[Federal Register Volume 81, Number 48 (Friday, March 11, 2016)]
[Proposed Rules]
[Pages 13230-13261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-05459]



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Vol. 81

Friday,

No. 48

March 11, 2016

Part V





Department of Health and Human Services





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 Centers for Medicare & Medicaid Services





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42 CFR Part 511





 Medicare Program; Part B Drug Payment Model; Proposed Rule

  Federal Register / Vol. 81 , No. 48 / Friday, March 11, 2016 / 
Proposed Rules  

[[Page 13230]]


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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Centers for Medicare & Medicaid Services

42 CFR Part 511

[CMS-1670-P]
RIN 0938-AS85


Medicare Program; Part B Drug Payment Model

AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION: Proposed rule.

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SUMMARY: This proposed rule discusses the implementation of a new 
Medicare payment model under section 1115A of the Social Security Act 
(the Act). We propose the Part B Drug Payment Model as a two-phase 
model that would test whether alternative drug payment designs will 
lead to a reduction in Medicare expenditures, while preserving or 
enhancing the quality of care provided to Medicare beneficiaries. The 
first phase would involve changing the 6 percent add-on to Average 
Sales Price (ASP) that we use to make drug payments under Part B to 2.5 
percent plus a flat fee (in a budget neutral manner). The second phase 
would implement value-based purchasing tools similar to those employed 
by commercial health plans, pharmacy benefit managers, hospitals, and 
other entities that manage health benefits and drug utilization. We 
believe this model will further our goals of smarter, that is, more 
efficient spending on quality care for Medicare beneficiaries.

DATES: To be assured consideration, comments must be received at one of 
the addresses provided below, no later than 5 p.m. on May 9, 2016.

ADDRESSES: In commenting, please refer to file code CMS-1670-P. Because 
of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed):
    1. Electronically. You may submit electronic comments on this 
regulation to http://www.regulations.gov. Follow the ``Submit a 
comment'' instructions.
    2. By regular mail. You may mail written comments to the following 
address ONLY: Centers for Medicare & Medicaid Services, Department of 
Health and Human Services, Attention: CMS-1670-P, P.O. Box 8016, 
Baltimore, MD 21244-8016.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
    3. By express or overnight mail. You may send written comments to 
the following address ONLY: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: CMS-1670-P, Mail 
Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.
    4. By hand or courier. Alternatively, you may deliver (by hand or 
courier) your written comments ONLY to the following addresses prior to 
the close of the comment period:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
call telephone number (410) 786-7195 in advance to schedule your 
arrival with one of our staff members.
    Comments erroneously mailed to the addresses indicated as 
appropriate for hand or courier delivery may be delayed and received 
after the comment period.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: Susan Janeczko (410) 786-4529 or 
Jasmine McKenzie (410) 786-8102.

SUPPLEMENTARY INFORMATION:
     Inspection of Public Comments: All comments received before the 
close of the comment period are available for viewing by the public, 
including any personally identifiable or confidential business 
information that is included in a comment. We post all comments 
received before the close of the comment period on the following Web 
site as soon as possible after they have been received: http://www.regulations.gov. Follow the search instructions on that Web site to 
view public comments.
    Comments received timely will also be available for public 
inspection as they are received, generally beginning approximately 3 
weeks after publication of a document, at the headquarters of the 
Centers for Medicare & Medicaid Services, 7500 Security Boulevard, 
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, 
phone 1-800-743-3951.

Table of Contents

I. Executive Summary
    A. Purpose
    B. Summary of Major Provisions
    1. Model Overview
    2. Model Scope
    3. Model Payment
    4. Overlap With Ongoing CMS Efforts
    C. Summary of Economic Effects
II. Participation
    A. Background
    1. Drugs and Biologicals Paid Under Part B
    2. Types of Providers and Suppliers Furnishing Part B Drugs
    B. Proposed Drugs Paid Under Part B To Be Included in the Model
    C. Proposed Participants, Selected Geographic Areas, and 
Sampling
    1. Overview and Options for Geographic Selection
    2. PCSA Selection
III. Payment Methodology
    A . Phase I: Proposed Modifications to the ASP Add-On Percentage 
for Drugs Paid Under Part B
    1. Methodology for Creating the Modeling Data Set
    2. Add-On Proposal: Percentage Plus a Flat Fee
    3. Comment Solicitation: Additional Tests of Add-On 
Modifications
    B. Phase II: Applying Value-Based Purchasing Tools
    1. Introduction
    2. Value-Based Pricing Strategies
    3. Development of a Clinical Decision Support Tool
    C. Comment Solicitation
    1. Creating Value-Based Purchasing Arrangements Directly With 
Manufacturers: Solicitation of Comments
    2. The Part B Drug Competitive Acquisition Program (CAP): 
Solicitation of Comments
    3. Episode-Based or Bundled Pricing Approach: Solicitation of 
Comments
    D. Interactions With Other Payment Provisions
    1. Overview
    2. Most Shared Savings Programs and Models
    3. Oncology Care Model
    4. IVIG Demonstration
IV. Provider Supplier, and Beneficiary Protections
    A. Payment Exception Review Process
    B. Current Appeals Procedure
V. Proposed Waivers of Medicare Program Rules
VI. Evaluation
VII. Collection of Information Requirements

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VIII. Response to Comments
IX. Regulatory Impact Analysis
    A. Introduction
    B. Statement of Need
    C. Overall Impacts for the Proposed Part B Drug Payment Model
    D. Detailed Economic Analyses
    E. Regulatory Flexibility Act (RFA) Analysis
    F. Unfunded Mandates Reform Act Analysis
    G. Federalism Analysis
    H. Conclusion
Regulation Text

Acronyms

    Because of the many terms to which we refer by acronym in this 
proposed rule, we are listing these abbreviations and their 
corresponding terms in alphabetical order below:

AHRQ Agency for Healthcare Research and Quality
AMP Average Manufacturer Price
ASP Average Sales Price
AWP Average Wholesale Price
BBA Balanced Budget Act of 1997, Pub. L. 105-33
BPCI Bundled Payments for Care Improvement
CAP Competitive Acquisition Program
CDS Clinical Decision Support
CCN CMS Certification Number
CJR Comprehensive Joint Replacement
CMS Centers for Medicare & Medicaid Services
CPI Consumer Price Index
CY Calendar Year
DME Durable Medical Equipment
ESRD End Stage Renal Disease
FFS Fee-for-Service
GAO U.S. Government Accountability Office
IgG Immunoglobulin G
IVIG Intravenous Immune Globulin
HCPCS Healthcare Common Procedure Coding System
MAC Medicare Administrative Contractor
MedPAC Medicare Payment Advisory Commission
NDC National Drug Code
NOC Not Otherwise Classified
NPI National Provider Identifier
OIG Department of Health and Human Services' Office of the Inspector 
General
OCM Oncology Care Model
OPPS Outpatient Prospective Payment System
OPD Outpatient Department
PBM Pharmacy Benefit Manager
PBPM Per-beneficiary-per-month
PCSA Primary Care Service Area
PFS Physician Fee Schedule
TIN Taxpayer identification number
VBP Value-Based Purchasing
WAC Wholesale Acquisition Cost

I. Executive Summary

A. Purpose

    Part B includes a limited drug benefit that encompasses drugs and 
biologicals described in section 1861(t) of the Act. For the purposes 
of this proposed rule, the term ``drugs'' refers to drugs and 
biologicals paid under the Part B program, as well as biosimilars. 
Currently covered Part B drugs fall into three general categories: 
drugs furnished incident to a physician's services, drugs administered 
via a covered item of durable medical equipment (DME), and other drugs 
specified by statute. Based on our claims data, we estimate total Part 
B payments for separately paid drugs in 2015 were $22 billion (this 
includes cost sharing). In 2007, the total payments were $11 billion; 
the average annual increase since 2007 has been 8.6 percent.\1\ This 
significant growth has largely been driven by spending on separately 
paid drugs in the hospital outpatient setting, which more than doubled 
between 2007 and 2015, from $3 billion to $8 billion respectively.
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    \1\ GAO Report MEDICARE PART B Expenditures for New Drugs 
Concentrated among a Few Drugs, and Most Were Costly for 
Beneficiaries (GAO-16-12) October 2015. http://www.gao.gov/products/GAO-16-12
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    The purpose of this proposed rule is to test a new payment model 
called the Part B Drug Payment Model under the authority of the Center 
for Medicare and Medicaid Innovation (Innovation Center). Section 1115A 
of the Act authorizes the Innovation Center to test innovative payment 
and service delivery models to reduce program expenditures while 
preserving or enhancing the quality of care furnished to Medicare, 
Medicaid, and Children's Health Insurance Program beneficiaries. We 
propose to exercise this authority to test whether the alternative drug 
payment designs discussed in this proposed rule will lead to spending 
our dollars more wisely for drugs paid under Part B, that is, a 
reduction in Medicare expenditures, while preserving or enhancing the 
quality of care provided to Medicare beneficiaries.
    Many Part B drugs, including drugs furnished in the hospital 
outpatient setting, are paid using the methodology in section 1847A of 
the Act. In most cases, this means payment is based on the Average 
Sales Price (ASP) plus a statutorily mandated 6 percent add-on. Under 
this methodology, expensive drugs receive higher add-on payment amounts 
than inexpensive drugs while there are no clear incentives for 
providing high value care, including drug therapy. We propose a two 
phase model to test whether alternative payment approaches for Part B 
drugs improve value (relative to current drug payment approaches under 
Part B), improve outcomes and reduce expenditures for Part B drugs. 
This model's goals are also consistent with the Administration's 
broader strategy to encourage better care, smarter spending, and 
healthier people by paying providers and suppliers for what works, 
unlocking health care data, and finding new ways to coordinate and 
integrate care to improve quality. (http://www.hhs.gov/about/news/2015/01/26/better-smarter-healthier-in-historic-announcement-hhs-sets-clear-goals-and-timeline-for-shifting-medicare-reimbursements-from-volume-to-value.html#).

B. Summary of Major Provisions

1. Model Overview
    Medicare pays for most drugs that are administered in a physician's 
office or the hospital outpatient department at ASP+ 6 percent as 
described in section 1847A of the Act. The payment for these drugs does 
not include costs for administering the drug to a patient (for example 
by injection or infusion); payments for these physician and hospital 
services are made separately, and payment amounts are determined under 
the physician fee schedule (PFS) (https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/PhysicianFeeSched/index.html) and the 
Hospital Outpatient Prospective Payment System (OPPS) (https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/index.html). The ASP payment amount determined 
under section 1847A of the Act reflects a weighted average sales price 
for all National Drug Codes (NDCs) that are assigned to a Healthcare 
Common Procedure Coding System (HCPCS) code. The ASP payment amount 
does not vary based on the price an individual provider or supplier 
pays to acquire the drug. Payment determinations under the methodology 
in section 1847A of the Act also do not take into account the 
effectiveness of a particular drug. The payment determinations also do 
not consider the cost of clinically comparable drugs that may be priced 
exclusively in other HCPCS codes. The ASP methodology may encourage the 
use of more expensive drugs because the 6 percent add-on generates more 
revenue for more expensive drugs (see MedPAC Report to the Congress: 
Medicare and the Health Care Delivery System June 2015, pages 65-72). 
The ASP is calculated quarterly using manufacturer-submitted data on 
sales to all purchasers (with limited exceptions as articulated in 
section 1847A(c)(2) of the Act, such as sales at nominal charge and 
sales exempt from best price) with manufacturers' rebates, discounts, 
and price concessions included in the ASP calculation. The statute does 
not identify a reason for the

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additional 6 percent add-on above ASP. As noted in the MedPAC report 
(and by sources cited in the report), the add-on is needed to account 
for handling and overhead costs and/or to account for additional mark-
up in distribution channels that are not captured in the manufacturer 
reported ASP.
    The following paragraphs present a brief summary of our proposals. 
Additional details are discussed later in this proposed rule. We 
propose two phases for the Part B Drug Payment Model. In phase I of the 
model, we propose implementing a variation to the add-on component of 
Part B drug payment methodology in different geographic areas of the 
country. We would test whether the proposed alternative approach for 
the ASP add-on payment, which is discussed later in this proposed rule, 
would strengthen the financial incentive for physicians to choose 
higher value drugs. To eliminate selection bias, we are proposing to 
require participation for all providers and suppliers furnishing any 
Part B drugs included in the Part B Drug Payment Model who are located 
in the geographic areas that are selected for inclusion in the model. 
We propose to implement this first phase of the overall model no 
earlier than 60 days following display of the final rule. While this 
approach addresses the add-on to the manufacturer's ASP, it does not 
directly address the manufacturer's ASP, which is a more significant 
driver of drug expenditures than the add-on payment amount for Part B 
drugs. For a given HCPCS code, the add-on represents about 6 percent of 
an ASP-based Part B drug payment; the remaining 94 percent of the 
payment is calculated from the manufacturers' reported ASP data.
    In phase II of this model, we propose to implement value-based 
purchasing (VBP) in conjunction with the phase I variation of the ASP 
add-on payment amount for drugs paid under Part B. Phase II would use 
tools currently employed by commercial health plans, pharmacy benefit 
managers (PBMs), hospitals, and other entities that manage health 
benefits and drug utilization. These tools have been used for years 
with positive results, and we believe that some of these successful 
approaches may be adaptable to Part B. We propose to apply one or more 
tools, such as indication-based pricing, reference pricing, and 
clinical decision support tools to Part B drugs. We will test whether 
the implementation of the tools affects expenditures and outcomes.
    In addition to the proposals and comment solicitations associated 
with phase I and phase II, we also solicit comments on how to create 
value-based purchasing arrangements with manufacturers under Medicare 
fee-for-service (FFS) payment for drugs; on whether we should consider 
implementing an updated version of the Competitive Acquisition Program 
(CAP); and whether we should pursue a more bundled or episode-based 
approach that moves beyond an FFS payment structure. We would consider 
all comments on these two solicitations for future rulemaking.
2. Model Scope
    Under the model, we propose that providers and suppliers, in a 
selected geographic area, who are furnishing a covered and separately 
paid Part B drug that is included in this model, would receive 
alternative Part B drug payments. Within such selected areas, examples 
of providers and suppliers that Medicare commonly pays for Part B drugs 
include: physicians, durable medical equipment (DME) suppliers 
(including certain pharmacies that furnish Part B drugs), and hospital 
outpatient departments that furnish and bill for Part B drugs. There 
will be no specific enrollment activities for providers, suppliers, or 
beneficiaries in this model; the furnishing of Part B drugs in a 
particular geographic area will determine participation. We propose to 
require all providers and suppliers to participate in the model if 
furnishing Part B drugs included in the model and located in a 
geographic area that is chosen for participation in the model. We 
propose to determine a provider or supplier's specific geographic 
location based on the service location ZIP code for physician drug 
claims, the beneficiary ZIP code for DME supply claims, and the ZIP 
code for the address associated with the CMS certification number (CCN) 
for hospital outpatient claims. We propose to use Primary Care Service 
Areas (PCSAs) as the geographic area. We propose random assignment of 
all PCSAs to one of four groups: the three test arms (paying a modified 
ASP add-on amount, implementation of VBP tools, and both modified ASP 
add-on and VBP tools at the same time) or a fourth control group. We 
propose to include the majority of drugs paid under Part B in the 
model; in general, this means drugs that appear on the quarterly ASP 
Price Files. We propose to exclude some categories of drugs, including 
drugs separately billed by End-Stage Renal Disease (ESRD) facilities 
from the proposed Part B Drug Payment Model.
    We propose that the model would run for five years; phase I would 
begin in the fall of 2016 (no earlier than 60 days after the rule is 
finalized). During phase I, providers and suppliers that participate in 
the model would receive payments with either the existing statutory 
add-on amount or payments with the modified add-on amount. Phase II 
would begin no sooner than January 1, 2017. When phase II begins, 
providers and suppliers selected to participate in the VBP arms would 
begin receiving VBP-based payments for certain drugs and would 
participate in other VBP activities, such as feedback on prescribing 
patterns. Providers and suppliers in geographic areas selected for one 
arm of the model will experience both phase I pricing and phase II VBP 
pricing. We expect that phase II could take several years to fully 
implement. Our goal is to have both phases of the model in full 
operation during the last three years of the proposed five year 
duration to fully evaluate changes and collect sufficient data.
3. Model Payment
    In section III of this proposed rule, we propose to test an 
alternative to the ASP add-on payment in phase I of the model. We would 
assign providers and suppliers to the alternative ASP add-on approach 
or to the control group. We propose to use ASP+2.5 percent plus a flat 
fee as the alternative add-on amount; however, we also discuss and 
solicit comments on whether an additional approach, such as ASP + a 
tiered percentage add-on amount should be tested. We invite comment on 
whether these two approaches are sufficiently different to warrant 
separate arms under this model. The aggregate value of the phase I add-
on that is paid each year is proposed to be budget neutral meaning that 
the initial total payments under the model will be based on the most 
recently available calendar year claim's total Part B drug payment 
amount for separately paid drugs and then updated annually. In other 
words, we are not proposing a reduction to total spending for Part B 
drugs. Instead, we propose to test redistribution of the add-on payment 
on Part B drugs expenditure and outcomes. Additional detail about phase 
I appears in section III.A. of this proposed rule.
    In phase II of the model, we propose to test the application of a 
group of value-based purchasing tools that commercial and Medicare Part 
D plans use to improve patient outcomes and manage drug cost. We review 
several different tools, including value-based pricing, clinical 
decision support tools, and we discuss the potential applicability to 
the Part B drug and hospital outpatient benefits. Additional detail 
about phase II appears in section

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III.B. of this proposed rule. Table 1 summarizes the phases and arms of 
the model.

                 Table 1--Summary of the Proposed Model
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 Phase 1--ASP+X  (no earlier than 60 days     Phase 2--VBP  (no earlier
  after display of final rule, Fall 2016)        than January 2017)
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ASP+6% (control)..........................  ASP+6% (control).
                                            ASP+6% with VBP Tools.
ASP+2.5% and Flat Fee Drug Payment........  ASP+2.5% and Flat Fee Drug
                                             Payment.
                                            ASP+2.5% + Flat Fee Drug
                                             Payment with VBP Tools.
------------------------------------------------------------------------
Note: Primary Care Service Areas (which are clusters of ZIP codes that
  reflect primary care service delivery) would be randomly assigned to
  each model test arm and the control group. The assigned PCSAs would
  not include ZIP codes in the state of Maryland where hospital
  outpatient departments operate under an all-payer model.

    We also solicit comment on creating value-based purchasing 
arrangements directly with manufacturers, taking an episode-based or 
bundled pricing approach, and applicability of the Part B Drug CAP.
4. Overlap With Ongoing CMS Efforts
    We note that there are possibilities of overlap between the Part B 
Drug Payment Model and the Medicare Shared Savings Program, the 
Medicare Intravenous Immune Globulin (IVIG) Demonstration, and other 
Innovation Center payment models, such as the Oncology Care Model (OCM) 
and the Bundled Payments for Care Improvement (BPCI) initiative. In 
general, we propose not to exclude beneficiaries, suppliers (including 
physicians), or providers in the Part B Drug Payment Model from other 
Innovation Center models or CMS programs, such as the Medicare Shared 
Savings Program, as detailed in section III.E. of this proposed rule. 
We acknowledge that there is potentially greater overlap between this 
proposed model and OCM than other models. We propose to include OCM 
practices in the Part B Drug Payment Model, but we request comment on 
the best approach for handling that overlap and on whether we should 
exclude OCM practices and their comparison practices from the Part B 
Drug Payment Model.

C. Economic Effects

    Under phase I we propose to modify the ASP add-on amount to be 2.5 
percent plus a flat fee of $16.80. We propose to establish the amount 
of the flat fee to ensure total estimated payments under this model are 
budget neutral to aggregate Part B spending, using the most recent year 
of available claims data. For phase I of this model, budget neutrality 
calculations were done using CY 2014 claims processed through June 30, 
2015. We present the redistributional impacts among practitioners and 
hospitals in section IX. of this proposed rule. In general, phase I has 
the overall effect of modestly shifting money from hospitals and 
specialties that use higher cost drugs, such as ophthalmology, to 
specialties that use lower cost drugs, including primary care, pain 
management, and orthopedic specialties. In aggregate, rural 
practitioners are estimated to experience a net benefit and rural 
hospitals are estimated to experience smaller reductions than urban 
hospitals. Overall, spending on drugs furnished in the office setting 
increases while spending on drugs furnished in the hospital setting 
decreases.
    We intend to achieve savings through behavioral responses to the 
revised pricing, as we hope that the revised pricing will remove any 
excess financial incentive to prescribe high cost drugs over lower cost 
ones when comparable low cost drugs are available. In other words, we 
believe that removing the financial incentive that may be associated 
with higher add-on payments will lead to some reduction in expenditures 
during phase I of the proposed model. An exact estimate of the amount 
of savings that might be achieved through behavioral responses is not 
readily available. Prior research on behavioral changes following 
modifications to drug margins suggests that the modifications we 
propose to the 6 percent add-on are likely to change prescribing 
behavior.
    In phase II, we propose applying VBP tools including value-pricing 
and clinical decision support tools. The pricing under this phase would 
not be budget neutral, and we intend to achieve savings. We invite 
extensive comment throughout this proposed rule on the applicability of 
various value-based purchasing tools to the Part B and hospital 
outpatient drug benefit. We do not believe that we have enough detail 
on the structure of the final VBP component to quantify potential 
savings at this time. As with phase I, we believe that implementation 
of these tools will result in some reduction in expenditures. We invite 
comment on the extent of savings that might be achieved based on 
experience with these VBP tools.

II. Participation

A. Background

    This section describes the drugs that are furnished and paid under 
Part B; the providers and suppliers that furnish them; and the drugs, 
participants, and geographic areas that would be included in the model.
1. Drugs and Biologicals Paid Under Part B
    Part B currently covers and pays for a limited number of 
prescription drugs. As stated earlier, for the purposes of this 
proposed rule, the term ``drugs'' will refer to drugs and biologicals 
paid under Part B and also includes biosimilars. Drugs paid under Part 
B generally fall into three categories: drugs furnished incident to a 
physician's service in the physician office or hospital outpatient 
settings, drugs administered via a covered item of DME, and other 
categories of drugs specified by statute (generally in section 
1861(s)(2) of the Act).
    The majority of Part B drug expenditures are for drugs furnished 
incident to a physician's service. Drugs furnished incident to a 
physician's service are typically injectable drugs that are 
administered in a non-facility setting (covered under section 
1861(s)(2)(A) of the Act) or in a hospital outpatient setting (covered 
under section 1861(s)(2)(B) of the Act). Examples of ``incident to'' 
drugs include injectable drugs used to treat macular degeneration, 
intravenously administered drugs used to treat cancer, injectable drugs 
used in connection with the treatment of cancer, and injectable 
biologicals used to treat rheumatoid arthritis. The statute (sections 
1861(s)(2)(A) and 1861(s)(2)(B) of the Act) limits ``incident to'' 
services to drugs that are not usually self-administered; self-
administered drugs, such as orally administered tablets and capsules 
are not paid for under the ``incident to'' provision. Payment for drugs 
furnished incident to a physician's service falls under section 1842(o) 
of the Act. In accordance with section 1842(o)(1)(C) of the Act, most 
``incident to'' drugs are paid under the methodology in section 1847A 
of the Act.
    Part B also pays for drugs that are infused through a covered item 
of DME, such as drugs administered with an intravenous pump and 
inhalation drugs administered through a nebulizer. Medicare payments 
for these drugs are described in section 1842(o)(1)(D) of the Act for 
DME infusion drugs and section 1842(o)(1)(G) of the Act for inhalation 
drugs.

