Contagion&reg Connect Episode 2: 'The Most Expensive Drug Is the One That Doesn't Work'


In this episode, we take a dual look at the recently announced changes to antibiotic reimbursements from the Centers for Medicare and Medicaid Services from both the clinician and industry perspective.

Contagion® Connect Podcast Episode 2: 'The Most Expensive Drug Is the One That Doesn't Work'

Interview transcript (modified slightly for readability):

Welcome to Contagion® Connect. This new podcast will bring you expert perspectives on trending infectious disease topics.

In this episode, we take a dual look at the recently announced changes to antibiotic reimbursements from the Centers for Medicare and Medicaid Services. First, we’ll speak to Dr. Susan Davis, an infectious disease pharmacist, about the impact from a clinician standpoint. Then we'll talk to Larry Edwards, CEO of Tetraphase Pharmaceuticals, for an industry perspective.

Hi, I'm Susan Davis. I'm a clinical professor of pharmacy at Wayne State University, and an infectious disease pharmacist at Henry Ford Health System in Detroit, Michigan.

Contagion®: Today we're going to be talking a little bit about the CMS changes to antibiotic reimbursements and how that affects clinicians. To start off, let’s talk a little bit about antimicrobial resistance in general. We all see those headlines about multidrug-resistant superbugs splashed across the mainstream media. Are those concerns overblown or justified in your opinion?

Dr. Davis: Well, I might be biased since this is what I do, but I of course, think those concerns are justified. It's easy to feel a little alarmist exclaiming, “We're all going to die of drug-resistant infections!” And that's not exactly a productive way to talk about it. But there are some extremely talented people putting effort into predicting and quantifying the problem. And there are some widely quoted numbers that I think are pretty accurate. The last [US Centers for Disease Control and Prevention] threat report, which is due to be updated soon, estimated [that] 23,000 annual deaths in the US are attributed to resistance. And then, more globally, the O'Neill report and the UK projected as many as 10 million deaths by the year 2050. Now, those estimates have their uncertainties, but the burden is undeniably concerning. And it's probably likely to worsen if we don't make some major changes. There are a lot of impacts from poverty, environmental decline and climate change, antibiotic misuse in humans and agriculture, and the limitations in the development of novel antibiotics.

Contagion®: Definitely. Traditionally, there's been sort of a misalignment between medicine and market that can hamper the uptake of new antibiotics, which would help with this threat of multidrug-resistant superbugs. Can you speak a bit about these hurdles from the pharmacist perspective historically?

Dr. Davis: Sure. I can speak from my perspective, which might not be that of every pharmacist, but I would say every good pharmacist is truly putting the needs of the patient first. Like any health care professional, we work to improve the lives of people. But the health care system has structures that we have to work within and we aren't even totally aware always of how that impacts us. With the current health care market using the [diagnosis-related group] DRG-based model for payment, that standard rate of reimbursement is, again, standardized for each episode of care. If that is an across-the-board rate, then when hospitals are pressured to save money, it's pretty easy to put a disincentive on the use of the more expensive medications. New antibiotics are almost always priced at a premium, sometimes several thousand dollars per course of therapy, compared to a previous standard that's only a few dollars per day. That price reference does not reflect the actual value, though. While those indications of the new agents might be similar to the previous, the efficacy in drug-resistant infections is not the same. So, as a pharmacist caring for patients with drug-resistant infections, that difference in cost can definitely be perceived as a barrier to providing patients with access to newer and often better antibiotics.

Contagion®: What is your reaction then to some of these recent CMS changes, for example, an alternative new technology add-on payment, or NTAP, pathway that doesn't include some of those criteria and increases the payout for new antibiotics? What is your reaction to those and what does that mean realistically for pharmacists?

