Managed Care Strategies for Diagnostics Companies

There are three revenue streams available to companies that offer high-value diagnostic tests.

Learn how to tap into these revenue sources.

Transcript from a podcast with John Napier and Tony Bishop.  

John owns a consulting firm focused on diagnostic testing reimbursement strategies. Tony is the owner of Connexis Search Group, a recruiting firm specializing in diagnostics.

Tony:

My name is Tony Bishop. I'm the owner of Connexis Search Group. We're a recruiting firm specializing in diagnostic testing, medical device, biotech, and life science industries. I'm doing this podcast today to share with you one of the most common reasons that small, early-stage companies struggle and many fail. That reason is not having an effective reimbursement strategy.

We work with 10 to 15 early-stage companies every year, and over two decades, we have seen too many companies fail due to ineffective reimbursement strategies. I want to share this information with you to develop a reimbursement strategy to help your company succeed. I have a vested interest in your success. If I can help you build a successful company, my firm may be able to recruit for you.

This podcast contains information that will provide insights into creating a successful reimbursement strategy for diagnostics testing companies. We have placed numerous managed care candidates over the last two decades, so we know the most qualified personnel. One person who excels is John Napier. John has dedicated his career to the profession and is considered an expert in the reimbursement field.

John is nationally recognized as a subject matter expert on commercialization and monetization, focusing on PPACA alignment with payer strategy, reimbursement, and business development. His background includes experience with various healthcare products & services, including extensive expertise in developing payer and government coverage policy health economic strategies.

John focuses on product & service assessment based on clinical and financial analytical metrics for inclusion in our Value-Based portfolio. He leads all strategy development and tactical implementation, ranging from the payer, government, and health economic policy to the operational execution of applicable customer interface platforms.  

Previously, John held several leadership roles with major international conglomerates and startup organizations. John has a B.A. from Cleary University and is a frequent speaker and consultant for multiple healthcare systems and policy advisory committees.

John:

Thank you, Tony, and thanks for having me today. We look at products and services according to the new reimbursement rules regarding what we do with our consulting team. So, as most people should know, reimbursement is changing, and it's changing dramatically here in the United States. What's happening with the payer mentality is they are looking at products and services based on performance. Does it improve clinical outcomes? Does it save money?

Then there are the performance-based diagnostics, which can lead to clinical decisions that can be tracked as improving outcomes and tracked as enhancing savings. This is all a part of value-based purchasing and value-based payment. The advanced payment models are now available for payers, hospitals, physicians, and laboratories. They can negotiate portions of gain share or pay for performance (P4P) bonuses that they contribute to. So, we look at a platform for its actual performance, and I do that with a couple of crucial people, exceptional people.

The first one is Dr. Ken Thorpe; Ken is an economist; he is the Health Policy Department chair at Emory University. He was deputy secretary of Health and Human Services for the Clinton Administration. He is a co-author of the Patient Protection and Affordable Care Act (PPACA) or Obamacare as it's commonly known. That's where these reimbursement changes lie; it lies in that legislation. That legislation says that we want to move away from volume-based purchasing mentalities to value-based purchasing mentalities. That is something that moves forward with the Trump Administration. The Trump Administration's Secretary of Health and Human Services has tripled down on value-based care.

This is now omnipresent throughout the entire system and includes V.A., Tricare, DOD, and any place claims are generated and submitted to an insurance company for reimbursement. Value-based care plays, whether it be commercial or indeed on the federal side. Dr. Thorpe is an expert on legislation, and he's also an expert on economics. He creates the health economic models which demonstrate performance related to the mandates or related to what is termed as metric performance. On the clinical and scientific side, we have Dr. Alexander Porter; Alex is a thoracic surgeon by training. He is the person who helps to develop the global value dossier.

The global value dossier is one of the prime proof sources required by the payers, whether on the federal or commercial sides, to demonstrate scientific and clinical validity. Alex creates those types of proof sources in the appropriate format because format matters. Ken makes health economic modeling, contributing to the utilization dossier. You need three different documents. Global value dossier, which is scientific and clinical validity. Utility validity and health economic model that includes the cascading impact on gainsharing P4P.

