There was a time when Alva10 CEO and Founder Hannah Mamuszka, a scientist by training, wouldn’t have believed you if you told her she would go on to create a company tackling the economics of healthcare. As an undergraduate with a dual biochemistry and physiology major during the 1990s, Hannah was much more interested in understanding disease pathways and the different mechanisms by which drugs worked. The sheer rationality of examining gene functionality to determine if a patient was likely to respond or not respond to a drug led her to believe that a personalized approach to healthcare was common practice in medicine. Then reality began to set in. While working for a pharmaceutical company that was developing a now-blockbuster drug, Hannah was shocked to see firsthand that drugs get through regulatory approval without an accompanying diagnostic to determine patients most likely to benefit, even when the response rate for a drug is below 40%.
Hannah spent the next decade plus working her way up the ladder in the diagnostics industry, transitioning from the lab side to the business side and focusing on building diagnostics to impact patient care. Around the time that the Human Genome Project was completed, there was talk of using all sorts of methods – genetics, proteomics, genomics – to better understand diagnosis, risk of development of disease, prognosis for recurrence, and response to therapy. But the implementation of those ideas as diagnostic tools always kept hitting a wall –healthcare in the U.S. is a business. Hannah realized that unless someone – an insurance company, an employer, a hospital, a physician, or a patient – is incentivized to pay for something, it won’t exist, even if it could provide dramatic benefits to the patient and the overall healthcare system.
In a different lab across town in Cambridge, MA, her future co-founder, Lena Chaihorsky, was about to learn the same lesson through another avenue.
Lena’s academic background in mathematics and biology had brought her to a small women’s health company shortly after college. The company had developed a novel way to more accurately diagnose a high-risk condition of pregnancy. Despite the tremendous cost savings that the test could enable, the company originally learned that its maximum reimbursement would only be $11. She set out to learn the ins and outs of the reimbursement system that governs how diagnostic tests are paid for in the U.S., and most importantly, to determine the value the diagnostic would have to be paid at to make it economically possible for the test to be used. She successfully garnered a value-based reimbursement rate from Medicare, allowing hospitals to purchase the test kit and get paid for running it in a way that they weren’t losing money. She didn’t realize at the time that she was building one of the first value-based reimbursement strategies for a diagnostic.
Fortuitously, the two met not long after. By that time, both had realized the potential for diagnostics to change healthcare, and that the challenges were mostly on the business side of healthcare. Most early-stage healthcare technology companies, whether they are digital, laboratory, or diagnostic, generally start by going to the pharmaceutical industry for model validation and early money. But as both Hannah and Lena realized, the pharmaceutical industry has little interest in developing diagnostics that will limit their market, given that the average response rate for drugs approved by the FDA is around 35%. This is largely because the FDA is primarily concerned with safety, not overall efficacy and not at all economics. The introduction of diagnostic tools to determine which patients could and could not respond to pharma’s blockbuster therapies would dramatically reduce pharma’s market for these drugs.
A parallel challenge to reimbursement for diagnostic developers is how to get the money to develop the diagnostic in the first place. Diagnostics account for less than 5 percent of reimbursable healthcare costs while guiding more than 70 percent of clinical decisions. Established diagnostic companies with existing revenue struggle to invest in novel diagnostics because the path to reimbursement is so uncertain. Young companies struggle to get investment for the same reason – how do you build a model that demonstrates return on investment without knowing who is going to pay for a test; how much they will pay; and what data will be required before they pay?
“We looked at the purchasers of healthcare – the traditional insurers but also the large employers, the benefit groups, Medicare, Medicaid, and asked a simple question,” says Hannah. “Why wouldn’t they pay for diagnostic tools that will lower their overall healthcare bill?”
The solution increasingly started to look like a series of complex analyses that both quantified the clinical and economic needs of healthcare payers, and then developed fit-for-purpose diagnostics to meet those needs. “We needed to make it impossible for payers to not be interested in the value propositions we were bringing them,” Lena said. “The savings needed to be big enough to turn their attention to the diagnostic industry as the solution to the fact that they are overspending by hundreds of millions, overtreating patients with drugs and medical procedures that were never going to work, and missing the opportunity to diagnose disease earlier.”
It became apparent that no single diagnostic company could afford to pivot its existing payer strategy to such a bold approach. “Once we realized we needed to start an independent company to fix these problems, we began asking even bolder questions,” Hannah said. “Questions like – who is ultimately interested in lowering the cost of care? How many business models are stacked against us lowering the cost of care in this country, against us using diagnostics? And what business models are needed to right that wrong?” The two decided to find out.
Hannah left her position first, founded Alva10, and talked to payers about how diagnostics could fundamentally change spending in healthcare. She sought out payers at every level to ask them what they understood about diagnostics; why they didn’t find them valuable; and perhaps most importantly, to understand what their pain points were within their memberships – where were they spending a lot of money, but not seeing benefit to their members’ disease?
Surprisingly, most payers told her that no one from the diagnostics industry had ever asked what their pain points were, what they thought of diagnostics, or which diagnostics they needed. The model of the diagnostics industry has always been to build the test, complete validation, and then seek payer reimbursement. This model, which has been existence for the entire history of the diagnostics industry, always meant that diagnostic developers were seeking the most critical information – was their test of value to the customer, would their test be paid for, by whom, and how much? – as the last step in the process. Hannah and Lena knew this had to be moved up in the process to make sure that that customer feedback was being captured as part of the development, not after development was complete.
“Payers require confidence that the diagnostics they will be paying for perform a highly valuable clinical function AND perform as they claim to, and that is historically proven with clinical evidence,” Lena explains. “The holy grail question in diagnostics is always – “well, how much evidence is needed to prove that point?”
Hannah and Lena recognized that the lack of communication between payers and the diagnostic industry on what was needed to make the payers comfortable was holding back an entire field from providing solutions to the payers, so they devised a process that overcame that challenge. M.A.T.E., or the Minimally Acceptable Threshold of EvidenceTM, is the term the two gave for establishing the thresholds of confidence between a payer and a diagnostic company. Taken from the chess term ‘checkmate’, it signals that the problem is solved for both parties: the payer and the diagnostic company. The payer knows what they are willing to pay for, and the diagnostic company knows what to develop.
Fast forward five years, and Alva10 is changing how payers of all types see diagnostics and their potential to change healthcare. Alva10’s portfolio extends from companies developing an array of diagnostic tools in oncology, infectious disease, autoimmune disease, cardiovascular disease, NASH, rare disease, and more. Payers, and increasingly employers, now consider Alva10 to be a trusted partner and a resource. Employers, who comprise more than 50% of the private healthcare market, are also realizing that economic incentives may cause commercial insurance carriers to make decisions that may not be to be benefit of the employers and their employees. Now, employers are increasingly taking on decision-making and becoming interested in how diagnostics can improve care for their employees and reduce spending on ineffective therapies, unnecessary hospitalizations, and early diagnosis of diseases.
Diagnostic developers and their investors are also starting to realize the market opportunities Alva10 partnerships can unlock. “We definitely feel that we began a shift in thinking about the payer-employer-diagnostic industry relationship,” Lena says. “But until diagnostic tests are being used on patients every day to make decisions about all aspects of care, and until the fundamental business models align for that process to occur, we’re not done.”