Emerging Dialysis Drugs Will Face Medicare Reimbursement Challenges

Navigating Medicare's complicated bundled payment system could be tricky for new class of anemia drugs, the HIF prolyl hydroxylase inhibitors, which may start to reach the market for dialysis patients in 2019.

A potentially important class of novel oral drugs designed to fight anemia in patients with renal disease faces a complicated reimbursement environment in the US under Medicare.

The HIF prolyl hydroxylase inhibitors are aiming to compete with the aging erythropoiesis stimulating inhibitors (ESAs) in treating anemia. The new drugs act by mimicking hypoxia to stimulate red blood cell production and are expected to have better efficacy and safety than the ESAs, and be able to reduce the use of intravenous iron products.

Although it is early to predict how commercially successful the HIF-PH inhibitors will be, there is a lot of development going on in the space. Three are in Phase III development and three more are in Phase II. (Also see "Battle Lines Drawn In New Renal Anemia Market" - Scrip, 8 Jun, 2017.)

They could serve as a test case for Medicare's evolving approach to rewarding innovation in the end-stage renal disease (ESRD) prospective payment system (PPS), in which dialysis providers are given a single bundled payment for drugs, services, lab tests and supplies.

Drugs were added to the ESRD bundled payment system in 2011 to control costs by discouraging unnecessary use. In 2015, the Centers for Medicare and Medicaid Services (CMS) introduced a policy for reimbursing novel agents with a transitional drug add-on payment, which became effective in 2016.

The add-on payment is important because annual payments for the ESRD bundle are calculated based on past claims and don't reflect the cost of new, more expensive drugs. That can act as a disincentive for providers, who could be unwilling to pay more for a new drug unless they are confident it would provide savings elsewhere.

Pricing is likely to get more competitive in the anemia category in the next couple of years, particularly because a lower-cost biosimilar to for Amgen Inc.Epogen (epoeitin alfa) is nearing approval. Pfizer Inc.'s application for the biosimilar recently hit a snag but the delay appears to be manageable. (Also see "Pfizer’s EPO Biosimilar Stalls In US On Hospira Compliance Woes" - Pink Sheet, 22 Jun, 2017.)

The first HIF-PH inhibitor expected to reach the market is roxadustat, which is being co-developed in the US by FibroGen Inc.and AstraZeneca PLC. The companies aim to apply for FDA approval for roxadustat in 2018, followed by possible launch in 2019.

"Based on roxadustat's differentiated mechanism of action and therapeutic effects, and discussions with our collaboration partner, we currently believe that roxadustat might not be included in the bundle," FibroGen said.

Next up is valadustat, which is being co-developed by Akebia Therapeutics Inc., Mitsubishi Tanabe Pharma Corp. and Otsuka Pharmaceutical Co. Ltd. A US filing for that agent is expected in 2019. GlaxoSmithKline PLCis expected to file for US approval of its daprodustat in 2021.

The three other HIF prolyl hydroxylase inhibitors in Phase II development include: FibroGen and Astellas' FG-2216, Bayer AG's molidustat, and AkrosPharma and Japan Tobacco Inc.'s JTZ-951.

If early results for the HIF-PH inhibitors are replicated in larger studies, the treatments could represent the biggest new development in drug treatment for patients on dialysis in several years. But the jury is still out. "While a small study in patients with chronic kidney disease on dialysis found that roxadustat was superior to epoetin in increasing hemoglobin, long-term and larger safety and efficacy studies are not yet available," a spokesperson for Express Scripts Holding Co. noted.

"It is possible that roxadustat will be able to take market share away from ESA, if those trials are positive," the spokesperson added. "If it’s a unique mechanism of action, oral, and it stacks up favorably with the ESAs in clinical studies, that will help the case for coverage."

Medicare's reimbursement policies for dialysis drugs are key to their success because the government program is the largest payer for end-stage renal disease in the US, covering about 400,000 fee-for-service beneficiaries in the US.

The addition of drugs and biologics to the ESRD bundle in 2011 contributed to sharp reductions in the use of most drugs in the first few years, most notably for the ESAs, as providers became more judicious about using them. (See chart following article.) Safety concerns also led to decreased use of the ESAs in general, though in the past couple of years, use of Amgen's Aranesp (darbepoeitin alfa) has increased as providers switched patients to the drug from Epogen.

If a new drug wants to avoid falling into that bundle upon launch, it will need to qualify transitional payments by falling outside one of 11 "functional" categories of existing treatments (see box). Products that didn't fit into one of the existing categories would be eligible for transitional add-on payments for at least two years.

During that time, CMS would gather data on the cost of the drug so it could be reflected in the bundled payment, although many details of the CMS policy are still lacking. (Also see "Medicare Payments For High-Cost ESRD Drugs May Be Reconsidered In Future Rule" - Pink Sheet, 30 Oct, 2015.)

Medicare ESRD 'Functional Categories'

Products that fit these categories are included in Medicare bundled payment rate.

• Dialysis access management
• Anemia management
• Bone and mineral metabolism
• Cellular management
• Antiemetic
• Anti-infectives
• Antipruritic
• Anxiolytic
• Excess fluid management
• Fluid and electrolyte management, including volume expanders
• Pain management

Under legislation passed since 2011, drugs that are considered to be "oral only," or without any corresponding IV or injectable form, will be exempted from the bundle until 2025. However, CMS has yet to set parameters around which drugs would qualify, nor is it clear what payment formula Medicare will use for them.

