This is the accessible text file for GAO report number GAO-06-372 
entitled 'Medicare Hospital Pharmaceuticals: Survey Shows Price 
Variation and Highlights Data Collection Lessons and Outpatient Rate-
Setting Challenges for CMS' which was released on April 28, 2006. 

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Report to Congressional Committees: 

United States Government Accountability Office: 

GAO: 

April 2006: 

Medicare Hospital Pharmaceuticals: 

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

Medicare: 

GAO-06-372: 

GAO Highlights: 

Highlights of GAO-06-372, a report to congressional committees. 

Why GAO Did This Study: 

In 2003, the Medicare Modernization Act required the Centers for 
Medicare & Medicaid Services (CMS) to establish payment rates for a set 
of new pharmaceutical products—drugs and radiopharmaceuticals—provided 
to beneficiaries in a hospital outpatient setting. These products were 
classified for payment purposes as specified covered outpatient drugs 
(SCOD). The legislation directed CMS to set 2006 Medicare payment rates 
for SCODs equal to hospitals’ average acquisition costs and included 
requirements for GAO. As directed, GAO surveyed hospitals and issued 
two reports, providing information to use in setting 2006 SCOD rates. 
To address other requirements in the law, this report analyzes SCOD 
price variation across hospitals, advises CMS on future surveys it 
might undertake, and examines both lessons from the GAO survey and 
future challenges facing CMS. 

What GAO Found: 

Analyzing pharmaceutical price data collected from its 2004 survey of 
hospitals, GAO found that prices hospitals paid for SCOD products 
varied across hospitals. Certain factors—namely, whether the hospital 
had a major teaching program or not, was in an urban or rural area, and 
had a large or small hospital outpatient department—were associated 
with whether hospitals paid higher or lower prices for SCOD products. 
Major teaching hospitals paid prices that were an estimated 3.2 percent 
lower than those paid by nonteaching hospitals for drug SCODs; rural 
hospitals paid prices an estimated 4.4 percent higher than those paid 
by urban hospitals for radiopharmaceutical SCODs; and large hospitals 
paid prices an estimated 1.4 percent lower than those paid by small 
hospitals for drug SCODs and 3.1 percent lower for radiopharmaceutical 
SCODs. Combining these factors, GAO found that large, urban, major 
teaching hospitals—compared with other hospitals—generally paid lower 
prices, on average, for all SCOD products. 

From conducting its hospital survey, GAO learned a key lesson that CMS 
could use in the future: such a survey would not be practical for 
collecting the data needed to set and update SCOD rates routinely but 
would be useful for validating, on occasion, CMS’s rate-setting data. 
GAO’s survey produced accurate hospital drug price data, but it also 
created a considerable burden for hospitals as the data suppliers and 
considerable costs for GAO as the data collector. Nonetheless, the 
benefit of collecting actual prices paid by hospitals could make such 
surveys advantageous for occasionally validating CMS’s proxy for SCODs’ 
average acquisition costs--the average sales price (ASP) data that 
manufacturers report. 

CMS will face important challenges as it seeks to obtain accurate data 
on hospitals’ acquisition costs for drug and radiopharmaceutical SCODs. 
* Regarding drugs, CMS lacks the detail on manufacturers’ ASP data 
needed to determine if rates developed from these data are appropriate 
for hospitals. Manufacturers report ASP as a single price paid by all 
purchasers, making it impossible to distinguish the price paid by 
hospitals alone. CMS instructs manufacturers to report ASP net of 
rebates but does not specify how to allocate individual product rebates 
when several products are purchased. 
* Regarding radiopharmaceuticals, GAO found that the diversity of forms 
in which they can be purchased—ready-to-use unit doses, multidoses, or 
separately purchased radioactive and non-radioactive 
substances—complicates CMS’s efforts to select a data source that can 
provide reasonably accurate price data efficiently. Efficiency as well 
as accuracy is a factor in selecting a data source because 
radiopharmaceuticals account for only 1.5 percent of Medicare hospital 
outpatient spending. GAO’s experience suggests that the best option 
available to CMS, in terms of accuracy and efficiency, is to collect 
price data on radiopharmaceuticals purchased in ready-to-use unit 
doses, the form in which an estimated three-quarters of hospitals 
purchase these products. 

What GAO Recommends: 

GAO recommends that the Secretary of Health and Human Services seek to 
ensure that CMS’s SCOD payment rates are based on sufficiently reliable 
data by (1) validating data collected on drug prices and (2) basing 
payment rates for each radiopharmaceutical SCOD on the price of a ready-
to-use unit dose. Although expressing some reservations, particularly 
concerning the burden of data collection, HHS agreed to consider GAO’s 
recommendations. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-372]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact A. Bruce Steinwald at 
(202) 512-7119 or steinwalda@gao.gov. 

[End of Section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Hospitals' Teaching Status, Location, and Size Affected Prices for SCOD 
Products by Different Magnitudes: 

Our Survey of Hospitals Suggests that the Burden of Large-Scale Annual 
Surveys Could Outweigh Gains in Data Accuracy: 

CMS Faces Challenges in Future Data Collection Efforts to Set SCOD 
Payment Rates Accurately: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Methodology for Analysis of SCOD Price Differences among 
Hospital Types: 

Appendix II: Purchase Prices for Drug SCODs: 

Appendix III: Purchase Prices for Radiopharmaceuticals SCODs: 

Appendix IV: Comments from the Department of Health and Human Services: 

Appendix V: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Factors Accounting for Variation in SCOD Prices among 
Hospitals: 

Table 2: Factors Included in Analysis of Price Variation among 
Hospitals Purchasing SCODs: 

Table 3: Estimated Effects of Selected Factors on Prices Hospitals Paid 
for Drug SCODs: 

Table 4: Estimated Effects of Selected Factors on Prices Hospitals Paid 
for Radiopharmaceutical SCODs: 

Table 5: Purchase Prices for SCODs Accounting for 86 Percent of 
Medicare Spending on SCODs: 

Table 6: Purchase Prices for Radiopharmaceutical Accounting for 9 
Percent of Medicare Spending on SCODs: 

Abbreviations: 

ASP: average sales price: 
CMS: Centers for Medicare & Medicaid Services: 
HHS: Department of Health and Human Services: 
MMA: Medicare Prescription Drug, Improvement, and Modernization Act of 
2003: 
MSA: metropolitan statistical area: 
NDC: national drug code: 
OPPS: outpatient prospective payment system: 
SCOD: specified covered outpatient drug: 

Washington, DC 20548: 

April 28, 2006: 

The Honorable Charles E. Grassley: 
Chairman: 
The Honorable Max Baucus: 
Ranking Minority Member: 
Committee on Finance United States Senate: 

The Honorable Joe Barton: 
Chairman: 
The Honorable John D. Dingell: 
Ranking Minority Member: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable William M. Thomas: 
Chairman: 
The Honorable Charles B. Rangel: 
Ranking Minority Member: 
Committee on Ways and Means: 
House of Representatives: 

In 2003, federal legislation required the establishment of Medicare 
payment rates for a particular set of new pharmaceutical products that 
were provided to beneficiaries in hospital outpatient settings but were 
generally paid for differently than other services paid under 
Medicare's hospital outpatient prospective payment system (OPPS). These 
products were newly introduced drugs, biologicals, and 
radiopharmaceuticals used to treat and in some cases diagnose serious 
conditions such as cancer.[Footnote 1] Specifically, the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) 
required the Centers for Medicare & Medicaid Services (CMS) in the 
Department of Health and Human Services (HHS) to set rates for these 
pharmaceuticals. MMA classified them for payment purposes as specified 
covered outpatient drugs (SCOD).[Footnote 2] In addition, MMA defined a 
SCOD as a drug or radiopharmaceutical, used in hospital outpatient 
departments, covered by Medicare, and paid for as an individual product 
for which CMS established a separate payment category rather than 
placing it in a category that included other services. 

The MMA directed CMS to set 2006 payment rates for SCOD products equal 
to hospitals' average acquisition costs--the cost to hospitals of 
acquiring a product, net the cost of rebates.[Footnote 3] In several 
related requirements, the MMA directed us to provide information on 
SCOD costs and CMS's proposed rates.[Footnote 4] First, we were 
required to conduct a survey of a large sample of hospitals to obtain 
data on their acquisition costs of SCODs and provide information based 
on these data to the Secretary of Health and Human Services for his 
consideration in setting 2006 Medicare payment rates.[Footnote 5] We 
provided information from this survey in two reports[Footnote 6]--one 
on drugs and another on radiopharmaceuticals. These reports presented 
systematic information on hospitals' purchase prices of SCODs and 
limited information on rebates.[Footnote 7] Second, we were required to 
evaluate CMS's proposed rates for SCODs and comment on their 
appropriateness in light of the survey of SCOD prices we conducted. We 
provided our comments in a report issued in October 2005.[Footnote 8] 

Two other MMA requirements had a role for us--to report on any 
variation found in our survey results in acquisition costs among 
hospitals and to advise on future data collection efforts by CMS based 
on our survey experience.[Footnote 9] This report addresses these 
requirements and examines (1) the extent to which SCOD prices 
identified in our survey differed among hospitals with different 
characteristics, (2) lessons the MMA-mandated survey experience 
provided for the methodology and frequency of future collection of SCOD 
price data, and (3) the challenges CMS faces in collecting data to set 
SCOD payment rates accurately after 2006. 

To examine price variation among a sample consisting of 1,157 hospitals 
purchasing SCOD products, we conducted a multivariate statistical 
analysis and grouped hospitals by certain key characteristics, 
including teaching status, location, and size. We defined a hospital's 
teaching status as major, other teaching, or nonteaching, based on the 
hospital's intern/resident-to-bed ratio;[Footnote 10] location as urban 
or rural based on metropolitan statistical areas (MSA); and size as a 
hospital's total Medicare outpatient charges, classifying a hospital as 
large if its Medicare charges were at or above the 80th percentile of 
all hospital outpatient charges. The prices we examined were drawn from 
our survey of hospitals' purchase prices for 62 SCODs for the period 
July 1, 2003, through June 30, 2004.[Footnote 11] We determined that 
our survey data were reliable for estimating SCOD prices. For details 
on our methodology, see appendix I. 

To identify lessons learned from our hospital survey experience as well 
as challenges for CMS's future data collection,[Footnote 12] we 
reviewed the findings from our issued reports on SCOD drug 
prices,[Footnote 13] SCOD radiopharmaceutical prices,[Footnote 14] and 
CMS's proposed SCOD rates;[Footnote 15] consulted on methodological 
issues with an advisory panel of experts in pharmaceutical economics, 
pharmacy, medicine, survey sampling, and Medicare payment;[Footnote 16] 
interviewed officials from CMS and several dozen hospitals; and 
reviewed CMS's final rule on Medicare's 2006 payment rates for 
SCODs.[Footnote 17] In particular, we reviewed CMS's published method 
for collecting the average sales prices (ASP) of drug SCODs: 
manufacturers report their ASPs quarterly to CMS, which uses them as a 
proxy for average acquisition costs in setting drug SCOD payment rates. 
We performed our work according to generally accepted government 
auditing standards from September 2005 through April 2006. 

Results in Brief: 

In an analysis of price data collected from our survey of hospitals, we 
found that prices hospitals paid for the SCOD products they purchased 
varied across hospitals. Certain factors--namely, whether the hospital 
had a major teaching program or not, was in an urban or rural area, and 
had a large or small hospital outpatient department--were associated 
with whether hospitals paid higher or lower prices for the SCOD 
products they purchased. Specifically, 

* compared with nonteaching hospitals, major teaching hospitals paid 
prices that were, on average, an estimated 3.2 percent lower for drug 
SCODs; 

* compared with urban hospitals, rural hospitals paid prices that were, 
on average, an estimated 4.4 percent higher for radiopharmaceutical 
SCOD;, and: 

* compared with smaller hospitals, large hospitals paid prices that 
were, on average, an estimated 1.4 percent lower for drug SCODs and 3.1 
percent lower for radiopharmaceutical SCODs. 

Combining the three factors, we found that large, urban, major teaching 
hospitals generally paid lower prices, on average, for all SCOD 
products than did hospitals grouped by other combinations of factors. 

A key lesson for CMS that we learned from conducting the 2004 MMA- 
mandated hospital survey is that such a survey would not be practical 
for collecting the data needed to set and update SCOD rates routinely. 
However, it would be useful, on occasion, for CMS to survey hospitals 
so that the rate-setting data it obtained from other sources could be 
validated by an independent source. Our 2004 hospital survey produced 
accurate hospital drug price data, but it also created a considerable 
burden for hospitals as data suppliers and considerable costs for us as 
the data collector--signaling the difficulties that CMS would face in 
implementing similar surveys in the future. Hospitals told us that, to 
submit the required price data, they had to divert staff from their 
normal duties, thereby incurring additional costs. Similarly, we 
incurred substantial staff and contractor costs to make data obtained 
from diverse information systems comparable and usable for SCOD rate- 
setting. Nevertheless, we found that the benefit of obtaining data on 
actual prices paid by hospitals could make such surveys advantageous 
for validating, on an occasional basis--possibly every 5 or 10 years-- 
ASP data that manufacturers report to CMS for developing SCOD payment 
rates. 

CMS will face important challenges as it seeks to obtain accurate data 
on hospitals' acquisition costs for both drug and radiopharmaceutical 
SCODs. 

* With regard to drug SCODs, CMS lacks the detail on manufacturers' ASP 
data needed to determine if the Medicare payment rates developed from 
these data are appropriate specifically for hospitals. Manufacturers 
report ASP as a single price paid by all purchasers--as defined by law-
-but do not identify purchasers by type or share of purchases. 
Therefore, CMS could not determine whether hospitals pay more or less 
than physicians, for example, for drug SCODs. If other providers paid 
more or less than hospitals, that could result in an average that was 
either higher or lower than what hospitals paid. In our October 2005 
report, we recommended that CMS collect information on manufacturers' 
ASP that would identify purchaser types.[Footnote 18] In addition, CMS 
instructs manufacturers to report ASP net of rebates but does not 
provide guidance on how to allocate to an individual product rebates 
that are based on purchases of more than one product. 

