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Safety Net Hospitals Turn to Federal Court to Block Unlawful Reporting Mandate
(Washington, D.C.) A group of more than 400 hospitals that serve a large number of low-income and uninsured patients today asked a federal court to bar enforcement of a government reporting mandate that the hospitals say is contrary to federal law, as well as costly and burdensome.
Safety Net Hospitals for Pharmaceutical Access (SNHPA) and the University Medical Center of Southern Nevada (UMCSN) in Las Vegas are attempting to reverse the implementation of a Medicaid regulation that went into effect July 1 that hospitals say will cost them millions of dollars and will be impossible to implement. Medicaid is the health insurance program for over 55 million of the nation’s low-income children, elderly and disabled population.
In the complaint filed today with the federal district court for the District of Columbia naming the U.S. Department of Health and Human Services and the Centers for Medicare and Medicaid Services (CMS) as defendants, the plaintiffs charge that CMS has ignored or misinterpreted a provision of Medicaid law that exempts hospitals from the new reporting requirement. The new regulation was intended to require doctors to submit national drug code identifiers (NDCs) to the Medicaid program so that Medicaid could begin to obtain rebates from drug manufacturers for products that are administered in doctors’ offices. These drugs would include infusion products and injectibles such as cancer drugs that cannot be administered by patients themselves. Many of the treatments are liquid products and compounds of various drugs that do not lend themselves easily to the reporting demanded by CMS.
The hospitals state that they and the state Medicaid programs delegated by CMS to administer the requirement have been unable to implement the mandate using current billing and payment systems. They say existing hospital systems utilize very different billing procedures required under Medicare. The American Society of Health-System Pharmacists, which represents 35,000 pharmacists from hospitals and other health care facilities, estimates the reporting requirement will require hospital systems to make changes that will add costs of $10 per prescription.
UMCSN Chief Executive Officer Kathleen Silver says her hospital could experience a $5 million impact by the end of 2008 from having to comply with the “unreasonably burdensome reporting requirement,” which she says is “impossible to comply with as written.” UMCSN is among the largest providers of charity care in the southwestern region of the United States with a substantial number of their patients on Medicaid or uninsured.
The plaintiffs are seeking confirmation from the court that hospital physician-administered drugs are exempt from rebates and thus that hospitals are exempt from the reporting requirements. In addition, they seek a permanent injunction prohibiting the federal government from requiring and encouraging State Medicaid agencies to collect NDC information.
SNHPA is a national association of more than 400 hospitals that, based on the high percentage of indigent patients they serve, are qualified to participate in the federal drug discount program administered under § 340B of the Public Health Service Act.
BACKGROUND ON THE HOSPITAL LAWSUIT ON GOVERNMENT REPORTING MANDATE
- The Department of Health and Human Services' Office of the Inspector General reported to Congress in 2004 that many state Medicaid programs were not collecting Medicaid rebates on drugs dispensed by physicians in their offices. Congress responded to that report by including a provision in the Deficit Reduction Act of 2005 that requires the collection of national drug code (NDC) identifiers from physicians and other providers for drugs they have administered, so that when these drugs are utilized, rebates can be collected on them under the Medicaid drug rebate program established in 1990.
- However, in its implementing regulations adopted in July 2007, CMS interpreted the original Congressional reporting mandate to apply to drugs dispensed in hospital outpatient settings as well as those administered in doctors' offices - an expansion that Congress says goes well beyond Congressional intent. It also conflicts with other statutory provisions of the Medicaid drug rebate law.
- An exemption in that law prohibits the collection of rebates on drugs administered in hospitals that have their own drug formularies and that bill and are paid by Medicaid at purchasing levels set under state Medicaid plans. That rebate exemption was enacted in 1990 because manufacturer rebates are not necessary to lower Medicaid drugs costs since state Medicaid agencies were already benefitting from the significant discounts traditionally afforded to hospitals on the outpatient drugs they purchase using formularies.
- Hospitals and the state Medicaid programs delegated by CMS to administer the requirement that NDC identifiers for physician-administered drugs be reported have been unable to implement the mandate using current billing and payment systems. Existing hospital systems utilize very different billing procedures required under Medicare and those systems are largely incompatible with the reporting of NDC codes. The American Society of Health-System Pharmacists estimates the reporting requirement will require hospitals to make systems changes that will add costs of $10 per prescription. Hospitals say the systems changes could take as long as two years to implement.
- CMS allowed some delay in implementing the law, but all states were told they had to implement NDC reporting on July 1, 2008. Some states, such as California, continue to delay implementation because of systems complications.
For more information, please contact Rob Recklaus at (202)552-5852 or rob.recklaus@safetynetrx.org.
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Washington, DC 20005 
