New ICD-10-CM codes were also included in Table 6A of the FY 2026 Hospital Inpatient Prospective Payment System proposed rule.

Background

CMS and the CDC typically hold two Coordination & Maintenance (C&M) Committee meetings per year: one in the spring and one in the fall. CMS moderates discussion on revisions to the International Classification of Diseases, Tenth Revision, Procedure Coding System (ICD-10-PCS) code set, and the CDC moderates discussion on revisions to the ICD-10-CM code set. No decisions are made during C&M Committee meetings, and topics related to reimbursement, insurance, and payer issues are not discussed. Public comments are welcome during the meetings, with opportunities to submit written comments on the proposed code revisions during a designated period following each session.

The March 2025 ICD-10 C&M Committee meeting to discuss FY 2026 ICD-10-PCS codes was not public and the CDC did not participate in the closed session. It is expected that CMS and the CDC will resume a combined public meeting forum in fall 2025.  The newly released ICD-10-CM codes for implementation on October 1, 2025 were approved in 2024.

Details of the FY 2026 Update

Type 2 diabetes mellitus (T2DM) in remission: This topic was originally presented at the March 2024 ICD-10 C&M meeting. Based on public comment, revisions to the proposal were made to address concerns of code selection in addition to diabetic complications, the addition of an Excludes 1 note, and to emphasize the importance of this code to report remission, classified by leading specialty societies as sustaining normal blood glucose levels for three months or more. Code details and tabular modifications were finalized during the September 2024 ICD-10 C&M meeting, resulting in the addition of one new code, E11.A: Type 2 diabetes mellitus without complications in remission.

Hyperoxaluria: This topic was originally presented at the September 2023 ICD-10 C&M meeting. Hyperoxaluria is excess levels of oxalate, a toxic metabolite that cannot be broken down by the body; it can result from a diverse group of disorders. Requestors highlighted the need to accurately differentiate and report the types of hyperoxaluria, which may be due to inherited genetic mutations that lead to different phenotypes of the disease or acquired forms. Code details and tabular modifications were finalized during the March 2024 ICD-10 C&M meeting, resulting in the addition of seven new codes.

Table 1. New Hyperoxaluria ICD-10-CM Codes

Multiple Sclerosis (MS) Phenotypes: This topic was originally presented at the March 2023 ICD-10 C&M meeting. The Food and Drug Administration’s Center for Drug Evaluation and Research requested new ICD-10-CM codes for MS to distinguish between different disease clinical courses, evaluation of disease progression, and long-term prognosis of MS in large population-based epidemiological assessments. Code details and tabular modifications were finalized during the September 2024 ICD-10 C&M meeting, resulting in the addition of eight new codes.

Table 2. New MS ICD-10-CM Codes

Thyroid Eye Disease (TED): This topic appears to have only been discussed once during the March 2024 ICD-10 C&M meeting. The requestor felt that the current ICD-10-CM code for TED in Chapter 4 Endocrine, Nutritional and Metabolic Diseases, E05.00 Thyrotoxicosis with diffuse goiter without thyrotoxic crisis or storm did not specifically identify TED patients, and they aimed to delineate TED from the underlying endocrine disorder. The requestor also cited the inconsistency of TED prevalence data made it challenging to understand the true burden of the disease. Code details and tabular modifications were finalized during that meeting, resulting in the addition of four new codes.

Table 3. New TED ICD-10-CM Codes

Immune Complex-mediated Membranoproliferative Glomerulonephritis (IC-MPGN): This topic appears to have only been discussed once during the September 2024 ICD-10 C&M meeting. Due to advancements in understanding the MPGN pattern etiology and subsequent revision of MPGN classification based on pathogenesis of paraprotein deposits in the disease, the Renal Physicians Association requested new codes to identify (IC-MPGN. Code details and tabular modifications were finalized during that meeting, resulting in the addition of four new codes.

Table 4. New IC-MPGN ICD-10-CM Codes

Widespread Impacts of New Codes

The introduction of new ICD-10-CM codes can have various impacts on different stakeholders across the healthcare system:

• Manufacturers: New codes can influence the demand for certain medical products or devices associated with specific diagnoses. They may need to adjust their access strategies based on changes in coding that reflect emerging health trends or conditions.
• Providers: Healthcare providers must stay updated with new codes to ensure accurate diagnosis and billing practices. This may require additional training and adjustments in electronic health record systems, potentially impacting workflow efficiency and reimbursement processes.
• Health Plans: Insurers may need to revise coverage policies and reimbursement rates based on new codes, which could affect cost management strategies and actuarial assessments. They must ensure their systems are updated to process claims accurately under the revised coding structure.
• Patients: Changes in ICD-10-CM codes can influence patients’ access to care if they impact insurers’ coverage decisions or providers’ treatment protocols. Patients might experience changes in out-of-pocket costs depending on how new codes affect insurance coverage.
• State/Federal Policymakers: Policymakers may use updated coding data for public health monitoring and resource allocation decisions. New codes can provide insights into emerging health issues, guiding policy development and funding priorities.

Partner With Us

Avalere Health continuously monitors and tracks all coding decisions, frequently attending public CMS and CDC meetings to gather insights and real-time information regarding the current and future coding landscape.. Stakeholders should remain vigilant about these developments to adapt effectively and leverage opportunities for improved patient outcomes and operational efficiencies. To learn more about how Avalere Health can help, connect with us.

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Chronic care management (CCM) is considered an essential primary care service aimed at improving patient care and health outcomes. CCM, which can be provided by providers or their clinical staff, encompasses a range of non-patient-facing services, such as facilitating preventive care, supporting health goals, managing care transitions, and sharing patient health information within and across care teams. Evidence suggests that CCM in Medicare can improve care: a federally funded study found that CCM improves clinician efficiency, patient satisfaction, therapy adherence, and reduces hospitalizations and emergency department (ED) visits, resulting in savings of $74 per member per month, or $888 annually per beneficiary. 

Relevant Services: The Centers for Medicare and Medicaid Services (CMS) pays for CCM services for eligible patients under six relevant codes: 99437, 99439, 99487, 99489, 99490, and 99491 (Appendix). CMS has also introduced several other code families to support similar, and sometimes mutually exclusive, coordinated care services, including transitional care management, advanced primary care management, principal care management, and CCM specifically for pain management.

Eligible Patients: To qualify for CCM, patients must have at least two chronic conditions expected to either persist for at least 12 months or pose a significant risk of death, acute exacerbation, decompensation, or functional decline. Examples of qualifying chronic conditions include diabetes, hypertension, chronic kidney disease, heart failure, cancer, arthritis, and Alzheimer’s disease. In addition to the number of underlying conditions, CMS suggests that practitioners also consider the number of medications, repeat admissions, and past ED visits when identifying patients who are eligible for CCM. 

Analysis 

Amid growing interest in CCM and incentives for its use, Avalere Health analyzed CCM utilization trends in Medicare claims from 2019 to 2023. To understand the extent of utilization growth, we determined the number of Medicare beneficiaries who received CCM services, the total number of CCM claims submitted, and the average number of claims per beneficiary. Because CCM is intended for beneficiaries with two or more chronic conditions, we also analyzed the distribution of chronic conditions among those who received CCM services. Further methodology information is included in the Appendix.  

Results 

CCM Uptake: Two-thirds of Medicare beneficiaries have two or more chronic conditions and many are likely eligible to receive CCM services. However, only a fraction of eligible beneficiaries have been enrolled in a CCM program. At least one study suggested that initial uptake was low, with less than 4% of eligible enrollees receiving CCM care in 2019.  

Recognizing the potential of CCM to enhance both patient outcomes and cost efficiency, CMS has taken meaningful steps to expand the program by introducing new CPT codes for additional service time and raising reimbursement rates by increasing the underlying work relative value units (RVUs) in 2022 (Figure 1). The largest increases (81% to 100%) were observed in the complex CCM codes.  

