payers is to make evidence-based decisions, and “cost containment, cost-effectiveness, and cost consciousness” should all be issues for discussion because of the significant cost of health care, Gutman said. The conversation around regulation should be focused on evidence- based medicine, but to accomplish this, solid data is required to “get the science right,” Gutman said. Stakeholders should recognize the “four Rs,” he said: the right drug, the right patient, the right time, and the right data or information. “We need leadership in the design and orchestration of ­tudies—something that . . . would aid the FDA, third-party payers, and s maybe even CMS,” he concluded. evaluating Two Systems As companion diagnostic products, LDTs are IVDs, but there are two very different regulatory mechanisms (CLIA and FDA, respectively) that

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PERSPECTIVES OF PAYERS AND REGULATORS 43 apply to them, and “they both can’t be right,” said Bradley Thompson, a member of the firm Epstein Becker & Green and a general counsel to the Combination Products Coalition. The goal, he said, is finding an optimal regulatory system to balance the innovation and the safety of the tests and to determine which regulatory mechanism does the best job of managing that risk. The two regulatory pathways have many differences, includ- ing how the tests are reviewed for quality during manufacturing, said T ­ hompson (see Table 5-1). The premarket approval process for high-risk products requires extensive involvement by FDA before the project reaches the market, an exacting quality system for manufacturing, adverse event reporting, and establishment of clinical validity before the test is used, none of which is required under the CLIA process. If two products are the same, he asked, then why should they not be regulated the same way? The main problem of having FDA review both IVDs and LDTs, as pro- posed by AdvaMed (see Table 5-2), is that there are insufficient resources for this approach, Thompson said. The way to solve this issue would be to have FDA focus on the high-risk tests, and the low-risk products can go TABLE 5-1  A Perspective on Current Requirements for IVDs and LDTs IVDs LDTs Requirements (held to FDA standards) (held to CLIA standards) Premarket review and approval Yes, for higher risk tests No for tests Manufacturing tests under a Yes No quality system, e.g., • Design controls • Process controls • Complaint handling Reporting adverse events Yes No Annual reports Yes, for higher risk tests No Establishing clinical validity Yes Noa before using test Establishing clinical utility Yes, as needed No before using tests Regulation of test performance Higher standards Lower standards claims (FDA and FTC requirements) (FTC only) NOTE: CLIA, Clinical Laboratory Improvement Amendments; FDA, Food and Drug Adminis- tration; FTC, Federal Trade Commission; IVD, in vitro diagnostic; LDT, laboratory-developed test. aLaboratory directors must assure tests are of sufficient quality for use in patient care, but there is no evaluation of clinical validity along the lines required by FDA. SOURCE: Thompson, IOM workshop presentation on February 27, 2013.

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44 THERAPEUTIC AND DIAGNOSTIC CO-DEVELOPMENT TABLE 5-2  A Perspective on Possible Solutions from AdvaMed and ACLA Requirements AdvaMeda ACLA Equal treatment of LDTs Yes No (LDTs remain subject to and IVDs under review less regulation) Premarket review/ Yes, for higher risk tests No Approval for tests Manufacturing tests Yes No under a quality system Establishing clinical Yes, as needed No utility before using tests Establishing clinical Yes Nob validity before using tests Annual reports Yes, for higher risk tests No Reporting adverse events Yes (deaths, serious injuries, Limited (deaths and serious and malfunctions) injuries only) Regulation of test Higher standards Lower standards performance claims (FDA and FTC requirements) (FTC and disclosing test limits) NOTE: ACLA, American Clinical Laboratory Association; CLIA, Clinical Laboratory Improve­ ent Amendments; FDA, Food and Drug Administration; FTC, Federal Trade Com- m mission; IVD, in vitro diagnostic; LDT, laboratory-developed test. aLeverages existing information to reduce premarket regulatory burdens. bSome clinical utility data are collected, but not subject to agency review before the test is used. SOURCE: Thompson, IOM workshop presentation on February 27, 2013. to market without review, he said. This approach would “leverage existing science to reduce premarket FDA regulatory requirements based on risk and familiarity with the technologies and the science,” Thompson said. With higher risk would come greater requirements, so it would be likely that companion diagnostic tests would be subject to the highest regulatory standards because of the risk and the novelty of the tests. Strengthening CLIA, as proposed by ACLA, would require premarket notifications, including clinical validity information, so that laboratories could use tests immediately following the submission of these notifications, Thompson said. If clinical validity evidence is not available and there is an immediate health risk, CMS could then prohibit the use of a test. This proposal would require adverse event investigation and reporting, and this and other information would be stored in a test registry. The enhancements proposed by ACLA would not address many of the differences between the two systems, Thompson observed. In particular, they would not require a premarket review or a quality system for manufacturing, he said. Thompson proposed that FDA be the body in charge of regulation

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PERSPECTIVES OF PAYERS AND REGULATORS 45 because FDA adds value in the process of regulating products. FDA staff has extensive experience with reviewing products, and they know the types of problems that can arise and can often anticipate areas of concern and bring a fresh perspective for identifying ideas that the sponsor may not have thought of. At the same time, substantially more guidance is needed from FDA to make the development of companion diagnostics more efficient and to promote innovation. Manufacturers need to work extensively with FDA on a case-by-case basis to answer these questions so they can determine what is needed scientifically to support safety and effectiveness. The current system need to be reformed, Thompson concluded. What- ever system is adopted should apply equally to both IVD manufacturers and laboratories, commensurate with risk. If regulation through a strength- ened CLIA is enough to assure the safety and effectiveness of companion diagnostics, there is no reason for FDA to regulate diagnostics too, said Thompson. If laboratories can independently, under CLIA, do everything needed to ensure the safety and effectiveness of a product and they do not need approval to purchase reagents from an FDA-approved source, then why, he asked, would FDA need to be involved? However, Debra Leonard, workshop co-chair and, at the time of the workshop, professor and vice chair for laboratory medicine at Weill Cornell Medical Center of Cornell University, said that the distribution, use, and payment models that govern IVD companies and clinical laboratories are ­ different, and therefore they need different regulatory environments. A more robust CLIA is needed to bring the existing CLIA up to date, she said, but there is a role for FDA in regulating products that will be sold by companies. Pfeifer contended that an artificial similarity between the two pathways was created when choosing one over the other was proposed by Thompson. FDA approval is needed for drugs to ensure that the patients with a specific mutation are an appropriate group to treat with that drug, while optimiz- ing a test to detect the mutation is a fundamentally different endeavor, Pfeifer said. Establishing safety and efficacy with FDA and determining the sensitivity and the specificity of the laboratory test are different issues. “I would argue that you need both” regulatory systems, Pfeifer said. Once an FDA-approved companion diagnostic becomes available, CLIA could regulate the test metrics for follow-on tests in the certified labs, Pfeifer said. TEst pricing Joanne Armstrong, senior medical director and head of women’s health at Aetna, said that the outcome achieved is more important than the regulatory pathway used to bring a co-developed companion diagnostic test to market. While noting that each regulatory process has particu- lar strengths—FDA’s assurance of effectiveness and CLIA’s flexibility and

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46 THERAPEUTIC AND DIAGNOSTIC CO-DEVELOPMENT allowance for innovation—overall, the important factors for management of medical costs are how good these products are and whether they improve outcomes, avoid harms, and reduce costs. With rising health care costs in the United States, it is projected that health care spending will be almost 20 percent of the gross domestic product by 2022 (CMS, 2013). Costs of health care premiums are rising as well, and over the past decade, these costs have been shared equally between patients and their employers, Armstrong said. As a result, consumers have become increasingly responsible for more of the costs of health care and, thus, responsible for the costs of innovation and technology. These advancements in technology “must be valuable” to patients, Armstrong said, because they are bearing much of the costs. Managing medical costs while optimizing value is important; as a country, we are currently spending much more on health care costs than we can currently afford. “We need to make sure that the products that are put out there and that are promoted actually can reduce total costs in the real world,” Armstrong said. Reducing costs can occur by a sequester approach or through determining what adds value, and the latter concept means that science needs to be effectively translated into the clinic. The costs of genetic tests are still relatively modest, but they are grow- ing rapidly—at about 11 percent per year, according to Armstrong. Still, the major focus of attention at insurance companies is obesity and heart disease, and it is a challenge to devote time to discussing reimbursement about other public health issues that may be of lesser priority. Aetna, for example, spends less than 1 percent of its total medical costs on diagnostics, Armstrong said. For Aetna to reimburse for diagnostic tests, they “look for analytical validity, clinical validity, and clinical utility,” and many of the tests have limited information on clinical utility. Payers look for three things in deciding which co-developed tests to support, Armstrong said. They look for effective technology, innovation, and cost-effectiveness. Effective technology requires knowing that a test is analytically and clinically valid and that it has clinical utility (Quinn, 2010). The transparency of test performance data is needed because these data are important for determining effectiveness. Today, no organization “owns” technology assessment. “We do it, but there’s really not an independent body that does it,” she said. “We would welcome a trusted independent source of technology assessment, especially for high-risk tests.” Innovation and adapting to change also are important, she said, because “new technology platforms drive not just clinical improvements, but clinical efficiency,” and next-generation sequencing may be an example of this.

