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DRUG PRICE "DISCOUNT" WILL BE DEFINED IN PROPOSED HCFA REG TO BE PUBLISHED THIS MONTH; MEDICARE CONTRACTORS WILL EXCLUDE DISCOUNTS IN PRICING SURVEY

Executive Summary

The Health Care Financing Administration will define what constitutes a drug price "discount" in a proposed regulation scheduled for publication in August. HCFA Bureau of Program Operations Analyst James Underhill told an Aug. 9 HCFA meeting in Baltimore that "at this time in the draft regulation, there is a discussion about" how the agency will define "discount." He added: "As with all draft regulations, that discussion is open to public comment." The definition will be a part of the upcoming HCFA regulation on drug payment methodology under the Catastrophic Coverage Act. The reg is one of eight implementation proposals that the agency expects to publish this month ("The Pink Sheet" Aug. 7, T&G-3). Underhill's comments were made in response to a question from a representative of MediSpan at the "preproposal" conference on HCFA's recently issued request for proposals (RFP) for Medicare drug bill processors. The RFP was issued July 18; proposals are requested by Oct. 2 and the contract awards will be announced Jan. 16 ("The Pink Sheet" July 24, p. 11). The RFP requires drug bill processors to survey prices for single and multiple source drugs "exclusive of discounts as defined in regulation," according to the document. The RFP also directs processors to collect data on all excluded discounts. The surveys are to provide "one portion of the data needed to determine the average unit price for covered drugs," the RFP states. The survey will be conducted by the "Prime Drug Data Center" to collect "the price information needed to determine accurate payments to pharmacies and beneficiaries." HCFA is proceeding with the implementation of the Medicare drug benefit as established by the 1988 Catastrophic Care Act, HCFA Bureau of Program Operations Barbara Gagel said in an opening statement at the meeting. Despite a growing consensus in Congress that the catastrophic coverage program should be modified, Gagel said that the agency is continuing with the implementation as planned. The outpatient drug benefit is scheduled to go into full effect in January 1991. "You are certainly all aware," Gagel said, "of the dialogue that is going on in the Congress about this [drug] benefit, particularly the financing of this benefit." She noted that HCFA is "proceeding, while that debate continues, to implement the law as it is currently written." The House Ways and Means Committee has produced a plan that would raise the deductible for the drug benefit from $ 600 to $ 800. The Senate Finance Committee, faced with new Congressional Budget Office estimates putting Medicare drug benefit outlays substantially higher than were previously thought, plans to produce a proposal in September to modify the law ("The Pink Sheet" July 31, p. 17). In a recent memo to HHS Inspector General Richard Kusserow, HCFA Acting Administrator Louis Hays said the agency is determined to get the processing system on line by the designated start-up date. However, Hays also noted that HCFA has "developed a contingency plan if the point-of-sale [system] is not available on Jan. 1, 1991." If the drug bill processors cannot be "operational" by January 1991, Hayes told Kusserow, "HCFA will process drug bills through selected Medicare Part B carriers." Hays was responding to an Inspector General internal memo sent in the spring that suggested that HCFA delay the 1991 implementation date for one year in order to provide more time to set up the point-of-sale system ("The Pink Sheet" July 3, p. 10). Approximately 22 HCFA representatives appeared at the meeting to discuss questions already received by the agency regarding the RFP and to take additional questions from the floor. Over 250 attendees, many representing computer and data processing firms, participated in the meeting. Questions from the audience related primarily to technical aspects of the RFP. For example, HCFA was asked how it would assign claims to geographical jurisdiction -- whether by pharmacy location or "home office." HCFA said it would assign jurisdiction according to individual pharmacy location. That could mean that some of the larger drug chains may have to deal with two or even three drug processors. HCFA was asked several questions regarding its requirement that drug bill processors operate from a single, consolidated facility. In response to the "glut" of comments received on the issue, John Van Walker, from HCFA's Office of Program Operations Procedures, said the agency "may reconsider" the policy. The agency noted at the outset of the meeting that all elements of the RFP will stand unless formally amended by HCFA in writing. It is "possible" for a single processor to win more than one of the three contracts, HCFA noted, although the offeror would have to submit complete applications, including data on "key personnel," for separate facilities in each geographical jurisdiction sought. With regard to the telecommunications aspect of the claims processing system, HCFA said it has contracted with AT&T for "100%" of the common carrier services of actually moving the data to and from the processors. The point-of-sale equipment in pharmacies would be supplied by the processor. The contract with AT&T was signed earlier this year and is part of the Government Services Administration "FTS (federal telephone services) 2000" project. Van Walker stated: "HCFA's authority for conducting this procurement stipulates that we will use the GSA FTS 2000 network service provided by AT&T exclusively. We have no option or intention of accepting other proposals." HCFA did not announce its policy on whether government or pharmacy would bear the cost of electronically transmitting claims from the pharmacy to the processor. At the very latest, the agency expects the policy will be articulated in its upcoming proposed regulation regarding pharmacy conditions of participation in the drug reimbursement program. That reg is also due out this month.
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