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Report (OEI-12-12-00310)

02-20-2013
Part B Payments for Drugs Infused Through Durable Medical Equipment

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Summary

WHY WE DID THIS STUDY

Medicare pays 106 percent of the average sales price (ASP) for most drugs covered under Part B. However, payment amounts for infusion drugs administered in conjunction with durable medical equipment (DME) are instead set at 95 percent of the drugs' average wholesale prices (AWP) that were in effect on October 1, 2003. Numerous OIG reports have shown that AWPs greatly exceed drug acquisition costs. Basing payments for DME infusion drugs on AWPs set almost a decade ago raises concerns about whether Medicare payment levels are appropriate.

HOW WE DID THIS STUDY

For every year between 2005 and 2011, we compared the ASP (which serves as an estimate for provider acquisition cost) of each DME infusion drug to its AWP-based Medicare payment amount. ASPs are statutorily defined and based on actual sales data. We also calculated how much Medicare would have saved between 2005 and 2011 had payment been based on ASPs rather than AWPs.

WHAT WE FOUND

Overall, Medicare payment amounts for DME infusion drugs exceeded ASPs by 54 to 122 percent annually. Most individual drugs had Medicare payment amounts that exceeded ASPs, many by more than two times, in each year. However, for as many as one-third of DME infusion drugs in each year, the payment amounts were below their ASPs, meaning that Medicare may be underpaying providers for these drugs. Medicare spending on DME infusion drugs would have been reduced by 44 percent ($334 million) between 2005 and 2011 had payment been based on ASPs.

WHAT WE RECOMMEND

Our results once again show that AWPs are unrelated to actual prices in the marketplace and that the reliance on an AWP-based payment methodology has cost Medicare hundreds of millions of dollars. Therefore, we recommend that CMS either (1) seek a legislative change requiring DME infusion drugs to be paid using the ASP methodology or (2) include DME infusion drugs in the next round of the competitive bidding program. CMS partially concurred with the recommendation to seek a legislative change and concurred with the recommendation to include DME infusion drugs in the next round of the competitive bidding program.

Copies can also be obtained by contacting the Office of Public Affairs at Public.Affairs@oig.hhs.gov.

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