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In a striking blow to 340B hospitals, the Department of Health and Human Services, Centers for Medicare and Medicaid Services (CMS) released a final Medicare Outpatient Prospective Payment System (OPPS) rule adopting its earlier proposal to significantly reduce Medicare reimbursement for separately payable outpatient drugs purchased by hospitals under the 340B program. The final rule confirms that CMS will drop the reimbursement rate from the average sales price (ASP) plus 6 percent to ASP minus 22.5 percent. The payment changes are scheduled to take effect on January 1, 2018.
Citing the large growth in provider participation in the 340B Program and the increasing prices for drugs administered under Medicare Part B to hospital outpatients, CMS’ stated goal is to align Medicare payment with the amounts hospitals are actually spending to acquire the drugs. CMS relied on a May 2015 Medicare Payment Advisory Commission (MedPAC) Report to Congress to determine the new formula. While MedPAC estimated that the ASP minus 22.5 percent figure that CMS ultimately adopted was the “lower bound of the average discount” on drugs paid under the Medicare OPPS, MedPAC’s March 2016 Report to Congress recommended a reduction in payment to ASP minus 10%, which would have allowed 340B hospitals to realize, on average, a financial benefit for participating in the 340B program.
The Financial Impact of the Changes to 340B Hospitals
The OPPS changes will have a significant impact on 340B participating hospitals. CMS estimated that the change will result in a $1.6 billion reduction in OPPS payments to 340B hospitals for separately payable drugs—an additional estimated reduction of $700 million over the $900 million estimate from the proposed rule. While CMS had requested comments in the proposed rule on how to redistribute the savings to target hospitals that treat low-income patients, the final rule instead redistributes the amounts saved by the 340B payment reductions by increasing OPPS payments for non-drug services
CMS is exempting rural sole community hospitals, children’s hospitals, and PPS-exempt cancer hospitals from the new drug payment reductions for calendar year 2018; they will continue to be paid at ASP + 6%. The exempted hospitals will need to report 340B utilization to Medicare for information and tracking purposes.
Litigation is Expected
The changes to Medicare payment are likely to be challenged in court by one or more groups of stakeholders, including the American Hospital Association. In comments submitted on the proposed rule, multiple groups contended that CMS lacks authority to implement such large payment changes or to single out 340B hospitals for reductions, and may not otherwise contravene the intent and scope of the 340B Program without further Congressional action. These challenges will likely play out in courts as CMS implements the new rule and while Congress continues to debate the future of the 340B Program.
No Impact on Non-Excepted Hospital Outpatient Departments
The changes to Medicare’s reimbursement also create new incentives for off-campus hospital outpatient departments(HOPD). Since January 1, 2017, new off-campus hospital outpatient departments that do not fall within an exception (non-excepted HOPDs) are not eligible for payment under the OPPS, and instead receive a reduced reimbursement rate. CMS has confirmed in the final rule that the new payment reductions for 340B drugs will not be applied to non-excepted HOPDs, as their drugs are not reimbursed under OPPS. As a result, the use of 340B drugs by a non-excepted HOPD will not impact the HOPD’s Medicare reimbursement.
In light of the new rule, 340B hospitals should prepare to come into compliance, which will require the use of a new modifier on each drug billed to Medicare OPPS that was purchased under the 340B Program. In some cases, this will require greater coordination between the hospital’s billing and pharmacy divisions to ensure the modifier is accurately applied.
We will continue to monitor the 340B Program and will update you on any further changes that may arise.
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Will the Massachusetts Proposed Legislation on Hospital Outpatient Facility Fees Have a Nationwide Impact?