Dr. Davis: I'm pretty encouraged. I would say not all pharmacists even see some of those other costs; it's easier to see the cost of the antibiotics themselves as opposed to the broader costs. And what CMS is doing is both some drug-based and more standard-of-care based. So, NTAP itself, the new technology add-on payment, is only available for certain medications, diagnostics, and devices. But that percentage that's increasing—from 50% to 70% reimbursement—is kind of huge. I don't know about you, but if something is on a metaphorical sale for 75% off, that takes away a lot of the disincentive to use it but you have to know that it's there, and you have to know what to do with it—that there are criteria that need to be met for drugs to qualify. And right now, there are only a couple of anti-infectives approved, although there are some others currently under review. And those new changes might make it a little bit easier for new drugs to qualify. But the NTAP process itself isn’t something most inpatient pharmacies are really even thinking about. It's perhaps more entrepreneurial than we're used to having to be. My hospital takes advantage of that, but I have a very talented person in administration who's really proactive. I think the NTAP improvements are a good start, but there might be more that can be done with a DRG-based model with a carve-out for sicker patients or those with resistant infections that could take things further, since NTAP is only a few anti-infectives, those more DRG-based models might be applied more equitably, and to a wider variety of medications, and to a broader range of patients. It really does come down to access; if we can mimic the known process everybody's using for billing, it takes away a barrier of someone having to start a new process to use NTAP and decrease some of that barrier to provide new antibiotics to those patients.

Contagion®: Right, and you touched on it a little bit about this shifting focus, but what are some of the challenges for inpatient pharmacists when shifting that focus from the drug costs to the overall cost of infection management as a whole?

Dr. Davis: It has been long established that treating sicker patients or those with resistant infections costs more. But it's not just the drug-related costs; it's that overall cost of treatment both in and out of the hospital. As a pharmacist or as the pharmacy department, we're usually looking at the drug costs themselves. The drug expenditure report is really easy to point to and say, “Wow, that seems like a lot we've spent on this drug this quarter.” But those budget reports we're using internally are very rarely adjusted for case mix and I have never seen one that's adjusted for prevalence of drug-resistant organisms in a population, although that's a nice idea. One of my mentors taught me years ago that the most expensive drug is the one that doesn't work, and that's really always stuck with me and something I try to communicate with my colleagues —when we're using more expensive drugs, sometimes there's a really good reason for that.

Contagion®: In the grander scheme of things, what do all of these new changes mean for drug development, antimicrobial resistance, and patient outcomes looking ahead?

Dr. Davis: I think, again, it comes down to an issue of access and barriers to the best antibiotic for an individual patient. Personally, it is not nearly as engaging to talk about the costs and societal infrastructure of antibiotics, but it's necessary. Patients at risk of resistant infections need access to appropriate antimicrobials. As payers and formularies have to put up cost-based barriers, patients can suffer. As the health care system keeps asking for new antimicrobials, now that the market has answered, we're seeing some new antibiotics. [But] if we're not using them, what message does that send about their value? It’s a really tough situation. My hope is that a combination of these types of incentives, and stewardship strategies that focus on appropriate access for the right patients will help. But there are definitely those who think that, without a massive restructuring of the whole system and market of how antibiotics are developed and valued, we might continue to see a further decline in new drugs.

Contagion®: Thank you so much for joining us today, Dr. Davis. Is there anything else that you wanted to add on this topic?

Dr. Davis: Thank you so much for having me. I would reiterate that drug development and market-based solutions like this are not the only issues we need to use to address and confront resistance. All the things I mentioned at the outset, environmental pressures, antibiotic use patterns in different populations, even infection prevention, we really do need multidisciplinary and creative approaches to improving for our future patients. And I thank you so much for taking the opportunity to highlight that this is one option that might help.


Larry Edwards: Hi, my name is Larry Edwards, CEO of Tetraphase Pharmaceuticals.

Contagion®: Today we're going to be talking about the new changes with the CMS reimbursements and the effect on antibiotics. Let's start off and talk about antimicrobial resistance in general. Are those concerns overblown or justified in your opinion?

