By Lisa Seachrist

Washington Editor

WASHINGTON - Before their August recess, adding a Medicare drug benefit was a popular topic among members of Congress. When Congress reconvenes in September, members could find themselves making legislative adjustments to a Health Care Financing Administration (HCFA) proposal to create a prospective payment system for hospital outpatient services covered by Medicare.

Under the terms of the Balanced Budget Act, Congress charged HCFA with developing a capitated prospective payment system for hospital outpatient services similar to the one used for inpatient hospital stays rather than the fee-for-service method that currently prevails. The Biotechnology Industry Organization (BIO) maintains the system HCFA developed, the Ambulatory Payment Classification (APC), would result in hospitals being inadequately reimbursed for treatments that use biotechnology drugs and products.

"Our biggest problem is that the data HCFA is using is so flawed on drugs and biologics that the system would significantly underpay for these therapies," said Nancy Myers, healthcare policy counsel for BIO. "We think there is a very big difference between inpatient services and outpatient services. For inpatient care, oftentimes the drug is ancillary to the invasive surgical procedures being conducted. With an outpatient service, the drug or biologic is the treatment."

Should HCFA adopt the system it proposed in September 1998, hospitals would be reimbursed for outpatient services based on the APC groupings into which the services fell. Because biotechnology products and drugs often are very expensive, they would be above the median cost of their APC grouping and hospitals would be required to pick up the difference.

"HCFA is charged with providing access to medical care," Myers said. "This provision would incentivize hospitals to us the lowest-cost product and step up treatment rather than use the most appropriate therapy first. It really is a quality-of-care issue."

Myers also noted that private insurance payers look to HCFA to determine whether a drug or procedure has become the standard of care and should be covered. If hospitals are discouraged from using biotechnology drugs and products because of a reimbursement scheme, private health maintenance organizations and other insurance entities may also delay in paying for the biotechnology drugs.

In determining into which groups to bundle biotechnology drugs and products, HCFA relied on data from 1996 and looked only at single-service claims. BIO maintains this methodology systematically underestimates the costs of providing biotechnology products and drugs because many biotechnology drugs weren't included in the analysis, and by using only single-service claims the agency biased the analysis to reflect only the healthiest patients.

In order to rectify the situation, BIO called on the secretary of Health and Human Services to use her exemption authority to carve out seven product categories from the APC system. BIO requested:

¿ "New" technology be paid separately from the APC system until adequate coding allows for proper reimbursement.

¿ Orphan drug products should be paid separately from the APC system in order to ensure these patient populations aren't denied viable therapies, which would negate the benefits of orphan status.

¿ Chemotherapy agents and related supportive care drugs should be paid separately because the system doesn't adequately account for differing dosage requirements, as should biotechnology chemotherapy drugs and supportive drugs, such as erythropoietin.

¿ Biologics and drugs at high risk of not being provided to beneficiaries who need them should be exempted from the system.

¿ Radiopharmaceuticals and other drugs required for nuclear medicine procedures that will be disproportionately underpaid with standard radiotherapies receiving a higher reimbursement than complex radiotherapies should be paid separately from the APC system.

¿ Blood-derived products that would be classified as incidental or that have no specific codes under the APC system should also be exempted.

¿ Drugs not covered under the reimbursement scheme for dialysis also should exempted from the APC system.

While BIO, the Pharmaceutical Research and Manufacturers of America, the American Hospitals Association and a host of patient groups have come out against HCFA's proposed rule, Myers said there was very little indication that HCFA intended to alter its plans.

The APC system has drawn notice from several legislators, with Pete Stark (D-Calif.), ranking member on the House Committee on Ways and Means, signing a letter to Michael Hash, deputy administrator of HCFA, calling on the agency to "go back to the drawing board" on the proposed hospital outpatient prospective payment system.

"You will likely see this as an issue in September," Myers said. "We would much rather see HCFA make the changes themselves than have to move to the legislative arena."

Myers concluded, "HCFA is going to become a much bigger priority for BIO to watch in the future."