This issue of ASH Washington Update addresses Medicare Physician Payments, the 2003 Medicare Physician Fee Schedule, Medicare Reimbursement of Drugs, Teaching Physician Regulations, FY 2004 NIH Appropriations, and the Ascension of Senator Frist to Majority Leader. Please contact us by phone at (202) 776-0544 or send e-mail to jcoughlin@hematology.org or mmayrides@hematology.org if you have questions or need more information on these issues.

Medicare Physician Payments
FY 2004 Budget Proposal Introduced Amid Uncertainty Over FY 2003 Budget Details
Medicare Drug Reimbursement
Cloning Debate Begins Anew
Medicare Claims Processing
Medical Malpractice Reform
Progress in Implementing Rare Diseases Directive

Medicare Physician Payments

Initial reports are confirming an agreement today between House and Senate Conferees on a fix to avert the 4.4% cut in Medicare physician payments due to be implemented March 1, 2003. Specific details will be unavailable until an official conference report is filed, but Tom Scully, the Centers for Medicare and Medicaid Services (CMS) Administrator, told the Practicing Physicians Advisory Council yesterday that he would inform Medicare carriers not to implement the cut.

House and Senate conferees had been negotiating for some time the Senate-approved omnibus appropriations package (House Joint Resolution 2, or HJ 2) that includes a provision to halt the payment cut. Led by Senate Finance Chair Charles Grassley (R-IA), the provision would freeze Medicare physician payments at 2002 rates until September 30 and would fund the temporary fix with an across-the-board $900 million cut in all FY 2003 discretionary spending. The provision would also not prevent CMS from moving forward with the other parts of the 2003 Medicare physician fee schedule as planned.

Again, the deal made yesterday and today by negotiators may differ somewhat from the exact wording of the provision in HJ 2, but it looks like Congress and the Administration have fixed the payment cut before it goes into effect March 1. In fact, lawmakers are hopeful that a final resolution on the entire omnibus spending package can be sent to the President's desk later this week for signature.

Meanwhile, President Bush offered to fix Medicare physician payments with between $30 billion and $40 billion over ten years as part of a $400 billion Medicare/Medicaid reform and prescription drug benefit package in his FY 2004 budget blueprint. Analysts are predicting the details of the President's budget might include future cuts to hospitals, skilled nursing facilities, home health agencies, and ambulatory surgical centers as a means to cover the costs of a physician payment fix. In January, the Medicare Physician Advisory Committee (MedPAC) had recommended lower payment rates for those providers/settings beginning in FY 2004.

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FY 2004 Budget Proposal Introduced Amid Uncertainty Over FY 2003 Budget Details

Congress and President George W. Bush continue to work on hammering out an agreement on the fiscal year (FY) 2003 budget. The negotiators have targeted Congress' President's Day recess (which begins Monday, February 17) with finalizing the 2003 budget.

To help reach agreement on an omnibus package that includes appropriations for the 11 remaining annual funding bills, Congress and the President agreed to a 1.6 percent across-the-board cut of all FY 2003 spending. This across-the-board cut will make the budget more palatable to many Democrats by allowing negotiators to shift funding to several programs that many in Congress believe are underfunded. With this agreement, the latest indication is that FY 2003 funding for the National Institutes of Health (NIH) will be around $27.2 billion. As the final year in the five-year effort to double the NIH budget, ASH was advocating for FY 2003 NIH funding of $27.3 billion.

Even without completion of the FY 2003 budget, President George W. Bush released his FY 2004 Budget on Monday, February 3. Overall, the $2.23 trillion spending proposal includes further tax cuts, sharp increases in defense spending, and close to a funding freeze on other domestic discretionary programs. In addition, the President's plan provides $400 billion over the next decade for "Medicare modernization," which includes funding for a yet unspecified Prescription Drug Benefit Plan. With the FY 2003 budget not yet signed into law, FY 2004 budget figures are compared to the President's FY 2003 budget proposal.

President Bush calls for a 2.6 percent overall discretionary spending increase for the Department of Health and Human Services (HHS), including $3.6 billion slated for biodefense programs. The President proposed $27.9 billion for the National Institutes of Health (NIH), a $600 million or two percent funding increase.

With the five-year doubling project of the NIH budget expected to be completed in FY 2003, policymakers have long anticipated that the Bush Administration would curb its commitment to biomedical research funding in FY 2004. The Ad Hoc Group for Medical Research Funding (ASH is a member) is calling for $30 billion for NIH in FY 2004, a $2.7 billion or 10 percent increase over FY 2003. The Ad Hoc Group's recommendation is available online at www.aamc.org/research/adhocgp/.

Within NIH, the Bush Administration's proposal includes: $4.7 billion for the National Cancer Institute, a $162 million or 3.4 percent increase; $2.8 billion for the National Heart, Lung, and Blood Institute, a $106 million or 3.7 percent boost; $1.82 billion for the National Institute of Diabetes and Digestive and Kidney Diseases, a $117 million or 6.6 percent increase; and $994 million for the National Institute on Aging, a $36 million or 3.7 percent boost.

The Centers for Disease Control and Prevention (CDC) did not fare as well as NIH in the President's proposal. The Administration's $6.5 billion request for CDC in FY 2004 is fundamentally the same as its FY 2003 request.

In addition, the President's budget proposes to change the regulations surrounding the Orphan Drug Tax Credit. Current law provides a 50 percent credit for expenses related to the human clinical trial testing of drugs for treating certain rare diseases. However, the taxpayer can only claim the credit for expenses incurred after the Food and Drug Administration (FDA) designates the drug as a potential rare disease treatment. The Bush Administration is proposing to make eligibility for the tax credit possible before receiving the orphan drug designation from FDA, to incentivize rare disease clinical trial enrollment.

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Medicare Drug Reimbursement

As reported last month, CMS gave notice on Medicare's authority to apply so-called "inherent reasonableness" (IR) standards to Part B services, excluding physician services and those provided in any prospective payment system. This authority means the agency could propose to modify payment rates-using a public comment process-to make them more reasonable, including reimbursement for devices and drugs. On January 22, CMS Administrator Tom Scully said the intent of the agency is to force suppliers to voluntarily lower prices simply by establishing the Medicare authority to do so. CMS has only outlined how it could-not how it would-lower rates. Some on Capitol Hill, however, might try to force Medicare to use its IR authority to lower what they consider to be unreasonable payments.

Meanwhile, as you probably know, the NY Times published an article on January 26, 2003, regarding the Average Wholesale Price (AWP) of drugs and the "huge profits" for oncology physicians. ASCO and many state oncology/hematology societies have responded vigorously. Some of the key points they raise include that 1) the cost of delivering safe and effective cancer care goes well beyond the price of drugs, 2) both CMS and Congress accept that payment rates for administering chemotherapy in a physician's office are too low, 3) drug payments cross-subsidize drug handling, administration, and supportive care services in oncology, 4) cancer care decisions are not based on reimbursement rates, rather on patient desires and science, and 5) a lowering of drug payments without increasing the rates paid for other aspects of cancer care delivery will negatively affect patient access and quality of care.

A February 6 editorial in the NY Times acknowledges the need for a reformed cancer care delivery and reimbursement system that includes lower drug payment rates balanced by an increase in compensation for drug administration.

CMS' Tom Scully has reiterated that if Congress fails to act on AWP, the Medicare agency is ready to propose drug reimbursement reform as early as May 2003.

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Cloning Debate Begins Anew

With many of the same characters that participated in last year's cycle of intense rhetoric but stalled legislative action, the Senate is again taking up the issue of cloning. At a press conference February 5, Senators Orrin Hatch (R-UT), Dianne Feinstein (D-CA), Arlen Specter (R-PA), Edward Kennedy (D-MA), Tom Harkin (D-IA) and Zell Miller (D-GA) re-introduced the "Human Cloning Ban and Stem Cell Research Protection Act of 2003" (S 303), which bans human reproductive cloning but allows somatic cell nuclear transfer (SCNT).

At a rival news conference, Senator Sam Brownback (R-KS) and Mary Landrieu (D-LA) re-introduced legislation (S 245) that bans all forms of human cloning, including important cloning technologies such as SCNT.

The Hatch-Feinstein-Specter bill places the highest moral and ethical standards on SCNT research by mandating a 10-year prison sentence and at least a million dollar fine for any attempt at human cloning, and specifies that SCNT research can only be performed on unfertilized eggs within 14 days of its first cell division. To ensure strict adherence to federal regulations, the bill requires that all SCNT research go through a National Institutes of Health ethics review board. The legislation also dictates voluntary egg donation and disallows in-vitro fertilization and SCNT research in the same lab space.

During a recent Senate hearing on the cloning issue, Senator Ron Wyden (D-OR) quoted from a letter that ASH submitted in support of SCNT research. Senator Wyden read a sentence from the Society's letter that said, "as an organization of physicians who care for desperately ill patients and scientists devoted to understanding the basic mechanisms of disease and discovering new therapies, ASH is excited about the enormous potential of all avenues of stem cell research and related scientific mechanisms, such as SCNT," and followed up by asking how the US Congress could say that SCNT research should not move forward when a renowned physician group says that it is very promising. ASH was among 50+ organizations that sent letters supportive of SCNT research in anticipation of this cloning hearing.

The House is also beginning to address the cloning issue. In early February, a bill (HR 534) very similar to Senator Brownback's legislation was introduced in the House by Representative Dave Weldon (R-FL) and has already accumulated 104 cosponsors. President George W. Bush remains very supportive of Senator Brownback's legislation that bans all forms of human cloning. The President went as far as to mention his support for a ban on human cloning during his annual State of the Union address on Tuesday, January 28. In the speech, President Bush said, "and because no human life should be started or ended as the object of an experiment, I ask you to set a high standard for humanity and pass a law against all human cloning."

This year's attempts to pass a cloning bill will be interesting. Senator Hatch hopes to push his legislation through the Senate Judiciary Committee-which he chairs-sometime before April, while Senator Brownback has targeted his legislation for the Health, Education, Labor and Pensions Committee.

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Medicare Claims Processing

Since publication of the 2003 Medicare physician fee schedule was delayed significantly last year and isn't effective until March 1, 2003, CMS has developed guidance for how it is currently handling physician claims. What follows is a simplified version of instructions CMS sent to its carriers (please note this will change if physician payment legislation in Congress is finalized before mid-February). A more detailed question & answer document from CMS regarding 2003 fee schedule implementation can be found online at http://cms.hhs.gov/physicians/physicianques2.pdf.

• If you see a patient prior to March 1, and the claim is processed by your carrier through Feb. 28...Then you would be paid at the 2002 rate and no further payment adjustment will be necessary.

• If you see a patient prior to March 1, but your claim is not processed until March 1 or later and the reimbursement is lower in 2003...Then you would be paid at the 2003 rate, and your carrier will reprocess the claim later and pay you the balance to match the 2002 rate, with interest on the difference, possibly in a lump-sum check for multiple claims.

• If you see a patient prior to March 1, but your claim is not processed by your carrier until after March 1 and the reimbursement is higher in 2003...Then you would be paid at the 2003 rate, but you would have to repay the carrier the difference between the 2003 rate and the 2002 rate.

• If you see a patient in January or February and file a claim as a participating Medicare provider but later change your status to non-par...Then you would be paid at the participating provider rate (Medicare allowable minus co-pay), but you would have to repay the difference between par and non-par rates (95% of Medicare allowable minus co-pay) for assigned claims.

(Source: CMS Program Memo AB-02-181 & 2/3/03 Part B News)

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Medical Malpractice Reform

Representative James Greenwood (R-PA-8) re-introduced his HEALTH Act legislation (H.R. 5) February 6. The bill caps non-economic damages in medical malpractice lawsuits, limits attorney's fees to reduce incentives for large award requests, and limits the number of years a plaintiff has to file health care liability action. This same legislation was passed by the House last year but faltered in the Senate where partisan party politics on tort reform make passing any national liability reform legislation difficult.

Malpractice reform has become a priority issue for physicians throughout the country and the AMA has made this a number one legislative priority in 2003. President Bush, who supports Greenwood, has also made malpractice insurance reform a key priority in his domestic agenda. Physician and new Senate Majority Leader Bill Frist (R-TN) is also a staunch supporter of medical liability legislation, yet concedes that modifications will be necessary in order to garner 60 votes. On February 11, the Senate Judiciary and Health, Education, Labor and Pensions committees will hold a hearing to further discuss how to deal with rising medical malpractice insurance premiums.

Some Democratic Senators are offering a different approach. Senators Patrick Leahy (D-VT), Ted Kennedy (D-MA), Richard Durbin (D-IL), and John Edwards (D-NC) are targeting an existing curb on antitrust laws applicable to the insurance industry and Senator Dianne Feinstein (D-CA) has said she will introduce liability reform legislation based on California's Medical Injury Compensation Reform Act.

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Progress in Implementing Rare Diseases Directive

Implementation of the Rare Diseases Act (PL 107-280) and the Rare Diseases Orphan Product Development Act (PL 107-281) is proceeding and will result in a request for applications (RFA) later this month. Signed into law by President Bush Thursday, November 7, 2002, the Rare Diseases Act and the Rare Diseases Orphan Product Development Act authorize significant funding increases for basic clinical research grants into rare diseases at the National Institutes of Health (NIH) and the Food and Drug Administration (FDA).

Working with NIH's National Center for Research Resources (NCRR) and FDA's Office of Orphan Products Development, the NIH Office of Rare Diseases (ORD) is expected to commit $7 million to so-called "Rare Diseases Regional Centers of Excellence" in this RFA. These centers will consist of regional groups of investigators working on a group of related diseases (instead of a single rare disorder), each supported by a data and coordination center. It is expected that final funding through the pending RFA will be awarded this September.

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