Press Releases

CMS PROPOSES NEW RULES TO PAY APPROPRIATELY FOR MEDICARE-COVERED DRUGS

The Centers for Medicare & Medicaid Services today proposed new rules that would improve the way that Medicare pays for covered drugs and is asking for public input on the best way to achieve that goal. While Medicare, by law, generally does not cover most outpatient prescription drugs, the program does cover certain drugs, including many cancer drugs and others that cannot be self-administered or that are administered through durable medical equipment.

"We want to make certain that Medicare pays appropriately for the drugs it covers and the costs that doctors incur when administering those drugs," CMS Administrator Tom Scully said. "This is an important step toward making sure that Medicare beneficiaries get the drugs and care they need at a fair, appropriate cost to the beneficiaries themselves as well as the Medicare program."

Medicare currently pays physicians 95 percent of the average wholesale price (AWP) for covered drugs. The average wholesale price is set in an industry guide allowing manufacturers to effectively be reimbursed at any price they like. Medicare currently pays physicians based on this inflated average wholesale price even though the physicians actually acquire the drugs for much less.

"Many doctors tell us they use these overpayments to supplement their office expenses. We want to make sure that we pay them higher rates for treating their patients rather than allow this unbalanced payment system to continue. We ought to pay them the right amount for drugs and services, and this proposed rule will start the process to get us there." Scully said.

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 percent 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.

CMS is also proposing to significantly increase payments under the Medicare physician fee schedule for administering cancer drugs. These payments would be based on practice expense survey data submitted by the American Society of Clinical Oncology (ASCO). In addition, CMS would increase payments for the administration of multiple chemotherapy agents to a patient on the same day.

"We believe that this proposed rule is good for Medicare patients and for physicians. By paying doctors and providers accurately for administering Medicare covered drugs, we are confident that patients will continue to get the care they need, and eventually physicians will be better served by correcting the system and again providing rational financial incentives as they deliver that care to the patients."

The proposed rule will be published in the August 20 Federal Register. The comment period will end October 14, and a final rule will be published later this year. A copy of the proposed rule will be available at www.cms.hhs.gov.