Diagnostic Development Approval and Reimbursement PDF

PROPRIETARY. DO NOT SHARE. Transcript: Diagnostic Development Approval and Reimbursement Section 1: Development and Regulation Welcome Welcome to Diagnostic Development, Approval, and Reimbursement. This course will consist of three sections: Development and Regulation, Diagnostic FDA Classificatio...

PROPRIETARY. DO NOT SHARE. Transcript: Diagnostic Development Approval and Reimbursement Section 1: Development and Regulation Welcome Welcome to Diagnostic Development, Approval, and Reimbursement. This course will consist of three sections: Development and Regulation, Diagnostic FDA Classification and Approval Pathways, and Reimbursement. Section 1: Development and Regulation Objectives At the end of this section, you should be able to: • Describe the importance of diagnostics in medicine. • Explain the difference between an In Vitro Diagnostic (IVD) and a Laboratory Developed Test (LDT). • Discuss the differences in approval for IVDs and LDTs. • Explain the differences in oversight for the Center of Medicare and Medical Services (CMS) with the Food and Drug Administration (FDA). Overview: New Clinical Tests Diagnostics are playing an increasingly important role in medicine today. Technologies to evaluate health at the molecular level by detecting DNA and proteins are enabling the discovery of new diagnostic tests. But before a new test can be used in clinical practice, it must be evaluated for safety and accuracy through a regulatory approval process. Depending on the type of diagnostic test, there are multiple pathways to market. To determine the appropriate regulations for a new diagnostic test, the first question to be answered is whether the tests will be performed by multiple commercial laboratories. Or will it be performed only by one single laboratory? For example, blood type testing is a routine diagnostic run by thousands of labs throughout the country. Each of these clinical laboratories will have the appropriate equipment and controls to run and evaluate the test. On the other hand, a more specialized test such as DNA analysis might be run only by the laboratory that developed the test. Clinics will ship the sample to a single lab, where the samples will be tested, and the lab will then send the results back to the clinic. 1 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. Overview: Regulation of New Clinical Tests 1 Diagnostics that will be run in multiple commercial laboratories are evaluated, regulated, and approved by the FDA. The level of regulation will depend on the inherent risk of the test and follows a class-based system that has more stringent regulatory requirements for higher-risk tests. Again, these tests are called commercial tests or in vitro diagnostics. If the samples will all be sent to a single lab for testing, the regulatory pathway is quite different. All clinical laboratories are regulated and certified by CMS, or the Centers for Medicare and Medicaid Services. CMS-certified laboratories called CLIA labs are authorized to develop, validate, and run new clinical tests in a self-certifying process. These laboratories-developed tests, commonly known as “home brew tests” do not undergo specific review and approval. Rather, the laboratory facility processes, controls, documentation, and training are reviewed by CMS to confirm that the laboratory is meeting regulatory standards, and therefore, can be relied upon to develop and run high-quality tests. In Vitro Diagnostics vs. Lab-Developed Tests As mentioned in the previous Main Topic there are two main types of diagnostics, In Vitro Diagnostics, or IVDs, and Laboratory Developed Tests or LDTs. To learn more about each diagnostic type click on the buttons. When you are finished, click next to continue the course. IVD Layer If the tests will be performed by multiple commercial labs, it is described as an In Vitro Diagnostic or IVD. Extensive testing and validation will be required to prove that the test is robust, accurate, and precise, even when performed in different laboratories, or possibly at home. Examples of in vitro diagnostics include glucose test kits, HIV detection, cholesterol testing, and blood typing. LDT Layer If the test will only be performed by the laboratory that develops it, the test is described as a laboratory-developed test or LDT. An example of a laboratory-developed test is DNA testing for rare genetic diseases. 2 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. What Is FDA? FDA is the Food and Drug Administration and is part of the Department for Health and Human Services or HHS. The FDA has a range of responsibilities regarding diagnostics which include: Classification of IVD tests based on the complexity and human risk of the diagnostic as well as a review of submissions and approvals of IVDs. This classification system and the pathways involved in FDA approval of IVD tests will be discussed in more detail in the next section of this course. The FDA has also recently released guidance on LDTs, this guidance will be discussed later in the course. What Is CMS? CMS is the Centers for Medicare and Medicaid Services. CMS is part of the Department for Health and Human Services, just like the FDA. CMS is responsible for oversight of Medicare and Medicaid, as well as HIPAA or the Health Insurance Portability and Accountability Act. Additionally, CMS also regulates clinical laboratory testing through CLIA or the Clinical Laboratory Improvement Amendments. All clinical laboratories must be CLIA certified, and it is this certification that authorizes the laboratory to develop and run laboratory-developed tests. The development of these tests requires validation testing before test results can be released. CMS has the authority to review LDT validation results during regular lab inspections or auditing. The CMS also published CLIA rules and regulations, conducts inspections and enforces regulatory compliance of CLIA labs, monitors laboratory performance of Proficiency Tests, and approves PT programs. CMA vs FDA Both CMS and the FDA are part of HHS, the