In what can only be characterized as a necessary but significant proposed departure from current political initiatives focused on lowering pharmaceutical drug prices, the Centers for Medicare & Medicaid Services (CMS) proposes considerably increasing reimbursement for certain qualified diagnostic radiopharmaceuticals.
On July 10, 2024, CMS issued a proposed rule (CMS-1809-P) for Calendar Year 2025 Medicare payment rates for hospital outpatient and Ambulatory Surgical Center services. The annual proposed rule is broad-sweeping and addresses a wide range of payment policies. One narrow issue addressed by CMS is potential increased reimbursement for diagnostic radiopharmaceuticals.
CMS proposed a separate payment for diagnostic radiopharmaceuticals that meet a specific cost threshold in alignment with how other drugs and biologics are reimbursed. The 60-day comment period is currently ongoing and it is expected that the final rule will be issued in early November.
CMS has positioned itself in a manner that suggests an openness to industry feedback. The proposed payment policy change—which if finalized would increase certain reimbursement rates substantially—could have significant impacts on beneficiary access to critical diagnostic and treatment services as well as establish much-needed Medicare reimbursement for costly diagnostic radiopharmaceuticals where there is no clinical alternative.
Interested parties should consider these issues as the September 9 deadline to submit comments to the proposed rule is quickly approaching.
Background
The Hospital Outpatient Prospective Payment System (HOPPS or OPPS) is used by CMS to reimburse hospital outpatient services covered under Medicare Part B (e.g., X-rays). Implemented in 2000, one of the goals of implementing the OPPS was to reduce beneficiary copayments in response to rapidly growing Medicare expenditures for outpatient services.
Under the OPPS, hospitals report codes (called HCPCS) for services provided to beneficiaries on claims submitted to CMS, which are translated into payments. While HCPCS codes are similar to Current Procedural Terminology (CPT) codes in that they serve as identifiers for medical items and services, HCPCS codes are used for reimbursement under federal healthcare programs.
All HCPCS codes for Part B items and services paid under the OPPS are assigned to groups known as Ambulatory Payment Classifications (APCs). APCs represent similar items and services in terms of clinical treatment and cost. Generally, all services in an APC are reimbursed at the same prospectively fixed rate.
Not all items and services are paid separately, however. “Packaged” services are items and services that are associated, integral, ancillary, supportive, dependent, or an adjunctive part of a primary procedure or service. No separate payment is made for drugs, biologicals, or pharmaceuticals, the costs of which are packaged into the APCs with which they are associated. For example, hospitals receive the APC fixed payment for surgical procedures without separate payment for routine supplies/drugs used during the procedure. The surgery is considered the primary procedure and drives the payment received by the hospital. The supplies/drugs are considered “packaged.”
Note an important distinction, “packaged” services are different from “bundled” services. Bundled services refer to multiple, significant procedures related to an outpatient encounter or episode of care paid as a single unit of payment.
Diagnostic Radiopharmaceuticals
Radiology is a branch of medicine that uses imaging technology to diagnose and treat disease. Nuclear medicine is a specialized area of radiology that uses small amounts of radioactive materials for medical imaging to diagnose diseases and guide treatment. Diagnostic radiopharmaceuticals are radioactive drugs that emit gamma photons that penetrate the body and can be detected externally for imaging and diagnosis (e.g., imaging a tumor or lung function). Diagnostic radiopharmaceuticals are used in nuclear medicine scans such as Positron Emission Tomography (PET) and Single Photon Emission Computed Tomography (SPECT) scans.
Beginning in Calendar Year 2008, the OPPS divided radiopharmaceuticals into two groups for payment purposes: diagnostic and therapeutic. Diagnostic radiopharmaceuticals function effectively as products that enable the provision of an independent service, specifically a diagnostic nuclear medicine scan. Therapeutic radiopharmaceuticals are themselves the primary therapeutic modality. While therapeutic radiopharmaceuticals are reimbursed with their own APC payments, all diagnostic radiopharmaceuticals are packaged regardless of cost (42 CFR § 419.2(b)(15)).
