CMS New Payment Model Would Cut ASP for Part B Drugs

By Policy and Advocacy Brief posted 03-15-2016 14:56


On March 8, the Centers for Medicare & Medicaid Services (CMS) released a proposed rule to test new payment models for Medicare Part B prescription drugs. The proposed model includes two phases and would run for five years. All providers and suppliers furnishing and billing for Part B drugs in specific geographic locations would be required to participate in the model.

In response to the CMS proposed rule, AUA has joined more than 100 organizations —including patient and provider groups— in the ASP Coalition in asking Congress to urge CMS to withdraw the rule. The groups argue that the rule would make sweeping changes to Medicare Part B drug reimbursement without sufficient stakeholder input and could affect the care and treatment of Medicare patients with complex conditions.

About the Proposed Rule

Currently, Medicare Part B covers prescription drugs that are administered in a physician’s office or hospital outpatient department, such as cancer medications and injectable drugs like antibiotics. Drugs under Medicare Part B are paid the average sales price (ASP) plus a 6 percent add-on payment that generally fall into three categories:

  • Drugs furnished incident to a physician’s service in the office or hospital outpatient settings,
  • Drugs administered via a covered item of durable medical equipment, and
  • Other categories of drugs explicitly identified in the law.

The proposed Medicare Part B Model is designed to test different physician and patient incentives to do two things: drive the prescribing of the most effective drugs, and test new payment approaches to reward positive patient outcomes. The first phase of the proposed model would test whether changing the add-on payment from 6 percent to 2.5 percent plus a flat fee payment of $16.80 per drug per day changes prescribing incentives and leads to improved quality and value. CMS would update the flat fee at the beginning of each year by the percentage increase in the consumer price index for medical care for the most recent 12-month period. This test is schedule to begin in late 2016 (no earlier than 60 days after the rule is finalized).

To illustrate the effect of the proposed change, consider two drugs each prescribed for a similar condition, with similar patient outcomes, but with widely varying prices. The average sales price for Drug A is $5, and for Drug B it is $100. Today, Drug A is paid at $0.30 above the price of the drug and Drug B at $6.00. But under CMS’ proposal, Medicare would pay Drug A at $16.93 above the average sales price and Drug B at $19.30. 

Illustrative Example: Drug Payment under Current Policy and Proposed Medicare Part B Drug Payment Model 

  Current Add On Payment Rate (6% ASP) Proposed Add On Payment Rate (2.5% ASP + $16.80)  Current Add On Payment Rate as a Percentage of ASP   Proposed Add On Payment Rate as a Percentage of ASP
$5.00   $0.30  $16.93  6%  339%
 $10.00  $0.60  $17.05  6%  171%
 $100.00  $6.00  $19.30  6%  19%
 $1,000.00  $60.00  $41.80  6%  4%

Value-based Purchasing Tools

To produce a menu of value-based purchasing options, CMS reviewed numerous tools used by private insurers, pharmacy benefit managers, hospitals, and other entities that manage drugs and identified those that may be applicable to payment for Medicare Part B drugs. In the second phase of the proposed model, CMS would begin testing no sooner than January 1, 2017. The value-based strategies that would be tested are:

  • Discounting or eliminating patient cost-sharing: Patients are often required to pay for a portion of their care through cost-sharing. The proposed test would decrease or eliminate cost sharing to improve beneficiaries’ access and appropriate use of effective drugs.
  • Feedback on prescribing patterns and online decision support tools: The proposed test would create evidence-based clinical decision support tools as a resource for providers and suppliers focused on safe and appropriate use for selected drugs and indications. Examples could include best practices in prescribing or information on a clinician’s prescribing patterns relative to geographic and national trends.
  • Indications-based pricing: The proposed test would vary the payment for a drug based on its clinical effectiveness for different indications. For example, a medication might be used to treat one condition with high levels of success but an unrelated condition with less effectiveness, or for a longer duration of time. CMS’ goal is to pay for what works for patients. 
  • Reference pricing: The proposed model would test the practice of setting a standard payment rate—a benchmark—for a group of therapeutically similar drug products.
  • Risk-sharing agreements based on outcomes: The proposed test would allow CMS to enter into voluntary agreements with drug manufacturers to link patient outcomes with price adjustments.

