Reimbursement Challenges with High-Cost Inpatient Drugs

Inpatient Carve-Outs

To address these challenges, some states have explored carving out payment for specific high-cost drugs from DRGs. There are eight states that currently carve out CAR-T and/or gene therapy products. This strategy involves separating the reimbursement for these drugs from the overall DRG payment, allowing hospitals to bill for the drug cost separately. By adjusting the original DRG to exclude the cost of the carved-out drug, hospitals receive two distinct payments: one for the drug cost and another for all other services covered by the adjusted DRG. This approach aims to balance the need for cost containment in Medicaid with the imperative to provide access to innovative and life-saving therapies, ensuring that hospitals are adequately reimbursed and that beneficiaries receive the treatments they need. 

Stakeholder Perspectives

Manufacturers

Pharmaceutical manufacturers face the challenge of securing market access for high-cost inpatient drugs.  A key concern is ensuring that reimbursement mechanisms, particularly those based on DRGs, adequately cover the cost of advanced inpatient therapies. Inadequate reimbursement can lead to reluctance among hospitals to provide these necessary treatments, thereby limiting patient access. Manufacturers should also be prepared to pay statutory Medicaid rebates where utilization is carved out of DRGs.

Manufacturers also face the complexities of navigating state-specific policies and the administrative burden associated with enrolling out-of-state Medicaid programs for Centers of Excellence (COEs). This process involves significant coordination and can impact the timely access of patients to these therapies.

Ensuring that their products meet the stringent prior authorization criteria set by states is another critical aspect for manufacturers. These criteria can sometimes be more restrictive than the drug’s labeled indications, posing additional hurdles for manufacturers seeking to bring their therapies to market.

Collaboration with COEs is essential for manufacturers to provide education and assistance to these centers, facilitating patient access to high-cost inpatient drug therapies.

Hospitals

Hospitals are at the forefront of delivering high-cost inpatient therapies. Hospitals are concerned with the adequacy of reimbursement for expensive therapies, such as cell and gene treatment, under the DRG system. DRG systems, designed to standardize hospital payment based on coverage costs, may not sufficiently cover the expenses of high-cost inpatient drugs, leading to potential financial losses for hospitals. This concern is exacerbated by many state Medicaid programs using outdated DRG groupers, which fail to account for new, costly therapies.

Furthermore, hospitals face administrative burdens in navigating multiple state policies and contracts. Cell and gene therapies are usually available only at limited COEs so many providers are dealing with out-of-state Medicaid programs. Efforts to streamline this process, such as pending federal legislation that allows providers in good standing in one state to automatically enroll in out-of-state Medicaid programs, could alleviate some of these challenges. 

State

For state Medicaid programs, implementing DRGs and deciding to carve out high-cost drugs involves a complex process. States must consider the cost of the drugs, the potential need for state plan amendments, and the number of patients requiring treatment. Additionally, states consider the presence of COEs within their borders and the potential influx of out-of-state patients seeking treatment.

The primary goal of inpatient drug carve-outs is to ensure hospitals receive adequate reimbursement for the use of high-cost therapies, enabling them to provide necessary care to Medicaid beneficiaries. Some states have implemented carve-out methodologies for specific high-cost drugs, such as CAR-T and gene therapies, to support innovation while ensuring access. A side benefit to the state is the potential for a rebate on the carved-out drug. If a drug is reimbursed through an individual claim, the state may invoice for the statutory Medicaid rebate. This is a common practice for drugs dispensed through the medical pathway. States employ an NDC crosswalk to convert medical claims to pharmacy claims that are then included in manufacturer rebate invoices.
 
States also need to manage the complexities of reimbursement policies across state lines, as Medicaid beneficiaries may have to seek treatment in different states since their state of residence does not offer the necessary medication. This requires coordination between Medicaid programs and adherence to the reimbursement policies of the patient’s state of residence.

Patient

Patients and caregivers face numerous challenges in accessing high-cost inpatient drug therapies. The journey from diagnosis to treatment involves consultations with healthcare providers, identifying appropriate COEs, and potentially enduring long hospital stays. A critical aspect of this journey is obtaining prior authorization, which requires coordination between different state Medicaid programs and healthcare providers. Delays in authorization and treatment can significantly impact patient outcomes.

Patients and caregivers must also navigate logistical challenges such as arranging travel and lodging for extended treatment period, and balancing work or school commitments. The financial burden of expenses that may not be covered by Medicaid adds to the challenges faced by patients.

Managed Care Organizations (MCOs)

MCOs play a crucial role in managing the delivery of healthcare services to Medicaid beneficiaries. One of their primary concerns is determining whether the expense of high-cost inpatient drug therapies is incorporated into the capitation rates paid by the state. If a state has implemented a carve-out for specific high-cost drugs, this can impact the reimbursement strategy for MCOs, as they need to develop their own policies for covering these treatments.

MCOs must also consider the coverage and medical policies of the state’s fee-for-service Medicaid program, as their own policies cannot be more restrictive. This requires careful analysis to ensure compliance and adequate coverage for beneficiaries.

Another challenge for MCOs is the potential for adverse selection, where one health plan may disproportionately attract patients requiring high-cost treatments. This can lead to financial imbalances and requires careful risk adjustment methods to account for the unpredictability of expenditures on rare disease populations.

In conclusion, as the number of FDA-approved high-cost products continues to grow, states are recognizing the need for alternative reimbursement methodologies, such as drug carve-outs, to ensure patient access and adequate provider reimbursement. However, funding limitations and the slow pace of government processes pose significant challenges. It is critical to reduce the time between diagnosis and treatment, as delays in authorization, payment agreement, and treatment coordination can significantly impact patient outcomes. It is necessary to have collaboration among various stakeholders, including policymakers, healthcare providers, and manufacturers, to address these challenges effectively and ensure timely access to life-saving treatments for Medicaid beneficiaries.

Sources

Baker, S. L., & Kronenfeld, J. J. (1990). Medicaid prospective payment: Case-mix increase. Medicare & Medicaid Research Review, 63-70.
Chilingerian, J. (2008). The Globalization of Managerial Innovation in Health Care. Cambridge: Cambridge University Press.