Department for Health and Human Services. Comparing the two federal agencies, we see that the main focus of the FDA is safety, while the primary mission of CMS is to set reimbursement. The FDA oversees the evaluation and approval, as well as post-market surveillance of drugs, biologics, medical devices, and diagnostics. Specifically, the FDA regulates diagnostic tests running commercial labs or at home. CMS sets reimbursement rates for Medicare and Medicaid, which acts as a national guideline for all reimbursement, whether through the government or private payers. In addition, CMS oversees and regulates medical or CLIA labs, as well as the tests developed and run in those labs. 3 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. Laboratory-Developed Tests History Laboratory-developed tests often use analyte-specific reagents. Analyte-specific reagents are biological molecules, which can be used to identify and measure the amount of a specific substance in a sample. For example, monoclonal antibodies that bind to proteins to identify a disease are analyte-specific reagents. As are DNA probes that test for a specific DNA sequence in a sample. These analyte-specific reagents can be developed in the clinical laboratory, or they can be purchased from an industry supplier. Many CLIA labs test DNA, and protein biomarkers and also perform IVDMIA or In Vitro Diagnostic Multivariate Index Assays, which we will discuss further in the next slide. While laboratory-developed tests were originally developed by hospital pathologists, today individual companies routinely set up own and operate CLIA labs. And this route to market is a pathway for patients to be able to gain access to specialty tests. In Vitro Diagnostic: Multivariate Index Assays (IVDMIA) Increasingly, diseases such as cancer are understood to be influenced by multiple cellular pathways rather than having a single molecular cause. In Vitro, diagnostic multivariate index assays or IVDMIA tests seek to evaluate these multiple variables to provide a disease classification. IVDMIA tests combine the values of multiple assays and use a complex algorithm to provide a single patient-specific result. For example, a score that predicts the potential for cancer recurrence. The first IVDMIA to be approved by the FDA was the Agendia MammaPrint. The MammaPrint analyzes the expression of 70 genes to generate a risk score. Which genes are being translated to protein and at what level is an indication of the risk of breast cancer metastasis? Laboratory Developed Tests (LDT) While all labs must be certified as CLIA labs, common jargon in the industry is to refer to labs that develop LDTs as CLIA labs. Regulations for laboratory-developed tests are formalized through CLIA or the Clinical Laboratory Improvement Amendments. CLIA established specific guidelines and standards for the regulation of all clinical laboratories, all laboratories that report clinical results must follow CLIA regulations and be certified by CMS. 4 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. The regulation set by CMS ensures that the test results from CLIA labs are accurate, reliable, and available promptly. The advantage of LDTs is that the diagnostics do not need to be specifically approved by the FDA because the lab is certified by CMS. A CLIA-certified laboratory may develop a test, verify and validate its performance through clinical testing, carefully document clinical study, and then implement the use of the test without formally submitting test results for approval. The laboratory is simply required to have the validation results on site so that they may be audited during an inspection. Essentially, the homebrew or laboratory-developed test is self-certified by the CLIA lab. FDA Guidance regarding LDTs As mentioned previously, the FDA does not have the authority to review and enforces LDTs, this belongs to the CMS, however, the FDA has recently released guidance on LDT labs because they have recognized that with the availability of more complex diagnostic platforms, LDTs have become more complex and have a higher risk. Because of this, the FDA has begun discussions of increased oversight of LDT laboratories. This discussion is currently ongoing, and it is unclear currently if/when/how the FDA would participate in this oversight. The discussion is difficult because FDA oversight could hinder technological development, however, generally agreed-upon proposals include. A risk-based approach to LDTs, a focus on analytical and clinical validity as a basis for test approval, the need for reporting of adverse events, the exemption of certain categories of tests from premarket review, a robust laboratory quality system, the need for the “Grandfathering” of tests available before a certain date, and the availability of test performance information to the public. LDT Examples This screen describes examples of LDT diagnostics. Click on the buttons below to learn more about each example. When you are finished, click next to continue. MaterniT21 The first example is the MaterniT21 prenatal test from Sequenom, which tests the fetus for Down's Syndrome. Normally, humans have two copies of each chromosome, one from mom and one from dad. If an individual instead has three copies of chromosome number 21, this 5 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. causes Down's Syndrome, also known as trisomy 21. The presence of excess chromosomes was traditionally tested by removing fetal cells from the amniotic fluid through amniocentesis. An invasive procedure that puts the fetus at slight risk of miscarriage. The MaterniT21 diagnostic, instead detects fetal DNA in the mother's blood, requiring only a simple blood draw that does not put the fetus at risk. The test can also be performed earlier than amniocentesis. As early as eight weeks rather than 15 weeks. In addition to testing chromosome 21, the MaterniT21 laboratory-developed test can also detect excess chromosomes 13 and 18, which also result in developmental disability. Oncotype DX Our second example of a laboratory-developed test is the