AWP Reform Plan For Medicare-Covered Drugs Could Open Program To PBMs

A proposed competitive bidding program for Medicare Part B-covered drugs could serve as a gateway for PBMs to become involved in managing Medicare drugs.

At an Oct. 3 House Ways & Means/Health Subcommittee hearing on reforming the average wholesale price-based reimbursement standard for Medicare-covered drugs, the pharmacy benefit management company Prescription Solutions testified in favor of the competitive bidding process being considered by the committee, noting that PBM techniques could save the Part B program money.

PBMs' ability "to integrate managed care concepts with effective purchasing is worth review as Congress considers improving payment for Medicare-covered services," Prescription Solutions VP-Legal & Regulatory Affairs John Jones told the committee. Prescription Solutions is the PBM branch of California-based PacifiCare Health Systems.

The case for incorporating PBMs into Medicare was made earlier this year in Congress during debate about adding an outpatient prescription drug benefit to Medicare. The delivery approach championed by many Republicans and included in the bill passed by the House in June would rely on competition among private entities to provide the most desirable and lowest cost plans to beneficiaries (¹ (Also see "Medicare Rx Clears House; Late Changes Include Nod To Pharmacy" - Pink Sheet, 1 Jul, 2002.), p. 3).

Most Democrats favor a more limited role for PBMs in administering the drug benefit, and retail pharmacy groups have lobbied aggressively against allowing PBMs to run a drug benefit.

The opportunity to become involved in a Part B drug competitive bidding process could help set the stage for having full PBM participation in a comprehensive Rx benefit later on.

Effectively managing Part B drugs is a difficult endeavor, Jones indicated. "Recently, the utilization of Part B covered drugs has soared due to both technological advances in oncology and biotechnology. At the same time, the costs of these agents also have soared," he noted. "More seriously, the delivery system for medications has become fragmented."

PBMs can combat these problems with "comprehensive solutions that create preferred product choices and clinical management," Jones said.

Prescription Solutions helps manage the delivery of injectable medications through home infusion programs and partnerships with infusion centers to facilitate the administration of cancer treatments, for example. Injectables comprise an important segment of Part B drugs, which include chemotherapy agents and injected multiple sclerosis therapies, among others.

In addition to saving money, Jones stated "we believe that bringing appropriate purchasing and quality management techniques into the program can result in better clinical outcomes."

Jones pointed to disease management programs as a way to "improve quality of care and quality of life" and facilitate "a decrease in the cost of overall health care." Another PBM, AdvancePCS, recently touted the potential benefits of integrating private-sector style disease management into Part B drug coverage (² (Also see "Medicare Disease Management Should Focus On Part B Drugs – AdvancePCS" - Pink Sheet, 23 Sep, 2002.), p. 27).

Centers for Medicare & Medicaid Services Administrator Tom Scully said CMS would "work with any one of" the proposals being considered, including competitive bidding and substituting AWP with an "average sales price."

The Ways & Means Committee has been investigating competitive bidding; the "average sales price" reform model was the initial approach taken by the House Energy & Commerce Committee, which shares jurisdiction over the issue. Staff from the committees have said they are working on a combination of the two (³ (Also see "House AWP Reform Plan Could Transition From ASP To Private Bidding" - Pink Sheet, 16 Sep, 2002.), p. 18).

Scully indicated that he would support a plan that starts with ASP-based reimbursement and transitions to a competitive bidding system.

"In the long run, a more competitive, market-based approach is probably going to work better," he said.

However, "in the short term, you can make an argument that going with an [average manufacturers' price] or ASP-like price...is the quickest change" and the fastest route to savings for Medicare.

Scully pointed to the results of a CMS demonstration project in 2001 using competitive bidding to purchase albuterol in San Antonio, Tex.

"We put out a bid for albuterol...and we received 30 bids," Scully said. "Eleven out of 30 covenants were accepted," and "we saw a 25% reduction in the price that we paid." That "worked out to about average wholesale price minus 30 [percent], not average wholesale price minus five [percent]," which is the current Medicare reimbursement rate.

The Administration is committed to reforming how Medicare pays for drugs, and plans to make the change administratively "in the course of the next six months" if Congress does not pass legislation before recessing for the election season, Scully said.

CMS' approach to reforming drug reimbursement administratively would involve setting a new price standard, Scully said.

"Our plan is to pick one of our 23 contractors," each of whom "measures AWP on their own, based on AWPs locally. We will poll those contractors," and "pick our best of the 23 carriers, and tell them that they are going to be essentially the common price determiner for...AWP," Scully explained.

"We think that will immediately save $100 mil. a year," Scully declared.

Later on "our plan would be to go out and launch a detailed market survey" of the carriers to more accurately determine prices paid, and "we can probably save as much as $5 mil." more, Scully said.

The danger of the ASP fix over the long haul is that "even those numbers could be potentially gameable" just as with AWP, which is a determined by the manufacturer.

Scully stressed that CMS would prefer Congressional action to an administrative fix because the agency's legal authority to enact the desired changes is "unclear." While Scully indicated he believes CMS can legally adopt a new pricing mechanism, he said it may lack the authority to put the savings achieved back into the program in a meaningful way.

Both Congress and CMS have indicated interest in using the savings accrued from AWP reform for increasing reimbursement for services provided by oncologists and other providers, who say the "spread" between their acquisition cost and AWP supplements what they believe to be inadequate Medicare reimbursements.

Ways & Means Chairwoman Nancy Johnson (R-Conn.) agreed that CMS lacks the authority to increase provider reimbursement. "I would worry about... changing prices without the authority to" use the money to increase provider reimbursement, she added.

Ranking Democrat Pete Stark (Calif.) expressed more fundamental concerns with adopting an AWP reform method that relies on competitive bidding.

Stark introduced a bill in July that would use an approach similar to Energy & Commerce's ASP; H.R. 5167, the "Medicare Market Acquisition Drug Price Act," would replace AWP with "average acquisition price," calculated based on "the actual price of drugs paid by domestic purchasers," including "all available discounts," Stark's summary of the bill says.

Manufacturers would be required to report average acquisition price as a condition for Part B coverage.

Stark questioned the hearing witnesses on the value of competitive bidding versus another pricing standard and the dangers of a "winner-take-all" bidding system.

CMS' San Antonio demonstration is not persuasive when it comes to savings, Stark said. "You said you could save 25% in your experiment," but the General Accounting Office "tells us that 85% discounts are generally available" and could be used in calculating the average acquisition price, he told Scully.

Stark also indicated concern that the competitive bidding approach might result in a single PBM being selected, in order to consolidate and concentrate buying power. That entity could, in turn, control the price.

Prescription Solutions' Jones argued that, even if only one PBM were selected, there could be regular competition between bidders to promote fair prices.

American Society of Clinical Oncology President Paul Bunn, MD, told the committee that, because drug prices change periodically based on market forces, any calculated price used by Medicare would have to be "flexible" to accommodate such changes. He added that drug reimbursement should take into account the costs of "maintenance of an inventory of expensive and toxic chemotherapy drugs."