# Medicare Program; End-Stage Renal Disease Prospective Payment System, Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury, End-Stage Renal Disease Quality Incentive Program, Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) Fee Schedule Amounts, DMEPOS Competitive Bidding (CBP) Proposed Amendments, Standard Elements for a DMEPOS Order, and Master List of DMEPOS Items Potentially Subject to a Face-to-Face Encounter and Written Order Prior to Delivery and/or Prior Authorization Requirements

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2019-16369

## Record

- **Collection:** Federal Register
- **Document type:** Proposed Rule
- **Published:** August 6, 2019
- **Citation:** 84 FR 38330

## Text

DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Parts 405, 410, 413 and 414
[CMS-1713-P]
RIN 0938-AT70
Medicare Program; End-Stage Renal Disease Prospective Payment System, Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury, End-Stage Renal Disease Quality Incentive Program, Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) Fee Schedule Amounts, DMEPOS Competitive Bidding (CBP) Proposed Amendments, Standard Elements for a DMEPOS Order, and Master List of DMEPOS Items Potentially Subject to a Face-to-Face Encounter and Written Order Prior to Delivery and/or Prior Authorization Requirements

AGENCY:

Centers for Medicare & Medicaid Services (CMS), HHS.

ACTION:

Proposed rule.

SUMMARY:

This proposed rule would update and make revisions to the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS) for calendar year (CY) 2020. This rule also proposes to update the payment rate for renal dialysis services furnished by an ESRD facility to individuals with acute kidney injury (AKI). This proposed rule also proposes to update requirements for the ESRD Quality Incentive Program (QIP). In addition, this rule proposes a methodology for calculating fee schedule payment amounts for new Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) items and services and making adjustments to the fee schedule amounts established using supplier or commercial prices if such prices decrease within 5 years of establishing the initial fee schedule amounts. This rule also proposes to revise existing regulations related to the competitive bidding program for DMEPOS. This proposed rule also would streamline the requirements for ordering DMEPOS items, and develop a new list of DMEPOS items potentially subject to a face-to-face encounter, written orders prior to delivery and/or prior authorization requirements. Finally, this proposed rule includes requests for information on data collection resulting from the ESRD PPS technical expert panel, changing the basis for the ESRD PPS wage index, and new requirements for the competitive bidding of diabetic testing strips.

DATES:

To be assured consideration, comments must be submitted at one of the addresses provided below, no later than September 27, 2019.

ADDRESSES:

In commenting, please refer to file code CMS-1713-P. Because of staff and resource limitations, we cannot accept comments by facsimile (FAX) transmission.

Comments, including mass comment submissions, must be submitted in one of the following three ways (please choose only one of the ways listed):

1.
Electronically.
You may submit electronic comments on this regulation to
http://www.regulations.gov.
Follow the “Submit a comment” instructions.

2.
By regular mail.
You may mail written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1713-P, P.O. Box 8010, Baltimore, MD 21244-8010.

Please allow sufficient time for mailed comments to be received before the close of the comment period.

3.
By express or overnight mail.
You may send written comments to the following address ONLY: Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1713-P, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 21244-1850.

For information on viewing public comments, see the beginning of the
SUPPLEMENTARY INFORMATION
section.

FOR FURTHER INFORMATION CONTACT:

ESRDPayment@cms.hhs.gov,
for issues related to the ESRD PPS and coverage and payment for renal dialysis services furnished to individuals with AKI.

Delia Houseal, (410) 786-2724, for issues related to the ESRD QIP.

DMEPOS@cms.hhs.gov,
for issues related to DMEPOS payment policy.

Julia Howard, (410) 786-8645, for issues related to DMEPOS CBP Amendments

Jennifer Phillips, (410) 786-1023; Olufemi Shodeke, (410) 786-1649;

Maria Ciccanti, (410) 786-3107; and Emily Calvert, (410) 786-4277, for issues related to the DMEPOS written order, face-to-face encounter, and prior authorization requirements.

SUPPLEMENTARY INFORMATION:

Inspection of Public Comments:
All comments received before the close of the comment period are available for viewing by the public, including any personally identifiable or confidential business information that is included in a comment. We post all comments received before the close of the comment period on the following website as soon as possible after they have been received:
http://www.regulations.gov.
Follow the search instructions on that website to view public comments.

Table of Contents

To assist readers in referencing sections contained in this preamble, we are providing a Table of Contents. Some of the issues discussed in this preamble affect the payment policies, but do not require changes to the regulations in the Code of Federal Regulations (CFR).

I. Executive Summary

A. Purpose

B. Summary of the Major Provisions

C. Summary of Cost and Benefits

II. Calendar Year (CY) 2020 End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)

A. Background

B. Provisions of the Proposed Rule

III. CY 2020 Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury (AKI)

A. Background

B. Proposed Annual Payment Rate Update for CY 2020

IV. End-Stage Renal Disease Quality Incentive Program (ESRD QIP)

A. Background and Proposed Regulation Text Update

B. Proposed Update to Requirements Beginning With the PY 2022 ESRD QIP

C. Proposals for the PY 2023 ESRD QIP

V. Establishing Payment Amounts for New Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) Items and Services (Gap-Filling)

A. Background

B. Current Issues

C. Provisions of the Proposed Rule

VI. Standard Elements for a Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Order; Master List of DMEPOS Items Potentially Subject to a Face-to-Face Encounter and Written Order Prior to Delivery and/or Prior Authorization Requirements

A. Background

B. Provisions of the Proposed Regulations

VII. DMEPOS Competitive Bidding Program (CBP) Amendments

A. Background

B. Proposed Amendments

VIII. Requests for Information

A. Data Collection

B. Wage Index Comment Solicitation

C. Comment Solicitation on Sources of Market-Based Data Measuring Sales of Diabetic Testing Strips to Medicare Beneficiaries (Section 50414 of the Bipartisan Budget Act of 2018)

IX. Collection of Information Requirements

A. Legislative Requirement for Solicitation of Comments

B. Requirements in Regulation Text

C. Additional Information Collection Requirements

X. Response to Comments

XI. Economic Analyses

A. Regulatory Impact Analysis

B. Detailed Economic Analysis

C. Accounting Statement

D. Regulatory Flexibility Act Analysis

E Unfunded Mandates Reform Act Analysis

F. Federalism Analysis

G. Reducing Regulation and Controlling Regulatory Costs

H. Congressional Review Act

XII. Files Available to the Public via the Internet

Regulations Text

I. Executive Summary

A. Purpose

This proposed rule contains proposals related to the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS), payment for renal dialysis services furnished to individuals with acute kidney injury (AKI), the ESRD Quality Incentive Program (QIP), the Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) Fee Schedule Amounts, DMEPOS Competitive Bidding Program (CBP) proposed amendments, and the regulations governing DMEPOS orders, face-to-face encounters, and prior authorization.

In future rulemaking years, the DMEPOS provisions will be in a separate rule from the ESRD PPS, AKI and ESRD QIP provisions.

1. End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)

On January 1, 2011, we implemented the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS), a case-mix adjusted, bundled PPS for renal dialysis services furnished by ESRD facilities as required by section 1881(b)(14) of the Social Security Act (the Act), as added by section 153(b) of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) (Pub. L. 110-275). Section 1881(b)(14) (F) of the Act, as added by section 153(b) of MIPPA, and amended by section 3401(h) of the Patient Protection and Affordable Care Act (the Affordable Care Act) (Pub. L. 111-148), established that beginning calendar year (CY) 2012, and each subsequent year, the Secretary of the Department of Health and Human Services (the Secretary) shall annually increase payment amounts by an ESRD market basket increase factor, reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act. This rule proposes updates and revisions to the ESRD PPS for CY 2020.

2. Coverage and Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury (AKI)

On June 29, 2015, the President signed the Trade Preferences Extension Act of 2015 (TPEA) (Pub. L. 114-27). Section 808(a) of TPEA amended section 1861(s)(2)(F) of the Act to provide coverage for renal dialysis services furnished on or after January 1, 2017, by a renal dialysis facility or a provider of services paid under section 1881(b)(14) of the Act to an individual with acute kidney injury (AKI). Section 808(b) of the TPEA amended section 1834 of the Act by adding a new subsection (r) that provides for payment for renal dialysis services furnished by renal dialysis facilities or providers of services paid under section 1881(b)(14) of the Act to individuals with AKI at the ESRD PPS base rate beginning January 1, 2017. This rule proposes to update the AKI payment rate for CY 2020.

3. End-Stage Renal Disease Quality Incentive Program (ESRD QIP)

The End-Stage Renal Disease Quality Incentive Program (ESRD QIP) is authorized by section 1881(h) of the Act. The Program fosters improved patient outcomes by establishing incentives for dialysis facilities to meet or exceed performance standards established by the Centers for Medicare & Medicaid Services (CMS). This proposed rule proposes several updates for the ESRD QIP.

4. DMEPOS Fee Schedule Payment Rules

a. Establishing Payment Amounts for New DMEPOS Items and Services (Gap-Filling)

This rule proposes to establish a gap-filling methodology in regulations for pricing new items and services in accordance with sections 1834(a), (h), (i) and 1833(o) of the Act for DME, prosthetic devices, orthotics, prosthetics, surgical dressings, and custom molded shoes, extra-depth shoes, and inserts, and section 1842(b) for parental and enteral nutrients (PEN) and medical supplies, including splints and casts and intraocular lenses inserted in a physician's office.

b. Adjusting Payment Amounts for DMEPOS Items and Services Gap-Filled Using Supplier or Commercial Prices

This rule proposes a one-time adjustment to the gap-filled fee schedule amounts in cases where prices decrease by less than 15 percent.

5. Conditions of Payment To Be Applied to the Proposed Master List of DMEPOS Items

This proposed rule would streamline the requirements for ordering DMEPOS items. It would also develop one Master List of DMEPOS items potentially subject to a face-to-face encounter, written orders prior to delivery and/or prior authorization requirements under the authority provided under sections 1834(a)(1)(E)(iv), 1834(a)(11)(B), and 1834(a)(15) of the Act.

B. Summary of the Major Provisions

1. ESRD PPS

•
Update to the ESRD PPS base rate for CY 2020:
The proposed CY 2020 ESRD PPS base rate is $240.27. This proposed amount reflects a productivity-adjusted market basket increase as required by section 1881(b)(14)(F)(i)(I) of the Act (1.7 percent), and application of the wage index budget-neutrality adjustment factor (1.004180), equaling $240.27 ($235.27 × 1.017 × 1.004180 = $240.27).

•
Annual update to the wage index:
We adjust wage indices on an annual basis using the most current hospital wage data and the latest core-based statistical area (CBSA) delineations to account for differing wage levels in areas in which ESRD facilities are located. For CY 2020, we are proposing to update the wage index values based on the latest available data.

•
Update to the outlier policy:
We are proposing to update the outlier policy using the most current data, as well as update the outlier services fixed-dollar loss (FDL) amounts for adult and pediatric patients and Medicare Allowable Payment (MAP) amounts for adult and pediatric patients for CY 2020 using CY 2018 claims data. Based on the use of the latest available data, the proposed FDL amount for pediatric beneficiaries would decrease from $57.14 to $44.91, and the MAP amount would decrease from $35.18 to $33.82, as compared to CY 2019 values. For adult beneficiaries, the proposed FDL amount would decrease from $65.11 to $52.50, and the MAP amount would decrease from $38.51 to $36.60. The 1.0 percent target for outlier payments was not achieved in CY 2018. Outlier payments represented approximately 0.5 percent of total payments rather than 1.0 percent. We believe using CY 2018 claims data to update the outlier MAP and FDL amounts for CY 2020 would increase payments for ESRD beneficiaries requiring higher resource utilization in accordance with a 1.0 percent outlier percentage.

•
Eligibility criteria for the transitional drug add-on payment adjustment (TDAPA):
We are proposing revisions to the drug designation process regulation at 42 CFR 413.234 for new renal dialysis drugs and biological products that fall within an existing ESRD PPS functional category. Specifically, we are proposing to exclude drugs approved by the Food and Drug Administration (FDA) under section 505(j) of the Federal Food, Drug, and Cosmetic Act (FD&C Act) and drugs for which the new drug application (NDA) is classified by FDA as NDA Types 3, 5, 7 and 8, Type 3 in combination with Type 2 or Type 4, Type 5 in combination with Type 2, or Type 9 when the “parent NDA” is a Type 3, 5, 7 or 8—from being eligible for the transitional drug add-on payment adjustment (TDAPA), effective January 1, 2020.

