Medicare Compliance & Reimbursement

Both Republicans and Democrats are criticizing the way the Centers for Medicare and Medicaid Services determines which outpatient drugs are eligible for extra payments designed to encourage the use of new technologies while their costs are being incorporated into the appropriate hospital outpatient prospective payment system reimbursement category.

In its 2003 OPPS rule, CMS declared that a drug would not be eligible for pass-through payments if it was "functionally equivalent" to an existing medication. In recent months, agency head Tom Scully has been the recipient of a bipartisan series of letters complaining that this standard did not appear in the proposed rule and should not be implemented without opportunity for public comment.

The letters - including a January 16 missive from Sens. Max Baucus (D-MT), John Breaux (D-LA), Chuck Grassley (R-IA), Orrin Hatch (RUT), and Edward Kennedy (D-MA), and an April 15 letter from Senate Minority Leader Tom Daschle (D-SD) - stem largely from a lobbying campaign by the drugmaker Amgen Inc., although other bio-tech and pharmaceutical companies reportedly dislike the approach as well. Scully denied pass-through payments for the company's drug Aranesp, designed to treat anemia in chemotherapy patients, on the grounds that it was functionally equivalent to Johnson & Johnson's Procrit.

In a letter to Breaux quoted in the Wall Street Journal, Scully explained that the two drugs are not structurally identical, but "are almost identical in the biological mechanism they use within the body and the clinical effect stimulating bone marrow to create red blood cells." Amgen claims its drug is better, and the company says CMS erred in basing payment on the label's recommended weekly dosing, since doctors usually prescribe only bi-weekly doses of Aranesp.

The OPPS pot of money is fixed, so repealing the functional-equivalency limit on pass-through payments would mean less money in other areas. This trade-off could be exacerbated by any expansion of Medicare drug coverage, from an expansion of the range of cancer-related drugs the program already covers to a full-scale prescription drug benefit.