Recognizing the rising costs of these products, which result from the high manufacturing costs and limited half-life, CMS has approved transitional pass-through payments for certain packaged diagnostic radiopharmaceuticals. Pass-through payments are permitted under the Social Security Act to provide supplemental reimbursement (beyond the APC amounts) for certain “new” drugs whose average cost is “not insignificant” in relation to the OPPS payments.
An average cost is “not insignificant” if it meets the following conditions:
- Estimated average reasonable cost > 10% APC payment;
- Estimated average reasonable cost > 25% APC drug portion; and
- (Estimated reasonable drug cost – Estimated APC drug portion) > 10% APC payment
The goal of pass-through payments is to improve patient access to drugs that are too new and costly to be well represented in the data that CMS uses to set OPPS payment rates. However, pass-through payments are temporary, and CMS can only approve payments for two to three years. Additionally, non–pass-through diagnostic radiopharmaceuticals are not separately reimbursed, and hospitals are limited to the payment for the associated nuclear medicine procedure.
Last year, CMS solicited comments on five potential approaches for payment of diagnostic radiopharmaceuticals. CMS received considerable interest and repeatedly stated it would consider feedback for future notice and comment rulemaking.
Stakeholders have raised issues with CMS’s current payment policy for diagnostic radiopharmaceuticals, which are treated as “supplies” packaged together with the imaging exam. CMS averages the higher-cost of these products with more general and widely used lower-cost drugs, resulting in overpayment for low-cost drugs and underpayment for higher-cost drugs. As such, interested parties have expressed concerns that the packaged payment rate is inadequate after pass-through payment status expires.
Further, commenters are concerned that packaging payment rates create barriers to beneficiary access for safety-net hospitals serving a high proportion of Medicare beneficiaries and underserved communities. In essence, these hospitals cannot afford to be under-reimbursed for the services and may stop offering them. On June 20, 2024, a bipartisan group of 15 senators sent a letter to CMS requesting the agency address inadequate packaging of payment for diagnostic radiopharmaceuticals used in diagnostic scans critical for Alzheimer’s and Parkinson’s disease.
CMS’s Proposed Rule
CMS recognizes that the payment amount for certain nuclear medicine tests may not adequately account for the cost of certain specialized diagnostic radiopharmaceuticals:
In situations where a hospital may have to pay significantly more to purchase a diagnostic radiopharmaceutical than Medicare pays, a hospital may decide not to provide that specific diagnostic radiopharmaceutical imaging agent to Medicare beneficiaries. This could potentially deny access to diagnostic tools for which there is no clinical alternative.
In addition to continuing certain pass-through payments for a number of diagnostic radiopharmaceuticals, CMS proposes establishing a drug packaging threshold ($630) for diagnostic radiopharmaceuticals. In other words, where the product’s
- Estimated per-day costs ≤ $630 = packaged
- Estimated per-day costs > $630 = paid through separate APCs
As such, diagnostic radiopharmaceuticals with costs above the threshold will receive unpackaged payments based on their own APC amounts. This proposal is in alignment with how many other drugs and biologics are reimbursed. CMS also proposes updating the drug packaging threshold by the Producer Price Index (PPI) for Pharmaceuticals for Human Use from IHS Global, Inc. starting in CY 2026 and subsequent years.
Throughout its proposal, CMS suggests a willingness to adjust its approach based on feedback from the industry. In fact, CMS solicited comments on the alternative of using the standard drug packaging threshold ($140 for CY 2025) as the threshold for separate payment for diagnostic radiopharmaceuticals. However, CMS indicated that it considers the $630 threshold to be more appropriate because diagnostic radiopharmaceuticals are “supplies” for nuclear medicine tests.
What to Expect
CMS’s proposed rule and price restructuring is not a guarantee. However, it is likely that CMS will finalize either the drug packaging threshold or a similar payment policy change seeing as the agency is focused on patient access issues and the proposal seeks alignment with existing reimbursement schemes for other drugs and biologics.
That said, the proposed rule runs contrary to current drug pricing political scrutiny and could face resistance in the current political climate. As is often the case with pricing thresholds, the proposed new drug packaging threshold could incentivize increased pricing for diagnostic radiopharmaceuticals, which could result in additional scrutiny of the proposal.
If you wish to submit comments to CMS now is the time. Once the comment period has ended on September 9, 2024, CMS will review questions and suggestions from the industry and decide whether and how to finalize the rule.