CMS Restructured The CAR-T DRG – What It Means For Manufacturers & 4 Strategies Forward

By Jacob Graham, Kathryne Kirk, Anna Catalanotto, and Jason Lam; Guidehouse

In the Inpatient Prospective Payment System (IPPS) Final Rule released in August 2021, the Centers for Medicare and Medicaid Services (CMS) expanded the chimeric antigen receptor T-cell (CAR-T) diagnosis-related group (DRG) to include other immunotherapies. While industry generally views this change as a positive development and applauds CMS’ proactivity, significant uncertainties remain as to the specific immunotherapies included and how payment will change over time. To prepare for such uncertainties, manufacturers should anticipate fluidity and plan to adjust their launch strategies as more immunotherapies reach market and claims volume increases.

This article provides an overview of how CMS arrived at this classification and shares four strategies for launching new immunotherapy products into inpatient hospitals.

Classifying CAR-Ts

When the first CAR-Ts launched in 2017, they were mapped to the bone marrow transplant DRG (016) at just $43,094.¹ As a result, reimbursement fell significantly short of the cost of treatment for Medicare fee-for-service (FFS) patients, which in turn made it difficult for hospitals to onboard these disruptive therapies. Over the years that followed, manufacturers and advocacy groups lobbied for more equitable payment, which CMS addressed in 2020 by establishing DRG 018 specifically for the CAR-T therapies. This development marked a monumental step toward balancing payment for CAR-T.

In August 2021, CMS expanded the CAR-T DRG to include “other immunotherapies.” The term’s ambiguity introduced some controversy over which therapies map to this category. When CMS is considering what qualifies as an immunotherapy for mapping purposes, it is considering attributes such as illness severity, treatment difficulty, service complexity, and required resources for the diagnosis and/or treatment of the condition.

In alignment with the intent of a prospective payment system (PPS), a single payment category now exists for the variety of complex inpatient-administered cell and gene immunotherapies, including allogeneic and autologous products. Pipeline immunotherapy manufacturers are joining a better payment environment at launch than the original CAR-Ts, in part due to the work and advocacy of the pioneering CAR-T products. Starting in 2022, CMS will reimburse immunotherapies assigned to this DRG 018 at $246,958,² plus other temporary adjustments such as New Technology Add-On Payments (NTAP) and outlier payments. Medicare payment will likely evolve in the coming years as new immunotherapies map to DRG 018 and introduce more variability related to drug pricing, hospital resources, and charge behavior. While immunotherapies priced below the DRG may benefit from this assignment and others priced above the DRG payment may be disadvantaged, CMS is now in a better position to predict potential payment variability and adjust as needed with the newly dedicated classification.

Prepare For Future Uncertainty

While CMS has indicated it will continue to use the current process for classifying products, the organization also has demonstrated an openness to modifying the DRG system as new immunotherapies come to market. Manufacturers should evaluate pricing and policy strategies in anticipation of the likely volatility and future uncertainty in this class. To launch new therapies into these uncharted DRGs, cell and gene immunotherapy manufacturers will need comprehensive and tightly integrated pricing, reimbursement policies, and customer support strategies that should consider the following:   

1. Factor future policy scenarios into drug pricing strategy.

Forecast DRG changes and model how a new therapy’s price and resource needs may impact the DRG over time. Proposed CMS policy changes should also be considered in scenario planning, given the potential for any future restructuring to impact reimbursement and hospital financials. Modeling the impact of new immunotherapy entrants on resource utilization (e.g., drug price, treating adverse events, monitoring), charges/costs, and DRG payment will provide insight into payment at launch as well as potential cost variability, which is indicative of a future DRG structural change.

2. Engage CMS and implement reimbursement policy strategies prior to FDA approval.

Since manufacturers can begin shaping policy before coming to market, applying for ICD-10 codes prior to FDA approval will facilitate CMS’ DRG mapping process. As IPPS payment policy decisions are made on an annual cycle, manufacturers should plan for at least two policy cycles in advance of FDA approval to address incorrect mapping or clinical uncertainty.

3. Actively shape the future payment policy environment.

Considering CMS’ willingness to be flexible, build from the recent precedent and develop a policy strategy that supports the clinical and economic characteristics of the immunotherapy, using NTAP as a conduit for justifying cost of care. Given the potential for changes in DRG design (e.g., creation of new DRGs, creation of DRG triplets based on disease complexity and comorbidity), you should determine what payment policy outcome best aligns with the value of your product and advocate for these structural changes.

4. Develop robust risk mitigation plans throughout the product life cycle.

To mitigate Medicare payment policy risk, consider reimbursement barriers early in the indication planning process, which may result in prioritizing patient populations with more payer mix diversity or investigating potential outpatient use as part of the clinical planning process. Alternative payment mechanisms, such as value-based arrangements or carve-outs, can be explored to mitigate variability and risk between payers, hospitals, and industry. With DRG payment being calculated based on historical hospital charge data, you should also consider developing compliant and comprehensive hospital education programs as part of launch preparation.

The recent creation and changes to DRG 018 represent a willingness by CMS to adapt to the needs of innovative immunotherapies. As new cell and gene therapies come to market, CMS will continue to evaluate DRG structures and payments based on clinical and cost homogeneity. While mechanisms like NTAP can help provide relief during the initial few years, they are not a permanent solution. Manufacturers of high-cost inpatient immunotherapies must assess the fluidity of the DRG system when designing pricing and policy strategies, take appropriate steps to mitigate risks, and be prepared to advocate for long-lasting structural change.

About The Authors:

Jacob Graham is a partner in Guidehouse’s Market Access team. He works with clients to design comprehensive market access strategies with an emphasis on optimizing patient access at a value-based price. Often working with pre-commercial products, he helps clients to ensure R&D, clinical, and market access initiatives align with financial expectations.

Kathryne Kirk is an associate director in the Guidehouse Market Access Center of Excellence. She supports clients with optimizing medical policy coverage, targeting and engaging payers and KOLs, building distribution and trade strategy, and understanding price and payment policy considerations across sites of care.

Anna Catalanotto is a senior consultant in the Life Sciences practice at Guidehouse and a core member of the Market Access Center of Excellence. She supports U.S. pharmaceutical manufacturers with market access landscape and competitor assessments, reimbursement strategy, value proposition communication, and launch planning.

Jason Lam is a senior consultant in Guidehouse’s Life Science practice. He works with life sciences manufacturers to prepare for, tackle, and overcome Medicare and commercial coverage and payment hurdles, applying his understanding of real-world applications of coding, coverage, and payment. His work has supported the creation of new codes (CPT, HCPCS, and ICD-10) and influenced Medicare payment policy (NTAPs, TPTs, etc.).