Statement Before the Advisory Panel on Ambulatory Payment Classification Groups

The Biotechnology Industry Organization (BIO) appreciates this opportunity to testify before the Advisory Panel on Ambulatory Payment Classifications (the APC Panel). BIO is the largest trade organization to serve and represent the biotechnology industry in the United States and around the globe. BIO represents more than 1,100 biotechnology companies, academic institutions, state biotechnology centers, and related organizations in the United States.

Representing an industry that is devoted to discovering new therapies and ensuring patient access to them, BIO supports CMS' ongoing efforts to address patients, providers, and manufacturers' concerns about access to quality care under the OPPS. In the outpatient prospective payment system (OPPS) final rule for 2006, the Centers for Medicare and Medicaid Services (CMS) implemented many policies to help hospitals to offer Medicare beneficiaries a range of appropriate treatment options. Today, we recommend further refinements to the OPPS to help ensure that hospitals are appropriately reimbursed for providing advanced drugs and biologicals to Medicare beneficiaries.

Our testimony today focuses on three important issues: 1) hospitals should receive adequate, additional payments for their pharmacy service and handling costs; 2) CMS should continue to pay separately for drugs and biologicals paid separately in the past; and 3) hospitals should be paid appropriately for the second and subsequent hours of infusion services and for hydration and non-chemotherapy infusions provided during the same visit. We ask the APC Panel to make recommendations to CMS on each of these three points.

  1. Payment for Pharmacy Service and Handling Costs

First, BIO asks the APC Panel to recommend that CMS implement adequate, additional payments for hospitals' pharmacy service and handling costs. For 2006, CMS initially proposed to make an additional payment of 2 percent of average sales price (ASP) to reimburse hospitals for the pharmacy service and handling costs of separately paid drugs. The APC Panel recognized that this payment might not be sufficient reimbursement and recommended that CMS carefully reconsider its proposal. The APC Panel also recommended that CMS pay for the pharmacy overhead costs of both packaged and separately paid drugs.

BIO was disappointed that CMS did not implement the APC Panel's recommendations, but instead concluded that "payment for drugs and biologicals and pharmacy overhead at a combined ASP plus 6 percent rate would serve as the best proxy for the combined acquisition and overhead costs of each of these products." /1 Although we generally believe that ASP plus 6 percent is a reasonable proxy for hospitals' average acquisition cost for drugs and biologicals, we are concerned that it may not reflect the substantial costs associated with safely handling and furnishing these advanced therapies.

As the Medicare Payment Advisory Commission (MedPAC) reported in June 2005, pharmacy handling costs are significant, making up 25-28 percent of hospital pharmacies' direct costs, with drug acquisition costs accounting for the remaining 72-75 percent. /2 Other recent studies have found that hospitals' pharmacy overhead costs range between 25 and 38.8 percent. These costs include salaries and benefits for the pharmacists and pharmacy technicians, as well as the supplies and equipment that are essential to patient safety and high quality care. Pharmacy professionals not only prepare drugs and biologicals for administration, but they also consult with physicians about the appropriate selection, dosage, and administration of drugs; perform quality assurance measures to verify that therapies are correctly prepared; and safely dispose of any unused medications. These safety measures are particularly important for preparing complex biologicals because many of these therapies must be stored and prepared under carefully controlled conditions to protect them from changes caused by changes in temperature and light. Without these quality and safety protections, errors involving these therapies are likely to occur.

We are deeply concerned that CMS' decision not to make an additional payment for pharmacy handling costs will threaten hospitals' ability to continue to provide drugs and biologicals safely. In the past, hospitals have used reimbursement for drugs and biologicals to support these services, but as Medicare's reimbursement for most separately paid drugs drops to ASP plus 6 percent, hospitals will have less income to fund pharmacy salaries and benefits. Because their services are not separately reimbursed, hospitals could choose to reduce the number of pharmacists and pharmacy technicians they employ to make up for revenue shortfalls. As a result, pharmacies could be pressured to prepare more therapies in less time, and the number of medication errors could increase.

We ask the APC Panel to recommend that CMS reconsider this decision and implement adequate, additional payments for hospitals' pharmacy service and handling costs. As the APC Panel recommended last year, CMS should take into account external data on these costs. The agency also should work with hospitals to accurately measure the costs of providing these services and to develop an appropriate mechanism for capturing these significant costs. An appropriate payment mechanism must be developed for them, both now and in the future.

  1. Packaging Threshold for Separately-Paid Drugs and Biologicals

Second, BIO encourages the APC Panel to recommend that in 2007 and beyond, CMS pay separately for all drugs and biologicals that were separately paid in the past, including all therapies that ever had pass-through status. We believe this is the best way to protect patient access to critical therapies. In any event, CMS should continue to pay separately for all 5HT3 anti-emetic therapies even if they do not meet whatever packaging threshold CMS sets. This will protect beneficiaries' access to the particular anti-emetic that is most effective for them as determined by themselves and their physicians.

