Tuesday, 10 May 2016 05:41

Proposed Rule Could be Game-Changer for Medication Reimbursement

Written by Stephanie Doran, RHIA

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Shortcomings of the Current Payment Model

The Centers for Medicare & Medicaid Services (CMS) has issued a proposed rule that would reinvent the way physicians are paid for the administration of medications in physician offices or hospital outpatient settings. CMS has estimated that in 2015, the total payments for separately paid drugs amounted to roughly $22 billion. Payments for Part B drugs have nearly doubled since 2007, and concerns are mounting over a significant annual increase in such payments of 8.6 percent, largely attributed to separately paid drugs.

The Medicare Part B drug program currently pays providers the average sales price (ASP) of a drug plus an additional 6 percent of the drug’s sales price to compensate for the unvarying costs of the collection, storage, maintenance, and preparation of medications. The proposed rule asserts that this payment methodology lacks the capability to account for both the effectiveness of a particular drug or the cost of comparable drugs. There is also implied criticism that when medication reimbursement is tied directly to drug costs, providers have a financial incentive to recommend higher-cost treatments. By inadvertently encouraging the consumption of more expensive products, CMS argues that the add-on costs could play a role in prescribing patterns linked to generating greater profits for providers.

Overview of the Demonstration

 Proposed Changes and Desired Results

The proposal is not a permanent change, but rather a mandatory five-year demonstration that is authorized to assess how innovative payment and service delivery models may reduce significant growth in Part B drug expenditures while simultaneously conserving or enhancing the quality of care provided to beneficiaries. The published report concludes that the current reimbursement methodology of ASP plus 6 percent, regardless of the price paid to acquire the drug, is inconsistent with the optimization of high-quality, low-cost care. The implementation of an alternate Part B drug payment design proposes to achieve cost and quality improvements through a shift in provider incentives that will include lowering the 6-percent ASP add-on to 2.5 percent plus a flat fee payment, and incorporating a value-based purchasing (VBP) component that will be applicable to health plans, pharmacy benefit managers, hospitals, and other groups. CMS believes that this model of testing the reduction of drug payment reimbursement would not only directly correlate to cost containments, but indirectly link to the most effective drug prescribing patterns, rewarding positive patient outcomes.

Scope of the Model

The model is outlined to run in a two-phase, four-arm control trial over the course of five years. Phase I would be scheduled to begin no earlier than 60 days after the final rule’s publication and Phase II beginning no earlier than January 2017. In a broad sense, Phase I, anticipated to be budget-neutral, will encompass evaluating and understanding the impact of changing the current add-on payment structure from ASP plus 6 percent to ASP plus 2.5 percent and a flat fee. Phase II, anticipated to generate savings, will involve understanding the impact of engaging value-based purchasing (VBP) tools similar to those used today by commercial health plans, pharmacy benefit managers, and hospitals, such as indication-based pricing, reference pricing, and clinical decision support tools. CMS published the following table, seen in

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Figure 1 provides a broad overview of the proposed model.

In order to ensure adequate statistical control and avoid selection bias throughout evaluation, the model will be administered geographically based on primary care service areas (PCSAs), and participation will be mandatory for all providers, hospitals, suppliers, and pharmacies furnishing Part B drugs chosen for the model. CMS anticipates including 7,048 of the 7,144 PCSAs found across the United States. It was recommended to exclude the 96 PCSAs throughout the state of Maryland, as concerns that an unobservable bias for payment and/or prescribing patterns may arise, as the Maryland All-Payer Model negates Medicare hospital payment rules. The 7,048 other PCSAs will be involved through stratified random distribution to each arm of the model, roughly 1,700 to the control and three test arms. The proposed strata are defined by the number of Medicare beneficiaries furnishing Part B drugs within each PCSA and the average Part B drug expenditures per beneficiary. CMS intends to use three single cut points of Part B drug beneficiary counts per PCSA, one at 1,500 and two for the distribution of the average sums expended for Part B drugs per beneficiary, per PCSA: $500 and $3,000. These cut points in total result in six strata with which the PCSAs will be randomly assigned to one of the four arms of the model.

