CMS cut to 340B spending overshadows OPPS update; associations threaten suit

Reimbursement to outpatient departments in 2018 will increase $5.8 billion compared to 2017, according to the hospital outpatient prospective payment (OPPS) and ambulatory surgical center (ASC) PPS Final rule for calendar year 2018. However, CMS will drastically reduce reimbursement for drugs under the 340B Program, much to the ire of providers and associations, which have already threatened to sue. (Final rule, 82 FR 52356, November 13, 2017).

340B program 

In calendar year (CY) 2018, CMS will change its reimbursement for separately payable drugs and biologics (other than pass-through drugs and vaccines) acquired through the 340B Program from average sales price (ASP) plus 6 percent to ASP minus 22.5 percent. Rural sole community hospitals, PPS-exempt cancer hospitals, and children’s hospitals will be exempt from this policy for CY 2018. This change, said CMS, addresses recent trends of increasing drug prices and will save beneficiaries about $320 million on copayments in 2018. CMS will offset the projected $1.6 billion decrease in drug payments by redistributing this amount for non-drug items and services across the OPPS.

The 340B Program (see 42 U.S.C. §256b, as expanded by Secs. 2501, 7101, and 7102 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148)), has been controversial, as critics have accused hospitals of abusing the program (see Participants in drug delivery system testify to impacts on patient prescription drug costs, Health Law Daily, October 18, 2017). However, the American Hospital Association, the Association of American Medical Colleges, and America’s Essential Hospitals criticized the cut to 340B spending as contrary to Congressional intent and a threat to safety net hospitals (see, e.g., Testimonies focus on benefits of 340B Drug Program, Health Law Daily, October 12, 2017).

Further, said the AHA, the policy “does nothing to address the stated goal of reducing the cost of pharmaceuticals” and could cause increases in beneficiaries’ out-of-pocket costs for non-drug Part B benefits. American’s Essential Hospitals predicted that, “given their fragile financial position, essential hospitals will not weather this policy’s 27 percent cut to Part B drug payments without scaling back services or jobs.” The three associations plan legal action to stop CMS from cutting 340B spending.

OPPS update

For CY 2018, CMS increased the payment rates under the OPPS by an increase factor of 1.35 percent, which is based on the hospital inpatient market basket percentage increase of 2.7 percent, minus the multifactor productivity adjustment of 0.6 percentage point, and minus a 0.75 percentage point adjustment required by Sec. 3401(i) of the ACA.

Direct supervision requirement

42 C.F.R. Sec. 410.27(a)(1) requires therapeutic outpatient services to be furnished under the direct supervision of a physician or nonphysician practitioner. Sec. 16004 of the 21st Century Cures Act (P.L. 114-255) delayed enforcement through 2016 of this requirement for therapeutic hospital services provided by critical access hospitals and small rural hospitals with fewer than 100 beds. The CY 2018 OPPS Final rule continues the nonenforcement of the direct supervision requirement for hospital outpatient therapeutic services for CAHs and small rural hospitals having 100 or fewer beds for CYs 2018 and 2019.

Inpatient only list

Services that typically would be paid in an inpatient setting will not be paid by Medicare under the OPPS (see 42 C.F.R. Sec. 419.22(n)). These are services that require inpatient care because of (1) the invasive nature of the procedure; (2) the need for at least 24 hours of postoperative recovery time or monitoring before the patient can be safely discharged; or (3) the underlying physical condition of the patient. Effective for CY 2018, CMS will remove total knee arthroplasty (TKA) and five other procedures from the inpatient only list and will add one procedure to the list. CMS is also prohibiting recovery audit contractors from reviewing TKA procedures for “patient status” for two years to give providers time to gain experience with the procedure in the outpatient setting.

Packaging

CMS will conditionally package low-cost drug administration services assigned to Ambulatory Payment Classifications (APCs) 5691 and 5692 effective January 1, 2018. In addition, CMS assigned skin substitutes with a geometric mean unit cost (MUC) or a per day cost (PDC) that exceeds either the MUC threshold or the PDC threshold to the high cost group. For CY 2018, a skin substitute product that was assigned to the high cost group for CY 2017, but does not exceed either the CY 2018 MUC or PDC threshold for CY 2018, will be assigned to the high cost group for CY 2018.

OQR program

CMS removed six measures from the Outpatient Quality Reporting (OQR) program beginning with the CY 2020 payment determination (CY 2018 reporting). CMS stated that the removal of these measures results in a burden reduction of 457,490 hours and a saving of $16.7 million in CY 2020 for hospitals. CMS also delayed the mandatory implementation of the Consumer Assessment of Healthcare Providers and Systems Outpatient and Ambulatory Surgery Survey under the Hospital OQR Program beginning with the CY 2018 data collection.

Laboratory tests

A new exception to the laboratory date of service policy will generally permit laboratories to bill Medicare directly for advanced diagnostic laboratory tests and molecular pathology tests excluded from OPPS packaging policy if the specimen was collected from a hospital outpatient during a hospital outpatient encounter and the test was performed following the patient’s discharge from the hospital outpatient department.

ASCs

For CY 2018, payments to ASCs will increase 1.2 percent, or $4.62 billion, based on a projected consumer price index of 1.7 percent minus a multifactor productivity adjustment required by the ACA of 0.5 percentage point. For CY 2018, CMS added three procedures to the ASC covered procedures list. In addition, CMS removed three measures from ASC Quality Reporting program for the CY 2019 payment determination and later and added two measures of hospital events following specified surgical procedures for the CY 2022 payment determinations and later (see Approximate 2 percent increase in OPPS, ASC payments proposed for 2018; cuts to 340B drug discount pay, Health Law Daily, July 20, 2017).

