Blood Safety Transcripts

DEPARTMENT OF HEALTH AND HUMAN SERVICES
ADVISORY COMMITTEE ON BLOOD SAFETY AND AVAILABILITY

Nineteenth Meeting

"The Economics of Blood and Where Blood Fits in the Overall Cost of Health Care"

8:37 a.m. a.m.
Thursday, May 1, 2003

Hyatt Regency Hotel on Capitol Hill
400 New Jersey Avenue, N.W.
Washington, D.C. 20001

P A R T I C I P A N T S

Committee Members

• Mark Brecher, M.D., Chairman
• Celso Bianco, M.D.
• Rajen K. Dalal, MBA
• Richard Davey, M.D.
• Ronald Gilcher, M.D.
• Edward D. Gomperts, M.D.
• Paul F. Haas, Ph.D.
• W. Keith Hoots, M.D.
• Dana Kuhn, Ph.D.
• Jeanne Linden, M.D.
• Karen Shoos Lipton, J.D.
• Lola Lopes, Ph.D.
• John Penner, M.D.
• Mark Skinner, J.D.
• John Walsh

Non-Voting Government Representatives

• Mary E. Chamberland, M.D.
• Jay Epstein, M.D.
• Colonel G. Michael Fitzpatrick
• Harvey Klein, M.D.

Consultants to the Committee

• Captain Lawrence McMurtry, Acting Assistant Secretary

C O N T E N T S

AGENDA ITEM PAGE

• Call to Order 4
• Roll Call 4
• Conflict of Interest - Karen Kucik 5
• Review of the Lewin Report - Stephen Hull 21
• Hospital Outpatient Prospective Payment System
  • Julie Birkofer - Overview 57
  • Miriam O'Day - Immune Deficiency Foundation 82
  • Shannon Penberthy - National Hemophilia
  • Foundation 63
• Break
• How CMS Works - Chris Mancill 106
• How Other Countries Pay for Blood - Stuart Penny 160
• Lunch
• MedPac Study on Reimbursement - Timothy F. Greene 201
• Academic Hospital Fiscal Overview - Ed Snyder 248
• Break
• Is Anybody Managing Their Budget Based on the Cost of Blood? - Dennis Fallen 305
• Committee Discussion 326
• Adjournment 346

P R O C E E D I N G S

DR. BRECHER: This meeting, the 19th Meeting of the Advisory Committee on Blood Safety and Availability is now called to order. We will start with the roll call.

CAPT. McMURTRY: Mark Brecher is here.

Larry Allen?

[No response.]

CAPT. McMURTRY: Celso Bianco?

[No response.]

CAPT. McMURTRY: Rajen Dalal?

[No response.]

CAPT. McMURTRY: Richard Davey?

DR. DAVEY: Here.

CAPT. McMURTRY: Ron Gilcher?

DR. GILCHER: Here.

CAPT. McMURTRY: Edward Gomperts called me. He's going to be late.

CAPT. McMURTRY: Paul Haas?

DR. HAAS: Here.

CAPT. McMURTRY: Keith Hoots?

DR. HOOTS: Here.

CAPT. McMURTRY: Dana Kuhn?

DR. KUHN: Here.

CAPT. McMURTRY: Jean Linden?

DR. LINDEN: Here.

CAPT. McMURTRY: Karen Lipton.

MS. LIPTON: Here.

CAPT. McMURTRY: Lola Lopes?

DR. LOPES: Here.

CAPT. McMURTRY: Gargi is taking exams, and she won't be here today or tomorrow. John Penner?

DR. PENNER: Here.

CAPT. McMURTRY: Mark Skinner?

MR. SKINNER: Here.

CAPT. McMURTRY: John Walsh?

MR. WALSH: Here.

CAPT. McMURTRY: And Jerry Winklestein is absent.

DR. BRECHER: We'll next move to the conflict of interest. Karen?

MS. KUCIK: Good morning. My name is Karen Kucik, and I'm an attorney in the Office of the General Counsel for HHS. I was asked to come this morning to quickly review with you the conflict of interest rules and statutes that apply to you as special government employees serving on this Advisory Committee.

The other thing that I'm going to mention very briefly is that in the last year there has been a lot of discussion about how to appoint members of the Advisory Committee and, in fact, many Scientific Advisory Committees within the Department, where there is a feeling that, in fact, instead of all of the members serving as special government employees who are to give their best judgment to decisions and try to divorce themselves, both in their judgment and also because of the legal procedures that are available from their conflicting financial interests, we are now going to include in this Advisory Committee representative members who will not be special government employees, but who will, instead, represent a particular industry or sector.

So that I'm not familiar with the actual specific details of this charter, but there will be someone perhaps who will represent blood centers, rather than someone who is employed at a blood center and is a member of the committee with all of the legal regulatory waivers and specific 208(b)(3) waivers that we provide to deal with the fact that they are giving advice on matters where they have a conflicting financial interest.

That's a pretty broad-brush stroke, but I'm telling you that because right now the entire Executive Branch, but particularly HHS, is receiving a lot of attention with regard to the way that members are appointed to the Advisory Committees and what exactly they are to be doing when they advise, when they vote on issues that are before the committee.

Let me just quickly go over the rules, and then if you have any quick questions that I am familiar with to be able to answer, I'll try to answer them.

The statutes that apply to all federal employees are very old. They were enacted after the Civil War, and they came out of a concern that people who are working for the government should not benefit financially because of what they do as government employees.

18 USC 208 is a criminal statute. It says that no government employee, and that includes special government employees who only meet perhaps once every three months for a day or maybe even hours of a day, and work on matters that are going to have an effect in the course of this agency's work.

The statute says that you shall not participate in a matter where you have a financial interest, and then it lists your own personal financial interests and interests that are imputed to you. The interests that are imputed to a government employee are those of his or her spouse, his or her dependent children, his or her employer--that's a big one--and any interests of an organization where an employee serves as an officer, has a fiduciary relationship with that organization. That would include partnerships, that would include professional organizations where you serve as an officer. It doesn't matter that you're not compensated. The interests, the financial interests of that organization are imputed to you.

Now, the way the government has dealt with this very big, huge statute, criminal statute, with all its implications is--well, there are many ways. One way is when someone becomes a government employee to say you're going to be working in this area. Therefore, you can own nothing that would have a financial effect in this area. So that for full-time government employees, beginning with the Secretary and all the way down, we will advise law enforcement to divest of financial holdings, stocks. We have never advised anyone to get a divorce, but--

[Laughter.]

MS. KUCIK: --but there are problems, and people have often, not frequently, but have had to refuse a job because of a spouse's employment. Another way is by recusal so that--and, again, this is the bread and butter of my kind of attorneys, where we tease out whether or not there will be a direct and predictable financial effect if the employee participates, but we will sometimes ask for a waiver, and the waiver provision is written into the statute.

The one that has to do with full-time government employees has one standard, and beginning in 1989, after the first President Bush had his own Advisory Committee look at what the problems were with the conflict of interest statutes and the reality of working for the government, that Advisory Committee recommended, and Congress enacted, a provision in the statute that allows for what we now call a 208(b)(3) waiver, where the member of an Advisory Committee--it's limited to members of Advisory Committees--do have a financial conflict of interest, but also have qualifications that are so significant and so important to the government that it is more important that the individual serve, even with this conflict of interest, than that he not be allowed to serve--he or she be allowed to serve because of the conflict of interest.

Are you following all of this?

Some of the granting of the waivers has gotten to the point where people have said, yeah, but this is ridiculous. This is just huge. This is going to have such an effect on this particular individual's financial interests or his employer's financial interests that it just doesn't feel right.

In fact, the bigger problem is that the public often doesn't understand and wonders how someone who is an officer at the Red Cross can be sitting on an Advisory Committee. That's an uninformed reaction, but that is a real reaction.

What was decided with regard to the Blood Safety and Availability Advisory Committee was that perhaps the composition of the committee should be changed slightly so that some people would serve as representatives. That means that there is a possibility, and I don't know the details, but some of you may be learning that you're not going to be serving on the committee any more, and instead there may be a representative of blood banks who is going to come, fully conflicted, and serve on the committee to voice the position of blood banks.

You're following this?

Again, I don't know the details, but this is just another way of trying to deal with the reality of the need for services, of individuals and representatives of different sectors in order to get the best possible advice to serve this Secretary, this department with regard to the issues that are part of the mission, the charter, the stated goals of this committee.

Now, having said that, there is 208, there is 208(b)(3), which allows waivers. Many of you have now a written waiver that permits you to participate in matters that will have a possible effect on your conflicting financial interests. With regard to employment, there is a regulatory waiver. So the fact that you are employed by an entity that has a potential financial interest is taken care of. However, if you, as part of your pension plan, own stock in that entity that requires a waiver.

And so we have tried to look at your financial disclosure reports, which, by the way, I encourage you to be as open and complete in disclosing all your potential and your spouse's financial interests so that we can, if there is a conflict, then grant a waiver and make sure you're protected from possible either accusations, rightly or wrongly, or a violation of the criminal conflict of interest statute.

There are other statutes that apply. There are what we call the anti-representational criminal statutes at 18 USC 203 and 205. Those provisions say that an ordinary federal employee, like me, that a federal employee cannot represent another to the federal government, and this is with regard to any matter that the government has an interest in.

This statute has been so widely construed that I can't go with someone who wants a green card to INS and argue on behalf of that person because I'm a federal employee and I would be representing that person. That's pretty onerous, and that's pretty unrealistic, but it is the law, and it isn't going to change right now.

With regard to special government employees, there is a very narrow application of that statute. You are prohibited from representing another to the government only with regard to particular specific party matters that you work on here in this committee--I have to add--and with regard to any other committees for the federal government that you serve on the matters of that committee, because I know there are some people who serve on more than one scientific advisory committee.

That means that if you work for, I don't know, Chiron, and there is a matter before this committee that has to do with a test that might be used on blood, and there could be a financial impact on Chiron with regard to a test, you cannot go to HHS or any other part of the federal Executive Branch to argue on behalf of Chiron or any other entity with regard to that specific matter that you're dealing with here as a committee.

Does that make sense?

The other rules have to do with the post-employment effect. There is for most of us who are full-time federal employees pretty stringent rules with regard to coming back--you know, the revolving door--coming back before the government on behalf of another entity after you leave government service with regard to any particular matter that you worked on while you were a federal employee.

This is another statute that is widely misunderstood. The statute doesn't mean you can't go to work for a company that you had an effect on while you were with the government. It doesn't even mean that you can't work on the same specific matter that you worked on personally and substantially. It means you can't represent. You can't come back and speak for.

For special government employees, and that means the people who serve on Advisory Committees, again, that rule is very limited. That rule, that criminal statute, though, I would remind you it's a criminal statute, has to do with what you do here specifically as a committee. So it doesn't keep you from doing anything broader than or totally unrelated to the work that you're doing here as a committee.

The other rules have to do with obvious things such as bribery and accepting gifts from--most of the time special government employees can accept gifts from the outside entities, and none of the rules that apply to full-time employees really come into effect. There are regulations--this is not a criminal statute--on misuse of position. I'm not sure that a lot of people fall over in awe at government employment, but the fact of the matter is that you are not use your membership on this committee with regard to outside activities or to try to change the effect of something, to go to the Fairfax County Zoning Board to talk about maybe your company's wish to relocate to Fairfax County and to say, "Well, I'm on the Secretary's Advisory Committee on Blood Safety." I think Fairfax County would yawn, but that is a misuse of position, and that is prohibited by regulation.

