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ASHP Analysis of Trump Administration Drug Pricing and Payment Plan 2018

Centers for Medicare & Medicaid Services

Date Published: October 30, 2018


  • Through the Center for Medicare and Medicaid Innovation (CMMI) and under the 1115A waiver authority created by the Affordable Care Act, the Model seeks to reduce U.S. drug payments by ensuring that the Medicare program pays comparable prices for Part B drugs relative to other economically similar countries.
    • Model Goals:
      • Reducing Medicare expenditures and beneficiary cost-sharing for separately payable Part B drugs;
      • Preserving/enhancing quality of care for beneficiaries;
      • Removing providers’ financial incentive to prescribe high-cost drugs while “providing revenue stability;”
      • Minimizing supply chain disruption; and
      • Increasing Medicare efficiency and value while reducing federal spending and saving taxpayer dollars.
  • The ANPRM is not the same as a proposed rule — it functions more like a request for information. Thus, each part of the proposal includes a laundry list of questions about how to structure or change the proposal to make it workable for stakeholders. If CMS is serious about incorporating stakeholder feedback, the model may change substantially.
  • CMS plans to release a proposed rule for comment in spring 2019 and then implement the model in spring 2020, to run until 2025.
  • ASHP will be commenting on the ANPRM and the proposed rule when it is released in 2019.

How Does the Model Work (In a Nutshell)?

  • Creates a MANDATORY, geographically based model wherein physicians and hospital outpatient departments (HOPDs) contract with “private-sector vendors.”
    • Private-Sector Vendors (hereinafter, “vendors”) may be GPOs, wholesalers, distributors, specialty pharmacies, individual physicians/hospitals or groups of physicians/hospitals, manufacturers, or Part D sponsors.
  • Vendors are responsible for buying and billing Medicare Part B separately for payable drugs, biologics, and biosimilars to Medicare at payment amounts tied to an international pricing index (currently proposed to include data from Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, and the United Kingdom).
  • Vendors will be chosen based on a competitive selection process established by CMS; CMS intends to select three or more vendors:
    • Vendors are expected to operate on a national basis, meaning they will operate in all geographic areas included in the model.
    • Vendor responsibilities are based on the previous Competitive Acquisition Program (CAP) responsibilities and would be specified in a model vendor arrangement.
    • CMS proposes that, to be selected, vendors must demonstrate, at minimum, the ability to:
      • Negotiate with manufacturers;
      • Ensure product integrity;
      • Establish a customer service/grievance process;
      • Maintain Financial performance and solvency;
      • Maintain Integrity;
      • Establish internal financial controls;
      • Maintain appropriate licensure; and
      • Meet model vendor requirements in six months from the start of the model.
    • Vendors can offer “innovative delivery mechanisms to encourage HOPDs and physicians to use the vendor’s distribution arrangements, including electronic ordering, frequent delivery, onsite stock replacement, etc.”
      • Agreements between vendors and physicians or HOPDs “would establish terms of their arrangements and would include appropriate guardrails to protect all parties, including beneficiaries and the Medicare program.
        • CMS is asking whether it should be a party to/regulate these agreements and what the agreements should/must entail (e.g., physical safety and integrity of drugs, drug disposition, data sharing methods, confidentiality requirements).
  • Physicians and HOPDs no longer buy and bill model drugs — instead they receive the Medicare drug administration payment plus a “drug add-on” amount based on the Average Sales Price (ASP) of included drugs:
    • Payment is meant to ensure that physicians and HOPDs participating in the test do not lose revenue to “the greatest extent possible.”
    • Fee-for-service buying and billing will still be required for drugs and geographic areas not included in the model.
    • Physicians and HOPDs can use multiple vendors and change vendors.

What Is the Model’s Scope?

