Miller Health Law on the Medicare Care Prescription Drug, Improvement and Modernization Act of 2003

On December 8, 2003, President Bush signed into law the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”). The centerpiece of the Act, which has been characterized as the most significant reform of the Medicare program since its creation, is greatly expanded Medicare prescription drug coverage under a new Medicare Part D program. But the Act’s nearly 700 pages contain many other significant changes affecting providers and suppliers.

This edition of the Health Law Bulletin will summarize a number of these key changes. Physician Fees. Prior to the Act being signed, physicians were facing a 4.5% decrease in the conversion factor for their services. Instead, the Act will increase the conversion factor by at least 1.5% in 2004 and 2005. But because the payment update formula was basically left unchanged, unless it is revised or eliminated in the future, physicians face a sharp reduction in Medicare payments in 2006 and thereafter. Medicare Part B Drug Payments. The Act phases in several reforms in the payment methodology for Medicare Part B drugs administered by physicians. For most Part B drugs administered by physicians during 2004, physicians will be reimbursed at 85% (reduced from 95%) of the Average Wholesale Price (“AWP”) as of April 1, 2003. In order to mitigate the impact of the decrease, the professional fees for Part B drug administration will be increased by 32% in 2004 but only 3% in 2005. For 2004, payment rates for most other categories of drugs, biologicals, blood and blood products (other than clotting factors), and radiopharmaceuticals will remain unchanged from payment rates in effect prior to enactment of the Act. Most infusion drugs furnished through an item of covered DME will be paid at 95% of the AWP as of October 1, 2003.

Beginning with drugs furnished on or after January 1, 2005, AWP will no longer be used as the basis for payment. Most drugs furnished by physicians will be paid based upon 106% of the “average sales price” (“ASP”) and in 2006, under either the ASP or the new “competitive acquisition program” (“CAP”). Generally, the average sales price of a drug is calculatedby dividing the manufacturer’s total U.S. sales to all purchasers by the number of units sold in that quarter. Under CAP the government will award contracts for the distribution of categories of competitively bid drugs to organizations that will deliver drugs to physicians’ offices for administration to patients. The contractor, not the physician, will bill and collect the contract rate from the Medicare program. The Medicare program will pay 80% of the contract rate and the patient will be responsible to pay the remaining 20% as the patient’s copayment, in addition to any unpaid deductible amount. Beginning in 2006, the Act allows physicians to either continue to buy and bill products directly, and receive payment for the drug under the ASP methodology, or obtain products