Oncotype DX test from Genomic Health. This test helps to address a significant challenge in breast cancer. While technology is enabling us to better detect the presence of cancer, oncologists have been challenged to know whether a cancer is aggressive and should be treated aggressively, or slow growing and can therefore be treated more conservatively. The Oncotype DX diagnostic tests the expression level of 21 genes from a biopsy sample. By determining the expression level of each of these 21 genes and the biopsy, Genomic Health's proprietary algorithm will calculate the risk of breast cancer recurrence. Cancer receives a score from 1 to 100, 1 being the least likely to recur, and 100 being the most likely to recur. This can help guide oncologists and patients as they decide whether or not to pursue chemotherapy. FDA IVD Organizational Structure If a diagnostic will be run by mini commercial labs as an in vitro diagnostic test, its approval is regulated by the FDA. The FDA regulates diagnostics through the Office of In Vitro Diagnostics and Radiological Health, or OHT7. OHT7 is part of the Center for Devices and Radiological Health. Within OHT7, several main divisions evaluate different types of diagnostic tests. These include the division of chemistry and toxicology, the division of immunology and hematology, and the division of microbiology, as well as others. Which division will review a company’s submission for approval of a diagnostic test will depend on what the diagnostic tests are for and how the test is performed. 6 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. Section 1: Development and Regulation Summary To summarize Section 1: • Diagnostics are playing an increased role in medicine as new technologies allow diagnostics to evaluate health at the molecular level by detecting DNA and proteins associated with the disease. • An In Vitro Diagnostic (IVD) is a commercial test performed by many labs while Laboratory Developed Test (LDT) is a test developed and performed by a single lab. • LDTs can be self-approved by the lab that created the diagnostic as long as the lab is CLIA certified which is overseen by CMS, while IVDs must be approved by the FDA.FDA approval will be discussed in detail in section 2. Section 2 - Diagnostic FDA Classification and Approval Pathways Section 2 will discuss FDA approval of In Vitro Diagnostics or IVDs. Section 2 - Diagnostic FDA Classification and Approval Pathways Objectives At the end of this section, you should be able to: 7 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. • Describe the 3 classes of diagnostics. • Compare the pathways to approval for the 3 classes of diagnostics, specifically the 510(k) pathway, the De Novo 510(k) pathway, and the Pre-Market Approval (PMA) pathway. • Discuss the Quality Systems Regulations (QSR) required for class II and class III diagnostics. • Describe the process for diagnostic approval in Europe. FDA Controls: Class-Based Regulations The FDA utilizes a class-based regulation system for diagnostics, in which the diagnostic class is determined by the risk to the patient. Click on the buttons below to learn more about each class of diagnostic. When you are finished, click next to continue. The lowest-risk diagnostic tests are designated class 1 and have the lowest level of regulatory oversight, requiring only general controls. To market a class 1 diagnostic in the United States, the company must register the facility where the test is manufactured, officially list the test with the FDA and follow all labeling regulations. No formal approval of the diagnostic test is required. Examples of class 1 diagnostic tests include routine tests like the determination of cholesterol and the urine home pregnancy test. Higher-risk diagnostic tests are designated class 2 and must follow general and special controls and provide pre-market notification. The majority of tests that are run by clinical laboratories are class 2 diagnostics. In addition to the class 1 requirements, class 2 diagnostics must be developed and manufactured under quality system regulations or QSRs. Before marketing the new diagnostic, the company must obtain approval from the FDA through pre-market notification via the 510(k) or de novo 510(k) regulatory pathway. A new diagnostic can obtain 510(k) approval if it is substantially equivalent to a predicate diagnostic. For example, a new blood glucose diagnostic may be approved through the 510(k) pathway if the technology it uses for detection is substantially equivalent to the currently marketed glucose test. Substantial equivalence will be proven by comparing the new test to the gold standard test using actual clinical samples. Whether or not approval of the clinical study is required depends on whether the test developer can use sample discards or will need to take samples from patients specifically for the clinical study. 8 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. The highest-risk diagnostic tests are designated class 3. Class 3 diagnostics must follow general and special controls and must receive pre-market approval or PMA. Class 3 diagnostics are subject to the same requirements of class 1 and 2 diagnostics, including QSRs, plus the requirement of pre-market approval. The PMA pathway requires extensive clinical trials to scientifically demonstrate the safety and efficacy of the diagnostic test. Before marketing the diagnostic, the manufacturing facility must pass FDA inspection. And any changes to the manufacturing process must be approved by the agency before adoption. Nearly all companion diagnostics are designated class 3. A helpful way to think about diagnostic risk is to consider the risk to the patient of an inaccurate test result. If a cholesterol test is inaccurate, it is unlikely to pose an immediate risk to the patient's health. However, if a class 2 glucose test is inaccurate, and a diabetic patient doses too much insulin, it could send the patient into diabetic shock or coma. And if a class 3 companion diagnostic for an oncology treatment is inaccurate, it could lead to the use of the wrong medication and potentially result in the patient's death. FDA Approval Pathways Depending on the class of the diagnostic different pathways to approval through the FDA must be followed. Click on the buttons to learn more about each of the approval pathways. When you are finished, click next to continue. Class 2 diagnostics with a substantially equivalent predicate diagnostic are approved through the 510(k) regulatory pathway. 