Fair Market Value and Commercial Reasonableness Considerations Amid CMS Radiopharmaceutical Reimbursement Challenges
April 4, 2024
Written byCarla Zarazua, Preston Edison, and James Tekippe, CFA
Radiopharmaceutical drugs (RPs) are “radioactive substances used for diagnostic or therapeutic purposes.” To effectively diagnose and treat diseases, physicians need to have access to radiopharmaceutical agents that will assist with detecting and treating medical conditions. The current pricing methodology for RPs under the Centers for Medicare and Medicaid Services (CMS) has created a financial burden on hospitals and health systems. In addition, it has created a barrier to patient access when considering the utilization of diagnostic RPs in hospital outpatient departments. This article will outline the challenges created by the current CMS payment structure and outline steps hospitals and health systems can take to remain compliant with fair market value (FMV) and commercial reasonableness (CR) while CMS reconsiders its position.
In the 2008 Hospital Outpatient Prospective Payment System (HOPPS) final rule, CMS opted to categorize all diagnostic RPs as supplies rather than drugs. Under this current pricing structure, the reimbursement for diagnostic RPs is bundled into the technical procedure rate, known as a “policy-packaged drug.” CMS categorizes procedures with similar costs and clinical work effort into an ambulatory payment classification (APC) group. All procedures in an APC group are reimbursed at the same rate based on the average cost of all the procedures within that APC, inclusive of the primary service, ancillary service, and drug. As such, there is a set price for procedures in an APC group regardless of the policy-packaged drug in use. Unfortunately, this pricing methodology can create a misalignment in the expense incurred to acquire an RP and the reimbursement received from CMS, especially for high-cost drugs.
A report issued by the U.S. Government Accountability Office indicated that CMS will encourage hospitals to use the most effective resource that minimizes costs while still being able to meet the patient care needs. In addition, the structure does not incentivize medically unnecessary services and encourages hospitals to negotiate drug purchase pricing with manufacturers.
There is a temporary exception to the pricing for RPs for new and high-costs drugs, which can qualify for a pass-through period of two to three years. Under the pass-through methodology, the RP will be paid separately from the technical procedure rate at the average sales price + 6% incurred by a provider for the RP. Although this provides some relief to the misalignment of costs and reimbursement for RPs, the pass-through period is finite for an RP, and once outside of the pass-through period, an RP will be bundled or “packaged” within the APC procedure rate. Although CMS’ intent is understandable, under the current pricing model, hospitals may face a challenging financial burden, and providers may be confronted with difficult decisions that may impact patient care.
In the post-COVID era, hospitals have increased focus on increasing margins and reducing costs, and the current payment structure for RPs is putting increased pressure on the hospitals’ and health systems’ bottom line. Various stakeholders have voiced concerns about the economic burden resulting from CMS’ payment structure for RPs. For example, the American Medical Association indicated that, for financial reasons, hospitals may need to limit or end the use of radiopharmaceuticals, especially the high-cost or newer ones, given the misalignment in reimbursement. In addition, the American Hospital Association has put out a statement that the 2024 HOPPS final rule is an “inadequate update to hospital payments.” Hospitals and health systems unfortunately face heavy financial risk if a provider chooses to select a policy-packaged, high-cost drug that is more than the APC payment rate for a procedure. For this reason, hospitals may want to limit the use of the high-cost drugs by its providers, which may cause patients to receive sub-optimal care.
Given this dynamic, providers may choose not to utilize more expensive or advanced RPs, although it may be better off for a patient in the long term. As indicated by the Medical Imaging & Technology Alliance (MITAS), utilizing an advanced RP would be more beneficial in the patient’s overall treatment management, as these RPs have earlier, more accurate detection and can actually reduce the use of other unnecessary treatments because physicians will be in a better position to understand and treat the disease. Even more challenging, some advanced RPs truly have no alternative or substitute, so concerns about costs may result in the use of a less effective RP, which could result in misdiagnoses and ill-tailored treatment plans.Lastly, the lack of reimbursement inhibits innovation and development of new drugs because drug manufacturers would not be incentivized to continue the research and development if the drugs have a low clinical use.
As demonstrated above, there are several issues with the current pricing structure for RPs, but CMS has asked for comments on potential remedies. In the 2024 CMS proposed rule, CMS outlined the following five alternative payment models for RPs:
Paying separately for diagnostic radiopharmaceuticals with per-day costs above the OPPS drug packaging threshold of $140
Establishing a specific per-day cost threshold that may be greater or less than the OPPS drug packaging threshold
Restructuring the ambulatory payment classification (APC), including by adding nuclear medicine APCs for services that utilize high-cost diagnostic radiopharmaceuticals
Creating specific payment policies for diagnostic radiopharmaceuticals used in clinical trials
Adopting codes that incorporate the disease state being diagnosed or a diagnostic indication of a particular class of diagnostic radiopharmaceuticals.
While various stakeholders appreciate CMS requesting and seeking recommendations on changes to the structure, many stakeholders such as MITAS and the American College of Radiology (ACR) recommend that “CMS establish separate payment for diagnostic radiopharmaceuticals, including a per day cost threshold based on average sales price (ASP) + 6% methodology.” Stakeholders believe this method will allow for adequate reimbursement and treatment access options for patients.
Unfortunately, CMS did not make a decision on how to move forward with the reimbursement structure for radiopharmaceuticals in the 2024 HOPPS final rule. Given the potential, pending changes in reimbursement, and the fact that CMS reimburses some RPs at a lower amount than it costs to acquire them, it is important for hospital outpatient departments to document and outline a plan with their care teams on how best to use RPs within their organization to remain compliant when it comes to FMV and CR. As such, VMG Health has outlined some important factors to consider for each compliance component in the interim.
Fair Market Value:
Review any existing or new agreements with vendors and negotiate pricing when able.
Engage a third-party valuator to review any existing or new agreements and determine market comparable pricing of the services.
Although, the price paid for the drug may be within market range upon determining FMV, CMS may not reimburse at this rate for certain RPs. As such, given that CMS is the most widely cited market comparable and a market maker in terms of how these drugs are reimbursed, hospitals may find that they are losing on these types of arrangements. For this reason, it is important to document the legitimate business purpose of the use of the RP:
Commercial Reasonableness:
Document reasons for medical necessity of higher-priced drugs.
Have a documented process “decision tree” for deciding which radiopharmaceuticals to use on patients.
Consider the frequency and volumes of how often these drugs are used and document it.
While CMS hasn’t reached a solution on the changes to reimbursement for RPs, it is important for hospitals and health systems to consider the financial and patient care implications of what RPs providers use. Developing compliance protocols around how best to determine the utilization of these RPs can minimize the risk placed on patients and hospitals.
Sources
GAO. (2021). Medicare Part B Payments and Use for Selected New, High-Cost Drugs. United States Government Accountability Office. https://www.gao.gov/assets/720/712727.pdf
Klitzke, A. (2023). Passage of the Facilitating Innovative Nuclear Diagnostics (FIND) Act. American Medical Association Organized Medical Staff Section. https://www.ama-assn.org/system/files/i23-omss-resolution-7.pdf
