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.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    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

    Status: Open

    Comments: CMS agreed with this recommendation and drew upon GAO's analysis to propose and then finalize prospective rates for 2007 and 2008 for all brachytherapy sources, including iodine and palladium, based on the respective sources' median costs. The final rule, Changes to the Outpatient Prospective Payment System and calendar year 2008 Payment Rates, published on November 27, 2007, cited GAO's analysis and recommendations. Since the prospective rates for brachytherapy were slated to take effect, Congress has delayed their implementation, most recently in the Medicare Improvements for Patients and Providers Act of 2008 (P.L. 110-275) until 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

    Status: Open

    Comments: CMS agreed with this recommendation and drew upon GAO's analysis to propose and then finalize prospective rates for 2007 and 2008 for all brachytherapy sources, including iridium, based on the respective sources' median costs. The final rule, Changes to the Outpatient Prospective Payment System and calendar year 2008 Payment Rates, published on November 27, 2007, cited GAO's analysis and recommendations. Since the prospective rates for brachytherapy were slated to take effect, Congress has delayed their implementation, most recently in the Medicare Improvements for Patients and Providers Act of 2008 (P.L. 110-275) until January 1, 2010.

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