Fee for Service Trends: A Look at Medicare Part B

1. Fee for Service Trends: A Look at Medicare Part B Scott Reid, Pharm.D. Vice President Specialty Pharmacy Operations National Medicare Prescription Drug Congress Nov. 1, 2005

2. Snapshot of Caremark Participation in Medicare • Medicare Part B provider since 1983 • Home infusion: 1979-1996 • Specialty pharmacy: current • Hemophilia • Oral oncology • AWP transition to average sale price (ASP) • Coordination of benefits • Competitive acquisition program: proposed • Office administered drugs • ASP + 6% • Part D: January 2006 • MRDD: September 2004 • PDP and pharmacy provider • AWP-% • Medication therapy management (MTM) *

3. Home Infusion Therapy • Medicare Part B: prosthetic device / home medical equipment benefit • Payment available for drugs and supplies incident to the use of a pump: • Drug component • Administration/catheter care kit • Pump fee • AWP model provided adequate payment to cover product, professional services, ancillaries and services • Professional services of a pharmacist and nurses are not recognized under ASP, including: • Patient education/training • Medication management • Care management and coordination

4. Home Infusion Therapy • Not all infusion therapy drugs covered under Medicare Part B • Under the Medicare Modernization Act, infused medications covered under Part B remain at 95% of average wholesale price (AWP) • Drugs not administered via an infusion pump are covered under Part D • Part D does not recognize or cover nondrug products, supplies and services, causing problems for infusion therapy providers where another benefit/policy does not exist • Final disposition of infusion products under further review

5. Part B Pricing Reform: Pharmacy Provider • Physician services • ASP +6% • Increase in fees for existing procedure codes • Implemented new codes for previously unrecognized services / expenses • Alternative to buy and bill • Conversion to ASP + 6% does not recognize: • Professional services of a pharmacist • Care management • “Buried” costs for pharmacies • Pharmacies have no method to bill or receive payment for professional services of a pharmacist

6. Part B Pricing Reform: Pharmacy Provider • Hemophilia payment methodology was amended to add an administration fee for each unit dispensed • Potential access issue due to pricing methodology • CMS has addressed this issue in part by covering a “dispensing / supply” fee for other Medicare Part B drugs: • Inhalation • Oral oncologics • Transplant • Dispensing fee to cover costs of service • Supply fee to cover higher costs of processing claims due to lack of online adjudication • CMS will continue to evaluate to assure adequacy of payment • Hospital outpatient prospective payment system: • July 2005: CMS proposes ASP +8% • Supported by hospital groups

7. ASP and Today’s Pharmacy Marketplace • Pricing system / benchmark developed to provide more accurate reporting of drug prices to government and other payors • Weighted average of nonfederal sales from pharmaceutical manufacturers to wholesalers • Net of volume discounts, rebates, chargebacks and other benefits tied to sale of drug • Average is calculated across all classes of trade with exception of hospitals and government programs (Medicaid, 340B, federal supply schedule)

8. ASP and Today’s Pharmacy Marketplace • Rebates, discounts and other price reductions are not available to all purchasers on an equal basis • Pricing to providers varies significantly • Reflects prices paid by wholesalers not by pharmacy providers • Rebates are not available to pharmacies • Does not reflect acquisition price, costs of acquisition and management of inventory of pharmacies • Professional services of pharmacists

9. Competitive Acquisition Program • Alternative to physician buy and bill • Uses ASP as basis for payment with mark-up of 6% • ASP calculation crosses over several classes of trade • Lag time between current prices and when ASP is set • Quantity dispensed by pharmacy may not be quantity paid • Logistical issues between provider processes and physician / clinic practices • Does not contemplate unused/unadministered drug • Wholesale versus pharmacy model … or other? • Fails to account for real expenses of delivering and managing the program • Most potential providers are under water based on drug cost alone • Waiting for revised rules

10. Medicare Part B and Part D • Coverage under Part B versus Part D • Immunosupressives: Organ transplants • Oral antiemetics: Adjunct to oncologics • Oral oncologics: drug is same as, precursor or metabolite of IV drug already covered • Inhalation drugs: nebulizer only inhalers under Part D • Parenteral drugs not administered via a pump covered under Part D • Medicare Replacement Drug Demonstration drugs • Further changes to be made after implementation after further review and analysis by CMS

11. Summary • Need an effective and timely method for calculating ASP that more directly reflects the prices paid by pharmacies • Percent mark-up must recognize and cover total cost of providing medications and service • Benefit design and coverage must be appropriate for the service model and site of care • Impact on specialty pharmacy’s ability to continue to provide current services and optimize value to Medicare beneficiaries, health plans and physicians • Transition to ASP model will need to recognize and pay for professional services of a pharmacist • Adoption of new current procedural terminology codes for MTM services and its application under a drug benefit