[[Page 13234]]

    Finally, Part B covers and pays for a number of drugs with specific 
benefit categories defined under section 1861(s) of the Act including--
immunosuppressive drugs; hemophilia blood clotting factors; certain 
oral anti-cancer drugs; certain oral antiemetic drugs; pneumococcal 
pneumonia, influenza and hepatitis B vaccines; erythropoietin for 
trained home dialysis patients; certain other drugs separately billed 
by ESRD facilities; and certain osteoporosis drugs. Payment for many of 
these drugs falls under section 1842(o) of the Act, and in accordance 
with section 1842(o)(1)(C) of the Act, most, but not all, drugs with 
specific benefit categories are paid under the methodology in section 
1847A of the Act. As discussed below, we propose to include the 
majority of Part B drugs in this model.
2. Types of Providers and Suppliers Furnishing Part B Drugs
    Types of providers and suppliers that are paid for all or some of 
the Medicare covered Part B drugs that they furnish include physicians, 
pharmacies, DME suppliers, hospital outpatient departments, and ESRD 
facilities. We propose to include the majority of Part B drugs in the 
Part B Drug Payment Model and therefore we anticipate that few 
providers, and physicians and other suppliers that currently furnish 
Part B drugs would be excluded. However, some may experience limited 
impact from participation if they prescribe or furnish a low volume of 
drugs paid under the Part B benefit. Based on payment data for Part B 
drugs, among the providers, physician, and DME suppliers that furnish 
Part B drugs, we anticipate that physicians and outpatient hospitals 
will see the greatest impact from this proposed model.
    In section IX, Regulatory Impact Analysis, we discuss the potential 
effects of this model on suppliers and providers, including rural 
hospitals. Although the impact on rural hospitals is expected to be 
minimal (see Table 2) and the impact on rural physician specialties is 
generally favorable (when compared to urban specialties) (see Table 1), 
we are soliciting comments on the potential effect that this model may 
have on rural practices, how rural practices may differ from non-rural 
practices and whether rural practices should be considered separately 
from other practice locations. On a similar note, we are also 
soliciting comments on the potential effect that this model may have on 
small practices, how small practices (for example, solo practices and 
practices with two to nine eligible professionals) may differ from 
large practices and whether small practices should be considered 
separately from other practices.

B. Proposed Drugs Paid Under Part B To Be Included in the Model

    Although the Part B drug benefit is generally considered to be 
limited in scope, the Part B drug benefit includes many categories of 
drugs, and encompasses a variety of care settings, and payment 
methodologies. In accordance with section 1842(o)(1)(C) of the Act, 
most Part B drugs are paid based on the ASP methodology described in 
section 1847A of the Act. However, at times Part B drugs are paid based 
on Wholesale Acquisition Cost (WAC), as authorized under section 
1847A(c)(4) of the Act (see 75 FR 73465-6, the section titled Partial 
Quarter ASP data), or average manufacturer price (AMP)-based price 
substitutions, as authorized under section 1847A(d) of the Act (see 77 
FR 69140). Also, in accordance with section 1842(o) of the Act, other 
payment methodologies may also be applied to Part B drugs: average 
wholesale price (AWP)-based payments (using the AWP in effect in 
October 1, 2003) are made for certain drugs infused with covered DME; 
and AWP-based payments (using current AWP) are made for influenza, 
pneumococcal pneumonia and hepatitis B vaccines (section 
1842(o)(1)(A)(iv) of the Act). We also use current AWP to make payment 
for very new drugs without ASP under the OPPS (80 FR 70426 and 80 FR 
70442-3; Medicare Claims Processing Manual 100-04, Chapter 17, Section 
20.1.3). With the exception of the following: influenza vaccine payment 
amounts, which are updated annually near the beginning of each flu 
season (https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Part-B-Drugs/McrPartBDrugAvgSalesPrice/VaccinesPricing.html), certain new 
drugs under the OPPS, and DME infusion drug payments which are based on 
November 2003 AWP values (section 1842(o)(1)(D) of the Act), payment 
amounts for drugs paid under the methodology in section 1847A of the 
Act (which means most Part B drugs) are updated quarterly by CMS. 
Contractors then use these quarterly updates to make payment 
determinations. Examples of the quarterly ASP price file updates for 
2016 are available at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Part-B-Drugs/McrPartBDrugAvgSalesPrice/2016ASPFiles.html. 
Contractors may also make independent payment amount determinations in 
situations where a national price is not available for physician and 
other supplier claims and for drugs that are specifically excluded from 
payment based on section 1847A of the Act (for example, 
radiopharmaceuticals as noted in section 303(h) of the Medicare 
Modernization Act). In such cases, pricing may be determined based on 
compendia or invoices (Medicare Claims Processing Manual 100-04, 
Chapter 17, Section 20.1.3).
    With limited exceptions that are discussed in this section below, 
we propose to include all Part B drugs in this model. We would overlay 
payment amounts for Part B drugs (which are also referred to as payment 
allowance limits) on the quarterly ASP Drug Pricing Files (see https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Part-B-Drugs/McrPartBDrugAvgSalesPrice/2016ASPFiles.html) and the quarterly update 
to Addendum B of the OPPS (https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/Addendum-A-and-Addendum-B-Updates.html) with model-derived payment amounts in the geographic 
areas that are being evaluated. Therefore, we would include nationally 
priced drugs with ASP, WAC, and AMP-based payment amounts that are on 
the quarterly price file; we note that based on recent claims data, 
nationally priced drugs with ASP-based payments account for the vast 
majority of this group. This means that the following drugs (and 
certain associated fees) would also be included in the model:
     Drugs and biologicals (including biosimilars) with HCPCS 
codes that are nationally priced under the methodology described in 
section 1847A of the Act, including ASP and WAC-based payment amounts, 
and drugs (and biologicals) paid separately under OPPS. Because OPPS 
pass-through drugs described in section 1833(t)(6) of the Act are paid 
ASP+6 percent, which is the same payment as separately paid drugs under 
the OPPS, we propose including all OPPS pass-through drugs in the 
model. In phase I, for drugs paid based on ASP and WAC, the 6 percent 
add-on will be replaced with the updated add-on amount (discussed in 
section III.A. of this proposed rule). In phase I, for HCPCS codes with 
AMP-based payments, the lower of the quarter's AMP-based payment amount 
(that is, the AMP-based amount on the quarterly ASP files) or the model 
payment amount would be used; in other words, if the model-based 
payment is lower than the AMP-substitution-based payment determined 
under the authority in

[[Page 13235]]

section 1847A(d) of the Act, the model-based payment amount will be 
used.
     Non-infused drugs furnished by DME suppliers (including 
the limited number of Part B drugs dispensed by pharmacies), such as 
immunosuppressives, oral chemotherapy, oral antiemetics, inhalation 
drugs used with DME, and clotting factors. Payment for these drugs is 
typically based on the ASP, but additional fees are also paid by 
Medicare for dispensing, supplying, or furnishing some of these drugs 
in accordance with section 1842(o) of the Act. We believe that it is 
important for the model to include drugs that are used outside of the 
incident-to setting. Also, we believe that it is important to 
understand the impact of other payment-related financial incentives 
that are associated with the drug payment, therefore we propose that 
phase II of this model may incorporate changes to the furnishing, 
supplying and dispensing fees that are associated with these drugs. 
(Note that this subset of drugs that are furnished by DME suppliers 
does not include drugs that are infused with covered DME. DME infusion 
drugs are discussed later in this section.)
     Intravenously and subcutaneously administered 
immunoglobulin G (IgG). This includes products administered in the 
office as well as intravenous products administered in the home to 
patients with primary immunodeficiency under the benefit described in 
section 1861(s)(2)(Z) of the Act. Payment for intravenously 
administered IgG used in these situations is typically based on the ASP 
(section 1842(o)(1)(E)), while payment for subcutaneously infused IgG 
will depend on who furnishes the drug. For example, physicians would 
typically be paid an ASP-based amount while DME suppliers would be paid 
an amount based on the AWP.
    We do not believe that all Part B drugs are appropriate candidates 
for inclusion in this phase of the model, and we propose to exclude the 
following categories of drugs:
     Contractor-priced drugs, including drugs that do not 
appear on the quarterly national ASP price file. Because pricing for 
contractor-priced drugs may vary, we are limiting the model to drugs 
that are nationally priced by CMS. Contractor-priced drugs (which are 
not nationally priced) would continue to be priced by contractors as 
described in the Medicare Claims Processing Manual 100-04, Chapter 17, 
Section 20.1.3. However, in situations where the previous manual 
citation either permits contractors to contact us to obtain payment 
limits for drugs not included in the quarterly ASP or Not Otherwise 
Classified (NOC) drug file, or when contractors have the authority to 
independently determine a payment amount, we propose that contractors 
would be permitted to utilize reductions to the add-on percentage that 
they calculate. For example if a contractor currently uses a WAC-based 
payment amount and adds a 6 percent add-on under existing authority, 
the add-on percentage could be decreased to correspond to the model arm 
that is being evaluated in that area. We propose to implement this 
approach by issuing subregulatory instructions to contractors that 
would allow them to utilize the modified add-on percentage for 
contractor-based claims. We seek comments on whether we should permit 
contractors to alter the add-on percentage for drug payment amounts 
that are determined by contractors during this model. Contractor-priced 
drugs include certain radiopharmaceuticals that are furnished in the 
physician's office (therapeutic radiopharmaceuticals paid separately 
under the OPPS for hospital outpatients are discussed later in this 
rule).
     Influenza, pneumococcal pneumonia and hepatitis B vaccines 
paid under the benefit described in section 1861(s)(10) of the Act. 
Payment amounts for these vaccines are not determined using the 
methodology in section 1847A. We consider these items to be preventive 
services (for more information about preventive services, see https://www.cms.gov/Medicare/Prevention/PrevntionGenInfo/index.html?redirect=/Prevntiongeninfo/ Prevntiongeninfo/), and preventive services, such as these vaccines, 
are typically provided at no cost to beneficiaries. We propose to 
exclude vaccines in section 1861(s)(10) of the Act that are preventive 
services from this model.
     Drugs infused with a covered item of DME in phase I. 
Payment for this subset of DME drugs is made based on the AWP in effect 
on October 1, 2003. We propose to exclude this category of drugs from 
phase I of the model so that DME policy can focus on issues related to 
DME and so that the model does not interfere with decisions related to 
the inclusion or exclusion of these drugs in DME competitive bidding. 
However, OIG has pointed out concerns related to mismatch between 
acquisition costs and payment for this group of drugs (OEI-12-12-00310, 
February 2013. See http://oig.hhs.gov/oei/reports/oei-12-12-00310.asp). 
We do not propose to exclude DME infusion drugs from the entire model, 
just phase I.
     ESRD drugs paid under the authority in section 1881 of the 
Act. Many ESRD drugs are bundled with services, and relatively few 
drugs are still paid separately. Given adoption of bundled payments for 
renal dialysis services and the diminishing number of drugs that are 
paid separately in this setting, we do not believe that including ESRD 
drugs in the proposed Part B Drug Payment Model is prudent.
     Blood and blood products. Blood and blood products are 
prepared in blood banks (rather than drug manufacturing facilities), 
and have different distribution channels than drugs that are paid under 
Part B. ASP sales data and compendia pricing for many of these products 
are not available.
    We are also concerned about how to treat drugs that are in short 
supply. Due to access concerns related to drug shortages, under current 
Part B drug payment, we exclude drugs that are in short supply from 
AMP-based price substitution and, instead, we utilize the ASP+6 percent 
payment amount. The exclusion criteria for the AMP price substitution 
and the process for determining whether a drug is in short supply are 
described in the CY 2013 Medicare PFS rule with comment (77 FR 69141). 
To maintain access to drugs that are in short supply, we believe that 
incorporating a safeguard is prudent. Thus, for drugs that are included 
in the model and are reported by the FDA to be in short supply (for 
example on the FDA Current Drug Shortage list at http://www.fda.gov/Drugs/DrugSafety/DrugShortages/ucm050792.htm) at the time that model 
payment amounts are being finalized for the next quarter, we propose to 
continue paying for these drugs using the existing statutory 
methodology in section 1847A of the Act. This safeguard will prevent 
the use of a payment amount that is lower than that determined using 
the existing statutory methodology if a drug is in short supply.
    We considered proposing to pay the greater of the following: the 
applicable arm's model payment amount, or the current quarter's 
statutory payment amount (which is often ASP+6 percent). We believe 
that this approach could increase payment compared to the model 
intervention for many drugs that are in short supply; however, we have 
no evidence that leads us to believe that this approach would have any 
meaningful positive effect on the resolution of a drug shortage. We are 
also concerned that incorporating this approach in this model would not 
provide us reliable information on how pricing impacts the focus, size, 
and

[[Page 13236]]

duration of drug shortages. We are seeking comment on whether paying 
the greater of the applicable arm's model payment amount, or the 
current quarter's statutory payment amount has a significant potential 
benefit that would persuade us to reconsider our position.
    The new proposed Sec.  511.200, found in subpart C of this proposed 
rule, reflects the drugs that we propose to include in the model. 
Section 511.300(c)(1) addresses drugs that are in short supply.

C. Proposed Participants, Selected Geographic Areas, and Sampling

    We propose that providers and suppliers in selected geographic 
areas furnishing covered and separately paid Part B drugs that are 
included in this model, under phase I, would receive an alternative 
add-on to the ASP for Part B drug payments. Under phase II of the 
proposed model, providers and suppliers in other distinct and/or 
overlapping geographic areas would receive VBP payments (see sections 
III.A and B. of this proposed rule for a description of the proposed 
alternative Part B drug payments; note that one arm combines an 
alternative ASP add-on payment and VBP). We are interested in testing 
and evaluating the impact of an alternative ASP payment for Part B 
drugs alone in phase I of the proposed model, and in phase II, we are 
interested in testing and evaluating the impact of VBP tools alone and 
simultaneously in combination with alternative ASP payments (see Table 
1 in section I).
    The Part B Drug Payment Model requires the participation of all 
providers and suppliers furnishing covered and separately paid Part B 
drugs that are included in this model. We believe a model in which 
participation is required of all providers and suppliers furnishing 
included Part B drugs in the selected geographic areas is appropriate 
to ensure that observed outcomes in each arm of the model do not suffer 
from selection bias inherent in a voluntary participation model and 
that observed outcomes can be generalized to all providers and 
suppliers billing Part B drugs. The voluntary structure of some 1115A 
model initiatives has facilitated testing new payment methodologies 
that differ significantly from current payment structures, such as 
BPCI. Voluntary participation can limit the generalizability of model 
results as voluntary model participants may not be broadly 
representative of all entities who could be affected by the model. 
Before BPCI models were scheduled to end, CMS launched the 
Comprehensive Joint Replacement (CJR) initiative after realizing that 
the full potential of new payment models requires the engagement of an 
even broader set of providers and suppliers than have participated to 
date, including those who may only be reached when new payment models 
are applied to an entire class of providers of a service. Requiring 
participation in the Part B Drug Payment Model ensures that the 
broadest set of providers and suppliers are included in the model from 
the start. Mandatory participation allows us to observe the experiences 
of an entire class of providers and suppliers with various 
characteristics, such as different geographies, patient populations, 
and specialty mixes, and to examine whether these characteristics 
impact the effect of the model on prescribing patterns and Medicare 
Part B drug expenditures.
    In determining which providers and suppliers to include in the 
model, we considered whether the model should be limited to specific 
specialties that prescribe (or furnish) a significant portion of high 
cost drugs only or to any entity prescribing drugs for certain 
indications. Limiting the model to specific specialties that are 
associated with high cost drug payments would not allow us to observe 
overall changes in prescribing patterns by practitioners for all Part B 
drugs. Many types of providers and suppliers furnish Part B drugs that 
are of low or medium cost in addition to high cost drugs. Medium and 
low-cost drugs may also be affected by statutory pricing, and CMS 
believes that understanding their prescribing patterns may be as 
important as understanding high cost drug prescribing patterns.
    Similarly, limiting the model to drugs that only treat a specific 
indication also would not allow us to assess the full impact of 
proposed payment changes on Part B expenditures and outcomes as drugs 
that treat a specific indication rarely represent the full range of 
drug treatment options that are typically available in Part B, and 
could miss attributes such as the presence of substitutable therapies 
and a wide range of pricing. Therefore, given the authority in section 
1115A(a)(5) of the Act, which allows the Secretary to elect to limit 
testing of a model to certain geographic areas, we propose to require 
all providers and suppliers in selected geographic areas furnishing and 
receiving separate payment for the drugs separately paid under Part B 
that are included in this proposed model to take part in the model. We 
discuss our consideration of geographic area selection and random 
assignment methodology in more detail below.
1. Overview and Options for Geographic Area Selection
    In determining the most appropriate geographic unit for this model, 
we considered five options: (1) States; (2) Core Based Statistical 
Areas (CBSA); \2\ (3) Dartmouth Atlas of Health Care's Hospital 
Referral Regions (HRR); \3\ (4) ZIP codes \4\ and (5) PCSA.\5\
---------------------------------------------------------------------------

    \2\ http://www.census.gov/population/metro/.
    \3\ http://www.dartmouthatlas.org/downloads/methods/geogappdx.pdf.
    \4\ http://www.census.gov/geo/reference/zctas.html.
    \5\ http://bhpr.hrsa.gov/healthworkforce/data/primarycareserviceareas/index.html.
---------------------------------------------------------------------------

    For phase I of the model, we are proposing an alternative ASP 
payment method to be tested against the current ASP+6 percent method 
(see section III of this proposed rule), that creates three 
requirements for the selection of geographic areas. First, the areas 
need to be sufficiently large so that most providers and suppliers do 
not have practice locations in multiple areas. A provider or supplier 
with practice locations in multiple areas may be subject to multiple 
payment changes. This situation could create an unnecessary 
administrative burden for the provider or supplier. It may also create 
an opportunity for a provider or supplier to attempt to influence a 
patient to receive a medically appropriate drug paid under Part B at 
the practice location that provides higher payment to the provider or 
supplier. Moreover, we want to test the alternative payment methods in 
circumstances that most closely resemble how Part B drug payment policy 
currently is implemented, with only one payment methodology applicable 
to a particular provider or supplier for a particular Part B drug. 
Under all of these circumstances, a larger unit of analysis is 
preferred.
    Second, the areas need to be sufficient in number to ensure 
adequate statistical power for the evaluation of the model. In general, 
the larger the number of geographic units available for assignment to 
the intervention and comparison groups, the greater our ability to 
determine whether measured differences between the intervention and 
comparison groups are attributable to the effects of the model or to 
random chance. Thus, in choosing a unit of analysis, a choice that 
creates more independent geographic units is preferred.
    Third, the areas need to have characteristics that are relatively 
more similar when comparing one to another so that observed changes at 
the area level can be more clearly attributed to

[[Page 13237]]

the intervention and not to other factors. If two groups of areas are 
exactly alike in all relevant aspects before an intervention is 
applied, then after the intervention is applied to one group of areas 
and not the other, we can conclude that any differences that we 
observed between the two groups are a result of the intervention. In 
practice, while it is possible to select intervention and comparison 
areas in a way that ensures that the intervention and comparison groups 
are similar with respect to a set of observed characteristics (an 
approach known as ``stratification''), it is generally impossible to 
construct groups that are identical in all respects because not all 
relevant differences can be observed. Instead, the standard approach to 
evaluating the effects of an intervention is to select a sufficiently 
large number of intervention and comparison areas to ensure that any 
unobserved differences between the two groups are likely to be small 
(on average), which permits the differences between the groups to be 
attributed to the intervention with reasonable confidence. The less 
variation there is among the areas being studied (after accounting for 
any reduction in variation due to stratification), the smaller the 
number of intervention and comparison areas required to reliably detect 
an effect of a given size (or, equivalently, the smaller the effect 
that can reliably be detected for any given number of intervention and 
comparison areas).
    In general, with geographic areas as the unit of analysis, larger 
areas are likely to exhibit more substantial cross-area variation with 
respect to relevant characteristics such as the total number of 
beneficiaries as well as variations in the number of beneficiaries per 
square mile, or beneficiary population density. While, as noted above, 
stratification can help reduce the differences between the intervention 
and comparison areas with respect to observed characteristics, when 
areas vary widely and there are relatively few potential areas to test, 
stratification may have a limited ability to ensure balance with 
respect to observed characteristics and thereby increase the power of a 
test.
    In selecting the most appropriate geographic unit for the model, 
the first option that we considered for a unit of analysis was entire 
states. States represent a sufficiently large area so as to prevent 
most individual providers or suppliers from experiencing multiple 
interventions under the model simultaneously. However, states as a unit 
of analysis also would greatly limit the number of independent 
geographic areas subject to selection under the model and, therefore, 
would decrease the statistical power of the model test to the extent 
that none of the anticipated changes in Part B drug use or expenditures 
due to the model interventions could be measured with statistical 
confidence.
    For the second option, we considered CBSAs, a Census-defined core 
area containing a substantial population nucleus together with adjacent 
communities that have a high degree of economic and social integration. 
There are 929 CBSAs, which include 388 Metropolitan Statistical Areas 
(MSAs), with an urban core population of at least 50,000, and 541 
Micropolitan Statistical Areas ([mu]SA), with an urban core population 
of at least 10,000 but less than 50,000. All remaining areas within a 
state that are not included in CBSAs are lumped into one area 
designated as Outside Core Based Statistical Areas.\6\ The choice of a 
geographical unit based on CBSA status could mean an MSA, or a Combined 
Statistical Area (CSA) that consists of adjacent MSAs or [mu]SAs or 
both. Unlike CJR, where the providers and suppliers of services 
included in the model tend to be concentrated in high population 
density regions captured by CBSAs, in this proposed model, the practice 
locations of Part B drug providers and suppliers are distributed more 
often in less population dense areas. Therefore, the choice of a CBSA 
unit for the model would not include all providers and suppliers 
eligible for the model in regions that are fully representative of the 
entire country. To address this issue, we would anticipate designating 
the non-CBSA portions of each state (if any) as additional units of 
analysis to ensure the model addresses all eligible providers and 
suppliers. These non-CBSA areas could either be considered a single 
large unit or could be divided into counties. If CBSAs were adopted as 
the unit of analysis for the model test, they are sufficiently large to 
prevent most individual providers or suppliers from experiencing two 
intervention arms simultaneously. The 929 CBSAs divided equally among 
the three proposed model test arms and the fourth control arm would 
result in approximately 232 CBSAs per arm. This could provide minimally 
sufficient statistical power to detect moderate changes in Part B drug 
expenditures or utilization, provided that appropriate stratification 
or analytic adjustments are made to address the wide variation across 
CBSAs in size and population density. However, having only minimally 
sufficient power may reduce the opportunities to conduct deeper 
analyses, such as examining whether specific aspects of the VBP 
intervention have a greater impact compared with smaller and more 
uniform areas.\7\ The differences in sizes and population densities of 
CBSA subunits may require additional stratification or analytic 
adjustments to be able to generalize results.
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    \6\ On July 15, 2015, OMB issued OMB Bulletin No. 15-01, which 
established revised delineations for MSAs, [micro]SAs, and CSAs, and 
provided guidance on the use of the delineations of these 
statistical areas. A copy of this bulletin may be obtained at 
https://www.whitehouse.gov/sites/default/files/omb/bulletins/2015/15-01.pdf. The Standards for Delineating Metropolitan and 
Micropolitan Statistical Areas Notice upon which the 2015 revisions 
are based was published June 28, 2010 and corrected July 7, 2010.
    \7\ Murray, D.M., Varnell, S.P., & Blitstein, J.L. (2004). 
Design and Analysis of Group-Randomized Trials: A Review of Recent 
Methodological Developments. American Journal of Public Health, 
94(3), 423-432.
---------------------------------------------------------------------------

    For the third option, we considered HRRs, which represent regional 
health care markets for tertiary medical care. There are 306 HRRs, 
which include at least one city where both major cardiovascular 
surgical procedures and neurosurgery are performed.\8\ The number of 
HRRs is an improvement relative to states, but would not provide 
sufficient statistical power for an effective evaluation of this model. 
Therefore, the HRR is not the most appropriate unit of analysis for 
this model.
---------------------------------------------------------------------------

    \8\ http://www.dartmouthatlas.org/downloads/methods/geogappdx.pdf. pp.294-5. Accessed Jan 13, 2016.
---------------------------------------------------------------------------

    Fourth, we considered the smallest geographic unit directly 
linkable to Medicare Part B claims, the U.S. Postal Service's five 
digit ZIP codes.\9\ ZIP codes are assigned by the U.S. Postal Service 
to every address in the country. They represent a system of 5-digit 
codes that geographically identifies individual Post Offices or 
metropolitan area delivery stations associated with every mailing 
address. There are more than 42,000 five digit ZIP codes.\10\ The 
number of ZIP codes would provide sufficient statistical power for the 
model evaluation analyses. However, we are concerned that ZIP codes are 
very small geographic areas. While hospital outpatient departments bill 
as part of the hospital from a single location with a single ZIP code, 
large physician practices can span multiple ZIP codes. Supplier claims 
include a service location ZIP code that determines the geographic 
adjustment, and the physician must bill based upon the ZIP code of the 
location where services were