The last thing is a little bit of a surprise to people, but we have been trying to make sure that all of our Advisory Committee members know that there is something in the Constitution of the United States that is called the Emoluments Clause, and it applies to special government employees, as well as full-time government employees.

Basically, the effect of the Emoluments Clause on all of you, as members of this committee, is that you cannot compensated or receive any honorarium from a foreign government. That's very important, and right now it is going to be given more scrutiny because of the fact that we are a nation that has been at war. We have all kinds of concerns about foreign governments now that were less prominent.

My office will answer questions. Mac would be your first point of contact. If you are asked to come and give a speech in Thailand and the University that is asking you to speak is part of the Government of Thailand, that's a problem. So keep that in mind.

There should have been actually a form that you were given to fill out, along with your Financial Disclosure Report, that would have brought that to your attention.

Would that have been given out, Mac? Yes, okay.

That's it. If you have questions, I'll try to answer them.

Yes?

MS. LIPTON: Just one question. How do we know whether we're serving as a fully conflicted SGE or a member with waivers?

MS. KUCIK: I think you're going to--well, that's a good question. And if you are sitting here now, and if there is a waiver in place for you, if you don't have a copy of it, you should be given a copy of it, and you will know then.

For those of you who are here today, you all just took the oath of office, so you are all government employees who are sitting here right now, as opposed to representatives. That means that you have filed a financial disclosure report and someone has reviewed it. And if you don't have a waiver, that means that the only conflict you have is your employment, which is taken care of by a regulatory waiver.

So the question really should be whether I have a waiver, a regulatory waiver or a written waiver, what can't I work on, even with the waiver, is any matter that would be effective with regard to your employer or your stock holdings.

So that, again, using the Chiron example, if all you have is an employment interest in Chiron, that has been taken care of by either the regulatory waiver or the written waiver. But if Chiron comes here and says you all should be recommending our company's test. You can't be part of the discussion, deliberation, anything else. You're out of the room for that particular, specific party matter.

Does that make sense?

Yes?

DR. HOOTS: If you work for a state government, is there any potential conflict of interest? Does the interest of the state come head on against the conflict of the federal government?

MS. KUCIK: Sure. And what has been addressed, surely, is your state--the interest of states in the work of this committee, generally, has been addressed in either the regulatory or the specific written waiver. However, should your state have such an interest, I don't know, perhaps New York has a greater interest in issues of availability of blood than any other state in the country--I mean, maybe.

So if a representative from the Health Department of the State of New York came to argue on behalf of New York and wanted this committee to recommend with regard to that particular situation, and you worked for New York, you couldn't participate.

DR. BRECHER: Thank you, Karen.

MS. KUCIK: Thank you.

DR. BRECHER: That was very helpful.

MS. KUCIK: I hope so.

DR. BRECHER: I think that was probably the best conflict of interest review that we've had.

MS. KUCIK: Thank you.

DR. BRECHER: We're going to begin this meeting on the Economics of Blood and Where Bloods Fits in the Overall Cost of Health Care.

We're going to strive to stay on time. We will get out relatively early tomorrow, as opposed to our last two meetings, I promise. We're going to begin with a review of the Lewin Report, and Stephen Hull will present that.

MR. HULL: Good morning. The committee should have a copy of my presentation in their handouts, and momentarily we'll have a version on our screen. There are also copies of this presentation on the table outside.

My name is Stephen Hull. I'm a Vice President at the Advanced Medical Technology Association, formerly known as HEMA. Our association represents most of the major medical technology, medical device manufacturers, as well as in vitro diagnostics manufacturers. I'll just give a brief overview of the presentation today. I'll go through the commitment of our membership to blood reimbursement and the activities of a blood sector that we formed especially to address issues such as this a couple of years ago, talk about the ongoing need for technology investment to address blood safety, the importance of Medicare reimbursement. I understand there is a presentation a little bit later today on Medicare issues, so I won't go in too much detail about the basics of Medicare. Medicare reimbursements barriers that we found through a report commissioned for the Lewin Group to conduct. Talk about some solutions that our members have recommended and approached various partners to implement with respect to blood reimbursement. And we will not talk about FDA reform. That's not something that I will be covering today.

Two years ago a number of our companies approached us within our membership and expressed a sense of frustration over the situation with respect to reimbursement, and what they described to us was, one could say, a circular dilemma. There was not clear data to show indeed that there was a problem on the part of Medicare in terms of under reimbursement for blood products and services. The data in the Medicare databases related to their inpatient prospective payment system suggested that blood accounted for less than 1 percent of total costs. There did not seem to be, based on the data people had mined to date, a problem with under reimbursement. There had been a debate, I understand, about this for a number of years.

These companies approached us and asked us to help put together an active agenda to identify the barriers first of all as a baseline, understand what the issues were, outreach to the blood collection community, understand all of their perspectives, and from that, they decided we needed to commission a comprehensive report that established a baseline.

Let's look at the entire system. Let's look at the technology inputs. Let's understand what the foundational data from MedPAR, the database that is used by Medicare to update its system, what does that tell us, and try to identify the issues. And then from those first two things, we later identified issues with respect to hospital billing practices and approached the AABB, American Association of Blood Banks, to support an effort that was already ongoing on their part with respect to hospital education for billing.

These are the 10 supporting AdvaMed companies. They have been very dedicated and involved in working with us and also working with the blood collection community.

And this is just a brief overview of the findings of the Lewin Report, which I'll spend the bulk of the time today discussing. The Lewin Group documented over 30 significant products and systems in the product development pipeline, looking first at the technology inputs that relate partly to the cost of blood products in the marketplace. What they found is a very full spectrum of blood collection processing storage and transfusion issues are being addressed by technologies in the pipeline. They found a very robust technology pipeline, constant innovation by the companies who are in this sector to address the problems that exist in the blood collection community. They also found that a number of current screening and other technologies already in development have the potential to address new threats, and an example that I will spend a moment on is West Nile virus.

Pathogen inactivation and NAT testing, I understand, were technologies on the shelf being already developed or used for other indications. Very luckily, they were available to be adapted to address this new threat. So a point that the Lewin Group concluded is that both known and unknown risks are an ongoing challenge, that it's very important to have a technology pipeline such that you have solutions that are ready to go as these threats emerge. Obviously, some of them demand an immediate response, and I know that there are members of this panel that are quite expert on West Nile. But the incidence of this disease I think certainly speaks to that point.

The last point that they raise is if a solution is developed, if we're lucky enough to have a technology solution, will our payment systems even be able to address this cost?

So why is Medicare important to this paradigm? They found that Medicare accounts for 46 percent of spending on blood intensive DRGs. And it is also a benchmark for private payers in terms of setting trends for the practices of coverage and payment. This is for hospital inpatient services, and I should mention that they also found that inpatient blood transfusions account for at least 90 percent of the transfusions in this country. There are varying estimates on that. I've seen up to 95 percent. So it seemed to us that Medicare inpatient reimbursement was the primary focus of the analysis. Outpatient reimbursement has also been important, but it comprises a far smaller portion of the marketplace.

So just a bit of an overview of the basics in terms of how Medicare pays for services in a hospital setting. Inpatient payments are paid using the diagnosis-related group system. Outpatient is paid using APCs, the Ambulatory Payment Classification System. These systems have a few things in common. Both of them are updated each year with a standardized amount, that is, a dollar figure used to capture inflation year to year, and a relative weight. There is a relative weight assigned to each payment group in each of these systems. In the DRG system there are about 525 of these payment groups. So the payment amounts are predetermined for care before the care is provided. In terms of specific services, regardless of the intensity of any one service, the DRG payment amount will be the same.

The bundles are structured according to major diagnoses and major procedures, and many ancillary services, including blood, are bundled and do not affect the specific payment for that discharge. So billing of blood codes does not literally lead to any difference in payment for a particular patient discharge in a given year. That does not mean that billing for blood is unimportant, however, because the system is calibrated the next year based on the prior year's charge data. So if there is an absence of billing for blood in terms of accuracy or completeness, the charges for the next year's revision will not reflect that, and in turn you will have lower payment levels for the DRGs that rely heavily on blood transfusions.

The APC system is a little bit more granular in terms of its payment levels. It resembles a bit more of a fee schedule. The bundles used rely on procedures and technologies only. They include a much smaller group of services. Blood, some blood products and services are paid separately thanks to the extensive efforts of folks at this meeting and other blood collection organizations. And of course there the billing of specific codes is far more important in terms of rendering a payment that addresses the cost of the service. There the hypothesis at least is that we have seen a bit more detailed billing on the part of hospitals.

So problems in capturing blood costs in hospital payment. First of all, we were aware that as of 1997 Medicare excluded blood costs in the annual inpatient market basket index. The market basket index is a list of factors that Medicare measures each year to understand inflationary impact on hospital cost, and they use this to derive the standardized amount change, and I believe you'll be hearing a bit more about this later this morning.

As of 1997 Medicare assumed that the chemicals index that they were using was adequate to capture the cost of blood. They just weighted it more heavily and did away with a separate factor for blood itself. Separate from that, the Lewin Group found that the Medicare inpatient data, the data that are captured with the discharges in the hospitals on a daily basis, do not capture either the volume or nature of blood transfusions, and this was really the guts of their analysis, and we found those findings rather provocative. And they also at the time found that some of the outpatient rates that were being used had not stayed current with the costs of blood products or procedures, and that they would underpay blood products and services. I understand that some of those problems still exist today.

So right off the bat, they found that fewer than half of hospitals that participate in this prospective payment system bill at all for blood, meaning that when they reviewed the cost reports of all the hospitals involved in the inpatient prospective payment system, 52 percent of them had no record of billing for blood products or administration procedures. 48 percent of them that did tended to include some of the larger hospitals in the country, so those translated to about 60 percent of the claims volume in the system. Nonetheless, one could argue there's a significant gap, very evident from this statistic.

So when you look at all of the claims submitted by all of the hospitals in the Medicare system in a given year, you find that 81 percent of them do not have any reference to billing for blood products or transfusions. Only 19 percent of them have any reference to either blood products or procedures, and this contrasts with other estimates we've seen in the marketplace. I believe ABC estimated that the number should be closer to 30 percent.

Practices vary widely in the coding used to bill for blood. Within the Medicare rules there is some ambiguity. And we found that the majority out of that 19 percent, capture only the administration charged. That in and of itself is not necessarily a problem. There are many reasons why a hospital would just bill administration and not for the product. In some cases state laws require them to do it that way.

But a key question that we really pressed on here is, when you look at the method used for billing, are the charging levels widely variant? Does that impact the ability of a hospital to recoup the costs of providing the transfusion? And what did the charge data look like?

As mentioned charges are used to update the PPS payment levels, the relative weight. They found that overall the markups for blood-related services are far lower than other supplies and services. 73 percent markup on average for the hospitals that do bill for blood product. This compared with markups of 182 percent for medical supplies, 167 percent for ancillary services.

They also found enormous variance among the states. In some cases states were charging at levels that were lower than what they actually paid for the product. On average in North Dakota that appeared to be the case. On the higher end, Pennsylvania, for example, they seem to be inflating charges at a more consistent level with other services, though I still note it is lower than what they would inflate for other types of medical supplies. And I think the bottom line of what we found is rather than a discernible trend in terms of the way in which they bill for their blood services, we found an enormous amount of what appear to be random error between the states and the charge levels.

