Explainer (#1) of the Part B Drug Rule - Now that it's been out a while
There’s no better time or way to jump into Blogworld than to postulate on a topic of great interest to the industry and one that I know a little bit about, Medicare’s proposed Part B Drug Rule. In March of this year, the Centers for Medicare and Medicaid Services (CMS) issued the rule and immediately the controversy started to swirl. While this is not new to everyone, perhaps a brief explanation of why the rule was issued is in order. To be as brief as possible, money. That’s the crux of it.
Even though CMS often states that it is not interested in individual costs and the reason that it makes rules is to ensure that Medicare beneficiaries receive efficient and effective service, the reason for this proposed rule is the cost of drugs in Part B. In the rule, CMS cited several sources (including their own claims) that shows spending on Part B drugs is $20 billion per year, and rising. Because of the parameters under which they can regulate, they developed this proposed rule to begin to stem these costs.
In the pharmaceutical and biotech world, Part B is critical to success because that is the setting in which doctors and hospitals administer drugs (and biologics, which will be implied by the word drugs throughout this piece) directly to patients. Part B has no trips to the pharmacy (Part D), no mail order prescriptions (Part D), and basically no additional sets of premiums and/or copays (Parts C and D). So, it is not difficult to imagine that all kinds of stakeholders expressed dismay, to say the least, when the proposed rule was released.
As part of the government’s rule making process, when a proposed rule like this one is issued there must be a public comment period, allowing stakeholders to express their views directly to the issuing agency. The stakeholders, their positions and the basic reasons for those positions include the following. Remember, though, not everything is plain and simple and the basic reasons shown here are not the full story.
CMS, proposing the rule, to save money
Commercial insurance companies, supporting the rule, to demonstrate that their cost-cutting efforts are valid and acceptable
Pharmaceutical and biotech industry, opposing the rule, reasoning that it would limit access of Medicare beneficiaries to life saving drugs, and oh yeah, cut their revenues, which would mean fewer funds for research (Full disclosure, the clients of LARA Reimbursement Advisory are pharmaceutical, biotech, and medical device companies that often rely on Part B for payments to their customers.)
Doctors, mainly opposing the rule, because they already have been experiencing cuts and this rule just cuts deeper without, according to them, helping patients
Hospitals, mainly opposing the rule, because they have already been subject to bundled payments and this is cutting on top of bundling, reducing whatever margin they had that would keep them operating in the black
Patients, somewhat split but leaning toward opposed, because those with severe illnesses (cancer, rheumatoid arthritis, heart disease, etc.) want to be sure they have access to the medications their doctors think will help them the most
Congress, somewhat split but leaning toward opposed, to show that government interference does not work when private sector competition determine market outcomes
Now that we know the players, it is helpful to understand the details, which will bring into focus why the stakeholders hold the positions they do. The interesting thing about the proposed rule is that CMS provided details of how the rule would work, but not a lot of detail of how the rule would be implemented, which in my opinion, could make things difficult.CMS proposed two phases of this money-saving endeavor. The first phase is simple cost-cutting, a pure mathematical exercise. Half of the Phase I participants, defined in the proposed rule by CMS as half of Part B providers in the United States, would be in the “control” group, continuing to be paid for Part B drugs at Average Sales Price (ASP) plus six percent, as has been the case for years. The other half, which is the other half of Part B providers in the United States, would be in the “test” group, receiving a payment of ASP plus 2.5 percent, plus a $16.80 service fee per administration. The hypothesis put forth by CMS is that providers in the test group will gravitate toward low-cost drugs in order to maintain sufficient operating margins. Essentially, the break point is a drug that costs about $480. For lower-cost drugs, the margin between the test group and the control can go as high as 140% on say, a $10 drug. For higher-cost drugs, that same differential would be -3% on a $5,000 drug. There were no provisions in the test group for single-source, innovative drugs, or for drugs that treat diseases efficiently but may cost more than other products.
The implementation of Phase I was to be the Fall of 2016. It is now late July 2016, and there is no final rule that confirms implementation. In order for any proposed rule to be implemented, there has to be a final rule that responds to comments and essentially makes refinements to the proposal. That has not yet happened. CMS has issued other proposed payment rules, as expected, for hospital outpatient departments and physician services, both of which incorporate the use of the administration of Part B drugs. However, there was no mention or reference to this proposed rule in those proposed rules. Not too confusing yet, right?
Also, if even the current contractors are to implement this first phase, they would need time to reprogram their systems based on instructions given to them from CMS. That cannot happen either until a final rule is issued.
And then there is Phase 2, known as Value Based Purchasing, that would need to be addressed in a final rule. My next blog will delve into the details of Phase 2, but know that it will not get simpler. If your company wants to discuss this issue, feel free to contact me at firstname.lastname@example.org. I am happy to talk!
Brian Abraham is the Founder & Principal of LARA Reimbursement Advisory, a consulting company focused on helping life sciences companies get their products paid for by Medicare and other insurance plans.