[[Page 13238]]

rendered. While sampling by ZIP code would improve the power of the 
model's evaluation, it could expose physicians to multiple payment 
methods during the model test, which as we discussed above, is an 
unnecessary burden and has no analog in current policy.
---------------------------------------------------------------------------

    \9\ http://faq.usps.com/#Zone. Accessed Jan 13, 2016.
    \10\ http://faq.usps.com/?articleId=219334. Accessed Jan 13, 
2016.
---------------------------------------------------------------------------

    In seeking an area definition that is sufficiently large to 
minimize the potential for exposing providers or suppliers to multiple 
test payment alternatives, while sufficiently small to ensure a 
sufficient numbers of areas, and to limit cluster effects due to 
differences that cannot be balanced using stratification, we considered 
aggregations of contiguous ZIP codes. Random aggregations of contiguous 
ZIP codes can be developed to optimize the characteristics required for 
a robust test of the model. Developing a unit of analysis tailored to 
the model test has merit, but the goal of this model is not to develop 
a new unit of analysis, and the process for doing so would require 
considerable resources for definition and validation. We would prefer 
to adopt an existing geographic unit of analysis that meets the 
requirements for testing the model.
    Finally, we considered PCSAs, which were defined and updated under 
contract to the Health Resources and Services Administration (HRSA) by 
The Dartmouth Institute.\11\ With the goal of representing service 
areas for office based primary health care services, PCSAs were defined 
based upon patterns of Medicare Part B primary care services 
(specifically, patterns linking the residence of Medicare Part B 
beneficiaries with the practice locations for evaluation and management 
visits to Medicare participating physicians in primary care specialties 
\12\). While the service areas for evaluation and management visits may 
not directly match Part B drug-service areas, they are likely to be a 
closer match than randomly aggregated ZIP codes. CMS analyzed CY 2014 
claims data, including provider and supplier practice locations for 
those delivering Part B drugs relative to PCSA boundaries using the 
practice location of the performing National Provider Identifier (NPI) 
or the billing location of the organizational NPI for hospital 
outpatient departments, and observed that almost all claims for an 
individual provider or supplier were billed within a single PCSA. It is 
possible, however, that large practices may have practice locations in 
more than one PCSA. As a result, there could be situations during the 
model test in which those large practices are exposed to multiple arms, 
and thus to different payment methods simultaneously.
---------------------------------------------------------------------------

    \11\ http://datawarehouse.hrsa.gov/data/dataDownload/pcsa2010download.aspx. Accessed Jan 13, 2016.
    \12\ Goodman, DC, et al. Primary Care Service Areas: A New Tool 
for the Evaluation of Primary Care Services. Health Services 
Research 2003:38:287-309.
---------------------------------------------------------------------------

    Nevertheless, we believe that of all existing units of analysis, 
PCSAs are the most appropriate unit for testing this model in that they 
exhibit a desirable mix of size, internal homogeneity relative to 
differences between areas, and number. This preference is based on the 
specifics of this model, including the types of services involved, the 
national scope, and the simultaneous testing of multiple payment 
alternatives, and is not meant to imply that other units of analysis 
would not be appropriate in a different model (for example, the MSA 
used in the CJR model \13\).
---------------------------------------------------------------------------

    \13\ https://www.federalregister.gov/articles/2015/11/24/2015-29438/medicare-program-comprehensive-care-for-joint-replacement-payment-model-for-acute-care-hospitals#h-32. Accessed Jan 13, 2016.
---------------------------------------------------------------------------

    We propose to require all providers and suppliers furnishing Part B 
drugs that are included in the model to participate in the Part B Drug 
Payment Model. Participation means that any claim submitted for a Part 
B drug in the model will be paid according to the payment applicable 
for the control group, ASP+6 percent, or one of the proposed test 
alternatives (see Table 1). We propose the payment method used will be 
determined by the PCSA associated with the claim. We propose to 
associate claims with a PCSA on the basis of the ZIP code of the 
appropriate performing or billing NPI or beneficiary recorded on the 
claim. The service location ZIP code linked to the performing NPI 
(recorded in item 32) will be used for practitioner claims (CMS-1500). 
The ZIP code in the CCN address associated with a hospital will be used 
for hospital outpatient department claims. The residence ZIP code of 
the beneficiary receiving a Part B drug will be used for DME claims 
(CMS-1490S). Each five digit ZIP code identified in U.S. Postal Service 
ZIP code files is linked to a PCSA. The PCSA associated with the claim 
in the manner above will be assigned to one of the three test arms or 
the control arm of this model test (see below for PCSA assignment 
method). We include a summary table of the proposed model under section 
I.B.3. of this proposed rule.
2. PCSA Selection
    There are 7,144 PCSAs in the United States, covering all 50 
states.\14\ Because the waiver for Medicare hospital payment rules in 
the Maryland All-Payer Model \15\ may create unobservable bias in the 
prescribing patterns or payments for the Part B drugs in this model 
test, we propose to exclude Part B drug claims from providers and 
suppliers associated with the 96 PCSAs located in Maryland from the 
Part B Drug Payment Model. This exclusion leaves a total of 7,048 PCSAs 
in the model test.
---------------------------------------------------------------------------

    \14\ http://datawarehouse.hrsa.gov/DataDownload/PCSA/2010/p_103113_1.dbf, Accessed Jan 13, 2016.
    \15\ This initiative will update Maryland's 36-year-old Medicare 
waiver to allow the state to adopt new policies that reduce per 
capita hospital expenditures and improve health outcomes as 
encouraged by the Affordable Care Act. https://innovation.cms.gov/initiatives/Maryland-All-Payer-Model/, accessed Jan 13, 2016.
---------------------------------------------------------------------------

    To test the impact of the model's intervention arms compared to the 
control (discussed in section III. of this proposed rule and also see 
summary table in section I.B.3.), we propose to assign all 7,048 PCSAs 
to an arm of the model test, approximately 1,700 PCSAs to each of the 
control and three test arms. Under the control arm, we propose a 
provider or supplier would receive payment for a Part B drug claim 
according to the current ASP+6 percent methodology. Under the arms with 
an ASP payment alternative, we propose a provider or supplier would 
receive payment for a Part B drug claim according to the assigned 
alternative method, ASP+2.5 percent + flat fee. Under the two model 
arms with the VBP tools in phase II, we propose a provider or supplier 
would receive payment for a Part B drug claim according to the assigned 
payment method, either the current ASP+6 percent methodology or the ASP 
payment alternative (ASP+2.5 percent + flat fee), but with one or more 
of the VBP tools discussed in section III.B. The model is designed to 
allow the simultaneous testing of the ASP payment alternative 
separately compared to the control without VBP, and with the ASP 
payment alternative interactively with the VBP tools.
    The assignment of each PCSA to an arm of the study will be based on 
a stratified random approach. We consider a randomized design to be the 
best method for achieving balance in unobserved confounding factors 
that otherwise could bias the test results. Randomized designs can be 
made better with stratification prior to random assignment to assure 
representation of population subgroups in the sample. Simple random 
assignment will ensure

[[Page 13239]]

that each stratum contains the same proportion of PCSAs in each 
treatment arm. Strata are mutually exclusive temporarily defined groups 
of PCSAs proposed to be randomly assigned in equal proportions to the 
control and three model test arms.
    The current strata proposed are defined by the number of Medicare 
beneficiaries being furnished Part B drugs in each PCSA and the mean 
Part B drug expenditures per beneficiary. These two factors drive the 
differences among PCSAs for the purpose of this model test and both 
factors have a significant number of outliers that must be evenly 
distributed to each arm. Stratification gains are obtained with six or 
fewer strata within each factor. In this proposed rule, based upon an 
analysis of the CY 2014 claims for Part B drugs included in this model, 
we propose to use a single cut point of Part B drug beneficiary counts 
per PCSA at 1,500 and two cut points for the distribution of mean 
dollars expended for Part B drugs per beneficiary per PCSA of $500 and 
$3,000. These three cut points in two factors result in six strata from 
which the PCSAs will be assigned to the one control and three test arms 
of the model in equal numbers by simple randomization. We solicit 
comment from the public regarding additional factors or cut points that 
may be necessary to achieve balance across the three test arms and the 
control arm in this model test.
    Because we propose to randomly assign PCSAs within each stratum in 
equal proportion to the one control and three model test arms, the 
randomized assignment should account for unobservable confounding 
factors that may affect outcomes of interest while simultaneously 
assuring that population subgroups are equally represented within each 
arm of the model. After randomization of the PCSAs, we can adjust our 
analyses of the model test results to account for any imbalance across 
the arms of the model in observable characteristics that were not the 
basis of stratification, such as the beneficiary population's average 
socio-economic status in a PCSA.
    The stratified random sample design cannot support analyses of all 
potential sub-groups of providers and suppliers, patients, and drugs at 
the same level of precision or with the same statistical power as it 
supports the primary analysis of a model test. However, we believe 
stakeholders will be interested in impacts of the model's interventions 
on these subgroups. We expect the model evaluation will employ a range 
of appropriate analytic methods to address questions of interest to 
stakeholders and to provide additional support to the overall model 
test analyses. We seek information on which sub-group analyses might be 
of more interest and which additional analytic methods may be most 
appropriate. New section 511.105 reflects our proposed definition of 
geographic areas.

III. Payment Methodology

    CMS is required to reduce Medicare payments for Part B drugs under 
the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), 
as amended by the Budget Control Act of 2011. The application of the 
sequestration requires the reduction of Medicare payments by two 
percent for many Medicare FFS claims with dates-of-service on or after 
April 1, 2013. The discussion in this proposed rule does not consider 
reductions applied to Medicare payment under sequestration, which is 
independent of Medicare payment policy.

A. Phase I: Proposed Modifications to the ASP Add-On Percentage for 
Drugs Paid Under Part B

    In general, payment for drugs paid under Part B varies over a wide 
range; drugs may be paid between several dollars per dose to thousands 
of dollars per dose. Drug therapy may require one or a few doses, or it 
may require many doses over a long time period, sometimes indefinitely. 
As we developed potential approaches for evaluating changes to the add-
on percentage, we considered the effect of a proposal on the drug price 
points (that is, high, medium and low cost Part B drugs), as well as 
the types of drugs that are paid for under Part B. We also considered 
the effects on entities within the drug supply chain (for example, 
manufacturers and wholesalers), beneficiaries, providers, suppliers, 
and the Medicare program. Overall, we believe that phase I of this 
model will not change how Part B drugs are acquired by providers or 
suppliers, or how drug manufacturers sell their products to providers, 
suppliers, or intermediaries such as wholesalers. As discussed in the 
paragraphs below, phase I would establish payment at ASP plus a 2.5 
percent add-on percentage and a flat fee per administration day as a 
budget neutral test. We propose to derive the flat fee from the 
difference in total payment between total payments with a 6 percent 
add-on percentage across Part B drugs in the most recently available 
calendar year claims', which is CY 2014, and total estimated payment 
for Part B drugs in the same set of claims with a 2.5 percent add-on 
percentage to the flat fee. We propose to divide this difference by the 
total number of encounters per day per drug in the CY 2014 claims data. 
Because total payments made under this phase are not expected to change 
considerably, we anticipate that providers or suppliers will continue 
to buy and bill for Part B drugs that they furnish to their patients. 
Having established the flat fee for the initial year in 2016, we 
propose to update the flat fee amount each year by the percentage 
increase in the consumer price index (CPI) for medical care for the 
most recent 12-month period. The dollar value of the 2.5 percent add-on 
percentage would automatically adjust to changes in price levels as ASP 
changes. The modeling methodology is discussed in section 1 below.
    We are proposing a budget neutral approach to isolate the impact of 
changes to the ASP add-on amount without introducing additional savings 
as a second potential source of behavioral adjustments. We do not 
expect a sizable overall reduction in Part B drug spending associated 
with phase I of this model, but we do anticipate an incentive to use 
higher value drugs.
    In sections 2 and 3, we describe the proposed approaches for 
modifying the ASP add-on amount. The approaches discussed below are 
intended to minimize the risk of excessively large or small add-on 
payments for individual Part B drugs across the range of Part B drug 
prices. At the same time, our goal is to minimize providers' and 
suppliers' (including physicians') financial incentives to prescribe 
more expensive drugs. This phase of the model would not affect other 
payments that are associated with furnishing a drug such as the 
clotting factor furnishing fee, or supplying and dispensing fees that 
are authorized under section 1842(o) of the Act.
1. Methodology for Creating Modeling Data Set
    To determine the initial aggregate Part B drug annual spending for 
the implementation of phase I in 2016, we are proposing to use CY 2014 
utilization for drugs paid under Part B to calculate the amount of 
payments that were associated with the 6 percent ASP add-on percentage. 
For a detailed discussion of those drugs, please see section II.B. of 
this proposed rule. The data set includes drugs that are in the model.
    We begin with CY 2014 Part B institutional hospital outpatient 
claims and Part B supplier claims data processed through June 30, 2015. 
We note that the payment amounts on the CY 2014 claims include the 
effect of sequestration. Therefore, to establish

[[Page 13240]]

baseline payment at ASP+6 percent within the Part B Drug Payment model, 
we first calculate ASP+0 percent by dividing the line payments by 1.043 
and then the full ASP+6 payment by multiplying by 1.06.
    We propose the following approach to develop the supplier and 
outpatient hospital claims dataset for modeling purposes; this approach 
is intended to remove unusable data, errors and inconsistencies in the 
data set. We propose to exclude all claims billed by providers and 
suppliers in the state of Maryland as hospital outpatient services are 
paid under the Maryland All-Payer Model and not at ASP+6 percent. We 
also propose to exclude claims from American Samoa, Virgin Islands, and 
Guam because hospitals in these locations are paid at reasonable cost. 
We propose to remove Medicare secondary payer claims from the modeling 
dataset because the payment amounts in situations where Medicare is 
secondary may not reflect the Medicare payment amounts that are 
determined under statutory authority, such as the methodology in 
section 1847A of the Act, and used when Medicare is the primary payer. 
We propose to remove individual lines with units three standard 
deviations outside the geometric mean units billed by HCPCS, specific 
to the applicable portion of the dataset (supplier or hospital claims) 
because we believe that payments deviating from the mean by this amount 
are likely errors and they do not represent payment amounts that are 
determined and published in our price files. Additionally, we propose 
to remove claim lines that were rejected or denied by the claims 
systems for not meeting the Medicare requirements for payment and 
restrict the dataset to drugs that we are proposing to include in phase 
I of the model.
    OPPS claims will be handled in a manner that is similar to what we 
apply in the OPPS rates setting process; the process was established in 
2000 and has been updated annually (https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/HospitalOutpatientPPS/Hospital-Outpatient-Regulations-and-Notices.html). We propose to include 
hospital bill types 12X (Hospital Inpatient (Medicare Part B only)), 
13X (Hospital Outpatient), 14X (Hospital--Laboratory Services Provided 
to Nonpatients), which are paid under the OPPS. We propose to exclude 
claims not paid under the OPPS based on provider type, similar to the 
standard OPPS rate setting process, including those from all-inclusive 
hospitals, Religious Nonmedical Health Care Institutions, and critical 
access hospitals. We are proposing to exclude certain OPPS claims: 
claims with more than 100,000 units on a service line, claims with 
condition codes `04' (HMO enrollee--information only bill), `20' 
(beneficiary requested billing), `21' (billing for denial notice), and 
`77' (payer fully paid claims), claims with more than 30 related 
condition codes, claims with more than 300 revenue lines on the claim, 
and claims where the revenue center payment is equal to the charge 
amount. Those claims are either not paid or may contain aberrant data. 
We also would exclude claim lines for hospitals with erroneous cost-to-
care ratios (CCRs) (greater than 90 or less than 0.0001) on their cost 
reports. We propose to exclude all claim lines for packaged drugs in 
the hospital outpatient setting because such items are not paid 
separately and are not subject to the 6 percent add-on.
    We propose a number of exclusions that would apply specifically to 
supplier claims. We propose to exclude claims with the following 
facility place of service codes because these places of service are not 
typically associated with the use of ``incident to'' drugs: `21' 
(Inpatient Hospital), `22' (Outpatient Hospital), `23' (Emergency Room-
Hospital), `24' (Medicare-participating Ambulatory Surgical Center 
(ASC) for a HCPCS code included on the ASC approved list of 
procedures), `26' (Military Treatment Facility), `31' (Skilled Nursing 
Facility (SNF) for a Part A resident), `34' (Hospice--for inpatient 
care), `41' (Ambulance--Land), `42' (Ambulance--Air or Water), `51' 
(Inpatient Psychiatric Facility), `52' (Psychiatric Facility--Partial 
Hospitalization), `53' (Community Mental Health Center), `56' 
(Psychiatric Residential Treatment Center), and `61' (Comprehensive 
Inpatient Rehabilitation Facility) because the proposed Part B Drug 
Payment Model would not apply. We propose to remove claims with Carrier 
number ``00882'' which are those associated with the Railroad 
Retirement Board benefit since they are paid under a separate payment 
methodology.
    We propose to exclude DME MAC claims for drugs infused through a 
covered item of DME from our modeling dataset. As discussed in section 
II.B. of this proposed rule, we propose to exclude drugs infused with a 
covered item of DME from phase I of the Part B Drug Payment Model. 
Therefore, we also propose to remove claim lines for these codes from 
the set of DME MAC claims to establish the flat fee amount.
    In addition to soliciting comment on our proposal to exclude the 
data that is described above, we are interested in stakeholder comments 
on whether the CY 2015 claims updated as of March might be appropriate 
as an alternative dataset to establish the CY 2016 flat fee amount in 
the final rule. We note that for the final rule, more CY 2014 claims 
data would be available due to additional claims processing, which we 
would include in modeling the final rule.
    We provide a summary file containing the Part B drug model payment 
and utilization data used to calculate the flat fee amount on the CMS 
Web site with display of this proposed rule. The summary file contains 
no personally identifiable information and we exclude drug codes with 
low beneficiary volume from the summary file.
2. Add-On Proposal: Percentage Plus a Flat Fee
    As discussed previously, a flat percentage, like the current 6 
percent add-on percentage to ASP, may create an incentive for using 
more expensive drugs because the add-on portion of the payment amount 
is higher for more expensive products (MedPAC Report to the Congress 
Medicare and the Health Care Delivery System June 2015, page 68). A 
flat add-on fee alone, for example $30 per prescribed dose, that does 
not vary with the cost of the drug may potentially increase the risk of 
having payments fall below acquisition costs for expensive drugs, 
particularly for providers and suppliers whose acquisition costs are 
near or above a drug's ASP. Also, without any sort of limits or 
constraints, a flat add-on fee that is large (relative to the cost of 
an inexpensive drug) may also promote the overuse of inexpensive drugs 
like intravenous fluids and antihistamine injections by creating a 
profit incentive for overprescribing inexpensive drugs that may be 
associated with little risk of audits or claim denials.
    Changing the add-on amount from a percentage that applies in all 
circumstances to a lower percentage plus a flat fee that is limited 
could minimize the potential for underpayment or overpayment across the 
entire range of prices for Part B drugs. For example, the add-on 
payment for high cost drugs could be lowered by decreasing the add-on 
percentage to an amount that minimizes the risk for providers and 
suppliers losing money on expensive drugs, and the add-on payment for 
inexpensive drugs could be preserved through the use of a flat fee that 
covers expected price variations among inexpensive drugs and decreases 
the risk for underpayment. For inexpensive drugs, inappropriate

[[Page 13241]]

incentives that could lead to over utilization could also be mitigated 
by a limit on the flat fee to decrease the motivation for profit-
oriented overprescribing of very inexpensive drugs that are not 
typically subject to medical review.
    A specific approach for the use of an add-on percentage with a flat 
fee was described by the MedPAC in a recent report (MedPAC Report to 
the Congress Medicare and the Health Care Delivery System June 2015, 
pages 65-72). MedPAC modeled this add-on approach as budget neutral in 
aggregate, meaning that it would not change total Medicare Part B 
spending. MedPAC evaluated changing the add-on to 2.5 percent of ASP 
plus a budget neutral flat fee per dose of $14. The result 
redistributed add-on payments by decreasing payments for expensive 
drugs in favor of drugs that are paid at lower amounts. Redistribution 
under this approach favors the provider specialties and suppliers that 
utilize relatively inexpensive drugs. The June 2015 MedPAC report 
determined that under this approach physician specialties that heavily 
utilize drug therapy would see a decrease in drug revenues while 
specialties that utilize fewer drugs like primary care would see an 
increase in drug revenue.
    We propose to utilize the same basic approach that was described in 
the June 2015 MedPAC report: A fixed percentage with a flat fee, 
specifically, a fixed percentage of 2.5 percent and a flat fee of 
$16.80 per drug per day administered (an example of the approach 
appears at the end of this paragraph). We propose to update the flat 
fee amount annually. The flat fee amount of $16.80 was determined using 
the data set described in section III.A.1. We agree with MedPAC that 
this approach limits financial incentives for overuse across the range 
of Part B drugs and the values that we are proposing are similar to 
those in the MedPAC report. We have chosen a 2.5 percent starting point 
because we agree with MedPAC's assessment that this value should be 
sufficient to cover markups from wholesalers, such as prompt pay 
discounts that are not passed on to purchasers. In the June 2015 report 
that is cited in this proposed rule, MedPAC stated that there is 
anecdotal evidence that such markups are between 1 and 2 percent, but 
MedPAC was not aware of data that could verify this estimate. We are 
not aware of information that conflicts with the assessment. The 
proposed add-on fee of $16.80 is also comparable to the MedPAC 
determined value of $14. In the Part B Drug Payment Model, application 
of the flat fee would result in the following: a primary care provider 
would receive $33.60 ($16.80 per drug) for two model drugs given during 
an office visit in addition to 2.5 percent of the ASP for each of the 
drugs. If another practitioner, such as a rheumatologist, saw the 
patient later in the day, and administered one model drug, that 
practitioner would receive $16.80 in addition to 2.5 percent of the ASP 
for the prescribed drug.
    We propose to keep the 2.5 percent add-on constant over the 
duration of the model, but propose to update the flat fee each year 
based on the percentage increase in the CPI Medical Care (MC) for the 
most recent 12-month period. This update method is stipulated in 
section 1842(o)(5)(C) of the Act for use with the blood clotting factor 
furnishing fee. We considered several potential updates including the 
producer price index for Pharmaceuticals for Human Use (Prescription) 
or an inflation factor derived from changes in ASP for Part B drugs. We 
propose the CPI MC because we believe that the flat fee addresses many 
different services included in drug acquisition activities similar to 
the services including in furnishing clotting factors. The CPI MC is 
both widely available and based on an accepted methodology. We solicit 
comment on whether a different update factor would be more appropriate.
    For 2016, we would establish alternative ASP pricing under phase I 
of the model so that total spending for Part B drugs included in the 
model under phase I would be equal to aggregate spending for the same 
set of drugs in our CY 2014 claims data. The dollar value of the flat 
fee of $16.80 is proposed, but we may refine this figure for the final 
rule if we use more recent versions of the claims data, which would 
include additional utilization and payment information. We would plan 
to update the flat fee for January 2017 using the CPI MC and annually 
thereafter. We anticipate using a G-code, that providers and suppliers 
billing in geographic areas assigned to this approach (ASP+2.5 percent 
+ flat fee) would use to bill for the flat fee portion of the payment. 
We propose to continue our standard practice of updating the weighted 
average portion of drug payment amount (that is, the ASP+0 portion of 
the payment) on a quarterly basis using the manufacturers' sales data 
and the weighted average calculations that are used when determining 
payment amounts that are set forth in section 1847A(c)(5) of the Act.
    We believe that the per drug per day administered limit will 
mitigate profit-oriented overprescribing of inexpensive drugs, but we 
are concerned that an add-on that is roughly equal to or slightly more 
than the cost of a drug may still leave some incentive for overusing 
some inexpensive drugs. While we expect that contractors will continue 
to examine claims (as well as patterns of claims) for potentially 
unnecessary use (that is use that is not reasonable or necessary), we 
also seek comment on whether additional measures should be taken to 
limit add-on amounts, especially for very low cost drugs, or whether an 
alternative approach to calculating the percent and flat fee should be 
considered, such as an additional one to three tiers of decreasing flat 
dollar amounts that would provide lower flat fees for very inexpensive 
drugs, while still maintaining overall budget neutrality.
3. Comment Solicitation: Additional Tests of Add-On Modifications
    In addition to MedPAC's discussion for pairing a reduced percentage 
add-on with a flat fee per drug per day administered, we considered 
whether it would be helpful to test additional variations of the ASP 
add-on. As proposed, the model would have four arms: a control and 
three test arms including, modified ASP add-on only, VBP only, and 
modified ASP add-on and VBP. However, we are concerned that adding 
another variation in phase I would increase the number of arms in the 
model which may negatively impact the statistical power of this model.
    We also considered whether other variations of the ASP add-on 
percentage would be a useful complement to the proposed ASP+2.5 percent 
+ flat fee, such as a higher starting percentage, (instead of 2.5 
percent, using 3 percent or 3.5 percent), a flat fee without a 
percentage add-on in lower quartiles, or a tiered approach in which we 
would vary the percentage or flat fee add-on across several tiers of 
drugs defined based on cost.
    We considered defining tiers for an alternative approach based on 
quartiles because they create several steps between the highest and 
lowest add-on values; however, we also considered whether a different 
number of steps, such as deciles, or a gradient approach would result 
in more consistent payments for groups of similar drugs. One method 
that we considered to create the quartiles was to array the annual 
payment per beneficiary for each drug from lowest to highest annual 
payment and then divide the distribution into quartiles based on 
relatively even number of doses. We established quartiles for drugs 
with annual per beneficiary payment of greater than $1,000, $50.01 to 
$1,000,

