Medicare Part B CAP Dead ?… GTCbio September 10, 2007

Medicare Part B CAPMedicare Part B CAP

Dead ?…Dead ?…

GTCbio

September 10, 2007

Or On Life Support?Or On Life Support?

CAP OverviewCAP Overview

• Medicare’s direct supply program for physician office drugs and biologicals (“drugs”)

• Alternative to physician buy and bill

• Began operating July 1, 2006

• Optional; physician annual election

• >180 drugs/biologicals

Operated by BioScripOperated by BioScrip

• Only vendor to accept CMS terms • Payment to BioScrip = ASP + 4.4%

(Testimony of Richard Friedman, Exec Chairman of BioScrip, to Subcommittee on Health of the House Committee on Ways and Means. July 13, 2006)

• Anecdotal info that CAP program is not adding much leverage to BioScrip negotiations with manufacturers

• Revenue for 2Q 2007 = $9.2 mil

Little or No Savings to Little or No Savings to CMSCMS

• Potential savings = 1.6% [ASP + 6% minus ASP + 4.4%] minus operating costs

• CAP volume in 2007 ($37 mil. est) represents ~0.4% of the total 2005 Part B drug spend ($10 bil reported)

Little or No Savings - 2Little or No Savings - 2

• The $37 mil in CAP spending would be ~$37.5 mil if reimbursed under buy and bill – actual savings of $0.5 mil before accounting for program operating costs

Incentives to EnrollIncentives to Enroll

• For some medical practices, reduction in Medicare reimbursement from 85% AWP (2004) to 106% ASP (2005) makes drugs an expense rather than a profit center

• Some practices are refocusing attention away from drug treatment to more profitable procedures

Incentives - 2Incentives - 2

• Quarterly adjustment of ASP and 6 month “lag” make drug margin hard to predict

• Anecdotal info that an increasing number of patients cannot/do not pay coinsurance, become bad debts

Why Is CAP Unattractive to Why Is CAP Unattractive to Most Physicians?Most Physicians?

• Oncologists still profit from office administered drugs

• June ‘07 OIG study found that 9/12 sampled oncology practices could purchase drugs at or below ASP+6%

Why Is CAP Unattractive? - Why Is CAP Unattractive? - 22

• Private payers typically reimburse at 80% AWP, although that is changing– Some smaller, regional payers moving

toward ASP + and requiring direct supply for non-chemotherapy drugs

• Medicare volume often needed to lower net acquisition cost

• Volume-based price reductions

• As drugs become more expensive, profit increases– 2% of $500 is higher than 2% of

• Physician GPOs growing in popularity

• CAP costs $ to administer but there is no payment for it

• CAP vendor may refuse to supply drug to physician if patient has unpaid past due coinsurance

• Physician must cooperate with CMS post-payment review

Minimal Market Impact Minimal Market Impact

• 2,450 physicians elected CAP as of 2 Q 2007 (Aug 2 2007 BioScrip press release)

– Fewer than 10% are oncologists– Most popular specialties are allergy,

rheumatology, ophthalmology– Average size of physician practice = 3.5

(Medicare’s Competitive Acquisition Program – Stats Reveal Who’s In/Who’s Out and Why. Oncology Business Review www.oncbiz.com; no date)

• New election period began Aug 1– Final numbers not yet released– BioScrip projects 35% increase

Alternatives to CAPAlternatives to CAP

• Physicians refer patients to hospitals

• Hospitals joint venture with physicians to expand infusion services

CAP in 2008 - 2009CAP in 2008 - 2009

• BioScrip contract expires in ’08

• CMS report to Congress due July ‘08

• With 4.4% gross margin in a market of ~3,000 physicians, how much room exists for a second vendor?

CAP in 2008 – 2009 cont’dCAP in 2008 – 2009 cont’d

• If private insurance chemotherapy reimbursement holds near current level, not much incentive for oncologists to elect CAP …

• Unless payment drops to ASP+5% for 2009

CAP ExpansionCAP Expansion

• CAP for certain DME, prosthetics, orthotics and supplies – CMS to announce winning bidders in

December– Program scheduled to begin April 2008

SummarySummary

• CAP has had minimal impact on the Part B drug market and generated little or no savings for Medicare

• There are few incentives for physicians to elect CAP and several significant disincentives

Summary - 2Summary - 2

• Volume discounts coupled with private insurance reimbursement create disincentives for some physicians to choose CAP

• CAP will grow in scope only if Medicare or private insurance payments fall

101 North Columbus Street101 North Columbus Street

Suite 201Suite 201

Alexandria, Virginia 22314 USAAlexandria, Virginia 22314 USA

1.703.683.53331.703.683.5333

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Medicare Part B CAP Dead ?… GTCbio September 10, 2007

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