Physician Fee Schedule Proposed Rule for 2022 Released: What Pharmaceutical Manufacturers Need to Know

The advance copy of the Proposed Rule can be found here.

Mandating ASP Reporting and Penalties

The Proposed Rule will implement Section 401, Division CC, Title IV of the Consolidated Appropriations Act, 2021 (CAA) such that beginning January 1, 2022, manufacturers – regardless of whether they have executed a Medicaid drug rebate program (MDRP) agreement or not – must report average sales price (ASP) information to CMS for drugs or biologicals payable under Medicare Part B. The reporting obligation also extends to certain devices and skin substitutes that are reimbursed under Medicare Part B like a drug or biological. As noted in the Proposed Rule, currently manufacturers without a MDRP agreement are not required to report ASP, though some choose to do so voluntarily.

CMS notes that the current ASP reporting requirements found in 42 C.F.R. Part 414, Subpart J do not require substantial revision, as manufacturers both previously required to report ASP to CMS and those reporting voluntarily “are accustomed to the existing regulatory requirements… [and they do] not currently distinguish between manufacturers with [MDRP] agreements and those without these agreements.” However, the Proposed Rule does seek to revise the definition of “drug” found at 42 C.F.R. § 414.802 to mean “a drug or biological, and includes an item, service, supply, or product that is payable under Medicare Part B as a drug or biological.”

Section 401(b)(2) of the CAA also amended section 1847A(c)(6)(A) of the Social Security Act (the Act) to permit the Secretary to exclude repackagers from the definition of “manufacturer” and, therefore, potentially exempt repackagers from ASP reporting, but as noted in the Proposed Rule, the Secretary has declined to exert that authority at this time. However, the Proposed Rule specifically seeks comment on whether the approach adopted by the Secretary is appropriate.

Finally, the Proposed Rule would make corresponding changes to existing regulations to clarify that civil money penalties would apply to manufacturers without MDRP agreements that fail to report timely and accurate ASP data, making the civil monetary penalties consistent with the civil money penalties currently in place sections 1927(b)(3)(C)(i) and (ii) of the Act for manufacturers with MDRP agreements that fail to report timely and accurate ASP data.

Codification of ‘Lesser of’ Payment Methodology for Self-Administered Drugs

The Proposed Rule will also implement Section 405 of Division CC, Title IV of the CAA, 2021, which “directs [the Office of the Inspector General (OIG)] to conduct periodic studies to identify NDCs for drug or biological products that are identified to be self-administered for which payment may not be made under Part B …and that OIG determines should be excluded from the determination of” ASP. If the OIG identifies such an NDC, the agency must notify HHS and then the Secretary shall, as appropriate, apply the “lesser of” payment methodology to such NDC. In order to determine the appropriate reimbursement amount for those drugs identified by the OIG, CMS will conduct two separate calculations in order to compare the value of the ASP of the drug or biological both with and without the inclusion of the NDCs that have been identified as drugs that are self-administered. Whichever calculation is the lesser of “will be used as the payment limit for the applicable billing and payment code for that quarter’s ASP pricing files.”

The only exception to the use of the “lesser of” methodology is when a drug is in short supply. The Proposed Rule states that “we will not apply the lesser-of methodology (that is, we will determine the payment allowance including all NDCs of the drug or biological product) if the drug and dosage form(s) represented by the billing and payment code are reported by the Drug Shortage list established under section 506E of the Federal Food, Drug, and Cosmetic Act (FFDCA) at the time that ASP payment limits are being finalized for the next quarter.”

CMS Proposes Some NDA Products May No Longer Be Reimbursed as Single Source under Their Own J-Code

As it did in last year’s PFS proposed rule, CMS has proposed to “codify” at least one payment policy regarding drugs that are approved under the Section 505(b)(2) pathway of the FFDCA (currently meeting the definition of single-source drug) that appears to be at odds with applicable law found in the Act. The Proposed Rule makes clear that CMS is not codifying anything new into regulation or guidance, but seeks feedback on whether their proposed framework is appropriate. The agency states that a framework is necessary as some products approved under section 505(b)(2) (biologicals) are not easily categorized as “multiple source drugs” or “single source drugs” – a distinction which is important for Part B reimbursement.

The Proposed Rule describes the framework as “a determination process to identify when section 505(b)(2) drug products without an FDA [therapeutically equivalent] rating to an existing drug product payable under Part B correspond to an existing multiple source drug code for the purpose of payment under Medicare Part B. The framework would provide additional detail about the decision-making process and increase transparency about potential determinations resulting from the framework.”

First, the framework would compare various qualities of the biological in question with drugs already assigned an “existing multiple source drug code,” which would include “(1) active ingredient(s); (2) dosage form (if part of the drug product name); (3) salt form; and (4) other ingredients in the drug product formulation.” If the two products “matched” during this first step, then the framework would progress to a “verification step.” The verification step would “compare the pharmacokinetic and clinical studies of the section 505(b)(2) drug product’s FDA-approved labeling with those of the drug products already assigned to an existing multiple source code. Finally, a determination would be made as to whether the section 505(b)(2) drug product could be assigned to the existing multiple source code.”

As we stated related to CMS’ proposal last year (which included a similar, proposed “framework”), the proposal is in direct conflict with the statutory definition of “single source drug or biological,” which requires single-source drugs to be reimbursed solely based on the drug’s ASP +6% rather than the weighted average ASPs of all therapeutically equivalent drugs. CMS currently operationalizes this statutory requirement by assigning separate reimbursement codes (or J-codes) to single-source drugs and biologicals. Under CMS’ proposed framework in the Proposed Rule, certain drugs approved under Section 505(b)(2) of the FFDCA would no longer receive a separate reimbursement code, but rather would be lumped into an existing J-code for drug products that may not be therapeutically equivalent per Food and Drug Administration (FDA) standards, but that would have the same active pharmaceutical ingredient. CMS’ proposed framework suggests that the new reimbursement standard will be applied not only prospectively but that CMS may also re-visit reimbursement and coding for existing Medicare Part B drugs. This is an area not only ripe for comment by the industry but also for formal legal challenges.

For full details on the framework click here.

The Proposed Rule solicits specific comment on:

• The framework and how it aligns with the statutory definitions of single source and multiple source drugs in section 1847A(c)(6)(C) and (D) of the Act, respectively;
• How the framework distinguishes situations in which a section 505(b)(2) drug product is not described by an existing multiple source drug code; and
• The potential impacts of the framework on Medicare beneficiaries, the government, and other stakeholders.

As always, drug manufacturers and other participants in the pharmaceutical supply chain should take every opportunity to comment on policy and proposed rulemaking. Arent Fox routinely drafts comments for our clients and reviews policy positions impacted by agency rules and guidance.