1. CCLA Annual Meeting November 7, 2014 Alan Mertz President, ACLA American Clinical Laboratory Association 1100 New York Avenue, NW Suite 725 West Washington, DC 20005 (202) 637-9466 www.acla.com

2. Summary PAMA FDA Draft Guidance/LDTs Other Issues ACLA Watching –AP Cuts, IOAS –March 2015 SGR –Coinsurance, Competitive Bidding –Coding, Contractor Issues

3. History Leading to PAMA Labs Had Been Subject to Periodic Reductions SGR Extensions, Sequestration, ACA, Etc. Perception of Overpayment OIG Comparison of FEHB, Medicaid, CLFS, Inability to Adjust Per Test CMS Reductions Based on “Technological Changes” President’s Proposed Cuts Congressional Reductions Also Were Likely in 2014

4. Background on PAMA Sec. 216 Beginning 2016 and every three years, an “applicable laboratory” reports the volume and payment rate for each private payor for each lab test on the CLFS during a “data collection period”. Reporting for “advanced diagnostic laboratory tests” is annual. Secretary may choose to allow data aggregation beginning in 2019. Payment under the CLFS for each test will be the weighted median of all reported rates for the test in the data collection period. Rate reductions are to be phased in.

5. Applicable laboratory: “A laboratory that, with respect to its revenues under [title XVIII], a majority of such revenues are from [the new SSA § 1834A], the [CLFS], or the [PFS].” Congressional intent is clear that hospital outreach services be included Rates will apply to hospitals for outreach/non-patient services; therefore, hospitals’ private payor rates should be included. Hospitals do not receive separate “revenue” for services furnished to their own inpatients and outpatients. Also should include larger physician office laboratories. Payment rate: Not defined in statute. Should be the entire allowable amount due to a laboratory from all sources for a fully-adjudicated claim, including copayments, deductibles, and third-party payor amounts. Key Definitions

6. Advanced Diagnostic Laboratory Tests (ADLT) Provision Applies to Small Subset of Tests Must be test furnished only by developing lab that meets one of the following conditions: Analysis of multiple biomarkers, in unique algorithm FDA approved Meets “other similar criteria established by [CMS]” For New ADLT For initial three quarters, priced at list charge, thereafter, market rate. Clawback provision if list charge more than 130% of market rate

7. Timing and Implementation Timeline for implementation— CMS to issue final regulations by June 30, 2015 Rate reporting to begin Jan. 1, 2016 Weighted medians calculated and applied by Jan. 1, 2017 Just 6 months between final regs and start of rate reporting Labs need time to assemble data and for QA before submitting; CMS needs time to organize data before announcing weighted medians/applying rates on Jan. 1, 2017.

8. ACLA Campaign to Fix PAMA Focusing on Key Problems Research Stakeholder Education and Coalition Building Congressional Lobbying Interaction with CMS on Rulemaking

9. FDA Notification of LDT Oversight July 31, 2014: FDA Releases Anticipated Details of Draft Guidance to Regulate LDTs Per S.1143 of FDASIA 2012, FDA notified Congress of its intent to issue guidance on the regulation of LDTs September 30, 2014: FDA Announces Formal Release and Opening of 120 Day Comment Period on October 3, 2014

10. Key Concerns Statutory Authority LDTs are medical services, and the practice of laboratory medicine, not products, packaged and sold into interstate commerce Process Guidance process is inappropriate Original policy of enforcement discretion was announced via notice and comment rulemaking (‘97 ASR Final Rule) Any change to that policy must proceed through notice and comment rulemaking Notice and Comment Rulemaking is Vital Agency is compelled to reply to stakeholder comments Agency must undertake economic impact analysis

11. Lack of Detail in Proposed Framework Fundamental concepts left undefined Harmonization with existing regulation Missing third Guidance Document Definition of “risk” and overall scope of tests to be regulated Beyond three “highest” risk groups, definition of risk categories/classifications will not be determined for 24mo after finalization of guidance Defining the “device” and the division between test “manufacture” and test “performance”

12. Modifications Many laboratories modify FDA approved/cleared IVDs, thereby creating LDTs –Modifications routinely undertaken for various reasons Alternate sample prep protocol (e.g. DNA extraction) Assay performance and optimization Additional sample types Incorporate latest scientific and medical evidence Under the Proposed Framework, –“a clinical laboratory that modifies an FDA cleared/approved device in a way that affects device performance or intended use is considered to be a device remanufacturer… These modified devices must meet premarket submission requirements…” –Disincentive to improve and adapt existing IVDs

13. “Unmet Need” –How defined? Roche’s FDA-Approved BRAF test can identify BRAF mutations in melanoma patients, but cannot distinguish between V600E and V600K variants, which can impact treatment decisions; LDTs have been created to fill this need “Rare Diseases” –Identifies rare diseases as being defined in the HDE As defined in 21 CFR 814.3(n), a HUD is a “medical device intended to benefit patients in the treatment or diagnosis of a disease or condition that affects or is manifested in fewer than 4,000 individuals in the United States per year.” –Enforcement discretion is predicated upon there being fewer than 4,000 tests performed per year, not patient population Tests performed by whom? Developing laboratory? Nationally? Who tracks this data? “Traditional LDTs” –Term ignores existence of independent laboratories at time of MDA (1976) –Continued enforcement discretion for LDTs developed in health care facility laboratories for patient with that health care facility or facility’s health care system Creates unequal beneficiary access Continued Enforcement Discretion

14. Agency Resource Concerns Labs remain concerned about the agency’s resources to accomplish the tasks they outline in the proposed framework Agency estimates of the number of laboratories that perform LDTs has increased 3 fold since July 31 st Framework indicates all high-risk tests must go through PMA Total PMAs approved last year = 21 FDA estimates initial tranche of highest-risk tests to be ~100 Accurate? How funded? User fees?

15. ACLA Strategy Keeping Options Open on Statutory Authority & Rulemaking Working with Broad Group of Stakeholders Congress Comments on Draft Guidance

16. Thank You