Oncologist Org Opposes MedPAC Medicare Reimbursement Changes

March 29, 2017 - The Community Oncology Alliance (COA) recently expressed concerns that proposed Medicare reimbursement changes for Part B services from the Medicare Payment Advisory Commission (MedPAC) would drive cancer care to more higher-cost settings.

“MedPAC is now recommending changes to an already unstable cancer care delivery system – changes that would further lower Part B drug reimbursement,” the organization wrote in a letter to the commission. “Given the well-documented impact that historical reductions in Part B reimbursements have had, it is inescapable that the MedPAC recommendations will accelerate the shift in the site of cancer care into the more expensive hospital setting, increasing costs to Medicare and beneficiaries, while further fueling drug prices.”

Earlier this month, MedPAC released draft Medicare reimbursement recommendations. As part of its reform strategy, the commission suggested that the federal government implement several Part B rate changes to combat the recent $26 billion Medicare drug spending budget.

The commission argued that the current Medicare Part B reimbursement methodology incentivizes providers to use more expensive drugs. CMS determines Medicare reimbursement for Part B drugs using the average sales price plus a 6 percent add-on.

However, 9 out of the top 20 most expensive drugs from 2010 to 2017 had annual average sales prices that grew by 5 percent or more.

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As a result, Medicare spending has increased 9 percent per year since 2008, with half of the spending growth accounted for by price increases from 2009 to 2013.

To curb Medicare spending, MedPAC recommended that CMS require drug manufacturers to reimburse Medicare a rebate if the average sales price for their product is greater than an inflation benchmark. The federal government should also link beneficiary cost-sharing and the average sales price add-on to the inflation-adjusted average sales price.

However, COA argued that the draft Medicare reimbursement reform does not account for the recent shift in cancer care delivery. Prior to 2004, independent, physician-run community cancer clinics delivered about 84 percent of chemotherapy services.

But a 2016 Milliman study showed that community cancer clinic furnished just 54 percent of chemotherapy services by 2014. Instead, hospital outpatient settings took on the majority of cancer care services.

The care setting shift resulted in a $2 billion increase in Medicare spending on cancer care compared to what the budget would have been if community cancer clinics furnished the services.

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COA attributed the shift to Medicare Part B payment reform in 2003. The reform policy implemented the average sales price plus 6 percent add-on methodology and required drug manufacturers to include wholesaler prompt pay discounts in the average sales price calculations despite the discount not being offered to community cancer clinics.

The 340B Drug Pricing Program also contributed to the cancer care shift, the organization claimed. With 340B status, qualified hospitals and providers receive discounted prices on covered outpatient drugs from manufacturers.

The discounted prescription drug rates incentivized some hospitals to boost drug administration services to increase profit margins. For example, only 3 percent of Part B chemotherapy was administered by 340B hospitals in 2004. But the percentage increased to 25 percent by 2014.

“With profit margins on the most expensive cancer drugs exceeding 100 percent in the 340B program, hospitals have powerful incentives to acquire community cancer clinics and, in the process, use more drugs or more expensive drugs,” COA wrote.

The organization called on MedPAC to shift Medicare reimbursement for cancer care drugs away from the average sales price plus 6 percent add-on methodology.

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Additionally, MedPAC also advised the federal government to develop a Drug Value Program. The program would “use private vendors to negotiate prices and offer providers shared savings opportunities.”

Under the Drug Value Program, CMS would reduce the average sales price add-on and reimburse providers at the program’s prescription drug rate with a drug administration services payment at the Physician Fee Schedule or Outpatient Prospective Payment System rate.

The program would also create a formulary for participating providers, limit prices to no more than 100 percent of the average sales price, and add resource use management tools, such as step therapy and prior authorization requirements.

But COA contended that Part B Drug Value Program did not address oncologist concerns with Medicare reimbursement rates.

First, the “concept of negotiating Part B drug prices is fundamentally flawed when it comes to cancer care as there are simply no alternatives,” the group wrote. A recent Journal of Oncology Practice study found that there are no lower-cost options for the largest Medicare oncology drug expenditures with “equal efficacy for their primary indications.”

Second, using third-party pharmacy benefit managers would exacerbate Medicare reimbursement challenges.

The organization voiced concerns that using the managers would increase costs and drug prices as their use did for Medicare Part D. Lawmakers are currently combatting pharmacy benefit manager abuse in the Part D program with proposed regulations, such as Creating Transparency to Have Drug Rebates Unlocked (C-THRU) Act (S.637) and Prescription Drug Price Transparency Act (H.R. 1316).

Third, developing a formulary could reduce patient access to cancer care drugs. Since pharmacy benefit managers would develop the formulary, providers would have less control over selecting appropriate treatments.

Using pharmacy benefit managers may also delay treatment because of new administrative processes, such as prior authorization and step therapy requirements.

Finally, COA argued that the Drug Value Program would push community cancer centers to merge with larger healthcare organizations, especially 340B hospitals, because of lower reimbursement rates. CMS would decrease Part B rates to encourage more providers to participate in the voluntary program.

“On the other hand, 340B hospitals with Part B drug profit margins as high as 100 percent will not be motivated to participate in the DVP [Drug Value Program] because what is a substantial reimbursement cut to community oncology practices is a negligible cut to 340B hospitals,” the organization stated. “The net result will be to shift more cancer care to the much more expensive hospital setting, increasing cancer care costs for both Medicare and beneficiaries.”