CMS might finally be able to use the Medicare Part B drug price substitution authority provided in the Medicare Modernization Act of 2003, due to the combined effect of the recent redefinition of average manufacturer price for drugs and the proposed Medicare physician fee schedule rule for 2011.

By statute, Medicare reimburses physicians who administer drugs or biologics in their offices at 106 percent of the product's average sales price

At the same time, MMA authorizes CMS to replace that rate with either the "widely available market price" or 103 percent of average manufacturer price, providing the HHS Office of Inspector General finds that ASP exceeds WAMP or AMP by a threshold percentage, which HHS has determined should be 5 percent. The option to use a different price is intended to yield cost savings for Medicare.

In an upcoming proposed regulation to update Medicare's physician payment rates, CMS outlines for the first time its criteria for making drug price substitutions.

The rule, slated for publication in the July 13 Federal Register, is entitled "Payment Policies Under the Physician Fee Schedule and Other Revisions to Part B for CY 2011." Public comments will be accepted for 60 days after publication.

For calendar year 2011, CMS proposes to use 103 percent of AMP rather than 106 percent of ASP for a drug when ASP exceeds AMP by 5 percent for either two straight quarters or three of the four past quarters.

The proposed policy would also limit substitution to only those drugs where ASP and AMP can be compared using the same set of national drug codes.

For now, CMS is excluding WAMP from the pricing option because it says there is a lack of data for WAMP-to-ASP comparisons. However, the agency "will reconsider proposing a policy for the substitution of WAMP at a later date."

CMS believes the method it outlines will help prevent substitution from being applied to drugs with only temporary pricing fluctuations.

In addition, the agency expects there to be a three-quarter lag for substituted prices and that the ASP for a billing code may have decreased since the OIG's comparison. Thus, it proposes that the policy should allow for a final comparison between the OIG's 103 percent of AMP and the 106 percent of ASP for the current quarter. CMS believes this will help avoid a situation where it might inadvertently raise the Medicare payment limit through price substitution.

The proposal notes that an OIG study comparing ASP to AMP for 2008 found that 33 of 482 examined billing codes exceeded the threshold percentage over multiple quarters.

While it does not provide a cost-savings estimate for the proposed policy, CMS points out that the most recent OIG price study using pricing data from the third quarter of 2009 found 16 of 356 billing codes exceeded AMP by at least 5 percent in that quarter, and if price substitution of 103 percent of AMP had been used for those drugs, Medicare expenditures would have been reduced by over half a million dollars in the first quarter of 2010.

Modified Injunction Is Key To Implementation

The OIG has published 18 reports pertaining to price substitution since 2005 and 16 of those have found drugs for which ASP exceeded AMP by over 5 percent.

Nonetheless, CMS has never tried to use its substitution authority. One reason is that "since 2005, regulatory and legislative changes, as well as litigation, have had a direct impact on this price substitution issue," the agency explains in the proposed reg.

CMS specifically mentions its 2007 final rule to implement provisions of the Deficit Reduction Act that changed the calculation of AMP and allowed for the public disclosure of AMPs. The rule was challenged by retail pharmacies in National Association of Chain Drug Stores vs. HHS; the judge in the case granted a preliminary injunction against implementation of the AMP rule (¹ Also see "Drug Makers Must Continue AMP Medicaid Calculations, Despite Court Ruling" - Pink Sheet, 20 December, 2007.).

In the upcoming proposed rule, CMS says, "We acknowledge the limitation on our ability to publicly disclose AMP data and until that injunction is modified, we will not implement this price substitution policy."

However, pharmacies' primary concern with the rule was how AMP was to be calculated, and that problem was fixed earlier this year in the Affordable Care Act, which clarified that AMP calculations will be based on prices paid by retail community pharmacies. The new calculation will be effective Oct. 1 (see ² Timeline of Pharma Provisions in Health Care Reform).

As a result, HHS appears to have a viable argument for seeking to have the court modify the injunction - allowing the agency in turn to move ahead on substitution.

Bill Sarraille, a partner at the law firm Sidley Austin in Washington, D.C., said in an interview: "Presumably the government here, with Congress' help, is now in a position on Oct. 1 to go back into the district court and say, 'OK, it's time to lift the injunction. It has no more prospective meaning in light of the changes that Congress has made.' And if that happens, then AMP as an alternative to ASP becomes a reality, or at least a real threat as of Oct. 1."

He also predicted that "once AMP as an alternative to ASP becomes a viable alternative, then WAMP as an alternative to ASP is going to follow in short order."

NACDS agreed that the injunction is likely to be dropped once the AMP change is implemented. A spokesperson for the group wrote in an e-mail that "the injunction ... is expected to remain in place until CMS withdraws the existing AMP rule and implements the new definition of AMP."

Sarraille noted, "People have been talking ... about the threat that this provision from the MMA provides for a number of years, and it's been slow to be realized in no small part by the injunction proceeding. But we are really at the cusp at this point of implementation of that provision. ... There are lots of products that could be negatively affected here."

Other Drug Reimbursement-Related Proposals

The physician pay reg contains additional items related to pricing and reimbursement for pharmaceutical and biological products.

CMS proposes a process for addressing situations where manufacturers fail to report ASP data in a timely fashion.

"Although problems with reporting have been uncommon," the proposal says, "we have recently encountered situations where delays in manufacturer ASP reporting could have led to significant ASP payment limit fluctuations for highly utilized HCPCS codes."

So CMS proposes to carry over the previously reported manufacturer ASP for NDCs when missing data could cause significant changes or fluctuations in ASP payment limits and efforts to obtain the data before publication deadlines have been unsuccessful.

While CMS would like to apply the policy to both single-source and multiple-source drugs, it expresses concern that including single-source drugs in the process could create an incentive for manufacturers not to report data when prices for single-source drugs are falling and the carry-over price would preserve a higher payment amount. So the agency seeks comment on limiting the proposal to multiple-source drugs only.

CMS also addresses the topic of payment for drugs and biologics for vials that include intentional overfill, since physicians often save the extra drug for use in patients. The agency intends to update its regulations to "clearly state that Medicare ASP payment limits are based on the amount of product in the vial or container as reflected on the FDA-approved label." It will also update regs to state that "payment for amounts of free product, or product in excess of the amount on the FDA-approved label, will not be made under Medicare."

The proposal also includes conforming changes to handle ASP for biosimilar biologics, which were authorized in the health care reform law. It anticipates collecting pricing data consistent with the current approach under Part B, but suggests that if no manufacturer data is available, "prices will be determined by local contractors using any available pricing information, including provider invoices."

- Scott Steinke ( ³ s.steinke@elsevier.com )

CMS Makes Headway Toward Part B Drug Price Substitutions

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