The Proposed Medicare Physician Fee Schedule (PFS) Rule for Calendar Year (CY) 2011 was placed on display at the Federal Register on June 25, 2010. The proposed rule includes annual updates to the relative weights of physician services, a variety of Medicare Part B policy updates and the implementation of key provisions in the Affordable Care Act (ACA) of 2010. The proposed rule was published in the July 13, 2010 Federal Register, the comment period closed on August 24, 2010 and the final rule is expected to be issued by November 1, 2010.

This newsletter is the first in a two-part series in which we will summarize the highlights of the proposed rule as well as the most recent legislative updates affecting physician payment for Medicare services.

AN UNTENABLE FORMULA
Federal law requires the use of the Sustainable Growth Rate (SGR) to modify physician payments annually. The SGR formula was implemented in 1998 in an effort to control Medicare utilization by setting spending targets and reducing physician fees by decreasing the Conversion Factor (CF) when Medicare expenditures exceed that target. However, the increasing numbers of costly and complicated services provided by physicians over the past decade has resulted in scheduled decreases in physician payments each year since 2002. There is widespread agreement that the SGR formula is flawed and must be modified or replaced.

Still, it takes an act of Congress to modify or change the formula used to set physician payments and Congress has yet to resolve the issue of the flawed SGR formula that has resulted in scheduled cuts to physician payments for the last nine years. Instead, Congress has reacted to temporarily stop the cuts each year since 2003. However, these temporary fixes only delay the cuts resulting in an ever-larger cut looming the following year.

In 2010, Congress acted four times to delay cuts to physician payments:

• December 19, 2009
  The Department of Defense Appropriations Act, 2010 (Pub. L. 111-118) is signed into law and provides a 2‑month zero percent update to the CY 2010 Medicare physician fee schedule (PFS) effective for dates of service from January 1, 2010 through February 28, 2010.
• March 2, 2010
  The Temporary Extension Act of 2010 (Pub. L. 111-144) is signed into law extending the zero percent update to the PFS through March 31, 2010.
• April 15, 2010
  The Continuing Extension Act of 2010 (Pub. L. 111-157) is signed into law further extending the zero percent update to the PFS through May 31, 2010.
• June 25, 2010
  The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 is signed into law providing a 2.2 percent update to the 2010 PFS, effective for dates of service June 1, 2010 through November 30, 2010.

In the 2011 proposed rule the Centers for Medicare and Medicaid Services (CMS) estimates the 21.3% SGR reduction carried over from 2010 (due to the temporary fixes) combined with the estimated scheduled SGR cut of 6.1% for 2011 will result in a cut in reimbursement of approximately 28% in 2011.

The current 2010 Medicare conversion factor (CF) is $36.8729 and without further Congressional action CMS reports in their preliminary analysis an estimated 2011 conversion factor of $26.6574.

Figure 1 illustrates the Medicare conversion factor history for the last ten years and the projected 2011 CF.

Figure 1 *2010 CF represents the CF in place from June 1 – December 31, 2010

CONTINUED TRANSITION TO REVISED PRACTICE EXPENSE RVUs
CY 2011 begins the second year of the 4-year transition to the revised Practice Expense (PE) Relative Value Units (RVUs). In 2011, PE RVUs will be calculated using a 50/50 blend of the AMA Physician Practice Information Survey (PPIS) data implemented in CY 2010 and previous PE RVUs from the Socioeconomic Monitoring System (SMS) as well as supplemental survey data. According to CMS estimates, this transition from the 25/75 blend in 2010 to the 50/50 blend in 2011 will result in a 2% decrease in Medicare reimbursement for medical oncology practices.

Both the American Society of Clinical Oncology (ASCO) and the Association of Community Cancer Centers (ACCC) comment on the proposed continued transition to the revised PE RVUs based on the AMA PPIS data. ASCO calls for CMS to reverse its policy to phase in use of the PPIS data. ASCO states that although CMS uses the Gallup data for medical oncologists rather than the PPIS data, the use of the PPIS data for other specialties likely overstates their expenses making it more difficult for oncology practices to receive fair and adequate reimbursement for expenses they incur in providing patient care. ACCC also requests that CMS not continue with the transition to the AMA PPIS data, which they say will result in decreases in payment for drug administration services and may ultimately result in reduced patient access to oncology services.