Tony:

John, what are the most common reimbursement mistakes that companies make?

 John:

There are two common mistakes that diagnostic companies make. The first mistake is that they wait too late to develop their reimbursement strategy. The second mistake is that they follow the demonstratable demand model, and that's the old pre-Obamacare mentality. That means they develop a test, validate it, and then send reps out into the field to promote the test and submit claims to the payers as an out-of-network provider. This antiquated process is causing harm. It will result in an experimental and investigational label, creating a barrier to entry as it relates to their ability to develop medical policy and reimbursement. So, starting a reimbursement strategy too late is a significant factor.

The other factor is failing to recognize that you must create relevant proof sources to develop medical policy and develop reimbursement structures. Again, global value dossier, utility dossier, and the health economic model. These are the required proof sources. These proof sources will be presented to a med-tech committee to prove your position in performance-based tests. Medical policy and reimbursement will also be created. Lastly, a steerage mechanism will drive patients to your tests.

 Tony:

John, I know many companies that have successfully used the old model of creating demand by getting physicians to pressure the payers. Under the new model of value-based performance, you're saying this could be detrimental to getting coverage?

 John:

It is. You are pushing a diagnostic test through the system which has not been validated and approved by the organization. Under those circumstances, you are an out-of-network provider submitting out-of-network claims. This scenario creates network leakage, and the payers lose money in those types of situations. The payers want to mitigate any risk against a diagnostic platform that has not been validated and approved for a medical policy. They don't know if your test works and whether your test can improve care or if it may be doing some harm. They have to put in the risk mitigation component on the front end to ensure the test does not harm.

The second thing is the test shouldn't have leakage in the network. Physicians, hospitals, and relevant reference sources should be referring patients to in-network providers. It is essential from the standpoint of risk mitigation, approval, and the financial impact on payers or providers. If you continue on a demonstratable demand model approach, you're butting up against the payers' rules and the laws of how reimbursement works. Again, this is the Obamacare reality; this is value-based purchasing.

There's ample evidence that payers are penalizing non-compliant providers. The penalties include a reduction in the fee schedules that the providers have negotiated and may result in removal from networks. So, you've got to make sure that you follow the current set of rules. The rules say validate, get the policy, and move it forward.

 Tony:

If a small company's CEO has a unique test and decides to pursue value-based status, what's the next step?  

 John:

CEOs are misled related to the laboratory-developed test and think a 510K approval is a good idea. While the FDA approach for laboratory-developed tests (LDTs) may benefit from overall market value, it does not replace the requirements for value-based approval from the payers. FDA approval for diagnostic tests is a lengthy and expensive step that adds little value.

 Tony:

So, for laboratory-developed tests (LDTs), 510K approval is not necessary?

 John:

That's correct. FDA approval does not automatically get a medical policy. The medical policy must still be developed to create a reimbursement structure.

 John:

FDA approval is not necessarily bad, but it's not mandatory. There is a movement; there's a lot of discussion in the marketplace that the FDA will oversee LDTs. Under those circumstances, if that were ever to happen, current LDTs would be grandfathered in, and the requirements of value dossiers and economic models would still be a requirement. Again, when you get an FDA approval, the FDA approval is merely saying we've approved your product or test. The real issue is, is there true clinical efficacy, and is there a medical policy? Medical policy drives reimbursement, and that's what all laboratories must do, create medical policy and reimbursement structures.

 Tony:

Okay, let's say I've decided on the LDT path; what is the next step?

  John:

You've to create your strategy for developing medical policy and your test's correct positioning. If you have a high-performance test (my firm can help you make that determination), you avoid positioning it as a commodity-based transactional fee-for-service diagnostic platform. That means that you are a slave to the fee-for-service. If you have a performance-based test, you can position your test for three revenue opportunities.

