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Aligning Payment And Prevention To Drive Antibiotic Innovation For Medicare Beneficiaries

Administrator Seema Verma

The Centers for Medicare & Medicaid Services (CMS) under the Trump Administration has been committed to unleashing medical innovation, with notable policy initiatives including a revolution in interoperability, the expedited approval of transformative new technologies, and the creation of new authority for payment for telehealth benefits for patients in traditional Medicare and Medicare Advantage. Antimicrobial resistance (AMR), which affects millions of Americans and results in thousands of deaths annually, is an ongoing public health crisis where CMS is leading the way to remove regulatory barriers and payment disincentives to innovation. In this post, I will outline the agency’s multi-pronged strategy for stimulating access to antibiotic innovation through the Fiscal Year (FY) 2020 Inpatient Prospective Payment System (IPPS) rule, including changes to the New Technology Add-On Payment and severity adjustments to ICD-10 codes for AMR. I will also discuss CMS’s interest in addressing AMR beyond payment reform, such as investments in public health infrastructure like stewardship programs.

AMR Is A Public Health Crisis

Financial incentives for prescribing antibiotics are misaligned under Medicare’s hospital payment system. Inpatient payments incentivize the use of older, cheaper antibiotics that may not be effective against drug-resistant infections. This, coupled with the comparatively lower revenue ceiling for antibiotics due to their low prescription volumes, has caused new antibiotics to become endangered innovations. The challenge of AMR is rapidly escalating, with Gram-negative bacteria such as Klebsiella pneumoniae and Acinetobacter baumannii now exhibiting resistance to traditionally last-resort antibiotics. Physicians who reach for another antimicrobial arrow are finding their quivers empty, with the exodus of large companies and the bankruptcy of small firms contributing to the diminishing pipeline of drug development candidates, of which only a small proportion are new molecular entities.

At the intersection of this crisis in both medicine and the market are the millions of Americans who annually acquire drug-resistant infections yet lack an effective antibiotic, resulting in thousands of deaths each year. Our internal analysis indicates that Medicare beneficiaries account for the majority of both new AMR cases and fatalities in America. This is due to the elderly’s unique vulnerability to drug-resistant infections (because of factors like age- and/or disease-related immunosuppression and greater pathogen exposure via catheter use). AMR results in hundreds of thousands of additional hospital days for Medicare beneficiaries, causing billions in unnecessary health care expenditures.

Policy Gaps And Regulatory Siloes

The challenges of AMR have festered over time due to scientific hurdles (e.g., transmissible resistance) and misaligned incentives (e.g., inpatient payment policies) that discourage the research and development necessary to discover new antibiotics. Policymakers have attempted to revitalize interest by unlocking federal funding support through the Biomedical Advanced Research and Development Authority (BARDA) and implementing regulatory reforms such as the Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD). While well-intentioned, such efforts appear to have been insufficient, as they focused exclusively on bolstering the development pipeline without removing the blockage created by issues with payment.

Consider the case of Achaogen, which recently filed for bankruptcy despite successfully developing ZEMDRI, an antibiotic approved by the Food and Drug Administration (FDA) that yielded hundreds of millions of dollars in federal development contracts and post-market incentive payments. The commercial failure of ZEMDRI highlights the insufficiency of existing payment systems and individual incentive programs to resolve the systemic challenges to addressing AMR. The market for antibiotic innovations paradoxically faces challenges with demand and predictability due to a potential misalignment in incentives between commercialization strategies and the inpatient payment system. Traditionally, an innovator’s return on investment is higher if its drug has a high prescription volume. However, antibiotics — especially new drugs developed for drug-resistant infections — are specifically meant as a “last resort” and have naturally lower prescription volumes due to smaller patient populations and shorter durations of therapy. Consequently, antibiotics struggle under the usual volume-based model, with far less revenue for peak sales as compared with drugs for other indications.

Antibiotics experience further pressure from the design of inpatient payment systems. Because inpatient payments bundle together the costs of all the services for a given diagnosis into what is known as a diagnosis-related group (DRG), hospitals may be incentivized to prescribe cheaper antibiotics. These are usually generic drugs that were not designed to address drug-resistant infections. This phenomenon further contracts the market available to new drugs.

