Court rejects Medicare limits on Part B drug pay

A federal trial court rejected a Centers for Medicare & Medicaid Services policy allowing Medicare claims contractors to limit payment for Part B drugs administered in a physician's office to the least costly alternative.

The court in an Oct. 16 ruling found that Medicare law did not authorize CMS or the contractors to redefine payment rates that were already set in statutory formulas.

In this case, Ilene Hays' physician had prescribed the inhalation medication DuoNeb to treat her chronic obstructive pulmonary disease. In April 2008, however, four Medicare contractors changed the basis of the nebulizer's payment from the average sales price of that drug to the price of the least costly alternative -- in this case, separate doses of DuoNeb's active ingredients, albuterol sulfate and ipratropium bromide.

Dept. of Health & Human Services Secretary Michael Leavitt argued in court documents that the Medicare statute prohibits payments for services that are not "reasonable and necessary" for treatment. Cost was a factor in that payment decision, he said.

But the U.S. District Court for the District of Columbia said that once coverage was approved, as in this case, payments are set in preexisting, explicit formulas that CMS and Medicare contractors may not change as they see fit. "It does not make sense to conclude that Congress, having minutely detailed the reimbursement rates for covered items and services, intended that the secretary could ignore these formulas whenever [he or she] determined that the expense of an item or service was not reasonable or necessary," U.S. District Judge Henry H. Kennedy Jr. wrote. "There is no indication that Congress intended to confer such broad authority."

Spokesman Peter Ashkenaz said CMS was disappointed in the ruling and is pondering its next move. Hays' attorneys declined comment.

Better access to come?

Experts disagree on whether the ruling, if it stands, will invalidate other uses of the least-costly-alternative policy. But it could discourage Medicare claims contractors from using the policy as a cost-control measure in Part B drug coverage determinations, said Joseph Bailes, MD, chair of the American Society of Clinical Oncology's Government Relations Council.

That would be a welcome change for physicians who say the policy is arbitrary and hurts beneficiaries' access to needed treatments.

The only reference to the least-costly-alternative principle lies in CMS' instruction manual for Medicare contractors, Dr. Bailes noted. Otherwise, the policy "is not part of the statute, and the court is saying [CMS] can't pretend it is by calling it medical necessity," he said.

Most challenges to such determinations go through Medicare's administrative appeals process, though the recent court decision could prompt similar litigation, Dr. Bailes added.

Treatment decisions belong in the hands of physicians and patients, and imposing unwarranted cost restrictions "degrades that process," said Rick Rutherford, the American Urological Assn.'s director of practice management. Medicare contractors "have said that physicians and patients can choose whatever drug they want, but then they only pay the least costly amount."

Cheaper is not always better, Rutherford added. Some more expensive options for treating prostate cancer may include longer-acting drugs more amenable to patient tolerance levels. Medicare typically pays 106% of the average sales price for Part B drugs. Doctors receive a separate payment for administering the medications. While not ideal, average sales price-based payments generally cover the medication cost and physicians' overhead associated with stocking the drugs, Rutherford said. When contractors pay at lower levels, doctors in many instances cannot afford to buy the drugs because Medicare dollars will not cover the up-front cost.

Without certain cancer drugs, patients could face more invasive and unnecessary surgical procedures, Rutherford added.

The AMA continues to advocate for Medicare pay reform, including improved transparency for payment amounts for Medicare Part B. AMA policy also advocates that contractors provide clear guidelines that identify noncovered and medically unnecessary services.

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