Foundation Medicine Inc. received a boost as the country's largest health insurer began covering its genetic test for a type of lung cancer.
UnitedHealth Group has been covering the Cambridge company's genomic profile test for patients with metastatic stage IV non-small cell lung cancer since Dec. 15, Foundation Medicine said Monday.
Before that, Foundation Medicine had to bill the insurance company as an out-of-network provider, which involved a lengthy appeal process to justify payments.
The UnitedHealth agreement "is an important step towards broader reimbursement for Foundation Medicine," said CEO Michael Pellini. "And importantly, it's a significant advance for patients."
The test enables physicians to identify the drivers of a patient's cancer and make the appropriate treatment decisions.
The wider acceptance of these genetic tests by UnitedHealth drove up the price of Foundation Medicine stock. Foundation gained 7 percent, to $22.37.
Still, it is unclear how much of an impact this new contract will have on Foundation Medicine's bottom line because the company already does business with UnitedHealth as an out-of-network provider, said Zarak Khurshid, an analyst with Wedbush Securities, a Los Angeles-based investment firm.
But the contract with UnitedHealth should help the genetics company increase the volume of tests performed and streamline its billing system, Khurshid said. The company won't have to wait several quarters after billing the insurance company to get paid, Khurshid said.
Foundation Medicine has been working on the deal with large insurers for several years, and investors had been cautious about whether it would get done, he said.
"Going in network is we think a validation for the utility and is potentially a positive leading indicator for similar such agreements and widespread adoption," Khurshid said.
Foundation Medicine did not disclose how much UnitedHealth will pay for each test. The list price for the test is $5,800, according to a Foundation Medicine spokesman.
Deirdre Fernandes can be reached at firstname.lastname@example.org. Follow her on Twitter @fernandesglobe.