Health Industry Washington Watch : Washington DC Healthcare Industry Law Firm : Reed Smith : Health Industry Washington Watch : Regulations, Medicare/Medicaid, Governmental Organizations

The OIG has issued a report entitled "Average Sales Prices: Manufacturer Reporting and CMS Oversight." According to the OIG, for each quarter under review, over 40% of manufacturers submitted average sales prices (ASP) late, but most submitted the data within 10 days after the deadline. The OIG observes that current CMS methods for recording ASP data, including the use of manual processes, "may inhibit efficiency and result in potential errors." In addition, almost one-fifth of labeler codes with ASP submissions were associated with manufacturers that were not actually required to provide these prices, and in some cases Medicare payment amounts were based solely on submissions from manufacturers that did not have rebate agreements in effect. According to the OIG, if these manufacturers chose not to report ASPs, CMS would be unable to calculate ASP-based Medicare payment amounts for these drugs. In the report, the OIG recommends that CMS (1) develop an automated system for collecting ASP data, and (2) seek a legislative change to require all manufacturers of Part B-covered drugs to submit ASPs. CMS concurred with the first recommendation, but did not agree to seek a such legislative change at this time. In a separate report, “Comparison of Average Sales Prices and Average Manufacturer Prices: An Overview of 2008," the OIG noted that in 2008, the ASP for 80 HCPCS codes exceeded average manufacturer prices (AMP) by at least 5% in one or more quarters. If reimbursement amounts for these 80 codes had been lowered to 103% of the AMP, as is authorized by the statute, it would have reduced Medicare expenditures by almost $22 million. The OIG recommends that CMS develop a process to adjust payment amounts based on the results of OIG's pricing comparisons (CMS concurred), and that CMS lower Medicare reimbursement amounts for drugs that meet the 5% threshold (CMS did not agree). CMS also outlined steps it is taking to address a third OIG recommendation – that CMS ensure that drug manufacturers are submitting the required AMP data in a timely manner.

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The OIG has released two reports analyzing Medicaid payments for prescription drugs. The first report, ”Comparison of Medicaid Federal Upper Limit Amounts to Acquisition Costs, Medicare Payment Amounts, and Retail Prices,” concludes that the current method for setting federal upper limit (FUL) amounts results in “substantially inflated Medicaid payments for many drugs” compared to other prices in the marketplace, potentially costing the Medicaid program hundreds of millions of dollars per year. While the Deficit Reduction Act of 2005 (DRA) required that FULs be based on average manufacturer price (AMP), implementation of this policy was blocked by a federal injunction. Based on the OIG’s calculations, AMP-based FULs calculated under the DRA would significantly lessen the gap between FUL amounts and other prices. While the OIG notes that CMS’s options are limited by the injunction and legislative policy, the OIG nevertheless recommends that CMS continue to work with Congress to identify strategies that would lower “inflated” Medicaid payments for multiple-source drugs.  A second OIG report, “Outlier Average Manufacturer Prices in the Federal Upper Limit Program,” reviews CMS’s FUL outlier policy, under which CMS generally will exclude the lowest AMP from the FUL calculation if it is more than 60% below the second-lowest AMP. T he OIG examined 242 FUL drugs with AMPs that would have met CMS’s outlier criterion if the changes enacted by the DRA had been in effect for January 2008. The OIG identified potential problems with some of these outlier AMPs, including discrepancies in the unit of AMP submission, inaccuracies in reporting, and the inclusion of discontinued drug products. The report includes several recommendations for improving the accuracy of the outlier policy in future FUL calculations.

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The Government Accountability Office (GAO) has released a report entitled “Medicaid Outpatient Prescription Drugs: Second Quarter 2008 Federal Upper Limits (FULs) for Reimbursement Compared with Average Retail Pharmacy Acquisition Costs.” The report examines the relationship between FULs based on average manufacturer price (AMP) — as required under the Deficit Reduction Act of 2005 (DRA) but which has been delayed by judicial and legislative action — and pharmacies’ average acquisition costs. Among other things, the GAO concludes that if AMP-based FULs had been in place in the second quarter of 2008, they would have been lower than average retail pharmacy acquisition costs, in general, for most of the 83 drugs in the GAO sample and in the national aggregate (although the GAO notes that its calculations do not account for rebates and discounts that pharmacies may receive from wholesalers or manufacturers). Overall, the FULs would have been 17% lower than acquisition costs, although there was significant variation by state.