•
Proposal to change the basis of payment for the TDAPA for calcimimetics:
We are continuing to pay the TDAPA for calcimimetics for a third year in CY 2020 in order to collect sufficient claims data for rate setting analysis, but are proposing to reduce the basis of payment for the TDAPA for calcimimetics for CY 2020 from the average sales price plus 6 percent (ASP+6) methodology to 100 percent of ASP. We believe that in paying the TDAPA for these products since 2018, we have provided sufficient time for ESRD facilities to address any administrative complexities and overhead costs that may have arisen with regard to furnishing the calcimimetics. We also believe we need to take into account the financial burden that increased payments place on beneficiaries and Medicare expenditures.

•
Average sales price (ASP) conditional policy for application of the TDAPA:
Under the policy finalized in the CY 2019 ESRD PPS final rule, effective January 1, 2020, the basis of payment for the TDAPA for all new renal dialysis drugs and biological products except calcimimetics is ASP+0, but if ASP data is not available, then we use Wholesale Acquisition Cost (WAC) +0, and if WAC is not available, then we use invoice pricing. We are concerned that if ASP data is not available to CMS, WAC or invoice pricing would likely increase Medicare expenditures more than the value of the ASP. We are proposing to no longer apply the TDAPA for a new renal dialysis drug or biological product if CMS does not receive a full calendar quarter of ASP data within 30 days of the last day of the 3rd calendar quarter after we begin applying the TDAPA for that product. We would no longer apply the TDAPA for a new renal dialysis drug or biological product beginning no later than 2-calendar quarters after we determine a full calendar quarter of ASP data is not available. We are also proposing to no longer apply the TDAPA for a new renal dialysis drug or biological product if CMS does not receive the latest full calendar quarter of ASP data for the product, beginning no later than 2-calendar quarters after CMS determines that the latest full calendar quarter of ASP data is not available. We believe it is important to balance supporting ESRD facilities in their uptake of innovative new renal dialysis drugs and biological products with limiting increases to Medicare expenditures, and conditioning the TDAPA on the availability of ASP data would help us achieve that balance.

•
New and innovative renal dialysis equipment and supplies under the ESRD PPS:
We are proposing to pay a transitional add-on payment adjustment to support the use of certain new and innovative renal dialysis equipment or supplies furnished by ESRD facilities. We are proposing to include renal dialysis equipment and supplies (with the exception of capital-related assets) that are: (1) Granted marketing authorization by FDA on or after January 1, 2020, (2) commercially available, (3) have a Healthcare Common Procedure Coding System (HCPCS) application submitted in accordance with the official Level II HCPCS coding procedures, and (4) meet the substantial clinical improvement criteria specified in the Inpatient Prospective Payment System (IPPS) regulations at 42 CFR 412.87(b)(1). Specifically, under our proposal, the equipment or supply must represent an advance that substantially improves, relative to technologies previously available, the diagnosis or treatment of Medicare beneficiaries. CMS would evaluate the application to determine eligibility for a transitional add-on payment adjustment. We are proposing that the payment adjustment for these new and innovative renal dialysis equipment and supplies would be based on 65 percent of the price established by the Medicare Administrative Contractors (MACs), using the information from the invoice and other relevant sources of information. We would pay the adjustment for 2-calendar years, after which the equipment or supply would qualify as an outlier service and no change to the ESRD PPS base rate would be made.

•
Discontinue the application of the erythropoiesis-stimulating agent (ESA) monitoring policy (EMP) under the ESRD PPS:
We are proposing to discontinue the application of the erythropoiesis-stimulating agent (ESA) monitoring policy (EMP) under the ESRD PPS. Prior to implementation of the ESRD PPS, ESAs were paid separately, which resulted in gross overutilization. We continued to apply the EMP edits when we implemented the ESRD PPS so that we did not overvalue these biological products in determining eligibility for outlier payments. Since we bundled ESAs into the per treatment payment amount, overutilization and the incentive for overutilization have been eliminated from the ESRD PPS; therefore we believe the EMP is no longer necessary.

2. Payment for Renal Dialysis Services Furnished to Individuals With AKI

We are proposing to update the AKI payment rate for CY 2020. The proposed CY 2020 payment rate is $240.27, which is the same as the base rate proposed under the ESRD PPS for CY 2020.

3. ESRD QIP

This proposed rule proposes several new requirements for the ESRD QIP beginning with payment year (PY) 2022, including but not limited to the following:

• Updates to the scoring methodology for the National Healthcare Safety Network (NHSN) Dialysis Event reporting measure to allow new facilities and facilities that are eligible to report data on the measure for less than 12 months to be able to receive a score on that measure.

• A proposal to convert the STrR clinical measure (NQF #2979) to a reporting measure while we examine concerns raised by stakeholders regarding the measure's validity.

We are not proposing any new requirements beginning with the PY 2023 ESRD QIP.

We are also proposing to make updates to our regulation text so that it better informs the public of the Program's requirements.

4. DMEPOS Fee Schedule Payment Rules

a. Establishing Payment Amounts for New DMEPOS Items and Services (Gap-Filling)

This rule proposes a specific methodology for calculating fee schedule amounts for new DMEPOS items. The fiscal impact of establishing payment amounts for new items based on our proposal cannot be estimated as these new items are not identified and would vary in uniqueness and costs. However, there is some inherent risk that the proposed methodology could

result in fee schedule amounts for new items that greatly exceed the costs of furnishing the items.

b. Adjusting Payment Amounts for DMEPOS Items and Services Gap-Filled Using Supplier or Commercial Prices

In cases where fee schedule amounts for new DMEPOS items and services are gap-filled using supplier or commercial prices, these prices may decrease over time. In cases where such prices decrease by less than 15 percent within 5 years of establishing the initial fee schedule amounts, this rule proposes a one-time adjustment to the gap-filled fee schedule amounts. We are not proposing these price adjustments in cases where prices increase.

5. Conditions of Payment To Be Applied to Certain DMEPOS Items

This proposed rule would streamline the requirements for ordering DMEPOS items. It would also develop one Master List of DMEPOS items potentially subject to a face-to-face encounter, written orders prior to delivery and/or prior authorization requirements under the authority provided under sections 1834(a)(1)(E)(iv), 1834(a)(11)(B), and 1834(a)(15) of the Act.

C. Summary of Costs and Benefits

In section XI of this proposed rule, we set forth a detailed analysis of the impacts that the proposed changes would have on affected entities and beneficiaries. The impacts include the following:

1. Impacts of the Proposed ESRD PPS

The impact chart in section XI of this proposed rule displays the estimated change in payments to ESRD facilities in CY 2020 compared to estimated payments in CY 2019. The overall impact of the proposed CY 2020 changes is projected to be a 1.6 percent increase in payments. Hospital-based ESRD facilities have an estimated 1.9 percent increase in payments compared with freestanding facilities with an estimated 1.5 percent increase.

We estimate that the aggregate ESRD PPS expenditures would increase by approximately $210 million in CY 2020 compared to CY 2019. This reflects a $230 million increase from the payment rate update and a $40 million increase due to the updates to the outlier threshold amounts, and a $60 million decrease from the proposal to change the basis of payment for the TDAPA for calcimimetics from ASP+6 percent to ASP+0 percent. These figures do not reflect estimated increases or decreases in expenditures based on our proposals to refine the TDAPA eligibility criteria, condition the TDAPA on the availability of ASP data, and provide a transitional add-on payment adjustment for new and innovative renal dialysis equipment and supplies. The fiscal impact of these proposals cannot be determined because these new renal dialysis drugs and biological products and new renal dialysis equipment and supplies are not yet identified and would vary in uniqueness and costs. As a result of the projected 1.6 percent overall payment increase, we estimate that there would be an increase in beneficiary co-insurance payments of 1.6 percent in CY 2020, which translates to approximately $50 million.

2. Impacts of the Proposed Payment for Renal Dialysis Services Furnished to Individuals With AKI

The impact chart in section XI of this proposed rule displays the estimated change in proposed payments to ESRD facilities in CY 2020 compared to estimated payments in CY 2019. The overall impact of the proposed CY 2020 changes is projected to be a 1.7 percent increase in payments. Hospital-based ESRD facilities have an estimated 1.8 percent increase in payments compared with freestanding facilities with an estimated 1.7 percent increase.

We estimate that the aggregate payments made to ESRD facilities for renal dialysis services furnished to AKI patients at the proposed CY 2020 ESRD PPS base rate would increase by less than $1 million in CY 2020 compared to CY 2019.

3. Impacts of the Proposed ESRD QIP

We estimate that the overall economic impact of the PY 2022 ESRD QIP would be approximately $219 million as a result of the policies we have previously finalized and the proposals in this proposed rule. The $219 million figure for PY 2022 includes costs associated with the collection of information requirements, which we estimate would be approximately $205 million. We also estimate that the overall economic impact of the PY 2023 ESRD QIP would be approximately $219 million as a result of the policies we have previously finalized. The $219 million figure for PY 2023 includes costs associated with the collection of information requirements, which we estimate would be approximately $205 million.

4. Impacts of the Proposed DMEPOS Fee Schedule Payment Rules

a. Establishing Payment Amounts for New DMEPOS Items and Services (Gap-Filling)

This rule proposes a specific methodology for calculating fee schedule amounts for new DMEPOS items. The fiscal impact of establishing payment amounts for new items based on our proposal cannot be estimated as these new items are not identified and would vary in uniqueness and costs. However, there is some inherent risk that the proposed methodology could result in fee schedule amounts for new items that greatly exceed the costs of furnishing the items.

b. Adjusting Gap-Filled Payment Amounts for DMEPOS Items and Services Using Supplier or Commercial Prices

We are proposing a one-time adjustment to the gap-filled fee schedule amounts in cases where fee schedule amounts for new DMEPOS items and services are gap-filled using supplier or commercial prices, and these prices decrease by less than 15 percent within 5 years of establishing the initial fee schedule amounts. The one-time adjustment should generate savings although it would probably be a small offset to the potential increase in costs of establishing fee schedule amounts based on supplier invoices or prices from commercial payers. The fiscal impact for this provision is therefore considered negligible.

5. Conditions of Payment To Be Applied to Certain DMEPOS Items

This rule proposes to streamline the requirements for ordering DMEPOS items, and to identify the process for subjecting certain DMEPOS items to a face-to-face encounter and written order prior to delivery and/or prior authorization as a condition of payment. The fiscal impact of these requirements cannot be estimated as this rule only identifies all items that are potentially subject to the face-to-face encounter and written order prior to delivery requirements and/or prior authorization.

II. Calendar Year (CY) 2020 End-Stage Renal Disease (ESRD) Prospective Payment System (PPS)

A. Background

1. Statutory Background

On January 1, 2011, we implemented the End-Stage Renal Disease (ESRD) Prospective Payment System (PPS), a case-mix adjusted bundled PPS for renal dialysis services furnished by ESRD facilities, as required by section 1881(b)(14) of the Social Security Act (the Act), as added by section 153(b) of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA). Section 1881(b)(14)(F) of the Act, as added by section 153(b) of MIPPA and amended by section 3401(h) of the

Patient Protection and Affordable Care Act (the Affordable Care Act), established that beginning with calendar year (CY) 2012, and each subsequent year, the Secretary of the Department of Health and Human Services (the Secretary) shall annually increase payment amounts by an ESRD market basket increase factor, reduced by the productivity adjustment described in section 1886(b)(3)(B)(xi)(II) of the Act.

Section 632 of the American Taxpayer Relief Act of 2012 (ATRA) (Pub. L. 112-240) included several provisions that apply to the ESRD PPS. Section 632(a) of ATRA added section 1881(b)(14)(I) to the Act, which required the Secretary, by comparing per patient utilization data from 2007 with such data from 2012, to reduce the single payment for renal dialysis services furnished on or after January 1, 2014 to reflect the Secretary's estimate of the change in the utilization of ESRD-related drugs and biologicals (excluding oral-only ESRD-related drugs). Consistent with this requirement, in the CY 2014 ESRD PPS final rule we finalized $29.93 as the total drug utilization reduction and finalized a policy to implement the amount over a 3- to 4-year transition period (78 FR 72161 through 72170).

