In the fiscal year (FY) 2023 Inpatient Prospective Payment System (IPPS) final rule, the Centers for Medicare & Medicaid Services (CMS) finalized its proposal to continue use of its Medicare Severity Diagnosis-Related Group (MS-DRG) for chimeric antigen receptor T-cell (CAR‑T) treatment stays, with differential reimbursement based on whether the product was provided as part of a clinical trial. For FY 2023, CMS finalized a proposal to return to using recent spending data (from FY 2021) to establish the relative weight for the MS-DRG after skipping use of FY 2020 data, which were impacted by the COVID-19 pandemic’s effects on inpatient utilization patterns.

CMS noted that two new procedure codes representing tabelecleucel and afamitresgene autoleucel, would be assigned to Pre-MDC (major diagnostic category) MS-DRG 018, “Chimeric Antigen Receptor (CAR) T-cell and Other Immunotherapies,” for FY 2023. However, these procedure codes will not be represented in rate-setting data in the near term. The financial impact of all changes will vary by hospital, and reimbursement may continue to fall short of fully recognizing provider costs of treatment in some cases.

Background

Since the first Food & Drug Administration (FDA) approval of a CAR‑T product in 2017, concerns have persisted over how the Medicare program would reimburse for these products, which are commonly administered in the inpatient setting and have a significant cost for providers (e.g., $373,000 average sales price for one indication). Hospital inpatient reimbursement is calculated on a case basis using an MS-DRG base payment rate that is adjusted for factors such as hospital geography, diagnosis, case severity, and discharge status. Additional reimbursement can be provided through new technology add-on payment (NTAP) and outlier payments.

In FY 2022, inpatient stays with CAR‑T treatment are assigned to MS-DRG 018, which has a base reimbursement rate of $246,955. Hospitals may currently receive additional payments for two products with NTAP status (Tecartus^™ and Abecma^®); however, the NTAP is limited to a maximum of 65% of the product cost and varies based on the hospital’s case cost compared to MS-DRG payment. Outlier payments are available to hospitals to cover extremely costly cases in which the costs exceed the MS-DRG payment, the NTAP amount (if applicable), and the current fixed-loss threshold of $30,988. Even with these adjustments, Medicare reimbursement for CAR‑T cases today sometimes fails to cover total hospital costs, with potential negative impacts on provider uptake and patient access.

Finalized FY 2023 Changes

For FY 2023, CMS finalized several policies that would impact provider reimbursement for CAR‑T.

• Payment Changes for CAR‑T Cases: As a result of an increase to the base operating and capital rates for all IPPS payments and a slight decrease in the proposed relative weight for MS-DRG 018, the finalized base payment for CAR‑T cases in FY 2023 will increase by 0.4% to $247,938. This is slightly lower than the proposed 0.7% increase.
• High-Cost Outlier Payments: For FY 2023, CMS finalized an alternative approach to establish the fixed-loss threshold that equally weights the historical claims data with and without COVID-19 cases included. This results in a finalized fixed-loss threshold of $38,859, which represents a 25% increase but is lower than the threshold initially proposed. CMS had proposed increases to the fixed-loss amount from $30,988 to $43,214 (a 39% increase) in FY 2023 using a methodology leveraging inflation estimates from before the public health emergency. However, after receiving comments critical of the significant increase and recognizing a lower likelihood of high-cost COVID-19 cases in 2023, CMS finalized the alternative approach. For CAR‑T cases, which are more likely than other inpatient stays to qualify for outlier payments, this may reduce overall reimbursement in FY 2023 but is an improvement over the threshold initially proposed. See Figure 1 below for an illustration of the outlier threshold impact.
• Use of 2021 Data to Establish Payment: CMS finalized a proposal to use 2021 Medicare Provider Analysis and Review (MedPAR) data to set relative weights for MS-DRGs. CMS also finalized a proposal to set relative weights by first calculating the weights with all COVID-19 stays included in the data, and then calculating relative weights excluding COVID-19 stay and averaging the two (similar to the approach finalized for the fixed-loss threshold). The use of more recent data means that the hospital charge data incorporates utilization of three additional products for non-clinical trial cases (Tecartus^™, Breyanzi^™, and Abecma^®) that were not FDA-approved in 2019, which previously formed the basis of FY 2022 reimbursement calculations.
• Adjustment for Clinical Trial Cases: CMS finalized a proposal to continue reimbursing for CAR‑T clinical trial cases, which do not incur drug costs, at a lower rate than non-clinical trial cases. CMS’s analysis of 2021 MedPAR data showed that clinical trial cases for CAR‑T treatment typically cost 21% of the cost for non-clinical trial cases; therefore, the agency finalized an adjustment factor of 0.21 to the relative weight of MS-DRG 018 for these cases. This will result in a base rate for clinical trial cases of $52,067. This is an increase over the proposed adjuster of 0.20 (and base rate of $49,761). It also represents a significant increase over the current adjuster of 0.17, a 24% increase over FY 2022.
• Product NTAP Decisions: In the proposed rule, CMS evaluated one NTAP application for a CAR‑T product. CMS considered public comments on whether CARVYKTI^™ (ciltacabtagene autoleucel), which is indicated for treatment of relapsed/refractory multiple myeloma, meets newness, cost, and substantial clinical improvement criteria required for NTAP status. CMS deemed the product to be “substantially similar” to Abecma^® (idecabtagene vicleucel), which currently has NTAP status. Therefore, CARVYKTI^™ and Abecma^® will share NTAP status and a blended maximum NTAP amount of $289,533 through FY 2023. The products will be evaluated for NTAP eligibility in FY 2024, but Abecma’s three-year anniversary in the US market is in March 2024. CMS’s decision whether to grant NTAP next year will depend on whether CMS agrees that the newness period began after April 1—this midpoint in the federal fiscal year is generally used as the cutoff for determining newness.

