The Medicare Prescription Drug, Improvement and Modernization Act of 2003 MPDIMA

1
The Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (MPDIMA) An Overview
December 2003
2
Overview

• The Medicare Prescription Drug Improvement and
  Modernization Act (MPDIMA) creates a Medicare
  Drug Benefit, fixes several biotechnology
  reimbursement issues and resolves a number of
  other issues fairly favorably.
• The implementation process for the Act is likely
  to be arduous and must begin almost
  immediately.
• This presentation presents an overview of the key
  provisions of the legislation from BIOs
  perspective and presents the implementation
  timetable we are now facing.

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An Overview of H.R. 1 Basic Benefit Package
95 Coverage After 3600 Out of Pocket
5
5100 in Total Spending
2850 Donut Hole in Coverage
25 copay
75 coverage
75 of drug costs between 251 and 2250 are
covered.
250 Deductible
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The Basic Benefits Package

• 250 Deductible.
• 75 cost sharing up to 2250.
• 2850 donut hole.
• After 3600 in out of pocket costs, beneficiary
  co-payments are the greater of 5 cost sharing or
  2 for generic drugs and 5 for other drugs.
• Negotiated prices apply throughout.

5
Benefits Delivery

• Prescription Drug Plans (PDPs) Beneficiaries
  not enrolled in a Medicare Advantage plan with
  integrated coverage will receive their benefits
  through PDPs created for this purpose
• Full Riskplans. The risk for even these plans
  is limited by risk corridors and reinsurance
  subsidies over the stop loss limit.
• Limited Risk plan. The Secretary is permitted
  to reduce the risk exposure for certain plans, if
  there are not at least 2 plans offered (only one
  has to be a PDP) by 2 different entities in an
  area.
• Fallback Plan. If the Secretary is unable to
  secure full or limited risk participation, a
  government contractor can be secured to deliver
  benefits.
• Medicare Advantage Plan with Integrated Coverage

6
Low Income Subsidies

• Dual Eligibles Below 100 FPL
• 1/3 co-payments (generic/brand name or
  non-preferred multiple source).
• Full subsidy for premiums and deductible.
• No co-payments above the catastrophic threshold.
• Below 135 FPL
• 2/5 co-payments up to catastrophic threshold
  only.
• Full premium and deductible subsidy.
• 6,000/9,000 asset test.
• 135-150 FPL
• 15 coinsurance up to catastrophic limit. 2/5
  thereafter.
• 50 deductible, sliding scale premium subsidies.
• 10,000/20,000 asset test.

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Formularies

• Tiered Formularies are permissible as long as
  they are actuarially equivalent to the basic
  benefit package.
• All Formularies must include at least one drug
  from each therapeutic class and category.
• United States Pharmacopoeia to develop list of
  categories and classes.
• Appeals Process to treat non-preferred drugs as
  preferred if a physician determines that
  available preferred products are less effective
  or could have adverse effects for the patient
  appealing.
• Generic products Plan must have in place an
  means to suggest generic or lower cost products.

8
General Subsidies/Risk

• Premiums Calculated based on a national average
  bid premium adjusted to take into account an
  overall subsidy of 74.5.
• Reinsurance Overall subsidy is net of
  reinsurance subsidies of 80 of allowable costs
  over the out-of-pocket threshold.
• Risk Adjustments Risk adjustments to plan
  payments will be made for health status and
  geography, though these adjustments will be
  budget neutral.
• Risk Corridors Even full risk plans will share
  some risk with the government through risk
  corridors that can reduce or increase their
  payments if plan experience is above or below a
  targeted amount.

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Miscellaneous Details

• Dual eligibles will be covered under Part D.
• States will have to match payments made for dual
  eligibles, but will receive a phased-in reduction
  to their matching rate (25 off after a ten year
  period).
• Retiree Coverage plans offering actuarially
  equivalent coverage will receive subsidies of 28
  of allowable drug costs between 250 and 5,000.
  Retiree plans can subsidize premiums and cost
  sharingbut any cost sharing subsidies will not
  count toward the beneficiarys out-of-pocket
  threshold.

10
Part B Payment Reforms

• The Act creates a complicated set of
  reimbursement options for Part B physician
  payments

• A reduction off of AWP in 2004 (to 85 of AWP)
  for most products, subject to a list of
  exceptions.
• Payment for single source drugs or biologicals
  based on lesser of ASP or WAC in 2005, with a 6
  markup.
• At the physicians option, delivery through a new
  Competitive Acquisition system in 2006 or ASP.

