FDAnews Drug Daily Bulletin


Nov. 28, 2005

Companies that do not prepare sufficiently for the upcoming competitive drug-purchasing program under Medicare Part B could find themselves losing customers and possibly even violating federal law, according to an industry attorney.

The Centers for Medicare & Medicaid Services (CMS) will begin its competitive acquisition program (CAP) for Medicare Part B drugs in July, but many companies have not taken sufficient steps to prepare themselves for the new regulatory requirements and market dynamics that the program will create, Keith Korenchuk, a partner at law firm McGuireWoods, told FDAnews.

Under the current system, manufacturers sell their drugs directly to physicians, who administer the medicines to patients and then get a reimbursement from Medicare to cover the cost of the compound and associated administrative functions. In addition, the physicians are responsible for handling the co-payments made by beneficiaries.

CAP is designed to introduce a third party -- the CAP vendor -- into the process. Under this program, physicians will have the option of either buying their drugs directly from manufacturers or from the participating vendors. The Part B market was estimated to have an annual value of $10.34 billion as of 2003. Part B includes 182 drugs that doctors administer while a patient is in their office, including oncology medications, a CMS official said.

Vendors started submitting bids recently to be part of the program, with the bidding process scheduled to end Dec. 22. CMS will select the participating vendors early next year, which will be followed by the physician sign-up period beginning April 1, 2006. The CAP officially begins July 1, 2006.

Many drugmakers are waiting for the CAP to start before developing a regulatory strategy, but Korenchuk said this approach is "a real risk."

In addition, both the CAP vendors and drug manufacturers must report the price paid for the manufacturer's drug to CMS. If those prices differ for any reason and the difference is discovered during a government audit, the manufacturer could be liable under the federal False Claims Act. For that reason, it's crucial for manufacturers to structure their deals with vendors in a way that protects them against price-reporting risks, according to Korenchuk.

Compliance officers and representatives from other departments must work together to ensure that their company is in compliance with the CAP, he added. There needs to be an effort to "raise awareness, raise that sensitivity" to potential problems.

The agency will not provide guidance on the relationship between vendors and manufacturers under Part B, the CMS official said, as these are purely private sector agreements. But the agency will inform vendors what is expected of them through individual Part B contracts, the official added. CMS will "provide as much instruction as is possible" about these contracts, the source said.