Lantheus (LNTH): Pylarify Medicare Rate Expectations

• While the agency sought comments on potentially using ASP in CY25 – rather than MUC – in “unique situations” for only those products coming off transitional pass-through (TPT) payments if it “was actively being paid based on ASP while on pass-through status,” this was not formally proposed, and doing so would likely force CMS to:
  • Establish different arrangements for different diagnostic radiopharmaceuticals, as it is unlikely to abandon the default MUC approach for these products more generally; and
  • Clarify why some ASP data are acceptable for payment purposes and others are not, which would risk charges of their being arbitrary and capricious, in violation of the Administrative Procedure Act (APA).
• The path of least resistance therefore seems to be for CMS to finalize use of MUC for all diagnostic radiopharmaceuticals above the $630 / day cost threshold in CY25, while working to establish consistent ASP reporting practices that can facilitate a transition in CY26-CY27.
• We nevertheless acknowledge widespread public comment support for the earlier use of ASP data “where available,” making this a close call that is premised on what exactly is being reported to CMS and its “usability” for payment purposes.
• Lastly, amid ongoing investor interest in GEHC’s Flyrcado following FDA approval in late September, the above dynamics are unlikely to have a meaningful impact on the product for the next several years, as we suspect it will qualify for three-years of separate TPT payments – paid at the wholesale acquisition cost (WAC) – irrespective of the contours of CMS’s CY25 final rule.

Quick Refresher on Payment Pathways

Hospital outpatient departments utilizing Pylarify during PET scans have received TPT payments since Jan. 1, 2022, meaning they receive reimbursement for both the scan itself (~$1.5K) and a “separate” payment for use of the imaging agent that would otherwise be “policy packaged,” where the costs are ostensibly bundled into payment for the underlying scan, albeit significantly discounted. The same has also been true of competing prostate specific membrane antigen (PSMA) products as well, starting with TLX’s Illuccix in July 2022, NVS’s Locametz in Oct. 2022, and most recently privately-held Blue Earth’s Posluma in Oct. 2023. With TPT payments limited to no more than three-years, these rates are due to expire YE24 (Pylarify), July 1 (Illuccix), Oct. 1 (Locametz), and Oct. 1, 2026 (Posluma).

CMS first establishes these payments based on the WAC / invoice price of the drug for an initial two quarters while it collects national sales data – inclusive of all rebates and discounts – to determine the ASP, which will then serve as the baseline payment going forward, plus an additional 6% (i.e., ASP + 6%). This data is submitted to CMS on a quarterly basis, which then validates the information and publishes the aggregate results through its Quarterly ASP Pricing Files.

Due to their respective calculation methodologies, ASP is typically lower than WAC, though the extent can vary greatly across product types and sites of service, but one can also generally expect to see ASP erosion as competitors come to market and manufacturers provide price concessions to maintain market share. This dynamic does not appear to be reflected in Pylarify’s hospital reimbursement, despite increasing utilization of other agents, according to Medicare fee-for-service volume data outlined below, as well as long-term supply arrangements highlighted by management.

One reason may be that, historically, makers of diagnostic radiopharmaceuticals have not been required to submit ASP data like all other manufacturers given that these products are typically “packaged” into the underlying PET scan service, and therefore lack separate payment needs. As such, Pylarify (HCPCS A9595), Illuccix (A9596), Locametz (A9800), and Posluma (A9608) do not appear in the validated quarterly ASP files published by CMS, making it somewhat unclear as to what exactly current payments are based upon.

We should first note that, according to the Bloomberg Drug Explorer function, Pylarify’s current WAC is $5,223, which – interestingly – is identical to the product’s hospital outpatient reimbursement rate through 1Q24.

CMS guidance similarly stipulates that “MACs shall develop payment limits for covered drugs when CMS does not supply the payment limit on the ASP drug pricing files,” where “the payment limit is 106% of the lesser of the lowest priced brand or median generic WAC.” However, the agency also points out that “the payment limits for drugs and biologicals that are not included in the ASP Medicare Part B drug Pricing File….are based either on the published WAC or invoice pricing, except under OPPS, where the payment limit is 95% of the published Average Wholesale Price (AWP).” Our understanding is nevertheless that this latter “payment limit” is typically used when a drug initially comes to market and lacks a dedicated billing code or claims data.

That being said, in their public comment submissions in response to CMS’s July proposal for separate payments based on MUC, LNTH, GEHC, LLY, BIIB, and others urge CMS to rely on ASP data where available, with LNTH themselves noting that they “and other manufacturers of diagnostic radiopharmaceuticals with pass-through status have and continue to report the ASP upon which payment has been based during the entirety of their pass-through period.”

Interestingly, however, CMS takes a broad view of ASP within the hospital outpatient payment system, highlighting in July that “the ASP methodology, as applied under the OPPS, uses several sources of data as a basis for payment, including the ASP, WAC, and AWP…[and] the term ‘ASP methodology’ and ‘ASP-based’ are inclusive of all data sources and methodologies described therein.”

Given the statutory 6% add-on for “ASP-based” payments, the current (4Q24) rate of $5,536 would imply an ASP of $5,223 [i.e., $5,536 / 1.06]. It would be odd, in our view, for Bloomberg’s Symphony Health data to misclassify ASP as WAC in light of the proprietary nature of rebates and contract terms needed for calculation, in addition to the well-known distinction between the two price points among those familiar with health data.

It is also worth noting that a 6% discount from current reimbursement rates would also align with the listed WAC price for two of the other three PSMA products shown below:

If such rates do approximate a “true” ASP, we are unaware of why this information would not appear in CMS’s quarterly ASP files if it was confirmed, validated, and consistent with the agency’s reporting practices. To our knowledge, omissions tend to reflect either a lack of submission or data errors being identified. For context, we count 105 other drug products as currently receiving Medicare TPT payments, with 71 (67%) also having publicly listed ASP rates with CMS, consistent with historic norms. For non-TPT products that receive separate payments – as CMS proposes to be the case for diagnostic radiopharmaceuticals – the figures are even higher, with 400 of 527 products (76%) appearing on the ASP list.

CMS highlights similar concerns in outlining its rationale for using hospital reported MUC data for payments in CY25, as opposed to the more typical ASP, in its July proposal [emphasis ours]:

“While we would ordinarily use the ASP methodology….we find that the ASP data we have is not usable for payment purposes…Of those few manufacturers reporting ASP, the ASP values that we do have generally do not align with the ASP we would expect based on the cost and MUC data submitted by hospitals. For example, a frequently used diagnostic radiopharmaceutical has a reported ASP that is over 23,000 percent higher than the MUC derived from claims data. As manufacturers may be unaware of the correct reporting requirements, we believe it would be inappropriate to propose to pay for separately payable diagnostic radiopharmaceuticals based on their ASPs as currently reported.” (p. 92)

The crux of the matter therefore becomes what exactly Pylarify’s ASP is, whether providers are “actively being paid” on its basis, and whether the the data “as currently reported” is “usable for payment purposes.” While we are unclear on what exactly a true, national ASP might be for Pylarify – based on the federally defined calculations – there is nevertheless a meaningful delta between current reimbursement, the implied “ASP” through 6% discounting shown above, and the hospital reported MUC data on which we suspect CMS will based separate payments in CY25.

This ~45% gap remains far short of the ~26,000% chasm associated with an unspecified product cited by CMS. However, reliance on LNTH’s ASP data while disregarding that of others, in the absence of a transparent process / explanation, puts the agency in a difficult position in terms of the need to apply uniform standards, which we suspect it would rather avoid. The risk would be that manufacturers in the latter group pursue litigation against the agency for acting in an “arbitrary and capricious” manner, in violation of the APA.

With that in mind, we overlay the current drug-specific reimbursement rates, implied “ASP,” and MUC data for the competing PSMA agents below, followed by our own estimates of the facility margin implications should CMS proceed with MUC-based reimbursement.