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ASHP Comments on Proposed Changes to Hospital OPPS

Kate Traynor

ASHP today sent formal comments to the Centers for Medicare & Medicaid Services (CMS) on proposed changes to the hospital outpatient prospective payment system and payment rates for 2003. The text of the letter to CMS appears below.

October 7, 2002

Centers for Medicare & Medicaid Services
Department of Health and Human Services
Attn: CMS-1206-P
Hubert H. Humphrey Building – Room 445-G
200 Independence Avenue
Washington, DC 20201

RE: CMS-1206-P; Proposed Rule: Changes to the Hospital Outpatient Prospective Payment System and Calendar Year 2003 Payment Rates 

To Whom It May Concern:

The America Society of Health-System Pharmacists (ASHP) is pleased to provide comments on the Centers for Medicare & Medicaid Services’ (CMS) August 9, 2002, Federal Register notice soliciting written comment on the proposed changes to the Hospital Outpatient Prospective Payment System (OPPS) and calendar year 2003 payment rates. ASHP is the 30,000-member national professional and scientific association that represents pharmacists who practice in hospitals (including outpatient services), health maintenance organizations, long-term care facilities, home care agencies, and other components of organized health care systems.

CMS’s August 9 proposal, if finalized, will have a significant impact on ASHP’s membership, especially those pharmacists who work in hospital outpatient settings. These pharmacists are particularly concerned that Medicare beneficiaries may be denied or delayed access to safe and effective medication therapy because of the steady reduction in reimbursement for drugs and biological products that has occurred since the hospital OPPS was established.

Our members have a twofold perspective on this issue: (1) managers of hospital outpatient pharmacies and (2) clinicians who help hospital outpatients make the best use of their medications. The goals of safe and appropriate medication use motivate our members, and they know that payment for clinical services and reimbursement for the drug products that are dispensed need to be adequate in order to sustain the infrastructure for professional practice in hospital outpatient settings. We are deeply concerned about CMS’s proposal, because we believe it seriously undercuts this requirement for adequate payment, which, in the long run, will seriously compromise both access to care and the quality of patient care.

Under the proposed rule, some drugs will be transferred from pass-through status into Ambulatory Payment Classifications (APCs). The majority of drugs that are currently on the pass-through list will roll off that list at the end of the year. CMS proposes to package the costs for lower-cost drugs (drugs with a median cost of $150 per dose or less, which had previously been paid under the pass-through provisions) into payment for the APCs in which they are used (e.g. chemo infusion therapy). The proposed rule lists 170 drugs and biologicals that are currently being paid for separately, but which will be packaged into APCs as of January 1, 2003. The proposal lists 158 specialty and high-cost drugs that will be reimbursed under separate APCs for 2003. Payment for drugs in the separate APCs will not be based on 95% of the average wholesale price (AWP) as they had been when they had pass-through status, but will be based on an OPPS methodology comparing the median cost of the drug to the median cost of all services. CMS itself admits in the preamble to the proposed rule that "some of the APCs for separately paid drugs … show significant reductions in payments compared to the pass-through payments made in 2002."

The reductions proposed for drug reimbursement under the hospital OPPS will have serious negative consequences for the provision of appropriate drug therapy for Medicare beneficiaries. Pharmacists at one Midwestern hospital cancer center estimate that their institution faces a loss of over $740,000 for the current fiscal year due to the reductions in drug reimbursement that took place after the April 2001 pro rata reduction in pass-through payments; they estimate that, due to the elimination of pass-through payments on most chemotherapy drugs as of January 1, 2003, over 90% of their cancer drugs will be reimbursed at less than their acquisition cost. Similarly, a hospital-affiliated clinic in the northeast estimated a revenue loss of $1,500,000 annually due to the pro rata reduction. The situation will be worse after the 2003 payment rates are in place. Pharmacists at a western academic medical center estimate that their losses will range between $325,000 to $1,700,000 under the proposed rates. Significant shortfalls like these, when reimbursement is less than acquisition cost, could lead to outpatient clinics discontinuing needed services for Medicare beneficiaries.

In its proposal, CMS notes that payment for those drugs that will be placed in separate APCs will not be based on 95% of the average wholesale price (AWP) as they had been when they had pass-through status, but will be based on an OPPS methodology comparing the median cost of the drug to the median cost of all services. CMS states that the agency believes that AWP is an inaccurate estimate of what providers actually pay for drugs, and that "the new rates more accurately reflect the actual acquisition costs" paid by hospitals. ASHP believes that while reimbursement at AWP rates may be an imperfect reimbursement system, formulas based on AWP may be—at present—the most equitable solution to a serious problem faced by our members.

Safe and effective medication use is not adequately reimbursed when payment is based solely on the acquisition cost of drugs. Pharmacists and other health care practitioners in hospital outpatient clinics have to take into consideration the costs of storing, preparing, dispensing and administering medications, as well as the costs of monitoring patients’ drug therapy. When these costs are considered, reimbursement based on AWP, which helps defray some of these additional costs, is more equitable than when a single, procedural payment is provided through the APC formula.

ASHP believes that the OPPS payment system needs to be revised to more closely align payment rates to the cost of drugs, drug administration, and related patient care services provided by health care practitioners, including pharmacists. It is imperative that any reduction in drug payments, particularly reductions that result from packaging drug costs into Ambulatory Payment Classifications (APCs), be accompanied by an appropriate increase in payments for drug administration services and drug therapy management services.

ASHP appreciates this opportunity present its comments on this significant issue. Feel free to contact me if you have any questions regarding our comments. I can be reached by telephone at 301-657-3000, extension 1316, or by e-mail at


Gary C. Stein, Ph.D.
Director of Federal Regulatory Affairs