* With regard to radiopharmaceutical SCODs, their complex nature as 
compared with drugs poses challenges for collecting and interpreting 
cost data. Because radiopharmaceuticals consist of a radioisotope and a 
medicine or pharmaceutical agent, hospitals can purchase them in ready- 
to-use unit dose form, as most hospitals do, multidose, or as separate 
components to be subsequently compounded. The different purchase 
options available to hospitals make pricing radiopharmaceuticals 
uniformly across hospitals infeasible. In addition, the short half-life 
of certain radioisotopes, which causes these products to decay over 
time, makes the hospital's distance from its supplier a factor in how 
much is purchased. This can lead to differences among hospitals in the 
amount purchased per beneficiary served. Given the complexities of 
radiopharmaceuticals, it is also important to note that the amount 
spent on radiopharmaceuticals is less than 1.5 percent of total 
Medicare spending on hospital outpatient services. This small 
percentage together with the complexities of radiopharmaceuticals 
complicate CMS's ability to select a data source that can provide 
reasonably accurate data efficiently. 

In this report, we make recommendations to the Secretary of Health and 
Human Services regarding both drugs and radiopharmaceuticals. We 
recommend that CMS occasionally validate manufacturers' reported ASPs 
as a measure of hospitals' acquisition costs, using hospital purchases 
obtained from a survey or other method. We also recommend the use of 
ready-to-use unit-dose prices as the data source for 
radiopharmaceutical SCOD rate-setting. In commenting on a draft of this 
report, HHS agreed to consider our recommendations, but expressed 
several reservations. In particular, it was concerned about the burden 
of a hospital survey for both hospital staff and the agency. We 
recognize the burden of hospital surveys and for this reason 
recommended only occasional hospital surveys--or an alternative method-
-to validate price data reported by manufacturers. 

Background: 

In the period following the enactment of legislation establishing 
Medicare's OPPS and leading up to the MMA in 2003, concerns were 
expressed about the adequacy of payments for innovative pharmaceutical 
products. The MMA addressed these concerns by establishing a payment 
policy for SCODs. As mandated by the MMA, we conducted a hospital 
survey and provided HHS with information about prices hospitals paid 
for SCOD products. Details follow on the background of SCODs, our 
survey, CMS's new rates for drug SCODs, and the nature of 
radiopharmaceutical products. 

MMA Established SCOD Payment Categories for Certain Pharmaceutical 
Products to Ensure Beneficiary Access to New Products: 

CMS uses OPPS to pay hospitals for services that Medicare beneficiaries 
receive as part of their treatment in hospital outpatient departments. 
Under OPPS, Medicare pays hospitals predetermined rates for most 
services. When OPPS was first developed as required by the Balanced 
Budget Act of 1997,[Footnote 19] the rates for hospital outpatient 
services, drugs, and radiopharmaceuticals were based on hospitals' 1996 
median costs. However, these rates prompted concerns that payments to 
hospitals would not reflect the costs of newly introduced 
pharmaceutical products used to treat, for example, cancer, rare blood 
disorders, and other serious conditions. In turn, congressional 
concerns were raised that beneficiaries might lose access to some of 
these products if hospitals avoided providing them because of a 
perceived shortfall in payments. In response to these concerns, the 
Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999 
authorized pass-through payments, which were a way to temporarily 
augment the OPPS payments for newly introduced pharmaceutical products 
first used after 1996.[Footnote 20] The MMA modified this payment 
method for some of these pharmaceutical products. As part of the 
modification, the MMA defined the new SCOD payment category, which 
includes many of these newly introduced pharmaceutical products. The 
MMA requires that SCODs be placed in separate payment categories--that 
is, not packaged with related services. 

MMA Required Us to Survey Hospitals to Determine Their Acquisition 
Costs for SCOD Products: 

As directed by the MMA, we conducted a survey of a large sample of 
hospitals to determine their acquisition costs for SCOD products. We 
surveyed 1,400 hospitals and received usable data from 83 percent of 
the hospitals for drug SCODs and from 61 percent of the 1,322 hospitals 
that had submitted Medicare claims for radiopharmaceutical SCODs in the 
first 6 months of 2003. We found that we could not obtain data that 
would permit calculation of hospitals' acquisition costs, because, in 
general, hospitals were unable to report accurately or comprehensively 
on rebates.[Footnote 21] Consequently, we reported average purchase 
prices for drug and radiopharmaceutical SCODs, which are prices net of 
discounts but not rebates.[Footnote 22] Of the 251 SCODs that we 
identified, we reported average purchase prices for the 62 SCODs that 
accounted for 95 percent of Medicare spending on all SCODs in the first 
9 months of 2004. (These prices and related information are included as 
app. II and app. III.) 

MMA Defined ASP, Which Is Reported by Manufacturers and Used to Set 
Rates for Drug SCODs: 

ASP is a price measure established in the MMA to provide a basis for 
payment rates for physician-administered drugs and now used by CMS in 
setting rates for drug SCODs.[Footnote 23] CMS instructs pharmaceutical 
manufacturers to report ASP data to CMS within 30 days after the end of 
each quarter. The MMA defined ASP as the average sales price for all 
U.S. purchasers of a drug, net of volume, prompt pay, and cash 
discounts; free goods contingent on a purchase requirement; and charge- 
backs and rebates.[Footnote 24] Under CMS's final rule governing 2006 
payment rates for hospital outpatient services, including SCOD 
products, CMS uses manufacturers' ASPs in setting drug SCOD 
rates.[Footnote 25] For radiopharmaceuticals, CMS has set 2006 rates 
based on an estimate of hospitals' costs derived from charges, but the 
agency has not decided how to pay for radiopharmaceutical SCODs after 
2006.[Footnote 26] 

Radiopharmaceuticals Can Be Purchased in Different Forms: 

Hospitals can purchase radiopharmaceuticals, which consist of a 
radioisotope and a medicine or pharmaceutical agent, in different 
forms. They can purchase vials of the product in ready-to-use unit 
doses or in multidoses, or they can purchase a product's radioactive 
and nonradioactive components separately and compound them in-house. In 
a survey conducted by the Society of Nuclear Medicine and the Society 
of Nuclear Medicine Technologist Section, 76 percent of hospitals 
reported that they purchased their radiopharmaceuticals in unit 
doses.[Footnote 27] 

Hospitals' Teaching Status, Location, and Size Affected Prices for SCOD 
Products by Different Magnitudes: 

Using our hospital survey of prices hospitals paid for SCOD drugs and 
radiopharmaceuticals, we examined the extent to which prices varied 
among the approximately 1,200 hospitals that submitted survey data. To 
do this, we looked at several hospital characteristics, or factors-- 
including teaching status, location, and size of the outpatient 
department--while controlling for differences in the costliness of the 
mix of SCODs that hospitals purchased. We analyzed both (1) the 
separate effect of each factor, controlling for other factors; and (2) 
the effect of the three factors combined. We found that teaching status 
had the largest separate effect on drug SCOD prices, whereas location 
had the largest effect on radiopharmaceutical SCOD prices. Combining 
the three factors, we found, for example, that large, urban, hospitals 
with major teaching programs paid lower prices, on average, for drug 
SCODs--compared with small urban hospitals with other teaching 
programs. 

Teaching Status, Location, and Size Were Each Significant Factors 
Affecting Price Variation among Hospitals: 

The importance of the three factors in accounting for variation in SCOD 
prices among hospitals differed by type of product purchased--that is, 
drug or radiopharmaceutical.[Footnote 28] A hospital's teaching status, 
for example, affected prices paid for drug SCODs but did not matter for 
the radiopharmaceutical SCOD prices pertaining to unit dose purchases 
in our survey. In contrast, a hospital's location was an important 
factor linked to price differences for radiopharmaceuticals but did not 
matter with respect to prices for drugs. In addition, hospital size was 
important in affecting price differences for both drugs and 
radiopharmaceuticals. (See table 1.) 

Table 1: Factors Accounting for Variation in SCOD Prices among 
Hospitals: 

Hospital characteristic: Teaching status; Drugs: X; 
Radiopharmaceuticals: 

Hospital characteristic: Location; Drugs: [Empty]; 
Radiopharmaceuticals: X. 

Hospital characteristic: Size; Drugs: X; 
Radiopharmaceuticals: X. 

Sources: GAO analysis of GAO survey data and CMS data on hospital 
characteristics. 

Note: We determined the importance of these factors using a 
multivariate statistical analysis that examined how prices varied for 
SCODs by hospitals' teaching status, location, and size of outpatient 
department, while controlling for differences in the costliness of the 
mix of SCODs that hospitals purchased. Factors marked with an "x" are 
statistically significant at the 5 percent level.

[End of table] 

In assessing the magnitude of each factor's separate effect on prices, 
we found the following results: 

* Teaching status: Compared with nonteaching hospitals, major teaching 
hospitals paid prices that were, on average, an estimated 3.2 percent 
lower for drug SCODs. Teaching status had no independent effect on the 
prices of radiopharmaceutical SCODs purchased in ready-to-use unit 
doses.[Footnote 29] 

* Location: Compared with hospitals located in urban areas, the prices 
paid by hospitals located in rural areas for radiopharmaceutical SCODs 
were, on average, an estimated 4.4 percent higher. 

* Size: Compared with smaller hospitals, hospitals with large 
outpatient departments paid prices, on average, that were an estimated 
1.4 percent lower for drugs and 3.1 percent lower for 
radiopharmaceuticals. 

Certain circumstances may help explain why each factor had an effect on 
price. Regarding the effect of teaching status on drug prices, for 
example, manufacturers may want to influence prescribing patterns of 
physicians in training and may therefore offer drugs at lower prices to 
hospitals with teaching programs. As for location's effect on 
radiopharmaceutical SCOD prices, industry experts suggested that the 
short half-life of certain radioactive products could make transporting 
them to hospitals in rural areas more costly. As for hospital size, 
hospitals with large outpatient departments may have benefited from 
volume discounts. 

Hospitals with Combination of Major Teaching Status, Urban Location, 
and Large Size Obtained Lowest SCOD Prices: 

To examine the combined effect of the three key factors on prices paid 
by hospitals, we compared hospitals grouped by one combination--major 
teaching program, urban location, and large outpatient department--with 
hospitals grouped by other combinations. Our analysis indicates that 
large, urban, major teaching hospitals generally paid lower prices, on 
average, for all SCOD products than did hospitals grouped by other 
combinations of factors. For example, compared with small urban 
hospitals with other teaching programs, large major teaching hospitals 
in urban areas paid prices, on average, that were an estimated 4 
percent lower for drugs and 3 percent lower for radiopharmaceuticals. 
In contrast, compared with small urban hospitals with other teaching 
programs, small rural hospitals with no teaching programs paid prices, 
on average, that were about the same for drugs and 4 percent higher for 
radiopharmaceuticals.[Footnote 30] 

Our Survey of Hospitals Suggests that the Burden of Large-Scale Annual 
Surveys Could Outweigh Gains in Data Accuracy: 

Our MMA-mandated survey of hospitals produced accurate hospital price 
data. However, for CMS to use such a survey to routinely collect data 
in the future for SCOD rate-setting, the burden could outweigh the 
benefit. Instead, similar surveys of hospitals could be a useful tool 
to validate price data obtained from manufacturers, if conducted on an 
occasional basis. 

Using Hospitals as Data Source for SCOD Prices Had A Major Advantage 
and Serious Drawbacks: 

Based on our survey experience, we noted that hospitals as a SCOD data 
source had one important advantage as well as substantial drawbacks. We 
found that, as a data source for estimating hospitals' SCOD acquisition 
costs, hospitals offered a key advantage: our average purchase prices 
obtained from hospitals, by definition, represent actual prices paid by 
hospitals.[Footnote 31] In this respect, our data differ from other 
data sources available to CMS--such as suggested list prices, ASPs, and 
hospitals' Medicare claims. As a result, none of these alternatives 
provide, as our survey data do, nationwide data on the actual purchase 
prices paid by hospitals for drugs and radiopharmaceutical SCODs. 

However, based on our experience, we found that there would be 
drawbacks in using hospitals as an annual data source on SCOD prices, 
owing primarily to the considerable burden created for hospitals as 
suppliers of data and the considerable costs we incurred as data 
collectors, signaling the difficulties that CMS would face in 
implementing similar surveys in the future. Hospitals told us that, to 
submit the required price data, they had to divert staff from their 
normal duties, thereby incurring additional staff and contractor costs. 
The burden was more taxing for some hospitals than for others. Most 
hospitals had the advantage of relying on price data downloaded from 
their drug wholesalers' information systems. A number of hospitals, 
however, either collected the data manually, provided us with copies of 
paper invoices, or had automated information systems that were not 
designed to retrieve the detailed price data needed and required 
additional data processing effort. Hospitals' data collection 
difficulties were particularly pronounced regarding information on 
manufacturers' rebates, which affect a drug's net acquisition cost. 
Typically, hospitals did not systematically track all manufacturers' 
rebates on drug purchases, although nearly 60 percent of hospitals 
reported receiving one or more rebates.[Footnote 32] 

As collectors of data on SCOD prices, we also experienced difficulties 
obtaining the information needed from hospitals. Hospitals' information 
systems were diverse and produced data in many different formats, 
causing substantial resource and timing difficulties in the data 
collection process.[Footnote 33] Specifically, we had to reconfigure 
data submitted in multiple formats to produce data comparable across 
hospitals and usable for SCOD rate-setting. This reconfiguration 
required us to deploy substantial resources and to allow additional 
time for processing before the data could be made available to CMS. The 
difficulties we encountered would likely be faced by any organization 
undertaking a survey using a similar approach. 

As we previously reported, using SCOD price and related data from drug 
manufacturers--as CMS is doing in 2006--is a practical strategy for 
setting Medicare payment rates to hospitals for SCODs.[Footnote 34] 
However, our experience obtaining information on actual purchase prices 
and our observation of the pace of change in the drug marketplace 
suggest that an occasional survey of hospitals--possibly once or twice 
in a decade--may be advantageous for validating the accuracy of 
manufacturers' price information as a proxy for hospital acquisition 
cost.[Footnote 35] Drawing on our experience and using data about 
sampling variability from our 2004 hospital survey,[Footnote 36] CMS 
could design a similar but streamlined hospital survey.[Footnote 37] 
Other options available to CMS for validating the accuracy of the price 
data as a proxy for hospitals' acquisition costs include audits of 
manufacturers' price submissions or an examination of proprietary data 
the agency considers reliable for validation purposes. 

