Pharmaceuticals & Biotech

CAR-T reimbursement in the US: ZS separates myths from reality

By Meghan McDonald, Bernadette Bourjolly, and Shanaya Shah

Oct. 25, 2022 | Article | 12-minute read

CAR-T reimbursement in the US: ZS separates myths from reality


There has been much discussion and debate about whether provider reimbursement rates for chimeric antigen receptor T-cell (CAR-T) therapies are adequate. On paper, it appears that reimbursement is less than the cost of the drug itself, and that it fails to cover the additional costs required to safely prepare and monitor patients before and after administration. Many stakeholders have understandably assumed that for some treatment centers, inadequate CAR-T reimbursement may be too much to bear, resulting in fewer patients having access to these potentially lifesaving therapies. But is this indeed the case?

 

Five years after the first CAR-T approval, and with six now approved, we set out to explore three common assumptions that we suspected could be myths. Specifically, we wanted to understand the extent to which reimbursement and financial dynamics are directly shaping the CAR-T treatment landscape today, and implications as we look to the future. To do this, we surveyed pharmacy and medical directors at 22 CAR-T treatment centers across the U.S. by leveraging ZS’s PayerLive, an online primary research platform. We also had in-depth discussions with payers and treatment centers to understand CAR-T reimbursement realities.

First myth: Providers are underwater for CAR-T administration, and this is a significant barrier to uptake



The mean total cost of CAR-T care can exceed $500,000, depending on the severity of adverse events. When combined with the cost of the CAR-T therapy itself—between $373,000 and $465,000—total CAR-T costs hover around $1 million per patient, potentially causing treatment centers to grapple with significant financial challenges. This is because the Centers for Medicare & Medicaid Services (CMS) reimburses for inpatient Medicare services, including CAR-T administration, by leveraging a diagnosis related-group (DRG), which is effectively a fixed case rate. Combining the DRG amount with other add-on payments—as allowed through CMS’s published reimbursement rules—results in a maximum payment that is less than the cost of CAR-T alone, not to mention the expensive end-to-end services required to prepare, administer and monitor a patient.

 

While commercial reimbursement is likely profitable, rates vary across payers and treatment centers. Negotiated reimbursement rates are highly confidential, and the degree of profitability can depend on the negotiation leverage of a given treatment center. Even though commercial reimbursement tends to be profitable, it has been assumed that those profits are unlikely to offset significant Medicare and Medicaid losses, particularly for smaller, less prestigious treatment centers.

Myth busted: Treatment centers are actually profitable or breaking even



Almost 90% of the 22 treatment centers we surveyed report they are earning a profit (see Figure 1), or at least breaking even, on CAR-T administration. Even more surprising, 75% of these treatment centers are profiting or breaking even on inpatient Medicare patients specifically (see Figure 2). While providers faced massive losses in the first years of CAR-T administration, reimbursement rates have improved, as have treatment centers’ ability to manage and recoup costs.

Three key factors are driving overall profitability at CAR-T treatment centers.

 

Hospital markups: It is typical and expected for hospitals to submit charges to insurers that are greater than the actual cost of those services or interventions. In fact, CMS even assumes a markup on all charges and adjusts reimbursement rates based on the cost-to-charge ratio of an individual hospital. Not surprisingly, this dynamic has played out in the CAR-T space as well. Some treatment centers minimize losses from Medicare by marking up the charges for CAR-T treatment by multiple times the actual cost of care. As one CMS policy expert explained, “Because CAR-T cost is so high, some hospitals feel uncomfortable charging even more for CAR-Ts with the fear of patient or HHS (the U.S. Department of Health and Human Services) pushback. But CMS assumes all hospitals markup their costs. So, if they don’t, they will face huge losses on CAR-T.”

 

Patient and payer mix: As expected, reimbursement from commercial payers is higher than Medicare or Medicaid, meaning a balanced patient mix can ensure profits driven by commercial payers offset losses from Medicare and Medicaid reimbursement. Most treatment centers report this mix. At treatment centers where the majority of CAR-T eligible patients have private insurance, complementing them with a meaningful portion of patients covered by Medicare helps lead to balanced patient mix.

 

Improved efficiency: Newer, safer cell therapies and increasing experience with these therapies among healthcare professionals allow providers to encounter fewer clinically complicated cases, shorter inpatient stays and more efficient patient care—all of which reduces costs. Treatment centers’ approach to billing, coding and reimbursement also continues to evolve as they seek to minimize risks and optimize their financials.