In some states, including the Commonwealth of Massachusetts, “site neutrality” for outpatient hospital reimbursement is factoring into state-specific health reform and cost containment initiatives. This potentially goes well-beyond Medicare’s limitation of reimbursement at new off-campus outpatient hospital departments under Section 603 of the Bi-partisan Budget Act of 2015. Since Massachusetts’ state health reform law was the model on which the Affordable Care Act was based, many other jurisdictions look to Massachusetts to see how the state is addressing the “cost” component of the equation, especially now that the “access” component is addressed by the ACA and state initiatives. Massachusetts has taken several swings at the cost conundrum, including the latest legislation introduced in October of 2017. This recent legislation includes a provision that would essentially eliminate a large number of hospital outpatient costs, both on-and off-campus.
Treatment of “Facility Fees” Under the New State Senate Bill
On October 17, 2017, the Massachusetts State Senate released a proposed bill entitled “An Act Furthering Health Empowerment and Affordability by Leveraging Transformative Health Care.” This bill was discussed on October 23, 2017 in a packed hearing room before a Special Senate Committee on Health Care Cost Containment & Reform where representatives from teaching and community hospitals, health plans, and patient/citizen groups were present.
This bill also includes several far-reaching provisions, which we will address in future posts, including the provider price variation and out-of-network payment issues; as these provisions are also of great interest to the hospital industry. But, a major concern in the bill, from a hospital operations consideration, is a prohibition on hospitals charging facility fees for many common outpatient services, as a condition of licensure.
The contours of this prohibition are not entirely clear, but it would appear to be targeting so-called outpatient evaluation & management (E&M) services within any department of a hospital that submits a claim to any insurer (public and commercial) as an outpatient service. The bill permits the Department of Public Health (DPH) to add additional services to the ban beyond outpatient E&M. In addition to the billing ban, the proposed legislation serves up several other dishes designed to restrict or burden hospital billing for outpatient services, including limitations on payment for state employees under the Group Insurance Commission (GIC), and several sections requiring notices to patients by hospitals and other providers referring patients for hospital services. At least one of these notices is required before delivery of services in the emergency room (ER), “if practical.”
What is Included in the Massachusetts State Senate Bill?
Presumably, more will be known about the intentions of the drafters in the coming days and weeks, as well as what the House of Representatives will make of this. In the meantime, here are a few observations on the bill as written:
- If passed, Massachusetts hospitals (and, once the insurance provisions kick in, likely hospitals throughout New England and other states treating Massachusetts-covered beneficiaries), will not be able to charge facility fees for many common procedures, but must continue to incur the costs of those services, including nurses, other staff, medical supplies, facilities, overhead, power, electronic medical records, patient safety, infection control, )
- There is serious ambiguity regarding what services are subject to the ban. Is it just outpatient E&M or are other services where a physician performs some E&M service, like an emergency department or observation services impacted? Given the wording of the bill, it would appear to be extremely broad in scope, encompassing many different locations, including on-campus outpatient departments. Indeed, the accompanying Senate Report suggests that a more sweeping set of services would be subject to the payment ban.
- It is unclear which payors are covered. Since the prohibition is incorporated not in the insurance laws but, rather, as part of the hospital licensing requirements, it would appear that it should apply to all payors, including Medicare and employer-sponsored health plans covered by ERISA. This raises serious preemption and other questions. Perhaps it was intended only to apply to commercial payors and the GIC by including similar language in those statutory provisions, but clarification as to the extent of the application of this bill will be needed especially given the placement in multiple statutory provisions.
- Unlike the Medicare site-neutrality law, which permits payment to hospitals at a reduced rate for outpatient services at non-exempt site, Massachusetts is proposing a zero reimbursement rule, not a payment reduction, and with no “grandfathering” of existing locations. If the law is passed, only physicians will be able to charge for impacted services at all sites.
- Also, unlike the Medicare rule, the Senate bill appears to apply to both on-campus as well as off-campus services. Because the accompanying Senate Report suggested recommendation is that only off-campus services be targeted, we wonder if the Senate intended such broad geographic coverage.
