February 19, 2015 BY ELECTRONIC DELIVERY. Re: Bipartisan Budget Act of Dear Chairman Upton and Ranking Member Pitts:

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1 February 19, 2015 Fred Upton, Chairman Joseph R. Pitts, Ranking Member Committee on Energy and Commerce U.S. House of Representatives 2125 Rayburn House Office Building Washington, DC BY ELECTRONIC DELIVERY Re: Bipartisan Budget Act of Dear Chairman Upton and Ranking Member Pitts: We are writing to you on behalf of the Biotechnology Innovation Organization (BIO) in response to your letter dated February 5, 2015, requesting feedback related to the enactment of section 603 of the Bipartisan Budget Act of 2015 (BBA). 1 We write to articulate our firm belief that facilities and organizations prohibited by BBA section 603 from billing Medicare as Hospital Outpatient Departments (HOPDs), starting in 2017, should be prohibited from being listed as reimbursable on hospitals Medicare cost reports and be similarly prohibited from participating in the 340B Program. As you noted in your letter, section 603 will reduce Medicare payments for certain off-campus facilities of HOPDs, effective January 1, Your letter acknowledges that non-partisan economists and health policy experts have found that Medicare s current payment policies for HOPDs have increased hospital acquisitions of community physician practices, in turn, increasing costs for the Medicare program and its beneficiaries. While this increase in hospital acquisitions of formerly independent community physician practices is certainly motivated by the higher reimbursement available to facilities that bill Medicare as HOPDs, rather than a physician s office, the steep discounts available to HOPDs by virtue of their participation as child sites in the 340B Drug Pricing Program (the 340B Program ) are also a key factor behind these acquisitions. To reduce the rate at which hospitals are driven by these dual financial incentives to buy up physician practices, Congress should therefore ensure that the Department of Health and Human Services (HHS) takes steps to address both differential Medicare reimbursement and expanded 340B participation through its implementation of BBA section 603. Depending on how section 603 is implemented by two agencies within the Department of Health and Human Services (HHS) namely the Centers for Medicare & Medicaid Services (CMS) and the Health Resources and Services Administration (HRSA) it 1 Pub. L. No

2 has the potential to reduce financially-driven provider consolidation and associated shifts in the site of care, and thus save money for Medicare and its beneficiaries and encourage the provision of clinically appropriate care. We thus urge the Committee to work with HHS to ensure that the provision is implemented in accordance with its language and underlying goals. To that end, it will be important to ensure that the facilities prohibited by BBA section 603 from billing Medicare as HOPDs, starting in 2017, can neither be reported as reimbursable on hospitals Medicare cost reports nor permitted to participate in the 340B Program. I. Shifts in the Site of Care and Provider Consolidation Increase Costs to the Medicare Program and its Beneficiaries. For a variety of reasons, the same medical service may be rendered by a physician in a number of different settings (e.g., physician s office, HOPD, ambulatory surgical center). However, under the Medicare program, the reimbursement rate is generally determined based on the facility type where the care was provided, and services provided in HOPDs are generally paid at a higher rate than those furnished in independent physicians offices. This payment difference is one of the key factors that drives hospitals to purchase freestanding physicians offices and designate them as HOPDs without changing their location or patient mix (i.e., turn ordinary physician practices into hospital outpatient departments). Indeed, in recent years, hospitals have increasingly been acquiring community-based practices. Once acquired, these practices may be treated as HOPDs for purposes of Medicare reimbursement. This trend has raised concern from policymakers and others, including the Medicare Payment Advisory Commission (MedPAC), because the shift in site of service due to these acquisitions increases Medicare spending and beneficiaries cost-sharing obligations. It also has contributed to the closure of independent physician-based practices, thereby reducing patient access to certain types of specialists, including oncologists, in an increasing number of geographic areas throughout the country. II. Financial Incentives to Expand 340B Participation Work in Tandem with Medicare Payment Differentials to Drive Hospital Acquisitions of Physician Practices. Mounting evidence demonstrates that hospital acquisitions of physician practices are being driven both by the higher Medicare payment received by HOPDs versus independent physician practices and by an interest in enabling the acquired practices to participate in the 340B Program, with substantial financial benefits for the parent hospital. 2 The availability of 2 For example, the most recent oncology practice impact funded by the Community Oncology Alliance found that 340B hospitals accounted for three-quarters of community oncology clinics bought over a two-year period. See Aaron Vandervelde, 340B Growth and the Impact on the Oncology Marketplace (Sept. 2015). New data from Avalere Health finds that 340B hospitals are more likely than other hospitals to purchase independent physician offices that administer medicines. Avelere Health. Hospital acquisitions of physician practices and the 340B program (June 8, 2015). The study authors found that 61 percent of hospitals identified in the study as potentially acquiring physician practices participated in the 340B Program, as compared to a 45 percent 340B participation rate among all hospitals in the data set. Also, a 2014 Health Affairs study concluded that 340B is a powerful Page 2 of 5

