Medicare Legislation Passes; Update on AWP Reform & Physician Payment

On Tuesday, November 25, the U.S. Senate passed the Medicare prescription drug legislation clearing its way to President Bush for his signature. The U.S. House of Representatives passed the bill early Saturday morning by a mostly party-line vote of 220-215.

The legislation, which is a compromise of the separate House and Senate Medicare bills passed in June, would prompt the “biggest single change in Medicare” since its creation in 1965, according to the Washington Post.

The legislation, which is estimated to cost $395 billion over 10 years, adds a new prescription drug benefit for all Medicare beneficiaries, creates subsidies for employers that continue to provide drug coverage to retirees, gives more federal money to rural providers, allows the creation of tax-preferred health savings accounts for individuals, and creates a pilot project in six metropolitan areas under which traditional, fee-for-service Medicare would compete with private health plans.

Most notably for the hematology community, the legislation changes the reimbursement formula for drugs and drug administration. Below is our initial summary of these provisions. However, this is a very complex piece of legislation and ASH will provide further details and analysis in the coming weeks.

Payment for Drugs

• Payment in 2004 will be based on 85% of AWP with the following exceptions:

  Blood clotting factors, new drugs not covered as of April 1, 2003, vaccines and drugs billed thru ESRD facilities will be paid at 95% of AWP.

  Blood and blood products (other than clotting factors) will be paid at 2003 rates.

  For certain drugs whose actual market prices had been studied by the GAO and OIG, the allowance might be as low as 80% of AWP.

• Payment in 2005 will based on the average sales price (ASP) reported by manufacturers. This generally will be 106% of ASP; however, a lower payment rate will be substituted if ASP exceeds the widely available market price by more than 5%. Note: The method for how payment will be computed for single source drugs requires further analysis.
• For 2006 and beyond, physicians will have a choice between the ASP method of reimbursement or obtaining their drugs thru a contractor selected by a competitive bidding process. In the latter case, the contractor would bill the program for the drugs provided.

Payment for Drug Administration Services

• For 2004, the practice expense RVUs would be adjusted using the results of the ASCO survey data. This is expected to substantially increase payment for the injection and infusion codes. Opportunities to submit new survey data for 2005 and 2006 are also provided.
• The drug administration codes, including the non-chemotherapy infusion codes (90780-90781), the therapeutic injection codes, and the chemotherapy injection and infusion codes will be assigned a physician work value equal to that assigned for a level 1 established patient office visit. This is equal to 0.17 RVUs—adding slightly more than $6.00. Note: Whether CMS will also increase the indirect practice expenses as a result of this change is not clear.
• For services in the period April 1, 2004 - December 31, 2004, the drug administration fee for services by oncologists will be further increased by a transitional adjustment factor of 32%. This will be reduced to 3 percent for 2005.
• We do not yet know the actual payment rates for the drug administration codes with all the adjustments outlined above.
• Provision is made for a study by the Medicare Payment Advisory Committee (MedPAC) of the payment changes to be submitted by January 1, 2006.

ASH and the cancer community remain concerned about the AWP reform provisions and their impact on patient care. We have questions about the adequacy of the reimbursement for outpatient drugs and whether it may be lower than the prices many doctors will have to pay as well as the sufficiency of the practice expense increases. However, because the legislation phases in these reimbursement changes, we believe there is still time to improve these provisions.

During the course of the next year, ASH is committed to work to improve the reimbursement formula before the provisions with the greatest impact to hematologists/oncologists are implemented. ASH has identified both legislative and regulatory areas in which we can improve reimbursement, including advocating for increased practice expense payment for drug administration and increasing reimbursement for cognitive services.

Update for All Physicians
In addition, and on a more positive note, the Medicare legislation includes a 1.5 percent increase for physician payments and blocks the 4.5 percent in physician payment scheduled for 2004.