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Loophole in Drug Payment Rule Continues To Cost Medicare and Beneficiaries Hundreds of Millions of Dollars


With certain exceptions, self-administered drugs are typically not covered under Medicare Part B. However, in a November 2017 report, OIG found that CMS and a Federal court interpret relevant statute to require the inclusion of versions of drugs not generally covered under Part B in limited circumstances when setting Medicare payment amounts. As a result, CMS included noncovered, self-administered versions of Orencia and Cimzia when determining payments for those two drugs. The inclusion of these noncovered versions caused Medicare and its beneficiaries to pay an extra $366 million from 2014 through 2016. OIG recommended that CMS seek a legislative change that would provide the agency with flexibility to determine when noncovered versions of a drug should be included in the calculation of the Part B payment amount. CMS did not concur with our recommendation and, to date, no action has been taken to close the payment loophole.


To determine whether there were any additional drugs (beyond the two identified in our previous report) for which noncovered versions were being used to set Part B payment amounts in 2017 or 2018, OIG used data from CMS, FDA, and drug manufacturers. To assess the financial impact of the loophole, we recalculated the Part B payment amount for each drug excluding the self-administered versions. We then multiplied the total Part B expenditures for the drug each quarter by the percentage reduction that would have been achieved with the alternate payment amount.


As of December 2019, CMS continued to include noncovered, self-administered versions when calculating Part B payment amounts for Orencia and Cimzia, the same two drugs identified in OIG's November 2017 report. From our analysis, these two drugs were the only ones for which noncovered, self-administered versions were used to set Part B payment amounts in 2017 or 2018. Closing the payment loophole for self-administered drugs would have saved Medicare and its beneficiaries nearly half a billion dollars on Orencia and Cimzia in 2017 and 2018. Further, OIG found that physicians almost never administered the self-injected versions of Orencia to patients in their offices, and that the payment loophole may give physicians substantial incentives to administer Orencia and Cimzia instead of other drugs for the same conditions.


OIG continues to recommend that CMS seek a legislative change requiring that noncovered, self-administered versions of drugs be excluded in the calculation of Part B payment amounts. Given the complexities inherent in identifying such versions, it is critical that any legislation address decisions points in the process, particularly the sources and evidence that CMS may use.