Medicare Reform Advisor, April 6, 2004

April 6, 2004 Vol. 1, No. 8 Weekly news and analysis

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Big PBM left out of drug card sweepstakes
A major pharmacy benefit manager (PBM) is seething after the Centers for Medicare and Medicaid Services (CMS) denied its application to be a drug discount card sponsor. The company filed three applications: two were accepted for them to serve as subcontractors, but their individual card was denied, says a source close to the application process. Companies have until April 9 to file an appeal, and CMS said some already have. "If they think we made a mistake or if they made one, [we'll reconsider]," said Peter Ashkenaz, a CMS spokesman. "We will take it to a hearing officer if necessary."

Two acquisitions hit PBM market
National Medical Health Card Systems, an independent pharmacy benefit manager (PBM), last week acquired the assets of The Inteq Group, a Dallas-based PBM, for $31.5 million in cash. In a bigger deal, CVS' PharmaCare subsidiary will add 1,260 Eckerd drug stores in an acquisition the company announced last week. CVS lands Eckerd's $1 billion mail order and pharmacy benefit businesses in the deal.

Analysts project heavy acquisition activity this year in the PBM and specialty pharmacy area, due in large measure to the windfall of business expected from Medicare's coverage of prescription drugs starting in 2006.

For CVS, the deal will make them America's leading pharmacy retailer with more than 5,000 locations in 36 states and the District of Columbia. Most of the Eckerd stores are in the south. "These states are experiencing rapid population growth, particularly among seniors, resulting in pharmaceutical utilization rates among the highest in the nation," says Tom Ryan, CVS chairman.

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Sales price reg to impact reimbursement rates
The Centers for Medicare & Medicaid Services (CMS) is expected to issue rules today (April 6) to help drug companies calculate the average of their Part B drug sales prices, information CMS will use to build a reimbursement system to pay physicians in 2005 for the drugs they administer in their offices.

The regulation sets the stage for complete reform of Medicare's drug-payment system. CMS will start collecting drug-company sales price averages April 30. It's thought that oncologists, urologists, internists, endocrinologists, gerontologists, and nephrologists will be affected most, says Robert Homchick, an attorney in Davis Wright Tremaine's Seattle office. (See the back of this fax for more.)

Moving forward, drug companies must report these prices quarterly for each national drug code (NDC) for the following types of Medicare Part B drugs and biologicals:

• Certain oral anti-cancer drugs
• Oral immunosuppressive drugs
• Drugs furnished incident to a physician's service
• Drugs furnished under the durable medical equipment benefit

Some drugs, such as radiopharmaceuticals, won't be paid under the average sales system. Later this year, CMS will propose its average sales price payment system.

Pharmaceutical companies will be disappointed with this rule, says Bill Sarraille, an attorney with Sidley Austin Brown & Wood in Washington, DC. They'll have to move quickly to report these prices. In addition, if they report false data they could pay a $10,000 penalty for each price misrepresentation.

Method to the madness
Average sales price must include a manufacturer's sales to all U.S. purchasers for an NDC for a quarter, divided by the total number of units of that NDC sold by the manufacturer in that quarter. Drug companies must include three types of discounts (prompt pay, volume, and cash), free goods that are contingent on any purchase requirement, and rebates, except those under the Medicaid drug-rebate program.

They cannot include certain sales in their calculations, including sales to an entity that are nominal in amount, and those exempt from the Medicaid best-price calculation.

How to comment
CMS says it could change the methodology as early as next year. Visit www.regulations.gov to send CMS your comments.

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Physicians can't charge extra for Medicare services
Last week, physicians learned that if they engage in "concierge" or "boutique" practices and charge beneficiaries extra fees for the luxury care or extra attention, they may be sued by the federal government if the services are already covered under Medicare. In a March 31 alert, Department of Health and Human Services (HHS) Inspector General Dara Corrigan said that it was illegal to charge beneficiaries extra for items and services covered by Medicare, but that providers may charge for any services not covered under the seniors' healthcare program.

Under the MMA, the General Accounting Office (GAO) must conduct a study and issue a special report to Congress on the proliferation of concierge care by December 2004. The report will determine how many Medicare beneficiaries use the services and whether some of the carte blanche-type services and special fees that physicians collect for offering has affected the beneficiaries' access to reimbursable routine items and services.

Doc pays for concierge services already Medicare covered
Although the alert does not preempt the GAO's study findings, it does indicate the Office of Inspector General's (OIG) willingness to prosecute physicians who cross the line on what services they charge Medicare patients extra to receive.

For example, the OIG reported in July 2003 that a physician from Minneapolis had to pay $53,400 to the U.S. Treasury to resolve his liability under the civil money penalties provision of the Social Security Act for violating the provider's assignment agreement. The physician, a Medicare participant, asked patients to sign a yearly contract to pay $600 for "extra" services, some of which were already covered by Medicare.

"We are hearing reports about physicians asking patients to pay additional fees, and we believe this is an ideal time to remind physicians and Medicare patients about this potential liability," Corrigan said.

The million-dollar question: Can docs charge extra for cell-phone access, robes, or slippers?
There are some services not covered by Medicare that physicians can safely charge concierge fees for, advises Attorney Robert Rabecs of Hogan and Hartson in Washington, DC. For example, physicians may charge for

• priority, same-day, or next-day appointments
• bath robes and slippers for waiting rooms
• 24-hour cell-phone access to physicians

But services such as coordination of care with other providers or extra time spent on patient care could be considered covered services under Medicare and should not be offered by physicians accepting assignment.