3 deeply discounted 340B pricing allows 340B hospitals to generate higher net revenues than independent physician offices for administering the same medicine. This opportunity never intended or foreseen by Congress creates financial incentives for 340B hospitals to purchase independent physician practices and bring them under the 340B umbrella. Notably, the criteria for an acquired facility or organization to participate in the 340B Program as a child site are defined by HRSA in reliance on the Medicare cost report. While nothing in the 340B statute provides for any offsite hospital outpatient facility to participate in the 340B Program, under current HRSA guidance, a clinic that is not otherwise eligible for participation in 340B may nonetheless participate in the program if it qualifies as a child site of a participating hospital. Since 1994, HRSA s policy has been to use the most recently filed Medicare cost report for purposes of determining 340B eligibility for these hospital outpatient facilities. 3 This policy is based on HRSA s estimation that the outpatient facility is considered an integral part of the hospital and therefore eligible for 340B if it is a reimbursable facility included on the hospital s most recently filed Medicare cost report. Accordingly, CMS s implementation of BBA 603 will (or at least should) render the affected facilities and organizations ineligible to participate in 340B. III. To Ensure that BBA Section 603 Lessens Shifts in the Site of Care and Provider Consolidation, the Committee Should Ensure that it is Implemented with this Aim In Mind Across All HHS Agencies. As you note in your letter, beginning in 2017, section 603 of the BBA will implement a site-neutral payment (e.g., at the physician fee schedule rate) for all off-campus hospital outpatient departments that were not reimbursed as an HOPD on or before November 2, Regardless of how this provision is implemented by CMS, it should help to address the concerns of MedPAC and others regarding the financial incentives created by differential Medicare reimbursement rates between HOPDs and independent physician practices under current practice, at least for those practices that had not yet been acquired in November However, to address the problematic trend of hospitals buying up physician practices more comprehensively and effectively, BBA section 603 must be implemented in a way that limits the type of off-campus facilities that can receive 340B discounts. Given that 340B participation is yet another driver of practice consolidation and shifts in the site of care which can have a detrimental impact on patient access to care and cost, and create an artificial financial incentive to treat patients at a site that may not be the most clinically appropriate or convenient for the patient we urge the Committee to ensure that this provision is implemented across HHS in a coordinated manner, bearing in mind the underlying intent of the law. contributor to driving these hospital acquisitions of physician practices. Bradford Hirsch, Suresh Balu & Kevin Shulman, The Impact of Specialty Pharmaceuticals as Drivers of Health Care Costs. 33 Health Affairs (Oct. 2014). 3 See 59 Fed. Reg. 47,884 (Sept. 19, 1994). 4 See BBA 603 (codified at 1833(t)(21) of the Social Security Act). Page 3 of 5

4 Specifically, because it would be illogical for outpatient facilities that receive siteneutral payments under section 603 i.e., that cannot bill Medicare as HOPDs beginning in 2017 to appear as a reimbursable line of the parent hospital s Medicare cost report, the Committee should encourage HHS to incorporate this principle explicitly in CMS s regulations implementing section 603, as well as the agency s cost-reporting guidance. If, on the other hand, these facilities were permitted to remain on the cost report as reimbursable in spite of being statutorily prohibited from billing Medicare as part of the hospital, it could leave intact one of the key financial incentives driving hospital acquisition of formerly independent physician practices and thereby frustrate the achievement of section s 603 s aim. BIO therefore urges the Committee to direct HHS to revise all applicable Medicare regulations and guidance to explicitly state that entities subject to section 603 shall not be listed as reimbursable on a hospital s Medicare cost report. These revisions also would help to protect against distortions in calculating payment rates under the Medicare Hospital Outpatient Prospective Payment System (OPPS), which uses data from cost reports to adjust hospitals charges to costs, as the costs from hospital outpatient departments not paid under the OPPS due to section 603 should not affect the payments made to the departments that are paid under this reimbursement system. We also ask the Committee to work with HHS to ensure that hospitals are not moving acquired practices on campus to the detriment of the practices existing patients as an end-run around section 603 s site-neutral payment requirements (which do not apply to on-campus sites). Finally, we further urge the Committee to ensure that HRSA s policies on child site eligibility for 340B similarly remain consistent with the intent of section 603. As noted previously, it is HRSA s policy that an outpatient facility that not listed as reimbursable on a hospital s Medicare cost report may not participate in 340B as that hospital s child site. Because the practices prohibited from billing Medicare as HOPDs under BBA section 603 would not be listed as reimbursable on the Medicare cost reports of 340B-participating hospitals, as described above, these practices would, by extension, be ineligible to participate in 340B under this longstanding policy. Congress should ensure that HRSA does not modify this policy or otherwise provide special treatment to the practices subject to BBA section 603. If anything, the agency s guidance should be updated to account for the fact that these facilities cannot be integral parts of 340B hospitals beginning in Page 4 of 5

5 IV. Conclusion We thank you for this opportunity to provide comments related to the enactment of BBA section 603. Please do not hesitate to contact us at (202) if BIO can be of any assistance. We thank you for your attention to these important matters. Respectfully Submitted, /s/ Jeanne Haggerty Senior Vice President Federal Government Relations Laurel L. Todd Vice President Healthcare Policy and Research Page 5 of 5

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