What Is a Transitional Pass-Through Payment?
Transitional pass-through payments (TPTs) are a valuable tool for manufacturers looking to maximize market access and product adoption in the early stages of a product’s life cycle.
By securing pass-through status, companies can accelerate market entry, support a strong pricing strategy, and gather essential real-world data to inform longer-term reimbursement strategies. This mechanism helps lay the groundwork for future success in the competitive healthcare market.
Understanding TPTs
Medicare pays for hospital outpatient services under the Outpatient Prospective Payment System (OPPS). Under the system, the CMS establishes ambulatory payment classifications (APCs) which group services that are similar clinically and cost-wise. All services within an APC are reimbursed at the same rate based on cost reports submitted by hospitals.
Certain procedures may be paid under a comprehensive APC (C-APC), in which case all services for the encounter are packaged together and billed under the primary C-APC. But even under a C-APC, devices, drugs, and biologics may be separately reimbursable under a pass-through payment.
Additional Payment for New Therapies With TPTs
A TPT provides additional payment for new drugs, devices, and biologics that meet eligibility criteria for at least 2 but not more than 3 years. CMS reviews pass-through applications on a quarterly basis. Devices must meet eligibility criteria including effectiveness and cost criteria. The payment is calculated based on the amount by which the cost of the device exceeds the amount included for the device in the applicable APC. At the end of the TPT period, the device will no longer be separately reimbursable, but will instead be packaged into the APC payment rate for the associated procedure.
Approved drugs and biologics must meet cost and other eligibility criteria. The payment rate is generally average sales price (ASP) plus 6 percent, minus the portion of the APC payment that CMS determines is associated with the drug or biologic.
Impact of TPTs on Market Access Strategy
Leveraging TPTs can play a crucial role in a product’s market access strategy, especially for manufacturers of new drugs, biologics, or medical devices. Below are several ways these payments influence and enhance market access:
- Accelerating Market Adoption: providing an opportunity for faster uptake, introducing new products with favorable reimbursement, and protecting product price to secure higher reimbursement with price support
- Early Differentiation in a Crowded Market: differentiating product offering, particularly when established alternatives exist in the market in order to gain competitive edge and highlighting innovation by emphasizing the product is deemed innovative and valuable by Medicare
- Supporting Value Proposition in Reimbursement Discussions: approval of pass-through status can influence private insurer negotiations and the pass-through period allows manufacturers to collect RWD on product performance and clinical outcomes
- Leveraging Time to Plan for Permanent Reimbursement: pass-through period provides a crucial window to secure clinical evidence, build relationships with key opinion leaders (KOLs), develop the economic evidence needed to support future pricing and inclusion in standard payment systems like Ambulatory Payment Classifications (APCs) or Diagnosis-Related Groups (DRGs), and establish appropriate coding that will ensure smoother reimbursement after the pass-through period ends
- Maximizing Revenue During Initial Launch: additional Medicare reimbursement allows manufacturers to maximize early-year revenue generation after product launch and pass-through status provides an opportunity to align pricing strategies with market expectations
- Influence on Health Technology Assessment (HTA) Bodies: real-world use and financial support provided through pass-through payments can be used to strengthen HTA submissions and pass-through status signals to these bodies that the product is not only innovative but has demonstrated initial economic and clinical viability
- Establishing a Stronger Patient Access Pathway: TPTs reduce financial barriers to adoption, helping to ensure products are widely available in hospitals and healthcare systems
- Strengthening Relationships With Hospitals and Providers: hospitals may be more willing to trial and adopt new therapies when they know additional reimbursement through pass-through payments is available, reducing their financial risk
Leveraging TPTs in Market Access
Contact us today to learn how we can help you leverage transitional pass-through payments to accelerate market access, maximize reimbursement, and position your product for long-term success in the healthcare landscape.
Magnolia Market Access Authors: Amanda Forys, Amanda O’Hora, Herman Chen
