Higher Medicare Payments For Hospital Outpatients

Higher Medicare Payments For Hospital Outpatients

This year is good for Medicare beneficiaries who need to get their reimbursement for hospital outpatient pharmacies. Payments were slightly increased comparing to 2010 payments to outpatient pharmacies. However, some of the old issues are still in their places. For example, some issues with the Medicare reimbursement formula or underpay for expensive, special brand-name drugs by pharmacies. Those pharmacies which spend a huge amount of money to meet the requirements of Pharmacopeia “Standards on Compounding Sterile Preparations” are not even able to get money back through Medicare.

In 2003, with Medicare Modernization Act (MMA), most of the pharmacies decreased the cost of medications they sell. As the part of MMA, Medicare would pay hospitals and another long-term care entities for outpatient medications expenses based on their acquisition costs in the year 2006.  Unfortunately, pharmacy overhead costs have not been taken into account and the sum of payments was the same as rates in the past. Most of the drugs medications which were affected by MMA are medications for rheumatoid arthritis, cancer medications and some other which cost about $70 each day or even more. Before 2006, about 95% of hospital pharmacies expenses were covered by Medicare.

With MMA, most of the pharmacies decreased the cost of medications they sell. As the part of MMA, Medicare would pay hospitals and another long-term care entities for outpatient medications expenses based on their acquisition costs in the year 2006.  Unfortunately, pharmacy overhead costs have not been taken into account and the sum of payments was the same as rates in the past. Most of the drugs medications which were affected by MMA are medications for rheumatoid arthritis, cancer medications and some other which cost about $70 each day or even more. Before 2006, about 95% of hospital pharmacies expenses were covered by Medicare.

MedPAC

A Washington-D.C.-based MedPAC commission is also required to conduct a study of the effective way of using Medicare payments for affected medications such as leuprolide, filgrastim, docetaxel, topotecan etc. Their brand-name alternatives, Eligard, Sanofi-Aventis, Amgen, Neupogen, Taxotere, GlaxoSmithKline, and others are affected as well. This requirement was designed by MMA. According to MedPAC report in 2005, MedPAC recommended Medicare pay overhead costs to pharmacies and even provided Medicare with methods how it could be done.

MedPac asked a group of pharmacists from hospital pharmacies to break 205 most expensive medications down into nine different categories. Those categories are based on a number of handling costs needed. After that MedPAC recommended Medicare to conduct a survey using those categories and develop payment codes for hospital pharmacies. Those codes could be used for better fees handling and reducing expenses. But it seemed to be like Medicare was not going to follow those recommendations and pay money to hospital pharmacies.  

Even more expensive

Now Medicare pays hospital pharmacies for outpatient drugs based not on acquisition cost, but on average sales prices. The price is reported to Centers for Medicare and Medicaid Services (CMS) quarterly by medications manufacturers. After the report, Medicare and Medicaid Services provide hospital pharmacies with the reimbursement based on the hospital billing rate. Unlike common medications, the medications which were listed above are not covered by CMS in the same way. All of those medications have HealthCare Common Procedure Coding System (HCPCS) and they are quite expensive.

Medicare has another formula to calculate the reimbursement for this type of medications: Average Sales Prices (ASP) minus some percentage (which is specific for each medication). This caused hospital pharmacies lost a lot of money because Medicare doesn’t reimburse them overhead costs, which may be really expensive because pharmacies are also selling pharmaceutical equipment and supplies. A pharmacy manager at St. Joseph Medical Center in Tacoma, Washington, Michael J. Bonck, PRh, said that oncology drugs and other unused hazardous drugs disposal are a major item and can lead to high expenses.

The politics of Centers for Medicare and Medicaid Services will be the same in 2011. Some of the reimbursed money will be spent on different Medicare programs, services or spent on separately payable medications (SPM). This caused about $200 million assigned to be spent on SPM. The formula is different now: it is not average sales price minus some percent (usually 1%), but average sales price plus 5%.

But hospitals find it unfair and not very logical because physicians have +6% on the same medications and they have lower overhead expenses. Ernest R. Anderson, Jr., System Vice president of Pharmacy at Caritas Christi Health Care, said that hospitals still have high expenses and lose their money on most expensive supplies. Caritas Christi Health Care is the second largest health system in Massachusetts and their pharmacy lost money almost on a half of the SPM they buy. In Anderson’s opinion, if Medicare would pay for each medication, it should be +20-30%, not +5% as it is.

Related issue

Another problem is that data about disposing of some of supplies and medications are simply don’t exists and also hospitals don’t provide Centers for Medicare and Medicaid Services with the data about overhead costs. Still, those costs are associated with specific, most expensive medications. Anderson pointed out that hospitals could change their field of work and refuse to provide patients with oncology services and will provide only with the services, where the reimbursement is not a problem (orthopedics, cardiology, and others). It could happen in near future, if hospital pharmacies will lose about half of their money on medications they buy, even though large health care providers can force their local private insurance companies to pay money for

It could happen in the near future, if hospital pharmacies will lose about half of their money on medications they buy, even though large health care providers can force their local private insurance companies to pay money for immune-deficiency and rheumatoid arthritis medications on plus up to 30% rate.

Dmytro Nikolayev

Dmytro Nikolayev spent many years working in the field of healthcare, especially in its technical part. Gained much experience in Open Data and Machine Readable Formats used in the industry. Also, built several IT projects that were designed to help people with their healthcare decisions. Now he is an editor and author of Pharmacy Near Me

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