It may be too soon to tell if the new Medicare Physician Fee Schedule in the Final Physician Payment Rule for 2005 has struck the right balance with doctors. On the one hand, physician payment rates for drug administration are significantly higher. On the other, payment for Medicare Part B drugs is, in many instances, lower than in recent years, fixed at 106 percent of the average sales price (ASP).
Mark B. McClellan, MD, PhD, administrator of the Centers for Medicare and Medicaid Services, says the change was overdue for a payment formula that “paid too much” for physician-administered drugs and “provided too little support” to related physician services. “For the first time, we’re going to pay accurately for drugs and their administration,” a CMS news release quoted McClellan. “We’ve listened to health professionals, patient groups, and payment experts.”
Congress provided the impetus by addressing payment disparities in drafting the Medicare Modernization Act. To make up for what many physicians considered to be inadequate drug-administration payments, doctors often bought drugs wholesale, marked them up, and took a profit in their charges. This had the dual effect of inflating expenditures and making it difficult to track actual drug costs.
Historically, most such drugs have been chemotherapy agents administered in clinics and office practices, but biotech therapies are poised to become the dominant category — certainly in total spend if not volume — among physician-administered intravenous drugs.
PHYSICIAN PAYMENT RULE EFFECT
Sample payments
| Old CPT code | New CPT code | Description |
Medicare payment ($)
|
|||
|---|---|---|---|---|---|---|
| 2002 | 2003 | 2004* | 2005† | |||
| 90782 | G0351 | Therapeutic/diagnostic injection | 3.98 | 4.41 | 24.64 | 19.13 |
| 96400 | G0356 | Hormonal antineoplastic | 5.07 | 37.52 | 64.07 | 36.69 |
| 96408 | G0357 | IV push, single/initial drug | 35.11 | 37.52 | 154.76 | 125.69 |
| N/A | G0358 | IV push, each additional drug | N/A | N/A | 154.76 | 72.99 |
| 96410 | G0359 | Chemotherapy IV, 1 hour | 55.75 | 59.22 | 217.35 | 177.61 |
| 90780 | G0359 | Chemotherapy IV, 1 hour | 40.54 | 42.67 | 117.79 | 177.61 |
| 96412 | G0360 | Each additional hour, 1–8 hours | 41.63 | 44.14 | 48.30 | 40.21 |
| 90781 | G0360 | Each additional hour, 1–8 hours | 20.27 | 21.70 | 33.02 | 40.21 |
| 96412 | G0362 | Each additional sequential infusion | 41.63 | 44.14 | 48.30 | 86.66 |
Includes one-time large transition payment.
Transition payment for 2005 is lower than in 2004. It disappears in 2006.
SOURCE: CMS, IN FEDERAL REGISTER, NOV. 15, 2004:66405
PHYSICIAN INPUT SOUGHT
The higher administration payments, which took effect Jan. 1, are based on American Society for Clinical Oncology survey data and include compensation for staff time to prepare a drug for infusion and physician supervision of that preparation. Other physicians, including neurologists, rheumatologists, and infectious disease specialists, also are affected by the new fee structure. For example, the rule implements changes in payment for inhalation-therapy drugs used to treat respiratory disorders such as chronic obstructive pulmonary disease. Even the fee for administering a flu shot increases from $8 to $18.
One change adopted in the new rule derives from recommendations of the AMA’s Drug Administration Workgroup. It allows physicians to receive added payment with infusion of a second drug.
As a result of implementing the AMA recommendations, Medicare payment rates for drug-administration services this year are more than 120 percent higher than in 2003. In addition, physicians will have more opportunities to bill for administration services (see table). These provisions offset the loss of generous “transition payments” made last year to physicians in anticipation of the changeover from a payment formula based on average wholesale price (AWP) to one based on ASP. The transition payment is reduced greatly this year, and disappears altogether in 2006.
