Implementing OIG Recommendation Could Have Reduced Payments for DME Infusion Drugs by Hundreds of Millions of Dollars

WHY WE DID THIS STUDY

The payment amounts for infusion drugs used in conjunction with durable medical equipment (DME) are set at 95 percent of the average wholesale prices (AWPs) that were in effect on October 1, 2003. In contrast, the payment amounts for most other Part B-covered prescription drugs are set at 106 percent of the volume-weighted average sales prices (ASPs) for those drugs, and are updated to reflect the ASPs as of 2 quarters prior. A February 2013 OIG report found that overall, Medicare payment amounts for infusion drugs used in conjunction with durable medical equipment (DME) substantially exceeded the estimated acquisition costs. Further, we found that paying on the basis of quarterly ASPs rather than the October 2003 AWPs would have reduced Medicare expenditures by hundreds of millions of dollars between 2005 and 2011. We recommended that CMS either (1) seek a legislative change requiring DME infusion drugs to be paid using the ASP-based methodology or (2) include DME infusion drugs in the next round of the competitive bidding program. CMS partially concurred with the first recommendation but has not taken steps toward seeking legislation. CMS concurred with the second recommendation but said subsequently that DME infusion drugs will not be included in competitive bidding until at least 2017. This memorandum report estimates (1) the amount by which Medicare expenditures for DME infusion drugs could have been reduced if the Part B payment methodology had been revised as OIG recommended, and (2) the difference between acquisition costs and Medicare payment amounts for DME infusion drugs.

HOW WE DID THIS STUDY

For each DME infusion drug, we multiplied the quarterly utilization by the quarterly ASP-based payment amount to determine how much Medicare and its beneficiaries would have spent if payment had been set at 106 percent of the ASP rather than at 95 percent of the AWP. We subtracted the result from actual expenditures in the relevant quarter to determine the difference in spending between the two payment methodologies. For each quarter, we also calculated the difference between the AWP-based payment amount and the estimated acquisition cost for each drug.

WHAT WE FOUND

In updating our analysis, we found that Medicare expenditures for DME infusion drugs could have been reduced by $251 million in an 18-month period if the ASP-based payment methodology recommended by OIG had been implemented in April 2013 (i.e., the quarter after our earlier report was issued). Between the second quarter of 2013 and the third quarter of 2014, at least 42 percent of DME infusion drugs had Medicare payment amounts that were more than twice their estimated acquisition costs. In contrast, approximately one-quarter of these drugs had payment amounts that were below costs.