Posted: 06 Nov 2018 08:58 PM PST On October 30, 2018, the Centers for Medicare and Medicaid Services (CMS) issued an Advanced Notice of Proposed Rulemaking (ANPRM) soliciting public feedback on a potential International Pricing Index (IPI) Model for payment of certain drugs covered under Medicare Part B. 83 Fed. Reg. 54546 (Oct. 30, 2018). This is not the first time that CMS has attempted to test a new Part B payment model during recent years. In 2016, the Obama Administration proposed a rule to test a two-phase Part B payment reform model, which we blogged about here. After receiving 1,350 comments on the proposed model, CMS scrapped the proposed rule in 2017 following the change in administration (see our follow up blog post here). This ANPRM was issued to further the objectives of the Trump Administration’s goal of reducing drug prices and patient out-of-pocket costs. CMS states that it is considering issuing a proposed rule for the IPI Model in the Spring of 2019 and implementing the IPI Model beginning in the Spring of 2020. The IPI Model would run for five years, through the Spring of 2025. Generally, the proposed IPI Model seeks to ensure that the federal government is paying prices for drugs that are comparable to those paid by other countries. CMS refers to a Department of Health and Human Services (HHS) analysis that compared acquisition costs for 27 separately payable Part B physician-administered drugs to the prices of those drugs in sixteen other developed economies (Austria, Belgium, Canada, Czech Republic, Finland, France, Germany, Greece, Ireland, Italy, Japan, Portugal, Slovakia, Spain, Sweden, and United Kingdom). The HHS analysis found that, on average, the cost of those drugs in the U.S. was 1.8 times higher than in the cost for those drugs in the comparison countries and that the United States paid the highest prices for 19 of the 27 products. The IPI Model focuses on drugs covered by Medicare Part B, which are administered in a physician’s office or hospital outpatient setting, rather than drugs covered by Part D, which covers outpatient drugs dispensed by pharmacies. Most Part B drugs are currently covered through a “buy and bill” system under which healthcare providers buy Part B drugs first and then bill for the drug after it is administered to the patient. Medicare’s statutory reimbursement for Part B drugs is currently the average sales price (ASP) plus 6% (under sequestration, the actual payment is ASP plus 4.3%). The 6% add-on payment is intended to help physicians and hospitals cover the costs of drug ordering, handling, and storage, but CMS has long been concerned that a percentage-based add-on payment may encourage overutilization of high-cost drugs. The proposed IPI Model draws from the former Competitive Acquisition Program (CAP). A physician participating in CAP would place a patient-specific drug order with a CAP vendor that would provide the drug to the physician and then bill Medicare and collect the cost-sharing amount from the patient. The CAP was operational from 2006 through 2008 but has been suspended since January 1, 2009. The IPI Model would be tested under the umbrella of the Center for Medicare and Medicaid Innovation (CMMI). The CMMI was created by an amendment to the Social Security Act (SSA) by the Affordable Care Act. See SSA Sec. 1115A; 42 U.S.C. § 1315a. The purpose of the CMMI is to “test innovative payment and service delivery models to reduce program expenditures under [Medicare or Medicaid] while preserving or enhancing the quality of care furnished to individuals under such [programs].” 42 U.S.C. § 1315a(a)(1). CMMI is a vehicle for CMS to test novel payment methodologies that meet certain statutory selection and implementation criteria. See 42 U.S.C. § 1315a(b)(2), (d). The IPI Model participants would include all physician practices and hospital outpatient departments that supply the included drugs in the selected model geographic area. Model participation would be mandatory for these providers. CMS is also considering whether to include other Part B providers that furnish the included drugs, such as durable medical equipment suppliers and ambulatory surgical centers. The IPI Model would, for those geographic locations and providers selected for implementation, eliminate the “buy and bill” drug acquisition system and replace it with drug acquisition through CMS-selected model vendors. CMS would pay the model vendors for included drugs, based on international pricing benchmarks. Physicians and hospitals would pay the model vendor for distribution costs associated with included drugs and would collect beneficiary cost-sharing, including billing supplemental insurers. Model vendors’ responsibilities would include negotiating acquisition prices with manufacturers and submitting claims for included drugs to Medicare in accordance to model billing instructions established by CMS. Under the proposed IPI Model, model vendors would purchase and take title to the included drugs, but would not be required to take physical possession. Medicare would pay the vendor for the included drugs based on international prices, rather than the current payment rate of ASP plus 6%. Unlike the CAP, where only specialty pharmacies could serve as vendors, the IPI Model would permit group purchasing organizations, wholesalers, distributors, specialty pharmacies, individual or groups of physicians and hospitals, manufacturers, and Part D sponsors to serve as model vendors. Model vendors would be selected by CMS based on a competitive selection process. CMS is proposing to select three model vendors so as to facilitate competition among the vendors based on “customer service and cost,” but is soliciting feedback on whether three vendors is an appropriate number for the model. The IPI Model would initially focus on single source drugs and biologics that encompass a high percentage of Part B drug spending. CMS plans to prioritize single source drugs and biologics, which accounted for most drugs used by most physician specialties and represented over half of Part B drug spending in 2017. Certain drugs would be excluded from the IPI Model, including drugs on the FDA drug shortage list, drugs paid under miscellaneous or “not otherwise classified” codes, compounded drugs, radiopharmaceuticals, drugs to treat end-stage renal disease, and drugs dispensed by a hospital outpatient department. Instead of paying ASP plus 6%, Medicare would pay model vendors for included drugs based on international pricing. CMS has proposed the following calculation steps in the ANPRM:
CMS anticipates that model vendors would negotiate drug purchase prices that are lower than the IPI-based Medicare payments in order to avoid financial loss. These lower prices would have a cascade effect on other government discounting requirements. Although CMS could use its Medicare waiver authority under Social Security Act § 1115A to exclude prices offered to model vendors from ASP, the waiver authority does not extend to Medicaid. Therefore, manufacturer prices to model vendors would have to be taken into account in Medicaid rebate best price. Since foreign prices are generally lower than U.S. prices, best price would often be reduced, resulting in higher Medicaid rebates and lower ceiling prices under the 340B drug discount program. Comments on this ANPRM are due to CMS no later than 5:00 pm on December 31, 2018. We will be tracking developments regarding this rule-making and other federal drug pricing legislation and rule-makings. |
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