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MEDICARE RATE FOR PHYSICIAN-PROVIDED DRUGS SET AT AWP MINUS 15%

Executive Summary

MEDICARE RATE FOR PHYSICIAN-PROVIDED DRUGS SET AT AWP MINUS 15% under a proposed regulation slated for publication in the June 5 Federal Register. The rule would direct Medicare Part B carriers to pay for drugs defined as "incident to" physician care and not self-administrable, at the average wholesale price minus 15%. The proposal applies to drugs administered by infusion or injection in the physician's office, such as chemotherapy. Previewed in the Bush Administration's FY 1992 budget plan ("The Pink Sheet" Feb. 11, p. 6), the pharmaceutical payment provision is contained in larger regulations to revamp physician payment policies. Currently, "carriers base payment for the drug on the physician's estimated cost of the drug using one of the wholesale price guides such as the 'Red Book.' However, some carriers base payment on actual acquisition costs determined on the basis of carrier surveys," the Health Care Financing Administration explained in the preamble to the proposed rule. HCFA added that studies from the HHS Inspector General's Office "indicate that pharmacies are getting an average discount of 15.9% off the published wholesale price. We have no reason to believe prices paid by physicians are any higher than pharmacies pay." Medicare spends about $ 200 mil. annually for these drugs. Estimated savings under the proposed change are $ 10 mil. in FY 1992 rising to $ 40 mil. in fiscal 1995. The proposed rule also states that "very high volume drugs" will be paid at the lesser of the national AWP minus 15%, or the estimated acquisition cost as specified by the agency. Those high volume drugs will be listed in future instructions to Medicare carriers, but HCFA staff said the plan could include, for example, physician-administered antibiotics. HCFA said "ultimately there should be a national fee schedule allowance for all 'incident to' [physician care] drugs. However, given the large number of different drugs and the myriad of dosage levels, we have decided that it is not practical for us to consider establishing a national drug fee schedule at this time. However, we will consider this issue in the future."
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