Medicare Drug and Nutrient Prices

Pursuant to a congressional request, GAO reviewed the reasonableness of Medicare payments for outpatient drugs and liquid nutrients. GAO noted that: (1) the Health Care Financing Administration's (HCFA) policy reimburses outpatient drugs based on estimated acquisition costs or on the median, if applicable, of national average wholesale prices (AWP) for all generic sources; (2) Medicare contractors generally use AWP to set payment levels because collecting data on acquisition costs is too difficult, but there is evidence that AWP-based payment levels are much higher than actual acquisition costs; (3) HCFA agreed to reexamine its Medicare drug reimbursement methodologies with the goal of reducing prescription drug payments, but has not yet acted; (4) HCFA prohibited nondispensing suppliers who furnish medical equipment from billing Medicare for drugs to be used with their equipment; (5) the Department of Health and Human Services' (HHS) Inspector General (IG) recommended that HCFA reduce payments for enteral liquid nutrient products, because pharmacies charge less for them than the Medicare allowance, and most insurers pay less; (6) HCFA believes that the payment level methodology for enteral nutrient products is set by law, but has proposed some payment changes; and (7) GAO suspended further work on this topic, because some data are part of a court case under seal, HHS IG is working on the subject, and HCFA agreed with the IG recommendations.