NGS, PAMA, PGX and Beyond

1. NGS, PAMA, PGX and Beyond Rina Wolf VP Strategic Commercialization, Consulting & Industry Affairs Kyle Fetter VP of Advanced Diagnostics

3. Thoughts for our “Brave New World”

4. PAMA Timelines After enactment CMS will establish the process for temporary codes and unique identifiers (no date required)

5. PAMA Unanswered questions • Number of contractors – What criteria to determine and to select contractors? • What is the make up of “advisory panel”? • Hospital labs/POLs – are these “applicable labs”? • Third definition of an Advanced Diagnostic • Do first three quarters start at commercialization or coverage? • HCPCS codes • Industry beginning to be concerned about long term pricing impact – seeing push for change

6. Energy and Commerce Committee’s 21st Century Cures Initiative • Energy and Commerce Committee • Charged with how to move personalized medicine and medical advances forward • FDA hearings • Sounds like they are recognizing legislation needed, rather than such substantive change through guidance • Options: create new framework, harmonize existing frameworks, one or the other • Reimbursement • Understand we won’t have innovation if not paid for – but truly clueless as to how to go about it • Incentives? • Comments should be submitted now! - goal to produce white paper in early January

7. 2015 code additions • 22 NGS (Genomic Sequencing)and MAAA codes • Contractors instructed to Gapfill • Will contractors price all or consider statutorily non-covered – some pre-natal and pediatric; contractors coming out against NGS coverage • What happens to payment vs current method of billing for Tier I codes in NGS panels • 60+ Not yet priced • Drug Class Screening, Definitive Drug Testing,Therapeutic Drug Assays • CMS Recommendation: Delay in pricing.Rationale: These codes represent various drug screening codes, many of which are specific to individual drug testing. While we appreciate the recommendations for these tests, we areconcerned about the potential for overpayment when billing for each individual drug test rather than a single code that pays the same regardless of the number of drugs that are being tested for. Therefore, it is our recommendation to delay pricing for these codes at this time, until further information and education is obtained. • “Super” codes?

8. Policies not aligned with clinical practice • Negative policies proliferating • CMS claims not to be aware that policy conflicts with FDA labeling • AHRQ commissioned study on CYP2D6 – PI Gualberto Ruano, MD

9. Public Meeting: Advancing the Use of Biomarkers and Pharmacogenomics in Drug Development – 9-5-14 • No two companion diagnostics have been reviewed the same way • NGS baffling: • How to handle new, and probably frequently added, alleles to an already cleared panel • How to handle negatives • How to review rare populations • What should endpoints be? • Is there a role for patient and physician reported outcomes?

10. FDA Guidance Released • FDA stated will be opportunity for stakeholder comment and public meetings • 120 day comment period • Proposed stakeholder meeting in January • 11,000 labs may be performing LDTs – hundreds of thousands? • http://www.regulations.gov/#!submit Comment;D=FDA-2011-D-0360-0002 • Have been trying to regulate since 1992 – can “substantive change” be done through guidance? • Timeline:FG:  NEW high risk LDTs must comply with premarket review. • FG + 6 months: LDT labs must comply with listing requirements. • FG + 6 months:  Compliance with adverse event reporting requirements. • FG + 12 months:  FDA begins enforcement against existing (as opposed to only new) high risk LDTs. • FG + 24 months:  Publication of a priority list for [grandfathered] high risk LDTs. • FG + 36 months:  Begin enforcement of premarket review, especially to be:  (A) Combination diagnostics (for drug prescription), (B) screening LDTs, (C) LDTs for certain infections and high risk uses including blood banking. • FG + 4 years:  Publication of a priority list for other LDTs, e.g. Class II moderate risk LDTs. • FG + 5 years:  Transition from Class III to Class II enforcement.  The FDA specifically envisions “third party review” – CAP or NY State? • FG + 9 years:  End of transition to Class II enforcement.

