- Commercial reimbursement tracking favorably to Medicare rate. While
Cologuard’s inclusion in coverage policies is part of the equation, other steps are
important as well, such as having a specific contract with each payor. We believe
EXAS continues to make progress therein, having recently announced an
agreement with BCBS of Rhode Island (500K+ covered lives). At Baird’s recent
Healthcare Conference, EXAS’ CEO Kevin Conroy stated that the average price on
commercial contracts continues to be above the Medicare rate. While we aren’t
surprised by the higher commercial rate, given commercial payors pay far more for
colonoscopy (among other reasons), we believe it’s an important metric to track, in
light of CMS reimbursement changes slated for 2017 due to PAMA legislation.
Our $37 price target is based on a blend of EV/S (7.0x on CY20E revenu
Cologuard insurance coverage continues to ramp meaningfully, ahead of
pending USPSTF update.
- Cologuard has significantly more coverage than EXAS has referenced
publicly. The upcoming USPSTF colorectal cancer screening guideline
announcement remains a key focus for investors, and we continue to be confident
EXAS will get an A or B rating. However, based on our recent conversations with
investors, we believe EXAS’ current share price reflects far lower odds of a
favorable outcome (likely under 50%). Further, we believe investors are overlooking
recent significant coverage expansion, independent of USPSTF and well beyond
what EXAS has acknowledged. Specifically, we’ve found 24 payors that include
Cologuard in their coverage policies that EXAS has not publicly mentioned; the 13
plans for which we were able to find enrollment data totaled 8M+ covered lives.
This increased coverage underscores Cologuard’s patient and economic benefits
and takes away some significance of the pending USPSTF guideline update.
No change in our outlook following CMS public hearing. ■ We believe CMS will accept EXAS’ cross-walk proposal. - At today’s annual CMS reimbursement hearing, EXAS proposed that CMS cross-walk its new CPT code 81528 (recently granted by AMA) to its existing G-code G0464 (temporary code issued last year). - We believe a cross-walk, which would leave CMS reimbursement unchanged, is the likely outcome, given the rigor behind EXAS’ reimbursement analysis, along with several notable areas of conservatism (e.g., EXAS is only being reimbursed for one of two methylation markers in Cologuard). - According to CMS’ website, preliminary decisions will be available in September and final decisions in November. Finalizing reimbursement for the CPT code will facilitate the reimbursement process with CMS and commercial payors. - Regardless of CMS’ decision, the basis for Cologuard’s CMS reimbursement will change beginning January 2017. At that point, we believe CMS reimbursement will be set to the volume-weighted median reimbursement from commercial payors during 2016. EXAS recently indicated that the average contracted price from commercial payors exceeds the CMS rate. Assuming that holds, CMS reimbursement would be increased in 2017, regardless of what CMS decides in 2H15. ■ Our reimbursement assumptions likely prove conservative