Physician-administered Drugs:

Comparison of Payer Payment Methodologies

GAO-16-780R: Published: Aug 1, 2016. Publicly Released: Aug 31, 2016.

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James C. Cosgrove
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What GAO Found

Payment methodologies for physician-administered drugs varied across Medicare fee-for-service, Medicaid fee-for-service, the Department of Veterans Affairs (VA) health care system, the VA Choice program, and two large private payers GAO reviewed. Compared to Medicare, other federal payers generally paid rates that were the same or lower. For example, for 10 high-expenditure drugs, VA paid rates that were no more than 68 percent of Medicare’s rate. In contrast, according to the two private payers GAO interviewed, their payment rates were often higher than Medicare’s rate.

Payers’ drug utilization management and cost-containment approaches for physician-administered drugs also varied. For example, certain payers may be able to leverage purchasing power to negotiate lower payment rates.

We provided the Departments of Health and Human Services and Veterans Affairs a copy of this draft report for review and comment. The Departments provided technical comments, which GAO incorporated as appropriate.

Why GAO Did This Study

In 2014, Medicare spent over $24 billion on drugs covered under Part B, which are drugs that are typically administered by a physician in a physician’s office or hospital outpatient department. Medicare pays for most Part B drugs based on the average sales price (ASP) of the drug plus a fixed percentage. Some stakeholders have raised questions regarding whether the fixed percentage add-on to ASP may create incentives for providers to use more expensive drugs. To address this and other concerns, in March 2016, the Centers for Medicare & Medicaid Services (CMS) released a proposed rule that outlined the agency’s plan to test various models to improve how Medicare pays for Part B drugs and to support higher-quality care. Some members of Congress and other stakeholders have raised questions about some of the proposed models and expressed interest in approaches used by other payers for physician-administered drugs.

GAO was asked to compare Medicare’s payments for Part B drugs with those of other payers. In this report GAO provides information on the payment methodologies, drug utilization management strategies, and cost-containment approaches for physician-administered drugs that are used by Medicare, Medicaid, VA, and private payers.

To obtain information on payers’ policies related to physician-administered drugs, GAO identified relevant laws and regulations, and reviewed reports, articles, and policy documents.  GAO also spoke with agency officials from CMS and VA, as well as representatives of the four state Medicaid agencies with the highest spending and two large private payers that offer Medicare Advantage plans, Medicaid managed care plans, and private sector plans. Information on Medicaid is not generalizable to all states and information on the two private payers is not generalizable to all private payers. Additionally, to illustrate how payment rates may vary across federal payers, GAO reviewed published fee schedules and other supplemental data to compare Medicare and VA payment rates for 10 high-expenditure physician-administered drugs.

For more information, contact James Cosgrove at (202) 512-7114 or