On March 8, 2016, the Centers for Medicare & Medicaid Services (CMS) took a step toward addressing concerns about the rising cost of prescription drugs when it proposed a new, mandatory demonstration project to test alternative payment methods for drugs under Medicare Part B. If finalized, the Part B Drug Payment Model (Model) will represent a significant systemic revision of the methodology and philosophy underlying payment for Part B Drugs, moving away from the current method using average sales price (ASP) plus six percent to value-based purchasing. CMS proposes an ambitious timeline for implementation of two phases of the Model, starting as early as August 1, 2016. The Proposed Rule, “Medicare Program; Part B Drug Payment Model” (CMS-1670-P) will be published in the Federal Register on March 11, 2016. Comments are due by May 9, 2016.

The Model includes two phases and seeks to test whether alternative drug payment designs will lead to a reduction in Medicare expenditures while preserving or enhancing the quality of care provided to beneficiaries. Operationally, CMS expects that the Model will:

  • Narrow the range of payments made for Part B Drugs by decreasing payments for expensive drugs in favor of drugs that are paid at lower amounts;
  • Redistribute drug spending by increasing payment to provider specialties, such as primary care, that utilize relatively inexpensive drugs; and
  • Decrease payments to hospitals and physician specialties, such as oncology and ophthalmology, which heavily utilize drug therapy.

CMS proposes that the Model be implemented as early as August 1, 2016 and continue for five years.

  • In Phase I, CMS proposes to test the impact on of reducing the current percentage add-on payment to average sales price (ASP) and implementation of a new per-drug-per-day (PDPD) fee for Part B Drugs. 
  • In Phase II, CMS proposes to deploy value-based purchasing (VBP) and clinical decision support (CDS) tools similar to those used by private payers. 

The scope of the Model is expansive both in relation to the products and providers it impacts. CMS proposes that the Model include, with limited exceptions, all single source drugs, multiple source drugs, biologicals, and biosimilars covered and separately paid for under Part B as well as all providers and suppliers nationwide that furnish them.The Model is proposed as a four-arm control trial that includes three intervention groups and a control group, as summarized in the below table.

Click here to view the table.

All providers and suppliers would be assigned to one of the four arms in a stratified, randomized manner based on primary care service area.2 CMS would not exclude providers and suppliers that are participating in Accountable Care Organizations or other demonstration projects, such as the Oncology Care Model, from the Model. In Phase I, it appears that all eligible providers, nationwide, would be assigned to either Arm 1 or 2, i.e., approximately half of all included providers would start receiving the revised payment rate under the Model. When Phase II begins, providers and suppliers selected to participate in Arms 3 and 4 would begin receiving VBP-based payments for certain drugs and would participate in other VBP activities.  

Phase I: CMS proposes to pay for separately payable Part B drugs, including products in pass through status, through two amounts (1) ASP plus 2.5 percent for the drug cost, plus (2) a PDPD fee of $16.80, not including reductions required by sequestration.  Currently, by statute and regulation, Medicare pays for most Part B Drugs at ASP plus 6 percent, although sequestration effectively reduces this payment to ASP plus 4.3 percent. Phase I is expected to begin as early as August 1, 2016 and is expected to be budget neutral, i.e., the $16.80 add-on for all utilization will approximate the difference between the ASP + 6% and ASP + 2.5%. Starting January 1, 2017, the PDPD fee will increase annually by the Consumer Price Index for Medical Care based on the most recent twelve month period.

Phase II: CMS proposes to deploy VBP reimbursement strategies and CDS tools, where appropriate, to realize programmatic cost savings.  CMS proposes that this Phase be implemented on a rolling basis starting as early as January 1, 2017, with the goal to have Phase II fully implemented for the final three years of the Model. Of course, there will be a new Administration in place in January 2017 and the future of Phase II is necessarily uncertain. Perhaps for this reason, the VBP strategies or tools are described only in general terms in the Proposed Rule, with CMS listing four categories of VBP strategies that could be deployed in an effort to link payment to value. These potential strategies would be publicly available on CMS’s website and subject to comment, but would not go through rulemaking prior to implementation. The four VBP categories are:

  • Reference pricing;
  • Indications-based pricing;
  • Outcomes-based risk-sharing agreements; and
  • Reduction or elimination of beneficiary cost-sharing for high-value products.

CMS proposes to engage in these pricing arrangements with providers and, in the case of outcomes-based risk-sharing agreements, with manufacturers as well. CMS requests comment on the regulatory barriers, such as Best Price reporting, to such arrangements with manufacturers. CMS also proposes to develop CDS tools intended to provide physicians with, among other items, up-to-date evidence on drug safety, clinical guidelines, and geographic Part B utilization data to  assist them in their clinical decision making.

Pre-Appeals Process: CMS recognizes that there may be circumstances that warrant the use of non-model payments and proposes to implement a voluntary Pre-Appeals Payment Exceptions Review process to triage disputes arising under Phase II of the Model. This pre-appeals process would be in addition to the existing formal Part B appeal process and would resolve payment issues exclusively arising under the VBP tools included in Phase II; it would not address modifications to the ASP payment as proposed in Phase I of the Model. CMS proposes that a decision from the pre-appeals process would be issued in writing within five business days and that neither utilizing nor bypassing this new process will affect the right of a provider, supplier, or beneficiary to access the current appeals process or the remedies thereunder.

Evaluation of Models: CMS proposes to evaluate the success of each intervention of the Model (Arms 2 through 4) using a range of analytic methods, including regression and other multivariate analyses. Researchers would separately evaluate the impact of each intervention by analyzing the below metrics in areas assigned to each model test arm compared to those in areas assigned to the control arm. CMS’s key evaluation metrics would include, among others, whether the Model resulted in:

  • Reduction of Part B drug spending, as well as total Part B and total Medicare program expenditures;
  • Changes in overall utilization and prescribing patterns overall and for specific types of providers and suppliers;
  • Changes in the prices at which providers and suppliers are able to obtain Part B drugs
  • Changes in the quality of care, access to care, timeliness of care, and the patient experience of care; and
  • Observable, unintended consequences.

Legal Authority: The Model would be implemented under the authority granted to the Secretary of Health and Human Services under Section 1115A(d)(1) of the Social Security Act (SSA). To implement the Model, CMS proposes to waive the statutory provisions regarding payment for drugs under the ASP methodology (SSA § 1847A); payment for infusion drugs administered through durable medical equipment (SSA § 1842(o)(1)(D)); payment of furnishing and supplying fees for immunosuppressive drugs, inhalation drugs, and clotting factor (SSA § 1842(o)(2), (5), and (6)); and payment for drugs with pass-through status and specified covered outpatient drugs under the Hospital Outpatient Prospective Payment System (OPPS) (SSA § 1833(t)(6) and (14)).

Comments: CMS seeks comments on all aspects of the proposed rule. For example, CMS seeks comments on, but does not address, the implications of outcomes-based risk-sharing on calculation of ASP and the prices reported to CMS under the Medicaid Drug Rebate Program. This latter point is significant as the waiver authority upon which CMS is relying for the proposed rule does not extend to the Medicaid price reporting requirements. CMS also seeks comments on development of episode-based or bundled payments, and development of new approaches to the Competitive Acquisition Program, which was suspended in 2009. Comments are due by May 9.