The Lynx Group

Oncology Drug Reimbursement and Administration Benchmarks

July 2011, Vol 2, No 4

Philadelphia, PA—When preparing to tackle oncology drug reimbursement concerns, it is critical to understand the benchmarks that influence reimbursement, according to John F. Aforismo, BScPharm, RPh, FASCP, Chief Executive Officer, RJ Health Systems Inter - national, Rocky Hill, CT.

At a payers’ session on reimbursement issues, Mr Aforismo said that the commercial sector evaluates these benchmarks when managing oncology drug reimbursement. The benchmarks, which are part of provider contracts, include the average sales price (ASP), average wholesale price (AWP), maximum allowable cost (MAC), whole sale acquisition cost (WAC), Inter national Classification of Diseases, Ninth Revision (ICD-9), Healthcare Common Procedure Coding System (HCPCS) versus National Drug Code (NDC), and clinical guidelines.

Peyton Howell, MHA, President, Consulting Services, and Senior Vice President, Business Development, AmerisourceBergen, Frisco, TX, noted that ASP, which came about via the Medicare Modernization Act and carries a 2-month lag time in reimbursement, has “dramatically changed” the reimbursement for oncology care, because Medicare and most private payers use some form of ASP-based payment. She cited 2 key “flaws” in the current system: reimbursements for cancer care management and treatment administration are inadequate— financial “losers.”

“Because of reimbursement issues involved with ASP, it makes no sense currently to do the right thing as a provider for your oncology care patients. That is why it is important to find models to incent,” she said.

In addition, the actual definition and reporting of ASP have significant flaws, which create inconsistent payment. Ms Howell said that one of the biggest flaws of ASP is that it promotes high-cost products and discourages the use of low-cost products. “These are critical issues that have created inconsistencies in the adequacy of ASP reimbursement, but congressional action is needed to clarify many of these issues,” Ms Howell said.

AWP, MAC, and WAC Benchmarks
The AWP (the price at which a wholesaler sells a product to a provider) is determined by 4 national data sources—First DataBank, Medi- Span, Red Book, and Gold Standard. All sources produce an AWP that providers use to bill for a product or that payers use to reimburse for a product.

According to Mr Aforismo, the provider and physician community use Red Book as their guidance. The payer community uses either First DataBank or Medi-Span as a basis for their reimbursement methodology. Conse quently, the sources do not match, because there is a lag time between pricing that enters Red Book and pricing that enters the payer’s system. “As a result, there is much talk as to whether AWP is going away. The term ‘AWP’ will eventually go away. Someone’s just got to come up with another name, as the methodology is still there,” he said.

Wholesalers set the AWP by percent profit or another method—and they set it immediately, because they have to make a profit, Mr Aforismo noted. Currently, many manufacturers do not provide an AWP, but they will provide a suggested AWP combined with a WAC.

Commercial payers use MAC not only on the pharmacy side but also on the medical side, according to Mr Aforismo. Controversy about MAC on the pharmacy side is abundant, yet some payers are looking at MAC as another way of reimbursing a provider.

“The MAC on an HCPCS drug code level probably is a lot better than an ASP plus level. It gives incentive to providers to use a generic if a generic is available,” he said. There’s also MAC on an NDC level. Acquisition costs are used as a reference.

The WAC is yet another benchmark to review. “The only problem in a WAC-based system is you will not receive a WAC in a generic environment, nor will you see it in a repackaged environment. WAC is only for a limited supply of drugs,” Mr Aforismo said.

Guidelines and Coding
The reimbursement meth odology reviews the guidelines, tying them into the drug component. “It’s about how to pay for a drug adequately, as well as pay for the service. Payers are struggling with this,” Mr Aforismo noted.

Controversy surrounds the HCPCS versus NDC benchmark. According to Mr Aforismo, payers are asking for the NDC in nonclassified codes. Pharmaceutical companies have put a new crease in this. With the ability to capture an NDC, pharmaceutical companies are able to receive data. Payers are able to be remunerated for the data they receive.

Finally, Mr Aforismo addressed the ICD-9. With this benchmark, payers are using methodologies that will associate an ICD-9 code (US Food and Drug Admin istration– and compendia- listed) with pricing and other characteristics and adjudicate a claim financially and clinically.

Future Trends
One trend to look for involves payers’ adherence to clinical guidelines for appropriate use of pharmaceuticals. Another trend entails episodes of care per treatment regimen relating to how patients should be treated, and how a provider should be reimbursed.

Ms Howell elaborated on trends linked to the growth in pharmaceuticals, especially in oncology. The forecasted growth between 2009 and 2014 for specialty (6%) and nonspecialty (4%) pharmaceuticals is substantial. The growth is disproportionate in oncology (7%).

“It’s a challenge, because the same healthcare providers who are focused on oncology patients have a disproportionate share of Medicare patients. Because Medicare is the primary payer for most cancers, this creates a lot of pressure on managed care contracts,” Ms Howell commented.

Perhaps not surprising is the trend that oncology practices are struggling, Ms Howell said. In recent surveys by AmerisourceBergen, oncology practices answered a series of questions about their financial health over time. The vast majority of respondents (70% of the total) indicated they are in a worse situation than before. To offset lost revenue, most have diversified dramatically outside of their core oncology focus.

Practices were surveyed regarding their most significant negative drivers. For 74% of respondents, the top driver was Medicare reimbursement. Private reimbursement is also an issue, and 63% ranked this in the top 3 drivers. In response to financial pressures, many practices are considering closing locations or seeking acquisition by another entity. Underserved or rural areas may find it especially difficult to reverse some of these trends, Ms Howell said.

Scott Breidbart, MD, Chief Medical Officer, Empire Blue Cross/Blue Shield, NY, said that the patient must be kept at the forefront of all reimbursement issues. “Our job is to make sure treatment is based on patients’ best interest. We need to reimburse in a manner that is appropriate and does not incentivize other uses,” he said.

Some options to consider when evaluating reimbursement of oncologists include offering global payment by diagnosis, monitoring use of established protocols, requiring prior authorization, and using an oncology pharmacy vendor.

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