Survey Indicates that Accounting for Dynamic Drug Market and 
Infrequently Purchased Drugs Has Implications for Accuracy and 
Efficiency: 

Our hospital survey experience not only identified data collection 
issues associated with hospitals but also underscored accuracy and 
efficiency concerns in collecting SCOD data from any source. 
Specifically, the accuracy of the rates Medicare pays for drugs within 
a SCOD payment category, based on the average price of drugs included 
in the SCOD, may be compromised if the price of any drug--that is, any 
national drug code (NDC)--is omitted from the average price of the SCOD 
category.[Footnote 38] In the conduct of our 2004 survey, we began with 
a list, which CMS provided to us, of drug categories that included 
SCODs as well as other drugs that potentially could be considered SCODs 
in the future. To ensure the accuracy of our calculation of a 
hospital's average purchase price for SCODs, we took additional steps 
using industry experts and data sources to classify the NDCs and assign 
them to the appropriate SCOD categories.[Footnote 39] Since the drug 
market is dynamic--new drugs enter the market and other drugs drop out 
in the course of a year--CMS's list of SCOD drugs and their component 
NDCs could become out of date unless updated frequently to ensure that 
all SCOD drugs purchased by hospitals are identified and figured into 
the calculation of a SCOD's average price. 

With regard to efficiency in analyzing our survey results, we 
concentrated our data processing and statistical resources on the 
roughly one-quarter of SCODs that account for most of Medicare's total 
SCOD spending. In particular, the 62 SCODs for which we produced price 
estimates accounted for 95 percent of Medicare spending on all 251 
SCODs in the first 9 months of 2004.[Footnote 40] We would not have 
been able to produce price estimates for all SCODs in time for CMS to 
take account of our data in setting the 2006 rates. Our experience-- 
especially the amount of time and resources necessary for each step in 
the data collection and analysis process--could be used by CMS to 
determine in advance the number of SCODs on which to collect data and 
estimate prices. There might be some benefit in gathering data and 
producing price estimates for all SCODs; on the other hand, if 
resources were limited, CMS might choose to focus on fewer SCODs. 

CMS Faces Challenges in Future Data Collection Efforts to Set SCOD 
Payment Rates Accurately: 

CMS will face important challenges in its efforts to collect accurate 
data for setting SCOD payment rates. In our October 2005 report on 
CMS's proposed SCOD rates, we expressed reservations about the ASP data 
CMS used to set 2006 payment rates for drug SCODs. We cautioned that 
manufacturers' reporting of ASPs in summary form--without any further 
detail--does not provide the agency the information needed to ensure 
that ASPs are a sufficiently accurate measure of hospitals' acquisition 
costs. Data collection and rate-setting for radiopharmaceutical SCODs 
present unique challenges because of these products' distinctive 
characteristics. 

Validating ASP Would Pose Challenges for CMS Because of Lack of Detail 
in Data: 

Under CMS's current policy, manufacturers are required to report only 
summary ASP data, limiting CMS's ability to validate the data's 
accuracy. Specifically, manufacturers report ASP as a single price, 
with no breakdown of price and volume by type of purchaser. CMS 
instructs manufacturers to average together prices for each drug paid 
by all U.S. purchasers. However, different purchaser types--for 
example, hospitals, physicians, and wholesalers--may receive prices 
that, by purchaser type, are on average higher or lower than one 
another's. Because CMS does not receive price data at this level of 
detail, it cannot determine whether price differences among purchaser 
types exist. To the extent that nonhospital providers pay different 
prices than hospitals and account for a proportion of the SCODs 
purchased, ASP will differ from the prices paid on average by 
hospitals.[Footnote 41] CMS has not presented evidence, in its final 
rule or in discussions with us, that physicians and hospitals pay the 
same prices. 

An additional weakness in CMS's instructions for computing ASPs 
compounds the challenge of testing the accuracy of the ASPs that 
manufacturers report. No instruction is provided to manufacturers on 
the treatment of rebates that apply to several drug products in 
calculating ASP.[Footnote 42] This is of particular concern to the 
extent that manufacturers differ in their rules for calculating these 
rebates. When a rebate applies to a group of a manufacturer's products-
-which may include several SCODs, other pharmaceuticals, and other 
products--netting out the rebate attributable to a specific SCOD's 
purchase is less than straightforward. In the absence of clear and 
specific instructions, each manufacturer must identify or develop a 
method for allocating rebates to each of its drug SCOD products. To the 
extent that manufacturers' methods differ, they are likely to yield 
inconsistent results. Moreover, CMS's final rule does not provide for a 
follow-up process to check that rebate allocations have been made or 
have been made appropriately. 

Radiopharmaceuticals Pose Unique Challenges for Obtaining Accurate Cost 
Data Efficiently: 

The complex nature of radiopharmaceuticals as compared with drugs poses 
special challenges for collecting and interpreting cost data. These 
challenges include (1) obtaining consistent data for 
radiopharmaceutical SCODs produced in very different forms and (2) the 
short half-life for certain products. Moreover, since Medicare spends 
relatively little on radiopharmaceuticals--less than 1.5 percent of 
Medicare spending on hospital outpatient services--the challenge is to 
find a source of data for setting rates that is low cost and reasonably 
accurate. 

In our hospital survey, we faced the challenge of uniformly pricing 
products purchased in very different forms. We focused on prices for 
radiopharmaceuticals purchased in unit doses. Most of the hospitals 
purchased radiopharmaceuticals in this ready-to-use form, and only a 
small fraction of hospitals purchased radiopharmaceuticals in separate 
components (the radioisotope and the nonradioactive substance), which 
need to be compounded.[Footnote 43] We were unable to make prices for 
separately purchased components comparable to those obtained for unit 
doses, as the labor costs for compounding the products are included in 
hospitals' reported prices of ready-to-use products but not in their 
reported prices of products they purchased as separate components. 

The short half-life of certain radiopharmaceutical SCODs can also pose 
challenges for collecting and interpreting price data. Because the 
radioactive component decays over time, the amount of the product 
purchased for a given patient may vary with the distance between where 
the radiopharmaceutical is compounded and where it is administered. The 
result is that for those short-lived radiopharmaceuticals paid on a per-
dose basis, the cost per dose is more for the doses prepared far from 
the point of administration than for those prepared closer by, as more 
of a radioactive product must be purchased to account for its decay in 
transit. This applies most commonly to F-18 radiopharmaceuticals, the 
most common of which, F-18 FDG, has a half- life of 1.8 hours.[Footnote 
44] F-18 radiopharmaceuticals, including F- 18 FDG, are used in the 
diagnosis of various diseases, such as cancer, heart disease, and liver 
disease. 

Finally, CMS faces the challenge of balancing accuracy and efficiency 
in obtaining price data on radiopharmaceutical SCODs. Our approach in 
estimating prices from our survey data was to use only information on 
unit dose prices, the form purchased by most hospitals.[Footnote 45] 
CMS, as stated in the 2006 final rule governing payment rates for 
SCODs, has not found what it considers a satisfactory method for 
obtaining data on acquisition costs of radiopharmaceuticals and is 
continuing to explore both ASP and other alternatives.[Footnote 46] 
Hospitals and manufacturers[Footnote 47] are the most direct source of 
price data because both are parties to the transactions in which the 
hospitals acquire the radiopharmaceuticals.[Footnote 48] In its notice 
of proposed rulemaking for radiopharmaceutical SCODs, CMS proposed 
collecting ASPs from manufacturers for use in setting 2007 payment 
rates.[Footnote 49] In light of many comments regarding the difficulty 
of this undertaking, CMS decided not to collect radiopharmaceutical 
ASPs for 2007 rates, but left open the possibility of using ASP in the 
future. 

CMS has also discussed the possibility of using charges from hospitals' 
Medicare claims to approximate acquisition costs for 
radiopharmaceutical SCODs, rather than obtaining price data from 
invoices provided by hospitals or from manufacturers. Using claims data 
may be a more efficient but less accurate means of obtaining price 
estimates than obtaining price data directly from manufacturers or from 
hospitals' invoices. In its final rule, CMS stated that it was basing 
2006 payments on hospitals' charges (derived from outpatient claims) 
for radiopharmaceuticals. CMS plans to adjust these charges to reflect 
costs and noted that it did not plan to use this methodology 
permanently. For rate-setting after 2006, CMS also noted the 
possibility of using invoice data submitted to Medicare by physicians 
who administer radiopharmaceuticals in their offices.[Footnote 50] In 
its final rule, CMS did not present evidence that hospitals and 
physicians pay similar prices for these radiopharmaceutical drugs nor, 
if these prices differ, whether using these physician data would be 
appropriate for use in setting hospital outpatient rates. 

Conclusions: 

Basing Medicare's payment rates for hospitals' SCOD purchases on 
current, accurate price data is important both to ensuring that 
Medicare pays appropriately--neither too much nor too little--and to 
ensuring beneficiary access to these innovative pharmaceutical 
products. As we previously reported, we agree with CMS that ASP is a 
practical data source for setting and updating rates for drug SCODs on 
a routine basis. However, we remain concerned about whether CMS can 
determine that ASP accurately represents purchases made by hospitals 
and believe that CMS should implement our October 2005 recommendation 
to collect sufficient information on ASP to make such a determination. 
We are also concerned about the likelihood that ASPs are not calculated 
consistently across all manufacturers, owing to CMS's lack of detailed 
instructions. As for validating the data CMS collects to set payment 
rates equal to hospitals' acquisition costs, an examination of 
hospitals' actual purchase prices, by definition, is optimal for 
assessing accuracy. Recognizing the operational difficulties of a 
hospital survey and using the knowledge gained from our survey, CMS 
could conduct a similar but streamlined hospital survey, possibly once 
or twice in a decade. Other options available to CMS for validating 
price data could include audits of manufacturers' price submissions or 
an examination of proprietary data the agency considers reliable for 
validation purposes. 

In contrast, we found that the diversity of forms in which 
radiopharmaceutical SCODs can be purchased--ready-to-use unit doses, 
multidoses, or separately purchased radioactive and nonradioactive 
components--complicates CMS's efforts to select a data source that can 
provide reasonably accurate price data efficiently. Our experience 
suggests that the best option available to CMS, in terms of accuracy 
and efficiency, is to collect price data on radiopharmaceuticals 
purchased in ready-to-use unit doses, the form in which an estimated 
three-quarters of hospitals purchase these products. 

Recommendations for Executive Action: 

To ensure that Medicare payments for SCOD products are based on 
sufficiently accurate data, we recommend that the Secretary of Health 
and Human Services take the following two actions: 

* validate, on an occasional basis, manufacturers' reported drug ASPs 
as a measure of hospitals' acquisition costs using a survey of 
hospitals or other method that CMS determines to be similarly accurate 
and efficient; and: 

* use unit-dose prices paid by hospitals when available as the data 
source for setting and updating Medicare payment rates for 
radiopharmaceutical SCODs. 

Agency Comments and Our Evaluation: 

We received written comments on a draft of this report from HHS (see 
app. IV), which noted that it had considered information from our 
survey of hospitals in developing 2006 hospital outpatient payment 
policy and expressed appreciation for our effort and analysis. 

Regarding the first recommendation--that HHS validate ASPs as a measure 
of hospital acquisition costs through occasional hospital surveys or 
other methods--HHS highlighted our finding that an annual hospital 
survey could place considerable burdens on both the agency and hospital 
staff. However, HHS agreed to consider this recommendation, saying that 
it would continue to analyze the best approach for setting payment 
rates for drugs and radiopharmaceutical SCODs in view of our 
recommendation. It will also continue to analyze the adequacy of paying 
for drugs at ASP+6 percent in the light of claims data, which persuaded 
HHS that for 2006 ASP + 6 percent was the best available proxy for 
hospital acquisition and handling costs. 

Regarding the second recommendation--that HHS use unit-dose prices to 
set and update payment rates for radiopharmaceuticals--HHS agreed with 
us that the multiple forms in which radiopharmaceuticals can be 
purchased makes setting their payment rates difficult. While agreeing 
to consider our recommendation, HHS expressed several reservations. 
First, it noted that we had not specified whether the survey to collect 
acquisition cost data should be a survey of hospitals or manufacturers 
and asked that we clarify this point. Second, it noted that we had 
emphasized the burden of annual surveys of hospital drug prices and 
expressed the concern that an annual survey of hospital 
radiopharmaceutical prices would be equally burdensome. Finally, HHS 
noted that we had confined our report to 9 of the approximately 55 
radiopharmaceuticals that are paid separately, and questioned whether 
unit-dose data would be available for all or most radiopharmaceuticals. 

Our recommendation that HHS validate ASPs through occasional surveys or 
by using other methods is based in considerable part on our experience 
of the difficulty of a hospital survey. The burden that annual surveys 
would place on both hospitals and the agency is the reason that we 
rejected annual surveys as a source of acquisition cost data and 
instead proposed only occasional surveys to validate ASPs. Furthermore, 
as we noted in the recommendation, HHS could use a method other than a 
survey if that method were similarly accurate and efficient. 

In our recommendation on radiopharmaceuticals, we did not comment on 
whether the survey to collect acquisition cost data should be a survey 
of hospitals or manufacturers, because we have not analyzed the 
feasibility of obtaining these data from manufacturers. We recognize 
the potential burden of hospital surveys; this burden would need to be 
taken into account in weighing the merits of a hospital survey versus 
other alternatives. Regarding our recommendation to collect unit-dose 
prices, we have clarified it, saying that unit-dose prices should be 
used when available. In our survey, we used unit-dose data when we 
reported purchase prices for the 9 radiopharmaceuticals that accounted 
for 90 percent of Medicare's costs for hospital outpatient drugs. For 
radiopharmaceuticals that are prepared exclusively in-house HHS could, 
if necessary, establish an alternative method for determining payment 
rates. 

We are sending copies of this report to the Secretary of Health and 
Human Services, the Administrator of the Centers for Medicare & 
Medicaid Services, and other interested parties. We will also make 
copies available to others upon request. In addition, the report will 
be available at no charge on the GAO Web site at [Hyperlink, 
http://www.gao.gov]. 

If you or your staff members have any questions about this report, 
please contact me at (202) 512-7119 or at steinwalda@gao.gov. Contact 
points for our Office of Congressional Relations and Public Affairs may 
be found on the last page of this report. GAO staff who made major 
contributions to this report are listed in appendix V. 

Signed by:

A. Bruce Steinwald: 
Director, Health Care: 

[End of section] 

Appendix I: Methodology for Analysis of SCOD Price Differences among 
Hospital Types: 

This appendix describes the data and methods we used to examine SCOD 
price variation among hospitals purchasing SCOD products. In 
particular, we describe (1) the SCOD price data we analyzed, (2) the 
factors potentially affecting SCOD prices and the measurement of these 
factors, and (3) the methods underlying the statistical analysis of 
prices we conducted and the statistical results we obtained. 

