PRACTICE RESOURCES > Regulation/AUA Positions, Letters, and Talking Points > AUA Comments to CMS on Drug Payment Reform

AUA Comments to CMS on Drug Payment Reform

October 14, 2003

Thomas A. Scully
Centers for Medicare and Medicaid Services
Department of Health and Human Services
Attention: CMS-1229-P
P.O. Box 8013
Baltimore, MD 21244-8013

Re: CMS-1229-P—Medicare Program; Payment Reform for Part B Drugs

Dear Mr. Scully:

On behalf of its 10,000 U.S. members, the American Urological Association (AUA) is pleased to submit comments regarding the Centers for Medicare and Medicaid Service's (CMS) proposed rule on payment reform for Part B Drugs. We are aware that rapid spending growth in Medicare's drug payment system makes this a logical payment reform target for CMS, and that Administrator Scully has made this reform one of his top priorities.

However, the AUA feels compelled to point out that physicians did not create the current Medicare drug payment system or the problems associated with it. Therefore, it is unfair that physicians and their patients should bear the brunt of such immediate and significant changes. This is especially true in light of the many other significant burdens physicians are facing currently, including negative conversion factor updates, skyrocketing liability insurance premiums and unfunded mandates such as HIPAA.

Furthermore, since implementation of the Medicare Fee Schedule in 1992, the conversion factor for procedures has decreased from $40.00 to $36.79. According to the Bureau of Labor Statistics, the present value of $40.00 in 2003 is $52.63; this represents a 30 percent reduction in the conversion factor in real dollars since 1992.

These conversion factor reductions coupled with decreases in the practice expense relative value units (RVUs) for many urologic cancer surgical procedures has reduced the "real dollar reimbursement" for many procedures by over 50 percent in the past 13 years.

This dramatic reduction in reimbursement coupled with double-digit increases in true "practice expense" and now proposed dramatic reductions in drug payments are a recipe for disaster to the practicing urologist.

Also, we are appalled by the short time frame of just four months between introduction and implementation of a proposal of this magnitude. Without more data and more time to analyze the impacts of this somewhat vague proposed rule, we are very concerned that there will be unintended consequences for patient care if CMS goes forward with a January 1, 2004 implementation of this rule.

  1. Insufficient Information in Proposed Rule Calls for Release of Interim Final Rule with Comment Period

    According to a June, 2003 report from the Medicare Payment Advisory Commission (MedPAC), in 2001, urology accounted for 17 percent of Medicare drug spending. Because urologists are affected so dramatically by this proposed rule, it is disappointing that the rule does not provide more detail on impacts to urologists, or for any specialty other than oncology. For each of the four payment-reform options, the CMS actuary provides estimates of total decreases in drug payments and total increases from changes to the practice expense RVUs of drug administration CPT® codes. However, there is not enough information to determine the percent break down among the specialties that bill for drugs.

    A lack of sufficient data to assess specialty-level impacts for any specialty other than oncology makes it difficult to speak to the various options. In order for the AUA to assess financial impacts for 2004 and especially for the years beyond 2004 under any of the options, data specific to urology is essential. It is clear, however, that changes to Medicare's drug payment system under any of the four proposed options outlined in the rule could potentially jeopardize patient access if physicians stop administering drugs in their office due to payments that do not cover acquisition cost or increased expenses caused by administrative complexity. In this case, physicians might elect to refer their patients to outpatient departments for drug therapy, which would simply shift spending within Part B, or even cause increased spending.

    Without data on actual acquisition costs, it is difficult to predict how urologists will react to these changes or how much of a discount could be applied to April 1, 2003 average wholesale prices (AWP) before practice patterns are influenced to the degree that it negatively impacts patient care. However, acquisition prices for drugs probably vary considerably across the country depending on practice size and location, meaning that the impact of this proposal may be felt disproportionately by rural and solo practice urologists. Currently, 48 percent of urologists are in solo practice, and 46 percent of urologists live in smaller communities with a population of 25,000 to 500,000 (32 percent) or rural areas (14 percent).

    Because of a short implementation time frame, a lack of specialty-specific impacts and a lack of clear specifics on how most of the options could realistically be implemented, we urge CMS to release an interim final rule once it has chosen an option to allow for comment on that option. An interim final rule should include specialty-level impacts and also practice expense RVUs for all the CPT® codes that will receive an adjustment as part of this proposal.