Larry Edwards: I don't believe they're overblown. And if you look at recent publications, they actually show that the CDC estimates are substantially lower than what other sources are quoting. If you recall, in 2013, the CDC issued a landmark report on the issue of antibiotic resistance and the agency estimated that 2 million Americans contract antibiotic-resistant bacterial infections each year leading to 23,000 deaths. But if you look at more recent publications, there was a letter that was published in the November 2018 issue of Infection Control & Hospital Epidemiology by researchers of Washington University School of Medicine, where they found on the low end—and they used a different methodology—but they found on the low end of their estimate that at least 153,113 inpatient and outpatient deaths are annually due to multidrug-resistant infections. That's roughly about seven times higher than the CDC figure, and that was on their low end. Then the researchers found that, on the upper end estimate, 162,044 deaths were caused due to MDR infections, which then would make it the third leading cause of death in the US. So I definitely don't believe that they're overblown. That being said, phrases like “antibiotic apocalypse”…I think that may be a little extreme, although I think that it actually fits in that catches the public's eye, and it helps promote antibiotic awareness and infection prevention, which is badly needed.

Contagion®: Traditionally, there's been a bit of a misalignment between medicine and market in that, the Medicare system incentivizes the use of outdated antibiotics because they're often cheaper. Can you speak a little bit about these hurdles from the industry perspective and how they've hampered uptake of new antibiotics?

Larry Edwards: First I would say that I believe the DRG system has been positive in some respects since it’s helped curb the cost for the health care system. I think the challenge is most hospitals are using lower, generic antibiotics that can be less effective. And they're doing this to decrease the impact on the DRG payout, so they're rarely using the most effective and appropriate antibiotic for the patient. So what the DRG system has created, at least in my eyes, is a siloed system in the hospital. So if you look at it, the pharmacy has a budget, and they must stay within that budget. And that's not linked to a DRG payment, they just have, “Here's your budget, this is what you have to stay within for the year.” So they're typically going to try to use the cheapest and most effective antibiotics they can get by with. Where I think the strategy tends to fall apart is in hospitals where there're endemic resistant issues, or in patients who are at higher risk of having resistant pathogens, or even just a higher-risk patient with comorbidities…these are the patients who would benefit the most from the most appropriate antibiotic. And by using the most appropriate antibiotic, it would probably save the hospital money. And some of the rationale behind why it would save the hospital money is it could potentially shorten the length of stay in the hospital, it could shorten the length of therapy with the antibiotic, it could potentially decrease the likelihood of the patient failing on the first inappropriate generic or cheaper antibiotic. And it could decrease the likelihood of the patient being readmitted due to resistant infection or relapse infection. Some other kind of intangibles that would decrease the cost of the hospital—it could also decrease comorbidities because what you find are these patients are getting cheaper antibiotics and they're using combinations and some of the combinations put the patient at risk for safety or tolerability concerns. If you look at a patient that's getting [piperacillin/tazobactam] and vancomycin, that's cheap, but it puts the patient at risk of getting AKI or acute kidney injury. Or you put patients on broader-spectrum generic combinations, and they make the patient develop Clostridium difficile infection. I think the challenges save the hospital money in the long run, but that's not correlated back to the pharmacy budget. So breaking down the silos is something that has to happen to be able to get out of the pharmacy always looking at what's going to be the most cheap and effective antibiotic use.

Contagion®: Can you provide some background on exactly what these new rule changes from the Centers for Medicare and Medicaid Services are and what impact they’ll have on the antibiotic reimbursements moving forward once they're instituted?

Larry Edwards: First I'd like to say I applaud the CMS for taking several much-needed steps in the right direction to help with the reimbursement challenges for new antibiotics. I’m definitely not a reimbursement expert, but I can give you my high-level summary of some of the recent changes that I think will have the most impact on the antibiotic space. There were several changes, but if I look specifically at the 2 changes that came out of the 2020 fiscal year inpatient prospective payment system, or the IPPS, that I think will have a larger impact are changes to the new technology add-on payment, or the NTAP, and the other one is changes in severity adjustments to the ICD-10 codes for AMR [antimicrobial resistance].

I'll first address the NTAP changes. If you look at the new 2020 IPPS rule, they've eliminated the need for substantial clinical improvement criterion for new antibiotics, which is helpful since most antibiotic studies are noninferiority studies and not story studies. I think that's helpful from one aspect. I think that when you look at the other change in that it’s moving the payment level, which originally was set at 50% of either the cost of the new product or the difference between the DRG payment and the total covered cost of the case, from 50% to 75%. I think that's going to also help from the NTAP change. Realize that NTAP, though, is only a temporary measure, since it typically lasts 2 years and no more than 3 years. I think that's one of the big impacts that will help some companies.

