Behind the Bill: August 14, 2024

In a move that could significantly impact pharmaceutical manufacturers and their supply chain strategies, the Centers for Medicare & Medicaid Services (CMS) has introduced a new provision in its Inpatient Prospective Payment System (IPPS) rule. This latest development, aimed at helping small hospitals maintain buffer stocks of essential medications, underscores the ongoing efforts to enhance health care resilience and accessibility across the US, with potential far-reaching implications for cancer care.¹

Understanding the IPPS Rule Change in Context

The new CMS rule, set to take effect in 2025, introduces a separate payment under the IPPS for small, independent hospitals to establish and maintain a buffer stock of essential medicines. This policy is designed as a preventive measure to guard against future shortages, recognizing that these hospitals are particularly vulnerable to supply disruptions due to their limited resources compared to larger institutions or those part of health systems.¹

Key points of the rule include¹:

• Separate payments for small, independent hospitals to establish and maintain buffer stocks of essential medicines;
• Focus on fostering access to a more reliable, resilient supply of essential medicines; and,
• Potential for future program expansion and revisions based on an impact assessment.

Certain details of the rule may sound familiar; it aligns closely with the comprehensive strategy outlined in the Department of Health and Human Services (HHS) whitepaper released in April 2024. The whitepaper proposed several initiatives, including a Hospital Resilient Supply Program (HRSP), which aimed to incentivize hospitals to prioritize supply chain resilience in their purchasing decisions.² The new IPPS rule can be seen as a concrete step towards implementing these concepts, with particular relevance to the ongoing shortages of generic chemotherapy drugs.

The Bottom Line for Pharma

For pharmaceutical manufacturers—especially those producing critical medications such as oncology drugs—this rule change presents both opportunities and challenges that warrant careful consideration:

• Increased Demand for Buffer Stock: Small, independent hospitals are likely to increase their orders to build and maintain buffer stocks, potentially leading to a more stable demand for essential medicines, including critical oncology products.
• Supply Chain Adjustments: Manufacturers may need to adjust their production and distribution strategies to meet the new stocking patterns of these hospitals without disrupting supply to other healthcare providers. This is particularly crucial for chemotherapy drugs, where shortages can have life-threatening consequences.
• Focus on Essential Medications: The rule could intensify competition among manufacturers of drugs deemed "essential," as these products will be prioritized for buffer stocks. Many oncolytic drugs are likely to fall into this category, potentially benefiting manufacturers who can ensure reliable supply.
• Geographic Considerations: With a focus on small, independent hospitals, which are often in rural or underserved areas, manufacturers might need to reassess their distribution networks to ensure efficient supply to these regions. This could help address disparities in access to critical treatments, including cancer therapies, across different geographic areas.
• Pricing Strategies: As hospitals receive separate payments for maintaining buffer stocks, there may be increased scrutiny on drug pricing, particularly for essential medications. For generic chemotherapy drugs, which often operate on thin margins, this could necessitate a reevaluation of pricing models.
• Contract Negotiations: The separate payments for buffer stocks may influence contract negotiations, potentially favoring longer-term agreements that ensure stable supply and pricing. This could be particularly beneficial for manufacturers of generic oncology products, providing more predictable revenue streams.

This IPPS rule change is part of a larger trend in health care policy aimed at improving resilience and access, particularly for vulnerable hospitals and underserved areas. For critical care areas like oncology, where timely access to medications can be a matter of life and death, this rule could have profound implications.

As we navigate these changes, it’s clear that success in the pharmaceutical industry will increasingly depend on the ability to align supply chain strategies with evolving health care policies and diverse provider needs. Manufacturers should view this rule not in isolation, but as part of a broader push towards a more resilient, transparent, and responsive supply chain that can better meet the critical needs of patients.

The CMS IPPS rule is just one piece of the complex puzzle facing community oncology practices today. To gain a more comprehensive understanding of the challenges and opportunities in this evolving landscape, download our 2024 Community Oncology Annual Trend Report. This in-depth report explores key trends including:

• How practices are investing in expanding capabilities
• The impact of rising competition from hospitals
• Changing prescribing controls and payer relationships
• Preferred manufacturer engagement strategies

By understanding these broader trends, manufacturers can better position themselves to support community oncology practices in light of new policies like the CMS IPPS rule.

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References

1. Centers for Medicare & Medicaid Services. Fiscal Year (FY) 2025 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospital Prospective Payment System (LTCH PPS) Final Rule - CMS-1808-F. Published August 1, 2024. Accessed August 12, 2024. https://www.cms.gov/newsroom/fact-sheets/fy-2025-hospital-inpatient-prospective-payment-system-ipps-and-long-term-care-hospital-prospective-0

2. Department of Health and Human Services. Policy considerations to prevent drug shortages and mitigate supply chain vulnerabilities in the United States. Published April 2024. Accessed August 12, 2024. https://aspe.hhs.gov/sites/default/files/documents/3a9df8acf50e7fda2e443f025d51d038/HHS-White-Paper-Preventing-Shortages-Supply-Chain-Vulnerabilities.pdf