SCOD Price Data: 

Drawing on data from our survey of 1,157 hospitals,[Footnote 51] we 
examined hospitals' purchase prices for 53 drug SCODs and 9 
radiopharmaceutical SCODs for the period July 1, 2003, through June 30, 
2004.[Footnote 52] Combined, these 62 SCOD categories represented 95 
percent of Medicare spending on SCOD products during the first 9 months 
of 2004. We analyzed invoice data that hospitals submitted to us; 
specifically, our analysis included one SCOD price for each SCOD 
purchase listed on an invoice. As a result, for a hospital that 
purchased SCODs and other drugs once a month, our analysis included 1 
price for each month's purchase of a particular SCOD or a total of up 
to 12 invoice prices for that SCOD during the 12-month period. We were 
advised in our analysis by an expert panel consisting of Joseph P. 
Newhouse, John D. MacArthur Professor of Health Policy and Management, 
Harvard University; Robert A. Berenson, Senior Fellow, Urban Institute; 
Ernst R. Berndt, Professor of Applied Economics, Sloan School of 
Management, Massachusetts Institute of Technology; Andrea G. Hershey, 
Clinical Coordinator and Pharmacy Residency Program Director, Union 
Memorial Hospital (Baltimore, Md.); and Richard L. Valliant, Senior 
Research Scientist, University of Michigan. 

Factors Potentially Affecting SCOD Prices: 

To analyze SCOD price variation among hospitals purchasing SCODs, we 
identified characteristics of hospitals that could plausibly explain 
why prices vary: teaching status, location, and size. We also 
identified a fourth factor: differences in the costliness of the mix of 
SCODs that hospitals purchased. Table 2 lists these factors and 
describes operational measures of these factors and the sources of data 
used to calculate these measures. 

Table 2: Factors Included in Analysis of Price Variation among 
Hospitals Purchasing SCODs: 

Factor: Teaching status[A]; 
Measure: Major teaching: Binary variable equal to; 
* 1 if the hospital had a major teaching program; 
* 0 if hospital had no major teaching program; 
Other teaching: Binary variable equal to; 
* 1 if the hospital had other teaching program; 
* 0 if hospital had no other teaching program; 
Nonteaching: Binary variable equal to; 
* 1 if the hospital had no teaching program; 
* 0 if hospital had a teaching program; 
Source and date of data used to calculate measure: CMS: Medicare 
Hospital Cost Report, 2002. 

Factor: Location; 
Measure: Binary variable equal to; 
* 1 if the hospital was in a rural area--that is, outside a 
metropolitan statistical area (MSA); 
* 0 if the hospital was in an urban area--that is, in an MSA; 
Source and date of data used to calculate measure: CMS: Provider of 
Services File, end of 2004. 

Factor: Size[B]; 
Measure: Binary variable equal to; 
* 1 if hospital is large-indicated by outpatient Medicare charges at or 
above the 80th percentile of all Medicare hospital outpatient charges; 
* 0 if small-- less than this amount; 
Source and date of data used to calculate measure: CMS: Health Care 
Information System, 2003. 

Factor: Mix of SCODs purchased; 
Measure: Binary variable equal to; 
* 1 if the product purchased as a given SCOD - that is, the it h SCOD, 
where i = 1,…n; 
* 0 if the product purchased were any other SCOD; 
Source and date of data used to calculate measure: GAO: Survey of 
Hospitals' SCOD Prices, 2003 and 2004. 

Sources: GAO analysis of CMS and GAO information. 

[A] Major teaching hospitals were defined as hospitals with an intern/ 
resident-to-bed ratio of 0.25 or more. Hospitals with other teaching 
programs were defined as hospitals with an intern/resident-to-bed ratio 
above 0 but less than 0.25. 

[B] Hospitals with outpatient Medicare charges of $59.1 million or 
higher were at the 80th percentile or higher of hospitals, ranked by 
their outpatient Medicare charges, for our analysis of drug SCODs.

[End of table] 

In addition to the measures listed in table 2, we considered 
alternative measures for location and for size: 

* We examined two geographic classification systems as alternatives to 
an MSA (metropolitan statistical area)/nonMSA classification: (1) urban 
influence codes, which classify counties based on each county's largest 
city and its proximity to other areas with large, urban, populations; 
and (2) rural-urban continuum codes, which classify metropolitan 
counties (that is, those in an MSA) by the size of the urban area and 
classify nonmetropolitan counties by the size of the urban population 
and proximity to a metropolitan area.[Footnote 53] 

* Before selecting our preferred measure of hospital size (hospital 
outpatient charges at the 80th percentile or higher, where hospitals 
were ranked by their outpatient Medicare charges), we considered other 
measures of hospital size: the number of hospital beds, the number of 
unique SCODs purchased by a hospital, and the number of hospital 
outpatient visits. 

In assessing our regression results for each of the several measures of 
location and size that we considered, we took into account statistical 
criteria including the statistical significance of each measure and the 
overall explanatory power of each model. We also considered qualitative 
factors when selecting our preferred measures of location and size. For 
example, we selected hospital outpatient charges as our measure of 
size, instead of number of hospital beds, because both measures had 
similar statistical properties and our analysis focuses on the hospital 
outpatient setting. 

In addition to conducting separate regression analyses of the price 
data for drug SCODs and for radiopharmaceutical SCODs, we analyzed 
price variation separately for each of four therapeutic categories of 
drug SCODs. We also conducted separate regression analyses of SCOD 
price variation for drugs without biologicals, for biologicals, and for 
radiopharmaceuticals. We determined that any gains in statistical 
properties did not outweigh the greater complexity of these analyses. 

Methods and Results of Price Analysis: 

In analyzing SCOD price variation, our dependent variable was the 
natural logarithm of SCOD price.[Footnote 54] SCOD prices are not 
distributed symmetrically around the average. SCOD prices are skewed to 
the right and are not distributed normally, reflecting some SCODs with 
particularly high prices. Taking the natural logarithm of price is 
intended to take skewness into account and make the resulting 
distribution consistent with the statistical assumptions of a 
regression. 

We weighted prices paid by hospitals for individual drugs and 
radiopharmaceuticals by the purchase amount of each invoice. That is, 
we weighted prices more heavily in the statistical analysis for 
invoices that represented a larger proportion of total annual purchases 
of a particular SCOD than for invoices that represented a smaller 
proportion of purchases. In addition, our analysis took into account 
the fact that multiple prices paid by a particular hospital were not 
necessarily statistically independent of each other--a phenomenon known 
as clustering. In estimating our statistical models, we corrected the 
potential bias in our estimates due to clustering by using the robust 
and cluster options in STATA, a statistical software package.[Footnote 
55] 

To gauge the effects of our explanatory factors on price variation 
among hospitals, we estimated one regression model for drug SCODs and a 
separate model for radiopharmaceutical SCODs. Table 3 shows estimates 
of the first model, which indicate the effects of three hospital 
characteristics on the natural logarithm of price of drug SCODs. 

Table 3: Estimated Effects of Selected Factors on Prices Hospitals Paid 
for Drug SCODs: 

Factor: Teaching status; 
Measure of factor: Major teaching program; 
Estimated coefficient: -.0321; 
t-value: -5.33[A]. 

Measure of factor: Other teaching program; 
Estimated coefficient: -.0054; 
t-value: -1.54. 

Measure of factor: Nonteaching (reference group); 
Estimated coefficient: n/a[B]; 
t-value: n/a[B]. 

Factor: Location; 
Measure of factor: Rural; 
Estimated coefficient: .0009; 
t-value: 0.17. 

Measure of factor: Urban (reference group); 
Estimated coefficient: n/a[B]; 
t-value: n/a[B]. 

Factor: Size; 
Measure of factor: Large; 
Estimated coefficient: -.0138; 
t-value: -2.18[A]. 

Measure of factor: Mix of SCODs purchased by a particular hospital: 
Small (reference group); 
Estimated coefficient: Mix of SCODs purchased by a particular hospital: 
n/a[B]; 
t-value: Mix of SCODs purchased by a particular hospital: n/a[B]. 

Factor: Mix of SCODs purchased by a particular hospital; 
Measure of factor: SCOD category (one binary variable for each of 53 
drug SCODs); 
Estimated coefficient: (not reported); 
t-value: 

Measure of factor: Intercept; 
Estimated coefficient: 4.11; 
t-value: 1810.16[A]. 

Measure of factor: R-squared; 
Estimated coefficient: .9974; 
t-value: [Empty].

Measure of factor: Number of observations; 
Estimated coefficient: 439,988; 
t-value: [Empty]. 

Source: GAO analysis. 

Notes: SCOD refers to a specified covered outpatient drug. The results 
in this table pertain to the top 53 drug SCOD products, ranked by 
Medicare spending on SCODs during the first 9 months of 2004. 

This table presents estimates from a regression model. The model's 
dependent variable is the natural logarithm of the purchase price paid 
by a particular hospital for a SCOD. SCOD prices are not distributed 
symmetrically around the average SCOD price but are skewed to the 
right, reflecting some SCODs with particularly high prices. Taking the 
natural logarithm of price takes this skewness into account. The effect 
of a measure, such as rural location, is estimated relative to a 
reference group (urban location). Therefore, the reference group is not 
explicitly included in the model. A major teaching program refers to a 
hospital that has an intern/resident-to-bed ratio of 0.25 or more. 
Urban refers to a hospital inside a metropolitan statistical area. 
Large refers to a hospital at or above the 80th percentile of 
hospitals, ranked by Medicare outpatient charges. 

[A] Significant at the 5 percent level. 

[B] Not available because the method calculates estimated coefficients 
for the included groups relative to the reference group. 

[End of table] 

To examine the separate effect of each factor, holding constant the 
effects of the remaining factors, we referred to the estimated 
coefficients for each factor in the model. From the estimated 
coefficient, we calculated the percentage difference in price 
attributable to each factor.[Footnote 56] For example, major teaching 
hospitals paid lower prices for drugs compared to nonteaching 
hospitals: major teaching hospitals paid 3.2 percent less than 
nonteaching hospitals, holding constant location, size, and the mix of 
SCODs purchased. In contrast, we found no statistically significant 
difference in prices paid by hospitals with other teaching programs and 
those paid by nonteaching hospitals, holding the other factors 
constant. 

Although the R-squared statistic in table 3 indicates that the model 
accounts for over 99 percent of the variation in the logarithm of the 
SCOD price, this feature of the estimated model requires careful 
interpretation. Most of the variation in the logarithm of the drug SCOD 
price was due to the particular SCODs that were purchased--for some, 
hospitals paid on average about $300 per unit while for others, 
hospitals paid about $3 per unit. Consequently, after accounting for 
differences in the mix of SCODs purchased by different hospitals, only 
a small amount of variation in price remains to be explained by other 
factors. As a result, the R-squared for this model should not be 
interpreted as an indicator of the three factors' success in explaining 
SCOD price variation. Instead, the t-statistics associated with 
teaching status, location, and size are more useful, since they signal 
these factors' statistical significance--that is, whether the 
difference between the estimated effect of each factor and zero is 
statistically significant. 

Table 4 presents the results for the second model, which estimates the 
effects of the three factors on the prices of radiopharmaceutical 
SCODs. 

Table 4: Estimated Effects of Selected Factors on Prices Hospitals Paid 
for Radiopharmaceutical SCODs: 

Factor: Teaching status; 
Measure of factor: Major teaching program; 
Estimated coefficient: -.0021; 
t-value: -.12. 

Measure of factor: Other teaching program; 
Estimated coefficient: -.0001; 
t-value: -.01. 

Measure of factor: Nonteaching (reference group); 
Estimated coefficient: n/a[A]; 
t-value: n/a[A]. 

Factor: Location; 
Measure of factor: Rural; 
Estimated coefficient: .0434; 
t-value: 2.23[B]. 

Measure of factor: Urban (reference group); 
Estimated coefficient: n/a[A]; 
t-value: n/a[A]. 

Factor: Size; 
Measure of factor: Large; 
Estimated coefficient: -.0311; 
t-value: -2.55[B]. 

Measure of factor: Mix of SCODs purchased by a particular hospital: 
Small (reference group); 
Estimated coefficient: Mix of SCODs purchased by a particular hospital: 
n/a[A]; 
t-value: Mix of SCODs purchased by a particular hospital: n/a[A]. 

Factor: Mix of SCODs purchased by a particular hospital; 
Measure of factor: SCOD category (one binary variable for each of 9 
radiopharmaceutical SCODs); 
Estimated coefficient: (not reported); 
t- value: 

Measure of factor: Intercept; 
Estimated coefficient: 4.74; 
t-value: 522.06. 

Measure of factor: R-squared; 
Estimated coefficient: .9913; 
t-value: [Empty].

Measure of factor: Number of observations; 
Estimated coefficient: 185,237; 
t-value: [Empty]. 

Source: GAO analysis. 

Notes: SCOD refers to a specified covered outpatient drug. The results 
in this table pertain to the top nine radiopharmaceutical SCOD 
products, ranked by Medicare spending on SCODs during the first 9 
months of 2004. This table presents estimates from a regression model. 
The model's dependent variable is the natural logarithm of the purchase 
price paid by a particular hospital for a radiopharmaceutical SCOD. 
SCOD prices are not distributed symmetrically around the average SCOD 
price but are skewed to the right, reflecting some SCODs with 
particularly high prices. Taking the natural logarithm of price takes 
this skewness into account. The effect of a measure, such as rural 
location, is estimated relative to a reference group (urban location). 
Therefore, the reference group is not explicitly included in the model. 
A major teaching program refers to a hospital that has an intern/ 
resident-to-bed ratio of 0.25 or more. Urban refers to a hospital 
inside a metropolitan statistical area. Large refers to a hospital at 
or above the 80th percentile of hospitals, ranked by Medicare 
outpatient charges. 

[A] Not available because the method calculates estimated coefficients 
for the included groups relative to the reference group. 

[B] Significant at the 5 percent level. 

[End of table] 

As table 4 shows, two factors--location and size--are statistically 
significant in the model examining radiopharmaceutical SCOD prices. 
Other things equal, a rural hospital paid prices for 
radiopharmaceutical SCODs that were an estimated 4.4 percent higher 
than urban hospitals, while large hospitals paid prices an estimated 
3.1 percent lower than small hospitals. 

To examine the effect of the three factors combined, while controlling 
for differences in the costliness of SCODs that hospitals purchased, we 
used the estimates from two models--one for drug SCODs and one for 
radiopharmaceutical SCODs--to simulate the prices that certain groups 
of hospitals paid. In particular, we focused on comparing the prices 
paid by hospitals with one combination of characteristics--major 
teaching, urban, and large--with the prices paid by hospitals with a 
different combination of characteristics--nonteaching, rural, and 
small. 