[[Page 13242]]

$10.01 to $50, and less than or equal to $10 and distributed the 
aggregate add-on amount among the tiered quartiles. Like the percentage 
plus flat fee option, a tiered add-on could redistribute the add-on 
payments toward less expensive drugs based on quartiles developed from 
annual per beneficiary spending for each drug. However, a budget 
neutral redistribution across quartiles also resulted in very high add-
ons for inexpensive drugs (for example, under an approach in which a 
different add-on percentage was set for each tier, add-on percentages 
for drugs with as ASP of less than $10 exceeded 200 percent).
    Ultimately, we were concerned that testing another variation of the 
add-on percentage modification in phase I would not provide us with 
significant additional information. We are requesting comments from the 
public on whether the tiered approach described above, a variation 
(such as using deciles or a gradient) or another approach for modifying 
the add-on would be a useful complement to the percentage and flat fee 
approach that is proposed in section III.A.2. We are interested in 
gaining perspective on whether the approaches are sufficiently 
different to justify testing them, noting that adding arms to the study 
will likely impact the statistical power of this model and other 
overlapping models, especially the OCM.
    We are also interested in understanding whether any advantages from 
testing these approaches are sufficient to overcome the potentially 
significant disadvantages of these approaches. In particular, we are 
concerned that tiered approaches could set a very different add on 
amounts for each of the four quartiles. This could create large changes 
(``cliffs'') in payment amounts at the boundaries between quartiles. In 
addition, tiered approaches that specify varying percentage add-ons by 
quartile could generate very high percentage add-ons for the bottom 
three quartiles. This could create incentives for manufacturers and 
suppliers to vary prices of drugs near the quartile boundaries in order 
to increase Medicare's payment rate. We are also concerned about the 
potentially high add-on payments for inexpensive drugs, their impact on 
providers, suppliers, and patients, and if such an approach were 
tested, whether additional steps to limit such payments should be 
considered.
    Finally, we are also interested in receiving comment on whether 
there are any common elements within groups of drugs that might provide 
a basis for varying the flat fee across groups of drugs that would 
justify higher payments, such as requirements for cold handling, 
special packaging, or other contributors to costs. If such factors 
could be identified, we could also use this information to vary the 
flat fee appropriately under the ASP+2.5 percent + flat fee proposal.

B. Phase II: Applying Value-Based Purchasing Tools

1. Introduction
    In the second phase of this model, we propose to implement VBP 
tools for Part B drugs using value-based pricing and clinical decision 
support tools--tools often used collectively to manage a prescription 
drug benefit by commercial health plans, PBMs, hospitals, and other 
entities that manage health benefits and drug utilization. Medicare 
Part D plans and the commercial insurance sector have used these tools 
for years to successfully manage health benefits and drug utilization, 
and we believe that the approaches, when appropriately structured, may 
be adaptable to Part B to improve patient care and manage drug 
spending. The revision to the 6 percent ASP add-on percentage proposed 
for phase I of this model broadly addresses financial incentives that 
may affect prescribing. However, these revisions do not directly 
address differences in payment when there is a group of therapeutically 
similar drugs, nor are they able to test the benefits of using 
alternative incentives to improve the effectiveness, safety, and 
quality of physician prescribing patterns for Part B drugs.
    Medicare Part D plans, PBMs, other third party payers, and entities 
like hospitals use a variety of VBP tools, such as value-based pricing, 
clinical decision support tools, and rebates and discounts, to improve 
patient outcomes and manage drug costs.\16\ The VBP tools vary in 
commercial implementation by scope and intensity; however, many of the 
tools, particularly those used by PBMs, are applied primarily in the 
retail pharmacy setting. PBMs and third party payers also agree on 
discounts and rebates for placement of drugs on a tiered formulary or 
for volume of business provided to a specific manufacturer. The 
application of these tools to drugs that are typically paid for under a 
medical benefit, such as physician administered drugs, has the 
potential to result in significant savings.\17\ Based on background 
work done on this model, we believe private payers are currently using 
these tools to manage drugs under a medical benefit.
---------------------------------------------------------------------------

    \16\ Hoadley J. Adapting Tools from Other Nations to Slow U.S. 
Prescription Drug Spending. NIHCR Policy Analysis No. 10. Aug. 2012. 
National Institute for Health Care Reform. http://www.nihcr.org/Drug_Spending.
    \17\ Dorholt M. Advancing Drug Trend Management in the Medical 
Benefit. Managed Care. June 2014. http://managedcaremag.com/archives/2014/6/advancing-drug-trend-management-medical-benefit.
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    Below, we propose the types of VBP tools that potentially could be 
used in the Part B Drug Payment Model to improve patient outcomes and 
manage drug costs. We propose to implement one or more of the following 
value-based pricing strategies, including reference pricing, pricing 
based on safety and cost-effectiveness for different indications, 
outcomes-based risk-sharing agreements, and discounting or elimination 
of patient coinsurance amounts. We also propose to implement a tool to 
support clinical decisions for appropriate drug use and safe 
prescribing. The tool would provide education and data on the use of 
certain Part B drugs to prescribers; such information would not be 
meant to interfere or substitute for medical decision making. New 
section 511.305 reflects our proposed VBP model requirements. We are 
mindful that, in particular circumstances, the arrangements discussed 
here, if not properly structured and operated, could pose a risk of 
abuse. In adapting and using VBP tools in the Part B Drug Payment 
Model, one of our goals is to ensure that the model promotes integrity, 
transparency, and accountability. Finally, we note that we would 
implement these proposed tools through a contractor, as we do with many 
Medicare programs. We would retain final review and authority over the 
final version of any VBP tools implemented under phase II.
2. Value-Based Pricing Strategies
    The application of the value-based pricing strategies discussed in 
this section would be limited. We are proposing value-based pricing 
strategies that include one or more of the following specific tools: 
reference pricing, indications-based pricing, outcomes-based risk-
sharing agreements, and discounting or eliminating patient coinsurance 
amount. This group of tools would serve as a framework for 
interventions for selected Part B drugs. We would gather additional 
information on the proposed tools, including which specific Part B 
drugs are suitable candidates for the application of specific tools 
within the group. We would finalize the implementation of specific 
tools for specific HCPCS codes after soliciting

[[Page 13243]]

public input on each proposal by posting on the CMS Web site, and we 
would allow 30 days for public comment. We would provide a minimum of 
45 days public notice before implementation. Under phase II, we do not 
intend to apply these tools to all Part B drugs; we plan to implement 
the use of the tools in a limited manner for certain drug HCPCS codes 
after considering these tools' appropriateness to specific Part B drugs 
within those codes.
    Value-based pricing for pharmaceuticals involves linking payment 
for a medicine to patient outcomes and cost-effectiveness rather than 
solely the volume of sales.\18\ Under phase II of this model, we seek 
to test approaches for transitioning from a volume-based payment system 
into one that encourages or even rewards providers and suppliers who 
maintain or achieve better patient outcomes while lowering Part B drug 
expenditures. The market today uses the term ``value-based'' to 
encompass a wide variety of different options designed to improve 
clinical results, quality of care provided, and reduce costs.\19\ The 
following examples highlight the range of value-based pricing tools 
currently in use, and we propose the testing of one or more of these 
tools during phase II of the model.
---------------------------------------------------------------------------

    \18\ Deloitte. Issue Brief: Value-Based Pricing for 
Pharmaceuticals: Implications of the Shift from Volume to Value. 
2012. Web. 17 Dec. 2015. http://www.converge-health.com/sites/default/files/uploads/resources/white-papers/valuebasedpricingpharma_060412.pdf.
    \19\ Pharmacy Benefit Management Institute. 2013-2014 
Prescription Drug Benefit Cost and Plan Design Report. 2013. Web. 17 
Dec. 2015. http://reports.pbmi.com/report.php?id=4.
---------------------------------------------------------------------------

    First, providing equal payment for therapeutically similar drug 
products \20\ is one form of value-based pricing that we propose to 
implement as part of phase II of the model. The private market 
capitalizes on this concept through reference pricing, which refers to 
a standard payment rate--a benchmark--set for a group of drugs.\21\ A 
benchmark is set based on the payment rate for the average price \22\ 
for drugs in a group of therapeutically similar drug products, the most 
clinically effective drug in the group,\23\ or another threshold that 
is specifically developed for such drug products, like a specified 
percentile of the current price distribution; and all drugs from the 
group are then paid based on this amount. For example, if sodium 
hyaluronates used for intra-articular injection were chosen as 
candidates for reference pricing, each of the HCPCS codes determined to 
fall into this group would be paid a benchmark rate based on the 
current payment rate for a product or products in this group. Based on 
a review of the evidence, we may determine that the specific benchmark 
for this group should be the current payment rate for the HCPCS code 
including the most effective drug in the group. Individual 
characteristics of each group of drugs considered for reference 
pricing, such as relative effectiveness demonstrated in competent and 
reliable scientific evidence, would be taken into account before 
selecting a benchmark rate. Reference pricing eliminates the direct 
link between the purchase prices paid by suppliers and providers for 
Part B drugs and payment rates for those drugs from insurers, thereby 
providing stronger incentives to evaluate outcomes and cost together 
when determining treatment regimens. When multiple drugs in a group 
have varying levels of effectiveness, the payment for the most 
clinically effective drug in the group could be paid based on a 
benchmark while the payment for the remaining products could be 
adjusted downward based on their effectiveness in relation to the most 
clinically effective drug. We propose to include reference pricing in 
phase II.
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    \20\ Therapeutically similar drug products are generally members 
of the same drug class that work on the same biochemical processes 
but have different chemical structures. For example, the HMG-CoA 
reductase inhibitors, also known as statins, include the drugs 
atorvastatin and simvastatin. Both of these drugs lower cholesterol 
by inhibiting the same enzyme, but they are unique chemical 
entities. While these therapeutically similar drug products are not 
automatically interchangeable, the therapeutic effects achieved are 
generally similar from one member of the drug class to another.
    \21\ Partnership for Sustainable Health Care. Strengthening 
affordability and quality in America's health care system. Apr. 
2013. Web. 17 Dec. 2015. http://www.rwjf.org/content/dam/farm/reports/reports/2013/rwjf405432.
    \22\ Boynton A, Robinson JC. Appropriate Use of Reference 
Pricing Can Increase Value. Health Affairs. 7 July 2015. http://healthaffairs.org/blog/2015/07/07/appropriate-use-of-reference-pricing-can-increase-value/.
    \23\ A determination of clinical effectiveness would be based on 
published studies and reviews, such as those produced by ICER as 
described below, and evidence-based clinical practice guidelines 
located at AHRQ's National Guideline Clearinghouse: 
www.guideline.gov.
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    We understand that some insurance plans allow providers and 
suppliers to hold the patient responsible for paying the difference 
between their prescribed drug and the benchmark set for the group of 
therapeutically similar drugs. We propose that any version of reference 
pricing implemented would not allow for balance billing of the 
beneficiary for any differences in pricing. For example, if reference 
pricing was implemented for the sodium hyaluronates mentioned 
previously and the particular sodium hyaluronate product selected by 
the prescriber had a cost above the reference price defined by CMS for 
the sodium hyaluronates included in the reference pricing arrangement, 
the patient could not be held responsible for paying the difference 
between the reference price and either the statutory payment amount or 
the cost for the selected drug. By grouping similar drugs into a single 
payment rate, we give prescribers incentives to use the drug product 
that provides the most value for the patient.
    Second, we propose using value-based pricing to vary prices for a 
given drug based on its varying clinical effectiveness for different 
indications that are covered under existing Medicare authority, 
specifically section 1861(t) of the Act, and existing national and 
local coverage determinations. This is often called ``indications-based 
pricing.'' Drugs are often indicated for more than one condition and 
may be more effective when used in one condition than another. For 
example, if a new drug is introduced with indications for treating two 
types of cancer and this drug did no better in clinical trials than 
existing treatments for the first type of cancer and significantly 
better than existing treatments for the second, our use of indications-
based pricing might result in lower payments when the drug is used to 
treat the first type of cancer and higher payments when the drug is 
used to treat the second type. The Institute for Clinical and Economic 
Review (ICER) is currently producing reports on high-impact drugs that 
analyze comparative effectiveness and cost-effectiveness before 
calculating a benchmark price for each drug.\24\ ICER's reports reflect 
the dependence of the value of medications on evidence available for 
certain target populations.\25\
---------------------------------------------------------------------------

    \24\ Institute for Clinical and Economic Review. Emerging 
Therapy Assessment and Pricing: Transforming the Market for New 
Drugs. Web. 17 Dec. 2015. http://www.icer-review.org/etap/.
    \25\ Institute for Clinical and Economic Review. 17 Dec. 2015. 
http://ctaf.org/sites/default/files/u148/CHF_Final_Report_120115.pdf 
and http://cepac.icer-review.org/wp-content/uploads/2015/04/Final-Report-for-Posting-11-24-15.pdf.
---------------------------------------------------------------------------

    We propose to use indications-based pricing where appropriately 
supported by published studies and reviews or evidenced-based clinical 
practice guidelines, such as the ICER reports, to more closely align 
drug payment with outcomes for a particular clinical indication. 
Indications-based pricing decisions would reflect the clinical evidence 
available and strive to rely on competent and reliable scientific

[[Page 13244]]

evidence from neutral and/or independent sources. We understand that 
the quality of available evidence can vary for any given drug or 
indication. High quality evidence is comprehensive, relies on 
randomized trial designs where possible, and measures outcomes. 
Research findings should be valid, competent, reliable, and 
generalizable to the Medicare population.
    Third, we propose to allow CMS to enter into voluntary agreements 
with manufacturers to link health care outcomes with payment. This 
method is sometimes used in the private sector when relatively few 
published studies or other pieces of evidence are available to 
establish a drug's long-term value with regard to the magnitude of 
patient health outcomes. Payers and pharmaceutical manufacturers 
contract in outcomes-based risk-sharing agreements to link payment for 
drugs to patient health outcomes.\26\ These agreements tie the final 
price of a drug to results achieved by specific patients rather than 
using a predetermined price based on historical population data.\27\ 
Manufacturers agree to provide rebates, refunds, or price adjustments 
if the product does not meet targeted outcomes.\28\ The University of 
Washington's School of Pharmacy maintains the Performance Based Risk 
Sharing Database, which currently lists detailed information on 311 
risk-sharing arrangements subject to participation fees and licensing 
agreements.\29\ VBP arrangements with manufacturers are discussed in 
more detail in a later section.
---------------------------------------------------------------------------

    \26\ Neumann PJ, et al. Risk-Sharing Arrangements That Link 
Payment For Medications To Health Outcomes Are Proving Hard To 
Implement. Health Affairs. 2011;30(12):2329-2337.
    \27\ Garrison L, Carlson J. Performance-Based Risk-Sharing 
Arrangements for Drugs and Other Medical Products. Web. 12 Jan. 
2016. https://depts.washington.edu/pbrs/PBRS_slides.pdf.
    \28\ Garrison LP, et al. Private Sector Risk-Sharing Agreements 
in the United States: Trends, Barriers, and Prospects. Am J Manag 
Care. 2015;21(9):632-640. Web. 17 Dec. 2015. http://www.ajmc.com/journals/issue/2015/2015-vol21-n9/private-sector-risk-sharing-agreements-in-the-united-states-trends-barriers-and-prospects.
    \29\ University of Washington School of Pharmacy. Performance-
Based Risk-Sharing Database. Web. 17 Dec. 2015. https://depts.washington.edu/pbrs/index.php#sthash.g3bTvMFA.dpuf.
---------------------------------------------------------------------------

    We propose that any outcomes-based risk-sharing agreements that we 
enter into would require a clearly defined outcome goal. We seek 
comment on methods to collect and measure outcomes, including 
parameters around standardizing value metrics based on differences in 
drug treatments and their targeted patient subpopulations. At a 
minimum, and in addition to sources such as evidence-based literature 
and best practices, we propose manufacturers provide all competent and 
reliable scientific evidence to create an accurate picture regarding 
clinical value for a specific drug; and we also propose that 
manufacturers provide outcome measures for any outcome-based risk-
sharing pricing agreement.\30\ We set forth our thinking on competent 
and reliable scientific evidence for the purpose of establishing value-
based pricing and the clinical decision support (CDS) tool in the next 
section. We are seeking comments on the level of transparency that 
would be required or desired for outcomes-based risk-sharing agreements 
while recognizing the need to protect proprietary information. Finally, 
we seek comment on methods for establishing patient-specific pricing 
contingent on response to therapy.
---------------------------------------------------------------------------

    \30\ We discuss evidence further in section III.B.3 (Development 
of a Clinical Decision Support Tool) of this proposed rule.
---------------------------------------------------------------------------

    In addition to proposals specifically aimed at improving quality 
and outcomes and reducing the costs of purchasing for the payer, we 
also propose a value-based pricing strategy that involves discounting 
or eliminating patient coinsurance amounts for services that are 
determined to be high in value in an attempt to tailor incentives. 
Although many Medicare beneficiaries have wrap-around coverage (which 
reduces or eliminates cost sharing), reducing cost sharing for certain 
products can still provide an effective incentive for a subset of the 
population to encourage use of high-value drug products. Therefore, we 
propose to waive beneficiary cost sharing from the current 20 percent, 
meaning that the copayment that is associated with a HCPCS code in 
phase II of the model could be reduced by CMS to a value that is less 
than 20 percent and could be waived completely. In addition, consistent 
with cost sharing approaches for Part B drugs, we propose that 
beneficiary cost sharing will not exceed 20 percent of the total model-
based payment amount for the Part B drug. In other words, this model 
does not seek to increase cost sharing percentages beyond 20 percent 
for low-value drugs. We would also like to make clear that cost sharing 
changes will be applied at the HCPCS level to all drugs NDCs in a HCPCS 
code; we are not proposing manufacturer-specific or NDC-specific cost 
sharing amounts, nor are we proposing that providers or suppliers would 
have flexibility to change or waive cost sharing amounts. By itself, 
value-based pricing that involves discounting or eliminating patient 
coinsurance would not be expected to change the overall payment amount. 
In other words, we are proposing to increase Medicare's payment 
percentage while maintaining the total allowed charges for the drug 
using this tool. However, we seek comments on whether more targeted 
modifications of cost sharing should be considered and how such 
modifications would avoid creating unintended competitive advantages 
for drugs within the same HCPCS code or other similar drugs that are 
paid under other HCPCS codes.
    We propose to solicit public feedback on specific pricing proposals 
for use of all VBP tools. We propose that any CMS approved pricing 
changes under phase II would allow for the public to provide feedback 
and would be made public 45 days ahead of implementation . Proposed new 
Sec.  511.305 reflects these proposals.
    We would also engage in educational activities to support 
implementation and testing of the value-based pricing strategies. We 
seek comment to define the parameters of these educational activities.
    While all proposed Part B drugs would be potentially subject to the 
value-based pricing strategies outlined here, we seek comment on the 
potential groups of Part B drugs most suitable for each of the proposed 
approaches to value-based pricing. We also seek comment on any 
additional types of value-based pricing that could be considered for 
future rulemaking for the Medicare Part B Drug Payment Model.
    To protect beneficiaries and to allow for the consideration of 
special circumstances that may warrant the use of non-model payments in 
certain situations, we are proposing a Pre-Appeals process for certain 
value-based pricing strategies. The process is discussed in section IV. 
of this proposed rule.
    As noted, we are aware that the value-based pricing tools discussed 
here could pose a risk of abuse if not properly structured and 
operated. It is our goal that the Medicare Part B Drug Payment Model 
promotes integrity, transparency, and accountability. We seek comment 
on potential safeguards that could be implemented with each of these 
tools to make certain that the intent of the policy is not undermined.
3. Development of a Clinical Decision Support Tool
    Another potential component of VBP is the support of accurate 
clinical decision-making that is based on up-to-date scientific and 
medical evidence,

[[Page 13245]]

such as well-designed and conducted clinical trials, updated 
information on drug safety, and practice guidelines. Clinical decision 
support (CDS) can assist physicians and other health professionals with 
clinical decision-making tasks, including prescribing. Information that 
is delivered to the clinician can include general clinical knowledge 
and guidance (such as updated guidelines for the clinical use of drugs, 
updated safety information, etc.), processed patient data, or a mixture 
of both. The Agency for Healthcare Research and Quality (AHRQ) defines 
CDS tools as a system that ensures timely clinical information at the 
point of care by focusing on patient-specific information in real time 
to help physician and clinical care teams proactively identify early 
warnings of potential problems, or providing suggestions for the 
clinical team and patient to consider.\31\ Other examples of CDS tools 
include standardized drug and test orders that are developed from 
evidence-based medical guidelines when prescribing for particular 
conditions or types of patients; preventive care reminders; and alerts 
about potentially dangerous situations such as adverse drug events.\32\
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    \31\ Clinical Decision Support. June 2015. Agency for Healthcare 
Research and Quality, Rockville, MD. http://www.ahrq.gov/professionals/prevention-chronic-care/decision/clinical/index.html.
    \32\ Ibid.
---------------------------------------------------------------------------

    We are aware of reports that CDS tools can be effective in changing 
practice patterns to better align with evidence-based developments and 
best practices.33 34 35 CDS tools enable physicians to 
improve patient safety and quality of care by improving patient-
specific drug dosing, reducing the risk of toxic drug levels, reducing 
the time to achieve therapeutic drug levels, decreasing medication 
errors, and changing prescribing patterns in accordance with evidence-
based clinical guideline recommendations.\36\ For example, one study 
showed that CDS activity supporting the use of an injectable antibiotic 
altered prescribing of the drug such that prescribing better matched 
appropriate use guidelines from the Centers for Disease Control and 
Prevention.\37\ Similarly, CDS tools could help guide physicians to 
more efficiently utilize companion diagnostic tests such as testing for 
HER2 expression in certain tumors prior to beginning chemotherapy. We 
are also aware that CDS feedback on practice patterns can encourage 
physicians to improve their practice patterns.\38\
---------------------------------------------------------------------------

