PHSI Newsletters

2017 Summer Newsletter- FDA Orange Book Added Identifier

FDA Orange Book Added Identifier

Prior to 2017, the FDA’s “Approved Drug Products with Therapeutic Equivalence Evaluations” (Orange Book) used the Reference Listed Drug (RLD) identifier for different uses, depending upon the market situation.  These uses included the RLD identifying the NDA or an ANDA (when the NDA was no longer marketed or other extraordinary situations) that would identify the product to compare for bioequivalence.  The RLD was also used as the standard for generics to use for pharmacokinetic testing when preparing for an ANDA submission.

In this scenario, when an ANDA was identified as the RLD, the FDA clarified which product prospective ANDA applicants should use for bioequivalence testing as the reference standard.  This change created new issues because the ANDA applicant knew which product to conduct their pharmacokinetic testing, but there was no longer a NDA to use as the basis of generic labeling.  This caused confusion for ANDA applicants because the RLD identifier was being used to determine the “reference standard” (RS), which may not have been the basis for product labeling.

In 2017, the FDA updated the Orange Book to split the RLD identifier into the two unique definitions.  The RLD now solely refers to the application and labeling aspect the ANDA applicant should reference. The RS determines the product to conduct the bioequivalence testing.  In many cases, the RLD and RS are the same product.  The separate identifiers can be used to clearly delineate the focus for the applicant’s labeling vs. the bioequivalence testing.

FDA Orange Book Examples May 2017

Januvia, a single source brand, depicts the scenario in the Orange Book where only the brand is listed and available.  Januvia is both the RLD and RS reference product.

Summer NL 1

Darifenacin (generic Enablex) demonstrates that the NDA will continue to be identified as the RLD and RS as long as it is marketed.

Summer NL 2

The RLD can identify a discontinued NDA product, while the RS can identify an active ANDA so the ANDA applicant can clearly determine the comparison application for labeling (RLD) and the comparison application for pharmacokinetic studies (RS).

This second scenario is found with Cefaclor oral suspension.  The active ANDA is the RS, and the discontinued NDA, Ceclor, is the RLD.  Prior to the FDA change in 2017, the ANDA would have been identified as the RLD instead of the discontinued NDA.

Summer NL 3

The reference standard (RS) in the FDA Orange Book is a new identifier on certain products and depicts which product the applicant should use for bioequivalence testing.  The new RS identifier is not currently found in the drug compendia, but must be referenced in the FDA Orange Book.  The RLD now is solely focused on identifying the product to reference the labeling.  ANDA applicants now have clarity from the FDA for labeling (RLD) and product source for pharmacokinetic testing (RS).


2017 Summer Newsletter- 2018 Drug Exclusion Lists

2017 Summer Newsletter- 2018 Drug Exclusion Lists

Express Scripts and CVS Health 2018 Drug Exclusion Lists

Express Scripts and CVS Health have released their highly anticipated formulary exclusion lists for 2018.  Although CVS Health states that they will not finalize their list until September 15, they have published the expected formulary exclusions, indicating  that the autoimmune and hepatitis C categories may change.  PHSI analyzed the exclusion lists to note trends and changes over time.  Including combination products (e.g. Benicar and Benicar HCT), CVS Health added 21 products to their exclusion list, while Express Scripts added 68 drugs.  With many blockbuster drugs losing brand exclusivity in the past few years, it is not surprising that the 2018 exclusions lists are rife with multi-source brand products.

Of the 68 drugs added to Express Scripts’ formulary exclusion list, 50 were multi-source brands.  Meanwhile, eight of CVS’s twenty-one exclusions have generic alternatives available.  On both the CVS Health and Express Scripts’ lists, commonalities exist with both PBMs adding Effexor XR, Seroquel XR, Zetia, and Benicar/Benicar HCT to their exclusion lists.  Because lower-cost generics are now readily available for these products, excluding these brands will lower costs.

Specialty drugs may be the new frontier of drug innovation and account for the majority of new product launches.  See PHSI’s previous newsletter article, “2016: The Decline of New Drug Approvals and Increase in Expedited Reviews”.  However, specialty drugs were not overly abundant on the 2018 exclusion lists.  Both CVS Health and Express Scripts each added four specialty drugs to their 2018 exclusion lists.  CVS added Elelyso, Follistim, Synvisc, and Synvisc One, while Express Scripts added Sandostatin LAR Depot, Signifor LAR, Neupogen, and Forteo.

