Genomic Health (GHDX)

 

There is uncertainty concerning third-party payor reimbursement of any test, including Oncotype DX. Several entities conduct technology assessments of medical tests and devices and provide the results of their assessments for informational purposes to other parties. These assessments may be used by third-party payors and health care providers as grounds to deny coverage for a test or procedure. Although there are a number of favorable assessments of Oncotype DX, the test has received negative assessments in the past and may receive additional negative assessments in the future.

 

Since each payor makes its own decision as to whether to establish a policy to reimburse our test, seeking these approvals is a time-consuming and costly process. To date, we have secured policy-level reimbursement approval from a number of third-party payors. We cannot be certain that coverage for Oncotype DX will be provided in the future by additional third-party payors or that existing reimbursement policies will remain in place.

 

Under current Medicare billing rules, claims for Oncotype DX tests performed on Medicare beneficiaries who were hospital inpatients at the time the tumor tissue samples were obtained and whose tests were ordered less than 14 days from discharge must be incorporated in the payment that the hospital receives for the inpatient services provided. Medicare billing rules also require hospitals to bill for the test when ordered for hospital outpatients less than 14 days following the date of the hospital procedure where the tumor tissue samples were obtained. Accordingly, we are required to bill individual hospitals for tests performed on Medicare beneficiaries during these time frames. Because we generally do not have a written agreement in place with these hospitals, we may not be paid for our tests or may have to pursue payment from the hospital on a case-by-case basis. We believe patients coming under this rule represent approximately 3% of our total testing population. We believe these billing rules may lead to confusion regarding whether Medicare provides adequate reimbursement for our test, and could discourage Medicare patients from using our test. Although we are working with Medicare and other diagnostic laboratories to revise or reverse these billing rules, we have no assurance that Medicare will do so, and we also cannot ensure that hospitals will agree to arrangements to pay us for tests performed on patients falling under these rules.

 

Insurers, including managed care organizations as well as government payors such as Medicare and Medicaid, have increased their efforts to control the cost, utilization and delivery of health care services. From time to time, Congress has considered and implemented changes in the Medicare fee schedules in conjunction with budgetary legislation. Further reductions of reimbursement for Medicare services may be implemented from time to time. Reductions in the reimbursement rates of other third-party payors have occurred and may occur in the future. These measures have resulted in reduced payment rates and decreased test utilization for the clinical laboratory industry.

 

Following reporting of clinical studies to support the use of Oncotype DX in patients with N+, ER+ breast cancer, we experienced an increase in usage for N+ patients. While some payors provide coverage for the use of Oncotype DX in patients with lymph node micrometastasis (less than 2mm in size), our existing reimbursement coverage is generally limited to women with early-stage N-, ER+ breast cancer. We may not be able to obtain reimbursement coverage for Oncotype DX for breast cancer patients who are N+, ER+ that is similar to the coverage we have obtained for early-stage N-, ER+ patients. In addition, we may not be able to obtain reimbursement coverage for any other new test or test enhancement we may develop in the future.

 

If we are unable to obtain reimbursement approval from private payors and Medicare and Medicaid programs for Oncotype DX, or if the amount reimbursed is inadequate, our ability to generate revenues from Oncotype DX could be limited. Even if we are being reimbursed, insurers may withdraw their coverage policies or cancel their contracts with us at any time, stop paying for our test or reduce the payment rate for our test, which would reduce our revenue.

 

 

Physicians and patients may decide not to order Oncotype DX unless third-party payors, such as managed care organizations as well as government payors such as Medicare and Medicaid, pay a substantial portion of the test price. Reimbursement by a third-party payor may depend on a number of factors, including a payor’s determination that tests using our technologies are:

 

 

There is uncertainty concerning third-party payor reimbursement of any test, including Oncotype DX. Several entities conduct technology assessments of medical tests and devices and provide the results of their assessments for informational purposes to other parties. These assessments may be used by third-party payors and health care providers as grounds to deny coverage for a test or procedure. Although there are a number of favorable assessments of Oncotype DX, the test has received negative assessments in the past and may receive additional negative assessments in the future.

 

Since each payor makes its own decision as to whether to establish a policy to reimburse our test, seeking these approvals is a time-consuming and costly process. To date, we have secured policy-level reimbursement approval from a number of third-party payors. We cannot be certain that coverage for Oncotype DX will be provided in the future by additional third-party payors or that existing reimbursement policies will remain in place.