    \33\ Moxey, A., Robertson, J., Newby, D., Hains, I., Williamson, 
M., & Pearson, S.-A. (2010). Computerized clinical decision support 
for prescribing: provision does not guarantee uptake. Journal of the 
American Medical Informatics Association: JAMIA, 17(1), 25-33. 
http://doi.org/10.1197/jamia.M3170.
    \34\ Bates, D. W., Kuperman, G. J., Wang, S., Gandhi, T., 
Kittler, A., Volk, L., . . . Middleton, B. (2003). Ten Commandments 
for Effective Clinical Decision Support: Making the Practice of 
Evidence-based Medicine a Reality. Journal of the American Medical 
Informatics Association: JAMIA, 10(6), 523-530. http://doi.org/10.1197/jamia.M1370.
    \35\ Kevin M. Terrell DO, MS, Anthony J. Perkins MS, Paul R. 
Dexter MD, Siu L. Hui Ph.D., Christopher M. Callahan MD and Douglas 
K. Miller MD. Computerized Decision Support to Reduce Potentially 
Inappropriate Prescribing to Older Emergency Department Patients: A 
Randomized, Controlled Trial. J Am Geriatr Soc. 2009 Aug;57(8):1388-
94.
    \36\ Moxey, A., Robertson, J., Newby, D., Hains, I., Williamson, 
M., & Pearson, S.-A. (2010). Computerized clinical decision support 
for prescribing: provision does not guarantee uptake. Journal of the 
American Medical Informatics Association: JAMIA, 17(1), 25-33. 
http://doi.org/10.1197/jamia.M3170.
    \37\ Shojania, K. G., Yokoe, D., Platt, R., Fiskio, J., Ma'luf, 
N., & Bates, D. W. (1998). Reducing Vancomycin Use Utilizing a 
Computer Guideline: Results of a Randomized Controlled Trial. 
Journal of the American Medical Informatics Association: JAMIA, 
5(6), 554-562.
    \38\ Stammen LA, Stalmeijer RE, Paternotte E, et al. Training 
Physicians to Provide High-Value, Cost-Conscious Care: A Systematic 
Review. JAMA. 2015;314(22):2384-2400. doi:10.1001/jama.2015.16353.
---------------------------------------------------------------------------

    We propose a two component CDS tool that consists of an online tool 
that supports clinical decisions through education and provides 
feedback based on drug utilization in Medicare claims. The educational 
tool would be developed by CMS with support from the VBP contractor and 
would be available to physicians in the VBP arms of the model (see 
Table 1). Physicians participating in the model would voluntarily 
access the education tool, meaning that they would have a choice about 
whether to use the tool and how they would apply information from the 
tool to their practice. This tool is not intended to act as or replace, 
in any way, the physician's medical judgment for the treatment of 
patient-specific clinical conditions nor is the tool intended to 
replace a practitioner's ability to order reasonable and necessary Part 
B drugs as appropriate. Rather, the tool is intended to provide 
information on prescribing for specific indications that reflects up-
to-date literature and consensus guidelines. We believe that the 
availability of this tool could provide physicians with better access 
to up-to-date information such as guidelines for effective treatments 
as well as safe and appropriate drug use for specific diagnoses. We 
anticipate that information would be listed and indexed to correspond 
to drugs and disease states or conditions that are commonly treated in 
Part B. However, we would consider alternative approaches for 
presenting the data, such as the use of a decision-tree format. We seek 
comment on how to format the educational information. We also envision 
that the tool would provide information on Part B claim payment 
patterns for specific drugs and/or indications. This part of the tool 
could be utilized nationally or within specific geographic areas and 
could provide feedback on how an individual physician's drug claim 
patterns compare with local or national data or even recommended 
guidelines. This information would be solely for feedback and to 
support a physician's interest in mindful prescribing. We believe that 
the concept of this tool is consistent with the proposed model's aim as 
discussed in the introduction to the preamble, to achieve high quality 
and smarter spending on drugs and biologicals paid under Part B.
    We propose the evidence-based part of the CDS tool would encompass 
specific drugs, groups of similar drugs, or diagnoses that are 
typically encountered in Part B. The tool would be available online and 
readily available to participants in the VBP arm of the model and would 
provide pertinent up-to-date information on drug therapies and 
treatments for a specific condition. The tool would provide information 
such as links to evidence-based guidelines for appropriate drug use and 
updated information on drug safety.
    A CDS tool is more likely to be effective in improving the value of 
payment for prescribed drugs if it adequately reflects the clinical 
evidence available and strives to rely on objective, high quality 
evidence from neutral and/or independent sources. We understand that 
the quality of available evidence can vary for any given drug or 
indication. High quality evidence is comprehensive, relies on 
randomized trial designs where possible, and measures outcomes. 
Research findings should be valid, reliable, and generalizable to the 
Medicare population. To incorporate information in the CDS tool, we 
propose that we would follow a hierarchy of evidence review similar to 
that followed by our Medicare Coverage Advisory Committee, the AHRQ, or 
the United States Preventive Services Task Force, as well as numerous 
private bodies such as the National Comprehensive Cancer 
Network.39 40 41 These entities and others

[[Page 13246]]

favor peer reviewed scientific literature and randomized control trial 
research designs over other types of evidence, but provide a process 
that allows for consideration of many types of evidence.
---------------------------------------------------------------------------

    \39\ Medicare Coverage Advisory Committee; Operations and 
Methodology Subcommittee. Process for Evaluation of Effectiveness 
and Committee Operations. July 21, 2005.
    \40\ Agency for Healthcare Research and Quality. Methods Guide 
for Effectiveness and Comparative Effectiveness Reviews. January 
2014.
    \41\ National Comprehensive Cancer Network (NCCN). NCCN 
Categories of Evidence and Consensus. http://www.nccn.org/professionals/physician_gls/categories_of_consensus.asp.
---------------------------------------------------------------------------

    In addition to prioritizing review of high quality evidence, CMS 
would post the evidence base that supports information that is included 
in the online CDS, and consider feedback from the public on that 
evidence basis for 30 days before finalizing a CDS tool for a specific 
indication. We propose that the public would be able to provide 
feedback on the evidence basis proposed for information that is 
included in the CDS tool before CMS finalizes the information. We plan 
to implement the CDS tool incrementally, that is, to begin with a 
limited number of drugs and/or disease states. We seek comment on which 
Part B drugs and conditions that are commonly treated by drug therapy 
would be good candidates for inclusion. We also would allow for 
feedback on any substantial refinements to an online tool.
    In addition to developing an evidence-based component for the tool, 
we propose creating an online source of data under our section 1115A 
authority that would provide feedback to physicians in the VBP arms of 
the model. We propose to use a process similar to that already 
established for reporting programs such as the Quality and Resource Use 
Reports (QRURs) that physician group practices and solo practitioners 
receive nationwide. At this time, we make QRURs available to groups and 
solo practitioners that participate in the Medicare Shared Savings 
Program, the Pioneer Accountable Care Organization (ACO) Model, or the 
Comprehensive Primary Care Initiative. We propose that this online tool 
under the Part B Drug Payment Model would allow providers and suppliers 
to access reports on their Medicare Part B drug claims as well as 
claims patterns in their geographic area and national patterns. We 
intend for this feedback to allow providers and suppliers to better 
understand Part B claim payment patterns and identify opportunities for 
individual improvement. We also believe that this activity will align 
with our efforts to provide regularly updated feedback to providers and 
suppliers on metrics such as cost and quality measures. We propose that 
the CDS tool will be available to physicians (that is, internal use 
only and non-publicly available) for informational purposes only and 
will not impact participating physician group practices and solo 
practitioners' Part B drug payments.
    In summary, we are proposing a two-component CDS tool for 
physicians in the VBP arms of the model. The tool will use high quality 
evidence to educate physicians on best practices. The tool also would 
rely on regularly updated claims data reports to provide feedback on 
prescribing patterns. We seek comments on our proposed approach for 
identifying high-quality evidence and allowing for public feedback on 
the evidence basis; the online format of this proposed support tool; 
the most effective method for physicians to access their reports on 
prescribing patterns, identifying what content should be included (for 
example, claim payment/prescribing patterns, resource use, clinical and 
cost domains, patient clinical and demographic information, information 
about drug-drug and drug-disease interactions and clinical support 
guidelines for these interactions, among other factors). We also 
solicit comment on the level of feedback, and whether personalized 
reports are necessary. To the extent that such feedback includes 
personally identifiable information, we would provide such information 
through the proposed support tool consistent with applicable privacy 
laws, including, but not limited to, the Health Insurance Portability 
and Accountability Act of 1996 (HIPAA) Privacy Rule. We solicit comment 
concerning privacy issues with respect to the proposed support tool.

C. Comment Solicitation

    We are considering the three approaches discussed below: Creating 
value-based purchasing arrangements for Part B drugs directly with 
manufacturers, the Part B Drug CAP, and an episode-based or bundled 
pricing approach for Part B drugs, as potential areas of interest in 
furthering value for Part B drugs. We solicit comments to determine if 
any or all are appropriate to pursue as part of the Part B Drug Payment 
Model or in the near future.
1. Creating Value-Based Purchasing Arrangements Directly With 
Manufacturers: Solicitation of Comments
    We have received inquiries from manufacturers interested in testing 
new approaches to paying for medications under Part B that are not 
accommodated within the current payment system. These approaches are 
generally built around achievement of clinical outcomes and a new 
payment flow between CMS and the manufacturer, using a mechanism such 
as a rebate.
    Outcomes-based rebates, for example, appear to be used by industry 
to measure and reward quality and clinical effectiveness for new drug 
products. Ideally, outcomes-based rebates lead to payers realizing a 
reduction in the uncertainty that is associated with a new drug's 
clinical value, performance, and financial impact, while manufacturers 
are able to better differentiate and demonstrate the value and 
effectiveness of their product.\42\ Value is measured through data 
collection likely, though not necessarily, provided by the prescriber 
and intended to address factors such as long-term safety and outcomes, 
effect on an individual patient, patient adherence, or impact on 
utilization and costs. The product's final price or rebate amount is 
linked to its actual effect on these measured outcomes.
---------------------------------------------------------------------------

    \42\ Garrison, Louis, et al. Private Sector Risk-Sharing 
Agreements in the United States: Trends, Barriers, and Prospects. Am 
J Manag Care. 21(9) Sep. 2015: 632-640. Web. 16 Dec. 2015. http://www.ajmc.com/journals/issue/2015/2015-vol21-n9/private-sector-risk-sharing-agreements-in-the-united-states-trends-barriers-and-prospects.
---------------------------------------------------------------------------

    One example of a potential structure would be a ``try before you 
buy'' arrangement. For example, for a product that works for some but 
not all beneficiaries, a manufacturer might offer to provide a partial 
or full rebate to CMS for the costs of product purchased for patients 
that do not ultimately benefit from therapy. Because of the time lag 
involved in assessing response to therapy from claims data sources, a 
rebate might be the most efficient way to implement such a purchasing 
agreement.
    We solicit comment on the approach described above and on 
implementing a program to incorporate VBP arrangements created with 
manufacturers as a part of the VBP tools that will be tested in this 
model. We also seek comment on a number of specific issues, discussed 
below, surrounding rebate-based payment structures.
    CMS is currently considering whether rebate distributions could be 
returned to the Medicare Part B Trust Fund, the beneficiary, the 
provider or supplier, or a combination of the three. Any rebate 
arrangement would have to conform to the requirements of the Act and 
federal appropriations law. Comments regarding the construction of 
these rebate arrangements are especially

[[Page 13247]]

welcome. We seek comment on the value of and potential approaches for 
sharing rebates by providing incentive payments to beneficiaries and 
prescribers. We solicit comments on how to incorporate rebates into 
claims payment for prescribers or potentially the use of payments made 
outside of the claims processing system. Additionally, we seek comment 
on the value and potential methods for sharing rebates with 
beneficiaries through reduced cost sharing or other incentives. As we 
are aware that the incentives discussed here could pose a risk of abuse 
if not properly structured and operated, we also seek comment on the 
appropriate amount for any rebate sharing and other potential 
safeguards that could be implemented to make certain that the intent of 
the policy is not undermined. It is our goal that the Medicare Part B 
Drug Payment Model promotes integrity, transparency, and 
accountability. Further, we seek comment on the basis for potential 
voluntary rebates other than the proposed value-based pricing, CDS 
tool, or other educational activities as discussed earlier in this 
proposed rule for future rulemaking. We are particularly interested in 
whether and to what extent other payers base rebates on tools other 
than those we have listed here. We are interested in specific examples 
of rebate agreements appropriate for this proposed model that 
manufacturers might be interested in creating. We recognize that 
manufacturers are much more likely to offer rebates for drugs where 
potential therapeutically similar drug alternatives are available. We 
also seek comments that identify examples of groups of therapeutically 
similar Part B drugs that are potential candidates for rebate 
arrangements, as well as industry examples of rebates for drugs paid 
for by Medicare Part B, including drugs that are used in physicians' 
offices and outpatient hospital settings. We are particularly 
interested in how significant an effort might be required to establish 
and execute risk sharing for outcomes-based rebates compared to volume-
based rebates.
    Finally, we seek comment on specific approaches that could be used 
to define rebates, details on how these arrangements could be created, 
mechanisms that could be used to calculate and distribute rebate 
amounts, the amount of transparency in any arrangement, how the rebates 
should be accounted for in manufacturers' ASP reports, other applicable 
pricing information reported to CMS (for example, for Medicaid 
purposes), and how we might monitor the prices paid by suppliers and 
providers for Part B drugs under the proposed model.
2. The Part B Drug Competitive Acquisition Program (CAP): Solicitation 
of Public Comments
    Section 1847B of the Act required the implementation of the CAP for 
drugs that are not paid on a cost or prospective payment basis. The CAP 
was an alternative to the ASP method that is used to pay for the 
majority of Part B drugs, particularly drugs that are administered 
during a physician's office visit. Instead of buying drugs for their 
offices, physicians who chose to participate in the CAP would place a 
patient-specific drug order with an approved CAP vendor; the vendor 
would provide the drug to the office and then bill Medicare and collect 
cost sharing amounts from the patient. Drugs were supplied in unopened 
containers (not pharmacy-prepared individualized doses like syringes 
containing a patient's prescribed dose). Most Part B drugs used in 
physicians' offices were supplied by the approved CAP vendor. Unlike 
the ``buy and bill'' process that is still used to obtain many Part B 
drugs, physicians who participated in the CAP did not buy or take title 
to the drug. Physician participation in the CAP was voluntary, but 
physicians had to elect to participate in the CAP. CAP drug claims were 
processed by a designated carrier.
    We conducted bidding for CAP vendors in 2005. The first CAP 
contract period ran from July 1, 2006 until December 31, 2008. One drug 
vendor participated in the program, providing drugs that included 
approximately 180 HCPCS billing codes (including heavily utilized drugs 
in Part B) to physicians across the United States and its territories. 
The parameters for the second round of the vendor contract were 
essentially the same as those for the first round. While we received 
several qualified bids for the subsequent contract period, shortly 
before the second contract period began, contractual issues with the 
successful bidders led to the postponement of the program, and the CAP 
has been suspended since January 1, 2009. Details are available in the 
links at the end of this section.
    After the CAP was suspended, we sought additional input from 
physicians and interested parties about further improvements to the 
program. For example, we held Open Door Forums, met with stakeholders 
and encouraged correspondence from stakeholders and physicians who 
participated in the CAP. Although we received some useful suggestions, 
several significant concerns could not be addressed under the existing 
statutory requirements. These concerns included uncertainty about the 
participation of non-pharmacy entities like wholesalers as approved CAP 
vendors, and the requirement for a beneficiary-specific order which 
impacts the use of a consignment model to facilitate emergency 
deliveries and to manage inventory through automated dispensing systems 
in the office. Many commenters were also concerned about the complexity 
of the program and the level of financial risk, particularly for 
vendors. Also, an evaluation of the program found that it was not 
associated with savings (https://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/Reports/Research-Reports-Items/CMS1234237.html).
    More detailed information about the CAP is available on the 
following CMS Web page and links within the Web page: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Part-B-Drugs/CompetitiveAcquisforBios/index.html. The downloads section of the 
following CMS Web page includes information about CAP vendor bidding, 
physician participation, and drugs provided under the CAP: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Part-B-Drugs/CompetitiveAcquisforBios/vendorbackground.html.
    The Part B drug market has evolved significantly since the CAP was 
suspended in 2009. For example, there has been enormous growth in 
specialty drugs, both by the number of drugs available and the cost of 
the products; acquisition of specialty drugs may utilize restricted 
distribution channels (like specialty distributors or pharmacies as 
opposed to buying drugs from wholesalers and the manufacturer); and 
health information technology also has changed the way physicians and 
distributers manage many drug products.
    Although we are not proposing to include a CAP-like alternative in 
this model at this time, we are interested in receiving comments that 
would help us determine whether sufficient interest in such a program 
is present for us to consider developing and testing such an 
alternative as a part of a future model. We are specifically interested 
in comments on whether there is a role for a CAP-like alternative to 
the ASP (buy and bill) process for obtaining drugs that are billed 
under Part B in the physician's office. Given the length of time that 
has elapsed since the last solicitation for comments about the CAP in 
2010, we are also interested in updated perspectives on issues such as 
smaller geographic areas, smaller scope

[[Page 13248]]

of drugs included in the program, the role of wholesalers and 
consignment in the program, the drug ordering process, risk sharing, 
impact on physician negotiated volume discounts when CAP would be used 
for Medicare patients, and how these issues could be addressed if we 
were to consider developing and testing a phase of this model in the 
future that is based on the CAP.
3. Episode-Based or Bundled Pricing Approach: Solicitation of Public 
Comments
    Under the current FFS structure, Medicare makes separate payments 
for drugs based primarily on the manufacturer's pricing. Medicare also 
makes separate payments for the administration of these drugs to 
hospital outpatient settings and physician offices. This payment 
approach may not encourage practitioners in the physician office or in 
outpatient hospital settings to consider the total cost of care for 
treating a beneficiary. Instead, the current FFS drug payment structure 
may provide an incentive to increase the volume of drugs furnished to 
beneficiaries and to prescribe more expensive drugs without considering 
the total cost of care for treating a beneficiary with a particular 
drug regimen across the episode of care. MedPAC, in its June 2015 
report, discussed bundled payments for Part B drugs as a potential 
approach to obtain better pricing for Part B drugs for beneficiaries 
compared to current pricing under the FFS system.
    In the absence of an episode-based or bundled pricing model for 
Part B drugs, provider and practitioner prescribing patterns for a 
given drug treatment regimen under the current FFS payment system may 
unintentionally de-emphasize the value of drug regimens beyond the 
immediate care setting and throughout the course of drug therapy. For 
instance, in situations where drugs represent a small portion of the 
total cost of the patient's overall treatment therapy across multiple 
settings, particular attention may not be given to the financial impact 
of the cost of the drugs relative to the total cost of a patient's care 
or to the interaction of drug therapy with other aspects of the 
patient's care.
    As part of this proposed rule, we are soliciting comments and 
suggestions to consider in future rulemaking related to an episode-
based or bundled pricing approach for Part B drugs in both physician 
offices and hospital outpatient settings. The intent of this comment 
solicitation is to explore an initial framework that could promote 
greater incentives for improved patient outcomes and financial 
accountability for episodes of care surrounding particular courses of 
treatment using particular Part B drugs. CMS is pursuing bundled and 
episode payments through models such as the BPCI initiatives,\43\ the 
OCM,\44\ and CJR.\45\ As evidenced by the BPCI initiative and the OCM, 
we have demonstrated interest in developing models that utilize aligned 
financial incentives, including performance-based payments, to improve 
care coordination, appropriateness of care, and access for 
beneficiaries. As part of this proposed rule, we are specifically 
seeking comment on issues related to an episode-based or bundled 
pricing approach for Part B drugs, including, but not limited to:
---------------------------------------------------------------------------

    \43\ The BPCI initiative comprises four broadly defined models 
of care, which link payments for the multiple services beneficiaries 
receive during an episode of care. Under the initiative, 
organizations enter into payment arrangements that include financial 
and performance accountability for episodes of care. These models 
may lead to higher quality and more coordinated care at a lower cost 
to Medicare. More information on the four models can be accessed at 
the CMS Innovation Center: https://innovation.cms.gov/initiatives/Bundled-Payments/.
    \44\ OCM is an innovative multi-payer model in which practices 
enter into payment arrangements that include financial and 
performance accountability for episodes of care surrounding 
chemotherapy administration to cancer patients. This model aims to 
provide higher quality, more highly coordinated oncology care at a 
lower cost. OCM is a 5-year model and will begin in spring 2016. 
More information on the four models can be accessed at the CMS 
Innovation Center: https://innovation.cms.gov/initiatives/Oncology-Care/.
    \45\ The Comprehensive Care for Joint Replacement (CJR) model 
aims to support better and more efficient care for beneficiaries 
undergoing hip and knee replacements. This model tests bundled 
payment and quality measurement for an episode of care associated 
with hip and knee replacements to encourage hospitals, physicians, 
and post-acute care providers to improve the quality and 
coordination of care from the initial hospitalization through 
recovery. https://innovation.cms.gov/initiatives/cjr.
---------------------------------------------------------------------------

     How CMS could identify groups of similar drugs for 
inclusion in an episode (for example, are drugs used to treat certain 
types of arthritis suitable candidates for inclusion in an episode-
based or bundled payment model).
     The care settings (for example physician office, 
outpatient hospital) and disease states that we should consider for an 
episode-based or bundled pricing model.
     What types of entities/providers and suppliers would be 
responsible for care under the program and the types of financial 
relationships would there be if shared savings were considered.
     Measuring and setting outcomes, including parameters 
around standardizing value metrics based on differences in drug 
treatments and their targeted patient subpopulations, as well as 
measures of total cost of care and adjustments for case-mix.
     The scope of the bundle or episode of care, if not 
considering total cost of care.
     The provider or entity that is responsible for the bundle.
     The length of time the episode should cover.
     The best way to establish pricing for a bundle and whether 
sharing risk and savings should be considered.
     Whether the bundles should be established prospectively or 
calculated retrospectively.