So how does one make sense of this? If you multiply the charge levels by what they call the cost-to-charge ratio, you could come up with a proxy for what it costs a hospital to provide a blood transfusion. The Lewin Group looked at those cost-to-charge data from Medicare and compared it with the MedPAR charge data, and came up with these estimates. What they found--well, first off, my home state of Maryland is a leader, billing at over $1,700 for transfusion. That has to do with their exemption from the inpatient prospective payment system. If you put Maryland aside and look at the range for the other states, you see a range of about almost 400 percent. North Dakota comes in at just over $800. States like Arizona are on the other end, closer to 350. The lowest state among them is just over $200. And we think these statistics can be contrasted with anecdotal studies that have been done in individual hospitals, that show a much higher level of investment in blood transfusions. There was one hospital that was examined in 1995, and they found that total transfusion cost measured in the range of just over $980. Other anecdotal studies have affirmed a ballpark range of transfusion costs in that order.

So the thought is that when you put all of this together, there is a lot of confusion in the marketplace about how to bill for blood. There is enormous inconsistency among hospitals in recording the services they perform. There is enormous inconsistency among hospitals in inflating charges or applying charges at all with respect to their blood services. So from this study, AdvaMed companies spoke with a lot of the members of the community to come up with some possible solutions. The first one of course was the market basket revision that has already gone into effect, and we actually found that when approached, CNS was fairly receptive to this. They had some encouragement by the Congress, and of course the blood collection community was unified in asking that they reinstate a separate market basket index factor for blood. That factor's not perfect and it may require some fine tuning in the future as a longer term project. I understand that can take as long as five years, but certainly we are much better off today than we were a year ago with respect to that.

The Lewin report itself was launched in October, and since then our member companies have approached the various partners in the community, particularly AABB, to enter into partnership to support more accurate hospital billing. So there is a billing guide project that the AABB has undertaken with some sponsorship from some of our companies to go out and educate hospitals as to how to bill according to the Medicare rules as they exist today. And concurrent with that, there is a hospital education effort to actually go out and get the word out. I understand that the American Red Cross has a very effective program that is very similar to this. They are also partnering this effort, and we are looking forward to working with them as well.

So in terms of action areas or objectives, hospital education I just mentioned. Further refinement of the market basket index is also important, again, probably will not be something that is possible in the immediate term. It has to do with the Bureau of Labor Statistics and the foundational data that they compile.

And thirdly, perhaps most importantly, is a push for a CNS policy clarification and examination of all of the rules that they have in place with respect to blood billing. We find that not only are the rules confusing for billing for blood in the hospital inpatient setting, but they're diffuse. They don't exist in any one place. There are a myriad of questions and ambiguities about which codes to use and when to use them. We think that CNS ought to consider consolidating all of this into one place. They ought to open it up for public comment and receive feedback and suggestions as to how to clarify it. If only half of American hospitals are billing for blood at all, perhaps the codes on the inpatient side are too complicated. Perhaps we should resort to having fewer of them. This is a debate that we think needs to happen with CNS. AdvaMed has had a few discussions with various partners, and we're aware, by the way, that most of them are also pursuing similar efforts in parallel, so a suggestion that we have raised is perhaps we ought to work together and consolidate this effort so that we don't have another series of disparate program memos from Medicare, that each address one individual piece of the billing paradigm.

Hospital associations, the AHA, are obviously critical partners. They have disseminated, I understand, or at least made their members aware of the billing guide that AABB has just released, so we're very grateful for that. Clinician and pathologist associations are also very engaged in this effort. We're hoping to have the engagement of patient groups to underscore the importance of this. At present we do not have a lot of such groups engaged, but we would certainly welcome their participation. So the billing guide has been distributed to over 4,000 hospitals. There has been some targeted advertising. There will be further distribution of the billing guide at other conferences. A couple of educational seminars will be sponsored this year. There will also be, I understand, AABB will sponsor some audio conferences on reimbursement billing. At least one of those has already happened this year.

And that is all that I have to present. Full copies of our Lewin Report are available on our website, www.advamed.org. Thank you.

DR. BRECHER: Thank you, Stephen. We'll open for questions. The actual report summary was distributed to the members of the committee. Jay?

DR. EPSTEIN: Thank you, MR. Hull. That was in fact very enlightening. I have a question on the graph that shows the average blood and blood administration cost per discharge. Can that graph be adjusted for the per unit blood cost? In other words, this is the aggregated blood cost divided by the number of hospital discharges. But can you not adjust that for the percent of discharges that involve transfusion, the average number of units to get an estimated average unit cost?

MR. HULL: I wish that we could. It may be possible among the hospitals that do bill with that level of accuracy to come up with a figure, but it's very unlikely it would be representative of the entire hospital system. The numbers that comprise this graph--this is the fourth to last slide I believe--basically stem from the revenue codes, and there are only two of those that are used to bill for either blood products or transfusions in the hospital setting, so in that sense it's a fairly macro examination. Even that though has proved to be very difficult in terms of getting accurate levels of detail, just those two revenue codes.

DR. EPSTEIN: You know, the problem with these figures is that they don't let you understand how far off the reimbursement is from the cost of a unit which is the thing you need to figure out.

MR. HULL: Understandably. So the best that we can do is point to anecdotal studies. As it records the cost of transfusion and the charges of transfusion, I think the best we conclude is the Medicare data are severely flawed. We don't know however what the right answer is. It's because there is no separate database that we have found that accurately records this. But I appreciate the comment.

DR. BRECHER: Harvey.

DR. KLEIN: Two questions. Could some of the variability in the differences reflect differences in the mix of blood components? For example, small hospitals will use primarily red cells. Larger hospitals will use aphoresis platelets which are significantly more expensive. The other question is, could you define what you mean by inflating charges? What goes into that?

MR. HULL: Well, hospitals, because their payment levels are derived from certain primary diagnoses and procedures, there's a whole range of things that they must do to provide care that are not literally billed. They don't appear on the claim form. So they're obligated to inflate their charges at essentially a markup to what they provide to the patient in order to recoup those overhead costs and other supplies. So essentially that's the way it works. Hospitals recoup what they believe they need to in order to remain solvent. And they have the liberty to apply different markups to different types of things that they provide. So some have observed that perhaps this is a matter of hospitals just needing to amend their own practices. For antitrust reasons, we're probably not in a position to advise them on that, but I think one inference here is there may just not be awareness on the part of hospitals as to what is going on in their own billing systems and how they ought to look at this.

One rumor we have heard is that some hospitals believe that it is illegal for them to mark up at all on blood products and services. That is not the fact, to the extent at least that we have uncovered any legal barriers.

DR. KLEIN: Could you answer the question on mix of components?

MR. HULL: Yes, thank you. We thought about that. When you look at the mix of states though, we're not sure that it would reinforce that. I suppose one could argue that if a given state was heavily weighted towards small rural hospitals, that you might see a different component mix. Why then though would you see a state like North Dakota on the extreme end of expense and other states, Virginia, for example, on the lower end? There didn't seem to be any rhyme or reason to the numbers that came up after we did the analysis.

DR. DAVEY: Are coagulation factors included in your analysis? Sometimes they're handled by the blood bank, sometimes by the pharmacy. They're very expensive, like Factor VIII, Activated VII?

MR. HULL: I believe not. Those are billed under a separate revenue code. They also are one of the very few products that has a separate reimbursement from the inpatient system, so they would be excluded from this analysis.

DR. BIANCO: Steve, this was excellent, I think extremely helpful in all your efforts. But there is something that is unclear to me. Most of the reimbursement to hospitals comes through the DRG system. The DRG system is a fixed payment for a procedure, a disease, a diagnosis. What difference does it make if the hospital bills or does not bill for blood if they are going to get the same thing for that procedure?

MR. HULL: Thank you for raising the most important and perhaps most difficult question. On the data they bill in that billing cycle, none since the DRG payment will not change, but the system is designed to work on accurate data, and thorough reporting of costs of services provided. If the hospital did not bill for anything other than those things that were primary diagnoses and procedures, our system would be in dire difficulty. There would be a real problem. We would not in any way accurately capture the cost of providing care.

So it's true, what we're asking of hospitals is in essence good citizenship, that they start to record more accurately so that future payment levels can calibrate to address this problem. But indeed, the system would break down if hospitals didn't bill any of those things at all, if they followed that logic to the extreme.

So it's a good point. It is one of the reasons that this has been slow to change, but we understand that hospital billing departments and blood banks understand this message when we share it with them, and they understand the need to look at the way in which they're billing for blood.

DR. BRECHER: Jeanne?

DR. LINDEN: In order for us to better understand the report, can you tell me who the Lewin Group is, what their area of expertise and background is--I mean, clearly it's not blood banking--and how they did this analysis?

MR. HULL: Certainly. The Lewin Group is an independent consulting firm. They're a subsidiary of Quintiles. They have an extensive consulting practice for the hospital sector as well as product manufacturers. They do a lot of work with the various databases that Medicare uses. And that was really the core expertise that we needed for this. If half of hospitals are not billing at all for blood, the nuances in terms of which products are used in the science of blood transfusion became a little bit less important to the analysis then an understanding of how Medicare records its cost and charge data. We have used them previously for similar reports, and we have found them to do a very thorough job.

DR. BRECHER: Karen?

MS. LIPTON: I hope I'm not conflicted in saying this, but I just want to thank AdvaMed, and particularly Stephen, who really delved into the detail on this. And I know that this is an imperfect report, but it really does give us a lot of information, and one of the things that we have to remember is any time we want to try to reform the system, if you're not even using the system in the first place, you're not going to get a very good reaction. So I think it's very important for all of us to take this seriously. When Celso asked the question, I mean, I think the answer is that we all need to bill accurately and then we need to take a look in a year or two to see if it actually made a difference in terms of what we think we're getting back from the system, and then we would have a basis in which to challenge the system. But when you have 50 percent that essentially aren't participating, it makes it very difficult to make your case. So I just want to thank you.

DR. BRECHER: Mark.

MR. SKINNER: One of the pieces which you really didn't touch on in your report talked about just the increasing costs of blood products, partly because of the advances in safety as new technologies are developed, new tests are developed and new requirements are on the system. I guess I'm interested in your conclusion. As we attempt to keep the reimbursement system with the advances in technology, should that reimbursement system be purely based on an economic decision? Should it be based on safety or what--how should the final analysis be made when the payers are making the decision on what products to reimburse for?

MR. HULL: Thank you. That's a question certainly relevant to all medical technologies. In the area of blood, however, I think we have the added advantage of having the sage advice of groups such as this, in terms of what blood safety measures are appropriate. So there's an extra layer of my perception at least in the blood safety community of guidelines in terms of the clinical practice that ought to be implemented. So that helps, I think is something that could help to steer those who are managing the reimbursement systems in terms of targeting what should be reimbursed at what levels.

There is a constant tension between reimbursement systems and new technologies that evolve. It's something our system deals with every day. In some ways the DRG system is intended to promote provider selection of the technologies that they think most appropriate by having that slowed calibration process. We think in the blood area--well, we think there's a difficulty with breakthrough technologies across the board at AdvaMed, but we think in the blood area there's a particularly acute problem because of the billing practice problem that we've described in the system's ability to even capture 5 years later the cost of the new blood safety technology.

So it may at some point be appropriate for a groups such as this to consider recommendations about a new payment mechanism for blood products in the hospital inpatient setting that is different from the DRG system. That is not something we have proposed yet. We think that we need to have a foundational understanding in the data of what the reality is before that discussion occurs. But I think we have a few steps before we get to that point. And in the interim we ought to get the DRG system to work the way in which it was designed to work.