12. Head Spinning News… • New WellPoint Program Will Reward Standardized Cancer Care Regimens • In a significant new program, WellPoint Inc. will soon begin offering oncologists a $350-per-month payment for each patient who is placed on one of the insurer's standardized cancer treatment regimens. The program is designed to curb rising cancer care costs, though some experts are concerned that it could discourage the advancement of personalized medicine by providing incentives for doctors to prescribe the same drug to large segments of cancer patients. • American Society of Clinical Oncology Chief Medical Officer Richard Schilsky points out that programs like this one may push patients into the same treatment, while Yale Cancer Center Chief of Medical Oncology Roy Herbst said that while the WellPoint treatment recommendations are "reasonable," they were likely to limit the development of personalized medicine. WellPoint plans to roll out its program in six states beginning July 1. The Wall Street Journal • Study Suggests Matching Lung Cancer Patients With Targeted Therapies May Improve Survival • Members of the Lung Cancer Mutation Consortium - led by Memorial Sloan Kettering physicians - have reported data from more than 1,000 lung cancer patients tested for cancer driver mutations during a period of four years, finding a significant improvement in median survival among patients who received targeted therapy based on their molecular testing results compared to those who did not. Results were published May 20 in the Journal of the American Medical Association.

13. Competitive Environment or “If Johnny jumped off the bridge…”

14. Narrow Networks • Labs are negotiating exclusive contracts with payors excluding specific competitors from their networks • Is this anti-trust violation? • Difficulty in gaining provider status: • If proprietary, must first gain coverage • If not, typically get “network full” response • Need to plan for compliant out-of-network strategies for the long term

15. Real World, cont’d • Considered false claim if provider has no intent of billing patient (that also makes payor responsibility $0) • Payors visiting websites: eg UHC saw a statement on a lab website that indicated patients would only be held accountable for $100 for a $3500 test. Told lab they would only pay an out of network benefit of 60% of $100 • Recoupments of difference between capped pricing and what was actually paid • Contractor audits: • Palmetto GBA will collect an overpayment on all incorrectly paid code 81227 and 81355 services from dates of service 01/01/2013 through present. • Follow the money - Management responsible for all actions, statements that result in $$ paid to lab – even if not by W2 employees

16. The Real World • Commercial Payor Audits • “Pre-Pay” audits – verifying information • As part of this process, we must review records for the patients on the enclosed claim list to verify adherence to standard billing practices.  The records should include, but not be limited to, progress notes, laboratory, pathology and radiology reports and correspondence or any other supporting documentation for the services billed…  Additionally, please provide the patient's intake form and documentation of the initial visit/consultation, regardless of the date range specified in the enclosed claim list. • Verification that patient shares of cost were billed! • …submitting proof that our member paid their co-pays, coinsurance and/or deductible for each of the claims…Acceptable proof of payment includes a cancelled check or a credit card receipt. If you did not collect the patient responsibility, please provide the reason why and any supporting documentation you have such as Financial Hardship documents. • Go back a year or more

17. Lab Industry to Focus On Commercial Claims Processing Data • Back end denials related to non-network coverage, medical necessity, frequency edits, additional information required, etc- • Up by 42% since 2011 • Average Patient Responsibility • Up by 36% since 2012 • Focus on: Patient Responsibility Workflow, Patient Portal • Bad Debt on patient responsibility with standard billing practices is 29% • Bad Debt on patient responsibility for those with capped patient out-of-pocket is 78% - risk not worth it! • Increase in “100” reason-code denials: payments made to patient • Up by >180% since 2012 • Focus on: Automated Claim Status checking • Bad Debt for those who have incorporated quick and aggressive patient follow up shouldn’t be higher than 15%