 

While the overall financial picture for CAR-T at treatment centers is more favorable than anticipated, it also varies significantly across centers. For every site with a balanced patient mix and evolved Medicare billing practices, there is another site consistently experiencing losses due to a higher proportion of government-insured patients, or a lack of guidance on how to optimize Medicare reimbursement. Reimbursement consistency and stability is an important goal that is yet to be achieved.

Second myth: CAR-T outpatient administration is significantly more profitable



Outpatient administration is reimbursed on a fee-for-service basis, meaning that treatment centers are paid a percentage on top of the average sales price (ASP+). For high cost, minimally contracted products such as CAR-Ts, the ASP+ fee-for-service reimbursement model can be profitable. Given the contrast to limited case-based reimbursement in the inpatient setting, we wanted to explore if treatment centers are financially incentivized to prefer outpatient CAR-T administration.

Myth busted: Profits for outpatient and inpatient are similar



We found that most treatment centers (see Figure 3) are doing some CAR-T administration outpatient today—about 15-20% of cases on average are outpatient, with a very broad range—and many are considering, or already developing infrastructure to further enable outpatient CAR-T administration in the future with the goal of increasing capacity and offsetting inpatient losses with outpatient profits. However, while outpatient CAR-T administration may successfully reduce total cost of care, it does not always meaningfully improve financial outcomes (see Figure 4).

Often, outpatient and inpatient CAR-T profitability is similar for a few reasons:

 

Commercial case rates: Even in the outpatient setting, most commercial insurers have negotiated case rates for CAR-T treatment that provide measured upside for hospitals. Unlike traditional therapies, the commercial reimbursement mechanism and margins for CAR-T are similar across sites of care, which minimizes the financial incentives for a treatment center to push for outpatient administration. According to a pharmacy director at a national managed care organization, “We have negotiated contracts that don’t pay a steep premium for outpatient CAR-T treatment. So, they make a margin, but not a big profit.”

 

Medicare non-billable services: Unlike commercial payers, Medicare does reimburse for outpatient CAR-T administration on a fee-for-service basis—which is an attractive premium on the cost of the product itself. However, some of the other associated treatment costs, such as leukapheresis and cryopreservation, are non-billable in the outpatient setting, and this limits the profit margin. As explained by a CMS policy expert, “While Medicare reimburses ASP+ 6% for outpatient CAR-Ts, the 6% margin is used to cover the non-billable costs including leukapheresis, cryopreservation, dose prep procedure costs, etc.”

 

CMS’s 72-hour rule: According to our research, up to one-third of Medicare patients receiving CAR-Ts in the outpatient setting require hospitalization within the first three days after the infusion. This reverts reimbursement back to the inpatient DRG mechanism, diluting the theoretical outpatient financial upside.

 

Shifting CAR-T administration to the outpatient setting requires access to usable real estate and significant upfront investment to develop the necessary infrastructure, capabilities, equipment and staffing. Inpatient experience does not automatically translate to outpatient capabilities, and this barrier to entry has stemmed CAR-T expansion outside of the hospital, especially in light of the lukewarm financial upside.

 

Most treatment centers do believe that outpatient administration is the future for CAR-T, not only to minimize costs but also to enable scale. However, this remains a long-term objective for most given competing near-term priorities and the significant investments required.

Third myth: Pharma’s ability to influence provider financials is limited and insignificant



With commercial reimbursement negotiated between treatment centers and payers, and with Medicare and Medicaid reimbursement defined by CMS and state-level policies, it seems unlikely manufacturers could directly influence CAR-T provider financials. It’s also easy to assume the typical range of billing and reimbursement support services is helpful but does not address the most pressing concerns and challenges faced by treatment centers.

 

Myth (kind of) busted: Pharma’s support is noticeable and welcome

 

It is true that manufacturers cannot directly shape the outcome of provider-level negotiations, but treatment centers do value their support and request additional assistance in the future. Some specific areas where support is welcome include:

 

CAR-T cost forecast tools: For new CAR-T treatment centers, forecasting tools can support accurate end-to-end cost estimation, which can be leveraged in payer negotiations and in broader budget and cash flow planning at the institution. While treatment centers typically want to use their own data, easy-to-use tools can help accelerate the process and improve accuracy. As one hospital pharmacy director described, “There are manufacturers today who provide help on cost modeling for CAR-Ts … specifically for institutions that haven’t done CAR-Ts. This is helpful for us to estimate costs and ensure we negotiate better contracts with payers.”

