The Center for Medicare & Medicaid Services is inviting comment on how best to manage the transition of the inhalation therapy market ahead of the outpatient Medicare prescription drug benefit beginning in 2006.

The expanded coverage for outpatient medicines should have a significant impact on inhalation drug usage patterns, CMS believes, but the agency is concerned about the potential for significant disruptions in 2005 when it will slash reimbursement for the products currently covered under Part B.

CMS is "concerned about significant shifts in beneficiary access to inhalation therapy prior to implementation of the Part D drug benefit, in light of the reduction in Medicare payment for inhalation drugs beginning in 2005," the agency's proposed Physician Fee Schedule for 2005 states.

Under the current program, inhalation therapies delivered via nebulizers are covered under Medicare Part B, which will shift from an average wholesale price-based reimbursement formula to average sales price-based reimbursement in 2005.

CMS released the proposed ASP rule for comment July 27.

Two of the most commonly used Part B inhalation drugs - albuterol and ipratropium - will have reimbursement cut by nearly 90% under the proposed rule.

CMS appears comfortable that the payment reduction coupled with the expanded coverage from more commonly used inhaler formulations will lead to more rational usage and payment patterns once Part D begins in 2006.

However, the agency seeks "comments about whether the dispensing fee should include a somewhat higher, transitional payment" to prevent nebulizer providers from abandoning the market in 2005.

The HHS Inspector General and the Government Accountability Office found that for 2003, the acquisition costs for ipratropium and albuterol were 34% and 17%, respectively, of their AWPs. Based on those figures, Medicare paid approximately $900 mil. in excess of the acquisition costs for those drugs in 2003.

Using preliminary pricing data from the first two quarters of 2004 provided by manufacturers, CMS calculates that the ASP-based reimbursement for albuterol and ipratropium will be 89% less than the amount currently paid by Medicare.

The reimbursement rate reduction for those two products translates to a 70% reduction in projected revenue for inhalation therapy providers, CMS estimated in the proposed rule.

The proposed regulation notes that "these impacts will be somewhat reduced by the dispensing fee we are proposing for inhalation drugs."

Medicare currently pays a $5 monthly dispensing fee for each covered inhalation drug or combination of drugs used in a nebulizer.

The proposed rule asks for comment on whether that dispensing fee is appropriate in light of certain shipping, handling, compounding and other associated costs, and specifically about whether fees paid by Medicaid and private insurers for inhalation drugs are applicable to Medicare.

Consideration of dispensing fees needs to be viewed in the context of several revisions of the Medicare billing and shipping requirements, the regulation states.

First, CMS is proposing to allow prescriptions for inhalation therapies to be written for 90 days, rather than only one month.

The regulation notes that the agency expects "reasonableness" to govern the decision to fill a monthly versus a 90-day script. For example, it would be "reasonable" to expect that a beneficiary's first prescription would be for one month while subsequent refills would cover a 90-day supply.

CMS also recommends that dispensing fee amounts be considered in conjunction with a revision to the timeframe within which pharmacies can ship refills (see ¹ Also see "Medicare Part B Oral Rx Dispensing Fee Is $10 Under Proposed Rule" - Pink Sheet, 2 August, 2004. ).

Inhalation therapy service providers are already threatening to exit the market without enhanced payments.

"In the absence of a reasonable dispensing fee to cover the necessary costs incurred in providing these nebulizer medications...Lincare plans to cease providing respiratory therapy drugs and will send appropriate notices to its patients by mid-October so that they can make alternative treatment arrangements, no matter how inadequate," the inhalation services company said July 29.

The publication of the proposed rule will also kick off an all-out push by oncologists for enhanced payments in 2005.

The American Society for Clinical Oncology has been waiting for publication of the estimated 2005 payment rates to flesh out its case for legislation this year (² Also see "Medicare Cancer Rx Payments Will Be “Disastrous,” Ex-ASCO Head Warns" - Pink Sheet, 28 June, 2004., p. 28).

Assuming no change in oncology drug utilization, CMS expects Medicare drug revenues for oncologists to decline by 8% as a result of the transition to ASP-based reimbursement.

Two of oncologists' highest Medicare revenue-generating drugs, Amgen's Aranesp and Johnson & Johnson's Procrit , will experience significant payment cuts in 2005.

The agency expects Medicare service-based revenues for oncologists to decline by 9% from 2004 to 2005, assuming no changes for administration codes or in service utilization.

The combined impact of the decline in the Medicare payments for drugs and physician services amounts to an 8% reduction in oncologists' Medicare revenues.

The transition to ASP-based reimbursement will reduce Medicare drug revenues for urologists by 36%, most of which can be attributed to large reductions in payment for the prostrate cancer agents Lupron (TAP) and Zoladex (AstraZeneca).

CMS estimates an 18% decrease in Medicare drug revenues for gynecologists as a result of ASP-based reimbursement. This reduction can largely be attributed to an 81% reduction in payments for Bristol-Myer Squibb's Taxol (paclitaxel), for which generic versions are now available.

Rheumatologists will experience a 6% reduction in Medicare drug revenues, all of which can be attributed to reduced payments for Johnson & Johnson's rheumatoid arthritis therapy Remicade (infliximab).

The regulation notes that CMS will consider the findings of the American Medical Association's Current Procedural Technology Editorial Panel when determining final payment rates for 2005.

The panel is expected to complete its review of proposals for new administrative service payment codes later this summer.

CMS Administrator Mark McClellan stressed during a July 27 press conference that the payment rates in the proposed regulation are based on preliminary pricing data provided by manufacturers for the first two quarters of 2004.

Final prices for 2005 will be based on pricing data from the third quarter of 2004. Reimbursement rates both for ingredients and administrative fees may also be adjusted to incorporate comments on the proposed regulation, McClellan noted.

Assuming no further changes, CMS estimates that the implementation of an ASP-based reimbursement model for Part B will yield $800 mil. in savings in 2005.

The agency projects that the combined impact of the new payment rate for covered drugs and changes to the administrative fees paid to physicians will reduce federal spending by $530 mil. and reduce spending by beneficiaries by another $270 mil.

The estimated savings from the regulation represents about 8% of the $10.5 bil. CMS expects to spend on drugs covered under Part B in 2004.

McClellan underscored that the primary purpose behind the proposed regulation is to bring "transparency and appropriateness" into the way CMS reimburses for drugs under Part B.

"Until now, the spread" between the price paid by Medicare and the cost to providers "was hidden," McClellan said. With the proposed regulation, "we're going to take steps to fix the overpayments, and we're going to fix the underpayments."

"Especially for these patients with serious illnesses, it's important to remember that the value of a drug isn't just the drug itself. Without effective physician support and access, drugs won't do much good."

Inhalation Rx Market In Transition; CMS May Increase 2005 Payments

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