Medicare Hospital Pharmaceuticals: Survey Shows Price Variation and Highlights Data Collection Lessons and Outpatient Rate-Setting Challenges for CMS
Highlights
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.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Health and Human Services | To ensure that Medicare payments for SCOD products are based on sufficiently accurate data, the Secretary of Health and Human Services should 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. | CMS has no plans to implement a survey of hospitals to validate manufacturers' reported drug average sales price (ASP) as a measure of hospitals' acquisition costs. Instead, CMS has chosen another approach, using hospital claims data as a measure of hospital acquisition costs combined with pharmacy overhead costs. CMS compares aggregate expenditures for separately payable drugs and biologicals to the ASP-based payment rates (weighting these HCPCS codes by their OPPS volumes) to calculate an equivalent average ASP-based payment rate for drugs and biologicals provided in the hospital outpatient setting. CMS updates its ASP-based payment rates quarterly, if necessary, to reflect market... changes. CMS was considering this approach when we drafted our report; our assessment at that time was that it might be a more efficient but less accurate means of obtaining price estimates than obtaining price data directly from manufacturers or from hospitals' invoices.
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| Department of Health and Human Services | To ensure that Medicare payments for SCOD products are based on sufficiently accurate data, the Secretary of Health and Human Services should use unit-dose prices paid by hospitals when available as the data source for setting and updating Medicare payment rates for radiopharmaceutical SCODs. | CMS has continued to use cost estimates developed from hospital charges to pay for radiopharmaceutical SCODs, rather than following our recommendation to collect data on the prices paid by hospitals. (However, in response to this recommendation to use unit-dose prices, CMS noted that most hospital charges for radiopharmaceuticals are for a unit-dose, because most of the HCPCS code descriptors indicate that the code is per study or treatment dose.) In both 2006 and 2007, CMS paid for radiopharmaceuticals based on the hospital's charge for each radiopharmaceutical adjusted to cost using the hospital's overall cost-to-charge ratio. In 2007, CMS finalized a policy to package payment for...
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