[End of section] 

Appendix II: Purchase Prices for Drug SCODs: 

Table 5 appears as table 1 in our report Medicare: Drug Purchase Prices 
for CMS Consideration in Hospital Outpatient Rate-Setting, GAO-05-581R 
(Washington, D.C.: June 30, 2005). The label of the second column-- 
HCPCS code--refers to the Healthcare Common Procedure Coding System, 
which CMS uses to define SCODs. 

Table 5: Purchase Prices for SCODs Accounting for 86 Percent of 
Medicare Spending on SCODs: 

Rank in Medicare spending on drug SCODs: 1; 
HCPCS code: Q0136; 
Description: Injection, Epoetin Alpha (for non-ESRD use), per 1,000 
units; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 199.8; 
% of Medicare spending on SCODs, 2004[B]: 10.1; 
Number of hospitals in sample: 973;  

Rank in Medicare spending on drug SCODs: 2; 
HCPCS code: J9310; 
Description: Rituximab, 100 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 158.4; 
% of Medicare spending on SCODs, 2004[B]: 8.0; 
Number of hospitals in sample: 871; 

Rank in Medicare spending on drug SCODs: 3; 
HCPCS code: J2505; 
Description: Injection, Pegfilgrastim, 6 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 144.8; 
% of Medicare spending on SCODs, 2004[B]: 7.3; 
Number of hospitals in sample: 759; 

Rank in Medicare spending on drug SCODs: 4[J]; 
HCPCS code: Q9941; 
Description: Injection, Immune Globulin, Intravenous, Lyophilized, 1 g; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): k; 
% of Medicare spending on SCODs, 2004[B]: k; 
Number of hospitals in sample: 626; 

Rank in Medicare spending on drug SCODs: 4[J]; 
HCPCS code: Q9943; 
Description: Injection, Immune Globulin, Intravenous, Non-Lyophilized, 
1 g; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): k; 
% of Medicare spending on SCODs, 2004[B]: k; 
Number of hospitals in sample: 281; 

Rank in Medicare spending on drug SCODs: 5; 
HCPCS code: J1745; 
Description: Injection, Infliximab, 10 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 114.8; 
% of Medicare spending on SCODs, 2004[B]: 5.8; 
Number of hospitals in sample: 897; 

Rank in Medicare spending on drug SCODs: 6; 
HCPCS code: Q0137; 
Description: Injection, Darbepoetin alfa, 1 mcg (non-ESRD use); 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 100.6; 
% of Medicare spending on SCODs, 2004[B]: 5.1; 
Number of hospitals in sample: 743; 

Rank in Medicare spending on drug SCODs: 7; 
HCPCS code: J9170; 
Description: Docetaxel, 20 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 73.7; 
% of Medicare spending on SCODs, 2004[B]: 3.7; 
Number of hospitals in sample: 829; 

Rank in Medicare spending on drug SCODs: 8; 
HCPCS code: J9045; 
Description: Carboplatin, 50 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 70.7; 
% of Medicare spending on SCODs, 2004[B]: 3.6; 
Number of hospitals in sample: 893; 

Rank in Medicare spending on drug SCODs: 9; 
HCPCS code: C9205; 
Description: Injection, Oxaliplatin, per 5 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 67.0; 
% of Medicare spending on SCODs, 2004[B]: 3.4; 
Number of hospitals in sample: 708; 

Rank in Medicare spending on drug SCODs: 10; 
HCPCS code: J3487; 
Description: Injection, Zoledronic Acid, 1 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 66.9; 
% of Medicare spending on SCODs, 2004[B]: 3.4; 
Number of hospitals in sample: 862; 

Rank in Medicare spending on drug SCODs: 11; 
HCPCS code: J9201; 
Description: Gemcitabine Hcl, 200 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 55.0; 
% of Medicare spending on SCODs, 2004[B]: 2.8; 
Number of hospitals in sample: 855; 

Rank in Medicare spending on drug SCODs: 12; 
HCPCS code: J9206; 
Description: Irinotecan, 20 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 39.4; 
% of Medicare spending on SCODs, 2004[B]: 2.0; 
Number of hospitals in sample: 786; 

Rank in Medicare spending on drug SCODs: 13; 
HCPCS code: J2324; 
Description: Injection, Nesiritide, 0.25 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 37.6; 
% of Medicare spending on SCODs, 2004[B]: 1.9; 
Number of hospitals in sample: 892; 

Rank in Medicare spending on drug SCODs: 14; 
HCPCS code: J9265; 
Description: Paclitaxel, 30 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 32.0; 
% of Medicare spending on SCODs, 2004[B]: 1.6; 
Number of hospitals in sample: 792; 

Rank in Medicare spending on drug SCODs: 15; 
HCPCS code: J9355; 
Description: Trastuzumab, 10 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 31.4; 
% of Medicare spending on SCODs, 2004[B]: 1.6; 
Number of hospitals in sample: 679; 

Rank in Medicare spending on drug SCODs: 16; 
HCPCS code: J9217; 
Description: Leuprolide Acetate (for depot suspension), 7.5 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 30.8; 
% of Medicare spending on SCODs, 2004[B]: 1.6; 
Number of hospitals in sample: 804; 

Rank in Medicare spending on drug SCODs: 17; 
HCPCS code: J0256; 
Description: Injection, Alpha 1 - Proteinase Inhibitor - Human, 10 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 20.9; 
% of Medicare spending on SCODs, 2004[B]: 1.1; 
Number of hospitals in sample: 38; 

Rank in Medicare spending on drug SCODs: 18; 
HCPCS code: J9035[M]; 
Description: Injection, Bevacizumab, 10 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 19.8; 
% of Medicare spending on SCODs, 2004[B]: 1.0; 
Number of hospitals in sample: 436; 

Rank in Medicare spending on drug SCODs: 19; 
HCPCS code: J1441; 
Description: Injection, Filgrastim (G-CSF), 480 mcg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 17.1; 
% of Medicare spending on SCODs, 2004[B]: 0.9; 
Number of hospitals in sample: 928; 

Rank in Medicare spending on drug SCODs: 20; 
HCPCS code: J1950; 
Description: Injection, Leuprolide Acetate (for depot suspension), per 
3.75 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 16.9; 
% of Medicare spending on SCODs, 2004[B]: 0.9; 
Number of hospitals in sample: 541; 

Rank in Medicare spending on drug SCODs: 21; 
HCPCS code: J9001; 
Description: Doxorubicin Hydrochloride, all lipid formulations, 10 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 16.3; 
% of Medicare spending on SCODs, 2004[B]: 0.8; 
Number of hospitals in sample: 614; 

Rank in Medicare spending on drug SCODs: 22; 
HCPCS code: J2353; 
Description: Injection, Octreotide, depot form for intramuscular 
injection, 1 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 15.7; 
% of Medicare spending on SCODs, 2004[B]: 0.8; 
Number of hospitals in sample: 545; 

Rank in Medicare spending on drug SCODs: 23; 
HCPCS code: J9055[M]; 
Description: Injection, Cetuximab, 10 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 15.1; 
% of Medicare spending on SCODs, 2004[B]: 0.8; 
Number of hospitals in sample: 286; 

Rank in Medicare spending on drug SCODs: 24; 
HCPCS code: J9041[M]; 
Description: Injection, Bortezomib, 0.1 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 14.1; 
% of Medicare spending on SCODs, 2004[B]: 0.7; 
Number of hospitals in sample: 452; 

Rank in Medicare spending on drug SCODs: 25; 
HCPCS code: J9350; 
Description: Topotecan, 4 mg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 13.9; 
% of Medicare spending on SCODs, 2004[B]: 0.7; 
Number of hospitals in sample: 585; 

Rank in Medicare spending on drug SCODs: 26; 
HCPCS code: J1440; 
Description: Injection, Filgrastim (G-CSF), 300 mcg; 
Description: [Empty]; 
Description: [Empty]; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 13.0; 
% of Medicare spending on SCODs, 2004[B]: 0.7; 
Number of hospitals in sample: 956; 

Rank in Medicare spending on drug SCODs: 2,758; 
HCPCS code: [Empty]; 
Description: 11.09; 
Description: [Empty]; 
Description: 9.25; 
Description: 9.74; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 9.55-9.94; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 10.12; 
10.11-10.13. 

Rank in Medicare spending on drug SCODs: 1,418; 
HCPCS code: [Empty]; 
Description: 437.83; 
Description: [Empty]; 
Description: 414.92; 
Description: 412.31; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 407.43-417.20; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 412.30; 
412.13-412.52. 

Rank in Medicare spending on drug SCODs: 1,177; 
HCPCS code: [Empty]; 
Description: 2,448.50; 
Description: [Empty]; 
Description: 2,017.55; 
Description: i; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): i; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: i; 
i. 

Rank in Medicare spending on drug SCODs: [L]; 
HCPCS code: [Empty]; 
Description: 80.68; 
Description: [Empty]; 
Description: 36.54; 
Description: 36.50; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 36.37-36.63; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 37.24; 
37.15-37.24. 

Rank in Medicare spending on drug SCODs: [L]; 
HCPCS code: [Empty]; 
Description: 80.68; 
Description: [Empty]; 
Description: 53.04; 
Description: 50.63; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 50.11-51.15; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 50.96; 
50.96-52.06. 

Rank in Medicare spending on drug SCODs: 1,903; 
HCPCS code: [Empty]; 
Description: 57.40; 
Description: [Empty]; 
Description: 50.20; 
Description: i; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): i; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: i; 
i. 

Rank in Medicare spending on drug SCODs: 1,117; 
HCPCS code: [Empty]; 
Description: 3.66; 
Description: [Empty]; 
Description: 3.04; 
Description: 3.00; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 2.95-3.05; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 3.09; 
3.06-3.11. 

Rank in Medicare spending on drug SCODs: 1,257; 
HCPCS code: [Empty]; 
Description: 312.69; 
Description: [Empty]; 
Description: 278.95; 
Description: 295.03; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 294.10-295.96; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 294.61; 
294.46-294.89. 

Rank in Medicare spending on drug SCODs: 1,482; 
HCPCS code: [Empty]; 
Description: 129.96; 
Description: [Empty]; 
Description: 71.46; 
Description: 132.10; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 131.65-132.55; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 132.69; 
132.55-132.83. 

Rank in Medicare spending on drug SCODs: 1,172; 
HCPCS code: [Empty]; 
Description: 82.53; 
Description: [Empty]; 
Description: 77.86; 
Description: 75.91; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 74.90-76.91; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 77.69; 
77.65-77.76. 

Rank in Medicare spending on drug SCODs: 1,316; 
HCPCS code: [Empty]; 
Description: 197.87; 
Description: [Empty]; 
Description: 187.47; 
Description: 185.27; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 183.71-186.83; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 190.67; 
190.26-191.01. 

Rank in Medicare spending on drug SCODs: 1,317; 
HCPCS code: [Empty]; 
Description: 105.73; 
Description: [Empty]; 
Description: 108.79; 
Description: 105.69; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 105.13-106.24; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 106.54; 
106.44-106.65. 

Rank in Medicare spending on drug SCODs: 1,109; 
HCPCS code: [Empty]; 
Description: 127.33; 
Description: [Empty]; 
Description: 119.56; 
Description: 116.31; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 113.87-118.75; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 122.67; 
122.16-123.13. 

Rank in Medicare spending on drug SCODs: 1,619; 
HCPCS code: [Empty]; 
Description: 66.23; 
Description: [Empty]; 
Description: 69.64; 
Description: i; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): i; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: i; 
i. 

Rank in Medicare spending on drug SCODs: 1,398; 
HCPCS code: [Empty]; 
Description: 79.04; 
Description: [Empty]; 
Description: 17.70; 
Description: 14.45; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 14.44-14.46; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 14.45; 
14.45-21.34. 

Rank in Medicare spending on drug SCODs: 1,089; 
HCPCS code: [Empty]; 
Description: 50.79; 
Description: [Empty]; 
Description: 49.99; 
Description: 46.72; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 45.92-47.53; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 47.97; 
47.93-48.04. 

Rank in Medicare spending on drug SCODs: 1,319; 
HCPCS code: [Empty]; 
Description: 543.72; 
Description: [Empty]; 
Description: 213.83; 
Description: 234.05; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 223.21-244.90; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 198.88; 
195.83-215.41. 

Rank in Medicare spending on drug SCODs: 279; 
HCPCS code: [Empty]; 
Description: 3.72; 
Description: [Empty]; 
Description: 3.06; 
Description: 2.35; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 2.33-2.37; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 2.46; 
2.27-2.46. 

Rank in Medicare spending on drug SCODs: 916; 
HCPCS code: [Empty]; 
Description: 57.11; 
Description: [Empty]; 
Description: 53.88; 
Description: 53.31; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 53.01-53.61; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 53.72; 
53.69-53.75. 

Rank in Medicare spending on drug SCODs: 1,679; 
HCPCS code: [Empty]; 
Description: 274.40; 
Description: [Empty]; 
Description: 261.46; 
Description: 257.21; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 253.46-260.96; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 253.64; 
253.45-253.78. 

Rank in Medicare spending on drug SCODs: 904; 
HCPCS code: [Empty]; 
Description: 451.98; 
Description: [Empty]; 
Description: 409.18; 
Description: 454.10; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 453.04-455.17; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 454.66; 
454.03-455.72. 

Rank in Medicare spending on drug SCODs: 955; 
HCPCS code: [Empty]; 
Description: 343.78; 
Description: [Empty]; 
Description: 338.66; 
Description: 336.33; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 332.22-340.44; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 338.70; 
338.28-338.97. 

Rank in Medicare spending on drug SCODs: 852; 
HCPCS code: [Empty]; 
Description: 69.44; 
Description: [Empty]; 
Description: 80.95; 
Description: 71.13; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 69.63-72.62; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 74.04; 
73.54-74.87. 

Rank in Medicare spending on drug SCODs: 506; 
HCPCS code: [Empty]; 
Description: 49.66; 
Description: [Empty]; 
Description: 46.85; 
Description: i; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): i; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: i; 
i. 

Rank in Medicare spending on drug SCODs: 631; 
HCPCS code: [Empty]; 
Description: 28.38; 
Description: [Empty]; 
Description: 26.77; 
Description: i; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): i; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: i; 
i. 

Rank in Medicare spending on drug SCODs: 858; 
HCPCS code: [Empty]; 
Description: 697.76; 
Description: [Empty]; 
Description: 699.75; 
Description: 674.91; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 656.60-693.21; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 709.19; 
706.34-710.50. 