Resolving this issue goes beyond payment policy, as inappropriate prescribing in the inpatient setting can result from a lack of adherence to hospital Antibiotic Stewardship Programs. These are a set of clinically developed guidelines that CMS supports and has implemented at other sites of care (for example nursing homes) to slow the rate of resistance. Studies suggest the elderly disproportionately receive more antibiotics than they need, contributing to resistance. Consequently, filling in the “missing market” of antibiotics for the public good requires policy action from CMS that recalibrates payment systems to account for the full value of these drugs while also scaling up hospital programs to prevent resistance.

Promoting Innovation With Payment Reforms And Exploring More Effective Stewardship

Payment policies are signals of value in health care. Medicare is the nation’s largest payer, and thus changes in its payment methodology represent a key regulatory lever for securing patients’ access to the latest antibiotics. The Inpatient Prospective Payment System (IPPS) Rule for FY 2020 provided a timely and targeted vehicle for restructuring payment for new antibiotics, given that the majority of these drugs are intended for inpatient administration due to the clinical complexities associated with treating drug-resistant patients. As part of its final policies to foster innovation more broadly for drugs and devices, CMS has taken specific policy steps to reform antibiotic payment, and the agency is investigating ways beyond the IPPS to improve stewardship of existing antibiotics. Specifically, the agency has finalized the following changes to foster antibiotic innovation and secure beneficiaries’ access to these medications:

  1. Develop an alternative pathway for New Technology Add-On Payments (NTAPs) without the “substantial clinical improvement” (SCI) criterion and increase the value of these payments from 50 percent to 75 percent for Qualified Infectious Disease Products (QIDPs)
  2. Adjust severity levels for AMR within clinically-relevant DRGs
  3. Explore policy changes in rulemaking beyond IPPS to scale hospital stewardship programs to enhance patient safety

Modernizing The NTAP Program For Unique Classes Of Innovation

Congress created the NTAP in 2000 as a time-limited enhanced payment for new drugs or devices. The intent of the program was to smooth market entry for new innovations while providing time for the relevant DRG to recalibrate to accommodate payment for new products. However, stakeholder feedback nearly two decades later suggests that implementation of the NTAP through rulemaking by CMS — both in terms of eligibility criteria and payment — is insufficient to support innovation for antibiotics.

First, antibiotic developers may face challenges meeting the agency’s SCI criteria despite receiving marketing authorization from the FDA. Many antibiotics struggle to demonstrate SCI at the time of FDA approval due to the traditional non-inferiority trial design for antibiotic drugs; this design can demonstrate that a new drug meets the clinical standard for efficacy but cannot necessarily demonstrate that the new innovation is superior to existing treatments because of the small size of the available patient population (a structural limitation which informed the creation of the LPAD for antibiotics as part of the 21st Century Cures Act). In other words, the limited patient populations for drug-resistant infections prevent innovators from achieving the necessary scale in their initial studies (which are still typically sufficient for FDA regulatory review) to demonstrate clinical significance for NTAP eligibility. Indeed, half of previous antibiotic applications for NTAPs have been rejected because of a failure to satisfy this specific criterion.

Second, the value of NTAPs might also be uniquely diminished for antibiotics. The payment level for the NTAP was originally set to 50 percent of either the cost of the new product or the difference between the DRG payment and the total covered cost of the case. However, this 50 percent threshold has appeared to be insufficient to incentivize hospitals to file for an NTAP payment for a new antibiotic due to the low prescription volume of drugs for resistant infections. This prevents the value of the incentive from accruing to the innovator; it also limits the use of new antibiotics and instead incentivizes the use of cheaper, generic antibiotics that may not have been designed for drug-resistant infections.

Consequently, CMS has finalized an alternative NTAP pathway that does not include the SCI criteria and increases the NTAP from 50 percent to 75 percent for new antibiotics that have been designated as QIDPs. QIDP is a designation for new antibacterial drugs that the FDA can grant to expedite the approval process for innovations targeting drug resistance. Targeting reimbursement reforms to QIDPs has the added benefit of providing developers with market predictability, as innovators can apply for QIDP status very early in the commercialization process and far in advance of CMS coverage determinations. Importantly, CMS’s decision to restrict the current highest NTAP threshold exclusively to QIDP drugs reflects the agency’s understanding of the public health imperative for novel antibiotics.