Witnesses before committee largely opposed to Part B drug model

The Medicare Part B drug pricing demonstration continues to prompt a variety of strong opinions. At the House’s Energy and Commerce Committee hearing regarding legislation that would prohibit further testing of the new prescription drug reimbursement model, H.R.5122, witnesses who expressed support for the pricing changes voiced their confidence in CMS and HHS but were met by those who vehemently opposed the matter. Some raised concerns that the pricing structure may limit the availability of drugs, while others noted that addressing the add-on price and the value based payments does not get to the root of the problem of rising drug costs: the manufacturer’s average sales price (ASP).

Demonstration

CMS created the Part B Drug Payment Model though a Proposed rule in order to address rising drug costs (see Will alternative drug payment models reduce Part B expenditures?, Health Law Daily, March 9, 2016). Currently, providers are reimbursed the ASP with a 6 percent add-on (ASP+6). HHS believes that there is little incentive under this reimbursement structure for providers to make cost-effective treatment decisions. The demonstration will proceed in two phases, beginning with switching some providers to ASP+2.5 percent, plus a flat fee. This would result in a smaller difference in the add-on payment. The second phase would result in value based purchasing (VBP) strategies, such as discounting patient cost sharing, indications-based pricing, and outcome-based risk-sharing agreements. Providers will be split into different groups based on geographic areas for the phases.

Witness testimony

At the hearing, Joe Baker, the President of the Medicare Rights Center, expressed support for the change. He noted that many of the beneficiaries his organization helps are concerned about affording their care. Rising costs have affected both beneficiaries and Part B itself. Medicare Rights particularly supports lowering or eliminating cost sharing for high-value medications in Phase II of the demonstration but gave some recommendations for particular actions it believes CMS should take, such as incorporating program evaluation surveys and working with interested groups when designing model communications.

Marcia Boyle, President of the Immune Deficiency Foundation, expressed extreme concerns about the demonstration’s impact on the availability of drugs for patients with primary immunodeficiency (PI). She noted that reimbursement for PI medications was significantly reduced by past legislation, which caused patients and pharmacies to experience extreme difficulties obtaining immunoglobulin (Ig). Patients lost access to Ig both in office and at home, resulting in hospital stays. In addition, specialty pharmacies already state that they are nearly underwater with the ASP+6 payment model. The foundation worries that the new payment structure will force stabilized patients to switch to a different product, negatively impacting their health, and will worsen the supply problem.

Similarly, the Dr. Debra Pratt, an oncologist representing a number of professional organizations, believed that the demonstration “will be devastating to the advancements made in our continued fight against cancer.” While there are many concerns among oncologists regarding the rising costs of care, Pratt believed that the demonstration lacked a patient-centered focus. She expressed disappointment in the agency’s suggestion that physicians are prescribing more expensive drugs for profit, and stated that the agency was incorrect in assuming that reducing Part B drug reimbursements would lower costs. Dr. Michael Schweitz, representing the Coalition of State Rheumatology Organizations, found the demonstration “misguided” and noted that the proposal does not impact the real problem: manufacturer ASPs. He emphasized that physicians do not make clinical decisions according to the add-on percentage, but noted that rheumatology practices will be hard pressed to absorb the cost reduction. He noted that patients will lose access to in-office infusion services that are vital to their care, and request that CMS withdraw the model.

Senators oppose Part B Drug Payment Model with a letter

CMS should immediately withdraw its Part B Drug Payment Model, according to a letter fourteen Senate Republicans sent to the agency on April 28, 2016. The letter warns CMS that its demonstration—which is designed to test alternative payment models for drugs furnished under Part B—would “severely disrupt care for vulnerable beneficiaries.” The opposing senators’ letter expresses concern that the payment model’s reduction in drug payments could reduce beneficiary access to drugs and decrease the quality of care.

Part B drugs

CMS announced the Part B Drug Payment Model in a March 11, 2016 Proposed rule (81 FR 13230). The demonstration is authorized by the Center for Medicare and Medicaid Innovation (CMMI), created by Section 3021 of the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148). Traditionally, Part B pays physicians and hospital outpatient departments the average sales price (ASP) of a drug, plus a 6 percent add-on (ASP+6). Based upon concerns that the ASP+6 model does not adequately incentivize physicians to choose the lowest cost therapy to effectively treat a patient, the Part B Drug Payment Model seeks to test a new model through a two phase demonstration (see Will alternative drug payment models reduce Part B expenditures?, Health Law Daily, March 9, 2016).

Demonstration

The first phase, scheduled to begin within 60 days of the rule’s finalization, would replace the ASP+6 payment with a drug payment of ASP+2.5 percent, plus a flat fee of $16.80. CMS hopes that by reducing the add-on payment, providers will be incentivized to provide less expensive drugs. In the second phase—starting January 1, 2017, at the earliest—CMS would use value-based purchasing (VBP) tools to pay for certain Part B drugs.

Harm

The senators’ letter cautions that the ASP payment reduction could harm beneficiaries by creating a reimbursement environment where some providers’ drug acquisition costs exceed the Medicare payment amount. The letter suggests that such burdens would be most significantly experienced by small and rural providers. The senators expressed greater concern over the VBP phase of the demonstration, asserting that the ideas “are numerous, complex, and not sufficiently vetted.” In addition to the senators’ opposition, over 300 physician-, pharmaceutical-, and patient-centered groups sent a letter to Congress asking lawmakers to ask CMS to withdraw the rule. The groups’ letter echoes many of the worries set out by the Republican senators. Calling the initiative “misguided and ill-considered,” the groups warned that the CMS plan could force beneficiaries to switch away from appropriate treatments.