D. Interactions With Other Payment Provisions

1. Overview
    We acknowledge that there may be circumstances where a Medicare 
beneficiary whose Part B drug therapy is paid under the Part B Drug 
Payment Model may also be assigned to or otherwise accounted for in 
other payment models, demonstrations, programs, or other initiatives 
that are being tested by the Innovation Center. In this proposed rule, 
the term shared savings refers to models in which the payment structure 
includes a calculation of total savings with CMS and the model 
participants each retaining a particular percentage of that savings. We 
note that there is a potential for overlap between the Part B Drug 
Payment Model and the Medicare Shared Savings Program, the IVIG 
Demonstration, Innovation Center shared savings models, and other 
Innovation Center payment models, such as the OCM and the BPCI 
initiative. For other models tested by the Innovation Center, we have 
worked to prevent duplication and to monitor arrangements that minimize 
duplication of effort. We anticipate undertaking similar efforts for 
the Part B Drug Payment Model.
2. Most Shared Savings Programs and Models
    Unlike the Medicare Shared Savings Program and shared savings 
models such as the Next Generation ACO model or the Comprehensive ESRD 
Initiative where performance is measured using expansive measures that 
examine many facets of a patient's care, the Part B Drug Payment Model 
is limited to payments for drug therapy. Also, the Part B Drug Payment 
Model as it is proposed does not define episodes of care and instead 
makes payments for specific drug claims that are submitted by provider 
or supplier to the Medicare Administrative

[[Page 13249]]

Contractors (MACs) that typically process their current drug claims. We 
believe that the adjustments made to the ASP add-on and other Part B 
payment amounts will typically represent a small proportion of the 
beneficiary's total payments for care, and thus we propose not to 
exclude beneficiaries assigned to ACOs in the Medicare Shared Savings 
Program or otherwise accounted for in shared savings models from 
inclusion in the Part B Drug Payment Model. Also, we do not propose a 
separate reconciliation process or modification to the reconciliation 
process for these beneficiaries. This means that with the exception of 
the OCM discussed in the next section, we do not plan to exclude or 
apply reconciliation processes to other shared savings programs or 
models.
3. Oncology Care Model
    OCM evaluates the impact of appropriately aligned financial 
incentives to improve care coordination, appropriateness of care, and 
access to care for beneficiaries undergoing chemotherapy. Under OCM, 
practices will enter into payment arrangements that include financial 
and performance accountability for episodes of care surrounding 
chemotherapy administration to cancer patients. The OCM is one of our 
key initiatives on alternative payment models, and we are preparing for 
implementation later this year.
    OCM incorporates a two-part payment system for participating 
practices, creating incentives to improve the quality of care and 
furnish enhanced services for beneficiaries who undergo chemotherapy 
treatment for a cancer diagnosis. The two forms of payment include a 
monthly per-beneficiary-per-month (PBPM) payment for the duration of 
the episode and the potential for a performance-based payment for 
episodes of chemotherapy care. The monthly PBPM care management payment 
supports infrastructure and organizational change to meet the OCM 
requirements, such as 24/7 access to care, and assists participating 
practices in effectively managing and coordinating care for oncology 
patients during episodes of care, while the potential for performance-
based payment will give practices incentives to lower the total cost of 
care and improve care for beneficiaries during treatment episodes.
    There will be overlap between the Part B Drug Payment Model 
presented in this proposed rule and OCM in that both models will affect 
providers' and suppliers' incentives for the use of oncology drugs, but 
in different ways. Oncology drugs represent a significant portion of 
Part B claims and include many high cost drugs. Drug claims under the 
OCM are paid under the ASP methodology and costs associated with 
therapy (including drugs) are evaluated periodically. In the impact 
section to this proposed rule, section IX, we note the percent of total 
spending attributable to Part B drugs by specialty. Almost 80 percent 
of oncology practice Medicare FFS revenue is from Part B drugs.
    We plan to proceed with both models, and we propose to include OCM 
practices in all arms of the Part B Drug Payment Model. That is, we 
would not alter the sampling plan discussed in section II of this 
proposed rule to exclude practices choosing to participate in OCM or 
practices that we might identify as the comparison group for OCM. In 
particular, as described above, the Part B Drug Payment Model is 
proposed as a national mandatory model so that all practices in 
selected PCSAs will participate in the Part B Drug Payment Model 
whether or not they elect to participate in any voluntary models. 
Selected OCM practices and matched comparison group practices could 
account for up to almost 40 percent of total Part B drug spending and 
for 70 percent of Part B spending on oncology drugs depending upon the 
actual enrollment of number and type of practices in the model. For 
this reason, we also believe that the remaining oncology spending would 
not be representative of Part B spending overall and Part B oncology 
spending in particular. Therefore we are proposing to include all OCM 
practices, both intervention and comparison group practices, in this 
model.
    We believe that including OCM practices in the Part B Drug Payment 
Model will not compromise our ability to evaluate effectively the 
effects of either model. In particular, the stratified random 
assignment approach used to allocate PCSAs to the treatment and control 
arms of the Part B Drug Payment Model will ensure that each arm of the 
Part B Drug Payment Model contains an approximately equal number of OCM 
participating practices. Since the number of OCM participants will be 
approximately the same in all arms of the Part B Drug Payment Model, 
the existence of the OCM should not bias comparisons of outcomes across 
arms of the Part B Drug Payment Model; thus, the existence of the OCM 
should not affect our ability to identify the independent effect of the 
Part B Drug Payment Model (that is, the effect of the Part B Drug 
Payment Model holding the level of OCM participation constant). 
Similarly, the stratified random assignment approach used in the Part B 
Drug Payment Model will ensure that OCM participant and comparison 
practices are each allocated approximately evenly across the arms of 
the Part B Drug Payment Model. Since the share of practices allocated 
to each Part B Drug Payment Model treatment arm will be approximately 
the same across both the OCM participant and comparison groups, the 
existence of the Part B Drug Payment Model should not bias comparisons 
between OCM participants and non-participants and thus should not 
affect our ability to identify the independent effect of the OCM (that 
is, the effect of the OCM holding Part B Drug Payment Model activities 
constant). We seek comment on these conclusions.
    The agency continues to assess best methods for addressing the 
overlap between the two models. We solicit comments on why practices 
choosing to participate in the OCM should or should not be included in 
the Part B Drug Payment Model. Should OCM practices be included in this 
Part B Drug Payment Model as we propose, we solicit comment on the best 
mechanism to account for the overlap between these two models. We also 
solicit comments on the generalizability of the results of the Part B 
Drug Payment Model if the OCM practices and their matched comparison 
practices are excluded; specifically, on whether the model will produce 
usable information without the OCM practices and their comparison 
practices. As we move forward to implement OCM, we will work closely 
with OCM practices within the context of that voluntary model to adapt 
to the Part B Drug Payment Model if necessary, for example through 
modifications to the financial reconciliation methodology.
4. Intravenous Immune Globulin (IVIG) Demonstration
    The Medicare IVIG Demonstration evaluates the benefits of providing 
payment and items for services needed for the in-home administration of 
intravenous immune globulin for the treatment of primary immune 
deficiency disease (PIDD).
    Services and items covered under the demonstration are provided and 
billed by the suppliers that provide the IVIG, which is already covered 
under Medicare Part B. The demonstration-covered services and items are 
paid as a single bundle and will be subject to coinsurance and 
deductible in the same manner as other Part B services. Home health 
agencies are not eligible to bill for services covered under the

[[Page 13250]]

demonstration but may still bill for services related to the 
administration of IVIG that are covered under the payment for a home 
health episode of care.
    This IVIG demonstration encompasses only the items and services 
that are needed for the in-home administration of IVIG; payments for 
IVIG are not changed. We therefore propose not to exclude patients in 
the IVIG demonstration from inclusion in this model. We seek comment on 
our proposed approach and the potential interactions with existing 
models and payment provisions.

IV. Provider, Supplier, and Beneficiary Protections

    Providers, suppliers, and beneficiaries who are included in the 
model will have access to the existing claims appeals process, as well 
as a proposed Pre-Appeals Payment Exceptions Review process, to resolve 
disputes arising from the policies implemented by this model. The 
process will be developed and finalized by CMS. The phase II 
contractor's scope of work will also include day-to-day operation of 
this process. The Payment Exceptions Review process will precede the 
formal Part B claims appeals process in existing 42 CFR part 405 
subpart I and will allow a provider, supplier, or beneficiary to raise 
issues regarding payment that are included in the VBP tools under phase 
II before submitting a claim. We anticipate the Payment Exceptions 
Review process will give providers, suppliers, or beneficiaries the 
opportunity to preempt potential disputes regarding a model payment, 
prior to filing a Medicare Appeal under 42 CFR part 405 subpart I.

A. Pre-Appeals Payment Exceptions Review Process

    We propose to establish this Pre-Appeals Payment Exceptions Review 
process for pricing established under the value-based pricing section 
of phase II of this model only in order to allow the provider, 
supplier, or beneficiary an opportunity to dispute payments made under 
phase II. This process would be in addition to, not in lieu of, the 
current appeals process, and would be available to any providers, 
suppliers, or beneficiaries receiving services in PCSAs assigned to one 
of the VBP arms. Providers, suppliers, and beneficiaries would have the 
opportunity to appeal any payment determination via the appeals 
mechanism that currently exist outside of this model.
    We propose that the Payment Exceptions Review process would be 
applicable to phase II payments, described in section III.B of this 
proposed rule, and would not include modifications to the ASP add-on, 
described in section III.A of this proposed rule. The Pre-Appeals 
Payment Exception Review process would allow the provider, supplier, or 
beneficiary to contact the contractor, before submitting a claim, and 
explain why an exception to Medicare's pricing policy, as described in 
section II.B, is warranted in the beneficiary's situation, and explain 
why the price provided under the phase II pricing policy does not 
provide accurate compensation for the prescribed drug. The Payment 
Exceptions decisions would be issued, in writing, within 5 business 
days of receipt of the request for a payment exception. While a payment 
exception decision would not confer appeal rights, a provider, 
supplier, or beneficiary dissatisfied with a payment exception decision 
or a pricing decision, may still utilize the current appeals process in 
42 CFR part 405 subpart I following submission of a claim. Throughout 
this process, providers and suppliers would be prohibited from charging 
a beneficiary more than the applicable cost sharing as explained in 
Section III.B.2, above, even if a payment exceptions request is not 
approved by the contractor or the payment amount determined by the 
contractor remains unchanged as a result of the appeals process.
    All of the current claims appeals rights will remain in place 
regardless of participation in this model or the choice to utilize the 
Pre-Appeals process. We discuss the current appeals process below.

B. Current Appeals Procedure

    As stated above, the Pre-Appeals process is intended as an option 
that would precede, not replace, the Medicare claims appeals process 
that is currently in place. The Pre-Appeals process is voluntary and 
intended to resolve payment disputes before the appeals process is 
needed, to minimize the number of formal Medicare appeals. Utilizing, 
or bypassing, the Pre-Appeals process will not affect the right of a 
provider, supplier, or beneficiary to access the current appeals 
process, following submission of a claim. In either the situation where 
the provider, supplier, or beneficiary submits a request for a Payment 
Exception, and that request is denied, or where the provider, supplier, 
or beneficiary does not choose to go through the Pre-Appeals process, 
the amount that will be paid on a submitted claim is that amount 
established through phase II pricing policy. The provider, supplier, or 
beneficiary may choose to appeal the payment amount, under 42 CFR part 
405 subpart I, after the phase II price has been paid for a drug.
    Under 42 CFR part 405 subpart I, MACs make an initial determination 
in response to a claim for benefits submitted by a provider, supplier, 
or beneficiary. We propose that the phase II pricing policy established 
by Medicare, which is proposed in Sec.  511.305 of this proposed rule, 
and discussed in section III.B of this proposed rule, and any pricing 
determination rendered through the Pre-Appeals process will be given 
substantial deference, but will not be binding on any appeals 
adjudicator, regardless of whether the party requesting an appeal first 
utilized the Pre-Appeals process. If the provider, supplier, or 
beneficiary is dissatisfied with the MAC's initial determination, they 
may request that the MAC perform a redetermination under 42 CFR 
405.940. If the provider, supplier, or beneficiary is dissatisfied with 
the redetermination, they may then request a reconsideration by the 
Qualified Independent Contractor (QIC) under 42 CFR 405.960. A 
provider, supplier, or beneficiary may then request a hearing before an 
Administrative Law Judge (ALJ) under 42 CFR 405.1000, if the claim(s) 
at issue meet the amount in controversy requirement ($150 for CY2016). 
Finally, a provider, supplier or beneficiary may request Appeals 
Council review under 42 CFR 405.1100, et seq., and then, in certain 
circumstances, request judicial review in Federal district court under 
42 CFR 405.1132, if the amount in controversy requirement is satisfied 
($1,500 for CY 2016).

V. Proposed Waivers of Medicare Program Rules

    Section 1115A(d)(1) of the Act provides the Secretary with broad 
authority to waive the statutory requirements titles XI and XVIII and 
of sections 1902(a)(1), 1902(a)(13), and 1903(m)(2)(A)(iii) of the Act 
as may be necessary solely for purposes of carrying out section 1115A 
of the Act with respect to testing models, described in section 
1115A(b) of the Act. To test alternative approaches for Part B drug 
payments, we propose to use the waiver authority provided to the 
Secretary under section 1115A of the Act. The purpose of this 
flexibility would be to allow Medicare to test approaches described in 
this proposed rule with the goal of increasing the value of drug 
therapy that is paid under Medicare Part B while improving, or 
maintaining, the quality of beneficiaries' care as we

[[Page 13251]]

implement and test this model. We believe that these waivers are 
necessary and appropriate to test whether the alternative drug payment 
designs discussed in this proposed rule will lead to better value for 
drugs paid under Part B, that is, a reduction in Medicare expenditures, 
while preserving or enhancing quality of care provided to Medicare 
beneficiaries.
    First, we propose to waive portions of section 1847A(b)(1) of the 
Act which specify the 6 percent add-on percentage for payments 
determined under section 1847A of the Act. Waiving the fixed add-on 
percentage will allow the agency to modify the add-on percentage for 
payment determinations made under section 1847A of the Act to test 
whether modifying the add-on percentage improves provider and supplier 
financial incentives associated with Part B drug payment. The waiver 
for the add-on encompasses single source drugs, biologicals, multiple 
source drugs and biosimilars as described in section 1847A of the Act. 
The 6 percent add-on is typically used for payments based on the 
manufacturer's ASP, but as discussed in the CY 2011 PFS rule, the ASP 
price files also include payments that use 106 percent of WAC. This 
percentage is consistent with sections 1847A(c)(4)(A) and 1847A(b) of 
the Act.
    We also propose to waive the definitions of single source drug or 
biological, multiple source drug, and biosimilar biological product in 
section 1847A(c)(6) of the Act to determine payment for Part B drugs, 
which are grouped in a way that is different from how they are grouped 
in the statute. We propose to waive these definitions to test whether 
paying these types of drugs and biologicals using the pricing 
approaches described in this proposed rule will reduce expenditures 
while maintaining or improving quality of care. Alternative payment 
amounts proposed in this model may involve assigning a HCPCS code 
payment value with a different payment amount, than what would be 
determined under section 1847A of the Act. For example, under value-
based pricing (Section II.B.2), equal or benchmarked payment for 
therapeutically similar drug products that are used for a given 
indication like osteoarthritis is unlikely to be consistent with the 
statutory definitions of single source drug or biological, multiple 
source drug, and biosimilar biologicals.
    We also propose to waive provisions in section 1847A(b) of the Act 
that require the assignment of NDCs to HCPCS codes based on whether a 
drug meets the definition of single source drug or biological, multiple 
source drug, or biosimilar, which this section defines, and requires 
the agency to base the determination of the ASP (that is, the ASP+0 
percent) on the NDCs from this assignment. We are proposing to waive 
this statutory requirement for the required approach of assigning NDC's 
to HCPCS to test changes in these payment limits. As stated in the 
preceding paragraph, the determination of the model's payment amounts 
may not be consistent with the statutory definitions of single source 
drug or biological, multiple source drug, and biosimilar biologicals.
    Furthermore, we propose to waive section 1847A(b)(6) of the Act, 
which specifies how the volume-weighted average sales price is to be 
used in the calculation of average sales price, so that we can test 
alternatives to the ASP+6 percent methodology in this model, 
irrespective of the volume-weighted average payment amount 
determination. This subsection provides the formula for using volume as 
a factor for determining the average sales price. Waiving this 
provision is necessary to test changes to the payment determination 
methodology that is described in section 1847A of the Act. Consistent 
with the statutory provisions discussed above, we also propose to waive 
applicable portions of Sec.  414.904-906 which define and implement 
payment provisions associated with section 1847A of the Act.
    The waiver should also encompass other Part B drug payment 
methodologies that are used to pay for Part B drugs which are described 
in section 1842(o) of the Act. Section 1842(o)(1)(D) of the Act 
requires that infusion drugs furnished through an item of DME be paid 
at 95 percent of the AWP in effect on October 1, 2003. We are proposing 
to waive this section to include infusion drugs that are furnished 
through covered DME items in the model. Immunosuppressive drug 
supplying fees, inhalation drug dispensing fees and the clotting factor 
furnishing fees are described in sections 1842(o)(2), 1842(o)(5), 
1842(o)(6) of the Act. We propose to waive these provisions to include 
modifications to the fees in the model. Section 1842(o)(2) of the Act 
allows Medicare to pay a dispensing fee (less the applicable deductible 
and coinsurance amounts) to the supplier for certain drugs that are 
dispensed and then paid under Part B. Section 1842(o)(5) of the Act 
requires the Secretary to provide a separate payment for items and 
services related to the furnishing of blood clotting factors. Finally, 
section 1842(o)(6) of the Act requires the Secretary to pay a supplying 
fee to pharmacies for certain immunosuppressive, oral anticancer and 
oral antiemetic drugs (less the applicable deductible and coinsurance 
amounts).
    Further, we propose to waive portions of section 1833 of the Act. 
Specifically, we propose to waive section 1833(t)(14) of the Act in its 
entirety, which specifies that the OPPS pays for certain outpatient 
drugs at acquisition cost plus an adjustment for overhead and handling; 
this payment is currently set to ASP+6 percent. We propose to waive 
this provision to test the proposed changes to the ASP+6 percent 
methodology calculation for drugs and biologicals in the hospital 
outpatient department setting. Some drugs and biologicals, including 
certain diagnostic radiopharmaceuticals receive packaged payment. We 
would not revise our policy for packaging drugs and biologicals with 
per day costs below a certain threshold at this time for those drugs 
and biologicals that meet OPPS packaging criteria (we discuss episodes 
of care in this proposed rule, but do not propose to include episodes 
or other bundles at this time). We also propose to waive section 
1833(t)(6) of the Act, which requires the Secretary to furnish 
additional pass through payments for certain drugs that are covered 
under the OPD service or group of services described under this 
section. This includes orphan drugs, cancer therapy drugs and 
brachytherapy, radiopharmaceuticals, and certain new drugs. We would 
waive the requirement that drugs and biologicals with pass-through 
status receive payment at ASP+6 percent to test changes with either 
alternative under either phase of the model. We propose to waive these 
sections of section 1833 of the Act, as well as related regulation text 
at Sec.  419.64, which provides definitions of terms used in the 
statute, including cancer therapy drugs, orphan drugs, and 
radiopharmaceutical drugs. We are waiving these regulatory definitions 
of terms described in section 1833 of the Act to achieve a waiver of 
the statutory requirement for pass through payment.
    We further propose to waive section 1847B of the Act and portions 
of Sec.  414.906 through Sec.  414.920 which implement the Part B drug 
CAP. This section requires the establishment of a CAP and sets forth 
detailed requirements for the program. We have discussed an alternative 
to the CAP in this rule and solicited comments about how a similar 
program may be implemented, but we are not proposing the implementation 
of the CAP as described in section 1847B of the Act at this time.

[[Page 13252]]

    Providers and suppliers who participate in this model must comply 
with all applicable laws and regulations not explicitly waived in this 
document. We also seek comment on any additional Medicare program rules 
that it may be necessary to waive using our authority under section 
1115A of the Act to effectively test the payment changes, described in 
this model, as it has been proposed, which we could consider in the 
context of our early model implementation experience to inform any 
future proposals we may make.

VI. Evaluation

    Our evaluation of the Part B Drug Payment Model would test the 
proposed innovative health care payment model in this proposed rule to 
examine its potential to lower program expenditures while maintaining 
or improving the quality of care furnished to Medicare Program 
beneficiaries. Under this proposal, the Innovation Center would 
exercise its authority under section 1115A of the Act to test 
alternative payment designs for Part B drugs. The evaluation would 
collect and analyze data primarily to test the hypothesis that these 
alternative payment designs would lead to both higher quality and more 
affordable care for Part B Medicare enrollees and reduced Medicare 
expenditures. Our evaluation of the Part B Drug Payment Model would be 
used to inform the Secretary and policymakers about the impact of the 
alternatives tested relative to payment under the traditional Part B 
drug payment system in the absence of such alternatives. We propose to 
evaluate this model in a manner similar to other models developed and 
tested under the Innovation Center authority.
    Obtaining information that is representative of a wide and diverse 
group of providers, suppliers, and beneficiaries will best inform us on 
about how such a payment model might function were it to be more fully 
integrated within the Medicare program. Our evaluation approach will 
compare historic patterns of Part B drug use and Medicare program costs 
for providers and suppliers, and health outcomes for beneficiaries in 
response to the alternative interventions proposed in this model (see 
section III. of this proposed rule).
    We propose to apply the model interventions based upon a stratified 
random assignment of PCSAs, the unit of analysis for the model test 
(see section II.C. of this proposed rule). Researchers would evaluate 
separately the impacts of the test interventions by comparing Part B 
drug use, program costs, and the quality of care for providers, 
suppliers, and beneficiaries in the areas assigned to each model test 
arm to those in areas assigned to the control arm. The evaluation will 
include a range of analytic methods, including regression and other 
multivariate analyses.
    In our design, we primarily examine the impact of the proposed 
model interventions at the PCSA level. However, to address a broader 
variety of stakeholders and topics, we also propose to examine the 
model impact at the provider and supplier level and at the beneficiary 
level. We anticipate using various statistical methods to address 
observable factors that could confound or bias our results. We also 
plan, to the extent possible, to examine and account for the 
interactions of this model with other ongoing interventions such as the 
OCM, BPCI, the Pioneer ACO Models, and the Medicare Shared Savings 
Program. For example, the evaluation of this model may require 
excluding areas, providers, suppliers, or beneficiaries if including 
them has the potential to seriously bias the results of an existing 
model. Alternatively, statistical and other data analytic techniques 
could help to adjust for the effects of adding the Part B drug model in 
areas where providers, suppliers, or patients are participating in 
these other interventions.
    Although, we expect to base many of our analyses on secondary data 
sources such as Medicare FFS claims, we may consider a survey of 
beneficiaries, suppliers, and providers to provide insight on 
beneficiaries' experience under the model and additional information on 
any strategies undertaken by those providing drugs included under this 
model.
    Our evaluation will focus upon whether the intervention reduces 
costs while improving quality of care. It also could include 
assessments of patient experience of care, prescribing and utilization 
patterns, health outcomes, Medicare expenditures, provider and supplier 
costs, and other potential impacts of interest to stakeholders. Our key 
evaluation questions would include, but are not limited to, the 
following:
     Payment. Is there a reduction in Part B drug spending, as 
well as total Part B and total Medicare program expenditures, in 
absolute terms or for subcategories of providers and suppliers (for 
example, physician office vs hospital outpatient department, or rural 
vs urban settings)?
     Prescribing Patterns. Are there any observed changes in 
utilization (measure number of doses/refill patterns) and prescribing 
patterns overall and for specific types of providers and suppliers? How 
do these patterns compare to the control or historic patterns, 
potentially including longitudinal patterns and, if data permit, before 
and after the budget sequester that began in 2013? How are these 
patterns of changing utilization associated with the different Medicare 
payment alternatives?
     Prescriber Acquisition Prices. Is there any change in the 
prices at which providers and suppliers are able to obtain Part B drugs 
depending upon the payment environment that applies in a particular 
area?
     Outcomes/Quality. What is the impact on quality of care, 
access to care, timeliness of care, and the patient experience of care?
     Unintended Consequences. Did the model result in any 
observable unintended consequences? If so, how, to what extent, under 
which conditions, and for which beneficiaries, or providers and 
suppliers?
     Variable Model Effects. Was each intervention tested in 
the model more or less successful under some conditions compared to 
others, for example, in certain types of markets, geographic areas, or 
for certain categories of drugs?
    In addition, we seek comments on other potential questions for 
inclusion in the evaluation of the Part B Drug Payment Model.

VII. Collection of Information Requirements

    As stated in section 1115A(d)(3) of the Act, Chapter 35 of title 
44, United States Code, shall not apply to the testing and evaluation 
of models under section 1115A of the Act. As a result, the information 
collection requirements contained in this proposed rule need not be 
reviewed by the Office of Management and Budget. However, costs 
incurred through information collections are included in the Regulatory 
Impact Analysis.

VIII. Response to Comments

    Because of the large number of public comments we normally receive 
on Federal Register documents, we are not able to acknowledge or 
respond to them individually. We will consider all comments we receive 
by the date and time specified in the ``DATES'' section of this 
preamble, and, when we proceed with a subsequent document, we will 
respond to the comments in the preamble to that document.

IX. Regulatory Impact Analysis

A. Introduction

    We have examined the impacts of this proposed rule, as required by 
Executive

[[Page 13253]]

Order 12866 on Regulatory Planning and Review (September 30, 1993), 
Executive Order 13563 on Improving Regulation and Regulatory Review 
(January 18, 2011), the Regulatory Flexibility Act (RFA) (September 19, 
1980, Pub. L. 96-354), section 1102(b) of the Social Security Act, 
section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) (March 
22, 1995, Pub. L. 104-4), Executive Order 13132 on Federalism (August 
4, 1999), and the Contract with America Advancement Act of 1996 (Pub. 
L. 104-121) (5 U.S.C. 804(2)). This section of the proposed rule 
contains the impact and other economic analyses for the provisions that 
we are proposing.
    Executive Orders 12866 and 13563 direct agencies to assess all 
costs and benefits of available regulatory alternatives and, if 
regulation is necessary, to select regulatory approaches that maximize 
net benefits (including potential economic, environmental, public 
health and safety effects, distributive impacts, and equity). Executive 
Order 13563 emphasizes the importance of quantifying both costs and 
benefits, of reducing costs, of harmonizing rules, and of promoting 
flexibility. This proposed rule has been designated as an economically 
significant rule under section 3(f)(1) of Executive Order 12866 and a 
major rule under the Contract with America Advancement Act of 1996 
(Pub. L. 104-121). Accordingly, this proposed rule has been reviewed by 
the Office of Management and Budget. We have prepared a regulatory 
impact analysis that, to the best of our ability, presents the costs 
and benefits of this proposed rule. We solicit comments on the 
regulatory impact analysis in the proposed rule.

