Future looks bleak if CMS slashes meds

Thursday, September 30, 2004

WASHINGTON - If CMS uses a formula based on the average sales price to reduce reimbursement for albuterol and ipratropium in 2005, HME providers would be under reimbursed by $68.10 per monthly supply, according to a new study.

The study, conducted for the American Association for Homecare by Muse and Associates, shows that in order to maintain 2004 levels of service to Medicare patients, an additional payment of $68.10 per service encounter would have to be added to the ASP reimbursement model. A service encounter is defined as each instance the J-code is used to bill Medicare.

The figure also includes a 7% operating margin for pharmacies.

“With this objective assessment of the costs of inhalation therapies in the home, we were trying to show that there will be a serious gap between what will be paid in 2005 and what the reality is of the costs to deliver those therapies to Medicare beneficiaries,” said Kay Cox, president of and CEO of AAHomecare.

In a notice of proposed rule making issued in July, CMS also acknowledged this deficiency, expressing concern that the estimated 89% reimbursement cut for inhalation drugs under the ASP would result in access problems.

To address this problem, CMS suggested revamping the current $5 dispensing fee to cover the cost incurred in the shipping, handling, compounding and other tasks associated with providing respiratory medications.

“The price range [for the additional fee] that I have heard was discussed in Washington is $25 to $40, but that is still a forecast” said Wallace Weeks, president of The Weeks Group.

If Muse’s $68 figure were adopted, payments on the fee would amount to $550 million in 2005, or about 61% of the reduction in allowed charges for inhalation drugs. This results in approximately $350 million in federal savings per year, according to the study.

The industry also is waiting to hear results of the GAO’s study on dispensing costs, but many industry sources expect to see parity between the reports considering their similar survey size and pool. Muse and Associates surveyed 109 pharmacies that represented 2,448 branch locations providing inhalation therapy services to 337,348 Medicare beneficiaries per month - or 61% of all Medicare inhalation therapy patients.

The industry can anticipate a GAO recommendation between $50 and $70, said Mickey Letson, president of The Letco Companies.

“The people in our industry are going to argue very quickly that since CMS used the information from the GAO to reduce our prices that they have to use the same source of information in establishing the code,” said Letson. “You can’t take one and say it’s good and take another and just throw it away.”

A GAO report citing significant overpayment by Medicare for albuterol and ipratropium is credited with opening to door to the ASP in 2003’s Medicare Modernization Act.

Although talk about a dispensing fee is good news for the industry, many providers question whether Muse’s figure will go far enough in addressing the problems that will be faced by small and mid-sized pharmacies.

“Sixty-eight dollars probably won’t subsidize the average pharmacy,” said Joe Lewarski, president of Hytech Homecare & Medical Supply and co-chair of AAHomecare’s council on HME and respiratory therapy.

“The impact of this change is going to be on the small respiratory med pharmacies,” said an industry insider. “They probably will not be able to continue under the new reimbursement schedule even if they get 68 bucks. So, I think we will see more consolidation.”