Testing the Model to See What Works

CMS would conduct a complete evaluation of the proposed model, which would run for five years, with the goal of having both phases of the model in full operation during the last three years of the proposed five year duration to evaluate changes and collect sufficient data. CMS plans to implement a concurrent real-time claims monitoring program to track utilization, spending, and prescribing patterns as well as changes in site of service delivery, mortality, hospital admissions, and several other high-level claims-based measures.

All providers and suppliers furnishing and billing for Part B drugs would be required to participate in the model, although not all would be part of each test. This would help ensure that observed outcomes do not suffer from selection bias inherent in a voluntary participation model and would help test whether the model can ultimately be generalized to providers and suppliers billing for Part B drugs with various characteristics, such as different geographies, patient populations, and specialty mix. CMS is proposing to include all Part B drugs and biologicals in this model, with the exception of contractor-priced drugs, including drugs that do not appear on the quarterly national ASP price file, influenza, pneumococcal pneumonia and hepatitis B vaccines, drugs infused with a covered item of durable medical equipment (DME) in phase I, drugs for end-stage renal disease (ESRD), blood and blood products. Providers and suppliers in the state of Maryland paid under the Maryland All-Payer Model, and drugs reported in short supply by the FDA also would be excluded.

Providers and suppliers would be placed in a control or study groups based on Primary Care Service Areas, which are clusters of ZIP codes based upon patterns of Medicare Part B primary care services (excluding the state of Maryland, where hospital outpatient departments operate under an all-payer model) as follows –

No earlier than 60 days after the final rule is released to the public, CMS would begin to test the changes to Medicare Part B average sales price payments for drugs by creating a control group and a study group. One group would remain under the 6 percent add-on arrangement and the second would receive 2.5 percent of the average sales prices of a drug plus a flat $16.80 per drug per day payment.

No earlier than January 2017, CMS would begin to test value-based purchasing arrangements by further dividing the average sales price test and control groups. The same set of value-based purchasing tools will be used in each of the two new study groups.

 No earlier than 60 days after the final rule   No earlier than January 2017 
 106% ASP (control)

106% ASP
106% ASP with value-based purchasing tools

 102.5% ASP + $16.80 flat per day per drug payment

102.5% ASP + $16.80
102.5% ASP + $16.80 with value-based purchasing tools

CMS is accepting comment on the proposed rule through May 9, 2016. The AUA is reviewing the proposed rule to estimate the impact on urology practices and will prepare comments. AUA members are encouraged to submit their own detailed comments to CMS. Comments may be submitted in one of four ways (please choose only one of the ways listed):

Electronically. You may submit electronic comments on this regulation to Follow the "Submit a comment" instructions.

By regular mail. You may mail written comments to the following address ONLY:

Centers for Medicare & Medicaid Services
Department of Health and Human Services
Attention: CMS-1670-P
P.O. Box 8016
Baltimore, MD 21244-8016

(Please allow sufficient time for mailed comments to be received before the close of the comment period.) 

By express or overnight mail. You may send written comments to the following address ONLY:

Centers for Medicare & Medicaid Services
Department of Health and Human Services
Attention: CMS-1670-P
Mail Stop C4-26-057500 Security Boulevard
Baltimore, MD 21244-1850 

By hand or courier. Alternatively, you may deliver (by hand or courier) your written comments ONLY to the following addresses prior to the close of the comment period: 

Centers for Medicare & Medicaid Services
Department of Health and Human Services
Room 445-G, Hubert H. Humphrey Building
200 Independence Avenue, SW.
Washington, DC 20201

Centers for Medicare & Medicaid Services
Department of Health and Human Services
7500 Security Boulevard
Baltimore, MD 21244-1850

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