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The GAO has released a report entitled "Brand-Name Prescription Drug Pricing: Lack of Therapeutically Equivalent Drugs and Limited Competition May Contribute to Extraordinary Price Increases." According to the GAO, during the period of 2000 to 2008, 416 brand-name drug products had "extraordinary" price increases, defined as a price increase of 100% or more at a single point in time. More than half of the brand-name drug products that had extraordinary price increases were in three therapeutic classes—central nervous system, anti-infective, and cardiovascular. The GAO reports that a lack of therapeutically-equivalent drugs (both generics and other brand-name drugs used to treat the same condition) and limited competition may contribute to extraordinary price increases.

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CMS has posted the first quarter 2010 Medicare Part B drug Average Sales Price (ASP) amounts. CMS notes that average drug prices for the first quarter of 2010 generally remain stable compared to fourth quarter 2009 prices. In fact, prices for the top Part B drugs decreased by an average of 1.1 percent, with prices for the majority of the higher-volume drugs changing 2 percent or less. CMS attributes the decreases in the top drugs to a number of competitive market factors, such as multiple manufacturers, alternative therapies, new products, recent generic entrants, or market shifts to lower-priced products.

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A number of Congressional committees have held hearings recently on health policy issues. Among other things, two panels held hearings on H1N1 vaccine supply issues -- the House Energy and Commerce Committee and the Senate Homeland Security and Governmental Affairs Committee. The Energy and Commerce Health Subcommittee also held a hearing on recent breast cancer screening recommendations. Also, the Senate Energy and Natural Resources Committee held a hearing on H.R. 3276, the American Medical Isotopes Production Act of 2009.  Looking ahead, on December 8, the Energy and Commerce Health Subcommittee is holding a hearing entitled "Prescription Drug Price Inflation: Are Prices Rising Too Fast?”

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On September 29, 2009, the House Oversight and Government Reform Committee is holding a hearing on the "Administration's Flu Vaccine Program: Health, Safety, and Distribution." On September 30, the Senate HELP Committee is scheduled to vote on the “Ryan White HIV/AIDS Treatment Extension Act of 2009.” Also on September 30, the Senate VA Committee is holding a hearing on VA's contracts for health services, the Aging Committee will examine how successful health systems keep costs low and quality high, and the Senate Homeland Security Committee is holding a hearing on controlled substance abuse in Medicaid. On October 1, the Senate Judiciary Committee is scheduled to vote on S. 369, the "Preserve Access to Affordable Generics Act."

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An OIG report on “Beneficiary Utilization of Albuterol and Levalbuterol Under Medicare Part B” examines shifts in physician prescribing patterns that coincided with changes in CMS reimbursement policy. The OIG urges Congress and CMS to consider the impact of new coding and reimbursement decisions on prescribing practices. In particular, the OIG notes that such policies could “limit access to a potentially more effective product” or drive utilization “toward a more expensive product that offers no clinical advantage.” The OIG states that it will continue to monitor drug utilization and payment policies to identify inappropriate Medicare payments.

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The Health Resources and Services Administration (HRSA) published a final notice on September 1, 2009 on how children’s hospitals that meet certain requirements may participate in the “340B” program, under which prescription drug manufacturers provide discounted drugs to certain eligible entities. The notice also informs discusses the obligation of manufacturers to provide the statutorily-mandated discount to those children’s hospitals. The notice is effective September 1, 2009.

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Today Senate Finance Committee Chairman Max Baucus and Ranking Member Chuck Grassley released a policy paper setting forth options for financing health reform. This is the third and final set of policy options for discussion before the Finance Committee marks up legislation in June. The Finance Committee has scheduled a member "walk through" to discuss the financing policy options on May 20, 2009. The financing options include, among other things: adjusting annual market basket updates and imposing “productivity adjustments” for various Medicare fee-for-service providers; a variety of payment changes impacting hospitals and home health agencies; Part B payment reforms (targeting potentially-overvalued Part B services and utilization of advanced diagnostic imaging services); improvements to promote payment accuracy for durable medical equipment; a variety of reforms pertaining to Medicaid drug rebates; policy options to reduce inappropriate spending variations across and within geographic areas; revisions to beneficiary cost-sharing obligations, including Part D means testing; and a variety of tax code changes involving the exclusion for employer-provided health coverage, changes to the itemized deduction for medical expenses, and excise tax provisions affecting alcohol and sugar-sweetened beverages.  The Finance Committee will accept comments on the health reform financing options through May 26, 2009.

