October 26, 2018

For Latest Drug Pricing Proposal, It’s Back to the Future

A little more than one year after officially killing a highly controversial demonstration project that would have evaluated changes to how Medicare reimburses for Part B drugs, the Trump Administration yesterday laid the groundwork for a potentially sweeping demonstration that, like its predecessor, would be mandatory for half of participating providers.

The advance notice of proposed rulemaking — estimated to save patients and taxpayers $17.2 billion over 5 years — comes just a week after the Administration released a proposed rule through the Centers for Medicare & Medicaid Services (CMS) that would require all television ads for prescription drugs to include pricing information. The announcement from the Department of Health and Human Services follows two recent agency proposals to permit Medicare to apply step therapy policies to Part B drugs and to allow Medicare Part D plans to use value-based pricing schemes.

The model is designed to address the sharp price rise of physician administered drugs in recent years, including a current Medicare Part B reimbursement process that increases physician compensation when a more expensive drug is administered. At its core, the most recent proposal seeks to evolve Medicare Part D reimbursement from the current model that relies on a drug’s Average Sale Price (ASP) to one that is determined by a target price informed by what other nations are paying for the drug, to be known as the International Price Index (IPI). The proposal aligns with criticism the Trump Administration has leveled against other nations that have typically paid much less for drugs than the United States.

In addition to markedly changing how Medicare pays for Part B drugs, the advanced notice also contemplates a significant shift to how such drugs are acquired, known as a Competitive Acquisition Program, revisiting elements of a model that was scuttled by CMS nearly a decade ago. Like a mandatory Part B demo, this means the second core element of the concept is rooted in a previous undertaking.

In the advanced notice, the Administration indicates plans to issue a formal proposal in spring 2019 with the intention of beginning the demonstration the following year. The project would run for five years and see its new payment target phased in over that window.

New Approach to Payment

The Administration is justifying a shift in payment by pointing to an analysis — released earlier in the day — indicating that for more than two dozen common Part B drugs, the United States pays an acquisition cost that is 1.8 times higher than in 16 comparator countries. Under the proposal, CMS would establish a targeted price informed by the IPI and other factors, a move the Administration claims would reduce the cost of these drugs by about 30 percent.

In addition to shifting the target price from the current ASP model, the Administration wants to move away from the current add-on payment that is tied to a percentage of the drug’s cost. In teeing up this proposal, the administration uses arguments very similar to those put forward by CMS under the Obama Administration when laying out its own mandatory Part B demonstration in spring 2016.

In this approach, the administration is contemplating establishing a set payment amount — either per-encounter or per-month — and to establishing varying levels based on a drug class, specialty provider or type of practice. The proposal also claims this change would result in a modest increase to a true 6 percent payment since the current add-on payment is 4.3 percent, largely due to continued reductions under sequestration.

Recognizing the magnitude of the shift, the Administration is proposing a multi-year phase-in. In year one (2020), 80 percent of the payment would be the current ASP model and 20 percent would be the new target price, but by year five (2025) the entire payment would be the Target Price.

A Mandatory Demonstration – Déjà vu

As with its controversial successor, the Administration is contemplating a model that would be mandatory for 50 percent of all physician practices and hospital outpatient departments furnishing such drugs to Medicare beneficiaries. The current proposal contemplates establishing areas based on core-based statistical areas (CBSAs), but the notice seeks comment on other potential geographic units as well as applicability to other providers, such as Ambulatory Surgical Centers (ASCs).

The notice also contemplates allowing providers outside of a geographic area that is randomly included in the model to participate, but would simultaneously exclude such providers from the project evaluation. Furthermore, the ANPRM seeks feedback on the potential exclusion of small practices or those in certain geographic areas, such as rural settings, with the idea of setting payments by class or provider type and the potential for a bonus model that would incent prescribing of lower-cost drugs.

A New Acquisition Model

Under the proposal, CMS is envisioning a return to elements of the Competitive Acquisition Program (CAP) that some providers used to obtain Part B drugs during the mid-2000s. Under the revised model, CMS would contract with a number of vendors who would supply drugs to participating providers. Vendors could include several entities including specialty pharmacies, distributors, wholesalers and GPOs, as well as more unique models, such as drug plans and groups of providers.

Vendors, rather than providers, would be responsible for acquiring drugs and billing Medicare and beneficiaries, taking on a risk that currently lies with providers. Additionally, the model contemplates innovative arrangements in which providers can obtain drugs — breaking from the current “buy and bill” model and alleviating other storage and logistics burdens. Providers would also be free to contract with multiple vendors under the advanced notice.

Path Forward

CMS will seek comments for 60 days following the notice’s forthcoming publication in the Federal Register and has posed multiple questions in the notice. Judging by the initial strenuous response from the biopharmaceutical sector, we would expect a significant amount of activity — including potential legislative activity — to prevent or significantly alter the proposal. Given the pushback from Congress on the mandatory nature of the Part B demo proposed in 2016, it will be worth watching if similar opposition materializes this go-around.

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