Life Sciences

Medicare Reform Advisor, April 13, 2004

Medicare Reform Advisor, April 13, 2004

April 13, 2004
Vol. 1, No. 9

Weekly news and analysis


Ohio hospital allowed to charge free clinic for drug acquisition

  1. Managed care reaction affects entire industry

  2. Exec Corner

  3. CMS covers three more injectables, four devices

  4. Officials to watch P&T committee grants

  5. Injectable use changing rapidly with Medicare reform

  6. Doc: Infusion costs big in specialty pharmacy dealings

    to Medicare Reform Advisor


    Reform-bill writer now lobbying for ambulatory surgery, pharma

    A top Republican aide in the House of Representatives who helped write the Medicare reform law is now lobbying for two heavy hitters in the pharmaceutical and biotech industry, as well as several ambulatory surgery centers. John McManus, former staff director for the House Ways and Means subcommittee on health, left the hill earlier this year to start a consulting business. His client roster out of the gate includes the Pharmaceutical Research and Manufacturers of America (PhRMA) and biotech giant Genentech. He'll also represent ambulatory surgical centers, whose Medicare payments were frozen by the new drug legislation. McManus cannot lobby the Ways and Means Committee for one year, according to a committee staffer. He is, however, allowed to lobby the White House administration and other congressional committees.

    -Compiled from staff reports

    A lesson in how all e-mail is discoverable


    Send letters to Include tips, ideas, questions, and problems related to Medicare reform. The editors reserve the right to edit letters for clarity.


    April 13-The New Medicare Reform Law: How Does It Affect Payment for Immunosuppressive Drugs for Transplant Patients (Audioconference). To register call 800/689-4262.

    May 12-Audioconference on "Opportunities and new device coverage rules under Medicare Reform." For details, call 800/650-6787.

    May 26-Audioconference on "New EMTALA rules under Medicare reform." For details, call HCPro at 800/650-6787.

    © 2004 HCPro, Inc.


    Managed care reaction affects entire industry
    One result: Inpatient out-of-pocket costs to hit $1,250 per admission

    Managed care will return to fee-for-service plans with more emphasis on disease management and identifying risk, a focus group of managed-care analysts told Medicare Reform Advisor in March. Here are four examples of what's already happening:

    1. Lower surgical copays
    2. Elimination of home-health copays
    3. Elimination of durable medical equipment copays
    4. Lower specialist/primary-care copays

    There are trade-offs, said analyst Peter Volk, who is based in New York City. "You'll see inpatient deductibles and higher office copays, higher service copays. But they'll be new benefit categories, such as an injectable medications benefit."

    Expect inpatient out-of-pocket costs to hit $1,250 per admission. There will also be benefit limits on services such as physical therapy, durable medical equipment, chiropractic care, and private duty nursing.

    Health savings accounts catching on

    Bancorp Bank, a private-label provider of banking services in Delaware, will offer health savings accounts, according to a company official. It will offer the accounts to insurers primarily to pass on to customers. These accounts are allowed under section 1201 of the Medicare-reform law.

    "The market is underserved at this point," Jill Kelly, a senior Bancorp official, told banking industry officials last week.

    Insurers are slowly developing their high-deductible plans and Kelly expects most will incorporate these accounts. The ultimate potential of this market is "a tough call," she said, because it is so new. However, one estimate is that the accounts could average $1,500 to start and grow by $1,500 to $5,000 annually, she said, and that there could be thousands of the accounts as interest in them grows. "The market is overwhelming," Kelly said, when you consider the number of uninsured people who could benefit from these accounts, plus the small companies that could cut their benefit costs by offering the plans.

    In February, Federation of American Hospitals President Charles Kahn said the health savings accounts may increase hospital bad debt.

    Back to top


    CMS covers three more injectables, four devices
    Hospitals can now get paid under the Outpatient Prospective Payment System (OPPS) for three additional drugs:

    1. Daptomycin, an injectable antibiotic for serious staph infections, $0.31 per 1 mg
    2. Risperidone, an injectable antipsychotic, $131.86 per 12.5 mg
    3. Rasburicase, an injectable treatment for high uric acid levels that may result from certain cancer treatments, $105.54 per 0.5 mg

    These payments took effect April 1, according to a release from the Centers for Medicare and Medicaid Services (CMS).

    Coverage set for GERD, prostate devices
    CMS will also reimburse hospitals for using the following four new technologies in the outpatient setting:

    1. The insertion of a special device for measuring and monitoring acid levels associated with gastroesophageal reflux disease ($450)
    2. A procedure using a laser device that vaporizes the prostate and controls bleeding before and after the procedure ($3,750)
    3. The concurrent or immediate placement of a balloon catheter in the breast for interstitial radiation therapy following a partial mastectomy ($2,750)
    4. The delayed placement of a balloon catheter into the breast for interstitial radiation therapy following a partial mastectomy ($3,250)

    This update from CMS also covers billing and payment issues affecting intensity modulated radiation therapy and brachytherapy devices used in cancer treatment. Go to to read the complete update. Look for program transmital 132.

    Back to top


    Poll: Officials to watch P&T committee grants
    Making a $300,000 unrestricted educational grant to a pharmacy and therapeutics committee in any setting or asking it to put your company's drug on the formulary-or recommending that it does-that's a kickback, according to three U.S. attorneys polled April 7. There is a law under the Office of Inspector General's civil-exclusion proceeding to prove payment of kickbacks and, as a result, the company's drugs won't be reimbursed by Medicare. In these cases, the providers are also at risk for accepting the grants.