For Express Scripts, one of the most interesting exclusions was epinephrine auto-injectors from A-S Medication, Impax, and Lineage.  Express Scripts appears to have partnered with Mylan to promote the EpiPen and generic Mylan epinephrine auto-injector, which are the preferred alternatives.  CVS Health does not include either the EpiPen or generic epinephrine auto-injectors on their exclusion list.  However, in the past year, CVS retail stores have been promoting their low cash price epinephrine program, which provides the Impax/Lineage epinephrine product to patients for approximately $110.  Based on the success of that program, it is not unusual to see the epinephrine market divided amongst the PBMs (CVS and Express Scripts) and manufacturers (Mylan and Impax/Lineage).

New exclusions were not the only changes seen on the 2018 lists.  CVS announced that 18 products are being removed from the exclusion list, perhaps due to shifting costs or increased rebates from brand manufacturers.  Of the 18 items being re-added to the formulary, 13 will be placed on a preferred drug tier, while the remaining five will be placed on a non-preferred tier.  The items being removed from the exclusion list are shown in the chart below.

2018 Exclusion List Removals

Based on prior exclusions, Express Scripts notes that a total of 159 drugs are now included on their formulary exclusion list.  Meanwhile, CVS appears to have approximately 180 products on their exclusion list, although this may change when the autoimmune and hepatitis C categories are finalized mid-September.  It will be interesting to watch the exclusion list changes in coming years, especially as biosimilars become more prevalent.

The chart below lists new products on the CVS Health and Express Scripts 2018 drug exclusion lists that were not present on the 2017 lists.

2018 Exclusion List


2017 Summer Newsletter- FDA Orange Book Added Identifier

2017 Winter Newsletter- Biosimilar Interchangeability

FDA Draft Guidance on Demonstrating Interchangeability

This January the FDA published draft guidance entitled, “Considerations in Demonstrating Interchangeability with a Reference Product”.  This long-awaited guidance provides biosimilar manufacturers with information on proving and supporting their claims of interchangeability status when submitting a 351(k) application.  The draft guidance indicates that biosimilars will require physician approval before pharmacy substitution, unless they gain interchangeability status.  Interchangeable products may be substituted at the pharmacy without prescriber approval or notification.  Just as small molecules must prove both pharmaceutical equivalence and bioequivalence to be considered therapeutically equivalent and substitutable (i.e.: FDA Orange Book A-rated), 351(k) products must show biosimilarity, clinical equivalence, and switchability to be considered interchangeable.

In order to be considered interchangeable to the reference product, the applicant must show that:

  1. Their biological product is biosimilar to the reference product
  2. Their product can be expected to produce the same clinical result as the reference product in any given patient for all indications
  3. For a biological product that is administered more than once to an individual, the risk in terms of safety or diminished efficacy of alternating or switching between the biological product and reference product is not greater than the risk of using the reference product without an alternation or switch

To prove that the product can produce equivalent clinical results, manufacturers must provide data on critical quality attributes, mechanisms of action (target receptors, receptor binding, dose response, etc.), pharmacokinetics, biodistribution, immunogenicity, toxicities, and many other factors.  With scientific justification, manufacturers can extrapolate clinical data to support interchangeability status for additional drug indications.  Although products may be approved as biosimilars if only applying for approval for one reference product indication, interchangeable products must be clinically equivalent and switchable for all indications of the reference product.

In addition to clinical studies, manufacturers must demonstrate the ability of their biosimilar to be switched back-and-forth with the reference product.  The FDA states that they expect applicants to include information from switching studies that mimic appropriate conditions of use.  The newly published draft guidance provides conditions for manufacturers to consider when designing a switching study, including study endpoints, analysis, population, routes of administration, and conditions of use.  The guidance notes that in general, post-marketing data would be insufficient to prove the impact of product switching and would not be enough to gain interchangeability status.  The FDA did state that post-marketing surveillance may be needed along with switching studies to demonstrate interchangeability if there is “residual uncertainty”.  If this draft guidance is finalized as is, it would mean that some biological products must be initially approved as biosimilars and can only gain interchangeability status after a time period significant enough to allow for post-marketing surveillance (likely several months to years).