- If only physicians can bill for these services, will physicians be required to share their fees back with the hospitals to cover the hospital’s overhead? You may recall that this was a feature of the initial CMS proposal under Medicare site neutrality. If not, is there a “Stark” (physician self-referral) Law implication on the theory that the physician is receiving “free” use of hospital space? If so, will physicians be able to charge a full physician fee schedule payment, without reduction for the “site of service differential? And if physicians cannot bill the full professional fee, does that mean that both hospitals and physicians will be provide these services for free or at a massive discount to all payors?
- Does the bill require hospitals to provide a notice of fees to emergency room patients prior to the delivery of services, and, “if practical”, does it put hospitals on a collision course with the federal government and its implementation of the Emergency Medical Treatment and Labor Act (EMTALA, also known as the patient anti-dumping law)? CMS has long been concerned that talking to patients about costs and charges before receiving emergency services may cause patients to leave a hospital ER in an unsafe medical condition and violate EMTALA.
The Impact of this Proposal May Reach Beyond Massachusetts
While we are asking a number of questions about this initial proposal on hospital costs, it appears that the Commonwealth is heading in a direction that could have a material impact on hospital reimbursements, budget, and operations if passed in any form. Hospital administrators in Massachusetts will be watching this closely. Hospital and health system leaders nationally should also be concerned that this type of state strategy may be considered in other jurisdictions too.
Interested parties should consider commenting on the State Senate bill.
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Also Changes Required Participation in the CJR Model
On August 15, 2017, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule (Proposed Rule) that, if finalized, would (1) reduce the number of Metropolitan Statistical Areas (MSAs) in which there is mandatory participation in the Comprehensive Care Joint Replacement model (CJR) from 67 to 34, and (2) cancel the mandatory Episode Payment Models and Cardiac Rehabilitation incentive payment program. The action reflects a change in course for CMS, de-emphasizing and significantly reducing mandatory participation in Alternative Payment Programs.
Reduced Mandatory Participation in CJR Model
The CJR model originally became effective on April 1, 2016 and mandated that hospitals in 67 specified MSAs must participate in an episode-based payment program for hip and knee joint replacements. The Proposed Rule, anticipated to be effective as of February 1, 2018, reduces the mandatory participation in the CJR essentially by one half to 34 MSAs (see Table 1 below taken from the proposed rule for the remaining MSAs).
The remaining MSAs have the highest average wage-adjusted historic episode payments, that is, the counties with the highest average expense cost for the episodes involved. Under the Proposed Rule, hospitals in the other 33 MSAs would no longer be required to participate in the CJR model, but they may elect voluntarily to participate in that program by submitting a participation election letter to CMS by January 31, 2018. In addition, within the 34 MSAs for which participation is mandatory, identified low volume or rural hospitals also would no longer be required to participate, but they may elect voluntarily to do so.
According to CMS, the remaining 34 MSAs for which participation is mandatory will provide sufficient information to evaluate the effects of the CJR model across a broad range of providers. The higher costs in these MSAs also allows the participating hospitals a greater opportunity for showing improvement through participation in the CJR model.
Cancellation of EPM and Cardiac Rehabilitation Incentive Program
The Proposed Rule also seeks to cancel the Episode Payment Model (EPM), that would have expanded mandatory participation in an episode-based payment to hospitals in a number of MSAs for acute myocardial infarctions, coronary artery bypass grafts and surgical hip/femur fracture treatment, and a Cardiac Rehabilitation Incentive payment model that was to be implemented simultaneously with the EPM. Regulations for both models were originally issued on July 25, 2016 and are described here.
What Does All This Mean?
The Proposed Rule shows CMS does not favor mandatory participation in Alternative Payment Programs. As CMS states in the commentary to the Proposed Rule “requiring hospitals to participate in episode payment models at this time is not in the best interests of the agency or affected providers.” CMS further explained that large mandatory episode-based payment models “may impede [the] ability to engage providers, such as hospitals, in future voluntary efforts.”
