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The Devil's in the Details -- Medicare Rulemaking Strikes Again
By Kay R. Daly
October 22, 2004

For many newly diagnosed cancer patients and their families, they soon discover that their world has been taken over by a world of treatments - radiation, chemotherapy, experimental injections of all kinds, a multitude of tests and doctors appointments, and a shelf in their household now dedicated to a sea of medicine bottles. What time isn't spent in one treatment or another is spent dealing with insurance companies and Medicare.

Cancer patients soon learn that the devil's in the details whether for treatment options or in the most obscure rulemaking in the belly of the government beast. It is the smallest of rules that can cause the greatest headaches for cancer patients and recent activity at the Center for Medicare & Medicaid Services (CMS) demonstrates that point clearly.

On August 9 of this year, CMS published a Notice of Proposed Rulemaking for setting payment rates for the Medicare Part B hospital Outpatient Prospective Payment System (OPPS) for 2005.

The proposed rules continue the implementation process for various OPPS reimbursement policies for drugs and biologicals contained in the Medicare Modernization Act of 2003 (MMA). MMA created special payment rules for specified covered outpatient drugs and other changes for drug and biological payments under OPPS.

One such change concerns how CMS will determine the amount hospitals are reimbursed for "innovator multiple source drugs," also known as branded generics, and "non-innovator multiple source drugs," otherwise called true generics, in 2005 (these are largely oncology drugs). Specifically, CMS would require that 2005 payment rates for branded generics not exceed 68 percent of the average wholesale price (AWP) as of May 1, 2003 and the payment rate for true generics not exceed 46 percent of AWP. These "ceilings" or caps on reimbursement for OPPS drugs are set forth in the MMA.

That means CMS has the opportunity to pay for those drugs at their actual cost rather than paying at the "ceiling" price of -- not more than 68 percent or 46 percent of the reference AWP. In fact, if CMS pays at the 68 percent or 46 percent ceiling price, it may be paying more than three to four times what the drug actually costs (in terms of its average sales price).

It is important that CMS reimbursement reflect actual costs rather than the ceiling price allowed by MMA and the proposed rule. Medicare patients, who are required to pick up 20 percent of the reimbursed cost, would also be paying three to four times too much in co-insurance. That overpayment could be a significant burden for Medicare beneficiaries who may need several treatments in the course of their chemotherapy and live on a fixed income.

Patients may suffer in another way; some physicians may let financial incentives influence their prescribing decisions. As the skyrocketing costs of frivolous litigation and excessive litigation have significantly decreased profit margins and dramatically increased the costs of practicing medicine, including medical malpractice costs, the lure of financial benefits for certain prescriptions may influence doctors' choices.

Setting the drug payment rate at the 68 percent or 46 percent ceiling price may create a financial incentive for prescribers to use the medications that have these ceiling prices. That's because the "spread" between what a physician actually pays for a drug and what government reimbursement he or she receives is at its greatest when the ceiling price is used. Good news for a physician, perhaps, but bad news for patients who deserve access to the most effective medication available for their particular condition.

The MMA gives CMS the statutory and regulatory authority to pay for branded generic and true generic medications in the hospital outpatient setting at actual cost rather than at an inflated, artificial rate such as AWP. CMS should exercise that authority when setting the 2005 payment rates for drugs.

Doing otherwise would deviate from the sensible course established by CMS for reimbursement in the community office setting where all reimbursement will be based upon actual sales price (ASP) in 2005 rather than the appropriately maligned AWP which has been proven to be neither "average" nor "wholesale."

It is important that CMS seizes this opportunity to turn from antiquated pricing methodologies and instead use actual acquisition costs rather than AWP to determine physician reimbursements.

Ironically, the smallest problems discovered in government rules seem to never have a simple solution. It should come as no surprise, therefore that there is no quick fix to this problem.

A recent report by the General Accountability Office (GAO) recommended CMS collect more data and analyze these payment rates to try to ensure they reflect real world costs in hospitals. They have also pointed out that there is not enough time to overhaul the system for 2005 implementation. Using actual acquisition costs to calculate payments to cancer doctors in hospital settings is good policy, a fair solution for prescribing doctors and most importantly, in the best interests of cancer patients.

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Note -- The opinions expressed in this column are those of the author and do not necessarily reflect the opinions, views, and/or philosophy of GOPUSA.