There was hope this would not happen. Hope by hospital outpatient facilities and physician offices such as oncologists, rheumatologists, and urologists. Starting today reimbursement of drugs administered under Medicare Part B benefit decreases from Average Selling Price (ASP) + 6% to ASP + 4% approximately. To a health care provider (HCP), this represents roughly a 30% reduction in their reimbursement of drug costs that they will receive from the Federal government in addition to the 2% cut they will receive on services. Based on data from Covance in the National Ambulatory Medical Care Survey (NAMCS), Medicare represents 59% of patients to the average physician office and 52% to the average hospital outpatient setting. So the impact of this sequestration will be devastating to these provider channels and is likely to have ripple effects into commercial plans too.
The impacts are likely to be as follows:
– To physician office settings – they will carefully need to pharmacoeconomically re-evaluate the therapies being provided to patients – those with good clinical pathway and reimbursement analysis tools will be sharpening their pencils. If they come to the conclusion that they will lose money, they will either be looking to procure drugs at a better price, or move the patient to self-administered therapies (orals or self-injectables – if this option exists), or make a decision to not treat the patient and refer them to an alternate site of care (such as hospital outpatient setting) to mitigate this financial liability.
– To hospital outpatient settings – they simply revert back to the reimbursement from 2012 as they just received the bump from ASP +4% to ASP +6% January 1, 2013. But, they will likely see an increase in number of patients due to physician office setting potentially deciding to not treat medicare patients, so increased volume is increased revenue. And if they are able to procure product at 340B prices, it is a windfall.
– To specialty pharmacy providers (SPP) – expect them to message around this opportunity to reach into the physician office clinics to suggest the increased option of using them to manage this financial hit. But since the SPP can’t do Assignment of Benefits (AOB) for Medicare Part B patients, this is only applicable if the commercial payers change their reimbursement. We’ll have to stand by to see if there is a 1-2 punch from commercial.
– To commercial payers – it would make sense for them to use this as an example to further pressure the whole buy-and-bill model and begin to convince clinics the time has come to move to either give them the buy-and-bill volume or move to SAAs, but again this will be a potential ripple (not a direct) effect of this change to Medicare.
– To full-line wholesalers – there should be a modest lift as they service the hospitals and SPPs that are likely to pick up volume from this transaction, but as I’ll explain below this volume shift is not good for distributors with large SD businesses because margin overall will decline.
– To specialty distributors (SDs) such as AmerisourceBergen’s ASD, Besse, Oncology Supply and McKesson’s McKesson Specialty – they will be pressured by their clinic customers for further price concessions. And if these SDs won’t, this profitable volume is likely leave. It’s a lose-lose situation for the SD.
– To manufacturers – If their product has significant utilization by Medicare Part B beneficiaries, utilization may decline if there are alternative therapies such as orals or generic injectables. Expect pressure from physician office customers to increase the level of contracted discounts , but this is a double-edged sword because offering incremental discounts will only further reduce that product’s ASP in the future and create a longer term problem.
– To manufacturers of alternative therapies – this may be an opportunity to partner more deeply with the SPP with hopes they wage a campaign to physician offices to further reconsider the use of SAAs. Again this won’t solve or impact the Medicare Part B portion of the equation since SPPs cannot do AOB on that Medicare volume.
Other impacts? Some new models may evolve and expand. To infusion therapy providers – is this a win for them? Can they make a model of treating medicare patients work? The challenge is how they balance it with the stronger commercial patient base as well…that is the trick for a physician office – they need to have a balanced mix of patients – the more commercial patients, the better! We’d expect new channels to rise from this – whether sequestration is sustained or not.
To the buy-and-bill model in general, this is a hit. Payers and SPPs are probably cheering if they can successfully message that this trend spills over to commercial. Physician offices and SDs are not having a good day. I’m sure there’s much more to come on this. If you’re into the world of Specialty, it will surely be one to watch.