Colonoscopy is the most accurate way to screen for colon cancer and is recommended for everyone over the age of 45. But it’s certainly not the most convenient or private method. You know, it involves an invasive procedure to check for cancerous and precancerous lesions in the colon.
These shortcomings of the standard of care are a boon for Cologuard, a stool-based test administered at home by individuals. Convenience helped it become the first-ever diagnostic test to hit $1 billion in annual revenue by 2021. That’s probably just a fraction of the product’s true potential, especially considering Exact Sciences (EXAS) – Get Exact Sciences Corporation Report It is expected to capture 40% of the $18 billion cancer screening market through multiple products.
Of course, investors should acknowledge the nuances of the real-world therapeutic environment. These two preventive screening tools are often used in combination. For example, people with positive results using Cologuard often need to have a colonoscopy to confirm the diagnosis.
Here’s the problem with Exact Sciences: Medicare doesn’t currently cover follow-up procedures. This has resulted in some patients skipping Cologuard entirely to avoid being billed, or worse, being billed twice for roughly the same tool. Fortunately, proposed rule changes could turn this challenge into a huge opportunity for businesses in 2023.
Will Cologuard be the default option?
The Centers for Medicare and Medicaid Services (CMS) is tasked with setting prices for medical equipment, diagnostic tests, and other health procedures for individuals receiving Medicare and Medicaid. More precisely, the CMS decides how much it is willing to pay for a service and how it defines it. This is officially called the Physician’s Fee Schedule, although it is often referred to as reimbursement.
The sheer scale of these socialization programs gives CMS considerable leverage in the marketplace, which helps reduce healthcare costs for everyone. Physician fee schedules are updated only once a year, although the private sector may disagree on the definition of services or reimbursement levels. If a company gets on the “wrong side” of pricing decisions, it has to keep fighting for change and wait until next year.
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CMS proposes rule changes each summer, and then finalizes the rules for the next calendar year each November. The latest batch of proposals could affect reimbursement in 2023. One of the possible rule changes is a slight adjustment to the semantics of colon cancer screening. The government may now consider colonoscopies after a positive Cologuard result as a preventive service, meaning Medicare patients can get one free colonoscopy.
It may not seem important. However, if the proposed rule change is accepted, it would provide Cologuard with a significant boost. Stool-based tests performed at home must be ordered by a doctor. More physicians may be willing to use Cologuard as their preferred screening option if patients are not potentially impacted by additional costs. That could add up to the more than 200,000 primary care physicians who ordered the test. For the next generation of tests in development, that could mean more.
Rule changes will help Cologuard 2.0 dominate the market
To date, Exact Sciences has done an excellent job of reimbursement for Cologuard. If CMS accepts follow-up colonoscopies as preventive screening, then this should remove the last major financial barrier to home testing as the preferred treatment option. That’s not the only headwind to growth, though.
Doctors still prefer colonoscopy to Cologuard because of the former’s greater accuracy in detecting precancerous lesions. Colonoscopy can detect about 60 percent of these worrisome clusters, while Cologuard can only detect about 42 percent. This made doctors hesitate.
Fortunately, the next-generation diagnostic, simply called Cologuard 2.0, appears to be more accurate on all metrics, including a 57 percent detection rate of precancerous lesions. If these results hold up in real-world studies currently underway, Exact Sciences would have a 40% share of the $18 billion colon cancer screening market.
CMS’ proposed rule change provides lubrication to the wheels. The rest now depends on execution and the science behind the company’s technology platform.