Sequestration Suspension Extended: Impact on Drug Reimbursement

Pharmacy departments may periodically be asked to compare drug payment with cost, particularly when expensive drugs are utilized on outpatients. It is also important to calculate anticipated revenue when preparing annual budgets.

 

The ASP (Average Sales Price) file is published by CMS each quarter and can be used to verify payment for Medicare outpatients or commercial contracts which pay based upon Medicare payment. It sounds straightforward, but there is a catch: “sequestration”.

 

Sequestration is the automatic reduction of federal spending originally established by Congress in the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA, also known as the Gramm-Rudman-Hollings Act). This applies to most areas of the federal budget but was first “triggered” for Medicare in FY2013 resulting in a 2% reduction in Medicare payments to providers over stated payment rates. This 2% reduction has continued each fiscal year until the pandemic when the sequestration was “suspended” meaning there is no current payment reduction and provided receive the full payment.

The Protecting Medicare and American Farmers from Sequester Cuts Act was signed into law on December 10, 2021 and extends the suspension through March 31, 2022. However, the sequestration will be gradually applied once the extension expires. From April 1, 2022 through June 30, 2022, the payment adjustment will be 1% and effective July 1, 2022, the payment adjustment shall return to the 2% for all Medicare Fee-for-service claims. Any changes to this reinstatement would require further Congressional action.

Because Medicare beneficiary co-payments are not subject to the payment reduction, they continue to pay the same co-payment amounts regardless of sequestration. Here’s a formula to use when the “sequestration” suspension begins to expire on April 1, 2022:

 

((Payment rate-copayment)*0.99)+ copayment

 

Let’s take a drug example from January 2022. Using Addendum B, we see the following:

Since Addendum B doesn’t have the dose description for this HCPCS code, we can find that information on the ASP file for the quarter:

Denosumab, J0897 has a payment limit of $21.205 per 1 mg effective January 1, 2022 from the ASP file. 

Calculating the new payment rate when subject to a 1% sequestration results in the following:

 

(($21.205-$4.25)*0.99) + $4.25 = $21.035

 

For a 60 mg dose, the payment difference is $10.173 (($21.205-$21.035)*60))

 

Note: The rates reflected in Addendum B are “unadjusted copayments” and these co-pay amounts may be different for different providers based upon geographic adjustments.

SHOUT- OUTS

1. Pharmacy and Finance should take into consideration if there is a payment “sequestration” triggered when projecting budgets and business plans especially for expensive drugs used on outpatients.

2. Pharmacy and Finance should be aware of congressional actions which may impact drug payments.

Our goal is simple; we’re taking complex information and making it practical. 

Until our next edition, this is Maxie Friemel and Agatha Nolen providing you with tips for increasing your Pharmacy Revenue.