Section 632(b) of ATRA prohibited the Secretary from paying for oral-only ESRD-related drugs and biologicals under the ESRD PPS prior to January 1, 2016. And section 632(c) of ATRA required the Secretary, by no later than January 1, 2016, to analyze the case-mix payment adjustments under section 1881(b)(14)(D)(i) of the Act and make appropriate revisions to those adjustments.

On April 1, 2014, the Protecting Access to Medicare Act of 2014 (PAMA) (Pub. L. 113-93) was enacted. Section 217 of PAMA included several provisions that apply to the ESRD PPS. Specifically, sections 217(b)(1) and (2) of PAMA amended sections 1881(b)(14)(F) and (I) of the Act and replaced the drug utilization adjustment that was finalized in the CY 2014 ESRD PPS final rule (78 FR 72161 through 72170) with specific provisions that dictated the market basket update for CY 2015 (0.0 percent) and how the market basket should be reduced in CY 2016 through CY 2018.

Section 217(a)(1) of PAMA amended section 632(b)(1) of ATRA to provide that the Secretary may not pay for oral-only ESRD-related drugs under the ESRD PPS prior to January 1, 2024. Section 217(a)(2) of PAMA further amended section 632(b)(1) of ATRA by requiring that in establishing payment for oral-only drugs under the ESRD PPS, the Secretary must use data from the most recent year available. Section 217(c) of PAMA provided that as part of the CY 2016 ESRD PPS rulemaking, the Secretary shall establish a process for (1) determining when a product is no longer an oral-only drug; and (2) including new injectable and intravenous products into the ESRD PPS bundled payment.

Finally, on December 19, 2014, the President signed the Stephen Beck, Jr., Achieving a Better Life Experience Act of 2014 (ABLE) (Pub. L. 113-295). Section 204 of ABLE amended section 632(b)(1) of ATRA, as amended by section 217(a)(1) of PAMA, to provide that payment for oral-only renal dialysis services cannot be made under the ESRD PPS bundled payment prior to January 1, 2025.

2. System for Payment of Renal Dialysis Services

Under the ESRD PPS, a single, per-treatment payment is made to an ESRD facility for all of the renal dialysis services defined in section 1881(b)(14)(B) of the Act and furnished to individuals for the treatment of ESRD in the ESRD facility or in a patient's home. We have codified our definitions of renal dialysis services at § 413.171, which is in 42 CFR part 413, subpart H, along with other ESRD PPS payment policies. The ESRD PPS base rate is adjusted for characteristics of both adult and pediatric patients and accounts for patient case-mix variability. The adult case-mix adjusters include five categories of age, body surface area, low body mass index, onset of dialysis, four comorbidity categories, and pediatric patient-level adjusters consisting of two age categories and two dialysis modalities (§ 413.235(a) and (b)).

The ESRD PPS provides for three facility-level adjustments. The first payment adjustment accounts for ESRD facilities furnishing a low volume of dialysis treatments (§ 413.232). The second adjustment reflects differences in area wage levels developed from core based statistical areas (CBSAs) (§ 413.231). The third payment adjustment accounts for ESRD facilities furnishing renal dialysis services in a rural area (§ 413.233).

The ESRD PPS provides a training add-on for home and self-dialysis modalities (§ 413.235(c)) and an additional payment for high cost outliers due to unusual variations in the type or amount of medically necessary care when applicable (§ 413.237).

The ESRD PPS also provides for a transitional drug add-on payment adjustment (TDAPA) to pay for a new injectable or intravenous product that is not considered included in the ESRD PPS bundled payment, meaning a product that is used to treat or manage a condition for which there is not an existing ESRD PPS functional category (§ 413.234). In the CY 2019 ESRD PPS final rule (83 FR 56929 through 56949), we expanded the TDAPA policy. Effective January 1, 2020, the TDAPA is available for all new renal dialysis drugs and biological products, not just those in new ESRD PPS functional categories.

3. Updates to the ESRD PPS

Policy changes to the ESRD PPS are proposed and finalized annually in the
Federal Register
. The CY 2011 ESRD PPS final rule was published on August 12, 2010 in the
Federal Register
(75 FR 49030 through 49214). That rule implemented the ESRD PPS beginning on January 1, 2011 in accordance with section 1881(b)(14) of the Act, as added by section 153(b) of MIPPA, over a 4-year transition period. Since the implementation of the ESRD PPS, we have published annual rules to make routine updates, policy changes, and clarifications.

On November 14, 2018, we published a final rule in the
Federal Register
titled, “Medicare Program; End-Stage Renal Disease Prospective Payment System, Payment for Renal Dialysis Services Furnished to Individuals With Acute Kidney Injury, End-Stage Renal Disease Quality Incentive Program, Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) Competitive Bidding Program (CBP) and Fee Schedule Amounts, and Technical Amendments To Correct Existing Regulations Related to the CBP for Certain DMEPOS” (83 FR 56922 through 57073) (referred to as the CY 2019 ESRD PPS final rule). In that rule, we updated the ESRD PPS base rate for CY 2019, the wage index, the outlier policy, and we finalized revisions to the drug designation process and the low-volume payment adjustment. For further detailed information regarding these updates, see 83 FR 56922.

B. Provisions of the Proposed Rule

1. Eligibility Criteria for the Transitional Drug Add-On Payment Adjustment (TDAPA)

a. Background

Section 217(c) of PAMA provided that as part of the CY 2016 ESRD PPS rulemaking, the Secretary shall establish a process for (1) determining when a product is no longer an oral-only drug; and (2) including new injectable and intravenous products into the ESRD PPS bundled payment. Therefore, in the CY 2016 ESRD PPS final rule (80 FR 69013

through 69027), we finalized a process that allows us to recognize when an oral-only renal dialysis service drug or biological product is no longer oral-only, and a process to include new injectable and intravenous products into the ESRD PPS bundled payment, and when appropriate, modify the ESRD PPS payment amount.

In accordance with section 217(c)(1) of PAMA, we established § 413.234(d), which provides that an oral-only drug is no longer considered oral-only if an injectable or other form of administration of the oral-only drug is approved by the Food and Drug Administration (FDA). Additionally, in accordance with section 217(c)(2) of PAMA, we codified the drug designation process at § 413.234(b). We finalized a policy in the CY 2016 ESRD PPS final rule (80 FR 69017 through 69022) that, effective January 1, 2016, if a new injectable or intravenous product is used to treat or manage a condition for which there is an ESRD PPS functional category, the new injectable or intravenous product is considered included in the ESRD PPS bundled payment and no separate payment is available. The new injectable or intravenous product qualifies as an outlier service. The ESRD bundled market basket updates the PPS base rate annually and accounts for price changes of the drugs and biological products reflected in the base rate.

In the CY 2016 ESRD PPS final rule, we also established in § 413.234(b)(2) that, if the new injectable or intravenous product is used to treat or manage a condition for which there is not an ESRD PPS functional category, the new injectable or intravenous product is not considered included in the ESRD PPS bundled payment and the following steps occur. First, an existing ESRD PPS functional category is revised or a new ESRD PPS functional category is added for the condition that the new injectable or intravenous product is used to treat or manage. Next, the new injectable or intravenous product is paid for using the TDAPA described in § 413.234(c). Then, the new injectable or intravenous product is added to the ESRD PPS bundled payment following payment of the TDAPA.

In the CY 2016 ESRD PPS final rule, we finalized a policy in § 413.234(c) to base the TDAPA on pricing methodologies under section 1847A of the Act and pay the TDAPA until sufficient claims data for rate setting analysis for the new injectable or intravenous product are available, but not for less than 2 years. During the time a new injectable or intravenous product is eligible for the TDAPA, it is not eligible as an outlier service. Following payment of the TDAPA, the ESRD PPS base rate will be modified, if appropriate, to account for the new injectable or intravenous product in the ESRD PPS bundled payment.

After the publication of the CY 2016 ESRD PPS final rule, we continued to hear from the dialysis industry and other stakeholders with suggestions for improving the drug designation process. Therefore, in CY 2019 ESRD PPS rulemaking, we revisited the drug designation process to consider their concerns and we proposed policies that would mitigate these issues.

In the CY 2019 ESRD PPS final rule (83 FR 56929 through 56949), we finalized several provisions related to the drug designation process and the TDAPA under § 413.234, with an effective date of January 1, 2020. In particular, we finalized changes to the drug designation process regulation to: (1) Reflect that the process applies for all new renal dialysis drugs and biological products; (2) establish a definition for “new renal dialysis drug or biological product”; (3) expand the eligibility criteria for the TDAPA; (4) change the TDAPA's basis of payment; and (5) extend the TDAPA to composite rate drugs and biological products that are furnished for the treatment of ESRD. We discuss these changes in detail in the next several paragraphs.

First, we revised the drug designation process regulation at § 413.234 to reflect that the drug designation process applies for all new renal dialysis drugs and biological products that are approved by FDA, regardless of the form or route of administration, that are used to treat or manage a condition associated with ESRD. In the CY 2019 ESRD PPS proposed rule (83 FR 34309 through 34312), we described the prior rulemakings in which we addressed how new drugs and biological products are implemented under the ESRD PPS and how we have accounted for renal dialysis drugs and biological products in the ESRD PPS base rate since its implementation on January 1, 2011. We explained that the drug designation process is dependent upon the ESRD PPS functional categories we developed, and is consistent with the policy we have followed since the inception of the ESRD PPS.

However, we noted in the CY 2019 ESRD PPS proposed rule (83 FR 34311 through 34312) that, because section 217(c)(2) of PAMA only required the Secretary to establish a process for including new injectable and intravenous drugs and biological products in the ESRD PPS bundled payment, such new products were the primary focus of the regulation we adopted at § 413.234. We explained that we did not codify our full policy in the CY 2016 ESRD PPS final rule for other renal dialysis drugs, such as drugs and biological products with other forms of administration, including oral, which by law are included under the ESRD PPS (though oral-only renal dialysis drugs are excluded from the ESRD PPS bundled payment until CY 2025). Commenters were generally supportive of the proposal, and we finalized the changes to codify our drug designation policy with regard to all drugs.

Second, as part of our updates to the drug designation process regulation in the CY 2019 ESRD PPS final rule (83 FR 56929 through 56932), we replaced the definition of “new injectable or intravenous product” with a definition for “new renal dialysis drug or biological product.” Under the final definition, effective January 1, 2020, a “new renal dialysis drug or biological product” is an “injectable, intravenous, oral or other form or route of administration drug or biological product that is used to treat or manage a condition(s) associated with ESRD. It must be approved by the [FDA] on or after January 1, 2020 under section 505 of the [FD&C Act] or section 351 of the Public Health Service Act, commercially available, have an HCPCS application submitted in accordance with the official HCPCS Level II coding procedures, and designated by CMS as a renal dialysis service under § 413.171. Oral-only drugs are excluded until January 1, 2025.”

Third, we expanded the eligibility criteria for the TDAPA to include all new renal dialysis drugs and biological products, not just those in new ESRD PPS functional categories, in the CY 2019 ESRD PPS final rule (83 FR 56942 through 56843). In the CY 2019 ESRD PPS proposed rule (83 FR 34312 through 34314), we discussed a number of reasons why we were reconsidering our previous policy to limit the TDAPA to products for which there is not an ESRD PPS functional category. We described the concerns that commenters had raised during the CY 2016 ESRD PPS rulemaking regarding the eligibility criteria for the TDAPA, including concerns about inadequate payment for renal dialysis services and hindrance of high-value innovation, and noted that these are important issues that we contemplate while determining appropriate payment policies. We discussed that when new drugs and biological products are introduced to the market, ESRD facilities need to analyze their budget and engage in contractual agreements to accommodate

the new therapies into their care plans. We recognized that newly launched drugs and biological products can be unpredictable with regard to their uptake and pricing, which makes these decisions challenging for ESRD facilities. Furthermore, we stated that practitioners should have the ability to evaluate the appropriate use of a new product and its effect on patient outcomes.

