Medicare Outpatient Payments:

Rates for Certain Radioactive Sources Used in Brachytherapy Could Be Set Prospectively

GAO-06-635: Published: Jul 24, 2006. Publicly Released: Jul 24, 2006.

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Generally, in paying for hospital outpatient procedures, Medicare makes prospectively set payments that are intended to cover the costs of all items and services delivered with the procedure. Medicare pays separately for some technologies that are too new to be represented in the claims data used to set rates. It also pays separately for certain technologies that are not new, such as radioactive sources used in brachytherapy, a cancer treatment. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 required separate payment for the radioactive sources. It also directed GAO to make recommendations regarding future payment. GAO examined (1) how Medicare determines payment amounts for technologies that are not new but are separately paid and (2) how payment amounts for iodine, palladium, and iridium sources used in brachytherapy could be determined.

In paying separately for technologies that are not new, the Centers for Medicare & Medicaid Services (CMS) generally sets prospective rates based on the average unit cost of the technologies across hospitals. For example, CMS currently pays separate prospective rates for certain high-cost drugs based on the mean per-unit acquisition cost, as derived by CMS from data provided by drug manufacturers. A prospective rate is desirable because basing a rate on an average encourages those hospitals that provide the technology to minimize their acquisition costs. However, when CMS determines that the unit cost of a technology designated for separate payment varies substantially and unpredictably over time, or that reasonably accurate data are not available, it pays each hospital its cost for the technology. For example, CMS pays each hospital its cost for corneal transplant tissue, because it determined that the fees eye banks charge hospitals vary substantially and unpredictably. GAO's analysis suggests that CMS could set prospective payment rates for iodine and palladium because their unit costs are generally stable and CMS can base the payments on reasonably accurate data. According to interviews GAO conducted with hospitals and manufacturers, iodine and palladium have an identifiable unit cost that does not vary unpredictably over time. In addition, the results of GAO's survey of hospital purchase prices suggest that the unit cost of iodine and palladium does not vary substantially. Furthermore, GAO found that Medicare claims would be a reasonably accurate source of data for setting prospective rates for these sources. GAO was not able to determine a suitable methodology for paying separately for iridium. In contrast with iodine and palladium, which are permanently implanted in patients, iridium is reused across multiple patients, making its unit cost more difficult to determine. Although GAO surveyed hospitals on the unit cost of iridium, it did not receive sufficient data to identify and evaluate an average unit cost across hospitals. However, CMS has outpatient claims data from all hospitals that have used iridium. In order to identify a suitable methodology for determining a separate payment amount, CMS would be able to use these data to establish an average cost and evaluate whether the cost varies substantially and unpredictably.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: CMS agreed with this recommendation and drew upon GAO's analysis to propose and then finalize prospective rates for calendar year (CY) 2007 and CY 2008 for all brachytherapy sources, including iodine and palladium, based on the respective sources' median costs. The CY 2008 outpatient prospective payment system (OPPS) final rule cited GAO's analysis and recommendations. However, Congress delayed the implementation of prospective rates for brachytherapy sources through December 31, 2009. In its CY 2010 OPPS final rule, CMS announced that, starting January 1, 2010, it would pay for brachytherapy sources, including iodine and palladium, prospectively based on CY 2008 median costs from historical hospital claims. Per the final rule, the prospective rates went into effect on January 1, 2010.

    Recommendation: In order to promote the efficient delivery of radioactive sources associated with outpatient brachytherapy, the Secretary of Health and Human Services should direct the Administrator of CMS to set prospective payment rates for iodine and palladium sources with each rate based on the source's average--that is, the mean or median--unit cost across hospitals estimated from OPPS claims data.

    Agency Affected: Department of Health and Human Services

  2. Status: Closed - Implemented

    Comments: CMS agreed with this recommendation and drew upon GAO's analysis to propose and then finalize prospective rates for calendar year (CY) 2007 and CY 2008 for all brachytherapy sources, including iridium, based on the respective sources' median costs. The CY 2008 outpatient prospective payment system (OPPS) final rule cited GAO's analysis and recommendations. However, Congress delayed the implementation of prospective rates for brachytherapy sources through December 31, 2009. In its CY 2010 OPPS final rule, CMS announced that, starting January 1, 2010, it would pay for brachytherapy sources, including iridium, prospectively based on CY 2008 median costs from historical hospital claims. Per the final rule, the prospective rates went into effect on January 1, 2010.

    Recommendation: In order to promote the efficient delivery of radioactive sources associated with outpatient brachytherapy, the Secretary of Health and Human Services should direct the Administrator of CMS to use claims data to evaluate the unit cost of iridium so that a suitable, separate payment methodology can be determined.

    Agency Affected: Department of Health and Human Services

 

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