While CMS and the Center for Medicare and Medicaid Innovation have introduced many Alternative Payment Programs which move reimbursement to providers away from fee-for-service reimbursement toward reimbursement models focused on efficiency, delivery of value, and quality care, some have thought the pace of the transition to value-based care has been slower than anticipated. Since Alternative Payment Models are viewed as an effective way to restrain health care cost increases, some view that such slower pace will mean providers will not be required to take steps necessary to be more efficient and reduce costs. Cancellation of and reductions in mandatory programs will allow providers to avoid, at least for the near term, preparing themselves for such models given the lack of any requirement to do so.
At the same time, voluntary participation ensures participants in such models are committed to and engaged in the value-based models. The continued evaluation of such models with voluntary participants also helps ensure that access to care, quality, and favorable outcomes are not adversely affected by mandatory participation of providers not ready for such programs.
Commercial payor arrangements and market incentives aimed at helping providers to become more efficient are not directly affected by the Proposed Rule. Their presence may still encourage providers to voluntarily participate in Alternative Payment Models.
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Ninth Circuit Victory Opens the Door to Medicaid Reimbursement Challenges Based on Equal Access Requirement
The Ninth Circuit held August 7 that the Department of Health and Human Services Secretary erred in approving a Medicaid State Plan Amendment (SPA) that cut reimbursement for outpatient hospital services in California by 10% for eight months in 2008-2009. The Hoag Memorial decision sided with the 57 hospitals that challenged the SPA under the theory that the reimbursement cut violated the federal Medicaid requirement that payment rates be sufficient to provide Medicaid beneficiaries with equal access to care and services.
In Hoag Memorial, the Court Did Not Defer to the Secretary’s Interpretation of the Medicaid Statute
The decision is particularly significant because prior Ninth Circuit caselaw had largely deferred to the Secretary when considering how reimbursement cuts would impact the availability of Medicaid services. In 2013, the court rejected a hospital challenge in Managed Pharmacy Care v. Sebelius, in which plaintiffs had alleged that a reimbursement cut did not satisfy the Medicaid requirement under section 1902(a)(30)(A) of the Social Security Act (Section 1902(a)(30)(A)) to “assure that payments are consistent with efficiency, economy, and quality of care” because the Secretary did not consider provider costs.
Hoag Memorial distinguished Managed Pharmacy Care by relying on a different clause in section 1902(a)(30)(A). The court wrote that the requirement that payments “are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area,” unambiguously expressed Congress’ intent such that the court need not defer to the Secretary’s interpretation about whether the requirement was met. It said that the equal-access requirement is a “concrete standard, objectively measurable against the health care access afforded among the general population,” in contrast to the “broad and diffuse” requirement that payments be “consistent with efficiency, economy and quality of care.” Based on this analysis, the court held that the Secretary’s approval of the SPA was arbitrary and capricious under the Administrative Procedure Act (APA) because it failed to consider Medicaid beneficiaries’ access to care relative to that of the general (i.e., non-Medicaid) population.
The APA’s Role in Challenging Medicaid State Plan Amendments
About two years ago, in Armstrong v. Exceptional Child Center, the United States Supreme Court rejected a Section 1902(a)(30)(A) Medicaid reimbursement challenge brought against the state of Idaho for lack of a viable cause of action. In that case, the plaintiff providers had argued that they were entitled to challenge the sufficiency of Idaho’s Medicaid rates pursuant to the Supremacy Clause of the United States Constitution. The Courtheld that the Supremacy Clause “instructs courts what to do when state and federal law clash, but is silent regarding who may enforce federal laws in court, and in what circumstances they may do so.” The Court also asserted that “the Medicaid Act implicitly precludes private enforcement of §30(A)” and expressed skepticism of efforts to “circumvent Congress’s exclusion of private enforcement.” Notwithstanding the Supreme Court’s observation that the Medicaid Act precludes private enforcement, Hoag Memorial allowed a challenge to the sufficiency of Medicaid rates in federal court based on the express statutory cause of action in section 702 of the APA for persons who suffer legal wrong because of agency action.
CMS is Likely to React to the Decision by Considering Additional Evidence When Approving Medicaid Reimbursement SPAs
The holding in Hoag Memorial relied on what the court found to be the Secretary’s failure to consider any evidence regarding the general population’s access to care and services. In the court’s view, such oversight rendered it logically impossible for the Secretary to meet the statutory standard because there could be no way of proving that Medicaid beneficiaries had at least the same level of access to care and services as the general population if the Secretary did not know anything about the general population’s access. Without the ability to make the statutorily mandated comparison, it was not enough that the administrative record included evidence that Medi-Cal beneficiary utilization of hospital outpatient services had not decreased after the payment cut, nor that it included evidence that just as many hospitals provided outpatient services to Medi-Cal beneficiaries.
In 2015, the Centers for Medicare and Medicaid Services (CMS) issued a final rule requiring states considering reductions or restructuring of Medicaid reimbursement that could have an adverse impact on beneficiary access to care to conduct access reviews and submit those findings to CMS along with the request for approval of the reimbursement change. Although the rule references section 1902(a)(30)(A), it does not provide detailed instruction about the evidence that CMS needs from states to evaluate whether the equal-access-to-service component of section 1902(a)(30)(A) has been satisfied. CMS may propose modifications to the rule in response to the Ninth Circuit’s ruling, and begin directing states to submit the kind of evidence the court did not find in the administrative record in Hoag Memorial —either studies directly comparing access to care and services for Medicaid beneficiaries with access for the general population, or independent evidence of the level of access for both groups that CMS can compare when evaluating the SPA.
If CMS modifies the information it requires states to submit in an access review, or if states independently collect comparison data as part of their access reviews, the next round of litigation over equal access for Medicaid beneficiaries may focus not on the Secretary’s failure to consider any evidence at all, but on whether the Secretary considered the right kinds of evidence and drew reasonable conclusions from it. If so, the question of deference will again become paramount because plaintiffs will continue to face uphill battles challenging SPA approvals if courts defer to CMS’ evaluation and interpretation of the evidence. On the one hand, the complexity of the Medicaid program and CMS’ agency expertise in administering it may counsel in favor of deference to the agency. But on the other hand, plaintiffs are likely to argue that deference is not warranted based on the court’s statement in Hoag Memorial that a “straightforward comparison of data under the equal-access requirement would derive little benefit from the Secretary’s expertise.”
It is also possible that the federal government will appeal Hoag Memorial by requesting en banc review at the Ninth Circuit or by appealing to the Supreme Court. As of publication of this article, no petition for further review had been filed.
The Path for Future Medicaid Reimbursement Challenges
Ultimately, Hoag Memorial proves the continuing viability of section 1902(a)(30)(A) challenges to Medicaid reimbursement, even after the defeats for providers in the last few years in the Ninth Circuit and Supreme Court. While APA litigation over the federal approval of Medicaid SPAs is likely to remain challenging for plaintiffs, Hoag Memorial potentially lays the groundwork for future equal-access-to-care arguments and provides support for an argument that courts need not defer to CMS’ conclusions if they are convinced that the Medicaid statute is clear.
Copyright 2017, American Health Lawyers Association, Washington, DC. Reprint permission granted.
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Medicare Claims Appeals: D.C. Circuit Reverses and Remands in Case Seeking Relief From Processing Delays
Summary of AHA v. Price, 2017 U.S. App. LEXIS 14887 (D.C. Cir. Aug. 11, 2017)
On August 11, 2017, the D.C. Circuit reversed the district court and held that the district court abused its discretion by ordering the Secretary of HHS to clear the backlog of administrative appeals of denied Medicare reimbursement claims within four years, because it failed to seriously test the Secretary’s assertion that this result was impossible. The underlying action demanded relief to address the Secretary’s inability to keep up with “an unexpected and dramatic uptick in appeals [that] produced a jam in the process” starting in fiscal year 2011.
In the initial proceedings, a group of hospitals sought a judicial order compelling the Secretary to provide relief from what they considered to be unreasonable delays in resolving Medicare claims appeals at the administrative appeals level. The federal district court for the District of Columbia granted the Secretary’s motion to dismiss for lack of jurisdiction, but the D.C. Circuit reversed. The Circuit Court remanded the case back to the district court, with instructions to consider the merits of appeal, i.e., whether relief should be granted and if so the form of the relief.
The Four-Year Plan to Reduce the Backlog
In addressing the merits of plaintiffs’ allegations on remand, the district court adopted the hospitals’ so-called four-year plan and ordered the Secretary to reduce the current backlog of cases pending at the Administrative Law Judge level by 30% by the end of 2017; 60% by the end of 2018; 90% by the end of 2019; and 100% by the end of 2020. The Secretary then appealed the district court’s order to the D.C. Circuit. On appeal the Secretary argued that it would be impossible to comply with the timetable, because the only means of meeting the timetable would be to pay claims through mass settlements regardless of their merits, which (according to the Secretary) would be in violation of the Medicare statute.
Without finding whether in fact the Secretary would be unable to lawfully comply with the district court’s order, the D.C. Circuit held that because the Secretary represented that lawful compliance with the district court’s order was impossible, the district court committed reversible error by ordering the Secretary to comply with the timetable without first finding that lawful compliance was indeed possible. The Circuit Court also held that it was an error for the district court not to evaluate the Secretary’s assertion that the timetable would increase, not decrease, the number of backlogged appeals, because the timetable would generate an incentive for claimants to file additional appeals and hold out for big payouts.
The Case is Remanded to District Court to Determine Feasibility of Compliance Timetable
The D.C. Circuit therefore remanded the case again to the district court and ordered the district court to determine whether the Secretary’s compliance with the timetable is impossible. However, the Circuit Court noted that the Secretary will bears a “heavy burden to demonstrate the existence of an impossibility.” The Court further noted that if the district court finds on remand that the Secretary failed to carry his burden of demonstrating impossibility, it could potentially reissue its order without modification.
What Does this Decision Mean for Hospitals?
Many Medicare coverage appeals involve a hospital appealing the denial of a short stay on the basis that admission was not medically necessary, and that the patient could be treated as an outpatient. However, because CMS does not allow hospitals to rebill under Part B (except during the one year period following discharge, which in the majority of cases will have expired long before the RAC reopens and denies the inpatient claim), hospitals believe that they have no choice but to appeal. It is important to keep in mind that although the D.C. Circuit faulted the district court for not considering the issue of whether the Secretary could legally comply with the prescribed timetable, the fact that the Secretary will bear the burden of proof on this issue may mean that the district court may end up issuing the same type of relief as it did before.
We will be following this case as the district court determines whether the Secretary’s compliance with the timetable is legally possible and will follow up once a decision is rendered.
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The Centers for Medicare and Medicaid Services (CMS) has proposed reducing the Medicare payment rate to hospitals for most separately payable drugs purchased under the 340B program from average sales price (ASP) plus six percent to ASP minus 22.5%. This reimbursement cut — almost 30% in the aggregate— would significantly reduce the savings available to 340B participating providers. The eventual impact could be even greater if private insurers react by following Medicare’s example and reducing drug payments to 340B participating hospitals. No changes have been proposed for 340B covered entities that are not hospitals.
What Does the Proposed Rule Mean for Hospitals?
Currently, all hospitals other than critical access hospitals are paid the ASP-plus-six-percent rate for separately payable drugs under the Medicare hospital outpatient prospective payment system (OPPS). The rate does not vary based on participation in the 340B program. The proposed rule would require hospitals to identify, through a new modifier, when a drug was not purchased under the 340B program; in the absence of the modifier, CMS would presume that separately payable drugs had been acquired under 340B and pay ASP minus 22.5%. The payment reduction would not apply to drugs on pass-through status or vaccines.