We explained in the CY 2019 ESRD PPS proposed rule that this uptake period would be best supported by the TDAPA pathway because it would help ESRD facilities transition or test new drugs and biological products in their businesses under the ESRD PPS. We stated that the TDAPA could provide flexibility and target payment for the use of new renal dialysis drugs and biological products during the period when a product is new to the market so that we can evaluate if resource use can be aligned with payment. We further explained that we believe we need to be conscious of ESRD facility resource use and the financial barriers that may be preventing uptake of innovative new drugs and biological products. Thus, we proposed to revise § 413.234(c) to reflect that the TDAPA would apply for all new renal dialysis drugs and biological products regardless of whether they fall within an ESRD PPS functional category, and, for those products that fall within an existing functional category, the payment would apply for only 2 years and there would be no subsequent modification to the ESRD PPS base rate (83 FR 34314). At the end of the 2 years, the product would be eligible for outlier payment unless it is a renal dialysis composite rate drug or biological product.

As we discussed in the CY 2019 ESRD PPS final rule (83 FR 56934 through 56943), we received a variety of feedback from stakeholders on this proposal. Some commenters recommended delaying the expansion of the TDAPA and some urged CMS to consider different policy proposals. Some commenters were supportive of revising the drug designation process regulation to allow more drugs to be eligible for the TDAPA, while others expressed that the process needs to be further evaluated before any expansion. The Medicare Payment Advisory Commission (MedPAC) recommended that we not finalize the policy because it did not require that a new drug be more effective than current treatment and could undermine competition with existing drugs; or, if we do move forward with the policy, that we narrow eligibility to new drugs that fall into an existing ESRD PPS functional category only if they substantially improve beneficiaries' outcomes.

Other commenters had similar concerns and recommended that we require that the TDAPA apply for new renal dialysis drugs and biological products that have clinical superiority over the existing products in the existing functional categories, and they provided suggestions on clinical value criteria. In addition, some commenters believed that the TDAPA should not apply to generic drugs and biosimilar biological products. Commenters asserted that generic drugs and biosimilar biological products seek to provide the same type of treatment and patient outcomes as existing drugs in the ESRD PPS bundled payment. Commenters further believed that these types of drugs and biological products have no clinically meaningful differences and that they should be treated equally in payment and coverage policies. We also received several comments on our proposal to apply the TDAPA for a new renal dialysis drug or biological product that is considered included in the ESRD PPS base rate for 2 years, and to not modify the ESRD PPS base rate following payment of the TDAPA (83 FR 56934 through 56943).

After considering the public comments, we finalized the expansion of the eligibility criteria for the TDAPA to reflect the proposed policy in the CY 2019 ESRD PPS final rule (83 FR 56943). In that rule we explained that there are two purposes of providing the TDAPA. For renal dialysis drugs and biological products that fall into an existing ESRD PPS functional category, the purpose of the TDAPA is to help ESRD facilities to incorporate new drug and biological products and make appropriate changes in their businesses to adopt such products; provide additional payment for such associated costs, as well as promote competition among drugs and biological products within the ESRD PPS functional categories. For new renal dialysis drugs and biological products that do not fall within an existing ESRD PPS functional category and that are not considered to be reflected in the ESRD PPS base rate, the purpose of the TDAPA is to be a pathway toward a potential base rate modification (83 FR 56935).

In response to commenters that recommended clinical superiority of new renal dialysis drugs and biological products, we explained in the CY 2019 ESRD PPS final rule (83 FR 56938) that we believed allowing all new drugs and biological products to be eligible for the TDAPA would provide an ability for new drugs and biological products to compete with other drugs and biological products in the market, which could mean lower prices for all such products. We also noted our belief that categorically limiting or excluding any group of drugs from the TDAPA would reduce the competitiveness because there would be less incentive for manufacturers to develop lower-priced drugs, such as generic drugs, to be able to compete with higher priced drugs during the TDAPA period. In addition, the question of whether one drug is more effective than another can be impacted by characteristics that vary across patients such as age, gender, race, genetic pre-disposition and comorbidities. We stated that innovation can provide options for those patients who do not respond to a certain preferred treatment regimen the same way the majority of patients respond.

In response to commenters who recommended that we not apply the TDAPA to generic drugs and biosimilar biological products, we explained in the CY 2019 ESRD PPS final rule (83 FR 56938) that the purpose of this policy is to foster a competitive marketplace in which all drugs within a functional category would compete for market share. We stated that we believed including generic drugs and biosimilar biological products under the TDAPA expansion would mitigate or discourage high launch prices. We further explained that we believed including these products would foster innovation of drugs within the current functional categories. We also noted that we believed including these products would give a financial boost to support their utilization, and ultimately lower overall drug costs since these products generally have lower prices. Because of this, we stated that we believed that generic drugs and biosimilar biological products would provide cost-based competition for new higher priced drugs during the TDAPA period and also afterward when they are bundled into the ESRD PPS.

In response to ESRD facilities that expressed concern regarding operational difficulties and patient access issues experienced for current drugs paid for using the TDAPA, we elected to make all of the changes to the drug designation process under § 413.234 and the expansion of the TDAPA eligibility effective January 1, 2020, as opposed to January 1, 2019, to address as many of those concerns as possible (83 FR 56937). We explained in the CY 2019 ESRD PPS final rule that the additional year provides us with the opportunity to address issues such as transitioning payment from Part D to Part B, coordinating issues involving Medicaid

and new Medicare Advantage policies, and working with the current HCPCS process as it applies to the ESRD PPS to accommodate the initial influx of new drugs and biological products. We also indicated that the additional year would allow more time for ESRD facility and beneficiary education about this new policy.

In addition, with regard to the HCPCS process, we explained the additional year would help us operationally in working with the HCPCS workgroup that manages the HCPCS process as it applies to the ESRD PPS to accommodate the initial influx of new renal dialysis drugs and biological products. We explained that in collaboration with the HCPCS workgroup we would make the determination of whether a drug or biological product is a renal dialysis service. We would also determine if the new renal dialysis drug or biological product falls within an existing functional category or if it represents a new functional category (83 FR 56937 through 56938).

With regard to our proposal to not modify the ESRD PPS base rate for new renal dialysis drugs and biological products that fall within existing ESRD PPS functional categories, we explained that we believe the intent of the TDAPA for these products is to provide a transition period for the unique circumstances experienced by ESRD facilities and to allow time for the uptake of the new product. We further explained that we did not believe it would be appropriate to add dollars to the ESRD PPS base rate for new renal dialysis drugs and biological products that fall within existing functional categories and that doing such would be in conflict with the fundamental principles of a PPS.

We also explained that the proposal would strike a balance of maintaining the existing functional category scheme of the drug designation process and not adding dollars to the ESRD PPS base rate when the base rate may already reflect costs associated with such services, while still supporting high-value innovation and allowing facilities to adjust or factor in new drugs through a short-term transitional payment.

We stated in the CY 2019 ESRD PPS final rule (83 FR 56940) that under our final policy, beginning January 1, 2020, for new renal dialysis drugs and biological products that fall within an existing functional category, the application of the TDAPA will begin with the effective date of subregulatory billing guidance and end 2 years from that date.

For new renal dialysis drugs and biological products that do not fall within an existing functional category, we continued the existing policy that application of the TDAPA will begin with the effective date of subregulatory billing guidance and end after we determine through notice-and-comment rulemaking how the drug will be recognized in the ESRD PPS bundled payment.

Fourth, in the CY 2019 ESRD PPS final rule, we changed the TDAPA's basis of payment (83 FR 34314 through 34316). We explained that if we adopted the proposals to expand the TDAPA eligibility criteria using the current basis of payment for the TDAPA—the pricing methodologies available under section 1847A of the Act—Medicare expenditures would increase, which would result in increases of cost sharing for ESRD beneficiaries, since we had not previously provided the TDAPA for all new renal dialysis drugs and biological products. We also discussed other reasons why we believed it may not be appropriate to base the TDAPA strictly on section 1847A of the Act methodologies (83 FR 34315).

Therefore, we proposed to base the TDAPA on 100 percent of ASP (ASP+0) instead of the pricing methodologies available under section 1847A of the Act (which includes ASP+6). For circumstances when ASP data is not available, we proposed that the TDAPA would be based on 100 percent of Wholesale Acquisition Cost (WAC) and, when WAC is not available, the TDAPA would be based on the drug manufacturer's invoice.

In the CY 2019 ESRD PPS final rule (83 FR 56943 through 56948), we discussed several comments received on this proposal. MedPAC supported the proposal to use ASP+0, stating that the ESRD PPS accounts for storage and administration costs and that ESRD facilities do not have acquisition price variation issues when compared to physicians. Conversely, industry stakeholders recommended the basis of payment remain at ASP+6 since they believe it assists with the administrative costs of packaging, handling, and staff. Commenters also recommended that CMS consider the impact of bad debt recovery and sequestration on payment when determining the basis of payment.

After considering public comments, in the CY 2019 ESRD PPS final rule (83 FR 56948), we finalized the policy as proposed, with one revision to change the effective date to CY 2020, and another revision to reflect that the basis of payment for the TDAPA for calcimimetics would continue to be based on the pricing methodologies available under section 1847A of the Act (which includes ASP+6). We explained that we believe ASP+0 is reasonable for new renal dialysis drugs and biological products that fall within an existing functional category because there are already dollars in the per treatment base rate for a new drug's respective category. We also explained that we believe ASP+0 is a reasonable basis for payment for the TDAPA for new renal dialysis drugs and biological products that do not fall within the existing functional category because the ESRD PPS base rate has dollars built in for administrative complexities and overhead costs for drugs and biological products (83 FR 56946).

Fifth and finally, in the CY 2019 ESRD PPS final rule (83 FR 56948 through 56949), we finalized a policy to extend the TDAPA to composite rate drugs and biological products that are furnished for the treatment of ESRD. Specifically, beginning January 1, 2020, if a new renal dialysis drug or biological product as defined in § 413.234(a) is considered to be a composite rate drug or biological product and falls within an existing ESRD PPS functional category, it will be eligible for the TDAPA.

We explained that we believed by allowing all new renal dialysis drugs and biological products to be eligible for the TDAPA, we would provide an ability for a new drug to compete with other similar drugs in the market which could mean lower prices for all drugs. We further explained that we believed that new renal dialysis composite rate drugs and biological products could benefit from this policy as well. Additionally, we explained that we continue to believe that the same unique consideration for innovation and cost exists for drugs that are considered composite rate drugs. That is, the ESRD PPS base rate dollars allocated for these types of drugs may not directly address the costs associated with drugs in this category when they are newly launched and are finding their place in the market. We noted that we had not proposed to change the outlier policy and therefore these products will not be eligible for an outlier payment after the TDAPA period.

b. Basis for Proposed Refinement of the TDAPA Eligibility Criteria

Based on feedback received during and after the CY 2019 ESRD PPS rulemaking, we are proposing to make further refinements to the TDAPA eligibility criteria. As we discussed in the CY 2019 ESRD PPS final rule (83 FR 56935) and in section II.B.1.a of this proposed rule, we received many comments from all sectors of the

dialysis industry and other stakeholders on our proposal to expand the TDAPA eligibility to all new renal dialysis drugs and biological products, and each had their view on the direction the policy needed to go to support innovation. Commenters generally agreed that more drugs and biological products should be eligible for the TDAPA, that is, they agreed that drugs and biological products that fall within an ESRD PPS functional category should be eligible for a payment adjustment when they are new to the market. However, commenters also had specific policy recommendations for each element of the drug designation process, including which drugs should qualify for the TDAPA.

In the CY 2019 ESRD PPS final rule (83 FR 56938) some commenters recommended, among other suggestions, that CMS not apply the TDAPA to generic drugs or to biosimilar biological products. The commenters explained that they believe the rationale for the TDAPA is to allow the community and CMS to better understand the appropriate utilization of new products and their pricing. Commenters asserted that generic drugs and biosimilar biological products seek to provide the same type of treatment and patient outcomes as existing drugs in the ESRD PPS bundled payment. Thus, they expressed that the additional time for uptake is unnecessary for these drugs and biological products.

In addition, a drug manufacturer commented that a generic drug is not innovative because it must have the same active ingredient, strength, dosage form, and route of administration as the innovator drug it references in its abbreviated new drug application (ANDA). Further, a biosimilar biological product is not innovative because it is required under the Public Health Service Act (the PHS Act) to be highly similar and have no clinically meaningful differences to the reference product and cannot be licensed for a condition of use that has not been previously approved for the reference product or for a dosage form, strength, or route of administration that differs from that of the reference product. The commenter stated that because they have no clinically meaningful differences, biosimilar biological products and reference products should be treated equally in payment and coverage policies; a biosimilar biological product should not be eligible for the TDAPA when its reference product would not qualify for the payment.

