Sunday, December 13, 2020

CMS Part B Drug Pricing Proposal Dynamites Existing Law; PhRMA Protests in Court; Hidden Backstory


On November 20, 2020, CMS released a blockbuster proposal to national reprice Part B drugs according to international price metrics (aka Most Favored Nation Status, or MFN).   Response from the biopharma industry was swift and resulted in a major legal filing by December 4.   The Medicare policy facts are pretty bizarre and I'll both lay out the key facts and provide some fascinating backstory in this blog.

Update 12/15

  • CMS Files motion to dismiss.  46pp.  Here.
  • See Navathe et al. on Future of CMMI, Health Affairs.  Here.
Update 01/17
  • There will be numerous ongoing legal motions and injunctions.  CMS home page for this project should give the latest status.  Here.
  • January 21:  Personalized Medicine Coalition comment here.
  • February 19:  Liz Fowler tapped to head CMMI here.
  • (Retro to December): See an excellent review at McDermott on MFN, here.
    • This is a comprehensive review that includes comparisons to Eurozone policies.
    • See a March 2, 2021 article in JAMA, Kesselheim et al., here.

What CMS Did on November 20

CMS used its authority (from SSA 1115A, part of the Affordable Care Act) to create new demonstration products.  It's used this authority dozens or hundreds of times.  In this case, CMS asserts it can rapidly create a nationwide demonstration program that will last for years, and totally reconfigure drug pricing policy under Part B (e.g. intravenous drugs, chemotherapy, etc).   In fact, SSA 1115A does create the Center for Innovation (aka CMMI) and allows it waive any part of Medicare law for the purpose of demonstration projects.   The law is brief and doesn't state any limits on the duration of a demo (e.g. 6 months versus 999 years) or the scope (3 metropolitan areas versus all 50 states) or the project content (e.g. tweaking a small rule as a pilot versus raising the Medicare age to 75).  

  • See the CMS fact sheet here.
    • CMS calls this the PDPM, Prescription Drug Payment Model, which doesn't capture the fact it is Part B drugs only.
    • However, the CMMI webpage it titled Most Favored Nation - here.
  • See the CMS press release here.
  • The proposal was released in tandem with an HHS report on drug price inflation here.
  • See the November 27 Federal Register web page here
  • See the 80 page PDF here.  85 Fed Reg 76180-259, November 27, 2020.
    • Yes, somebody was working the day after Thanksgiving.  
    • My understanding the rule doesn't change what manufacturers charge, just what CMS pays in compensation to hospitals or doctors for those patients who are fee for service Medicare patients.
    • It doesn't affect Medicare Advantage except in that overall per-patient capitation for MA will slip downward as FFS payments are reduced.  
What Happened Next?

A number of major stakeholders, including the Pharmaceutical Research and Manufacturers of America (PhRMA), the Association of Community Cancer Centers (ACCC), the Global Colon Cancer Association (GCCA) and National Infusion Center Association (NICA), filed a law suite against the CMS pilot on December 4.

The 65-page lawsuit argues first, that the pilot program is illegal.  That is, the pilot program is too big and exceeds the concept of a "demo" or "pilot" program under SSA 1115A.

In the alternative, if the project was legal under the text of SSA 1115A, it's not legal under the constitution, because it is too big a delegation of authority from Congress to the Agency.

  • See ACCC press release here.
  • See PhRMA here.
    • You can download a legal one pager or the full case from the prior link.  
    • Full complaint PDF here.
    • There are collateral motions like injunctions and restraining orders.
  • See trade press:
    • PolicyMed here, here.
    • National Law Review / K&L Gates - here.  And / Polsinelli, here.
    • Healthcare Finance here.  "Would cut drug reimbursements to hospitals by an average of 65% when fully phased in, the AHA says."

What's All This About a Backstory?

There's a lot of fascinating backstory here.