    Back to top

    Injectable use changing rapidly with Medicare reform
    The amount of biotech injectables that Independence Blue Cross (IBC) of Pennsylvania will cover in 2005 will double from what it covers now. Most injectables are administered in doctor offices as acute, intermittent care, such as allergy injections, or steroids for a sore shoulder. That will change under Medicare reform. More patients will take injectables at home, says Gary Owens, the vice president of IBC's medical management and policy. There will also be many more injectable drugs and biologics to treat chronic diseases, which Owen predicts physicians will need help billing. Utilization will be the big issue here to watch. "You will see a huge push for more studies and auditing to see what the doctors are prescribing for what types of patients and how generics play into this. The thing is, generics are going to act more like brand drugs in the future," says one drug-company marketer.

    Back to top

    Infusion costs big in specialty pharmacy dealings
    Specialty pharmacies will become one of the big pieces to the Medicare puzzle, analysts say. All sectors of healthcare must learn more about dealing with these companies. Providers have many responsibilities when they receive specialty pharmacy drugs, including these five:

    1. Identify obstacles to delivery of treatment
    2. Obtain insurance verification
    3. Obtain appropriate authorization for in-office infusion
    4. Bill payer for infusion services
    5. Collect copays for infusion services

    "Providers will need to know their infusion costs in order to negotiate adequate infusion fees that include cost of mixing, inventory, wastage, etc.," says Sigrid Schreiner, MHA, CMPE, director of reimbursement at the Lash Group, a Charlotte, NC-based consulting firm for physicians and pharmaceutical companies.

    Back to top


    CASE: A lesson in how all e-mail is discoverable
    Medicare's coverage of drugs in 2006 opens the door for more fraud as the manufacturing industry hopes to gain a bevy of new prescribers through consulting arrangements. Here's one case that illustrates what you-as a drug company, physician, or consultant-should avoid in the Medicare-reform consulting era:

    Dr. Brown has been a consultant for a prominent drug company for three years. E-mails circulated between two drug-company employees about Brown's work. The following is an excerpt from one e-mail exchange:

    Employee A: "We have paid $500,000 over the first few years to Dr. Brown, but he hasn't produced much scientifically."
    Employee B: "Yeah, but look at the return on our investment. He ordered oodles of our product."

    "Make sure the consultants do something," says Elizabeth Carder-Thompson, a law partner at Reed Smith in Washington, DC. "Have a contract and identify a legitimate need. You can't go out and hire every oncologist to tell you what you need. If you hire too many, the government will wonder what you're paying for."

    Martin Doyle, a Medicare-law consultant based in Greenwich, CT, says drug companies must use people who have clinical backgrounds and jobs to select these consultants. That didn't happen in the Brown case. "You can use sales and marketing staff, too, but they shouldn't lead the charge," says Doyle. "Hire only the number of consultants you will legitimately need and use."

    Back to top


    Ohio hospital allowed to charge free clinic for drug acquisition
    The Federal Trade Commission (FTC) gave Dunlap Memorial Hospital the green light this month to ship pharmaceuticals to the nonprofit Viola Startzman Free Clinic in Wayne County, OH, and charge them for some minor costs associated with the transfer.

    The agreement grew out of the clinic's ongoing financial dilemma: It had to pay a local pharmacy more than Dunlap did for drugs. It paid the pharmacy at each drug's average wholesale price (AWP), plus a dispensing fee.

    Enter Dunlap. The nonprofit purchases pharmaceuticals through Amerinet, a hospital-purchasing group. Through this deal, it pays a lower price than is currently available to the free clinic. So Dunlap's Vice President Judy Erb asked the FTC whether the hospital could legally purchase drugs and send them to the clinic's volunteer physicians to dispense to patients. The kicker: Could the hospital charge the clinic a small fee to cover its costs?

    The FTC said yes. The Non-Profit Institutions Act of 1938 covers transfers of this nature, according to Jeffrey Brennan, the FTC's assistant director of healthcare services and products. Brennan says the receiving institution, in this case the clinic, must dispense the medicine for its own use, for its patients.

    According to Brennan, nonprofit institutions that purchase pharmaceuticals may transfer them to another nonprofit and charge them the following:

    1. Its acquisition cost for the materials/pharmaceuticals
    2. A fee sufficient to cover additional costs incurred as a direct result of making the transfer

    This ruling applies only to Dunlap's case, Brennan says, but other hospitals can get a sense of the requirements and apply them. He advises hospitals and clinics to seek FTC opinions before moving forward, since there are different factors at play in each case.

    Case in point, a hospital cannot charge overhead expenses that it incurs without regard to the transfer, Brennan told Dunlap in the FTC opinion.

    The FTC receives about two to three requests for opinions a year related to the Non-Profit Institutions Act.

    But, thanks to the Medicare reform law, AWP is going away. Some pharmacy analysts are interested to see whether the changes in Medicare pricing and reimbursement for drugs force physician clinics and hospitals such as Dunlap to reevaluate these types of relationships.

    Editor's note: The Viola Startzman Free Clinic is funded entirely by donations, grants, and unpaid services of volunteer physicians.

    Back to top


    Bryan Cote
    Executive Editor
    E-mail address: