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Part B Drug Payment Reform Experience and Expectations. August 11, 2005. Agenda. Coding developments Medicare payment Physician office Hospital outpatient Private insurance and ASP Medicaid reform Conclusions Pricing implications. U.S. reimbursement planning and problem solving

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Part b drug payment reform experience and expectations

Part B Drug Payment ReformExperience and Expectations

August 11, 2005


  • Coding developments

  • Medicare payment

    • Physician office

    • Hospital outpatient

  • Private insurance and ASP

  • Medicaid reform

  • Conclusions

  • Pricing implications

New hcpcs process
New HCPCS Process

  • Open, interactive

  • January 2 application deadline

  • No waiting for 6 months marketing data

  • Every application given public hearing

Recipe for good presentation
Recipe for Good Presentation

  • Show why existing HCPCS categories do not adequately describe product

    • Dissimilar function or

    • Significant therapeutic distinction

  • No sales pitches, no testimonials

Good presentation cont d
Good Presentation –(Cont’d)

  • Data, data, data

  • Discuss efficacy and safety in the context of who will benefit by the use of the product

  • OK to supplement written application with new, additional info

Cms decision making
CMS Decision Making

  • Contractors, SADMERC, regional office involvement continues behind the scenes

  • Private insurer involvement minimal

But does it matter
But Does It Matter?

  • Time will tell; I expect ‘Yes’

  • Sometimes they just don’t get it from written application

  • Opportunity to level playing field when coding change creates competitive disadvantage

  • Coding and coverage decisions are linked; improving coding process will improve coverage

Asp reimbursement
ASP Reimbursement

  • CMS and Congress are of one mind on ASP: Relevant, reliable, worth the time and money to manage

  • HHS OIG findings: ASP is 26% lower than AWP for single source; 30% lower for multisource; 68% lower for generics OIG Report No. OEI-03-05-00200, June 2005

Asp s weakness
ASP’s Weakness

  • It presumes rational, predictable wholesaler markup and small, infrequent manufacturer price changes

  • Some would argue that is exactly what’s good about ASP – it forces that conduct

Asp s weakness cont d
ASP’s Weakness –(Cont’d)

  • But what happens when market forces overwhelm the formula?

    • What happens when ASP is $40/unit and physician’s AAC is $60 or more?

The case of igiv
The Case of IGIV

  • Demand for intravenous immune globulin (IGIV) exceeds supply

  • ‘Secondary’ distributors purchase from wholesalers and apply 20%+ markups

The case of igiv cont d
The Case of IGIV –(Cont’d)

  • Physicians who are under water at ASP + 6% refuse to treat, refer to hospital OPD

  • When hospitals are paid ASP + 8%, will they take the referral?

Implications of igiv experience
Implications of IGIV Experience

  • ASP+ not a good long term choice if too many other situations like IGIV create access uncertainty for patients and providers

Igiv experience cont d
IGIV Experience–(Cont’d)

  • But if CAP is successful, ASP+ will be sustainable for long haul (validates access with ASP formula)

  • Additional fine tuning needed for CAP-exempt products

Cap exempt drugs interim final rule
CAP Exempt Drugs (Interim Final Rule)

  • Contrast agents

  • Controlled substances

  • Certain vaccines

  • Drugs used with DME

  • Leuprolide

  • Orphan drugs w/o non-orphan use

  • Clotting factor

  • IGIV and other immune globulins

  • Drugs w/o J code

Emergency authority
Emergency Authority

  • HHS Sec. can modify reimbursement in case of “public health emergency … where there is a documented inability to access drugs and biologicals, and a concomitant increase in the price … which is not reflected in the manufacturer’s average sales price …” Medicare Prescription Drug, Improvement, and Modernization Act of 2003, sec. 303(e)

Refocus on prevention
Refocus on Prevention

  • Waiting for a public health emergency is the wrong standard – should be amended to prevent an emergency, esp. for CAP exempt drugs

Procedure payments
Procedure Payments

  • Cancer quality demo

  • New infusion payments

Infusion payments improved
Infusion Payments Improved

  • New payments created for

    • Hydration

    • Admin of non-chemo drugs during chemo session

    • Severe reaction management

    • Chemo treatment planning and

    • Supervision of chemo drug preparation

Payments improved cont d
Payments Improved –(Cont’d)

  • Chemo drugs and biologic response modifiers billable under chemo infusion codes

  • Infusion of 15-30 min. can be billed as infusion of up to 1 hour

Cancer quality demo
Cancer Quality Demo

  • Oncologist receives additional $130 for reporting patient info about

    • Nausea/vomiting

    • Pain

    • Fatigue

Cancer quality demo cont d
Cancer Quality Demo–(Cont’d)

  • Sunsets in December unless extended by Congress

  • CMS estimates that demo is responsible for 15% of 2005 hem-onc revenue from Medicare feesProposed 2006 Physician Fee Schedule at p.341

