SummaryProposed policy changes largely address concerns around Medicare’s CAR-T inpatient reimbursement, though raise new questions regarding long-term impact on reimbursement and access to innovative therapies.
The Center for Medicare & Medicaid Services (CMS) is proposing important changes to how hospital inpatient treatments using chimeric antigen receptor T-cell therapy (CAR-T) products would be reimbursed under Medicare fee-for-service (FFS). In the fiscal year (FY) 2021 Inpatient Prospective Payment System (IPPS) proposed rule, the CMS proposes 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, among other changes (e.g., proposed discontinuation of add-on payment for CAR-T). This policy change would increase the degree of payment predictability for CAR-T inpatient therapy relative to current policy. However, while the proposed MS-DRG base payment for CAR-T episodes would increase, the overall financial impact of the policy change could vary substantially by hospital. Stakeholders should consider how these proposals could have an impact in other payer markets and may also establish a precedent for how CMS handles other high-cost cell or gene therapies.
Since the first Food & Drug Administration 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 (e.g., $373,000 average sales price for 1 indication) for providers. 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. For FY2020, 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; however, the NTAP is limited to 65% of the product cost ($242,500). 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 exceeds $26,552. As a result, Medicare reimbursement for CAR-T cases today often fails to cover hospital costs, with potential negative impacts on provider uptake and patient access.
In the FY2021 IPPS proposed rule, the CMS proposes several significant changes that would impact provider reimbursement for CAR-T cases if finalized.
- New CAR-T MS-DRG: The CMS is proposing creating a new MS-DRG 018 (Chimeric Antigen Receptor (CAR) T-cell Immunotherapy), moving CAR-T cases out of their current MS-DRG 016. This new MS-DRG has a much higher relative weight than MS-DRG 016, which will lead to an unadjusted MS-DRG base payment rate of $239,490.
- The CMS proposes excluding clinical trial cases when calculating the relative weight for MS-DRG 018, as these cases do not incur drug costs and thus have highly divergent costs from non-clinical trial cases. This would be an approach that the CMS generally does not use in establishing MS-DRG relative weights. Stakeholders have voiced concerns in previous rulemaking cycles that the inclusion of clinical trial cases to establish a CAR-T specific MS-DRG would underestimate hospital costs and therefore artificially lower the reimbursement rate.
- Adjustment for Clinical Trial Cases: The CMS proposes reimbursing for CAR-T clinical trial cases, which do not incur drug costs, at a lower rate than non-clinical trial cases. The CMS determined that clinical trial cases for CAR-T treatment typically cost 15% of non-clinical trial cases, and therefore proposes applying an adjustment factor of 0.15 to the relative weight of MS-DRG 018 for these cases. This adjustment factor is likely to change slightly in the final rule based on the most recent data available to CMS.
- Product NTAP Decisions: The CMS proposes to discontinue NTAP status for the approved CAR-T products (Kymriah® and Yescarta®), and appears unlikely to grant NTAP to 2 new CAR-T therapies (KTE-X19 and Liso-cel). Both new therapies would report into the new MS-DRG 018, and the CMS states that they would not meet the cost criterion due to the increase in the cost threshold calculated for MS-DRG 018 without adjustments to the applicants’ cost calculations. This is a departure from prior policy. In 2016, the CMS decided to evaluate the cost criteria for NTAP applicants against thresholds associated with the existing MS-DRG under which they applied even if a new MS-DRG was established in the interim. The CMS is basing this policy change in part on the high cost of CAR-T treatment.
|||FY2020||FY2021 (Non-Clinical Trial)||FY2021 (Clinical Trial)|
|B||Case Costs (A x CCR)||$494,957||$494,957||$74,244|
|C||MS-DRG Base Payment||$43,094 ||$239,490 ||$35,924|
|D||Payment Adjustments (IME, DSH)||$10,774||$59,873||$8,981|
|E||NTAP* (65% x (B – (C + D))||$242,500 ||N/A||N/A|
|F||Fixed-Loss Threshold||$26,552 ||$30,006 ||$30,006|
|G||Outlier Threshold (C + D + E + F)||$322,920 ||$329,369 ||$74,910|
|H||Outlier Payment ((B – G) x 80%)||$137,630||$132,471||N/A|
|I||Total Payment (C + D + E + H)||$433,998 ||$431,833 ||$44,904|
|Net to Provider for Drug Costs Only||$60,998||$58,833||$44,904|
- Hospital charges for CAR-T episode are consistent with the average case-weighted charge listed in the FY 2021 IPPS proposed rule ($1,237,393). Clinical trial charges are assumed to be 15% of non-clinical trial charges.
- Hospital has an average operating and capital cost-to-charge ratio (CCR) of 0.4
- Hospital has an indirect medical education (IME) adjustment factor of 0.2 and disproportionate share hospital (DSH) adjustment of 0.05
- Hospital area wage index is 1.0
*NTAPs are limited to 65% of the amount by which the costs of the case exceed the standard DRG payment. The maximum is only paid when a hospital’s costs for the case are calculated to exceed the DRG payment by an amount equal to or greater than the cost of the relevant product ($373,000).
Key Considerations Looking Ahead
Stakeholders should consider several outstanding questions and potential implications as they analyze the proposed changes and impact on reimbursement and access.
- Impact on Hospital Margins – The proposed base rate for MS-DRG 018 is generally in line with current total payment including NTAP for CAR-T treatment, which has been estimated to often cause a financial loss for hospitals administering CAR-T. As current NTAPs are proposed to discontinue and future NTAPs for CAR-Ts are less likely under proposed rulemaking, hospitals must depend on the new MS-DRG rate and outlier adjustment to cover case costs. Total reimbursement will vary by hospital and case, with adequate reimbursement in some cases but with potential significant remaining risk for hospitals on extremely costly cases. While hospitals may be able to absorb some losses on CAR-T cases, which comprise a small portion of hospital inpatient volume, one of the main options for hospitals to limit losses would be to increase their charges for CAR-T products. By charging more for CAR-T products, hospitals are more likely to secure outlier payments that better cover their costs of providing the treatment.
- Spillover to Other Markets – While the IPPS proposal 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 payment policies as coding systems update over the coming months. Additionally, some Medicaid programs currently carve out payments for CAR-T products from their bundled rates, which could potentially be reconsidered in light of the MS-DRG changes. Bundling CAR-T drug costs back into episodic payments in Medicaid may be an attractive option for states to manage their budgets in the context of likely budget pressure in the post-COVID market. This could create significant downward payment pressure and, in turn, affect Medicaid patient access.
- Considerations for Future CAR-T Products – As other CAR-T products are launched, it is likely that they will be described by existing ICD-10-PCS codes that map to MS-DRG 018, joining the 4 products that the CMS proposes for the MS-DRG in FY2021. Over time, 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 the CMS chooses to split the MS-DRG or apply a methodology to allow differential reimbursement within the MS-DRG.
- Clinical Trial Adjuster – The CMS’s decision to adjust for clinical trial cases in establishing the MS-DRG relative weight and payment for CAR-T cases is likely a positive development for CAR-T manufacturers who sought to separate clinical trial and real-world product usage in payment policy. If this policy were extended to other MS-DRGs, the impact on future technologies would likely be highly dependent on volume of clinical trial administrations and cost differential between clinical trial and real-world usage.
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