Monday, May 21, 2018


Section 216 of the 2014 PAMA law set in motion a repricing of the Medicare lab fee schedule to market average prices based on trienniel surveys.  However, it also created a new test category called Advanced Diagnostic Laboratory Tests (ADLTs), which must be sole-source tests and are priced and repriced annually.   CMS released instructions for the ADLT process in March 2018 (here).

On May 21, 2018, Foundation Medicine issued a press release that the FoundationOne CDx test had been awarded ADLT status from CMS (here).   Under AMA Proprietary Lab Analysis (PLA) code 0037U, the test will be priced at $3500 for three quarters beginning July 1, 2018.  Thereafter, it will be priced annually at its median private payer price.

The stock was up 7%, reflecting a market cap bump of about $200M.   A bit surprising, since the ADLT status was a shoo-in as far as I could tell.  Much of that was between 10 am and 1 pm, so it took the market a while to absorb the news.  (No need for nanosecond stock trades.  You could have slept in, bought at 10, and sold at 1.)

CMS updated its ADLT homepage (here) with a new PDF document, "List of Approved ADLTs," which current has one test listed, 0037U (CMS PDF here).

Small Puzzles Remain

FDA Approval is the Simpler of Two ADLT Routes to ADLT Status
Statute and CMS regulations create two types of ADLTs, the first being a sole source algorithmic test (e.g. MAAA), and the second being a sole source FDA approved or cleared test.   FoundationOne CDx is in the second group, where CMS approval as an ADLT should be pro forma.   For MAAA-type ADLTs, CMS created rather complex rules about the history of the test's development, licensing, and "uniqueness" that haven't been tested yet.*   CMS has stated, however, that ADLT applications will be reviewed by its standing laboratory advisory committee.

Initial Payment Clearly at "List Price" Per CMS
Multiple sources in CMS guidance state that the initial 3 quarters of an ADLT test payment will be at "list price."  For example:

  • Rulemaking at 81 FR 41100 (June 23, 2016) created 42 CFR 414.522, stating that "The payment rate for a new ADLT during the new ADLT initial period is equal to its list charge." (Here, PDF page 65).   
  • CMS also notes that SSA 1834(A)(d)(1)(B) "defines the term 'actual list charge' to mean the publicaly available rate on the first day at which the test is available for purchase by a private payor."  (Here, PDF page 5, 81FR41040).   
  • In its March 2018 guide to laboratories making ADLT applications, CMS stated similarly "Once a new ADLT initial period begins, payment for the new ADLT is made based on its actual list charge amount for the entire duration of the new ADLT initial period [3 quarters]."  See here, PDF page 22.   

I put this under the "small puzzle" column because in its press release, FMI states CMS will provide reimbursement at $3500 during the initial period.  Generally, publicly available sources have quoted the FMI list price as considerably higher, e.g. $5800.   I've also seen FMI's average payer payment stated at circa $2400, and I've noted that you can impute its overall net average payment closer to the range of $1000 per test (e.g. 10,000 clinical tests for $10M per quarter clinical revenue).  For PAMA calculations, CMS does not count "zero" payments. 

One answer to the puzzle - reading the instructions scrupulously - is that FMI could have set the F1 CDX list charge at $3500 literally on day one, and a higher price (say, $5800) on day two forward.  There is a clawback if CMS payments per test during the first three quarters prove to be too much higher than the later-calculated private payer rate during the same period; the tactics and strategies for this get complex (here).

Nerds see here for eye-crossing license-based exclusions from ADLT status; these apply to MAAA-type but not FDA-type ADLTs.