  • Drugs:
    • What’s Included: For model years 1 and 2, CMS proposes to include single-source drugs, biologics, biosimilars, multiple-source drugs with a single manufacturer that CMS identifies from “what we believe are reliable sources of international pricing data.”
      • CMS suggests that this would include most of the drugs on the list that appears in the IPI report.
      • CMS is also considering the inclusion of HCPCS codes that are clinically comparable, but not interchangeable with those drugs initially included in the model, especially incident-to drugs.
    • What’s Not Included: Drugs in short supply and drugs paid under not otherwise classified (NOC) codes would be excluded from model.
  • Participants:
    • The Model will include all physician practices and hospital outpatient departments that furnish the model’s drugs in the selected model geographic areas:
      • Geographic areas will be chosen to capture 50% of Medicare spending on separately payable Part B drugs.
      • CMS is proposing a randomized design with randomization to intervention and comparison groups occurring at the geographic unit of analysis.
      • CMS may use Core Based Statistical Areas (CBSAs) as the primary unit of analysis.
    • CMS has proposed that beneficiaries are eligible for inclusion in the model if:
      • Beneficiary is enrolled in Medicare Part B;
      • Beneficiary is not enrolled in any group health plan or United Mine Workers of America health plan; and
      • Medicare fee-for-service is the primary payer for the drug.
  • Physician and HOPD Payment:
    • In addition to the drug administration service payment, physicians and HOPDs would receive a “drug Add-on payment:”
      • It remains unclear exactly how CMS intends to calculate the payment, but it seems that it would be based on 6 percent of the model drugs’ collective ASP rather than on each drug’s ASP.
      • Payment would be a set amount per month (based on beneficiary panel size) or per encounter for an administered drug.
        • CMS is considering whether to set a unique payment amount for each class of drug, physician specialty, or physician practice/HOPD.
        • Payment is meant to approximate what a physician or HOPD would have been reimbursed for the drug absent the model and before sequestration.
      • CMS may establish a “bonus pool” for prescribing lower-cost drugs or practicing evidence-based utilization.
    • Physicians and HOPDs are expected to:
      • Contract with one or more vendors;
      • Follow model-specific billing instructions to submit informational drug claims and the model add-on payment; and
      • Collect beneficiary cost-sharing — “An administrative approach that deducts the cost-sharing amounts from Medicare payments made for other services to the model participants could be feasible and would be less disruptive for beneficiaries.”
  • Interaction with Other Models/Demos/Programs:
    • CMS will look at overlap between and among programs and will establish operating rules to determine if a beneficiary can be part of both models/programs (e.g., Oncology Care Model).
    • Best Price: CMS believes that the model could potentially lower best price and increase Medicaid rebates, depending on negotiation with vendors.
    • Average Manufacturer Price (AMP): Model payments are not included in these calculations, but AMP could be impacted by vendor negotiations.
    • 340B program interaction: The 340B ceiling price is based on AMP minus best price, so if the model affects those, it will also impact 340B ceiling price.
      • Based on language of ANPRM, if a covered entity is in the model’s geographic area, it will have to use the vendor to purchase included drug.
      • This could prevent covered entities in the model from accessing the 340B program.
      • It is unclear whether Apexus will be eligible to register as a vendor or if contractual language could allow vendors to stand in the shoes of covered entities for the purpose of purchasing 340B drugs.
  • CMS Monitoring:
    • CMS intends to monitor the model and report quarterly.
    • CMS anticipates that beneficiary cost-sharing will either stay the same or decrease as a result of the model.
    • CMS will establish quality measures for the model.

Initial Questions and Points Requiring Clarification

  • Will vendors be able to institute utilization restrictions like those we see in Part D PBMs?
  • Has CMS proposed the appropriate drugs for inclusion in the model?
  • How often will CMS change the reimbursement formula for the physician and HOPD add-on payments?
  • Are the add-on payments sufficient to support HOPDs?
  • How difficult will it be to work with private vendors for model drugs while continuing to purchase under buy and bill arrangements for non-model drugs?
  • Will carving out the model drugs impact physician and HOPD ability to negotiate with GPOs and others?
  • How would potentially losing the 340B price for model drugs impact hospitals?
  • How should elements of the model change?