CMS proposes changes to AWP methodology

Monday, August 18, 2003

August 19 , 2003

WASHINGTON - CMS proposed last week several new rules that would change and likely reduce reimbursement for Medicare-covered drugs, including albuterol and other respiratory medications.

Medicare currently pays 95% of the average wholesale price (AWP) for covered drugs. CMS Administrator Tom Scully has mentioned on different occasions his dislike for this methodology, believing it forces Medicare to overpay for the drugs.

CMS is asking for public comments on four approaches that could be used to change how Medicare currently pays for drugs:

1. Medicare would pay the same amounts for covered drugs that private insurers pay;

2. Medicare would apply a discount of 10% to 20% from the inflated average wholesale price in 2004 and then establish more reasonable payment updates in future years;

3. Medicare would use existing sources of market-based prices and would develop additional sources to monitor market changes over time, such as drug price catalogs; or

4. Medicare would establish a competitive bidding process for drugs and would also require drug companies to report their average sales prices.

Scully and other government officials don’t like the AWP methodology because physicians and suppliers can often purchase the drugs at a discount from the drug’s published AWP. The difference between the drug's AWP and its acquisition price, or the spread, constitutes an overpayment by Medicare, claim Scully and others.

Physicians and doctors argue that the spread covers the cost of administering the drug. To reduce reimbursement without considering the service component could make the business so unprofitable that providers exit it. That it turn would jeopardize homecare patient’s access to medically necessary inhalation and infusion drugs, according to AAHomecare.

While CMS recognized in the rule the need for a service component for drugs delivered in a home setting, it did not include such a mechanism in its proposed rule, according to AAHomecare

"The harder we look, the more we see. The proportions are tremendous," said Michael Shelby, U.S. attorney for the Southern District of Texas, told the Chronicle.