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CMS Should Address Medicare's Flawed Payment System for DME Infusion Drugs


As required by statute, Medicare sets payment amounts for drugs infused through durable medical equipment (DME infusion drugs) at 95 percent of the average wholesale prices (AWPs) in effect on October 1, 2003. AWPs, which represent list prices rather than actual marketplace prices, have been long been recognized as a flawed pricing benchmark. In February 2013, OIG issued a report to CMS regarding Medicare payments for DME infusion drugs. In that report, we made one recommendation and suggested two options for its implementation. Because CMS had not taken steps to address our recommendation, and payments continued to be misaligned with drug costs, OIG revisited this issue in a 2015 report.

This current report, following up on our earlier recommendation, builds on previous OIG findings by illustrating the impact of the current payment methodology on provider reimbursement rates for two vital DME infusion drugs: pump-administered insulin and milrinone lactate.


For each quarter, we calculated the difference between the Medicare payment amount and the estimated acquisition cost for insulin and milrinone lactate. We summarized annual claims data for both drugs by national provider identifier to determine the number of suppliers who were paid for the drugs each year and the amount each supplier received in reimbursement. We performed a similar analysis by beneficiary to determine the number of beneficiaries who received insulin and milrinone lactate, as well as the amount each beneficiary received.


OIG published its first report recommending changes to Medicare payments for DME infusion drugs 3 years ago, yet CMS still reimburses for these drugs at prices that are unrelated to the amounts providers pay to acquire them. Under Medicare's current reimbursement methodology, which is based on average wholesale prices (AWPs) from October 2003, Medicare paid suppliers 65 percent less than their cost for pump-administered insulin - hindering beneficiary access to the drug. Using this same reimbursement methodology, Medicare paid suppliers of milrinone lactate, an infusion drug used to treat congestive heart failure, 20 times the drug's cost, thereby creating incentives for overutilization and improper billing.


OIG again recommends that CMS take action to address payment issues associated with DME infusion drugs. The agency could seek a legislative change that would require payments for DME infusion drugs to be based on average sales prices (ASPs), as is the case with most other Part B drugs. Alternatively, CMS could address our recommendation by using its existing authority to include DME infusion drugs in the competitive bidding program.