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On March 17, 2009, the Department of Defense (DoD) published a final rule to implement provision of the National Defense Authorization Act (NDAA) for Fiscal Year 2008 regarding payment for drugs under the TRICARE Retail Pharmacy Program. Reed Smith is preparing an analysis of the rule, which will be available in the near future on Life Sciences Legal Update.

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On February 26, 2009, the Obama Administration released its proposed federal budget for fiscal year (FY) 2010. Most significantly in terms of health policy, the proposal would establish a reserve fund of $633.8 billion over 10 years to finance health reform. While half of the reserve funds would come from tax increases on higher-income individuals, the rest would come from health system savings impacting a wide range of providers, health plans, and manufacturers. While additional details are expected to be released in the coming weeks, the following are highlights of the information released to date: 

• Medicare Advantage (MA) Payments. The budget would replace the current mechanism for establishing MA rates with a competitive system in which Medicare payments would be based upon an average of plans’ bids. The Administration estimates a savings of more than $175 billion over 10 years from this provision – approximately half of the health care savings in the budget proposal.
• Reducing Drug Prices. The Administration proposes establishing a regulatory pathway for approval of follow-on biologicals. Additionally, brand biologic manufacturers would be prohibited from reformulating existing products into new products to restart the exclusivity process. The Administration also would prevent drug companies from blocking generic drugs from consumers by prohibiting anticompetitive agreements between brand name and generic drug manufacturers intended to keep generic drugs off the market. The budget also would increase the Medicaid drug rebate for brand-name drugs from 15.1% to 22.1% of the average manufacturer price (AMP), apply the additional rebate to new drug formulations, and allow states to collect rebates on drugs provided through Medicaid managed care organizations. The budget also supports the Food and Drug Administration’s (FDA) efforts to allow Americans to buy drugs from other countries.
• Medicare and Medicaid Payment Accuracy/Program Integrity. The budget would expand CMS’s capacity to identify excessive payments and correct problems, such as through use of National Correct Coding Initiative edits for Medicaid claims. The budget also proposes to dedicate additional resources for oversight and program integrity activities related to the Medicare prescription drug program, MA, and Medicaid.
• Hospital/Post-Acute Care Bundling, Reduced Hospital Readmission Rates. The budget calls for bundling payments to hospitals and certain post-acute providers for services provided within 30 days after discharge from the hospital. In addition, hospitals with high rates of readmission would be paid less if patients are re-admitted to the hospital within the same 30-day period.
• Hospital Quality Improvement. The budget would link a portion of Medicare payments for acute inpatient hospital services to hospital performance on specific quality measures.
• Physician Payment System Reforms. The Administration supports “comprehensive, but fiscally responsible” reforms to the physician fee schedule formula.
• Cancer Research.  The budget includes over $6 billion in funding for the National Institutes of Health (NIH) to support cancer research.

Other Medicare/Medicaid health policy line-items identified in the budget charts include the following, among others: 

• Establishing survey and certification revisit and recertification user fees;
• Enabling physicians to form voluntary groups that coordinate care for Medicare beneficiaries and to receive performance-based payments for coordinated care;
• Addressing financial conflicts of interest in physician-owned specialty hospitals;
• Requiring the use of radiology benefit managers for Medicare imaging services;
• Aligning Medicare home health payments with costs; and
• Imposing higher Medicare drug benefit premiums on certain higher-income beneficiaries.

Note that many provisions of the proposed budget would require Congressional approval to implement. To that end, a number of Congressional committees have scheduled hearings on the budget proposal, including a March 10 Senate Finance Committee hearing focusing on the budget’s health care provisions.

