This is the accessible text file for GAO report number GAO-03-184 
entitled 'Medicare: Payment for Blood Clotting Factor Exceeds 
Providers' Acquisition Cost' which was released on February 11, 2003.



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Report to the Ranking Minority Member, Subcommittee on Health, 

Committee on Ways and Means, House of Representatives:



United States General Accounting Office:



GAO:



January 2003:



Medicare:



Payment for Blood Clotting Factor Exceeds Providers’ Acquisition Cost:



Medicare Payment for Clotting Factor:



GAO-03-184:



GAO Highlights:



Highlights of GAO-03-184, a report to Ranking Minority Member, 

Subcommittee 

on Health, Committee on Ways and Means, House of Representatives:



MEDICARE

Payment for Blood Clotting Factor Exceeds Providers’ Acquisition Cost



Why GAO Did This Study:



In 2001, Medicare’s outpatient expenditures for blood clotting factor 

used 

to treat the estimated 1,100 beneficiaries with hemophilia totaled 

about 

$105 million, or more than 2 percent of total Medicare spending on 

outpatient 

drugs.  Earlier work by GAO indicated that Medicare’s payment for 

certain 

outpatient drugs is substantially higher than providers’ 

acquisition costs. 

Concerns have been raised about Medicare’s payment for blood 

clotting factor. 

GAO was asked to compare provider costs of purchasing clotting 

factor with 

Medicare’s payment for it and to identify costs to providers 

associated with 

delivering clotting factor.



What GAO Found:



Medicare’s payment for clotting factor, like other outpatient 

drugs, is 95 

percent of the average wholesale price (AWP), a price established 

for each 

drug by its manufacturer.  Medicare’s payment is substantially 

more than 

the actual acquisition costs of hemophilia treatment centers 

(HTC) and 

homecare companies, which provide a majority of Medicare 

beneficiaries with 

clotting factor.  Most HTCs obtain prices from manufacturers 

that are 35 to 

48 percent below AWP by participating in a federal program 

that guarantees 

them low prices.  Homecare companies obtain prices that range 

from 22 to 40 

percent below AWP. Providers incur additional costs associated 

with delivering 

clotting factor that are not separately reimbursed by Medicare.  

GAO estimates 

that these additional costs in 2000 and 2001 ranged from $0.03 

to $0.08 per 

unit sold by HTCs.  (Hemophilia patients use an average of 

78,000 units of 

clotting factor annually.)  GAO did not receive enough data 

from homecare 

companies to estimate their costs.  Delivery costs are 

generated in inventory 

management, specialized refrigerated storage, shipping, 

and the provision of 

ancillary supplies such as needles, syringes, and 

tourniquets to patients.



Medicare Payment and Provider Acquisition Prices for Blood 

Clotting Factor

as a Percentage of Average Wholesale Price, 2001 and 2002



[See PDF For Image]

[End of Figure]



What GAO Recommends:



GAO recommends that the Administrator of the Centers for 

Medicare & Medicaid 

Services (CMS) establish Medicare payment levels for 

clotting factor that are 

more closely related to providers’ acquisition costs and 

then establish a separate 

payment for the cost of delivering clotting factor to 

Medicare beneficiaries. 

The Department of Health and Human Services (HHS) agreed with 

our recommendations.



To view the full report, including the scope

and methodology, click on the link above.

For more information, contact Laura A. Dummit at 

(202) 512-7119  

 

Contents:



Letter:



Results in Brief:



Background:



Small Number of Providers Buy Clotting Factor Directly from 

Manufacturers:



Providers Obtain Clotting Factor Products for Substantially Less than 

Medicare’s Payment:



Providers Incur Costs Associated with Delivering Clotting Factor to 

Medicare Beneficiaries That Are Not Separately Reimbursed:



Conclusions:



Recommendations for Executive Action:



Agency Comments:



Appendix I: Scope and Methodology:



Appendix II: Comments from the Department of Health and 

Human Services:



Table:



Table 1: Disease Type and Disease Severity for the Total Hemophilia 

Population and the Medicare Subpopulation:



Figure:



Figure 1: Participants in the Clotting Factor Market:



Abbreviations:



AMP  average manufacturer price:



AWP  average wholesale price:



CDC  Centers for Disease Control and Prevention:



CMS  Centers for Medicare & Medicaid Services:



HHS  Department of Health and Human Services:



HIV  human immunodeficiency virus:



HRSA Health Resources and Services Administration:



HTC  hemophilia treatment center:



OIG  Office of Inspector General:



United States General Accounting Office:



Washington, DC 20548:



January 10, 2003:



The Honorable Pete Stark

Ranking Minority Member

Subcommittee on Health

Committee on Ways and Means

House of Representatives:



Dear Mr. Stark:



In 2001, Medicare’s outpatient expenditures for blood clotting factor 

totaled about $105 million, or more than 2 percent of total Medicare 

spending on all covered outpatient drugs and biologicals.[Footnote 1] 

Blood clotting factor is a biological used by persons with hemophilia 

to prevent uncontrolled internal bleeding that could result in 

disability or death.[Footnote 2] The Centers for Disease Control and 

Prevention (CDC) estimate that approximately 18,000 Americans, nearly 

all male, have hemophilia and about 1,100 of these individuals are 

Medicare beneficiaries.



