Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

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Would the IPI Model Reduce Medicare Reimbursement for Providers?

Physicians would not see Medicare reimbursement cuts under the proposed International Pricing Index (IPI) model, an HHS official stated.

International Pricing Index (IPI) model and Medicare reimbursement

Source: Thinkstock

By Jacqueline LaPointe

- Physicians and hospitals would not see Medicare reimbursement drop under the proposed International Pricing Index (IPI) model, the former Senior Advisor to the Secretary for Drug Pricing Reform recently assured providers.

“The model will increase the add-on compensation available for provider costs associated with drugs covered by the IPI model, by undoing a cut to compensation that was imposed by budget sequestration (from 6 percent of ASP [average sales price] to 4.3 percent),” Dan Best wrote in a new Q&A blog post on the HHS website. “Further, ASP will still be used to calculate the overall level of add-on compensation available, so physicians would not see compensation cut because they are included in the model where prices are lower.”

Best, the HHS’ drug pricing advisor, passed away, according to a Nov. 1, 2018 announcement from the federal department. He was the former Vice President of Industry Relations for CVS Health prior to joining HHS.

HHS proposed the IPI model earlier in October 2018 in an effort to reduce drug costs for Medicare Part B.

If finalized, the IPI model would be a mandatory demonstration occurring across approximately one-half of the country. The model would require providers and hospitals that administer Medicare Part B drugs in certain regions to purchase the medications from private-sector vendors selected by HHS to procure, distribute, and bill Medicare for the prescription drugs.

READ MORE: How Part B Drug Changes Could Impact Provider Reimbursement

The proposed model would replace the current Medicare Part B reimbursement methodology for providers and hospitals. Under the current methodology, Medicare reimburses providers the average sales price (ASP) of a drug plus six percent for storage. A budget sequestration, however, lowers the six percent add-on payment for storage to 4.3 percent.

The IPI model would leverage the negotiating power of private-sector vendors to lower drug costs for Medicare, HHS explained. The vendors would negotiate with drug manufacturers for lower drug prices and Medicare would in turn reimburse the vendors at a rate comparable to the payment rates paid in other developed countries, like Canada and the United Kingdom.

Providers and hospitals would still receive an add-on payment for administering the Part B-covered drugs. The HHS press release announcing the IPI model’s proposal stated that, “physicians and hospitals would receive a set payment amount for storing and handling drugs that would not be tied to drug prices.”

Physicians and hospitals feared that the set payment amounts proposed in the IPI model would significantly reduce their compensation from Medicare for administering drugs to beneficiaries.

Physicians in specialty practices, like cancer centers, which administer more Part B drugs compared to primary care or general medicine providers, particularly voiced their concerns with the proposed IPI model.

READ MORE: Drug Prices, Medicaid Reform Major Themes in Trump’s HHS Budget

The Community Oncology Alliance wrote, “What the administration is proposing is incredibly complex and extremely difficult to comprehend how it would be implemented in the real-world of medical practice. Their premise that oncologists use drugs based on financial incentives is simply not founded in fact and calls into question the need for this convoluted upheaval of the current cancer care delivery system.”

“It is also disturbing that the administration is trying to end-run the Congress by forcing a mandatory CMS Innovation Center demonstration that will effectively change Medicare reimbursement, as the sequester cut to Part B drug reimbursement has already done,” the alliance continued.

But Best addressed the concerns, saying the IPI model would bring the add-on payment close to the true ASP plus six percent rate. And HHS is open to comments on other strategies for reimbursing providers.

“We are open to comment on the exact details of how to distribute compensation in a way that minimizes disruption while making compensation independent of pricing (for instance, by paying based on overall spending by class of drug or specialty),” he wrote in the blog post.

“The aim is to keep physicians and hospitals’ compensation whole while removing any incentives to administer more expensive drugs,” he continued. “For instance, the model would pay the same whether doctors prescribe a branded biologic or a lower-cost biosimilar, allowing patients to benefit from lower drug costs. HHS is eager to engage with providers on how to structure the new compensation system in a way that removes perverse incentives but keeps compensation steady.”

READ MORE: Hospitals to See 7.61% Rise in 2018 Prescription Drug Rates

Best added that physicians and hospitals would also save money under the proposed IPI model because they “would be relieved of the cost and activity involved in buying and holding drugs, which they would now contract out to private vendors.”

Additionally, the HHS Senior Advisor addressed how the IPI model would impact 340B hospitals.

The 340B Drug Pricing Programs requires drug manufacturers to give discounted outpatient drugs to qualifying healthcare organizations and entities that treat higher proportions of low-income and safety-net patients.

Under the Trump Administration, the drug discount program has faced substantial changes, including a $1.6 billion payment cut over the next couple of years.

340B hospitals voiced concerns that the proposed IPI model would negatively impact the discounts the organizations receive under the drug pricing program.

For example, advocacy group 340B Health stated, “We are concerned that, depending on how it is implemented, the IPI proposal could prohibit 340B hospitals from accessing the statutory discounts the law guarantees but might not provide sufficient reduction in prices to offset these losses.”

The group also questioned whether the proposed IPI model would be considered a group purchasing organization since hospitals would need to purchase drugs from a private-sector vendor, like a GPO. If so, the model would be an issue because the 340B program prohibits many participating hospitals from using GPOs.

Best acknowledged the potential conflict with the 340B Drug Pricing Program.

“We are aware of the complex interaction between the 340B program and Medicare Part B compensation for drugs,” he wrote. “HHS is open to better understanding how hospitals that invest significant resources into serving vulnerable populations could be impacted by the IPI model.”

“We are interested in comments on appropriate approaches to these addressed concerns,” he continued. “As Secretary Azar has said, HHS will look at how some of the substantial savings generated by the model can be used to ensure that disruption is minimized.”

HHS is accepting comments on the proposed IPI model until Dec. 31, 2018.

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