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Executive Summary

MEDICARE PHYSICIAN-PROVIDED DRUG REIMBURSEMENT RATES should be set at estimated acquisition cost rather than the average wholesale price minus 15% that HHS has proposed, the Physician Payment Review Commission said June 24. In a letter to House Speaker Foley (D-Wash.) regarding the drug payment regulation, PPRC said that AWP has not been applied evenly and does not capture physicians' true costs in purchasing the drugs. "One alternative would be to base payment on physicians' estimated costs derived from survey data collected" by Medicare claims processers, PPRC Chairman Philip Lee, MD, suggested in the letter. "Use of this approach is especially applicable for single-source drugs that are infrequently discounted." The letter reviews the Health Care Financing Administration's early June regulation proposing to revise payments for the limited number of outpatient drugs covered by Medicare ("The Pink Sheet" June 3, T&G-7). Estimated savings from the rule are $ 10 mil. in 1992. Covered because they are defined as "incident to" physician's care, these drugs are administered by infusion or injection and include chemotherapies, post-transplantation immunosuppressives, osteoporosis treatments, and blood clotting factors provided for hemophilia. The rule piggybacks on a larger regulation to overhaul Medicare physician payments by establishing a "relative value scale" for all physician services. PPRC was established to advise Congress on the payment reform. HCFA's previously stated interest in setting up a national fee schedule for drugs "creates an opportunity to replace AWP with another basis for payment such as the EAC," Lee pointed out. A "minority" of claims processors already use EAC for some products based on surveys of prices on physician invoices, PPRC noted. HCFA also said in the proposed regulation that it was considering using the lesser of the national AWP minus 15% or EAC for "very high volume" products. PPRC's letter also remarks: "The commission agrees that having a uniform method for paying for drugs is a desirable policy objective. If physicians in all practice types and sizes face costs of AWP minus a 15% discount for all drugs, then this would be a reasonable policy to propose. But this is not the case. Physicians in different locations and in practices of different sizes face variable costs for particular drugs. Also, physicians who give predominantly single-source drugs rarely receive discounts from AWP. On the other hand, in instances where physicians [currently] are paid on the basis of AWP but face actual costs of AWP minus a discount for certain drugs, the program is overpaying." The letter also points out that actual costs may vary even for physicians able to obtain discounts. For example, a physician "may need to give a dose that is above or below the dosage contained in the standard does package, necessitating wastage of some of the drug. This is especially true for chemotherapy where physicians must carefully calibrate dosages in keeping with a patient's response."

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