Articles on Pharmacy Benefit Management

Commercial Payers Are Starting to Use Medicare's Average Sales Price

Reprinted from the March 2006 issue of SPECIALTY PHARMACY NEWS, a monthly newsletter designed to help health plans, PBMs, providers and employers manage costs more aggressively and deliver biotechs and injectables more effectively.

Since Jan. 1, 2005, when Medicare changed its reimbursement method from one based on Average Wholesale Price (AWP) to Average Sales Price (ASP), rumors of commercial payers following CMS's lead have cropped up from time to time. But now it seems that some steps actually are being taken in that area.

Specialty pharmacies have made numerous claims of insufficient reimbursement for Part B outpatient drugs since Medicare instituted ASP. These already-tight margins would stand to take a hit from commercial payers' making such a modification. It appears, however, that many physicians are beginning to experience such a shift in their reimbursement - and specialty pharmacies are expected to follow.

Michelle Vogel, a partner at Washington Strategic Consulting, says that physicians have told her that Blues plans "across the country" have reduced their reimbursement rates to physicians for intravenous immunoglobulin (IVIG) to match the Medicare rates. Robert Hostoffer, D.O., who is with Allergy/Immunologist Associates in Ohio, has some Anthem Blue Cross and Blue Shield of Ohio patients who receive infusions of IVIG, and he claims that the plan's reimbursement rates to physicians for IVIG decreased on Jan. 1. That plan would not confirm anything specific to itself, but it did talk about WellPoint plans in general.

Chip Palazzo, spokesperson for the Ohio Blues, says that "all WellPoint regions have moved to ASP methodology that is mostly at or near Medicare pricing," with respect to "physicians and medical J-code reimbursement," with regional differences in the pricing. "Those who have not done this have a plan or a strategy to get there," he says, although he could not provide details on how that might occur. He says that "specialty, retail and mail pharmacy are still generally AWP-based."

Several Blues plans also responded to SPN's query about whether they had switched from AWP to ASP with respect to reimbursing physicians for IVIG:

• Blue Cross and Blue Shield of Nebraska: This plan has made the conversion from AWP to ASP "because it will ultimately save members and consumers some money," says spokesperson Bev Carlson. She clarifies that it uses "federal ASP guidelines, but we pay a percentage above that." That percentage is confidential, as is whether this applies to physicians or pharmacies and whether it applies to IVIG only or is an across-the-board change.
• Blue Cross and Blue Shield of Texas: "Our drug reimbursement is based on the CMS drug pricing file and has been for the last couple of years," says spokesperson Margaret Jarvis. "CMS implemented ASP pricing for drugs effective Jan. 1, 2005. BCBSTX implemented the CMS ASP pricing as of June 1, 2005. The change applies to all lines of business, PPO, ParPlan, and HMO."
• Anthem Blue Cross and Blue Shield of Colorado: "For retail and specialty products, our method of reimbursement hasn't changed," says spokesperson Sally Vogler. "It is still based on AWP."
• Blue Cross Blue Shield of Arizona: "We've looked at [ASP], but have not pursued it," says spokesperson Renee Hunt. "We'll always continue to explore all avenues of reimbursement that will get us the most value for our members' premium dollars."
• Blue Cross Blue Shield of Michigan: "We cannot respond to your questions because Blue Cross Blue Shield of Michigan's pricing methodology is confidential and proprietary," says spokesperson Jon Ogar.
• Hawaii Medical Service Assn.: "HMSA is not using Average Sales Price for IVIG reimbursement to physicians," says Ron Taniguchi, director of pharmacy management.

• Blue Cross Blue Shield of Massachusetts: "We have not made a change to Average Sales Price," says spokes-person Chris Murphy. "We still use AWP."
• Anthem Blue Cross Blue Shield of Virginia: "We really don't discuss the details of our provider agreements; we don't really go into detail," says spokesperson Scott Golden.
• Blue Cross and Blue Shield of Kansas: "Our pharmaceutical reimbursement is Average Wholesale Price or maximum allowable charge-based, and.we have no current plans to switch to Average Sales Price-based pricing," says spokesperson Mary Beth Chambers. "While some Blue plans might be switching, it is not an across-the-board change."

"I have heard of Blues trying to move to ASP for physicians including IVIG, but certainly not all and in no consistent manner," says one industry insider who asked not to be named. "If they are doing it, my sense is that it is not limited to IVIG."

Mark Armstrong, an attorney with Squire, Sanders & Dempsey L.L.P., says that although he has heard rumors, he hasn't actually seen any commercial plans make the change. "But that doesn't mean it's not going on in other places," he says. He also says that it "wouldn't surprise me if the Blues lead the way." And once that first commercial payer takes the plunge and the information comes out, "I think the trend will go very quickly toward [ASP]..I think providers will see that they can make more money this way. Unfortunately for pharmacies, they will make less."

He notes the "conflict between the goal of getting lower-priced medications, but priced so that pharmacists make money." He refers to the recent meeting of Texas pharmacists with Karl Rove, President Bush's senior adviser, where the pharmacists expressed concerns that many of the independents in their industry may be faced with closing because of inadequate or untimely payment by Medicare on the new Part D benefit. "There is a cost associated with dispensing a drug," says Armstrong. "The ratcheting down of reimbursements is making it very difficult for pharmacies to exist, especially small independents. It will be a difficult world when reimbursement rates are so low that there is no access."

A trend he has noted in reimbursement among PBM Part D contracts, but not in specialty pharmacy, is a shift to "net effective price." This, he says, is "another way for manufacturers to have an ambiguous point for products to be priced." He points out that this term is not defined in any regulations and that it is defined by the companies themselves, allowing them to "exclude best-price calculations and include some rebates and discounts; it is a negotiated definition."

Armstrong says that he has come across three or four manufacturers that are using this terminology, although each has had a different definition. And he distinguishes this from wholesale acquisition cost, which some companies have turned to as well, he says.

Burt Zweigenhaft, a managing partner with consulting firm BioPharma Partners, says, "I'm aware of 20 major insurance carriers in various stages of discussing how to readjust Part B reimbursement."

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