CMS's Radical Experiment On Pricing Of Part B Drugs

By John McManus, president and founder, The McManus Group

Capitalizing on the growing vitriol directed at the pharmaceutical industry, the Obama administration unveiled a far-reaching and aggressive “demonstration project” that would fundamentally change how physician-administered drugs are reimbursed by Medicare.

The administration proposes to scrap the current market-based “average sales price” (ASP) payment formula, which reimburses physicians and hospitals 106 percent of the ASP of a Part B drug (accounting for all discounts, rebates, and other price concessions).

To begin as soon as August 1, phase 1 would commence this fall and slash reimbursement to 102.5 percent of ASP plus $16.80. When the effects of the budget sequestration are accounted for, this scheme actually becomes 100.86 percent of ASP plus $13, putting many physician practices and hospitals under water when prescribing expensive Part B drugs.

Phase 2 could roll out as early as January 2017 — obviously before any meaningful evaluation can be made of phase 1 — and empower Medicare to establish value-based purchasing tools, including:

• REFERENCE PRICING, whereby drugs within a therapeutic class would be tied to the cheapest drug in that class or to an average price of those drugs in a therapeutic class or some other benchmark price. The CMS does not reveal what reference price it intends to use.
• INDICATIONS-BASED PRICING, whereby drugs would be paid for on their “varying clinical effectiveness for different indications.” CMS explains that a drug could receive a higher price for cancer A than when used to treat cancer B.
• OUTCOMES-BASED, RISK-SHARING ARRANGEMENTS, whereby drugs would be paid for based on the health outcomes of the patients and adjusted down through rebates and discounts if the outcomes are not achieved.
• EPISODE-BASED OR BUNDLED PRICING, whereby a provider could be held accountable for a total cost of service across an episode of care to reduce the incentive to use more costly treatments.

Similar policies have been tried in Europe and resulted in patient access restrictions to important life-saving products.

The mandatory “demonstration” would be tested on patients in three-quarters of the country. Just one quarter of the country in zip codes, randomly assigned, constitutes the control group that would continue to receive drugs as required in the Medicare statute enacted by Congress. Oh … and the experiment would also exempt the state of Maryland, home to 5,000 Baltimore-based CMS employees and their families. CMS argues that Maryland’s all payer system could introduce “unobservable bias.” How convenient!

In a rare joint statement by the three committees of jurisdiction, House Ways & Means Chairman Kevin Brady (R-TX), House Energy & Commerce Committee Chairman Fred Upton (R-MI), and Senate Finance Committee Chairman Orrin Hatch (R-UT) said the “model could ultimately result in seniors receiving different standards of care based solely on where they live in the country.”

The cancer community has reacted with shock and outrage. The Community Oncology Alliance’s scathing response stated, “What this experiment is saying is that CMS believes it knows better and intends to dictate the drug treatment choice rather than the patient’s treating oncologist. This experiment is a misguided government intrusion into the treatment of seniors with cancer and is a very dangerous precedent severing the sacred physician-patient bond. And make no mistake about it — CMS has designed … a blind experiment to force treatment to meet CMS’s definition of value, not the best, most appropriate cancer treatment determined by oncologists in collaboration with patients.”

What enabled CMS to override and effectively disregard long-standing Medicare statute? Obamacare established the Center for Medicare and Medicaid Innovation (CMMI) — a division within CMS — and empowered it to waive the entire Medicare statute in order to test demonstration models.

For years CMMI has been viewed as a backwater where policy wonks lavishly fund schemes to better coordinate care and move Medicare from volume to “value.” Obamacare provided CMMI with a staggering $10 billion (you read that right — billion) of funding per decade. CMMI has struggled to help mostly hospital-led accountable care organizations better coordinate care and contain costs, repeatedly relaxing its rules to retain participant interest in the program. ACOs (accountable care organizations) have fueled provider consolidation but have done little to save money.

Last year, CMMI sparked controversy when it imposed the mandatory Comprehensive Care for Joint Replacement (CCJR) demonstration in 67 metropolitan statistical areas to test bundled payments of hip and knee replacement surgeries. Orthopedic surgeons and a substantial number of members of Congress objected, and the start date was briefly delayed, but it rolls into effect April 1.

Perhaps emboldened by its success in swatting away objections to CCJR and observing the developing narrative on drug pricing, the Obama administration undertook this aggressive Part B demonstration, of the scope and reach that few in the policy and physician and drug communities could fathom. The Medicare Payment Advisory Committee (MedPAC) had opined that the 6 percent add-on payment to ASP could encourage physicians to prescribe more expensive drugs. But its role was merely to advise Congress, which then had to decide whether and how to act after hearing from stakeholders. Few could conceive that CMS would adopt nationwide, European-style reference-pricing regimes and sweeping schemes to tie reimbursement to subjective views of effectiveness. CMS’s writing clinical support tools also has alarmed the physician community, which views that as their role.

Moreover, in refusing to engage stakeholders in the development of the demonstration model, the Obama administration has violated the very law that established CMMI. The Obamacare statute requires CMMI to “consult with clinical experts in medicine and health management and use open door forums or other mechanisms to seek input from interested parties.”

Upon learning that CMS was about to release its proposal on Part B drug pricing, more than 100 patient and physician groups — ranging from the American Autoimmune Related Disease Association and Kidney Care Association to the American Society of Clinical Oncology and Society for Women’s Health Research — quickly issued a strongly worded letter stating “This type of initiative, implemented without sufficient stakeholder input, will adversely affect the care and treatment of Medicare patients with complex conditions.”

The lack of engagement stands in stark contrast to CMMI’s own Oncology Care Model, which has been under development for more than two years with substantial interaction and dialogue with stakeholders. That voluntary alternative payment model will likely be overridden by this far-reaching and mandatory program.

Just as troubling, the administration ignores the CMMI statute’s clear mandate to select a model that “addresses a defined population for which there are deficits in care leading to poor clinical outcomes or potentially avoidable expenditures.” The “defined population” apparently means the entire country (except for CMS home base of Maryland.) CMS provides no evidence that Medicare beneficiaries are experiencing poor clinical outcomes based on the Part B drugs they are being prescribed. And moreover, in the panoply of academic and managed care literature, there is little to suggest the Part B payment structure has led to abuse.

Physician, patient, and industry groups are now mobilizing to at least delay the implementation of this demonstration project to the next administration. That will be a challenge, as there is no mustpass bill on the horizon. Yet a similar coalition successfully beat back a CMS attempt to remove protections to vulnerable patients taking drugs in one of the designated “6 protected classes” in the Medicare Part D outpatient drug benefit a couple years ago.

If CMS wins this battle over physician-administered Part B drugs, it will be emboldened to pursue even more radical “demonstrations” in Medicare Part D. It could effectively rewrite the Medicare program through executive fiat and without the people’s representatives’ input or consent. That is unacceptable.

Launch all ships and leave none in a harbor!