Throughout the draft guidance, it is recommended that manufacturers work closely with the FDA to discuss their proposed switching studies and proposed presentation, i.e. product packaging, (vial, pre-filled syringe, auto-injector, etc.).  The FDA recommends that manufacturers only seek interchangeability status for products with the same presentation.  They also suggest that manufacturers discuss any proposed presentation changes with the FDA, as the presentation and its design will be thoroughly analyzed prior to granting interchangeability status.

The clinical data and additional study requirements necessary to prove interchangeability for 351(k) applicants will prove more burdensome and expensive than proving substitutability for traditional generic ANDA approvals.  With the amount of data needed to substantiate interchangeability status, there will be a much larger investment to bring an interchangeable product to market compared to a small molecule.  It is not surprising that biosimilars are expected to only provide 30% savings over their reference product.  As expected, the FDA places emphasis on the importance of post-marketing safety monitoring for biosimilar and interchangeable products.  The full 30-page draft guidance document can be found here.  PHSI recommends that all stakeholders monitor this guidance closely, as finalized guidance will have a tremendous impact on the future of biosimilars.


2017 Winter Newsletter- 2016 New Drug Approvals

Retirement Announcement

2017 Winter Newsletter- 2016 New Drug Approvals

2016: The Decline of New Drug Approvals and Increase in Expedited Reviews

According to the FDA, only 22 novel new drugs were approved in 2016.  This is a 50% decrease from 2015.  Novel drugs, or new molecular entities, are defined by the FDA as “products containing active moieties that have not been approved by FDA previously, either as a single ingredient drug or as part of a combination product.”  After two record-breaking years of new drug approvals, 2016 is a bit of a letdown for prescribers and patients hoping for new, innovative therapies.  Last year was the lowest number of novel new drug approvals since 21 drugs were approved in 2010.  The chart below shows the trend in the number of new drug approvals for the last six years.

Novel Drug Approvals

Similar to 2015, the largest number of products approved in 2016 were indicated to treat different types of cancers.  For example, Lartruvo was approved to treat soft tissue sarcoma; Rubraca treats ovarian cancer.  Venclexta is indicated for chronic lymphocytic leukemia, and Tecentriq treats bladder cancer.

All of these oncology agents were breakthrough therapies that received FDA priority reviews and accelerated approvals due to the positive implications for patients.  When reviewing all 2016 approvals, priority review is the new norm vs. the exception, as 68% of all 2016 approvals had a priority review.  This could also indicate that few manufacturers are pursuing follow-on drugs in therapeutic categories that already have multiple available drugs.

Based on 2015 and 2016 approvals, special distinctions and expedited approvals from the FDA appear to be becoming more common.  The FDA defines these distinctions as:

First-in-Class: Drugs having mechanisms of action different from those of existing therapies (36% of 2016 approvals)

Drugs for Rare Diseases: Drugs approved to treat rare or “orphan” diseases affecting 200,000 Americans or less (41% of 2016 approvals)

Fast Track: Drugs having the potential to address unmet medical needs (36% of 2016 approvals)

Breakthrough: Drugs with preliminary clinical evidence demonstrating that the drug may result in substantial improvement on at least one clinically significant endpoint versus other available therapies (32% of 2016 approvals)

Priority Review: Drugs are reviewed within six months instead of the standard ten months if the drug could potentially provide a significant advance in medical care (68% of 2016 approvals)

Accelerated Approval: Approval is based on a “surrogate endpoint”, such as a lab value or clinical measure, that the FDA considers reasonably likely to predict the drug’s clinical benefit and allows for earlier approval for drugs treating serious or life threatening illness that offer a benefit over current treatments (27% of 2016 approvals)

The same drug may fall into multiple categories.  The chart below summarizes the 2016 novel drug approvals with special distinctions and/or expedited approvals, as noted by the FDA.

2016 also saw a number of first-time generic launches.  The biggest generic launch of the year was generic rosuvastatin (Crestor).  Other notable brands losing patent protection and becoming availability generically included Benicar (olmesartan), Tamiflu (oseltamivir), and Zetia (ezetimibe).  There were a few notable generic specialty launches in 2016 including imatinib (Gleevec) and valganciclovir (Valcyte), reducing the cost for patients taking these medications.  Although generics are now more common in the specialty space, brand drugs still dominate specialty pharmacy, and PHSI estimates that only 6 of the 22 new drug approvals are traditional retail pharmacy products.

As 2017 unfolds, look for more of the 2016 approvals to become commercially available and appear on drug formularies.  Due to high costs and limited patient population sizes, we anticipate many of these agents being placed on specialty drug tiers due to the high rate of 2016 approvals for drugs treating rare disease states.  PHSI expects this trend to continue in 2017 and will report on the new approvals and their effects on the industry.


2017 Winter Newsletter- Biosimilar Interchangeability

Retirement Announcement

Retirement Announcement

The entire PHSI team would like to congratulate Bonnie Mattiko on her retirement, effective December 29, 2016.  Bonnie provided administrative support to PHSI consultants for ten years.  Many of you know Bonnie from her emails, telephone calls, and persistent follow-up for scheduling meetings for PHSI consultants at industry conferences.  As Bonnie begins her retirement, she will continue to reside in Pittsburgh, but expand her traveling to visit her sons and granddaughters.  We all wish Bonnie well in her retirement.  Terry Johnston will now be handling PHSI meeting scheduling.

Congratulations, Bonnie!

PHSI 005


2017 Winter Newsletter- Biosimilar Interchangeability

2017 Winter Newsletter- 2016 New Drug Approvals

2016 Fall Newsletter- 2017 Medicare Part D Prescription Drug Plan Trends

Starting in 2017, there will be 41 million beneficiaries enrolled in Medicare Part D plans.  About 60% of these beneficiaries are enrolled in stand-alone prescription drug plans (PDPs), while the remaining 40% are in Medicare Advantage plans (MA-PDs).  Although the total number of Part D beneficiaries has not substantially changed since 2016, the premiums and deductibles imposed on these beneficiaries is increasing, and plan choices are decreasing.

In the last ten years, PDP premiums have increased over 60%.  The weighted average monthly premiums for PDP plan members are expected to rise by 9% from 2016 to 2017.  This will make the average monthly PDP premium $42.17 (excluding low-income subsidy adjustments), with wide variations from around $17 per month to over $70 per month, based on the plan.  One-third of PDP enrollees do not pay any premiums because of low-income subsidy (LIS) benefits.  The Kaiser Family Foundation projects the 2017 monthly premium distribution to be as follows.


In addition to premium increases, deductibles are expected to rise by 7% in 2017.  Meanwhile, the monthly Social Security benefits will see a 0.3% cost-of-living adjustment.  For senior citizens on a fixed income, these large Medicare premium and deductible increases could severely strain finances for many.

Shifts in cost-sharing for out-of-pocket expenses are also taking place.  Almost all PDPs have five cost-sharing tiers, with two generic tiers, two brand tiers, and one specialty tier.  Although percentage-based coinsurances have been popular for the specialty tier for many years, many non-preferred brand tiers are now implementing coinsurances vs. flat-dollar copays.  In 2017, the threshold for a specialty drug will also increase to $670 for a one-month drug supply.  This limit designates many injectable, high-touch products as specialty drugs.  However, several oral drugs often thought of as retail products may hit this threshold and fall into the specialty tier, including Absorica, Fycompa, Januvia, Latuda, Nucynta ER, Opana ER, and Saphris.  Manufacturers setting or increasing drug pricing should be conscious of this specialty threshold, as patient pay and pharmacy reimbursement amounts can be greatly impacted.

To promote use of lower cost generics, approximately one-third of PDPs have implemented a $0 copay preferred generic tier.  Compared to the models of the past decade, this formulary change shifts more of the costs for non-preferred brands to the patients.  It incentivize them to curtail the use of high-cost medications, when lower cost, equally efficacious options are available.

The average Medicare Part D enrollee had a choice of 22 PDPs in 2017.  Based on the state in which they reside, this number varied from 18 to 24.  Although this is still an acceptable number of choices, it is the lowest number of options since Part D was implemented in 2006.  This decrease is likely caused by several factors, including industry consolidation.

