Medicare payment changes aim to boost antibiotic development

In an attempt to stimulate antibiotic development, the Centers for Medicare & Medicaid Services (CMS) is making changes to the way it reimburses hospitals for antibiotics and treatment of antimicrobial resistance (AMR).

In a blog post in the journal Health Affairs on Friday, CMS administrator Seema Verma, MPH, outlined the changes, which include modifications to the way Medicare pays hospitals for use of new antibiotics and for treating patients with antibiotic-resistant infections. The new Medicare payment policies are being made through the Fiscal Year (FY) 2020 Inpatient Prospective Payment System (IPPS) rule.

Varma said the intention is to remove regulatory barriers and modify a payment structure that undervalues antibiotics and disincentivizes antibiotic innovation. The hope is that increased reimbursement will help compensate for low sales volume of new antibiotics, one of the factors that have led many pharmaceutical companies to abandon antibiotic development.

"AMR is both a public health crisis and a national security imperative that demands systemic policy action," Verma wrote. "The agency’s realignment of inpatient payment incentives is intended to stabilize the antibiotic development pipeline in the short term and guarantee an arsenal of innovation to fight AMR in the long term."

Verma said the agency is also considering a rule that would require hospitals to have antibiotic stewardship programs.

Misaligned financial incentives

The Medicare payment reforms address what Verma calls the "misaligned" financial incentives for prescribing antibiotics that encourage the use of older, cheaper antibiotics over newer, more expensive antibiotics. This contributes, along with smaller patient populations and shorter treatment durations, to lower prescription volumes.

Under the New Technology Add-On Payment (NTAP) system, which was created by Congress in 2000, CMS temporarily boosts payments to hospitals for use of new drugs or devices to treat patients. The intention of NTAP was to "smooth market entry for new innovations," according to Verma.

But that hasn't worked for many new antibiotics, because they struggle to meet the agency's requirement that they demonstrate "substantial clinical improvement" (SCI), which requires new drugs or devices to be superior to existing treatments in order to qualify for the additional payment. Since many new antibiotics are approved by the Food and Drug Administration (FDA) on the basis of non-inferiority trials, it's difficult to clear that bar.

"Indeed, half of previous antibiotic applications for NTAPs have been rejected because of a failure to satisfy this specific criterion," Verma wrote.

In addition, the NTAP payment level was initially set to 50% of either the cost of the new product or the difference between the bundled payments that hospitals receive for a patient and the total cost of the case. But 50% has not been sufficient enough to incentivize hospitals to file for an NTAP payment for use of a new antibiotic, Verma explained.

To make NTAP more useful for new antibiotics, CMS has finalized an "alternative pathway" that does not include the SCI criteria and boosts the payment level from 50% to 75% for all new antibiotics that have been designated as Qualified Infectious Disease Products (QIDPs) by the FDA. QIDP products are eligible to be fast-tracked for FDA approval if they treat serious or life-threatening diseases and address unmet medical needs.

The other structural change involves how CMS reimburses for diagnosis-related groups (DRGs), a patient classification system that determines payment for all charges associated with an inpatient hospital stay. Since DRG payment is based on the care and resources used by a typical patient within the group, unusually high costs for a particular patient—one with a drug-resistant infection, for example—may not get fully reimbursed. Therefore, clinicians may choose to treat the patient with an older, cheaper antibiotic to keep costs down.

To rectify this, CMS is changing the severity level designation for 18 ICD-10 codes that specify a drug-resistant infection to "CC," which indicates the presence of a complication or comorbidity in a given inpatient that requires the hospital to dedicate more resources.

"Classifying drug resistance as a CC will increase payments to hospitals treating patients with AMR, thus creating the financial flexibility for physicians to prescribe the appropriate new antibiotics without imposing a new fiscal burden upon hospitals," Verma wrote, adding that CMS will continue to explore whether more DRG changes are needed to account for the clinical complexity of antibiotic resistance.

More incentives needed, along with stewardship

Since Medicare is the nation's largest payer and Medicare recipients account for the majority of new AMR cases, changes to its payment methodology are a "key regulatory lever" for securing patient access to the latest antibiotics, Verma said. Advocates pushing for antibiotic development incentives are encouraged by the changes.

"This is the most important pull incentive improvement by the USG for abx to date," CARB-X executive director Kevin Outterson, JD, said on Twitter.

Kathy Talkington, project director for the Pew Charitable Trusts' antibiotic resistance project, said the Medicare payment changes are an "important step" in changing how antibiotics are reimbursed and boosting antibiotic development efforts.

"It's a recognition that the current reimbursement system is inadequate for antibiotics, and it's an import pull incentive for the market," Talkington told CIDRAP News. But she and her colleague Wes Kim, PhD, added that more pull incentives will be needed beyond this move to encourage drug companies to stay in the antibiotic market.

Among the incentives that have been proposed are a $1 billion market entry reward, which would provide an up-front payment to companies that develop new, critically needed antibiotics. The idea behind the market entry reward is that it would guarantee companies a sufficient return on investment, even if clinicians keep the new drug in reserve to prevent development of antibiotic resistance and maintain its effectiveness.

 "A market entry reward will be needed to further drive innovation and replenish the pipeline of antibiotics," Kim said.

Verma also noted that CMS is currently reviewing a policy that would require all acute care hospitals that receive Medicare payments to have antibiotic stewardship and infection control programs. Pew and other antibiotic stewardship advocates have been pushing CMS to finalize that requirement under its updated Conditions of Participation, a set of regulations that hospitals must meet to receive Medicare payments.

David Hyun, MD, also of Pew Charitable Trusts, said an antibiotic stewardship component needs to be in place alongside reimbursement changes, to ensure that hospitals are using new antibiotics appropriately.

"It's very important to make sure that these new antibiotics are not being used unnecessarily, when there are equally effective and equally safe alternatives out there," Hyun said. "But stewardship programs also have a role in making sure when these new antibiotics are indeed the best drug for the patient."

See also:

Aug 2 Health Affairs blog post

Aug 2 CMS fact sheet

May 3 CIDRAP News story "Experts urge approval of hospital antibiotic stewardship requirement"