Wednesday, May 4, 2016

Foundation Medicine to Open Lab in North Carolina; Billing to Palmetto/MolDx Policy System

In its investor call for first quarter results, held May 3, 2016, Foundation Medicine (FMI) noted that it will be opening a laboratory center in Research Triangle Park, North Carolina.  A lab in that location would bill to a different Medicare MAC for all its Medicare fee for services patients.  Some of the complexities are unraveled after the break.

The company stated:
Finally, given our rapid growth in the dynamic markets in which we operate, we have made the decision to expand our US operations to a second site in Research Triangle Park region of North Carolina. 
We recently completed a transaction to acquire an existing NGS based lab facility which includes a five year lease license transfer of certain lab equipment and the hiring of more than a dozen experienced operations staff who are now new members of the Foundation Medicine team.
This new facility will support continued innovation and expansion of our product portfolio. It'll provide important lab redundancies and expands our operational flexibility. To be clear, Foundation Medicine will continue to maintain its corporate headquarters and a strong presence in Cambridge. While the main purpose for the additional lab is to serve the long-term needs of our company, the location may also provide advantages to Medicare coverage and payment in the future.
While no specifics of FMI Medicare billing are available, from publicly available sources, Medicare cases are about 30% of its clinical tests.

The Medicare LCD for gene panel lung cancer testing in Massachusetts provides coverage for CPT code 81445 (tumor, gene panel, 5-50 genes), which CMS has priced nationally at $597.91.  See L36376.  [But this LCD did not become effective til April 1, so it was not active during the first fiscal quarter endedMarch 31.]

Regarding claims processing by Medicare up to March 31, FMI makes an "either/or" statement in its 10Q: either not been paid by its MAC or claims have not been processed and paid in a manner FMI views as consistent with applicable guidelines.

Going forward, a North Carolina lab would bill under a somewhat similar LCD (also covering gene panels in lung cancer).  See: L36143.

But coding and payment could be higher than offered so far by Medicare in New England.  A MolDx coding article directs comprehensive NGS tests (which include copy number, SNVs, indels, and rearrangements) to be billed under CPT code 81479, which is not priced nationally and can be priced by the local MAC.  Alternatively claims might be processed under code 81455 for 50+ genes, which unlike 81445 does not have a national price and would be priced locally.

The North Carolina lab had been built recently by Sequenom (here).

Relevant sections of FMI's May 3, 2016 10-Q are here:

For the majority of physician orders within the United States, the payment we ultimately receive depends upon the rate of reimbursement from commercial third-party payors and government payors. 

We are not currently a participating provider with most commercial third-party payors and, therefore, do not have specific coverage decisions from those third-party payors for our products with established payment rates. Currently, most of the commercial third-party payors that reimburse our claims do so based upon the stacked Current Procedural Terminology, or CPT, codes, the predominant methodology, or based on other methods such as percentages of charges or other formulas that are not made known to us. 

In addition, a small portion of commercial third-party payors outsource our claims to preferred provider organizations or third-party administrators, who process our claims and pay us directly at negotiated rates. Coverage and payment is determined by each third-party payor on a case-by-case basis. 

As of March 31, 2016, we were not a participating provider in any state Medicaid program, and therefore, did not have coverage determinations under which our tests were covered by these Medicaid programs. 

As of March 31, 2016, we were a participating provider in the Medicare program, but we did not have a coverage determination within the jurisdiction where our operational laboratory facility is located. At the end of 2013, we began the process of submitting claims for our tests to Medicare. We may also negotiate rates with patients, if the patient is responsible for payment. Our efforts in obtaining reimbursement based on individual claims, including pursuing appeals or reconsiderations of claim denials, take a substantial amount of time, and bills may not be paid for many months or at all. Furthermore, if a third-party payor denies coverage after final appeal, payment may not be received at all.

