The United States might out-perform the IVD markets of many other nations in growth as well as size. Yet there are challenges. Will ACA-based changes be shortlived? This White Paper discusses them. Based on information from our United States IVD Market.

1. Opportunity in
US IVD Market
With World Markets’ Expansion Cooling, United States IVD Market Large and Growing Faster Than
Some Other Markets
For a large clinical testing market, the United States’ is still a nimble one. Growth in core lab test markets
(hematology, clinical chemistry, urinalysis, non‐infectious immunoassays) was boosted in recent years by
increased routine testing. According to a new
Kalorama Information report, the United States
has the largest healthcare market in the world
and also the world’s largest in vitro diagnostics
(IVD) market at $25.1 billion or approximately
40‐45% of the global IVD market.
Based on Information from Kalorama Information’s
United States Market for IVD Tests: Published June 2016
www.kaloramainformation.com
This means that projected growth for the US
IVD market – 3.2% on average annually
through 2020 – does not match the growth of
developing and emerging markets abroad in
Asia and Latin America, but is projected to
outpace other IVD markets in the developed
world such as Western Europe and Japan.
Our most recent report finds that the
Affordable Care Act (ACA) increased the ranks
of the US insured population and reduced out‐of‐pocket (OOP) costs for preventive health services
including routine lab testing. Moving forward, the US IVD market can expect moderate growth through
the following market factors and trends: continued expansion of the insured population under the ACA
and increased healthcare utilization baselines; demographic aging that increases demand for clinical
0
5,000
10,000
15,000
20,000
25,000
30,000
2015 2020
25,128
29,357

2. testing paid for through the country’s leading vehicle for lab payments (Medicare); relatively optimistic
macroeconomic indicators vis‐à‐vis the domestic outlook five years ago or other developed markets in the
world; and continued product innovation and industry responsiveness to clients’ needs in the world’s
largest IVD market.
With health insurance enrollment required and enforced under the ACA beginning in 2014, the number
of US insured individuals jumped in 2013 and again in 2014
with significant enrollment in individual plans and Medicaid
(accompanied by losses in group plan enrollment).
Healthcare utilization among US insured jumped in 2014 as
measured by average physician encounters per 1,000 persons
in NAIC data. Growth in overall healthcare utilization also
jumped in 2014 according to Altarum analysis (from roughly
1.5% in 2013 to over 3% in 2014); preliminary results from
the same dataset indicate that healthcare utilization growth
rose to roughly 5% in the first three quarters of 2015. The
positive effect of coverage expansion on healthcare
utilization is expected to subside in 2016 as additional growth
of the US insured population will be incre
Based on Information from Kalorama Information’s
United States Market for IVD Tests: Published June 2016
www.kaloramainformation.com
asingly marginal.
Results of Final PAMA Rule
In late June of this year, the Centers for Medicare and
Medicaid Services (CMS) announced the final rule of the 2014
Protecting Access to Medicare Act (PAMA) or a sweeping
market‐based pricing reform for Medicare‐reimbursed lab
tests. PAMA is intended to introduce a more organic
methodology to reimbursement adjustments for lab testing
under Medicare and will replace uniform cuts implemented
across the Clinical Laboratory Fee Schedule (CLFS) along with the Affordable Care Act (ACA). Whereas past
CLFS cuts represented another layer of uncertainty in lab investment and thus the IVD market, PAMA‐
based adjustments will provide labs and IVD suppliers relatively more foresight of future test prices. The
recent CMS final rule delays implementation of market‐based pricing and expands the body of applicable
labs in order to make prices more reflective of the entire lab market. The law has the potential to
significantly cut Medicare reimbursement prices on routinely performed, highly automated tests –
sparking further consolidation in the clinical lab services market – and increase IVD industry emphasis
upon the development of new biomarkers and sophisticated and esoteric assays.
MARKET COMMENT:
“Structural growth factors for
the IVD market resultant of the
ACA have already in part played
out through higher reagent
demand and labs’ anticipatory
investment in routine testing
capacity,” said Kalorama’s IVD
analyst Emil Salazar in the most
recent report. “Testing volume
growth should also trend
slightly higher in the coming
years with expanded coverage
and access to routine care.”
Market‐based CMS payments for lab tests have the potential to introduce a negative feedback loop in
market lab test reimbursements. Often, CMS reimbursement rates serve as a benchmark for negotiations
between private payers and independent labs that result in discounts for private payers below the CMS
rate. The continued use of CMS market‐adjusted rates as a starting point for private payer discounts could
place additional pricing pressure on labs if private clients seek discounts over what is already reflected in

