Respiratory Update

While respiratory manufacturers and providers face many legislative and regulatory issues, none has had as much impact as the changes included in the Medicare Modernization Act (MMA). These include changes in the payment formula for respiratory drugs; special Federal Employees Health Benefits Plan (FEHBP) pricing for certain types of durable medical equipment such as oxygen and oxygen equipment; a transitional freeze on DME rates; and competitive bidding. However, as the government implements these provisions of the law, the respiratory community has banded together to advocate against them to Congress and the Centers for Medicare and Medicaid Services (CMS).

CHANGES IN THE PAYMENT FORMULA FOR RESPIRATORY DRUGS

Beginning in 2005, the payment formula for respiratory drugs will switch from the current 80 percent of the average wholesale price (AWP) — a reduction in payment of approximately 15 percent from 2003 — to the average sales price (ASP) plus 6 percent — resulting in a further reduction by another 65 percent.

In the April 6 Federal Register, CMS sent an interim final rule with comment period on the reporting of ASP data by manufacturers. The rule, effective on April 30, applies only to reporting ASP data by manufacturers. CMS stated that it will publish another proposed rule on the ASP-based payment system later this year. Manufacturers are to begin reporting their ASP data quarterly, beginning with the first quarter of 2004, and had to make their ASP submissions within 30 days after the end of the quarter on April 30. Comments on the rule are due by June 7.

CMS intends for the rule to provide guidance to manufacturers on the requirement that they submit ASP data to CMS. However, the rule provides very little new information on how ASP will be formulated beyond what was already available under the MMA.

Physician, clinical and provider organizations are opposed to these changes and will be submitting comments to CMS. The board of directors of NAMDRC (Physician Advocacy for Excellence in the Delivery of Pulmonary Care), signed off at the association’s annual meeting on opposing the use of ASP for Medicare Part B drugs. As well, both the American Association for Homecare (AAHomecare) and the home care section of the American Association for Respiratory Care (AARC) will not only be submitting comments, but also are urging their members to do so.

In communicating to Congress, AARC has pointed out that the only factor considered in calculating reimbursement for respiratory medications is the acquisition cost of the drugs, and that other direct and indirect operating costs of pharmacies must also be taken into account. The association also states that the stringent payment reductions will diminish Medicare-covered access to respiratory medications and threaten the health and lives of chronically ill Medicare beneficiaries who depend upon aerosolized medications to treat their respiratory diseases.

PAYMENT REDUCTIONS BASED ON FEHBP PRICES

Beginning in 2005, Medicare payments for eight DME items will be reduced based on the median FEHBP price, as reported in the Office of Inspector General’s (OIG) June 12, 2002, testimony before the Senate Committee on Appropriations (or in any other subsequent report by the OIG). This provision applies to nebulizers, as well as standard wheelchairs (including standard power wheelchairs), hospital beds and air mattresses, and lancets and testing strips used for management of diabetes.

The draft Medicare Conference Agreement identified oxygen and oxygen equipment as subject to reductions, but those items were not included in the OIG report. However, an OIG report is in progress on this issue and is presently expected to be released in late summer. Organizations that have met with the OIG have emphasized three key differences between Medicare and private-sector payers such as the FEHBP plans: differing demographics, reimbursement methodologies and documentation requirements. Medicare serves an older demographic, structures oxygen payments differently and has a higher paperwork burden than private-sector payers.

TRADITIONAL FREEZE ON DME RATES

For 2004 through 2008, there will be no covered item update, except for Class III devices. Therefore, the DME fee schedules will not receive an inflation-based update in these years.

COMPETITIVE BIDDING

As part of MMA, CMS will establish “competitive acquisition areas” in the nation’s 10 largest metropolitan statistical areas (MSAs) in 2007 and the 80 largest MSAs in 2009. The first items to be included will be the highest cost and highest volume items, or those items determined to have the largest savings potential. Respiratory devices may be selected since competitive acquisition applies to the following items: DME including items used in infusion and drugs and supplies used in conjunction with DME; enteral nutrition and supplies; and off-the-shelf orthotics. Items excluded are inhalation drugs used with DME, Class III devices and parenteral nutrition and supplies.

In the case of oxygen, suppliers providing services before the start of the program will be able to continue to provide oxygen to their beneficiaries, at the bid rate, after the competitive bidding program is implemented.

Currently, the Department of Health and Human Services (HHS) and CMS are in the planning stages of establishing a program advisory and oversight committee to advise the department on implementation and establishment of financial standards; data-collection requirements for the efficient management of the program; the development of proposals for efficient interaction among manufacturers, providers of services, suppliers and individuals; and quality standards.

Over the years, the respiratory community has united to oppose national competitive bidding programs because the effect would limit the choice of provider; the quality of care and range of services to the patient would be sacrificed; and small business could potentially be eliminated.

In addition to competitive bidding looming on a national level, many states already have or are looking to adopt competitive bidding for DME in an effort to save money. For instance, for the third time in three years, Florida has included competitive bidding in both its House and Senate budget proposals. The current proposal asks for a contract on Medicaid DME, with some exclusions, with payments no more than 80 percent of current Medicaid rates. At this writing, a member of the state’s DME provider association — the Florida Association of Medical Equipment Suppliers, or FAMES — was leading an informal coalition of companies across the state to combat the proposal.

HOME SLEEP TESTING

On April 16, CMS announced reconsideration of its national coverage policy to include the use of portable multi-channel home sleep testing devices as an alternative to facility-based polysomnography in the evaluation of obstructive sleep apnea (OSA).

Current national coverage guidelines specify that only a polysomnography done in a facility-based sleep study laboratory can be used to identify patients with OSA requiring CPAP (CIM 60-17). CMS has received a request from Dr. Terence M. Davidson of the University of California San Diego School of Medicine to modify this decision to include the use of portable multi-channel home sleep testing devices as an alternative to facility-based polysomnography in the evaluation of OSA.

MODERNIZATION OF HCPCS CODING

Since HIPAA mandated that all payers use a uniform code set, payers such as Medicaid have lost the flexibility to use local codes that they may have implemented for various respiratory care devices and other DMEPOS. The Coalition of Respiratory Care Manufacturers (CRCM) has worked with state Medicaid agencies to review the crosswalking of Medicaid to national HCPCS codes and to apply for new codes where gaps exist. Unfortunately, over the past two years, the Medicaid programs did not get the codes for which they applied.

During the past few months, CRCM members have met with CMS officials to discuss mechanisms for CMS to ensure that the needs of all payers can be met through the HCPCS coding process. In a meeting with the CMS Administrator’s office, the coalition and state Medicaid representatives addressed both short- and long-term HCPCS coding needs.

The short-term needs address mechanisms for state Medicaids to obtain HCPCS codes for respiratory and other devices that they need. The long-term needs include steps to modernize the process that would make it more transparent and easier for manufacturers and providers of respiratory devices to understand. The discussion of this critical process will continue throughout 2004.

Marcia Nusgart, R.Ph., is president of Nusgart Consulting LLC, a lobbying and consulting firm that advises the medical device and pharmaceutical industry on regulatory and legislative issues. She serves as executive director for three medical device manufacturer coalitions specializing in respiratory care, wound care and wheelchair seating and positioning. Nusgart was previously associate vice president, home care, for the Advanced Medical Technology Association (AdvaMed, formerly the Health Industry Manufacturers Association), and director of home care for the National Community Pharmacy Association. She can be reached at 301/530-7846 or [email protected].