Drug costs force hospitals to change billing practices

September 15, 2008

As reimbursements are curtailed, hospitals must change the way they order, dispense, and charge for drugs.

Key Points

Remember the good old days? Payers reimbursed all drugs that were "incident to" physician services.

If a little drug got wasted or double charged, nobody seemed to mind. Just moving treatment from inpatient to outpatient clinics or ambulatory care settings saved so much money that paying for wastage was a bargain.

Fast forward to today. The Centers for Medicare and Medicaid Services (CMS) is tightening reimbursement limits on the types of drugs, the quantities of drugs, and the settings in which drugs are used. Drug wastage has become a new front in the battle to control spending.

To some degree, CMS is right. They were overpaying some providers.

In the old days it was not uncommon for providers to use a single multidose vial to treat multiple patients but bill more expensive single-dose vials, Dave Wilson, cancer program pharmacy supervisor at Mountain States Tumor Institute in Boise, Idaho, said. The actual quantity of drug billed was identical, but pricing differences between different formulations could boost pharmacy reimbursement dollars.

"It was one way you could stay afloat financially," he said. "Today ASP plus 6 percent from CMS doesn't begin to pay for my $15,000 hood and our $1.5 million computer system."

Changing the rules

CMS has been closing reimbursement loopholes for years, Wilson said. Other payers are following the federal lead and tightening their own rules.

"Payers are constantly chasing the dollars," he said. "Moving treatment from inpatient to outpatient settings was good for private physician practices and outpatient clinics, but CMS is chasing dollars here, too. It's follow the money."

Manufacturers are following the money, too. Wilson noted that a growing number of drugmakers now price by unit regardless of the container size. That removes the financial incentive to buy multidose containers but charge for single-use containers.

Per-unit pricing also lets manufacturers increase prices by expanding the highest-cost single-use container price across an entire product line.

One of the most expensive reimbursement changes took effect in July 2007. CMS stopped paying for unused, or wasted, drugs and biologics in multidose containers. The agency continues to pay for drug wastage in single-dose containers. Here's how it works:

If a physician, hospital, or other provider administers a dose to a patient from a single-dose package and has to discard unused drug, CMS pays for the dose administered plus the amount discarded, up to the amount shown on the label.