Some commenters recommended that CMS require that the new renal dialysis drug or biological product, in order to be eligible for the TDAPA, have a clinical superiority over existing drugs in the ESRD PPS bundled payment and provided suggestions on clinical value criteria. A dialysis facility organization expressed concern that the proposed policy would encourage promotion of so called “me too” drugs and higher launch prices, even if moderated after 2 years (83 FR 56938). A drug manufacturer recommended that CMS consider when FDA may re-profile a drug (83 FR 56939). The commenter further explained that re-profiling a drug may occur when its utility and efficacy are further elucidated or expanded once on-market. The commenter recommended that CMS establish a pathway as part of the drug designation process that would allow for manufacturers or other stakeholders to request that CMS reconsider how a particular drug is classified with regard to the functional categories.

MedPAC recommended that CMS not proceed with its proposal to apply the TDAPA policy to new renal dialysis drugs that fit into an existing functional category for several reasons (83 FR 56936). For example, MedPAC stated that paying the TDAPA for new dialysis drugs that fit into a functional category would be duplicative of the payment that is already made as part of the ESRD PPS bundle. MedPAC also asserted that applying the TDAPA to new dialysis drugs that fit into an existing functional category undermines competition with existing drugs included in the PPS payment bundle since the TDAPA would effectively unbundle all new dialysis drugs, removing all cost constraints during the TDAPA period and encouraging the establishment of high launch prices.

Since publishing the CY 2019 ESRD PPS final rule, we have continued to hear concerns about expanding the TDAPA policy from numerous stakeholders, including ESRD facilities and their professional associations, beneficiaries and their related associations, drug manufacturers, and beneficiary groups.

Also, our data contractor held a Technical Expert Panel (TEP) in December 2018, and gathered input regarding the expanded TDAPA policy at that time. More information about the TEP is discussed in section VIII.A of this proposed rule. Some ESRD facility associations participating in the TEP generally expressed concern that the TDAPA policy, as finalized in the CY 2019 ESRD PPS final rule, would inappropriately direct Medicare dollars to drugs and biological products that may be new to the market but not new with regard to certain characteristics of the drug itself. For example, commenters noted that section 505 of the FD&C Act is broad and includes FDA approval of new drug applications (NDA), which is the vehicle through which drug sponsors formally propose that FDA approve a new pharmaceutical for sale and marketing in the U.S.
1

Section 505 of the FD&C Act includes FDA approval of NDAs for drugs that have a new dosage form, a reformulation, or a re-engineering of an existing product. These types of drugs are referred to in the pharmaceutical industry as line extensions, follow-on products, or me-too drugs.

1
FDA. New Drug Application (NDA). Available at:
https://www.fda.gov/drugs/types-applications/new-drug-application-nda.

Due to the feedback received following publication of the CY 2019 ESRD PPS final rule, we continued to analyze certain aspects of the policies finalized in the CY 2019 ESRD PPS final rule and are revisiting these issues as part of this proposed rule. Specifically, since ESRD facilities and other dialysis stakeholders have expressed concern about the broad nature of including all new renal dialysis drugs and biological products as eligible for the TDAPA, we are reconsidering whether all new renal dialysis drugs and biological products that fall within an existing ESRD PPS functional category should be eligible for the TDAPA.

As noted previously, in the CY 2019 ESRD PPS final rule (83 FR 56932) we finalized that effective January 1, 2020, a new renal dialysis drug or biological product is defined in § 413.234 as “[a]n injectable, intravenous, oral or other form or route of administration drug or biological product that is used to treat or manage a condition(s) associated with ESRD. It must be approved by the FDA on or after January 1, 2020, under section 505 of the [FD&C Act] or section 351 of the [PHS Act], commercially available, have an HCPCS application submitted in accordance with the official Level II HCPCS coding procedures, and designated by CMS as a renal dialysis service under § 413.171. Oral-only drugs are excluded until January 1, 2025.” While there are several parts of this definition, in this proposed rule we are focusing on the requirement that the product be approved by FDA “under section 505 of the [FD&C Act] or section 351 of the [PHS Act].” Specifically, we are proposing that certain new renal dialysis drugs approved by FDA under those authorities would not be eligible for the TDAPA under § 413.234(c)(1).

Section 505 of the FD&C Act and section 351 of the PHS Act provide the

authority to FDA for approving drugs and biological products, respectively, and provide several pathways for drug manufacturers to submit NDAs and biologics license applications (BLAs). Therefore, we have consulted with FDA and studied the different categories of NDAs and the different biological product pathways to consider whether the full breadth of these authorities aligned with our goals for the TDAPA policy under the ESRD PPS. As we explained in the CY 2019 ESRD PPS final rule (83 FR 56935), the purpose of the TDAPA for new renal dialysis drugs and biological products that fall within an existing functional category is to support innovation and help ESRD facilities to incorporate new products and make appropriate changes in their businesses to adopt such products; provide additional payment for such associated costs, as well as promote competition among drugs and biological products within the ESRD PPS functional categories.

FDA approves certain new drugs under section 505(c) of the FD&C Act, which includes NDAs submitted pursuant to section 505(b)(1) or 505(b)(2) of the FD&C Act. Section 505(b)(1) of the FD&C Act is a pathway for “stand-alone” applications and is used for drugs that have been discovered and developed with studies conducted by or for the applicant or for which the applicant has a right of reference, and are sometimes for new molecular entities and new chemical entities that have not been previously approved in the U.S.

Section 505(b)(2) of the FD&C Act is another pathway for NDAs, but where at least some of the information for an approved drug comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. A 505(b)(2) application may rely on FDA's finding of safety and/or effectiveness for a listed drug (an approved drug product) or published literature provided that such reliance is scientifically justified and the 505(b)(2) applicant complies with the applicable statutory and regulatory requirements, including patent certification if appropriate. (See section 505(b)(2) of the FD&C Act and 21 CFR 314.54.) NDAs submitted pursuant to section 505(b)(1) or 505(b)(2) of the FD&C Act are then subdivided into categories by FDA.

The Office of Pharmaceutical Quality in FDA's Center for Drug Evaluation and Research's (CDER) has an NDA categorizing system that utilizes NDA classification codes. As explained in FDA/CDER Manual of Policies and Procedures (MAPP) 5018.2, “NDA Classification Codes”, the code evolved from both a management and a regulatory need to identify and group product applications based on certain characteristics, including their relationships to products already approved or marketed in the U.S. FDA tentatively assigns an NDA classification code (that is, Type 1 NDA through Type 10 NDA) by the filing date for an NDA and reassesses the code at the time of approval. The reassessment is based upon relationships of the drug product seeking approval to products already approved or marketed in the U.S. at the time of approval. FDA may also reassess the code after approval. The NDA classification code is not indicative of the extent of innovation or therapeutic value that a particular drug represents. More information regarding the NDA classification code is available in FDA/CDER MAPP 5018.2 on FDA website at:
https://www.fda.gov/downloads/aboutfda/centersoffices/officeofmedicalproductsandtobacco/cder/manualofpoliciesprocedures/ucm470773.pdf
and summarized in Table 1.

Table 1—NDA Classification Codes

Classification
Meaning

Type 1
New molecular entity.

Type 2
New active ingredient.

Type 3
New dosage form.

Type 4
New combination.

Type 5
New formulation or other differences.

Type 6
New indication or claim, same applicant [no longer used].

Type 7
Previously marketed but without an approved NDA.

Type 8
Prescription to Over-the-Counter.

Type 9
New indication or claim, drug not to be marketed under type 9 NDA after approval.

Type 10
New indication or claim, drug to be marketed under type 10 NDA after approval.

Type 1/4
Type 1, New molecular entity, and Type 4, New combination.

Type 2/3
Type 2, New active ingredient, and Type 3, New dosage form.

Type 2/4
Type 2, New active ingredient and Type 4, New combination.

Type 3/4
Type 3, New Dosage Form, and Type 4, New combination.

An ANDA is an application submitted by drug manufacturers and approved by FDA under section 505(j) of the FD&C Act for a “duplicate”
2

of a previously approved drug product. ANDAs are used for generic drugs. An ANDA relies on FDA's finding that the previously approved drug product, that is, the reference listed drug, is safe and effective.

2
The term
duplicate
generally refers to a “drug product that has the same active ingredient(s), dosage form, strength, route of administration, and conditions of use as a listed drug,” that is, a previously approved drug product. See 54 FR 28872 (July 10, 1989).

Biological products are approved by FDA under section 351 of the PHS Act. There are two pathways for biological products, one under section 351(a) and the other under section 351(k) of the PHS Act. A BLA submitted under section 351(a) of the PHS Act is the pathway for “stand-alone BLAs” that contains all information and data necessary to demonstrate that (among other things) the proposed biological product is safe, pure and potent. The 351(k) BLA pathway requires that the application contain information demonstrating that the biological product is biosimilar to or interchangeable with an FDA-licensed reference product. FDA does not assign classification codes for BLAs like it does for NDAs.

In addition to consulting with FDA, pharmaceutical statisticians within CMS have provided insight on the potential outcomes of providing payment incentives for promoting competition among drugs and biological products within the ESRD PPS functional categories. Specifically, we have learned that certain unintended consequences could arise from providing payment incentives for drugs with innovative qualities (for example, new molecular entities) in the same way as drugs with non-innovative qualities (for example, generic drugs). For example, more attention might be diverted to the less costly duplication of drugs that are already available rather than those that may be more expensive to develop and bring to market. This could cause an influx of non-innovative drugs to the dialysis space, potentially crowding out innovative drugs.

c. Proposed Refinement of the TDAPA Eligibility Criteria

We analyzed the information we gathered since the publication of the CY 2019 ESRD PPS final rule and contemplated the primary goal of the TDAPA policy for new renal dialysis drugs and biological products that fall within ESRD PPS functional categories, which is to support innovation and encourage development of these products. We continue to believe that this is accomplished by providing payment to ESRD facilities during the uptake period for a new renal dialysis drug or biological product to help the facilities incorporate new drugs and make appropriate changes in their businesses to adopt such drugs. We also continue to believe that the TDAPA provides additional payment for costs associated with these changes.

In addition to supporting innovation, we are mindful of the increase in Medicare expenditures associated with the expanded TDAPA policy. We note that the first year in which we paid the TDAPA, CY 2018, resulted in an estimated $1.2 billion increase in ESRD PPS expenditures for two calcimimetic drugs used by approximately 25 percent of the Medicare ESRD population. We recognized that the policy we finalized in the CY 2019 ESRD PPS final rule would mean that each new renal dialysis drug and biological product eligible for the TDAPA would result in an increase in Medicare expenditures. However, we were balancing an increase in Medicare expenditures with the rationale for fostering a competitive marketplace. In the CY 2019 ESRD PPS final rule (83 FR 56937), we stated that we believed that by expanding the eligibility to all new drugs and biological products we would promote competition among drugs and biological products within the ESRD PPS functional categories which could result in lower prices for all drugs.

In response to ESRD facility and other dialysis stakeholders' concerns raised during and after the CY 2019 ESRD PPS rulemaking, and after conducting a closer study of FDA's NDA process, we are reconsidering the eligibility criteria that we finalized effective January 1, 2020. Since there are not unlimited Medicare resources, we believe those resources should not be expended on additional payments to ESRD facilities for drugs and biological products that are not truly innovative, and may facilitate perverse incentives for facilities to choose new products simply for financial gain. Since we have the ability to be more selective, through FDA's NDA classification codes, with the categories of renal dialysis drugs that would be eligible for the TDAPA for products in existing ESRD PPS functional categories, we believe that we can balance supporting innovation, incentivizing facilities with uptake of new and innovative renal dialysis products, and fostering competition for renal dialysis drugs and biological products that are new and innovative, rather than just new.

We acknowledge that the definition finalized in the CY 2016 ESRD PPS final rule (80 FR 69015 through 69027), which includes products “approved by [FDA] . . . under section 505 of the [FD&C Act] or section 351 of the [PHS Act]” has been part of the TDAPA eligibility criteria since the inception of the policy. We also acknowledge that this may be too expansive for purposes of determining eligibility for the TDAPA for new renal dialysis drugs and biological products that fall within an existing functional category. For example, there may be new renal dialysis drugs approved by FDA under section 505 of the FD&C Act that may not be innovative.

