CMS Cuts Reimbursement for BRCA1/2 Testing by 49 Percent; Analyst Downgrades Myriad Shares

Original post on GenomeWeb, 12/30/13

NEW YORK (GenomeWeb News) – The Centers for Medicare and Medicaid Services updated its reimbursement level for BRACA testing at $1,438 for 2014, a slash of nearly 49 percent from a previous level of $2,795.

As a result, investment bank Mizuho Securities today downgraded its rating on Myriad Genetics' shares to Hold from Buy and cut the price target on the company's stock to $24 from $36.

In morning trading on the Nasdaq on Monday, shares of Myriad fell 16 percent to $20.18.

In a document filed with the US Securities and Exchange Commission today, Myriad said CMS posted a National Limit Amount of $1,438.14 for CPT code 81211, which covers a test for the full sequencing of the BRCA1 and 2 genes, and for CPT code 81214, which covers a full sequencing of only the BRCA1 gene. No payment rate was set for CPT code 81216, which covers a test for the full sequencing of the BRCA2 gene.

The payment rates for 81211 and 81214 become effective "on or after" Jan. 1, 2014, CMS said.

CMS has opened a public comment period through Jan. 27, 2014, "[a]s the public has not had the opportunity to provide comment on the new NLA for 81211," Myriad said, adding it plans "to address a number of both substantive and process concerns" during the comment period.

"It is unclear why CMS has not valued the BRCA 2 gene in the 81211 code," the Salt Lake City-based company said. "It is also unclear how CMS arrived at the 81211 payment rate within the requirements of the federal gapfill regulations."

In September CMS posted an NLA for Myriad's BRACAnalysis test of $1,449 for the remainder of 2013, suggesting that that rate would last into 2014. Two Medicare contractors, however, quickly said that they had committed an error in setting the $1,449 figure.

In its new BRCA1/2 NLA document posted on Friday, CMS cited the decision by the US Supreme Court in June that invalidated certain claims on patents covering the BRCA1/2 genes held by Myriad. Before the SCOTUS decision, Myriad was the only laboratory offering BRCA testing, but since the judgment a number of firms, including Quest Diagnostics, Laboratory Corporation of America, and BioReference Laboratories' GeneDx business, have launched their own tests.

Medicare's Administrative Contractors (MAC) have received pricing data from the labs offering BRCA testing, and "[b]ased on the new information, the MACs submitted pricing information for CPT code 81211 that resulted in an NLA of $1,438.14," CMS said.

"At present, it is our understanding laboratories are offering the CPT code 81211 test for prices that range from approximately $900 to $2,900. As CPT code 81214 is similar to CPT code 81211, the additional comment period will apply to both CPT codes 81211 and 81214," CMS added.

Mizuho analyst Peter Lawson today downgraded Myriad's shares following the reimbursement cut, saying that although Medicare accounts for only 10 percent of Myriad's BRCA revenues, "CMS pricing has increased the fear that private payors may also cut pricing."

While the reimbursement rate may increase after the public comment period, "we are cautious on that outcome," Lawson said.

Leerink Swann analyst Dan Leonard added that even if BRCA testing reimbursement is increased, any increase will not take effect until after April 1, 2014. "[T]hus, the lower payment rate for 81211 will occur at least through" March 31, 2014, he said in a research note.

He maintained a Market Perform rating on Myriad's shares with a $25 price target.

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