Medicare overpaid for certain infusion drugs by more than $300 million over 7 years, according to a new report from the Health and Human Services Office of Inspector General.
Medicare paid $765 million between 2005 and 2011 for drugs administered using external or implantable infusion pumps, but the OIG asserted that the program and its beneficiaries could have saved $334 million by using a more accurate payment system.
Since 2005, Medicare has paid for most Part B drugs at 106% of the average sales price (ASP). Prior to then, Medicare paid 95% of the average wholesale price (AWP). AWP, which is the list price set by drug manufacturers, is often higher than the ASP and has little to do with the real cost of obtaining a drug, according to the OIG.
But infusion drugs administered in conjunction with durable medical equipment (DME), such as infusion pumps, continue to be paid under the old system. Providers receive 95% of the AWP that was in effect on Oct. 1, 2003.
The OIG report estimated that, if Medicare had paid for these DME infusion drugs based on the ASP instead of the AWP, Medicare Part B spending would have dropped from $765 million to $431 million between 2005 and 2011. Most of the savings would have been realized by the government, but Medicare beneficiaries would have saved $67 million in lower coinsurance payments.
Only about 30 drugs fall into the DME infusion drug category and even fewer contribute significantly to Medicare spending, according to the OIG report.
One drug – milrinone – accounted for 24%-62% of the total annual spending for DME infusion drugs between 2005 and 2011. In 2011, the ASP for milrinone, a short-term treatment for congestive heart failure, was $4.32, but Medicare paid $51.58, almost 12 times that amount, under the AWP-based payment system.
Although the report showed that, in general, Medicare is overpaying for DME infusion drugs, it’s not overpaying for all of them. In 2011, about one-third of the DME infusion drugs were being paid at a lower rate than the current ASP. Part of the reason for the underpayments is that the price is based on the AWP from 2003 but drugs have increased in price. For example, in 2005 the annual ASP for the antiviral drug ganciclovir was $34.33 and providers received a payment of $35.25 based on the AWP. By 2011, however, the ASP for ganciclovir had risen to $65.03 but providers were still being paid $35.25.
The OIG recommended that Medicare officials ask Congress to change the law to allow the small category of DME infusion drugs to be paid using the ASP methodology used for other Part B drugs. It also recommended that DME infusion drugs be included in the next round of Medicare’s DME, Prosthetics, Orthotics, and Supplies competitive bidding program.