Life Science Compliance Update

March 15, 2017

MedPAC Considers Revised Approaches to Part B Drug Payment

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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.”

February 17, 2017

MedPAC Reviews Part D Spending Trends

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On January 12, 2017, during the second session of Medicare Payment Advisory Commission’s (MedPAC’s) January meeting, MedPAC Commissioners evaluated current data concerning trends in Medicare Part D spending and discussed future direction for studies regarding updating the program to reflect current markets. The Commissioners reviewed information about the numbers of stand-alone and Medicare Advantage (MA) prescription drug plans participating in Part D for 2017 and the types of benefit designs they offer, including the number of plans with no premium available to individuals receiving the low-income subsidy (LIS).

While no formal vote was held, the Commission endorsed the recommendations for spring discussion topics and advised that the overall Part D program be reviewed for modern relevance and efficiency. Several Commissioners raised concerns that the program details, created in 2003, were no longer relevant to the current market.

Staff Presentation

Several analysts presented key trends in Part D program spending, drug prices, and strategies plan sponsors use to manage spending. According to staff analysts, in 2016, seventy-two percent (41 million of 57 million Medicare beneficiaries), were enrolled in Part D plans, and another three percent received retiree drug subsidies. The analysts also noted that sixty percent of all Part D enrollees had Prescription Drug Plans (PDPs) in 2016, compared to the forty percent that had Medicare Advantage Prescription Drug (MA-PD) Plans. While there will be sixteen percent fewer PDPs offered in 2017, the analysts assured everyone that broad choice will still exist for beneficiaries – there will be eighteen to twenty-four plan choices in each region.

The analysts also noted that Part D is seeing consistent growth. While premiums have remained stable between $29 and $31 from 2009 to 2016, enrollment has grown at an average of six percent each year, rising from 24 billion beneficiaries in 2007 to 41 million in 2016. The rate of growth has been higher among non-LIS enrollees than among LIS enrollees.

The analysts identified manufacturer rebates and specialty pharmacies as two essential strategies to manage Part D premiums. Specialty drugs are accounting for greater shares of drug spending, and manufacturers are using limited networks of specialty pharmacies that do not fall under covered plan pharmacy networks.

Direct and indirect remuneration (DIR) was also discussed, and how it has grown, doubling in drug classes with competing therapies since the start of the program. The increase in brand prices more than offsets the effects of generic use. Incentives for plans to put higher-price, high-rebate drugs on formularies is growing due to the generous eighty percent reinsurance rate set by CMS’s formula. In June, the Commission recommended that this rate be lowered to twenty percent, due to reinsurance growing faster than any other category of Medicare spending.

Commissioner Discussion

The Commissioners expressed an “urgent” need to reevaluate the Part D program’s applicability to the modern healthcare system. Commissioner Amy Bricker introduced the notion that the current program does not allow plans to be competitive with the commercial market, thereby crippling their ability to manage rising drug costs. She suggested the ability to make mid-year changes to plan formularies as one example of additional flexibility for plans. She also suggested that more plans would embrace taking on the risk of investing in sole source products if they had more flexibility to manage their benefits, similar to commercial markets.

Commissioner Jack Hoadley, suggested that more transparency between plans and beneficiaries would make extra flexibility for plans viable. He noted that if beneficiaries understand why the changes are being made to their plans, and how they can appeal to retain their old structures, there is likely to be more trust. He proposed that the Commission work together to come up with ideas as to how to better engage plans and beneficiaries, because the current system does not do much to encourage communication. He also asked that the star ratings tool be reworked to better reflect beneficiary experience with specific plans.

Commission Chairman Jay Crosson summed up the discussion with two themes, both of which most Commissioners felt need “urgent action”: (1) is the Part D program pharmaceutically “appropriate”? and (2) is there a need for the program to be updated to better reflect the challenges of the current marketplace. Lastly, Chairman Crosson recommended that the Commission explore incorporating value-based payment methodologies in future discussions.

January 06, 2017

A Review of CMS' Hospital Compare Website

Hospitalcompare

As we reported, in July CMS released its first-ever hospital quality star ratings on its Hospital Compare website. The overall star ratings are based on 64 quality measures grouped under three process categories—effectiveness of care, efficient use of medical imaging, and timeliness of care—and four outcomes categories: mortality, patient experience, readmissions, and safety of care. Many of the hospitals widely considered to be the nation’s best were unable to achieve a five-star rating.

Unfairly punishes hospitals

According to a recent analysis, this star rating system rewards hospitals that serve mostly affluent patients and punishes those serving the poor. The research by Bloomberg BNA compares star ratings of hospitals, indicating a correlation between high star ratings and high household income, and a corresponding correlation between low ratings and low income.

Critics of the rating system point out that low-income patients are more likely to have difficulty accessing transportation for both routine primary care and post-discharge follow-up care. That can and does affect readmission rates, which are a key component of quality ratings. Critics of the system also point to anomalous results such as the consistently low ratings of academic medical centers, which are generally considered among the nation’s best hospitals and which are often located in low income urban areas. 

As published by Bloomberg BNA:

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Outcome reporting issue

As reported in Health Affairs, CMS calculated and published star ratings for hospitals that had sufficient data to report on as few as three quality domains, including some hospitals that only had data from one clinical outcome domain. The fewer the clinical outcome domains a hospital reports, the less that hospital’s overall star rating is actually tied to performance on patient outcomes. Based on the July 2016 release of hospital compare data, 40 percent of the 102 hospitals that received a five-star rating did not have the minimum data necessary to report on either mortality or readmissions. Of those, 20 performed at only the national average on patient safety. Are all the shining stars here an accurate representation of quality?

This inconsistent value matrix leads to a wide performance divide among five-star hospitals. As shown by the Health Affairs research, among the 30 five-star hospitals that had sufficient data to report only the minimum number of quality domains required—three out of a total of seven (red bars)—14 had performed higher than the national average on only one quality domain, 15 performed above average on two domains, and a single hospital excelled at those three quality domains. Hospitals that reported all seven quality domains (yellow bars), however, needed at least three quality domains with above national average performance to receive a five-star rating:

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MedPAC: Change the program

In October, the Medicare Payment Advisory Commission (MedPAC) sent a letter to CMS raising concerns about the agency's methodology for calculating hospital quality star ratings. Specifically, MedPAC is concerned the ratings do not fully consider the intrinsic health risks that patients bring to hospitals, therefore creating an output score that is not “apples-to-apples”. For example, at one-star hospitals, an average of 78 percent of admissions were admitted through the emergency department. At five-star hospitals, only 36 of admissions were admitted through the emergency department. One-star hospitals treat a higher share of more severe cases from emergency rooms.

MedPAC is also concerned regarding overlapping quality payment and reporting programs.

The Commission asks CMS to align the star rating methodology as much as possible with existing CMS programs, like the Hospital Value-based Purchasing program, which scores hospitals on a set of quality and cost measures and redistributes payments from lower- to higher-performing hospitals. This may perhaps be the only way for CMS to save the program and correct the methodological challenges that currently call into question the utility of the hospital star ratings.

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