Tag Archives : advocacy


Throwback

Disclosure: No position in EXAS.

Remember Exact Sciences?

In 2015, I argued unsuccessfully in a series of public comments and an oral presentation that the proposed Medicare reimbursement rate for the company’s Cologuard test was too high. While Cable Car’s investment positioning at the time was validated by a subsequent advisory panel decision, the public policy outcome was not what I had hoped for. I believed then and continue to believe that the company cleverly exploited technicalities in the process for establishing new codes on the Clinical Lab Fee Schedule to receive a payment rate far exceeding the level that would be cost-effective in population screening.

The rate-setting process was reformed by a rulemaking mandated by the Protecting Access to Medicare Act (PAMA), which with effect from January 1, 2018 is supposed to establish market-based reimbursement rates. PAMA was intended to reduce costs to Medicare by basing future reimbursement amounts on the rates determined by commercial payors. At least in theory, commercial payors can conduct thorough cost-effectiveness analyses and determine payments through competitive forces in the marketplace. In practice, there are issues with this approach as well. During the draft rulemaking, Cable Car submitted a public comment noting that for some tests, like Cologuard, the price in the commercial population and the price for the Medicare population really should not be the same. Unfortunately, CMS received over 1,300 comments on the proposed rulemaking and did not specifically address this concern.

Disappointingly, it now appears that an additional loophole in the data collections process under PAMA will enable Cologuard to receive another 3 years of above-market reimbursement. Thanks to a provision in the final rule inserted after comments from the lab industry, the definition of “applicable information” used to determine reimbursement rates excludes any test where the company appealed a reimbursement rate from a commercial payor. EXAS appears to have challenged a significant proportion of its test volume during the relevant period, delaying payment outside the collection window and enabling the company to report only favorable reimbursement rates.

During the relevant time period, EXAS had an average commercial reimbursement rate I estimate from its financial filings at about $321 per test. Yet based on the interquartile range and weighted median data published by CMS, more than 75% of the test volume submitted under PAMA was reimbursed at or above $508.87. I believe the company’s policy at the time was to appeal virtually every commercial reimbursement that came in significantly below the Medicare rate. Even when those payment decisions were resolved in the payor’s favor, they were excluded from the data submitted under PAMA.

PAMA imposes stiff civil monetary penalties for misrepresentations and omissions by reporting laboratories, and importantly I’m not suggesting that EXAS knowingly misrepresented the commercial reimbursement for Cologuard. Instead, it appears they once again took advantage of the rules as written. They made a great return on investment for their 2016 lobbying spend.

Although past experience suggests it will have limited impact on policy, I have written another public comment to CMS to shine light on this situation, primarily in hopes of improving the PAMA data collection process in the future and ensuring that data was accurately collected this time. Exact Sciences CFO Jeff Elliot was kind enough to give me time last week, but provided the following statement:

Exact Sciences disagrees with the assumptions and assertions in your comment letter, and we noted multiple factual inaccuracies. While we would encourage you to check your facts and your analysis further before submitting your letter, we don’t intend to respond on a point-by-point basis.

I have made every attempt to avoid factual inaccuracies and will gladly make corrections if requested.

Although EXAS is trading near all-time highs, I have not held a short position for more than two years. There was some public discussion of the likely impact of PAMA earlier this year which briefly excited some short sellers. I take no pleasure in having known better.

PDF icon Read the public comment


Final Public Comment on Cologuard 1

Disclosure: No position in EXAS.

This month’s draft recommendation by the United States Preventative Services Task Force on colorectal cancer screening was deeply validating. The task force highlighted the specificity reduction introduced by combining FIT with a diagnostic DNA assay, a point emphasized by many market participants and independent observers over the years. Cable Car submitted comments supporting the task force’s recommendation.

I will have more to say about the impact on Exact Sciences and Cable Car’s positioning in the forthcoming third quarter investor letter.

In the meantime, I had one more public comment to research and submit first. Cable Car’s final public comment on the reconsideration request, which was preliminarily denied in August, is now available. The comment is styled as a compromise and follows an enlightening conversation with the staff at CMS regarding their constraints.

Cable Car has advanced a new crosswalk proposal: 82274 (FIT) + 81275 (KRAS) + 81288 (MLH1 methylation). As a diagnostic assay that is explicitly excluded from reimbursement for screening purposes, KRAS still has no business in the crosswalk, in my opinion. However, it appears Exact Sciences is going to get away with its clever exploitation of policy, which makes it virtually impossible to argue on methodological grounds that a KRAS assay is not a KRAS assay. This is no different from the old abuses of “code stacking” and is one of the many shortcomings of the current process the new PAMA procedure will seek to address. 81288 is a far better comparator for the methylation assay than any previous proposal, but it was only recently priced through the gapfill process.