The new rule also adopts 18 new drug administration codes developed by the AMA’s Current Procedural Terminology (CPT) Editorial Panel and relative values recommended by the AMA Relative Value Update (RVU) Committee. These RVUs are converted into actual dollars using a conversion factor that is updated each year, and are adjusted to reflect geographic differences in the costs for providing services according to the Geographic Practice Cost Indices. New permanent codes won’t be included in the CPT until next January, but temporary G-codes allow physicians to be paid for these services until then.
ASP CALCULATIONS
As for payment for the drugs themselves, ASP data are based on manufacturer information about volume-weighted average sales across hospitals, clinics, and retail channels, and are updated quarterly. By law, the Medicare payment rate for drugs is set at 106 percent of the ASP. As with most other Part B services, Medicare pays 80 percent of the allowable amount, while the beneficiary is liable for the remaining 20 percent.
“For the first time, we have a great deal of transparency about the ASP for these drugs,” Herbert Kuhn, director of CMS’s Center for Medicare Management, tells Biotechnology Healthcare. “Medicare is saying, ‘We want to pay market prices for these drugs.’” Kuhn says the old AWP-based formula created a “highly inflated price that had no basis in what was in the market.”
Kuhn says a recent Government Accountability Office study supports the new rates for drugs and their administration. “We’re getting good third-party validation that our efforts to engage all the stakeholders, and to develop and disseminate accurate collection instruments to get this information, are paying off. “It looks like we’re pretty close in terms of appropriate payment for drugs and for administration of those drugs.”
Before the Part B drug-payment provisions in the Medicare bill, some physicians, unhappy with payment rates, referred Medicare patients to hospital outpatient clinics instead of providing drug administration services. To avert that, CMS is working with carriers and CMS regional offices.
HELP FOR PRIVATE PAYERS
At the same time, Kuhn promises “a lot more direction” for physicians from CMS on using the temporary G-codes and how to bill for them (e.g, if more than one chemotherapeutic agent is administered, when to bill G0359, which is for the initial hour, and when to bill G0360, which is for each additional hour though reimbursed at a lower rate).
With utilization of costly biotech drugs increasing, private payers are also interested in accurately tracking and paying for physician-administered drugs. They may not, however, follow CMS’s lead right away, especially when it comes to the temporary G-codes. In any case, CMS is sharing its experience with them.
“We’re educating private payers as much as we can,” says Kuhn. “We are making sure they have [enough] information so if they choose to use the new codes, they’ll have everything at their disposal to do so.”
Approvals, Denials, FDA Actions
Sepracor’s eszopiclone (Lunesta, previously Estorra), hits pharmacy shelves this quarter following its FDA approval for insomnia. This agent is nonnarcotic and is the first prescription sleeping aid that does not include a warning to physicians about long-term use.
The FDA has approved Centocor’s infliximab (Remicade) for treating ankylosing spondylitis, a form of spinal arthritis. A phase 3 trial showed that 22 percent of patients responded to infliximab, compared to 1 percent of patients given placebo. Centocor, a division of Johnson & Johnson, also has warned of potential side effects of infliximab, including acute liver failure, jaundice, and hepatitis.
Eyetech Pharmaceutical’s pegaptanib sodium injection (Macugen) has received an FDA indication for wet age-related macular degeneration. Eyetech and partner Pfizer are marketing the drug. Wet AMD afflicts about 1.6 million Americans older than 50.... Ireland’s Elan Pharmaceuticals received FDA approval to market ziconotide (Prialt), a nonnarcotic painkiller, for treatment of chronic pain. Ziconotide is in a new drug class, known as peptide-channel blockers, which prevent pain signals from reaching the brain.
Canada’s Inex plans a new phase 3 trial before reaplying for FDA approval of its non-Hodgkin’s lymphoma drug vincristine sulfate (Marqibo). An FDA panel rejected accelerated approval.... The FDA gave fast-track status to several drugs, including Panacos’s PA-457, an oral HIV drug currently in a phase 2a trial; Acambis’s ACAM-2000 smallpox vaccine; and AMG 531 and AMG 706, from Amgen, for immune thrombocytopenic purpura and gastrointestinal stromal tumors, respectively.
