Medicare Outpatient Drugs: Program Payments Should Better Reflect Market Prices: GAO-02-531T

Dummit, Laura A.
March 2002
GAO Reports;3/14/2002, p1
Government Document
In some cases, Medicare pays significantly more for covered outpatient drugs than the actual costs to the physicians and pharmacy suppliers. Attempts to reduce these payments have been met with provider claims that overpayments for the drugs are needed to cover underpayments for administering or delivering them. Medicare's method for establishing drug payments is flawed. Medicare pays 95 percent of the average wholesale price (AWP), which, despite its name, is neither an average nor a price that wholesalers charge. Instead, it is a number that manufacturers derive using their own criteria. There are no requirements or conventions that AWP reflect the price of actual drug sales. Widely available purchase prices for drugs in 2001 were substantially below AWP. For both physician-billed drugs and pharmacy supplier-billed drugs, Medicare payments often far exceeded widely available prices. Physicians and pharmacy suppliers contend that the excess payments for covered drugs are necessary to offset what they claim are inappropriately low Medicare payments or no such payments for services related to the administration or delivery of these drugs. Although physicians receive an explicit payment for administering drugs, Medicare's payment policies for delivering pharmacy supplier-billed drugs and related equipment are uneven. Pharmacy suppliers billing Medicare receive a dispensing fee for one drug type--inhalation therapy drugs--but not for other covered drugs, such as infusion therapy or covered oral drugs. Other payers and purchasers, such as private health plans and the Department of Veterans Affairs (VA), use different approaches to pay for or buy drugs that may be instructive for Medicare. In particular, VA uses the leverage from the volume of federal drug purchases to secure verifiable data on actual market transactions, and it uses the prices paid by manufacturers' best customers to set Federal Supply Schedule prices.


Related Articles

  • Medicare Coverage.  // World Almanac & Book of Facts;2008, p376 

    The article presents an almanac entry about the coverage of Medicare in the U.S. The Medicare health insurance program provides acute-care coverage for Social Security and Railroad Retirement beneficiaries age 65 and over, for persons entitled for 24 months to receive Social Security or Railroad...

  • Pointers from the Past.  // HomeCare Magazine;Oct2008, Vol. 31 Issue 10, p136 

    The article presents past events concerning the medical care industry in the U.S. Home medical equipment companies worried about staying afloat could take a few pointers from the past, specifically from Fitzsimmons Surgical Supply. In October 1988, the HomeCare examined the expanding role of...

  • Federal Medicine for Medicare. Esmail, Nadeem // Fraser Forum;Feb2006, p13 

    The article comments on government policies on Medicare and health care in Canada in 2006. Key issues discussed include the reasons why the Canadian health care system is in need of repair, the factors behind the federal government's decision to step back from determining health policy and the...

  • Perspectives one year after implementation of the Medicare Prescription Drug Improvement and Modernization Act: A socratic panel discussion. Brill, Joel V.; Siegel, Jerry; Buffington, Daniel E.; Downs, Christian // American Journal of Health-System Pharmacy;8/1/2007 Supplement, Vol. 64, pS16 

    The article presents a panel discussion on the implementation of the Medicare Prescription Drug Improvement and Modernization Act in the U.S. Several medical professionals and experts discusses their views on various health care aspects that will be affected by the Act's implementation,...

  • Patients Need to Know How Medicare Works. Glenn, Chris // Review of Ophthalmology;Mar2010, Vol. 17 Issue 3, p19 

    The article presents the editor's views regarding the awareness on the mechanics of Medicare. He shows concern on how Medicare patients will be wiser about how the government pay the physicians for their medical care. He believes that it would be essential if public education campaigns will be...

  • Make staff aware of payer requirements.  // Hospital Case Management;Nov2008, Vol. 16 Issue 11, p173 

    The article underscores the need to make staff aware of payer requirements. It states that automobile and accidental injury regulations, the workers' compensation guidelines, and the Medicare as Secondary Payer questionnaire are just few of the many issues with which the patient access...

  • Cost to remain driving force of health care in the 1990s. Wong, Vincent W. K. // Marketing News;1/22/1990, Vol. 24 Issue 2, p8 

    The article reports that ever increasing costs will be the dominant force of change in health care during the 1990's in the U.S. In spite of isolated successes, cost containment has not been widely and correctly implemented enough to produce sufficient results in health care as a whole....

  • Should you switch Medicare plans?  // Consumer Reports;Sep2004, Vol. 69 Issue 9, p51 

    Examines whether or not U.S. citizens enrolled in traditional Medicare should stay in the program, or switch to the alternative, called "Medicare Advantage." Description of pros and cons of each system with consideration for cost, benefits, and risks; Tips on choosing a plan based on lifestyle...

  • Laying the cornerstone for Medicare Part D. Wyeth, Jo; Kozak, Deborah // Drug Topics;8/22/2005, Vol. 149 Issue 16, p37 

    This article provides information on the Medicare Prescription Drug Benefit which is part of the Medicare Drug Improvement & Modernization Act of 2003 and the most comprehensive enhancement of the Medicare Program since it was created in 1965. The drug benefit offers affordable prescription drug...


Read the Article

Other Topics