Figure 1. Updates to Work RVUs, 2022

QHP: Qualified Healthcare Professional. Note: CPT code 99437 was new in 2022. 

As a result of policy changes intended to more accurately value these services, utilization of CCM codes has increased steadily over the past five years, seeing an average annual growth rate of 7.4% from 2019 to 2023 (Table 1). The largest year-over-year increase was observed after the code set was revalued: the number of Medicare beneficiaries receiving any CCM service increased by 23.4% between 2022 and 2023, when nearly 1.3 million Medicare beneficiaries received CCM. 

Table 1. Trends in CCM Utilization, 2019-2023  

Source: Medicare 100% fee-for-service data 

While implementation of CCM has led to increased utilization, our analysis found that—despite growth in beneficiary participation and total claims—opportunities remain to further expand the uptake of CCM services. 

Gap Analysis: CCM may be underutilized among eligible beneficiaries, but not all current recipients of CCM services appear to meet the eligibility requirement of having two or more chronic conditions. According to Avalere Health’s analysis, in 2023 only 77% of billed CCM services were for patients with two or more chronic conditions recorded on the claim; in contrast, 18% of beneficiaries had only one chronic condition recorded, and 5% had none (Figure 2). Given that the portion of claims lacking sufficient documentation increased as CCM utilization increased, these anomalies raise questions about coding accuracy and the consistency of eligibility assessments. 

Figure 2: CCM Claims by Number of Chronic Conditions Reported, 2019–2023 

Drivers of Low CCM Uptake 

While utilization of CCM services has increased over time, the breadth and consistency of their uptake remains uneven. This limited adoption is likely influenced by a combination of patient- and provider-level factors. 

Table 2. Barriers to Appropriate CCM Uptake  

Some providers have suggested that CMS could play a greater role in educating beneficiaries about CCM’s value to help facilitate consent and engagement. Our claims analysis suggests two key areas for improvement among providers: proper documentation of diagnoses and improved consistency of CCM utilization. We did not assess the clinical appropriateness of the services billed. 

Opportunities for Improvement 

While the underlying cause of the discrepancy in diagnosis coding on CCM claims is unknown, it could reflect a lack of financial or operational incentives for precise diagnosis coding within traditional Medicare. Though providers serving both traditional Medicare and Medicare Advantage (MA) beneficiaries can deliver CCM services, the risk-adjusted payments in MA reward create incentives to report diagnoses completely and accurately. In contrast, traditional Medicare reimburses providers on a fee-for-service basis with no diagnosis-based adjustment, potentially contributing to less accurate coding practices. 

Additionally, the Medicare claims data show evidence of inconsistent service provision. In 2023, 6.5 million CCM claims were submitted; this is an average of 5.1 per beneficiary and a slight increase from the average of 4.9 claims per beneficiary in 2019. Since providers can bill monthly for CCM services and CMS expects that the full scope of services be delivered each month (unless not medically necessary), this lower-than-expected frequency suggests barriers to consistent care coordination that have persisted over time. 

Looking Ahead 

Further exploration is needed to fully understand the patterns of CCM uptake and service provision. Insights from this analysis can inform strategies that support broader participation in CCM programs to improve patient care and contribute to Medicare cost savings.  

To learn more about CCM and other trends in primary care, connect with us. 

Appendix: CCM Code Descriptions and Methodology 

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The Medicare Advantage (MA) Star Ratings program was introduced in 2007 to assess the quality of MA plans based on performance metrics and help beneficiaries compare plan options. The Centers for Medicare & Medicaid Services evaluates plans on various measures and assigns them a Star Rating in half-point increments from 1 to 5, with 1 star being the lowest rating and 5 stars the highest.

Passage of the Affordable Care Act in 2010 officially tied plan ratings to payment in the form of quality bonus payments (QBPs), catalyzing program changes that sought to bring greater focus on quality through financial incentives. Plans that achieve higher Star Ratings receive higher payments, with the aim of incentivizing them to continuously improve their performance.

Throughout its existence, the Star Rating program, and the QBP program specifically, has been scrutinized for fairness in assessing and rewarding plans. Several organizations, such as the Medicare Payment Advisory Commission, the Congressional Budget Office, academic groups, and think tanks have proposed modifications to the Star Rating program.

This paper discusses four components of the Star Rating program that have been the subject of various proposals for policymakers to consider: cut point calculations and thresholds, measure selection and quantity, inclusion of Employer Group Waiver Plans, and the cost of the program. Within each proposal area, we present the prevailing justification for each change and how they would likely affect federal entities, payers, and members.

Download the white paper.

Research was requested and funded by the Centene Corporation. Avalere Health retained full editorial control.

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OUD is diagnosed when individuals experience persistent and ongoing need to use opioids, which can involve prescription or illegal opioids, leading to significant distress or impairment in daily functioning. Approximately 6.1 million people in the U.S. have the disease, but only one in four receive recommended medications for treatment.

“Despite the well-established benefits of OUD therapies, individuals with OUD face significant barriers to treatment,” said Margaret Scott, a Principal at Avalere Health. “Our study shows that barriers to care include physician stigmatizing and expressing reluctance to treat OUD patients, inadequate provider education and training, geographic distances to treatment locations, and social stigma.”

Avalere Health conducted the research and modeled the costs and treatment-savings effects of OUD nationally and by state. The researchers focused their analysis on three key areas:

• Identifying the prevalence of OUD
• Modeling the costs of OUD
• Evaluating the cost savings of four ambulatory OUD treatments (i.e., behavioral therapy alone; behavioral therapy plus methadone; behavioral therapy plus transmucosal buprenorphine; and behavioral therapy plus long-acting injectable [LAI] buprenorphine)

Avalere Health researchers discovered that the U.S. national average cost of OUD per case is nearly $700,000, with over $150,000 borne by government, businesses, and families. Of the treatments evaluated, long-acting injectables with behavioral therapy demonstrated the highest estimated annual per-case savings at $295,000. In the four states with the highest OUD cases, researchers outlined the total federal and state costs*.

“As states and local governments explore new strategies to reduce healthcare costs, encouraging public health, governments, and payers to prioritize OUD treatments can lead to greater savings,” said Michael Ciarametaro, Managing Director at Avalere Health.
To download “The Cost of Addiction: Opioid Use Disorder in the U.S.,” click here.

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Step therapy (ST) is a utilization management (UM) practice that “establishes a sequence of covered prescription drugs for a given medical condition.” The ST process requires a plan enrollee to try or “step through” one or more alternative medications for a period (e.g., three months) before a medication is covered by the plan. Commercial plans may note on their formularies or in formulary lookup tools that a drug requires ST (“labeled ST”) or may include ST within prior authorization (PA) requirements (“embedded ST”). Because embedded ST is not labeled explicitly on formularies, individuals enrolling in a plan or looking up their drug coverage information would need to reference more detailed plan coverage policies to learn that a drug with embedded ST has such a requirement.

In some instances, plans may apply ST that requires an enrollee to step through additional drugs beyond what is indicated in Food & Drug Administration (FDA) approved labeling.¹

Avalere Health analyzed UM patterns in commercial plan pharmacy benefit coverage for branded, single-source drugs indicated to treat three conditions: psoriatic arthritis (PsA), multiple sclerosis (MS), and chronic myelogenous leukemia (CML) (UM policy definitions are provided in Table 1). Avalere Health conducted a previous analysis of the use of step therapy for specific drug indications across Medicare Part D.

Table 1: Definitions of UM Policies Included in the Analysis

Findings: Coverage and Use of Utilization Management

Avalere Health evaluated coverage for PsA, MS, and CML drugs on the pharmacy benefit in 2023 plans. Coverage and UM for each drug varied by plan, plan type, and benefit offering.

