OIG Says Medicaid Overpaying for Prescription Drugs, Recommends Implementation of Affordable Care Act Pricing Formula – According to a recent HHS OIG report, Medicaid is overpaying for certain prescription drugs as a result of its reliance on the Federal upper limit (FUL) payment methodology based largely on published price information provided by drug manufacturers. The report, published on October 16, echoes a concern raised in previous OIG work—that the current FUL program results in prices that are significantly higher than those in the broader marketplace.
The FUL program is a cost containment measure that limits Medicaid reimbursement for prescription drugs with available generic versions, otherwise known as “multiple-source” drugs. According to the report, CMS has historically used a published price methodology whereby the FUL amount for a multiple-source drug is generally set at 150 percent of the price listed in national compendia for the cheapest therapeutically equivalent product, plus a reasonable dispensing fee. The prices published in the compendia, the report notes, are commonly based on wholesale price or cost information provided by drug manufacturers. The Affordable Care Act (ACA) established a new method of calculating the FUL amount, which sets the amount at no less than 175 percent of the weighted average of the monthly average manufacturer price (AMP). CMS has not yet implemented the ACA’s AMP-based FUL amount formula, but it has begun to publish draft FUL amounts based on AMPs for review and comment.
To determine how the ACA would impact FUL amounts, OIG compared prices generated by the existing published price-based methodology to prices generated by the AMP-based methodology. OIG also compared published price-based and AMP-based FUL amounts to pharmacy acquisition costs. OIG’s findings include the following:
- Based on data from late-2011, AMP-based FUL amounts were 61 percent lower, at the median, than published price-based FUL amounts for a sample of 518 drugs. Of the 518-drug sample, 461 FUL amounts were lower using the ACA methodology; and within those 461 drugs, the AMP-based FUL amount for 330 of them was less than half the published price-based FUL amount.
- The published price-based FUL amounts for a November 2010 sample of 601 drugs were over four times greater, in the aggregate, than pharmacy acquisition costs.
- AMP-based FUL amounts would have exceeded sampled pharmacy acquisition costs, in the aggregate, in another November 2010 sample.
- The reporting of AMP data—which are needed to calculate FUL amounts under the ACA—improved substantially from 2010 to 2011. The report attributes this improvement in part to OIG’s imposition of civil monetary penalties on manufacturers that do not report pricing data or report them late.
In light of these findings, OIG recommends that CMS continue to release draft AMP-based FUL amounts for public review and comment and that CMS complete the full implementation of the AMP-based FUL program.
Click here to view the OIG report.
Reporter, Greg Sicilian, Atlanta, +1 404 572 2810, gsicilian@kslaw.com.
7th Circuit Holds Certain Provider Taxes Paid by Hospitals Not Fully Reimbursable Under Medicare – A three-judge panel of the U.S. Court of Appeals for the Seventh Circuit (the “Seventh Circuit” or the “Court”) upheld summary judgment in favor of the Secretary of the U.S. Department of Health and Human Services in a suit brought by nineteen Illinois hospitals (the “Hospitals”) over Medicare reimbursement of provider taxes paid by the Hospitals into a state Medicaid fund. Abraham Lincoln Memorial Hospital v. Sebelius, No. 11-2809 (7th Cir. October 16, 2012). In affirming the decision by the Central District of Illinois (the “District Court”)—which upheld the CMS Administrator’s decision that certain provider taxes paid in 2004 and 2005 should be offset by “refunds” in the form of hospital access improvement payments—the Seventh Circuit praised the District Court, calling its decision “well-reasoned and comprehensive.”
The litigation stems from Illinois’ 2004 Hospital Provider Funding law, which imposed a tax on inpatient services of $84.19 per hospital “occupied bed day” (the “Tax Assessment”). The Illinois Department of Public Aid was responsible for collecting the Tax Assessments, and it was to deposit all moneys received into a hospital provider fund (the “Fund”). The law also required the Department to make hospital access improvement payments (the “Access Payments”) to certain hospitals from the Fund. A hospital’s payment of the Tax Assessment was contingent upon actual receipt of the Access Payments.
The Hospitals sought reimbursement for services provided to Medicare patients on a reasonable cost basis and included in their cost reports the Tax Assessments they paid as a reasonable cost to be reimbursed under Medicare. The fiscal intermediary (“Intermediary”) disallowed the Tax Assessment payments as costs and adjusted the Hospitals’ reimbursement by the Access Payments the Hospitals received. The Hospitals appealed the Intermediary’s decision to the Provider Reimbursement Review Board (the “Board”), which reversed the Intermediary and found that the Tax Assessment was an allowable cost under Medicare, the Tax Assessment was a permissible tax under Medicaid and that the Access Payments were not a “refund” of the Tax Assessment.
The Intermediary sought review of the Board’s decision, and the CMS Administrator reversed, holding that the Tax Assessment was an allowable cost, but that the Access Payments were properly treated as refunds of the Tax Assessment. According to the Administrator, the legislative language enacting the Tax Assessment linked the Tax Assessment to the Access Payments, and, therefore, the Tax Assessments were properly offset against the Access Payments. Thus, the allowable tax was properly calculated as the amount of the Tax Assessment less the amount refunded by the State of Illinois in the form of Access Payments. The Hospitals then filed suit in the Central District of Illinois, alleging that the Administrator’s decision violated the Administrative Procedure Act (the “APA”). The District Court granted summary judgment in favor of the Secretary, finding that the Secretary’s interpretation of the regulations was not arbitrary and capricious, and was supported by substantial evidence.
The Seventh Circuit affirmed, rejecting multiple arguments asserted by the Hospitals. Specifically, the Court held that the Administrator’s decision was not arbitrary, capricious or contrary to law, as the Administrator did not misapply the regulatory definition of “refund,” and the decision was supported by substantial evidence. The Court found there was a clear relationship between the Tax Assessment and the Access Payments, and rejected the Hospitals’ argument that the Access Payments could not be refunds since they were not calculated based on the amount of the Tax Assessment the Hospitals paid. Additionally, the Court rejected the Hospitals’ argument that the Administrator applied a “linkage” concept rather than the statutory standard of costs “actually incurred.” Rather, the Court found that the Administrator assessed whether the Access Payments served to reduce a related expense such that they were a refund of the Tax Assessments, and concluded that they were. The Court also rejected the Hospitals’ view that the Administrator’s decision was invalid since it was not adopted in compliance with the notice and comment period requirements of the APA, finding that the administrator’s decision qualified as “adjudication” rather than a rulemaking.
The Seventh Circuit’s decision comes one month after the Eighth Circuit’s decision in Kindred Hospitals East, LLC v. Sebelius, which also upheld the CMS Administrator’s denial of “refunded” costs associated with the Missouri Medicaid provider tax. While the decisions ultimately rest on the specifics of the particular states’ Medicaid provider tax, these recent circuit court decisions illustrate that courts are giving the agency broad discretion to make its determination on the allowable nature of a particular tax.
For a copy of the Seventh Circuit opinion, please click here.
Reporters, Gregory N. Etzel, +1 713 751 3280, getzel@kslaw.com and Kerrie S. Howze, Atlanta, +1 404 572 3594, khowze@kslaw.com.
CMS Issues Medicare Quarterly Provider Compliance Newsletter – CMS recently released its latest Medicare Learning Network (MLN) Medicare Quarterly Provider Compliance Newsletter. CMS issues the newsletters as educational tools to help providers understand findings identified by the various Medicare claims processing contractors. Each newsletter describes examples of major billing error patterns that contractors have identified recently and guidance on what steps providers should take to avoid those issues.
In the October 2012 edition of this quarterly publication, CMS provides guidance related to one finding identified by the Comprehensive Error Rate Testing (CERT) review contractor and seven findings identified by Recovery Audit Contractors. The CERT finding pertained to reviews of power wheelchair claims that have been yielding high improper payment rates due to insufficient medical documentation and medical necessity errors. The recovery audit findings related to:
- Major joint replacement or re-attachment and coding issues with respect to major complication or comorbidity (MCC);
- Medical necessity of acute inpatient admission respiratory conditions;
- Medical necessity of Other Skin, Subcutaneous Tissue & Breast Procedures (DRG 581);
- Overpayments of outpatient services billed and reimbursed while the patient was within an inpatient stay paid under the Inpatient Prospective Payment System (IPPS);
- Place of service coding issues for physician services in an outpatient setting;
- Coding errors regarding various cardiac procedures; and
- Coronary bypass with percutaneous transluminal coronary angioplasty (PTCA)/Cardiac Cath with MCC and coding issues.
To review the latest edition of the Medicare Quarterly Provider Compliance Newsletter, please click here.
Reporter, Jennifer S. Lewin, + 1 404 572 3569, jlewin@kslaw.com.
This bulletin provides a general summary of recent legal developments. It is not intended to be and should not be relied upon as legal advice.
>> Back to Top