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The has OIG issued a report entitled "Comparing Pharmacy Reimbursement: Medicare Part D to Medicaid." The OIG found that Part D and nationwide Medicaid pharmacy reimbursement amounts for most of the single-source drugs that the OIG reviewed were similar; however, Medicaid reimbursement amounts for the multiple-source drugs reviewed were typically higher than the Part D amounts. The OIG notes that it compared only the amount reimbursed to pharmacies by Part D and Medicaid; the OIG did not compare total program expenditures or examine the impact of rebates or post-point-of-sale price concessions. Moreover, in a review of five states, the OIG found that Medicaid and Part D ingredient cost reimbursement amounts were similar for single-source drugs, but the average Medicaid ingredient costs exceeded the average Part D ingredient costs for most multiple-source drugs under review. In addition, Medicaid dispensing fees were substantially higher than average Part D dispensing fees for both the single-source and multiple-source drugs under review.

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On December 18, 2008, the Congressional Budget Office (CBO) released a major report entitled “Budget Options, Volume 1: Health Care,” which sets forth 115 policy options for Congress to consider as it addresses health care system reform. The CBO points out that Medicare is expected to grow from 2.8 percent of gross domestic product (GDP) in 2008 to nearly 9 percent of GDP in 2050. This spending growth will be fueled primarily by growth in per capita medical costs, according to the CBO, with the aging of the population playing a secondary role. In light of these trends, the CBO offers specific options addressing such areas as: health insurance (market reforms, tax treatment, access to federal programs); health care quality and efficiency; geographic variation in Medicare spending; paying for Medicare services (including hospital, physician, imaging, and post-acute care, and Medicare Advantage plan services, among others); financing and paying for services in Medicaid (including drug payment revisions) and SCHIP; premiums and cost sharing in federal health programs; long-term care; health behavior and health promotion; and closing the gap between Medicare’s spending and receipts.  The CBO also issued a separate report focusing on insurance reform, “Key Issues in Analyzing Major Health Insurance Proposals.” The CBO warns that without changes in policy, a substantial and growing number of nonelderly people are likely to be without health insurance. This issue cannot be addressed without making major changes in the financing or provision of health insurance and health care, which will involve "difficult trade-offs between the objectives of expanding insurance coverage and controlling both federal and total costs for health care." The report describes the assumptions that CBO would use in estimating the effects of key elements of proposals to modify the health insurance system on federal costs, insurance coverage, and other outcomes. In particular, it considers the types of issues that would arise in estimating the effects of proposals to: provide tax credits or other types of subsidies to make insurance less expensive to the purchaser; require individuals to purchase health insurance; require firms to offer health insurance to their workers or pay into a fund that subsidizes insurance purchases; replace employment-based coverage with new purchasing arrangements or provide strong incentives for people to shift toward individually purchased coverage; and provide individuals with coverage under, or access to, existing insurance plans such as the Medicare program, either as an additional option or under a “Medicare-for-all” single-payer arrangement.

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The HHS Office of Inspector General (OIG) has released a report comparing Medicare prescription drug average sales prices (ASPs) and average manufacturer prices (AMPs) for the fourth quarter of 2007. This is the OIG’s first pricing comparison since CMS implemented a revised volume-weighted ASP payment methodology mandated by the Medicare, Medicaid, and SCHIP Extension Act of 2007. Using CMS’s revised ASP payment methodology, the OIG identified 12 of 285 drug codes with ASPs that exceeded AMPs by at least 5 percent in the fourth quarter of 2007.  

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On July 15, 2008, the House and Senate overrode the President's veto of H.R. 6331, the “Medicare Improvements for Patients and Providers Act of 2008” (MIPPA).  The law rescinds a 10.6% cut in physician payments and delays a controversial medical equipment competitive bidding program, both of which temporarily went into effect July 1, 2008, and makes numerous other Medicare and Medicaid policy changes.  Highlights of the law include the following:

• Physician Payments: MIPPA cancels a 10.6% Medicare physician fee schedule cut that was triggered on July 1, 2008 and provides a 1.1% increase for 2009 (rather than the forecasted 5.4% cut).  The law also expands the Physician Quality Reporting Initiative, promotes electronic prescribing, and requires non-hospital advanced imaging providers to be accredited by 2012.

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