510(k) is the specific section of the CFR or Code of Federal Regulations that describes the approval of class 2 diagnostic tests and medical devices. Class 2 diagnostics require pre-market notification. The company must notify the FDA 90 days before marketing the new diagnostic. During the 90-day notification period, the FDA will review the company's submission to evaluate whether the agency experts agree that the new test is substantially equivalent to a predicate diagnostic. If no response is received after 90 days of submission, the company can begin to market the diagnostic. If, however, the FDA responds with questions or comments, these must be addressed. And then the clock starts over when the company submits its response. A key aspect of approval is FDA agreement with the selected predicate diagnostic. The average time to approval is 5.9 months with 95% of submissions approved within a year. The regulatory submission fees for pre-market approval can cost 10 to 20 thousand dollars to hire an outside agency to prepare the submission, development costs for the diagnostic itself could range from 5 – 20 million dollars, but this will highly depend on the complexity of the device. 9 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. Due to advances in diagnostic technologies, many new diagnostic tests don't have a substantially equivalent predicate, or the technology has improved or changed significantly since the predicate was approved. To avoid the costly clinical trials required of the PMA pathway, a company can submit its new diagnostic test for approval through the de novo 510(k) route. Historically, the use of the de novo 510(k) pathway required that the company first have a traditional 510(k) submission rejected before they could start the de novo pathway. This delayed many new diagnostics and devices from reaching the market. In July 2012, the FDA Safety and Innovation Act, also known as PDUFA V, was approved. The Act has many provisions, including the ability for diagnostic and device manufacturers using new technologies to submit their pre-market notification packages directly to the de novo 510(k) approval pathway. The de novo 510(k) pathway is the preferred route for diagnostics that lack a clear predicate device, as the submission fees and clinical trial costs are significantly less than for the PMA route required of class 3 diagnostics. The ability to submit applications directly for de novo 510(k) review will hopefully bring advanced technology diagnostics to the market more quickly. The approval time for the de novo 501(k) pathway ranges from 8-16 months, submission fees range in the hundreds of thousands of dollars, and development costs are similar to the 510(k) pathway, again being highly dependent on the complexity of the diagnostic. Class 3 diagnostics would carry the highest risk to patient health, and require PMA or premarket approval. The PMA pathway requires extensive clinical trials to demonstrate the safety and efficacy of the diagnostic. For example, a companion diagnostic used to determine whether a cancer patient will receive a specific treatment must demonstrate that it accurately differentiates between patients who should receive the treatment and those who will not be helped by it and should receive a different treatment. The safety and efficacy trials as well as the submission fees are substantially higher for the PMA route to approval. The approval time for the PMA pathway ranges from 7-9 months, not including the time required for the clinical trials which can take several years. The submission costs for the PMA pathway are the highest of any of the pathways, ranging from 0.5 to 1 million dollars. Development costs 10 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. are also much higher because of the need for clinical trials and can range from 50 to 100s of millions of dollars depending on the diagnostic’s complexity. Submission Requirements Let's take a closer look at some specific submission requirements for commercial diagnostics that will be run by multiple laboratories. A predicate diagnostic is defined as a diagnostic that was marketed before 1976 or a diagnostic marketed after 1976 that was found to be substantially equivalent to a pre-1976 diagnostic. An industry trend is that it has become more challenging to convince the FDA that a predicate diagnostic is substantially equivalent to a new test. Fortunately, changes to the de novo 510(k) pathway are accommodating the increased pace of technological advancement. While the FDA can also require clinical trials for 510(k) submissions that use patient data to show equivalence in terms of clinical results, most 510(k) submissions use discarded clinical samples to show equivalence which saves time and money by not requiring patients’ notification or approval. As previously discussed, all PMA submissions require clinical trials to prove the diagnosis is safe and effective. To ensure the diagnostic is of high quality, test developers will use both internal controls as well as lab-controlled external controls to meet current lab quality standards. Let's use a glucometer or blood glucose detector as an example to explore internal and external controls. Internal controls may include ensuring a reliable power supply, confirming the precision of the sensor, and verifying that the software processes the sensor input to produce the correct readout. External controls would be quality control samples that are run periodically to show that the instrument is working properly. For example, a control containing a known amount of glucose may be applied to a test strip to confirm that the instrument