Before 1115A, No Demo Projects without Specific Legislation

Before SSA 1115A in the ACA of 2010, CMS had no authority to do demonstration projects.  This allegedly impaired innovation in our health system.   From time to time, a little demo for this or that would squeak by Congress in a paragraph of law, and CMS would dutifully carry out the little demo, and issue a report on it, and close it down.

In fact, the SSA itself contains some line-item demo projects.  For example, ACA 3113 created a short demo project that provided an escape valve from the date of service rule, which bundled reference tests to being billed only by the hospital where the sample was obtained.  For example, if a patient in 2009 had a breast biopsy in Florida, and 7 days later had a genomic test report from the Genomic Health (Oncotype) lab in California, only the Florida hospital could bill for it.  But the Florida MAC might not know Genomic Health from a hole in the ground, and claims wouldn't get paid.   

Demo 3113, Complex Tests, Date of Service 
As of 12/2020, HHS still has a guidance webpage for Pilot 3113, one dated January 28, 2011, one dated March 10, 2011.  It refers to transmittal CR7278, Publication 100-19, Demonstrations, Transmittal 70.  Here.   CMS excluded tests that didn't have specific CPT codes, which left the advocates for this demo in the lurch, since proprietary codes (MAAA codes) or PLA codes...hadn't been invented yet.

See the CMS home page for Demo 3113 here.  See a Fact Sheet about the demo, July 2011, here. See a "request for G code" document here.   See the legislative language here.  See a Report to Congress, 2015, here, and a final report, 2016, here.   
1115A:  CMS Now Can Make Demo Projects On Its Own Volition

Section 1115A of the Social Security Act is brief and creates the Center for Innovation at CMS.  Read 1115A here.

The key issue with CMMI is what we introduced early in the blog:  it can create demo projects of variable length, geographic scope, and policy scope, but there is no remark anywhere in the law about how big or little, how long or short, how trivial or massive, the pilots can be.   So, hypothetically, you could waive Medicare law for a pilot project excluding women from Medicare enrollment for 100 years in all 50 states.   
Admittedly, the projects are supposed to be expected to not reduce health quality and not raise costs, which produces some scope limitations, but those are just guidelines for what the agency says it hopes to achieve in a demo.   

The law also lets CMS make permanent successful demos if they are shown (objectively, by actuarial review and endorsement) to maintain quality while not raising costs.  
However, there's a quirk in that the law says CMS may suspend or change (waive) any aspect of Medicare law "solely for purposes of carrying out this section with respect to testing models described in subsection (b)" where (b) refers to Pilots, not Extensions.  I've seen CMS argue, somewhere in the Federal Register, that the law giving ability to waive law for pilot projects (b) implies it can also waive law for resulting permanent programs.  However, as a non attorney, I find that reading hard to believe, see the law specifically says waivers can be SOLELY for the purpose of the section on pilot models "b."  Expansion of models is law section "c".  To me, a law that is "solely for [b] " is a law that does not include  the adjacent "c."   Of course, CMS could escape this problem by making the demo "b" phase 99 years long instead of a year or two, so the demo never faces finalization as expansion phase "c."

Obama Administration Proposed Part B Drug Pricing Demo!

The Obama administration proposed a less drastic Part B pricing model in 2016.  This was proposed on March 11, 2016, 81 Fed Reg 13229-13261, here.

Here's how the 2016 Obama administration described its fairly modest proposal:
This proposed rule discusses the implementation of a new Medicare payment model under section 1115A of the Social Security Act (the Act). We propose the Part B Drug Payment Model as a two-phase model that would test whether alternative drug payment designs will lead to a reduction in Medicare expenditures, while preserving or enhancing the quality of care provided to Medicare beneficiaries. The first phase would involve changing the 6 percent add-on to Average Sales Price (ASP) that we use to make drug payments under Part B to 2.5 percent plus a flat fee (in a budget neutral manner). The second phase would implement value-based purchasing tools similar to those employed by commercial health plans, pharmacy benefit managers, hospitals, and other entities that manage health benefits and drug utilization. We believe this model will further our goals of smarter, that is, more efficient spending on quality care for Medicare beneficiaries.

