Legal Speak

Pharmacy Compounding and Quality Standards

• By Asela Cuervo
• Sep 01, 2006

Pharmacies that focus on providing respiratory drugs have faced challenges over the last several years given the significant changes in Medicare reimbursement brought about by the Medicare Modernization Act (MMA) of 2003. The transition from an average wholesale price (AWP) reimbursement methodology to average sales price (ASP) plus a 6 percent mark-up (ASP + 6 percent) was somewhat offset by a dispensing fee payment in 2005. As you know, however, the Centers for Medicare and Medicaid Services (CMS) reduced the dispensing fee for 2006. Although further reductions in the dispensing fee are unlikely for next year, other policy changes raise reimbursement and compliance issues for pharmacies in the months ahead. Some of these issues are summarized below.

Earlier this year, the DME program safeguard contractors (PSCs) published a draft medical policy for nebulizers that proposed to use a least costly alternative reimbursement methodology for two widely used respiratory medications, Levalbuterol and DuoNeb. The PSCs support this proposal by stating that the drugs have not been shown to be more effective than other less expensive drugs. In response, pharmacies have questioned the PSC’s authority to propose this payment methodology and the impact the proposal will have on access for Medicare beneficiaries. While the DME PSC medical directors have the authority to develop local coverage determinations (LCDs), the focus of the LCD should be to establish coverage criteria, not payment methodology. In this case, Congress established the framework for reimbursing inhalation drugs under the MMA of 2003. The DME PSC’s proposal ignores the reimbursement established by Congress, confusing a payment methodology with what should be coverage criteria. The timeline for a final policy on this issue was still uncertain at press time, but all pharmacies that furnish these two medications should be aware of the proposal.

As this article was going to press, CMS released final quality standards. All suppliers, including pharmacies, will need to demonstrate their compliance with the standards through accreditation in order to bill Medicare. CMS has stated that priority for accreditation will be given to suppliers in areas subject to competitive bidding. Because inhalation drugs are not subject to competitive bidding, pharmacies that focus exclusively on respiratory medications will have more time to get accredited. The exact timeline is still unclear, but accreditation might be phased in on a rolling basis—perhaps tied to the pharmacy’s NSC re-enrollment schedule.

Also at press time, CMS announced that it would issue new codes applicable to compounded respiratory medications. CMS’ intent in issuing the codes is to eliminate inappropriate incentives for providing compounded drugs instead of commercially available drugs. The announcement came in a letter to Sen. Charles Grassley (R-Iowa), reported in USA Today. The paper reported that CMS was responding to a letter Grassley sent to CMS administrator Dr. Mark McClellan raising concerns that some pharmacies might switch patients to compounded drugs without informing physicians or patients. According to the paper, the new codes will be effective in January and could result in payment amounts for compounded drugs that are “significantly” lower than current reimbursements.

The USA Today story followed an announcement by the Food and Drug Administration (FDA) that it had warned three pharmacies that compounding large quantities of respiratory medications would be viewed as manufacturing drugs in violation of FDA regulations. The FDA statement noted that it was not targeting traditional pharmacy compounding, which involves compounding small quantities of unique drugs in response to a physician order to meet specific patient needs.

The FDA’s announcement and the proposal to create new codes to address compounding places pharmacy compounding in the spotlight for the coming year from both a payment and a compliance perspective. In the coming months, pharmacies should review their compounding practices with this in mind. Pharmacies should also review the new quality standards and consider their options for accreditation.

This article originally appeared in the Respiratory Management Sept/Oct 2006 issue of HME Business.