Rank in Medicare spending on drug SCODs: 1,914; 
HCPCS code: [Empty]; 
Description: 162.41; 
Description: [Empty]; 
Description: 165.23; 
Description: 161.61; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 156.81-166.42; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 159.18; 
159.04-159.31. 

Rank in Medicare spending on drug SCODs: 27; 
HCPCS code: [Empty]; 
Description: J1785; 
Description: Injection, Imiglucerase, per unit; 
Description: 12.9; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.7; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 41; 

Rank in Medicare spending on drug SCODs: 28; 
HCPCS code: [Empty]; 
Description: J3396; 
Description: Injection, Verteporfin, 0.1 mg; 
Description: 12.3; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.6; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 10; 

Rank in Medicare spending on drug SCODs: 29; 
HCPCS code: [Empty]; 
Description: J9202; 
Description: Goserelin Acetate Implant, per 3.6 mg; 
Description: 11.4; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.6; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 392; 

Rank in Medicare spending on drug SCODs: 30; 
HCPCS code: [Empty]; 
Description: J1626; 
Description: Injection, Granisetron Hydrochloride, 100 mcg; 
Description: 11.1; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.6; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 682; 

Rank in Medicare spending on drug SCODs: 31; 
HCPCS code: [Empty]; 
Description: J0585; 
Description: Botulinim Toxin Type A, per unit; 
Description: 10.8; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.5; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 480; 

Rank in Medicare spending on drug SCODs: 32; 
HCPCS code: [Empty]; 
Description: J0207; 
Description: Injection, Amifostine, 500 mg; 
Description: 10.5; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.5; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 477; 

Rank in Medicare spending on drug SCODs: 33; 
HCPCS code: [Empty]; 
Description: J2430; 
Description: Injection, Pamidronate Disodium, per 30 mg; 
Description: 10.2; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.5; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 945; 

Rank in Medicare spending on drug SCODs: 34; 
HCPCS code: [Empty]; 
Description: J9390; 
Description: Vinorelbine Tartrate, per 10 mg; 
Description: 9.3; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.5; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 568; 

Rank in Medicare spending on drug SCODs: 35; 
HCPCS code: [Empty]; 
Description: J2993; 
Description: Injection, Reteplase, 18.1 mg; 
Description: 8.9; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.4; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 505; 

Rank in Medicare spending on drug SCODs: 36; 
HCPCS code: [Empty]; 
Description: J9293; 
Description: Injection, Mitoxantrone Hydrochloride, per 5 mg; 
Description: 8.4; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.4; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 672; 

Rank in Medicare spending on drug SCODs: 37; 
HCPCS code: [Empty]; 
Description: J9185; 
Description: Fludarabine Phosphate, 50 mg; 
Description: 7.6; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.4; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 669; 

Rank in Medicare spending on drug SCODs: 38; 
HCPCS code: [Empty]; 
Description: C1305; 
Description: Apligraf[®] , per 44 square centimeters; 
Description: 7.0; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.4; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 63; 

Rank in Medicare spending on drug SCODs: 39; 
HCPCS code: [Empty]; 
Description: J9395; 
Description: Injection, Fulvestrant, 25 mg; 
Description: 6.9; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.3; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 468; 

Rank in Medicare spending on drug SCODs: 40; 
HCPCS code: [Empty]; 
Description: J3100; 
Description: Injection, Tenecteplase, 50 mg; 
Description: 6.8; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.3; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 509; 

Rank in Medicare spending on drug SCODs: 41; 
HCPCS code: [Empty]; 
Description: J9305[M]; 
Description: Injection, Pemetrexed, 10 mg; 
Description: 5.6; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.3; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 162; 

Rank in Medicare spending on drug SCODs: 42; 
HCPCS code: [Empty]; 
Description: J9160; 
Description: Denileukin Diftitox, 300 mcg; 
Description: 5.6; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.3; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 73; 

Rank in Medicare spending on drug SCODs: 43; 
HCPCS code: [Empty]; 
Description: J0180[M]; 
Description: Injection, Agalsidase Beta, 1 mg; 
Description: 5.3; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.3; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 29; 

Rank in Medicare spending on drug SCODs: 44; 
HCPCS code: [Empty]; 
Description: Q0166; 
Description: Granisetron Hydrochloride, 1 mg, oral[N]; 
Description: 4.8; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.2; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 541; 

Rank in Medicare spending on drug SCODs: 45; 
HCPCS code: [Empty]; 
Description: J2469[M]; 
Description: Injection, Palonosetron Hcl, 25 mcg; 
Description: 4.6; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.2; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 295; 

Rank in Medicare spending on drug SCODs: 46; 
HCPCS code: [Empty]; 
Description: J9010; 
Description: Alemtuzumab, 10 mg; 
Description: 4.4; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.2; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 236; 

Rank in Medicare spending on drug SCODs: 47[O]; 
HCPCS code: [Empty]; 
Description: Q9942; 
Description: Injection, Immune Globulin, Intravenous, Lyophilized, 10 
mg; 
Description: p; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): p; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 626; 

Rank in Medicare spending on drug SCODs: 47[O]; 
HCPCS code: [Empty]; 
Description: Q9944; 
Description: Injection, Immune Globulin, Intravenous, Non-Lyophilized, 
10 mg; 
Description: p; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): p; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 281; 

Rank in Medicare spending on drug SCODs: 48; 
HCPCS code: [Empty]; 
Description: J7190; 
Description: Factor VIII (Antihemophilic Factor, Human) per I.U; 
Description: 4.2; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.2; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 55; 

Rank in Medicare spending on drug SCODs: 49; 
HCPCS code: [Empty]; 
Description: J0130; 
Description: Injection, Abciximab, 10 mg; 
Description: 4.0; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.2; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 570; 

Rank in Medicare spending on drug SCODs: 50; 
HCPCS code: [Empty]; 
Description: J0850; 
Description: Injection, Cytomegalovirus Immune Globulin Intravenous 
(Human), per vial; 
Description: 3.8; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.2; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 156; 

Rank in Medicare spending on drug SCODs: 51; 
HCPCS code: [Empty]; 
Description: J1327; 
Description: Injection, Eptifibatide, 5 mg; 
Description: 3.7; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.2; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 911; 

Rank in Medicare spending on drug SCODs: 52; 
HCPCS code: [Empty]; 
Description: J9214; 
Description: Interferon, Alfa-2B, Recombinant, 1 million units; 
Description: 3.6; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.2; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 619; 

Rank in Medicare spending on drug SCODs: 53; 
HCPCS code: [Empty]; 
Description: C9201; 
Description: Dermagraft[®] , per 37.5 square centimeters; 
Description: 3.4; 
Description: [Empty]; 
Medicare spending on SCOD, 2004[A[($ IN] in millions): 0.2; 
% of Medicare spending on SCODs, 2004[B]: [Empty]; 
Number of hospitals in sample: 2; 

Total number of hospitals[C]: 59; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 3.91; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 3.69; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 3.62; 
95% confidence interval of the average purchase price[G] ($): 3.60-
3.64; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 3.62; 
95% confidence interval of the median purchase price[G] ($): 3.61-3.66. 

Total number of hospitals[C]: 45; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 8.49; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 8.48; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): i; 
95% confidence interval of the average purchase price[G] ($): i; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): i; 
95% confidence interval of the median purchase price[G] ($): i. 

Total number of hospitals[C]: 529; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 390.09; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 181.78; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 201.76; 
95% confidence interval of the average purchase price[G] ($): 193.30-
210.23; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 206.56; 
95% confidence interval of the median purchase price[G] ($): 175.73-
323.33. 

Total number of hospitals[C]: 988; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 16.20; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 6.71; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 6.45; 
95% confidence interval of the average purchase price[G] ($): 6.27-
6.62; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 6.61; 
95% confidence interval of the median purchase price[G] ($): 6.60-6.64. 

Total number of hospitals[C]: 1,062; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 4.32; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 4.44; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): i; 
95% confidence interval of the average purchase price[G] ($): i; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): i; 
95% confidence interval of the median purchase price[G] ($): i. 

Total number of hospitals[C]: 705; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 395.75; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 403.84; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): i; 
95% confidence interval of the average purchase price[G] ($): i; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): i; 
95% confidence interval of the median purchase price[G] ($): i. 

Total number of hospitals[C]: 1,567; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 128.74; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 54.10; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 58.49; 
95% confidence interval of the average purchase price[G] ($): 51.51-
65.47; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 72.59; 
95% confidence interval of the median purchase price[G] ($): 71.50-
72.72. 

Total number of hospitals[C]: 833; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 52.78; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 58.20; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 48.15; 
95% confidence interval of the average purchase price[G] ($): 48.13-
48.16; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 48.14; 
95% confidence interval of the median purchase price[G] ($): 48.13-
52.05. 

Total number of hospitals[C]: 1,073; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 1,192.09; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 832.49; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 846.53; 
95% confidence interval of the average purchase price[G] ($): 844.18-
848.87; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 845.36; 
95% confidence interval of the median purchase price[G] ($): 844.48-
846.87. 

Total number of hospitals[C]: 1,181; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 313.96; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 305.36; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 297.00; 
95% confidence interval of the average purchase price[G] ($): 296.19-
297.82; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 295.62; 
95% confidence interval of the median purchase price[G] ($): 295.46-
295.78. 

Total number of hospitals[C]: 891; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 311.09; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 243.05; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 293.99; 
95% confidence interval of the average purchase price[G] ($): 291.43-
296.56; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 298.44; 
95% confidence interval of the median purchase price[G] ($): 298.37-
298.68. 

Total number of hospitals[C]: 450; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 1,130.88; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 1,114.74; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): i; 
95% confidence interval of the average purchase price[G] ($): i; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): i; 
95% confidence interval of the median purchase price[G] ($): i. 

Total number of hospitals[C]: 778; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 79.65; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 76.78; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 74.63; 
95% confidence interval of the average purchase price[G] ($): 74.45-
74.80; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 75.03; 
95% confidence interval of the median purchase price[G] ($): 74.95-
75.18. 

Total number of hospitals[C]: 1,181; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 2,350.98; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 1,901.29; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): i; 
95% confidence interval of the average purchase price[G] ($): i; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): i; 
95% confidence interval of the median purchase price[G] ($): i. 

Total number of hospitals[C]: 251; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 40.54; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 38.25; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): i; 
95% confidence interval of the average purchase price[G] ($): i; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): i; 
95% confidence interval of the median purchase price[G] ($): i. 

Total number of hospitals[C]: 95; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 1,438.80; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 1,144.18; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): i; 
95% confidence interval of the average purchase price[G] ($): i; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): i; 
95% confidence interval of the median purchase price[G] ($): i. 

Total number of hospitals[C]: 49; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 121.11; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 114.26; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 111.33; 
95% confidence interval of the average purchase price[G] ($): 111.08-
111.58; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 109.71; 
95% confidence interval of the median purchase price[G] ($): 108.18-
111.09. 

Total number of hospitals[C]: 886; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 39.04; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 31.04; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 24.86; 
95% confidence interval of the average purchase price[G] ($): 24.82-
24.89; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 23.99; 
95% confidence interval of the median purchase price[G] ($): 21.58-
24.94. 

Total number of hospitals[C]: 525; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 18.09; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 17.06; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): i; 
95% confidence interval of the average purchase price[G] ($): i; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): i; 
95% confidence interval of the median purchase price[G] ($): i. 

Total number of hospitals[C]: 356; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 541.46; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 478.73; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): i; 
95% confidence interval of the average purchase price[G] ($): i; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): i; 
95% confidence interval of the median purchase price[G] ($): i. 

Total number of hospitals[C]: [Q]; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 0.75; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 0.37; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 0.37; 
95% confidence interval of the average purchase price[G] ($): 0.36-
0.37; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 0.37; 
95% confidence interval of the median purchase price[G] ($): 0.37-0.37. 

Total number of hospitals[C]: [Q]; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 0.75; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 0.53; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 0.51; 
95% confidence interval of the average purchase price[G] ($): 0.50-
0.51; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 0.51; 
95% confidence interval of the median purchase price[G] ($): 0.51-0.52. 

Total number of hospitals[C]: 122; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 0.76; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 0.60; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 0.46; 
95% confidence interval of the average purchase price[G] ($): 0.46-
0.46; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 0.46; 
95% confidence interval of the median purchase price[G] ($): r. 

Total number of hospitals[C]: 797; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 448.22; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 417.35; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): i; 
95% confidence interval of the average purchase price[G] ($): i; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): i; 
95% confidence interval of the median purchase price[G] ($): i. 

Total number of hospitals[C]: 260; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 622.13; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 632.67; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): i; 
95% confidence interval of the average purchase price[G] ($): i; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): i; 
95% confidence interval of the median purchase price[G] ($): i. 

Total number of hospitals[C]: 1,661; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 11.21; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 11.79; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 12.49; 
95% confidence interval of the average purchase price[G] ($): 12.35-
12.63; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 11.03; 
95% confidence interval of the median purchase price[G] ($): 10.75-
12.39. 

Total number of hospitals[C]: 954; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 13.00; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 12.25; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): 11.20; 
95% confidence interval of the average purchase price[G] ($): 11.02-
11.37; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): 11.93; 
95% confidence interval of the median purchase price[G] ($): 11.78-
11.98. 

Total number of hospitals[C]: 80; 
Total number of hospitals[C]: [Empty]; 
CMS payment rate for 2005[D] ($): 529.54; 
CMS payment rate for 2005[D] ($): [Empty]; 
ASP (average sales price)[E] ($): 545.10; 
ASP (average sales price)[E] ($): [Empty]; 
Average purchase price[F] ($): i; 
95% confidence interval of the average purchase price[G] ($): i; 
95% confidence interval of the average purchase price[G] ($): [Empty]; 
Median purchase price[H] ($): i; 
95% confidence interval of the median purchase price[G] ($): i. 

Sources: GAO survey and CMS. 

Notes: ESRD = end-stage renal disease, g = gram, I.U. = international 
unit, mcg = microgram, and mg = milligram. 

[A] Medicare spending is for the period January 1, 2004, through 
September 30, 2004. 

[B] The percentage of Medicare spending is based on Medicare spending 
for all SCODs--both drugs and radiopharmaceuticals. 

[C] This estimate of the total number of hospitals in the population is 
based on our sample. 

[D] This is the payment rate specified for each HCPCS for 2005. It 
incorporates CMS's April 2005 update. 

[E] CMS publishes the ASP plus 6 percent for certain drugs used in 
physicians' offices. These amounts are based on data provided by 
manufacturers each quarter. We are reporting ASPs for the quarter 
beginning in April 2005. ASPs reported here do not include the 6 
percent added by CMS. 