provides an accurate reading. Clinical laboratories running diagnostics are required to routinely run external controls to verify test accuracy, sensitivity, and specificity. All diagnostics must have general controls in place. The test must be appropriately labeled and registered with the FDA. Class 2 and 3 diagnostics must be developed, tested, and manufactured following quality system regulations. The test manufacturer must also have a 11 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. complaint-handling system in place to process medical device reporting or MDRs. The MDR system and requirements are the same for both devices as well as diagnostics. Controls: Quality System Regulations Let's take a closer look at the quality system regulations required of class 2 and class 3 diagnostics. Quality System Regulations or QSRs is an internationally recognized system. It is an overreaching system that governs all aspects of the diagnostic including design, manufacture, testing, sale, use, and even disposal. QSRs dictate primary regulatory controls. A QSR system ensures that the company has appropriate resources, organizational structure, design, and operation methods as well as adequate facilities to implement quality processes and create a quality product. Every phase of product design manufacturing, packaging, labeling, marketing, sales, storage, installation, and service is planned, executed to plan, and documented. Quality system regulation supersedes Good Manufacturing Practices, being a more all-encompassing system than the GMPs. Documentation is a key component of quality system regulations. Each business and manufacturing practice, except financial practices, must be described by a standard operating procedure, and conformance with the SOPs must be established by documentation. Proof of conformance will be tested both by internal as well as external audits. The basic idea behind QSRs is to document in an SOP how a process will be performed. To follow the SOP while performing that process. To document how the process was performed. And then audit the documentation. QSR Examples Even seemingly simple functions are subject to QSRs. This Main Topic gives two examples of how QSRs govern a process. To learn more, click on each of the buttons. When you are finished click next to continue. Material handling is subject to QSRs. The company must have a standard operating procedure in place for material handling. Each material or component used by the manufacturer of the device is described and specified. An established process will be in place for material receipt, inspection, and storage. The vendors who supply material to the company are classified and vetted. A simple distributor may not require specific investigation. While a vendor that provides a critical component will be 12 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. audited to verify quality and reliability. Vendor audits will be performed not only in preparation for a product launch but also at least annually thereafter. Another example common to all commercial diagnostics is the requirement for a complaint-handling system. The company will have a very detailed SOP in place, describing the process for taking a customer complaint. For example, if the contact is by telephone, the company will have a log, either paper or electronic, where the employee receiving the call will detail the caller’s contact information, the product name, lot number, expiration date, where the product was purchased or administered, and details of the customer complaint. Including, where when, and how the problem occurred. The company may even capture a recording of the call. Following the completion of the call, the company will follow a specific investigation process to try to identify the root cause of the problem. Depending on the severity of the problem, the company may be required to report the adverse the to the FDA through the MDR or medical device reporting system. The SOP for complaint handling will specify response times to ensure that MDR regulations are adhered to. Diagnostic Design As mentioned QSR governs all aspects of diagnostic design. All steps of the design process must be performed according to standards and carefully documented. Testing must be performed at each step in the design process to ensure that the diagnostic is meeting the design specifications. There are a huge number of factors that must be considered when designing a diagnostic which could include: The environment in which the diagnostic will be used, whether will it be used in a clinical setting, or whether is it a home use test. The user of the diagnostic, will the patient perform the test, a healthcare professional, or a lab technician? Diagnostic use, is it a one-time use diagnostic that will then be discarded or will it be able to test a large number of times before needing to be replaced? Test accuracy and tolerance, how accurate does the test have to be, and what tolerance is there for the result? What are the risks involved in an inaccurate test? All of these factors and many, many more must be considered which means that a huge amount of testing and documentation must be performed before the manufacturing of the diagnostic can begin. 