October 9, 2009 - After more than a year of legal wrangling over a requirement that hospitals report national drug codes (NDCs) for physician-administered outpatient drugs, the Centers for Medicare & Medicaid Services (CMS) has agreed to modify its controversial 2007 policy.
It will now be up to individual states to decide whether to continue to require hospitals to submit NDCs to their state Medicaid program.
Advocates of safety-net hospitals are hopeful that states that resisted the federal mandate because of its implementation costs and headaches will now drop it, and that other states will have second thoughts about moving forward when considering the reporting policy's impact on cash-strapped hospitals.
SNHPA and Nevada hospital sued in 2008
University Medical Center
of Southern Nevada
The settlement stems from a lawsuit that Safety Net Hospitals for Pharmaceutical Access (SNHPA) and the University Medical Center of Southern Nevada filed against CMS in August 2008 after states began implementing the federal reporting rules. (See Monitor Sept. 2008.)
The plaintiffs argued that safety-net hospitals would have to spend millions of dollars on updates to their billing and payment systems, and that CMS had misinterpreted language in the Medicaid law that exempts hospitals from the Medicaid drug rebate program, including the NDC reporting requirements, if they charge their “purchasing costs” as defined by their states.
The parties to the lawsuit reached a settlement on Oct. 2 and CMS is communicating the policy change in a transmittal to state Medicaid directors within the next 30 days.
“This is an important development that, if the states cooperate, should eliminate or ease a difficult and costly administrative burden – not only for safety-net hospitals, but for all hospitals across the country,” said William von Oehsen, SNHPA's president and general counsel.
The document CMS is sending to state Medicaid offices acknowledges that hospital outpatient drugs are exempt from federal manufacturer rebates as long as the hospital bills Medicaid for the drugs at no more than the "hospital's purchasing costs for covered outpatient drugs (as determined under the State plan)."
Because the drugs are not subject to rebates, states need not collect - and hospitals need not report - the NDCs used to help identify them, it says.
University Medical Center of Southern Nevada has already seen the effects of the NDC reporting mandate.
In November of last year, the teaching hospital announced it would no longer offer oncology services to residents in the region. The hospital had resorted to cost-cutting after suffering a $20-million drop in Medicaid reimbursements, in part because it couldn't comply with the NDC reporting rule.
“Medicaid can't continue to cut reimbursements and not expect it to have an impact on patient access to medical services,” Kathy Silver, UMC's chief executive officer said at the time.
When her hospital and SNHPA filed the lawsuit against CMS, Silver estimated that it would cost her hospital at least $5 million to implement the NDC reporting policy.