Medicare Hospital Pharmaceuticals: Survey Shows Price Variation and Highlights Data Collection Lessons and Outpatient Rate-Setting Challenges for CMS

CMS has continued to use cost estimates developed from hospital charges to pay for radiopharmaceutical SCODs, rather than following our recommendation to collect data on the prices paid by hospitals. (However, in response to this recommendation to use unit-dose prices, CMS noted that most hospital charges for radiopharmaceuticals are for a unit-dose, because most of the HCPCS code descriptors indicate that the code is per study or treatment dose.) In both 2006 and 2007, CMS paid for radiopharmaceuticals based on the hospital's charge for each radiopharmaceutical adjusted to cost using the hospital's overall cost-to-charge ratio. In 2007, CMS finalized a policy to package payment for diagnostic radiopharmaceuticals in 2008 and to set separate prospective payment rates for therapeutic radiopharmaceuticals based on mean estimated costs from hospital claims -- the same general methodology used to pay for separately payable drugs and biologicals. Subsequently, in the Medicare, Medicaid & SCHIP Extension Act of 2007, signed into law on December 29, 2007, Congress delayed implementation of these prospective rates and directed CMS to continue using the "charges to cost" methodology to pay for therapeutic radiopharmaceuticals for the first 6 months of 2008. The Medicare Improvements for Patients and Providers Act further delayed implementation of these prospective rates through December 31, 2009.

CMS has no plans to implement a survey of hospitals to validate manufacturers' reported drug average sales price (ASP) as a measure of hospitals' acquisition costs. Instead, CMS has chosen another approach, using hospital claims data as a measure of hospital acquisition costs combined with pharmacy overhead costs. CMS compares aggregate expenditures for separately payable drugs and biologicals to the ASP-based payment rates (weighting these HCPCS codes by their OPPS volumes) to calculate an equivalent average ASP-based payment rate for drugs and biologicals provided in the hospital outpatient setting. CMS updates its ASP-based payment rates quarterly, if necessary, to reflect market changes. CMS was considering this approach when we drafted our report; our assessment at that time was that it might be a more efficient but less accurate means of obtaining price estimates than obtaining price data directly from manufacturers or from hospitals' invoices.