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Letter to the Editor
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To the Editor:
I am submitting a counterpoint to the apologetics provided by Drs. Gustafson and Lindstrom regarding the pricing of Omidria in the Nov. 10, 2015, issue of Ocular Surgery News. I offer some “outside of the beltway” perspective, characterized by Allison Weber Shuren, MSN, JD, as “misguided” at the 2015 ACES/SEE meeting. Please note that all three are paid consultants to Omeros.
The additional $500 (approximate cost) incurred by the use of Omidria increases total CMS per case expenditure for cataract extraction from $910 to $1,410, a 55% jump. Omidria alone is often more than 10 times the price of the most expensive supply cost of any single component of standard cataract surgery. Dr. Gustafson comments that this reimbursement “may seem high.” It “seems high” because, in fact, it is high.
Dr. Gustafson justifies this rate based on the formula (as prescribed by CMS) as “market rate” plus 6%. But for a drug that has not been on the market, nor has had any competition, how is market rate defined? Answer: by the WAC (wholesale acquisition cost) submitted by the company for the pharmaceutical(s). That’s right, name your price. (I do not have access to Truven’s Red Book to verify WACs for these components, but the retail price in the Lexington market is $7 for ketorolac and $37.62 for phenylephrine.)
If used routinely, Omidria could increase CMS payments $1.5 billion annually, five times the amount arrogated by the recent reduction in surgeons’ reimbursement. Although this expense is presently covered by a separate fund (generated by taxing surgical facilities), the total expenditure will nevertheless have profound political impact, especially because ophthalmology already consumes more than 50% of the total CMS payments to ASCs. Given the irresponsible increase in national debt to $18 trillion-plus (by those “inside the beltway”), we are naïve to believe we are not collectively inviting further reduction in reimbursement across the board should we continue to escalate costs. Medicare and health services now consume 27.1% of each tax dollar, the largest sector of public spending, eclipsing Social Security (23.8%) and the military (15.9%).
For perspective, consider the tremendous governmental effort to reduce overpayments via the RAC program. This initiative recovered a total of $3.75 billion for all of medicine in 2013. Moreover, the recent CMS inquiry regarding moving cataract surgery from ASCs to offices communicates an obvious underlying intent to scale back reimbursement, even if it potentially compromises patient care. It is an easy political sound bite to state that ophthalmology alone is responsible for the vast majority of CMS outpatient surgical expenditures, and this would only be exacerbated by the routine use of Omidria.
Like it or not, we already have a target on our collective chest, and it is unwise to expand that exposure by any amount, much less by 55%. It is not, as described by Ms. Shuren, a “drop in the bucket.”
The present pool of funds, as I understand it, is generated by taking 0.1% of the revenue generated by the facilities, or about $10,000 from an ASC generating $10 million in revenues. This money could purchase 10,000 units of epinephrine, which has been used successfully and without complication in irrigation solutions for more than 30 years and millions of cases, or 20 units of Omidria. Think Avastin vs. Lucentis.
Dr. Lindstrom states that due to regulatory hurdles, the cost to bring a new device to market is “usually more than $100 million, and for a new drug, much more.” He then emphasizes that the commercial launch of the product further burdens small companies and is a roadblock for new products that could improve patient care. He is correct, and the pass-through program, developed in great part through the efforts of Dr. Gustafson, is a wonderful mechanism in helping innovators overcome this difficult financial barrier. In this case, however, Omeros did not develop neither phenylephrine nor ketorolac, but simply compounded them and ran clinical studies, hardly a $100 million expenditure. Nor is Omeros a struggling “start-up,” with a present market cap of $525 million and actively traded on Nasdaq. (Omeros, to its credit, is actively developing multiple small molecule and protein agents targeting inflammation, coagulopathies and CNS disorders, de novo.)
Much has been made of the fact that Omidria is FDA approved and that surgeons are taking unnecessary medicolegal risk by using epinephrine “off label,” a specious argument considering that immediately after using Omidria, almost 100% prescribe the “off-label” use of a fluoroquinolone for postoperative prophylaxis of endophthalmitis.
The clinical efficacy of Omidria has been defined on the basis of a 6-mm pupil, “proven” to lower complication rates. While all cataract surgeons appreciate the need for mydriasis, a 6-mm standard is simply an arbitrary parameter used to “prove efficacy.” Why not 7 mm or 8 mm? The issue of preventing intraoperative miosis is already met by the addition of epinephrine, and postoperative “pain” is essentially nonexistent in this cadre of patients. Moreover, in its own marketing literature, Omeros reports up to a 24% adverse reaction rate (eye irritation, posterior capsular opacification, increased IOP and anterior chamber inflammation), problems that are essentially nil with the use of epinephrine.
At the end of the day, it is up to the surgeon to decide what he thinks is best for his or her patient. However, to remain in denial of or oblivious to the big picture and the likely political repercussions of significantly increasing overall costs will most certainly harm ophthalmology and, ultimately, our patients.
Lance S. Ferguson, MD
Lexington, Ky.
