Life Sciences

Medicare Reform Advisor, May 11, 2004

Medicare Reform Advisor, May 11, 2004

May 11, 2004
Vol. 1, No. 13

Weekly news and analysis


Drug discount card data is accurate, CMS says

  1. Clinton, other senators call for clinical effectiveness research

  2. Exec Corner: Expect quicker move to e-prescribing

  3. Tips for drug pricing

  4. Section 938 delivers crystal 'coverage' ball

  5. Residency programs: How to apply for cost report change

    to Medicare Reform Advisor


    A new bill from a pair of senators who voted in favor of the Medicare-reform law would change several key areas related to prescription drug costs. For starters, the bill would require the federal government to negotiate lower prices with pharmaceutical companies and allow drug importation from Canada, according to co-sponsors Blanche Lincoln (D-AR) and Kent Conrad (D-ND).

    Other changes to the law in the Conrad-Lincoln bill include the following:

    -Beneficiaries may remain in the government-run "fallback" plan for two years, instead of being forced into private plans as soon as they are available
    -Seniors may use supplemental plans to cover out-of-pocket drug costs
    -Increases in federal aid for rural pharmacies to ensure direct service to seniors
    -No more "gradual" privatization of Medicare, as in the recent law
    -Lower payments to private plans than the law requires

    Compiled from staff reports

    Hypertension: Evidence-based prescribing would save money


    Pharmacists have the expertise and knowledge to help patients with multiple chronic illnesses to manage their medications and get the most effective treatment, says Gary Stein, PhD, director of federal regulatory affairs for the American Society of Health-System Pharmacists. "It's long overdue," Stein says. "We have been trying to inform [CMS] for years about the importance of clinical pharmacists. Physicians and nurses just don't have the expertise that pharmacists have." Individual pharmacists will not be able to participate in the chronic care pilot program, but expect pharmacists in group practices such as anticoagulation or asthma clinics to encourage their practice to get involved, Stein says.

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


    December 2004-Expect the Office of Inspector General to report to Congress by December on existing End Stage Renal Drug billing codes and their use.

    July 1-Hospitals failing to comply with bloodborne pathogen standards are subject to civil money penalities from OSHA. Hospitals must be in compliance this summer.

    May 12-Last chance to sign up for "Clinical Trials Changes Under Medicare Reform: New Device Coverage Rules and Other Opportunities." Audioconference begins at 1:00 p.m. (Eastern). To register your staff, call 800/650-6787 and mention source code EZ27405A.

    © 2004 HCPro, Inc.


    Clinton, other senators call for clinical effectiveness research
    A bipartisan group of senators, including Senate Majority Leader Bill Frist (R-TN), Hillary Rodham Clinton (D-NY), Tim Johnson (D-SD), Charles Grassley (R-IA), Max Baucus (D-MT), and Orrin Hatch (R-UT), signed a letter sent to Senate Labor HHS Education Appropriations Subcommittee leaders urging them to bump up the amount budgeted for research on "the outcomes, clinical effectiveness, and appropriateness of healthcare items and services, including prescription drugs."

    The Medicare Prescription Drug, Improvement and Modernization Act of 2003 authorized $50 million for the current fiscal year and subsequent fiscal years for the Agency for Healthcare Research and Quality (AHRQ) to conduct this research. However, the budget resolution adopted by the Senate in March included a non-binding Sense of the Senate Amendment that supports $75 million in fiscal 2005 for these activities.

    "Consumers and other healthcare purchasers should have reliable information that compares different treatment options," said the letter sent to subcommittee chairman Arlen Specter (R-PA) and ranking member Tom Harkin (D-IA). "There are numerous clinical areas where the synthesis and evaluation of existing research--as well as better, more definitive research--could improve the quality of care and help to reduce costs."

    Senator Clinton, speaking to health journalists in Washington last week, said this need for additional information is seen in the new RAND study that found that Americans received clinically appropriate treatment less than 60% of the time. Clinton has proposed a plan that would among other things increase research on effective care "because approximately 80% of the care is not backed by clinical research," she said. "We need to do more research, more justification, and then get that information out from comparative or head-to-head trials for drugs and therapies."

    -Report from Washington, DC, correspondent Jan Simmons

    Exec Corner: Expect quicker move to e-prescribing

    Under the Medicare-reform law, the Department of Health and Human Services (HHS) is required to adopt electronic prescribing (or e-prescribing) standards by September 2005, to test these standards in 2006 with the new Medicare drug benefit, and to promulgate them in 2008. But HHS Secretary Tommy Thompson, speaking in Washington May 6 at a secretarial summit for healthcare information technology leaders, said he thinks "that timetable is far too slow."