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PERSPECTIVES OF PAYERS AND REGULATORS 47 Value-Based Pricing Lowering health care costs through value-based pricing models should create incentives for important and useful diagnostics to come to the ­ arket, m Quinn said. The challenge, Armstrong said, is that the business model does not support new development because once labs produce innovative and less expensive products, this leads to decreased revenues. “Combination diagnostics are actually easier to value because there is one drug and one outcome,” Quinn said. The Oncotype DX® test is an example of this, and it was close to revenue neutral overall, he said. Most other diagnostics are more complicated because they have many uses beyond just the question of whether to administer chemotherapy. Positron emission tomography scans, for example, have many different uses and purposes that vary from patient to patient, Quinn said. Aetna would support the development of reimbursement models that reward improvements in outcomes in real-world settings, Armstrong said, but this approach can be difficult. Paying for value also implies not paying for things that the data indicate have no value or that have no data related to value. Armstrong cautioned that “we don’t want more regulation that would stifle innovation.” There are many drugs available today without related biomarkers available, she said, and there is a need to “keep inno- vation and access to new technologies robust” in order to identify new diagnostics for these drugs. The move toward accountable care organizations (ACOs) could advance the concept of value-based purchasing because those in the system would decide which test should be paid for, Armstrong said. In this system, the payment moves from the payer to the health care delivery system (perhaps an integrated one), and the decision can be made that sequencing a tumor has more value—both in terms of clinical outcomes and cost—than other options. However, Aetna has worked with ACOs, and none of them has yet incorporated genetics into its system because the ACOs are focused on public health priorities such as obesity and heart disease. Decision-Support Tools The value of decision-support tools in ACOs depends on the strength of the evidence, Armstrong said. “How strong does the evidence need to be that you have the confidence to recommend that this test be done or that you recommend a panel of multiple tests be done?” Payers are unlikely to recommend that multiple tests be done because of the potential for addi- tional costs. Rather, decision making is likely to move, along with financial responsibility, to the managers of ACOs. The transition will not be uniform, she said. “There will be some groups that will be quicker, faster, smarter.

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48 THERAPEUTIC AND DIAGNOSTIC CO-DEVELOPMENT They will have a culture of genetics and oncology, and they will probably get to it first.” reimbursement of next-generation sequencing An NGS platform for whole genome or whole exome sequencing would provide more information than just a single companion diagnostic, which would present regulatory and reimbursement challenges, Terry said. A ­ rmstrong noted that when payers evaluate technologies, they do it indi- vidually. If a biomarker is safe, effective, and has clinical utility, it will be covered, she said. With a panel of tests that contains a biomarker of inter- est but other information as well, the additional information collected will not be covered unless it has been shown to be safe, effective, and useful, regardless of whether it was more cost-effective to order a whole panel ver- sus a single test. “We have to start thinking differently about that, because genome sequencing is going to force us to do that,” Armstrong said. “The question is, If cost is not a consideration, is there something inherently wrong with collecting information that you don’t know what to do with?” In radiology, Armstrong said, students used to be taught not to look below the diaphragm on a chest X-ray because that was “fishing for trouble.”