CHANGES TO THE MEDICARE ECONOMIC INDEX
One of the most significant changes proposed for 2011 is CMS’ plan to revise and rebase the Medicare Economic Index (MEI), which is used in conjunction with the SGR formula to update the physician fee schedule. CMS states that the MEI has been largely unchanged since 1987 and was last revised and rebased in 2003 using cost weights reflecting physician costs in 2000.

CMS is proposing to rebase the MEI using calendar year 2006 physician cost expense data, the most current cost data available. CMS says this change will modify the weights attributed to physician time and practice expenses resulting in an increase in RVUs for services with higher practice expenses and a decrease in RVUs for services with more physician time and lower practice expenses. CMS estimates that the proposed rebasing and revision of the MEI will result in a 1% increase in Medicare reimbursement for medical oncology.

Nevertheless, these changes must be budget neutral and CMS is proposing to achieve budget neutrality by adjusting the CF by 7.9% rather than applying a budget neutrality adjuster to the work RVUs.

CMS is also proposing to remove all costs related to drug expenses citing the fact that drugs are not paid for under the physician fee schedule (PFS) and are not included in the definition of ‘‘physicians’ services’’ for purposes of the SGR formula. This follows CMS’ decision in the 2010 final rule to remove physician-administered drugs from the SGR formula.

Finally, CMS proposes to convene a technical advisory panel later this year to review all aspects of the MEI, including the inputs, input weights, price measurement proxies, and productivity adjustment.

In their comments to CMS, ASCO and ACCC are supportive of CMS’ MEI proposals. However, the Medical Group Management Association (MGMA), the American Medical Association (AMA), and the American Society of Hematology (ASH), while supportive of the need to revise and rebase the MEI, call on CMS to postpone discretionary changes that would further reduce the conversion factor until the technical advisory panel is formed and the SGR issue is resolved.

ASH reminds CMS of the following impending SGR issues:

1. Unless Congress takes action on the SGR issue an estimated 23% reduction in the conversion factor will occur on December 01, 2010, as the most current temporary fix expires November 30, 2010;
2. The SGR formula will result in an additional estimated reduction of 6.1% for 2011.

In their comments, ASH states that the combination of the massive impending CF reductions from the flawed SGR formula combined with the 7.9% reduction proposed to maintain budget neutrality would result in an approximate 38% reduction in the CF.

CY 2011 PFS PROPOSED RULE TOTAL ALLOWED CHARGE ESTIMATED IMPACT FOR RVU, MPPR,
AND MEI REBASING CHANGES

According to CMS projections the combined impact to hematology/oncology, based on the proposed 2011 PFS changes, would be a 1% decrease overall in 2011 and an overall 4% decrease in 2013. These figures do not include the impact of the scheduled negative updates to the conversion factor that are the result of the flawed SGR formula.

REIMBURSEMENT FOR DRUGS AND BIOLOGICS

The proposed 2011 PFS contains several proposals pertaining to the reimbursement for covered Part B drugs including:

• The substitution for the widely available manufacturer price (WAMP) or average manufacturers price (AMP) for ASP,
• Reimbursement rates for biosimilars biological products,
• The use of carry-over or previous quarter average sales price (ASPs) when manufacturers fail to report manufacturer ASP data in a timely fashion, and
• The issue of intentional overfill and the ASP calculation.

WAMP, AMP & ASP
CMS continues to refine and address issues relating to the Medicare Modernization Act (MMA) of 2003 mandated Average Sales Price (ASP) reimbursement for covered Part B drugs. The MMA changed the way physicians are paid for most covered Medicare Part B drugs from 95% of average wholesale price (AWP) to 106% of ASP. In 2004, as a transitional step, CMS reduced payment for these Part B drugs to 85% of AWP and since January 1, 2005, the payment for these drugs is based on 106% of ASP.

The MMA defines an ASP as a manufacturer’s sales of a drug to all purchasers in the United States in a calendar quarter divided by the total number of units of the drug sold by the manufacturer in that same quarter. The ASP calculation is net of most discounts including volume discounts, prompt pay discounts, cash discounts, free goods that are contingent on any purchase requirement, chargebacks, and rebates (other than Medicaid rebates). Under the ASP methodology, drug manufacturers submit quarterly drug pricing data to CMS.

