Because most of us have likely had a Covid test done in the last few years, you might think that getting diagnostics to market is a straightforward proposition. But you’d be wrong. The reason is that even if you have a clinically proven test, there are no guarantees that someone will pay for that test. Further, there is no standard by which diagnostics are evaluated that leads to reimbursement.
Hannah Mamuszka is the CEO at Alva10. She explained to me the market dynamics around developing new diagnostic tests and how she and her team are working to make it easier to get new ones developed.
When Covid tests were first approved, the reimbursement was less than the cost of making them, accounting for some of the delay in accessing them.
Just because a test is approved by FDA or CLIA, doesn’t mean it will be paid for.
In order to get payment, you have to go through the American Medical Association to get a code, which is essentially an alphanumeric set of numbers and letters that identify your test, and then you have to go and apply for what's called coverage which is determining who's gonna pay for your test. And there is no standard of how much evidence, what kind of data you have to present with your test in order to get it covered. It's just submitted and it's kind of a crapshoot which ultimately means that it usually takes on average diagnostic tests about seven years before they're paid for.
And most companies can't survive for seven years without getting paid. As most companies can't survive. I mean, it's not limited to healthcare. You know, if you don't get paid for seven years, you probably don't exist anymore.
Every modern drug is rationally designed. We know the pathways and the intended targets. But without diagnostics, for example, to determine whether a treatment can work, a lot of time and money is wasted.
The overall success rate for approved drugs is about 36%. That means not only do we waste money on prescribed therapies that don’t always work, but in the meantime, patients may also be declining, adding costs.
I am no expert on the US healthcare system. Far from it. But while many are trying to innovate, for now, we play the hand we’re dealt. I wanted to know how would diagnostics improve overall care and what is the path to making that happen?
Pharma companies want to claim as big a market as possible to make money for shareholders. Segmenting the population based on a diagnostic that can predict success is a tradeoff between market size and efficacy. You can see that the incentives are misaligned.
The leverage would seem to be with payors. They don’t want to waste money. If they had economics and science in front of them, they could drive coverage toward more effective treatments, couldn’t they?
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Hannah’s experience here is informative as well as an interesting study in psychology.
We take all of those clinical changes and we, we translate them all into numbers and then figure out how the payors are gonna see it, how much they're gonna value it, and then we show it to them strictly from an economic perspective first.
And when we show them the economic perspective, the first thing they ask for is, “Oh, well, you know, we need to see the clinical evidence”, which we immediately give to them. But I can tell you from a lot of experience trying to go the other way and showing them clinical evidence and then wanting to talk about economics, I mean, I essentially got nowhere.
So the best approach to aligning incentives seems to be economics first, science second.
I asked Hannah if there were healthcare systems in other countries that we could learn from. The US FDA approves drugs based on safety even if they might only benefit a few patients. Here again, the incentives are misaligned. Other countries would like to identify those few patients before approving the drug for use. But a diagnostic to find those few might exclude a large number of patients, making the economics of that drug unfavorable on the whole.
Economics has been called the dismal science. But understanding and aligning incentives for all the parties in our healthcare system may be more challenging than the science of bringing new diagnostics to market.
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The Difficulties of Diagnostic Development