SummaryPolicy changes to Medicare’s CAR-T inpatient reimbursement set a precedent for high-cost durable treatments. Looking ahead, questions and concerns remain for pipeline cell and gene therapies that have high up-front costs.
The Centers for Medicare & Medicaid Services (CMS) finalized its previously proposed changes to how hospital inpatient treatments using chimeric antigen receptor T-cell therapy (CAR-T) products will be reimbursed under Medicare fee-for-service. In the fiscal year (FY) 2021 Inpatient Prospective Payment System (IPPS) final rule, the CMS finalized a proposal to create a new Medicare Severity Diagnosis-Related Group (MS-DRG) for CAR-T treatment stays, with differential reimbursement based on whether the product was provided as part of a clinical trial. The CMS also finalized other changes, such as discontinuing add-on payments for CAR-T. These policy changes increase payment predictability for CAR-T inpatient therapy relative to current policy. The overall financial impact will vary by hospital, however, and reimbursement may fall short of fully recognizing provider costs of treatment in many cases. Stakeholders should consider how these policies could impact other payer markets and the emerging pipeline of high up-front cost cell or gene therapies.
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 currently administered in the inpatient setting and have a significant cost for providers (e.g., $373,000 average sales price for 1 indication). Hospital inpatient reimbursement is calculated on an episodic basis using a MS-DRG base payment rate that is adjusted for factors such as hospital geography, new technology add-on payment (NTAP), and outlier payments.
In FY 2020, inpatient stays with CAR-T treatment are assigned to DRG 016 (Autologous Bone Marrow Transplant with CC/MCC or T-cell Immunotherapy), which has an average national reimbursement rate of $43,094. Hospitals may receive additional payments for the 2 CAR-T products with NTAP status, but the NTAP is limited to 65% of the product cost. Outlier payments are available to hospitals to cover extremely costly cases in which the costs of the case exceed the MS-DRG payment, NTAP payment, and the fixed loss threshold of $26,552. Even with these adjustments, Medicare reimbursement for CAR-T cases today often fails to cover total hospital costs, with potential negative impacts on provider uptake and patient access.
Finalized FY 2021 Changes
For 2021, the CMS finalized several significant changes that will impact provider reimbursement for CAR-T.
- New CAR-T MS-DRG: As proposed, the CMS created a new MS-DRG 018 (Chimeric Antigen Receptor [CAR] T-cell Immunotherapy), moving CAR-T cases out of their current MS-DRG 016. As illustrated in Figure 1, this new MS-DRG has a much higher relative weight than MS-DRG 016, with an unadjusted MS-DRG base payment rate of $239,929 (a slight increase over the proposed rate of $239,490).
- Adjustment for Clinical Trial Cases: The CMS finalized a proposal to reimburse for CAR-T clinical trial cases, which do not incur drug costs, at a lower rate than non-clinical trial cases. In the final rule, the CMS determined that clinical trial cases for CAR-T treatment typically cost 17% of non-clinical trial cases (an increase over the originally proposed amount of 15%) and therefore will apply an adjustment factor of 0.17 to the relative weight of MS-DRG 018 for these cases. This results in a base rate for clinical trial cases of $40,788.
- Product NTAP Decisions: The CMS finalized a proposal to discontinue NTAP status for the approved CAR-T products (Kymriah® and Yescarta®) and will not grant NTAP to 2 new CAR-T therapies (Tecartus® and Liso-cel), as neither therapy met the the FDA approval deadline of July 1 and therefore are ineligible for NTAP in FY 2021.
- Policy Change to Evaluate NTAP Cost in New MS-DRG: In a reversal of a policy previously established in 2016, the CMS finalized its proposal to evaluate the cost criteria for new technologies based on the threshold for a new MS-DRG that the technology would map to even if that MS-DRG is not yet established at the time of application, starting in FY 2022 (applicable for new technologies as well as those seeking to continue NTAP payment). Prior policy was to evaluate the cost criteria for NTAP applicants against thresholds for the existing MS-DRG under which they applied.
- Hospital charges for CAR-T episode are consistent with the average case-weighted charge listed in the FY 2021 IPPS proposed/final rules ($1,237,393). Clinical trial charges are assumed to be 15% of non-clinical trial charges for the proposed rule and 17% of charges for the final rule.
- Hospital has an average operating and capital cost-to-charge ratio of 0.4.
- Hospital has an indirect medical education adjustment factor of 0.2 and disproportionate share hospital (DSH) adjustment of 0.05.
- Hospital area wage index is 1.0.
Key Considerations Looking Ahead
Stakeholders should consider several outstanding questions and potential implications stemming from the finalized 2021 changes for existing assets and for future cell and gene therapies.
- Impact on Hospital Margins – The finalized base rate for MS-DRG 018 is generally in line with FY 2020 total payment including NTAP for CAR-T treatment. Total reimbursement will vary by hospital and case, with adequate reimbursement in some cases but with potential risk for hospitals on significantly costly cases, especially if the CMS doesn’t appropriately account for a hospital’s costs to treat a patient with CAR-T.
- Spillover to Other Markets – While the new IPPS policy is specific to Medicare, other markets and payers have also been considering methods to reimburse for CAR-T treatment. For payers that similarly use bundled payments or DRG-like approaches, such as the All-Patient Refined DRG, there may be some replication of the CMS’s payment policies as coding systems update this fall. Conversely, MS-DRG relative weights will be increasingly influenced by market-based rates as the CMS finalized a proposal to incorporate data collected from hospitals on median Medicare Advantage payer-negotiated rates into the calculation of MS-DRG relative weights starting in FY 2024. Additionally, some Medicaid programs currently carving CAR-T products out of their bundled payment rates may reconsider their approach if the MS-DRG changes flow through to state payment methods (e.g., APR-DRGs). Bundling CAR-T drug costs back into episodic payments in Medicaid could also be an attractive option for states to manage spending in the context of budget pressures caused by the COVID pandemic.
- Considerations for Future CAR-T Products – As other CAR-T products are launched, they may be described by existing ICD-10-PCS codes that map to MS-DRG 018, joining the 3 products currently covered under the MS-DRG in FY 2021. However, a discussion of CAR-T therapies is included within the ICD-10 Coordination and Maintenance Committee September 8, 2020, tentative agenda, which could influence how individual CAR-T therapies are identified in FY 2022. With new market entrants and data, the appropriateness of this newly established MS-DRG will be tested. There are concerns that the volume and price levels of the various CAR-T products will impact the overall relative weight of the MS-DRG. This could result in uniform reimbursement for cases that differ significantly in resource costs, unless CMS chooses to split the MS-DRG.
- Considerations for Solid Tumor Therapies – Beyond CAR-T therapies, there have been ongoing concerns about how other cell therapies, such as those that treat solid tumors, would be reimbursed and whether additional new MS-DRGs would need to be developed for pipeline therapies. The CMS acknowledges this concern in the final rule, noting that they foresee a need to address other cell therapies such as Tumor-Infiltrating Lymphocyte Therapy and Engineered T Cell Receptor Therapy in future rulemaking. The CMS notes their intention to engage with stakeholders to better understand these issues and future needs.
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