11
2004 AWP Reductions--Exceptions
Products paid 95 of AWP, except where noted

• Blood clotting factors
• Drugs or biologicals not available as of 4/1/03
• Pneumococcal, influenza and hepatitis B vaccines
  (these continue to be paid 95 of AWP in the
  future).
• Separately billable drugs or biologicals (other
  than EPO) furnished in conjunction with renal
  dialysis services.
• Drugs furnished through DME (AWP as of 10/1/03,
  continues until 2007 when competitive
  acquisition under Part D would be used).
• IVIG would be paid 80 of AWP in 2004, but would
  be reimbursed only though the ASP method
  thereafter.

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2004 AWP ReductionsExceptions Cont.
Other Adjustments

• Drugs listed in Table 3 of the CMS NPRM for Part
  B payment reform would have their percentages
  increased or reduced to as low as 80 of AWP.
• Data submitted by manufacturers could be usedat
  the discretion of the Secretary
• If submitted prior to 10/15/03, effective 1/1/04
• If submitted after 10/15/03 and before 1/1/04,
  effective 4/1/04
• 80 of AWP floor

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Reimbursement Based on ASP/WAC
In 2005 and following (for physicians who dont
elect competitive acquisition)

• Generally, payments for single source drugs or
  biologicals would be based on 106 of the lesser
  of ASP or WAC.
• New drugs would be paid at WAC or as specified by
  Secretary for initial quarter.
• The Secretary would have the authority to adjust
  reimbursement if ASP exceeds Widely Available
  Market Price (WAMP) or AMP by a specified
  percentage. Adjusted payments would be the
  lesser of WAMP or 103 of AMP.
• ASP is reported by manufacturers by dividing
  total sales of a drug or biological by total
  units sold in a quarter, net of all discounts and
  price concessions, exempting nominal sales and
  sales exempt from best price calculations.

14
Competitive Acquisition
For 2006 and following, physicians may elect to
have drugs delivered through a new competitive
acquisition program

• Contractors would be paid by Medicare to dispense
  drugs administered by physicians.
• These contractors also would collect beneficiary
  cost sharing.
• The Secretary would establish a single
  reimbursement amount for each drug in a
  competitive acquisition area, based upon the bids
  submitted.
• Certain drugs would be excludedeither by statute
  or the Secretary and would not be considered
  competitively biddable.
• Payment for new drugs based on ASP.

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Other Physician Payment Changes
Reduced Reimbursement for Drugs Partially Offset
by

• In 2004, Practice expense payments could be
  increased by survey data, and work RVU payments
  for some specialties also increased.
• Additional surveys can be submitted for 2005 and
  2006.
• Physician fee schedule payments for drug
  administration increased by 32 in 2004 and 3 in
  2005.

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Implementation Timeline

• Immediate begin procurement process for Drug
  Discount Card
• Immediate either by rule or instructions,
  establish payments for Part B drugs and OPPS.
• April 1, 2004Discount Card Program Active
• Spring/Summer 2004begin process of developing
  NPRM for PDPs and Medicare Advantage
  Solicitation.
• NPRM for Solicitation in August 2004.
• Final Rule for Solicitation in November 2004.
• Bids due in February 2005, Awards in June 2005.
• Plans Live in October 2005.
• November 15, 2005 Open Enrollment Begins

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Hospital Outpatient Prospective Payment System
(OPPS)

• Floors and ceilings for radiopharmaceuticals and
  drugs and biologicals for which pass-through
  payments made on or before 12/31/02, for which a
  separate ambulatory payment classification (APC)
  has been established

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OPPS Cont.

• Does not include drugs and biologicals
• First eligible for pass-through on or after
  1/1/03 (paid under revised section 1842(o)
  instead)
• For which a temporary HCPCS code has not been
  assigned (95 of AWP instead) or
• Orphan drugs designated by the Secretary in 2004
  and 2005 (in 2004, 9 at 88 of AWP and 2 at 94
  of AWP).

19
OPPS Cont.

• Requires GAO to study acquisition costs for these
  drugs in 2004 and 2005 and to furnish data to
  Secretary to use in setting 2006 rates.
• Permits Secretary to set 2006 payment rates on
  the average price for the drug in the year in
  physicians offices as calculated and adjusted by
  the Secretary if such data are not available.
• Requires GAO to report on appropriateness of
  proposed rates within 30 days.
• Requires GAO to recommend to Secretary the
  frequency and methodology of subsequent surveys.
• Requires Secretary to conduct subsequent surveys
  taking GAOs recommendations into account.