With commodity, you have a single stream of revenue, there's a fee schedule, you have a contract, you submit a clean claim, and you are paid. Under the value-based approach or pay-for-performance approach, you're paid for that test under a fee schedule. So, you have that patient encounter; the fee schedule reimburses you for that test.

But if you can demonstrate that your test is improving outcomes and generating savings, you can also negotiate for a portion of your generated savings. In all other cases, if you're generating savings due to your diagnostic platform, and you can demonstrate through proof sourcing, then you can negotiate a portion of those savings that will be generated, so that's your second source of revenue.

The third source of revenue is under this value-based scenario, which I'm describing where there's been a validated test; it's been positioned to the value-based or performance diagnostic. The data generated from the patient encounters is now new and unique, and you can arrange with payers or applicable providers to have rights to that data. So, you can capture, stratify, de-identify, and monetize that data, and that's the third opportunity related to revenue generation under these new rules.

 Tony:

There is a significant reimbursement difference between value-based and commodity tests. There is an opportunity to receive revenue from three different streams, which could significantly impact a startup company. Can you give us an idea of what kinds of tests are value-based?

 John:

Sure, you can look at tests like molecular diagnostic, proteomic, genomic, exosome, and biomarkers that help stratify a population and allow a physician to make a specific clinical decision that drives positive outcomes. Of course, under those circumstances, we get savings because the physician is using precision medicine. So, that sniper shot under a molecular diagnostic risk stratification, for prostate cancer as an example, allows for a mechanism by which the payer and the provider can track improved outcomes and savings.

Those are the types of tests that the payers seek; the payers seek forward-thinking providers coming to the table and understanding the payers' metric performance requirements. They even understand what the physicians' or hospitals' metric performance requirements are, and you are contributing to improving their metric performance. That allows the payers, hospitals, and physicians to enhance their market share, improve their bonus opportunities, and mitigate their risk against penalty. You participate in that, but you have to participate based on applicable proof sourcing to ensure that everybody is comfortable with the decisions being made and that all anticipated outcomes can be tracked.

Tony:

Okay, so the payers see this as a way to save money. Treating patients earlier in the process, it's a proactive approach.

John:

Yes, they look for the predictive, preventive type of diagnostic platforms which allow them to be proactive. Under those circumstances, if you look at a Medicare Advantage Payer, virtually every payer has some Medicare Advantage population, so we'll use Humana as an example. Humana has those patients who demonstrate improved outcomes and savings; the federal government bonuses Humana, and these bonuses are significant. So, if you're helping Humana improve its bonus opportunities, you can negotiate portions of the savings you generated on behalf of Humana. So, they're incentivized to seek, validate, and embed diagnostic platforms that improve outcomes and savings.

 Tony:

I imagine that most diagnostics companies are not aware of these streams of income.   Knowing that the payer receives a bonus due to your test allows you to negotiate for a portion.

 John:

That's the key; that's probably the secret sauce. We create these proof sources, come in, and help you validate the test in terms of this performance-based diagnostic platform. Then we help you reposition or position the test initially with the payers. I'll negotiate on behalf of the provider's diagnostic platform, a value-based agreement encompassing everything I just discussed. We'll assist with that interaction because most startups don't understand the importance of the managed care contract and the payer relationship's importance.

That's just a necessary thing, but it's even more complicated when the relationship can include these value-based incentive opportunities and the opportunity to capture and monetize data. It's all part and parcel of the legislation and its implementation over the last eight to nine years since the PPACA was brought into playback in 2010. We assist with the entire process because most managed care people are still operating under a commodity-based or transactional fee-for-service-based mentality.

They've yet to understand and embrace and incorporate the opportunities which are part and parcel of federal law, and that's what we do. Dr. Thorpe is one of the legislation's co-authors; we know what we do regarding reimbursement. I've got one of the authors of the legislation part of my team, so we understand how the law works. We use the law and the rule of law to the advantage of everybody because there's plenty of money to be made legally, and that's what we're doing; we're just following the rule of law.

