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Policy Watch: March 2000
President’s FY 2001 Budget Proposal Includes $1 Billion for NIH; Cuts in Drug Reimbursement

Cash vs. Accrual Accounting Case Settled in Oncologists’ Favor

Patients’ Bill of Rights Goes to Conference


President’s FY 2001 Budget Proposal Includes $1 Billion for NIH; Cuts in Drug Reimbursement

Research Funding: President Clinton’s fiscal year 2001 budget proposal includes an increase of $1 billion for the National Institutes of Health, or 5.6 percent over the 2000 appropriation. While this is an improvement over last year’s 2% increase proposed by the Administration, it is far below the 15% increase being advocated by the biomedical research community. Congress approved a 15% increase for NIH in FY 2000; another 15% in FY 2001 would represent the third installment towards doubling the NIH budget by 2003. The $18.3 billion proposed for NIH in FY 2001 includes $3.25 billion for the National Cancer Institute, a 5.9 percent increase, or $183 million more than its current budget. The budget states that NIH plans to focus on four programmatic themes:

* accelerating the human genome project and building bioinformatics

* reinvigorating clinical research by recruiting, training, and retaining clinical investigators; strengthening clinical research centers; supporting clinical trials, networks and databases; and developing partnerships with managed care organizations, foundation, industries and other Federal agencies

* harnessing the expertise of allied disciplines such as chemistry, engineering, computer science, mathematics, optics and physics

* reducing health disparities at home and abroad

The budget also proposes to eliminate the provision requiring NIH to delay obligation of $4.3 billion until the end of FY 2000 that was included in last year’s omnibus appropriations bill.

For the third year in a row, the Administration calls for a three-year demonstration program to provide coverage of routine patient care costs for Medicare beneficiaries who participate in qualified cancer clinical trials.

Cuts in Drug Reimbursement: The President’s budget proposal includes, for the fourth consecutive year, a reduction in Medicare reimbursement to physicians for outpatient drugs. Reimbursement would be set at 83 percent of average wholesale price compared to the current statute requiring Medicare to reimburse at 95 percent of AWP. This provision is included as part of the Administration’s proposals to reduce Medicare waste, fraud and abuse. The Administration estimates the savings from this proposal to be $130 million in the first year and $1.19 billion over five years.

The President’s FY 2001 budget proposal includes a comprehensive reform plan to modernize and strengthen the Medicare. Central to this plan is a voluntary outpatient prescription drug benefit. The benefit would have no deductible and pay half of all beneficiaries’ prescription drug costs up to $2,000 in FY 2003, increasing to $5,000 when fully implemented in 2009. The benefit would be administered primarily by pharmaceutical benefit managers (PBMs).

The reform plan would eliminate coinsurance and deductibles for Medicare-covered preventive benefits such as colorectal screening, mammography, and prostate cancer screening.

Tobacco Control: Other proposals in the President’s budget include a 25-cent increase in the federal excise tax on cigarettes. The budget also proposes to require tobacco companies to pay a "youth smoking assessment" at twice the estimated lifetime profit per underage smoker each year that underage smoking has not been reduced by 50 percent. The Administration continues to support the Food and Drug Administration’s authority to regulate tobacco products to reduce youth access to tobacco products. The budget includes resources for the Department of Justice to pursue its lawsuit against the tobacco industry to recover Medicare’s expenditures for tobacco-related health care.

The Administration’s budget proposal and related documents are available at the Office of Management and Budget website at www.gpo.gov/-usbudget/index.html. For budget documents specific to the National Institutes of Health and the Medicare program, go to www.hhs.gov and click on the link ‘HHS FY 2001 Budget.’

Cash vs. Accrual Accounting Case Settled in Oncologists’ Favor

Over the past several years, the Internal Revenue Service has initiated a number of audits of oncologists who maintain an inventory of chemotherapy drugs. The IRS has asserted in these audits that oncologists must use the accrual method of accounting, or at least must account for their expenses for chemotherapy drugs on an accrual basis. The IRS position suffered a significant set back in a recent case decided by the United States Tax Court. In that case, Osteopathic Medical Oncology and Hematology, P.C. v. Commissioner, 113 T.C. No. 26 (Nov. 22, 1999), the Tax Court ruled 10-5 that the oncologists were furnishing medical services, not selling merchandise, and were therefore not required to report their expenses for chemotherapy drugs on an accrual basis.

While this case does not necessarily resolve the issue for all oncology practices, it substantially strengthens the case for oncologists to continue using cash basis accounting. Oncologists and their tax advisers who are considering whether to change to an accrual method will want to review this decision. It is available on the Tax Court Internet site, http://www.ustaxcourt.gov/.

Patients’ Bill of Rights Goes to Conference

You will recall that on July 15, 1999, the U.S. Senate passed managed care legislation that included a clinical trials provision. That provision, offered by Senator Mack (R-FL), provides coverage of clinical trials for cancer patients in an ERISA plan, which covers roughly 48 million of the 161 million Americans with health insurance. Trials to be covered include those approved by NIH, DoD or VA, but excludes FDA approved trials. Further-more, the measure requires a negotiated rule-making process to establish standards for determining routine patient costs associated with clinical trial participation instead of referring to the design of the protocol. Lastly, the provision requires a study to measure the financial impact on group health insurance plans for covering routine patient care costs of those patient enrolled in an approved clinical trial.

On October 7, 1999, the U.S. House of Representatives followed suit and passed the Bipartisan Consensus Managed Care Improvement Act of 1999, H.R. 2723. This measure, introduced by Representatives Charlie Norwood (R-Ga) and John Dingell (D-Mich), included a clinical trials provision that covers all patients with health insurance that have a serious or life-threatening illness for which no standard treatment is effective and is specific to trials sponsored by the NIH, a cooperative group or center of the NIH, VA, or DoD. The House measure also omits FDA approved trials from coverage.

The House and Senate are now going to conference to iron out the differences between their respective measures. While the major battle lines are likely to be drawn over issues unrelated to clinical trials (liability and scope of coverage), ASCO is working to ensure that the final measure that comes out of the House and Senate Conference Committee applies to all 161 million Americans with insurance coverage. ASCO is also requesting that the provision be extended to include FDA approved trials. Optimists on Capitol Hill claim that Congress will reach agreement on the legislation by their spring recess. Others speculate there will be no resolution until summer, if at all. In the meantime, please visit ASCO’s grassroots action center at http://www.asco.org/  and send a message to Congress about the importance of clinical trials coverage.