    For example, urologists bill for many of the drug administration codes that would be taken out of the nonphysician work pool as part of this proposal. Because of the weight averaging step involved in the calculation of practice expense RVUs, payments to urologists would increase as a result of the increase to oncology's practice expense per hour. However, we have no way to calculate what the new RVUs would be under this proposal. To the extent that urology bills any of the codes that are proposed to be taken out of the nonphysician work pool, and also to the extent that oncology bills for CPT® code 96400 (which has already been taken out of the nonphysician work pool), we know that the weight averaging step in calculating PE RVUs would cause an increase in payment for urologists. However, it is unclear whether this was included in impacts that are discussed in the rule.

  2. Critique of Reform Options

    CMS offers four options for payment reform and solicits comments on each of the options. Though the four options produce varying levels of savings, each option also entails administrative costs to the agency, meaning that the savings may be less than originally calculated. We question whether CMS currently has the infrastructure in place to be able to implement any of these four options in such a short time frame. We hope that, regardless of the cost, the additional money promised to more accurately pay the physicians who administer these drugs will not be impacted and that any new agency role is adequately financed.

    Due to an inability to calculate urology-specific impacts and also lack of data on urologists' acquisition costs for drugs, the AUA is unable to choose one option over any other at this time. Each option has a unique set of problems and questions. This is especially true since CMS does not fully and clearly spell out how it will implement any of the options. Instead only broad general "concepts" are given. This again points to the need for an interim final rule so that organizations can have a better understanding of how to educate their members to an entirely new payment system.

    The AUA's comments on the four reform options are:

    1. Comparability limits Medicare payment for a drug to what Medicare carriers pay when the same drug is provided to their private policyholders and subscribers under comparable circumstances. This requires the carrier to take action to ensure that Part B reimbursement is not higher than the amounts they pay for the same drug to its private policyholders, although it is not clear how many Medicare carriers actually administer private plans. Also, the comparability option would cause regional variation in drug payments, which CMS specifically sought to avoid by moving to the single drug pricer this January.

      One of the alleged problems with the current AWP system is that the drug manufacturer has a vested financial interest in overstating the average price in order to assure a profit margin to the provider of the drug. A high profit margin is said to stimulate use and therefore increase demand for the manufacturer's product, thereby simultaneously increasing the manufacturer's profit margin. However, the comparability option does not eliminate the financial incentive, but simply shifts the potential economic benefit from the drug manufacturer to the insurance company.

      If the carrier has complete control of the reimbursement rates for both Medicare and private plans for prescription drugs administered in the physician office, why would it not be tempted to understate the regional reimbursement rates for the same reason? Wouldn't it be in their best interest to continue to ratchet down payment rates, thereby increasing their own profit margin from premiums collected? Carriers could elect to keep their premium revenue the same, while reducing their outlay for this service, thereby increasing their profit margin. In addition, for this to be effective, carriers would also have to account for the difference in payments made for administering drugs between their private plans and Medicare plans.

      Also, you cannot assume that basing payments on what private plans pay will save money. A recent MedPAC reports shows survey results indicating that 53 percent of the 32 health plans they surveyed pay at 100 percent of AWP or greater, up to 115 percent. Private health plans have traditionally depended heavily on what Medicare pays to make payment decisions. According to MedPAC, "Until recently, private payers devoted little attention to price and utilization of specialty drugs. Their payment systems, and the problems associated with them, have mirrored Medicare's AWP-based formula."

      It seems impossible to analyze how much money would be saved under this option or what would happen in the future. In the example, it says that if private plans reimburse more than 95 percent of AWP, then the current payment would stand. Is there a way to analyze how often the current payment would stay the same or be lowered?

    2. Average wholesale price (AWP) discount would apply a discount of between 80 percent and 90 percent to the April 1, 2003 AWPs updated annually by the increase in the consumer price index for medical care for the 12-month period ending June of the prior year. While the CPI is a good snapshot for overall prices for a year, we are concerned that it would not take into account some extreme supply or other problems that may cause a particular drug to be subject to an extremely high fluctuation in price. Physicians could be caught in the middle having to pay a sharply increased price for an extended period of time but receiving no payment adjustment from CMS.

    3. Market monitoring would utilize existing sources of market-based prices in developing Medicare payment limits and also develop additional sources of pricing data, initially using available data from the Government Accountability Office (GAO) and Office of the Inspector General (OIG). However, the data used is two or three years old and includes only a small subset of Medicare-covered drugs. Therefore, this option is a blend of market monitoring for drugs that have been studied and of an average AWP discount for drugs that have not been studied, with the understanding that once data can be collected on all drugs, they will all be moved to market monitoring. It would be confusing and more difficult to administer this blended option. Also, it is unclear whether the data collection burden would fall on CMS or on other government agencies such as the GAO or OIG and if these efforts could realistically be achieved given other priorities within these agencies.