As 2017 approaches, PHSI recommends that pharmacists prepare to discuss increasing costs with patients who may be surprised when their prescription costs change.  Manufacturers should monitor their products’ tier placement and evaluate if any significant copay/coinsurance changes will affect their business.  2017 promises to be an interesting year for healthcare, so stay tuned for more updates in our coming newsletters.


2016 Fall Newsletter – Drug Exclusion Lists 2017 Update Article

2016 Fall Newsletter- Drug Exclusion Lists 2017 Update

PBMs and health plans have finalized their 2017 drug formularies, and payers have announced the products on this year’s highly anticipated formulary exclusion lists.  While many of the drugs remain the same as the previous year, the increased presence of biosimilars and generic specialty drugs has caused some interesting changes for the exclusion lists.  The hyperinflation of drug prices has also prompted payers to evaluate the medical necessity of these drugs.

For CVS, a unique hyperinflation drug category now exists on the exclusion list.  CVS has stated that they will evaluate drug price increases on a quarterly basis and potentially remove these items from the formulary when clinically appropriate alternatives are available.  There are ten items identified as “hyperinflation drugs” on CVS’s 2017 formulary exclusion list, including DexPak and Zegerid.  Valeant, who grabbed headlines earlier this year with many of these drug price hikes, markets both of these products.  Interestingly, Express Scripts (ESI) includes none of these ten hyperinflation items on their 2017 exclusion list.

One of the most meaningful changes to the CVS Health formulary exclusion list is the preference for biosimilars and follow-on biologics over their comparator brands.  The exclusion of Gleevec, Lantus, and Neupogen in favor of generic imatinib, Basaglar, and Zarxio sends a strong statement.  CVS is looking for significant savings by removing these high cost biologic or specialty products in favor of covering newer, generic alternatives.  CVS is also excluding brands Crestor and Nexium now that generic version of the drugs (rosuvastatin and esomeprazole) are available.  These changes could help to control rising premiums and costs if a portion of the realized savings are passed on to the patients.

For Express Scripts, one of the most interesting exclusions is alogliptin and alogliptin/metformin, the generic versions of Nesina and Kazano.  Earlier this year, Takeda entered into an agreement with Perrigo to launch authorized generic versions of their alogliptin and alogliptin combination products, Nesina, Oseni, and Kazano.  Takeda hoped that by launching a generic in an all-brand category, they could capture preferred formulary status.  However, likely due to launch prices, it is clear that this did not happen, as both the brands (Nesina and Kazano) and their respective AGs (alogliptin and alogliptin/metformin) are now listed on Express Scripts’ 2017 exclusion list.  Interestingly, neither Oseni nor its alogliptin/pioglitazone AG are included on the exclusion list, but this could change as Express Scripts evaluates products in the future.

The chart below lists new products on the CVS Health and Express Scripts 2017 drug exclusion lists that were not present on the 2016 lists.




2016 Fall Newsletter – 2017 Medicare Part D Prescription Drug Plan Trends Article

2016 Summer Newsletter- Pharmacy Pay-for-Performance Networks

The recent push to focus on value-based healthcare through accountable care organizations (ACOs) is changing incentives for physician practices and health care systems. Incentivized care is also now moving into the pharmacy world.  With more focus than ever on managing outcomes, improving adherence, and preventing adverse reactions, pharmacies are becoming contractually responsible for whether or not patients meet their goals.

Star Ratings have measured patient outcomes in Medicare Part D for almost ten years. There are five active pharmacy-based performance measurements from the Pharmacy Quality Alliance (PQA).  These measurements include:

  1. Adherence for oral diabetes medications
  2. Adherence for cholesterol medications (statins)
  3. Adherence for blood pressure medications (renin-angiotensin system antagonists)
  4. High-risk medication use in older adults
  5. Appropriate treatment of blood pressure in patient with diabetes

Although pharmacists have been dealing with adherence and safety issues for many years, pay-for-performance models put new focus on these issues by providing direct financial incentives or disincentives.  Medicare plans have been using adherence ratings to help determine eligibility for preferred pharmacy networks, and the commercial world is now looking to adopt these metrics as well.  Using Pharmacy Quality Solutions’ (PQS’s) Electronic Quality Improvement Platform for Plans and Pharmacies (EQuIPP) system, pharmacies can track their performance, and health plans can provide bonuses to the top pharmacies.

