Washington Report: Bundled Together - Pharmaceutical Executive


Washington Report: Bundled Together

Pharmaceutical Executive

ASP Agonies

Endless Litigation
In addition to the bundling debate, CMS has been struggling to establish a new pricing system for Part B drugs based on average sales price (ASP) instead of average wholesale price (AWP). There was a great scandal several years ago about drug companies "marketing the spread" between Medicare drug-reimbursement rates and provider costs. Investigators found that Medicare was paying a big premium for oncology drugs such as TAP's Lupron, which led to criminal charges and a hefty settlement in 2001. Other companies settled similar charges, and multiple AWP-pricing law suits are still going on (see "Endless Litigation").

These marketing practices prompted Congress to mandate ASP prices for Medicare in the MMA to ensure more accurate price reporting by manufacturers, but the change has been difficult to implement. The HHS Office of the Inspector General (OIG) has found many discrepancies between ASPs and average manufacturing prices (AMPs) as well as other industry price reports. And because the ASP rates are supposed to reduce Medicare direct drug payments, CMS has had to boost composite service rates to avoid big revenue cuts for providers. However, oncologists continue to complain that total reimbursement for cancer care is much too low and that it's difficult to report ASPs as required. CMS sought to reduce the burden by establishing a Competitive Acquisition Program to provide Part B medicines to physicians, but the complex program has attracted few providers.

Broader Issues

Meanwhile, other government health programs are struggling with policies for calculating drug prices and payment ceilings. Congress recently instructed CMS to adopt AMPs (instead of AWPs) for Medicaid drug reimbursement, and for CMS to provide states with AMP-based price information every month. The change is supposed to make Medicaid drug prices more transparent and save the government nearly $4 billion. But pharmacists complained that the new system also would slash their reimbursement, and claimed that initial CMS AMP calculations for multi-source drugs were full of errors. Moreover, OIG analysts found wide variation in how manufacturers report AMP data and rebates, particularly those involving pharmacy benefit managers. CMS decided to delay publishing new prices while seeking a more accurate reporting method.

The federal 340B program, which provides drugs at discounted prices to public health agencies serving low-income patients, also is plagued by drug pricing issues. Under this program, HHS requires some 700 pharma companies that participate in Medicaid to provide discounts on outpatient drugs to 12,000 "covered entities," including certain hospitals, clinics, and AIDS programs. To ensure that participating providers get appropriately low prices, HHS sets 340B ceiling prices, and OIG examines these calculations regularly to identify overpayments and discrepancies. But as with Medicare Part B, the program's low reimbursement rates create supply problems, such as recent shortages of intravenous immune globulin (IVIG) for seriously ill patients at many hospitals.

AIDS Drug Assistance Programs (ADAPs) funded by the Ryan White CARE Act also are supposed to get the best prices for medications, either through direct purchase or through the 340B program, but have problems achieving that goal. ADAPs spend nearly $1 billion a year on AIDS therapies for some 135,000 patients (about 25 percent of all Americans with AIDS). But GAO analysts reported in April 2006 that ADAPs are paying above the 340B ceiling price for many top-10 AIDS drugs.

The Ryan White program has been mired in controversy over whether it provides equitable support for AIDS treatment throughout the country, and Congress is under pressure to implement a major overhaul in the next three years. In the meantime, the legislators approved last-minute legislation in December boosting program funding and calling for HHS to establish a "minimum drug list" of antiretrovirals. The aim is to harmonize care among states and increase transparency of 340B prices, but some ADAP providers fear a drug list will force tough choices between broader drug coverage and the scope of patient care.

Jill Wechsler is Pharm Exec's Washington correspondent. She can be reached at


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