 

Under current Medicare billing rules, claims for Oncotype DX tests performed on Medicare beneficiaries who were hospital inpatients at the time the tumor tissue samples were obtained and whose tests were ordered less than 14 days from discharge must be incorporated in the payment that the hospital receives for the inpatient services provided. Medicare billing rules also require hospitals to bill for the test when ordered for hospital outpatients less than 14 days following the date of the hospital procedure where the tumor tissue samples were obtained. Accordingly, we are required to bill individual hospitals for tests performed on Medicare beneficiaries during these time frames. Because we generally do not have a written agreement in place with these hospitals, we may not be paid for our tests or may have to pursue payment from the hospital on a case-by-case basis. We believe patients coming under this rule represent approximately 3% of our total testing population. We believe these billing rules may lead to confusion regarding whether Medicare provides adequate reimbursement for our test, and could discourage Medicare patients from using our test. Although we are working with Medicare and other diagnostic laboratories to revise or reverse these billing rules, we have no assurance that Medicare will do so, and we also cannot ensure that hospitals will agree to arrangements to pay us for tests performed on patients falling under these rules.

 

Insurers, including managed care organizations as well as government payors such as Medicare and Medicaid, have increased their efforts to control the cost, utilization and delivery of health care services. From time to time, Congress has considered and implemented changes in the Medicare fee schedules in conjunction with budgetary legislation. Further reductions of reimbursement for Medicare services may be implemented from time to time. Reductions in the reimbursement rates of other third-party payors have occurred and may occur in the future. These measures have resulted in reduced payment rates and decreased test utilization for the clinical laboratory industry.

 

Following reporting of clinical studies to support the use of Oncotype DX in patients with N+, ER+ breast cancer, we experienced an increase in usage for N+ patients. While some payors provide coverage for the use of Oncotype DX in patients with lymph node micrometastasis (less than 2mm in size), our existing reimbursement coverage is generally limited to women with early-stage N-, ER+ breast cancer. We may not be able to obtain reimbursement coverage for Oncotype DX for breast cancer patients who are N+, ER+ that is similar to the coverage we have obtained for early-stage N-, ER+ patients. In addition, we may not be able to obtain reimbursement coverage for any other new test or test enhancement we may develop in the future.

 

If we are unable to obtain reimbursement approval from private payors and Medicare and Medicaid programs for Oncotype DX, or if the amount reimbursed is inadequate, our ability to generate revenues from Oncotype DX could be limited. Even if we are being reimbursed, insurers may withdraw their coverage policies or cancel their contracts with us at any time, stop paying for our test or reduce the payment rate for our test, which would reduce our revenue.

 

 

Physicians and patients may decide not to order Oncotype DX unless third-party payors, such as managed care organizations as well as government payors such as Medicare and Medicaid, pay a substantial portion of the test price. Reimbursement by a third-party payor may depend on a number of factors, including a payor’s determination that tests using our technologies are:

 

 

There is uncertainty concerning third-party payor reimbursement of any test, including Oncotype DX. Several entities conduct technology assessments of medical tests and devices and provide the results of their assessments for informational purposes to other parties. These assessments may be used by third-party payors and health care providers as grounds to deny coverage for a test or procedure. Although there are a number of favorable assessments of Oncotype DX, the test has received negative assessments in the past and may receive additional negative assessments in the future.

 

Since each payor makes its own decision as to whether to establish a policy to reimburse our test, seeking these approvals is a time-consuming and costly process. To date, we have secured policy-level reimbursement approval from a number of third-party payors. We cannot be certain that coverage for Oncotype DX will be provided in the future by additional third-party payors or that existing reimbursement policies will remain in place.

 

Under current Medicare billing rules, claims for Oncotype DX tests performed on Medicare beneficiaries who were hospital inpatients at the time the tumor tissue samples were obtained and whose tests were ordered less than 14 days from discharge must be incorporated in the payment that the hospital receives for the inpatient services provided. Medicare billing rules also require hospitals to bill for the test when ordered for hospital outpatients less than 14 days following the date of the hospital procedure where the tumor tissue samples were obtained. Accordingly, we are required to bill individual hospitals for tests performed on Medicare beneficiaries during these time frames. Because we generally do not have a written agreement in place with these hospitals, we may not be paid for our tests or may have to pursue payment from the hospital on a case-by-case basis. We believe patients coming under this rule represent approximately 3% of our total testing population. We believe these billing rules may lead to confusion regarding whether Medicare provides adequate reimbursement for our test, and could discourage Medicare patients from using our test. Although we are working with Medicare and other diagnostic laboratories to revise or reverse these billing rules, we have no assurance that Medicare will do so, and we also cannot ensure that hospitals will agree to arrangements to pay us for tests performed on patients falling under these rules.