 Tony:

Our firm, Connexis Search Group, places managed care people across the United States. We have partnered with John and his team because of their in-depth knowledge of the new reimbursement rules.   If you are considering hiring a managed care person, ensure they understand the new rules.

John, when would you bring in a person to lead the reimbursement strategy?     When do you conduct clinical trials?   Does your team assist with setting up clinical trials?

 John:

Well, the earlier that you bring on a person or a team like mine, the better. Let's say you're the inventor of the test, and you've decided you're going to commercialize the test; that's when you need to start working on the reimbursement and the data collection efforts. We assist in terms of creating the studies; we assist with creating data collection efforts for utilization. We help identify all of the appropriate resources that will allow you to create these mandatory proof sources; you can't start early enough. We've seen laboratories out there that start way too late, and they try to monetize by bringing the sales reps on board too early and selling into a system where there's no policy, and they burn through cash because the system is telling them not to do it.

It's not because the test is bad; it's just the system has changed, and you have to adjust to the system. So, as soon as you decide to monetize a test, that's when you bring on a team because the data collection opportunity also includes specifics that you should be focusing on related to the data you want to collect. Our team recently started a project with a startup looking to launch in 20/20. We helped them redesign some of their studies because it allowed us to add questions or add data collection points to the study, enhancing their ability to establish medical policy and expedite reimbursement when the studies were done.

Tony:

Now, as far as studies, it sounds like this could take a long time, and I know people are probably eager to start generating revenue. How long does a study take, and how expensive are they?

 John:

Well, the costs vary based on the type of data you currently have. Data is unique in scientific and clinical validation; you're looking for two to three peer-reviewed studies with statistically significant populations. We can assist with expediting those particular types of studies and, more importantly, doing a deep dive on all of the available studies worldwide. You can use those studies if your studies meet the protocols or data collection norms in China that you would expect here in the United States. It's just ensuring that you're positioning the studies correctly and putting them in the correct format related to the global value dossier. So, it depends is the answer; it depends on where any given entity is in terms of its evolution.

 Tony:

After the clinical trials are done, is that when you start pursuing payers and presenting the information?

 John:

I'm working with the payers early on, with appropriate provider channels, maybe a hospital with a cancer unit in terms of the significant cancer networks. It may be the V.A., Tricare, or any other type of platform that aligns the nets. We develop multiple sites to drive statistically substantial populations in the shortest time possible. We do it under a very restrictive atmosphere to ensure that the quality is there and that everything that we produce and therefore deliver to the payers will meet and exceed their standards.

 Tony:

Does the company need to hire a clinical trials person to coordinate all the data, or is that part of your service?

 John:

We will work with their chosen service or do it as part of our service, including the FDA submissions. We can walk companies through the FDA process as a consulting firm or work with anybody they've chosen. So, we're flexible in that scenario because we want to ensure that the customer is comfortable with their team. We'll work with an internal team, an external team if they've chosen, or we'll bring one.

  Tony:

So, your firm offers a turnkey solution?

 John:

Absolutely. Our primary focus is to work with companies that offer a high-performance platform. That's where our specialty lies. We don't pursue commodity-type opportunities; we seek those opportunities which are value-based, high-performance outcomes, whether they be clinical to savings. We assess and advise on deficiencies and strengths and recommend the best strategy. Our goal is the give the executive team a roadmap to expedite and maximize their reimbursement strategy.

 Tony:

John, I appreciate your time and information, and I'm sure it will help many executives at small startup companies. As I said before, this is something that we feel we need to share with as many executives as possible. Too many diagnostic companies struggle to get reimbursed. They hire a sales team, burn through all their cash, and then they're in a dire situation.

I hope this information is useful, and I wish you much success. There is no reason to make the same mistakes that other diagnostics companies have made. We have worked with numerous companies, and we can offer insights into what works or what doesn't.

John, thank you so much for your time today.   Reimbursement is a complex topic that you discussed with ease, it is apparent that you are an expert, and I look forward to continuing working with you.