FR: Final Rule; PR: Proposed Rule. Figures not to scale.

Assumptions:

• Hospital charges for CAR‑T episode are kept constant across all examples, consistent with the geometric mean charges included in the FY 2023 Final Rule after outliers removed (AOR)/before outliers removed (BOR) file ($1,404,657)
• Hospital has an average operating and capital cost-to-charge ratio of 0.3​
• Hospital has an indirect medical education adjustment factor of 0.2 and disproportionate share hospital adjustment of 0.05​
• Hospital area wage index is 1.0

Key Considerations

Stakeholders should consider several outstanding questions and potential implications stemming from the final FY 2023 changes for existing assets and for future cell and gene therapies.

• Stability of MS-DRG 018:The FY 2023 base rate for MS-DRG 018 is aligned with FY 2022 levels, though changes to the outlier threshold could result in overall decreases in payment. Total reimbursement will vary by hospital and case, with adequate reimbursement in some cases but potential financial risk for hospitals on significantly costly cases. In the future, inclusion of additional immunotherapies that could be mapped to MS-DRG 018 may lead to fluctuations in the base rate. For example, it is notable that an allogeneic CAR‑T therapy procedure code will map to MS-DRG 018, though the overall impact will depend on pricing, the FDA approval date, and level of utilization. With a robust pipeline of cell and gene therapies, CMS may be forced to confront reimbursement challenges or alternative approaches in the near future. In response to commenter concerns, CMS said that it is “premature to make structural changes to the IPPS at this time to pay for gene and cell therapies.”
• Combined NTAP Consideration:In cases where two products are under consideration for NTAP, CMS may consider those products as a single application for the purposes of NTAP. In the final rule, CMS concluded that Carvykti^™ (ciltacabtagene autoleucel) and Abecma^® (idecabtagene vicleucel) are substantially similar (i.e., have the same targeted patient population, same or similar mechanism of action, and map to the same MS-DRG). As more CAR‑Ts come to market, it may become increasingly difficult for manufacturers to demonstrate NTAP eligibility based on established criteria and hospitals may be less likely to benefit from NTAP payments.
• Alternative Payment and Value-Based Arrangements: The Medicaid Value-Based Purchasing flexibilities to implement value-based arrangements in the commercial and Medicaid markets went into effect on July 1, 2022. In coming years, CMS may consider whether innovative financing approaches should extend to the Medicare Fee-for-Service or Medicare Advantage space, potentially through a Center for Medicare & Medicaid Innovation demonstration. When raised in comments, CMS only stated that it would consider the comments in future rulemaking.
• Potential for Shifts in Site of Care: Assuming that a CAR‑T therapy can be administered via outpatient administration, a shift towards the outpatient setting may be accompanied by an increase in scrutiny on Medicare payment methodology in that setting, which is average sales price plus 6% for separately payable drugs.

Manufacturers of cell and gene therapies, along with other stakeholders including providers and plans, should continue to monitor precedent-setting changes to reimbursement for these innovative products. For questions or to discuss potential Avalere support related to commercialization, NTAP proposal submissions, provider reimbursement, or policy developments, connect with us.