Republicans Hated CMMI and its Models and Trashed It

Republicans were quite hostile to CMMI, in 2016 and before, climaxing in 2016 after the drug model was proposed.    There were hearings on the Hill very toxic to the CMMI.  The group Citizens Against Government Waste wrote op eds against CMMI repeatedly (entry point here).  Some groups like AARP supported CMMI by writing letters to Tom Price, chair of the House budget committee (here).  

A House hearing lambasted the CMMI, see links at my blog of 9/24/2016, here.  Note that at that time, Republicans were basically taking positions against the constitutionality of CMMI that PhRMA is taking in 2020.

Moratorium on CMMI by New Trump Administration

I recall that Trump's first Secretary of Health, surgeon Tom Price, diss'ed the CMMI in his confirmation hearings (and see FN1). I believe in 2017 the Trump administration under Price went so far as to declare a CMMI moratorium.

However, by September of 2017, CMS was realizing that despite previous objections to the legality of CMMI, it could be a powerful tool for doing....well, for doing about anything.  Seema Verma had a Op Ed in WSJ on September 19, 2017, touting the possibility of a re-envisioned CMMI (here).  CMS held an open call for comments about how it could reboot and re-use CMMI.   Verma wrote, "This administration plans to lead the Innovation Center in a new direction. On Wednesday we are issuing a “request for information” to collect ideas on the path forward."  The 9/2017 RFI is still online here.

By 2020, the tenth anniversary of CMMI brought much praise via a symposium (see links here, anniversary video at YouTube here, and a subsequent 10/2020 article about "lies and revisionism" at CMMI, at MedCityNews, here.)  See a review article about the first decade of CMMI at Health Affairs here.

Trump Administration Touted International Pricing Model in 2018

Trump Administration touted the IPI, International Pricing Model in 2018, schema in May here, notice of future rulemaking in Ocober here, proposing it would launch in 2019 or 2020.  (The date in the brand new rulemaking is 1/1/2021).  See contemporary article at Modern Healthcare, 10/25/2018, here.   PhRMA did not like the IPI (e.g. here).

Early 2020 Legislation Would Have Reigned In the Scope of CMMI

See coverage in February 2020 at Healthcare Dive here.  Legislators (both "D" and "R") introduced HR 5741 to rein and CMMI and introduce more accountability to it.   See press here.   See House legislative text here.  The bill promises to "clarify parameters" under which CMMI operates.

See the House Concurrent Budget Resolution of 7/2017, here.

The Centers for Medicare and Medicaid Innovation [CMMI] 
presents another example [of why ACA is bad]: CMMI 
was designed to test new payment models in Medicare and 
Medicaid, but the Obama Administration interpreted its 
authority beyond the ability to ``test'' payment models and 
announced it will ``mandate'' untested payment models that may 
adversely affect quality of care for Medicare and Medicaid 
patients. In the new administration, HHS Secretary Price has 
signaled his intent to restore the CMMI program to its original 

Price resigned from HHS related to air travel expenses, in 9/2017.

CMS said in 7/2019 it would only use mandatory payment models when it couldn't get enough participation in voluntary models - here (see several links and quotes related to both Seema Verma and Alec Azar, and some callbacks to Tom Price.)


The MEDPAC policy commission submitted a 13-page comment to CMS on 1/25/2021, stating it had "significant concerns about the structure and potential effects of the MFN model."  Here.  They add the MFN "manifests a number of serious flaws."  They also note that basing the MFN on per-drug sales (for top drugs) could unfairly bias providers toward lower-volume drugs.  For example, drugs A,B,C are in the same class and about the same price.  Drug A is large enough in sales to trigger MFN, so its price is cut in half, but drugs B and C are not, and remain at the same high price.