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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
• Payer research; strategic planning
• Reimbursement forecasting
• Competitive analysis
• Advocacy with major payers
Industries Served
Investors/
Advisors
15%
Biotech/
Biologicals
40%
Ad/PR/PA
Agencies
10%
Devices/
Diagnostics
15%
Pharmaceuticals
20%
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 $130
for reporting patient info about
– Nausea/vomiting
– Pain
– Fatigue
Cancer Quality Demo – (Cont’d)
• Sunsets in December unless
extended by Congress
• CMS estimates that demo is
responsible for 15% of 2005 hemonc revenue from Medicare fees
Proposed 2006 Physician Fee Schedule at p.341
Medicare Hospital O/P
HOPPS: GAO Survey
• Average purchase prices were
– Significantly lower than reimbursement
– Usually lower than ASP even before taking
rebates into account
GAO-05-581R Medicare Hospital Outpatient Drug Prices, June 30,
2005
2006 HOPPS Changes
• ASP + 8% replaces previous
payments (typically 83% AWP)
– ASP + 6% for drug component
– 2% for pharmacy overhead in 2006
and 2007
– Orphan drugs included
– 2008: Adjust based on 2 year study of
actual cost
2006 Changes
– (Cont’d)
• Out: “Pass-through drugs”
• In: SCODs – specified covered
outpatient drugs
Implications
• Generics and brands have same formula
• Payment adjusted quarterly rather than
annually
• No significant (2%) difference in payment
among treatment settings
• Net impact on hospitals: significant
decrease for 11 of top 20 SCODs
Comparison of 2005 HOPPS Payment to 2006 Formula
for Top 70% of Medicare Spending on SCODs
April 2005
HOPPS ($)
April 2005
ASP ($)
108%
ASP ($)
% Change
EPO per 1,000 units
11.09
9.25
9.99
-10.00
Rituxan® 100 mg
437.83
414.92
448.11
2.00
Neulasta® 6 mg
2448.50
2017.55
2178.95
-11.00
IGIV Lyoph 1g
80.68
36.54
39.46
-51.00
IGIV Non-Lyoph 1g
80.68
53.04
57.28
-29.00
Remicade® 10 mg
57.40
50.20
54.22
-6.00
3.66
3.04
3.28
-10.00
312.69
278.95
301.27
-4.00
Carboplatin 50 mg
129.96
71.46
77.18
-41.00
EloxatinTM per 5 mg
82.53
77.86
84.10
2.00
Drug/Biological
Aranesp® 1 mcg
Taxotere®
20 mg
Comparison of 2005 HOPPS Payment
- (Cont’d)
April 2005
HOPPS ($)
April 2005
ASP ($)
108% ASP
($)
% Change
Zometa® 1 mg
197.87
187.47
202.47
2.00
Gemzar ® 200 mg
105.73
108.79
117.49
11.00
Camptosar® 20 mg
127.33
119.59
129.16
1.00
Natrecor® 0.25 mg
66.23
69.64
75.21
14.00
Paclitaxel 30 mg
79.04
17.70
19.12
-76.00
Herceptin®
50.79
49.99
53.99
6.00
543.72
213.83
230.94
-58.00
3.72
3.06
3.30
-11.00
57.11
53.88
58.19
2.00
274.40
261.46
282.38
3.00
Drug/Biological
10 mg
Eligard &
Lupron Depot 7.5 MG
Alpha 1 PI 10 mg
AvastinTM 10 mg
Neupogen®
480 mcg
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
1. 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)
2. Shift in profit focus from drug to
procedure creates different pricing
opportunity for drug that maximize
procedure profit
3. In selected situations, a new drug can still
grab share because of reimbursement
• AWP vs. ASP
• Higher ASP
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