Welcome back to MMIT’s Market Access 101 blog series. Our first post, Understanding the Basics, covered the difference between the pharmacy and medical benefit structure, while our second, Improving Your Drug’s Formulary Placement, discussed how to overcome access barriers.
In this post, we’ll discuss what manufacturers should know about drugs covered under the medical benefit. We’ll cover pre-certification requirements, components of a medical policy, and distribution methods, and address the importance of aligning clinical pathways and policies to smooth patient access.
What’s different about the medical benefit?
While the pharmacy benefit covers mainly oral, self-administered drugs, the medical benefit covers medical care that a member receives either in the hospital, a doctor’s office, or a clinic. Theoretically, all drugs administered by a doctor or medical professional inside a medical facility should be covered via an insurer’s medical benefit.
In practice, however, many payers and PBMs decide that they would rather process drugs administered by a medical professional via the pharmacy benefit. This practice—processing procedure-related drugs separately from the cost of the procedure—makes it easier for payers to receive drug rebates. If a manufacturer has a rebate agreement with a payer, the payer may be able to pull medical benefit claims for the administration of a particular drug and submit them to the manufacturer for rebate. However, many payers find it easier to process claims for pharmacy benefit rebates, and so choose to separate member benefits at the health plan level.
For drugs that are covered under the medical benefit, there is no such thing as a formulary. Instead, coverage and reimbursement are determined by the payer or PBM’s medical policy and treatment pathways. As these drugs are typically given as part of a medical procedure, they are associated with CPT codes or J-codes (for services like surgeries and tests) as well as HCPCS billing codes (for medical devices and supplies).
What does a medical policy contain?
Most payers create a medical policy for each procedure, which details the services provided and specifies the various drugs that could potentially be administered during the procedure. A minority of payers—chiefly those affiliated with PBMs—prefer drug-specific rather than procedure-specific medical policies. In these cases, the policy centers on the drug, and includes a list of every procedure for which the drug can be used.
Each medical policy includes the treatment requirements to which a physician must adhere to be reimbursed for the procedure and/or the administration of a particular drug. Treatment requirements for a drug can vary based on the indication and the product’s clinical criteria. A medical policy can also cover multiple indications for a particular drug, even off-label indications that are not yet FDA-approved. All excluded therapies for a procedure may also be listed in the policy.
The inclusion of a drug on a payer or PBM’s medical policy does not mean that the drug has preferred status. If the policy states that the patient must first try and fail treatment with another drug, then the secondary drug can be considered non-preferred.
Unfortunately, many medical policies are written to be more restrictive than the product’s FDA-approved label, especially when the payer believes that access control is necessary. Manufacturers are beginning to contract with payers to ensure that their medical policies reflect the drug’s label specifications as closely as possible.
How do pre-certification requirements work?
For pharmacy benefit drugs, prior authorization is a common utilization management strategy employed to control access. Under the medical benefit, however, prior approval is referred to as pre-certification. When payers stipulate that a procedure must be pre-certified, the provider must confirm with the payer that the procedure, including the administration of any drugs specified in the medical policy, is appropriate and reimbursable for a particular patient.
Approximately 35% to 40% of medical procedures require pre-certification, which is much more expensive for payers to process than a prior authorization on the pharmacy benefit. As procedures are approved by the payer’s medical director or pharmacy director, processing a pre-certification typically costs more than twice as much as processing a prior authorization. For procedures that do not require pre-certification, physicians must be careful to follow billing requirements to the letter when they request reimbursement.
If an individual procedure or treatment must be pre-certified by the health plan, the medical policy will occasionally state that upfront. In most cases, however, the payer or PBM maintains a separate list of HCPCS codes for drugs and procedures that must be pre-certified. For this reason, it is critical that manufacturers track not only the medical policies associated with their medical benefit drug, but also all pre-certification requirements.
Why are clinical pathways important for medical benefit drugs?
To help reduce variations in care, many provider organizations (IDNs, community practices, health systems and cancer institutes) create clinical pathways for highly differentiated classes, as well as for areas in which treatment options are numerous and patients vary significantly from one another.
Historically, clinical pathways have been used predominantly in oncology, but many payers and IDNs are beginning to use them to manage additional therapeutic areas. While clinical pathways may be based on national guidelines for the treatment of a specific disease, they are much narrower in scope, accounting for the type, stage, and progression of the disease—as well as the cost, safety, and efficacy of treatment.
By identifying a typical patient scenario and determining an ideal clinical pathway, provider organizations attempt to guide physicians through an evidence-based diagnosis and treatment plan to optimize care: If a patient has these criteria and these comorbidities, this treatment path is optimal.
When a patient’s health plan doesn’t cover a drug indicated on a pathway, providers are in a conundrum. If they fail to prescribe the drug, they are both professionally and financially at risk; on the other hand, the patient faces enormous health risks if they cannot afford treatment. In these instances, manufacturers often end up using allocated funds from their patient assistance programs to supplement or pay the patient’s out-of-pocket expenses.
For that reason, it is critical for manufacturers to track discrepancies in medical policies and clinical pathways. In an ideal situation, both a payer’s medical policies and all applicable clinical pathways will be written to the drug’s label. With advance knowledge of misaligned policies and pathways, manufacturers can either persuade payers to change their policies or provider organizations to adjust their clinical pathways. A proactive clinical pathway strategy can insulate the manufacturer from using the funds intended for uninsured patients for insured patients without the necessary coverage.
How does distribution differ for the medical benefit?
The distribution of drugs covered under the medical benefit differs from pharmacy benefit drugs, which are all dispensed directly to the patient at the pharmacy. For most provider-administered drugs, a physician’s office, clinic, or IDN will maintain an on-site inventory of the drug. The drug is acquired in bulk quantities from the manufacturer’s contracted specialty pharmacy wholesaler, and then administered as needed when patients come in to receive care.
In this distribution method, known as buy-and-bill, providers incur a financial risk in storing the drug, but they often profit by marking up the cost of the therapy beyond the payer’s reimbursement. As providers become more integrated, payers are more likely to be forced to negotiate the reimbursement rate for a particular therapy with larger IDNs.
As a result, many payers are transitioning to white bagging and brown bagging for high-cost specialty drugs. With this distribution method, providers must submit an order for an individual patient’s therapy to the payer, who then distributes the drug directly to the provider organization. In this scenario, providers can request payer reimbursement only for the administration of the drug, and not for the therapy itself.
While many providers are not able or willing to maintain an extensive inventory of therapies necessary for buy-and-bill distribution, larger IDNs have invested significantly in their capacity to store and distribute specialty products. These integrated provider organizations are likely to chafe against payer mandates for a white bagging distribution model.
For manufacturers, understanding the dynamics at play in distribution decisions is critical. If a manufacturer has strong evidence as to the best distribution method for the relevant patient population, they can negotiate a payer contract that includes storage and distribution terms. With therapies that are administered to patients in multiple settings, such as in the hospital and later at a care facility, manufacturers must also be careful to engage providers at all stages, or risk underutilization.
As we’ve seen, launching a specialty drug covered under the medical benefit requires a proactive, data-driven market access strategy to ensure patient access. From monitoring clinical pathway inclusion to tracking pre-certification requirements and payer distribution channels, manufacturers must stay on top of payer and provider data to optimize utilization.
Stay tuned for our next post in the Market Access 101 series, “Key Factors in Medical Benefit Contracting.” We’ll share new approaches for securing optimal coverage and reimbursement for drugs covered under the medical benefit.