Commercial plans provided coverage 87% of the time for PsA and CML drugs, while only providing coverage 77% of the time for MS drugs.

Across commercial plans, UM strategies across the studied therapeutic areas vary widely. The following statistics show the portion of covered enrollees subject to a particular UM requirement (Figure 1).

• 90% of the time, covered PsA drugs are subject to UM
• 79% of the time, covered MS drugs are subject to UM
• 82% of the time, covered CML drugs are subject to UM

Commercial plans may require ST in one of two ways; either labeled as ST on the formulary or embedded within a PA requirement. Across PsA, MS, and CML drugs, commercial plans use embedded ST more frequently than labeled ST on the formulary.

• For PsA drugs, ST is embedded in the PA requirement 59% of the time, while it is labeled 11% of the time
• For MS drugs, ST is embedded 32% of the time and labeled 8% of the time
• For CML drugs, ST is embedded 51% of the time and labeled 12% of the time

ST may also be used in alignment with the FDA-approved labeling or extended further to include steps beyond the FDA label. For PsA, MS, and CML drugs subject to ST, plans may require enrollees to step through medications beyond those indicated by the FDA label.

• For PsA drugs, ST beyond the FDA-approved labeling is required 63% of the time
• Plans apply ST beyond the FDA label less frequently for MS and CML—37% and 39% of the time, respectively

Figure 1. Commercial Plan Utilization Management by Conditions and Benefit Type; Single-Source Brand Drugs, as a Percent of Lives with Drug Coverage, 2023  

Note: Totals may not sum to 100% due to rounding.

The number of steps required beyond the FDA-approved labeling varies widely by plan and drug. Across the drugs analyzed, the number of additional steps ranged from one to 10. When plans covered the 13 PsA drugs and required UM, they most frequently (60% of the time) applied one or two steps beyond the FDA label. A small portion of enrollees may be required to step through up to 10 therapies (beyond those specified on the FDA label) for three of the 13 PsA drugs (Table 2).

For MS drugs, one to two steps beyond the FDA-approved labeling is the most common ST policy; enrollees seeking two of the 11 MS drugs may face up to four steps beyond the label. For CML drugs with steps required beyond the FDA label, three of the four drugs analyzed require one additional step.

Table 2. Use of Step Therapy for Pharmacy-Benefit Drugs; Single-Source Brand Drugs, as a Percent of Lives with UM, 2023

Key Considerations

These findings offer insights into the ST landscape for individuals with chronic conditions. As other researchers have found, ST can delay patients’ access to needed medicines and impact patient care. The overlap of multiple steps in an ST protocol and the use of embedded ST may make the extent of ST requirements less obvious to individuals enrolling in coverage.

Although most states have legislation governing ST protocols and transparency, these laws do not address the aspects of ST considered in this analysis. Some laws outline exceptions and appeals processes for ST, but exact processes may vary by insurer. Federal policymakers, including those in the first Trump administration, have focused on policies requiring data transparency from health insurance plans that did not directly relate to ST.

Looking ahead, policymakers and employers selecting coverage for their employees could consider whether there are meaningful guardrails requiring oversight and transparency of ST protocols to ensure that individuals enrolling in a plan understand the ST requirements on a needed medication.

Methodology

Avalere Health evaluated the 2023 coverage and restrictions policies for branded, single-source drugs within three conditions (chronic myelogenous leukemia, multiple sclerosis, and psoriatic arthritis) on the pharmacy benefits for commercial plans. Commercial plans in this analysis include exchange plans, employer sponsored plans, federal employee health plans, union plans and municipal health plans. Avalere Health partners with Clarivate to obtain formulary and restrictions data. Restrictions data only includes policies from the top 250 plan sponsors, based on enrollment.

For each drug, Avalere Health evaluated whether the plan required ST (either explicitly listed as a step therapy or embedded in PA criteria), which drugs were listed as step edits, whether the step edit was aligned with the FDA-approved labeling or included more steps than the FDA label, and the number of step edits required for each condition. The UM criteria for each drug was compared to the FDA label. If the ST criteria matched the FDA label criteria, then the ST criteria was categorized as aligning with the FDA label. If the ST criteria required step edits beyond what the FDA label indicated (e.g., FDA label indicated no step edits, but ST criteria required a step edit), then the ST criteria was categorized as ST including steps beyond than the FDA label. Avalere Health did not evaluate how the UM criteria conform to clinical guidelines.

Dive Deeper

To learn more about the impact and prevalence of UM in the commercial market, connect with an Avalere Health expert today.

¹ The purpose of the FDA drug label is to provide health care providers with a summary of the safety and efficacy of a drug. FDA labels do not place specific limitations on the number of steps required for a prescription drug.

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The 119th Congress is considering reforms aimed at reducing federal Medicaid spending as part of broader budget deliberations. In 2023, the federal government spent $637 billion on Medicaid, and the program accounted for around one in five healthcare dollars spent in the US.

Given this discussion, Avalere Health modeled the impact of three policy options that would reduce federal Medicaid spending by changing the program’s funding structure. Avalere Health defined the parameters of each modeled policy; they are not based on budgetary language.

For each of the policies, we assess the overall impact on federal program funding and anticipated changes to federal funding for services provided to children (i.e., through the impact of a per capita cap on beneficiaries who are children or through reduced federal matching funds for children’s services), both nationally and at the state level.

Avalere Health modeled the following three scenarios:

1. Implementation of a per capita cap on Medicaid spending
2. Federal Medical Assistance Percentage (FMAP) reduction for the Affordable Care Act Medicaid expansion population
3. Removal of the 50% FMAP floor

Findings

The modeled policies would result in total federal funding cuts of $436–779 billion over ten years and include reductions in federal Medicaid funding for children between $57 and $114 billion.

Table 1. Projected change in total federal Medicaid funding and federal Medicaid funding to children under each scenario (2025–2034)

CPI-U: Consumer Price Index for All Urban Consumers; CPI-M: Consumer Price Index for Medical Care ^† Results do not include a breakout on funding for children because children are not part of the expansion population. *Percent change reflects the change in federal funding for the Medicaid expansion population only. **Percent change reflects the change in federal funding for the non-expansion population nationwide.

As modeled, per capita caps would impact all states (with total federal funding reductions of 5–7% per state), whereas the FMAP floor removal would impact 10 states and DC (4–52% federal funding reduction per state for non-expansion enrollees; 100% for DC). A change to expansion FMAP would impact 40 states and DC with Medicaid expansions (18–44% federal funding reduction per state for expansion enrollees).

As Congress considers various policy options, it is important to consider the effect on Medicaid funding by state and on specific populations, including children. Any change that reduces federal funding would require states to contribute more state funds to Medicaid or reduce Medicaid spending.

Download the free white paper.

Funding for this research was provided by the Children’s Hospital Association. Avalere Health retained full editorial control.

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The US Preventive Service Task Force (USPSTF) is an independent panel of 16 experts appointed by the Secretary of Health and Human Services (HHS) that voluntarily provide recommendations on preventive services for adults and children provided in the primary care setting. USPSTF evaluates specific interventions and issues recommendation with a letter grade (A, B, C, D, or Insufficient [I] statement) based on the strength of existing evidence and the net benefits of a preventive service. Under the Affordable Care Act (ACA), services received a USPSTF Grade A or Grade B must be covered by Medicare and third-party insurance carriers without member cost sharing.

Legal Challenges to Preventive Services Coverage Mandate

In September 2022, the US District Court for the Northern District of Texas issued a ruling in Braidwood Management Inc. vs. Becerra, a case which challenged the legality of the ACA’s preventive services coverage mandate under the US Constitution and the Religious Freedom Restoration Act. The court ruled that health plans are not required to cover services recommended by the USPSTF because its panel members are not properly appointed under the Constitution’s Appointments Clause. Following the decision, the Biden administration appealed the court’s ruling to the US Court of Appeals for the Fifth Circuit,

In June 2024, the court of appeals issued a decision reversing the lower court’s decision to vacate all agency actions to enforce preventive care coverage mandates. However, this ruling agreed with the lower court’s ruling that the USPSTF panel had not been validly appointed under the Appointments Clause.