I am hopeful that at this point in the process CMS will still be able to give the compromise crosswalk its full consideration.

PDF iconRead the comment letter.


Healthcare Cost Inflation

Disclosure: Short EXAS.

CMS has preliminarily determined not to change the reimbursement rate for Cologuard.

Turing Pharmaceutical’s decision to dramatically increase the price of Daraprim in order to achieve investment returns and fund incremental research drew widespread condemnation this week. Turing became emblematic of wider biotechnology industry practices that collectively contribute to healthcare cost inflation. Optimal drug pricing is a more nuanced question than the immediate outrage suggests, but the systemic problem is not limited to pharmaceuticals.

Even government payors do not always feel empowered to consider cost-effectiveness when establishing reimbursement rates. Unlike the niche commercial toxoplasmosis market served by Daraprim, CRC screening is in large part a publicly financed benefit recommended for almost everybody over the age of 50. Americans are now being asked to pay more for non-invasive screening.

The transformation of Exact Sciences from a heavily promoted penny stock with a failed DNA-based CRC detection technology at the end of the last decade to the multi-billion dollar company of today was premised on what now appears to have been a remarkably foresighted decision:

The company took a decades-old screening test, licensed expensive diagnostic biomarkers not reimbursable for screening on their own, and then spent millions demonstrating that, predictably, administering diagnostic assays to screening populations catches a few incremental early-stage cancers at a very high cost with a large number of false positives.

They then successfully lobbied a government agency to increase the price for the combination by 23x over the predecessor test.

It seems that decision will stand.

Last night, CMS released its preliminary 2016 payment determinations. The rationale for new code 81528 was thin:

CMS Recommendation: Crosswalk to codes 81315 PLUS 81275 PLUS 82274.
Rationale: We believe that the 2015 pricing of code G0464 is the correct reimbursement rate, and this molecular pathology test is replacing that code. Commenters recommended other formulas. While we appreciate the comments that payment of this test should be based on various mathematical equations, it is our belief that the crosswalk to the current 3 codes best represent this test. The Clinical Laboratory Diagnostic Test Panel also agreed.

While there is another comment period before the rates are finalized later this year, there is very little else to say about how much the reimbursement rate exceeds both the unit cost of the test and the cost of gaining equivalent life-years through more efficient screening modalities.

I stand by Cable Car’s analysis and thank the staff at CMS for their consideration.


Reconsideration Update 10

Disclosure: Short EXAS

As promised in my previous post, you may now download Cable Car’s public comment in response to statements made at the Public Meeting in July. Comments are normally available only through a FOIA request, but in the interest of transparency I wanted to share my views more broadly. I believe Kevin Conroy made several statements at the Public Meeting that are not accurate and deserve a public accounting. The comment letter discusses the legal basis for the reconsideration request, claims regarding compliance and cost-effectiveness, and additional cost analyses. Exact Sciences shareholders can take comfort in the fact that the company has impressive operating leverage, irrespective of the Medicare payment rate. The incremental cost per test in recent months appears to be less than $100.

Following the preliminary determination on the reconsideration request expected sometime in September, there will be an additional 30-day comment period before the 2016 fee schedule is finalized.

CMS Panel

This morning, CMS convened the first meeting of an advisory panel on Clinical Laboratory Diagnostic Tests. Steve Phurrough, the CMS Medical Officer who asked Conroy several questions at the Public Meeting that are addressed in my letter, chairs the panel but is not a voting member.

The panel was established under the Protecting Access to Medicare Act (PAMA), which is also changing the rate-setting process for the clinical lab fee schedule beginning in 2017. Since the PAMA rulemaking is not yet complete, the purpose of this initial meeting was to provide input into the new codes for 2016 that were discussed at the Public Meeting in July. The panel’s recommendations are advisory and non-binding.

The bulk of today’s debate involved highly technical, controversial determinations regarding the most comparable tests, from a methodological standpoint, to use for several new test codes. Cost-effectiveness concerns were not mentioned at all.

Disappointingly, the panel’s brief discussion (starts at 1:26:30) of code G0464 resulted in an 11-0 vote, with 1 abstention (likely the representative from the Mayo clinic) from the 12 panel members present, in favor of maintaining the current crosswalk. More accurately, there was no discussion. The panel did not discuss their reasoning at all; the only comment was from one individual who questioned why code 81315 had no connection to colon cancer and such a high reimbursement level before voting to include it in the crosswalk anyway.