Medicare Part B drug benefits include many categories of drugs administered across varying care settings and payment methodologies. Aside from a limited exception of drug categories deemed inappropriate candidates for the model, a vast majority of drugs paid under Part B were determined fit for inclusion, as outlined in Figure 2. CMS would overlay payment amounts on the quarterly ASP drug pricing files and the quarterly update to Addendum B of the Outpatient Prospective Payment System (OPPS_) with model-derived payment amounts within the geographic areas under evaluation, therefore including nationally priced drugs with ASP, wholesale.

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Acquisition cost AC) and average manufacturer’s price (AMP)-based payment amounts are listed on the quarterly price file.

 Phase I

The first phase of the model is intended to promote understanding of the impact of redistributing physicians’ reimbursements for the cost of drugs. In developing potential approaches for evaluating changes, CMS took types of drugs and their price points (i.e. high-, medium-, and low-cost) into consideration while also factoring in the effects on entities within the drug supply chain, including beneficiaries, providers, suppliers, and the Medicare program. Within this phase, drug payments based on ASP and WAC with a 6-percent add-on will be replaced with an updated 2.5-percent add-on as well as an additional flat fee paid per administration day. Healthcare Common Procedure Coding System (HCPCS) codes with AMP-based payments will be paid based on the lower of the quarter’s AMP-based payment, or the model payment would apply.

The flat fee payment is derived from the difference between total payments with a 6-percent add-on in the most recently available 2014 claims data set and the total estimated payment for Part B drugs, within the same set of claims, using a 2.5-percent add-on payment to the flat fee. The difference then would be divided by the total number of encounters per drug per day, using 2014 claims, resulting in a flat fee of $16.80 for 2016. The total payments under Phase I are not anticipated to change considerably. In fact, the 2.5-percent add-on will be maintained throughout the model, as CMS believes that the chosen point will serve sufficiently in limiting changes to provider or supplier drug acquisition and/or the sale of products from drug manufacturers. The flat fee amount will be scheduled to update each year by the percentage increase in the consumer price index (CPI), automatically adjusting the dollar value of the 2.5-percent add-on to changes among ASP price levels. The random PCSA assignment will subject approximately half of the nation’s providers and suppliers to the ASP plus 2.5 percent and the flat fee payment methodology.

As previously stated, Phase I will be implemented with a budget-neutral approach in order to isolate the impact of changes to the redistribution of the add-on payment toward Part B drug expenditures without introducing additional savings as a second potential source of behavioral adjustments. CMS does not anticipate a substantial overall reduction in Part B drug spending, but rather an incentive to prescribing higher-value drugs. CMS published the following table, seen in Figure 3, providing an illustrative example displaying the impact of potential numerical markups against the current methodology. The figure represents comparable drugs, those used to treat a similar condition with related patient outcomes, associated with widely varying prices. CMS intends to remove the penalization linked with prescribing lower-cost drugs, especially when evidence concludes that a cheaper drug may be equally effective, if not better, for some patients. 

doran 3Phase II

While restructuring the add-on payments addresses the financial incentives that may affect prescribing, the second phase of the model would involve understanding the impact of implementing value-based purchasing (VBP) and clinical decision support tools for Part B drugs alone, simultaneously to the alternative ASP. Specifically, it will help providers understand the differences in payment when there is a group of therapeutically similar drugs in play, or the benefits of using alternative incentives to improve the effectiveness, safety, and quality of physician prescribing patterns for Part B drugs. CMS has noted that the success of these tools hinges on managing health benefits and drug utilization by Medicare Part D plans and within the commercial insurance sector. After review, CMS has identified several tools that through appropriate structure may be adaptable to Part B to improve patient care and manage drug spending. CMS outlines VBP efforts that would include one or more of the following strategies to serve as a framework for interventions for selecting suitable Part B drugs:

  • Discounting or eliminating patient co-insurance amounts This pricing strategy would seek to reduce or waive cost sharing for particular products for a subset of the Medicare population to effectively incentivize the use of higher-value drug products. Despite many Medicare beneficiaries utilizing wraparound coverage, which primarily subjects cost sharing to discounts or elimination, CMS has proposed to keep the copayment associated with the HCPCS code from exceeding 20 percent or to waive it completely for lower-value Part B drugs. This proposal would not change the overall payment amount, but rather increase Medicare’s payment percentage while upholding the total allowed charges for a drug.