DR. BRECHER: Keith?

DR. HOOTS: Is there any potential, since underreporting and for whom the underreporting--or of whom it represents is such an issue here, to look at CPT codes or something to see if there's an institutional relationship between, say, large cardiovascular surgery units, large trauma units which us a lot of blood versus smaller hospitals that may not even have emergency centers and, therefore, don't use as much blood, to see if this is reflective, and kind of getting at what Jay was talking about, trying to refine it down to the cost per unit, which seems to be an integer that we need to have, you know, to be able to really assess what it ought to be?

We know from the other side what it costs to produce it, but if it's only being reversed at X percent of that actual cost and we don't even know what we're starting from.

MR. HULL: To come up with that number--I agree that there would be great value in having an average cost per unit figure that one could cite to contrast with what is going on in the marketplace. You would need to do a very detailed on-site survey. You would literally need to go and survey hospitals and look at their charge data in order to compile those data since obviously they're not appearing in the annual MedPAR data set.

We considered something of that nature and found that it was a little bit beyond our reach. I do think, though, that the findings we have on the table today show that there is a grave problem in the system.

DR. BRECHER: Jay?

DR. EPSTEIN: This question may go beyond the scope of what was studied, but I think it's important to ask. Is blood unique in having this type of reimbursement problem where it's embedded in myriad deregulations, has, you know, no independent market index, and is underrepresented in hospital billing? Because one of the arguments that has come back on previous occasions from CMS is, well, we can't start making exceptions. And so I think it comes down to the question of whether there's a special problem here or there isn't a special problem here above and beyond the particular difficulties of getting accurate reimbursement.

MR. HULL: Thanks for the question. The answer is yes and no. It is not unique in the sense that other ancillary--what they call ancillary supplies that do not drive a specific DRG assignment are billed in a similar fashion. It is unique, and I think we should argue in a compelling way that it is unique, because of its importance to safety in the hospital and safe medical care. And, secondly, it appears to be unique in terms of the practices of hospitals in what they charge for the products and transfusions, their charging levels, their consistency in doing that, and their ability to capture those in the data.

I think there is a premise here that could be built upon that blood is not like any other disposable supply. It has unique properties and unique value, and there is a reason to support blood safety measures through appropriate reimbursement.

DR. BRECHER: Mary?

DR. CHAMBERLAND: I just had a question. Were you able to do any more detailed analysis to look at--to compare hospitals that billed versus those that didn't? In one of your charts here, it's basically a 50/50 split that showed any--so were there any particular characteristics of hospitals in general that made them more likely to be a biller than a non-biller? And I guess the same--a similar question in the analysis of looking at the claim data, you know, just again looking for some indicators of what might make an institution or an individual claim be more likely to include blood versus not.

MR. HULL: We requested a long-range follow-up analysis to try to understand what the correlations were in the marketplace. Most importantly, I wanted to understand, for example, if charge levels corresponded to the way in which they billed, whether they billed for product or service, transfusion service. There unfortunately was not a discernible trend. It's essentially chaos in the marketplace across the various states without rhyme or reason.

The one trend that they did pick up on in terms of whether or not a hospital bills at all or records at all in their cost reports is simply volume. The larger hospitals tended to do so; the smaller ones tended not to.

COLONEL FITZPATRICK: Another problem is that even though the hospital may bill, the administration passes those charges to the services differently within the hospital. So it may not be a direct correlation from the billing to what the transfusion service gets paid to buy the blood. Was there any fidelity--in your discussions with hospitals, were you able to look at or see how the actual funding of the transfusion service and purchase of blood related to how the hospital billed?

MR. HULL: That was a bit outside of our scope, and for antitrust reasons it's probably not something that we could explore in detail. Our thought, though, is that as the Lewin findings become better known and the problem becomes better understood, hospitals at all levels within their institutions will take a look at this and, you know, perhaps there will be additional measures to address the added costs of blood safety.

DR. BRECHER: Ron?

DR. GILCHER: In support that blood may be different than other disposables, if you compare organs and blood, there's obviously similarities in terms of them both being derived from humans, and yet they're billed very differently. Can you comment on that? We bill separately for the organs in the organ-sharing networks, and yet we don't for blood.

MR. HULL: It has to do with Medicare rules and the way that the system is structured. I would also note that there are probably some big institutional differences between the types of hospitals that do organ transplants and those that--and the more broad practice of blood transfusions.

Perhaps there should be suggestions made to CMS that they look at the way in which they pay for blood and consider something similar. Perhaps that's where the future is. As manufacturers, we are really viewing ourselves as a support team. We want to see the blood collection community identify its solutions and support behind them. We do not think that we should be proposing ideas and leading any such effort. But I think it's a great suggestion.

DR. BRECHER: John?

DR. PENNER: Did you examine the costs of blood at all in this survey?

MR. HULL: The true costs in terms of sales--

DR. PENNER: The billing, the charge for the product.

MR. HULL: From the collector to the hospital?

DR. PENNER: That's right.

MR. HULL: We only were able to access published numbers. And, indeed, the ones that we saw, I think America's Blood Centers had issued an estimate of the trend among its membership. That came up with the market basket index debate. We did not have access to pricing information by blood collectors other than reviewing the published literature. And, again, for antitrust reasons we decided that that was not something we could explore.

DR. BRECHER: Stephen, is there a plan to go back in a year or two and relook at these numbers to see if hospitals are in better compliance in their billing?

MR. HULL: I think there certainly will be a point in time where we need to re-examine whether our efforts have prompted a change. The efforts are just beginning, though, in terms of educating hospitals, and we think simultaneously that CMS should be prompted to examine its own rules so that--the rules should also become simpler at some point.

So several years from now, I think that that is something that we could certainly think about.

DR. BRECHER: Any further comments or questions? If not, thank you very much.

MR. HULL: Thank you.

DR. BRECHER: Okay. We're now going to move to the Hospital Outpatient Prospective Payment System. We have three speakers. First is Julie Birkofer.

MS. BIRKOFER: Okay. Now that the hard part is over, my presentation is up, I'm ready to begin. My name is Julie Birkofer. I'm with the Plasma and Protein Therapeutics Association, and we appreciate the opportunity to present to you this morning.

I'm joined by two of my colleagues: Shannon Penberthy with the National Hemophilia Foundation, on behalf of them; and Miriam O'Day with the Alpha One Foundation, the Alpha One Association, and she's also an expert on IgIV reimbursement. So my overview is intended to be very broad brush, and then I'm going to turn it over to the real experts, the people in the trenches, the folks in the community.

The goal of PPTA is to ensure access to critical life-saving therapies for a broad cohort of patients with congenital diseases and chronic conditions across all sites of service in Medicare, and we're going to focus this morning's presentation on inpatient, outpatient, physician office, and homecare.

Primarily, these are the therapies that we will be highlighting this morning. This is not an inclusive list of all plasma therapies. Obviously, albumin, there are other hyper and specialty immunes. However, for the purposes of Medicare and our focus, again, on life-threatening, chronic conditions, these three--blood-clotting factors for individuals with hemophilia, IgIV, which treats primary immune deficiency diseases, and the alpha 1 proteinase inhibitor, which was exempted from the HOPPS system in the final rule last year--this is the primary focus of the plasma-using and recombinant community that we're going to be drilling down into for you this morning.

Blood-clotting factors. I'm trying to point out to you the variations in reimbursement, the gaps that exist, and the confusion it creates for all of us trying to be more effective in Medicare choice and access. For example, blood-clotting factors, inpatient, the reimbursement structure is based on DRGs. They've had an add-on payment since 1990. There was some playback back and forth on that in terms of permanency, but Shannon will discuss it in more detail. It is permanent now.

On the outpatient side, the payment structure is based on APCs, physician office and homecare, the least expensive AWP within the therapeutic class, 95 percent AWP for allowable, 80 percent actual.

IgIV, to run through the different categories, again, you see there's a gap under inpatient. The services are bundled. There's no separate payment. This has an impact on access. Under the hospital outpatient, the gap is that the services, again, are bundled. There's no separate payment. This, we believe, is reflective of the lack of robust claims data. These therapies typically don't have large numbers, don't pop up in the CMS claims data, and we've seen that to be a problem.

In addition, the definition of blood and blood products is a disconnect that appeared in the '03 HOPPS final rule. This definition has an impact not only on the ability to get a separate APC but also on accessing the dampening provision.

Physician office, IgIV is, again, based on AWP. Homecare is a GAP, and that is something that we have a few Members of Congress interested in, and we are doing some scientific studies to assess the appropriateness of that.

Alpha 1 proteinase inhibitor, inpatient, again, DRGS. The GAP, the services are bundled. Hospital outpatient, they were exempted from HOPPS. It's paid at a reasonable cost, quote-unquote. Physician office, 95 percent of AWP. Again, GAP, no coverage in the home setting.

Basically my conclusions are pretty rudimentary. Patient access is dependent upon the adequacy of reimbursement rates. Under the hospital outpatient prospective payment system, specifically plasma therapies and their recombinant analogs to treat chronic diseases should receive permanent APCs and be packaged separately. We've communicated this to CMS. We have had meetings with their outpatient staff and their medical officers. They have been very receptive to our meetings. However, I guess the proof will be in the proposed rule when it is released sometime in the next few months.

CMS, in addition, we are recommending should amend the definition of blood and blood products to reflect the need to provide continuing access to plasma therapies used to treat chronic, life-threatening conditions and diseases. This definition is really a problem. When we went in and met with CMS, we said you've defined blood and blood products, including hemophilia clotting factors. What about IVIg? And they said, well, that doesn't treat chronic diseases. And we said, well, yeah, it does. And they said, well, no, it doesn't. And, finally, we convinced them that it does, that primary immune deficiency diseases are chronic, life-threatening diseases, and they expressed to us a desire on the Secretary to try to ratchet down the numbers, the budget, and really focus on chronic diseases. So we hope they'll be receptive to the information we provided them, and I appreciate this opportunity, and next up is Shannon.

DR. BRECHER: Maybe we could have a question, if there are any questions.

MS. BIRKOFER: Do you want to do them separately or--

DR. BRECHER: Do you want to do it as a panel?

MS. BIRKOFER: We'll do it as a panel.

DR. BRECHER: Whichever you prefer.

MS. BIRKOFER: As a panel.

DR. BRECHER: Okay. We'll hold questions until all three of them have spoken.

MS. PENBERTHY: Good morning. My name is Shannon Penberthy, and I am representing the National Hemophilia Foundation. Thank you for this opportunity to provide you with this overview of reimbursement on the--we call them blood products. We know there's a lot of other blood products. That terms gets thrown around a lot and means different things to different people.

Our community has come to you many times in the past and asked for resolutions reflecting or commenting on reimbursement, access to recombinant therapies, you know, prophylaxis treatment, and so we've always appreciated the support. And what occurred to me is that we've probably never provided the committee with a full overview about how these products are reimbursed across payment systems, so I will expand on my presentation a bit this morning and go beyond HOPPS but try to give you that overview of how they are paid for. We thought that that would be helpful, given the context of the discussions that will occur later today.

It was interesting. I read the agenda this morning, "The Economics of Blood." My presentation actually comes from a previous presentation I did, and the title used to be "Economics of Factor." So we're on the same wavelength in that regard, and I will build from what Julie has said.