13 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. Diagnostic Manufacturing Once the extensive design process is complete manufacturing of the diagnostic can begin, as with all aspects of diagnostic product development, the manufacturer of diagnostics is governed by the internationally recognized QSR system. Recall that the QSR supersede CGMPs or Current Good Manufacturing Practice guidelines. QSR manufacturing governs product manufacture, testing, packaging, labeling, and even distribution and sale. For example, all parts are procured from a validated vendor and their procurement can be traced to the PO used to order them. All testing procedures have been independently validated to prove that the test detects product failures. Every step in the manufacturing process must be tested to verify product conformity. Manufacturing processes are described in the standard operating procedure, are performed as described in the SOP, and are documented in real-time exactly as they are performed. Intermediates as well as the final product are inspected and tested to confirm quality. For example, the reagents that will go into a kit are tested to confirm quality. Buffer pH will be checked, DNA probes will be tested to confirm that they bind to the correct sequence, and antibodies will be tested to verify that they are specific to their antigen. The final product, of course, will also be tested. If the testing is destructive, as would be the case for single-use diagnostics like a pregnancy test, a statistically significant number of the diagnostics will be tested from each manufactured lot. Any manufacturing process that cannot be verified by inspection must be performed using a process that has been validated. For example, if contamination either by microbes or simply particulates is a problem, the manufacturing process will include specific procedures to remove the contamination. Inspection could re-contaminate and therefore the removal process itself will be validated. The material known to be contaminated will be subjected to the decontamination process, and then the material will be tested to prove that the contamination was removed. This validation must be performed before product marketing, as well as periodically throughout the lifetime of the product. 14 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. Human Factors As part of the diagnostic development process, there is also a need to consider human factors in the design and manufacture of a product. Human factors, also known as usability engineering, focus on the interactions between people, the environment, and devices such as diagnostics. Human factors/usability engineering is used to design the user-device interface. The user interface includes all components with which users interact while preparing the device for use (e.g., unpacking, set up, calibration), using the device, or performing maintenance (e.g., cleaning, replacing a battery, making repairs). The FDA released guidance that states that emphasis on the interactions of device users use environments and user interface must be included as part of risk analysis, these risks are referred to as “user-related hazards”. Additionally, human factor analysis must integrate with Risk Analysis is first created during the Feasibility Phase of Product Development European Union Approval Process To sell diagnostics in the European Economic Area, the company must have fixed the CE mark on the product. Most medical diagnostics can follow a self-certification process. Exceptions to this include high-risk diagnostics, such as those used to test the safety of donated blood. To self-certify a diagnostic for the European market, a company must receive ISO 1345 certification from an authorized notified body. And then follow all the ISO 1345 procedures and regulations during the diagnostic design, development, and manufacture. ISO 1345 is an internationally recognized standard published in 2003 that details the requirements for a comprehensive quality system for medical devices and diagnostics. An important focus of ISO 1345 is the customer, the design, development, manufacture, testing, and potential servicing of the diagnostic must meet and be traceable to customer requirements. These customer requirements are carefully detailed in the customer requirements document. The company must ensure that it has adequate resources and infrastructure to support the quality management system, including employees with the appropriate background and training. The entire product lifecycle from design and development to manufacturing and servicing must be under tight control. And this control is proven by verifying and validating all processes, material inputs, and manufacturing outputs to show that the specifications which support the customer requirements are always met. 15 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. Every aspect of the diagnostic design, development, manufacturer, verification, and validation is documented to be able to provide proof of conformance. A company that is ISO 1345 certified and has followed the ISO 1345 regulations to develop its diagnostic can then prepare a technical file for the new diagnostic. If the company does not have a corporate office in Europe, it must hire a European-authorized representative for their product. An important role of the authorized representative is to field customer inquiries and complaints. The final step before marketing is to verify conformity with ISO 1345, and then to add the CE mark to the label. The company's management team will conduct extensive internal reviews to confirm that they have followed and documented all aspects of ISO 1345 regulations before preparing the declaration of conformity and marketing of the product with the CE mark. Section 2 Summary In summary of Section 2: • There are 3 classes of diagnostics, class I, class II, and class II diagnostics. Placement of a diagnostic into a class is determined by the risk to the patient if the test gives an inaccurate result. • Class II diagnostics will follow either the 510(k) or de novo 510(k) pathway depending on whether they have an equivalent predicate diagnostic. All class III diagnostics will follow the PMA approval pathway. • Quality System Regulations or QSRs govern all aspects of diagnostics development including manufacturing, testing, packaging, labeling, and even distribution. • To sell diagnostics in the European Economic Area, the company must have fixed the CE mark on the product. 