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7/27/2004

Payments for Part B Drugs to Decrease, CMS Proposes

Cheryl A. Thompson

Medicare's boss announced today that the federal health plan for the elderly is making plans to stop "having an overpayment for drugs subsidize an underpayment for services."

Mark B. McClellan, administrator of the Centers for Medicare and Medicaid Services, told reporters during a teleconference that the agency is taking "an important step ... to improve the accuracy of Medicare's payments for Part B-covered drugs and the critical administration services that these drugs require."

"When Medicare has tried to use regulation to control drug prices, too often the prices have been much higher than the best competitive market prices, resulting in potentially excessive spending by Medicare and by our beneficiaries," he said. "Now we have new tools to pay appropriately for each drug and the services that go along with them."

The plan is described in a proposed regulation that was posted to the CMS Web site today and is scheduled for publication in the Federal Register on Aug. 5. Comments on the proposal must be submitted to the agency by Sept. 24.

Congress, in writing the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, instructed CMS to change its basic system of paying for most pharmaceuticals covered under Part B. Instead of a percentage of the average wholesale price, CMS is to pay 6 percent above the manufacturers' average sales price.

Despite the name, the average wholesale price does not directly stem from the prices that wholesalers pay manufacturers. Federal investigations into Medicare's drug expenditures revealed that physicians, home care providers, and others paid much less than the average wholesale price for the pharmaceuticals billed to the agency. Medicare providers tended to defend this difference, or "spread," between their drug-acquisition costs and federal invoices as a necessary response to inadequate payments for services related to the drug treatments.

The Medicare Modernization Act exempted from the new payment system the following pharmaceuticals: influenza vaccine, pneumococcal vaccine, and hepatitis B vaccine (95 percent of average wholesale price); drugs billed separately by renal dialysis facilities (average sales price minus 3 percent); and drugs infused through durable medical equipment (95 percent of average wholesale price).

Medicare has been paying a $5 dispensing fee for 30-day supplies of albuterol, ipratropium, and other drug solutions administered by a nebulizer to patients with certain pulmonary conditions. CMS, according to the proposed regulation, wants information to help it set a dispensing fee to cover the shipping, handling, compounding, and other pharmacy activities required to get a 90-day supply of inhalation medications to Medicare beneficiaries.

The agency estimated that, under the payment plan proposed, suppliers of nebulizers and drug solutions for inhalation will receive about 28 percent less in Medicare revenue— the new dispensing fee will reduce "somewhat" the effect of a 70-percent reduction in revenue from drugs.

Reacting to the release of the second proposed Medicare regulation in as many days, Gary C. Stein, director of federal regulatory affairs at ASHP, said, "We are looking at it and seeing how it will affect our members and will comment appropriately."

CMS yesterday issued its proposed regulation for Medicare's medication therapy management programs.

Once CMS changes its payment system for drugs, according to the proposal, pharmacies will receive a "supplying fee" of $10 per prescription of immunosuppressive drug, oral anticancer agent, or oral antiemetic drug used as part of an anticancer regimen. Suppliers of clotting factors will receive a supplying fee of $0.05 per unit. These fees will be billed separately from the dispensing fee.

"Greater accuracy in how Medicare pays for drugs and for the other services that patients need along with the drugs is overdue," McClellan said.