Washington Editor

WASHINGTON - New reimbursement rules for Medicare recipients in the outpatient hospital setting could end up negatively impacting the bottom line of some biotechnology companies.

The Centers for Medicare & Medicaid Service (CMS), formerly HCFA, published a final rule late last month in the Federal Register outlining changes to the Outpatient Prospective Payment System, or OPPS, scheduled to take effect Jan. 1.

While the CMS released a prepared statement touting increases for certain procedures, such as a mammography or colonoscopy, a closer look at the new policy reveals a methodology for Medicare reimbursement that the Washington-based Biotechnology Industry Organization (BIO) refers to as "flawed."

Sharon Cohen, BIO's vice president of government relations, told BioWorld Today that in some cases the government will "under-reimburse" expensive or high-tech products while "over-reimbursing" the cheaper products.

For example, it's not uncommon for hospitals to mark up inexpensive drugs like aspirin from 500 percent to 10,000 percent, whereas an expensive drug, like a biologic, may be marked up slightly, possibly 25 percent or so.

Under the new rules, the government is going to pay only a percentage of the markup, so instead of paying $10 for a $1 aspirin, it will now pay only $3. Meanwhile, reimbursement for the expensive drug will be cut as well, possibly below what the hospital paid for it in the first place.

Cohen said the policy threatens access to new, innovative drugs. "We believe there is a grave potential for reducing beneficiary access to these products," she said. "The other impact is that these rates only apply to the hospital outpatient setting, so it sets up a perverse incentive to shift patients to other realms of care, i.e., the doctor's office or the inpatient setting. This is bad because it is disruptive to care, or in other settings, the beneficiaries may have to pay more out of pocket."

Starting in 2003, biologics, and drugs as well, will be reimbursed under ambulatory payment classifications (APC), which are groups of services that are similar clinically and in terms of resource use.

And according to the CMS, APC rates for the first time will be set using actual data from claims submitted by the hospital under the OPPS.

Just prior to the publication of the new rule, a number of legislators wrote to Thomas Scully, President Bush's administrator for CMS, to complain about the APC, saying it would result in "aberrant payments for certain drugs." In fact, a letter signed by Billy Tauzin (R-La.), chairman of the House Energy and Commerce Committee, charged that under the new system, "one drug is paid more than 700 percent of the AWP [average wholesale price] and others are paid less than 10 percent."

APC rates are key to the industry this year because 236 drugs being reimbursed under the transitional "pass-through" payment system will graduate to the APC system. (New products are paid under pass-through guidelines for at least two years, but not more than three years.)

While pass-through products are usually reimbursed at 95 percent of the AWP, last April budget restraints forced the government to reduce the reimbursements to 78 percent of the AWP for this category.

The group of drugs/biologics being reclassified from pass-through status to the APC system include 72 products owned by companies that are BIO members. Of the 72, Cohen said 21 products will be reimbursed at a higher rate than the previous year, while 51 products will be repaid at a lower rate.