 

Insurers, including managed care organizations as well as government payors such as Medicare and Medicaid, have increased their efforts to control the cost, utilization and delivery of health care services. From time to time, Congress has considered and implemented changes in the Medicare fee schedules in conjunction with budgetary legislation. Further reductions of reimbursement for Medicare services may be implemented from time to time. Reductions in the reimbursement rates of other third-party payors have occurred and may occur in the future. These measures have resulted in reduced payment rates and decreased test utilization for the clinical laboratory industry.

 

Following reporting of clinical studies to support the use of Oncotype DX in patients with N+, ER+ breast cancer, we experienced an increase in usage for N+ patients. While some payors provide coverage for the use of Oncotype DX in patients with lymph node micrometastasis (less than 2mm in size), our existing reimbursement coverage is generally limited to women with early-stage N-, ER+ breast cancer. We may not be able to obtain reimbursement coverage for Oncotype DX for breast cancer patients who are N+, ER+ that is similar to the coverage we have obtained for early-stage N-, ER+ patients. In addition, we may not be able to obtain reimbursement coverage for any other new test or test enhancement we may develop in the future.

 

If we are unable to obtain reimbursement approval from private payors and Medicare and Medicaid programs for Oncotype DX, or if the amount reimbursed is inadequate, our ability to generate revenues from Oncotype DX could be limited. Even if we are being reimbursed, insurers may withdraw their coverage policies or cancel their contracts with us at any time, stop paying for our test or reduce the payment rate for our test, which would reduce our revenue.

 

 

Physicians and patients may decide not to order Oncotype
DX unless third-party payors, such as managed care
organizations as well as government payors such as Medicare and
Medicaid, pay a substantial portion of the test price.
Reimbursement by a third-party payor may depend on a number of
factors, including a payor’s determination that tests using
our technologies are:

 

 

There is uncertainty concerning third-party payor reimbursement
of any test, including Oncotype DX. Several entities
conduct technology assessments of medical tests and devices and
provide the results of their assessments for informational
purposes to other parties. These assessments may be used by
third-party payors and health care providers as grounds to deny
coverage for a test or procedure. Although there are a number of
favorable assessments of Oncotype DX, the test has
received negative assessments in the past and may receive
additional negative assessments in the future.

 

Since each payor makes its own decision as to whether to
establish a policy to reimburse our test, seeking these
approvals is a time-consuming and costly process. To date, we
have secured policy-level reimbursement approval from a number
of third-party payors. We cannot be certain that coverage for
Oncotype DX will be provided in the future by additional
third-party payors or that existing reimbursement policies will
remain in place.

 

Under current Medicare billing rules, claims for Oncotype
DX tests performed on Medicare beneficiaries who were
hospital inpatients at the time the tumor tissue samples were
obtained and whose tests were ordered less than 14 days
from discharge must be incorporated in the payment that the
hospital receives for the inpatient services provided. Medicare
billing rules also require hospitals to bill for the test when
ordered for hospital outpatients less than 14 days
following the date of the hospital procedure where the tumor
tissue samples were obtained. Accordingly, we are required to
bill individual hospitals for tests performed on Medicare
beneficiaries during these time frames. Because we generally do
not have a written agreement in place with these hospitals, we
may not be paid for our tests or may have to pursue payment from
the hospital on a
case-by-case
basis. We believe patients coming under this rule represent
approximately 3% of our total testing population. We believe
these billing rules may lead to confusion regarding whether
Medicare provides adequate reimbursement for our test, and could
discourage Medicare patients from using our test. Although we
are working with Medicare and other diagnostic laboratories to
revise or reverse these billing rules, we have no assurance that
Medicare will do so, and we also cannot ensure that hospitals
will agree to arrangements to pay us for tests performed on
patients falling under these rules.

 

Insurers, including managed care organizations as well as
government payors such as Medicare and Medicaid, have increased
their efforts to control the cost, utilization and delivery of
health care services. From time to time, Congress has considered
and implemented changes in the Medicare fee schedules in
conjunction with budgetary legislation. Further reductions of
reimbursement for Medicare services may be implemented from time
to time. Reductions in the reimbursement rates of other
third-party payors have occurred and may occur in the future.
These measures have resulted in reduced payment rates and
decreased test utilization for the clinical laboratory industry.