Supreme Court Considers Preventive Services Coverage

The case was appealed to the Supreme Court and on April 21, 2025, justices heard oral arguments in Kennedy vs. Braidwood Management Inc. Their decision, which is expected in June, could affect access to non-cost share preventive health services under the ACA.

According to reporting by Roll Call, the tenor of justices’ questions indicate support for upholding the preventive coverage mandate and dismissing the Fifth Circuit’s decision. Of note, there were several justices who “questioned the reasoning behind a decision by the US Court of Appeals for the 5th Circuit, which held that the Task Force that makes decisions about preventive care was unconstitutional because the Senate does not confirm its members.” The Trump administration stated that HHS currently has the ability to overturn any recommendations and remove Task Force members, both of which will have implications for the future work of the USPSTF as well as for public health.

Next Steps

Avalere Health’s cross functional team is uniquely capable of supporting stakeholders interested in successfully navigating the evolving landscape of USPSTF recommendations and submission processes. Understanding the access landscape for screening requires a partner with strategic foresight and deep expertise in evidence, policy, and quality frameworks. Leveraging expertise in evidence generation and planning, market strategy, and policy shaping, Avalere Health can provide strategic recommendations that meet individual client needs. To learn more about how Avalere Health can assist you connect with us.

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SOC optimization refers to the strategy of directing patients to the most cost-effective, clinically appropriate setting to receive a given healthcare service without sacrificing quality. Once clinical standards and technology allow a service to be safely rendered in a particular SOC, providers can encourage patients with the appropriate risk profile to seek–and payers can encourage providers to render–a given service in the lowest-cost SOC. This can reduce associated expenditures for both the patient and the payer while maintaining appropriate and sufficient reimbursement for the provider.

Lower-acuity SOCs like ambulatory surgery centers (ASCs) and physician offices can also offer an improved patient experience via more convenient access to care and an improved provider experience via dedicated operating room hours. For a procedure to be covered by Medicare in lower-acuity SOCs, it must not appear on Medicare’s Inpatient Only List (IPO). For a procedure to be covered by Medicare in the ASC setting, it must also be added to the ASC Covered Procedures List (CPL).

Specialty services constitute a key savings opportunity for several reasons. First, management by a dedicated class of specialty providers encourages the development of clear standards of care. Second, these services are often performed in a facility setting, such as a hospital outpatient department (HOPD) or ASC. Services performed in a facility setting incur a separate “facility fee” intended to cover expenses related to the facility itself (e.g., staffing, equipment, and overhead) in addition to the professional fee, which reimburses the physician for their time. In Medicare, the professional fee is the same across facility-based settings (i.e., HOPDs and ASCs), so the facility fee is responsible for the entire cost differential between these two settings, representing the savings opportunity.

Utilization Across Different Sites of Care

Underlying trends in utilization across SOCs inform the magnitude of savings that SOC optimization may generate, and different procedures and specialties have varying degrees of SOC optimization. For the Medicare population, Figure 1 shows the SOC breakdown for representative high-volume procedures in ophthalmology, pain management, gastroenterology, and orthopedics in 2018 and 2023, and Table 1 shows the percentage change in each SOC’s relative utilization during that period.

Figure 1. Site of Care Breakdown for Select Procedures, Medicare, 2018 and 2023

Note: “Other” includes all SOCs other than inpatient, HOPD, and ASC. Volume in this category for the above procedures is generally synonymous with in-office utilization.

Table 1. Shift in Site of Care for Select Procedures, Medicare, 2018 to 2023

Note: Some percentage changes may not sum perfectly due to rounding. Source: 100% Medicare Fee-for-Service file, 2018-2023

Using the 100% Medicare data file, Avalere Health’s analysis of these representative codes suggests four different paradigms of SOC shift, each with its own implications for SOC optimization (Table 2)

Table 2. Site-of-Care Optimization Paradigms

Note: These paradigms are not exhaustive. They do not address procedures that are on the IPO list and/or have not yet been added to the ASC CPL. A procedure on the IPO list is not eligible for SOC optimization; once it is removed, it typically experiences a “probationary” period of HOPD utilization lasting one to three years, after which it may be added to the ASC CPL. Optimization occurs as volume shifts to the HOPD and/or the ASC.

These paradigms generalize several archetypal paths toward SOC optimization for specialty services. Some procedures may already have more “mature” SOC optimization (i.e., a high proportion of utilization in the lowest-acuity setting), while other procedures may have more “runway” with respect to SOC shift. At a high level, some specialties, such as pain management, have converted a material proportion of utilization to the lowest-acuity SOC; others, such as orthopedics, have done so for some procedures; and still others, such as cardiology, are earlier in this transition.

Importantly, SOC shifts often depend upon changes in CMS or commercial payer policy. In the absence of changes to the IPO or the ASC CPL, which commercial payers typically follow, SOC patterns can stagnate. For example, Avalere analysis of 100% Medicare data showed that, from 2017 to 2022, there were no major changes to SOC policies for key otolaryngology (ear, nose, and throat) procedures. As a result, the changes in SOC utilization during this period were minimal (typically less than a 3% shift) and directionally mixed (some procedures shifting to the HOPD and others to the ASC or office)

While the SOC for specialty services has long-term relevance to clinical quality and physician practice dynamics, the most immediate impact is to cost. Figure 2 shows the difference in cost between the HOPD and the ASC for CPT code 45385 (colonoscopy), and Table 3 shows the implied savings if all instances of the selected procedures performed in the HOPD were instead performed in the ASC. The HOPD and the ASC have the same professional fee in Medicare, so the difference in procedure price is 100% attributable to difference in facility fee.

Figure 2. Total Medicare Procedure Price for CPT Code 45385 (Colonoscopy), 2025

Source: Medicare Procedure Price Lookup Tool

Table 3. Implied Savings from HOPD-to-ASC Shift for Selected Procedures, 2023

Source: 100% Medicare Fee-for-Service File, 2023; Hospital Outpatient Prospective Payment and ASC Final Rule Addenda, 2023

Conclusion

While each individual patient’s acuity and clinical circumstances will continue to determine the most appropriate SOC for any given service or procedure, the opportunity to shift certain types of care in the aggregate toward lower-acuity SOCs represents a meaningful opportunity to address healthcare expenditures. Providers can demonstrate value to patients and payers by rendering services in lower-acuity, lower-cost SOCs, and evolving clinical standards and payment policies (e.g., site-neutral payment) will simultaneously shape SOC optimization.

If your organization would like to discuss site-of-care, specialty services, or physician practice management, connect with us.

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Avalere created the Payers’ Overarching Compendia Policies Dashboard to track off-label oncology coverage trends across the top 50 commercial payers, cumulatively covering over 160 million lives. The goal of this resource is to help manufacturers navigate coverage challenges and anticipate access barriers.

The dashboard identifies which compendia are referenced by plans, alignment with Centers for Medicare and Medicaid (CMS)-recognized sources, and how evidence ratings influence coverage. The dashboard includes trends in policies from 37 of the top 50 payers, representing 127 million covered lives.

Users can filter by compendium rating (e.g., National Comprehensive Cancer Network [NCCN] Category 2B) to assess coverage variations, supporting market access strategies, payer engagement, and denial analysis. Users can also filter by payer to see the evidence ratings the payer requires for coverage, which can support evidence generation/submission for denied claim appeals.

Most (74%) of payers mention one or more compendia in coverage policies. Among 37 payers with overarching policies, only three strictly follow CMS compendia and ratings, and four do not reference NCCN.  The Avalere dashboard also provides insights into geographic trends via an integrated heatmap, illustrating state-specific coverage.