We also acknowledge that while dialysis industry stakeholders recommended that we adopt significant clinical improvement standards for the TDAPA eligibility, we believe that unlike many Medicare beneficiaries, the Medicare ESRD beneficiary is significantly complex, with each patient having a unique and challenging profile for medical management of drugs and biological products. Practitioners should have the opportunity to evaluate the appropriate use of a new drug or biological product and its effect on patient outcomes and interactions with other medications the patient is currently taking. Further, the question of whether one drug is more effective than another can be impacted by characteristics that vary across patients such as age, gender, race, genetic pre-disposition and comorbidities. Innovation of drugs and biological products can provide options for those patients who do not respond to a certain preferred treatment regimen the same way the majority of patients respond.

In section II.B.1.c.i of this proposed rule we discuss categories of drugs that we are proposing to exclude from eligibility for the TDAPA under § 413.234(b)(1)(ii) and our proposed revisions to the drug designation process regulation in § 413.234 to reflect those categories.

We are also proposing to rely on, as a proxy, the NDA classification code, as it exists as of November 4, 2015, which is part of FDA/CDER MAPP 5018.2. The FDA/CDER MAPP 5018.2 is available at FDA website
https://www.fda.gov/media/94381/download.
We recognize that FDA's NDA classification codes do not necessarily reflect the extent of innovation or therapeutic advantage that a particular drug product represents. However, we believe FDA's NDA classification codes would provide an objective basis that we can use to distinguish innovative from non-innovative renal dialysis service drugs. We believe that distinguishing drugs would help us in our effort to support innovation by directing Medicare resources to renal dialysis drugs and biological products that are not reformulations or new dosage forms, while simultaneously balancing our goal to foster competition within the ESRD PPS functional categories by supporting products that advance the treatment for ESRD beneficiaries at a lower cost.

As discussed in section II.B.1.b of this proposed rule, the classification code assigned to an NDA generally describes FDA's classification of the relationship of the drug to drugs already marketed or approved in the U.S. If FDA makes changes to the NDA classification code in FDA/CDER MAPP 5018.2, we are proposing that we would assess FDA changes at the time they are publicly available and we would analyze those changes with regard to their implications for the TDAPA policy under the ESRD PPS. We would plan to propose in the next rulemaking cycle, any necessary revisions to the exclusions set forth in proposed § 413.234(e). We are soliciting comment on the proposal to rely on, as a proxy, the NDA classification code, as it exists as of November 4, 2015, which is part of the FDA/CDER MAPP 5018.2. We are also soliciting comments on the proposal that we would assess FDA changes to the NDA classification code at the time they are publicly available to analyze the changes with regard to their implications for the TDAPA policy and propose in the next rulemaking cycle, any necessary revisions to the proposed exclusions.

Currently, stakeholders must notify the Division of Chronic Care Management in our Center for Medicare of the interest for eligibility for the TDAPA and provide the information requested (83 FR 56932) for CMS to make a determination as to whether the new renal dialysis drug or biological product is eligible for the adjustment. With regard to operationalizing the proposed exclusions, in addition to the information currently described on the CMS ESRD PPS TDAPA web page under the Materials Required for CMS Determination Purposes, we would request that the stakeholder provide the FDA NDA Type classified at FDA approval or state if the drug was approved by FDA under section 505(j) of the FD&C Act.
3

If the FDA NDA Type classified at FDA approval changes subsequently to the submission of the TDAPA application into CMS, we would expect that the submitter would resubmit the TDAPA request, and we would re-evaluate the submission. We note that we plan to have quarterly meetings with FDA to discuss new renal dialysis drugs and biological products that are eligible for the TDAPA.

3
CMS. ESRD PPS Transitional Drug Add-on Payment Adjustment. Available at:
https://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ESRDpayment/ESRD-Transitional-Drug.html.

As we discuss in the CY 2019 ESRD PPS final rule (83 FR 56932), once the information requested by CMS is

received and reviewed, for new renal dialysis drugs and biological products eligible for the TDAPA, we will issue a change request with billing guidance that will provide notice that the product is eligible for the TDAPA as of a certain date and guidance on how to report the new drug or biological product on the ESRD claim. The effective date of this change request will initiate the TDAPA payment period and, for drugs that do not fall within a functional category, the data collection period.

For new renal dialysis drugs and biological products that are not eligible for the TDAPA, we indicated that a change request would be issued that will provide notice that the drug is included in the ESRD PPS bundle, qualifies as an outlier service, and is available for use, allowing patients to have access to the new product.

i. Proposed Exclusions From the TDAPA Eligibility

Using the current categories in FDA/CDER MAPP 5018.2 effective November 4, 2015, we are proposing to exclude Types 3, 5, 7 and 8, Type 3 in combination with Type 2 or Type 4, Type 5 in combination with Type 2, and Type 9 when the “parent NDA” is a Type 3, 5, 7 or 8 from being eligible for the TDAPA under § 413.234(c)(1). A Type 9 NDA is for a new indication or claim for a drug product that is currently being reviewed under a different NDA (the “parent NDA”), and the applicant does not intend to market this drug product under the Type 9 NDA after approval. We would use the NDA classification code Type identified at FDA approval. If FDA changes the classification type after we start applying the TDAPA with respect to a particular new renal dialysis drug, we would re-evaluate TDAPA eligibility. We are also proposing to exclude generic drugs from being eligible for the TDAPA under § 413.234(c)(1). In the following paragraphs we describe each NDA Type, as distinguished by FDA through the NDA classification code, and generic drugs proposed for exclusion and explain why we believe these products should not be eligible for the TDAPA for new renal dialysis drugs and biological products that fall within an existing ESRD PPS functional category.

(a) Type 3 NDA—New Dosage Form

Some dialysis stakeholders expressed concern that we would be paying the TDAPA for changes that did not reflect a product being significantly innovative, such as a pill size, pill scoring, oral solutions and suspensions of drugs that were previously only approved as solid oral dosage forms, time-release forms, chewable or effervescent pills, orally disintegrating granules or adsorptive changes, or routes of administration. In response to these concerns, we are proposing to exclude Type 3 NDAs, which is for a new dosage form of an active ingredient that has been approved or marketed in the U.S. by the same or another applicant but has a different dosage form, as well as Type 3 in combination with Type 2 or Type 4, from being eligible for the TDAPA under § 413.234(b)(1). In addition, we are proposing to exclude Type 9 NDAs, as discussed in section II.B.1.ii.(d), when the “parent NDA” is a Type 3 NDA.

FDA's regulation defines an active ingredient as a component of the drug product that is intended to furnish pharmacological activity or other direct effect in the diagnosis, cure, mitigation, treatment, or prevention of disease, or to affect the structure or any function of the body of man or other animals (21 CFR 314.3(b), which is incorporated in FDA/CDER MAPP 5018.2).

FDA's regulation defines dosage form as the physical manifestation containing the active and inactive ingredients that delivers a dose of the drug product (21 CFR 314.3(b), which is incorporated in FDA/CDER MAPP 5018.2). This includes such factors as: (1) The physical appearance of the drug product, (2) the physical form of the drug product prior to dispensing to the patient, (3) the way the product is administered, and (4) the design features that affect the frequency of dosing.

For Type 3 NDA drugs, the indication does not need to be the same as that of the already approved drug product. Once the new dosage form has been approved for an active ingredient, subsequent applications for the same dosage form and active ingredient should be classified as Type 5 NDA.

For purposes of the ESRD PPS, we do not want to incentivize the use of one dosage form of the drug over another. In addition to not being innovative, these drugs that are new to the market may not be innovative with regard to certain characteristics of the drug itself. Although these drugs may provide an expansion of patient treatment options, we believe these changes are not innovative and these drugs should not be paid for using the TDAPA. However, these drugs are still accounted for in the ESRD PPS base rate and would be eligible for an outlier payment. This type of research, development and marketing activity has been termed “product hopping” and can help manufacturers prolong revenue streams.
4

We do not believe these products should be eligible for the TDAPA because we do not want to provide perverse incentives for facilities to choose a new dosage form in order to obtain the TDAPA. In addition, we do not want to encourage the practice of companies moving drug research and development dollars from one branded drug to another, very similar drug with a longer patent life, thus increasing its market exclusivity for many years. This practice is counter to our goal of not only increasing competition among drugs in the ESRD functional categories so there are better drugs at lower cost, but also making the best use of Medicare resources and directing of those resources to payment for the utilization of high value, innovative drugs. For these reasons we are proposing to exclude Type 3 NDA drugs as being eligible for the TDAPA.

4
Reed F. Beall et al. New Drug Formulations and Their Respective Generic Entry Dates, JMCP. February, 2019, 25(2): 218-224. Available at:
https://www.jmcp.org/doi/pdf/10.18553/jmcp.2019.25.2.218.

(b) Type 5 NDA—New Formulation or Other Differences

We are proposing to exclude Type 5 NDA drugs, which can be a new formulation or new manufacturer, from being eligible for the TDAPA. In addition, we are proposing to exclude Type 9 NDAs, as discussed in section II.B.1.ii.(d) of this proposed rule, when the “parent NDA” is a Type 5 NDA. Drugs that are classified as a Type 5 NDA are sometimes referred to as reformulations or follow-on products. Specifically, a Type 5 NDA is for a product, other than a new dosage form, that differs from a product already approved or marketed in the U.S. because of one of the seven following product characteristics.

The first characteristic involves changes in inactive ingredients that require either bioequivalence studies or clinical studies for approval and the product is submitted as an original NDA rather than as a supplement by the applicant of the approved product.

The second characteristic is that the product is a “duplicate” of a drug product by another applicant (same active ingredient, same dosage form, same or different indication, or same combination, and requires one of the following 4 items: (a) Bioequivalence testing, including bioequivalence studies with clinical endpoints, but is not eligible for submission as a section 505(j) application; (b) safety or effectiveness testing because of novel inactive ingredients; (c) full safety or effectiveness testing because the

product is one of the following four items: (i) Is subject to exclusivity held by another applicant; (ii) is a product of biotechnology and its safety and/or effectiveness are not assessable through bioequivalence testing, (iii) it is a crude natural product, or, (iv) it is ineligible for submission under section 505(j) of the FD&C Act because it differs in bioavailability, for example, products with different release patterns or (d) the applicant has a right of reference to the application.

The third characteristic is that the product contains an active ingredient or active moiety that has been previously approved or marketed in the U.S. only as part of a combination. This applies to active ingredients previously approved or marketed as part of a physical or chemical combination, or as part of a mixture derived from recombinant deoxyribonucleic acid technology or natural sources. An active moiety is the molecule or ion, excluding those appended portions of the molecule that cause the drug to be an ester, salt (including a salt with hydrogen or coordination bonds), or other noncovalent derivative (such as a complex, chelate, or clathrate) of the molecule, responsible for the physiological or pharmacological action of the drug substance (21 CFR 314.3(b)).

The fourth characteristic is that the product is a combination product that differs from a previous combination product by removal of one or more active ingredients or by substitution of a new ester or salt or other noncovalent derivative of an active ingredient for one of more of the active ingredients. In the case of a substitution of a noncovalent derivative of an active ingredient for one or more of the active ingredients, the NDA would be classified as a Type 2, 5 combination and we would propose to exclude it from eligibility for the TDAPA under § 413.234(b)(1).

The fifth characteristic is that the product contains a different strength of one or more active ingredients in a previously approved or marketed combination. A Type 5 NDA would generally be submitted by an applicant other than the holder of the approved application for the approved product. A similar change in an approved product by the applicant of the approved product would usually be submitted as a supplemental application.

The sixth characteristic is that the product differs in bioavailability (for example, superbioavailable or different controlled-release pattern) and, therefore, is ineligible for submission as an ANDA under section 505(j) of the FD&C Act.

The seventh characteristic is that the product involves a new plastic container that requires safety studies beyond limited confirmatory testing (see 21 CFR 310.509, Parenteral drugs in plastic containers, and FDA/CDER MAPP 6020.2, Applications for Parenteral Products in Plastic Immediate Containers).