Medicare’s payment for clotting factor, like other outpatient drugs and 

biologicals, is 95 percent of the average wholesale price (AWP). Often 

described as a “sticker price” or “list price,” AWP is established for 

each drug by its manufacturer. Medicare’s AWP-based payment has 

recently come under scrutiny. In 2001, we reported that providers were 

able to purchase certain drugs at prices significantly less than the 

payment they received from Medicare.[Footnote 3] Although providers 

contended that this overpayment was necessary to compensate for 

underpayment for other services, we concluded that Medicare should not 

rely on potential overpayments for some services to offset potential 

inadequate payments for other services.



The method of delivery of clotting factor has implications for Medicare 

payment. Most outpatient drugs covered by Medicare are administered in 

a physician’s office. When a beneficiary visits a physician in order to 

receive a drug, the physician receives one payment from Medicare for 

the drug and another payment through the physician fee schedule for 

administering the drug. Clotting factor, however, is generally not 

administered in a physician’s office. Medicare pays clotting factor 

providers, mainly hemophilia treatment centers (HTC)[Footnote 4] and 

homecare companies,[Footnote 5] solely for the drug. These providers 

generally purchase clotting factor products directly from the 

manufacturers, rather than from drug wholesalers, and deliver them 

directly to the very small hemophilia population.[Footnote 6]



Because clotting factor products were not included in our 2001 report, 

you asked us to evaluate whether Medicare’s payment for clotting factor 

is higher than its acquisition cost and to identify and describe any 

aspects of the production and delivery of clotting factor that may 

relate to how Medicare payment should be determined. In this report, we 

(1) describe characteristics of the clotting factor delivery system, 

(2) compare provider costs of purchasing clotting factor with 

Medicare’s payment for it, and 

(3) identify any costs to providers associated with delivering clotting 

factor and furnishing related services to Medicare beneficiaries with 

hemophilia.



To conduct this study, we obtained data on the hemophilia population 

from CDC. We analyzed the most recent data available from the Health 

Resources and Services Administration (HRSA) on HTC clotting factor 

acquisition prices obtained through a federal discount program. We also 

analyzed data on clotting factor acquisition prices from two large, 

national homecare companies. In addition, we analyzed acquisition price 

data provided to us by an HTC association for seven HTCs that had 

purchased clotting factor outside the federal discount program. We also 

analyzed related data on clotting factor prices from the Centers for 

Medicare & Medicaid Services (CMS), the agency that administers 

Medicare. We analyzed data on provider delivery costs for four HTCs, 

which we obtained from a representative of an HTC association, and for 

two large, national homecare companies, which we contacted directly. We 

interviewed officials at the Department of Health and Human Services 

(HHS) Office of Inspector General (OIG), two patient advocacy 

organizations, four of the six clotting factor manufacturers, two 

wholesalers, and several additional HTCs and homecare companies. Our 

work was performed from February through December 2002 in accordance 

with generally accepted government auditing standards. See appendix I 

for more detailed discussion of our scope and methodology.



Results in Brief:



The clotting factor market is characterized by a small number of 

manufacturers and providers. The six clotting factor manufacturers sell 

their products directly to providers, predominantly HTCs and homecare 

companies. About half of the 137 HTCs can provide clotting factor and 

related ancillary supplies, such as syringes and bandages, to their 

patients. Individuals may also obtain clotting factor from homecare 

companies, which ship drugs and biologicals and related ancillary 

supplies directly to persons with chronic conditions. Shortages of 

particular clotting factor products periodically occur. When HTCs and 

homecare companies need to obtain a clotting factor product outside 

their typical supply arrangements, such as during a shortage, they may 

purchase it from certain specialty wholesalers, known as distributors.



Provider costs for acquiring clotting factor are significantly below 

Medicare’s payment, which is 95 percent of AWP. Through a federal drug 

discount program, HTCs obtain prices from manufacturers that are 

approximately 35 to 48 percent below AWP. Homecare companies are able 

to obtain clotting factor at prices 22 to 40 percent below AWP. HTCs 

and homecare companies do not generally face higher acquisition prices 

from manufacturers during product shortages.



Medicare does not make a separate payment to providers for the costs of 

delivering clotting factor, which include dispensing costs and 

furnishing related ancillary supplies. We estimate that dispensing and 

ancillary supply costs in 2000 and 2001 ranged from approximately $0.03 

to $0.08 for each unit of clotting factor provided by HTCs.[Footnote 7] 

We did not receive enough data from homecare companies to estimate 

their costs. Clotting factor’s biological properties and complex dosing 

protocols contribute to dispensing costs in the form of inventory 

management, storage, and shipping. In addition, the cost of ancillary 

supplies that are necessary for infusing clotting factor, such as 

needles, syringes, and tourniquets, is not reimbursed by Medicare. 

While providers may also furnish other services for which they are not 

separately reimbursed, such as patient education and community 

outreach, these services are not Medicare-covered benefits, and they 

are generally targeted to younger patients who are not Medicare 

beneficiaries.



