Payment for Medications: It’s an Exacting Team Sport!

Getting paid for drugs demands a robust chain of events linking product procurement, its use within both the clinical framework and payer requirements, and the revenue cycle function of charging, billing and subsequent reimbursement. Payment rules under the Centers for Medicare and Medicaid Services (CMS) are often emulated by private payers in the inpatient prospective payment system (IPPS), outpatient prospective payment system (OPPS) and Inflation Reduction Act (IRA), and apply to every care site.

The IPPS and OPPS rule sets take two very different approaches toward medications: Products used in the inpatient setting are not separately reimbursable but are paid under the all-inclusive diagnosis-related group (DRG), while those in the outpatient setting are paid separately according to status indicators (SI). However, due to their expense and uniqueness, new technology products are the exception, and they are separately reimbursable at a set amount for a fixed period of time, with new technology allowable payments (NTAPs) applying to inpatients and pass-through drugs applying to outpatients.

NTAPs in 2024

In 2024, CMS approved nine new NTAPs for drugs and continued existing applications for two others (Table). In each case, payment is made only when the use of the product is for the very specific ICD-10 code listed and only up to the maximum allowable as stated in the table. This requires very carefully constructed computer physician order entry (CPOE) sets to drive the required documentation, as well as coordination with the revenue cycle team (either in-house or outsourced) who need to be alerted to the somewhat unusual circumstances of billing separately for drugs outside of the DRG. 

In 2024, separate reimbursement for 15 products is discontinued because their NTAP status reached a three-year anniversary date prior to April 1, 2024. This includes discontinuing NTAP status for the CAR-T therapies TACARTUS, ABECMA and CARVYKTI. 

In 2024, CMS also revised its NTAP policies to require:

• A “complete and active FDA marketing authorization request” at the time of submission

• FDA marketing authorization by May 1 (versus July 1) of the applicable NTAP year

Future rulemaking changes to how the agency assesses NTAP eligibility in the third year of newness such as potentially adjusting the April 1 cutoff to allow for a longer eligibility window might be considered. 

Three-Year Transitional Pass-Through Payment 

The period for all pass-through drugs, biologicals and radiopharmaceuticals and quarterly expiration of pass-through status was created under the Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999 (Pub. L. 106-113) and requires CMS to make additional payments to hospitals for current orphan drugs, as designated under section 526 of the Federal Food, Drug and Cosmetic Act; current drugs and biologicals and brachytherapy sources used in cancer therapy; and current radiopharmaceutical drugs and biologicals. “Current” refers to the types of drugs or biologicals mentioned previously that are hospital outpatient services under Medicare Part B for which transitional pass-through payment was made on the first date the hospital OPPS was implemented.

Transitional pass-through payments are also provided for certain new drugs and biologicals not being paid for as a hospital outpatient department service as of Dec. 31, 1996, and whose cost is “not insignificant” in relation to OPPS payments for the procedures or services associated with the new drug or biological. For pass-through payment purposes, radiopharmaceuticals are included as drugs. 

These products have been assigned SI G and can easily be found in the Addendum A and B updates, which are Excel files and can be found at www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/Addendum-A-and-Addendum-B-Updates. SI drugs are paid for as part of a bundle or package of services. 

Some nuance of payment for SI G drugs include:

• Payment is at average sales price (ASP) plus 6 percent or at wholesale acquisition cost (WAC) plus 3 percent if no ASP is available.

• All biosimilars are eligible for pass-through, not just the first one for each reference product (as an example, all 11 biosimilar products for Humira, each with its own HCPCS code, are pass-through eligible).

• In 2024, 49 products will keep or gain pass-through status, while pass-through status expired for 43 drugs in 2023 and 25 drugs in 2024. 

Biosimilars: Melding IRA and OPPS in 2024

At times, it’s necessary to be aware of more than one rule set and to understand how each impacts the use of certain products. The goal is to reduce the cost of treatment with the market introduction of biosimilars:

1) Under OPPS, previous policies for biosimilars are continued. Under IRA, new biosimilars furnished before ASP data is available must have a payment limit set not exceeding 103 percent WAC or 106 percent and less of WAC or ASP. 

2) Under the OPPS threshold packaging policy, biosimilars are excepted when their reference biologicals are separately paid, with the goal of promoting use as a lower-cost alternative. If the reference product cost/day falls below threshold, all biosimilars related to it would be similarly packaged regardless of whether their cost/day are above it. (For instance, the qualifying biosimilar = product with ASP less the reference product ASP for a calendar quarter during an applicable five-year period.)

3) Under the IRA, payment is ASP plus 8 percent of the reference product ASP.

The IRA Part B reimbursement changes for biosimilars establishes a payment rate for biosimilars under Part B during the initial period:

• For biosimilars furnished on or after July 1, 2024, the initial period payment rate is the lesser of the biosimilar’s WAC plus 3 percent or 106 percent of the reference product’s ASP.

