ThermoDox Reimbursement Deep Dive (Part 1)

As we await the results of the HEAT trial interim analysis, I thought it might be a good idea to shed light on an area often characterized by significant misunderstanding and confusion pertaining to biologics and pharmaceuticals: pricing and reimbursement (P&R). Admittedly, this is an inherently confusing area, and one undergoing significant changes currently, as the Patient Protection and Affordable Care Act (PPACA) contains several provisions directly (e.g. increased mandatory Medicaid rebates) and indirectly (e.g. bundled payment pilots, creation of CMS independent payment advisory board) impacting drug P&R. I would be lying if I said the timing of this multi-part article is a mere coincidence to the recent Dendreon (DNDN) news, in which, among other things, poor reimbursement was blamed by management for the lackluster sales of Provenge. I'm glad to report that in the case of Thermodox, reimbursement should be a lot more straight-forward, although, as I will point out, there are some potentially significant risks Celsion should be aware of as it develops and refines its global pricing and reimbursement strategy.

Make no mistake, all pharma/biotech companies, not just Celsion, need to keep a very close pulse on the reimbursement environment surrounding their products. So integral is this function to the successful commercialization of new drugs that nearly all big drug companies have built, or are in the process of building, internal capabilities (e.g. functional areas such as "Managed Markets", "Global Pricing", etc.) to meet this emerging need.

I should point out a few assumptions/limitations of my article:

1. This article, of course, assumes a successful HEAT trial outcome, which remains yet to be seen.
2. The focus of this article will be for the US, despite the fact that for HCC at least, most Thermodox revenue will come from Ex-US markets, Asia in particular. The reimbursement system is significantly different in the EU (country by country variations make it far from homogenous) and Asia (still evolving in China)
3. Within the US, I will focus on Medicare, despite the fact that private payers will probably also account for a good chunk of patients given the epidemiology of HCC. I would argue, however, that private payers often do adopt Medicare reimbursement guidelines in many instances.

With that said, let's review the reimbursement environment surrounding Thermodox.

It's absolutely fundamental to understand a few important concepts. Drug prices are not regulated in the US (unlike many other developed countries), and thus, manufacturers are free to price drugs as they see fit (some government payers such as Medicaid and the VA are eligible for mandatory discounts, but companies can still price freely). This should not be confused with reimbursement, which is what providers (i.e. physicians, hospitals) are paid by 3rd party payers. There can be, and often is, a significant disconnect between a drugs price and its accompanying reimbursement from a particular payer. Thus, reimbursement can be viewed as a de facto limiter of drug pricing in the US. Second, the site or setting of care is often a critical determinant of how a drug will be reimbursed. In the case of Thermodox, one can think of this in terms of when the drug would be used as part of percutaneous/laparoscopic vs. open-surgical RFA, with the former likely to be done in an outpatient setting, while the latter would most likely be done within the inpatient setting. There are big differences in terms of how Thermodox gets "paid for" in these settings. And lastly, drugs are typically covered by payers under either a patient's medical benefit (typically, physician-administered agents, and this broad bucket includes physician services and hospital care) or the pharmacy benefit (typically orals or self-administered injectables). In all likelihood, Thermodox would be a medical benefit product, just as Doxil is today as well.

Below are some key definitions, along with a fair amount of added color/context for these terms. Several articles I posted under the Payer/Reimbursement-Related  header contain excellent primers to give you an even more in-depth look at these terms and P&R in general, so by no means is this an exhaustive list of relevant terms:

• Wholesale Acquisition Cost (WAC) - This is essentially the manufacturer's sticker or list price, if you will, and is publicly available from vendors such as PriceRx and Medispan.
• Average Wholesale Price (AWP) - Many consultants and industry folks call this "Ain't What's Paid", and I would agree that AWP has completely lost its value as a reimbursement benchmark. This is not an average of anything nor does it reflect actual transaction prices as ASP does (see below). Instead, publishing houses often arbitrarily apply a 20% or 25% mark-up over WAC to arrive at AWP. AWP is still being used by some payers and state Medicaid agencies, but a recent court ruling has put the nail in its coffin and it should be phased out by the end of 2012.   
• Average Sales Price (ASP) - A reimbursement benchmark for Medicare Part B drugs (medical benefit drugs, not to be confused with Medicare's Part D program for pharmacy benefit drugs) that became effective January 2005 as a result of the Medicare Modernization Act (MMA) of 2003. ASP replaced the above-discussed AWP as a reimbursement benchmark under Part B (this is a good example of how private payers copy Medicare, as many have since adopted ASP as well). ASP is based on manufacturer reported actual selling price and units sold data and takes into account most rebates, volume discounts and other price concessions. In contrast to AWP-based reimbursement under Medicare, ASP-based reimbursement has resulted in lower reimbursement to providers (more a function of AWP not reflecting actual drug prices at all), especially to providers who are unable to obtain the volume discounts and recessions built into the ASP calculation. It is updated on a quarterly basis and available to the public via the CMS website. https://www.cms.gov/McrPartBDrugAvgSalesPrice/
• Medicare Part A - Hospital insurance that covers the cost of care in hospitals, skilled nursing facilities, hospice and home health care. Most people do not have premiums for Part A, but patients are subject to annual deductibles and cost-sharing beyond 60 days of hospitalization.
• Medicare Part B - Covers medical services including physician services (including physician administered drugs) and outpatient care.  Under Part B, there is a monthly premium, annual deductible, and 20% coinsurance for all services rendered. However, supplemental insurance often insulates individuals from most cost-sharing under Part B.
• Medicare Severity Diagnosis-Related Group (MS-DRG) - In laymen's terms, this is a flat payment made by Medicare under the Inpatient Prospective Payment System (IPPS) to hospitals for all care related to a particular hospitalization. ICD-9-CM diagnosis and procedure codes determine which MS-DRG will apply, of which there ~750. There can only be one MS-DRG per hospitalization, and the cost of all drugs are included in this payment. So, if the cost of a drug used in the hospital is very high relative to the overall expected DRG, hospitals are going to be much less inclined to use the drug.  
• Ambulatory Payment Classification (APC) - Again, in simple terms, similar to the DRG system, this is Medicare's outpatient equivalent used as part of the Outpatient Prospective Payment System (OPPS). However, Healthcare Common Procedure Coding System (HCPCS) level 1 and 2 codes determine the particular APC that would apply (Level 1 HCPCS = CPT codes, Level 2 HCPCS = J, C, and other codes). Note, there can be multiple APCs per outpatient encounter, and many APCs are specific to particular drugs, known as separately covered outpatient drugs (SCODs). CMS pays for drugs separately in this setting if their daily cost exceeds a threshold of $70, otherwise, they are bundled into their related APC. It is very likely that Thermodox will be separately reimbursed under the OPPS.

From that starting point, refer to the tables below (click table to enlarge) for an overview of Thermodox reimbursement across three distinct sites of care, primarily from the vantage point of the pre-health care reform bill era. Note that reimbursement is very similar in the physician office and hospital outpatient settings. Given its close relationship to Thermodox, I included actual Doxil examples for illustrative purposes only, as well as examples pertinent to radiofrequency ablation (RFA) of the liver.

Table 1 - Hospital Inpatient

Table 2 - Physician Office

Table 3 - Hospital Outpatient

Hopefully, having read the definitions above and my descriptions, the tables above make some sense at least. I have simplified it in many ways, for example, C codes are also used in the hospital outpatient setting for drugs, which I did not mention. In general, notice that I make a fundamental distinction between physician services/hospital payment and drug payments. Given that Thermodox will likely be used primarily in the outpatient setting, reimbursement for the drug will be separate and based on the ASP + benchmark. It will be absolutely critical for Celsion to not only understand how Thermodox would be reimbursed, but to also understand the prevailing reimbursement dynamics surrounding RFA in general. A quick glance at the payment rates, for example, make it very clear that the cost of Thermodox might (yet to be determined by Celsion) exceed the reimbursement cost of an RFA procedure, and this has some variation by the site of care.

The Importance of Coding for Thermodox at Launch

Before moving on to opportunities and risks, I want to point out and clarify a critically important topic as it relates to coding, or lack thereof at launch. The tables above, and real-world J code examples for Doxil (i.e. J9001), for example, reflect a "steady state" situation long after the launch of the product. Similarly, Thermodox will likely NOT have a definitive J code at the outset, but this is not the end of the world.

Until a permanent code is issued, which can take up to one year (perhaps longer), new drugs and biologics must be coded using miscellaneous codes within the physician and hospital outpatient setting (often using J or C codes). For example:

• J9999 is used for new chemotherapy agents in the physician office setting.
• C2399 is used for new chemotherapy agents in the hospital outpatient setting.

Because several drugs might be using these miscellaneous codes, by definition, local Medicare contractors will have to perform a manual billing process, and this will also require additional documentation on the CMS-1500 form (physician office) and UB-04 forms (hospital outpatient). Education by the manufacturer and CMS is required to ensure that these forms are completed appropriately, as incomplete forms are one of the most common reasons for drugs not getting appropriate reimbursement at launch. In terms of timing for payments to providers, Medicare contractors cannot pay electronic claims earlier than 14 days, but no later than 30 (without having to pay interest), and for manual claims, they usually take the full 30 days.

And finally, new drugs are paid differently during this interim period (So, forget about all that ASP + 5% or 6% stuff for the moment). Claims submitted for new drugs from the physician office setting will be paid at WAC + 6%, assuming a WAC has been published. In the outpatient setting, oddly enough, reimbursement is set at 95% of AWP, of course, assuming an AWP has been published as well. Thinking through these surrogate payment benchmarks, this makes sense, since the new product will not have been on the market long enough for CMS to calculate an ASP.