 

Following reporting of clinical studies to support the use of
Oncotype DX in patients with N+, ER+ breast cancer, we
experienced an increase in usage for N+ patients. While some
payors provide coverage for the use of Oncotype DX in
patients with lymph node micrometastasis (less than 2mm in
size), our existing reimbursement coverage is generally limited
to women with early-stage N-, ER+ breast cancer. We may not be
able to obtain reimbursement coverage for Oncotype DX for
breast cancer patients who are N+, ER+ that is similar to the
coverage we have obtained for early-stage N-, ER+ patients. In
addition, we may not be able to obtain reimbursement coverage
for any other new test or test enhancement we may develop in the
future.

 

If we are unable to obtain reimbursement approval from private
payors and Medicare and Medicaid programs for Oncotype
DX, or if the amount reimbursed is inadequate, our ability
to generate revenues from Oncotype DX could be limited.
Even if we are being reimbursed, insurers may withdraw their
coverage policies or cancel their contracts with us at any time,
stop paying for our test or reduce the payment rate for our
test, which would reduce our revenue.

 

 

Physicians and patients may decide not to order Oncotype
DX unless third-party payors, such as managed care
organizations as well as government payors such as Medicare and
Medicaid, pay a substantial portion of the test price.
Reimbursement by a third-party payor may depend on a number of
factors, including a payor’s determination that tests using
our technologies are:

 

 

There is uncertainty concerning third-party payor reimbursement
of any test, including Oncotype DX. Several entities
conduct technology assessments of medical tests and devices and
provide the results of their assessments for informational
purposes to other parties. These assessments may be used by
third-party payors and health care providers as grounds to deny
coverage for a test or procedure. Although there are a number of
favorable assessments of Oncotype DX, the test has
received negative assessments in the past and may receive
additional negative assessments in the future.

 

Since each payor makes its own decision as to whether to
establish a policy to reimburse our test, seeking these
approvals is a time-consuming and costly process. To date, we
have secured policy-level reimbursement approval from a number
of third-party payors. We cannot be certain that coverage for
Oncotype DX will be provided in the future by additional
third-party payors or that existing reimbursement policies will
remain in place.

 

Under current Medicare billing rules, claims for Oncotype
DX tests performed on Medicare beneficiaries who were
hospital inpatients at the time the tumor tissue samples were
obtained and whose tests were ordered less than 14 days
from discharge must be incorporated in the payment that the
hospital receives for the inpatient services provided. Medicare
billing rules also require hospitals to bill for the test when
ordered for hospital outpatients less than 14 days
following the date of the hospital procedure where the tumor
tissue samples were obtained. Accordingly, we are required to
bill individual hospitals for tests performed on Medicare
beneficiaries during these time frames. Because we generally do
not have a written agreement in place with these hospitals, we
may not be paid for our tests or may have to pursue payment from
the hospital on a
case-by-case
basis. We believe patients coming under this rule represent
approximately 3% of our total testing population. We believe
these billing rules may lead to confusion regarding whether
Medicare provides adequate reimbursement for our test, and could
discourage Medicare patients from using our test. Although we
are working with Medicare and other diagnostic laboratories to
revise or reverse these billing rules, we have no assurance that
Medicare will do so, and we also cannot ensure that hospitals
will agree to arrangements to pay us for tests performed on
patients falling under these rules.

 

Insurers, including managed care organizations as well as
government payors such as Medicare and Medicaid, have increased
their efforts to control the cost, utilization and delivery of
health care services. From time to time, Congress has considered
and implemented changes in the Medicare fee schedules in
conjunction with budgetary legislation. Further reductions of
reimbursement for Medicare services may be implemented from time
to time. Reductions in the reimbursement rates of other
third-party payors have occurred and may occur in the future.
These measures have resulted in reduced payment rates and
decreased test utilization for the clinical laboratory industry.

 

Following reporting of clinical studies to support the use of
Oncotype DX in patients with N+, ER+ breast cancer, we
experienced an increase in usage for N+ patients. While some
payors provide coverage for the use of Oncotype DX in
patients with lymph node micrometastasis (less than 2mm in
size), our existing reimbursement coverage is generally limited
to women with early-stage N-, ER+ breast cancer. We may not be
able to obtain reimbursement coverage for Oncotype DX for
breast cancer patients who are N+, ER+ that is similar to the
coverage we have obtained for early-stage N-, ER+ patients. In
addition, we may not be able to obtain reimbursement coverage
for any other new test or test enhancement we may develop in the
future.

