By Lisa Seachrist

Washington Editor

WASHINGTON - In reaction to complaints from physicians, nurses, patients, hospitals and drug manufacturers, the House Commerce Committee's Subcommittee on Health and the Environment examined whether the Medicare reforms enacted with the Balanced Budget Act (BBA) of 1997 cut to the bone rather than just trimming the fat.

The issue was placed into bright focus during the August recess when committee members were deluged with concerns from their constituents about rural hospitals closing, inadequate reimbursement for outpatient care and inadequate home health care services. In reaction, Congress is trying to assess whether it needs to write new laws or whether the Health Care Financing Administration (HCFA) has the statutory authority to fix the problems through regulations.

"I am pleased to report that we are achieving many of the objectives of the BBA," said Michael Bilirakis (R-Fla.), chair of the subcommittee. "However, the BBA has also had some unfortunate, unintended consequences. In some cases, more savings were realized from providers than originally anticipated. In other cases, HCFA has failed to act in a manner consistent with the beneficiaries' interest and Congressional intent. We hope to address these problems through legislative action this year."

While the health care industry as a whole has much at risk with the enactment of BBA, the biotechnology industry has a particular problem because under the terms of BBA, HCFA is charged with developing a capitated prospective payment system for hospital outpatient services similar to the one used for hospital inpatient stays. The system would underpay for many biotechnology drugs used to treat a host of diseases, from cancer to Crohn's disease.

The proposed Ambulatory Patient Classification (APC) system for outpatient services particularly concerned Bilirakis.

"I ask HCFA to pay particular attention to the plight of the cancer hospitals and work with this committee to revise the APC system in a manner consistent with statutory intent," Bilirakis said. "The proposed APC system will erode patient quality and access to needed services. If the current proposal becomes effective, many procedures will simply migrate to the more expensive inpatient settings, ultimately increasing the costs to the Medicare program. Site-of-service recommendations by providers will be made with an eye toward reimbursement levels rather than focusing on patient access and convenience."

The Biotechnology Industry Organization (BIO) highlighted problems with the APC system in a letter to HCFA in July. (See BioWorld Today, August 12, 1999, p. 1.)

First and foremost among BIO's concerns was the fact that the data being used to calculate the payment groups for various drugs were based on the drugs on the market in 1996. The majority of biotechnology drugs on the market today have been approved since 1996.

Rep. Anna Eshoo (D-Calif.) emphasized the plight of biotechnology drugs: Should physicians choose to use these agents to treat patients, the hospitals or ambulatory care centers would be required to pick up a large proportion of these costs because the drugs cost more than the median price for their grouping.

"The biotechnology industry is telling me that the FDA is approving the new technologies with all due speed," Eshoo said. "They are also telling me they still can't get the products to patients because of the reimbursement situation."

David Holveck, CEO for Centocor Inc., of Malvern, Pa., illustrated the problem of the outdated data with his company's Crohn's disease therapy, Remicade, a human-mouse antibody that blocks the activity of tumor necrosis factor alpha. The drug is given as an infusion once every eight weeks. Holveck noted the typical course of Remicade costs $1,900, or a little more than $12,000 per year.

However, under the current APC system, Remicade would qualify for reimbursement of only $99.24 for each treatment. A hospital treating a single Crohn's disease patient would lose $11,705 annually.

Michael Hash, deputy administrator of HCFA, readily admitted the data used to derive the APC system were inadequate and flawed, and told the committee HCFA was attempting to fix the situation.

"I want to assure you that this is a concern for us," Hash said. "In the area of drugs, the data simply were not adequate. We are in the process of conducting a survey with our contractor of high cost and infrequently used drugs to reform the policy. We intend to make it better."

In addition to searching for more accurate data, Hash said the agency was creating a "transparent system" to determine the coverages for Medicare services, likening the system to the FDA's advisory panels, which operate in full sunshine.