340B Drug Pricing Programme
Packaged payment for drugs, biologicals and radiopharmaceuticals
Pass-through payment changes for drugs, biologicals and radiopharmaceuticals
Payment for non-pass-through drugs, biologicals, radiopharmaceuticals and clotting factors
Medicare Part B payments



On November 1 2012 the Centres for Medicare and Medicaid Services (CMS) released both the Medicare physician fee schedule and hospital outpatient prospective payment system final rules with comment period. The provisions of these final rules generally took effect on January 1 2013. In the final rules, CMS commented on and/or finalised a number of significant proposals relating to pharmaceutical and biological products.

340B Drug Pricing Programme

In the hospital outpatient prospective payment system proposed rule, CMS solicited comments on potential policy changes that could provide clarity and consensus among providers and other stakeholders regarding the relationship between hospital admission decisions and appropriate Medicare payment. Notably, in the final rule, CMS acknowledged that it had received comments expressing concern that hospitals may be substituting outpatient observation services for inpatient admissions in order to maximise their outpatient drug revenues under the 340B Drug Pricing Programme. In fact, commentators recommended that CMS modify the definitions of 'outpatient' and 'inpatient' to clarify explicitly that a patient's status determination should be based solely on appropriate clinical judgement, and should not be influenced by financial motives under programmes such as the 340B Drug Pricing Programme. While CMS did not provide direct responses to these comments, it did indicate that it will consider these comments as it moves forward on this issue.

Packaged payment for drugs, biologicals and radiopharmaceuticals

First, CMS finalised its proposed clarification of Section 419.2(b) of Title 42 of the Code of Federal Regulations to make explicit that the hospital outpatient prospective payment system for the non-exclusive list of items and services' included costs (eg, operating room, recovery room, anaesthesia, certain drugs, biologicals and implanted devices and capital-related costs) are packaged into the payments for the related procedures or services with which such items and services are provided. Next, CMS clarified that it has a long-standing policy to package anaesthesia drugs as included costs that are not eligible for transitional pass-through status. CMS considers anaesthesia drugs to be drugs that are used to produce anaesthesia in all forms and that are ancillary and supportive to a primary diagnostic or therapeutic modality. In addition, in 2013, CMS will continue packaging payment for all contrast agents and diagnostic radiopharmaceuticals – collectively referred to as 'policy-packaged' drugs – regardless of their per-day costs.

Pass-through payment changes for drugs, biologicals and radiopharmaceuticals

In 2013 CMS will reimburse drugs, biologicals, contrast agents and radiopharmaceuticals that are granted pass-through status at average sales price plus 6%. CMS granted pass-through status to 26 drugs and biologicals for calendar year 2013 (eg, Iodine I-123 ioflupane, diagnostic, per study dose, up to 5 millicuries; a lidocaine 70 miligrams (mg)/tetracaine 70mg patch). There will continue to be no co-payment required for pass-through diagnostic radiopharmaceuticals and contrast agents, which would otherwise be packaged if the item did not have pass-through status. CMS will also continue to apply its diagnostic radiopharmaceutical offset policy to payment for pass-through diagnostic radiopharmaceuticals.

Payment for non-pass-through drugs, biologicals, radiopharmaceuticals and clotting factors

In 2013 CMS will also reimburse separately payable non-pass-through drugs (excluding diagnostic radiopharmaceuticals), non-implantable biologicals and therapeutic radiopharmaceuticals at average sales price plus 6%. If average sales price data is not available, CMS will base the drug's reimbursement on mean unit cost data derived from 2011 hospital claims. For new products, where the average sales price is not available, CMS will use the product's wholesale acquisition cost to establish the initial payment rate (ie, wholesale acquisition cost plus 6%). If a new product's wholesale acquisition cost is also not available, CMS will reimburse at 95% of the product's most recent average wholesale price.

In determining which non-pass-through products are separately payable in 2013, CMS utilised an $80 threshold. Thus, in 2013, CMS will continue separate payment for drugs, non-implantable biologicals and therapeutic radiopharmaceuticals that:

  • were separately paid in 2012;
  • CMS proposed to continue separate payment in 2013; and/or
  • have per-day costs equal to or less than $80.

However, CMS will package diagnostic radiopharmaceuticals regardless of their per-day cost.

Notably, for 2013, CMS will increase reimbursement for blood clotting factors from average sales price plus 4% to average sales price plus 6%.

Medicare Part B payments

First, CMS eliminated the need for further annual rulemaking on the widely available market price/average manufacturer price comparisons by finalising its proposal to maintain, until a change is warranted, the threshold for widely available market price/average manufacturer price comparisons at 5%. Second, with respect to its price substitution policy, CMS finalised its proposal to prevent its price substitution policy from taking effect for a drug and dosage form (by the healthcare common procedure coding system code) that is reported to be in short supply based on the Food and Drug Administration's (FDA) current drug shortage list. CMS noted that a drug's presence on this FDA list will be sufficient evidence to prevent CMS's price substitution policy from taking effect. In addition, CMS finalised its clarification that drugs used by a physician to refill any implanted item of durable medical equipment falls within the 'incident to' benefit category and not the durable medical equipment benefit category (ie, the physician must buy and bill for the drug and the non-physician supplier shipping the drug may not bill for it).

For further information on this topic please contact William Sarraille or James Stansel at Sidley Austin LLP' by telephone (+1 202 736 8600), fax (+1 202 736 8711) or email (wsarraille@sidley.com or jstansel@sidley.com).

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.