In The Bundle Or Not: Awaiting Guidance From CMS

Where the new HIF-PH inhibitors will fall in this scenario is uncertain. In its 2016 annual report, FibroGen states, "it is unknown whether roxadustat, if approved, will be included in the payment bundle. ... If roxadustat were included in the bundle, it may reduce the price that could be charged for roxadustat, and therefore potentially limit our profitability."

However, "based on roxadustat's differentiated mechanism of action and therapeutic effects, and discussions with our collaboration partner, we currently believe that roxadustat might not be included in the bundle," FibroGen added.

Nevertheless, CMS could decide that roxadustat and other HIF-PH inhibitors fit into the same functional category as ESAs for treating anemia, and thus should be included in the bundle without a separate add-on payment. A spokesperson for CMS suggested the agency could go that route.

"The bundled payment system is a big barrier to innovation and I would imagine there are many companies that do not necessarily target this space because of the payment system."

As explained in the 2016 ESRD final rule "any new drug, biosimilar, or biologic that fits into one of the ESRD functional categories would be considered to be included in the ESRD [prospective payment system]," the spokesperson said. In addition, "any drug or biological used as a substitute for a drug or biological that was included in the ESRD PPS bundled base rate would also be a renal dialysis service and would not be eligible for separate payment."

Bundled Payment Systems Has Discouraged Innovation

Stakeholders have suggested that concerns with reimbursement in the ESRD bundle has discouraged innovation in the market or led companies to focus development efforts on drugs that would be covered outside the bundle.

That might explain why two of the only handful of drugs that have been introduced since 2011 have been covered by Medicare Part D and are thus outside of the bundle. They are both phosphate binders: Keryx Biopharmaceuticals Inc.'s Auryxia (ferric citrate) and Vifor-Fresenius Medical Care'sVelphoro(sucroferric oxyhydroxide citrate).

"The bundled payment system is a big barrier to innovation and I would imagine there are many companies that do not necessarily target this space because of the payment system," National Kidney Foundation Senior Health Policy Director Tonya Saffer said in an interview. "There is not a great mechanism for paying for new medications, particularly when they fall into a category of comorbidity or disease state that is considered to be part of the bundled payment system."

"Industry stakeholders would certainly agree that the Medicare ESRD expanded bundle has stunted the interest in drug innovation in the dialysis market, though it would be difficult to prove such a claim," ADVI Chief Consulting Officer Angela Lively said.

"While the expanded bundle provides a mechanism for transitional drug add-on payment adjustments for this class, it is unclear if that is significant enough to provide a means to spur continued development in this space." Lively also pointed out that to date, "we have not seen significant advancements in dialysis, as most of the recent approvals have been in formulation or route of administration changes."

New drugs approved in the past six years that would be part of the bundle include Amgen's IV calcimimetic Parsabiv (etelcalcitide). However, Amgen expects Parsabiv will get an add-on to the bundle base payment rate for at least two years before being added to the bundle. (Also see "Parsabiv Could Allow Amgen To Maintain Control Of Calcimimetics Market" - Scrip, 20 Feb, 2017.)

Amgen's oral calcimimetic, Sensipar (cinacalcet), has been covered under Medicare Part D but will also be rolled into the bundle now that an IV calcimimetic has become available, possibly also after a period of transitional payments. CMS has not yet announced a decision about how the drugs will be handled.

Providers Seek Assurance Of ROI For New Agents

Rockwell Medical Inc.'s IV iron replacement drug, Triferic (ferric pyrophosphate citrate) was approved in 2015 but the company has so far been unable to persuade CMS to grant the drug an add-on payment, which has led to limited uptake.

"This is one of the downsides to innovation and the bundle," Saffer added. "If newer drugs are more costly, with little [return on investment] for the dialysis facility, they are not going to get much uptake."

CMS has taken the position that Triferic falls into the anemia function category, Rockwell CEO Rob Chioini said in an interview. He said the company is still hoping to change the agency's mind.

Chioini's explanation of the challenges posed by the bundled payment model for new drugs echoed Saffer's. Providers "are operating today knowing exactly what their cost is, what their profit is," he noted. When the company goes to them with Triferic, the provider is "going to say, 'I'm making $10 a treatment [from Medicare], you're asking me to spend another $2, so I'm only going to make $8.'"

"If we're going to have to operate in the bundle, we're going to have to convince the provider that you need to spend money on our product and we'll show you that you'll have some [cost] reductions elsewhere," Chioini maintained.

Changes In Use Of Dialysis Drugs Per Treatment Under the Medicare ESRD Bundle
Drug	Mean Units/Treatment		Aggregate Percent Change
ESAs	2010	2015	2010-2014	2014-2015
Amgen's Epogen (epoeitin alfa)	5,214	2,197	-45%	-23%
Amgen's Aranesp (darbepoetin alfa)	1.26	1.36	-40%	81%
Iron Agents
Sodium ferric gluconate (Sanofi's Ferrlecit and gerneric)	0.15	0.12	-17%	-5%
Luitpold's Venofer (iron sucrose)	16.0	12.8	-19%	-1%
AMAG's Feraheme (ferumoxytol)	0.8	0.01	-98%	-49%
Vitamin D Agents
Paricalcital (AbbVie's Zemplar and generics	2.3	0.3	-83%	-17%
Doxercalciferol (Genzyme's Hecterol and generics)	0.9	1.7	120%	-11%
Calcitrol (generics)	0.13	0.05	-74%	34%
Source: MedPAC March 2017 report to Congress