What are the Broader Implications for the 340B Program?
The proposed Medicare change could spell trouble for 340B covered entities if it signifies support for further changes to limit the scope of the 340B program. In explaining the proposal, CMS stated its concern about “the growth in the number of providers participating in the 340B program and recent trends in high and growing prices of several separately payable drugs administered under Medicare Part B to hospital outpatients.” CMS also indicated dissatisfaction with high beneficiary copayments, which are set at 20% of the Medicare payment rate.
CMS determined the new rate based on the estimate in a 2015 MedPAC report to Congress that, on average, hospitals in the 340B program receive a minimum discount of 22.5% off the ASP for drugs paid under the OPPS. In the past, MedPAC has recommended to Congress more modest Part B drug payment cuts to hospitals for 340B drugs of 10 percent. CMS noted this previous MedPAC recommendation—as well as alternative proposals by the Office of Inspector General (OIG) to share 340B savings between Medicare and providers—without fully explaining why it was instead proposing a more aggressive payment cut.
Comment Period is Now Open
CMS has requested comments on the proposal by September 11, 2017. The agency has asked in particular for feedback on the analysis in the 2015 MedPAC report, whether the payment change should be phased in over time, whether exceptions should be established for certain hospitals or drugs, and whether CMS should apply all or part of the savings generated by the payment reduction to payment increases that target hospitals that treat a large share of indigent patients. Given the significant financial impact that this change would have on 340B participating hospitals, it would benefit participating providers to communicate to CMS how the change would impact their ability to deliver care to the low-income and underserved populations that the 340B program is designed to benefit.
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Proving Utility, Demonstrating Value: How to Align the Moving Parts in Personalized Medicine Reimbursement
Of the many business, operational, legal, regulatory and clinical obstacles standing in the way of widespread delivery of personalized medicine, the single greatest challenge may lie in solving the reimbursement puzzle. Advocates of personalized medicine contend that it results in better care for the patient, as therapy is targeted specific to an individual, and that it should result in cost savings as treatment that is unlikely to work for that patient is avoided.
The lack of standardized reimbursement codes and definitions covering precision medicine treatments and services, particularly molecular genetic laboratory tests — when the industry hasn’t even settled on a standard definition of “personalized medicine” — make it difficult for providers to get reimbursed, especially for new or innovative offerings. In order to secure payment from insurers, personalized medicine providers must prove not only the clinical efficacy of their treatments or genetic testing, but also the value they offer to payers. Doing so requires a deep understanding of health care economics.
That formidable landscape provided the backdrop for panel discussion at the Business of Personalized Medicine Summit on March 28 in San Francisco. Moderated by Foley partner Judith Waltz, the discussion carried the title “Moving Targets,” an apt description of a market in the midst of dramatic structural and philosophical change. Even in light of the recent failure of a sweeping health care bill in Congress, the market remains mired in uncertainty. The Affordable Care Act, and other government and payer initiatives, pushed the industry toward value-based reimbursement, and the Obama administration provided vocal support for personalized medicine. Thus far the Trump administration has yet to signal whether it will support continued movement in those directions.
In that environment, Waltz said, the imperative for personalized medicine providers is to recognize and fully understand, at the earliest possible stage, how they’ll make money. “Every personalized medicine business strategy has to identify who the payer will be, and how pricing and reimbursement will work,” she said. “And it has to articulate the product differentiation – because payers often won’t cover it unless it’s better or cheaper than what they’re already doing.”
They’ll also need to have a plan for demonstrating clinical utility in order to meet payers’ evidentiary requirements for coverage, said Mark McCoy, Senior Director, Reimbursement at Guardant Health. In most cases that means building a body of clinical literature, since most payers want to see published data proving either cost savings or cost effectiveness of outcomes.