[F] This price is based on data provided by the hospitals in our survey 
and does not reflect any other costs associated with purchasing or 
administering the product. We asked hospitals to report prices for 
drugs purchased from July 1, 2003, through June 30, 2004. We weighted 
the prices by the volume purchased as well as by the sample weights. We 
have excluded prices under the 340B program, a federal program that 
provides drug price discounts for certain health care entities, 
including those that provide health care services for low-income 
individuals and individuals in medically underserved areas. (42 U.S.C. 
§ 256b (2000)). 

[G] The confidence interval measures the precision of the estimate. The 
narrower the interval, the greater the precision. 

[H] The median purchase price is the midpoint of all prices reported by 
hospitals in our sample. Half of the prices reported by hospitals are 
above the median and half are below. The median is weighted by volume 
purchased and by hospital sample weights. The average purchase price 
excludes prices paid under the 340B program. 

[I] For HCPCS codes that contain only one National Drug Code (NDC), we 
do not include information on the average or median purchase price 
because of the potential proprietary sensitivity of such information. 

[J] On April 1, 2005, CMS replaced J1563, Injection, Immune Globulin, 
Intravenous, 1g, with two new codes: Q9941 and Q9943. J1563 was ranked 
fourth in total Medicare spending on SCODs from January 1, 2004, to 
September 30, 2004. 

[K] J1563, Injection, Immune Globulin, Intravenous, 1g, accounted for 
$127.1 million in Medicare spending from January 1, 2004, through 
September 30, 2004, which was 6.4 percent of total Medicare spending on 
SCODs for that time period. 

[L] On April 1, 2005, CMS replaced J1563, Injection, Immune Globulin, 
Intravenous, 1g, with two new codes: Q9941 and Q9943. Because J1563 was 
replaced by two codes, we could not estimate the total number of 
hospitals in the population for these new codes individually. 

[M] On January 1, 2005, CMS replaced C9214, C9215, C9207, C9213, C9208, 
and C9210 with J9035, J9055, J9041, J9305, J0180, and J2469, 
respectively. The ranks for the new codes correspond to the ranks in 
total Medicare spending on SCODs from January 1, 2004, to September 30, 
2004, for the former codes. 

[N] The complete description for HCPCS Q0166 is "Granisetron 
Hydrochloride, 1 mg, Oral, Food and Drug Administration (FDA) Approved 
Prescription Anti-Emetic, for Use as a Complete Therapeutic Substitute 
for an IV (intravenous) Anti-Emetic at the Time of Chemotherapy 
Treatment, Not to Exceed a 24 Hour Dosage Regimen." 

[O] On April 1, 2005, CMS replaced J1564, Injection, Immune Globulin, 
Intravenous, 10 mg, with two new codes: Q9942 and Q9944. J1564 was 
ranked 47th in total Medicare spending on SCODs from January 1, 2004, 
to September 30, 2004. 

[P] J1564, Injection, Immune Globulin, Intravenous, 10 mg accounted for 
$4.4 million in Medicare spending from January 1, 2004, through 
September 30, 2004, which was 0.2 percent of total Medicare spending on 
SCODs for that time period. 

[Q] On April 1, 2005, CMS replaced J1564, Injection, Immune Globulin, 
Intravenous, 10 mg, with two new codes: Q9942 and Q9944. Because J1564 
was replaced by two codes, we could not estimate the total number of 
hospitals in the population for these new codes individually. 

[R] For this SCOD, our sample data cannot be extrapolated to compute a 
confidence interval for the median.
 
[End of table] 

[End of section] 

Appendix III: Purchase Prices for Radiopharmaceuticals SCODs: 

Table 6 appears as table 1 in our report Medicare: Radiopharmaceutical 
Purchase Prices for CMS Consideration in Hospital Outpatient Rate- 
Setting, GAO-05-733R (Washington, D.C.: July 14, 2005). The label of 
the second column--HCPCS code--refers to the Healthcare Common 
Procedure Coding System, which CMS uses to define SCODs. 

Table 6: Purchase Prices for Radiopharmaceutical Accounting for 9 
Percent of Medicare Spending on SCODs: 

Rank in Medicare spending on radio-pharmaceutical SCODs: 1; 
HCPCS code: A9500; 
Description: Technetium Tc 99m Sestamibi, per dose; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 66.5; 
% of Medicare spending on SCODs, 2004[A]: 3.4; 
Number of hospitals in sample: 405. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 2; 
HCPCS code: A9502; 
Description: Technetium Tc 99m Tetrofosmin, per dose; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 38.8; 
% of Medicare spending on SCODs, 2004[A]: 2.0; 
Number of hospitals in sample: 174. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 3; 
HCPCS code: C1775; 
Description: Fluorodeoxyglucose (FDG) F18, per dose (4-40 mCi/ ml); 
Medicare spending on SCOD, 2004[A]: ($ in millions): 32.1; 
% of Medicare spending on SCODs, 2004[A]: 1.6; 
Number of hospitals in sample: 71. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 4; 
HCPCS code: C1083; 
Description: Yttrium 90 Ibritumomab Tiuxetan, per dose; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 7.1; 
% of Medicare spending on SCODs, 2004[A]: 0.4; 
Number of hospitals in sample: 80. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 5; 
HCPCS code: A9505; 
Description: Thallous Chloride TL 201, per mCi; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 6.7; 
% of Medicare spending on SCODs, 2004[A]: 0.3; 
Number of hospitals in sample: 292. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 6; 
HCPCS code: Q3005; 
Description: Technetium Tc 99m Mertiatide, per mCi[G]; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 6.2; 
% of Medicare spending on SCODs, 2004[A]: 0.3; 
Number of hospitals in sample: 292. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 7; 
HCPCS code: A9507; 
Description: Indium In 111 Capromab Pendetide, per dose; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 4.8; 
% of Medicare spending on SCODs, 2004[A]: 0.2; 
Number of hospitals in sample: 56. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 8; 
HCPCS code: Q3008; 
Description: Indium In 111 Pentetreotide, per 3 mCi[H]; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 4.5; 
% of Medicare spending on SCODs, 2004[A]: 0.2; 
Number of hospitals in sample: 193. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 9; 
HCPCS code: A9521; 
Description: Technetium Tc 99m Exametazime, per dose; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 3.8; 
% of Medicare spending on SCODs, 2004[A]: 0.2; 
Number of hospitals in sample: 180. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 2,477; 
HCPCS code: 106.32; 
Description: 75.15; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 73.24 - 77.06; 
% of Medicare spending on SCODs, 2004[A]: 76.47; 
Number of hospitals in sample: 75.58 - 77.85. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 964; 
HCPCS code: 104.58; 
Description: 70.70; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 67.92 - 73.48; 
% of Medicare spending on SCODs, 2004[A]: 67.59; 
Number of hospitals in sample: 66.23 - 70.98. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 687; 
HCPCS code: 221.11; 
Description: 287.90; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 263.24 - 312.55; 
% of Medicare spending on SCODs, 2004[A]: 272.80; 
Number of hospitals in sample: 261.83 - 308.52. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 130; 
HCPCS code: 20,948.25; 
Description: 19,614.96; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 19,498.98 - 
19,730.95; 
% of Medicare spending on SCODs, 2004[A]: 19,516.70; 
Number of hospitals in sample: 19,459.55 
- 19,565.02. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 1,199; 
HCPCS code: 18.29; 
Description: 17.18; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 16.32 - 18.05; 
% of Medicare spending on SCODs, 2004[A]: 15.49; 
Number of hospitals in sample: 15.06 - 17.06. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 1,655; 
HCPCS code: 31.13; 
Description: 27.40; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 26.47 - 28.34; 
% of Medicare spending on SCODs, 2004[A]: 27.58; 
Number of hospitals in sample: 27.56 - 27.60. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 262; 
HCPCS code: 1,915.23; 
Description: 1,801.12; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 1,760.80 - 
1,841.43; 
% of Medicare spending on SCODs, 2004[A]: 1,841.23; 
Number of hospitals in sample: 1,703.46 - 1,860.22. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 666; 
HCPCS code: 1,079.00; 
Description: 1,279.55; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 1,198.35 - 
1,360.76; 
% of Medicare spending on SCODs, 2004[A]: 1,423.87; 
Number of hospitals in sample: 1,395.49 - 1,437.61. 

Rank in Medicare spending on radio-pharmaceutical SCODs: 773; 
HCPCS code: 778.13; 
Description: 455.59; 
Medicare spending on SCOD, 2004[A]: ($ in millions): 358.29 - 552.89; 
% of Medicare spending on SCODs, 2004[A]: 456.30; 
Number of hospitals in sample: 379.90 - 523.95. 

Sources: GAO survey and CMS. 

Notes: mCi = millicurie, ml = milliliter: 

[A] Medicare spending is for the period January 1, 2004, through 
September 30, 2004. The percentage of Medicare spending is based on all 
SCODs--both drugs and radiopharmaceuticals. 

[B] This estimate of the total number of hospitals in the population is 
based on our sample. 

[C] This is the payment rate specified for each HCPCS for 2005. It 
incorporates CMS's April 2005 update. 

[D] This price is based on data provided by the hospitals in our survey 
and does not reflect delivery fees or any other ancillary costs 
associated with purchasing or administering this product. We asked 
hospitals to report prices for drugs purchased from July 1, 2003, 
through June 30, 2004. We weighted the prices by the volume purchased 
as well as by the sample weights. 

[E] The confidence interval measures the precision of the estimate. The 
narrower the interval, the greater the precision. 

[F] The median purchase price is the midpoint of all prices reported by 
hospitals in our sample. This price does not reflect delivery fees or 
any other ancillary costs associated with purchasing or administering 
this product. Half of the prices reported by hospitals are above the 
median and half are below. The median is weighted by volume purchased 
and by hospital sample weights. 

[G] The billing unit of measure for Q3005, Technetium Tc 99m 
Mertiatide, is per mCi. The per mCi purchase price reported is based on 
purchase prices for two commonly reported dose sizes, 5 mCi and 10 mCi. 
Since in our data the 5 mCi dose is more common than the 10 mCi dose 
and the purchase price of a 5 mCi dose and of a 10 mCi dose were 
similar, we treated a 10 mCi dose as if it were a 5 mCi dose. 

[H] The billing unit of measure for Q3008, Indium In 111 Pentetreotide, 
is per 3 mCi. The per mCi purchase price reported is based on purchase 
prices for two commonly reported dose sizes, 3 mCi and 6 mCi. Since a 3 
mCi dose is the billing unit specified by CMS for Q3008 and since in 
our data the purchase price of a 3 mCi dose and of a 6 mCi dose varied 
relatively little, we treated a 6 mCi dose as if it were a 3 mCi dose.

[End of table] 

[End of section] 

Appendix IV: Comments from the Department of Health and Human Services: 

Department Of Health & Human Services: 
Office of Inspector General: 
Washington, D.C. 20201: 
April 12 2006: 

Mr. A. Bruce Steinwald: 
Director, Health Care: 
U.S. Government Accountability Office: 
Washington, DC 20548: 

Dear Mr. Steinwald: 

Enclosed are the Department's comments on the U.S. Government 
Accountability Office's (GAO) draft report entitled "MEDICARE HOSPITAL 
PHARMACEUTICALS: Survey Shows Price Variation and Highlights Data 
Collection Lessons and Outpatient Rate-Setting Challenges for CMS" (GAO-
06-372). These comments represent the tentative position of the 
Department and are subject to reevaluation when the final version of 
this report is received. 

The Department appreciates the opportunity to comment on this draft 
report before its publication. 

Sincerely, 

Signed by:

Daniel R. Levinson: 
Inspector General: 

Enclosure: 

The Office of Inspector General (OIG) is transmitting the Department's 
response to this draft report in our capacity as the Department's 
designated focal point and coordinator for U.S. Government 
Accountability Office reports. OIG has not conducted an independent 
assessment of these comments and therefore expresses no opinion on 
them. 

COMMENTS OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES ON THE U.S. 
GOVERNMENT ACCOUNTABILITY OFFICE'S DRAFT REPORT ENTITLED "MEDICARE 
HOSPITAL PHARMACEUTICALS: SURVEY SHOWS PRICE VARIATION AND HIGHLIGHTS 
DATA COLLECTION LESSONS AND OUTPATIENT RATE-SETTING CHALLENGES FOR CMS" 
(GAO-06-372): 

The Department of Health and Human Services (HHS) appreciates the 
opportunity to comment on the draft report. 

General Comments: 

The Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 (MMA) instructed the Centers for Medicare & Medicaid Services 
(CMS) to pay hospitals for outpatient drugs based on average 
acquisition costs, beginning in 2006. The MMA also included a provision 
requiring GAO to conduct a survey in years 2004 and 2005 on hospital 
acquisition costs of drugs in the outpatient department and share the 
results with CMS for purposes of informing hospital drug acquisition 
costs. CMS is committed to ensuring appropriate payment for drugs, and 
continued beneficiary access to drugs being provided in a hospital 
outpatient department. 

The GAO survey data were provided to CMS in time for consideration in 
the calendar year: 

(CY) 2006 outpatient prospective payment system (OPPS) proposed rule, 
and we considered this information when developing our proposed and 
final CY 2006 OPPS payment policy. In our CY 2006 OPPS final rule with 
comment period, we explain our methodology for arriving at a payment 
rate of average sales price (ASP) +6 for CY 2006, and we discuss the 
various data we used to inform our final policy, including the GAO 
survey data. 

This report includes information specific to the MMA mandate to GAO to 
conduct surveys in each of 2004 and 2005 to determine hospital 
acquisition costs for each specific covered outpatient drug (SCOD), 
provide recommendations on the frequency and methodology for subsequent 
surveys, and to report on the variation in hospital acquisition costs 
for drugs among hospitals based on the volume of covered outpatient 
department services performed. Additional GAO reports mandated by the 
MMA that are specific to the OPPS include reports on CY 2006 OPPS 
proposed payment rates for drugs and biologicals and a report on 
appropriate payment amounts for brachytherapy sources. 

This GAO report supports the concerns noted in the CY 2006 OPPS 
proposed rule regarding the difficulty, both for CMS and for 
participating hospitals, in recreating the GAO survey in future years 
in order to update SCOD payment rates. In addition, the GAO report 
reinforces previous findings that there is no simple methodology for 
determining radiopharmaceutical acquisition costs. 

We appreciate the effort that went into this report and the 
considerable analysis included in these recommendations. We look 
forward to working with GAO on this and other pertinent issues 
addressed in this report. 

