Since January 1, 2005, CMS has paid for Part B drugs under a different formula called average sales price (ASP), calculated
using the actual sales prices reported by pharma companies, instead of AWP. Under this formula, CMS pays physicians 106 percent
of ASP, regardless of their actual drug-acquisition cost. This new rule significantly reduces the amount of money that CMS
pays for Part B drugs.
In order to offer physicians a way out of buy-and-bill, CMS developed a new distribution model for Part B drugs, so providers
would not have to tie up large sums of their own funds in the purchasing and reimbursement cycle. Under CAP, doctors obtain
drugs directly from national vendors that deliver to doctors and then bill Medicare, the patients' insurance companies, and
the patient for the deductible and co-pay.
Doctors selecting CAP will need only the capital to float a buy-and-bill operation for non-Medicare patients. Furthermore,
they will not need to chase drug reimbursements from Medicare for their patients. But physicians will continue to receive
income for services provided during periodic patient visits, including services related to drug administration.
According to the latest version of CAP—the Interim Final Rule (IFR) published in the Federal Register on July 6— prospective
vendors must prove that they can deliver the 181 drugs and biologics covered by CAP in all 50 states. They can engage subcontractors
that meet the general safety requirements of CAP, but they must show a three-year history of distributing drugs nationwide.
Then, for each of the 181 drugs, the vendor must bid a specific price that includes the cost of shipping, and any management
fees related to delivering the drug. Finally, vendors must create a composite bid that weights each drug's share of total
volume of the contract (based on the most recent available utilization data). This composite bid may be no higher than 106
percent of the weighted ASP for all of the drugs in the contract. CMS will choose between two and five vendors, and award
After the bids are accepted and contracts awarded, CMS will set a single price for each drug based on the median price for
all selected vendors, so that a vendor could find itself with a contract requiring it to accept a lower price than it bid
for some drugs. Vendors will be told the median price calculation before signing the contract, and may, at that point, decline
to sign because the median price is lower than their bid, according to a CMS response in a vendor Q&A. Contracts will be adjusted
on an annual basis for vendors' actual product acquisition costs.
Doctors must re-enroll in CAP and select an authorized vendor each year. Although CAP is voluntary for physicians, ASP reimbursement
for Medicare patients is not. Doctors who choose to continue their buy-and-bill-practice may do so, but they will be reimbursed
at ASP plus six percent for each drug they buy. Smaller group practices may be more likely than larger ones to elect CAP,
since they will have less leverage to negotiate discounts on drug purchases. In fact, the vast majority of oncology practices,
which are major buyers of Part B drugs, are not expected to enroll in CAP. However, it is possible that physicians in specialties
other than medical oncology will choose CAP, because drug income represents a much smaller portion of their overall revenue.
What's the Problem?
One big problem plagues the CAP program: the tight profit margin. Vendors say the six-percent mark-up is too narrow. Cost
plus six percent might work in a perfect world, where nothing ever went wrong, but the worlds of medicine and government contracts
are far from perfect. Vendors can expect to take losses on many transactions.
First, CAP vendors are likely to lose money on small orders—those for $800 or less comprise more than 80 percent of CAP drugs—including,
for example, generic oncolytics, such as cyclophosphamide, etoposide, vinblastine, leucovorin, and vincristine. A single CAP
order for $800 would yield a gross margin of $48, assuming the vendor buys the drug at ASP and CMS reimburses at ASP plus
six percent. Although those cheaper drugs make up more than 80 percent of the product units in the CAP market basket, their
aggregate cost comes to just 53 percent of the dollar value in the basket. Only about a third of the CAP drugs are single-source
branded products, but they represent the lion's share on a dollar basis.