Respiratory meds: 2005 doesn’t look good

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Saturday, January 31, 2004

WASHINGTON - CMS spelled out the methodology it will use to determine the average sales price for respiratory medications in the Federal Register Jan. 6.

Beginning in 2005, reimbursement for albuterol and ipratropium bromide will equal the average sales price plus 6%. Exactly how that new price figure was to be determined was a prevalent question in the minds of providers prior to the rules release.

Drug manufacturers will submit sales data on their average sales price to CMS quarterly. Each manufacturer will calculated their ASP by dividing its total sales in the United States by the total number of units sold that quarter.

The calculations will include any discounts, free goods and rebates that effect the price of the sale. Excluded in the calculations will be any sales at “nominal charges,” which is defined as sales 10% below the calculated ASP.

Medicare expects the new formula for reimbursement to save the program $200 million in 2005.

“The reality of the ASP is the demise of the industry,” said Marcus Kruk, vice president of HME Services in Cincinnati, Ohio. “If it happens it’s all over, and what are they going to do then.”

Providers say that the slim 6% profit margin will not be enough to sustain a business and cover operating costs. Kruk said he suspects that even high volume companies, like Lincare and Apria, will not be able to withstand the revenue loss.

“Lincare has volume, but what we pay per dose is only a few pennies away from what Linacre pays per dose,” he said.

It is these concerns about the ASP that shook the respiratory industry in late November when the plan was unveiled. Most notably, Lincare Holdings, the nation’s largest provider of oxygen and other respiratory service, saw its stock price plummet by 32%, and the company saw no substantial gains in its stock values into the new year.

On the bright side, some providers, like Mickey Letson, president of Letco Medical, are confident that implementation of the ASP will include a service component.

Also included the final rule was the 2004 reimbursement for the two top respiratory drugs.

The reimbursement for albuterol and ipratropium bromide, which combined cost Medicare approximately $1 billion in 2002 or 13% of the program’s total drug cost, will see their reimbursement fall from 95% to 80% of the average wholesale price. This 15% cut is the maximum cut allowed by the Medicare Prescription Drug Act, which became law in early December.

One respiratory provider said he was taken aback by the 15% cuts because he was expecting to see reimbursement at 85%, but others said there was no surprise in the rule.

“It wasn’t a surprise given the amount of consideration the drugs have been getting and the negative press we have received about overpayment and how much it is costing the federal government,” said Letson.

This 15% cut was first recommended in an August report released by the GOA and OIG, which estimated that providers pay just 17% and 34% of the AWP for albuterol and ipratropium, respectively.

Although Letson was confident the 2004 cut would not drive providers out of the business or limit accessibility, some small companies feel it is too much, too soon and are still trying to figure out how to compensate for lost revenue.

“I would not say this is a fair cut because only your super big buyers of drugs, like Wal-Mart and so forth, will be able to make any margin at that end,” said John Miller, vice president of operations for American Respiratory Associates in Bethesda, Md.

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