AS I SEE IT


Transitional Pass-Through Payments Medicare reimbursements help give beneficiaries access to innovative technologies BY THOMAS A. GUSTAFSON, PHD


Transitional pass-through payments—Medicare reimbursement paid on top of an ASC’s facility fee for a limited amount of time—


were established by Congress to foster innovative medical devices, drugs and biologicals. They can help an ASC give its Medicare patients access to novel therapies without increasing the ASC’s costs or overall spending in the US health care system.


Although pass-through status has been in place since 2000, the limited number of products covered under this provision each year might explain why the benefits of transitional pass- through are not well understood. Across all therapeutic categories, only 35 medications have this status in 2015.


Intention and Design


Despite its emphasis on containing costs, Medicare is not opposed to new technol- ogies and, in fact, supports innovation as a way to improve the quality and effi- ciency of care. Policymakers and legisla- tors, however, recognized that the rigid- ity of Medicare’s payment systems could discourage the use of new medical tech- nologies. Given that payment rates under Medicare’s prospective payment systems are based on past claims, a new product coming on the scene is at a disadvantage because its costs will not be reflected in the older claims on which current pay- ments are based. Congress acted to minimize that


problem by setting up a special provision in the law—Social Security Act §1833(t) (6)—to encourage the use of innovative products and help ensure they would be available to Medicare patients by mak- ing extra payments, above established facility fees, for new medical products.


8 ASC FOCUS SEPTEMBER 2015 Payment for new pharmaceuticals


assigned pass-through status is made at wholesale acquisition cost (WAC) + 6 percent for the first two quarters and then at average sales price (ASP) + 6 percent. The national payment rate for each pass- through pharmaceutical is updated and published quarterly on the Centers for Medicare & Medicaid Services (CMS) web site. Pass-through payments for new devices follow the same general scheme but the particulars differ. The provision is called “transitional” because it is designed to provide a bridge into the regular payment mechanism. Pass-through status is temporary, lasting at least two but not more than three years. In addition to removing financial disincentives to product utilization during this window, thus better enabling clinicians to become familiar with the product’s benefits, the provision also allows for the collection of data on utilization to assist CMS in incorporating the product into the service with which it is used when its pass-through status sunsets. At that time, the payment rate for the related service is increased to reflect the utilization of the product during its pass-through period. In this way, use of new technology during the pass-through period helps ensure its accommodation in facility payment rates in the future.


Financing Payments Each year, CMS estimates Medicare’s potential spending in the coming year for all transitional pass-through drugs, biologics and devices and “pays” for anticipated pass-through payments by modestly adjusting all Medicare pay- ments for hospital outpatient department (HOPD) and ASC services. In essence, CMS creates a pool to cover payments for all of the pass-through products for the coming year. This amount is estab- lished in advance for the calendar year, so current utilization of pass-through products does not affect the size of the pool for that period. In other words, CMS has already set aside the resources to cover the separate payments for use of new medical technology.


Since the adjustments to Medicare


service fees needed to fund these pay- ments have already been taken into account by CMS in setting the payment rates for 2015, whether or not a facility uses a pass-through-designated product now will have no effect on its payment rates this year. To the extent that facilities do not access pass-through payments, the funds that CMS removed from aggregate payments to cover its estimate of pass- through spending for the year will sim- ply be lost to the system. Fortunately, the adjustments Medi-


care makes to payments for HOPD and ASC services to contribute funds to the pass-through pool are relatively insignificant. For instance, payment rates in the Outpatient Prospective Pay- ment System (OPPS) for 2015 were reduced by 0.13 percent. Over the past ten years, the total annual adjustment for pass-through spending under the OPPS has ranged from 0.02 percent to 0.22 percent. CMS made similar reductions in ASC payment rates.


The advice and opinions expressed in this column are those of the author’s and do not represent official Ambulatory Surgery Center Association policy or opinion.


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