The Editor responds:
I believe most surgeons, including Dr. Ferguson, would happily switch from their current use of off-label intracameral or in-the-bottle epinephrine to enhance and maintain pupillary dilation during cataract surgery to Omidria, the FDA-approved combined phenylephrine/ketorolac solution, if the costs were identical. For me, phenylephrine, when looked at objectively, is a more effective and safer drug for pupillary dilation than epinephrine. Reassuring is the fact that it is commercially available and preferred in many other countries. The addition of ketorolac enhances the efficacy by blocking the miosis induced by prostaglandin release and also enhances comfort. This is another advantage to epinephrine intracameral or in the bottle.
While all drugs are in a sense “compounded,” Omeros is not a compounding pharmacy. It manufactures and markets FDA-approved branded drugs. In general, FDA-approved and branded drugs are more expensive to bring to market and cost more than generic, over-the-counter or compounded drugs. I agree that the so-called “pass-through” reimbursement system is confusing and controversial to most physicians and surgeons, and my goal was not to support this or any other federal legislation around health care reimbursement, but simply to try to help the ophthalmologist understand it. Most would agree that there is plenty worth changing in regard to our current system of health care, drug and device reimbursement. Still, for the ophthalmologist who finds the pharmacology and data supporting Omidria interesting, pass-through reimbursement currently allows access to the drug at no cost to them, their patient, ASC or hospital. So, for the couple of years pass-through reimbursement lasts, it is “free.” It makes sense to lobby for changes in health care reimbursement like it makes sense to lobby for tax reform. Still, for me, as long as the laws allow it, I feel free to take advantage of those that benefit me, my colleagues and especially my patients.
Richard L. Lindstrom, MD
OSN Chief Medical Editor
The author responds:
Dr. Ferguson’s “counterpoint” is a discourse against the use of Omidria. However, Dr. Ferguson draws implications about the use of Omidria that do not reflect how Medicare’s “pass-through” provision operates to control Medicare spending, and many of his statements are factually inaccurate. Here I address the economic aspects of his letter.
Medicare currently pays for Omidria as a pass-through product. This means of accommodating the arrival of new drugs and devices and facilitating their diffusion has been used by Medicare for a large number of products since the Outpatient Prospective Payment System (OPPS) began in 2000. Absent pass-through payments, facilities would be “underwater” when using a new product; with them, they are not. Medicare makes these payments to help make innovative products available to Medicare patients.
How are the payments determined? The Medicare payment rate for pass-through drugs is specified in the law: average sales price (ASP) plus 6%. Dr. Ferguson mentions payment for new drugs using wholesale acquisition cost, but that is a transitional rate that only applies during the first two quarters after a drug’s launch, before ASP information is available. Since October 2015, Omidria has been paid using ASP.
One of Dr. Ferguson’s main concerns is that use of Omidria will lead to significant increases in overall spending for cataract surgery and that these increases will lead to “political” fallout. While we all should be concerned about health care costs, it is important to understand the financial mechanisms at play here. We must consider how use of a product such as Omidria in hospital outpatient departments and ASCs affects overall Medicare payments.
As discussed in my article, Medicare sets up these payments in a way specifically designed to keep overall Medicare outlays from rising during a drug’s pass-through period. For any given year, Medicare in essence sets aside the funds it expects to need for pass-through payments. This operation is “budget neutral,” set at a level expressly designed to avoid any increase in overall Medicare spending.
And what about the future? For Omidria, the pass-through period will last until January 2018, after which CMS has declared it will bundle the costs of Omidria into facility payment rates for cataract surgery. As a result, facility payment rates for these surgeries will increase by an amount reflecting the use of Omidria in outpatient departments during its pass-through period.
When CMS establishes the post-2017 rates for cataract surgery with Omidria added to the bundle, it will do so in a manner designed to ensure that overall Medicare spending does not rise as a result. In both facility payment systems, CMS will increase payment rates for cataract surgery while concurrently reducing the pass-through payment mechanism to reflect removal of Omidria payments from this payment stream. This exchange is intended to ensure overall costs of the Medicare program do not rise as a result of bundling the cost of Omidria. The possibility of any political repercussions arising from this appears negligible.
Many surgeons recall that the government in the past identified Medicare’s physician fees for cataract surgery as overvalued and reduced them. But payments for the drugs used in cataract surgery are made to facilities, and payments to facilities and to physicians are determined using very different methodologies. For this reason, the physician and facility payment systems are referred to as “siloed.” Further, features are built into the facility payment systems to accommodate and adjust to new technologies without extraordinary interventions such as those that affected cataract surgery fees in the past. Consequently, it is extremely difficult to construct a scenario in which introduction of a new drug would lead to a decline in surgeons’ fees.
Dr. Ferguson misrepresents development costs for Omidria. Omeros took 10 years and spent $350 million developing Omidria and securing FDA approval. Although both components of Omidria are widely used, neither has been FDA approved for intraoperative use in ophthalmic surgery and the combination has never been approved for any use. The approval process for Omidria was the same as for any new drug. FDA mandates extensive research on the products it approves. Omeros conducted toxicology, pharmacokinetics, pharmacodynamics, dose-finding and chemistry studies together with phase 1, phase 2 and two pivotal phase 3 clinical trials. Commercializing a drug entails additional costs. Any investor would want to recover those costs, which are actually low compared to those of bringing most new drugs to market. The market capitalization of the company, on which Dr. Ferguson comments, is irrelevant to this point.
Thomas A. Gustafson, PhD
Washington, D.C.