  • Indications-based pricing – A second pricing strategy would alter pricing for a particular drug based on the varying degrees of clinical effectiveness for a range of indications covered under existing Medicare authority. CMS would institute this pricing based on appropriately supported and reliable studies and reviews, or evidence-based clinical practice guidelines from neutral and/or independent sources. High-quality and comprehensive clinical evidence findings would be reflected through a closer alignment of drug payments with significant outcomes.

  • Reference pricing – Another proposed pricing strategy involves the concept of setting a standard payment rate or benchmark to provide equal payment for therapeutically similar drug products. This standard may be based on the average drug price of the group, the most clinically effective drug of the group, or another defined threshold for this specific group of drug products. Additionally, the benchmark rate will take individual drug characteristics into account, much like indications-based pricing, in terms of relative effectiveness demonstrated through competent and reliable evidence. CMS believes that by eliminating the direct link between the purchase price and payment rates, it offers a stronger incentive to evaluate outcome and cost together in the selection of treatment regimens.

  • Risk-sharing agreements based on outcomes – CMS has also designed a plan to potentially enter into voluntary, outcomes-based risk-sharing agreements with manufacturers. The agreements would be centered on drugs for which little evidence is available with respect to long-term value or magnitude of health outcomes. The final price of a drug would be tied to results achieved through specific population outcomes rather than predetermined prices based on historical population data. The agreements would require clearly defining accurate and valuable clinical outcome goals based upon manufacturers’ competent and reliable scientific evidence for a specific drug.

  • Feedback on Prescribing Patterns and Online Decision Support – Lastly, CMS proposes a two-component, evidence-based clinical decision support (CDS) tool consisting of an online educational piece supporting clinical decisions and advisable feedback based on drug utilization in Medicare claims. The educational component is intended to deliver information reflective of up-to-date literature and consensus guidelines to promote the most effective prescribing habits for certain indications. The second component is intended to provide comparable national or geographically focused feedback on Part B claim payment patterns for certain drugs and/or indications. The voluntary use of the CDS tool is suggested to support a physician’s interest in mindful prescribing.

Looking Ahead

The release of the proposed sweeping changes to Medicare Part B drug reimbursement has received welcomed advocacy, but also sparked grave concern. In response, CMS aims to incorporate its evaluation of many current policies in use by health plans, insurers, and pharmacy benefit managers. The only way for these peripheral payment policies to mitigate the lack of evidence available as to the potential effects on Medicare beneficiaries’ limited medication access, differing healthcare standards and outcomes, and overall cost controls is to factor into account the challenges that may exist for evaluating a proposed study of this great magnitude. Medicare’s implementation of any permanent change would rely on meaningful information, in turn proving to be dependent upon well-designed methods for performing the experiment. For policyholders to gather high-quality evidence of how this change may directly affect patients, providers, and suppliers, they must consider the transparency of its development. A comprehensive experiment leverages external input to ensure that valid conclusions can be drawn. With respect to the complexity of this proposal, CMS values public comments, a critical aspect to informing future healthcare policies and ensuring that the Medicare program continues to serve the future needs of its beneficiaries. A full outline of the proposal can be found at the following link: https://www.gpo.gov/fdsys/pkg/FR-2016-03-11/pdf/2016-05459.pdf.

About the Author

Stephanie Doran is a health information management (HIM) consultant and project manager for HealthAdvanta, a health information and technology company. She is a graduate of Temple University, where she earned a bachelor’s degree in health information management and was honored with the Health Information Management Professional Excellence Award for her distinguished development and achievement.

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Last modified on Tuesday, 10 May 2016 07:22