On September 7, 2016, the Office of Inspector General (OIG) released a report entitled “CMS Should Address Medicare’s Flawed Payment System for DME Infusion Drugs” (OEI-12-16-00340). This report is a follow-up to an April 2015 report entitled “Recommendation Followup Memorandum Report: Implementing OIG Recommendation Could Have Reduced Payments for DME Infusion Drugs by Hundreds of Millions of Dollars,” which itself was based on a 2013 OIG report on the same issue.

OIG’s position on this issue is as follows: By statute, Medicare sets payment levels for drugs infused through durable medical equipment at 95% of the average wholesale price (AWP) for such drugs as of October 1, 2003. Thus, these drugs are exempted from the average sale price (ASP) payment methodology that applies to most other Part B-covered drugs. In its 2015 report, OIG calculated that if the DME infusion drugs were paid under ASP, the Centers for Medicare and Medicaid Services (CMS) would have saved $251 million over an 18-month period. In the current report, OIG expands its analysis to focus on two DME drugs – pump-administered insulin, and milrinone lactate.

OIG believes that an AWP-based methodology does not reflect the true market for a drug, since in its view AWP simply provides the list price for a drug. By contrast, according to OIG, ASP-based payments do reflect actual marketplace prices and thus should be the basis for payment for DME infusion drugs. To underscore how the current AWP-based methodology is an inaccurate indication of the market, OIG explains how the AWP methodology has resulted in a drug that is significantly under-reimbursed – insulin – and a drug that is over-reimbursed – milrinone lactate.

OIG has determined that due to the AWP-based methodology, since 2012, Medicare has been paying suppliers 65% less than their cost for insulin because the AWP methodology does not account for the significant cost increases for insulin that have occurred over the past several years. OIG expresses concern that unless this situation is remedied, Medicare beneficiary access to Part B-covered insulin will be threatened.

With respect to milrinone lactate, a drug administered to patients suffering from end-stage heart failure, OIG has calculated that Medicare’s payment, as determined by the AWP methodology, is far in excess of the supplier’s acquisition costs for the product. According to OIG, Medicare’s payment amount for milrinone lactate was 20 times the acquisition cost in the fourth quarter of 2015.

Based on this analysis, OIG urges CMS either to seek legislation that would require payments for DME infusion drugs to be based on ASP or to use its existing authority to subject DME infusion drugs to the competitive bidding program.

The infusion community takes strong issue with the three OIG reports. The National Home Infusion Association (NHIA) argues that because of the lack of a comprehensive home infusion therapy benefit that properly covers all of the components of infusion therapy, the payment for the DME infusion drugs is intended to encompass more than the infusion supplier’s acquisition cost for the drug. Rather, the benefit indirectly pays for the professional services that are medically necessary for the safe and effective provision of the drug. That was one of the reasons why Congress exempted DME infusion drugs from the ASP methodology in 2003. Also, NHIA notes that the services involved in the provision of milrinone lactate are far more extensive than services required in the administration of insulin.

OIG acknowledges that it did not include the medical services in its analysis, and did not consider the absence of any other mechanism to pay for such services. The solution, says NHIA, is for Congress to enact pending legislation (S. 275, H.R. 605) that would provide coverage for the services involved in the provision of home infusion therapy. According to NHIA, with the services separately covered and paid for, a conversion to ASP for the drug payment would make more sense.

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