Quebec-based Labopharm has finalized a special protocol assessment with the FDA for the ongoing phase 3 trial for its once-daily formulation of tramadol (MDT3-005) in patients with osteoarthritis of the knee. A special protocol assessment is a binding agreement between the FDA and a trial sponsor stating that the study design meets the agency’s scientific and regulatory requirements to support a new drug application.
The FDA approved an NDA from Duramed Pharmaceuticals for new strengths (0.3 and 0.45 mg tablets) of its existing synthetic conjugated estrogens, B (Enjuvia), to treat menopause.... Cephalon has filed a supplemental NDA to use two new doses of modafinil (Attenace) to treat attention deficit hyperactivity disorder.... Bristol-Myers Squibb has sent the FDA complete nonclinical and clinical sections of its biologics license application for abatacept. BMS is providing the agency with a rolling submission under its continuous marketing application, Pilot 1, and will submit the remaining sections of its BLA early this year. Abatacept is for rheumatoid arthritis and has fast-track status. If approved, it would be the first in a new class of agents called selective T-cell costimulation modulators.
Clinical Trials/Drug Development
MannKind reported positive phase 2 trial results for its Technosphere insulin system for type 2 diabetes. Approximately 4 times as many patients in the group treated with the Technosphere system achieved a final HbA1c level of 6.5 percent or less compared to the placebo-treated group. The MannKind system delivers human insulin to the bloodstream in a way that approximates the insulin release spike that occurs after the start of a meal in healthy individuals. This spike signals the liver to stop releasing glucose into the bloodstream while glucose is being ingested from a meal.
Canada’s YM Biosciences’ phase 2 trial of nimotuzumab (TheraCIM h-R3) resulted in a 90.6 percent complete response in patients when combined with radiation. Marketed as Theraloc in Europe, nimotuzumab is a humanized monoclonal antibody that targets the epidermal growth factor receptor. Treatment with radiation alone resulted in a response rate of 51.5 percent. A “complete response” included elimination of a tumor at the primary site. The FDA has given the drug orphan status.
AstraZeneca withdrew its European Union application for gefitinib (Iressa) after a trial of the U.S.-approved lung cancer drug failed to demonstrate increased survival rates.... Britain’s Pharmagene says a trial of its experimental drug for cystic fibrosis, PGN0052, failed to demonstrate significant improvement among the patients taking it.... Adolor’s experimental drug ADL 8-2698 (Alvimopan) failed to achieve a primary endpoint in a late-stage trial. The drug is designed to prevent gastrointestinal impairment after surgery and is intended to work by blocking side effects of drugs like morphine while allowing them to kill pain.
Vivus has begun a phase 3 trial of estradiol MDTS (Evamist), a low-dose estrogen-only transdermal spray delivery treatment for vasomotor symptoms associated with menopause.... BioMarin has begun an open-label, phase 2 trial of sapropterin hydrochloride (Phenoptin) for the treatment of phenylketonuria. Patients who respond in the phase 2 trial will be eligible to enroll into a randomized, double-blind, phase 3 clinical trial expected to begin in this quarter.... Rigel Pharmaceuticals began a phase 1 trial of R406, an experimental treatment for rheumatoid arthritis. R406 is a novel oral syk kinase inhibitor that blocks the activation of mast cells, macrophages, and B cells that promote swelling and inflammation.
Miscellaneous
A trial of a DNA test for colorectal cancer discovered only half the cancers detected by colonoscopy but 4 times as many as the widely used fecal occult blood test. The DNA test was judged too expensive and inaccurate to recommend. Published in the New England Journal of Medicine, the study was funded by Massachusetts-based Exact Sciences, which makes the test.