Drug APC payment rates

The amount of payment under this subsection for a specified covered outpatient drug (defined in subparagraph (B)) that is furnished as part of a covered OPD service (or group of services)—

(i) in 2004, in the case of— (I) a sole source drug shall in no case be less than 88 percent, or exceed 95 percent, of the reference average wholesale price for the drug; (II) an innovator multiple source drug shall in no case exceed 68 percent of the reference average wholesale price for the drug; or (III) a noninnovator multiple source drug shall in no case exceed 46 percent of the reference average wholesale price for the drug;

(ii) in 2005, in the case of— (I) a sole source drug shall in no case be less than 83 percent, or exceed 95 percent, of the reference average wholesale price for the drug; (II) an innovator multiple source drug shall in no case exceed 68 percent of the reference average wholesale price for the drug; or (III) a noninnovator multiple source drug shall in no case exceed 46 percent of the reference average wholesale price for the drug; or

(iii) in a subsequent year, shall be equal, subject to subparagraph (E)— (I) to the average acquisition cost for the drug for that year (which, at the option of the Secretary, may vary by hospital group (as defined by the Secretary based on volume of covered OPD services or other relevant characteristics)), as determined by the Secretary taking into account the hospital acquisition cost survey data under subparagraph (D); or (II) if hospital acquisition cost data are not available, the average price for the drug in the year established under section 1395u( o ) of this title, section 1395w–3a of this title , or section 1395w–3b of this title , as the case may be, as calculated and adjusted by the Secretary as necessary for purposes of this paragraph.

(i) In general In this paragraph, the term “specified covered outpatient drug” means, subject to clause (ii), a covered outpatient drug (as defined in section 1396r–8(k)(2) of this title ) for which a separate ambulatory payment classification group (APC) has been established and that is— (I) a radiopharmaceutical; or (II) a drug or biological for which payment was made under paragraph (6) (relating to pass-through payments) on or before December 31, 2002 .

(ii) Exception Such term does not include— (I) a drug or biological for which payment is first made on or after January 1, 2003 , under paragraph (6); (II) a drug or biological for which a temporary HCPCS code has not been assigned; or (III) during 2004 and 2005, an orphan drug (as designated by the Secretary).

The amount of payment under this subsection for an orphan drug designated by the Secretary under subparagraph (B)(ii)(III) that is furnished as part of a covered OPD service (or group of services) during 2004 and 2005 shall equal such amount as the Secretary may specify.

(i) Annual GAO surveys in 2004 and 2005 (I) In general The Comptroller General of the United States shall conduct a survey in each of 2004 and 2005 to determine the hospital acquisition cost for each specified covered outpatient drug. Not later than April 1, 2005 , the Comptroller General shall furnish data from such surveys to the Secretary for use in setting the payment rates under subparagraph (A) for 2006. (II) Recommendations Upon the completion of such surveys, the Comptroller General shall recommend to the Secretary the frequency and methodology of subsequent surveys to be conducted by the Secretary under clause (ii).

(ii) Subsequent secretarial surveys The Secretary, taking into account such recommendations, shall conduct periodic subsequent surveys to determine the hospital acquisition cost for each specified covered outpatient drug for use in setting the payment rates under subparagraph (A).

(iii) Survey requirements The surveys conducted under clauses (i) and (ii) shall have a large sample of hospitals that is sufficient to generate a statistically significant estimate of the average hospital acquisition cost for each specified covered outpatient drug. With respect to the surveys conducted under clause (i), the Comptroller General shall report to Congress on the justification for the size of the sample used in order to assure the validity of such estimates.

(iv) Differentiation in cost In conducting surveys under clause (i), the Comptroller General shall determine and report to Congress if there is (and the extent of any) variation in hospital acquisition costs for drugs among hospitals based on the volume of covered OPD services performed by such hospitals or other relevant characteristics of such hospitals (as defined by the Comptroller General).

(v) Comment on proposed rates Not later than 30 days after the date the Secretary promulgated proposed rules setting forth the payment rates under subparagraph (A) for 2006, the Comptroller General shall evaluate such proposed rates and submit to Congress a report regarding the appropriateness of such rates based on the surveys the Comptroller General has conducted under clause (i).

(i) MedPAC report on drug APC design The Medicare Payment Advisory Commission shall submit to the Secretary, not later than July 1, 2005 , a report on adjustment of payment for ambulatory payment classifications for specified covered outpatient drugs to take into account overhead and related expenses, such as pharmacy services and handling costs. Such report shall include— (I) a description and analysis of the data available with regard to such expenses; (II) a recommendation as to whether such a payment adjustment should be made; and (III) if such adjustment should be made, a recommendation regarding the methodology for making such an adjustment.

(ii) Adjustment authorized The Secretary may adjust the weights for ambulatory payment classifications for specified covered outpatient drugs to take into account the recommendations contained in the report submitted under clause (i).

For purposes of this paragraph:

(i) Sole source drugs The term “sole source drug” means— (I) a biological product (as defined under section 1395x(t)(1) of this title ); or (II) a single source drug (as defined in section 1396r–8(k)(7)(A)(iv) of this title ).

(ii) Innovator multiple source drugs The term “innovator multiple source drug” has the meaning given such term in section 1396r–8(k)(7)(A)(ii) of this title .

(iii) Noninnovator multiple source drugs The term “noninnovator multiple source drug” has the meaning given such term in section 1396r–8(k)(7)(A)(iii) of this title .

Additional expenditures resulting from this paragraph shall not be taken into account in establishing the conversion, weighting, and other adjustment factors for 2004 and 2005 under paragraph (9), but shall be taken into account for subsequent years.