The Office of Inspector General (OIG) is mandated to conduct studies comparing ASP to the average manufacturer price (AMP) and the widely available manufacturer price (WAMP) for drugs and biologicals. CMS defines WAMP as “the price that a prudent physician or supplier would pay for the drug or biological, taking into account discounts and other price concessions routinely available to such physicians and suppliers.”

The Secretary of Health and Human Services (HHS) has the authority to disregard the ASP for a drug or biological under two circumstances:

• If there is a public health emergency, in which there is an inability to access drugs and biologicals, and a simultaneous price increase not reflected in the manufacturer’s ASP for one or more quarters the Secretary may use the wholesale acquisition cost (WAC), or other measure of drug price, until the availability and price of the drug has stabilized and is reflected in the ASP.
• If the OIG finds that the ASP for a drug exceeds the WAMP or AMP by more than the applicable threshold specified by the Secretary, the Secretary shall substitute either the WAMP or 103% of ASP, whichever is lesser, beginning with the next quarter.

In July 2010, the OIG published their sixteenth report comparing ASPs to AMPs. In their latest report, as in each of their previous reports, the OIG identifies the drugs for which the ASP exceeds the AMP by more than 5% and the estimated program savings that could be realized by lowering their reimbursement to 103% of AMP.

To date, CMS has yet to act on the OIG’s recommendations for lowering drug reimbursement for the drugs identified in OIG reports as meeting the 5% threshold. While acknowledging the Secretary’s authority to adjust ASP payment limits based on the OIG’s pricing comparisons, CMS has stated the need for a better understanding for the fluctuating differences between ASPs and AMPs as well as the need to proceed cautiously to avoid unattended consequences.

In the 2011 proposed rule, CMS states their intention to maintain the 5% threshold for AMP/WAMP comparisons and to address the issue of temporary fluctuations in market prices that may be corrected in a subsequent quarter.

CMS proposes that 103% of AMP be substituted for 106% of ASP when the comparison of ASP to AMP exceeds the 5% threshold for two consecutive quarters, or three of the previous four quarters, and 103% of AMP is less than 106% of ASP during the quarter in which AMP would apply. Additionally, CMS proposes the substitution of AMP for ASP be limited to those drugs with ASP and AMP comparisons based on the same set of National Drug Codes (NDCs).

Finally, CMS states the price substitution policy will not occur before the preliminary injunction, issued on December 19, 2007, prohibiting CMS from publicly disclosing AMP data is modified.

In their comments to CMS ASCO requests CMS delay implementation of a policy to substitute an alternate to 106% of ASP for Part B physician administered drugs. ASCO reports that many physician practices are currently unable to purchase a number of oncology drugs at 106% of ASP and any policy that lowers reimbursement levels for these drugs is likely to result in increased access issues for Medicare patients in need of chemotherapy services. ASCO urges CMS to delay implementation of any price substitutions until recent changes to AMP are fully implemented and any potential impacts on access to cancer drugs are studied and understood.

“Carry-Over” & Partial Quarter ASP
CMS reports that while uncommon, delays in reporting ASP could result in the publication of payment limits that do not reflect prices for drug products thus resulting in inaccurate payments, the need for correction of files and unintentional ASP payment limit variability. Therefore, CMS is proposing to carry over the previously reported manufacturer ASP for an NDC(s) to the next quarter if the manufacturer does not submit complete required pricing information.

CMS proposes to limit the use of the carry-over ASP to those cases where missing data results in a 10% or greater change in the ASP payment limit compared to the previous quarter.

CMS is not proposing a change to their policy for new single-source and multi-source drugs lacking sufficient price data during an initial period. CMS reports they will continue their policy of pricing new single source drugs at WAC for the first quarter (unless the date of the first sale is on the first day of the quarter) and to add new NDCs for multi-source drugs and product line expansions of single-source drugs to the ASP calculation as these products are reported.

Biosimilars
If you are not yet familiar with the term biosimilars, you soon will be. Biosimilars, also known as follow-on biologics, are not generic versions of a medicine. Biosimilars are similar to, but not the same as, innovator biologics.

CMS defines a biosimilar biological product as “A biological product approved under an abbreviated application for a license of a biological product that relies in part on data or information in an application for another biological product licensed under section 351 of the Public Health Service Act (PHSA) as defined at section 1847A(c)(6)(H) of the Act.”