Some commenters have characterized the types of drugs that are often approved in Type 5 NDAs as reformulations or line extensions. A line extension is a variation of an existing product.
5

The variation can be a new formulation (reformulation) of an existing product, or a new modification of an existing molecular entity.
6

A line extension has been defined as a branded pharmaceutical product that: (1) Includes the same active ingredient (either alone or in combination with other active ingredients) as an original product, (2) is manufactured by the same pharmaceutical company that makes the original product, or by one of its partners or subsidiaries, and, (3) is launched after the original product.
7

An NME is discussed in section II.B.1.c.ii.(a) of this proposed rule. Line extensions were few in number prior to 1984, when the Drug Price Competition and Patent Term Restoration Act was passed following public outcry over high drug prices and rising drug expenditures, and following passage of that law, line extensions became prevalent in the pharmaceutical drug industry. We are aware that one of the acknowledged criticisms of pharmaceutical line extensions is their use as a strategy to extend the patent protections for products that have patents that are about to expire, by developing a new formulation and taking out new patents for the new formulation.
8

It has been noted that line extensions through new formulations are not being developed for significant therapeutic advantage, but rather for the company's economic advantage.
9

5
V. Kadiyali et al. Product line extensions and competitive market interactions: An empirical analysis. J Econometrics. 1998, 89 (1-2): 339-63.

6
S.H. Hong et al. Product Line Extensions and Pricing Strategies of Brand-Name Drugs Facing Patent Expirations, J MCP. 2005, 11(9): 746-754.

7
A.C. Fowler, October 6, 2017, White Paper—Pharmaceutical Line Extensions in the United States,
http://www.nber.org/aging/valmed/WhitePaper-Fowler10.2017.pdf
.

8
S.H. Hong et al. Product Line Extensions and Pricing Strategies of Brand-Name Drugs Facing Patent Expirations, J MCP. 2005, 11(9): 746-754.

9
R. Collier Drug patents: The evergreening problem. CMAJ. 2013 Jun11; 185(9):E385-6. doi: 10.1503/cmaj.109-4466. Epub 2013 Apr 29.

We do not believe that the characteristics of Type 5 NDA drugs would advance the intent of the TDAPA for new renal dialysis drugs and biological products that fall within an existing functional category. While Type 5 NDA drugs may have clinical benefits to patients over previously approved products, we do not make that assessment as part of ESRD PPS payment policy. We do not believe that the types of changes represented by Type 5 NDAs enhance our goal of increased competition with the overarching goal of lowering drug prices. To the contrary, it seems that a goal of line extensions can be to thwart competition. Studies indicate that there is no lowering of prices through competition from line extensions. Rather, it has been reported that prices remain rigid and are not lowered. In fact, not only can product line extensions thwart competition, but they inherit the market success of the original brand, sometimes with little quality improvement over the original brand.
10

For these reasons, we do not believe that providing a payment adjustment to ESRD facilities to support the uptake of a drug that is a line extension in their business model is a judicious use of Medicare resources. In addition, a study published in February 2019, concluded that the pattern of a considerable subset of reformulations prolonged the consumption of costly brand-name products at the expense of timely market entry of low cost generics.
11

This and other recent publications this past year have been helpful to inform policy proposals by demonstrating that reformulations frequently kept drug prices high, which does not meet our goal of increased competition assisting in the lowering of drug prices, at the expense of Medicare resources being directed to innovative drugs that advance the treatment of ESRD. Consequently, we believe it is important to propose to install guardrails to ensure that sufficient incentives exist for timely innovative drugs for the ESRD patients, that competition for lowering drug prices is not thwarted, and that perverse incentives do not exist for patients to receive a drug because it is financially rewarding, through the TDAPA, for the ESRD facilities. For these reasons, we do not believe Type 5 NDA drugs should be eligible for the TDAPA, and we are

proposing to exclude them in new § 413.234(e).

10
S.H. Hong et al. Product Line Extensions and Pricing Strategies of Brand-Name Drugs Facing Patent Expirations, J MCP. 2005, 11(9): 746-754.

11
Reed F. Beall et al. New Drug Formulations and Their Respective Generic Entry Dates, JMCP. February, 2019, 25(2): 218-224. Available at:
https://www.jmcp.org/doi/pdf/10.18553/jmcp.2019.25.2.218
.

(c) Type 7 NDA—Previously Marketed but Without an Approved NDA

We are proposing to exclude Type 7 NDA, which is for a drug product that contains an active moiety that has not been previously approved in an application but has been marketed in the U.S., from being eligible for the TDAPA for renal dialysis drugs and biological products in existing functional categories. In addition, we are proposing to exclude Type 9 NDAs, as discussed in section II.B.1.ii.(d) of this proposed rule, when the “parent NDA” is a Type 7 NDA. This classification only applies to the first NDA approved for a drug product containing this (these) active moiety(ies). They include, but are not limited to the following four items: (1) The first post-1962 application for an active moiety marketed prior to 1938; (2) The first application for an active moiety first marketed between 1938 and 1962 that is identical, related or similar (IRS) to a drug covered by a Drug Efficacy Study Implementation (DESI) notice (FDA's regulation at 21 CFR 310.6(b)(1) states that, “[a]n identical, related, or similar drug includes other brands, potencies, dosage forms, salts, and esters of the same drug moiety as well as any of drug moiety related in chemical structure or known pharmacological properties”); (3) The first application for an IRS drug product first marketed after 1962; and (4) The first application for an active moiety that was first marketed without an NDA after 1962.

We do not believe that the characteristics of Type 7 NDA drugs would advance the intent of the TDAPA policy because these drugs were already on the market. For example, FDA received an application for calcium gluconate, which is on the Consolidated Billing List and is already recognized as a renal dialysis service included in the ESRD PPS base rate. The NDA for calcium gluconate was classified by FDA in 2017 to be a Type 7 NDA. This drug is not innovative and does not significantly advance the treatment options for ESRD. If the Type 7 NDA drug is determined to be a renal dialysis service, it is likely it is already being used by the facility, so paying the TDAPA for it does not assist the facilities in uptake for their business model, which was one of the goals of the TDAPA. In addition, paying the TDAPA for Type 7 NDA drugs uses Medicare resources that ultimately could be used to pay for innovative drugs and services that result from research and development in areas of high value innovation.

Therefore, we do not consider Type 7 NDA drugs to be eligible for the TDAPA.

(d) Type 8 NDA—Prescription to Over-the-Counter (OTC)

We are proposing to exclude Type 8 NDA, which is when a prescription drug product changes to an over-the-counter (OTC) drug product, from being eligible for the TDAPA. In addition, we are proposing to exclude Type 9 NDAs, as discussed in section II.B.1.ii.(d) of this proposed rule, when the “parent NDA” is a Type 8 NDA. A Type 8 NDA is for a drug product intended for OTC marketing that contains an active ingredient that has been approved previously or marketed in the U.S. only for dispensing by prescription. A Type 8 NDA may provide for a different dosing regimen, different strength, different dosage form, or different indication from the product approved previously for prescription sale.

If the proposed OTC switch would apply to all indications, uses, and strengths of an approved prescription dosage form (leaving no prescription-only products of that particular dosage form on the market), then FDA indicates that the application holder should submit the change as a supplement to the approved application. If the applicant intends to switch only some indications, uses, or strengths of the dosage form to OTC status (while continuing to market other indications, uses, or strengths of the dosage form for prescription-only sale), FDA indicates that the applicant should submit a new NDA for the OTC products, which would be classified as Type 8 NDA.

We do not believe that the characteristics of Type 8 NDA drugs would advance the intent of the TDAPA policy for renal dialysis drugs and biological products in existing functional categories because Type 8 NDAs are for drugs transitioning from prescription to OTC, and Medicare does not provide coverage of OTC drugs. Although certain innovative approaches may help increase access to a broader selection of nonprescription drugs for ESRD beneficiaries, we do not consider the transition from prescription to OTC to be innovative for purposes of the TDAPA policy. We believe that making the TDAPA available for Type 8 NDAs may defeat the intent of lowering overall costs for both the ESRD beneficiary and for Medicare, is not needed by the facilities to provide additional support during an uptake period so they can be incorporated into the business model. Over the counter drugs have already gone through safety trials if they were previously prescription drugs and their end-point physiologic activity had been recognized and documented. Therefore, the newness is a reflection of accessibility to the general public without having to obtain a prescription through a licensed practitioner. We believe that these drugs, though new to the market, are not sufficiently innovative to qualify for TDAPA eligibility.

(e) Generic Drugs

We are proposing to exclude drugs approved by FDA under section 505(j) of the FD&C Act, which are generic drugs, from being eligible for the TDAPA. As discussed previously in section II.B.1.b of this proposed rule, an ANDA is an application submitted by drug manufacturers and approved by FDA under section 505(j) of the FD&C Act for a duplicate of a previously approved drug product.

An ANDA generally must contain information to show that the proposed generic product: (1) Is the same as the reference listed drug (RLD) with respect to the active ingredient(s), conditions of use, route of administration, dosage form, strength, and labeling (with certain permissible differences) and (2) is bioequivalent to the RLD. See section 505(j)(2)(A) of the FD&C Act. An ANDA may not be submitted if clinical investigations are necessary to establish the safety and effectiveness of the proposed product. A drug product approved in an ANDA is presumed to be therapeutically equivalent to its RLD. A drug product that is therapeutically equivalent to an RLD can be substituted with the full expectation that the substituted product will produce the same clinical effect and safety profile as the RLD when administered to patients under the conditions specified in the labeling.

In the CY 2019 ESRD PPS final rule (83 FR 56931), we included generic drugs in the definition of a new renal dialysis drug or biological product eligible for the TDAPA because we believed this would foster both a competitive marketplace and innovation of drugs within functional categories, mitigate high launch prices, and provide a financial boost to support utilization. During the CY 2019 ESRD PPS rulemaking, we were aware of the pricing strategies being used by certain pharmaceutical companies to block the entry of generic drugs into the market in order to keep drug prices high. Though generic drugs are not considered innovative products, our primary intent in making generic drugs eligible for the TDAPA was to increase competition so that drug prices would be lower for the

beneficiary. However, we have since learned that bringing more generic drugs to market, though a significant component in lowering drug prices, is not in and of itself the solution.

For example, in June 2018, a report examined increased generic drug competition as the primary impetus to curtail skyrocketing drug prices, and found that though it is helpful, there is a ceiling on its impact. It found that generic competition would not affect 46 percent of the estimated sales revenue of the top 100 drugs through 2023.
12

12
B. Isgur et al., Health Research Institute, The FDA is approving more generic drugs than ever before. Faster than ever before. Is it enough to lower drug costs? June 2018. Available at:
https://www.pwc.com/us/en/health-industries/health-research-institute/pdf/pwc-health-research-institute-generic-drug-pricing-june-2018.pdf.

In June 2018, an article noted that competition has a limited impact on American health care, particularly when it comes to expensive interventions like prescription drugs. Notably, when an expensive drug's competition within the same family of drugs came on the market the prices did not go down. Rather, the prices increased approximately 675 percent. Each new entrant cost more than its predecessors, and their makers then increased their prices to match the newcomer's. When the first generic finally entered the market, its list price was only slightly less at 539 percent above the original entrant. Economists call this “sticky pricing” and the article notes that this is common in pharmaceuticals, and has raised the prices in the U.S. of drugs for serious conditions even when there are multiple competing drugs. Compounding this problem, the article states that companies have decided it is not in their interest to compete.
13

13
E. Rosenthal, New York Times, Why Competition Won't Bring Down Drug Prices. June 21, 2018. Available at:
https://www.nytimes.com/2018/06/21/opinion/competition-drug-prices.html.

For purposes of the ESRD PPS, we believe that we need to strike a balance between enhancing significant renal dialysis drug innovation and encouraging competition through support of innovative drugs that would become optimal choices for ESRD patients and advance their care through improved treatment choices. Our goal in supporting competition among drugs in the ESRD PPS functional categories was to ultimately affect the launch price of new drugs. We now questions whether including all new renal dialysis drugs and biological products as eligible for the TDAPA would help us meet that goal. Rather, we believe reining in launch prices by placing guardrails on line extensions, reformulations and “sticky pricing” while staying mindful of the Medicare trust fund would better enable us to achieve our goals for the TDAPA policy.