I think some of this will be general information, at least in the beginning, that most of you know. Coverage and payment for clotting factor products depends on the payer and the setting. The average wholesale price, AWP, remains the basis of most of our reimbursement systems, and that is a number that's reported by the manufacturers to various reporting entities, including CMS.

In the United States, there are an estimated 17,000 people with hemophilia. About 65 percent of those are Factor VIII deficient, about 35 percent Factor IX.

We are a relatively young population. Because of the impact of HIV and hepatitis in our community, we literally lost a generation. Fifty-seven percent of our population is under the age of 20, and nearly 80 percent are under the age of 40. We do have people on Medicare who are age-eligible but, by and large, they're disability-eligible, and I'll talk about that in just a few more minutes. About 50 percent of our population has the severe form of hemophilia.

And all of these numbers, I should say, for these initial slides have come from surveillance data that we're able to gather through our Centers for Disease Control program with our hemophilia treatment center programs.

About 60 percent of our community relies on recombinant products. As you know from previous discussions in this committee, the National Hemophilia Foundation and this committee has a resolution on this, considers recombinant products state of the art and the standard, the gold standard of care at this time. But we do have patients who still rely on plasma. About 20 percent of our Factor VIII patients use the plasma-derived Factor VIII products. About 25 percent of our Factor IX patients continue to use those purified plasma-based products. And up to 25 percent of our community may not use any product during a given year, and these are predominantly, of course, your mild and moderate people with hemophilia. Clotting factor is mostly used in the home, though it is administered in our treatment centers, hospital clinics, in the inpatient and the outpatient settings. But by far, this is a drug that is home-infused.

These are sources of where people get the factor, this, again, from CDC data, kind of evenly split between treatment centers, blood banks, and then specialty homecare providers. We do have some states that have state programs the factor is obtained through, and then HMOs, and then you see where we get the number for persons who didn't use factor.

Insurance coverage. For a very high-cost disease, these numbers sometimes surprise people. About 60 percent of our community is covered under private health insurance, 30 to 35 percent dependent upon Medicaid and 5 to 7 percent dependent upon Medicare, again, usually under disability eligibility.

The General Accounting Office recently did a report related to AWP for clotting factor, but if the committee is at all interested, we'd be glad to provide you a copy. It provides a very comprehensive overview of what our Medicare hemophilia population looks like, and they determine the average age is 54. This person has HIV, hepatitis C, and probably severe--severe hemophilia and severe joint damage because they would have been born at a time before prophylaxis treatment and the recombinant and even clotting factors were necessarily available and considered, you know, to be the way to treat.

In the private setting, again, about 60 percent of our population is privately insured. Reimbursement and coverage varies depending on what kind of private insurance that is, whether it's a PPO, an HMO. Medicare payment is the bellwether, and savvy payers and consumers can negotiate rates with their providers, and they do that to make sure they can get access to the products that they and their physician have chosen.

This is a market that is largely served by our hemophilia treatment centers and our specialty homecare providers. We are starting to see some pharmacy benefit management companies trying to enter into this market, and we see that occurring particularly where they will go into health plans and negotiate large contracts for a large segment of their drugs needs, with clotting factor as part of that package.

Issues for our community and the private insurance side, maintaining coverage, number one. These are employment-based coverage, and more and more we see that because of that it limits sometimes, particularly for our young children, you know, coming of age, their career opportunities because insurance is vital for them. So things like working for a small employer might not be something that's feasible because that employer either can't absorb the cost of having that high-cost person in their group or, you know, isn't willing to take on that risk.

But we're also very fortunate that, you know, we do find employers who are willing to go to bat, and they change--you know, you reach your lifetime cap, which is our second issue, and these are all interrelated. Lifetime caps are a huge anxiety for this community. We are fortunate that we have systems in place where you generally don't have someone going without factor because they've reached their cap. Our manufacturers, our homecare communities, we have programs that are in place they can turn to for assistance during those periods. But it's still an anxiety, particularly with a cap of a million dollars. If you've got a child with hemophilia, they're going to exhaust that cap by the time they're 8, 9. And we, you know, legislatively would like to address this at some point. We have struggled somewhat with how--what's the best way to do that. There was an effort in '95, '96 to raise the caps. But, again, this is all interrelated, and people become very savvy. Small employers will change insurance plans when that person gets ready to hit their cap. Or if you're lucky to work for an employer who offers multiple plans, well, that's the year you switch to a different plan and you start on your cap again.

Copayments is also an issue. Access to recombinant and prophylaxis treatment is something that particularly parents, I think, and adults have to fight for, but particularly the parents with young children, because of the expense. And then also access to our hemophilia specialists. We see this particularly in the HMO market where sometimes they want to refer you to the hematologist who was trained in oncology not coagulation.

Medicare, again, this says 5 to 10, we think it's actually probably 5 to 7 based on the GAO report. We're the only drug that has a pass-through payment for the hospital inpatient, and what that means is that when a person with hemophilia goes into the hospital inpatient for a service, the hospital bills for the DRG, and then there's a separate payment that they bill for for clotting factor.

We were able to gain that exemption primarily because the cost of the clotting factor generally will far exceed the DRG payment for any service and put hospitals at a distinct disadvantage in servicing that population.

It took a while to, I will say, and it required congressional action, it took about eight years to make it a permanent pass-through. And we had years when it was a pass-through and then years when the legislation expired and we'd have to get it re-enacted. It was made permanent effective October 1, 1997. We do not have a similar pass-through for Medicaid, which can be a problem.

We are also one of the few self-administered drugs covered under Part B of the program. The GAO report, which had access to data that I can't always get a hold of, estimates that $105 million was spent in 2001 on Part B clotting factor drugs, and these would be the drugs that people are infusing in their homes.

Under the hospital outpatient system, we were able to--I'm going to have a couple of slides about this in just a second, but we do have separate APCs, and hospitals are able to bill separately for clotting factor that's used in the outpatient setting. Similar, though, to the issues with blood, the data there is not very good, and that has not helped us as CMS has put the prospective payment system in place for HOPPS.

Quickly, Medicare, you don't have a lifetime cap. Copays are an issue. We're actually right now in the process of trying to get data. There's an assumption that copays probably are largely waived for the Medicare population. You know, I was asked this question by a Hill staffer recently who said, How do you collect $20,000 or $30,000 a year from someone on Medicare disability every year? You don't. But we are trying to get some data about what supplemental insurance might be in place that's currently helping. Also, we think that some of these individuals are probably dual-eligibles.

Ensuring adequate payment under the payment formulas and recognizing the impact that what Medicare does has on the rest of our marketplace continue to also be issues for us under Medicare.

Effective January 2003, CMS implemented a single drug pricer program. I mentioned that we're one of the few drugs that's covered--self-administered drugs--under Part B. Those drugs are reimbursed based on average wholesale price. It's been 95 percent of AWP or 80 percent of usual and customary, and people tend to forget that second part of that.

Without congressional action on AWP, CMS has been struggling with how they can help rein in the cost of the drugs they do currently cover. One step that was taken was to establish uniform pricing across carriers. They found that the price for drugs could vary because carriers used different sources for determining what AWP was for any given quarter and updated those, actually, on different rates as well. So Palmetto, the carrier in South Carolina, now sets the rates for those drugs based on their analysis of what AWP is. That's published I believe quarterly. And I think the goal is uniform pricing. I think eventually the goal will be to try and lower prices through this mechanism, either through inherent reasonableness authority or other mechanisms that might be available to CMS. And, again, this is all in lieu of congressional action.

One thing that was interesting, I mentioned we're a separate payment in the hospital inpatient setting. Initially, CMS established a fee schedule for our products in the inpatient setting. They then eventually moved to a payment formula that was 85 percent of AWP, and then just two years ago to a set that was 95 percent of AWP. And so in taking this action for establishing a single drug pricer program, then they applied that to our hospital inpatient rates, so we now have--if you think of Medicare as having three payment systems--inpatient, the Part B drugs, and outpatient--we have two of our three systems that are having the rates set in a similar fashion, with the outpatient setting being the outlier.

Outpatient, you know, implemented in August of 2000 replaced the cost-based system. This year was the first year that we had true prospective payment for clotting factor. Initially, we were set aside into the transitional pass-through for three years to gather data about the cost of our products. The proposed rule that came out last year would have leveled reimbursement across products, regardless of whether plasma or recombinant, to 52 cents a unit. We scrambled. We surveyed our hemophilia treatment centers and got them to give us their hospital cost data, go to their hospitals and ask, What do you really pay for these things?, and were able to provide data to CMS that we'd like to think helped move us into the category of drugs that were--where that decrease was capped under what's been called dampening provisions. So they limited it so that no drug, clotting factor drug or any drug that was in that category, would be reduced less than 15 percent.

This resulted in, for us, at least right now, a much more reasonable reimbursement payment rates, actual rates for each of these drugs, though, you know, I anticipate what will happen in the proposed rule for 2004 , and so at this point, you know, we don't know what their current thinking is and how they might change that or how other revisions to the payment formula--you heard Stephen talk about the relative weights and all those things that play in. Certainly critical to us was the fact that the hospital data itself is quite poor. And under the hospital outpatient, they did a uniform cost-to-charge ratio rather than recognizing, for example, that hospitals charge lower markups on higher-cost drugs than they might for lower-cost drugs.

I literally had coefficients of variation in the 300,000 range, and this is what CMS was using for their rational process for establishing payment for these products.

I don't think that's scientific by anyone's measure, but I actually walked out in the hall and told Stephen we support helping hospitals learn how to better bill. Our manufacturers of clotting factor products try very hard to educate the billers, the coders, the people in the billing office, but obviously more can be done if that's the kind of cost data that you're seeing being reported.

Medicaid. As you know, states have flexibility in determining reimbursement. Most of them use AWP derived either from Red Book, First Data Bank or the Department of Justice also has some AWP rates that they set that came out of a whistleblower case. That was the one I think with TAP, and they set forth some AWP rates for all of the currently covered products. Those were later pulled back. Medicare actually at one point was going to implement these, and that was pulled back, but the data and the numbers are still out there and states do rely upon it.

We have 17 states that use alternative pricing mechanisms, including modified acquisition price, wholesale acquisition price, acquisition plus. The State of California, for example, reimburses clotting factor at acquisition plus 1 percent. We have some sole-source contracts that manufacturers have with states, and then again the state-based purchasing systems.

Issues under Medicaid. With the state budget situation, we are in crisis mode in our states right now. States are struggling with how to modify their Medicaid programs. In broad systems, it's sometimes hard for them to remember that they have unique situations like hemophilia to deal with.

Access to recombinant and treatment, access to our hemophilia specialists, a choice of provider and product and then co-pays and other limits that might be placed, these are all issues particularly focused on prior authorization which could, if fully implemented and carried out, could at least delay access to these products for our community which could be quite detrimental.

You have a slide called "What's next in the private payers," and I think it should just be the one right before. I apologize that those two got mixed up.

We're going to continue to see the rising drug costs. Private payers' health plans are going to become more and more diligent about managing costs. I mention the pharmacy benefit managers moving in and doing broad contracts with these plans, and when they do that, they can show bottom-line savings, but it's not always savings for clotting factor, and that's of some concern to us.

If you run the numbers and look at what a health plan pays for drugs, clotting factor probably doesn't usually hit the radar for total. But if you run it the other way and do it per patient, we're number one or two. And so we will have more focus I think from private payers about what they are paying.

