How We Got Here – Answers to the Questions I Have Been Asking

Why is the pricing of CTPs/Skin subs so crazy in the office-based setting?

In the physician’s office, the reimbursement for CTPs should be: [Average Sales Price (ASP) + 6% (before the effects of sequestration)] + [the procedural reimbursement for placement of the product]. However, that’s not really how payment for them is working.

Although “skin substitute” products (CTPs) are typically regulated by FDA as either medical devices or HCT/Ps, in the physician office, CMS has historically treated them (for reimbursement purposes) as Part B drugs/biologics. Unfortunately, because they are not sold through usual drug/biologics pathways, the price pressures that help control the drug/biologic market don’t exist in the CTP/skin sub market.

For example, unlike drugs/biologics:

• CTP/Skin substitute manufacturers generally do not use wholesalers or otherwise make commercial use of a published Wholesale Acquisition Cost (WAC) like drug/biologic companies.
• Medicare is by far the largest customer for CTP/skin substitutes in the US, so unlike drugs, the pricing pressures from other payors are limited or non-existent.
• Many CTP/skin substitute brands are focused solely on Medicare business in the physician office. In fact, a number of manufacturers have alternative brands designed to address the pricing pressures from other sites of service (e.g., hospital in-patient and out-patient) and private payors.

What is the WAC and how does it get set?

The Wholesale Acquisition Cost (WAC) is kind of like the posted price for “Texas Crude.” Pharma companies post the price they will sell to wholesalers in publications like RedBook. The problem is unlike drug companies, skin sub companies don’t use wholesalers so they can post whatever price they want. The manufacturer wins regardless because they can set the WAC to be any price they want and then later when an Average Sales Price (ASP) is published, it will be based on the WAC!

Why is no invoice required for some CTPs sold to physicians?

An invoice is not required if there is a published Average Sales Price (ASP). However, in the absence of an ASP, several MACs including Novitas, Palmetto, First Coast and WPS, chose to price CTPs based largely or completely on the Wholesale Acquisition Cost (WAC) rather than requiring an invoice.

Why are the products used in Physician Offices so much more expensive than those used in the Hospital Based Outpatient Department when they are often/usually the same product?

When no ASP is published, MACs are given the option to reimburse based on invoice price or Wholesale Acquisition Cost (WAC) published by the manufacturer, e.g., in Redbook. (See Section 20.1.3 of the Medicare Claims Processing Manual.) The WAC is determined solely by the manufacturer which means they can set any price they choose. These prices have been steadily increasing. According to the First Coast database, in Q2 2023 there were nine CTP/skin sub brands with WAC or ASP above $1000 per sq cm, with the highest above $1500 per sq cm. In other words, the cost of products in the doctor’s office is higher than the HOPD because the manufacturers can set virtually any price they want and get reimbursed that amount since there is no package pricing in the doctor’s office.

Why is the ASP not always known?

CMS publishes a payment limit based on reported ASP which the MACs are required to use in paying claims – when they know the ASP. However, ASP information may not always be available from CMS. Why?

The manufacturer may fail to report their ASP:

• Historically, reporting ASP by CTP manufacturers was voluntary since the provision requiring ASP reporting applied only to drugs covered by Medicaid Drug Rebate Agreements. However, The Consolidated Appropriations Act of 2021 added a new Section 1847(f)(2) to the Medicare statute that was effective for calendar quarters beginning on January 1, 2022. This provision creates additional ASP reporting obligations applicable to manufacturers without CMS Medicaid Drug Rebate Agreements. Effective January 1, 2022 (which we understand to mean that the first reports are due on April 30, 2022 .for the first quarter of 2022), manufacturers without Medicaid Drug Rebate Agreements were required to report ASP for essentially all products reimbursed as drugs and biologicals under Part B.

CMS has not yet published an ASP-based payment limit:

• CMS does not publish all ASPs, but instead publishes selectively based on usage. As a result, the ASP on new products is often not published for some time.

Won’t publishing all the ASPs solve the problem?

The short answer is “no.” Here’s why:

• It is true that once ASPs are published, CMS requires the MACs to reimburse based on the published ASP payment limit. However, by the time that CMS finally publishes an ASP, that ASP may be extremely high due to the previously inflated pricing the product enjoyed, offering substantial room for continued price concessions to customers without worrying about a significant impact to the ASP.
• As just one example, a new product that was added in 2021 had an ASP that was more than four times the average ASP for the other CTP/skin substitute products on the published list, many of which had been listed for several years.
• Thus, manufacturers are “rewarded” by inflating prices prior to the publication of the ASP.

It is true that publishing ASPs should prevent significant discounts to physicians because doing so would eventually result in a decline of the ASP. However, manufacturers are using several different techniques to shield their ASP so that they can continue to offer significant discounts to customers without facing a resultant sharp drop in ASP. In fact, to date there has been no significant decline in the highest ASPs listed on the Q2 ASP list despite all the discounts noted in the ads you have posted.

What is the result of marketing the “spread”?

CTP/skin sub pricing is entirely divorced from actual sales prices to customers.  Accordingly, certain skin substitutes manufacturers may charge physicians thousands of dollars less per application that the product is actually reimbursed, creating a large financial incentive to do the following: use CTP/skin substitutes as opposed to other (less lucrative) treatment modalities, select products with the best “spread”, overuse skin substitutes, and to use larger pieces than necessary (since those products have a bigger spread). You were right when you called this a moral hazard.

This system allows physicians (let’s face it, mostly podiatrists) to make huge profits off the cost of the product itself. CMS tried to curb this behavior by changing the Medicare Physician Fee Schedule (MPFS) to incorporate the cost of the product into practice overhead. That would have stopped these huge financial gains and that’s why certain physician organizations and manufacturers worked so hard (and successfully) to stop that policy. That’s also why the MACs tried to limit the number of applications via the proposed LCDs (even though this really is primarily a reimbursement issue not a usage issue) but physicians and manufactures stopped the LCDs also. As a result, those ads are going to keep coming for now. There is now so much profit involved for both doctors and manufacturers that it will be very hard to implement thoughtful reform, no matter what it is.

Thank you for getting this out into the open. I suspect you now have a lot of enemies. Good luck to you.  [Anonymous industry watcher]

Now, Dr. Fife, I will ask YOU and the rest of the clinicians in this country a question: Do you think that this system supports thoughtful patient care and the medically appropriate use of CTPs in the physician’s office?