Medicare:

Payments for Covered Outpatient Drugs Exceed Providers' Costs

GAO-01-1118: Published: Sep 21, 2001. Publicly Released: Sep 21, 2001.

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Although physicians and other health care providers acknowledge that they can buy drugs for prices lower than Medicare payments, they contend that they need drug payments in excess of their actual costs to compensate for inadequate or nonexistent Medicare payments for administrating the drugs. Physicians are able to obtain Medicare-covered drugs at prices significantly below current Medicare payments, which are set at 95 percent of average wholesale prices (AWP). The prices paid by wholesalers and group purchasing organizations that would be generally available to physicians were considerably less than AWPs used to establish the Medicare payment for these drugs. The difference between these prices and AWP for physician-administered drugs in GAO's sample varied by drug. For most physician-administered drugs, the average discount from AWP ranged from 13 percent to 34 percent; two physician-administered drugs had discounts of 65 percent and 86 percent. Other suppliers are also able to buy drugs at prices that are considerably less than the AWP used to establish the applicable Medicare payment. Pharmacy suppliers were predominant billers for 10 of the high-expenditure and high-volume Medicare-covered drugs GAO analyzed. These suppliers generally provide two types of drugs--drugs administered through durable medical equipment (DME) and covered oral drugs, such as certain immunosuppressives. Also, suppliers generally receive a payment from Medicare for DME and supplies. Private and other public payers use different payment methods for drugs and their administration. Private health plans use their drug-purchase and patient volume to negotiate favorable prices for drugs and physician and supplier services related to supplying or delivering the drugs. Other public payers also use their purchasing volume along with information about actual transaction prices from private payers to lower their drug payments.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Centers for Medicare and Medicaid Services in the Department of Health and Human Services issued a proposed rule regarding payment reform for Part B Drugs on Wednesday August 20, 2003 (42 CFR Part 405). The proposed rule would revise, based on one of four approaches, the current payment methodology for Medicare Part B covered drugs and biologicals that are not paid on a cost or prospective payment basis. Among those four approaches is the proposal to pay for drugs using market-based prices derived from market monitoring.

    Recommendation: In order to improve the accuracy of Medicare payments for drugs and related services, the Administrator of the Centers for Medicare and Medicaid Services (CMS) should establish Medicare payment levels for part-B prescription drugs and their delivery and administration that are more closely related to their costs. Payments for drugs should be set at levels that reflect actual market transaction prices and the likely acquisition cost to providers. To accomplish this, the Administrator should consider how information on market transactions already available to Health and Human Services or Veterans' Affairs may be used as a benchmark for Medicare payment levels. If the Administrator determines that legislative action would be required to use such information in setting Medicare reimbursements, he should seek this action immediately.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  2. Status: Closed - Implemented

    Comments: Section 303(d) of the Medicare Modernization Act requires the implementation of a competitive acquisition program (CAP) for Medicare Part B drugs and biologicals not paid on a cost or prospective payment system basis. Beginning with drugs administered on or after January 1, 2006, physicians will be given a choice between buying and billing these drugs under the average sales price (ASP) system or obtaining these drugs from vendors selected in a competitive bidding process.

    Recommendation: In order to improve the accuracy of Medicare payments for drugs and related services, the Administrator of CMS should examine the benefits and risks of expanding the current competitive bidding demonstration projects for drugs covered under part B.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  3. Status: Closed - Implemented

    Comments: The Centers for Medicare & Medicaid Services within the Department of Health and Human Services is undertaking a number of activities to monitor access to care for Part B covered drugs. These efforts include monitoring Medicare claims data and calls into 1-800 Medicare, analyzing trends in Medicare drug reimbursement rates, conducting Regional Office environmental scanning, and issuing a contract for a 4 year study of the effects of Part B drug payment reform. These ongoing activities address the GAO recommendation.

    Recommendation: In order to improve the accuracy of Medicare payments for drugs and related services, the Administrator of CMS should institute a process to monitor access to Medicare part-B covered drugs to ensure that payment changes do not negatively affect access for particular drugs, or groups of beneficiaries or in certain geographic areas.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

 

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