We currently recognize revenue on a cash basis from commercial third-party payors and from patients who make co-payments, pay deductibles, or pay other amounts that we have been unable to collect from their third-party payors because the payment is not fixed or determinable and collectability is not reasonably assured, as a result of the fact that we do not have coverage decisions in place with most third-party payors and have a limited history of collecting claims. We expect to use judgment in assessing whether the fee is fixed or determinable and whether collectability is reasonably assured as we continue to gain payment experience with third-party payors and patients. Costs associated with performing tests are recorded as tests are processed. These costs are recorded regardless of when or whether revenue is recognized with respect to those tests. Because we currently recognize revenue on a cash basis from commercial third-party payors, the costs of those tests are recognized in advance of any associated revenues. Our revenue from these payors is generally lower and our net loss is higher than if we were recognizing revenue from these payors on an accrual basis in the period during which the work was performed and costs were incurred.

We currently have an operating laboratory facility located in Cambridge, Massachusetts, and we are in the process of establishing an operating laboratory facility in the Research Triangle Park, North Carolina. 

There are currently no national coverage determinations that establish whether and how our tests are covered by Medicare. In the absence of national coverage determinations, local Medicare Administrative Contractors, or MACs, that administer the Medicare program in various regions, have some discretion in determining coverage and payment for tests. 

For example, several MACs, including Palmetto GBA, or Palmetto, the MA C covering the laboratory in North Carolina that we are now establishing, have issued final local coverage determinations, or LCDs, to cover well-validated comprehensive genomic profiles for a subset of NSCLC patients. The Palmetto LCD became effective July 2015, and specifically included FoundationOne as of October 2015. 

The local MAC for our Cambridge laboratory, National Government Services, has not elected to follow the same standards for determining coverage. 

In February 2016, National Government Services announced a final LCD effective April 1, 2016, to provide coverage for hotspot tests of 5 to 50 genes for patients with metastatic NSCLC. 

We do not believe this LCD reflects coverage for our validated comprehensive genomic profiling products, which includes comprehensive analysis of greater than 50 genes and all classes of alterations, and we will continue to seek a positive coverage determination from National Government Services, which, if obtained, may establish payment for the Medicare claims we submit to this local MAC covering our laboratory in Massachusetts 
Following discussions with NHIC, Corp., the predecessor to National Government Services, we agreed to not submit claims for FoundationOne tests provided to Medicare patients while this MAC as sessed the appropriate coding, coverage, and payment for FoundationOne as a whole. To accommodate this MAC’s request, we deferred the submission of claims until November 2013, when we commenced the process of submitting claims to National Government Services for FoundationOne and FoundationOne Heme tests for Medicare patients with dates of service on or after November 1, 2013. 

We have not recognized any revenue from Medicare for our tests to date. As a result, our net loss is higher than if we were recogniz ing revenue from the sale of our tests for patients covered by Medicare. 

As of March 31, 2016, National Government Services has  either  denied the claims that we have submitted    or    not processed and reimbursed us for any of the claims in a manner that we believe is consistent with applicable processing guidelines. 

We are in the process of appealing these unpaid claims. 

In the future, a MAC assigned to the jurisdiction in which one of our operational laboratory facilities is located may issue a negative coverage determination for one or more of our tests that would apply to future claims or may defer processing a claim pending a coverage or payment determination. If a claim is paid by a MAC assigned to the jurisdiction in which one of our operational laboratory facilities is located, either upon acceptance of the claim or following a successful appeal of a denied claim, we will generate revenue from Medicare for our testing. 

It is possible that, once our new laboratory in North Carolina is operational, claims for tests submitted by that location will be reimbursed by Palmetto, the MAC assigned to that jurisdiction. 

FoundationOne and FoundationOne Heme tests for patients covered by Medicare represented approximately 30% of total tests reported to physicians in the United States during each of the three months ended March 31, 2016 and 2015.

We expect that our current lack of significant coverage decisions and the general uncertainty around reimbursement for our tests will continue to negatively impact our revenue and earnings, both because we will not recognize revenue for tests performed, particularly if our test volumes increase period-to-period