 

If we are unable to obtain reimbursement approval from private
payors and Medicare and Medicaid programs for Oncotype
DX, or if the amount reimbursed is inadequate, our ability
to generate revenues from Oncotype DX could be limited.
Even if we are being reimbursed, insurers may withdraw their
coverage policies or cancel their contracts with us at any time,
stop paying for our test or reduce the payment rate for our
test, which would reduce our revenue.

 

 

Physicians and patients may decide not to order Oncotype
DX unless third-party payors, such as managed care
organizations as well as government payors such as Medicare and
Medicaid, pay a substantial portion of the test price.
Reimbursement by a third-party payor may depend on a number of
factors, including a payor’s determination that tests using
our technologies are:

 

 

There is uncertainty concerning third-party payor reimbursement
of any test, including Oncotype DX. Several entities
conduct technology assessments of medical tests and devices and
provide the results of their assessments for informational
purposes to other parties. These assessments may be used by
third-party payors and health care providers as grounds to deny
coverage for a test or procedure. Although there are a number of
favorable assessments of Oncotype DX, the test has
received negative assessments in the past and may receive
additional negative assessments in the future.

 

Since each payor makes its own decision as to whether to
establish a policy to reimburse our test, seeking these
approvals is a time-consuming and costly process. To date, we
have secured policy-level reimbursement approval from a number
of third-party payors. We cannot be certain that coverage for
Oncotype DX will be provided in the future by additional
third-party payors or that existing reimbursement policies will
remain in place.

 

Under current Medicare billing rules, claims for Oncotype
DX tests performed on Medicare beneficiaries who were
hospital inpatients at the time the tumor tissue samples were
obtained and whose tests were ordered less than 14 days
from discharge must be incorporated in the payment that the
hospital receives for the inpatient services provided. Medicare
billing rules also require hospitals to bill for the test when
ordered for hospital outpatients less than 14 days
following the date of the hospital procedure where the tumor
tissue samples were obtained. Accordingly, we are required to
bill individual hospitals for tests performed on Medicare
beneficiaries during these time frames. Because we generally do
not have a written agreement in place with these hospitals, we
may not be paid for our tests or may have to pursue payment from
the hospital on a
case-by-case
basis. We believe patients coming under this rule represent
approximately 3% of our total testing population. We believe
these billing rules may lead to confusion regarding whether
Medicare provides adequate reimbursement for our test, and could
discourage Medicare patients from using our test. Although we
are working with Medicare and other diagnostic laboratories to
revise or reverse these billing rules, we have no assurance that
Medicare will do so, and we also cannot ensure that hospitals
will agree to arrangements to pay us for tests performed on
patients falling under these rules.

 

Insurers, including managed care organizations as well as
government payors such as Medicare and Medicaid, have increased
their efforts to control the cost, utilization and delivery of
health care services. From time to time, Congress has considered
and implemented changes in the Medicare fee schedules in
conjunction with budgetary legislation. Further reductions of
reimbursement for Medicare services may be implemented from time
to time. Reductions in the reimbursement rates of other
third-party payors have occurred and may occur in the future.
These measures have resulted in reduced payment rates and
decreased test utilization for the clinical laboratory industry.

 

Following reporting of clinical studies to support the use of
Oncotype DX in patients with N+, ER+ breast cancer, we
experienced an increase in usage for N+ patients. While some
payors provide coverage for the use of Oncotype DX in
patients with lymph node micrometastasis (less than 2mm in
size), our existing reimbursement coverage is generally limited
to women with early-stage N-, ER+ breast cancer. We may not be
able to obtain reimbursement coverage for Oncotype DX for
breast cancer patients who are N+, ER+ that is similar to the
coverage we have obtained for early-stage N-, ER+ patients. In
addition, we may not be able to obtain reimbursement coverage
for any other new test or test enhancement we may develop in the
future.

 

If we are unable to obtain reimbursement approval from private
payors and Medicare and Medicaid programs for Oncotype
DX, or if the amount reimbursed is inadequate, our ability
to generate revenues from Oncotype DX could be limited.
Even if we are being reimbursed, insurers may withdraw their
coverage policies or cancel their contracts with us at any time,
stop paying for our test or reduce the payment rate for our
test, which would reduce our revenue.