    "So I'm going to insist-as Secretary of the department-that we develop and implement these standards a heck of a lot faster than that," he said. To put e-prescribing and electronic medical record standards on a quicker track, Thompson announced several new accomplishments including adoption by HHS and other federal agencies of 15 standards agreed to under the Consolidated Health Informatics initiative to allow electronic exchange of clinical health information across the federal government. They include the following:

    • A set of federal terminologies related to medications, including Food and Drug Administration names and codes for ingredients, manufactured dosage forms, drug products and medication packages, the National Library of Medicine's RxNORM for describing clinical drugs, and the Veterans Administration's National Drug File Reference Terminology for specific drug classifications.
    • The College of American Pathologists' Systematized Nomenclature of Medicine Clinical Terms (SNOMED CT) for laboratory result contents, non-laboratory interventions and procedures, and nursing. HHS is making SNOMED CT free for use in the U.S. through the National Library of Medicine (
    • Health Information Portability and Accountability Act (HIPAA) transaction and code sets for electronic exchange of health-related information to perform billing or administrative functions. (These functions are the same HIPAA standards now required for health plans, healthcare clearinghouses, and providers that engage in certain electronic transactions.

    -Report from Washington, DC, correspondent Jan Simmons

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    Tips for drug pricing
    Too many companies seek one optimal price for their drug. There's no such thing, says pharma pricing economist Mick Kolassa, PhD, who teaches at the University of Mississippi. Companies need to refine their pricing strategies now that Medicare will pay for outpatient drugs. Here are some tips from Kolassa:

    1. Don't commission just one pricing study
    2. Gather studies to allow marketers to evaluate past pricing initiatives
    3. Use data to compare new prescriptions with prices in the market
    4. Order a study to show you the role of price in the prescribing decision
    5. Avoid studies that show you a demand curve

    Use this information to craft an overall marketing strategy.

    Interfaith group pressures drug firms
    In response to pressure from the Interfaith Center on Corporate Responsibility, pharma company Schering-Plough will train its sales reps to educate physicians about the company's patient assistance program. The center, which includes Catholic hospitals, wants more help from poor patients in the U.S. and abroad, according to resolutions it sent to several large pharma companies.

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    Section 938 delivers crystal 'coverage' ball
    Under a new program effective May 2005, physicians and hospitals may submit a request to Medicare contractors to find out whether Medicare will cover the medical service about to be performed, according to Section 938 of the reform law. The government is expected to write a regulation for this program later this year.

    Providers may be forced to include the following with these requests:

    1. Advance beneficiary notice signed by the patient
    2. Documentation supporting medical necessity

    Contractors must provide a written notice of coverage. It's still unclear as to how quickly they must do this, but contractors will likely have to respond in writing based on the terms of their contracts with providers. If contractors won't cover the service, they must include an explanation, such as the national or local coverage rule.

    Providers or beneficiaries keep their rights to appeal negative decisions, seek reimbursement, and obtain services even when they don't file a request.

    Note: The Office of Inspector General, under the Medicare-reform law, must study the misuse of advance beneficiary notices. A report is due to Congress this year. Stay tuned.

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    Residency programs: How to apply for cost report change
    If your hospital added a residency training program since the September 2002 cost report period, you may ask CMS to use a more recent cost report for its redistribution calculation (see the May 4 Medicare Reform Advisor for details). Medicare will use this calculation to shift unused slots to rural hospitals, urban hospitals not located in large urban areas, and residency programs with the only program of their kind in their state. Submit requests to CMS by July 1.

    The chief financial officer must sign this request. Include the following in your request letter:

    1. The full-time equivalent (FTE) resident caps for direct graduate medical education (GME) and indirect medical education (IME), and the number of unweighted allopathic and osteopathic FTE residents for direct GME and IME in your most recent settled cost report (i.e. your cost report most recently settled as of April 30, 2004).
    2. FTE resident caps for direct GME and IME, and the unweighted allopathic and osteopathic FTE residents for direct GME and IME from each cost report after its most recently settled cost report, up to and including its cost report including July 1, 2003. If the cost reporting period that includes July 1, 2003 has not ended as of June 4, 2004 report the estimated number of unweighted allopathic and osteopathic residents for that cost reporting period.
    3. If not already included in steps 1 or 2, provide the FTE resident caps for direct GME and IME and the number of unweighted allopathic and osteopathic FTE residents for direct GME and IME in your most recent cost reporting period ending on or before September 30, 2002.

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    Hypertension: Evidence-based prescribing would save money
    If doctors adhere to evidence-based prescribing guidelines for hypertension they could help save elderly more than a billion each year on prescription costs, according to a new Harvard Medical School study reported in the Journal of the American Medical Association.

    Researchers from Brigham and Women's Hospital in Boston analyzed medication use patterns in 133,624 hypertensive patients in a state drug assistance program for elderly patients in Pennsylvania during 2001. The researchers "evaluated every antihypertensive regimen in light of the clinical history of each patient and then estimated the potential cost savings to the healthcare delivery system that could have been realized through adherence to evidence-based recommendations."

    They identified 815,316 prescriptions (40%) for which an alternative regimen seemed more appropriate. The following are some results:

    • Highest average cost: Calcium channel blockers ($33.39 p/prescription)
    • Second costliest class: ACE inhibitors ($10.5 million)
    • Most commonly prescribed antihypertensive drug: Beta-blockers, though the average cost ($15.62) and total spending ($8 million) were lower than for ACE inhibitors or calcium channel blockers


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    Drug discount card data is accurate, CMS says
    Just days after CMS got its Medicare-approved drug discount card comparison Web site up and running, Health and Human Services Secretary Tommy Thompson sought to underscore the point at a May 3 news briefing that the prices on the website--in light of complaints by some card sponsors--are accurate.

    "We have to guarantee that the senior is going to get that price when she or he walks into the drugstore. So, we are going to put on our webpage what the drug card company says is the highest amount so that we can guarantee that seniors get that much of a savings," Thompson said. The difference may occur when some card companies put in prices derived from different volumes purchased from wholesalers.

    But while the numbers are accurate, Thompson said, they will be changing on a weekly basis. Each Monday morning, the price comparison website ( or helpline (1-800-MEDICARE) will provide updates on the prices of thousands of drug products available at nearby pharmacies.

    During this first week, the drug card companies are "going to look at their competitors' prices, and they will go back to the wholesalers and to the pharmaceutical companies and say, 'You gave a better deal to card X. I want the same deal,'" Thompson said. This likely will create "a trending down of the prices" the subsequent weeks.

    "That's why we are telling seniors to window shop for a while--because this is the first week," Thompson said. Prior to June 1, when the cards first can be used for drug discounts, HHS is encouraging beneficiaries to "spend some time, compare the cards, allow the competition to drive down the prices over the first couple weeks, and then sign up for the card that best meets your needs."

    Actual savings questioned
    At the same time Thompson was extolling the benefits of the drug discount cards, several blocks away congressional Democrats were questioning whether the cards will actually benefit low-income individuals who can receive a $600 credit this year and next on prescription drugs.

    One critic, Rep. Robert Matsui (D CA), said that the "discount drug card promises far more to seniors than it delivers" and that Bush administration and congressional Republicans' suggestions that the cards will provide discounts of 10% to 25% are "illusory." He cited a new survey (, conducted by the minority staff of the House of Representatives Committee on Government Reform, that said the prices available with the new discount drug cards are higher than those of several on line drugstores and the Department of Veterans Affairs.

    Matsui also said that under the current drug discount plan, Medicare beneficiaries (CMS estimates that 7 million are eligible) are at a "distinct disadvantage" because they will be locked into a drug card for a year. During this time, he said, drug companies can change the prices of the drugs on their discount list and the list of drugs notice.

    In the midst of the varying reactions to the new prescription drug benefit cards, beneficiaries should keep in mind that low-income beneficiaries and their caregivers need to take time to "collect information and consider their options" regarding the cards as well as other public and private benefits, said National Council on Aging President and CEO James Firman.

    For many low income beneficiaries, the annual savings will be much more than $600 per year because of free or low cost medications that many pharmaceutical companies are offering as "wrap arounds" once the $600 credit is used up, Firman said. "Many valuable state and company programs" are available to help low income seniors--even if they fail to qualify for the new federal benefits, he added.

    High volume of beneficiary interest
    Interest in the Medicare approved drug discount program has been high among the window-shopping beneficiaries, according to CMS. For instance, on May 3, the toll-free Medicare line received an all time high of almost 408,000 calls--about 8% of the 5.9 million calls received last year. Another 327,000 calls were received on the following day. Traffic on has also been high, with more than 1.7 million page hits, for instance, received on May 3.

    A total of 73 cards will be posted on the Medicare website: 40 cards will be available nationally (39 national cards and a card for long term care), and another 33 will be available geographically and regionally. As of May 3, 56 of the cards were posted.

    -Report from Washington, DC, correspondent Jan Simmons

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    Bryan Cote
    Executive Editor
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