Life Science Compliance Update

May 12, 2017

MedPAC Discussed Medical Devices at April Meeting


During the Medicare Payment Advisory Commission (MedPAC) April meeting, Commissioners discussed the medical device market. Since the medical device market is not a primary focus of the Commission, MedPAC staff made sure to introduce statistics on the industry at the beginning of their presentation. The discussion on possible policy changes revolved around four issues: unique device identifiers (UDIs); gainsharing; price transparency; and physician-owned distributorships (PODs). While no immediate action is expected from the Commission, commissioners were generally in favor of considering policy changes in all four areas, especially with respect to implantable medical devices (IMDs).

During the discussion, Commissioner Rita Redberg, Professor of Clinical Medicine at the University of California of San Francisco, took a sharp tone, stating that the United States “uses more devices and pays more for them” than comparable industrial countries. One reason for that dilemma, she explained, was the slow approval process at the Food and Drug Administration (FDA) and the Medicare requirement for randomized controlled trials before devices hit the market. She noted that post-market trials were a good idea to speed the process, but that more data was needed on the devices’ failure rate and their impact on health outcomes.

The language used by Commissioners against PODs was consistent and vigorous, as Commissioners took issue with their general existence. Commissioner Warner Thomas of Oschner Health System urged the Commission to take a “harder approach” on PODs and noted that he could see no way that they were helpful for the program or beneficiaries. Commissioner Jack Hoadley of the Health Policy Institute at Georgetown University summed up the Commission’s thoughts by saying that “many of us are wondering if there’s any good reason for PODs to exist.” Chairman Jay Crosson, a former executive at Kaiser Permanente, said that addressing PODs may be “one of the easier areas” to address through MedPAC.

While the Commissioners did not like PODs, they were generally supportive of an increased use of UDIs, though they did not endorse a particular method. Chairman Crosson said that “bang for buck” will be an important consideration going forward. Vice Chairman Jon Christianson of the University of Minnesota said that UDI was a “quality issue” and that it was “clear” that the Commission needed to find a way to connect Medicare and the medical device industry.

Commissioners also largely endorsed the notion of aligning incentives for physicians and hospitals in device procurement, with Chairman Crosson saying that the Commission should “make suggestions on how it could be improved.” In addition, Commissioner Thomas said that Commission should consider a 340B program for medical devices similar to the current program that allows certain hospitals to purchase drugs at a discounted rate.

Chairman Crosson and Executive Director Mark Miller also noted their belief that the Commission could focus on the IMD market, given the costs involved. Commissioner Paul Ginsburg of the Brookings Institution said that price transparency would depend on the concentration of the market and that MedPAC should explore whether Medicare can collect price data and share it confidentially to hospitals and providers. He also endorsed mandatory warranties from manufacturers to help offset costs for hospitals dealing with the fallout of failed devices.

May 11, 2017

MedPAC Approves Part B Payment Recommendations


In early April, during the first session of the Medicare Payment Advisory Commission’s (MedPAC’s) public meeting, the Commission discussed Medicare Part B drug payment policy issues. During the meeting, the Commission unanimously approved several draft recommendations that are expected to be part of the Commission’s June Report to Congress.

MedPAC staff outlined the policy approach to Part B drug reform that would mirror the approach to Part B physician payment reform enacted under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Under the recommendations, there would be two tracks for Part B drug reimbursement: a re-vamped version of the current average sales price (ASP) plus six percent payment, or an updated version of Medicare’s competitive acquisition program (CAP), known as the Drug Value Program (DVP). The basic idea behind this is that, over time, the ASP add-on payment would be reduced to incentivize physician participation in the DVP.

The DVP program would take lessons learned from the CAP program and give the Department of Health and Human Services (HHS) Secretary the authority to use private vendors to negotiate prices and offer providers shared savings opportunities. MedPAC staff noted that DVP would: be voluntary, include multiple vendors, and allow providers to share in savings that Medicare received on the drug’s purchase price. The vendors who negotiated the prices would be paid a fixed administrative fee. Additionally, the DVP would differ from the CAP because vendors would be able to utilize a formulary with an exceptions and appeals process.

Specifically, MedPAC made several recommendations that Congress should change Medicare’s payment for Part B drugs and biologicals. Some of those recommendations are laid out below.  

First, they agreed that the ASP system should be modified in 2018 to: (1) require all manufacturers to submit ASP data, and impose penalties for failure to report; (2) reduce wholesale acquisition cost (WAC)-based payment to WAC plus 3 percent; (3) require manufacturers to pay Medicare a rebate when the ASP for their product reaches an inflation benchmark, and tie beneficiary cost sharing and the ASP add-on to the inflation adjusted ASP; and (4) require the HHS Secretary to use a common billing code to pay for a reference biologic and its biosimilars.