Payer-specific interpretations of compendia create coverage disparities, leading to treatment delays. This dashboard helps stakeholders anticipate restrictions and understand evolving policies.

The Payers’ Overarching Compendia Policies Dashboard answers key questions, including:

• Which compendia are used for coverage decisions?
  • Differentiates between payers that adhere strictly to CMS-recognized sources versus those that apply additional internal review processes
  • Notes which compendia are cited most often
• How many lives are potentially impacted by compendia-driven decisions?
  • Estimates the number of covered lives affected by compendia
• How frequently are compendia referenced in policies?
  • Tracks types of compendia payers cite in policies
• Which commercial payers cover NCCN Category 2B?

Using this dashboard, manufacturers can optimize compendia inclusion, enhance payer engagement and market access strategy, and align data generation with coverage standards. Providers can use this dashboard to better understand payer-specific coverage complexities in advance of prescribing and when documenting information necessary for appeals, and to help minimize administrative burden.

As clinical drug compendia play a vital—yet inconsistently applied—role in coverage, this resource helps stakeholders advocate for fair evidence-based access, minimize disruptions, and improve timely patient access to innovative therapies.

This report is a key tool for reimbursement hotlines, and for provider and payer account managers, helping to navigate coverage denials. The policies in this report can also serve as a gap fill where payers do not have drug-specific coverage criteria.

Access The Report

Avalere’s experts in commercialization, regulatory, and policy strategy can help manufacturers, patient advocacy organizations, payers, and other stakeholders analyze the clinical coverage policies and access implications to off-label treatments and help develop strategies to mitigate delays in patient access to treatment.

To purchase the report or speak with an Avalere expert, contact Amy Schroeder at amy.schroeder@avalerehealth.com.

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In recent years, payers and pharmacy benefit managers (PBMs) have increasingly used copay adjustment programs (i.e., copay accumulators and copay maximizers) to limit plan sponsor exposure to prescription drug costs. Manufacturers often offer patient copay assistance programs to commercially insured patients to reduce their out-of-pocket (OOP) drug costs. Copay adjustment programs prevent this third-party assistance from counting toward patients’ deductibles and maximum out-of-pocket (MOOP) calculation. Research has shown that more than 83% of commercial market enrollees belong to plans that have implemented copay accumulator programs and 73% belong to plans that have implemented copay maximizer programs.

State and Federal Action Limiting Copay Adjustment Programs

Since 2019, state legislators have passed 21 bills aimed at banning the use of copay accumulator programs and ensuring that any third-party copay assistance used by a patient is counted toward the cost-sharing limits of their plan. As of March 2025, 21 states have enacted laws banning payer and PBM use of copay accumulator programs. These laws apply to state-regulated health plans, including the individual, fully insured large-group, and small-group markets (see Figure 1). As of January 1, 2025, at least 16% of the total US commercial market (approximately 31million individuals) are enrolled in plans that must count any form of copay assistance toward patient cost-sharing limits (note: certain states only limit bans in instances where a generic is not available).

Figure 1: Proposed and Enacted State Laws Limiting Copay Adjustment Programs

Note: As of March 2025

In September 2023, the US District Court for the District of Columbia struck down a federal rule that allowed plans and PBMs to omit manufacturer copay assistance from beneficiary cost-sharing calculations (e.g., MOOP totals). Current regulations permit plans to omit such assistance only in instances where a generic alternative is available. This ruling significantly limited the use of copay accumulators in federally regulated large group and self-insured plans, but did not limit the use of other adjustment programs like copay maximizers. However, as part of the 2023 District Court decision, HHS must provide clarification for consistent interpretation of the definition of “cost sharing” and the Trump administration may seek to provide broad latitude for use of accumulators as it did in previous rulemaking (i.e., 2021 Notice of Benefit and Payment Parameters).

Employers, Plans, and PBMs Are Utilizing Additional Tools for Managing Financial Exposure

As copay adjustment programs face increased scrutiny and restrictions from state and federal lawmakers, stakeholders have turned to alternative funding programs (AFPs) as an additional mechanism for managing specialty or high-cost drug exposure. These programs operate in agreement on behalf of plan sponsors and pharmacy benefit managers to “carve out” certain specialty products from a beneficiary’s prescription drug benefit. AFPs then facilitate patient acquisition of their drug via other channels, including the enrollment of patients taking these products into the specialty product manufacturer’s foundation or patient assistance program (PAP), non-manufacturer charitable foundations, or via international drug importation.

Stakeholder Implications

Copay adjustment programs and AFPs may slow patients from moving through their insurance OOP requirements (e.g., deductible, OOP maximum), resulting in higher overall patient cost and creating access challenges.

Several manufacturers have implemented strategies to mitigate the risk of being targeted by AFPs by updating the eligibility criteria or terms and conditions for their free product offerings (e.g., prohibiting any patients with insurance from receiving free product support). While such program changes may prevent AFPs from moving patients into manufacturer foundations or PAPs, patients subject to AFPs may face access challenges as a result. Manufacturers have also taken legal action to challenge both copay adjustment programs and AFPs seeking to curb their use in the market.

Looking Ahead

Patient access and affordability continue to be an area of considerable focus for stakeholders as the US healthcare landscape evolves. The Trump administration’s rulemaking in its first term indicated support for plan flexibility to implement copay accumulators and maximizers. Changes in leadership at HHS and CMS in the second term may result in different approaches to rulemaking such as the Notice of Benefit and Payment Parameters, which has implications for copay adjustment programs broadly.

Health plans are seeking to manage exposure to high-cost specialty drugs as their prices increase and they face increased liability under the Inflation Reduction Act. Plans and employers will likely continue to seek and utilize tools to manage drug spending.

Manufacturers continue to face challenges to their patient support and affordability programs, and will likely continue to revise eligibility and program structures as needed. Continuous monitoring and strategic action is required on behalf of all stakeholders to safeguard patient access to medication and treatment.

Avalere helps clients understand the evolving landscape of patient support, model the impacts of these policy changes, and identify solutions accounting for financial exposure while maximizing appropriate patient access. With its hands-on policy experience from the payer, manufacturer, and third-party vendor perspectives, Avalere is well positioned to help your organization respond to—or shape—the evolving copay adjustment program landscape.

To receive Avalere updates, connect with us.

Appendix: Lives Impacted by Accumulator Bans Across States

Data sourced from AIS Enrollment Data, January 2025

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To further explore this topic, Avalere evaluated 2023 coverage and UM for drugs treating psoriatic arthritis (PsA) and multiple sclerosis (MS), identifying instances in which plans embedded ST requirements under PA or required step edits that are more restrictive than the prescribing information on the Food and Drug Administration (FDA) label (definitions provided in Table 1).

This analysis evaluates 2023 data in standalone Medicare Prescription Drug Plans (PDPs) and Medicare Advantage Prescription Drug Plans (MA-PDs) for branded, single source drugs indicated to treat PsA and MS.

Table 1: Definitions of UM Policies Included in the Analysis

Background

Health plans employ PA and ST to manage spending and prevent use of contraindicated drugs. Many factors influence drug coverage and a plan’s use of UM, including drugs’ clinical profiles, therapeutic competition, availability of generics and biosimilars, costs, and rebate dynamics. As healthcare costs continue to rise and more innovative and specialized therapies enter the market, plans may consider changes to PA and ST to limit premium growth. In Medicare Part D, Centers for Medicare and Medicaid Services (CMS) regulations govern the use of PA and ST. For Part D plans, formularies indicate whether a covered drug requires PA, ST, or quantity limits and more detailed coverage information is often available on a plan or PBM’s website.