That has ramifications for sales and marketing, McCoy said. It’s vital to work with providers to set up clinical tests with appropriate utilization and other elements that payers will expect to see – and to keep in mind that providers [physicians who order and rely upon the test that is reimbursed by payers] have little if any financial incentive to use your test. That means, as the business and product evolve, changes must be carefully communicated to providers – who can’t be expected to take pains. “We’ve found you can get good early adoption, but if you change your ordering process a year or two in providers will get frustrated and just drop you,” he said.
Providers also require a lot of education on not only personalized medicine treatments or tests, but on how to apply new evidence to specific patients and how to articulate the results. Amber Trivedi, Senior Vice President, Market Development and Innovation at InformedDNA, said payers want to see that providers are involved, and that puts the impetus on companies to ensure that providers understand how payers define clinical utility and that they document that utility in encounter notes.
Trivedi advised taking a very hands-on approach in dealing with physicians. “You might even have to teach them how to write letters of medical necessity to secure coverage,” she said. “There’s a lot of variation out there in understanding of even the most basic terms.”
Evidence-based review through one of the four established programs also proves extremely helpful when seeking reimbursement, said Anita Chawla, Managing Principal at Analysis Group. The MoIDX program, developed and administered by Palmetto GBA, helps determine Medicare reimbursement – making its determination of clinical utility among the most influential in the industry.
Given that influence, it makes sense for personalized medicine providers to factor in MoIDX criteria and processes when designing clinical studies. “It can save a lot of time downstream,” Chawla said. She pointed to the MoIDX hierarchy – which sets randomized, prospectively controlled trials as the gold standard – as an important road map for companies in the testing-design stage.
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HRSA Announces Final Rule on Civil Monetary Penalties for Drug Manufacturers that Overcharge 340B Covered Entities
A new regulation issued by the Health Resources and Services Administration (“HRSA”) sets forth a process by which civil monetary penalties may be imposed on drug manufacturers that knowingly and intentionally charge 340B covered entities for covered outpatient drugs more than the statutory ceiling price. The regulation addresses the ceiling price calculation for drugs purchased pursuant to the 340B Drug Pricing Program (“340B Program”), and provides that drug manufacturers may be subject to a civil monetary penalty of up to $5,000 for each instance of overcharging. The regulation finalizes a proposal dating back to June 2015. The regulation will be enforced beginning on April 1, 2017.
The civil monetary penalties would not be calculated and imposed by HRSA’s Office of Pharmacy Affairs, but by the Office of Inspector General (“OIG”). The civil monetary penalties would be in addition to any refunds to covered entities that may be required by the 340B Program. The final rule does not provide a mechanism for covered entities to file a complaint against a drug manufacturer for overcharging for 340B drugs. Once HRSA’s 340B administrative dispute resolution rules are finalized and the appropriate system has been established, a covered entity could submit a claim against a manufacturer for an instance of overcharging for administrative dispute resolution.
The new regulation requires drug manufacturers to calculate the 340B ceiling price for each covered outpatient drug, by National Drug Code (NDC), on a quarterly basis. The 340B ceiling price is based on the Average Manufacturer Price (AMP) for the prior quarter, minus a Unit Rebate Amount. For new drugs, manufacturers will need to estimate the 340B ceiling price and then calculate the actual 340B ceiling price once the appropriate data is available. If an overcharge has a occurred as a result of this estimation, drug manufacturers must refund or credit a covered entity the difference between the estimated and actual 340B ceiling price within one hundred and twenty days. Overcharges may also occur if a drug manufacture does not credit or refund a covered entity after subsequent recalculations of the ceiling price by the Centers for Medicare and Medicaid Service (“CMS”). Overcharges are determined on an NDC code basis, and may not be offset by other discounts the manufacturer provides on any other NDC. Drug manufacturers are also required to ensure that 340B discounts are provided through distribution arrangements made by the manufacturer.
The new regulation is based upon a requirement set forth in the Affordable Care Act, and comes at a time when drug prices and the 340B Program are receiving heightened scrutiny by the incoming Congress and administration. We will continue to report on modifications to the 340B Program as they develop.
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