Medicare Drug Price Negotiations Will Have Domino Effect for Community Oncology Practices

Jeff Patton, MD

Significant policy changes stemming from the Inflation Reduction Act (IRA) of 2022 are looming, and the Community Oncology Alliance (COA) has raised concerns on resulting consequences from lesser-discussed elements of the draft guidance for the second cycle of Medicare Drug Price Negotiations.

COA’s July 2024 letter responding to the draft cites worries about the effect the Centers for Medicare & Medicaid Services’ (CMS) implementation of the program’s Maximum Fair Price (MFP) throughout the drug supply chain will have in the community care setting^.1

The IRA has brought about several policy changes and with that comes Medicare drug price negotiations and changes to Medicare Part D out-of-pocket costs. With the goal of lowering the prices of therapies, including oncologic agents, the first 10 drugs have been selected for negotiations. Although there are several benefits, such as reduced prices for patients, many challenges have arisen with the complex legislation.²

“We’ll have to educate our patients as this coming year there are some good things about the IRA [coming] that are going to make the old [Medicare Part D] donut hole narrow and go away. The patient financial risk is going to be less, which is a good thing,” Jeff Patton, MD, said in an interview with OncologyLive on the Medicare Drug Price Negotiation Program Draft Guidance for Initial Price Applicability Year (IPAY) 2027, which represents the second cycle of negotiations.

Debra Patt, MD, PhD, MBA, FASCO, also spoke with OncologyLive and highlighted challenges with the Medicare Drug Price Negotiation Program. These include “administrative burdens associated with respective effectuation, financial risk associated with retrospective MFP effectuation, and some impacts on oncology practices that are beyond cancer treatment,” according to Patt.

What is The Medicare Negotiation Program?

CMS first issued revised guidance regarding the Medicare Drug Price Negotiation Program in June 2023, and 10 drugs were selected for the first cycle of negotiations. If the negotiations result in lower drug prices for Medicare, they will become effective beginning in 2026. Requirements for the second cycle of negotiations were issued by CMS in a May 2024 draft guidance; negotiations will occur during 2025 and may result in negotiated MFPs that would be effective starting in 2027.³

“Like most government programs, it’s complicated, way too complicated. Anything that’s complicated creates a burden on clinics to implement, so there’s going to be an execution burden on practices,” Patton said. With this draft guidance for the second cycle of negotiations, which includes 15 additional drugs covered under Medicare Part D, CMS also released policies on how participating drug companies will make any agreed-upon negotiated MFPs available in 2026 and 2027.

Administrative Burdens That May Occur

The prospective model will allow practices to acquire the negotiated drugs at or below MFP, and practices would then receive the MFP-based reimbursement from patients who have Medicare Part D plans. However, because the lower acquisition price is only applicable to drugs for Medicare beneficiaries, practices will then have to manage separate product inventories for MFP- and non-MFP–eligible patients.¹

“We’re going to need space and administrative staff to manage 2 separate sources of inventory. That’s both confusing and a hazard of additional staffing. It’s also not just space in our clinic because many of these new and novel therapies must be preserved at certain temperatures,” Patt explained.

“They require refrigeration [as well as] certain preparation, and many of them are biologics. We would anticipate that [the] administrative burden of that duplicative inventory management is going to be costly.”

Implementing the policy and tracking whether the community clinic has received the MFP-based reimbursement now will be necessary with the prospective model. “The IRA implementation policies are complicated, burdensome, and financially unattractive for community practices,” Patton noted.

Defining The First Financial Effect on Community Practices

Although patients will see cost benefits because the IRA redesign for Medicare Part D that begins in 2025 implements an out-of-pocket spending cap of $2000 as well as out-of-pocket smoothing, CMS proposals will burden community practices financially.^1,4

The proposed retrospective effectuation model requires that manufacturers provide a reconciliation to the dispensing entity to close the gap between acquisition cost and MFP-based reimbursement. The CMS-proposed model states that it may take up to 30 days for a plan to submit the Prescription Drug Event records to the Medicare Transaction Facilitator, who then must transfer relevant data to the manufacturer.

Following this, it could take another 14 days for the manufacturer to issue a refund.¹ “Under this time frame, practices could be floating the difference between acquisition costs and reimbursement for up to 2 months longer than we do currently. These drugs are very expensive, and managing those accounts receivable on our books is a financial burden that costs us quite a bit of money,” Patt said.

Patton added that he worries about the financial burden as some small practices may not be able to hold the risk of waiting for the rebate, but he also noted that a potential solution could come via distributors.

“Perhaps the distributors may be able to extend terms to practices and help hold that risk, but that risk will cost money—they’re not going to do it for free—so the practices will then have to financially pay for the time value of money back to the distributors if they’re willing to do that,” he said.

An additional financial consideration is the proposed rule for the 2025 calendar year Medicare Physician Fee Schedule. CMS noted in July 2024 that the average payment rates under the Physician Fee Schedule may be reduced by 2.93% for the 2025 calendar year compared with the average for 2024.⁵

CMS then released its calendar year 2025 proposed rule to cut the conversion factor by 2.8% to $32.36, as compared with $33.29 in 2024; they noted this reflects the expiration of the 2.93% statutory payment increase for 2024.^5,6

“The government is...implementing policies that are making it difficult to stay independent and viable,” Patton said on the change. “Our clinics can deliver care at approximately one-third of the cost of hospitals, so putting your low-cost provider out of business so that they join a higher-cost care setting—ie, hospitals—makes zero sense.”