Hopps gao survey

  • Average purchase prices were

    • Significantly lower than reimbursement

    • Usually lower than ASP even before taking rebates into account

      GAO-05-581R Medicare Hospital Outpatient Drug Prices, June 30, 2005

2006 hopps changes
2006 HOPPS Changes

  • ASP + 8% replaces previous payments (typically 83% AWP)

    • ASP + 6% for drug component

    • 2% for pharmacy overhead in 2006 and 2007

    • Orphan drugs included

    • 2008: Adjust based on 2 year study of actual cost

2006 changes cont d
2006 Changes –(Cont’d)

  • Out: “Pass-through drugs”

  • In: SCODs – specified covered outpatient drugs


  • Generics and brands have same formula

  • Payment adjusted quarterly rather than annually

  • No significant (2%) difference in payment among treatment settings

  • Net impact on hospitals: significant decrease for 11 of top 20 SCODs

Comparison of 2005 hopps payment cont d
Comparison of 2005 HOPPS Payment of Medicare Spending on SCODs- (Cont’d)

Functional equivalence dies again
Functional Equivalence Dies (Again) of Medicare Spending on SCODs

  • “Functional equivalence” applied by CMS in 2002 to stretch LCA concept to Aranesp

  • Banned by MMA, so CMS applied an “equitable adjustment” to Aranesp based on Procrit cost for equivalent dosage

  • Equitable adjustment ends in 2006 – replaced by ASP + 8%

Treatment setting shift
Treatment Setting Shift? of Medicare Spending on SCODs

  • Some anecdotal reports of physicians sending patients to hospital OPDs for infusions, but we see no evidence of trend

    • Published reports about IGIV, for example, do not represent what’s happening with other categories of drugs

Private insurers

Private Insurers of Medicare Spending on SCODs

Heading toward asp
Heading Toward ASP of Medicare Spending on SCODs

  • Feb 2005 survey

  • 15 private insurers/PBMs

  • ~100 mil covered lives

Survey findings
Survey Findings of Medicare Spending on SCODs

  • AWP – 15% most prevalent payment

  • 3 plans moving to ASP by 2006

  • 4 plans expect payment to be reduced even if they remain with AWP

  • 6 plans evaluating

  • 2 plans staying with AWP

  • Only 3 use NDCs


Medicaid of Medicare Spending on SCODs

Rx payment reform in 2006
Rx Payment Reform in 2006 of Medicare Spending on SCODs

  • Reform is high priority for fall Congress

  • 3 proposals

    • Administration

    • National Governors Assn.

    • HHS OIG

Administration of Medicare Spending on SCODs

  • ASP + 6%

  • Replace best price calculation with flat rebate higher than existing 15.1% basic rebate

Governors of Medicare Spending on SCODs

  • Unclear endorsement of switch to ASP

  • Dispensing fee not linked to Rx price

  • Increase rebate

  • Substitute front-end discount for rebate payment

  • Include authorized generics in rebate

  • Keep Best Price

Hhs oig
HHS OIG of Medicare Spending on SCODs

  • ASP or AMP based formula


Conclusions of Medicare Spending on SCODs

Conclusions of Medicare Spending on SCODs

  • Coding for new product requires more planning and prep but has better/quicker chance for success

  • New coding process allows you to use competitor’s application to shed light on your issues

Conclusions cont d
Conclusions of Medicare Spending on SCODs–(Cont’d)

  • Congress and CMS like ASP results

  • ASP reduces provider profit by 25%+ on brand products

  • ASP endurance depends in part on CAP success

Conclusions cont d1
Conclusions of Medicare Spending on SCODs–(Cont’d)

  • Because ASP does not account for middleman markup, HHS Sec. “emergency powers” should be expanded to prevent rather than only react

Conclusions cont d2
Conclusions of Medicare Spending on SCODs–(Cont’d)

  • Hospital pharmacy revenue will see major declines in 2006 (Medicare & Medicaid) and 2007 (private insurers)

  • ASP will be widely adopted by private insurers and Medicaid

Conclusions cont d3
Conclusions of Medicare Spending on SCODs–(Cont’d)

  • Drug profit becoming less significant to provider; procedure profit is the improving opportunity

  • CAP delay will slow but not diminish specialty pharmacy’s march to become the power customers

Part b pricing implications

Part B Pricing Implications of Medicare Spending on SCODs

Pricing implications
Pricing Implications of Medicare Spending on SCODs

  • Greater pricing flexibility in Part B than Part D

    • Part B ASPs cap price at the provider, not the manufacturer level

    • Part D managed market formularies cap price at the manufacturer

      Unless …

Pricing implications cont d
Pricing Implications of Medicare Spending on SCODs–(Cont’d)

  • Drug will be in a multi-product HCPCS code

  • Or subject to LCA

    • Selected LHRH agonists

Pricing implications cont d1
Pricing Implications of Medicare Spending on SCODs–(Cont’d)

  • Shift in profit focus from drug to procedure creates different pricing opportunity for drug that maximize procedure profit

  • In selected situations, a new drug can still grab share because of reimbursement

    • AWP vs. ASP

    • Higher ASP

117 South Saint Asaph Street of Medicare Spending on SCODs

Alexandria, Virginia 22314 USA


[email protected]