Medicare Patients Face a New Year With Yesterday’s Medicines

Washington, D.C. (December 18, 2002) – “A new CMS rule slated to take effect January 1 will leave some Medicare patients with yesterday’s medicines,” said Carl B. Feldbaum, president of the Biotechnology Industry Organization (BIO). “By slashing reimbursement rates well below cost for many new drugs, the agency’s new rule in some instances will provide an incentive for hospitals to offer older medicines instead of innovative products that may be safer or more effective.”

“In addition, these cuts will dampen biotechnology innovation if they are allowed to take effect,” said Feldbaum. “Changing the rules after a company has invested hundreds of millions of dollars in a new therapy will make the next company think twice about making a similar investment.”

BIO is urging the Bush administration to revisit the rule imposing the rate cuts (CMS-1206-FC and CMS-1179-F) immediately and to make much-needed technical corrections before implementation. The underlying problems require Congressional attention as well, and BIO urges the new Congress to enact legislation quickly to assure Medicare beneficiary access to innovative drugs used in outpatient settings and address some specific problems in the new rule.

“Not only would CMS’s existing plan inflict pain almost across the board for patients in need of essential medicines, several of the agency’s actions flout existing federal policies and laws,” said Feldbaum. “Some of these actions – the most drastic, in fact – were undertaken without the customary opportunity for public comment, denying patient groups, hospitals, manufacturers and other affected parties their rights under law.

“Among other things, the rule arbitrarily redefines some drugs as non-drugs, creates a concept of ‘functional equivalence,’ and excludes only three orphan drugs from the outpatient prospective payment system altogether,” said Feldbaum. “These moves set alarming precedents for patients counting on Medicare coverage of cutting-edge medicines used to treat cancer, kidney failure, rheumatoid arthritis and many other conditions.”

For example, the CMS rule arbitrarily redefines radiopharmaceuticals, including some cancer therapies, as non-drugs. This action appears to conflict with established federal criteria that define the classification of drugs set forth in Medicare law. This measure was announced for the first time in the final rule, with inadequate opportunity for comment and thus violating due process.

CMS officials also have provided a carve-out from the rule for orphan drugs using an arbitrary definition that applies to only three FDA-designated orphan products. These products will be reimbursed on a reasonable cost basis. (New drugs, including new orphan drugs, continue to be eligible for pass-through payment status.)

The CMS rule establishes a further precedent of concern to patients and biotechnology companies: the concept of “functional equivalence,” under which the agency would determine the payment rate for a new version of a drug based on the payment rate of the original product.

“The concept’s existence creates a risk that, in some cases, reimbursement rates could drive healthcare providers’ decisions when comparing new drugs and their predecessors,” said Feldbaum.

BIO represents more than 1,000 biotechnology companies, academic institutions, state biotechnology centers and related organizations in all 50 U.S. states and 33 other nations. BIO members are involved in the research and development of health-care, agricultural, industrial and environmental biotechnology products.