Specialty Pharmacy

Featured Story December 14, 2007

2008 Outpatient Prospective Payment System Will Reduce ASP Reimbursement for Specialty Rx, Result in Potentially Serious Access Problems, Providers Say

Reprinted from 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.

With reimbursement already a huge issue with specialty pharmaceuticals and their administration, CMS's 2008 outpatient prospective payment system (OPPS) has added fuel to the fire. Starting Jan. 1, 2008, the agency will pay for most separately payable Medicare Part B drugs administered in the hospital outpatient setting at Average Sales Price+5%, a percentage point reduction from the current reimbursement level of ASP+6%. Providers can expect further reductions starting Jan. 1, 2009, when payment rates could drop to as low as ASP+3%.

With this further reimbursement reduction, "hospitals may stop providing certain types of services that are related to the use of high-cost drugs," says Jugna Shah, president of Nimitt Consulting. She tells SPN that she has "heard from several hospitals that they have already had to close down infusion and oncology clinics due to the high costs they incur and the inadequate reimbursement levels."

The final rule, released Nov. 1, also will bring changes to the already-tenuous intravenous immunoglobulin (IVIG) situation.

In explaining the change in reimbursement, CMS maintains that its claims data for calendar year 2006, which are used to set payment rates for CY 2008, show equivalent average ASP-based amounts for separately payable drugs and biologicals that are.

lower than ASP+6%, specifically ASP+3%. The agency indicated that moving directly to ASP+3% for CY 2008 would be too much of a payment decrease. Therefore, CMS says it "will provide a 2-year transition.as we move toward a relative ASP percent based on mean costs from claims for CY 2009."

"I think most hospital pharmacists and finance directors would say that ASP+6%, let alone the reduction to ASP+5% or the expected further decreases in the future, is — most definitely — not adequate to cover what CMS expects it to cover, and that is the acquisition cost to buy the drug and the pharmacy handling/overhead cost associated with the drug," maintains Shah.

But since the transition from Average Wholesale Price to ASP on Jan. 1, 2005, as mandated by the 2003 Medicare reform law, providers (both hospitals and physicians in their private-office practices) have charged that the reimbursement rate is inadequate.

CMS had proposed requiring hospitals to report pharmacy handling costs separately, but it did not finalize this proposal.

Shah says there are two issues with the payment change. First, according to CMS, the rate is meant to cover both the drug's acquisition cost and the pharmacy handling cost, "but studies conducted by hospitals, industry organizations and even MedPAC [i.e., the Medicare Payment Advisory Commission] estimate pharmacy handling costs to be anywhere from 20% of total pharmacy dollars to upwards of 35%." In some respects, providers were relieved that CMS did not finalize its proposal to require separate C-codes to capture pharmacy handling costs, as that would have been operationally burdensome, says Shah. However, by not examining pharmacy handling cost information, such as through the use of outside/external data sources, including the studies that have been done and cost-report data, CMS will continue to believe that its ASP methodology sufficiently covers both acquisition costs and pharmacy handling, but unless this is really understood, payments to hospitals will continue to be insufficient, she explains.

Second, says Shah, "CMS has not clearly defined pharmacy handling and states in the 2008 final rule that it does not believe it needs to define it since providers appear to be reporting this part of the cost in their drug charges." This logic can be problematic, she says, if providers have differing definitions of pharmacy handling and thus may exclude certain components, which could result in reported drug charges being understated.

According to Association of Community Cancer Centers President Richard B. Reiling, M.D., the costs associated with delivering many anti-cancer and cancer-related drugs "in hospital outpatient departments do not even come close to the reimbursement." Matthew Farber, manager of economics and public policy at the association, says that "pharmacy overhead costs can be significant.and we fear that a continued refusal to account for these costs on the part of CMS may lead to an issue of patient access down the road." "More patients are being sent and treated in outpatient facilities as the reimbursement in the physicians' offices is also slashed," says Reiling, who adds that "we are not far" from the point where "no one can afford to provide chemotherapeutic services."

The problems with reimbursement in physicians' offices are supported by The Zitter Group's Managed Care Oncology Index: Summer 2007. In that study, 47% of responding oncologists in office settings reported that because the Medicare reimbursement rate is already too low, some of their Medicare treatments were "underwater." Examples cited are Aranesp (darbepoetin alfa), Neulasta (pegfilgrastim), IVIG and Rituxan (rituximab). Smaller practices, which "do not have the bulk buying power of their larger counterparts," says the report, are especially vulnerable.

However, according to CMS in the rule, "we do not believe that different payment rates for drugs and biologicals in the HOPD [i.e., hospital outpatient department] or physician's office settings will create problems for beneficiaries regarding access to drug administration services because we have not seen problems with access in the two settings for other types of services, including diagnostic studies, surgical procedures, and visits, which generally have different payment rates under the two payment systems (unless there is an applicable externally applied statutory cap to payment, such as the cap on payment for imaging services provided in the physician's office based on the OPPS rates)."

"One thing is clear," asserts Shah. "Paying hospitals at ASP+5% for separately payable drugs but continuing to pay physicians in their office practices at ASP+6% creates a site-of-service differential that seems unfair."

With respect to CMS's contention that it does not expect access problems tied to different reimbursement levels at the sites of service, "I believe many hospitals would disagree, as they've already seen an increase in patients that physicians have turned away," says Shah.

The problem, she maintains, is that "at some point, the payments really will be grossly inadequate to cover acquisition costs and pharmacy handling, and hospitals typically face much higher pharmacy costs than physicians in their settings, so it remains to be seen what will ultimately happen."

One possible outcome, though, is that the private sector will follow CMS's lead in reducing reimbursement to physicians, say experts.

"It seems clear that the move towards ASP-based drug reimbursement that started several years ago for both the physician office setting and the hospital setting will continue, and we can expect to see other payers move to this model in the near future," says Shah.

Private payers, says independent pharmacy consultant Barbara Hawes in an interview, "are happy to let the government lead the way" when it comes to tightening the reimbursement reins. After analyzing the provider response, "the private sector will follow" — a "very typical" reaction, she says.

"The private sector potentially stands to bear the burden of the reduction," maintains Hawes. "Employers have been keeping their hands off oncology" and waiting to see the results of the federal reimbursement reduction, she says. Hawes adds that there are "not as many oncologists as needed," though, so if the reimbursement cuts cause a drop in oncologists' numbers, that may cause problems. At that point, the "supply-and-demand curve comes quickly," says Hawes.

To view the 2008 OPPS, visit AIS's Government Resources; click on "Outpatient Prospective Payment System."

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