The Office of Inspector General (OIG) issued a report on September 7, 2016 urging CMS to overhaul the way it pays for drugs infused through durable medical equipment (DME) provided to Medicare Part B beneficiaries. Current payments are based on the average wholesale price (AWP) from 2003. The OIG report argues that payments based on a 13-year-old AWP bear little to no relationship to the market prices today. OIG believes that this model can create access issues for vital drugs where providers are unwilling to provide such drugs if payments are far below costs. On the other hand, payments for certain other drugs far exceed cost, which may create incentives for over-utilization. OIG recommends that CMS either seek a legislative change that would base payments on average sales prices (ASP), or use its existing authority to include DME infused drugs in the competitive bidding program.
This is not the first time OIG has made this recommendation. It issued a report in February 2013 with the same recommendations. At that time, OIG found that payments “substantially exceeded provider acquisition costs,” and that CMS could save hundreds of millions of dollars paying on the basis of ASPs. However, as of August 2016, CMS has not taken steps toward seeking legislation to change payments for DME infused drugs, although it has stated that it is considering phasing in competitive bidding. OIG issued another report in April 2015, and again found the same thing. In fact, it found that CMS would have saved $251 million during an 18-month period if it had implemented OIG’s ASP-based payment method.
To highlight the problem, OIG detailed two drugs in its report: pump-infused insulin and milrinone lactate. The provider costs for insulin have increased dramatically in the past five years, while Medicare payments for the drug have remained flat. At the end of 2015, the cost had risen to $7.91 per 50 units, while the payment amount remained just $2.80 for 50 units. As a result, many large suppliers of insulin have stopped providing the drug to Medicare beneficiaries. On the other hand, payments for milrinone lactate, a life-saving drug used in the treatment of congestive heart failure, are on the other extreme. The cost of a 5 mg dose was $2.53 at the end of 2015, while the Medicare AWP-based payment was $51.58. Indeed, the copayment portion of the Medicare payment was $10.32 – more than four times the cost of the drug.
It remains to be seen if CMS will implement OIG’s recommendation this time, but it is becoming clear that this is an issue OIG is not ready to give up on. In its conclusion, OIG reminded CMS that it previously found one-quarter of DME infusion drugs were reimbursed below their acquisition costs (like insulin), and over 40 percent were reimbursed at amounts more than double their acquisition costs. OIG, therefore, urged CMS to either seek legislative change to require payment to be based on ASPs, or, more realistically, include DME infused drugs in the competitive bidding process.
