Washington Editor

WASHINGTON - Lawmakers negotiating a Medicare prescription drug bill agreed on reimbursement rates, considered favorable by the industry, for drugs and biologics used in the outpatient hospital setting.

Members of the House and Senate conference committee, charged with merging two Medicare bills approved in June, agreed that Medicare reimbursement for drugs covered under the outpatient prospective payment system (OPPS) would not fall below 88 percent of the average wholesale price (AWP) in 2004, and 83 percent in 2005.

While the current rate of reimbursement is 95 percent of AWP, lobbyists and others with an interest in the drug industry have been fully aware for some time that a cut in reimbursement was forthcoming.

The proposed rates are acceptable to the Biotechnology Industry Organization, Sharon Cohen, BIO's vice president for government relations, told BioWorld Today, saying, "We're hopeful it will be signed into law." Even though release of these proposed rates is just one of the first steps in working out a prescription drug bill capable of making it through both chambers of Congress and eventually finding its way to the president's desk, Cohen said there's no reason to believe that the proposed rates would be adjusted in the journey.

So, according to the legislation, the years 2004 and 2005 are taken care of. But what's going to happen in 2006 is an entirely different matter.

The conference committee is proposing a new methodology for reimbursement based on actual hospital costs in acquiring, handling and storing drugs and biologics used in the outpatient hospital setting.

But officials at the Centers for Medicare and Medicaid Services (CMS) have something else on their minds.

By way of background, at a Senate hearing in early 2003, CMS administrator Thomas Scully said AWPs are often exorbitant and based on an amount a company sees fit to charge. Vowing to change the system, he said, in the past the government has paid whatever amount the drug companies decided to charge. (See BioWorld Today, Jan. 31, 2003.)

In an effort to correct the system, Scully and the CMS came up with four proposed regulations for reimbursing drugs and biologics that cannot be self-administered or must be administered through durable medical equipment. (See BioWorld Today, Sept. 2, 2003.)

Cohen referred to the proposals as "the same old, same old," saying, "They are using the same bad math to calculate rates that will, in virtually every instance, under-reimburse expensive, innovative products and will over-reimburse things like generics. It doesn't make sense; we disagree with it, Congress disagrees with it. There's an agreement among the conferees to stop CMS in its tracks and not allow them to continue the absurdity of what they are doing. But of course, that doesn't happen until legislation is signed into law."

Indeed, laws passed in Congress take precedence over regulations implemented by federal government departments.

Nevertheless, CMS has proposed four options for AWP reimbursement:

Option 1. Medicare would pay the same amounts for covered drugs that private insurers pay.

Option 2. Medicare would apply a discount of 10 percent to 20 percent of AWPs for 2004, and later establish a more reasonable rate. The reimbursement for new drugs and drugs coming off patent would be determined for the first year based on the government's review of information provided by the manufacturer about the expected widely available market price for that year.

Option 3. Medicare would define AWP to be the widely available market price, but would not set its payment limit below that market price.

Option 4. Medicare would establish a competitive bidding process.

The deadline for comments on the proposed rule is Oct. 14. Faxed and e-mailed comments will not be accepted. Written comments should be sent to Centers for Medicare & Medicaid Services, Department of Health and Human Services, Attention: CMS-1229-P, P.O. Box 8013, Baltimore, MD 21244-8013.