In Medicare, we might have congressional action on AWP. We're monitoring that very closely. The National Hemophilia Foundation does not purport that this should be the price for any drug. What we've tried to do is serve as a resource for our congressional members and their staffs to say if you do this, these are things you need to be aware of and to provide them with some opportunities about how they might take care of some of those issues.

For example, the GAO Report recommends that Medicare reimburse for clotting factor at near acquisition plus a dispensing fee. Unlike oncology, drugs that are administered in a physician's office, we don't have a practice expense component to be able to pick up the extra costs of special refrigeration, special handling, the high inventory costs, the 24-hour nursing service, the ancillary supplies.

We have commented to them that if you do that, you need to be cognizant of this co-pay and the beneficiary responsibility. Currently, under payment, if a provider needs to waive that co-pay for a beneficiary that can't pay it, they're still able to make it. If you pay them near acquisition, they won't have the ability to do that any more.

Prescription drug benefit. If they can come to terms with that and get it passed, it might provide some opportunities. I believe that the single drug pricer will be used to eventually lower cost for Medicare-covered products, and then of course we're continuing to pay very much attention to further revisions in the hospital outpatient system.

Medicaid. The state budget squeeze is going to continue to be very problematic for us. We've seen some states already move to limit product and provider choices, and that's very troubling. In South Carolina, we had a proposal to no longer pay for recombinant products, even for the children. We want to maintain that choice and maintain that access for those products. And, you know, quite honestly, it shouldn't depend on where you live whether you can have access to it or not.

Unless someone has a dying question right now, we can--

DR. BRECHER: Why don't we hold the questions. Thank you, Shannon.

DR. BRECHER: We will now hear from Miriam O'Day from the Immune Deficiency Foundation.

MS. O'DAY: Good morning, and let me properly introduce myself. I'm Miriam O'Day, and I'm senior director of Public Policy for the Alpha One Foundation, the Alpha One Association, and I'm here on behalf of IGIV consumers today as well on Medicare reimbursement.

We want to thank you, and update you, and review some of the areas where we also have gaps, and I would say that Julie did a nice job from PPTA teeing up the overview, and Shannon gave you a very in-depth perspective for alphas and primary immunodeficient patients. We face some of the same concerns with AWP revision, Medicaid, but we don't necessarily discuss that in this presentation.

For alpha 1-antitrypsin-deficient individuals, patient access to care depends on adequate reimbursement rates, and the proposed rule for HOPPS that came out was recommending a reimbursement rate that was 45-percent below the hospital acquisition cost, and we were able to get a favorable ruling. We were removed from the transitional pass-through pull, we were removed from HOPPS and reimbursed at a reasonable cost basis.

I've provided you with a press release from the Alpha One Foundation stating our jubilation on that ruling, and let me just read to you the definition of reasonable cost basis.

CMS states that it's the calculation to determine the reasonable cost incurred by individual providers when furnishing covered services to beneficiaries. The reasonable cost is based on the actual cost of providing such services, including direct and indirect costs of providers and excluding any costs that are unnecessary in the efficient delivery of services covered by health insurance programs.

And so we want to raise to you, the only concern that we have about that is there are so few drugs that were given that special classification, that kind of a carve-out, we're not exactly sure how the implementation will be put into play. So we did want to raise that as an issue today. Why was alpha 1-antitrypsin deficiency, the treatment for alpha 1 carved out? We think that the impact of this committee's resolution really helped us. Also, we had direct communication with CMS. We were able to improve their understanding of our need for access to care, of the fact that alphas need to see a specialists, infusion nurses.

And the impact of reimbursing at 45 percent of the acquisition cost on rural communities was that some of these individuals do not have a choice. They have to go to an outpatient clinic.

So CMS said alpha 1 was carved out due to the unique nature of the product and the impact reimbursement has on the beneficiaries that need access to care, and I'd like you to remember that because we'd like to make the same point when it comes to IGIV reimbursement for chronic conditions such as primary immunodeficiency.

We still have gaps. We have the professional societies working on consensus documents and treatment guidelines. We'd like to see those implemented as national coverage guidelines. There is no home health care provision for alpha 1. If you are not able to get it in a physician's office or in a hospital outpatient setting, you basically have no other option.

We're also concerned about reimbursement for new therapies entering the marketplace and for new routes of administration such as an inhaled therapy.

Moving on to IGIV and primary immunodeficiencies. Again, patient access to care depends on adequate reimbursement rates, and the ruling that came out for implementation in January of '03, clearly shows that CMS has absolutely no understanding of the utilization and administration of IGIV, particularly for chronic disease populations like immunodeficient patients, that they really do not understand the source of IGIV because they have not classified it as a blood and blood product. They don't understand that there are no therapeutic alternatives for this patient population and that there's a clear need for patient access.

I would also like to state that in the long run, the other chronic user populations will be transitioning eventually off of plasma-derived products. Hemophiliacs and others bleeding disorders have options. The alphas are hoping for other sources like recombinant therapies. And for immune-deficient patients, they will be on plasma-derived product for quite some time.

The patient demographics, and I know most of you know this, but I just wanted to review it briefly with you. These individuals are born with a missing or compromised immune system. The regular infusions of IGIV are replacing that immune system. The majority of these disorders that are treated with IGIV are genetically determined.

It's gender balance, it affects an equal number of men and women. And like insulin-dependent diabetics, immune-deficient patients depend on IGIV, and they usually receive it every 21 days.

The population is about 5 percent 65 and older. About 11 percent of those individuals are Medicare recipients, as compared to 14 percent in the general population. Of course, this makes sense because there's a smaller aging pool than in the general population. I should have cited my source there which is the Immune Deficiency Foundation's National Survey on Patients.

One indication that we have, again, of access problems is that the Immune Deficiency Foundation does run an unadvertised--I guess it's advertised now that we've announced it here--but unadvertised compassionate care program. They receive about one call a week, and these individuals can seek up to six months of product if they have a gap in coverage and medical necessity has been determined.

They face the same issues as alphas and those with bleeding disorders. In terms of definition and reimbursement, the same provisions should be given. Again, these are life-sustaining and life-saving therapies.

Some of the concerns that exist are coverage of new products, coverage of new methods of administration, like subcutaneous, and there is also a gap in home health care reimbursement. We have provided for the committee a copy of the March 2003 SB magazine, which is a monthly publication from Louisiana that has an overview from Congressman Jim McCrery, who initiated in the 1997 Balanced Budget Act a study on whether or not home infusion would be safe and effective for immune-deficient patients. And the outcome, of course, is that it was a safe and affordable option.

Unfortunately, the study remains on the shelf, unless there is an act of Congress and Medicare reform. I love that Congressman McCrery states in the article that "common-sense modernization is not being implemented."

This is our specific problem, and the real reason that we're here today, besides being able to give you an overview, and that is that CMS, again, with the ruling that came out and the implementation in January of '03, there was a program memorandum that corrected the billing errors and inequities.

We provided that program memorandum for you. If you're not interested in reviewing the whole document, if you turn it over onto Page 10, under Article 13, I believe, it expresses the changes that they made in IGIV.

But the payment rates have to remain constant. IGIV was excluded from the definition of blood and blood products, which means that it does not have a permanent APC and it is not having the benefit of dampening that you heard Shannon describe to you. Again, if you'd like to know CMS's definition of dampening is it's a mechanism to reduce, by 50 percent, any reduction in median costs over 15 percent. CMS calculated the difference between 15 percent and the projected reduction and then halved it. So it means that we won't be subject to broad-based cuts.

The committee has jurisdiction to recommend a resolution in this area. Again, I think we previewed for you the impact of the resolutions that you've passed on alpha 1 and the way that that benefitted us in the final ruling.

The August 24, 2001, committee resolution basically addressed this issue. Let me read the resolution to you in its entirety. The DHHS Advisory Committee, on August 24, 2001, said:

"For purposes of the Medicare Outpatient Prospective Payment System, the Department of Health and Human Services Advisory Committee on Blood Safety and Availability recommends that all plasma-derived and recombinant analog therapies be placed in permanent, separate payment categories similar to blood and blood products.

Maintaining unique reimbursement will ensure that hospitals' current and future costs are recognized and safeguard patient access to these critical therapies."

We're asking you to take the next step today, and instead of saying "similar," define as "the same as."

So, if we could raise this to the Secretary's level and amend the definition, we feel that that will be the first step in helping this IGIV issue be resolved.

So, if the committee could recognize that IGIV is derived from pooled human plasma, that it's fractionated from the same source material that produces human-derived clotting factor for the treatment of hemophilia, which is defined in the rule, we'd like to recommend a resolution, and the resolution has--I've slightly amended the resolution since the printing of the slides.

The resolution should now read:

"The Advisory Committee recommends that CMS amend the definition of blood and blood products to include IGIV and reflect the need to provide continuing access to plasma-based therapies used to treat chronic diseases and life-threatening conditions."

Further, to go a step further, we're not here advocating for a specific dollar amount per gram, we just would like to see, as Mark Skinner had pointed out a little bit earlier this morning, that there be provisions that the cost of safety be recognized in reimbursement.

And so the second piece of the resolution that we're asking for is that the Advisory Committee recommends that CMS establish parity of payment rates across the different billing dosages, while at the same time assuring payment rates that adequately reflect the unique costs of safety associated with the production of plasma-based therapies.

Thank you very much.

DR. BRECHER: We'll now open the last three presentations for questions and comments from the committee. Harvey?

DR. KLEIN: Could you give me the median age of the severe hemophiliac in the United States.

MS. PENBERTHY: It's 24.

DR. KLEIN: That's for the severes, 24.

DR. BRECHER: Shannon, just to give the committee a ballpark figure, what does it cost for let's say an average hemophiliac and severe hemophiliac per year in clotting factors?

MS. PENBERTHY: It's a good question. Thank you. Clotting factor is administered based on the weigh of the patient. So children will use less product, but as they get older and gain weight, they will use more. We estimate, and Keith can shake his head or not if I'm off base, but probably for a child, if they're using a recombinant product, which we hope they are if they're a child, it depends also on how active the child is--I should add that as well--probably $75- to $125,000 a year for a child. Keith can comment on this.

And then for an adult--

DR. HOOTS: Yes. Excuse me go ahead. I was going to say for a child, a 4-year-old who's on prophylaxis, it's close to the upper range. If they're not on prophylaxis, it's about a third of that.

MS. PENBERTHY: And then for an adult, we have always said that costs could be anywhere really from $100- to $200,000 a year. Again, that depends on are they treating prophylactically or on demand, how active the person is and whether or not they develop an inhibitor. About 30 percent of our Factor VIII population is susceptible to developing an inhibitor and probably will at some point.

Huge costs go into managing that because we currently have a few treatment options. You either flood the body with the Factor VIII recombinant product or you switch them to a treatment such as our recombinant VIIa, the NOVO VII, which is extremely expensive and also to manage.

The incidence of inhibitors in our Factor IX patients is much lower. It's probably around 9 or 10 percent, but you could, again, it depends there on the product. Practical experience tells us that those patients using a Factor IX recombinant product will require more of that product to get the same level of coagulation as the plasma products. So there you easily probably could have an adult using $250,000 a year. I'm sorry to give you a complicated answer, but it probably reflects on the complexity. There is no real--

On the Hill, I say, for an adult with severe hemophilia, between $100- and $200,000 a year.

To answer your question about the milds and moderates, a mild person may go for several years without requiring a product and then have an event that causes them to actually be a very acute user of it for a period time related to an injury or trauma, surgery. Again, they might not have needed product for some time and then end up using quite an abundance of it over just a matter of a couple of months, depending on how long it takes to correct the situation.