Findings: Coverage and Utilization Management

Coverage and utilization management for PsA and MS vary by plan type. For both conditions, PDPs have lower levels of coverage than MA-PDs. The analyzed PsA drugs are covered 59% of the time by PDPs and 72% of the time by MA-PDs (see Figure 1.) PDPs provide coverage of MS drugs 19% of the time, while MA-PDs provide coverage 46% of the time. Detailed coverage and utilization management information for PsA and MS drugs is available in Tables 2 and 3 below.

Figure 1. Part D Coverage by Indication and Plan Type, Single-Source Brand Drugs, As a Percent of Total Part D Lives, 2023

For a Part D plan to require UM for a specific drug, the drug must be covered on a plan’s formulary. Unless otherwise stated, the following statistics represent the portion of covered lives subject to a particular UM requirement. PDPs require UM for PsA drugs 100% of the time and 87% of the time for MS drugs (see Figure 2). MA-PDs’ use of UM for PsA drugs is comparable to that of PDPs, requiring UM 93% of the time. MA-PDs use UM less frequently for MS drugs than PDPs, with UM required 51% of the time.

PsA drugs are more frequently subject to PA with embedded ST than MS drugs (see Figure 2). For covered PsA drugs, PDPs apply embedded ST 50% of the time and MA-PDs apply embedded ST 58% of the time. The rate of embedded ST is far lower for MS drugs, with embedded ST applied 2% of the time when covered for both PDPs and MA-PDs.

When ST is embedded in PA, the step edits often include more steps than what is required by the FDA label for both PsA and MS drugs. For PsA drugs, PDPs require more steps than the FDA label 28% of the time and MA-PDs require more steps than the FDA label 41% of the time. Alternatively, embedded ST that is aligned with the FDA label is only used 22% of the time for PDPs and 17% of the time for MA-PDs. For MS drugs, both PDPs and MA-PDs apply more steps than the FDA label 2% of the time. Neither PDPs nor MA-PDs apply embedded ST that is aligned with the FDA label for MS drugs.

Figure 2. Part D Utilization Management by Indication and Plan Type, Single-Source Brand Drugs, As a Percent of Lives with Drug Coverage, 2023

Note: Any drug that has both PA and ST requirements is counted based on its ST policy.

The number of alternative drugs that a beneficiary must step through before a drug subject to ST beyond the FDA label would be covered varies by drug and plan type. For PsA and MS drugs, beneficiaries may be required to step through up to two alternative drugs beyond what is required by the FDA label before the intended drug is covered by their plan. For two of the analyzed PsA drugs, Avalere found that every MA-PD in the sample that covers these drugs requires all beneficiaries to step through two alternative drugs, beyond what is required by the FDA label, before the original drug would be covered.

Stakeholder Considerations

While plans may employ ST to encourage the use of safe and effective medicines, it can create access concerns for beneficiaries who need a specific medicine. This analysis outlines complexities of ST that are not frequently examined and may not be widely understood.

For beneficiaries who rely on PsA or MS drugs, this work demonstrates the variation in UM practices across plans. Given this variation, it is important that beneficiaries review coverage choices annually based on information available on CMS’s “Plan Finder” and plan websites. Plan Finder allows beneficiaries to compare drug coverage across plans but only provides information regarding labeled ST; the details of embedded ST are found on individual plan websites.

Policymakers and patient groups may also consider possible access implications of these findings, including whether relevant information is available to beneficiaries making plan selections and whether the application of ST varies by geography, which could affect plan options for beneficiaries based on where they live. As public and policymaker attention on UM practices continues, CMS may consider whether the formulary review process accounts for embedded ST. Finally, plans might consider reviewing exceptions and appeals processes to ensure timely and appropriate access is available to beneficiaries who need a specific medicine.

Additional Tables

Table 2. Coverage and UM Detail as a Percent of Total Lives, Psoriatic Arthritis, 2023

Note: Italics indicate sub-categories of the category listed above.

Table 3. Coverage and UM Detail as a Percent of Total Lives, Multiple Sclerosis, 2023

Note: Italics indicate sub-categories of the category listed above.

Methodology

Avalere evaluated the 2023 coverage and restrictions policies for branded, single-source drugs within two indications—multiple sclerosis and psoriatic arthritis—on the pharmacy benefit for Medicare Part D plans (MA-PD and PDP). For each drug, Avalere evaluated whether the plan required ST, either explicitly listed as a step therapy or embedded in PA criteria; which drugs were listed as step edits; whether the step edit was aligned with the FDA label or included more step edits than the FDA label; and the number of step edits required for each indication. The UM criteria for each drug was compared to the FDA label. If the ST criteria matched the FDA label criteria (e.g., FDA label required that the PsA patient had an inadequate response or intolerance to a TNF blocker, and UM criteria matched the label) then the ST criteria was categorized as aligning with the FDA label. If the ST criteria required step edits beyond what the FDA label required (e.g., the FDA label required no step edits, but ST criteria required a step edit), then the ST criteria was categorized as ST including steps beyond than the FDA label. Avalere did not evaluate how the UM criteria conform to clinical guidelines.

Avalere partnered with Clarivate to obtain formulary and restrictions data. Restrictions policy data were limited to plans for the top 250 plan sponsors based on enrollment.

Funding for this research was provided by Let My Doctors Decide Action Network; Avalere retained full editorial control.

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With the implementation of the Inflation Reduction Act (IRA) Part D redesign provision in 2025, plan sponsors are facing substantially increased liability and associated pressures to manage cost. As a result, many Part D sponsors shifted their plan offerings and formularies in 2025, leading to access changes for beneficiaries. While these changes have occurred across the market, there were more pronounced shifts in 2025 Part D formularies for therapeutic areas and plan types where liability under Part D redesign increased most. One therapeutic area that experienced notable changes in plan coverage for 2025 is multiple sclerosis (MS) treatments. 

A previous Avalere analysis found that MS treatments were already tightly managed by Part D plans in 2024. In 2025, coverage of MS drugs declined even further, with more significant changes for certain types of products and plans.  

Overall coverage of self-administered MS drugs across all Part D plans dropped by six percentage points, from 49% of the time across all plans and drugs analyzed in 2024, to 43% in 2025. While coverage decreased for both Medicare Advantage Prescription Drug Plans (MA-PDs) and standalone Prescription Drug Plans (PDPs) in 2025, coverage varies across the two plan types. In 2025, coverage of all MS drugs was 17 percentage points higher for MA-PDs compared to PDPs, with MA-PDs covering MS drugs half the time across all plans and drugs analyzed compared to only about a third of the time for PDPs (Figure 1).  

Figure 1: Coverage of MS Drugs Among Part D Plans, by Plan Type, 2024 vs. 2025 

While coverage of MS drugs with generics available remained high in 2025 for both PDPs and MA-PDs, PDPs have more limited coverage of MS drugs without generics available. In 2025, PDPs covered brand-name MS drugs without generics available 15% of the time—less than half of the coverage among MA-PDs (34%). Coverage of brand MS drugs without generics available decreased by five percentage points for PDPs and seven percentage points for MA-PDs in 2025 (Figure 2).  

Figure 2: Coverage of MS Drugs by Part D Plan Type and Generic Availability, 2024 vs. 2025 

Implications for Beneficiary Access  

Higher coverage of MS drugs among MA-PDs likely reflects differences in cost pressures faced by PDPs vs. MA-PDs and additional flexibilities MA-PDs have in managing liability shifts (e.g., management of spending across benefits, more control over prescribing, and additional MA rebate dollars from the government). As Part D plans respond to the IRA changes and enrollment continues to shift towards MA-PDs, these differences in formulary management may disproportionately impact drug access for certain beneficiary groups based on their plan enrollment.   

Additionally, while Part D plans favor generic options, declining coverage for brand-name MS drugs without any generic alternatives may create access challenges for beneficiaries who are stable on certain medications and who may need to switch to a different therapy or plan.  