While Medicare’s payment for clotting factor is high enough to more 

than reimburse both acquisition and delivery costs, we believe that 

Medicare’s overpayment for acquisition costs should not be used to 

compensate for the lack of payment for delivery costs. Therefore, we 

recommend that the Administrator of CMS establish Medicare payment 

amounts for clotting factor delivered on an outpatient basis that are 

more closely related to providers’ acquisition costs. When payments are 

reduced to reflect costs more accurately, the Administrator should 

establish a separate payment for the costs of delivering clotting 

factor to Medicare beneficiaries. In commenting on a draft of this 

report, HHS agreed with our recommendations.



Background:



The two most common types of hemophilia are a deficiency in clotting 

factor VIII, hemophilia A, and a deficiency in clotting factor IX, 

hemophilia B. Hemophilia can be mild, moderate, or severe depending on 

the amount of the clotting factor present in the blood. People with 

severe hemophilia, for example, have less than 1 percent of the normal 

level of clotting factor VIII or IX. The level of clotting factor 

deficiency contributes to the risk that a particular bleeding episode 

poses to an individual. In individuals with severe hemophilia, bleeding 

into the joints and adjoining tissues can occur spontaneously, without 

an actual injury. Persons with mild hemophilia usually experience 

prolonged bleeding only after surgery or a major trauma, such as a head 

wound.



Hemophilia Is Treated with Clotting Factor:



Historically, people with hemophilia relied on high-volume transfusions 

of whole blood or plasma for treatment. These treatments, however, did 

not provide enough clotting factor to stop serious bleeding and could 

be performed only in a medical facility. With the introduction in the 

1960s of concentrated clotting factor products that could be infused at 

home, hemophilia began to be more effectively and conveniently treated.



Early clotting factor products were produced from human plasma. 

Recombinant clotting factor products, which are genetically engineered 

or cloned, were introduced in the 1990s to reduce the risk of blood-

borne infections. New manufacturing processes and safety protocols have 

also reduced the risk of infections to individuals using plasma 

clotting factor products. Because recombinant products are not derived 

from human plasma, they are generally considered the current treatment 

of choice, although many older individuals continue to use plasma 

products. There is not enough recombinant clotting factor manufactured 

to treat all individuals with hemophilia.



Both plasma and recombinant clotting factor are biological substances 

that differ in many respects from conventional, chemically synthesized 

drugs. For example, biologicals such as clotting factor are derived 

from living sources, so the concentration and potency of the original 

source material can vary. Furthermore, biologicals cannot be 

manipulated during the manufacturing process in a way that produces a 

consistent and precise yield of product. As a biological product, 

clotting factor is susceptible to microbial contamination and sensitive 

to environmental conditions, such as temperature.



Individuals with hemophilia generally self-infuse clotting 

factor.[Footnote 8] Clotting factor can be infused on demand, when a 

bleeding episode occurs, or for prevention, known as prophylactic use. 

By self-infusing, individuals can avoid waiting for care at a medical 

facility. Timely infusion relieves short-term pain and swelling and 

helps prevent chronic joint disease, which results from recurrent 

bleeding into the joints. Prophylactic infusions can be intermittent, 

such as before major surgery, or continuous, to prevent uncontrolled 

bleeding over time. Continuous prophylactic infusion is generally 

confined to younger individuals to prevent prolonged bleeding episodes 

and long-term complications. Physicians prescribe a dosage of clotting 

factor units that is based on the nature of treatment.[Footnote 9] 

Generally, younger and smaller individuals are prescribed lower 

quantities of clotting factor than older and larger individuals.



Because people infuse clotting factor in large doses, a substantial 

quantity is used annually in the United States. Total clotting factor 

use is about 1 billion units per year. Although the average annual use 

of clotting factor VIII for a person with hemophilia A is 78,000 units, 

individual use varies widely. In any given year, approximately 23 

percent of individuals with hemophilia use no clotting factor at all, 

while a very small percentage of individuals may use more than 500,000 

units.



Characteristics of Medicare Beneficiaries with Hemophilia:



According to CDC estimates, 6 percent of the hemophilia population, or 

about 1,100 individuals, are Medicare beneficiaries.[Footnote 10] The 

average age of a Medicare beneficiary with hemophilia is 53, nearly 

three decades older than the average age of the total hemophilia 

population, which is 24.[Footnote 11] In addition, Medicare 

beneficiaries with hemophilia show higher rates of chronic joint 

disease and two viral infections, hepatitis C and human 

immunodeficiency virus (HIV), than the general hemophilia population. 

Because clotting factor products were not available when most Medicare 

beneficiaries were young, they typically experienced prolonged and 

repeated bleeding episodes, a situation that in vulnerable joint areas 

leads to the destruction of joint tissues. As a result, 28 percent of 

Medicare beneficiaries with hemophilia have chronic joint disease, 

compared to 14 percent of the general hemophilia population. Also, 

because many Medicare beneficiaries began using clotting factor 

products before the blood supply was tested for hepatitis C and HIV and 

before recombinant products were available, beneficiaries have high 

rates of infection with those viruses: 60 percent have hepatitis C and 

45 percent have HIV. For the total hemophilia population, the rates of 

hepatitis C and HIV infection are 39 and 24 percent, respectively.