Therefore, we are proposing to revise the drug designation process regulation at § 413.234 by revising paragraph (b)(1)(ii) and adding paragraph (e), effective January 1, 2020, to specify that a new renal dialysis drug used to treat or manage a condition for which there is an ESRD PPS functional category is not eligible for payment using the TDAPA if it is a generic drug or if the NDA for the drug is classified by FDA as a certain type—specifically, if the drug is approved under section 505(j) of the FD&C Act or the NDA for the drug is classified by FDA as Type 3, 5, 7 or 8, Type 3 in combination with Type 2 or Type 4, or Type 5 in combination with Type 2, or Type 9 when the “parent NDA” is a Type 3, 5, 7 or 8.

We are soliciting comments as to whether any NDA Types that would remain eligible for the TDAPA under our proposal should be excluded, and whether any NDA Types that we are proposing to exclude should be included, for example, within the NDA Type 3 (new dosage form) the inclusion of intravenous to oral route of administration.

We are also proposing a technical change to § 413.234(a) to revise the definitions “ESRD PPS functional category” and “Oral-only drug” to be consistent with FDA nomenclature. We are proposing to change the definition of “ESRD PPS functional category” to replace “biologicals” with “biological products.” We are also proposing to change the definition of “Oral-only drug” to replace “biological” with “biological product.”

As compared to the TDAPA policy finalized in the CY 2019 ESRD PPS final rule, we believe that these proposed revisions would reduce CY 2020 Medicare expenditures for new renal dialysis drugs and biological products, which would also have a better downstream impact for beneficiary coinsurance. Specifically, in the CY 2019 ESRD PPS final rule (83 FR 56932), we finalized that, effective January 1, 2020, the TDAPA would apply for all new renal dialysis drugs and biological products. Since the proposed policy would carve out certain drug types from being eligible for the TDAPA and would be more limited than the expansive policy finalized in the CY 2019 ESRD PPS final rule for CY 2020, there would be lower Medicare expenditures in CY 2020. Further, the downstream effect of lower Medicare expenditures is lower coinsurance for beneficiaries.

We solicit comment on the proposals to revise the drug designation process regulation at § 413.234 to reflect that certain new renal dialysis drugs would be excluded from eligibility for the TDAPA.

ii. Examples of New Renal Dialysis Drugs and Biological Products That Would Remain Eligible for the TDAPA

Under our proposal, any new renal dialysis drug or biological product that we are not proposing for exclusion in section II.B.1.c.i of this proposed rule, would continue to be eligible for the TDAPA. In the following paragraphs we provide some examples of the types of renal dialysis drugs and biological products that we believe would continue to be eligible for the TDAPA under our proposal, using the descriptions in the NDA classification code referenced in section II.B.1.c of this proposed rule. We note that under our proposal, FDA approvals under section 351 of the PHS Act, which includes biological products and biological products that are biosimilar to, or interchangeable with, a reference biological product, also would continue to be eligible for the TDAPA.

(a) Type 1 NDA—New Molecular Entity

Type 1 NDA refers to drugs containing an NME. An NME is an active ingredient that contains no active moiety that has been previously approved by FDA in an application submitted under section 505(b) of the FD&C Act or has been previously marketed as a drug in the U.S.

We believe the new renal dialysis drugs that are classified by FDA as a Type 1 NDA should continue to be eligible for the TDAPA because they generally fall within the 505(b)(1) pathway typically used for novel drugs, meaning they have not been previously studied or approved, and their development requires the sponsor to conduct all studies needed to demonstrate the safety and efficacy of the drug. Unlike the drugs proposed to be excluded from the TDAPA as described above, these drugs are generally not line extensions of previously existing drugs. There will be expenses with uptake by ESRD facilities of Type 1 NDA drugs, and one of the goals of the TDAPA is to provide additional support to ESRD facilities during the uptake period for these innovative drugs and help incorporate them into their business model.

(b) Type 2 NDA—New Active Ingredient

Type 2 NDA is for a drug product that contains a new active ingredient, but not an NME. A new active ingredient includes those products whose active moiety has been previously approved or

marketed in the U.S., but whose particular ester, salt, or noncovalent derivative of the unmodified parent molecule has not been approved by FDA or marketed in the U.S., either alone, or as part of a combination product. Similarly, if any ester, salt, or noncovalent derivative has been marketed first, the unmodified parent molecule would also be considered a new active ingredient, but not an NME. Furthermore, if the active ingredient is a single enantiomer and a racemic mixture (the name for a 50:50 mixture of 2 enantiomers) containing that enantiomer has been previously approved by FDA or marketed in the U.S., or if the active ingredient is a racemic mixture containing an enantiomer that has been previously approved by FDA or marketed in the U.S., the NDA will be classified as a Type 2 NDA. Enantiomers are chiral molecules that are non-superimposable, mirror images of one another.

We believe the new renal dialysis drugs classified by FDA as Type 2 NDAs should be eligible for the TDAPA because, in part, it covers a single enantiomer active ingredient for which a racemic mixture containing that enantiomer has been approved by FDA. Single enantiomer drugs can lead to fewer drug interactions in the ESRD population, which already has a significant medication burden.
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We believe these drugs are innovative and it is important to support their development because of their lower development cost burden, coupled with enhancement of patient choice, which supports not only innovation, but the ability of the product to successfully launch and compete. We believe having the Type 2 NDA drugs be eligible for the TDAPA would support our goal of providing support to the ESRD facilities for 2 years while the drug is being incorporated into their business model.

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A Calcaterra and I D'Acquarica, J Pharmaceutical and Biomedical Analysis, “The market of chiral drugs: Chiral switches versus de novo enantiomerically pure compounds,” 147(2018). Pages 323-340. Available at:
https://www.sciencedirect.com/science/article/pii/S0731708517314838?via%3Dihub.

(c) Type 4 NDA—New Combination

Type 4 NDA is a new drug-drug combination of two or more active ingredients. An application for a new drug-drug combination product may have more than one classification code if at least one component of the combination is an NME or a new active ingredient.

We are proposing that new renal dialysis drugs that are classified as a Type 4 NDA should continue to be eligible for the TDAPA if at least one of the components is a Type 1 NDA (NME) or a Type 2 NDA (new active ingredient), both of which merit the TDAPA as previously discussed. An added advantage is that while introducing an innovative product, which is not the case for Type 3 NDA drugs, it reduces the pill burden to a patient population challenged with multiple medications and a complex drug regimen. Medication adherence is thought to be around 50 percent in the dialysis population and reducing this burden can improve adherence and should lead to improvement in treatment outcomes.
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K Parker et al., Medication Burden in CKD-5D: Impact of dialysis modality and setting, Clin Kidney J. 2014, 7: 557-561. Available at:
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4389130/pdf/sfu091.pdf.

We believe the advantages of Type 1 NDA and Type 2 NDA drugs, coupled with the possibility of improved adherence, merits eligibility for the TDAPA in that it encourages both innovators to develop competitive drugs at lower prices for this NDA classification code, and ESRD facilities to use the products with the boost that the TDAPA will provide in facilitating uptake of these new products.

(d) Type 9 NDA—New Indication or Claim, Drug Not To Be Marketed Under Type 9 NDA After Approval

Type 9 NDA is for a new indication or claim for a drug product that is currently being reviewed under a different NDA (the “parent NDA”), and the applicant does not intend to market this drug product under the Type 9 NDA after approval. Generally, a Type 9 NDA is submitted as a separate NDA so as to be in compliance with the guidance for industry on Submitting Separate Marketing Applications and Clinical Data for Purposes of Assessing User Fees.
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When the Type 9 NDA is submitted, it is given the same NDA classification code as the pending NDA. When one application is approved, the other application will be reclassified as a Type 9 NDA regardless of whether it was the first or second NDA actually submitted. After the approval of a Type 9 NDA, FDA will “administratively close” the Type 9 NDA and thereafter only accept submissions to the “parent” NDA.

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FDA. Guidance for Industry. Submitting Separate Marketing Applications and Clinical Data for Purposes of Assessing User Fees. Available at:
https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM079320.pdf.

Since Type 9 NDA is a new clinical indication, this suggests that a drug company is pioneering a new approach to provide better pharmacologic care for vulnerable ESRD patients with complex medical needs, and we consider this to be sufficiently innovative to warrant TDAPA eligibility.

We believe renal dialysis drugs that are classified as NDA Types 1, 2, and 4 are all innovative and therefore we propose that these drugs should continue be eligible for the TDAPA as discussed in sections II.B.1.c.ii.(a), II.B.1.c.ii.(b), and II.B.1.c.ii.(c), of this proposed rule. When the “parent NDA” is Type 1, 2, or 4, Type 9 NDA would be a new indication of those innovative drugs. Therefore we believe Type 9 NDA, when the “parent” is Type 1, 2, or 4, is just as innovative as Type 1, 2, or 4 and therefore should also be eligible for the TDAPA. We believe applying the TDAPA with respect to Type 9 NDA new renal dialysis drugs would assist ESRD facilities in adopting these drugs into their treatment protocols for patients, when these drugs are warranted for use in that subset of patients.

(e) Type 10 NDA—New Indication or Claim, Drug To Be Marketed Under Type 10 NDA After Approval

Type 10 NDA is for a drug product that is a duplicate of a drug product that is the subject of either a pending or approved NDA, and the applicant intends to market the drug product under this separate Type 10 NDA after approval. A Type 10 NDA is typically for a drug product that has a new indication or claim, and it may have labeling and/or a proprietary name that is distinct from that of the original NDA. When the Type 10 NDA is submitted, it would be given the same NDA classification code as the original NDA unless that NDA is already approved. When one application is approved, the other would be reclassified as Type 10 NDA regardless of whether it was the first or second NDA actually submitted.

We believe renal dialysis drugs with the Type 10 NDA classification code are sufficiently innovative and should be eligible for the TDAPA because a new indication for a previously submitted drug that is applicable to renal dialysis advances the field and suggests the drug company is pioneering a new approach to provide better pharmacologic care for vulnerable ESRD patients with complex medical needs. We believe this could provide savings in terms of time-to-market and research and development, which could be reflected in the launch price of the drug. We further believe applying the TDAPA with respect to Type 10 NDA new renal dialysis drugs will assist ESRD facilities in adopting these drugs into their treatment

protocols for patients when these drugs are warranted for use in that subset of patients.

(f) FDA Approvals Under Section 351 of the PHS Act

Under our proposal, products that receive FDA approval under section 351 of the PHS Act, which occurs for new biological products and biological products that are biosimilar to, or interchangeable with, a reference biological product, would continue to be eligible for the TDAPA.

A BLA submitted under section 351(a) of the PHS Act is a “stand-alone BLA” that contains all information and data necessary to demonstrate that (among other things) the proposed biological product is safe, pure, and potent.

An application for licensure of a proposed biosimilar biological product submitted in a BLA under section 351(k) of the PHS Act must contain information demonstrating that the biological product is biosimilar to a reference product. `Biosimilar' means “that the biological product is highly similar to the reference product notwithstanding minor differences in clinically inactive components” and that “there are no clinically meaningful differences between the biological product and the reference product in terms of the safety, purity, and potency of the product” (see section 351(i)(2) of the PHS Act).

An application for licensure of a proposed interchangeable product submitted in a BLA under section 351(k) of the PHS Act must meet the standards of “interchangeability.” To meet the additional standard of “interchangeability,” an applicant must provide sufficient information to demonstrate biosimilarity, and also to demonstrate that the biological product can be expected to produce the same clinical result as the reference product in any given patient and, if the biological product is administered more than once to an individual, the risk in terms of safety or diminished efficacy of alternating or switching between use of the biological product and the reference product is not greater than the risk of using the reference product without such alternation or switch (see section 351(k)(4) of the PHS Act). Interchangeable products may be substituted for the reference product without the intervention of the prescribing healthcare provider (see section 351(i)(3) of the PHS Act). Further information regarding biosimilar biological products is available on the FDA website.
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FDA. Guidance for Industry—Questions and Answers on Biosimilar Development and the BPCI Act. December, 2018. Available at:
https://www.fda.gov/regulatory-information/search-fda-guidance-documents/questions-and-answers-biosimilar-development-and-bpci-act-guidance-industry.

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FDA. Draft guidance for industry—New and Revised Draft Q&As on Biosimilar Development and the BPCI Act (Revision 2) (when final, this guidance will represen

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2019-16369. Public record. Not legal advice.