  1. Payment and Packaging Status of Drug Administration Services

Third, BIO continues to be concerned that hospitals are not adequately reimbursed for their costs of administering advanced drugs and biologicals. For 2006, CMS implemented 20 of the 33 new Current Procedural Terminology® (CPT)/3 codes for drug administration services and created 6 new C-codes that describe infusions or intravenous pushes. /4 These codes are a significant improvement over the old codes because they offer more specific descriptions of the types of services offered. As with the old codes, however, CMS packages payment for the second and subsequent hours of infusion services into the payment for the first hour. This policy causes hospitals to be reimbursed significantly less than their costs for providing infusions that last more than 2 hours. We ask the APC Panel to recommend that CMS provide separate payment for the second and subsequent hours of infusion services.

CMS also issued guidance on the new codes that allows hospitals to report a first hour for each different type of infusion provided when the infusions can be reported using different codes, and they meet the requirements for billing an hour of each type of infusion. /5 This allows hospitals to report and be paid for both a hydration service and a chemotherapy service. Because CMS has assigned one code for both hydration infusions and non-chemotherapy infusions in hospital outpatient departments, however, a hospital would not be paid separately for both infusions. Instead, payment for the hydration service would be packaged into payment for the drug infusion. In physician offices, these services have different CPT codes, and both services are separately reimbursed. We ask the APC Panel to recommend that CMS allow hospitals to be paid separately for administering both a hydration infusion and a non-chemotherapy infusion in the same visit as well.

Finally, we ask the APC Panel to recommend that CMS make a clarification in the guidance it recently issued on the use of the new codes in hospital outpatient departments. Consistent with the CPT's guidance for the chemotherapy codes used in physician offices, the guidance explains that "hospitals are to report chemotherapy drug administration HCPCS codes when providing non-radionuclide anti-neoplastic drugs to treat cancer and when administering non-radionuclide anti-neoplastic drugs, anti-neoplastic agents, monoclonal antibody agents, and biologic response modifiers for treatment of noncancer diagnoses." /6

Regarding IVIG administration, there are two potentially applicable separately payable drug administration codes for IVIG - C8950 (intravenous infusion for therapy/diagnosis; up to 1 hour), which has been assigned to APC 120, and C8954 (chemotherapy administration, intravenous, infusion technique, up to one hour), which has been assigned to APC 117. BIO believes that the service of administering IVIG should not be assigned to APC 120 because of the complexity and duration of the service.

The administration of IVIG is done in as little as three to four hours and as much as eight hours. That alone makes the one hour or less intravenous infusion APC 120 the incorrect payment grouping for this service. Because the administration of IVIG is complex and more costly than other non-chemotherapy infusions, the service of administering it should be assigned to a different APC, such as the same APC that chemotherapy infusions are - APC 117. Assignment to APC 120 with other non-chemotherapy infusions is not appropriate from a clinical or resource coherence perspective. Accordingly, BIO urges this Panel to recommend that CMS assign the service of administering IVIG to an APC that more accurately captures the resources involved in this service, such as APC 117.

  1. Equitable Adjustment

Additionally, BIO supports the agency's conclusion to "permit market forces to determine the appropriate payment" for two biological products, which CMS has previously linked using its "equitable adjustment" authority. In order to allow a market-oriented, ASP-based payment system to work as the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) intended, CMS should permit the system to function without arbitrary government interference. /7

  1. Conclusion

BIO appreciates the opportunity to present these comments to the APC Panel. We ask the APC Panel to make the following recommendations:

  1. CMS should implement adequate, additional payments for hospitals' pharmacy service and handling costs.

  2. CMS should provide separate payment for the second and subsequent hours of infusion services and should allow hospitals to be paid separately for administering both a hydration infusion and a non-chemotherapy infusion in the same visit.

  3. BIO urges the Panel to recommend that CMS assign the service of administering IVIG to an APC that more accurately captures the resources involved in this service, such as APC 117.

We would be happy to answer any questions you might have.


1/ 70 Fed. Reg. 68515, 68642 (Nov. 10, 2005).

2/ MedPAC, Report to the Congress: Issues in a Modernized Medicare Program, June 2005, at 140.

3/ Current Procedural Terminology or CPT is a trademark of the American Medical Association.

4/ 70 Fed. Reg. at 68679-80.

5/ January 2006 Update of Hospital Outpatient Prospective Payment System Manual Instruction: Changes to Coding and Payment for Drug Administration, Transmittal 785, Change Request 4258, Dec. 16, 2005 (revising Medicare Claims Processing Manual (CMS Pub. 100-4), ch. 4, § 230.2).

6/ Id. (revising Medicare Claims Processing Manual (CMS Pub. 100-4), ch. 4, § 230.2.2).

7/ 70 Fed. Reg. 42727