The Senate tax bill would cut Medicare Part B reimbursement for drugs to 85% of AWP.

Part B drug reimbursement would be dropped from the current 95% to 85% as of Jan. 1, 2004 under a tax bill amendment by Finance Committee Chairman Charles Grassley (R-Iowa). The amendment passed the chamber by a vote of 86-12 on May 14, and the omnibus tax package (S 1054) cleared the Senate the following day.

The amendment includes a measure to prevent manufacturers from drastically increasing AWPs in anticipation of the Jan. 1 deadline: drugs would be reimbursed at the lesser of AWP-15% or the price payable as of the second quarter of 2003.

In addition, a small measure of reform is also introduced by pegging year-to-year reimbursement increases to the consumer price index.

Under the Grassley amendment, Part B drug reimbursement would be "equal to - in the case of drugs furnished on or after Jan. 1, 2004, the lesser of - 85% of the average wholesale price; or the amount payable for the drug or biological during the last quarter of the previous year (as determined under this subparagraph, or, in the case of 2004...using the second quarter of 2003) increased by the consumer price index for all urban consumers (U.S. urban average for the 120-month period ending with June of the previous year.)"

Despite bipartisan support for the amendment, the Senate could be headed toward a tough fight to maintain the addition in conference. A similar tax bill (HR 2) passed the House May 9 but did not include the AWP or rural health provisions.

House Ways & Means Committee Chairman Bill Thomas (R-Calif.) has been working on incorporating AWP reform into the overall Medicare reform/ prescription drug benefit bill he is developing. Under the Thomas bill, any cost savings from AWP reform would be factored into the overall budgetary impact of the Medicare bill.

Under Grassley's amendment, however, the AWP change would provide funds to increase rural health care provider payments. Medicare payments to rural providers - including hospitals, doctors, ambulance services and laboratories - would be boosted by $25 bil. over 10 years, financed primarily by the cut in outpatient drug spending.

Thomas favors a more fundamental change to the Part B reimbursement system, preferably using competitive bidding for drugs.

One result of the Grassley amendment could be to push providers who receive drug reimbursement under Part B to reach agreement with the Ways & Means Committee on an acceptable solution.

The American Society of Clinical Oncology opposes the Grassley amendment because it cuts the amount providers receive for a drug without increasing service payments. However, it has also found proposed approaches from Ways & Means unacceptable.

During the week of May 12, ASCO staff met with the personal staff of Ways & Means/Health Subcommittee Chairman Nancy Johnson (R-Conn.) and other committee staffers.

During the meeting, staffers are understood to have presented draft language of a bill that would remove the "budget neutrality" requirement for provider reimbursements, so that an increase in oncologists' reimbursement would not need to be offset with a decrease in other providers' payments. The draft did not address drug reimbursement.

ASCO is not satisfied with the proposal because it believes the change would not reform the system but would turn over AWP reform to the Centers for Medicare & Medicaid Services, a situation ASCO wants to avoid.

Thomas gave a slightly rosier view of the committee's negotiations with providers during a Schwab Washington Research Group conference May 15 in Washington, D.C.

"I'm very pleased that with the interaction between the administration, professional groups, our staff, we've devised a Part B drug structure which I think is an excellent foundation for a long-term change in this area, which will be a significant improvement over past structures," Thomas said.

Since the Grassley amendment makes no attempt to define AWP, it also appears to leave room for CMS to redefine it.

The approach to AWP reform favored by the White House includes payment increases to oncologists and other specialists to offset the impact of lower drug payments, which would eliminate the physicians' need for a cross-subsidy. Thomas has also noted the need to give providers adequate compensation.

CMS Administrator Tom Scully has repeatedly said he prefers that Congress reform AWP but is now committed to reforming the system administratively by Jan. 1 if Congress does not act. One reason Scully favors legislative reform is that Congress can use amount saved for offsets elsewhere, whereas if CMS makes the changes, the saved money could not be used.

Scully has suggested that a redefinition of AWP could be the easiest option available for administrative reform (¹ Also see "CMS Defends “Functional Equivalence”; AWP Proposal Ready, Scully Says" - Pink Sheet, 12 May, 2003., p. 29).

Scully suggested at the Schwab meeting that simply altering the percentage of AWP that the government pays for outpatient drugs is not the outcome sought by the Bush Administration. He said the agency favors replacing AWP with a new system to reduce spending on outpatient drugs.

Thomas suggested that AWP would be eliminated in his committee's Medicare bill.

Referring to a purchasing system for expanded coverage of prescription drugs under Medicare, Thomas remarked, "it will not be an artificial percentage of some abstract concept like average wholesale price, which doesn't tell you anything." He further quipped, "whenever government says it's going to be the best price, guess what, it isn't."

While the offsets in the Grassley amendment may run into opposition from some members, there is a sizeable level of congressional support for the rural components of the measure.

Because of Thomas' and the Administration's interest in reforming Medicare, enactment of a tax bill with the AWP cut intact could be a tacit acknowledgement that a full Medicare package will not be enacted this year.

Both chambers are allowing their ambitious timelines for passage of a Medicare package to slip.

Thomas told Schwab the House will not meet its Memorial Day deadline for action on a Medicare prescription drug benefit.

The issue likely will be taken up in the House during the first week of the June session to correspond with action by the Senate Finance Committee. "One of the reasons that we haven't met our deadline is that we're trying to coordinate to a certain extent with the Senate," Thomas explained.

The California Republican said Senate Majority Leader Bill Frist (R-Tenn.) has indicated that he hopes to move Medicare legislation out of the Finance Committee the week of June 9, whether or not the bill appears to have 60 votes. "If that's their current agenda, we anticipate moving the bill out of committee probably the first week we're back," Thomas said.

"That would mean that we would move it off the floor probably the same time that the Senate Finance Committee is moving their bill through the committee," he noted, adding that the timeline might change as the House continues to react to the Senate's agenda.

"Some members of the Finance Committee have requested that if we don't get too far in front, they might be able to be very creative," he remarked. "They want to do something different, so we're willing to give them as much room as we can."

Ways & Means will build on bills passed in the previous two Congresses, as well as elements of the President's "broad stroke positions," according to Thomas.

Thomas made no mention of an alternative Medicare modernization bill being developed by a group of House Energy & Commerce Committee Republicans led by Richard Burr (N.C.).

The group opposes creating a stand-alone prescription drug benefit similar to the privately administered mechanism that passed the House last year and is focusing on crafting an interim low-income/ catastrophic benefit (² Also see "Alternative GOP Medicare Rx Proposal Being Pushed By Rep. Burr" - Pink Sheet, 12 May, 2003., p. 31).

The potential GOP dispute over the Medicare bill, which falls under the jurisdiction of both Ways & Means and Energy & Commerce, may be another contributing factor in the House Republicans' decision to revise their schedule.

Medicare Rx Reimbursement Drops to AWP-15% Under Senate Tax Bill

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