 

accordance with the terms of the determination. As a result, we are permitted to submit claims to Medicare for the Oncotype DX tests performed on Medicare beneficiaries who were hospital inpatients or outpatients at the time the tumor tissue samples were obtained, but only if the test was ordered at least 14 days following the date of the patient’s discharge from the hospital and where other specified conditions are met. The local coverage determination is effective for Oncotype DX tests provided on or after February 27, 2006. Under Medicare billing rules, claims for Oncotype DX tests performed on Medicare beneficiaries who were hospital inpatients at the time the tumor tissue samples were obtained or when the test is ordered less than 14 days from discharge must be incorporated in the payment that the hospital receives for the inpatient services provided related to the patient’s breast cancer. Medicare billing rules also require hospitals to bill for the test when performed or ordered for hospital outpatients less than 14 days following the date of the hospital outpatient procedure where the tumor tissue samples were obtained. We are in the process of making arrangements with hospitals for payment of the test when performed for the portion of Medicare beneficiaries, representing approximately 2-3% of our total testing population, who are hospital inpatients or outpatients at the time specimens are collected and who do not meet criteria under the Medicare billing rules for billing by us. We are also working with Medicare to revise or reverse these billing rules to allow us to bill for tests performed after discharge from the hospital. However, we have no assurance that Medicare will revise or reverse these billing rules, and we also cannot ensure that hospitals will agree to arrangements to pay us for tests performed on patients falling under these billing rules.

 

Insurers, including managed care organizations as well as government payors such as Medicare, have increased their efforts to control the cost, utilization and delivery of health care services. From time to time, Congress has considered and implemented changes in the Medicare fee schedules in conjunction with budgetary legislation. Further reductions of reimbursement for Medicare services may be implemented from time to time. Reductions in the reimbursement rates of other third-party payors have occurred and may occur in the future. These measures have resulted in reduced prices and decreased test utilization for the clinical laboratory industry.

 

We recently conducted clinical studies to support the use of Oncotype DX in post-menopausal women with N+, ER+ breast cancer. Most of our existing reimbursement coverage is specifically for women with early stage N−, ER+ breast cancer. We may not be able to obtain reimbursement coverage for Oncotype DX for post-menopausal female breast cancer patients who are N+, ER+ patients that is similar to the coverage we have obtained for early stage N−, ER+ patients.

 

If we are unable to obtain reimbursement approval from private payors and Medicare and Medicaid programs for Oncotype DX, or if the amount reimbursed is inadequate, our ability to generate revenues from Oncotype DX could be limited. Even if we are being reimbursed, insurers may withdraw their coverage policies or cancel their contracts with us at any time or stop paying for our test, which would reduce our revenue.

 

 

Oncotype DX has a current list price of $3,650.
Physicians and patients may decide not to order Oncotype
DX unless third-party payors, such as managed care
organizations as well as government payors such as Medicare and
Medicaid, pay a substantial portion of the test price.
Reimbursement by a third-party payor may depend on a number of
factors, including a payor’s determination that tests using
our technologies are:

 

 

There is significant uncertainty concerning third-party
reimbursement of any test incorporating new technology,
including Oncotype DX. Several entities conduct
technology assessments of new medical tests and devices and
provide the results of their assessments for informational
purposes to other parties. These assessments may be used by
third-party payors and health care providers as grounds to deny
coverage for a test or procedure. Oncotype DX has in the
past received negative assessments and may receive additional
negative assessments in the future.

 

Since each payor makes its own decision as to whether to
establish a policy to reimburse our test, seeking these
approvals is a time-consuming and costly process. To date, we
have secured policy-level reimbursement approval from a number
of third-party payors. We cannot be certain that coverage for
Oncotype DX will be provided in the future by additional
third-party payors or that existing reimbursement policies will
remain in place in the future.