The Medicare beneficiary subpopulation and overall hemophilia 

population do not differ, however, in terms of the frequency of disease 

type or severity of clotting factor deficiency (see table 1). Also, the 

annual use of clotting factor among Medicare beneficiaries and the 

overall population with hemophilia is similar.



Table 1: Disease Type and Disease Severity for the Total Hemophilia 

Population and the Medicare Subpopulation:



Type of clotting factor deficiency; Percentage of total hemophilia 

population: [Empty]; Percentage of Medicare hemophilia subpopulation: 

[Empty].



* Factor VIII (hemophilia A); Percentage of total hemophilia 

population: 79; Percentage of Medicare hemophilia subpopulation: 80.



* Factor IX (hemophilia B); Percentage of total hemophilia population: 

21; Percentage of Medicare hemophilia subpopulation: 20.



Total; Percentage of total hemophilia population: 100; Percentage of 

Medicare hemophilia subpopulation: 100.



Severity; Percentage of total hemophilia population: [Empty]; 

Percentage of Medicare hemophilia subpopulation: [Empty].



* Mild; Percentage of total hemophilia population: 32; Percentage of 

Medicare hemophilia subpopulation: 32.



* Moderate; Percentage of total hemophilia population: 24; Percentage 

of Medicare hemophilia subpopulation: 23.



* Severe; Percentage of total hemophilia population: 41; Percentage of 

Medicare hemophilia subpopulation: 43.



* Unknown; Percentage of total hemophilia population: 3; Percentage of 

Medicare hemophilia subpopulation: 2.



Total; Percentage of total hemophilia population: 100; Percentage of 

Medicare hemophilia subpopulation: 100.





Source: CDC analysis of data from the 1993-1998 Hemophilia Surveillance 

System Project.



[End of table]



Small Number of Providers Buy Clotting Factor Directly from 

Manufacturers:



A small number of providers and manufacturers are involved in the 

clotting factor market. The two main types of providers, HTCs and 

homecare companies, furnish clotting factor and related ancillary 

supplies to individuals with hemophilia. These providers obtain 

clotting factor directly from the six clotting factor manufacturers. 

Providers rarely purchase from distributors.



HTCs and Homecare Companies Provide Clotting Factor:



HTCs and homecare companies are the two main providers of clotting 

factor. HTCs provide annual checkups and ongoing medical care, physical 

therapy, and social and other services to persons with hemophilia. HTCs 

are located in 47 states, the District of Columbia, Puerto Rico, and 

Guam and treat an average of about 90 hemophilia patients each. 

Approximately half the HTCs, 67 out of 137, can furnish clotting factor 

and related ancillary supplies to individuals they treat.[Footnote 12]



Homecare companies are the main source of clotting factor for 

individuals who do not obtain their clotting factor from HTCs. There 

are several large national homecare companies, as well as smaller 

regional companies. Homecare companies ship drugs and related ancillary 

supplies directly to individuals with chronic conditions. While 

homecare companies do not provide physician services to their patients, 

they may provide nursing services, patient education, community 

outreach, and case management. Homecare companies can ship clotting 

factor to individuals throughout the United States through their 

licensed pharmacies.



Small Number of Clotting Factor Manufacturers Contribute to Periodic 

Product Shortages:



There are six manufacturers of clotting factors VIII and IX that sell 

directly to HTCs and homecare companies. In addition, distributors buy 

the small amount of clotting factor, approximately 5 percent of all 

clotting factor delivered in the United States, that manufacturers have 

not sold to HTCs, homecare companies, or other medical entities such as 

hospitals. These distributors sell to HTCs, homecare companies, and 

hospitals and other medical entities to meet their emergency or short-

term needs. (See fig. 1 for a depiction of the clotting factor 

market.):



Figure 1: Participants in the Clotting Factor Market:



[See PDF for image]



[End of figure]



Shortages of particular clotting factor products occur periodically. 

Because the six manufacturers run at capacity, a decrease in production 

by any one reduces availability of a particular product and strains the 

general clotting factor supply. Increasing clotting factor production 

in response to a shortage is difficult. Manufacturing clotting factor 

takes an average of 6 months; opening an additional plant can take 

several years. In 2001, there was a severe shortage of recombinant 

clotting factor VIII when production problems at one manufacturer 

occurred concurrently with a routine maintenance shutdown by another. 

Many individuals were unable to obtain recombinant products at that 

time, causing them to rely on plasma clotting factor, straining its 

supply as well. Because some HTCs and homecare companies could not 

obtain the needed clotting factor products from manufacturers, they 

turned to distributors to obtain alternative products.



Providers Obtain Clotting Factor Products for Substantially Less than 

Medicare’s Payment:



HTCs and homecare companies are able to purchase clotting factor at 

prices considerably lower than Medicare’s payment for clotting factor. 

Almost all HTCs that provide clotting factor participate in a federal 

program that allows them to obtain prices from manufacturers that are 

35 to 48 percent below AWP. Homecare companies can obtain prices that 

range from 22 to 40 percent below AWP. While clotting factor shortages 

can affect providers’ ability to procure specific products for their 

customers, HTCs and homecare companies do not generally face higher 

acquisition prices from manufacturers during periods of product 

shortages.



