ADVISORY
FROM THE COMMITTEE ON WAYS AND MEANS

SUBCOMMITTEE ON HEALTH

Johnson Announces Hearing on
Medicare Payments for Currently Covered Prescription Drugs

Congresswoman Nancy L. Johnson (R-CT), Chairman, Subcommittee on Health of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearing on pricing mechanisms for drugs covered under the Medicare program.  In addition, the hearing will examine physician reimbursement for administration of these prescription drugs.  The hearing will take place on Thursday, October 3, 2002, in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 10:00 a.m.

In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only.  Witnesses will include the Administrator of the Centers for Medicare and Medicaid Services (CMS), academics, and providers.  However, any individual or organization not scheduled for an oral appearance may submit a written statement for consideration by the Committee and for inclusion in the printed record of the hearing.

BACKGROUND:

Medicare does not cover most outpatient prescription drugs.  However, it does cover certain categories of outpatient prescription drugs, including drugs used in dialysis, organ transplantation, cancer treatment, and certain drugs used with durable medical equipment, such as infusion pumps and nebulizers.  According to the U.S. General Accounting Office, about 450 outpatient drugs are covered under these categories.  Medicare payments for covered drugs have skyrocketed, increasing beneficiary and taxpayer costs, and driving potentially inappropriate clinical decisions. 

In 1992, Medicare paid about $700 million for prescription drugs; eight years later, it paid $5 billion.  (Between 1999 and 2000, payments increased by $1 billion.)  In addition, just 35 drugs account for 82 percent of Medicare spending and 95 percent of the claims volume.

The Balanced Budget Act of 1997 (P.L. 105-33) specified that Medicare payment for covered outpatient prescription drugs would equal 95 percent of the average wholesale price (AWP) for the drug.  AWPs, however, are not defined by law or regulation.  The AWPs are reported by drug manufacturers to organizations that publish the data in compendia.  Medicare carriers use the published data in calculating payment for Medicare covered drugs, but AWPs are not grounded in any real market transaction, and do not reflect the actual price paid by purchasers.  The AWP for a product is often far greater than the acquisition cost paid by suppliers and physicians.  In addition, AWPs do not reflect the discounts, rebates or “charge backs” that manufacturers and wholesalers customarily offer to providers.  Therefore, AWPs represent neither average prices nor prices charged by wholesalers.

Medicare pays an excessive amount for covered drugs.  The U.S. Department of Health and Human Services Inspector General found that Medicare beneficiaries and taxpayers could save more than $200 million on one drug alone – albuterol, an inhalation therapy drug – if the drug were reimbursed at prices available to commercial purchasers.  Moreover, a higher AWP creates a higher beneficiary copayment and premium, because beneficiaries are responsible for a copayment equal to 20 percent of Medicare’s payment for the drug.  In some cases, the beneficiary’s copayment is greater than the physician’s or supplier’s actual total cost for the drug. 

Some manufacturers reportedly use inflated AWPs as a strategy to increase market share.  Physicians and suppliers are reimbursed based on the inflated AWP, but actually pay much less to acquire the drug.  The larger the “spread” between the actual price and 95 percent of the AWP, the greater the incentive to use the product.  This inappropriately influences clinical decisions and may harm patient care, while driving over-utilization of services. 

Some physicians have expressed concerns about lowering Medicare reimbursements for prescription drugs.  They assert that they are under-reimbursed by Medicare for their costs in administering the drugs, and claim that the overpayments for drugs to cover their practice expenses.  Oncologists, for example, argue that Medicare does not adequately reimburse them for the practice expenses associated with providing treatment to cancer patients in outpatient settings. 

There is little rationale for using Medicare overpayment for drugs as a mechanism to reimburse physicians for practice expenses.  Medicare has a well-defined procedure for examining the adequacy of physician payments under the physician fee schedule.  As provided for under the Benefits Improvement and Protection Act, oncologists recently submitted results from a new survey on practice expenses to CMS as part of this review.  Because any increase in practice expense reimbursements to one specialty, such as oncology, must be budget neutral under current law, other specialties would experience decreases in their practice expenses, unless Congress were to provide new money to recognize these practice costs.

In announcing the hearing, Chairman Johnson stated, “The AWP process is seriously flawed.  It’s costing Medicare beneficiaries and taxpayers too much because Medicare is paying inflated prices.  We must inject competition into the program to bring market forces to bear on reimbursement for drugs.  The Administration says that they will fix the problem if Congress does not act, but it will take congressional action to ensure that our seniors continue to have access to high-quality cancer care.”

FOCUS OF THE HEARING:

Thursday’s hearing will highlight problems with the AWP system for determining Medicare reimbursements for currently covered prescription drugs, and examine alternative mechanisms for determining Medicare payments. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

Please Note:  Due to the change in House mail policy, any person or organization wishing to submit a written statement for the printed record of the hearing should send it electronically to hearingclerks.waysandmeans@mail.house.gov, along with a fax copy to (202) 225-2610, by the close of business, Thursday, October 17, 2002.  Those filing written statements who wish to have their statements distributed to the press and interested public at the hearing should deliver their 200 copies to the Subcommittee on Health in room 1136 Longworth House Office Building, in an open and searchable package 48 hours before the hearing.  The U.S. Capitol Police will refuse sealed-packaged deliveries to all House Office Buildings. 

FORMATTING REQUIREMENTS:

Each statement presented for printing to the Committee by a witness, any written statement or exhibit submitted for the printed record or any written comments in response to a request for written comments must conform to the guidelines listed below.  Any statement or exhibit not in compliance with these guidelines will not be printed, but will be maintained in the Committee files for review and use by the Committee.

1.   Due to the change in House mail policy, all statements and any accompanying exhibits for printing must be submitted electronically to hearingclerks.waysandmeans@mail.house.gov, along with a fax copy to (202) 225-2610, in Word Perfect or MS Word format and MUST NOT exceed a total of 10 pages including attachments.  Witnesses are advised that the Committee will rely on electronic submissions for printing the official hearing record. 

2.  Copies of whole documents submitted as exhibit material will not be accepted for printing.  Instead, exhibit material should be referenced and quoted or paraphrased.  All exhibit material not meeting these specifications will be maintained in the Committee files for review and use by the Committee.

3.    Any statements must include a list of all clients, persons, or organizations on whose behalf the witness appears.  A supplemental sheet must accompany each statement listing the name, company, address, telephone and fax numbers of each witness.

Note: All Committee advisories and news releases are available on the World Wide Web at http://waysandmeans.house.gov.

The Committee seeks to make its facilities accessible to persons with disabilities. If you are in need of special accommodations, please call (202) 225-1721 or (202) 226-3411 TTD/TTY in advance of the event (four business days notice is requested). Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above.