EXAS, GH: Next Steps on Next Gen Test Rates
Key Takeaways: Following the split market reaction to EXAS [-29%] and GH [+25%] 3Q24 earnings reports last week, and investors looking to the opportunities associated with next generation colorectal cancer (CRC) screening tests Cologuard Plus and Shield, respectively, we outline our timing and outcome expectations for key upcoming policy catalysts. To quickly summarize:
- GH will likely secure endorsement of a dedicated Shield billing code at an American Medical Association (AMA) meeting tomorrow (Nov. 14), allowing for CMS designation as an Advanced Diagnostic Laboratory Test (ADLT) as early as March and payment at its $1,495 list price starting April 1. We would then expect the U.S. Preventive Services Task Force (USPSTF) to initiate a guideline review in 2H25, with completion in late 2027.
- EXAS is unlikely to see CMS reverse its initial denial of the company’s requested 25% rate increase for Cologuard Plus ($636) relative to the legacy product ($509) in the final CY25 decisions due out in the next 1-2 weeks, before pivoting to a likely successful effort at higher payments through the ADLT process in 1Q25. However, we view potential coverage delays under the existing National Coverage Determination (NCD) on CRC screening as an underappreciated sleeper issue.
Guardant Health: Coding & Coverage
GH’s disclosure last week that Medicare Administrative Contractor (MAC) Noridian has agreed to pay $920 for Shield is consistent with our previously outlined expectations of $850 to $950, though this rate will likely increase to the company’s $1,495 list price by April 1 or – at latest – July 1.
The current $920 payment is associated with generic HCPCS code G0327 (colorectal cancer screening; blood-based biomarker), which CMS created in 2021 for coordination with the CRC blood-based biomarker coverage policy it had preemptively finalized in January of that year, more than three years prior to GH’s Shield approval in July 2024.
To secure ADLT status and payment under the manufacturer list price (e.g., $1,495), however, each test “must be assigned a unique HCPCS code, meaning one that describes only a single test,” which is granted at the discretion of the AMA. While Shield had originally been on the AMA’s Proprietary Laboratory Analyses (PLA) code agenda in August, its late July approval by the FDA prompted a delay, with consideration now taking place at the Nov. 14 meeting, where we would expect endorsement.
This would likely trigger the sequence of events below, coordinated around the new code’s publication date on Jan. 1 and its effective date on Apr. 1. If we are incorrect, we would not expect this process to be pushed out more than one calendar quarter.
While investors will be aware that the initial ADLT period technically only lasts for three calendar quarters (e.g., Apr. 1 / July 1 to Dec. 31 / Mar. 31) before reverting to the “weighted median of private payor rates,” past experience shows that companies are often able to leverage CMS’s calculation methodology to maintain the designation’s payment advantages for far longer. We outline this dynamic below, showing all former ADLT products, their ADLT reimbursement amount versus current (4Q24) payments, and the number of years that have passed since their initial three-quarter period ended.
Whether / how long GH can maintain this pricing will likely be a function of a volume versus margin tradeoff where, paradoxically, an absence of separately negotiated private payer contracts on which CMS can base its “weighted median” can help maintain the ADLT payment rate out beyond the typical three-quarter limit.
The timeline for inclusion of blood-based biomarker testing into USPSTF CRC screening recommendations – which would require commercial insurers to cover the test with $0 in patient cost-sharing – is somewhat more uncertain. However, based on the typical 4-5 years between Task Force reviews on a given subject, we would expect it to announce an updated draft research plan sometime in 2H25, leading to a ~2.5 year review that concludes in late 2027 / early 2028.
Exact Sciences: Payment Premiums & Coverage Conundrums
Following AMA endorsement of EXAS’s own PLA code (0464U) for its newly approved Cologuard Plus offering, which took effect July 1, 2024, the company’s pursuit of a 25% payment premium ($636) relative to the legacy version ($509) under CPT code 81528 is unlikely to succeed – in our view – when CMS releases its final CY25 decisions, typically published in late November.
In short, we count just 50 incidents of CMS reversing itself on initial decisions out of the 508 payment applications it has reviewed since 2020, equating to a 10% success rate. Moreover, so-called “fractional” rate adjustments such as this (e.g., $509 x 1.25 = $636) are themselves very rare, representing just 4% (22) of applications reviewed by the agency’s Clinical Laboratory Fee Schedule (CLFS) Advisory Panel. Of these, just four were endorsed by CMS itself, all of which were included in the preliminary decisions released in September, rather than through a reversal in November’s finalized rates.
As highlighted in last week’s investor call, however, EXAS appears to be waiting for final resolution before pursuing what we suspect will be an equivalent rate premium under the ADLT pathway.
“We continue to engage with CMS on the CDLT [Clinical Diagnostic Laboratory Test] process to seek a price increase. But if not, then we will go the ADLT path…[which] is slightly longer…We will start with the Medicare patients and then move into the commercial and then Medicaid patients.”
This would likely put EXAS on a similar timeline to GH above, filing an ADLT application with CMS in January, receiving notice from the agency in March, and the new payment rate taking effect on April 1.
The timing risks for a market shift to Cologuard Plus may stem less from reimbursement, however, than potential coverage limitations under the existing CRC screening NCD.
In contrast to most policies, the current NCD refers explicitly to “Cologuard™” rather than a more generic classification of tests, as is the case with its description of blood-based biomarker products:
A strict reading of this policy would therefore imply that alternative multi-target stool DNA (sDNA) tests – such as Cologuard Plus™ – are not covered. Indeed, the fact that the AMA has created two distinct billing codes for these products [Cologuard (Legacy): 81528, Cologuard Plus: 0464U] effectively implies that the two should not be viewed / described as interchangeable. That sentiment would also appear to be reflected in the current list of NCD-covered billing codes, which includes both the legacy code (81528) and generic blood-based biomarker code (G0327), but not the Cologuard Plus code (0464U).
In our view it is a question of when – not if – CMS will eventually cover Cologuard Plus, but we have been unable to identify any notification from the agency to its MACs that specifically directs such actions, and suspect that the overly specific NCD language will likely need to be changed to provide greater clarity.
To that point, CMS has already accepted a formal NCD reconsideration request from Geneoscopy (private) following FDA approval of its own RNA-based ColoSense test, though a formal initiation of the review – starting a 9-10 month process – has been delayed due to insufficient staff capacity, and it remains on the NCD Wait List.
It is therefore unclear when the agency might be able to address the matter, but we would note that the average time between an NCD request being submitted and the initiation of a review has been steadily increasing in recent years, with the five-year average now at nearly 15 months.
With CMS indicating in its recent CY25 Physician Fee Schedule that the CRC screening reconsideration request was accepted “in June 2024,” this would imply a formal opening of the analysis in 2H25, with the review itself likely lasting until ~mid-2026.