3.
Based on Information from Kalorama Information’s
United States Market for IVD Tests: Published June 2016
www.kaloramainformation.com
Medicare rates.
The ACA introduced annual 1.75% reductions to CLFS prices for the years of 2011‐2015 and multi‐factor
productivity (MFP) adjustments of 0.8‐1.3% subtracted from annual consumer price index (CPI) inflation
updates. Multi‐factor productivity adjustments could not reduce CPI updates to below 0%. Resulting price
adjustments were ‐1.75%, (+)0.65%, ‐2.95% ‐0.75% ‐0.25% and 0% for 2011‐2016 sequentially. Additional
cuts to the CLFS were enacted through legislation outside of
the ACA. Frequent and clustered reimbursement cuts to CMS
fee schedules have burdened the US clinical lab industry for
years – curbing growth and encouraging industry
consolidation – but have yet to reverse growth in US testing
demand and IVD sales, particularly as healthcare utilization
has grown with enrollment as part of the ACA. Anticipated
reductions in the reimbursement rates for certain tests as
part of PAMA are similarly unlikely to impact long‐term IVD
demand, but rather shift test performance to lower‐cost
centralized clinical and independent labs.
MARKET COMMENT:
“ With the introduction of
market‐based Medicare
pricing, routine tests are likely
to see sharp reductions in
reimbursement,” according to
Kalorama IVD analyst Emil
Salazar. “Non‐automated tests
and routine CLIA‐waived
manual tests with unique
reimbursement codes are
unlikely to experience the
same scale of rate erosion as
tests performed on high‐
throughput automated
instruments.”
Beginning in 2017, PAMA requires applicable clinical labs in
the United States (largely independent labs) to submit
payment rates and corresponding volumes for lab tests
ordered by private payers during the six‐month period of
January 1 through June 30, 2016. The lab‐reported test
payment and volume data will be used by CMS to calculate
the weighted median payment rates to be paid by Medicare
for lab tests. The new payment rates are scheduled in 2018 to
replace CLFS payment rates calculated under the previous
methodology.
The market‐based methodology rate‐setting under the original proposed PAMA rule was criticized by the
US clinical lab industry for failing to include hospital labs and other testers in its reporting requirements
and calculation of weighted median payment rates. The resulting disproportionate representation of
independent labs in calculated median rates would have depressed Medicare payment rates below true
median payment rates for lab tests in the US clinical testing services market. Based on Taxpayer
Identification Number (TIN), rather than CLIA or National Provider Identifier (NPI) registration, the
proposed lab reporting was be limited to a subset of larger independent labs, but few physician office labs
(POLs) or hospital labs that are highly active in the market through outreach businesses.
In its final rule, CMS still holds TIN‐level entities responsible for reporting, but each applicable NPI‐level
lab under the reporting entity must submit testing data. In other words, even if the TIN‐level entity does
not meet the criteria for PAMA reporting – at least 50% of testing revenue paid by CMS – each member
lab must submit data if they individually have at least 50% of payments from CMS worth up to $12,500
annually. With the revision to reporting criteria in its final rule, PAMA is able to capture hospital outreach

4.
Based on Information from Kalorama Information’s
United States Market for IVD Tests: Published June 2016
www.kaloramainformation.com
labs and obtain a better representation of market rates.
With the final rule of PAMA, CMS believes 55% of independent labs and 95% of POLs will be precluded
from reporting private payer data. However, reporting will include larger labs (above the 50% of received
payments and $12,500 CMS threshold) that represent approximately 92% and 99% of CLFS payments to
POLs and independent labs, respectively.
Data will be reported by applicable labs to CMS every three years. Annual adjustments to CLFS rates
beginning in 2018 cannot exceed 10% of the test price for the first three years of payment
implementation (2018‐2020). Beginning in 2021, annual adjustments to payment rates will be capped at
15% of the test price. CMS noted that its final rule was economically significant as it could have an annual
impact on the economy of $100 million or more. Bloomberg BNA calculated that PAMA could result in
$360 million less in Medicare payments to labs.
With the introduction of market‐based Medicare pricing, routine tests are likely to see sharp reductions
in reimbursement. Certain tests were noted by HHS in 2011 to be paid for by CMS at rates 18‐20% higher
than paid by private payers. High‐volume tests such as clinical chemistry panels, lipid panels, complete
blood counts (CBCs) and routine infectious disease screens will be reimbursed according to rates paid for
such tests when performed at high economies of scale in large clinical labs. As a consequence, the same
tests performed at lower volumes in smaller labs may be reimbursed by CMS below cost and become
unfeasible to perform at decentralized locations. Non‐automated tests and routine CLIA‐waived manual
tests with unique reimbursement codes are unlikely to experience the same scale of rate erosion as tests
performed on high‐throughput automated instruments.
PAMA will variably affect molecular diagnostic codes or MoPath codes reimbursed by CMS. Most Tier 1
codes (the most commonly used molecular tests) are unlikely to see positive adjustments as private payer
market rates will be heavily influenced by automated test performance at centralized clinical labs. PAMA
will update CMS reimbursement rates for molecular tests to reflect the steady price erosion in the clinical
lab market resulting from automation and competition. With CMS pricing for common molecular tests in
sync with private payer rates, it is unclear if private payers will be able to negotiate and win revised rates
below the newly market‐adjusted Medicare rates.
The effect of PAMA on more esoteric molecular tests will be inconsistent due to the unclear relative
pricing between private payers and national rates determined without contributions from all MACs. Many
advanced molecular tests, such as sequencing assays, MAAAs or proprietary laboratory‐developed tests
(LDTs), will be eligible for designation as ADLTs under PAMA.
For more information regarding the impacts of the ACA and PAMA on the US IVD market, Kalorama
Information offers United States Market for In Vitro Diagnostic Tests.