by admin | August 7, 2009 3:15 pm
August 7, 2009 – The Centers for Medicare and Medicaid Services has tentatively agreed not to adjust Medicare Part B reimbursement paid to 340B hospitals for outpatient drugs below the level paid to non-340B hospitals.
This decision is a reversal from the agency’s October 2008 request for comments – and apparent plan – to cut payments to 340B providers. The change would have resulted in millions of dollars in losses for such safety-net providers. The inquiry was justified, CMS argued then, because 340B hospitals’ drug costs are lower.
But protests from a coalition of groups representing stakeholders in the Part B program apparently swayed the agency. Proposed Hospital Outpatient Prospective Payment System (HOPPS) regulations published in the July 20 Federal Register would instead establish the same payment to all hospitals for “separately payable” outpatient drugs that are not bundled or “packaged” for reimbursement into payments for hospital procedures.
Reimbursement would be at average sales price (ASP) plus 4 percent. That’s less than the ASP plus 6 percent that CMS pays for the same drugs when dispensed or administered in physician offices, but more, CMS argues, than the cost-based calculations might otherwise justify
The coalition of Part B stakeholders submitted written comments in December, opposing the proposal to reduce 340B hospital reimbursement. 340B providers, they argued, must retain their drug savings to stretch dwindling federal resources in order to reach the nation’s most vulnerable patients – rather than passing on the savings to Medicare.
“The fact that CMS was looking at this issue was a serious concern for ASHP,” said Justine Coffey, director of federal regulatory affairs for American Society of Health-System Pharmacists. “The 340B program is intended to allow safety-net hospitals that serve largely indigent and uninsured patients to save on their drug costs by purchasing drugs at a lower price. And the intent of the program is to allow the savings to remain with the hospital, allowing the hospital to better serve indigent patients.”
Does CMS underestimate hospital drug costs?
While CMS agreed not to reduce 340B hospital reimbursement in 2010, it rejected another stakeholder recommendation that hospital reimbursement for separately payable drugs be set at no less than the level of reimbursement paid for drugs dispensed in physician’s offices (ASP plus 6 percent). Reimbursement for packaged drugs also should be set at ASP plus 6 percent, the stakeholders said. CMS also ignored a recommendation that there be a separate tiered reimbursement for pharmacy-service costs.
Drugs with costs greater than $60 in 2009 (proposed to be $65 in 2010) are reimbursed separately, while less expensive drugs have their costs bundled into procedures.
The stakeholder groups – ASHP, Safety Net Hospitals for Pharmaceutical Access, the Association of Community Cancer Centers, the Biotechnology Industry Organization, and the Plasma Protein Therapeutics Association – argued that if these recommendations were not adopted by CMS, drug cost data for 340B hospitals should not be included in calculating the add-on to ASP for Part B drugs.
“We believe CMS underestimates the aggregate costs of drugs for many hospitals,” Coffey said. That’s why ASHP and the other stakeholders “asked that sales under the 340B program be excluded from the calculation of drug reimbursement rates under the OPPS.”
The stakeholder groups were scheduled to testify again at an Aug. 6 meeting of a federal panel charged with advising CMS on HOPPS issues.
Cost compression a concern
CMS did address a separate concern raised by the stakeholder group over “cost compression,” but rejected the group’s proposed methodology for addressing that issue.
In 2007, CMS learned from the hospital industry that hospitals typically don’t attach a specific pharmacy overhead cost to a particular drug. Instead, CMS found, they spread the total pharmacy overhead costs across all drugs.
The less expensive packaged drugs therefore shoulder a higher burden of pharmacy overhead costs than do more costly drugs, CMS said. This also means, the agency said, that the reimbursement rate for separately payable drugs does not accurately reflect – and may not adequately cover – the higher administrative costs associated with those drugs.
So earlier this year, the stakeholders group recommended that all packaged drugs be reimbursed at ASP plus 6 percent, and all separately payable drugs at no less than ASP plus 6 percent, with the difference for each drug between actual cost and the ASP markup being pooled.
The pooled funds would then be used to reimburse separately for pharmacy services. The advisory panel supported this idea.
CMS acknowledged in its proposed rules that the current method of converting billed charges to costs can “compress” calculated costs, and that a portion of the $395 million in total overhead costs associated with packaged drugs should be attributed to separately payable drugs. CMS suggested that, without some manner of cost reallocation, the calculation of the ASP add-on for 2010 would yield a reimbursement for separately payable drugs of ASP minus 2 percent.
In setting the 2010 rates, CMS determined that up to one-half of the total pharmacy overhead cost currently associated with packaged drugs should be more appropriately allocated to separately paid drugs. So the agency reallocated $150 million in pharmacy overhead cost to the higher-cost drugs. This reallocation, CMS said, yielded the proposed plus 4 percent ASP markup for 2010, meant to reimburse for both product costs and associated pharmacy overhead costs.
The prospective payment method of reimbursement is intended to encourage efficiency in the hospital outpatient department. A separate payment to reimburse for administrative costs or pharmacy services would, CMS wrote, discourage hospital efficiency.
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