CMS Proposed OPPS Rule Sets Reduced Payment Level During Generic Erosion

CMS' proposed 2004 Hospital Outpatient Prospective Payment System rule creates a payment level for drugs, biologics and radiopharmaceuticals with recently approved generic alternatives.

"Where we determine that our claims data do not reflect the costs of generic alternatives for a separately payable drug, biological, or radiopharmaceutical, we propose to base our payment rate on 43% of the [average wholesale price] for the" treatment, the ¹ proposed rule states.

CMS created the system to account for a 12-month lag seen between the approval of generics and when claims data accurately reflect the costs of available generics.

"In order to ensure that Medicare recognizes these lower costs in a timely manner, we are proposing a new method of calculating payment amounts for drugs, biologicals, and radiopharmaceuticals that are separately paid under the OPPS and for which the [FDA] has recently approved generic alternatives when we determine our claims data do not reflect the costs of the generic alternatives," the proposed rule states.

"We believe that using this ratio would allow us to appropriately calculate the costs that hospitals incur when purchasing generic drugs or radiopharmaceuticals."

"When we determine that our claims data accurately reflect the cost of the generic alternative(s), we would use the claims data to set payment rates in preference to 43% of AWP for the drug or radiopharmaceutical," the proposed rule says.

CMS identified six drugs to be paid separately under the 2004 rule. Those drugs had generic alternatives approved between October 2001 and December 2002, applying the reduced payments for generics.

The generics are daunrubicin (Gilead's Daunoxome ), bleomycin (Bristol-Myers Squibb's Blenoxane ), pamidronate (Novartis' Aredia ), paclitaxel (BMS' Taxol ), ifosfamide (BMS' Ifex ) and idarubicin (Pfizer's Idamycin ).

Because of the increasing number of orphan drugs identified by CMS, orphan drug payment is adjusted in the proposed 2004 rule. "We no longer believe that paying for these drugs at reasonable cost, outside of OPPS, is appropriate," the rule states.

In the final 2003 OPPS rule, CMS identified four drugs that met the established criteria for orphan drugs: a) drugs designated as an orphan drug by the FDA and approved for treatment of only orphan conditions and; b) the U.S. Pharmacopoeia drug information shows that the drug has neither an approved use nor an off-label use for other than the orphan condition.

In the proposed 2004 rule, CMS adds seven orphan drugs to the four drugs identified in 2003.

"As we identify more drugs that meet our criteria, we expect the number of beneficiaries who receive these drugs to grow. As the number of beneficiaries who receive these drugs increases, so do total payments for the drugs," the proposed rule says.

OPPS payments for orphan drugs will be based on the same methodology as other drugs, biologics and radiopharmaceuticals.

The proposed rule allows for AWP reform during the calendar year. "We are developing regulations that would revise the current payment methodology for Part B covered drugs."

"We are concerned about the extent to which Medicare pays more for drugs than other payers and more than the market-based price of drugs," the proposed rule states.

CMS Administrator Tom Scully has repeatedly expressed CMS' willingness to address AWP reform if Congress does not. Scully has urged Congress to reform the AWP-reimbursement system by Jan. 1, 2004. Otherwise, CMS is committed to reform the system administratively (² (Also see "White House Opposes Stand-Alone Medicare Rx Benefit – CMS’ Scully" - Pink Sheet, 5 May, 2003.), p. 6).

"If implementation of the AWP final rule necessitates mid-year changes in the 2004 OPPS payment rates for pass-through drugs, we propose to make those changes on a prospective payment basis through" regular quarterly updates, the proposed 2004 rule states.

The proposed rule does not mention Idec's Zevalin . CMS moved Zevalin out of OPPS in the final 2003 rule by labeling it a radiopharmaceutical covered under the Ambulatory Payment Classification system (³ (Also see "Aranesp, Procrit Are “Functionally Equivalent,” CMS Says In Final OPPS Rule" - Pink Sheet, 4 Nov, 2002.), p. 27).