B. Statement of Need

    This proposed rule is necessary to implement and test a new payment 
and service delivery model under the authority of section 1115A of the 
Act, which allows the Innovation Center to test innovative payment and 
service delivery models to reduce program expenditures while preserving 
or enhancing the quality of care furnished to individuals. The 
underlying issue addressed by the Part B Drug Payment Model is whether 
the FFS payment amount for drugs furnished in physician offices and 
hospital outpatient departments at ASP+6 percent encourages the use of 
more expensive drugs because the 6 percent add-on generates more 
revenue for more expensive drugs (see MedPAC Report to the Congress: 
Medicare and the Health Care Delivery System June 2015, pages 65-72). 
Medicare pays this price regardless of the price a provider pays to 
acquire the drug. The ASP methodology does not take into account the 
effectiveness of a particular drug, nor the cost of comparable drugs, 
when determining the Medicare payment amount.
    This proposed rule creates and tests one alternative payment 
approach to the ASP add-on amount and whether a combination of value-
pricing and clinical decision support tools can change physician and 
hospital outpatient prescribing patterns. With minor exclusions, we 
propose to include the vast majority of Part B drugs in this proposed 
model, and we are requiring all providers and suppliers that furnish 
those Medicare Part B drugs to beneficiaries in selected geographic 
areas to participate. Some providers and suppliers will be included in 
the control group continuing to receive payment at ASP+6 percent. 
Testing the model in this manner will allow us to learn more about how 
best to structure FFS incentives for Part B drug payment and whether 
managing aspects of the Part B drug benefit can improve the value of 
Medicare spending on drugs. This learning could inform future Medicare 
payment policy.

C. Overall Impacts for the Proposed Part B Drug Payment Model

    As detailed in section III of this proposed rule, we are proposing 
to establish the CY 2016 alternative ASP add-on amount in phase I as 
budget neutral to Part B spending using CY 2014 claims data. We propose 
to update the flat fee amount each year based on the CPI MC. We intend 
to achieve savings through behavioral responses to the revised pricing, 
as we hope that the revised pricing removes any excess financial 
incentive to prescribe high cost drugs over lower cost ones when 
comparable low cost drugs are available. In other words, we believe 
that removing the financial incentive that may be associated with 
higher add-on payments may lead to some savings during phase I of the 
proposed model. We do not have an exact estimate of the amount of 
savings that might be achieved through behavioral responses. However, 
prior research suggests that changes in the 6 percent add-on percentage 
can change prescribing behavior. For example, in one study, the 
implementation of ASP+6 percent resulted in providers shifting patients 
to newer, more expensive drugs which had a higher profit margin under 
the ASP+6 percent methodology.\46\ For urologists, rheumatologists, 
infectious disease specialists, and medical oncologists, Medicare 
billing decreased for Part B drugs but increased for other services 
(for example, drug administration and testing) between 2004 and 2005, 
when ASP+6 percent went into effect.\47\
---------------------------------------------------------------------------

    \46\ Medicare Payment Advisory Commission. (2006). Report to the 
Congress: Effects of Medicare payment changes on oncology. 
Washington, DC: MedPAC.
    \47\ Medicare Payment Advisory Commission. (2007). Report to the 
Congress: Impact of changes in Medicare payments for Part B drugs. 
Washington, DC: MedPAC.
---------------------------------------------------------------------------

    In phase II, we are proposing that the VBP component of the model 
would not be budget neutral. We intend to achieve savings in phase II 
through the use of value-pricing tools. We invite extensive comment 
throughout this proposed rule on the applicability of various VBP tools 
to the Part B and hospital outpatient drug benefit. We do not believe 
that we have enough detail on the structure of the final value-based 
purchasing component to quantify potential savings. As with phase I, we 
note evidence that changes in drug margin and the +6 percent add-on 
amount have correlated with changes in prescribing patterns. We cannot 
gauge the magnitude of savings for either proposed phase of the model 
at this time but we expect both to produce savings. We invite comment 
on the extent of savings that might be achieved based on commenter 
experience.
    Part B and hospital outpatient spending for separately paid drugs 
and biologicals is estimated at $21 billion for CY 2016. We propose to 
assign through the stratified random sample one-half of the PCSAs to 
the phase I model arms testing payment at ASP+2.5 percent plus a flat 
fee and that should include roughly one-half of that estimated spending 
amount within those arms. We estimate that the flat fee would account 
for roughly $675 million of total Part B drug spending if calculated 
nationally. In addition to any changes in spending introduced through 
phase II, we believe that the model's effects will trigger the 
threshold of ``an annual effect on the economy of $100 million or 
more'' under E.O. 12866.

D. Detailed Economic Analyses

1. Estimated Effect of Part B Drug Payment Model Changes in This 
Proposed Rule
a. Limitations of Our Analysis
    The distributional impacts presented here are the projected effects 
of phase I of the proposed Part B Drug Payment Model implementing 
alternative ASP

[[Page 13254]]

add-on amounts to drug payment by various hospital categories and 
physician specialties, where applicable. We estimate the effects of the 
policy changes by categorizing drug payment and other factors from the 
provider and supplier claims into the appropriate categories and then 
recalculating payment based on the characteristics of proposed pricing 
under the Part B Drug Payment Model. In developing the budget neutral 
Part B Drug Payment Model and the corresponding impact tables, we use 
the best data available, but do not attempt to predict behavioral 
responses to our policy changes. In addition, we have not made 
adjustments for future changes in variables such as service volume, 
service-mix, or number of encounters. The impact tables included in 
this proposed rule display the estimated effects if the Part B Drug 
Payment Model were to apply to all providers. Since we propose to 
randomly assign PCSAs to one of three model test arms or a control 
group, we believe that including all providers is a fair representation 
of the impact. We also note that we included all providers and 
suppliers in our calculation of the proposed flat fee amount. In this 
proposed rule, we are soliciting public comment and information about 
the anticipated effects of our proposed changes on providers and 
suppliers and the methodologies used to develop the Part B Drug Payment 
Model. Any public comments that we receive will be addressed in the 
applicable section(s) of the final rule with comment period.
    For phase II of this model we do not present distributional 
impacts. This phase of the proposed model is not budget neutral, and as 
discussed in section II.B.1., evidence generally suggests that 
utilizing approaches employed by commercial and Part D plans to contain 
drug costs and improve value should lead to savings in Part B drug 
spending. However, the proposed rule invites extensive comment on which 
VBP tools are appropriately applied to the Part B and hospital 
outpatient drug benefit. We cannot yet quantify the overall impact of 
VBP. We invite comment on the extent of savings that might be achieved 
based on commenter experience, and we anticipate being able to better 
estimate the probability and magnitude of savings from those comments.
b. Estimated Effects of Phase I
i. Estimated Effects of Phase I: Changes to ASP Add-on Amount on 
Physicians, Practitioners, and other Suppliers
    Table 2 shows the estimated impact of this proposed rule on 
physicians, practitioners, and other suppliers. Table 2 does not show 
specialties with less than $10 million in total drug spending and 
includes outpatient hospital spending as a specialty to demonstrate 
budget neutrality. Overall, Part B drug payment to practitioners, 
pharmacies, and hospitals by specialty in phase I of this proposed 
model will not change, as the ASP add-on revision is proposed to be 
budget neutral.
     Column 1: Physician Specialty Descriptor: Column 1 
displays the physician specialty categories in the Part B drug claims. 
We do not show specialties with aggregate drug spending less than $10 
million.
     Column 2: Total Medicare Payment for Specialty (in 
millions): Column 2 displays total Medicare payment (in millions) for 
physician/supplier specialties in the model, including both the 
Medicare program and beneficiary share, based on CY 2014 claims with 
proposed trims and exclusions as discussed in the proposed rule. These 
payment values are included to provide context for the Part B Drug 
Payment Model changes in the broader context of overall payment. The 
first line in Column 2 in Table 3 shows the total Medicare payment for 
all hospital and physician/supplier specialties (approximately $127 
billion). The second line in Column 2 shows the total Medicare payment 
for all hospitals. The third line in Column 2 shows the total Medicare 
payment for all specialties with drugs included in the proposed Part B 
drug payment model.
     Column 3: Total Medicare Payment-Physician Specialty 
Percent Change: Column 3 displays the estimated impact of the ASP+2.5 
percent and flat fee model within the context of overall Medicare 
payment to physician/supplier specialties. Under the proposed rule the 
estimated overall percent change for specialties ranges from -2.9 
percent to 3.2 percent.
     Column 4: Total Medicare Payment-Urban Area Percent 
Change: Column 4 displays the estimated impact of the ASP+2.5 percent 
and flat fee model within the context of overall Medicare payment to 
urban geographic areas. Under the proposed rule the estimated overall 
percent change for physician/supplier specialties ranges from -2.9 
percent to 3.4 percent.
     Column 5: Total Medicare Payment-Rural Area Percent 
Change: Column 5 displays the estimated impact of the ASP+2.5 percent 
and flat fee model within the context of overall Medicare payment in 
rural geographic areas. Under the proposed rule the estimated overall 
percent change for physician/supplier specialties in rural areas ranges 
from -2.4 percent to 2.6 percent.
     Column 6: Total Drug Payment at ASP+6 percent for 
Specialty (in millions): Column 6 displays total drug payment at the 
full ASP+6 percent based on CY 2014 claims, with proposed trims and 
exclusions as discussed in the proposed rule.
     Column 7: ASP+2.5 percent plus Flat Fee--Physician 
Specialty Percent Change in Drug Payment: Column 7 displays the 
estimated impact of the ASP+2.5 percent + flat fee model within the 
context of drug payment to physician/supplier specialties, from ASP+6 
percent to ASP+2.5 percent + flat fee. The proposed flat fee amount is 
calculated as $16.80, and applies per drug per day administered. Under 
the proposed rule, Part B drug payments to physician/supplier 
specialties are expected to decrease and increase in the range of -3.3 
to 50.2 percent. We note that the specialty impacts will vary based on 
the share that Part B drug payment represents as a portion of overall 
practice revenue for that category. We note that the proposed changes 
are budget neutral across Part B drug spending hospitals and physician 
offices.
     Column 8: ASP+2.5 percent + Flat Fee--Urban Area Percent 
Change in Drug Payment: Column 8 displays the estimated impact of the 
ASP+2.5 percent and flat fee model within the context of Medicare 
payment in urban geographic areas. Under the proposed rule the 
estimated overall percent change for Part B drug payments to physician/
supplier specialties in urban areas ranges from -3.3 percent to 50.2 
percent.
     Column 9: ASP+2.5 percent + Flat Fee--Rural Area Percent 
Change in Drug Payment: Column 9 displays the estimated impact of the 
ASP+2.5 percent + flat fee model within the context of Medicare payment 
in rural geographic areas. Under the proposed rule the estimated 
overall percent change for Part B drug payments to physician/supplier 
specialties in rural areas ranges from -3.2 percent to 82.1 percent.

[[Page 13255]]



                         Table 2--Impact of Part B Drug Payment Model on Hospitals, Practitioners, and Pharmacies by Specialty *
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Total Medicare payment                          Total drug payment
                                                             -------------------------------------------------------------------------------------------
                                                                                                             Total drug
                                                                 Total                                       payment at
      Rows             Specialty        Physician specialty     Medicare   Physician                           ASP+6     Physician
                                             descriptor       payment for  specialty   Urban %    Rural %   percent for  specialty   Urban %    Rural %
                                                               specialty    % change    change     change    specialty    % change    change     change
                                                                  (in                                           (in
                                                               millions)                                     millions)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1..............  All.................  Hospital OPPS and         $127,417        0.0        0.0        0.3      $20,391        0.0       -0.3        2.1
                                        MPFS.
2..............  Hospital............  Hospital.............       50,043       -0.3       -0.3       -0.3        7,209       -2.3       -2.3       -2.2
3..............  Total **............  All Specialties......       77,374        0.2        0.2        0.6       13,181        1.3        0.9        4.8
4..............  83..................  Hematology/Oncology..        5,150       -0.4       -0.5       -0.2        4,059       -0.6       -0.6       -0.2
5..............  18..................  Ophthalmology........        6,234       -0.6       -0.7       -0.4        2,387       -1.7       -1.7       -1.4
6..............  A5..................  Pharmacy.............        3,316        1.8        1.5        2.6        1,432        4.2        3.4        6.2
7..............  66..................  Rheumatology.........        1,699       -1.1       -1.1       -1.0        1,205       -1.5       -1.5       -1.5
8..............  90..................  Medical Oncology.....        1,499       -0.5       -0.5       -0.4        1,193       -0.7       -0.7       -0.5
9..............  87..................  Other................          486       -2.9       -2.9       -2.4          429       -3.3       -3.3       -3.2
10.............  11..................  Internal Medicine....        6,266        0.6        0.5        1.0          412        9.1        8.1       17.5
11.............  34..................  Urology..............        1,619        0.1        0.1        0.2          349        0.4        0.4        0.7
12.............  13..................  Neurology............        1,162       -0.3       -0.3       -0.1          231       -1.4       -1.4       -0.5
13.............  20..................  Orthopedic Surgery...        1,792        1.9        1.9        2.0          223       15.0       14.9       16.2
14.............  82..................  Hematology...........          206       -0.5       -0.5       -0.3          164       -0.6       -0.6       -0.4
15.............  50..................  Nurse Practitioner...        1,444        0.8        0.5        2.1          136        8.7        5.2       27.1
16.............  08..................  Family Practice......        4,825        1.1        0.9        1.6          119       43.6       38.2       62.1
17.............  06..................  Cardiovascular               3,850        0.3        0.3        0.2          113        9.3        9.3        8.6
                                        Disease (Cardiology).
18.............  97..................  Physician Assistant..          879        1.1        1.0        1.4           79       12.3       11.5       15.9
19.............  10..................  Gastroenterology.....          658       -0.2       -0.2        0.0           76       -1.5       -1.6       -0.5
20.............  44..................  Infectious Disease...          177        3.2        3.4       -0.2           71        8.1        8.3       -0.6
21.............  03..................  Allergy/Immunology...          270       -0.3       -0.3       -0.3           66       -1.4       -1.4       -1.3
22.............  25..................  Physical Medicine And          589        1.0        1.0        1.1           57       10.3       10.0       16.0
                                        Rehabilitation.
23.............  98..................  Gynecological/                  85        0.6        0.6        0.6           51        1.0        1.0        2.1
                                        Oncology.
24.............  39..................  Nephrology...........        1,357        0.2        0.2        0.1           50        4.7        4.9        3.3
25.............  07..................  Dermatology..........        3,036        0.0        0.0        0.1           30        4.5        4.4        4.7
26.............  29..................  Pulmonary Disease....          665        0.3        0.2        0.3           28        5.9        6.0        5.4
27.............  46..................  Endocrinology........          410        0.1        0.1        0.1           25        1.7        1.7        1.1
28.............  37..................  Pediatric Medicine...           58       -0.4       -0.6        1.5           21       -1.1       -1.5       81.0
29.............  92..................  Radiation Oncology...        1,489        0.0        0.0        0.0           18       -1.2       -1.3       -0.5
30.............  16..................  Obstetrics/Gynecology          419        0.3        0.3        0.3           17        6.4        6.8        4.5
31.............  09..................  Interventional Pain            390        2.0        2.0        1.8           16       46.9       45.2       82.1
                                        Management.
32.............  72..................  Pain Management......          253        1.7        1.7        1.5           13       33.7       32.6       58.9
33.............  05..................  Anesthesiology.......          343        1.7        1.7        1.6           12       50.2       50.2       47.4
34.............  01..................  General Practice.....          404        1.2        1.0        1.9           11       44.5       42.1       51.9
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Table does not display specialties with less than $10 million in total drug spending. Identification of geographic location was based on the
  performing NPI's ZIP code for the line item. We note that this represented approximately 0.2% of NPI's included in this table and an estimated $2.5
  million in total drug spending.
** This row includes all specialty information for drugs included in the proposed Part B drug payment model.

ii. Changes to ASP Add-On Amount on Hospitals
    Table 3 shows the estimated impact of this proposed rule on 
hospitals. The table includes cancer and children's hospitals, which 
are held harmless to their amount prior to the Balanced Budget Act of 
1997 (BBA) (Pub. L. 105-33). These providers are part of OPPS budget 
neutrality but would not be affected by the proposed Part B Drug 
Payment Model due to their hold harmless status. Overall, Part B drug 
payment to hospitals in the ASP+X phase of the Part B Drug Payment 
Model, phase 1, will decrease by an estimated 2.3 percent within the 
context of ASP based drug payment, and by an estimated 0.3 percent in 
overall hospital spending.
    As discussed in section III.B. of this proposed rule, payment to 
hospitals for low cost drugs is included in the OPPS payment for 
primary services. We likely overestimate the cost of these drugs in our 
OPPS rate setting methodology due to our use of an average CCR in our 
cost estimation methodology. It is important to note that hospitals 
already receive robust payment for low cost drugs under a different 
payment methodology in light of the Table 3 conclusion demonstrating an 
overall -0.3 distribution away from hospitals.
     Column 1: Total Number of Hospitals: The first line in 
Column 1 in Table 3 shows the total number of hospitals in the Part B 
Drug Payment Model (3,204), including designated cancer and children's 
hospitals, for which we were able to use CY 2014 hospital outpatient 
claims data to extract actual CY 2014 ASP based drug payments. We 
excluded hospitals and entities that are not paid under the OPPS. The 
latter entities include CAHs, all-inclusive hospitals, and hospitals 
located in Guam, the U.S. Virgin Islands, Northern Mariana Islands, 
American Samoa, and the State of Maryland. At this time, we are unable 
to calculate a disproportionate share hospital (DSH) variable for 
hospitals that are not also paid under the IPPS, since DSH payments are 
only made to hospitals paid under the IPPS. Hospitals for which we do 
not have a DSH variable are grouped separately and generally include 
freestanding psychiatric hospitals, rehabilitation hospitals, and long-
term care hospitals. We included cancer and children's hospitals 
because they are considered in OPPS budget neutrality. However, section 
1833(t)(7)(D) of the Act permanently holds harmless cancer hospitals 
and children's hospitals to their ``pre-BBA amount'' as specified under 
the terms of the statute, and therefore, they would not be affected by 
these proposed models.
     Column 2: Total Drug Payment at ASP+6 percent (in 
millions): Column 2 shows the total drug payment for separately payable 
drugs included in the model, calculated at the full ASP+6 percent for 
each category based on CY 2014 claims with trimming and

[[Page 13256]]

exclusions as discussed in the proposed rule.
     Column 3: Total Medicare Payment (in millions): Column 3 
displays Medicare payment for hospitals in the model, including both 
the Medicare program and beneficiary share, based on CY 2014 claims 
with proposed trims and exclusions. These payment numbers are included 
to provide context for the Part B Drug Payment Model changes in the 
broader context of overall payment to classes of hospitals.
     Column 4: ASP+2.5 percent + Flat Fee--Revised Payment (in 
millions): Column 4 displays total estimated revised payment under the 
ASP+2.5 percent and flat fee model. The proposed flat fee amount is 
calculated as $16.80, and applies per drug per day administered.
     Column 5: ASP+2.5 percent + Flat Fee--Percent Change: 
Column 5 column displays the estimated impact of the model within the 
context of drug payment, from ASP+6 percent to ASP+2.5 percent + flat 
fee of $16.80. Part B drug payments to hospitals based on the various 
categories are estimated to experience decreases in the range of -2.5 
to -2.0 percent, under this proposed ASP+2.5 percent + flat fee model. 
We note that the proposed changes are budget neutral across Part B drug 
spending hospitals and physician offices.
     Column 6: ASP+2.5 percent + Flat Fee--Estimated Percent 
Change in Overall Spending: Column 6 displays the estimated impact of 
the model within the context of overall Medicare payment to hospitals. 
Under the proposed rule the estimated overall percent change for 
overall Medicare payments to outpatient hospitals ranges from -0.9 
percent to -0.1 percent.

                                          Table 3--Outpatient Impact Analysis of the Part B Drug Payment Model
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                    ASP+2.5 percent + Flat Fee
                                                                            Total drug    Total medicare -----------------------------------------------
           Row                                               Number of      payment at      payment (in       Revised                        Estimated
                                                             hospitals    ASP+6  percent     millions)     payment  (in     % Change in      overall %
                                                                           (in millions)                     millions)     drug spending      change
                                                                     (1)             (2)             (3)             (4)             (5)             (6)
--------------------------------------------------------------------------------------------------------------------------------------------------------
1.......................  ALL PROVIDERS *...............           3,204          $7,209         $50,043          $7,044            -2.3            -0.3
2.......................  URBAN HOSPITALS...............           2,412           6,390          43,887           6,242            -2.3            -0.3
3.......................    LARGE URBAN (GT 1 MILL.)               1,324           3,564          23,730           3,481            -2.3            -0.4
4.......................    OTHER URBAN (LE 1 MILL.)               1,088           2,826          20,157           2,761            -2.3            -0.3
5.......................  RURAL HOSPITALS...............             792             819           6,156             801            -2.2            -0.3
6.......................    SOLE COMMUNITY                           371             491           3,310             480            -2.2            -0.3
7.......................    OTHER RURAL                              421             328           2,845             322            -2.1            -0.2
                          BEDS (URBAN)
8.......................    0-99 BEDS                                592             434           3,668             424            -2.3            -0.3
9.......................    100-199 BEDS                             737             915           8,078             894            -2.2            -0.3
10......................    200-299 BEDS                             450           1,066           8,248           1,042            -2.2            -0.3
11......................    300-499 BEDS                             416           1,716          12,002           1,677            -2.3            -0.3
12......................    500 + BEDS                               217           2,260          11,891           2,206            -2.4            -0.5
                          BEDS (RURAL)
13......................    0-49 BEDS                                289              98             906              96            -2.1            -0.2
14......................    50-100 BEDS                              305             285           2,196             279            -2.1            -0.3
15......................    101-149 BEDS                             111             157           1,180             153            -2.1            -0.3
16......................    150-199 BEDS                              48             111             879             109            -2.1            -0.3
17......................    200 + BEDS                                39             168             995             164            -2.3            -0.4
                          REGION (URBAN)
18......................    NEW ENGLAND                              131             542           3,362             529            -2.3            -0.4
19......................    MIDDLE ATLANTIC                          308             981           5,924             958            -2.4            -0.4
20......................    SOUTH ATLANTIC                           407           1,116           8,069           1,091            -2.3            -0.3
21......................    EAST NORTH CENT                          393           1,106           7,616           1,081            -2.3            -0.3
22......................    EAST SOUTH CENT                          147             456           2,739             446            -2.3            -0.4
23......................    WEST NORTH CENT                          165             541           3,471             529            -2.3            -0.4
24......................    WEST SOUTH CENT                          349             539           4,694             527            -2.3            -0.3
25......................    MOUNTAIN                                 158             356           2,466             347            -2.4            -0.3
26......................    PACIFIC                                  330             751           5,516             733            -2.3            -0.3
27......................    PUERTO RICO                               24               2              30               2            -2.5            -0.2
                          REGION (RURAL)
28......................    NEW ENGLAND                               21              75             401              74            -2.4            -0.4
29......................    MIDDLE ATLANTIC                           56              60             450              58            -2.2            -0.3
30......................    SOUTH ATLANTIC                           123             117             946             114            -2.1            -0.3
31......................    EAST NORTH CENT                          114             143           1,168             140            -2.1            -0.3
32......................    EAST SOUTH CENT                          149             121             959             118            -2.2            -0.3
33......................    WEST NORTH CENT                           95             145             897             142            -2.1            -0.3
34......................    WEST SOUTH CENT                          152              41             676              40            -2.0            -0.1
35......................    MOUNTAIN                                  58              70             366              68            -2.3            -0.4
36......................    PACIFIC                                   24              47             293              46            -2.3            -0.4
                          TEACHING STATUS
37......................    NON-TEACHING                           2,130           2,371          21,298           2,318            -2.2            -0.2
38......................    MINOR                                    712           2,162          15,739           2,112            -2.3            -0.3
39......................    MAJOR                                    362           2,677          13,006           2,613            -2.4            -0.5
                          DSH PATIENT PERCENT
40......................    0                                          9               3              33               3            -2.2            -0.2
41......................    GT 0-0.10                                283             347           3,326             340            -2.3            -0.2
42......................    0.10-0.16                                288             419           4,178             410            -2.2            -0.2

[[Page 13257]]

