OIG: Medicare May End Up Overpaying for ESRD Drugs

Janice Simmons, September 16, 2010

To keep costs related to end-stage renal disease (ESRD) treatments down, Medicare will be bundling drugs and services for dialysis payments together beginning Jan. 1, 2011. Medicare, however, will find itself overpaying for the dialysis drugs because it is failing to take current market rates—which are dropping—into consideration, according to a report from the Health and Human Services' Office of Inspector General (OIG).

Currently, Medicare pays for most separately billable drugs furnished by independent and hospital-based dialysis facilities at 106% of their average sales prices. In 2008, Medicare paid $2.1 billion for separately billable ESRD drugs.

Starting Jan. 1, though, Medicare will base price updates on wage and price proxy data from the Bureau of Labor Statistics. For the ESRD drugs portion of the new bundled rate, CMS plans to use the producer price index (PPI) for prescription drugs to estimate price changes.

According to PPI data, prices for prescription drugs were 39% higher in the first quarter of 2009 than in 2003. However, the costs for the drugs that account for the majority of Medicare expenditures in independent dialysis facilities actually decreased during this same period.

In aggregate, drug acquisition costs at independent dialysis faculties in 2009 were 10% below the Medicare payment amounts. For these facilities, average acquisition costs for all 11 of the drugs under review were between 2% and 27% below Medicare payment amounts. The average acquisition cost for epoetin alfa—a product that accounted for nearly 70% of Medicare drug expenditures in independent facilities in 2008—was 9% less than the Medicare payment amount.

The OIG noted that if the PPI for prescription drugs had been an accurate predictor since 2003 for changes to acquire epoetin alfa, dialysis facilities would have paid $12.22 for 1,000 units of the drug in the first quarter of 2009. This amount would be 46% higher, though, than epoetin alfa's average acquisition cost among responding independent dialysis facilities. It was 33% higher than the ASP-based payment amount.

If the Medicare payment amount for epoetin alfa since 2003 were  based on changes in the PPI, total program payments to all independent dialysis facilities for the drug in the first quarter of 2009 alone would have been $113 million higher than the actual payments.

Janice Simmons Janice Simmons is a senior editor and Washington, DC, correspondent for HealthLeaders Media Online. She can be reached at jsimmons@healthleadersmedia.com.
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