    4. Competitive acquisition program and average sales prices: Physicians could choose annually to acquire drugs from a competitive bidding entity in their competitive acquisition area or physicians could choose to purchase drugs and bill Medicare, which would pay the average sales price (ASP) as supplied by the drug manufacturer.

    5. This option carriers the largest administrative burden, as it would require creation of a whole new entity to oversee the bidding process and bid awards as well as many other functions that would be created from this new role. In addition, this option could cut the physician out of the equation altogether, which brings about a whole new set of questions and practical considerations. This option proposes a bidding entity to acquire drugs in bulk from the manufacturer and then supply them to the physicians upon receipt of a prescription. We are concerned that CMS could lose the ability to control the integrity of the drug in this scenario. There are already cases on record where a pharmacist diluted a drug to increase the per-dose profit margin. Awarding a drug acquisition contract to the lowest bidder could provide exactly the same dangerous incentive.

    6. Also, it is unclear how Medicare would handle manufacturer recalls and if the bidding entity would be administratively prepared to assure that all doses of recalled drugs are retrieved and destroyed. There is also a concern that the financial reward may not be sufficient to assure proper storage temperatures and other environmental conditions that avoid deterioration of drugs until delivered to a physician's office. In the case of a drug reaction, how is the determination of who is at fault to be made? Will the bidding entity be prepared to indemnify the physician from adverse consequences caused by improperly stored drugs?

  3. Changes to Drug Administration CPT® Codes on the Physician Fee Schedule

    CMS proposes to adjust the practice expense RVUs for drug administration CPT® codes by taking the codes out of the nonphysician work pool and also by accepting survey data from the American Society of Clinical Oncologists (ASCO) that would increase oncology's practice expense per hour from $99.30 to $189.00. To offset losses from drug payment changes, CMS also proposes to exempt from budget neutrality the $190 million increase in physician fee schedule expenditures that would result from these adjustments. CMS also states the if the proposed changes are adopted, the increased costs will be reflected in the SGR.

    The AUA strongly supports these elements of the proposal. These practice expense adjustments should not count towards the requirement for budget neutrality adjustments but they should be counted in the portion of the SGR that accounts for changes in law and regulation, given that CMS cites section 429(b) of the 2000 Benefits Improvement and Protection Act as its authority to waive the changes from the budget neutrality requirement.

    Furthermore, the AUA agrees that the drug payment changes and drug administration changes must be made simultaneously, as CMS proposes. This is important because without more realistic payments for the practice costs associated with administering drugs, stand-alone cuts in Medicare drug payments could force many physicians to stop furnishing drugs in their offices. However, it is unclear in the rule how long CMS intends to keep the budget neutrality waiver in effect. We urge CMS to keep the waiver in effect until changes related to this proposal are finalized. For example, other specialties that are negatively impacted may submit alternative proposals or supplemental practice expense data that, if accepted, would not be implemented until years beyond 2004.

    1. Removal of CPT® Code 96400 from Nonphysician Work Pool Should be Budget Neutral

      Last year, the AUA requested that CPT® code 96400, Chemotherapy administration, subcutaneous or intramuscular, with or without local anesthesia be taken out of the nonphysician work pool so that its PE RVUs could be calculated using the resource-based methodology and the urology practice expense per hour. This caused the PE RVUs to increase from 0.13 to 1.01 between 2002 and 2003. To the extent that oncologists bill for this procedure, the RVUs will increase slightly more in 2004 due to weight averaging. Because the change in RVUs for this code offsets cuts to Medicare drug payments, we urge CMS to also exempt these changes from the budget neutrality provisions for 2004 and beyond.

    2. Increases in Drug Administration Payments Should be Applied to All Applicable CPT® Codes

      In the proposed rule, CMS identifies a specific set of CPT® codes that would receive practice expense RVU adjustments. However, there may be other drug administration codes that need to be reviewed as part of the proposal to assure accurate practice expense values and adequate payment, and CMS should allow for such review.

Thank you for considering our comments. If you have any questions or need additional information, please contact Robin Hudson, Manager of Regulatory Affairs, at 410-689-3762 or


Martin I. Resnick, MD
American Urological Association

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