• For qualifying biosimilars, the Part B add-on payment was increased from 6 percent to 8 percent of the reference product’s ASP for a five-year period so that payment for such biosimilars would be the biosimilar’s ASP plus 8 percent of the ASP of the reference biologic.

The IRA brings significant changes to U.S. healthcare policies, including provisions to address patient affordability concerns, allowing Medicare to negotiate drug prices, and a redesign of the Medicare Part D benefit. Signed into law on Aug. 16, 2022, it contains three primary components related to prescription drugs: 1) Drug Price Negotiation Program, 2) Medicare Part B and Part D inflation rebates and 3) Medicare Part D redesign.

The Drug Price Negotiation Program applies to certain high-spend Medicare drugs. During the negotiation process, the Secretary of Health and Human Services selects a specified number of drugs for negotiation two years before the negotiated price applies. A specified number of the highest ranked negotiation-eligible drugs is determined with only Part D drugs selected for 2026 and 2027.

Under the maximum fair price (MFP), a manufacturer of a selected drug will be required to offer a MFP for such drug with respect to Medicare beneficiaries, generally capped at an applicable percentage of non-federal average manufacturer price.

IRA: Inflation-Adjusted Coinsurance

As of Jan. 1, 2023, rebates to Medicare were made from drug companies raising prices for certain Medicare Part B drugs faster than the rate of inflation. CMS adjusts the patient coinsurance so it’s based on the lower inflation-adjusted payment amount. This applies to certain Part B single-source drugs/biological products, including biosimilars. 

As of April 1, 2023, if the Part B payment amount for a rebate-able drug for a calendar quarter is more than the inflation-adjusted payment amount, 1) the patient coinsurance is based on 20 percent of the inflation-adjusted payment amount for the quarter and reflected as a percentage (less than 20 percent) of the Part B payment amount, and 2) the Medicare portion of the payment is increased to the difference between the Part B payment amount and patient coinsurance, minus any Part B deductible and set-aside.

This means that patients must be charged the correct amount of coinsurance, which may change quarterly. CMS makes up the difference between the usual 20 percent and the co-insurance percent, preventing provider revenue loss. 

Inflation Rebates

For Part B and D drugs, manufacturers are required to pay a rebate for a drug paid under Part B or D when the price of the drug increases faster than inflation. Rebates are owed only on Medicare usage and not on commercial or private payer usage.

The rebate formulas are:

• Part B: Total amount of eligible Part B utilization of drug in rebate quarter multiplied by amount (if any) by which rebate quarter Part B payment amount exceeds inflation-adjusted Part B payment amount

• Part D: Total amount of eligible Part D utilization of drug in rebate year multiplied by amount (if any) by which volume-weighted average annualized average manufacturer price (AMP) for rebate year exceeds inflation-adjusted volume-weighted average annualized AMP for the benchmark period

Effective dates for when rebates take effect are different for Parts B and D. For Part B, the first rebate period began in the first quarter of 2023, and for Part D, the first rebate period began in the fourth quarter of 2022.

IRA workarounds may arise for some injectable cancer drugs, especially if dosage forms are changed to develop versions for intramuscular or subcutaneous injection of the drugs. 

Part B Co-Insurance Adjustment

Part B beneficiaries also share in inflation rebates. Their coinsurance for a drug is set at 20 percent of the Part B inflation-adjusted payment amount, such that beginning April 1, 2023, beneficiaries may pay a lower coinsurance for certain drugs if the drug’s price increased faster than the rate of inflation in a benchmark quarter. There is no comparable provision for Part D inflation rebates, which are reflected in quarterly ASP payment files.

CMS makes providers whole by reimbursing 80 percent of the Part B payment amount, plus the difference between 20 percent of the Part B payment amount and 20 percent of inflation adjusted payment amount.

505(b)(2) or biologics license application pathway products require delicate coordination between the pharmacy supply chain acquiring the product, the IT/informaticist team, the revenue cycle team and the order entry clinician. This is critical because not all products are interchangeable or considered therapeutically equivalent. Also, not all products have the full range of approvals that their branded counterparts have, and payer requirements/preferences may derail attempts to reduce drug costs both for a facility’s department and for patients. 

This has a tremendous impact on order entry. Facilities (with pharmacy purchasing) need to determine which products they’d like to use in their healthcare system. Quarterly ASP table crosswalk files can identify correct billing and payment codes for each applicable product. The complexity and nuanced nature of differences between each product should be considered, as well as limitations in approved indications, payer limitations and prior authorization requirements. 

Each chosen product should be added to the pharmacy drug master and charge description master using the unique brand-specific HCPCS code assigned. And CPOE entries should be created that reflect these decisions. Lastly, the order entry must be for the actual product that is being purchased.