Hepatitis C Risk Adjuster Maintained for 2017 in Medicare Part D

Medicare Part D will continue to adjust payments to insurers in 2017 specifically to cover the cost expensive drugs used to treat chronic viral hepatitis C, according to the advance notice released by the Centers for Medicare and Medicaid Services (CMS) February 19, 2016.

The agency had considered applying a downward adjustment to the current coefficient for chronic hepatitis C in the Part D risk-adjustment model, known as the RxHCC model, for the upcoming payment year. However, after review of beneficiary diagnosis data from 2013 and prescription drug event (PDE) data from 2006 to 2015, Medicare concluded that “continued uncertainty regarding the pattern of chronic Hepatitis C among beneficiaries and current expenditures continue to reflect the influx of these [new] medications onto the market” and therefore insufficient data exist to lower the risk adjuster for hepatitis C in 2017.

Maintaining the current hepatitis C reimbursement policy in 2017 represents a short-term “win” for the brand biopharmaceutical industry, particularly in a political environment highly sensitized to drug pricing. Drug makers in effect will be able to continue demanding high prices for hepatitis C products next year, at least in the Part D market.

However, manufacturers of particularly high-cost drugs and biologics should be wary of CMS employing such a policy over the long term.  In effect, the policy allows Medicare to establish the reimbursement rate that it will pay to Part D insurers (i.e., the specific RxHCC coefficient set by CMS staff) for hepatitis C therapies in a payment year. In other words, CMS essentially is setting the maximum price it will pay to Part D insurers for a product through risk adjustment without officially “negotiating” a price with a drug manufacturer. As such, manufacturers of high-cost therapies should consider the hepatitis C precedent when developing and pricing their products for use in Part D.

CMS indicated it will continue to assess the pattern and diagnosis of chronic hepatitis C to make potential modifications to this policy in upcoming payment years.

The agency will accept comments on the advance notice through March 4, 2016, and will issue the final rate announcement April 4, 2016.

— Kara Cardinale, Kasper Cardinale Consulting, LLC, Washington, D.C.

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