PAMA Unlocks Golden Age for Innovative Diagnostics

By Chance Scott  bio

The publication of the 2018 Clinical Laboratory Fee Schedule (CLFS) in January saw a long and heated debate within the lab community come to fruition.

When Congress first approved the Protecting Access to Medicare Act of 2014 (PAMA) to dramatically change the methods by which Medicare establishes and receives reimbursement rates, lab leaders and diagnostic innovators alike worried they'd lose revenue overnight. Others saw the regulations as a positive move to deflate inflated reimbursement rates and save the government-sponsored insurance program billions of dollars each year, while rewarding innovation.

But, while lost in this debate and now as the impact of the regulations are manifesting on market, few seem to realize the import for inventors, or the potential benefit to healthcare itself.

As a result of the regulations, rather than basing rates for diagnostic tests—including new ones—on grandfathered-in figures from the mid-1980s with adjustments for inflation, the system now:

1. pays according to market value, as dictated by commercial payer rates;
2. standardizes to a national-fee schedule to remove local variations; and
3. creates a new category of Advanced Diagnostic Laboratory Tests (ADLTs), giving proprietors who develop and own the rights to novel technologies that meet certain defined criteria the ability to temporarily set the price and payment rate.

Reread No. 3. Essentially, instead of having payment rates dictated by arbitrary and antiquated policy, which creates significant business risk, companies that create truly disruptive and new diagnostic technologies will no longer be dragged down by predicates. For three calendar quarters, they can set their own rate, and let the market drive future payment amounts.

In other words, PAMA is designed to commoditize commodities and reward innovation.

That's a big deal for companies investing millions of man hours and dollars in R&D to identify novel indicators and markers that will shift diagnostic standard of care. It's an even bigger deal for all the people whose lives could be significantly enhanced or extended by these novel innovations.

As a result, there may be a shift toward creating disrupting and innovative tests, not "me-too" tests, because investors and other stakeholders will be more confident in the potential outcome of a return on investment in terms of pricing and payment.

Innovators certainly are facing many other issues: how to set price, develop the market, demonstrate clinical utility and be socially responsible, all while optimizing profit. But, at the very root of this policy shift, companies are incentivized to innovate beyond existing test paradigms—and that's a huge potential benefit to all of us.

G2 Intelligence is pleased to welcome Chance Scott as a presenter at Lab Institute 2018. Have you registered yet? There's still time to take advantage of the early bird pricing.