The other one then is looking at the severity adjustments to the ICD-10 codes for AMR. Personally, I believe this one may be the most helpful since CMS is changing severity levels designated from non-CC to CC for 18 ICD-10 codes that allow for increases in the DRG payment for complications or comorbidities—that's what the CC stands for—tied to antibiotic resistance. So I think classifying drug resistance as “complicated or comorbidities” will increase the payments to hospitals, treating patients with antibiotic resistance thus providing the financial flexibility for health care providers to prescribe the most appropriate antibiotic without imposing the financial burden upon the hospital. Those are the 2 that I think will have the biggest impact in the 2020 IPPS rule.

Contagion®: You just touched on it a little bit, but what else does this mean for the prescribing clinician?

Larry Edwards: I believe it's going to take time for the physicians to realize what are the 18 new ICD-10 codes that are going to have this “complications or comorbidities” tied to it. I think once they realize this and once the billing and coding departments ensure they're capturing things correctly, it may allow for the newer, more appropriate antibiotics to be used initially, and not to be reserved until the patient is failing on a cheaper, inappropriate therapy.

Contagion®: And what does this mean for pharmaceutical companies such as Tetraphase?

Larry Edwards: Although we see the changes in NTAP as a positive move, it really doesn't impact us as much since we priced our drug reasonable at launch. We priced Xerava where we felt physicians would be able to gain access to it easier and not have to worry about filling out additional paperwork to get the most appropriate treatment for the patient. The severity adjustments to the ICD-10 codes could have a larger impact on our product, since it may allow health care providers to use the drug earlier and not worry about the pharmacy denying it, since it costs a little bit more than generic. So I think this change may alleviate some of the financial pressures put on the pharmacy budget. That is if the reimbursement is seen at the pharmacy level. So again, we have to break the silos and the pharmacy is also seeing the savings from the changes in the ICD-10 codes.

Contagion®: Great point, yeah. Lastly, these rule changes are a great step. In your opinion, what else needs to be done from a regulatory standpoint to remedy that medicine/market misalignment?

Larry Edwards: Again, this is my personal view, [but] I think that if you look at some potential things that would help when it comes to having an impact on the market misalignment—one would be pushing through or gaining approval of the DISARM Act, and that's Developing an Innovative Strategy for Antimicrobial Resistant Microorganisms. That will allow for higher reimbursement for new QIDP antibiotics. And that'll allow hospitals then to receive increased payments. They also have to monitor drug use, they have to report the data to CDC, and they also have to establish stewardship programs. I think that, when you look at that, the DISARM Act really reflects the value of safe, effective infection-finding medicines to the national health system. I think that would be a huge step in the right direction… really just detangling the antibiotic cost from the DRG cost, and then ensuring that hospitals have an effective stewardship program in place.

The other one I look at would be the approval of exclusivity vouchers. When you look at a company like Tetraphase that is a small biotech company with multiple QIDP antibiotics, if we were able to sell those exclusivity vouchers to larger pharma companies to extend the patent life of maybe one of their chronic meds for an additional year, that would be a huge benefit for smaller companies like ours. And it can be a real gamechanger, because if we were able to sell those exclusivity vouchers for anywhere from $200 to $250 million, that takes significant financial pressures off of smaller companies and helps us avoid the need to go to public markets, or even go to a debt market to raise additional capital.

Contagion®: Absolutely. That was my last question. Was there anything that you wanted to add that I didn't ask?

Larry Edwards: Again, highlighting that CMS is definitely taking steps in the right direction. I think the government has done a lot on the push side, so I think there continues to be more and more on the pull side. Hopefully, we continue to see more in the year to come as well as moving into 2020.

Contagion®: Thanks for tuning in to this Contagion® Connect podcast. Be sure to share, like, and subscribe, and for the latest infectious diseases, be sure to check out

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