While I do think reimbursement should be relatively clear and easy to obtain for Thermodox, I do want to point out the following risks and opportunities that management should keep in mind:

Opportunities

1. Obtain pass-thru status for the hospital outpatient setting - Celsion will have to be proactive in seeking this status from CMS, although this is by no means a game-changer. Typically, the main criteria for new drugs seeking pass-thru stastus is that the cost of the drug "must not be insignificant in comparison" to the applicable payment rate. Keep in mind that pass-thru status is transitional and eventually is phased out after 2 or 3 years. On the inpatient side, there is an opportunity for hospitals to obtain "add-on" payments for very expensive drugs, but this is rarely done and I will not speak to it much further. 
2. Price Thermodox aggressively - To the extent that Thermodox is not used primarily for hospital inpatients, it is clear that providers have an incentive to often use higher cost drugs on the outpatient side in an ASP + environment (within limit, of course, ask Provenge providers), and absent any restrictions from Medicare, Celsion could price Thermodox relatively aggressively. Note earlier in the article I made a distinction between the pharmacy and medical benefit. Unlike the pharmacy benefit, in which payers can place products on tiers and introduce greater utilization management techniques in the wake of high drug prices, this generally does not occur on the medical benefit to the same degree. Coding differences and logistical challenges make this extremely challenging, and this is a topic outside the scope of this article. 
3. Ensure data is available to justify inevitable off-label decisions made by physicians - Most payers, including Medicare, use widely available compendia (such as by NCCN) to inform potential off-label reimbursement decisions. In fact, Medicare must do so by law, and many states have similar laws that apply to private payers. This will be critical in obtaining coverage for potential utilization of Thermodox outside of HCC, most notably, in  colorectal liver mets and potentially other secondary liver mets. 

Risks/Challenges

1. Assignment of Thermodox to the same J-code as Doxil (J9001) by CMS - This is probably the biggest risk to Thermodox from a pricing perspective, but one that is relatively unlikely. CMS typically does this with drugs considered to be interchangeable, typically, with generics. Recall ASP is a volume weighted average. If CMS assigns Thermodox to J9001, this means that reimbursement will be a blended average of the ASP of both those drugs. Since utilization of Thermodox is likely to be relatively low following launch and ramp up over time, initially, the ASP will be heavily dominated by lower Doxil prices. So, this means that if Celsion priced Thermodox at a 50%-100% premium to Doxil, nobody will stop their pricing, but providers will be taking a bit hit in reimbursement for using Thermodox. Here is where reimbursement becomes the "de facto" limiter of manufacturer pricing, and in such a scenario, Celsion would be forced to price Thermodox similarly to Doxil. While I am digressing a bit, this is precisely one of the biggest sources of contention for biosimilars in the US, and that is, will they receive their own unique J-codes, or be bundled in to their counterpart branded J-codes? Again, I see this as being highly unlikely for Celsion and Thermodox, but it is something to keep in mind. For those wondering, generic Adriamycin or non-liposomal doxorubicin, is billed under J9000, completely separate from Doxil. 
2. Thermodox' value proposition needs to be clearly defined - This goes without say, but Celsion needs to clearly articulate the value of Thermodox to payers in order to avoid potential restrictions. 
3. Local or National Coverage Decisions - In Medicare, reimbursement decisions are typically made by local carriers, fiscal intermediaries, and Medicare Administrative Contractors, or MACs. Ultimately, each contractor at the local level can develop a local coverage decision (LCD) to make payment criteria more stringent. In the case of Thermodox, this might certainly come into play with respect to off-label use in liver mets or recurrent chest wall breast cancer before getting an official label extension via registrational trials, though in oncology, few payers push back on off-label usage. While not done too often, coverage decisions can happen at the national level via a national coverage decision (NCD), at which point, all local carriers would have to follow the NCD. Not all NCDs or LCDs are "restrictive" per se, but again, this should be taken into account. 
4. Bundled oncology payments - This is a concept being piloted by CMS under the recent PPACA bill. Essentially, what such bundles would do is provide a single payment across Medicare Part A and Part B sites of care for an episode of care. So, in contrast to having separate payments in the inpatient setting and separate payments in the outpatient setting, this would create a lump sum that applies to both sites of care. Similar to the DRG system on the inpatient side, you could see how this once again creates a de facto barrier on potential drug pricing. 

Well, I hope you found this article useful. I am sure the reader by now will appreciate how complex drug pricing and reimbursement can be, especially when one considers that I only looked at one payer (albeit, a big one in Medicare) and one country. This will be the first article of a few more to come hopefully, and I am inclined to write one focusing specifically on the Asian markets (though I will have to do some more homework). By the way, many of the references I used for this article, are available on my blog under the reimbursement section.

Thanks again, feel free to leave me your comments or feedback.