Providers Obtain Large Discounts from AWP:



In an analysis of 2001 and first quarter 2002 data, we found that HTCs 

purchase clotting factor from manufacturers at a 35 to 48 percent 

discount from AWP. The largest discounts are for plasma clotting factor 

VIII products, and the smallest discounts are for recombinant clotting 

factor VIII products, with the discounts for clotting factor IX 

products falling in between. HTCs obtain these substantial discounts 

through the Public Health Service 340B program,[Footnote 13] which 

enables certain federally funded entities to buy drugs directly from 

manufacturers at discounted prices.[Footnote 14] The 340B prices, which 

are updated quarterly, equal a set discount from a manufacturer’s 

price.[Footnote 15]



Our analysis of data from 2001 and 2002 shows that homecare companies 

can also purchase clotting factor from manufacturers at prices 

substantially below Medicare’s payment.[Footnote 16] With prices from 

22 to 40 percent below AWP, the discounts that homecare companies 

receive are somewhat less than those received by HTCs. Like HTCs, 

homecare companies receive the largest discounts on plasma clotting 

factor VIII products and the smallest on recombinant clotting factor 

VIII products, with discounts for clotting factor IX products falling 

in between.



Providers Do Not Generally Face Higher Prices during Shortages:



Because most HTCs obtain their prices through a federal discount 

program, they are typically protected from price increases during 

periods of product shortage. According to certain homecare companies 

and other stakeholders we interviewed, shortages do not result in price 

fluctuations for homecare companies over the course of the contracts 

they sign with manufacturers. During shortages, sufficient supplies of 

particular clotting factor products may not be available directly from 

manufacturers. In such rare cases, providers may pay higher prices to 

other entities, mainly distributors, to secure needed products. 

However, a distributor we spoke with sold clotting factor products to 

providers at prices that were still lower than Medicare’s payment.



Providers Incur Costs Associated with Delivering Clotting Factor to 

Medicare Beneficiaries That Are Not Separately Reimbursed:



Providers incur costs associated with delivering clotting factor that 

are not separately reimbursed by Medicare. We estimate that total 

delivery costs in 2000 and 2001 ranged from $0.03 to $0.08 per unit of 

clotting factor sold by HTCs.[Footnote 17] We did not receive enough 

data from homecare companies to estimate their costs. Delivery costs 

are generated in inventory management, storage, shipping, and the 

provision of ancillary supplies necessary for the infusion of clotting 

factor. Providers may also furnish other services for which they are 

not separately reimbursed, such as patient education and community 

outreach. These services are not Medicare-covered benefits, and they 

are generally targeted to younger patients who are not Medicare 

beneficiaries.



Delivering Clotting Factor Generates Dispensing and Ancillary Supply 

Costs:



Medicare does not make a separate payment for the costs of delivering 

clotting factor, including costs associated with inventory management, 

storage and shipping, and the provision of ancillary supplies. Due to 

its complex dosing protocols and biological properties, clotting factor 

requires considerable inventory management. Because the number of units 

of clotting factor prescribed is determined by an individual’s size and 

treatment needs, each prescription is specific to the individual. 

However, manufacturers sell vials of clotting factor in only three 

standard concentrations: 250, 500, or 1,000 units per vial. 

Furthermore, the unpredictability involved in manufacturing a 

biological substance like clotting factor results in manufacturers’ 

inability to predetermine the precise concentration of clotting factor 

in a particular vial; they can only predict its concentration within 10 

percent of the standard concentration. Therefore, a small-sized vial 

may be labeled anywhere from 225 to 275 units, and a large-sized vial 

may be labeled anywhere from 900 to 1,100 units. Managing clotting 

factor inventory requires more staff time than managing the inventory 

of conventional drugs, in large part due to the variations across 

individual prescriptions and the variable concentrations in individual 

vials.



Inventory management is further complicated by product recalls as well 

as shortages. If a specific product or concentration is not available 

as a result of a product recall or shortage, the provider must allocate 

additional staff time to consult with an individual’s physician to 

determine an alternate plan of clotting factor treatment until the 

preferred product is available again. One provider we spoke with said 

that product recalls of clotting factor occur more often than for other 

drugs because of sensitivity to the possibility of blood-borne 

infection resulting from the use of clotting factor. In 2001, there was 

one recall of a clotting factor VIII and one recall of a clotting 

factor IX product.



Clotting factor providers also incur costs associated with storing and 

shipping clotting factor. Providers order tens of thousands of units of 

clotting factor a year for each patient. Because clotting factor must 

be refrigerated to prevent spoilage, the high volume of clotting factor 

stored by providers requires large temperature-controlled areas with 

sources of backup power. The shipment of clotting factor also involves 

special arrangements. Glass vials of clotting factor must be securely 

wrapped to prevent breakage and then packed with coolants. Providers 

ship the products using overnight delivery services that track and 

monitor the product along the delivery route to ensure that it is 

delivered to the individual’s door at a specific time. Many providers 

have staff available 24 hours a day to ship clotting factor to patients 

during emergencies. Some providers insure their shipments, while others 

absorb the cost of any product lost, damaged, or spoiled during 

shipment.