Collectively, these policy changes will reduce barriers to antibiotic innovation while increasing predictability and payment for novel drugs.

Modifying DRGs To Capture The Clinical Challenge Of AMR

Although modernizing the NTAP to better reflect the specific nuances of antibiotics is an important step forward, it is crucial to recognize that the NTAP is only a temporary measure. Therefore, further action was needed to realign financial incentives for antibiotics for the long-term. Because Medicare provides a single payment for all the services rendered under each DRG, physicians may be incentivized to prescribe antibiotics to patients in hospitals that may be less effective against drug-resistant infections. To this end, CMS is changing the severity level designation from non-CC to CC for multiple ICD-10 codes specifying AMR. The “CC” designation indicates the presence of a complication or comorbidity in a given inpatient case that requires the hospital to dedicate more resources for the care of that patient than typically needed for the specific diagnosis. 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.

Although the code changes above represent a starting point, we recognize that drug-resistant infections may arise across many diagnostic indications, ranging from the “usual suspects” (e.g., complicated urinary tract infections) to less common causes (e.g., as a surgical complication). Consequently, CMS will continue to explore whether additional reforms are needed to recalibrate DRGs to better account for the clinical complexity of drug resistance.

CMS requires further information before it can engage in broader changes to the severity levels of the DRGs. For example, the agency will need to consider whether current payments for new antibiotics for drug-resistant infections adequately capture the severity of these cases and the resources required to treat these infections. Consequently, as noted in the preamble to the FY 2020 IPPS final rule, CMS will be gathering additional public input on these issues more broadly and will welcome feedback specifically on policy reforms aimed at recalibrating severity levels for AMR within the DRG system. We look forward to thoughtfully engaging with external stakeholders and federal partners as part of the agency’s continued efforts to modernize Medicare’s payment systems.

Linking Payment And Prevention

While the proposed actions listed above are necessary to fill in the missing market for new antibiotics designed for resistant pathogens, CMS also recognizes the vital importance of going beyond payment reforms and investing in public health infrastructure to slow the development of resistance to existing drugs. One strategy recommended to the agency by stakeholders during the public comment period on the proposed FY 2020 IPPS rule was regulation for Antibiotic Stewardship Programs. Although stewardship lies outside of the scope of rulemaking for this year’s IPPS, the agency appreciates the feedback from the clinical community. CMS has long been supportive of efforts to address the public health challenge of AMR via clinical guidelines; we already require the implementation of Antibiotic Stewardship Programs at different sites of care (such as long-term care facilities).

CMS is currently reviewing approaches for implementing guidelines for hospital-based Antibiotic Stewardship Programs via the regulations that govern hospitals’ Conditions of Participation in Medicare. This would provide an avenue for the agency to build on the payment reforms implemented through IPPS, create consistency with parallel actions from our partners (e.g., the Joint Commission’s recently announced stewardship requirements for outpatient facilities), and significantly enhance the safety of Medicare beneficiaries during inpatient stays. The agency also recognizes — as highlighted by significant stakeholder feedback — that stewardship programs are necessary to reinforce the effectiveness of payment reforms;  stewardship should steer clinicians towards the appropriate use of new antibiotics, which may include antibiotics designated as QIDPs.

CMS’s Commitment To Addressing AMR

AMR is both a public health crisis and a national security imperative that demands systemic policy action. CMS is committed to ensuring that its policies support the pipeline of drug development and enable Medicare beneficiaries and all Americans to access life-saving medicines. The removal of disincentives for innovation in the final FY 2020 IPPS rule should pave the way from bench to bedside for new antibiotics, while the agency’s parallel action on stewardship and consideration of DRG redesign should lay the groundwork for future policy action.

It is evident from the distressing rise in AMR cases and deaths — especially among America’s vulnerable seniors — how drug resistance becomes inexorable without innovation. 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.

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