The panel members are all very well-respected scientific experts, but it does not appear that they devoted much, if any, deliberation to the substance of the reconsideration request. In particular, despite asking many clarifying questions regarding the most appropriate factors to consider for other tests, in the case of G0464 there was no debate whatsoever about the appropriateness of considering a test’s purpose, rather than its methodology, in assigning a crosswalk.

It is unclear whether or not the panel had the opportunity to review the reconsideration request in full or the further comment letter. As the panel’s recommendation is non-binding, I strongly urge CMS to take all available information into account in reaching its determination.

 


Cable Car Presentation at the Clinical Lab Fee Schedule Public Meeting 1

Disclosure: Short EXAS.

On Thursday, July 16, I presented Cable Car’s reconsideration request regarding code G0464 on the Clinical Lab Fee Schedule before the annual Public Meeting at CMS. The slide presentation is now available for download. You can view my prepared remarks and those of the other speakers on Youtube [starts at 24:45] or in the player embedded below.

I will publish a further comment and rebuttal to Kevin Conroy’s presentation after the public comment window ends in August.

I appreciate having had the opportunity to share my perspective with CMS.


More thoughts on Cologuard reimbursement

Disclosure: Short EXAS.

A careful reading of the logistic regression in the Cologuard algorithm demonstrates that a positive result on the FIT component alone is sufficient to trigger a positive result on Cologuard.

After more than four months, I finally received a disappointing response from CMS to my FOIA request for copies of the other public comments submitted regarding the payment level for code G0464, which covers Exact Sciences’ Cologuard test. Had the FOIA request been processed within the statutory timeframe, I had hoped to incorporate counterarguments to any other concerns brought up by other stakeholders in my reconsideration request. As it turns out, that was unnecessary—there were none. CMS disregarded cost-effectiveness concerns on its own.

I was naïve enough to believe that CMS’ decision not to adjust its preliminary payment determination must have been at least partly guided by competing public comments. Indeed, this is what the former director of the Division of Ambulatory Services in the Hospital and Ambulatory Policy Group, which runs the CLFS rate-setting process, told me via email:

The comment period is an opportunity for commenters to share their thoughts with CMS.  We do not respond individually to these comment letters.  We take the information into consideration as we come to our final determinations.  And, as you can imagine, often there are competing comments provided to us. [...] 

In addition, we do not share proprietary information if it was shared with us in order to support a payment determination for either a crosswalk or a gapfill payment amount – that may or may not have been the case here.  In coming to the final determination for this test code, as well as all of the others that were brought through the Annual Public Meeting this year, we carefully considered everyone’s comments, but that does not mean that everyone was satisfied. 

I presumed that Exact Sciences must have submitted the purportedly more favorable cost-effectiveness study it has referenced in investor meetings but has never released to the public. (Investors learned on Exact’s Q4 conference call that its cost-effectiveness models are substantially identical to those used by CISNET, which determined that the test would not be cost effective nearly 8 years ago). At a minimum, surely Exact must have argued more than just the crosswalk rationale they presented at the public meeting in July.

As it turns out, there were only three comments submitted after the preliminary payment determination by CMS. One was my own. Another comment was from the manager of a well-known $400 million hedge fund. [Note: I've redacted his personal contact information by request]. His email concisely makes an important statistical point I did not reference in my own correspondence. Because Cologuard includes both a FIT component and a DNA methylation assay component, there is not actually sufficient evidence that Cologuard’s (very expensively reimbursed) DNA methylation assay adds any incremental effectiveness beyond its FIT component alone. Indeed, a careful reading of the logistic regression in the Cologuard algorithm demonstrates that a positive result on the FIT component alone is sufficient to trigger a positive result on Cologuard. In other words, if enough blood is present in the stool sample, Cologuard returns a positive result, irrespective of scores on the DNA assays.

If Cologuard has any sensitivity over and above its proprietary FIT component at all, it would be for detecting CRC-positive patients who for some reason do not have much blood present in their stool but have nevertheless begun to shed a significant amount of DNA. This is a point I plan to emphasize in presenting my reconsideration request at the upcoming public meeting this summer.

Against these two thoroughly documented critiques of the reimbursement level for G0464, Exact Sciences submitted a single-page letter thanking the Division for agreeing with its crosswalk proposal in the preliminary assessment. That was the full extent of Exact’s public comment on the issue. No pharmacoeconomic data was submitted to address cost-benefit concerns. Incidentally, Exact’s letter was dated October 30, two days after my comment letter was published and Cable Car’s website saw a spike in traffic from Madison, Wisconsin. If anyone at Exact Sciences is still reading: publish convincing evidence that Cologuard is cost-effective at its current reimbursement rate, and I will withdraw the reconsideration request.