Providers incur costs for furnishing ancillary supplies necessary to 

infuse clotting factor to individuals. These include needles, syringes, 

alcohol wipes, bandages, medical tape, sterile gloves, tourniquets, and 

needle disposal containers.



According to our analysis of data from four HTCs, the costs to HTCs for 

dispensing clotting factor and providing ancillary supplies directly to 

patients ranged from $0.03 to $0.08 per unit of clotting factor based 

on data from 2000 and 2001. We did not receive enough data from 

homecare companies to estimate their costs. Delivery costs reflect 

fixed charges, such as rent and insurance, and costs that vary by the 

quantity of clotting factor sold, such as shipping and ancillary 

supplies. Therefore, providers’ per unit costs may depend on their 

overall product volume and the size of the individual orders.



Services Related to Clotting Factor Are Not Targeted towards Medicare 

Beneficiaries:



HTCs and homecare companies state that they provide services related to 

hemophilia, such as nursing services, patient education, education on 

hemophilia to schools and community organizations, and case management, 

that are not separately reimbursed by Medicare and must be covered 

through clotting factor payments. To the extent that Medicare 

beneficiaries receive services incident to a physician visit, such as 

case management at an HTC or physician’s office, these services are 

compensated through Medicare’s payment for the physician visit. Other 

services are not covered under the Medicare program and predominantly 

target families with young children and the schools and other community 

institutions they attend.



Conclusions:



Medicare’s payment for clotting factor delivered on an outpatient basis 

is flawed in the same way that its payment is flawed for other 

outpatient prescription drugs. In tying its payment to AWP, Medicare 

has been paying substantially more than providers’ actual acquisition 

costs. The provider discounts that we report result in acquisition 

costs that are substantially below Medicare’s payment. However, the 

lowest prices, those from the 340B program, are not available to all 

Medicare providers of clotting factor.



Providers also incur costs in delivering clotting factor related to 

inventory management, specialized storage, shipping procedures, and in 

providing ancillary supplies. These costs are not separately paid by 

Medicare. While we can only estimate the amount of delivery costs, 

overpayments on clotting factor are sufficiently high to more than 

cover them. However, we believe that Medicare overpayments for some 

services should not be used to compensate for the lack of payments for 

others.



Recommendations for Executive Action:



We recommend that the Administrator of CMS establish a Medicare payment 

for clotting factor delivered on an outpatient basis that is more 

closely related to providers’ acquisition costs. Medicare’s payment for 

clotting factor should reflect actual market transaction prices. When 

Medicare’s payment for clotting factor more closely reflects 

acquisition costs, we recommend that the Administrator establish a 

separate payment for providers based on the costs of delivering 

clotting factor to Medicare beneficiaries.



Agency Comments:



In commenting on a draft of our report, HHS noted that our findings 

expand upon those in earlier reports by us and the HHS OIG on Medicare 

payment for outpatient drugs to specifically include information on 

payments for clotting factor. HHS agreed that Medicare should 

appropriately pay for clotting factor and services related to 

furnishing clotting factor. HHS’s written comments are in appendix II. 

The agency also provided technical comments, which we incorporated 

where appropriate.



We also provided a copy of the draft to representatives of two 

hemophilia associations, the National Hemophilia Foundation and the 

Hemophilia Federation of America, for oral comment. They agreed with 

our recommendations and provided technical comments, which we 

incorporated where appropriate.



As agreed with your office, unless you publicly announce the contents 

of this report earlier, we plan no further distribution of it until 30 

days from the date of this report. We will then send copies of this 

report to the Secretary of HHS and the Administrators of CMS and HRSA. 

The report is available at no charge on GAO’s Web site at MACROBUTTON 

HtmlResAnchor http://www.gao.gov. We will also make copies available to 

others on request.



If you or your staff have any questions, please call me at (202) 512-

7119 or Nancy A. Edwards at (202) 512-3340. Other major contributors to 

this report include George H. Bogart, Beth Cameron Feldpush, and 

Yorick F. Uzes.



Sincerely yours,



Laura A. Dummit

Director, Health Care--Medicare Payment Issues:



[End of section]



Appendix I: Scope and Methodology:



In conducting this study, we analyzed data from the Centers for 

Medicare & Medicaid Services (CMS), the Health Resources and Services 

Administration (HRSA), and the Centers for Disease Control and 

Prevention (CDC). We also analyzed data from 11 hemophilia treatment 

centers (HTC) and 2 homecare companies. We interviewed officials at the 

Department of Health and Human Services Office of Inspector General, 2 

patient advocacy organizations, 4 clotting factor manufacturers, 2 of 

the 5 largest distributors, and several HTCs and homecare companies.



To obtain demographic and treatment information on the hemophilia 

population and Medicare subpopulation, we used data from the 1993-1998 

CDC Hemophilia Surveillance System Project, generally recognized as the 

most complete and accurate data available. Through this project, CDC 

collected medical records data on persons with hemophilia to estimate 

its national prevalence. We used these data to determine 

characteristics of Medicare beneficiaries with hemophilia and compare 

them to the overall population with hemophilia.