CVS/Caremark Silver Scripts plans implemented Pay-for Performance in 2014 when they provided bonus checks to pharmacies who out-performed their competition.  The pharmacies were evaluated using four of the star measures, and the plan paid bonuses based on the pharmacies’ scores and number of patients served.

Another bonus-based plan, the Inland Empire Health Plan (IEHP) instituted one of first large-scale pay-for-performance pharmacy programs.  Working with PQS, the California health plan has enacted eight measures that track adherence, asthma control, generic dispensing rate, and use of high-risk medications in the elderly.  In this rewards-based system, pharmacies receive points when they meet or exceed the benchmarks, and the plan’s payout to the pharmacy is based on the points received.  Pharmacies who do not meet the benchmarks are not penalized, but they do not receive additional rewards payments.  This well-laid out plan may serve as a model for other pay-for-performance payers, since the benchmarks are easy to follow, and the EQuIPP system makes it simple for pharmacists to track their progress on an ongoing basis.  Click here to read more about the IEHP’s 2015-2016 pay-for-performance plan.

Recently, Humana announced an amendment to their Pharmacy Provider Agreement covering the 2017 part D plan year.  Humana plans to withhold $5 from each eligible claim and then provide pharmacies with the opportunity to earn Pharmacy Performance Payments based on achieving the three adherence measurements noted in the above list (adherence to diabetes, cholesterol, and hypertension medications).  Pharmacies not wishing to participate will be considered out-of-network.  Humana notes that the “percentile performance” will be evaluated for each pharmacy based on the number of members they service in each measure.  Unlike the Inland Empire Health Plan described above, Humana’s plan financially penalizes pharmacies until they show they can achieve adherence results, which may be outside of their control.  Humana will payback, or potentially reward, the top-performing pharmacies. Pharmacies need to be in the top 20 percentile to earn an incentive payment.  Pharmacies below 50% will be penalized, as they will not receive any of the amount withheld.  Although PHSI is not against pay-for-performance pharmacy plans, PHSI fears that redistribution vs. reward pay-for-performance plans may disadvantage pharmacies serving at-risk patients.

It is important that pharmacies are now being viewed as more valuable team members in helping to ensure medication adherence.  However, PHSI feels that it is important that adherence be viewed from a shared stakeholder perspective.  No one healthcare segment is solely responsible.  For example, although a pharmacy may wish to keep a patient compliant on their medication, without a refill authorization from a physician, this may not be possible.  Physicians and pharmacists must work together to truly improve these metrics, and health plans need to consider this collaboration when structuring their rewards programs.

As more pay-for-performance models emerge, pharmacies must decide whether to participate and if so, how to handle these patients.  Pharmacies may wish to flag those patients affect by adherence measures to increase their standards of care for that population.  While it is doubtful that care would fall for patients not enrolled in one of these networks, if the incentives to perform well in a pay-for-performance network are high enough, this could elevate the level of care for targeted patients, creating an unintended consequence of two levels of patient care.  As more rewards-based plans and redistribution models emerge, expect other health plans to test new incentive strategies in the near future.

2016 Summer Newsletter- A Flooding of Pharmacists

14,267- This was the number of pharmacy degrees awarded last year.  As new pharmacy schools open and graduate more pharmacists, the job market is shrinking.  The Pharmacy Workforce Center (PWC) monitors pharmacists demand through use of the Aggregate Demand Index (ADI), where a value of 1 indicates high surplus, and 5 indicates a high demand.  In January 2016, the ADI was 3.05, which means that pharmacist demand and supply are equal.  The ADI is pharmacy-specific and has been steadily declining over the last ten years, as shown in the chart below.  When the ADI falls below 3.0, pharmacist supply will outpace demand.  Based on this trend, what does the future hold for pharmacists?

ADI Chart

Pharmacists have known for years that the days of sign-on bonuses and company cars are over, but it may now be more difficult for new graduates to simply find a job.  However, the situation is not as dire as many have painted it, and a recent 2013 study still found that over 80% of students had a job or post-graduate program (residency, fellowship, etc.) lined up prior to graduating.  One effect from the increase in pharmacy graduates, for better or worse, is the proliferation and increased popularity of residencies and fellowships.  Whereas residencies were traditionally only geared towards those pursuing clinical pharmacy positions, residencies have now become a viable alternative plan for some students who are not otherwise able to find employment to augment their skills.

