Home Health & Hospice Week

Ipratropium bromide reduced to 34 percent of current AWP under the proposal.


Medicare must drastically reduce its reimbursement rates for many of the 450 drugs it covers, the Centers for Medicare & Medicaid Services insists. And it looks as though durable medical equipment suppliers will bear the brunt of the cuts.

The adjustment is necessary because average wholesale price is significantly higher than what it really costs suppliers to obtain the drugs, CMS says in a proposed rule to slash drug payments published in the Aug. 20 Federal Register. Currently, Medicare's payment rate for drugs is 95 percent of AWP.

The feds claim suppliers are growing fat and happy off the generous "spread" between their acquisition costs and the AWP Medicare uses to set payment rates. CMS offers these four alternatives for whittling drug pricing and reforming the AWP-based system:

1. Insurance comparison. Under this method, CMS would set Medicare drug rates at the same levels as insurance. To determine insurance payment rates, DME regional carriers - which all are run by big insurance companies - would use the rates their parent company's indemnity and PPO health insurance products pay for the drugs.

2. AWP discount. This method would hang onto the AWP-based method, but would drastically reduce the percentage of AWP used to the set the rate. CMS would set rates somewhere between 80 and 90 percent of current AWP, depending on what comments it receives. Rates then would be updated by the consumer price index for medical care - an inflation indicator - every year.

3. Market monitoring. This approach involves keeping tabs on what suppliers and physicians are paying for drugs, then setting reimbursement rates at those levels. Somewhat like inherent reasonableness methodology, a drug's rate could only drop to 80 percent of AWP the first year (2004), then by 15 percentage points each following year until it equaled the going rate.

As an example, CMS offers ipratropium bromide. GAO and HHS Office of Inspector General studies have claimed the market rate for this DME drug is actually 34 percent of AWP, rather than the 95 percent of AWP Medicare pays for it now.

That means in 2004, suppliers would receive 80 percent of AWP for ipratropium bromide; in 2005 the rate would become 65 percent of AWP, 2006 50 percent of AWP, 2007 35 percent of AWP, until finally in 2008 it would reach the market level of 34 percent (if that figure still was the going market rate).

4. Competitive bidding. CMS' last proposal is for competitive bidding for drugs, although DME drugs and vaccines actually wouldn't be included in the bidding - at least at first.

Instead, bidding would focus on physician drugs and DME drug and vaccine rates would be set at "average sales price." ASP would be figured by calculating the total sales for a drug (including discounts) divided by the total units sold during a time period.

DME suppliers recognize that the current AWP-based system of drug pricing needs to be overhauled, says Seth Johnson with the American Association for Homecare. But none of the four options presented is an ideal reimbursement methodology, even if a service component payment were added on, Johnson maintains. And all but the AWP discount option are subject to legal challenges, he expects.

In the bigger picture, CMS' rule-making may get trumped by drug pricing legislation pending in Congress, experts point out.

Editor's Note: The proposed rule is at http://cms.hhs.gov/providers/drugs/cms1229p.pdf.