18. Compliance in the News… • Labs Reassess Processing and Handling Payments in Light of OIG Special Fraud Alert • Cigna Accuses Lab Co. Of $84M Billing Fraud • Cigna claimed that Richmond, Virginia-based HDL had engaged in an ongoing, fraudulent “fee-forgiving” scheme that involves luring Cigna members to use the company’s health-testing services by telling them they don't have to pay for their share of the cost, then charging exorbitant reimbursement rates for thousands of claims to Cigna, violating the Employee Retirement Income Security Act and other federal and state laws.“HDL has developed a business model designed to game the healthcare system by submitting grossly inflated, phantom ‘charges’ to Cigna that do not reflect the actual amount HDL bills patients,” the complaint said.HDL touted to potential customers in brochures and flyers that they would have no responsibility to pay co-payments, co-insurance, deductibles or other costs for initial and follow-up testing by the company and that it would take on the risk of an insurance company not paying for the services, according to the complaint.After attracting patients on health plans administered or insured by Cigna, HDL then misleadingly billed the plans unjustified “phantom” rates, including charges it had never collected or intended to collect from the patients, the complaint said. HDL often submitted charges to Cigna for reimbursement that were at least two to three times higher than Medicare rates for similar services, accroding to the insurer.

19. News cont’d • Massachusetts lab agrees to $4.65 million settlement to resolve fraudulent billing claims to WV Medicaid, Medicare • Calloway Labs, headquartered in Woburn, provided clinical laboratory services, including urine testing, for Medicare and WV Medicaid, but from March 2009 through April 2013 the company routinely billed both organizations using a code designated for pathology services in addition to the code for urine drug testing. • Bostwick Laboratories settles whistleblower suit for $6.05 million • Allegations: Routinely (not on a case by case basis) perform fluorescent in-situ hybridization (FISH) testing on atypical urine cytology cases regardless of whether the referring clinician requested FISH testing and then bills the government for the tests; and • Perform other tests of dubious necessity without a physician order and also bills those to government payors; and • Perform both the professional and technical components of FISH testing, but allow the referring physicians to bill for the professional component; and • Charge referring physicians a reduced amount for the FISH technical component, which allows the referring physicians to mark up and bill Medicare for the full amount, and pocket the difference.

20. Frequent Issues Noted by Our Customers with Published Commercial Clinical Policies • Payable indications per policies don’t match commonly used diagnostic codes: • Aetna policy on Cyp2C19 covers patients who have been prescribed Clopidogrel, excludes 80% of the most commonly used diagnosis codes for patients treated with the drug • Coverage indications are deliberately vague or difficult to prove, but ensure the need for additional information: • Testing “May be eligible for coverage if…” First Coast • “The results of the… test will directly impact clinical decision-making AND clinical outcome for the individual.” Cigna

21. OIG • OIG identifies questionable clinical laboratory billing in new study • Fifty-one percent of the 94,609 labs studied exceeded the allowed threshold for at least one measure, and 1,032 (1.1%) had five or more measures that exceeded the allowed thresholds. (Most were POLs, but…) • The most frequently exceeded thresholds were for the following measures: • High average allowed amounts per ordering physician • High percentage of claims with ineligible ordering-physician numbers • High percentage of claims with compromised beneficiary numbers • High percentage of duplicate lab tests

22. OIG, cont’d • OIG Issues Special Fraud Alert on Specimen Processing and Registry Arrangements • The OIG has now highlighted two types of arrangements between labs and physicians that it considers “suspect” under the AKS: • Specimen Processing Arrangements — payments by a lab to referring physicians for collecting, processing and packaging specimens sent to the lab; and • Registry Arrangements — payments by a lab to referring physicians for submitting patient data to a registry or database, for instance, as part of the lab’s R&D program.

23. CERT and Recovery Audit • Collect documentation and perform reviews on a statistically-valid random sample of Medicare FFS claims to produce an annual improper payment rate. • In 2012, CMS introduced the Recovery Audit Prepayment Review Demonstration, which allows Recovery Auditors to conduct prepayment reviews on certain types of claims that historically result in high rates of improper payments. • The demonstration focuses on 11 states: California, Florida, Illinois, Louisiana, Michigan, Missouri, New York, North Carolina, Ohio, Pennsylvania, and Texas. • Every $1 spent = $8-20 recovered!

24. QUESTIONS?