DR. BRECHER: Thank you. Maybe we could have a similar response for the immunoglobulin and the F1 as to what it costs a year to support a patient.

MS. O'DAY: It's between $25- and $30,000 for both of those populations.

DR. DAVEY: A question for

MS. Penberthy, and thanks for trying to get us through a very complex situation.

A question about I guess the PHS price, the Medicare price, that I need a little clarification on. You said the proposed rule would be 52 cents a unit. Is that for recombinant and plasma-derived both? Also, how does that price relate to the market price?

MS. PENBERTHY: I will speak in terms of what the AWPs for those products are. But we were able to somewhat fight that. The proposal that came out last August was 52 cents across-the-board for plasma and recombinant products. There were a couple of exceptions. I think recombinant Factor IX was higher.

Some of this was because of the relative weights. We were in that transitional pass-through pool where they continued to base payment off of average wholesale price. When they transitioned us out, and we're now in Class K, which is nonpass-through drugs and biologicals, we became subject to this relative weighting.

Clotting factor, the reimbursement is set per unit, so our relative weight was .0001, and when you multiplied that times what they considered the base of $52, that's how we got to 52 cents.

We supplied them with data that we collected. I actually have this whole chart that showed and demonstrated what the loss to the hospital per infusion would be based on those rates, and they redid their calculations. And when they put the dampening provisions into effect, essentially, for 2003, reimbursement is 51 cents per unit for our plasma products, and $1.02 for the recombinant products, which puts us in the range of our hospitals being able to cover the costs for those products.

We have actually more problems probably on the plasma side than on the recombinant, depending on even then which product you're talking about.

I don't know if I fully addressed your question. There's no easy answers. I'm sorry about that.

DR. BRECHER: Celso?

DR. BIANCO: Thank you very much for covering such a complex issue. I've learned a lot, but I want to learn a little bit more. Maybe you can educate us. There is a lot of variability in prices, depending very much on patient settings. There are hemophilia treatment centers that are federally funded that have access to Factor at different prices.

MS. PENBERTHY: Right.

DR. BIANCO: There are home care services that will provide them, and there is actually an attempt by several manufacturers who are kind of enlisting patients and creating their mini home care systems, and there is competition between all of them.

MS. PENBERTHY: Yes.

DR. BIANCO: How does that affect price or the care that those patients get? Can you give us an idea?

MS. PENBERTHY: Because our reimbursement systems are largely driven based on the average wholesale price, which is a price that the manufacturers themselves report, we don't really see that kind of competition in terms of the reimbursement level.

There's a whole step here. The manufacturer makes the product and sells it to those providers or, in some cases, trying to go direct, and then that provider is the one who supplies it to the patient, to the consumer, and gets reimbursed through our payment, various payment systems for it.

So the competition really occurs in between what your provider is able to buy it and what they're able to sell it for, and that's where the competition really currently exists.

We are probably dawning I would say in the last nine months, maybe a year, to a bit of a new age in hemophilia care in that recombinant technologies have been on the market for 10 years, and it's really I would say in the last year where we've had any confidence that there would continue to be a full, adequate supply to meet demand for those products.

And so when you have a shortage year or every other year, that also convolutes anything that might--what you would expect to occur, for example, in the marketplace on a pricing competition basis. Up until this point, it's been fairly inelastic. I think we are moving to a period where we'll see some more elasticity in it.

DR. BIANCO: Thank you. I have a quick question for Miriam. We heard from

MS. Penberthy the number of hemophilia patients. Can you give us an idea of how many immunodeficiency and alpha 1 patients we have in the U.S.

MS. O'DAY: For the alphas, it's estimated that there are about 100,000, based on population statistics. Six thousand of those have been identified in the U.S. and currently about 50 percent of those are on therapy.

For immune-deficient patients, and again I would have to check the statistics, I believe it's somewhere, the population is estimated from data that's been collected by the Immune Deficiency Foundation at somewhere around 40,000. About 70 to 75 percent of those are frequent and regular IGIV consumers.

DR. BRECHER: Mike?

COLONEL FITZPATRICK: Miriam, I just had a question--and thanks for everything--on your last suggested resolution, I could interpret that a couple of ways, and I was just going to ask for some clarification. Are you referring primarily to the need for recombinant factor or are you referring to the need for advances in safety and new development there?

MS. O'DAY: Both. And we ask that it be recognized, that the cost of safety and the cost of advancing the technology be recognized as unique and plasma-derived therapies.

DR. BRECHER: John?

DR. PENNER: A question for Miriam or at least a comment. Our biggest problem with intravenous gamma globulin use is that the constriction for use, as third-party carriers have now employed it, that any acquired conditions that are rather unique and respond well to intravenous gamma globulin are not allowed to be reimbursed. Any comments on that? Particularly, I have several cases of Wegener's granulomatosis which re

spond well to intravenous gamma globulin. There is a refusal of third-party carriers to pay for that because it's not in the included group of reimbursements.

MS. O'DAY: Right. Currently, CMS pays for on-labeled indications and clinical indications. So they do pay for some off-label usage, but again it's up--the data has to be presented to CMS so that they appropriately recognize it instead of it being anecdotal, and that's an ongoing problem. There are ways that it is effective in its utilization outside of its labeled indication. Agreed.

DR. PENNER: Unfortunately, in many of these cases, there are not enough of them to provide much more than anecdotal data. And then maybe one case for Shannon, if I can, and that is with respect to some of the patients who require unique products in the hemophiliac population, those who are on inhibitors, could you comment on the cost situation and that relationship.

MS. PENBERTHY: Sure. I actually have something I could add to Miriam's answer.

We dealt with the acquired issue in our own community, where we had instances of people acquiring hemophilia, and it took a few very high-profile cases. There was one I think two years ago, maybe two years ago, at Duke a patient who ran up a bill of over a million dollars in like 54 days, you know, admitted to the hospital, and this was the only treatment. Unfortunately, that patient died.

Even perhaps more unfortunate, from Duke's perspective, is that he died two days before they enacted coverage for acquired hemophilia as a covered diagnoses in their manual. But it took us about a year-and-a-half to get them to do that, but we were eventually successful.

There's so few rare patients, and when it does happen, literally Duke Medical Center is calling me, "Okay, I've got this huge deficit because of this one patient."

I'm like, "I know," and a million dollars is a piece of equipment at Duke Medical Center. So they weren't going to get the upgraded MRI that year because of this one patient. So it is a real concern. Regarding patients who are on inhibitors, you know, treatment and their cost, it can skyrocket. Again, it depends on the link that you need to provide, that treatment to get the body-- Essentially, what happens with inhibitors, your body rejects the clotting factor. So therefore you're administering this product that's having no effect for the person, and it not only is wasteful of a very valuable product, but also potentially dangerous for the patient.

I've heard $300,000; $500,000, and this could be a treatment that's required over several months, in some cases. Keith is the clinician and has probably even more examples he's dealt with himself, but i--

DR. PENNER: Well, we've had several situations where hospitals had gone $7 million with one surgical procedure and are trying to bail themselves out. So I think there's a whole issue there that is separate, and it's going to require attention.

MS. PENBERTHY: And, again, we do have Medicare payment for the inpatient setting. So they should be able to recoup some of it that way. In Medicaid we do not. I'm not aware of any states that do provide it, but if you have a Medicaid patient getting a procedure in an inpatient setting, the system is just eating those costs right now.

DR. BRECHER: We're going to try to stay on time, reasonably. So we're going to take a break. We're going to restart at 10:50, exactly. [Recess.]

DR. BRECHER: We're going to move on to our discussion of how CMS works. Is our speaker, Chris Mancill, here? Chris, are you ready? Let's roll.

MR. MANCILL: All committee members have copies of these slides. We had a few of the slides that were left over, and we placed them on the table out there. I just looked, and it looks like we're all out now.

I have to preface this by saying that the other speakers who were invited today have come up to me privately and said that they really do not admire my task, having to be the one who explains how the Centers for Medicare and Medicaid Services actually works, and then even more of an unenviable task would be to explain their reimbursement policy for blood and blood products.

And I really have to say that I'm starting off on the first slide with an absolute inaccuracy because you cannot talk about a single global or all-encompassing reimbursement policy for blood products and plasma derivatives when you talk about the Medicare program. So we're going to really try to flush out some of the problems and also how the Medicare program actually goes about setting policies, what it can do, what it cannot do.

In your packets, you should have copies of the presentations with the same cover slide up here, and then also four handouts that are also in the same part of your packets that go through reimbursement specifically for blood components, IVIG, albumin and hemophilia clotting factor. So it goes through as a quick reference sheet for you. Just as we go through some of the more complicated issues in this presentation, it should help you as a guide.

I have to first start off by saying that the Centers for Medicare and Medicaid Services, a program that I think probably has quite a bad reputation as an agency within HHS. However, given the budget and the staffing that they currently have, it does a very admirable job of providing health care to the beneficiaries of its programs, and I'm not just saying that in case anybody from CMS is in the audience.

Today, I'm going to go over the programs that fall under the purview of the Centers for Medicare and Medicaid Services or CMS--the Agency's name since the new administration came into power-- the policy-setting process behind the Medicare program, but also talking or really focusing in on the importance of the Medicare program to reimbursement for blood products.

I'm going to go also very quickly through some Medicare payment systems--inpatient, outpatient and other settings. Obviously, when we speak specifically about the blood components, inpatient, as we've already spoken about today earlier with Stephen's presentation, is really the most important setting of care for blood delivery. Outpatient and other settings are more important when it comes to plasma derivatives.

I also really wanted to outline a blueprint for reimbursement changes. Unlike some of the other speakers here, my role, in the blood industry, is providing education directly to providers to help them deal with reimbursement changes and help them understand how products are reimbursed. So my blueprint for reimbursement changes doesn't really give you a recommendation to implement, but just really lays out a couple ideas that would significantly improve the reimbursement process.

As you've heard today, it does seem like hospitals have a lot of difficulty billing for these products appropriately. So education is really one of the key needs for reimbursement changes.

First of all, very quickly, CMS is a federal agency, obviously, and it's organized within HHS. It oversees three health insurance programs: the Medicare program, the Medicaid program, which is operated in a decentralized fashion by the states, and then also the State Children's Health Insurance Programs--again, another decentralized, state-administered program.

When you add up all three of these health care programs, they account for or they cover more than 80 million Americans. So a very significant amount of American health care system falls under the purview of CMS. CMS, however, doesn't have a very large bureaucracy to administer these programs. They instead rely on the states to administer Medicaid and SCHIP, and then they rely on private-sector contractors to administer the Medicare program.

Tom Scully is the current CMS administrator. His background, he was formerly the president of the Federation of American Hospitals. So they have somebody who actually understand health care delivery in the lead position at CMS. They currently are spending about $360 billion per year on health care services--so obviously having a lot of influence in U.S. health care.

Focusing a bit on the Medicare program. It is a federally administered program for the elderly and disabled, primarily. This program is the largest within CMS, and it's also the largest single health care insurance program in the United States currently, with over 40 million beneficiaries.

The Medicare program has very strict eligibility requirements. The three tenets of those eligibility requirements is you typically have to be over the age of 65 and eligible for Social Security as one route to the Medicare program, be disabled or have endstage renal disease. Those are the three main ways to obtain Medicare, currently.

