Part B Drug Payment Reform Experience and Expectations

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Part B Drug Payment Reform Experience and
Expectations
August 11, 2005
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Agenda

• Coding developments
• Medicare payment
• Physician office
• Hospital outpatient
• Private insurance and ASP
• Medicaid reform
• Conclusions
• Pricing implications

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• U.S. reimbursement planning and problem solving
• Payer research strategic planning
• Reimbursement forecasting
• Competitive analysis
• Advocacy with major payers

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Industries Served
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Coding Developments
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New HCPCS Process

• Open, interactive
• January 2 application deadline
• No waiting for 6 months marketing data
• Every application given public hearing

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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

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Good Presentation (Contd)

• 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

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CMS Decision Making

• Contractors, SADMERC, regional office involvement
  continues behind the scenes
• Private insurer involvement minimal

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But Does It Matter?

• Time will tell I expect Yes
• Sometimes they just dont 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

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Medicare Physician Office
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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

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ASPs Weakness

• It presumes rational, predictable wholesaler
  markup and small, infrequent manufacturer price
  changes
• Some would argue that is exactly whats good
  about ASP it forces that conduct

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ASPs Weakness (Contd)

• But what happens when market forces overwhelm the
  formula?
• What happens when ASP is 40/unit and physicians
  AAC is 60 or more?

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The Case of IGIV

• Demand for intravenous immune globulin (IGIV)
  exceeds supply
• Secondary distributors purchase from
  wholesalers and apply 20 markups

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The Case of IGIV (Contd)

• 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?

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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

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IGIV Experience (Contd)

• 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

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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

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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
  manufacturers average sales price Medicare
  Prescription Drug, Improvement, and Modernization
  Act of 2003, sec. 303(e)

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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

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Procedure Payments

• Cancer quality demo
• New infusion payments

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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

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Payments Improved (Contd)

• 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

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Cancer Quality Demo

• Oncologist receives additional 130 for reporting
  patient info about
• Nausea/vomiting
• Pain
• Fatigue

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Cancer Quality Demo (Contd)

• Sunsets in December unless extended by Congress
• CMS estimates that demo is responsible for 15 of
  2005 hem-onc revenue from Medicare fees Proposed
  2006 Physician Fee Schedule at p.341

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Medicare Hospital O/P
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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

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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

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2006 Changes (Contd)

• Out Pass-through drugs
• In SCODs specified covered outpatient drugs

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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

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Comparison of 2005 HOPPS Payment to 2006 Formula
for Top 70 of Medicare Spending on SCODs
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Comparison of 2005 HOPPS Payment - (Contd)
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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

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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 whats happening with other categories
  of drugs

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Private Insurers
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Heading Toward ASP

• Feb 2005 survey
• 15 private insurers/PBMs
• 100 mil covered lives

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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

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Medicaid
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Rx Payment Reform in 2006

• Reform is high priority for fall Congress
• 3 proposals
• Administration
• National Governors Assn.
• HHS OIG

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Administration

• ASP 6
• Replace best price calculation with flat rebate
  higher than existing 15.1 basic rebate

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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

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HHS OIG

• ASP or AMP based formula

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Conclusions
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Conclusions

• Coding for new product requires more planning and
  prep but has better/quicker chance for success
• New coding process allows you to use competitors
  application to shed light on your issues

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Conclusions (Contd)

• Congress and CMS like ASP results
• ASP reduces provider profit by 25 on brand
  products
• ASP endurance depends in part on CAP success

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Conclusions (Contd)

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

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Conclusions (Contd)

• 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

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Conclusions (Contd)

• Drug profit becoming less significant to
  provider procedure profit is the improving
  opportunity
• CAP delay will slow but not diminish specialty
  pharmacys march to become the power customers

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Part B Pricing Implications
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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

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Pricing Implications (Contd)

• Drug will be in a multi-product HCPCS code
• Or subject to LCA
• Selected LHRH agonists

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Pricing Implications (Contd)

• 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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