 

In January 2006, NHIC, the local Medicare carrier for California
with jurisdiction for claims submitted by us for Medicare
patients, released a local coverage determination providing
coverage for Oncotype DX when used in

accordance with the terms of the determination. As a result, we
are permitted to submit claims to Medicare for the Oncotype
DX tests performed on Medicare beneficiaries who were
hospital inpatients or outpatients at the time the tumor tissue
samples were obtained, but only if the test was ordered at least
14 days following the date of the patient’s discharge
from the hospital and where other specified conditions are met.
The local coverage determination is effective for Oncotype
DX tests provided on or after February 27, 2006. Under
Medicare billing rules, claims for Oncotype DX tests
performed on Medicare beneficiaries who were hospital inpatients
at the time the tumor tissue samples were obtained or when the
test is ordered less than 14 days from discharge must be
incorporated in the payment that the hospital receives for the
inpatient services provided related to the patient’s breast
cancer. Medicare billing rules also require hospitals to bill
for the test when performed or ordered for hospital outpatients
less than 14 days following the date of the hospital
outpatient procedure where the tumor tissue samples were
obtained. We are in the process of making arrangements with
hospitals for payment of the test when performed for the portion
of Medicare beneficiaries, representing approximately
2-3% of our
total testing population, who are hospital inpatients or
outpatients at the time specimens are collected and who do not
meet criteria under the Medicare billing rules for billing by
us. We are also working with Medicare to revise or reverse these
billing rules to allow us to bill for tests performed after
discharge from the hospital. However, we have no assurance that
Medicare will revise or reverse these billing rules, and we also
cannot ensure that hospitals will agree to arrangements to pay
us for tests performed on patients falling under these billing
rules.

 

Insurers, including managed care organizations as well as
government payors such as Medicare, have increased their efforts
to control the cost, utilization and delivery of health care
services. From time to time, Congress has considered and
implemented changes in the Medicare fee schedules in conjunction
with budgetary legislation. Further reductions of reimbursement
for Medicare services may be implemented from time to time.
Reductions in the reimbursement rates of other third-party
payors have occurred and may occur in the future. These measures
have resulted in reduced prices and decreased test utilization
for the clinical laboratory industry.

 

We recently conducted clinical studies to support the use of
Oncotype DX in post-menopausal women with N+, ER+ breast
cancer. Most of our existing reimbursement coverage is
specifically for women with early stage N−, ER+ breast
cancer. We may not be able to obtain reimbursement coverage for
Oncotype DX for post-menopausal female breast cancer
patients who are N+, ER+ patients that is similar to the
coverage we have obtained for early stage N−, ER+ patients.

 

If we are unable to obtain reimbursement approval from private
payors and Medicare and Medicaid programs for Oncotype
DX, or if the amount reimbursed is inadequate, our ability
to generate revenues from Oncotype DX could be limited.
Even if we are being reimbursed, insurers may withdraw their
coverage policies or cancel their contracts with us at any time
or stop paying for our test, which would reduce our revenue.

 

assessment group, concluded that the existing clinical data in support of Oncotype DX did not meet the panel’s technology criteria for clinical effectiveness and appropriateness.

 

In January 2006, NHIC, the California Medicare contractor with responsibility for processing and paying claims submitted by us, released a local coverage determination providing coverage for Oncotype DX when used in accordance with the terms of the determination. The local coverage determination is effective for Oncotype DX tests provided on or after February 27, 2006. Until recently, there had been some question as to whether claims for Oncotype DX tests performed on Medicare beneficiaries who were hospital inpatients at the time the tumor tissue samples were obtained may be billed by us to NHIC or must be incorporated in the payment that the hospital receives for their services related to the patient’s breast cancer. As of December 31, 2006, the volume of patients who fell into this category represented a very small portion (approximately 2%) of our total testing population.

 

Based on a final rule effective January 1, 2007, we are permitted to submit claims to NHIC for the Oncotype DX tests performed on Medicare beneficiaries who were hospital inpatients or outpatients at the time the tumor tissue samples were obtained, but only if the test was ordered at least 14 days following the date of the patient’s discharge from the hospital and where other specified conditions are met. We are in the process of making arrangements with hospitals for payment of the test when performed for the small portion of Medicare beneficiaries, representing approximately 3% of our total testing population, who are hospital inpatients or outpatients at the time specimens are collected and who do not meet criteria under the final rule for billing by us. Finally, we have been engaged in discussions with the Centers for Medicare/Medicaid Services, or CMS, about the application of the final rule to hospital outpatients. We believe the final rule should not apply to the Oncotype DX tests performed on tumor tissue samples obtained while the patient is a hospital outpatient, and that the tests performed on tissue samples taken from hospital outpatients are reimbursable under the Medicare program, regardless of when the testing of such tissue samples takes place. While we are continuing to pursue this matter, at this point, CMS intends for the final rule to apply to outpatients as well as inpatients, and we are notifying hospitals accordingly.