 

Reimbursement optimization guidance: Given the high degree of variability in reimbursement outcomes across treatment centers, there is an appetite for more structured guidance on how to optimize reimbursement, either through coding or other billing best practices. Treatment centers want to learn from their peer organizations, and manufacturers may have the opportunity to become the conduit between centers, helping to shape best practices and build toward financial consistency.

 

Non-billable cost coverage: Treatment centers would welcome manufacturers’ support covering costly services that are non-billable and therefore non-reimbursable. Specifically, while apheresis is typically only 2-5% of the total cost of CAR-T treatment, covering its cost would improve outpatient margins. As one hospital pharmacy director recalled, “Manufacturers initially covered the cost of apheresis, which can be up to $15,000; (it) was helpful.”

 

Robust patient assistance programs: Patients must stay near the hospital for a period of time following administration, whether it’s inpatient or outpatient. Out-of-pocket cost exposure can be high for patients who traveled for care and are staying outside the hospital, increasing the need for patient assistance programs to help cover lodging, transportation and other necessary expenses. “There are going to be additional costs to the patient with respect to hotel or another place to stay. In some cases, if they can’t afford it, we may end up fronting that cost. There are manufacturers who cover patient costs for food, transportation and lodging,” explained one hospital pharmacy director.

Ensuring CAR-T access today and in the future



Our findings reinforce just how difficult it is to generalize conclusions about treatment centers’ CAR-T experiences, financial or otherwise. We found:

  • CAR-T administration is generally more profitable than we thought, but some treatment centers still experience severe losses.
  • Some treatment centers are successfully navigating the constraints of Medicare reimbursement, but they have to rely on unstable markup practices.
  • Outpatient financials tend to be more favorable than inpatient, but only by a slim margin.
  • Many treatment centers anticipate a shift to outpatient, but may not be willing or able to make the required investments in the near term.
  • The reimbursement support that manufacturers can provide is limited, but treatment centers still want more.

While CAR-T financials are stabilizing, CAR-T administration will likely always involve more risk than traditional therapies, which could limit treatment center investment as the space becomes more competitive. As current and future cell therapy manufacturers think about how to enable equitable access to all patients across sites of care, there are several actions they can consider.

 

Help treatment centers sustain and grow their CAR-T investments: Impactful, effective access and reimbursement support is lacking today, and improving it could accelerate expansion of treatment centers beyond the current top tier. Doing this well will require manufacturers to partner with treatment centers to develop fit-for-purpose solutions. In addition, there may be an opportunity to evolve the roles of intermediaries, like specialty pharmacies, to aid CAR-T expansion beyond the existing clinical center of excellence network. This can be accomplished by selectively removing providers from the flow of money, which could eliminate financial risk entirely.

 

Strategically build the CAR-T network: The financial health of treatment centers and their ability and willingness to take on risk should be considered as manufacturers strategize where and how to expand their networks. ZS anticipates that by 2025, up to 50% of CAR-T capacity will sit within approximately 20 treatment centers in the U.S. High patient volumes amplify financial risk, so reimbursement must be consistently optimized for supersites to maintain their services and for mid-tier sites to unlock their capacity to meet demand.

 

Think holistically about differentiation: As CAR-T use increases, differentiated clinical value, evidence and personalized customer support will still drive treatment center preferences. So while outpatient-enabled CAR-Ts will be helpful, site of care alone is not highly differentiating. Manufacturers should get ahead of the outpatient transition, and they can support treatment centers by ensuring all necessary steps have outpatient billing codes, providing guidance on what and how to outsource and educating on billing best practices.

 

While there are challenges in the CAR-T ecosystem, manufacturers and treatment centers both know they play a key role in bringing these life-changing therapies to patients. If they can work together to improve the financial viability of CAR-Ts, even more patients will benefit in the short and long term. “At the end of the day, we’re going to give CAR-Ts as long as it’s appropriate for the patient and we’ll do our best to negotiate or accept whatever the rates are,” one hematologist-oncologist director at a CAR-T center of excellence said. “At the same time, if we had a better margin, it may allow us to expand our services in the future.”

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