To learn more about how the IRA Part D changes are impacting the Part D market, connect with us. 

Methodology 

Avalere used CMS Part D Public Use Files to assess plan coverage of Part D, self-administered MS drugs from 2024 to 2025. Avalere analyzed and summarized coverage at the contract/plan level and averaged across all plans and plan types in the year. 2024 results are weighted by enrollment as of September 2024 and 2025 results are weighted by October 2025 enrollment.  

Funding for this research was provided by Novartis. Avalere retained full editorial control. 

The post Part D Coverage of MS Drugs Declined in 2025 appeared first on Avalere Health Advisory.

In the rapidly evolving healthcare landscape, staying on top of regulatory deadlines and coding requirements is critical for launch success, operational efficiency, compliance, and lifecycle management. Avalere’s Coding & Regulatory Calendar is a detailed, user-friendly tool that covers key dates, meetings, and deadlines from the Centers for Medicare and Medicaid Services, American Medical Association, and other relevant stakeholders.

What’s in the Calendar?

• Comprehensive Coverage: The calendar features important industry events, including meetings, deadlines, and regulatory milestones.
• Interactive Interface: Our calendar is designed to be user-friendly and interactive, allowing life sciences  teams to easily navigate upcoming events and important dates.
• Customization Options: The calendar can be tailored to your organization’s specific needs by filtering based on agency, code type, or other criteria important to your team.
• Timely Updates: Given the importance of real-time information, the calendar is regularly updated to ensure that users have the latest insights at their fingertips, supporting market access strategies with timely information.

Access the Calendar

To learn more and purchase the calendar, contact us.

Avalere’s experts in healthcare policy and regulatory strategy can assist organizations in maximizing the benefits of the calendar. This innovative tool represents a significant step forward in managing the complex landscape of healthcare coding and regulatory requirements, providing a centralized solution to improve compliance, efficiency, and strategic planning.

The post Avalere Resource: Coverage and Coding Regulatory Calendar appeared first on Avalere Health Advisory.

However, there is no singular J-code naming convention for single source 505(b)(2) products. Typically, if a product has a proprietary brand name, it is included in the descriptor. If there is no brand name, the descriptor includes the manufacturer name. Current conventions have created confusion as manufacturers navigate the system for HCPCS applications and conduct transactions for 505(b)(2) assets. Recently, CMS has had to change J-code descriptions during the regular coding cycle due to changes in product ownership.

In the recent Second Biannual 2024 HCPCS Coding Decisions, CMS summarized public feedback it received on challenges related to this topic:

• Including manufacturer-specific language in the code descriptors for single source 505(b)(2) drugs is not detailed enough to allow providers to identify the correct HCPCS Level II code to bill
• Utilizing the average sales price HCPCS-National Drug Code (NDC) crosswalk is insufficient because the file is not comprehensive

CMS further summarized proposals from commenters:

• A new naming convention for 505(b)(2) HCPCS code descriptors that would replace the manufacturer names with the FDA application number of the single source drug or biological identified by that HCPCS code
• Utilizing the NDC’s FDA approval number and therapeutic equivalence rating from the FDA Orange Book to begin publishing a comprehensive HCPCS-NDC crosswalk file

In CMS’s final decision, it stated that neither NDCs nor FDA application numbers have been included in HCPCS Level II code descriptor language thus far. The agency acknowledged that manufacturer-specific language may not be the long-term solution, as companies and individual drugs are often sold to other entities. Ultimately, CMS declined to finalize any changes, but stated that it would take public feedback into consideration as it continues to refine the HCPCS Level II code set.

Manufacturers planning to launch, acquire, or sell a 505(b)(2) asset in the future should consider how CMS’s evolving coding conventions could impact their products. Regardless of CMS action, manufacturers should ensure that their 505(b)(2) products are included in the HCPCS-NDC crosswalk file with accurate information. Additionally, billing and coding guides for providers help ensure that reimbursement questions that arise in the field can be easily addressed.

To discuss how Avalere’s regulatory and market access experts can help generic manufacturers with 505(b)(2) strategy, connect with us.

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To read about highlights from the conference, visit Pharmaceutical Commerce.

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Understanding how policies impact each sector of the US healthcare system requires expertise in the political process, the business of healthcare, and the mechanisms of policy making. Avalere’s policy experts help stakeholders monitor the environment, assess its implications, and create strategic solutions so they can meet their strategic business objectives. To learn how we can guide companies to navigate today’s changing landscape, connect with us.

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Health Plans 2030

This insight, the third in a health plan strategy-focused series Health Plans 2030, details Avalere’s analyses on how the health insurance market will shift over the next five years and what plans should consider preparing for now.  The first two installments on clinical care delivery and evolving operational approaches provide insightful background. To receive updates in this series directly in your inbox, complete the form below.

This insight was developed in collaboration with Tenasol. Tenasol provides artificial intelligence (AI)-powered technology solutions to health plans to make it easier to process large amounts of complex data and incorporate it into operational workflows. Learn more about Tenasol here.

How advancements in data and technology will impact health plan operations

Currently, many plans collect data from disparate sources and leverage a variety of platforms across the enterprise to serve discrete purposes. While this approach has generally served plans well up to now, it also generates a high degree of technical debt, risk of data leakage, and potential compliance concerns. As a result, plans are not tapping into the full potential of their capabilities to drive business efficiencies and are missing opportunities to improve quality of care and health outcomes for their members. To maximize the data and technologies available, plans will need to become more refined and nimbler with enterprise-level data strategies and platforms, harmonizing data from various sources to support disparate use cases across the business.

Current data sources will expand and there will be more data sources available to tap into going forward.  Signs indicate that plans have begun to catch up to the rapid growth of data and technology, and in the future, will be even better equipped as they leverage knowledge and technology.

Figure 1. Expanding and Novel Data Sources

EMR: Electronic Medical Record; SDOH: Social Determinants of Health

Further, technologies that currently exist will continue to develop in sophistication and adoption.

Figure 2. Examples of Technologies

Use of these technologies and data will evolve from providing efficiencies in current processes to identifying new opportunities such as identifying new ways of serving members’ needs, and/or anticipating new needs members may have even before they arise.

However, the existence of the data and technology alone is not sufficient to unlock its potential and maximize its use. Technology will continue to outpace regulation. Health plans should demonstrate responsible use and collaborate with healthcare stakeholders and policymakers to shape regulations for the advancement of shared interests and better member care. As plans’ use of data evolves, it will be necessary to find ways to harmonize data from various sources and leverage technologies that reduce administrative burden and enhance member care. To ensure trust from members, providers, and policymakers, it is critical for plans to harness AI in a way that supports—rather than replaces—stakeholders’ expertise and function. Connect with us to learn more.

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The Inflation Reduction Act (IRA) significantly redesigns the Part D benefit in 2025 and changes liability between stakeholders, including beneficiaries, manufacturers, and plans. Under Part D redesign, plans will assume additional liability in the catastrophic phase where plan liability will increase from 15% in 2023 to 60%. Additionally, Part D redesign eliminates the coverage gap leaving plans liable for 65% of drug spending that falls in the initial coverage phase (i.e., spending that falls below the new $2,000 cap under Part D redesign).

In addition to greater plan liability overall, the IRA changes will shift Centers for Medicare & Medicaid Services (CMS) payments to Part D plans from majority reinsurance payments to majority risk-adjusted direct subsidy payments, placing a new importance on the Part D risk adjustment (RxHCC) model. The higher proportion of plan payments subject to the risk adjustment model relative to all Part D plan costs increases the importance of the RxHCC model accurately predicting the expected costs of members.