 

Insurers, including managed care organizations as well as government payors such as Medicare, have increased their efforts to control the cost, utilization and delivery of health care services. From time to time, Congress has considered and implemented changes in the Medicare fee schedules in conjunction with budgetary legislation, most recently in February 2006. Further reductions of reimbursement for Medicare services may be implemented from time to time. Reductions in the reimbursement rates of other third- party payors have occurred and may occur in the future. These measures have resulted in reduced prices, added costs and decreased test utilization for the clinical laboratory industry.

 

Medicare currently contracts with a large number of fiscal intermediaries and carriers that are responsible for processing and paying claims. Within the next few years, Medicare is expected to reduce this number to fifteen regional Medical Administrative Contractors, or MACs. If NHIC is not selected as one of these regional MACs, we cannot be certain that we will obtain a positive local coverage determination from another contractor.

 

If we are unable to obtain reimbursement approval from private payors and Medicare and Medicaid programs for Oncotype DX, or if the amount reimbursed is inadequate, our ability to generate revenues from Oncotype DX could be limited. Even if we are being reimbursed, insurers may cancel their contracts with us at any time or stop paying for our test which would reduce our revenue.

 

If the U.S. Food and Drug Administration, or FDA, were to begin regulating our test, we could be forced to stop sales of Oncotype DX, we could experience significant delays in commercializing any future products, we could incur substantial costs and time delays associated with meeting requirements for pre-market approval or we could experience decreased demand for or reimbursement of our test.

 

Clinical laboratory tests like Oncotype DX are regulated under the Clinical Laboratory Improvement Amendments of 1988, or CLIA, as administered through the CMS, as well as by applicable state laws. Diagnostic kits that are sold and distributed through interstate commerce are regulated as medical devices by FDA. Clinical laboratory tests that are developed and validated by a laboratory for its own use are called laboratory development tests, or LDTs. Most LDTs currently are not subject to FDA regulation, although reagents or software provided by third parties and used to perform LDTs may be subject to regulation. We believe that Oncotype DX is not a diagnostic kit and also believe that it is an LDT. As a result, we believe Oncotype DX should not be subject to

regulation under established FDA policies. The container we provide for collection and transport of tumor samples from a pathology laboratory to our laboratory is a medical device subject to FDA regulation but is currently exempt from pre-market review by FDA.

 

In January 2006, we received a letter from FDA regarding Oncotype DX inviting us to meet with FDA to discuss the nature and appropriate regulatory status of and the least burdensome ways that we may fulfill any FDA pre-market review requirements that may apply. In September 2006, FDA issued draft guidance on a new class of tests called “In Vitro Diagnostic Multivariate Index Assays.” This draft guidance, which is intended for public comment, represents the first public discussion surrounding FDA’s position regarding the regulation of certain laboratory-developed tests. Under this draft guidance, Oncotype DX could be classified as either a Class II or a Class III medical device, which may require varying levels of FDA pre-market review depending upon intended use and on the level of control necessary to assure the safety and effectiveness of the test. The draft guidance was open for public comment until March 5, 2007, during which time we and others had the opportunity to comment on their proposed guidelines. In addition, FDA held a public meeting on February 8, 2007 at which several interested parties commented on the draft guidance.

 

We cannot provide any assurance that FDA regulation, including pre-market review, will not be required in the future for Oncotype DX, either through new enforcement policies adopted by FDA or new legislation enacted by Congress. If pre-market review is required, our business could be negatively impacted until such review is completed and approval or clearance to market is obtained, and FDA could require that we stop selling our test pending pre-market approval. If our test is allowed to remain on the market but there is uncertainty about our test or if it is labeled investigational by FDA, orders or reimbursement may decline. The regulatory approval process may involve, among other things, successfully completing additional clinical trials and submitting a pre-market clearance notice or filing a pre-market approval application with FDA. If pre-market review is required by FDA, there can be no assurance that our test will be cleared or approved on a timely basis, if at all. Ongoing compliance with FDA regulations would increase the cost of conducting our business, and subject us to inspection by FDA and to the requirements of FDA and penalties for failure to comply with these requirements. Notwithstanding the above, we may decide voluntarily to pursue FDA pre-market review of Oncotype DX if we determine that doing so would be appropriate.

 

Should any of the reagents obtained by us from vendors and used in conducting our LDT be affected by future regulatory actions, our business could be adversely affected by those actions, including increasing cost of testing or delaying, limiting or prohibiting the purchase of reagents necessary to perform testing.