Financial Challenges For Community Practices Could Stem From MFPS

Further, the add-on reimbursement that providers currently receive will decrease because of the implementation of the IRA. The add-on payment given to providers will be based on the negotiated MFP price of the drug, which COA notes will be significantly lower than the current average sales price. COA’s letter calls on CMS and Congress to address this unintended negative consequence of the IRA MFP in Medicare Part B reimbursement.¹

An independent analysis estimated that once the IRA is implemented, there will be at least a 49.4% decrease in the Part B add-on reimbursement for oncology providers.¹

“[Therefore,] you’re asking practices to do more for Medicare beneficiaries,” Patt said. “[There] was a good [step made with the introduction] of the Barrasso amendment, which would hold providers harmless to some of these endeavors. There’s [additional] legislation that has been proposed to do the same thing. That’s important.”

The last action on US Senator John Barrasso’s bill, the Protecting Patient Access to Cancer and Complex Therapies Act, was a referral that was made to the Subcommittee on Health on September 15, 2023.⁷ In a news release, Barrasso noted the bill will lower reimbursements for providers and require drug manufacturers to send rebates directly to the government for the difference in costs.⁸

The Large Urology Group Practice Association, the Infusion Providers Alliance, and the Digestive Health Physicians Association all have stated their support for the bill. “I would like for community oncology practices to be held harmless, for us not to be subject to the variability of the cost of acquisition of drugs and to the decreases that we’re seeing right now [with] the add-on fee because those things are necessary for us to deliver care,” Patt added.

An Unforseen Consequence: A Potential Decrease In Innovation From Pharmaceutical Companies

“This price negotiation is lowering pharmaceutical manufacturer and life science company’s margins to the point that they’re investing less in cancer drugs. I hope that’s an unintended consequence of this, but it’s harming patients,” Patton explained.

“My biggest worry is the decrease in innovation. Pharmaceutical companies have a bad reputation with some people, but they innovate and bring innovative drugs to market that help us treat patients. We’re not curing cancer, and we need more solutions. Without the capital to invest in research and development, it’s not going to happen.” As the complexity of changes stemming from the IRA will soon result in administrative burdens, financial struggles for community practices, and a potential decrease in innovation from pharmaceutical companies, COA has noted they are available to discuss any concerns.¹

In COA’s July 2024 letter responding to the draft guidance, Ted Okon, MBA, executive director, and Judith Alberto, MHA, RPh, BCOP, director of clinical initiatives, added that they look forward to working with CMS to improve the quality and cost of oncology care and continuing to ensure access to care for all patients.¹ “I’ve been practicing as a cancer specialist for more than 20 years, and it’s a remarkable time in cancer care,” Patt said.

“We have seen so much innovation that has led to either cures of [some types of] cancer or chronic control of cancer, where patients can often live relatively normal lives because of this tremendous innovation. I’m concerned that if we decrease that innovation, we will see a lessened trajectory of success in the future. Part of the success is in patients getting great cancer care where they are. There are implications of the IRA on oncology practices and our sustainability. Our sustainability is very important for patients to [receive] modern cancer therapy.”

References:

1. Community Oncology Alliance. Re: Medicare Drug Price Negotiation Program Draft Guidance. July 2, 2024. Accessed August 30, 2024. bit.ly/3T9LKpW
2. US Department of Health and Human Services. Inflation Reduction Act of 2022. Updated August 28, 2024. Accessed August 30, 2024. bit.ly/4dISLpY
3. Centers for Medicare & Medicaid Services. Fact sheet: Medicare Drug Price Negotiation Program Draft Guidance for 2027 and manufacturer effectuation of the Maximum Fair Price in 2026 and 2027. Medicare Drug Price Negotiation Program. May 2024. Accessed August 30, 2024. bit.ly/3MxUmCN
4. Stengel K, Urgo R, Brantley K. Part D out-of-pocket smoothing policy raises implementation questions. Avalere. November 7, 2022. Accessed August 30, 2024. bit.ly/3MM4Wqh
5. Calendar year (CY) 2025 Medicare Physician Fee Schedule proposed rule. News release. Centers for Medicare & Medicaid Services. July 8, 2024. Accessed August 30, 2024. bit.ly/477Ps98
6. CMS issues CY 2025 physician fee schedule proposed rule. American Hospital Association. July 10, 2024. Accessed August 30, 2024. bit.ly/4e29B2P
7. Protecting Patient Access to Cancer and Complex Therapies Act, HR 5391, 118th Cong (2023-2024). Accessed August 30, 2024. https://www.congress.gov/bill/118th-congress/housebill/5391/all-actions
8. Barrasso, Burgess Bill protects Medicare Part B patients. News release. John Barrasso United State Senator – Wyoming. September 13, 2023. Accessed August 30, 2024. bit.ly/4g1V34V