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Kendall Squared brings you dispatches from the world’s epicenter for biotechnology and drug discovery.

Precision medicine, in which drugs are matched to individual patients, has generated tons of buzz, from patient organizations all the way to the White House. But insurers have been grappling with whether to pay for the genetic tests that often guide such treatments, and that uncertainty has had ripple effects through the biotech companies working to develop them.

The case of Foundation Medicine, based in Cambridge, Mass., demonstrates the quest companies sometimes have to undertake to get their products covered, a process complicated when that product is a cutting-edge technology insurers aren’t sure how to assess.

Foundation analyzes the genes of a patient’s tumor to identify what’s driving the cancer and, from that, to determine what treatment will work best. The company announced this week that UnitedHealth Group had started covering its genetic test for patients with a certain lung cancer. That decision, by the country’s largest private health insurer, represents a milestone for the company as it looks to strike deals with more insurers.


But another large pool of potential patients hangs in limbo as the company waits to hear whether Medicare will cover its tests. The precision medicine community is closely watching what happens with Foundation Medicine for lessons about the viability of such tests as commercial products.

“The premise of personalized or precision medicine is that to generate better outcomes for patients, we have to link therapy to sophisticated diagnostics,” said Edward Abrahams, the president of the Personalized Medicine Coalition, an advocacy group. “The key point here is, if we want to get precision medicine, if we want to advance the field … we’ve got to be willing to pay for it. And that’s where Foundation Medicine is coming from.”


Medicare and private insurers have been slow to embrace genetic tests such as Foundation Medicine’s that look at a broad array of genes. (Other genetic tests, such as those that analyze specific genes known to increase a person’s risk of cancer, are more widely covered.) The payers are concerned that the tests could lead to care that won’t improve patient outcomes.

“There’s no consensus regarding, when you’re looking at a tumor, how many genes you sequence and which ones you sequence,” said Kathryn Phillips, director of the Center for Translational and Policy Research on Personalized Medicine at the University of California at San Francisco. “More information is not always better — that’s the payers’ concern.”

That has led to some mixed messages for Foundation Medicine. This summer, a regional Medicare administrator called Palmetto GBA, in effect, recommended that Foundation’s test be covered. (When a national Medicare coverage policy does not exist — which is common with new technologies — the decisions fall to groups that decide coverage regionally.) The hitch for Foundation was that the ruling did not apply to tests analyzed in Massachusetts, where all of their analysis is done.

Foundation Medicine CEO Dr. Michael Pellini said various Medicare decision-makers suggested that other regional groups would likely follow Palmetto’s lead, so the company “spent two years educating Palmetto” about its test. But a draft proposal from the group that makes coverage decisions for Massachusetts, issued in October, does not bode well, the company said. An updated decision is expected soon.

Pellini said that companies working in this field are not being told what kind of data the Medicare decision-makers or private insurers want to see, increasing their uncertainty. And without reimbursement, it’s on the companies to cover the cost of enough tests to show that testing leads to better outcomes for patients and, ideally, lower treatment costs.

“We simply have to shoot in the dark and hope that one of the bullets hit the bullseye,” Pellini said.

In the meantime, Foundation Medicine is not being reimbursed for tests performed on Medicare patients, accounting for about 30 percent of their testing. Private insurers pay $3,500 for Foundation’s leading test when they do cover the cost.

For their part, Medicare and other insurers remain hesitant because they want greater evidence that genomic profiling will improve clinical results. While some insurers are warming up to precision tests, others view them as investigatory expeditions that could find genetic abnormalities not responsible for driving the cancer, leading to the prescription of expensive drugs that won’t actually help a patient.

“The payers aren’t even sure of the basics or if these tests are accurate or reliable,” said Dr. Sean Tunis, CEO of the Center for Medical Technology Policy.

To help resolve that impasse, his organization has been arranging meetings of insurers and companies working in sequencing cancers to find some common ground. Other organizations, including the Biotechnology Industry Organization, the Coalition for 21st Century Medicine, and the Personalized Medicine Coalition, have been lobbying around reimbursement issues.

And, as a hyperlocal sign of support, the Cambridge City Council even got involved: in November, council members passed a resolution calling for Foundation’s tests to be covered by Medicare.

The uncertainty in how payers will reimburse these tests has slowed the growth of precision medicine more broadly, observers say. New companies aren’t being created, and venture capital firms are holding back funding.

“There has been a huge chill on investor willingness to put money into this area,” said UCSF’s Phillips. “If you can’t make it clinically useful so that someone pays for it, the products won’t go anywhere.”