RxHCC Model Performance Varies by Level of Risk

RxHCC model performance is often measured using the predictive ratio, which is the ratio of predicted Part D plan liability under the model to actual liability. Perfect prediction is 1, and a predictive ratio between 0.9 and 1.1 is considered relatively accurate.  When the risk adjustment model is revised or a new model is announced, CMS publishes the model’s predictive ratios in the Advance Notice. The ratios are calculated across all Part D enrollees and then calculated within risk deciles. Risk deciles are created by arraying all Part D enrollees by risk score (low to high) and creating ten equal groups with the highest decile having the highest risk scores. Generally, the model performs more accurately for higher risk enrollees because they have claims across multiple conditions (i.e. more HCCs), thus more information to input into the model.

In the calendar year 2025 Advance Notice, CMS reported a predictive ratio close to 1 for enrollees in the fifth decile or higher. For most of the lower risk deciles (fourth, third, and second deciles), the risk ratio is greater than 1, signifying that the Part D plan liability predicted by the model was greater than actual plan liability. The first decile is the least accurate, with a predictive ratio of 0.569 signifying that the actual costs incurred were much greater than those predicted for this group. Beneficiaries in the first decile have the lowest risk scores, meaning they have few or no claims for the conditions underlying the risk model and their risk score will be mainly impacted by their demographic characteristics (e.g., age, sex, dual Medicaid status).

Figure 1: CMS Advance Notice Risk Decile Predictive Ratios

RxHCC Model Accuracy for Therapeutic Area-Specific Risk Scores

CMS has not released an assessment of how well the model predicts costs for enrollees based on specific health conditions.  To examine the accuracy of the RxHCC model by subgroup, Avalere used Part D Event data to examine the RxHCC model’s performance for Medicare beneficiaries taking drugs across 7 therapeutic areas (TAs). TAs were selected for having high gross drug costs and utilization.

TAs With the Highest Risk Scores Have the Lowest Predictive Ratios

Avalere found that average risk scores were higher for beneficiaries who took hematopoietic (blood cell formation) agents than they were for beneficiaries not taking hematopoietic agents. Similarly, they were higher for beneficiaries taking antivirals and gastrointestinal agents. While still above 1, risk scores were lower for beneficiaries taking anticoagulants or psychotherapeutic agents (Figure 2).

Figure 2: Average Risk Score for Beneficiaries by TA   

TAs with the highest risk scores have some of the lowest predictive ratios (meaning that the actual liability is higher than that predicted using the RxHCC model). In the full population, higher risk beneficiaries (i.e., those in higher risk deciles) have predictive ratios closer to 1. However, in some of the TAs with the highest average risk scores, the predictive ratios are much lower than 1. For example, the average risk score for beneficiaries taking hematopoietic agents is 1.95, meaning they are predicted to incur drug costs nearly 2 times the average in plan liability, but the predictive ratio is 0.502, meaning their actual plan liability was 2 times higher than what was predicted. Risk scores for beneficiaries taking antidiabetics was higher than 1; however the RxHCC model prediction was close to 1 (0.843). This means the predictive plan liability for these beneficiaries was close to their actual incurred liability (Figure 3).

Figure 3: Average Predictive Ratios Using RxHCC Model (2025) by TA

Conclusions

Since implementation of the IRA in 2024, the RxHCC risk model has increased importance. On average across all enrollees, the model performance is accurate, with the average predictive value close to the average actual value. The model is more accurate for higher risk beneficiaries, as there is more data for the model to use in making a prediction. However, the model is not as accurate for beneficiaries taking drugs in certain TAs, including some TAs with individuals at very high risk of incurring high drug costs. One reason this could be is that the RxHCC model is calibrated using medical conditions/claims to predict drug costs. If the predictive ratios are less accurate for subgroups of beneficiaries taking drugs in certain TAs, it could be because use of these expensive drugs are not well predicted using medical claims history. Given the importance of the risk adjustment model, it is important that stakeholders pay attention to the RxHCC model performance for specific populations.

Methods

Avalere performed this analysis using 100% Medicare fee-for-service (FFS) claims, accessed by Avalere via a research collaboration with Inovalon, Inc., and governed by a research-focused CMS data use agreement. This includes the 100% sample of Medicare Part A and Part B Medicare FFS claims data.

Actual spending was calculated using total spending from the 2019 Part D Event file as an input in Avalere’s proprietary model simulating IRA benefit structure. Costs were inflated using drug spending trends from the Medicare Trustees Report. Risk scores were generated using v24 HCC software from CMS for 2025. The 2025 predicted amount was calculated as the product of risk scores and the CMS denominator. Risk deciles were created based on the array of risk scores and then Avalere calculated predictive ratios within the risk deciles as the ratio of predicted to actual spending.

Members who had a prescription for a drug in a TA were assigned to the TA regardless of other conditions and TA assignment was not mutually exclusive in that members taking multiple drugs could be assigned to more than 1 TA.

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Over the last two years, the Centers for Medicare & Medicaid Services (CMS) has explored ways to lower drug costs for seniors, including a voluntary $2 Medicare Drug List Model, which is intended to limit out-of-pocket costs for a defined list of generic drugs. However, the proposed model does not address the existing formulary design, tiering, and utilization management dynamics that for several years have contributed to higher cost sharing for generics in Part D, and its scope is mainly limited to a small subset of mature generics, which are already covered and preferred by most plans.  All 267 drug-dosage combinations on the model list are covered by at least 97% of plans and 255 are on the generic tier of at least 95% of plans.

In November 2024, CMS proposed increasing its review of Part D plan sponsors’ formularies to ensure access to generic drugs and biosimilars. This proposal has the potential to address formulary design issues related to generic and biosimilar tiering and would need to be finalized and implemented by the next administration.

Avalere Analysis

Medicare Part D plans design prescription drug formularies in accordance with CMS requirements. Since 2017, plans have been allowed to include more generic drugs on non-preferred tiers if they replace the “non-preferred brand” tier with a “non-preferred drug” tier. To assess and monitor this policy change, Avalere has routinely analyzed the annual distribution of generic prescription drugs on Medicare Part D tiers (see last year’s analysis).

The most recent update of this analysis examines tier placement from PYs 2016–2025 and finds that Part D plan sponsors continue placing covered generic drugs on non-generic tiers, specifically shifting generic drugs onto the non-preferred tier (Figure 1).

Figure 1. Distribution of Generic Drugs on Generic and Non-Generic Tiers, 2016–2025

From 2016 to 2025, the percentage of generics placed on the generic tier has decreased by over 20 percentage points. During this same period, the proportion of generic drugs on the non-preferred tier has increase by 13 percentage points. Additionally, the analysis shows growth in the proportion of generics placed on “specialty” tiers, increasing from 2.5% in 2016 to 8.4% in 2025. Smaller changes have been observed in the “preferred generic” tier, which has decreased by 1.8 percentage points, and the “preferred brand,” which has increased by 2.2 percentage points.

Methodology

To conduct the generic tiering analysis, Avalere used the PY 2025 formulary and benefit design information in the Medicare Part D public use files released in October 2024. Avalere assessed the distribution of generic products across five Part D tier categories: preferred generic, generic, preferred brand, non-preferred, and specialty. Tiers were categorized using the Part D tiering data submitted by plans in the Q1 2025 benefits data. Drugs on other or unknown tiers were excluded from these results.

For plans that offer a preferred specialty tier in PY 2025, Avalere grouped the non-preferred and preferred specialty tiers into the specialty tier categorization.

To estimate enrollment-weighted average cost sharing, Avalere used October 2024 enrollment and the 2025 Plan Crosswalk file. Avalere assumes no beneficiaries change plans in 2025.

To calculate coverage and tiering of products on Medicare’s $2 Drug List Model, Avalere leveraged the PY 2025 formulary files and reported results as unweighted plan/drug combination distribution across all products listed on the Medicare $2 Drug List Model Sample Drug List.

Funding for this research was provided by the Association for Accessible Medicines. Avalere Health retained full editorial control.

To receive Avalere updates, connect with us.

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