Shares of Genomic Health Inc. GHDX gained 5.5% to reach $21.93 yesterday, following an upgraded reimbursement rate of $3,416 from the Centers for Medicare & Medicaid Services (CMS), for the company’s Oncotype DX breast cancer test.
Interestingly, the positive reimbursement update is not very late, considering that CMS had reduced the original reimbursement rate ($3,416) by approximately 15% to $2,900 on Sep 28, 2015. The updated rate has naturally encouraged investors, which justifies the share price rise.
We believe this rise in payment rate will hike test revenues for the Oncotype DX breast cancer test at Genomic Health. Notably, the test has already been utilized in half a million patients across 90 countries.
Last month, on its release of preliminary pricing determinations for 2016 for a handful of lab tests, CMS suddenly cut the Medicare payment rate for the Oncotype DX breast cancer test. The price of $3,416 had been in effect for long, since 2006.
The rate cut prompted a strong protest from Genomic Health’s end, who claimed that CMS had determined the lower price rate based on a wrong methodology. Further, the company argued that CMS had failed to incorporate all necessary factors that impact the test’s pricing, as issued by Medicare Administrative Contractors (MAC).
Following fresh inspection, CMS rectified its mistake and set the reimbursement rate for the test at its previously slated rate of $3,416. This coincides with the rate paid by Noridian Healthcare Solutions – the MAC that processes Genomic Health's claims.
According to management, this payment rate for Genomic Health’s Oncotyope DX breast cancer test will remain in effect through 2016. However, in 2017, market-based rates under the Protecting Access to Medicare Act (PAMA) would replace the current Medicare payment rates.
Although the PAMA provisions have been implemented by the U.S. government to check the huge cost burden faced by the healthcare sector, to what tune it will affect molecular diagnostics providers like Genomic Health still remains a largely unanswered question.
Moreover, on Sep 28, CMS reduced the Medicare payment rate for Genomic Health’s Oncotype DX prostate cancer test by about 79%. Genomic Health described this rate cut as a violation of CMS’ own preset rules for pricing such complex tests.
In support of the existing reimbursement rate for this test, management highlighted the fact that the current payment rate is consistent with the market-based rate-setting policies and procedures enacted by Congress under the PAMA. Given the fact that prostate cancer is currently the leading cause of cancer death among American men, this rate cut surely spelled a big blow for Genomic Health.
However, on a brighter note, CMS is yet to issue the final payment rate for the Oncotyope DX prostate cancer test, which is scheduled to be declared in Jan 2016. Genomic Health plans to convince CMS, with support from the Coalition for 21st Century Medicine and other stakeholders, to adopt the previously established MAC rates for this test through the CMS established reconsideration process, before the final rates take effect.
If Genomic Health succeeds in convincing CMS, then hopefully the original payment rate for the Oncotype DX prostate cancer will also be restored, as in the case of the Oncotype DX breast cancer test.
Currently, Genomic Health retains a Zacks Rank #3 (Hold). Some better-ranked biomedical stocks are Anika Therapeutics Inc. ANIK, Amgen Inc. AMGN and Nexvet Biopharma Public Limited Company NVET. All the three stocks sport a Zacks Rank #1 (Strong Buy).
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