October 19, 2009 – The U.S. Department of Health and Human Services’ Office of Inspector General (OIG) recently released its Fiscal Year 2010 Work Plan. Several of the studies and inquiries into Health and Human Services (HHS) programs and operations focus directly on the 340B program, including two that examine reimbursement levels for 340B providers.
This has some in the safety-net community concerned that the government may be contemplating reimbursement cuts at a time when many 340B providers can ill afford them.
Medicare Drug Payments under the Hospital Outpatient Prospective Payment System
The OIG plans to review the appropriateness of Medicare payments for billable drugs covered under the hospital outpatient prospective payment system (HOPPS). The system covers certain Part B services furnished to hospital outpatients and certain inpatients that have no Part A coverage.
Drugs administered in the hospital outpatient departments and billed separately are reimbursed at their average sales price, plus 4 percent. Disproportionate-share hospitals (DSH) generally acquire those drugs at 340B prices, so the OIG is concerned that the current payment method may result in some overpayments to the hospitals.
The OIG plans to compare Medicare payment amounts for drugs delivered in outpatient hospital settings to providers’ actual acquisition costs.
As part of its study of Medicare payments under HOPPS, the OIG is surveying a random sample of hospitals to get information about their acquisition costs for 33 listed drugs, including discounts, rebates, and price concessions.
In addition, OIG is seeking responses to a handful of survey questions, including whether the respondent’s hospital participates in the 340B program, and whether the reported acquisition costs are for outpatient only, or are also applied to inpatient drugs. The drugs listed are mostly injectable drugs, but also include a number of intravenous immunoglobulin therapies.
The survey appears to follow up on a series of Centers for Medicare & Medicaid Services (CMS) inquiries contained in the 2009 HOPPS rules the agency proposed last year. (SeeMonitor December 2008 and January 2009.)
Those questions sought to determine whether the discounts obtained by DSH hospitals under the 340B program are reducing the cost-based reimbursement paid to all hospitals for outpatient drugs dispensed under Medicare Part B. They also explored whether DSH hospitals should be reimbursed at a lesser rate for outpatient drugs than non-340B hospitals are.
Safety Net Hospitals for Pharmaceutical Access (SNHPA), representing about 500 safety-net hospitals, and other organizations submitted comments to CMS when the proposed rules were published in the summer of 2008.
SNHPA and the other commentators opposed disparate reimbursement, noting that 340B discounts were intended by Congress to help DSH hospitals provide a wide array of health care services to the disadvantaged. (See Monitor August 2009.)
The final HOPPS rules for 2009 did not set different payments for 340B hospitals.
Review of Medicaid Reimbursement to 340B Entities
The OIG also plans to review how state Medicaid agencies reimburse 340B providers. The federal 340B and Medicaid laws prohibit states from billing drug manufacturers for Medicaid rebates on drugs already subject to 340B discounts.
So the OIG is seeking to determine whether or not 340B entities bill Medicaid at actual acquisition cost and, if they don’t, how much Medicaid could save if they did.
In addition, the OIG will determine the cost to Medicaid if 340B entities were reimbursed for all Medicaid drug purchases at the standard Medicaid reimbursement rates.
The federal 340B and Medicaid laws both prohibit states from billing drug manufacturers for Medicaid rebates on drugs the companies already sold at 340B discounts.
To mitigate the states’ loss of rebate revenue, 340B providers are required by most states to pass their discounts through to Medicaid by billing states at acquisition cost, or by adjusting their billing arrangements in other ways. Many states have afforded 340B providers some flexibility in how they bill Medicaid for 340B drugs.
A number of representatives from 340B health care facilities met with members of the OIG’s office at the Annual 340B Coalition Conference in July to voice concerns over states that are eating into their 340B discounts. They warned it may cause some providers to drop out of the program.
Update of States’ Collection of Medicaid Rebates for Physician-Administered Drugs
The OIG will review state Medicaid agencies’ policies and practices to determine the extent to which they are collecting drug manufacturers’ rebates for physician-administered drugs. The office plans to estimate the savings that could result if all states collected these rebates.
Under the 2005 Deficit Reduction Act, states are required to collect certain information on single-source drugs and 20 multiple-source drugs that have the highest dollar volume of physician-administered drugs dispensed. States must collect the information as necessary to obtain the manufacturers’ rebates.
Previous OIG studies determined that most states had not collected rebates for physician-administered drugs. The review will address both hospital outpatient clinics and physicians’ offices.
SNHPA and the University Medical Center of Southern Nevada sued CMS in August 2008 to halt implementation of a 2007 regulation requiring hospitals to report National Drug Codes (NDCs) on physician-administered drugs.
According to CMS, the regulation required hospitals to bill states for drugs at actual acquisition cost (AAC) if the hospitals wanted to escape the NDC reporting requirement. Some states mandated the NDC reporting requirement even for hospitals that billed at AAC. (See MonitorSeptember 2008.)
The parties to the lawsuit settled and CMS will be notifying state Medicaid programs this month that states may exempt hospitals from the federal mandate to collect NDCs and manufacturer rebates on physician-administered drugs when hospitals bill for those drugs at their “purchasing costs” as defined under the state’s Medicaid plan. The CMS transmittal says that if a hospital drug qualifies for the exemption, the drug is not subject to a rebate under the Medicaid drug rebate program.
Timely Submission of Average Manufacturer Price Data
The OIG will also be reviewing whether drug manufacturers have reported AMPs to CMS in a timely manner. Under the 2005 Deficit Reduction Act, manufacturers are required to report AMP data to CMS on a monthly basis.
AMP is used to calculate Medicaid rebate amounts and 340B ceiling prices, and may also be used to establish Medicaid Federal Upper Limits (FUL), which is the maximum amount federally funded programs may pay for certain drugs. If AMPs are not reported within the required timelines, neither the 340B program nor Medicaid will have complete data on which to base discount and reimbursement calculations.
This could, in turn, make both programs overpay for prescription drugs.
A previous OIG report found that nearly 14 percent of drugs were missing AMP data. The 2010 review will look at the timelines of drug manufacturers’ reporting of AMPs to CMS during fiscal 2008.
Comparing Average Sales Prices to Average Manufacturer Prices
The OIG periodically reviews Medicare Part B drug prices by comparing average sales prices (ASP) to average manufacturer prices (AMP). Medicare began paying for the majority of Part B drugs in 2005, using an ASP-based methodology.
Federal law requires the OIG to regularly compare ASPs to AMPs for Part B drugs. If the ASP for a selected drug exceeds the AMP by 5 percent, the OIG must notify HHS.
Additional Rebates on Brand-Name Drugs
Under its 2010 work plan, the OIG will also review additional rebates on brand name drugs under Medicaid — sometimes referred to as the “inflation penalty” — to determine whether they were properly calculated.
Under the Omnibus Budget Reconciliation Act of 1990, drug manufacturers are required to pay rebates to states for covered outpatient prescription drugs reimbursed under the Medicaid drug programs. For brand-name drugs, manufacturers must pay an additional rebate when the AMP increases above the base period (baseline) AMP at a rate greater than the increases in the Consumer Price Index.