CMS Implements Part B Drug Payment Policy with No Public Warning

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On March 18, the HHS OIG released a report providing an overview of specific Medicare Part B drugs where the Average Sales Price (ASP) exceeded the Average Manufacturer Price (AMP) by at least five percent in 2012.
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More specifically, the report detailed CMS’ long-awaited implementation of the ASP─AMP pricing substitution policy, where CMS substitutes 103 percent of AMP for 106 percent of ASP when a product’s ASP exceeds its AMP by five percent in two consecutive quarters immediately before the current pricing quarter, or in three of the four immediately prior quarters. The report also addressed potential effects that lowering reimbursement amounts for these drugs would have on Medicare expenditures.

In the Calendar Year 2013 Medicare Physician Fee Schedule, CMS finalized its proposal for the ASP─AMP substitution policy. CMS applied the AMP threshold only for products with complete AMP data (i.e., AMP is calculated on the same, full set of National Drug Codes from which the corresponding ASP is calculated); price substitutions triggered by the AMP threshold last for one quarter. If the AMP threshold continues to be exceeded in the ensuing quarter, the price substitution will be applied again and will be reassessed on a quarterly basis. This policy has been in effect since November 2012, with implementation starting in April 2013; however, CMS never released public information on the implementation of the price substitutions.

In Q2 2013, CMS applied the price substitution to eight Part B products, and in Q3 2013, applied the price substitution to three of the same products where the price substitution was implemented in the previous quarter. The pricing substitutions made in Q2 and Q3 of 2013 yielded $819,000 in Medicare Part B savings. In the current quarter, nine Part B products are subject to the ASP-AMP price substitution.

While CMS did not publicly announce the implementation of the price substitution policy, manufacturers are made aware if they have a product that is subject to the pricing change, before the substitution takes place. Moreover, AMP-based payment substitutions are noted in CMS’ quarterly ASP files, although without the exact amounts of the payments.

Further, this move reinforces CMS’ commitment to refining Medicare Part B drug payments, on the heels of MedPAC’s least costly alternative (LCA) policy discussion and Part B drug payments at their most recent meeting.

Noting additional savings that could be obtained through the price substitution policy, OIG recommended to:

It is unlikely that CMS will concur with the OIG’s recommendations, given that the OIG has made the same recommendations to CMS consistently over the years and CMS has never agreed.

    Expand the price substitution policy to include drug codes with complete AMP data in a single quarter; and
    Expand the price substitution policy to include drug codes with partial AMP data.

View the full OIG release.

View Avalere’s recent story on MedPAC’s LCA policy discussion.

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