Sections 7001-7003 of the Patient Protection and Affordable Care Act (ACA) amended the Public Health Service Act (PHS Act) creating an abbreviated approval pathway for biological products that are demonstrated to be “highly similar” (biosimilar) to or “interchangeable” with an FDA-approved biological product and granting the Food and Drug Administration (FDA) the authority to approve biosimilars. These new statutory provisions in the ACA are referred to as the Biologics Price Competition and Innovation Act of 2009 (BPCI Act).

The 2011 PFS proposed rule implements the reimbursement rate for biosimilars legislated in the ACA. The reimbursement rate for biosimilars would be:

• The weighted average ASP for all NDCs assigned to the biosimilar biological product, plus
• Six percent of the weighted ASP or wholesale acquisition costs (WACs), if lower, for all NDCs assigned to the reference product.

If ASP data is not available the payment will be determined based on the WAC or the methodologies in effect on November 1, 2003. If no manufacturer data is collected, prices will be determined by local contractors using any available pricing information, including provider invoices.

Intentional Overfill
CMS addresses the issue of determining payment amounts for drugs and biologicals that include intentional overfill in the 2011 proposed rule.

Intentional overfill occurs when manufacturers include a small amount of drug over the labeled amount, in order to compensate for loss of drug that may occur during proper preparation and administration of the drug.

Manufacturers report ASP data to CMS based on defined reporting data elements including “volume per item” which CMS defines as “the amount in one item.” In order to ensure that overfill is not reported in the ASP data supplied by manufacturers, CMS proposes to update its regulations to clarify that the amount in one item is defined as “the amount of product in the vial or other container as indicated on the FDA-approved label.”

CMS also states that when providers purchase a drug/biological the purchase price is based on the labeled amount and does not include overfill or “excess or free product.” Citing longstanding Medicare policy, and referencing Medicare Benefit Policy Manual (Publication #100–02), Chapter 15, Sections 50.3, 60.1.A, CMS says payment cannot be made for services or supplies that do not represent a cost to the physician or entity billing for the services or supplies. CMS further states, “Claims for drugs and biologicals that do not represent a cost to the provider are not reimbursable, and providers who submit such claims may be subject to scrutiny and follow up action by CMS, its contractors, and OIG.”

Therefore, CMS is proposing to update its regulations to clarify that “payment for amounts of free product, or product in excess of the amount reflected on the FDA-approved label, will not be made under Medicare.” CMS also clarifies the prohibition of billing for overfill which includes overfill pooled from more than one container.

In their comments to CMS ASCO recommends that CMS revise the language describing their proposed regulatory safeguards regarding the use of overfill to “eliminate ambiguity and promote clear understanding with the provider community.”

ACCC provides lengthy comments on the issue of overfill supporting the CMS proposal to clarify that overfill should not be included in the calculation of ASP and calling for CMS to continue to allow providers to bill for overfill.

Both the American Hospital Association (AHA) and ACCC contend that the provider does indeed incur the cost of the overfill. ACCC states, “When a physician purchases a vial or container of product, he or she purchases the entire vial or container of product, including the amount of drug on the label, the vial or syringe in which the drug is packaged, any diluent needed to reconstitute the product and any intentional overfill included to ensure that the drug is prepared and administered properly.”

In almost identical language the AHA and ACCC argue that any prohibition on billing for overfill would constitute a new policy and they urge CMS, if they determine to finalize the overfill policy, to apply and enforce the restriction of billing for overfill prospectively only and that it only apply in the physician office setting and not in the hospital or other provider settings.

Nevertheless, Medicare’s current policy on billing for discarded drug is in keeping with CMS’ stated policy and proposed clarification regarding billing for overfill. The Medicare Claims Processing Manual, Chapter 17, Section 40 - Discarded Drugs and Biologicals states, “When a physician, hospital or other provider or supplier must discard the remainder of a single use vial or other single use package after administering a dose/quantity of the drug or biological to a Medicare patient, the program provides payment for the amount of drug or biological discarded as well as the dose administered, up to the amount of the drug or biological as indicated on the vial or package label.”

Resources:

• ACCC Comments on the 2011 Medicare Physician Fee Schedule Proposed Rule
• ASCO Comments on the 2011 Medicare Physician Fee Schedule Proposed Rule
• AMA Comments on the 2011 Medicare Physician Fee Schedule Proposed Rule
• AHA Comments on the 2011 Medicare Physician Fee Schedule Proposed Rule