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CMS prescribes payment fix to resuscitate US antibiotic industry

As the UK experiments with a subscription-style payment system to resuscitate the fledgling antibiotic industry — in the United States, the Centers for Medicare & Medicaid Services (CMS) is working on restructuring the payment apparatus for new antibiotics to revitalize antimicrobial development and rescue existing manufacturers.

For one of the biggest threats to global health, the lion’s share of antibiotic development is taking place in a handful of labs of small biopharma companies as a majority of their larger counterparts focus on more lucrative endeavors. In recent months, a handful of antibiotic developers — including Achaogen and Tetraphase — have seen their value go up in smoke as feeble sales frustrate growth.

It is no secret that the industry players contributing to the arsenal of antimicrobials are fast dwindling. Drugmakers are enticed by greener pastures, compared to the long, arduous and expensive path to antibiotic approval that offers little financial gain as treatments must be priced cheaply, and often lose potency over time as microbes grow resistant to them. Consequently, there have been no new class of antibiotics approved since the 1980s — and today, roughly 700,000 deaths annually are attributed to drug-resistant bacteria, according to the WHO.

Medicare beneficiaries account for the majority of both new antimicrobial resistance (AMR) cases and fatalities in the United States, CMS administrator Seema Verma noted in the journal Health Affairs on Friday.

In the United States, incentives are already in place to push drugmakers to develop antibiotics, such as funding support through the Biomedical Advanced Research and Development Authority (BARDA) and regulatory reforms such as the Limited Population Pathway for Antibacterial and Antifungal Drugs (LPAD)  — but the industry is clamoring for the passage of “pull incentives,” or policy measures to increase the value of a marketed antibiotic by rewarding drugmakers only after their antibiotic is approved.

Existing incentives, “while well-intentioned…appear to have been insufficient, as they focused exclusively on bolstering the development pipeline without removing the blockage created by issues with payment,” Verma conceded.

To remedy the existing set of “misaligned incentives,” the CMS has finalized new rules to reform antibiotic payments from 2020.

Under the current system, hospitals bundle together the costs of all the services for a given diagnosis into what is called a diagnosis-related group (DRG). Congress implemented the DRG system in 1983 to control hospital reimbursements by replacing retrospective payments with prospective payments for hospital charges. The CMS assigns each DRG a weight, which in conjunction with hospital-specific data, is used to determine reimbursement.

This system tends to incentivize hospitals to prescribe cheaper, generic antibiotics that are not engineered to tackle 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,” she wrote.

CMS is, therefore, changing the severity level designation from non-CC to CC for 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 required for the specific diagnosis. Classifying drug resistance in this way will compel higher payments to hospitals treating patients with AMR, crafting a pathway for doctors to prescribe appropriate new antibiotics without disrupting hospital budgets. CMS will also continue to “explore whether additional reforms are needed to recalibrate DRGs to better account for the clinical complexity of drug resistance,” Verma said.

Another measure being taken by the CMS is to amend the New Technology Add-On Payments (NTAPs) system as it relates to AMR, which is “uniquely diminished for antibiotics.” NTAP was created in 2000 as a “time-limited enhanced payment for new drugs or devices” to smooth the entry for fresh products 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,” Verma acknowledged.

This is partly due to the fact that antibiotic developers struggle to meet the agency’s “substantial clinical improvement” criteria as they are traditionally given the green light by the FDA on the basis of trials that show their products are non-inferior to existing antibiotics. “(H)alf of previous antibiotic applications for NTAPs have been rejected because of a failure to satisfy this specific criterion,” Verma said.

Another issue is that the payment level for the NTAP is set at 50% of either the cost of the new product or the difference between the DRG payment and the total covered cost of the particular case. However, this threshold is insufficient to incentivize hospitals to file for an NTAP payment due to the low antibiotic prescription volumes for resistant infections.

To remedy these structural challenges, the CMS — the United States’ largest payer — has finalized an alternative NTAP pathway that does not include the SCI criteria and increases the NTAP from 75% from 50% for new antibiotics that have been granted as Qualified Infectious Disease Product (QIDP) status.

Last year, former FDA commissioner Scott Gottlieb suggested a “licensing model” in which acute care institutions that prescribe antimicrobial medicines would pay a fixed licensing fee for access to these drugs, granting them the right to use a certain number of annual doses.


Natalie Grover


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