Medicare

The Centers for Medicare and Medicaid Services (CMS) announced October 12 several new tools for Medicare beneficiaries to use in selecting a  prescription drug benefit. Enrollment for the new Medicare Part D benefit is set to begin November 15.

The Prescription Drug Plan Finder, available at www.medicare.gov, will provide beneficiaries with tailored plan comparison information based on what the beneficiary says is most important to them including cost, coverage, and convenience, CMS said in a statement.

According to CMS, not all the data is yet contained in the plan finder. The deadline for many employers to submit their applications is October 31, CMS said.

“It’s important for us to make these resources available now to all of our local partners and train them on how they can use the resources to help beneficiaries enroll in a drug plan beginning next month,” said CMS Administrator Mark McClellan. “Beneficiaries need to be as confident in the information they have available to them as they are in their decisions once they begin to enroll.”

Ultimately, through the drug plan finder beneficiaries will be able to see if they qualify for extra help paying for a Medicare drug plan, if their employer or union is continuing their current drug coverage, or if they are already enrolled in a Medicare Advantage or other Medicare Health Plan or in a Medicare drug plan, CMS said.

CMS also announced the Medicare Prescription Drug Plan Cost Estimator, which provides beneficiaries with an example of potential savings they can anticipate under the new benefit. The estimator can be found at www.medicare.gov/medicarereform/MPDP_Cost_Estimator.asp.

Another tool for beneficiaries is the Formulary Finder, which allows a user to enter a typical combination of drugs used by people with a certain condition to find out which plans in an area have formularies that cover these drugs. This tool can be accessed at http://plancompare.medicare.gov/formularyfinder/selectstate.asp.

Another tool, BenefitsCheckUpRx, is coming soon, according to CMS. This service will help individuals assess current prescription drug coverage, find out what part of the new Medicare coverage the beneficiary is likely eligible for, tell them what their rights and options are based on their situation, and then help them take the next step, including enrollment.

For more information, go to http://www.cms.hhs.gov/media/press/release.asp?Counter=1697

Medicare

D.C. Circuit Holds Hospital Not Entitled To Geographic Reclassification Despite Defective Wage Data

A hospital was not entitled to geographic reclassification of its wage index even though the denial of its application for reclassification was based on incorrect wage data, a three-judge panel of the D.C. Circuit ruled October 14. The appeals court said that, although the district court had jurisdiction to review certain wage determinations and require recalculation of Medicare reimbursement accordingly, it could not order the Department of Health and Human Services Secretary to reconsider its denial of a hospital’s application for a geographic reclassification.

The amount a hospital is reimbursed under Medicare’s Prospective Payment System is adjusted in accordance with the wage index to account for regional variations in wage costs compared to the national average. A hospital can request a reclassification of its wage index to a nearby area with a higher wage index by submitting an application with the Medicare Geographic Classification Review Board (MGCRB). The hospital can appeal the MGCRB's decision to the Secretary.

Palisades Hospital (Hospital) sought geographic reclassification of its wage index from the New Jersey Metropolitan Statistical Area (MSA) to the New York City MSA for fiscal year (FY) 2000. The Hospital also participated in a group application submitted by all hospitals in the New Jersey MSA for redesignation to the Bergen-Passaic, New Jersey MSA for FY 2000. The hospital sought revisions to its wage data to submit with its application for reclassification, but the fiscal intermediary refused to make all of the desired corrections. The MGCRB subsequently granted the group’s application for geographic reclassification to the Bergen-Passaic MSA but dismissed the Hospital’s separate application for reclassification to the New York City MSA.

The hospital sued the Secretary and the MGCRB challenging the partial denial of its request for corrections to the wage data used in its FY 1999 wage index. The district court held the Secretary acted arbitrarily and capriciously in denying the hospital’s disputed wage data correction requests and that its wage data index should have been revised and its Medicare reimbursement recalculated. The district court also held, however, that the Hospital was not entitled to have its individual geographic reclassification application reconsidered. The Hospital appealed, arguing that it was entitled to make-whole relief, including an adjusted reimbursement based on the higher New York City MSA.

The D.C. Circuit affirmed the district court’s holding. According to the appeals court, the district court only had jurisdiction to vacate the Secretary’s decision and remand for further consistent proceedings, not to order the make-whole relief sought by the Hospital.

Moreover, said the appeals court, the Medicare Act specifically provides that the Secretary’s reclassification decisions “shall be final” and “shall not be subject to review.” The appeals court said the Secretary properly weighed the interests of finality and accuracy in deciding not to recalculate the reimbursement rate for every hospital in a metropolitan area when a hospital makes an error in reporting wage data.

While Congress made determinations related to wage index subject to judicial review, it does not follow that geographic reclassifications should also be reviewable based on court-corrected wage data, the appeals court reasoned. “This distinction between ‘ordinary’ reimbursement and reclassification is supported by the fact that Congress provided separately for applications seeking geographic reclassification through the MGCRB,” the appeals court wrote.

Palisades Gen. Hosp. Inc. v. Leavitt, No. 04-5276 (D.C. Cir. Oct. 14, 2005). To read the case, click here.

Medical Malpractice

DHHS Agencies Failed To Comply With NPDB Medical Malpractice Reporting Requirements

Department of Health and Human Services (DHHS) agencies failed to report medical malpractice cases to the National Practitioner Data Bank (NPDB) that should have been reported, found the DHHS Office of Inspector General (OIG) in a report released October 18.

“HHS Agencies’ Compliance With The National Practitioner Data Bank Malpractice Reporting Policy,” (OEI-12-04-00310) found that from June 1997 through September 2004 as many as 474 cases went unreported by the Indian Health Service, the Health Resources and Services Administration (HRSA) and the National Institutes of Health (NIH) despite an October 15, 1990 DHHS policy directive that all settled or adjudicated DHHS medical malpractice cases must be reported to the NPDB.

According to the report, the policy covers all cases regardless of whether standard of care is met, exempting only those claims in which the adverse event was determined to be the result of a system breakdown.

“Failure to report medical malpractice cases to the NPDB has the effect of depriving health care organizations, such as hospitals and State licensure boards, of potentially useful information for their credentialing and regulatory activities, respectively,” noted OIG Inspector General Daniel R. Levinson in an October 11 letter to HRSA, the agency that manages the data bank.

Levinson asked HRSA for its final management decision, including any action plan, within sixty days.

To view the report, click here.

Medicaid

DHHS OKs Florida Medicaid Reform Plan

Department of Health and Human Services (DHHS) Secretary Michael O. Leavitt announced October 19 the approval of a Florida Medicaid reform demonstration that would involve shifting beneficiaries to state-approved managed care plans. Leavitt hailed the demonstration for introducing "competiton and consumer choice in government-funded health care program."

Florida officials said the reform plan is necessary to in the face of unsustainable growth in program spending.

Centers for Medicare and Medicaid Services (CMS) Administrator Mark McClellan said the Florida demonstration would help inform “the national dialogue about reforming Medicaid to better serve the people who count on it.”

Under the plan, Florida will calculate a “risk”-adjusted annual amount that it will pay for each enrollee based on health status and historic use of healthcare services.

Beneficiaries will then select from state-approved managed care plans that must cover certain mandatory services but that can also “customize” the benefit packages they offer.

Those that do not select a health plan within thirty days will be automatically enrolled in a plan selected by the state.

Phase-in of the Section 1115 demonstration will begin in two counties--Broward and Duval--in July 2006, assuming final approval by the Florida legislature.

Patient advocates urged caution in proceeding with the far-reaching overhall, criticizing the government for approving the demonstration, which was submitted to CMS on October 3, so quickly.

To read DHHS’ press release, go to http://www.hhs.gov/news/press/2005pres/20051019.html

Fraud & Abuse

DOJ Secures $704 Million Settlement With Company For Illegally Marketing AIDS Drug

The Department of Justice (DOJ) announced October 17 that it had reached a $704 million settlement with Serono, S.A. to resolve criminal charges and civil allegations in connection with the marketing of Serostim, a drug used to treat AIDS wasting.

As part of the settlement, Serono Labs has agreed to plead guilty to charges that the company conspired with medical device manufacturer RJL Sciences to market computer software packages used to diagnose AIDS wasting in an effort to increase the market for Serostim. 

Serono Labs employees were also found to have administered the tests directly to patients in order to induce prescriptions, the agency said.

DOJ said that Serono Labs has also agreed to plead guilty to allegations that it offered physicians an all expense paid trip to a medical conference in Cannes, France in exchange for thirty prescriptions for Serostim. At $21,000 per course of treatment, those prescriptions would bring in about $630,000 per doctor, noted the agency.

As a result of its criminal conviction, Serono Labs will be excluded from all federal healthcare programs for at least five years.

The civil settlement resolves allegations that Serono knowingly submitted false and fraudulent claims for unnecessary and/or off label uses of Serostim, as well as procured prescriptions induced by kickbacks.

DOJ suggested that the illegal marketing was part of an aggressive marketing and sales campaign to "redefine" AIDS wasting and create a market for the drug after it had experienced a significant drop in demand.

According to the press release, this is the third largest healthcare fraud recovery ever by the federal government.

To view the DOJ release, go to http://www.usdoj.gov/opa/pr/2005/October/05_civ_545.html

To view the Serono release, go to http://www.serono.com/media/latestPR.jsp?major=4&minor=0

Medicaid

Financial Outlook For Medicaid Has Improved But Long Term Budget Concerns Remain, Surveys Find

Growth in Medicaid spending slowed for the third straight year to an average 7.5% in fiscal year 2005 due mostly to declining enrollment and continued implementation of cost-containment measures, found a survey of state officials conducted by the Kaiser Commission on Medicaid and the Uninsured (KCMU) and Health Management Associates.

Despite the rosier financial picture, state officials continue to be concerned about budgetary pressures in the long term because much of the program’s cost growth is due to factors beyond Medicaid’s control, the survey indicated.

“These studies affirm the basic countercyclical nature of Medicaid. Its costs increase most rapidly when it is most in demand—in a sluggish economy,” said Diane Rowland, KCMU’s executive director. “While the fiscal crisis has subsided, state budget pressure remains because the nation relies on Medicaid to forgive the failures of our larger health system.”

A second survey conducted by KCMU and Georgetown University’s Health Policy Institute revealed that sixteen of thirty-seven surveyed states imposed limits on prescription refills, while only two states automatically denied refills that passed set limits. States reported that 3.4% of their prescription claims and 7.5% of their total prescription drug spending required prior authorization.

A third survey found that two states—Missouri and Tennessee—have made substantial eligibility cuts, but twenty states have moved to streamline procedures and requirements and in some cases expand eligibility. At the same time, beneficiaries are facing higher premiums and copayments, found the survey, which was conducted by KCMU and the Center on Budget and Policy Priorities.

For more information on the surveys, go to http://www.kff.org/medicaid/kcmu101905pkg.cfm

Physicians

Florida Appeals Court Finds State Board Of Medicine Erred In Rejecting ALJ’s Findings From Disciplinary Hearing When Findings Were Based On Competent Evidence

A Florida appeals court reversed October 18 the state Board of Medicine’s order of professional discipline against an anesthesiologist, finding that the Board erroneously rejected factual findings made by an administrative law judge (ALJ) when those findings were based on substantial evidence.

Anthony Glenn Rogers, a board certified anesthesiologist and pain management specialist, was charged by the Florida Department of Health for various violations concerning his treatment of a patient. Following an administrative hearing, the ALJ found that only one count—failure to keep adequate medical records (Count II)—had been proven by the Department. The ALJ found insufficient evidence to support the other two counts (Counts I and III).

The Department filed numerous exceptions to the ALJ’s order. The Board of Medicine issued a final order adopting the ALJ’s findings of fact, but also finding sufficient evidence to support all counts of the administrative complaint. Rogers appealed.

The Florida District Court of Appeal, First District, affirmed in part and reversed in part, holding the Board erroneously reweighed evidence and rejected the ALJ’s factual findings when those findings were based on competent evidence.

The appeals court first noted that an agency may not reject or modify findings of fact in a recommended order unless the agency states with particularity that the findings were not based on competent evidence or that the proceedings on which the findings are based did not comply with essential requirements of law.

“It is apparent from the final order that the Board, in finding a violation as to count I, simply reweighed the evidence presented to the ALJ and reached a different result. This was reversible error,” the appeals court held.

The appeals court also found the Board erred in finding a violation of Count III. According to the appeals court, the Board found Rogers inappropriately dispensed medication without a physical examination. However, the ALJ found that Rogers made an appropriate examination—it was the Board itself that determined that no examination was made, which the appeals court already found was reversible error. But, “the Board may not premise a violation of count III on its erroneous ruling as to count I,” the appeals court said.

Accordingly, the appeals court remanded the case for further consistent proceedings.

To read the case, Rogers v. Department of Health, No. 1D04-1153 (Fla. Dist. Ct. App. Oct. 18, 2005), click here.

Food & Drug Law

FTC Announces Court Imposed Ban On Company Promising Free Prescription Drugs To Consumers

The U.S. District Court for the District of Washington has barred MyFreeMedicine.com, LLC (MFM) from claiming that consumers with no insurance can receive free prescriptions for $199, the Federal Trade Commission (FTC) said in an October 17 press release.

According to FTC, the company targets low-income consumers who spend more than $100 a month for prescriptions by having them call a toll free number where they are routinely told that their medications are available through MFM’s program. However, FTC said, all MFM does for the individual is provide them with patient assistance program (PAP) information and application forms that must be submitted to the pharmaceutical companies that run the programs.

Many consumers are then surprised to learn that they are not eligible to receive their prescription medications for free from a PAP, or that their prescriptions are not available from a PAP, FTC said.

The defendants then deny requests for refunds from consumers who are not able to obtain free prescription drugs, said the agency.

According to the release, a hearing to extend the temporary ban is set for October 21.

Senate Finance Committee Chairman Charles Grassley (R-IA) issued a statement commending the FTC's action. “This is good news for consumers,” Grassley said. “It’s unconscionable for any company to prey on people who already were struggling to get needed drugs, raise their hopes, and cheat them out of money. I hope the FTC will continue to crack the whip on any dubious operation like this.”

Pharmaceutical Research and Manufacturers Association (PhRMA) President Billy Tauzin also issued a statement in reaction. “We applaud the Federal Trade Commission’s efforts to stop a company from charging patients for access to patient assistance programs run by America’s pharmaceutical research companies. These programs, many of which have been in existence for more than 50 years, are meant to help the uninsured and people in need better afford their prescription medicines. To charge people looking for help abuses the spirit of giving and assistance that drives these programs and it’s wrong," Tauzin said. 

For more information and to view FTC’s complaint against MFM, go to http://www.ftc.gov/opa/2005/10/myfreemed.htm

To read Sen. Grassley's statement, click here.

To read PhRMA's statement, go to http://www.phrma.org/mediaroom/press/releases/18.10.2005.1299.cfm

Managed Care

Humana Inc. announced October 19 that it has reached a settlement with over 700,000 physicians involved in a major class action alleging the company systematically reduced or denied payments in processing their claims.

The settlement, which still requires court approval, would resolve allegations against Humana stemming from a national class action instituted against many of the nation's largest for-profit insurers.

The latest settlement agreement joins those made earlier by Aetna Inc., CIGNA Healthcare, Health Net Inc., Prudential Financial, and Wellpoint Inc., which were also named in the class action.

Under the agreement, Humana has agreed to pay $40 million to physicians and up to $18 million in legal fees to be determined by the court.

"We have devoted significant time and resources to improving the quality and timeliness of our transactions with physicians who care for our health plan members. Humana has undertaken systems and infrastructure improvements in connection with how the company relates to providers, enhancing, among other things, the speed and accuracy of claims reimbursement to providers, setting the stage for real-time adjudication of claims filed electronically. This has all been part of Humana's ongoing efforts to strengthen its collaborative relationships with providers," said Michael B. McCallister, Humana's president and chief executive officer.

To read Humana’s press release, go to http://www.humana.com/corporatecomm/newsroom/releases/PR-News-20051018-111331-NR.html

Medicaid

Kentucky Attorney General To Sue Federal Government Over MMA “Clawback” Provision

Kentucky Attorney General Greg Stumbo announced October 19 that his office is suing the federal government over its demand that Kentucky begin paying $7.5 million per month in Medicare prescription drug “clawback” payments starting January 2006.

Stumbo says that the clawback provision, a state phase-down payment designed to help fund the Medicare Part D prescription drug benefit under the Medicare Modernization Act of 2003 (MMA), will cause Kentucky to pay approximately $20 million more annually for prescription drug coverage.

“It is my job to protect taxpayers from unlawful demands on their money,” Stumbo said. “Never before has the federal government made such a bold, and I believe unconstitutional, attack on Kentucky’s right to control the spending of its own tax money.”

These payments will “constitute the single largest flow of funds from the states to the federal government from 2006 onward,” the Attorney General's office noted.

The Attorney General said that the lawsuit will be filed in the Supreme Court as an original action against the federal government.

To read Stumbo's press release, go to http://ag.ky.gov/news/2005rel/clawback.htm

Life Sciences

Lawmakers Introduce Bill Amending Tax Rules To Help Spur Biotechnology Development

Senator Rick Santorum (R-PA) and Representative Melissa Hart (R-PA) introduced legislation October 19 permitting biomedical research corporations to engage in certain financings and other transactions without incurring limitations on net operating loss carry-forwards and certain other built-in-losses.

As part of the product development process, Senator Santorum said that biotechology companies are often forced to undergo multiple equity financings which can trigger technical changes of ownership under the current tax code.

The Senator points out that under § 382 of the Internal Revenue Code, once a technical change in ownership has occurred, the net operating losses (NOLs) accumulated do not transfer to the purchaser.

This creates disadvantages for biotechnology companies (1) by restricting the use of NOLs as tax deductions, and (2) because investors are not as attracted to companies that have accumulated NOLs with no value, Santorum said.

The “Biotechnology Future Investment Expansion Act (BIO FIX) of 2005” amends § 382, which helps spur research and development as well as create jobs, Representative Hart said.

“By helping companies invest in research and development, the biotechnology industry can be an engine for job growth in Pennsylvania as they take advantage of the amazing research facilities and talent pool we have in our state. This legislation is a perfect example of how government can work to spur innovation, stimulate job creation and help companies develop treatments and cures for disease," said Rep. Hart.

The president and CEO of Biotechnology Industry Organization (BIO), Jeff Greenwood, said he supports the legislation because it will foster biotechnology companies' access to capital.

“This legislation updates our tax laws to recognize the uniquely capital-intensive nature of the biotechnology industry. BIO does not believe that the tax code was intended to penalize small, startup companies that must rely on multiple equity financings to support important research into life-saving and life-enhancing drugs. The bill maintains appropriate restrictions to prevent fraudulent ‘trafficking’ in net operating losses,” Greenwood said.

To view the bill, click here.

To read Sen. Santorum’s press release, go to /Events and Education/Teleconferences/Pages/What_In-House_Counsel_Need_to_Know_about_the_AHLA_ADR_Service.aspx

To read Rep. Hart’s press release, go to http://hart.house.gov/news.asp?FormMode=detail&ID=272

To read the BIO press release, go to http://www.bio.org/news/newsitem.asp?id=2005_1019_02

Medicare’s Competitive Acquisition Program: Stakeholders Beware

Introduction

The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA) is mostly known for creating the Medicare Part D prescription drug benefit for beneficiaries beginning in January 1, 2006. However, two less publicized requirements under the MMA have had and will continue to have profound effects on providers, vendors, drug manufacturers and Medicare Part B beneficiaries. First, the MMA changed the way the Centers for Medicare and Medicaid Services (CMS) pays for Part B prescription drugs. Instead of CMS paying providers at a specific rate as a percentage off of Average Wholesale Price, as of January 1, 2005, CMS pays for all Part B prescription drugs under a formula called Average Sale Price (ASP). CMS calculates ASP utilizing certain sales data provided by pharmaceutical companies. This new payment methodology has reduced the amount of money providers make for each prescription they dispense in the office to Part B beneficiaries. To compensate for this change in pricing and to ease the administration for providers and beneficiaries, the MMA created the Competitive Acquisition Program (CAP) as an alternative to the current “buy and bill” system, which allows providers to purchase prescription drugs from vendors and allows those vendors to be compensated directly for such prescription drugs. For drugs reimbursed under the CAP, the requirement that drugs be reimbursed incident to a provider’s service and that the reimbursement for the service and drug be paid to the same person will be eliminated.

Background

Under the current Part B buy and bill system, providers purchase drugs that they will administer to their patients using their own funds. Once the drugs have been given to the patients, the providers must then file for reimbursement from Medicare as well as from any carriers under which the patients are insured. This system has been problematic for many providers who find it challenging to accurately predict and order the quantities of specific medications they will need to administer in a given period. The buy and bill method also strains the limited resources of many providers since they must be able to cover the high costs of the Part B drugs themselves before being able to recover their money, and since they are saddled with the administrative difficulties of getting their reimbursements from more than one source. Again, this financial and administrative burden has been exacerbated by the new ASP pricing and reduced margins for providers. In an attempt to alleviate the need for providers to purchase the Part B drugs directly, the MMA included a new voluntary option entitled the CAP which is scheduled to take effect after January 1, 2006.

The new program is an alternative choice for providers, allowing them to transfer the burden and risk of purchasing Part B drugs to the vendors (e.g., pharmaceutical wholesalers, specialty pharmacy retailers, etc.) who participate in the CAP. With a general goal of improving patients’ access to provider-administered drugs as well as creating a more competitive environment to lower the cost of the drugs, the CAP requires vendors to bid against each other for the right to provide the medications that amount to 80 percent of Medicare Part B expenditures. Providers who elect to participate will choose from the lowest bidding vendors that qualify for the program to use as their exclusive supplier of Part B drugs for the year. Although the exact bidding process is still under discussion, several criteria are clearly required for vendors to participate in the CAP and its first nation-wide area.

Vendors who wish to be chosen must prove that they have at least three years of experience with national distribution and that they will be able to provide the drugs ordered in a timely manner. They must also submit a price for at least one drug in each Healthcare Common Procedure Coding System (HCPCS) category so that providers are able to order all of their Part B drugs from that one vendor. Each vendor will also be evaluated for drug integrity and history of regulatory compliance. Once the general qualifications are met, CMS will look at the bids to find the cheapest drugs for the program.

One of the reasons the vendors are required to provide a drug for each HCPCS category is to allow CMS to calculate their composite bid price. Vendors may enter into subcontracts with other vendors who also fulfill the general requirements of the CAP so that a composite bid price can be found. Starting with 100 percent, each drug is assigned a percentage of total sales for the vendor based on the percentage sales of each category from the year before. The proportionalities are used to create relative prices which are then tallied to come up with a single composite bid price. These calculations allow the vendors some flexibility in the pricing of individual drugs while also achieving CMS’ goal of lowering the total cost of Part B drugs. To guarantee that this goal is attained, CMS will choose up to the five lowest bids, but will not accept any vendor whose prices are higher than 106 percent of the ASP. Once the vendors are chosen, the providers who choose to participate in the CAP will place all of their Part B drug orders with their selected vendor.

As a remedy for the administrative burdens of the buy and bill program, providers under the CAP will no longer have to chase payments after having spent their funds buying drugs. In order to make this alternative attractive to vendors, a 14-day claim limit has been established that will reduce bureaucratic costs and expedite payments. In an effort to reduce wasted drugs, vendors under the CAP retain the title of the drugs until administered to the intended patient. This will force providers to order only the drugs that they know will be used for a specific patient at a set time, and will in turn relieve providers of having to make advanced order predictions. With these and other provisions already established as part of the CAP, CMS has been able to address many of the shortcomings of the buy and bill program. Several questions remain regarding the effects of the implementation of the program, however, and anticipating the various issues that may arise is key to making the right decision about participation.

Possible Effects of the Implementation of the CAP

Pharmaceutical Manufacturers

For pharmaceutical manufacturers, the CAP is a program that must be analyzed from both a financial and regulatory perspective. For drugs heavily reimbursed under Medicare Part B, pharmaceutical manufacturers will be encouraged by the CAP since many of them have seen the number of prescriptions for these drugs for Part B beneficiaries decline since January 1, 2005, due to the ASP and the higher cost to providers. With the CAP, these providers may be inclined to again utilize the drugs reimbursable under Part B since the providers no longer will be required to pay the cost of carrying the drugs. However, there are many drugs that are included in the CAP (and many that are not) where the manufacturer does not rely on Medicare for reimbursement under Part B. Rather, the majority of reimbursement for these drugs comes from the Medicaid program and/or commercial payers so there is no incentive to be reimbursed under the CAP program. As a result of the new ASP pricing model instituted in 2005, all manufacturers must be concerned about what discounts vendors will attempt to negotiate based on their potential volumes of purchases. All such discounts will be calculated as part of any ASP. If a manufacturer has a drug that is not heavily reimbursed by Medicare Part B, it will likely not want to encourage CMS to include its drug in the CAP for fear of further eroding its ASP.

The drug manufacturers must also contend with issues related to service fees and the antikickback statute. In the commercial context, manufacturers often pay pharmaceutical distributors for reporting and other services related to the distribution of their drugs. Manufacturers and vendors, in response to the Proposed Rule, voiced concern that such service fees may be considered remuneration under the antikickback statute and therefore a violation of federal law. However, in the Interim Final Rule, CMS was clear that if such service fees were paid for services rendered by a vendor and the rate paid for such services was fair market value that the antikickback statute would not apply. In addition, payment of service fees at fair market value most likely will have no effect on a drug’s ASP since CMS would not consider the payment of services a discount on a drug.

Providers

Few concerns stand in the way of provider participation in the CAP. In a statement of the purpose of the legislation, CMS focused almost exclusively on the benefits that would result for providers and stated that “[t]he competitive acquisition program provides opportunities for providers who do not wish to be in the business of drug acquisition.” 42 C.F.R. Part 414. Those who choose to apply for the program will no longer be forced to use their own capital or bear the “… financial risk in the event of a non-payment for drugs.” Id. at Part 414. The competitive acquisition program will provide physicians with a cheaper and less administratively complicated way of dealing with beneficiaries’ Part B drug needs. Participation is voluntary and periodic, with each physician able to reassess the value of the program annually.

The CAP program allows providers to focus on the care of patients and to provide services to beneficiaries without worrying about drug acquisition costs and the administrative burden of purchasing and furnishing prescription drugs. However, for certain provider types, like oncologists and urologists, the acquisition and sale of prescription drugs has been a source of significant revenues. Although participation in the CAP will significantly reduce the revenue of these specialty providers, it will also reduce the overhead paid by these providers.

It is important to note that a decision about participation in the CAP made by a group practice is binding on all of the providers in the group. Therefore, depending on a group practice’s financial situation, the group will make a decision on participation in the CAP for all of providers in the group.

Vendors

Vendors will need to factor in several variables when considering whether or not to participate in the CAP. Wholesalers may be discouraged from trying the new method due to the shift of economic risk away from providers, as well as concerns about the increased liability for drug integrity. Under the CAP legislation, the title to medications will belong to the vendors until the drugs are administered to a patient. This extended title retention potentially exposes vendors to increased liability for partially or wholly unused drugs. It also means that defaults in payment will have to be absorbed by the vendors rather than the providers.

CMS has developed a few measures to give vendors some protection from these problems. To reduce drug waste, providers who are part of the CAP can only order medications that are intended for a specific individual, and only when that person needs them. To achieve this, each order form requires a patient number and a projected date for administration. CMS predicts that this will serve the dual purpose of both minimizing losses for vendors while also reducing the general pharmaceutical wastes that have been funded by taxes through Medicare. Rather than blindly stocking expensive and often perishable medications for hypothetical patients, providers will only order drugs to address the needs of specific patients within a set timeframe.

Vendors are further protected from unused drug losses by state regulations that allow them to re-package and later distribute some unused drugs. Additionally, vendors have the limited option of being able to withhold shipments from patients who flagrantly default on payments or to report providers who abuse the system by repeatedly and purposefully ordering unneeded, and therefore unused, Part B medications. Although the last two options are restricted to the most extreme cases, they do allow vendors to shield themselves from losses imposed on them by the worst offenders.

In deciding whether or not to participate, vendors will need to evaluate the benefits possible under the CAP such as a guaranteed buyer population and reduced transaction costs. Both of these gains are dependent on the number of providers who commit to the program since the profits under the CAP will be maximized by large volume sales. However, since there will be greater volume of specialty pharmaceuticals on the market, the quantity of counterfeit drugs on the market may increase. Many experts believe that the increased use of high cost drugs, especially those that are injectible, are ripe for counterfeiting. Since these drugs are so high in cost and therefore potentially very profitable, counterfeiters may be encouraged by an ever increasing growth in the use of these drugs. This can create liability for vendors since a consumer who receives a counterfeit drug may file a lawsuit against a pharmacy retailer seeking damages for the harm caused by the counterfeit drugs. Such a lawsuit was recently filed against a vendor by a consumer. Thus, vendors will need to better protect themselves from the increased likelihood of liability from counterfeit drugs. On a positive note, the CAP rules do require program integrity in that a vendor must purchase all prescription drugs either directly from a manufacturer or from an approved distributor.

These risks seem to be outweighed by the potential increased access to both patients who previously had limited ability to purchase drugs from specialty vendors, and to providers who desire ease of administration for their patients and themselves. Vendors that succeed at providing both will be more successful in this new marketplace.

Conclusion

The new Part B CAP will affect all stakeholders, providers, vendors, manufacturers and beneficiaries. The effect on stakeholders will be better understood as the CAP is refashioned to a more regional approach in 2006 and possibly 2007. Each stakeholder must perform both a regulatory and a financial analysis, and gain a clear understanding of this complex program when determining its desired level of participation in the CAP.

Medicare

Power Mobility Device Coalition Seeks To Enjoin CMS Conditions Of Payment Rule

The Power Mobility Coalition (PMC) filed suit in the U.S. District Court for the District of Columbia on October 13 seeking a preliminary injunction that would prevent the Centers for Medicare and Medicaid Services (CMS) from implementing the “Conditions for Payment of Power Mobility Devices” final rule scheduled to become effective on October 25.

“Since the rule is scheduled to take effect a full month before comments are due, it is difficult to believe that CMS could consider public comment and modify the rule at a later date,” stated PMC Director Eric Sokol.

The group also expressed concern that the rule would replace the Certificate of Medical Necessity (CMN) with a “vague documentation requirement” allowing CMS to “subjectively second-guess the best medical judgment of the treating physician.”

In its motion, the Coalition argues that it is likely to succeed on the merits since the Department of Health and Human Services Secretary unlawfully failed to follow notice-and-comment procedures in implementing the interim final rule, which the group contends is “arbitrary, capricious, and contrary to law.”

This action follows a September 29 letter by Senate Finance Committee Chairman Charles Grassley (R-IA) to Secretary Michael O. Leavitt and CMS Administrator Mark McClellan requesting that CMS address concerns he had related to the interim final rule.

In that letter, Grassley also recognized that the agency may have "added an unnecessary degree of subjectivity to this process" and called on CMS to reconsider the October 25 effective date, saying that it appeared to be unrealistic.

To view the PMC press release, click here.

To view the PMC Preliminary Injunction, click here.

Medicaid

President Bush Signs Bill Extending Assistance For Low Income Individuals, Banning Medicare And Medicaid Funding Of Erectile Dysfunction Drugs

President Bush signed October 20 a compromise bill (H.R. 3971) cleared by the House and Senate a day earlier that extends for two years the Qualified Individual program that assists low-income individuals with their Medicare Part B premiums and extends for three months Temporary Medical Assistance for families making the transition from welfare to work.

The bill also excludes Medicare and Medicaid coverage for erectile dysfunction drugs. Medicare will cease covering such drugs dispensed on or after January 1, 2007 and Medicaid will stop covering drugs dispensed on or after January 1, 2006.

“This legislation extends very important benefits for people who live on the edge of poverty. They won’t see any interruption in benefits. And the provision included to offset the cost of these programs recognizes that taxpayers shouldn’t have to pay for certain lifestyle prescription drugs through Medicare and Medicaid. We have to sustain federal health care programs, and every bit helps,” Grassley said in a statement.

The legislation also includes a grant to states affected by hurricane Katrina to help pay for unemployment benefits, Grassley said.

To read Sen. Grassley’s statement, click here.

To read the text of the legislation, go to http://thomas.loc.gov/ and search on H.R. 3971

Health Information Technology

Health information technology (HIT) can help reduce fraud and abuse in the healthcare system, according to two reports issued October 17 by the Foundation of Research and Education (FORE) of the American Health Information Management Association (AHIMA).

"These reports show that information technology can change the way we think about preventing fraud and abuse," says National Health Information Technology Coordinator, David J. Brailer, M.D., Ph.D. “Information technology can give us new tools to reduce healthcare fraud losses.”

A set of guiding principles was developed by an expert cross-industry committee composed of executives from both the private and public sectors, including representatives of providers, payors, information technology, fraud investigative services, finance, and government.

According to the guiding principles, Nationwide Health Information Network (NHIN) policies, procedures, and standards must proactively prevent, detect, and reduce healthcare fraud. In addition, the reports recommended that a standard minimum definition of a Legal Health Record (LHR) be adopted for electronic health records (EHRs).

Another guiding principle was that increased consumer awareness of healthcare fraud and the role HIT and EHRs play in its reduction can improve the effectiveness of healthcare fraud management programs.

The reports also contained an economic impact model to serve as a framework for tracking fraud and non-fraud related costs/benefits associated with developing and implementing a nationwide interoperable NHIN with interoperable EHRs.

To read the reports, go to http://www.ahima.org/fore/fraudrpt.asp

Food & Drug Law

Sen. Schumer Urges Roche Pharmaceuticals To Voluntarily Suspend Patent On Anti-Flu Drug, Threatens Legislative Action

Senator Charles Schumer (D-NY) called on Roche Pharmaceuticals to voluntarily suspend its patent on Tamiflu, the only known treatment for avian influenza, so that other companies can help ramp up production of the antiviral drug as countries race to stockpile enough doses in the event of a flu pandemic.

“No one company can possibly be expected to produce such vast quantities of a drug in a limited period of time, yet the need for adequate stockpiles across the world is real and urgent,” said Schumer in his October 17 letter to the Switzerland-based pharmaceutical company.

According to Schumer, the U.S. only has enough Tamiflu on hand to treat 1% of its population, or about 2.3 million people. “Roche must engage in an active campaign to license Tamiflu production to 5 U.S. companies in the next 30 days,” said Schumer who added that he would seek legislative action in a month if the company failed to do so.

With the start of the flu season, health officials have issued dire warnings about the potential for a devastating bird flu pandemic and have urged countries to stockpile antiviral treatments like Tamiflu for 40% to 50% of their populations.

In a press release issued October 18, the company said it was willing to consider all available options for increasing production of the key drug, including granting sub-licenses to governments and private companies “provided such groups can realistically produce substantial amounts of the medicine for emergency pandemic use, in accordance with appropriate quality specifications, safety and regulatory guidelines.”

Roche also said the Food and Drug Administration had granted approval of an additional capsule manufacturing site in the U.S. to supply Tamiflu.

“For Tamiflu, the key need today is the rapid expansion of production capacity. Patients’ needs in case of a pandemic remain our top priority,” said William M. Burns, the CEO of Roche’s Pharma Division.

Schumer said he knew of companies in Taiwan, India, and Thailand that are ready to start production, and that several U.S. companies are interested in manufacturing the drug as well.

“I deeply respect the investment Roche has made in order to bring Tamiflu to market, but am confident that there is a way to both serve the public need and ensure that your company receives compensation,” Schumer noted.

Roche holds the patent on Tamiflu through 2016.

To read Schumer’s letter, click here.

To read Roche’s press release, go to http://www.roche.com/med-cor-2005-10-18

Life Sciences

Senate Appropriations Subcommittee Holds Hearing On Stem Cell And Nuclear Transplantation Research

The Senate Appropriations Subcommittee on Labor, Health and Human Services, Education and Related Agencies held a hearing October 19 to discuss the potential of stem cell and nuclear transplantation research.

The "Stem Cell Research Enhancement Act of 2005"

This hearing took place amid reports that subcommittee chairman Arlen Specter (R-PA) was planning to attach legislation to the upcoming appropriations bill that would have expanded federal funding of embryonic stem cell research. The "Stem Cell Research Enhancement Act of 2005" (S.471), introduced by Specter in February, would amend the Public Health Service Act to allow the federal government to support research utilizing human embryonic stem cells so long as (1) the stem cells were derived from human embryos donated from in vitro fertilization clinics for the purpose of fertility treatment and were in excess of the needs of the individuals seeking such treatment; (2) the embryos would never be implanted in a woman and would otherwise be discarded; and (3) such individuals donate the embryos with written informed consent and receive no financial or other inducements.

According to a report by Congressional Quarterly, however, Sen. Specter announced in a floor speech October 21 that he was abandoning that plan.

Hearing Testimony

Judith Gasson, Ph.D, the Director of the Jonsson Comprehensive Cancer Center and co-director of the UCLA Institute for Stem Cell Biology and Medicine, testified on the potential role that stem cells could play in treating cancer, stating that embryonic stem cells “must be studied to educate us on the fundamental process and pathways that drive the growth of cancer stem cells.” This is necessary, Gasson says, because studies of adult stem cells are “incomplete and unable to answer all the critical questions.”

Specifically, Gasson stressed the benefits to patients of developing chemical inhibitors of self-renewal in embryonic stem cells, as well as using somatic cell nuclear transfer (SCNT) as a way to treat patients who are unable to utilize available bone marrow stem cells.     

John E. Wagner, M.D., Scientific Director at the University of Minnesota’s Clinical Research Blood and Marrow Transplant Program and Stem Cell Institute, discussed stem cell therapy in the context of his work with umbilical cord blood stem cells.

“The stem cells in adult tissues and umbilical cord blood have different properties and may or may not have unlimited differentiation capacity. While it is hoped that one day we will be able to take adult tissue or cord blood stem cells and trick it to become ‘ES-like’, this is not yet possible.” To make cord blood and adult tissue stem cells “function like” embryonic stem cells will require further study of embryonic stem cells, Wagner recognized.  

Steven Teitelbaum, the Wilma and Roswell Messing Professor of Pathology and Immunology at the Washington School of Medicine, said that he is particularly excited about the potential of SCNT because it could help “alleviate the major complication of tissue and cell transplantation, namely rejection and its attendant life threatening consequences.”

Teitelbaum says he hopes that embryonic stem cells, generated by SCNT and containing the transplant recipient's own DNA, will reduce the need to use anti-rejection drugs which have caused many of his transplant patients to develop severe osteoporosis and fractures.    

There is also hope that the use of SCNT could help increase the cure rate of osteoporosis in kids, which is currenly under 10%, Teitelbaum said.

Author Anthony Herrara, who was diagnosed with Mantle Cell Lymphoma in January of 1997, recalled debating whether to commit suicide the night he was told there was nothing he could do to prevent the disease from killing him. Fortunately, Herrara did not go through with it and despite a tough back and forth battle with the disease has now been in remission for five years after undergoing an allogeneic stem cell transplantation in March 1999.

“I hope you senators and congress find that it is your privilege and duty to fight with your intelligence and pride and compassion to continue to build the pillars of man – the arts for the spirit-education for the mind and medical research for the body. Stem cell research. All stem cell research,” Herrara said.

To view the testimony, go to http://appropriations.senate.gov/index.cfm

To view the bill, go to http://thomas.loc.gov/ and search for S. 471

Medicare and Medicaid

Senate Finance Committee Unveils Budget Package With $10 Billion In Medicaid, Medicare Savings

Senate Finance Committee Chairman Charles Grassley (R-IA) unveiled October 20 a budget package that achieves roughly $10 billion over five years in savings from Medicaid and Medicare.

Medicaid prescription drug payment reforms account for $4.570 billion of projected savings, said a summary posted on the Committee’s Web site.

The summary said the package “[e]nds overpayments to pharmacies by reforming the broken AWP system used to reimburse pharmacists for prescription drugs.”

Specifically, the package calls for, among other things, redefining average manufacturer price to reflect discounts and rebates available to retail pharmacies and then using this definition for payments to pharmacies and for calculating best price.

The package achieves additional Medicaid savings mostly through reforms to Medicaid asset transfer rules and cracking down on fraud, waste, and abuse, including incentives for states to implement False Claims Acts.

Net spending reductions for Medicaid are set at $4.260 billion after factoring in additional spending including $834 million to help parents of severely disabled children who earn above-poverty level wages maintain Medicaid eligibility for their children, and $128 million to address State Children’s Health Insurance Program shortfalls.

The bill also includes $1.8 billion as a “down payment” for the healthcare needs of low-income families affected by Hurricane Katrina, considerably less than the $8.9 billion a separate bill introduced by Grassley and the Finance Committee’s Ranking Minority Member Max Baucus (D-MT) would provide.

Most of the savings from Medicare involve phasing-out the budget-neutrality modification to risk-adjusted payments to Medicare Advantage plans ($6.460 billion) and repealing the regional Medicare Advantage PPO stabilization fund ($5.440 billion).

The Finance package also would require the Department of Health and Human Services to implement pay-for-performance programs under Medicare for acute-care hospitals, physicians and practitioners, Medicare Advantage plans, end-state renal disease providers, and home health agencies, with an expected savings of $4.510 billion over five years.

Medicare net savings would total $5.758 billion, according to the summary. The Committee is expected to vote on the package October 24.

Medicare Physician Payment Rate Bump of 1%

Among the other provisions included in the package is a 1% boost in physician payment rates under Medicare in 2006.

The Centers for Medicare and Medicaid Services (CMS) has been projecting negative updates in the physician fee schedule of approximately 5% for the next seven years under the Sustainable Growth Rate (SGR) formula, which sets spending targets and adjusts physician fees based on the extent to which spending aligns with the specified targets. A large gap between spending and the SGR target can result in fee reductions.

The proposed physician fee schedule announced by CMS included a 4.3% negative update in payment rates for 2006.

"Eliminating the SGR formula and adjusting payments for inflation would cost $154.5 billion over 10 years," the summary noted.

Specialty Hospitals

The package also would permanently prohibit physicians from referring Medicare and Medicaid patients to new specialty hospitals in which they have an ownership interest.

Under the bill, the “whole hospital” exception to the Stark physician self-referral law would not apply to any new physician-owned limited service hospital effective June 8, 2005.

The package would allow existing physician-owned limited service hospitals to continue operation with certain restrictions, the summary said.

Inpatient Rehabilitation Facilities 75% Rule

The budget package would freeze implementation of the controversial 75% rule for classifying hospitals as inpatient rehabilitation facilities (IRFs) under Medicare at a 50% compliance threshold for two years through June 30, 2007.

Under a final rule issued by CMS in May 2004, 75% of a facility’s patient admissions would need to be for one of thirteen qualifying medical conditions for the facility to be classified as an IRF. The final rule calls for gradually increasing the compliance threshold from 50% to 75% by July 1, 2007.

To read the budget reconciliation package, click here.

Public Health

The Senate Committee on Health, Education, Labor, and Pensions (HELP) approved by voice vote October 18 the “Biodefense and Pandemic Vaccine and Drug Development Act of 2005” (S. 1873).

The legislation is aimed at speeding the availability of drugs and vaccines in the event of bioterrorism or natural outbreaks like the avian influenza, said Sen. Richard Burr (R-NC), who introduced the bill October 17.

The bill would establish the Biomedical Advanced Research and Development Agency (BARDA) within the federal government as the single point of authority for the advanced research and development of medical countermeasures for deliberate, accidental, and natural incidents involving biological pathogens, and chemical, radiological, and nuclear agents.

BARDA would report to the Department of Health and Human Services and work with the private sector and academia on innovative medical countermeasure development, said Barr’s press release.

The bill also includes incentives for the domestic manufacturing of medical countermeasures within the U.S.

One controversial provision would shield drug makers and healthcare providers from most liability arising from the manufacture or administration of a security countermeasure or a qualified pandemic and epidemic product.

“The proposed legislation will strip Americans of the right to a trial by jury if harmed by an experimental or licensed drug or vaccine that they are forced by government to take, whenever federal health officials declare a public health emergency,” said the National Vaccine Information Center (NVIC) in an October 19 statement.

The bill also includes a provision extending orphan drug market exclusivity for countermeasure products from seven to ten years.

To read the bill, go to http://thomas.loc.gov/ and search on S. 1873

To read Sen. Burr’s press release, go to /Events and Education/Teleconferences/Pages/What_In-House_Counsel_Need_to_Know_about_the_AHLA_ADR_Service.aspx

To read the NVIC press release, go to http://www.nvic.org/PressReleases/101905Burrbill.htm

News In Brief

Senate Passes State High Risk Pool Funding Extension

The Senate unanimously passed legislation October 19 amending § 2745 of the Public Health Service Act to extend federal funding for the establishment and operation of state high risk health insurance pools. The “State High Risk Pool Funding Extension Act of 2005” (H.R. 3204), which passed the House on July 27, was cleared after Senate lawmakers agreed to an amendment (No. 2142) submitted by Senator Michael Enzi (R-WY), chairman of the Senate Committee on Health, Education, Labor, and Pensions.  

To read a copy of the bill, go to http://thomas.loc.gov/ and search for “H.R. 3204”