 
43......................    0.16-0.23                                639           1,063           9,929           1,039            -2.3            -0.2
44......................    0.23-0.35                              1,096           2,863          19,051           2,798            -2.3            -0.3
45......................    GE 0.35                                  774           2,055          12,308           2,007            -2.3            -0.4
46......................    DSH NOT AVAILABLE *                      115             459           1,218             448            -2.4            -0.9
                          TYPE OF OWNERSHIP
47......................    VOLUNTARY                              1,934           5,535          36,228           5,407            -2.3            -0.4
48......................    PROPRIETARY                              799             428           6,753             419            -2.1            -0.1
49......................    GOVERNMENT                               471           1,246           7,062           1,217            -2.3            -0.4
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Complete DSH numbers are not available for providers that are not paid under IPPS, including rehabilitation, psychiatric, and long-term care
  hospitals.

c. Estimated Effect of Part B Drug Payment Model Changes on 
Beneficiaries
    For phase I of this model, we estimate that the aggregate 
beneficiary share within the context of the model will remain unchanged 
as we are establishing the alternative ASP add-on amounts to be budget 
neutral. Coinsurance for most separately payable drugs is set at 20 
percent of the payment rates, while payment for new drugs would also be 
set at 20 percent of payment based on the OPPS and Part B drug 
coinsurance requirements. As noted above, we intend to achieve savings 
through anticipated behavioral response to price changes, although we 
cannot quantify the amount. To the extent that prescribing patterns do 
shift toward lower cost drugs under phase I, in aggregate, 
beneficiaries would benefit along with the Medicare program. We note 
that individual beneficiaries may see increases or decreases in their 
cost-sharing responsibility consistent with any redistribution in 
payment.
    For phase II of this model, commercial experience suggests that 
some savings could be achieved, but we cannot anticipate the magnitude 
of changes in spending as already discussed. To the extent that savings 
ultimately are realized, both the beneficiary and Medicare program 
would benefit. Further, we have proposed in our value-based pricing 
discussion in section III.A. of this proposed rule, consistent with 
cost sharing approaches for Part B drugs, that beneficiary cost sharing 
will not exceed 20 percent of the total model-based payment amount for 
the Part B drug.
d. Alternative Part B Drug Payment Proposed Policies Considered
    Alternatives to the Part B Drug Payment Model changes that we are 
proposing and the reasons for our selected alternatives are discussed 
throughout this proposed rule. In this section, we discuss some of the 
significant issues and the alternatives considered.
    In the context of phase I, we considered several alternative 
structures for the ASP add-on amount. We first considered proposing a 
flat fee with no percent add-on. MedPAC discussed this alternative 
among several in their June 2015 report on Part B drug payment (MedPAC 
Report to the Congress: Medicare and the Health Care Delivery System 
June 2015, pages 65-72). Under such an approach, we would pay for an 
individual drug using baseline ASP amount and redistribute the entire 
+6 percent add-on amount in the form of a flat fee divided equally 
among doses of all drugs. This would shift an even greater portion of 
payments from the high cost drugs to the lower cost drugs even more 
aggressively than the proposed redistribution of ASP+2.5 percent plus a 
flat fee of $16.80. Like MedPAC, we believe that some amount of 
percentage add-on is required to address distribution channel costs 
associated with wholesalers and others between the manufacturer sales 
price and the physician purchase of a drug. Converting the ASP add-on 
payment to a complete flat fee might limit providers' ability to 
purchase expensive drugs as well as overly incentivize payment for the 
low cost drugs. We chose not to propose such a payment structure. We 
also have discussed additional tests of add-on modifications in section 
III.A.3 of this proposed rule. However, we believe that these 
approaches are not sufficiently different from the proposed approach to 
warrant proposal. We also were concerned that additional arms in the 
model could reduce statistical power. We invited comments on the 
decision to test one approach, ASP+2.5 percent + flat fee of $16.80.
    Regarding the proposed Part B VBP model and its component tools, an 
alternative that we had considered was establishing episode of care 
based payments, potentially focused on specific drug treatments. There 
are a variety of ways to remove financial incentives from the 
prescribing decision. Clearly embedding decisions about prescribing 
within a model that pays for care management or rewards changes in 
total cost of care could create incentives for better quality and lower 
cost care. We are testing such an approach under the OCM, which we 
discuss in greater detail under section III. E. of this proposed rule. 
We chose not to explore an episode of care approach under this proposed 
Part B Drug Payment Model because of our immediate interest in 
addressing current incentives in Part B payment for the full range of 
Part B drugs. Rather than proposing an episode of care based payment 
built upon drug treatments, we are soliciting comments on an episode 
approach in section III.D. of this proposed rule for future 
consideration. We also plan to monitor experiences under the OCM 
closely to identify other opportunities for similar models that include 
drug therapies.
e. Accounting Statements and Table
    As required by OMB Circular A-4 (available on the Office of 
Management and Budget Web site at http://www.whitehouse.gov/sites/default/files/omb/assets/regulatory_matters_pdf/a-4.pdf), we have 
prepared an accounting statement to illustrate the estimated impact of 
this proposed rule. The accounting statement, Table 4, illustrates the 
classification of expenditures for providers and

[[Page 13258]]

suppliers paid under the OPPS or MPFS, based on the estimated impacts 
in this proposed rule. Table 4 classifies most estimated impacts as 
transfers.

 Table 4--Accounting Statement: CY 2016 Estimated Hospital OPPS and MPFS
         Transfers as a Result of Changes in This Proposed Rule
------------------------------------------------------------------------
                Category                            Transfers
------------------------------------------------------------------------
Annualized Monetized Transfers.........  $0 million.
From Whom to Whom......................  Federal Government to
                                          outpatient providers,
                                          physicians, other
                                          practitioners and providers
                                          and suppliers who receive OPPS
                                          or MPFS payment.
    Total..............................  $0 million.
------------------------------------------------------------------------

E. Regulatory Flexibility Act (RFA) Analysis

    The RFA requires agencies to analyze options for regulatory relief 
of small entities, if a rule has a significant impact on a substantial 
number of small entities. For purposes of the RFA, most hospitals, 
practitioners, and most other providers and suppliers are small 
entities, either by nonprofit status or by having annual revenues that 
qualify for small business status under the Small Business 
Administration standards. For details, see the Small Business 
Administration's ``Table of Small Business Size Standards'' at http://www.sba.gov/content/table-smallbusiness-size-standards.
    In addition, section 1102(b) of the Act requires us to prepare a 
regulatory impact analysis if a rule may have a significant impact on 
the operations of a substantial number of small rural hospitals. This 
analysis must conform to the provisions of section 603 of the RFA. For 
purposes of section 1102(b) of the Act, we define a small rural 
hospital as a hospital that is located outside of a metropolitan 
statistical area and has 100 or fewer beds. We estimate that this 
proposed rule may have a significant impact on small rural hospitals 
selected for the model. Therefore, we have prepared a regulatory impact 
analysis that includes the effects of the proposed rule on small rural 
hospitals.

F. Unfunded Mandates Reform Act Analysis

    Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA) also 
requires that agencies assess anticipated costs and benefits before 
issuing any rule whose mandates require spending in any 1 year of $100 
million in 1995 dollars, updated annually for inflation. That threshold 
level is currently approximately $144 million. This proposed rule does 
not mandate any requirements for State, local, or tribal governments, 
or for the private sector.

G. Federalism Analysis

    Executive Order 13132 establishes certain requirements that an 
agency must meet when it issues a proposed rule (and subsequent final 
rule) that imposes substantial direct costs on State and local 
governments, preempts state law, or otherwise has Federalism 
implications. We have examined the OPPS and MPFS provisions in the Part 
B Drug Payment Model included in this proposed rule in accordance with 
Executive Order 13132, Federalism, and have determined that they will 
not have a substantial direct effect on state, local or tribal 
governments, preempt state law, or otherwise have a Federalism 
implication. As reflected in Table 3 of this proposed rule, we estimate 
that OPPS payments to governmental hospitals (including state and local 
governmental hospitals) would decrease payment by 0.4 percent under 
this proposed rule. While we do not know the number of physician 
offices with government ownership, we anticipate that it is small. The 
analyses we have provided in this section of this proposed rule, in 
conjunction with the remainder of this document, demonstrate that this 
proposed rule is consistent with the regulatory philosophy and 
principles identified in Executive Order 12866, the RFA, and section 
1102(b) of the Act.

H. Conclusion

    The changes we are proposing to make in this proposed rule will 
affect all categories of outpatient providers, physicians, 
practitioners, and other suppliers who furnish drugs that we are 
proposing to include in the Part B Drug Payment Model. We estimate that 
the effect of this proposal on physician specialties changes will vary, 
depending on what drugs they furnish and their clinical patterns. Table 
2 demonstrates the estimated impact of the proposal on physician and 
supplier specialties, which for most would result in changes in drug 
payments in the range of -3.3 to 50.2 percent and -2.9 to 3.2 percent 
for overall Medicare payments. We estimate that most classes of 
hospitals paid under the OPPS will experience a minimal decrease in 
overall payment related to the proposed Part B Drug Payment Model. 
Table 3 demonstrates the estimated impact of the proposal, which for 
most hospital categories would result in decreases in payments for 
separately paid drugs in the range of -2.5 to -2.0 percent and -0.9 to 
-0.1 percent for overall Medicare payments. The effect of this proposal 
on an individual hospital, physician, practitioner, or other supplier 
will depend on its individual practice patterns.

List of Subjects in 42 CFR Part 511

    Administrative practice and procedure, Health facilities, Medicare, 
Reporting and recordkeeping requirements.

    For the reasons set forth in the preamble, under the authority at 
section 1115A of the Social Security Act, the Centers for Medicare & 
Medicaid Services proposes to amend 42 CFR Chapter IV by adding Part 
511 to Subchapter H to read as follows:

PART 511--PART B DRUG PAYMENT MODEL

Sec.
Subpart A--General Provisions
511.1 Basis and scope.
511.2 Abbreviations and definitions.
Subpart B--Part B Drug Payment Model Participants
511.100 Included providers and suppliers.
511.105 Geographic areas.
Subpart C--Scope
511.200 Part B drugs and related fees included in the model.
511.205 Model structure and duration.
Subpart D--Pricing and Payment
511.300 Determination of model-based ASP payment (Phase I).
511.305 Determination of VBP tools (Phase II).
511.315 Pre-appeals Payment Exceptions Review Process.

[[Page 13259]]

Subpart E--Waivers
511.400 Waiver of certain ASP payment methodologies, requirements, 
and definitions for certain Medicare Part B drugs.
511.405 Waiver of other Part B drug payment methodologies.
511.410 Waiver of CAP.

    Authority:  Secs. 1102, 1115A, and 1871 of the Social Security 
Act (42 U.S.C. 1302, 1315(a), and 1395hh).

Subpart A--General Provisions


Sec.  511.1  Basis and scope.

    (a) Basis. This part implements the test of the Part B Drug Payment 
Model under section 1115A of the Act. Except as specifically noted in 
this part, the regulations under this part must not be construed to 
affect the payment, coverage, program integrity, and other requirements 
(such as those in parts 412 and 482 of this chapter) that apply to 
providers and suppliers under this chapter.
    (b) Scope. This part sets forth the following:
    (1) The participants in the model.
    (2) The drugs being tested in the model.
    (3) The methodologies for pricing and payment under the model.
    (4) Safeguards to ensure preservation of beneficiary choice and 
beneficiary notification.


Sec.  511.2  Abbreviations and definitions.

    For the purposes of this part, the following definitions are 
applicable:
    AMP stands for Average Manufacturer Price.
    ASP stands for Average Sales Price.
    ASP drug pricing files means the drug pricing files that contain 
the payment amounts that contractors use to pay for Part B covered 
drugs. They are updated quarterly and each year's files are available 
to the public through links at https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Part-B-Drugs/McrPartBDrugAvgSalesPrice/index.html.
    AWP stands for Average Wholesale Price.
    CAP stands for Competitive Acquisition Program.
    CCN stands for CMS certification number.
    DME stands for Durable Medical Equipment.
    FFS stands for fee for service.
    Hospital means a hospital as specified in section 1861(e) of the 
Act.
    MAC stands for Medicare Administrative Contractor.
    Maryland All-Payer Model means the CMS initiative to modernize 
Maryland's unique all-payer rate-setting system for hospital services 
that will improve patient health and reduce costs.
    NCD which stands for National Coverage Determination.
    NPI stands for National Provider Identifier.
    OIG stands for the Department of Health and Human Services', Office 
of the Inspector General.
    OPPS stands for Outpatient Prospective Payment System under section 
42 CFR part 419.
    OPD which means outpatient department.
    Participant means any provider or supplier operating in an 
identified geographic area.
    PBM stands for pharmacy benefit manager.
    PBPM stands for per-beneficiary-per-month.
    PCSA stands for primary care service area as defined and updated 
under contract to the Health Resources and Services Administration 
(HRSA) by the Dartmouth Institute.
    Provider has the same meaning as a ``provider of services'' under 
section 1861(u) of the Act and includes a hospital, critical access 
hospital, skilled nursing facility, comprehensive outpatient 
rehabilitation facility, home health agency, or hospice program.
    Supplier has the same meaning as defined in section 1861(e) of the 
Act and unless the context otherwise requires, a physician or other 
practitioner, a facility, or other entity (other than a provider of 
services) that furnishes items or services under this title.
    TIN stands for Taxpayer Identification Number.
    United States means the fifty states, the District of Columbia, the 
Commonwealth of Puerto Rico, the Virgin Islands, Guam, American Samoa, 
and the Northern Mariana Islands (42 CFR 400.200).
    VBP stands for value-based purchasing, which refers to a suite of 
tools emphasizing beneficiary outcomes, education and feedback, and 
price used to manage a prescription drug benefit.
    VBP contractor means the entity with which CMS will contract to 
assist in implementation of the tools included in phase II of the Part 
B Drug Payment Model
    WAC stands for wholesale acquisition cost.

Subpart B--Part B Drug Payment Model Program Participants


Sec.  511.100  Included providers and suppliers.

    General. This model requires mandatory participation for the 
providers and suppliers (including physicians) who furnish Part B drugs 
that are included in the model if the provider or supplier is located 
(or services are billed) in the geographic areas that are selected for 
inclusion in the model. This includes physicians, DME suppliers 
(including certain pharmacies that furnish Part B drugs), and hospital 
outpatient departments that furnish and bill for Part B drugs.


Sec.  511.105  Geographic areas.

    (a) General. The geographic areas for inclusion in the Part B Drug 
Payment Model are obtained through stratified random assignment of 
PCSAs to each model arm.
    (b) Exclusions. PCSAs with any ZIP code located in the state of 
Maryland are excluded from this model.

Subpart C--Scope


Sec.  511.200  Part B drugs and related fees included in the model.

    (a) General: The model includes separately paid drugs and 
biologicals under Medicare Part B including those with ASP and WAC 
based payment amounts, AMP-based substitutions of ASP payment amounts, 
and certain drug-related fees.
    (b) Drugs, biologicals, and fees subject to inclusion. (1) Single 
source drugs, biologicals, multiple source drugs, and biosimilars 
receiving distinct and separate payments in accordance with section 
1842(o) of the Act, including drugs and biologicals paid under sections 
1847A, 1847B or 1833(t) of the Act,.
    (2) Specified fees paid in accordance with section 1842(o) of the 
Act, including those paid for immunosuppressive drugs, inhalation drugs 
and clotting factors under sections 1842(o)(6), 1842(o)(2), 1842(o)(5) 
of the Act.
    (c) Drugs and biologicals subject to exclusion. (1) MAC/Contractor 
priced drugs and biologicals that do not appear on the quarterly 
national ASP Drug Pricing Files.
    (2) ESRD drugs paid under the authority in section 1881 of the Act.
    (3) Influenza, pneumococcal pneumonia and Hepatitis B vaccines paid 
under the benefit described in section 1862(s)(10) of the Act.
    (4) OPPS drugs that receive packaged payment.
    (5) Blood and blood products.


Sec.  511.205  Model structure and duration.

    (a) General. There will be 3 different arms and one control in this 
model.
    (b) Random assignment. Geographic areas are randomly assigned 
within six strata to one of three model arms or control.

[[Page 13260]]

    (c) Model arms defined. The model arms contain the following ASP 
payment for separately paid drugs under the Part B benefit or hospital 
outpatient prospective payment system and application of a suite of 
value-based purchasing tools.
    (1) ASP+6 percent [control].
    (2) ASP+2.5 percent plus a flat fee.
    (3) Value-based purchasing.
    (4) ASP+2.5 plus a flat fee and value-based purchasing.
    (d) Duration and phased in implementation. (1) The duration of the 
model is 5 years from implementation. Implementation will be on or 
after August 1, 2016.
    (2) ASP add-on will be tested in phases I and II and will be 
implemented no sooner than 60 days after the rule is finalized. VBP 
arms are tested in conjunction with ASP add-on in phase II. Phase II 
will be implemented on or after January 1, 2017.
    (e) Use of contractor. One or more contractors will be utilized to 
implement CMS approved VBP tools described in Sec.  511.305(b).

Subpart D--Pricing and payment


Sec.  511.300  Determination of model-based ASP payment (Phase I).

    (a) General. The ASP portion of the model encompasses testing of 
modifications to the 6 percent add-on for Part B drug payments. ASP 
model based payment rates are determined based upon values published in 
the quarterly ASP Drug Pricing Files per Sec.  414.904 of this chapter, 
except the 6 percent add-on is replaced with a fixed percentage of 2.5 
percent and a flat fee. The add-on is based on the total add-on payment 
for all Part B drugs that are included in the model for the most 
recently available complete set of Part B calendar year claims. For 
2016, alternative ASP pricing add-on under phase I of the model will be 
equal to aggregate add-on spending in a model CY 2014 claims data set.
    (b) Payment updates. (1) The flat fee will be updated every 
calendar year based on the percentage increase in the consumer price 
index for medical care.
    (2) The ASP+0 portion of the model payment rates are updated 
quarterly concurrently with determinations made under Sec.  414.904 of 
this chapter.
    (c) Special circumstances--(1) Shortages. For drugs that are 
reported by the FDA to be in short supply at the time that ASP payment 
amounts are being finalized for the next quarter, payments are made 
using the amount determined under section 1847A of the Act.
    (2) AMP-based price substitutions: For HCPCS codes with AMP-based 
substitutions determined under Sec.  414.904(d)(3) of this chapter, the 
lower of the quarter's AMP-based substitution or the model ASP amount 
as determined under Sec.  511.300 will be used.


Sec.  511.305  Determination of VBP tools (phase II).

    (a) General. The model includes a VBP program which uses the tools 
approved for applicable Part B drugs as noted in paragraph (b) of this 
section.
    (b) Approved tools. The following tools will be available to 
implement VBP:
    (1) Value-based pricing strategies. Value-based pricing strategies 
include:
    (i) Reference pricing. Reference pricing sets a benchmark rate 
based on the current payment rate for a drug or drugs in a class that 
may be used as the basis of payment for all other therapeutically 
similar drug products in a group. Medicare providers and suppliers may 
not bill the beneficiary for any difference in pricing between the 
benchmark rate and the statutory payment rate or the provider or 
supplier's charge for the drug prescribed.
    (ii) Indications-based pricing. A drug's price may be adjusted 
based on the product's safety and cost-effectiveness for a specific 
indication as evidenced by published studies and reviews or evidence-
based clinical practice guidelines that are competent and reliable.
    (iii) Outcomes-based risk-sharing agreements. CMS may enter into 
outcomes-based risk-sharing contracts with pharmaceutical manufacturers 
to link price adjustments for a drug or drugs to clearly defined 
patient health outcome goals. CMS may base these goals on outcome 
measures submitted as part of a package of competent and reliable 
scientific evidence regarding the clinical value of a drug by the 
manufacturer.
    (iv) Discounting or eliminating patient coinsurance amounts. 
Beneficiary cost-sharing may be reduced for Part B drugs deemed to be 
high in value. Any reductions in beneficiary cost-sharing may not 
change the overall payment amount.
    (2) Clinical decision support. Clinical decision support policies 
are developed based on one or more of the following: competent and 
reliable scientific evidence, clinical guidelines, and Part B claims 
data.
    (c) Beneficiary cost-sharing. Beneficiary cost-sharing must not 
exceed 20 percent of the total model-based payment amount for the 
applicable Part B drug.
    (d) Public feedback. CMS will solicit public input for 30 days on 
the specific application of a proposed VBP tool.
    (e) Public notification. CMS will notify the public by posting on 
the CMS Web site of application of any VBP tools 45 days before 
implementation.


Sec.  511.315  Pre-appeals Payment Exceptions Review Process.

    (a) General. This process precedes the current appeals process in 
42 CFR part 405 subpart I, and allows providers, suppliers, and 
beneficiaries the option to dispute pricing decisions, made under Sec.  
511.305 (phase II of the model) before the claim is submitted.
    (b) Payment Exceptions Review Process. This process will be 
conducted by the VBP contractor. A provider, supplier, or beneficiary 
may file a payment exception request regarding a pricing policy for a 
drug furnished to a beneficiary.
    (c) Requirements of the Payment Exceptions Review Process. The 
provider, supplier, or beneficiary may submit pertinent information to 
the VBP contractor with the exceptions request to explain why a payment 
exception is appropriate, given the beneficiary's circumstances.
    (d) Rendering a decision. A decision regarding a request for a 
payment exception shall be issued by the VBP contractor within 5 
business days of receipt of the request.
    (e) Current appeals process. The provider, supplier, or beneficiary 
retain their right to utilize the current appeals process, regardless 
of whether they first utilize the Pre-Appeals process, once they have 
submitted a claim.

Subpart E--Waivers


Sec.  511.400  Waiver of certain ASP payment methodologies, 
requirements, and definitions for certain Medicare Part B drugs.

    (a) Waiver of 6 percent add-on percentage for certain Medicare Part 
B drugs. We waive portions of section 1847A (b) (1) of the Act which 
specify the 6 percent add-on percentage for payments determined under 
section 1847A of the Act.
    (b) Waiver of how the volume-weighted ASP is to be used in the 
calculation of average sales price. We waive portions of section 
1847A(b)(6) of the Act, which specifies how the volume-weighted average 
sales price is to be used in the calculation of ASP.
    (c) Waiver of definitions of single source drug or biological, 
multiple source drug and biosimilar. We waive definitions of single 
source drug or biological, multiple source drug and

[[Page 13261]]

biosimilar in section 1847A (c) of the Act
    (d) Waiver of the NDC assignment requirement. We waive provisions 
in section 1847A(b) of the Act that require the assignment of NDCs to 
HCPCS codes based on whether a drug meets the definition of single 
source drug, multiple source drug, biological or biosimilar and to base 
the determination of the ASP (that is, the ASP+0 percent) on the NDCs 
from this assignment.
    (e) Waiver of OPPS requirement to pay for drugs acquisition cost 
plus an overhead adjustment or by default, to ASP+6 percent. We waive 
section 1833 (t)(14) of the Act which specifies that the Outpatient 
Prospective Payment System pays for certain outpatient drugs at 
acquisition cost plus an adjustment for overhead and handling, or by 
default, to ASP+6 percent.
    (f) Waiver of OPPS pass through payment for outpatient drugs. We 
waive section 1833(t)(6) of the Act, which requires the Secretary to 
furnish additional pass through payments for certain drugs that are 
covered under the OPD service (group of services).


Sec.  511.405  Waiver of other Part B drug payment methodologies.

    (a) Waiver of specified payment methodology for certain infusion 
drugs. We propose to waive section 1842 (o)(1)(D) of the Act, which 
requires that infusion drugs furnished through an item of DME be paid 
at 95 percent of the AWP in effect on October 1, 2003.
    (b) Waiver of specified fees for immunosuppressive drugs, 
inhalation drugs and clotting factors. We waive sections 1842(o)(6), 
1842(o)(2), 1842(o)(5) of the Act that state the immunosuppressive drug 
supplying fees, inhalation drug dispensing fees and the clotting factor 
furnishing fees.


Sec.  511.410  Waiver of CAP.

    We waive section 1847B of the Act and portions of Sec. Sec.  
414.906 through 414.920 of this chapter which implement the Part B drug 
competitive acquisition program (CAP).

    Dated: February 24, 2016.
Andrew M. Slavitt,
Acting Administrator, Centers for Medicare & Medicaid Services.
    Dated: February 26, 2016.

Sylvia M. Burwell,
Secretary, Department of Health and Human Services.
[FR Doc. 2016-05459 Filed 3-8-16; 4:15 pm]
 BILLING CODE P