What is concerning in the last decade is the number of new pharmacy schools that have opened, which have more than made up for the pharmacist shortage.  The total colleges offering pharmacy programs is now over 130, with 16 new pharmacy schools opening in the last five years alone.  With six years of high tuition, opening a pharmacy school is lucrative for the school when all openings are filled.  However, few of these new schools have any regard for the effects their actions have on the profession.  In addition to difficulty finding employment in many geographic areas, the increased number of pharmacy schools is also putting a strain on pharmacies practice locations that act as rotation sites.  Geographic locations with multiple pharmacy schools may not have enough rotation sites to support the student population.

Absent moving to the south or western regions of the country where pharmacy demand remains high, pharmacists can seek additional certifications to improve their skills and make themselves more marketable.  While gaining provider status may help alleviate some of the job-shortage problems because of the potential for clinical service reimbursement, without sufficient payment, utilization of pharmacist-provided services will not significantly increase pharmacist demand.  As the baby boomer population ages, there should be a greater need for pharmacists providing clinical services, leading to a greater demand for pharmacists.  When the clinical services prove cost effective, the payer community will embrace them.  Cost effectiveness studies are underway, and initial results are promising.  In the meantime, pharmacists can only better themselves through certifications, uncovering new career opportunities, and advocating for the profession in government, at universities, and in our communities.

2016 Spring Newsletter- CMS’s Proposed New Part B Payment Model

Spring 2016 Newsletter
CMS’s Proposed New Part B Payment Model

Medicare Part B drug reimbursement to physicians and hospital outpatient centers has been in the spotlight for the past few years. Average Sale Price (ASP) pricing reimbursement methodology and the increased approval of more office-administered drugs has dramatically increased spending on Part B drugs. Currently, Medicare Part B reimburses medications at a rate of ASP + 6%. It is CMS’s position that this payment structure may not always promote the most cost-effective prescribing and could be interpreted as encouraging physicians to prescribe and administer more costly agents to increase their revenue under the buy and build model. The total CMS cost for Part B drugs exceeded $20 billion in 2015.

In response to this concern and in an effort to move to a more value-based reimbursement, CMS has proposed a new reimbursement methodology with multiple components. Instead of the ASP plus 6% reimbursement, the new strategy proposes reimbursing at a smaller percentage of ASP with an additional flat-dollar fee. The percentage-based portion still provides for a variable amount for handling and dealing with overhead costs of purchasing and storing expensive specialty medications. Meanwhile, the flat-dollar amount provides more compensation for offices primarily dealing in lower-cost agents, such as primary care doctors and orthopedic specialties.

While CMS may have considered implementing a methodology that only provided a flat fee, this strategy would have likely created insufficient reimbursement for physicians dealing with high-cost specialty medications and would likely increase profits on inexpensive product. Physicians and outpatient centers dealing with the high-cost products should be reimbursed on the increased financial risks associated with handling and storing these products.

Based on all of these considerations, the newly proposed methodology would reimburse office-administered agents at a rate of ASP + 2.5% plus a flat-dollar fee of $16.80 per drug. CMS stated that they would update the flat dollar fee annually. For a drug with an ASP of $1,000, this new methodology would lead to a difference in reimbursement of $18.20, as shown in the chart below.

Part B Payment Model

Based on the proposed reimbursement methodology, this creates a breakeven point of $480. At an ASP of $480, both methodologies equate to a reimbursement of $28.80. Therefore, for drugs with an ASP of less than $480, the new methodology will provide increased profitability for physicians. However, for drugs with an ASP greater than $480, Medicare Part B reimbursement under the newly proposed methodology will be decreased.

When looking at the above figures, it is clear that the goal of the new reimbursement strategy is to achieve cost savings, as the changes will not be budget neutral. The test to evaluate this new ASP change is scheduled to start in late 2016. CMS also continues to investigate other reimbursement methodologies that move away from fee-for-service reimbursement. Other reimbursement methodologies discussed include reference pricing, indication-based pricing, and outcomes-based risk-sharing strategies. CMS accepted comments on the proposed rule until May 9. PHSI will keep you abreast of any future reimbursement changes for Medicare Part B, and we welcome your feedback on the topic.