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Promising news for brachytherapy
There's promising news ahead for brachytherapy seeds used to treat prostate cancer. Before Medicare reform, use of the seeds was reimbursed within a capped procedure code. The new law eliminates the procedural charge basis; so there's now separate payment for brachytherapy seeds. "We believe the reimbursement change will provide a proper incentive for doctors to elect brachytherapy for the treatment of prostate cancer," L. Michael Cutrer, president of North American Scientific, Inc. in Chatsworth, CA, said during a call on the company's first-quarter financial results.

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Pharma: New detail rep to emerge
The days of buy and bill are gone for urologists, oncologists, gerontologists, internists, and others who administer drugs in their offices. With Medicare's payment reform, these physicians will be paid far less for acquiring drugs under a new cost-based average sales-price reimbursement formula. The impact for sales reps in the pharmaceutical arena: You could see a new type of detail rep emerge," says Robert Homchick, an attorney for Davis Wright Tremaine in Seattle. "They'll focus on infusion time." Homchick envisions this as one possible pitch: "With this drug, you can do five administrations in one-hour, more than the competitor."

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CMS to cover replacement drugs under Part D
Drugs that treat cancer, multiple sclerosis, rheumatoid arthritis, and other diseases currently covered under Part B will probably remain in that coverage program beyond 2006, but replacement drugs for the same disease states will be covered under the new Part D beginning in 22 months, says Leslie Norwalk, chief operating officer of the Centers for Medicare & Medicaid Services (CMS). One example is Levodopa, a drug that replaces the chemical that Parkinson's disease patients lose. In March, CMS began a study to test replacement drugs and biologicals. It will run through 2005 and include more than 50,000 patients who receive these replacement drugs. The goal, according to section 641 of the Medicare Modernization Act, is to see whether Medicare can save any money by reducing physician services and hospital outpatient department services in which these drugs and biologicals are administered.

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Partisan wrangling over cards may interfere with acceptance
CMS is poised to deliver discount prescription drug cards on June 1-the first of several benefits to seniors promised under the Medicare reform law-but partisan wrangling between Democrats and Republicans over how much money the drug card will actually save users may poison beneficiaries' acceptance and use of the card.

At an April 1 House Ways and Means Committee Health Subcommittee hearing, detractors and supporters of the card warred over its potential usefulness to seniors. CMS' Michael McMullan, deputy director, Center for Beneficiary Choices, heralded the card as an "important first step toward comprehensive Medicare prescription drug coverage," adding that part of the drug discount card program would let certain low-income beneficiaries qualify for an $600 in annual credit to cover costs of prescriptions.

According to McMullan's testimony, 28 general and special discount drug cards offered by drug card sponsors have been approved by CMS, and 43 exclusive cards. Medicare beneficiaries who use the card could save 10% to 15% off the retail price on their overall prescription drug costs, and up to 25% on some drugs, she said.

Rep. bullies CMS deputy over potential drug price hikes
But when McMullan started explaining how the discount card would work to congressional panel members, Committee Ranking Member Pete Stark (D-CA) would not allow her to describe the process. Stark repeatedly interrupted her explanations, challenging McMullen's authority as a federal government employee to understand the "competitive market forces" that would lead to lower drug prices for seniors on the cards.

Many of Starks' attacks against the CMS deputy director were personal, and obviously aimed at discrediting McMullan, CMS's approach to delivering the cards, and the whole Medicare Modernization Act approved overwhelmingly by Republicans and Democrats last November. Stark's self-described "interrogation" of McMullan did not end until he was gaveled into silence by Subcommittee Chairwoman Nancy Johnson (R-CT).

Stark charged that drug manufacturers have already boosted their prices on prescriptions most frequently used by seniors, in anticipation of the cards' use beginning in June, so that the ultimate cost of the discounted drugs purchased with the card, will actually be the same as it was earlier this year. He also stated that the Medicare reform law gives card sponsors the option of dropping certain drugs from their list of those offered at any time, while beneficiaries who sign contracts with sponsors to accept the card, must continue to use it for a year, so they may not enjoy discounts on all the drugs they thought they could get.

McMullan: CMS to strictly monitor drug prices
But McMullan countered that the guarantee of having seniors stick with the cards for at least a year gives drug card sponsors the financial leverage with drug makers to improve their ability to secure discounts and rebates. And since each card sponsor competes with others for Medicare beneficiaries' business, the competition will result in lower prices for seniors, McMullan noted. She added that CMS is "planning strict monitoring efforts to ensure that card sponsors are not changing prices for unwarranted reasons."

Fallacies over cards?
The public advocacy group Consumers Union also voiced concerns at the hearing about the prescription drug cards. CU Director of Health Policy Analysis Gail Shearer said that CMS must be vigilant in curbing marketplace behavior that creates financial burdens for beneficiaries that pick the wrong drug card, and that CMS should pay particular attention to the use of formularies, or drug lists, by the discount drug cards. Many formularies mean that one Medicare beneficiary could have different drug coverage than a beneficiary on the next street, Shearer said. "It is unclear what the benefits for consumers are of scores of different formularies," she added.

Representative Johnson charged Shearer, and Consumers Union, of spreading misinformation about the law and the drug card. "Some of the things you've said about the bill are inaccurate. I've been distressed that there are factual inaccuracies" which could confuse seniors trying to choose specific cards.

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Bryan Cote
Executive Editor
E-mail address: bcote@hcpro.com