CMS Payment Experiment Strains Legal Powers, Reimbursement Norms

'Perverse' new payment model for Part B drugs may test the limits of its innovation center’s waiver authority and has already drawn lawsuit threat.

The Medicare Part B payment model being planned by the Centers for Medicare and Medicaid Services has drawn threats of legal and congressional action even in its current state as a proposed rule, demonstrating the strength of the opposition against it.

Announced by the agency March 8, the payment model for Part B drugs is envisioned as a large-scale initiative that would rework average sales price-based payments to providers for the majority of Part B drugs in an effort to make reimbursement more “efficient” (Also see "CMS Unveils Bold Approach To Managing Medicare Part B Drug Costs" - Pink Sheet, 8 Mar, 2016.).

It would also experiment with value-based purchasing arrangements for some drugs, potentially including indication-based pricing; risk-sharing contracts, reference-based pricing and discounting or eliminating patient coinsurance (Also see "Medicare Value-Pricing Options Vary Widely In Part B Payment Experiment" - Pink Sheet, 14 Mar, 2016.).

The future of the model is unclear, given the amount of resistance to it. In a speech to the Pharmaceutical Research and Manufacturers of America annual meeting March 9, CMS Acting Administrator Andy Slavitt urged the biopharma industry to engage constructively and not act primarily to obstruct the progress of the proposal (Also see "CMS Seeking ‘Collaborative’ Response To Part B Payment Model – Slavitt Tells PhRMA" - Pink Sheet, 9 Mar, 2016.).

However, the industry has not found much to support in the new model. Manufacturers see it as a move to establish government price controls in an important and growing market for specialty drugs. And providers view it as a threat to current reimbursement levels and systems of care.

The new model “would usher in a new era of government deciding what seniors can get. We believe these are the wrong ways to solve the health care cost problem and no one should doubt our resolve to fight price controls in whatever shape they may take,” PhRMA CEO Stephen Ubl said at the annual meeting.

“We are actively pursuing every legal, legislative and related option to stop the CMS Medicare Part B Drug Payment Model, which is nothing more than a perverse experiment on cancer care provided to seniors,” the Community Oncology Alliance told HHS Secretary Sylvia Burwell and CMS’ Slavitt in a March 9 letter. COA represents community oncology practices.

The model would be implemented under the authority of the CMS Center for Medicare and Medicaid Innovation (CMMI), which was established by the Affordable Care Act to “test innovative payment and service delivery models to reduce program expenditures … while preserving or enhancing the quality of care.” Drugs covered under Part B are typically those administered in a physician’s office or hospital outpatient center.

CMMI is not required to follow a formal rulemaking process with opportunities for public comment, but the way the proposal was developed likely reflects the fact that the Obama Administration has little time left to implement the change before the president leaves office and would like to make the policy as concrete as possible.

'Test Groups' Or Nation-wide?

Two major objections to the proposal that have surfaced in early stakeholder reactions are that its approach goes beyond the statutory authority provided to CMMI and it was developed without appropriate consultation with stakeholders.

Stakeholders point to the fact that the current Part B reimbursement formula of average sales price (ASP) plus 6% is set in statute and argue that the model would inappropriately change the statutory formula for a large number of beneficiaries without authorizing legislation.

CMS invokes the waiver authority provided by law for CMMI experiments to apply the alternative reimbursement approach, in which some providers would get ASP plus 2.5% and a $16.80 flat fee. The law assigns CMMI broad authority to waive the statutory requirements for certain payment and eligibility rules to carry out its experiments.

“We believe that these waivers are necessary and appropriate to test whether the alternative drug payment designs discussed in this proposed rule will lead to better value for drugs paid under Part B, that is, a reduction in Medicare expenditures, while preserving or enhancing quality of care provided to Medicare beneficiaries,” CMS explains in the proposal.

However, the new payment model may test the limits of how far the agency can push the envelope. The experiment is “simply a vehicle to circumvent Congress and its legislative action on Medicare Part B drug reimbursement,” COA argues.

The organization also maintains that “for years, the President’s annual budget has contained a cut to Part B drug reimbursement but, fortunately, Congress has wisely rejected that as misguided.”

The scale of the payment model also exceeds CMMI’s authority, stakeholders assert. The ASP part of the test would apply to the vast majority of Part B drugs and participation in the experiment would be required for all Part B providers (though not all providers would be subject to the alternative approach).

The new payment approaches would be implemented in three “test groups” across the country designated according to clusters of zip codes known as primary care services areas. Beneficiaries and providers in other geographic areas would be part of a fourth control group and have no change to their reimbursement. The value based arrangements would not apply to all drugs and would likely be limited to certain categories, according to CMS.

Providers and manufacturers view the scope of the plan with dismay. “CMS is proposing that the Medicare Part B reimbursement rate in at least three-quarters of the country be arbitrarily cut,” according to COA.

“This proposal would apply to the vast majority of the country, violating the definition of a demonstration and the spirit of the authority outlined in the statute,” agreed PhRMA’s Ubl.

Consulting With Stakeholders

Stakeholders were surprised by the details of the payment model and many were unaware it was coming until CMS inadvertently posted a notice to its contractors about the program in early February (Also see "CMS Eyeing Test To Lower Part B Drug Payments Through ASP Formula Change" - Pink Sheet, 9 Feb, 2016.).

The ACA says that as part of its work, CMMI “shall consult representatives of relevant federal agencies, and clinical and analytical experts with expertise in medicine and health care management,” COA points out.

The Part B model “has not involved any stakeholders or expert opinion, and clearly does not fit the intent of the ACA,” COA asserts. It is “not a true ‘model’ as in the CMMI legislative charter but simply another disguised cut to Medicare Part B reimbursement for cancer care.”

The group also points out that CMMI consulted with stakeholders prior to the development of the Oncology Payment Model, which is an episode-of-care payment experiment announced in early 2015 (Also see "Medicare Oncology Payment Program Could Pressure Part D Prices, Industry Says" - Pink Sheet, 18 Feb, 2015.).

Similar concerns have been expressed by the chairmen of three congressional committees with jurisdiction over Medicare – House Ways and Means Committee Chairman Kevin Brady, R-Tex., Energy & Commerce Committee Chair Fred Upton, R-Mich., and Senate Finance Committee Chair Orrin Hatch, R-Utah.

The three legislators said in a March 9 statement that the payment model represents “another troubling example of unelected bureaucrats making decisions behind closed doors that impact the American people and their health care. This decision was made with a complete lack of transparency and clear disregard for the people and stakeholders who will be impacted the most.”

“Medicare is an important program and policy decisions should be made in the light of day and reflect our democratic process. Moving forward, our committees will continue to pursue aggressive oversight over CMMI to ensure Medicare is meeting the needs of those the program is intended to serve.”