Washington Update

2005 Medicare Payments for Office-Administered Drugs

Payments for drugs in 2005 are based on 106% of manufacturer’s average sales price (ASP)

Manufacturers report the ASPs for their drugs to the Centers for Medicare & Medicaid Services (CMS) within 30 days after the end of each calendar quarter

Payment amounts for multiple-source drugs are determined by weighting each drug’s ASP by its sales volume

2005 Medicare Payments for Office-Administered Drugs (2)

Payments are adjusted quarterly with 2-quarter lag E.g., payment amounts for July-September

quarter are based on ASPs for January-March quarter

New drugs are paid at 106% of wholesale acquisition cost (WAC) until ASP data are collected

Principal Problems with ASP System

“Underwater” drugs Some drugs are not available to some physicians at

the Medicare payment amount No exceptions process for particular drugs

2-quarter delay in adjusting payment amounts to reflect price increases may cause payment amount to be less than the

current drug price reduces any margin that might otherwise be

available

Competitive Acquisition Program

Under CAP, physicians may annually elect to obtain all Medicare drugs from a Medicare vendor instead of purchasing them and seeking reimbursement.

Entire group practice must make same enrollment decision.

Implementation of CAP delayed by CMS until July 2006.

CAP – General ProcessPhysician will order drugs from vendor for a specific patient and date of administration. Physician could order entire course of therapy at once but vendor may ship in segments.Vendor will ship drugs with an identifying order number within 2 business days for standard shipments and 1 business day for emergency shipmentsPhysician will file claim with Medicare for drug administration services, list the drugs administered, and include the vendor order numberWhen physician files claim, carrier will notify vendor that the drugs had been administered, and vendor could then bill Medicare for the drug and patient for the coinsurance

Principal CAP Issues

Administrative work associated with ordering and tracking of drugs is significant.Process for handling unused drug is vague negotiation between vendor and physician Vendors must offer assistance with coinsurance issues in the form of referral to independent charities, a payment plan, or waiver of coinsuranceVendor may cease shipment of drugs for beneficiaries with balance outstanding 45 days after billing date

Drug Administration PaymentsPayments for drug administration services were generally increased substantially between 2003 and 2004

In addition, a 32% transitional add-on payment applied in 2004

Transitional add-on was reduced to 3% for 2005 and is eliminated for 2006 and later years

Revamped Drug Administration CodesIn response to MMA, AMA CPT Editorial Panel extensively revised drug administration codes, and the AMA Relative Value Update Committee assigned relative values

CMS made the new codes effective for Medicare in 2005 by adopting them as temporary G-codes

AMA’s action is effective for the 2006 CPT book

Revised codes will be mandatory for all payers in 2006 when they are issued as CPT codes

2005 Demonstration ProjectCenters for Medicare & Medicaid Services (CMS) adopted a demonstration project for 2005

$130 payment for each chemotherapy encounter (push or infusion) for reporting on claim form patient’s assessment of nausea/vomiting, pain, and fatigue

Intended to increase payments related to drug administration so that overall payment reductions would be in line with 2003 congressional estimates

2005 Demonstration Project (2)

CMS released preliminary data from demonstration: minority of patients suffer significant symptoms –

2% with substantial nausea/vomiting, 8% with substantial pain, 26% of substantial fatigue

CMS plans to look at relationships between reported symptoms and hospitalizations and ED visits

CMS does not have evidence that MMA changes are affecting access to care.

2005 Demonstration Project/CMS Fact Sheet

CMS has not yet committed to extending the demonstration project. Issues under consideration are: More effective time frame for inquiring about patient

quality of life and symptoms More effective alternatives to collecting data on quality

of life than cancer patients receiving IV chemotherapy More effective measures related to quality of care

(evidence-based practice guidelines) Looking at the oncology demonstration program in the

context of physician payments.

House Resolution 261On May 4, Rep. Ralph Hall (R-TX) introduced H. Res. 261 Commends CMS for 2005 demonstration project Expresses sense of House of Representatives that

CMS should continue the demonstration project at least through 2006, subject to any appropriate modifications

Bipartisan cosponsors and support of Energy and Commerce Committee

Likely to move to the House floor in October

Private Payers

Some private payers are moving to the Medicare ASP-based payment rates

But they may not be offering increased payments for drug administration services

Prospects for 2006 Medicare Payments

In the absence of any action:

Demonstration project ($130/encounter) terminates 12/31/05

3% add-on to drug administration codes ends

Prospects for 2006 Medicare Payments (2)

CMS appears interested in continuing some form of a demonstration project

May not be as broad as the current demonstration

May not add as much funding to the system as the current demonstration

Physician Fee Schedule Changes

2006 proposed rule published on August 1, 2005.

Annual Conversion Factor Update Change to conversion factor is based in part on

compliance with “sustainable growth rate.” Projected 4.3% reduction for 2006. Estimation of annual approximate 5% reductions

each year from 2006 through 2012. CMS requesting comments.

Physician Fee Schedule Changes (2)

Practice expense methodology CMS proposing change from top-down to bottom-up

methodology for direct practice expense. Would be transitioned in over 4 years. Oncologists would experience slight increase in

payments under new system (1.4% increase by 2009).

Payments for multiple imaging procedures in same family of procedures on same day would be reduced (also in HOPD).

