CMS Unveils Plan to Test ‘International Pricing Index’ as Basis for Medicare Part B Drug Reimbursement

Comments on the ANPR are due on December 31, 2018, and as we anticipate that this solicitation will receive tremendous feedback from drug manufacturers, physicians, distributors and other participants in the drug supply chain, we encourage our clients and interested parties to take advantage of the public comment opportunity.

Overview

CMS proposes that the Centers for Medicare and Medicaid Innovation (CMMI) would oversee a testing model referred to as the International Pricing Index (IPI) that would base Medicare payment for separately reimburseable Part B drugs on prices for those same drugs in economically-similar countries. Like the Medicare Part B demonstration proposed by CMS back in 2016 and subsequently abandoned, the IPI demonstration would be mandatory, with physicians and hospitals in specified geographic areas required to utilize a third-party Competitive Acquisition Program (CAP) vendor to obtain separately reimburseable Medicare Part B drugs for administration to patients. Physicians and hospitals in those regions could not elect to “buy and bill” for separately reimburseable Medicare Part B drugs. Rather, the CAP vendor will bill CMS for separately reimburseable Medicare Part B drugs ordered by physicians and hospitals in those regions and CMS would reimburse the CAP vendor for those drugs based on an established rate based on the IPI. The CAP vendor would receive administrative fees from physicians and hospitals for the delivery of Medicare Part B drugs for administration to patients and would presumably also earn a profit if there was a “spread” between the IPI-based reimbursement and the CAP vendor’s discounted acquisition cost from pharmaceutical manufacturers. The IPI model would operate for five years (from Spring 2020 to Spring 2025) and incorporate only a subset of separately reimburseable Medicare Part B drugs initially and include additional drugs over the five year demonstration period.

The ANPR seeks comment and input on many discrete aspects of the IPI, CAP, and overall approach to drug reimbursement, each of which are set forth below.

IPI Model Design, Generally

With respect to the overall IPI model design, CMS expressed the desire to “remove physicians and hospital outpatient departments from the buy and bill process” by empowering private model vendors to “take on the financial risk of acquiring the drugs and billing Medicare. Under the proposed model, Medicare would pay approved vendors based on the IPI index, with the intent of lowering the amount that Medicare ultimately pays for Part B drugs, while still paying physicians and hospitals for the cost of drug administration plus a new “drug add-on amount.” As to the overall model design, CMS is seeking comment on the following:

• What limitations should be in place on the entities that could participate as vendors (e.g. pharmacies, manufacturers, providers themselves)?
• Which countries should be included in calculating an international pricing index?
• How frequently should international data be updated?
• What should be the schedule for phasing in the spending target?
• Should health care provider bonuses be introduced to incentivize reductions in cost or utilization relative to a benchmark?

CAP Vendors

CMS proposes that participating vendors be allowed great flexibility to offer a variety of delivery options based upon written agreements between the vendor and the physician/hospital. In addition, the types of entities that could be selected as a vendor would be broader than with the past CAP experiment. According to CMS, “[t]he IPI Model would potentially allow entities such as GPOs, wholesalers, distributors, specialty pharmacies, individual or groups of physicians and hospitals, manufacturers, Part D sponsors, and/or other entities” to serve as vendors that would take title to Part B drugs, but not necessarily possession, as long as other requirements and responsibilities were satisfied.

CMS is seeking comment on:

• Whether CMS should be a party to and/or regulate agreements between vendors and physicians/hospitals, and whether the agreements should specify (a) obligations to ensure the physical safety and integrity of the included drugs until they are administered to an included beneficiary, (b) how drug disposition would be handled, and (c) data sharing methods, confidentiality requirements, and potentially other requirements;
• The types of entities that would be allowed to be vendors and vendor qualifications;
• The potential for perverse incentives that could be introduced by potentially allowing health care providers to be vendors and/or allowing vendors to charge health care providers for distribution-related activities, and whether there should be guardrails in place to prevent perverse incentives; and
• The ability of vendors to negotiate discounts on Medicare Part B drugs from pharmaceutical manufacturers and impediments thereto, including potential inclusion in the Average Manufacturer Price and Best Price reported under the Medicaid Drug Rebate Program.

Model Participants

As noted above, the demonstration would be mandatory for physicians and hospitals in select geographic regions. Model participants would not “buy and bill” for separately reimburseable Medicare Part B drugs, but would procure such drugs from CAP vendors. Model participants would still be paid for cost of drug administration, plus a new “drug add-on amount.” CMS envisions that a portion of the “drug add-on payment” could be utilized by physicians and hospitals to pay selected CAP vendors for their services.

CMS is seeking comment on:

• The exclusion of certain types of physician practices and or hospital outpatient departments from the model;
• The inclusion of additional Part B providers and suppliers in the model;
• A potential approach to selecting geographic locations for inclusion in the model;
• Operationalizing the model for larger physician practices; and
• A basis for the “drug add-on amount” other than Average Sales Price (“ASP”).

Included Drugs

As noted above, the demonstration would not apply to all separately reimburseable Medicare Part B drugs. The demonstration would be for a subset of drug products, with more drugs added to the demonstration over the five year period.

CMS is seeking comments on:

• What data CMS should use to determine the inclusion of select separately reimburseable Medicare Part B drugs in the demonstration; and 
• Drugs to be included or excluded from the model.

Payment Methodology

CMS proposes using the IPI to establish a “Target Price.” The Target Price would be phased in over the five year demonstration period. CMS estimates a 30 percent reduction in Medicare spending for separately reimburseable Medicare Part B drugs over the five year period.

CMS is seeking comment on:

• Sources of international pricing data and data sources;
• Frequency for updating international pricing;
• Countries that should be excluded from the international pricing; and
• Data collection and reporting.

Conclusion

It is clear that CMS is focused on shifting the structure of Medicare Part B related to separately reimburseable drug products away from a “buy and bill” model and ASP-based reimbursement, given that this is the second proposed CMMI demonstration focused on this issue released by CMS in the past two years. We encourage pharmaceutical manufacturers, distributors and other stakeholders to seize the opportunity to comment on CMS’s proposal and present alternatives to the IPI-based reimbursement and CAP.