They also agreed to create and phase in a voluntary Drug Value Program (DVP) with the following mandatory elements (no later than 2022): (1) Medicare contracts with a small number of private vendors to negotiate prices for Part B products; providers purchase all DVP products at the price negotiated by their selected DVP vendor; (3) Medicare pays providers the DVP-negotiated price and pays vendors an administrative fee, with opportunities for shared savings; (4) beneficiaries pay lower cost-sharing; (5) Medicare payments under the DVP cannot exceed 100 percent of ASP; and (6) vendors use tools including a formulary and, for products meeting selected criteria, binding arbitration.

While MedPAC Commissioners voted in favor of the reforms discussed above, the stability of pricing within the Part B drug marketplace remained a concern. The Commissioners also pressed MedPAC staff for specific numbers regarding inflation caps, DVP incentives, and penalties for failing to report ASP data. Chairman Jay Crosson and Commissioner Paul Ginsburg of the Brookings Institution called the reforms a step in the right direction, noting that the proposals strengthen the market dynamics for Part B Drugs. Commissioner Ginsburg also praised inflation adjustment caps as a means for suppressing the continuing price increases for Part B drugs.

Commissioner Amy Bricker of Express Scripts noted that she supports “roughly 80%” of the draft recommendations, but expressed three concerns with provisions put forward by the Commission. Commissioner Bricker strongly opposed the arbitration provision of the DVP, noting that it’s “contradictory to the free market emphasis” MedPAC aims to achieve through these reforms, as well as disagreeing with other Commissioners regarding inflation caps and consolidated billing codes for biosimilars. Commissioner Bricker and Commissioner Alice Coombs of South Shore Hospital also questioned MedPAC staff about administrative costs for drug administration, stressing the importance of minimizing the burdens of these costs.

March 15, 2017

MedPAC Considers Revised Approaches to Part B Drug Payment


In mid-January, the Medicare Payment Advisory Commission (MedPAC) met and discussed a revised approach to clinician payment for Medicare Part B drugs. Under the new approach, the average sale price plus 6 percent (ASP + 6) payment methodology would be changed to include a variety of reforms including consolidated billing codes, an inflation limit for price increases and additional manufacturing reporting of ASP. The Commission also discussed a parallel policy which contemplates the start of a bidding program for Medicare Part B drugs.

Staff Presentation

MedPAC’s staff presented a policy approach to Part B drug reform that mirrors the approach to Part B physician payment reform under MACRA. There would be two tracks for Part B drug reimbursements: (1) an updated version of the current ASP +6 payment methodology or (2) and updated version of the Medicare’s competitive acquisition program (CAP) that MedPAC staff refers to as the Drug Value Program (DVP).

ASP + 6 Redesign

The improved ASP system would: feature new requirements for manufacturer reporting of ASP data; modify the add-on payment for drugs during the period prior to ASP data becoming available; implement an inflation cap on drug price increases similar to the Medicaid program; and utilize consolidated billings codes. Further, the current ASP + 6 add-on payment would be phased down over time to encourage DVP enrollment.

DVP Program

The DVP program would be created from lessons learned from the CAP program and would give the Secretary authority to use private vendors to negotiate prices and offer providers shared savings opportunities. The DVP would: be voluntary; include multiple vendors; and allow providers to share in savings that Medicare received on the drug’s purchase price. The DVP will be different from the CAP because vendors would be able to utilize a formulary with an exceptions and appeals process. Further, drug prices would not be able to exceed ASP.

Commissioner Discussion

ASP Redesign

Commissioners were largely supportive of the ASP redesign, though several expressed reservations about specific components of the proposals. Commissioner Amy Bricker (Express Scripts) noted that manufacturers should not be offered Part B reimbursement if they did not report ASP prices. Commissioner Paul Ginsburg (The Brookings Institution) noted that the Commission needed to consider the effects of the sequester, while Commissioner Kathy Buto pointed to possible complications with respect to the inflation limit surrounding beneficiary cost sharing implications.

Some Commissioners expressed “severe reservation” about grouping drugs together under a billing code due to concerns over “practical challenges” for how the drugs would be classified and intense stakeholder pushback. Commissioner Bricker, however, felt that there should be no exceptions for the consolidated billing as there will always be winners and losers in any market. Most, if not all, of the commissioners seemed to agree that biosimilars could be grouped with their reference because the FDA decided that the drugs were not meaningfully different.

DVP Program

With respect to the DVP, Commissioner Jack Hoadley stated it would make sense to have only a few vendors so that they would be able to consolidate buying power and negotiate good prices. Commissioner Brian DeBusk, on the other hand, commended staff for leaving flexibility in the DVP program design to encourage a variety of entities to bid on being a vendor. Overall, the Commissioners were largely supportive of the DVP. They agreed that it essentially amounted to an early form of government negotiation for prescription drugs. Commissioner Pat Wang believes that the DVP is “very much worth trying to detail out.”


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