16 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. Section 3 - Reimbursement for Diagnostics Section 3 - Reimbursement for Diagnostics Objectives This section discusses the hurdles involved in obtaining insurance reimbursement for a new diagnostic. At the end of this section, you should be able to: • Explain why a reimbursement strategy is important for diagnostics. • Describe the ways that governmental and private insurers determine if a diagnostic will be reimbursed. • Discuss how reimbursement strategies are different for in-hospital and outpatient diagnostics. Reimbursement Regardless of the path the diagnostic takes to market in the US, either through FDA approval as a commercial in vitro diagnostic, or as a homebrew test developed by a CLIA laboratory, reimbursement is not guaranteed. Reimbursement is an extremely complex topic, and this course will only provide an overview of the basics of reimbursement. Reimbursement by Medicare or Medicaid requires the coding of the diagnostic. These codes are issued by CMS, the Centers for Medicare and Medicaid Services, and AMA, the American Medical Association. CMS, in addition to issuing the codes, sets reimbursement rates for Medicare and Medicaid. Private insurers often base their coverage and reimbursement of diagnostics on coding and payments set by CMS. But this is not a requirement. It is important to demonstrate both to CMS as well as to private insurers that the diagnostic has a proven health benefit. That it can save the insurer money through that health benefit, and that the new diagnostic is at least as good, if not better, than currently available tests. Reimbursement Strategy The company needs to develop a new diagnostic to consider its reimbursement strategy very early on. Ideally, an initial reimbursement strategy has been mapped out before the company initiates product development. Some several consultants and companies specialize in reimbursement strategy. The reimbursement strategy will differ based on whether the diagnostic will be used as part of inpatient services in a hospital or as an outpatient test. Click on the buttons to learn more about the different reimbursement strategies. When you are finished click next to continue. 17 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. Medicare and Medicaid set reimbursement for in-hospital services by DRG or Diagnosis Related Group. The DRG system has been in use since 1982 to determine how much a hospital will be reimbursed for each inpatient product they receive. This will determine how much a hospital will reimburse for each inpatient product they receive. This code does NOT reimburse for specific diagnostics, but rather for the entire procedure, and therefore what specific diagnostics are used for the procedure are at the discretion of the hospital as look as they stay within the total cost for the entire procedure. For example, there is a DRG code for cardiac bypass surgery, and Medicare will reimburse a set amount for that product, regardless of the cost incurred by the hospital to perform the operation and take care of the patient during recovery. So, it is up to the hospital to decide whether the use of a diagnostic is a good way to spend healthcare dollars. In addition to DRG codes, there are also ICD-10 codes for inpatient procedures. These codes are more specific to tests, and a DRG code could also be reimbursed using several ICD-10 codes. Hospitals might also reimburse based on ICD-10 codes if the patient has a more complicated ailment and there are justified costs outside of the procedure covered by the DRG code. To further discuss the hospital decision, companies selling diagnostics for inpatients have to negotiate pricing with the hospital administration, and the hospital is more likely to purchase the diagnostic test if the company can show it provides a proven cost benefit. For example, shorter hospital stays or better faster patient outcomes. Of course, reimbursement by CMS is only critical to the hospital if its patients are eligible for Medicare or Medicaid. If the facility primarily services patients who utilize private insurance, the hospital will be more interested in knowing if those insurance providers will reimburse the diagnostic, and this reimbursement could differ from Medicare/Medicaid. And therefore, the company's sales strategy with the hospital will be quite different. Often, private insurers will be early adopters of new diagnostics because the new test can save the payer money. The reimbursement strategy for outpatient diagnostics is different than for inpatient services. Outpatient diagnostics are reimbursed based on CPT codes, or Current Procedural Terminology. CPT codes are issued by the American Medical Association or AMA. And unlike the DRG or 18 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. ICD system, CPT codes are based on services provided rather than the patient diagnosis. CPT codes are used by government and private payers to determine the reimbursement amount. For example, a laboratory blood glucose test has a set reimbursement fee. And this fee is the same regardless of the technology used to determine the patient's blood glucose level. If a company's new diagnostic test does not fall under an existing CPT code, physicians will have to petition the AMA to create a code for the new test, a process that may take several years. But just to be clear, a private insurer can choose to reimburse a new test, even if it does not have a CPT code. If a provider is seeking reimbursement from Medicare or Medicaid for a diagnostic that does not have a CPT code, they often use stacked codes. Stacked codes are codes that can be combined to create a code for a new diagnostic that does not have its specific code. As an example, the diagnostic might involve the following steps: sample acquisition, sample preparation, running a test sample and standards, and analyzing the data from the test. There are generic codes for all of these steps, and they can be “stacked” to encompass the cost of the entire test. The use of stacked codes is often needed because the creation of a new CPT code for a novel diagnostic will usually not occur for 3-5 years after the diagnostic’s approval. Issues Affecting Private Payers The fact that healthcare costs are increasing rapidly isn't news to any of us. Insurance premium increases to match these rising costs seem to be in the headlines almost weekly. Some of the key drivers of healthcare cost increases include advances in diagnostics. UnitedHealth, a major US