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Questionable Billing for Brand-Name Inhalation Drugs in South Florida

We found that Medicare paid South Florida suppliers for up to 10 times more units of arformoterol than the drug's manufacturer and the 3 largest wholesalers distributed for sale in the area in 2008 and the first half of 2009. Furthermore, the $62 million billed by South Florida suppliers for arformoterol during this period far exceeds the total possible sales in the area.

Medicare Part B covers inhalation drugs when they are used in conjunction with durable medical equipment (DME). Beneficiaries typically obtain DME items, including inhalation drugs, through suppliers, which then submit claims to Medicare. A CMS contractor established coverage guidelines for nebulizers and related inhalation drugs using a local coverage determination (LCD). Through this LCD, a utilization edit was implemented to detect and deny excessive claims for the brand-name inhalation drug budesonide in September 2008.

We identified all claims in 2008 and the first half of 2009 for budesonide and the newer brand-name inhalation drug arformoterol. For both drugs, we analyzed claims data to identify the edit's impact on billing and payment for budesonide and to determine whether utilization shifted to arformoterol after the edit took effect. We also obtained sales data from arformoterol's manufacturer for the same period. We used the sales data to compare the total number of units of arformoterol sold to South Florida suppliers by the manufacturer and the three largest wholesalers to the number of units paid based on the Medicare claims files.

We found that after the edit was implemented for budesonide, Medicare payments for the drug to South Florida suppliers were reduced by almost half. In fact, nearly 30 percent of suppliers that had billed for budesonide in the 6 months before the edit completely stopped billing for budesonide in the 6 months after the edit. However, these expenditure decreases were offset by increases in expenditures for arformoterol. Medicare payments for arformoterol to South Florida suppliers more than doubled after the budesonide edit was implemented. Based on sales data for arformoterol's manufacturer and the three largest wholesalers, it does not appear that these suppliers purchased enough of the drug to justify these payments. In 2008 and the first half of 2009, Medicare paid for 7 million units of arformoterol, even though only 750,000 units were sold to South Florida suppliers by the manufacturer and the 3 largest wholesalers.

We recommend that CMS (1) require DME contractors to implement utilization edits in high-fraud areas as soon as Medicare begins paying for a brand-name drug, (2) monitor utilization changes among brand-name inhalation drugs, (3) strengthen initial claim review processes to focus on prevention of improper payments, and (4) perform site visits and request documentation to support budesonide and arformoterol billings from the South Florida suppliers we will refer for further review. In its comments on the draft report, CMS concurred with all four of our recommendations (however, the concurrence with our first recommendation included the caveat that certain procedures, such as developing and issuing an LCD, would need to be followed before implementing these edits).