ASCO Projects

ASCO contractor worked with practices to identify the complete range of services for which there is no explicit Medicare (or other) payment

Further work will seek to refine study to support new codes and payment amounts

Pending MedPAC Report

Medicare Payment Advisory Commission is required to review and report on changes in payments for drugs and drug administration services Effect on quality of care and patient satisfaction Adequacy of reimbursement Impact on physician practices

Report due 1/1/2006

CMS is authorized to revise payments for 2007 taking into account the MedPAC report

Pending OIG Report

HHS Office of Inspector General required to study the ability of hematology and oncology practices to obtain drugs at 106% of ASP

OIG study has begun – OIG is currently visiting practices to look at invoices

Report and recommendations due to Congress by October 1, 2005

Pending CMS Report

CMS is required to study prices paid by large purchasers (e.g., HMOs, PBMs) compared to prices paid by physicians

Issue is whether prices paid by large purchasers should be excluded from ASP calculation

Study is being conducted by contractor, Abt Associates

Report and recommendations are due January 1, 2006

Pay for Performance

Congress and the Administration are seeking to institute Medicare reforms that would link payments to improved quality of care Hospital payments are now reduced by 0.4

percentage point for hospitals that do not report certain quality indicators

Pay for PerformanceSenator Chuck Grassley (R-IA) has introduced S. 1356, “Medicare Value Purchasing Act of 2005.” Grassley has indicated desire to link to SGR fix. Phase 1: Medicare updates tied to reporting

data on quality measures starting in 2006. Phase 2: Portion of total payments tied to

quality performance – providers rewarded for meeting thresh hold measures.

A portion of total payment phased in -- 1% in first year, scaling up to 2% over 5 year period

Would combine with health information technology legislation.

Pay for Performance

Nancy Johnson (R-CT) introducing legislation that would fix the annual SGR update and link the update to quality measures. Phase 1: Would become effective in 2007 with

reporting of quality measures. Phase 2: Move toward physician profiling based

on meeting quality measures/improvement measures in 2009.

Process outlined in legislation involves specialty groups for determining measures.

Off-Label Drug CoverageMedicare must cover off-label uses if accepted in: United States Pharmacopoeia Drug Information (USP DI) American Hospital Formulary Service Drug Information

(AHFS DI) American Medical Association Drug Evaluations (merged

into USP DI)

USP DI changed hands from USP to Thomson Micromedex in spring 2004. Since then: Oncologic Drugs Advisory Board and expert review

process created with input from ASCO, ASH, and ACCC. Two new indications for oncology drugs have been

published.

Off-Label Drug Coverage (2)

Current activities: ASCO encouraging Thomson Micromedex to

conduct timely reviews and ensure rapid publication of accepted uses in USP DI.

AHFS interested in enhancing oncologic drugs section of AHFS DI.

National Comprehensive Cancer Network (NCCN) introducing new compendium and seeking recognition by Medicare for coverage purposes.

Evaluating Drug Safety in Cancer DrugsUnanticipated safety problems with FDA-approved drugs to treat chronic conditions (Vioxx) causing policymakers to call for increased monitoring and oversight of drug safety

Considerations of safety cannot be separate from overall risk/benefit analysis

Risk/benefit assessment is different for oncology drugs

Congress should devote new funding to increase ability to identify post-approval safety concerns

Administrative/Legislative ResponseFDA’s response: Drug Safety Oversight Board, Drug Watch Web Page, Health Professional and Patient Information SheetsFDA Safety Act - S 930 – Sens. Grassley (R) & Dodd (D) Center for Postmarket Drug Evaluation & Research with

independent authority to remove drugs from market and to require post-market studies

Increased civil penalties and regulation of consumer drug adsSenate HELP Committee Sen. Enzi opposed to separate center for drug safety because

it would weigh risks and benefits “on two separate scales”House Energy & Commerce Committee Focusing on investigations of FDA and drug company’s

handling of data on antidepressants and COX-2 inhibitors

Hospital Outpatient Department

2006 proposed rule published July 25, 2005Conversion factor to go up by forecast increase in market basket index: 3.2%Payments for drugs and drug administration: CMS will pay for drugs at ASP+6% with additional

2% to account for pharmacy overhead costs. Drugs with $50/day cost or lower continue to be

packaged into administration. Hospitals will use 2006 CPT codes for drug

administration.

Hospital Outpatient Department (2)

Payments for imaging procedures: CMS proposes to reduce the payment for second

and subsequent imaging procedures within the same family of procedures when performed in the same session.

Each additional procedure would be paid at 50% of full amount.

Payment reduction affects only technical component and not physician’s interpretation.

Overall effects of proposed changes: Estimated average increase to hospitals: 1.9%

Medicare Claims Appeals

Appeals process changes as of January 1, 2006 Carrier hearing replaced by appeal to

independent entity Deadlines imposed for action at each stage in

the appeals process

HHS administrative law judges will replace Social Security Administration ALJs for appeals filed beginning July 1, 2005

Medicare Contractor ReformCarriers (Part B) and fiscal intermediaries (Part A) will be merged into one entity called Medicare Administrative Contractor (MAC) 15 primary Part A/B MACs 4 specialty MACs (home health and hospice) 4 specialty MACs (durable medical equipment)

Primary A/B MACs will serve newly defined geographical regions

Issue of medical directors in each state unresolvedContracts to be awarded December ’05 through September ‘08.

Transition from existing contractor to MAC: 6-13 months

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