Part b drug payment reform experience and expectations
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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

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Part B Drug Payment ReformExperience 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

  • Payer research; strategic planning

  • Reimbursement forecasting

  • Competitive analysis

  • Advocacy with major payers


Industries Served


Coding Developments


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

  • 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)

  • 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

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

  • Private insurer involvement minimal


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


Medicare Physician Office


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

  • 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)

  • 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

  • Demand for intravenous immune globulin (IGIV) exceeds supply

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


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

  • 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)

  • 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)

  • 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

  • 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

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


Procedure Payments

  • Cancer quality demo

  • New infusion payments


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)

  • 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

  • Oncologist receives additional $130 for reporting patient info about

    • Nausea/vomiting

    • Pain

    • Fatigue


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


Medicare Hospital O/P


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

  • 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)

  • Out: “Pass-through drugs”

  • In: SCODs – specified covered outpatient drugs


Implications

  • 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 to 2006 Formula for Top 70% of Medicare Spending on SCODs


Comparison of 2005 HOPPS Payment- (Cont’d)


Functional Equivalence Dies (Again)

  • “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?

  • 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


Heading Toward ASP

  • Feb 2005 survey

  • 15 private insurers/PBMs

  • ~100 mil covered lives


Survey Findings

  • 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


Rx Payment Reform in 2006

  • Reform is high priority for fall Congress

  • 3 proposals

    • Administration

    • National Governors Assn.

    • HHS OIG


Administration

  • ASP + 6%

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


Governors

  • 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

  • ASP or AMP based formula


Conclusions


Conclusions

  • 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)

  • 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’d)

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


Conclusions –(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’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


Pricing Implications

  • 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)

  • Drug will be in a multi-product HCPCS code

  • Or subject to LCA

    • Selected LHRH agonists


Pricing Implications–(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


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