insurer, predicts the in vitro diagnostic market will increase fivefold in the next decade as new tests hit the market. Drugs are increasingly coming to market with a companion diagnostic, a test to determine whether the drive is appropriate for the patient. While this does increase the expense of paying for the diagnostic, companion diagnostics offer an opportunity to decrease healthcare spending by ensuring the patient is getting the right treatment the first time. Major drivers of rising healthcare spending are new technology coming out all the time, as well as aging populations which has led to increases in metabolic diseases such as diabetes, leading to increased cost burdens on the healthcare system. It has been predicted by UnitedHealth that the IVD market could increase to 25 billion dollars in the next 10 years. Because of these cost increases, payers are scrutinizing new medical technologies to confirm 19 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. that the healthcare dollar spent results in improved clinical outcomes. And convincing financially strained insurance companies to pay for new technologies can be challenging. New regulations and competition are pushing insurance companies to increase efficiency and improve practices. Private Payer Technology Evaluation Increasingly, private payers are requiring robust evaluation of new technology before covering its use. Strong scientific evidence from peer-reviewed journals is an important way to demonstrate the technologies efficacy. Payers are looking not just for general efficacy, but for a proven clinical benefit for a specific medical condition. A common criticism of clinical trials is that they are so well controlled, they don't resemble normal clinical conditions. Payers increasingly want evidence that the improvements demonstrated in these well-controlled trials are also attainable under normal conditions. The clinical evidence must show not only improved health outcomes but also demonstrate that the new technology is at least as beneficial, if not better, than existing diagnostics. This evidence-based practice or data-driven decision-making ensures that reimbursement is based on proven clinical outcomes. If the new diagnostic doesn't have a proven net health benefit, coverage will not be provided. While this hurdle is high, many new technologies can significantly improve health outcomes comes and even lower healthcare costs. All in all, insurers have no reason to withhold proven new diagnostics from their members. And private payers are just as likely to reimburse laboratory-developed tests as FDA-approved commercial in vitro diagnostics. Methods Of Economic Evaluation Medical benefits payers, whether the US government or private insurers, utilize several different methods to evaluate the economic impact and benefit of healthcare interventions. Click on each of the buttons to learn about the different evaluation tools, when you are finished click next to continue. If procedures or interventions are expected to have the same or similar outcome, cost minimization analysis is utilized. The cost of the two options is compared and the least expensive option is chosen. Cost-effectiveness analysis looks at both costs as well as the effects of intervention in terms of health outcomes. Specifically, the incremental cost is estimated. This includes all potential services, diagnostics, care, and even administrative costs. This analysis expresses cost and 20 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. outcome in common units, allowing comparison. For example, the cost may be expressed as dollars per life saved or dollars per pain-free day. This enables comparison of different interventions such as heart bypass surgery and the Lipitor prescription. Cost-utility analysis is similar to cost-effectiveness, in that evaluates incremental costs and effects. But the outcome is specifically defined as quality-adjusted life years. This overcomes the one-dimensional limitations of the units used in cost-effectiveness analysis. This can enable the comparison of treatments even if they have completely different outcomes, and life-enhancing treatments can be compared with lifesaving treatments. A downside of cost-utility analysis is subjectivity. Assessing the quality of life is by its nature a subjective opinion. And these measurements are typically achieved through detailed and time-consuming interviews with patients. Cost-benefit analysis is generally considered to be the most flexible method of healthcare economic evaluation. This type of analysis places a monetary value on both inputs as well as outcomes. What is the cost of treatment and the cost of consequence? For example, a cost evaluation of the number of days on disability, the cost of complications, and the number of life years gained are all expressed in dollar values. Because treatment and outcome are both given a monetary value, it is possible to calculate whether a specific intervention provides an overall gain. However, similar to cost-utility, placing a monetary value on life years gained or increased quality of life is subjective. Section 3 Summary In summary of section 3: • Approval of diagnostics does not guarantee reimbursement, smart companies will begin to develop their reimbursement strategy early in the product development process. • •Reimbursement by Medicare and Medicaid requires the coding of the diagnostic which are issued by the CMS. Private payers often base their coverage and reimbursement of diagnostics on coding and payments set by the CMS as well, but this is not a requirement. • In-hospital reimbursement by Medicare and Medicaid is based on the DRG codes for a product provided, therefore Medicare/Medicaid does not reimburse for specific 21 Copyright 2023 Biotech Primer, Inc. PROPRIETARY. DO NOT SHARE. diagnostics, it is therefore up to the hospital if the diagnostic is a good use of healthcare dollars. • Out-patient diagnostics are reimbursed based on CPT codes issued by the AMA based on services rather than patient diagnosis. 22 Copyright 2023 Biotech Primer, Inc.