20
OPPS Cont.

• Requires MedPAC to submit report to Secretary by
  7/1/05 on adjustment of APCs to take overhead and
  related expenses into account, including pharmacy
  service and handling costs.
• Permits Secretary to adjust rates accordingly.
• Reduces threshold for separate APCs for drugs and
  biologicals to 50 per administration.
• Makes drug and biological APCs ineligible for
  outlier payments.

21
Functional Equivalence

• Adopts Senate language.
• Prohibits the Secretary from publishing
  regulations that apply a functional equivalence
  standard to a drug or biological under the
  pass-through.
• Applies to application on or after the date of
  enactment, unless such application was made prior
  to enactment and Secretary applies such standard
  only for the purposes of pass-through payments.
• Does not affect FDAs authority to deem products
  pharmaceutically equivalent and bioequivalent.

22
ESRD Drugs Paid Outside the Composite Rate

• Inspector General (IG) to study drugs and
  biologicals (including EPO) furnished to end
  stage renal disease (ESRD) patients and paid
  outside the composite rate.
• Studies to focus on difference between payment
  rates and facility acquisition costs and estimate
  growth of expenditures on such drugs.
• For three years beginning 1/1/06, Secretary
  required to establish demonstration project for
  use of full case-mix adjusted payment system for
  ESRD services, including separately billed drugs
  and related clinical lab tests.
• Secretary required to report to Congress on
  design and implementation of such system by
  10/1/05.

23
ESRD Drugs Paid Outside the Composite Rate

• Requires Secretary to develop basic case-mix
  adjusted PPS for dialysis services that would
  adjust for a limited number of patient
  characteristics.
• PPS would include services currently in the
  composite rate plus difference in drug
  acquisition costs and payment rates as reflected
  in IG report.
• No administrative or judicial review of the
  system.
• Drugs and biologicals paid separately prior to
  enactment would continue to be separately paid
• 95 of AWP in 2004, except for EPO
• Acquisition cost as determined by the IG or, if
  unavailable, an amount determined by the
  Secretary in 2005, including EPO and
• Acquisition cost or ASP methodology as specified
  by the Secretary in 2006 and thereafter.

24
Self-Administered Drugs and Biologicals
Demonstration

• Requires Secretary to conduct a demonstration
  project to pay for certain drugs and biologicals
  prescribed as replacements for certain covered
  drugs and biologicals, including oral anticancer
  chemotherapeutic agents.
• To cover up to 50,000 patients and receive up to
  500 million in funding.
• Conducted in sites selected by Secretary.
• To last for 2 years, starting at least 90 days
  after enactment, terminating on or before
  12/31/05.
• Requires Secretary to submit report evaluating
  impact on patient access and cost-effectiveness,
  particularly savings on reduced physician and
  outpatient department administration services.

25
Inpatient New Technology Add-on Payments

• Adopts House provision with two major exceptions
• Deeming certain drugs and biologicals to be
  substantial improvements and
• Using an 80 marginal rate for additional
  payments instead of the 50 current rate.

26
Inpatient New Technology Add-on Payments

• Reduces inadequate payment threshold to lesser of
  75 of standardized amount or 75 of one standard
  deviation of the diagnosis related group (DRG)
  involved.
• Codifies preference for assigning new
  technologies to more appropriate DRGs rather than
  establishing add-on payments.
• Adds new money.
• Affords more public input into substantial
  improvement determination.
• Requires Secretary to establish additional
  diagnosis and procedure codes in April.
• Effective in fiscal year 2005.
• New technology applications filed for fiscal year
  2004 and denied would be reconsidered
  automatically for 2005 the maximum time for
  additional payments would be extended 12 months.

27
Hatch-Waxman Reforms

• Bioequivalence language applies only to
  non-systemic drugs.
• Limits eligibility for 30-month stay to one per
  ANDA.
• Limits patents eligible for 30-month stays to
  those submitted to FDA before submission of the
  generic drug application, preventing later-listed
  patents from triggering multiple stays.
• Permits generic drug applicants who are not sued
  within 45-days of paragraph IV certification to
  file declaratory judgment actions to the extent
  consistent with the Constitution. (Must be a
  case or controversy).
• Allows all companies that file ANDAs on the first
  day of eligibility to share in 180-day
  exclusivity.
• Establishes several ways in which ANDA applicants
  can forfeit 180-day exclusivity rights.

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Importation

• Provides for importation only from Canada, but
  only if HHS Secretary certifies to Congress that
  importation would pose no additional risk to
  public health and safety and would result in
  significant cost-savings to American consumers.
• Certification requirement is similar to Cochran
  amendments that effectively have prevented HHS
  from implementing earlier legislation.