Recommendations: 

To ensure that Medicare payments for specified covered outpatient drug 
(SCOD) products are based on sufficiently accurate data, GAO recommends 
that the Secretary of Health and Human Services take the following two 
actions: 

GAO Recommendation 1: 

Validate, on an occasional basis, manufacturers' reported drug average 
sales prices (ASPS) as a measure of hospitals' acquisition costs using 
a survey of hospitals or other method that CMS determines to be 
similarly accurate and efficient. 

HHS Response: 

As in all aspects of our payment system, we are committed to providing 
appropriate payments to hospitals for the resources expended during the 
care of a Medicare beneficiary. While we strive to make payments as 
accurate as possible, we are also interested in eliminating unnecessary 
administrative burdens hospitals encounter. CMS agrees with GAO's 
finding that an annual survey could place an onerous burden on hospital 
staff in order to produce such information, 

and additional burdens on Agency staff in preparing submitted 
information for analysis. We will continue to consider the best 
approach for setting payment rates for drugs and biologicals in light 
of GAO's recommendation, and we will consider performing such an 
occasional hospital survey in order to validate our payment 
methodologies. We will also continue to analyze the adequacy of ASP- 
based pricing in the light of our claims data, which indicated for CY 
2006 that ASP +6 was the best available proxy for hospitals' average 
acquisition costs, plus the handling costs of drugs. 

GAO Recommendation 2: 

Use unit-dose prices paid by hospitals as the data source for setting 
and updating Medicare payment rates for radiopharmaceutical SCODs. 

HHS Response: 

CMS appreciates GAO's comments on this difficult payment issue. We 
agree with GAO that various purchasing options provided to hospitals 
make uniform pricing difficult, and that any methodology for setting 
radiopharmaceutical payment rates should be low cost and reasonably 
accurate. For CY 2006, we therefore adopted the methodology of paying 
for radiopharmaceuticals on the basis of charges adjusted to cost as 
the best available proxy for capturing both the acquisition costs and 
the handling costs of radiopharmaceuticals. We appreciate GAO's 
recommendation to collect price data on radiopharmaceuticals purchased 
in ready-to-use doses, and to use unit-dose prices as the basis for 
payment rates. We will consider this methodology in developing our 
policy for radiopharmaceutical payments. 

However, we wish to raise several questions, and to express some 
reservations about this recommendation. First, GAO did not specify 
whether the survey would be conducted with hospitals or manufacturers. 
Several statements in the report seem to imply that the survey would be 
conducted with hospitals, but it might be advisable to clarify this 
point in the report. 

Second, the report emphasizes the expense, administrative burden, and 
other difficulties of conducting surveys of drug purchase prices in 
general. The report concludes that the burden of annual surveys of 
hospital drug purchase prices could outweigh the potential gains in 
data accuracy. We suspect that surveys of the unit dose prices paid by 
hospitals for radiopharmaceuticals might pose similar levels of expense 
and administrative burden. GAO's assessment of the expense and burdens 
of such a survey in relation to the potential gains in data accuracy 
would be useful in fully evaluating the recommendation. 

Third, GAO conducted its study on only 9 of the approximately 55 
radiopharmaceutical agents for which we pay separately under the 
outpatient prospective payment system. In order for a survey of unit 
dose prices to be effective, we would need to be able to obtain unit 
price data for all, or very nearly all, of the radiopharmaceuticals for 
which we pay separately. However, we believe that certain 
radiopharmaceuticals would rarely be available for purchase in ready- 
to-use doses, but would, rather, tend to be manufactured by hospitals 
in-house. We would, therefore, not be able to obtain useable data on 
the prices of these radiopharmaceuticals by collecting data on the 
prices paid by hospitals for ready-to-use doses. GAO's assessment of 
this limitation on the usefulness of a survey of prices for ready-to- 
use radiopharmaceutical doses would be valuable in fully evaluating 
this recommendation.

[End of section] 

Appendix V: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

A. Bruce Steinwald, (202) 512-7119 or steinwalda@gao.gov: 

Acknowledgments: 

Phyllis Thorburn, Assistant Director; Hannah Fein; Dae Park; Jonathan 
Ratner; and Thomas Walke made key contributions to this report. 

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FOOTNOTES 

[1] In this report, the term drugs refers to both drugs and 
biologicals. Biologicals are products derived from living sources, 
including humans, animals, and microorganisms. Radiopharmaceuticals are 
radioactive substances used for diagnostic or therapeutic purposes. 

[2] Pub. L. No. 108-173, sec. 621(a), § 1833(t)(14), 117 Stat. 2066, 
2307--08 (to be codified at 42 U.S.C. § 1395l(t)(14)). 

[3] Specifically, the MMA required that payment rates equal the average 
acquisition costs as determined by the Secretary of Health and Human 
Services, unless hospital acquisition cost data are not available. If 
such data are not available, the law permitted payment rates to equal 
one of several amounts, including average sales price, as calculated 
and adjusted by the Secretary. MMA 117 Stat. 2307. 

[4] MMA 117 Stat. 2308--09. The law also required the Medicare Payment 
Advisory Commission (MedPAC) to report on overhead and related expenses 
(such as pharmacy services and handling costs) and authorized the 
Secretary to adjust the SCOD rates for these costs. MMA 117 Stat. 2309. 
See ch. 6, "Payment for pharmacy handling costs in hospital outpatient 
departments," in MedPAC's mandated report, Issues in a Modernized 
Medicare Program (Washington, D.C.: June 2005). 

[5] The Secretary of HHS considered the price data we provided but 
elected not to use these data as the basis for 2006 rates. 

[6] GAO, Medicare: Drug Purchase Prices for CMS Consideration in 
Hospital Outpatient Rate Setting, GAO-05-581R (Washington, D.C.: June 
30, 2005), and GAO, Medicare: Radiopharmaceutical Purchase Prices for 
CMS Consideration in Hospital Outpatient Rate Setting, GAO-05-733R 
(Washington, D.C.: July 14, 2005). 

[7] The term purchase price refers to the price that hospitals paid 
upon receiving a product. The term rebates refers to price concessions 
given to hospitals by manufacturers subsequent to receipt of the 
product. 

[8] GAO, Medicare: Comments on CMS Proposed 2006 Rates for Specified 
Covered Outpatient Drugs and Radiopharmaceuticals Used in Hospitals, 
GAO-06-17R (Washington, D.C.: Oct. 31, 2005). 

[9] MMA 117 Stat. 2308-09. 

[10] Major teaching hospitals were defined as having an intern/ 
resident-to-bed ratio of 0.25 or more. Hospitals with other teaching 
programs had an intern/resident-to-bed ratio above 0 but less than 
0.25. 

[11] The products in these SCOD categories represented 95 percent of 
all Medicare spending on SCOD products (53 drugs and 9 
radiopharmaceuticals) during the first 9 months of 2004. The nine 
radiopharmaceuticals accounted for 90 percent of all Medicare hospital 
outpatient spending on radiopharmaceutical SCODs. 

[12] For setting SCOD payment rates after 2006, the Secretary was 
directed to conduct periodic surveys to obtain cost information. 

[13] GAO-05-581R. 

[14] GAO-05-733R. 

[15] GAO-06-17R. 

[16] See app. I. 

[17] 70 Fed. Reg. 68,516 (Nov. 10, 2005). 

[18] GAO-06-17R. 

[19] Pub. L. No. 105-33, § 4523, 111 Stat. 251, 445--50. 

[20] Pub. L. No. 106-113, app. F, § 201(b), 113 Stat. 1501A-321, 1501A- 
337--1501A-339. 

[21] Rebates are price concessions given to hospitals by manufacturers 
subsequent to receipt of the product. For a discussion of rebates and 
their relationship to hospital acquisition costs, see GAO-06-17R, p. 5. 

[22] Discounts are price concessions given by manufacturers and 
wholesalers that are reflected in the purchase price--the price 
hospitals pay at the time of delivery. 

[23] MMA 117 Stat. 2239-45. MMA specifically required use of ASP to set 
rates for drugs furnished in physicians' offices on or after January 1, 
2005; CMS began using ASP to set rates for SCOD products delivered in 
hospital outpatient departments on or after January 1, 2006. 

[24] MMA 177 Stat. 2240--41. 

[25] 70 Fed. Reg. 68,642. In total, the payment rate for drug SCODs is 
ASP+6 percent, which includes overhead and handling that CMS had 
previously estimated at 2 percent of ASP. The implied rate for the 
product without overhead is ASP+4 percent. 

[26] 70 Fed. Reg. 68,654. 

[27] See Denise A. Merlino, "Nuclear Medicine Faculty Survey: SNM 2003 
Survey Reporting on 2002 Cost and Utilization," Journal of Nuclear 
Medicine Technology, vol. 32, no. 4 (2004), pp. 215-219. 

[28] Our estimated purchase prices for radiopharmaceutical SCODs were 
based on hospitals' purchases of ready-to-use unit-doses only; we did 
not report prices for the generally less prevalent forms--multidoses or 
doses prepared in-house using a kit. 

[29] Compared with nonteaching hospitals, some teaching hospitals may 
obtain a larger proportion of their radiopharmaceuticals by compounding 
components purchased separately than by purchasing unit doses. 
Therefore, the result might have been different had we been able to 
include the prices hospitals paid for radiopharmaceuticals purchased as 
multidoses or as separate components. 

[30] The estimated percentage differences were derived from two 
multivariate statistical models--one explaining variation in prices of 
53 drug SCODs, the second explaining price variation of 9 
radiopharmaceutical SCODs. Each model attributed variation in SCOD 
prices to three hospital characteristics (teaching status, size, and 
location) and to the particular set of SCODs purchased by each 
hospital. 

[31] CMS collects ASPs from manufacturers that include prices paid by 
all purchasers, not just hospitals. Average prices paid by hospitals 
may not be equal to average prices paid by other purchasers, such as 
physicians' offices. 

[32] Many hospitals reported receiving rebates for a set of drugs (and 
sometimes drugs and other products). In these cases, it was generally 
not feasible to allocate rebates to specific drugs. 

[33] We accepted data from hospitals in any format. We believed that we 
had to make the task of submitting data as easy as possible for 
hospitals in order to gain their cooperation. Reflecting on our 
experience, we think that this decision was critical to achieving good 
response rates. 

[34] GAO, Medicare: Comments on CMS Proposed 2006 Rates for Specified 
Covered Outpatient Drugs and Radiopharmaceuticals Used in Hospitals, 
GAO-06-17R (Washington, D.C.: Oct. 31, 2005). In addition to the 
product's ASP, manufacturers must report the manufacturer's name, the 
product's National Drug Code (NDC), and the number of units. 

[35] Although HHS chose to use ASP data submitted by manufacturers to 
set 2006 payment rates, it is required to conduct hospital surveys 
subsequent to ours to determine hospital acquisition costs. MMA 117 
Stat. 2308. 

[36] We refer to our survey of hospitals as the 2004 survey because 
data collection began in 2004. We collected data for SCODs purchased 
from July 1, 2003, through June 30, 2004. 

[37] For details on the sample design for our survey, see GAO-05-581R, 
enclosure I. 

[38] A SCOD category may contain one or many NDCs. NDCs may differ by 
manufacturer, strength, or package size. 

[39] Each SCOD and each NDC is assigned a specific number of units (for 
example, 10 mg.), and the NDC units must also be converted to SCOD 
units, in order to place on the same basis all the NDCs that make up a 
SCOD. For a discussion of issues in converting NDC prices to SCOD 
prices, see Department of Health and Human Services, Office of 
Inspector General, Calculation of Volume-Weighted Average Sales Price 
for Medicare Part B Prescription Drugs, OEI-03-05-00310 (Washington, 
D.C.: February 2006). 

[40] The number of SCODs can change from year to year as CMS designates 
additional SCODs or combines previously separate SCODs. 

[41] We recommended in a previous report that CMS collect information 
on ASP by purchaser type to validate its reasonableness as a measure of 
hospital acquisition cost. See GAO-06-17R. 

[42] 42 C.F.R. §§ 414.800--414.806 (2005). 

[43] In a survey conducted by the Society of Nuclear Medicine and the 
Society of Nuclear Medicine Technologist Section, 76 percent of 
hospitals reported that they purchased their radiopharmaceuticals in 
unit doses. See Merlino, pp. 215-219. 

[44] Of the nine radiopharmaceuticals for which we estimated prices, F- 
18 FDG is the only one that is an F-18 radiopharmaceutical. However, as 
more F-18 labeled products become available, the category may expand. 

[45] See GAO-05-733R. 

[46] 70 Fed. Reg. 68,656--57. 

[47] We consider manufacturers to include independent nuclear 
pharmacies and hospitals that compound radiopharmaceuticals that they 
supply to other hospitals. 

[48] A small part of the business of some independent nuclear 
pharmacies, as well as retail outlets for large radiopharmaceutical 
manufacturers, involves supplying ready-to-use radiopharmaceuticals 
from their parent companies and other manufacturers. 

[49] 70 Fed. Reg. 42,674, 42,727--28 (July 25, 2005). 

[50] 70 Fed. Reg. 68,656. 

[51] See GAO-05-581R for technical details on the survey we conducted. 

[52] Purchase price refers to the price that hospitals paid upon 
receiving a product. Purchase price incorporates a manufacturer's or 
other vendor's discounts but excludes any rebates, which manufacturers 
may pay a hospital purchaser at a later date. In this appendix, price 
refers to purchase price, unless otherwise stated. 

[53] For more information on urban influence codes, see Measuring 
Rurality: Urban Influence Codes, http://www.ers.usda.gov/Briefing/ 
Rurality/urbaninf/ (downloaded Feb. 2, 2006). For more information on 
rural-urban continuum codes, see Rural-Urban Commuting Area Codes, 
http://www.ers.usda.gov/Briefing/Rurality/RuralurbCon/ (downloaded Feb. 
14, 2006). 

[54] Each observation of price was drawn from a particular invoice for 
the purchase of a particular SCOD purchased by a particular hospital. 

[55] StataCorp, Stata Statistical Software: Release 9 (College Station, 
Tex.: StataCorp LP, 2003). 

[56] Since each of the three "hospital characteristic" factors 
(teaching status, location, and size) is measured as one or more binary 
variables and the dependent variable, price, is measured as the natural 
logarithm, we used a standard method to calculate the percentage 
difference in price attributable to a particular measure of the factor, 
relative to its comparison group. Paul Kennedy, A Guide to 
Econometrics, 4th Ed. (Cambridge, Mass.: MIT Press, 1998), p. 108. 

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