Then, the Medicare program is divided up into two main components. As the legislation was written back when the Medicare program was devised in the 1960s, it followed a very traditional insurance model where you had hospital benefits and physician office or other health care benefits. You'll notice one thing that you don't see up here is a prescription drug benefit because at the time Medicare was created that was not a significant need of the American population--quite different now, of course.

Hospital insurance is mostly called Medicare Part A. You've heard the terms thrown around today Medicare Part A and Medicare Part B. Medicare Part A primarily refers to hospital insurance coverage primarily for the inpatient population. It also provides some level of coverage for skilled nursing facility and some health care services--home health care services, excuse me. This program is financed through our taxes.

The other program or the companion program, known as Medicare Part B, is a supplementary medical insurance, and it is primarily the mechanism under which the Medicare program provides physician, some hospital outpatient care and then some home health care as well.

You'll notice that home health care goes between Part A and Part B. That's just to further complicate the matter. Not enough of a point to really pause and ponder that, but one thing to note, however, is that hospitals bill for Part A services and for Part B services because hospital outpatient care is considered Medicare Part B-- again, just an historical relic of the way the Medicare program was written into law.

A third program dimension is Medicare Part C or Medicare+Choice. This is the Medicare program's version of managed care. Enrollment is rather pitiful in the Medicare+Choice program, and it's really recognized throughout the industry as a failed experiment.

Let's look, first, for a moment at how Medicare reimbursement policies are set. Like most things in D.C. Congress has its say of how the Medicare program operates, mostly through existing laws and then authorizing laws that come out of Congress, as well as appropriations laws.

The authorizing laws, obviously, mostly, and I won't go into detail because I'm sure everybody is familiar with them, the congressional process, but really they define what is covered.

So you have a law that says that they will cover inpatient care or that they will pay for hemophilia clotting factor separately under a DRG system, but you also lack a law that says that the Medicare program covers prescription drug benefits. So the Congress, of course, being very significant here, and we all know that the Congress is currently debating or bantering about among themselves the creation of prescription drug benefit plan for Medicare.

They also mandate payment system changes. We've heard some presentations about HOPPS or the Medicare Hospital Outpatient Prospective Payment System. The Medicare program was directed by Congress to implement that new payment system. In typical fashion, the mandate from Congress came in 1997, and the Medicare program was finally able to get it all together in 2000.

Not every year, obviously, brings about authorizing laws or specific mandates for the Medicare program, even though a majority of the cases there are some authorizing laws out of every session.

Appropriations laws, these actually fund the programs that the Congress is telling the Medicare program to go enact, and these are funded or passed every year.

When the Medicare program receives a new law from Capitol Hill, there are two possibilities. They might have to go through a rulemaking process to actually implement the law, meaning that they have to publish a proposed rule, they have to seek input from the community and from other stakeholders, and they have to of course finalize that rule and get the implementation put into effect.

The other type of action could be a nonrulemaking process where the Medicare program essentially is given wide authority to implement the will of Congress. The Agency may or may not discuss any of the issues with shareholders, even though increasingly I believe they are, even for nonrulemaking types of implementation, and then they will publish some type of direct communication to providers about how they're implementing the law.

A payment system overhaul would be a measure that requires rulemaking I would say most typically and then no rulemaking would be required for a minor change to the Medicare program as covering a new service or not covering a service.

As I said in the preface to this presentation, the Medicare program doesn't really have a single Medicare policy for blood products. Reimbursement varies by setting of care and also by the type of product. In some of the earlier presentations, I remember Miriam's presentation where she talked about how the IGIV products have no coverage in the home setting or specialty pharmacy setting, however, hemophilia clotting factors do. So two plasma derivatives treated very differently because they're two different types of product.

In general, however, the Medicare program has been told by Congress that it must pay for blood products, the components, as part of the DRG system, but they've been told that they have to carve out hemophilia clotting factor. So pretty much every blood component or blood-derived substance is paid within a DRG payment, except clotting factor.

Blood products are paid in addition to ambulatory payment classification or outpatient service Medicare payments. However, the payment rates are woefully inadequate and the Medicare program has a peculiar determination on what a blood product is.

And then, finally, plasma derivatives in the physician office setting or the specialty pharmacy setting, when covered, are paid based on 95 percent of average wholesale price. Again, subject to a little bit of interpretation, as other speakers have said earlier today by CMS.

Within these guidelines, the Medicare program does have some authority to come up with specific payments for these products. For hospital inpatient services, they can choose the measure by which they track blood costs.

Currently, the Medicare program uses a market-basket system that tracks all of the costs of goods and services provided by a hospital, but it doesn't specifically track blood costs, as we'll talk about in just a second, and as Stephen mentioned earlier. They essentially look at the cost of some process derivatives and say that is a close enough proxy for blood costs. It's a whole heck of a lot better than what they used to use on the chemicals index.

So that's one step in a positive direction, but we will have to continue to monitor to see how well this is a measure for blood costs in the inpatient setting.

For hospital outpatient services, Congress told CMS that they have to pay for blood products separately in addition to the payments that they make for APCs, but Congress did not tell them the definition of blood products, giving CMS the authority to define blood products themselves.

Rather than look to the FDA for guidance, where there is existing federal documentation on what a blood product is, CMS defined blood products through its own medical advisers. An outside medical adviser supposedly is the one who created the definition of a blood product, and it now does include the blood components and hemophilia clotting factor, but as you heard before, it excludes the immunoglublins, albumin, plasma protein fraction, alpha 1 protease inhibitor.

All of these other products are not considered blood products or blood-derived products. As I said, however, the FDA does consider them, and being a sister agency within HHS, you would think that they would be using the same definition, but that is not necessarily the case.

Physician office and specialty services. Under the Medicare program, as I said before, does have the right to determine what it will define as AWP, using a class of products and not a particular product itself. So you can have a high-cost product that is not paid on its own AWP, but on the AWP of a lesser or a lower-cost product.

In a presentation like this, it's really good to at least focus in on what CMS cannot do. I know when I'm doing sessions and talking to people about the problems with Medicare payment, they often say, well, let's schedule a meeting and go up to CMS and let's get everything fixed.

It's not quite that simple. Very often the Medicare program folks will look across from you at the table and say, "You've made a very persuasive argument. However, we have no ability, within existing statute, to implement what you're asking for." Sometimes you actually have to go to Congress.

For that reason, the Medicare program cannot decide tomorrow to pay separately for IGIV alpha 1 products and all of these other products, in addition to DRG payments, because they have very specific regulations that instruct them to only pay for hemophilia clotting factor separately, in addition to the DRGs. That was a large enough change to implement. I can't imagine what a change would entail to get all of the derivatives carved out, even though it would be very favorable.

Due to budget neutrality requirements, the Medicare program cannot actually go in and substantially increase payments for blood products without lowering payments for all of the other products that it pays for under hospital outpatient PPS. So, as CMS has said, and also as the hospital associations have said before, if payments go up for blood products, it's only coming out of another part of the federal budget, and payments again will stay flat for blood products or for all hospital services.

It's good to point out that even under hospital outpatient PPS Medicare program, the way that the law was implemented, it only pays 83 cents on the dollar. So hospitals are starting out at a loss, so it's not just a loss for one specific product, it's a loss for products throughout the gamut. And also because states administer their own Medicaid programs, you can't go to CMS and ask them to pay for a specific plasma therapy at a higher rate in one state or to get it carved out of a payment mechanism in one state, as mentioned before.

The Medicare program does reimburse for clotting factor outside of the DRGs, but most of the Medicaid agencies, I can't think of any, they do not pay for clotting factor outside of the DRG payments or the payments that they use for inpatient services. So CMS would not be able to implement that type of change to the programs.

Talking a little bit about transitioning and continuing about the Medicare program and its importance and also talking about what CMS can do, it's good to look at who's actually paying for intensive blood use in the inpatient setting.

Now, and I'm sure it's going through people's minds, there was some data presented earlier showing the Medicare program paying about 46 percent. These data actually show it about 57 percent. It really centers around what you define as an intensive use of blood utilization.

For this particular measure, and I do not know what the measure was for the other one, but this measure uses three units or more per operation or per surgical procedure as the typical benchmark for high, intensive blood utilization. Obviously, you can have a patient who requires a lot more.

However, under this definition, the Medicare program pays nearly 60 percent of intensive blood utilization in the inpatient setting, Medicaid 10, private insurers around 26, self-pay about 3, and other mechanisms paying for about 4 percent, and this is based on American Red Cross analysis of existing databases.

I said before the majority of blood and blood components are provided in the inpatient setting. The Red Cross analysis again shows 92 percent used inpatient, 8 percent used outpatient, with a marginal fraction used in other settings, such as physician office--again, not a very common setting of care, but it is possible of course that a unit of blood could be transfused in such a setting, probably a larger oncology clinic that might be doing something like that, where essentially they are almost de facto hospital outpatient caliber of care.

Let's go through some Medicare payment systems. This is going to be a rather quick run-through because it has been discussed briefly before by the other presenters.

There are about 500 DRGs in the Medicare system. It's prospective payment system, meaning that they rely on data that was billed in the past to set payment rates for the future. So, of course, if hospitals are not billing appropriately for these products, the DRGs won't be set appropriately in the future.

A couple details about the DRG system is that it is set up to incentivize hospitals to reward them for using the lower-cost therapies. Hospitals obviously don't make decisions based on how much they're being paid; they make decisions on how best to treat the patient. However, there is an incentive built into the system to award efficiency.

DRG payments are updated on an annual basis. They review the costs that are billed under specific DRGs. If hospitals fail to report these charges accurately, there could be underpayment or less-than-adequate payment update for the following years.

There's about a two-year lag between when hospitals are actually reporting data and when CMS is looking at it. So, currently, the Medicare program payments are based on data that were billed in 2000 and 2001. The cost of a unit of blood has changed since then, obviously.

So what we're facing here is that any changes in inpatient blood reimbursement will take time to be reflected. Obviously, they are increasing safety measures, and part of the agenda tomorrow is looking at new tests and new screenings that need to be put in place for a safe blood supply. Eventually, those will need to be incorporated into increased reimbursement to reflect those costs. Obviously, it won't take place immediately under the current system.

Whenever a new test, a screening measure or processing improvement such as leukoreduction, any of that goes into effect, there is going to be a lag in an increase in payment. The Medicare program does not look at any current cost data from the blood community on how to set their payments. They really do rely exclusively on how hospitals are billing.

This is something that Stephen mentioned, and it's good just to bring up again one more time. In the past, the Medicare program was looking at the industrial chemicals index as a judge of blood and blood product costs. Now, they're looking at a blood derivative category, as Stephen said, but that's going to be something that needs to be intensely monitored to make sure that it is tracking appropriately with blood costs in the future.

In the current fiscal year, where we are right now, the Medicare program is anticipating spending $88 billion in inpatient care for Medicare alone. So, when you look at the total amount of Medicare spending that has been allotted for blood, it's about 1 percent, and you can see that graphically on the next slide, blood and blood products accounting for .875 percent of hospital operating costs, according to the Medicare program.

So hospitals are spending 1.3 percent on telephone and postage and .8 percent on blood and blood products. So, while a significant cost and obviously important to everyone in this room here today, it's not the most significant driver of costs in a hospital.

Transitioning to outpatient PPS for just a moment. Again, about 500 distinct ambulatory payment classifications--remember, there are about 500 DRGs--the number 500 just happens to be the magic number I guess when it comes to Medicare program. They can drill everything down to a payment and into 1 of