To determine Medicare expenditures for clotting factor products, we 

used 2001 data from the Medicare Part B Extract and Summary System, 

which are the most recent data available. We limited our analysis to 

four clotting factor payment categories of recombinant clotting factor 

VIII, plasma clotting factor VIII, recombinant clotting factor IX, and 

plasma clotting factor IX. These categories constituted over 90 percent 

of Medicare expenditures on clotting factor in 2001.



We determined clotting factor acquisition prices for the two major 

providers of clotting factor, HTCs and homecare companies. For HTCs, we 

obtained 2001 and first quarter 2002 340B acquisition prices directly 

from HRSA. The 340B prices are the discounted prices that HTCs receive 

through their participation in a federal program.



We obtained 2002 homecare acquisition prices from two homecare 

companies, which we supplemented with two other sources. First, we used 

2001 and first quarter 2002 average manufacturer price (AMP) data 

obtained from CMS. AMP reflects the average price paid to a 

manufacturer by a purchaser for a drug, excluding 340B prices, other 

federal prices, and sales to hospitals and health maintenance 

organizations. Because of the limited number of provider types involved 

in the clotting factor market, the exclusion of 340B prices from AMP 

calculations, and the small market share of distributors, AMP is a 

satisfactory proxy for homecare acquisition prices. Second, we used 

acquisition prices from 2001, which we received from an HTC 

association, for seven HTCs that had purchased clotting factor outside 

of the 340B program. We combined these three data sources into a list 

of acquisition prices for 2001 and 2002.



To obtain the estimated discounts from the average wholesale price 

(AWP) for each provider type, we first averaged the acquisition prices 

within product category and year for each of our four data sources: the 

340B prices, the homecare company acquisition prices, the AMP prices, 

and the HTC non-340B acquisition prices. We obtained AWP data from the 

2001 and 2002 Drug Topics Red Book. To obtain AWP discounts, we 

calculated the difference between the corresponding AWP and the average 

acquisition prices to find the average discount, by product category 

and year, for each of the four data sources. We then determined the 

range of HTC discounts by listing the highest and lowest average 

discounts among the four product categories for 2001 and first quarter 

2002 340B prices. We determined the range of homecare company prices by 

listing the highest and lowest average discounts among the four product 

categories for 2002 homecare prices, 2001 and first quarter 2002 AMP 

prices, and 2001 HTC non-340B prices.



To identify the categories of additional costs that providers incur in 

delivering clotting factor, we relied on structured interviews with 

providers. From information obtained in our interviews, we developed 

cost categories and asked providers to give us their operating costs 

for each of these categories for 1 full year and the total number of 

clotting factor units they purchased during that year. Some HTCs were 

unable to provide this information because they were financially 

associated with larger institutions, such as hospitals, and could not 

separate their costs from those of the institutions. We did obtain 

costs from four HTCs and used these data to determine the range of HTC 

additional costs. We did not receive enough data from homecare 

companies to estimate their costs.



[End of section]



Appendix II: Comments from the Department of Health and Human Services:



DEPARTMENT OF HEALTH & HUMAN SERVICES:



Office of Inspector General:



Washington, D.C. 20201:



DEC 19 2002:



Ms. Laura A. Dummit:



Director, Health Care - Medicare Payment Issues United States General:



Accounting Office Washington, D.C. 20548:



Dear Ms. Dummit:



Enclosed are the department’s comments on your draft report entitled, 

“Medicare: Payment for Blood Clotting Factor Exceeds Providers’ 

Acquisition Costs.” The comments represent the tentative position of 

the department and are subject to reevaluation when the final version 

of this report is received.



The department also provided several technical comments directly to 

your staff.



The department appreciates the opportunity to comment on this draft 

report before its publication.



Sincerely,



Janet Rehnquist: 

Inspector General:

Signed By Janet Rehnquist:



Enclosure:



The Office of Inspector General (OIG) is transmitting the department’s 

response to this draft report in our capacity as the department’s 

designated focal point and coordinator for General Accounting Office 

reports. The OIG has not conducted an independent assessment of these 

comments and therefore expresses no opinion on them.



Comments of the Department of Health and Human Services on the General 

Accounting Office’s Draft Report, “Medicare: Payment for Blood Clotting 

Factor Exceeds Providers’ Acquisition Costs” (GAO-03-184):



The Department of Health and Human Services (department) appreciates 

the opportunity to comment on this draft report.



GAO Recommendation:



We recommend that the Administrator of CMS establish a Medicare payment 

for clotting factor delivered on an outpatient basis that is more 

closely related to providers’ acquisition costs. Medicare’s payment for 

clotting factor should reflect actual market transaction prices. When 

Medicare’s payment for clotting factor more closely reflects 

acquisition costs, we recommend that the Administrator establish a 

separate payment for providers based on the costs of delivering 

clotting factor to Medicare beneficiaries.



Department Comment:



In previous reports, GAO and the department’s Inspector General 

confirmed that Medicare payments for drugs are substantially higher 

than the actual costs to physicians and other providers acquiring these 

drugs. This report expands the earlier findings to include payments for 

blood-clotting factor. As with drug payments, providers indicate that, 

although Medicare overpays for the cost of the clotting factor, 

Medicare payments do not adequately compensate for the services related 

to furnishing the clotting factor.