Short selling can often feel like swimming against the tide, especially when regulatory agencies are involved. In this case, I have yet to hear a substantive response from Exact, CMS or any payor regarding the concerns raised in either letter. CMS is of course not obligated to act solely on the basis of public comments, but it is disheartening that the regulatory process did not directly address the merits of our commentary. Perhaps more concerning is that the politics of providing a ‘favorable’ reimbursement to the first test to go through joint CMS-FDA review appear to have outweighed any fiscal concerns. A different arm of CMS stated in its proposed coverage decision:

As permitted by §1861(pp)(1)(D) of the Act, we may consider the appropriate frequency and payment level in determining whether to expand coverage for new CRC tests. CMS has commissioned such analyses in all past determinations (FIT, stool DNA, and computed tomography (CT) colonography) and will re-analyze using the test parameters of Cologuard [emphasis added].

Yet Cable Car has recently learned that CMS and CISNET have yet to commence any new cost-benefit analysis of Cologuard. Why not?

Cable Car has a further FOIA request slowly wending its way through the queue (the FOIA staff at CMS have my sympathies—they are hard-working but underfunded), in hopes of understanding why NGS set a much lower payment level in one jurisdiction than the one in which Exact’s lab is located.

I look forward to discussing the appropriate reimbursement level at the public meeting.


Update on Cologuard reimbursement

Disclosure: Short Exact Sciences (EXAS).

As mentioned in my update post a few weeks ago, I have a bit more to say about the Medicare reimbursement rate for Cologuard, the new code G0464 on the 2015 Clinical Lab Fee Schedule (CLFS). After some confusion and an apparently erroneous initial upload of the CLFS rate document (.zip) by CMS, most market commentators seem to believe that the payment amount is now set in stone. One sellside analyst even referred to the most recent update as the “final final” reimbursement amount.

Not quite. While the 2015 determination is now complete, the basis for and amount of payment remain open to reconsideration requests, a statutory process that would affect the reimbursement rate beginning next year. Historically, most reconsideration requests have been submitted by test sponsors whose tests have been denied payment, but the process is open to any interested member of the public. I believe that the concerns raised in my comment letter have yet to be addressed, and Cable Car has requested that CMS reconsider its decision accordingly.

I encourage interested readers to read the reconsideration request in full. My letter lays out additional concerns raised by the original CLFS posting and the substantial variation in locality-level payment amounts. Apparently, Medicare reimburses tests for patients nationwide at the payment amount for the lab in Wisconsin where they are processed. I find the payment level particularly egregious in light of the fact that several local Medicare contractors have determined that a more cost-effective reimbursement rate would be nearly 50% lower than the NLA.

Several technical aspects of the payment determination remain unclear. Why exactly is the Midpoint (the median of the 2015 updated Base Fee Amounts from all Medicare Part B Carriers) for code G0464 slightly less than the sum of the Midpoints of the 3 crosswalked codes in each region? Did CMS intend to classify G0464 as other than a “new test” under section 1833 of the SSA? Why did NGS set different payment amounts in Jurisdiction 6 (which covers Exact Sciences’ lab) and Jurisdiction K? What rationales may have been offered by other commenters that led to the final payment determination?

Cable Car intends to pursue Freedom of Information Act requests in order to better understand how the payment determinations were reached and why the local Medicare contractors reached different determinations. Candidly, I am not a medical billing expert, but I do feel strongly about what the public health economic data indicate about ideal reimbursement levels for a population health screening test. I would welcome further clarification from specialists.


Public comment on Cologuard pricing 8

Disclosure: Short EXAS.

The preliminary reimbursement for Cologuard is not cost effective. Read my comment letter.

Cable Car submitted a public comment letter to the Centers for Medicare and Medicaid Services (CMS) regarding the preliminary payment amount for code G0464 on the 2015 Clinical Lab Fee Schedule (CLFS). The preliminary determination proposed to reimburse stool-based DNA screening for colorectal cancer (CRC) at an amount much higher than the level at which CMS’ own research has indicated the test would be cost effective. Cable Car recommended that CMS use a gapfill approach or an alternative crosswalk to better reflect the economics of CRC screening.

CMS does not publish comments from the CLFS public meeting process, so Cable Car is making the comment letter available here. Interested parties can submit comments to Glenn McGuirk until November 8.


Please note that the letter reflects my research on the pharmacoeconomics of CRC screening and good faith belief that a lower payment rate would be in the public interest. My short position in Exact Sciences is not intended as criticism of the company, its management, or its investors. I support efforts to develop new screening strategies for CRC, but believe taxpayers and the healthcare system would benefit from a lower payment rate. If EXAS were to offer lower pricing, it could even lead to wider adoption and better population health outcomes. Please be sure to read the disclaimer on this and every page regarding securities discussed on the blog.