Medicare:

Payment for Blood Clotting Factor Exceeds Providers' Acquisition Cost

GAO-03-184: Published: Jan 10, 2003. Publicly Released: Feb 11, 2003.

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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.

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.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In accordance with the Medicare Modernization Act, effective January 2005, the Centers for Medicare & Medicaid Services (CMS) implemented the average sales price system for reimbursing most Part B covered drugs, including clotting factor. The average sales price is based on actual manufacturer sales data, which manufacturers report quarterly to CMS and is closely related to acquisition cost. Medicare reimburses these drugs at 106 percent of the average sales price.

    Recommendation: The Administrator of the Centers for Medicare and Medicaid Services should 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.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

  2. Status: Closed - Implemented

    Comments: In accordance with the Medicare Modernization Act, the Centers for Medicare & Medicaid Services (CMS) established a furnishing fee of $.14 per unit for clotting factor supplied by hemophilia treatment centers, homecare companies, and other suppliers in 2005. The fee level was based on data from an industry cost survey.

    Recommendation: When Medicare's payment for clotting factor more closely reflects acquisition costs, the Administrator of the Centers for Medicare and Medicaid Services should establish a separate payment for providers based on the costs of delivering clotting factor to Medicare beneficiaries.

    Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services

 

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