The department agrees with GAO that Medicare needs to pay appropriately 

for all Medicare benefits, including blood clotting factor and the 

services required to furnish it. We are committed to working with 

Congress to amend the current system to make sure that Medicare pays a 

fair, competitive price for all benefits, including those drugs the 

program now covers.



[End of Section]



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FOOTNOTES



[1] Under Medicare part B, outpatient prescription drugs and 

biologicals are covered if they are not usually self-administered and 

are provided incident to a physician’s services or if they are used in 

conjunction with durable medical equipment. Certain self-administered 

drugs and biologicals, such as oral drugs used in association with 

cancer treatment and blood clotting factor (and the items related to 

the administration of such factor), are also covered. 



[2] Hemophilia is a deficiency in one of the proteins that causes blood 

to clot, referred to as a blood clotting factor. Hereafter, we refer to 

blood clotting factor as “clotting factor” and use the term to 

generally refer to both the deficient proteins and the biological 

substance infused for hemophilia treatment. 



[3] U.S. General Accounting Office, Medicare: Payments for Covered 

Outpatient Drugs Exceed Providers’ Cost, GAO-01-1118 (Washington, D.C.: 

Sept. 21, 2001).



[4] HTCs are federally funded facilities that provide medical care to 

persons with hemophilia. Created in 1975 [see Pub. L. No. 94-63, § 606, 

89 Stat. 304, 350 (1975)], HTCs are currently funded by the Health 

Resources and Services Administration’s Maternal and Child Health 

Bureau and CDC.



[5] Homecare companies are also known as “specialty pharmacies.” 



[6] There are 13 unique clotting factor products used to treat the two 

most common types of hemophilia. These products vary by manufacturer, 

protein composition, and manufacturing process.



[7] Clotting factor dosage is measured in international units; one 

international unit is the amount of clotting factor contained in one 

milliliter of normal plasma. The average annual use of clotting factor 

by patients with the most common form of hemophilia, based on CDC 

statistics for 1998, is 78,000 units. 



[8] Young children and individuals with severe disabilities, who may 

require assistance from caregivers, are exceptions.



[9] An individual’s prescription varies according to weight and whether 

the individual is infusing on demand or for prophylactic purposes. 

Physicians use their own discretion in calculating the exact quantity 

to prescribe in any given situation. According to a physician at one 

HTC, a 150 lb. individual with a moderate injury should be prescribed 

approximately 1,500 to 2,000 units of factor VIII. The same individual 

should be prescribed 3,000 to 3,500 units for a severe injury, such as 

a head injury. While patients infuse once or twice in response to a 

bleeding episode, those under preventive treatment infuse three times 

per week to maintain their baseline amount of clotting factor. 

According to the physician we consulted, a total of 5,700 to 6,500 

units of factor VIII infused over the course of each week would be a 

suitable preventive strategy for a 150 lb. individual.



[10] CDC bases these estimates on data from the 1993-1998 Hemophilia 

Surveillance System Project, the most recent data available.



[11] Certain disabled individuals qualify for Medicare in addition to 

individuals age 65 and over. 



[12] According to an HTC representative, one reason some HTCs may not 

provide clotting factor is the high initial start-up costs of a factor 

program; such costs arise from the structural modifications to 

facilities that storing and dispensing clotting factor require, the 

initial supply of clotting factor, and the salaries for a dedicated 

staff to run the program. The HTC representative also stated that some 

HTCs affiliated with larger organizations, typically medical schools or 

hospitals, may have had difficulty receiving institutional approval for 

such a program. 



[13] See Pub. L. No. 102-585, Title VI, § 602, 106 Stat. 4943, 4967 

(1992) (adding section 340B to the Public Health Service Act).



[14] Of the 67 HTCs that can operate clotting factor programs, 4 have 

chosen not to participate in the 340B program. 



[15] Generally, the 340B price equals the average manufacturer price 

(AMP) minus 15.1 percent. AMP represents the average unit price paid to 

the manufacturer by wholesalers for drugs distributed to retail 

pharmacies. Because wholesalers make up such a small portion of the 

clotting factor market, AMP calculations for clotting factor are based 

primarily on direct sales to providers.



[16] See appendix I for a detailed discussion of our analysis of 

homecare company acquisition prices.



[17] A delivery cost of $0.03 to $0.08 per unit of factor is equivalent 

to about 4 to 17 percent of HTCs’ acquisition costs, depending on the 

specific product purchased, the individual provider, and the amount 

provided to the patient.



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exists to support Congress in meeting its constitutional 

responsibilities and to help improve the performance and accountability 

of the federal government for the American people. GAO examines the use 

of public funds; evaluates federal programs and policies; and provides 

analyses, recommendations, and other assistance to help Congress make 

informed oversight, policy, and funding decisions. GAO’s commitment to 

good government is reflected in its core values of accountability, 

integrity, and reliability.



Obtaining Copies of GAO Reports and Testimony:



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expanding archive of older products. The Web site features a search 

engine to help you locate documents using key words and phrases. You 

can print these documents in their entirety, including charts and other 

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Each day, GAO issues a list of newly released reports, testimony, and 

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Web site daily. The list contains links to the full-text document 

files. To have GAO e-mail this list to you every afternoon, go to 

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20548: