Health Lawyers Weekly:
October 21, 2005 Vol. III Issue 42
CMS Unveils New Prescription Drug Plan Finder
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
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
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
D.C. Circuit Holds Hospital Not Entitled To Geographic Reclassification Despite Defective Wage Data
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
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
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
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
Palisades Gen. Hosp. Inc. v. Leavitt, No. 04-5276 (D.C. Cir.
Oct. 14, 2005). To read the case, click
DHHS Agencies Failed To Comply With NPDB Medical Malpractice Reporting Requirements
DHHS Agencies Failed To Comply With NPDB Medical Malpractice
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
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
“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.
DHHS OKs Florida Medicaid Reform Plan
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
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
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
DOJ Secures $704 Million Settlement With Company For Illegally Marketing AIDS Drug
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
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
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
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
Financial Outlook For Medicaid Has Improved But Long Term Budget Concerns Remain, Surveys Find
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
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
For more information on the surveys, go to http://www.kff.org/medicaid/kcmu101905pkg.cfm
Florida Appeals Court Finds State Board Of Medicine Erred In Rejecting ALJ's Findings From Disciplinary Hearing When Findings Were Based On Competent Evidence
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.
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
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
Accordingly, the appeals court remanded the case for further
To read the case,
Rogers v. Department of Health,
No. 1D04-1153 (Fla. Dist.
Ct. App. Oct. 18, 2005), click here.
FTC Announces Court Imposed Ban On Company Promising Free Prescription Drugs To Consumers
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
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
To read PhRMA's statement, go to http://www.phrma.org/mediaroom/press/releases/18.10.2005.1299.cfm
Humana Reaches Settlement With Physicians
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
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
"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
Kentucky Attorney General Sues Federal Government Over MMA "Clawback" Provision
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
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
“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
To read Stumbo's press release, go to http://ag.ky.gov/news/2005rel/clawback.htm
Lawmakers Introduce Bill Amending Tax Rules To Help Spur Biotechnology Development
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
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
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
Medicare’s Competitive Acquisition Program: Stakeholders
By Jeffrey Mittleman, Holland & Knight*
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
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
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
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.
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
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 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
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.
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.
*For more information, e-mail Jeffrey W.
Mittleman at firstname.lastname@example.org
or call toll free, 1-888-688-8500. This article first appeared in
Holland & Knight’s Food and Drug newsletter (September 2005;
Volume 2, Issue 3). For more articles written by Holland &
Knight Health Law attorneys, go to http://www.hklaw.com/Publications/
Mr. Mittleman gratefully acknowledges the contribution of summer
associate Frederique K. Garnier in the preparation of this
Power Mobility Device Coalition Seeks To Enjoin CMS Conditions Of Payment Rule
Power Mobility Device Coalition Seeks To Enjoin CMS Conditions Of
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
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
To view the PMC Preliminary Injunction, click here.
President Bush Signs Bill Extending Assistance For Low Income Individuals, Banning Medicare And Medicaid Funding Of Erectile Dysfunction Drugs
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,
“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
To read the text of the legislation, go to http://thomas.loc.gov/ and search on
Reports Find HIT Can Help Cut Fraud And Abuse
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
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
Sen. Schumer Urges Roche Pharmaceuticals To Voluntarily Suspend Patent On Anti-Flu Drug, Threatens Legislative Action
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
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
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
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
To read Roche’s press release, go to http://www.roche.com/med-cor-2005-10-18
Senate Appropriations Subcommittee Holds Hearing On Stem Cell And Nuclear Transplantation Research
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
The "Stem Cell Research Enhancement Act of
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.
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
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
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
Senate Finance Committee Unveils Budget Package With $10 Billion In Medicaid, Medicare Savings
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
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
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
Medicare net savings would total $5.758 billion, according to the
summary. The Committee is expected to vote on the package October
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
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.
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
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
Senate HELP Committee Clears Biodefense Bill
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
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
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
“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
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
Senate Passes State High Risk Pool Funding Extension
News In Brief
Senate Passes State High Risk Pool Funding
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