Medicare pays too much (for some drugs)

Calls to eliminate overpayments for certain physician-administered medications were tempered by concerns over adequate reimbursement for doctors.

By Markian Hawryluk, AMNews staff. Oct. 8, 2001.

Washington -- Zachary Bentley thought it was a mistake.

The Medicare payment for the infusion cancer drug leucovorin sold to a beneficiary by his small pharmacy in the Florida Keys was 10 times what he paid for the product. In fact, the profit margin was so high, the beneficiary's 20% co-payment exceeded the cost of the drug.

Bentley had unwittingly stumbled onto one of Medicare's most bizarre reimbursement systems -- the average wholesale price -- used to pay for about 450 Part B drugs and biologicals, mainly those that cannot be administered by patients themselves.

Medicare paid almost $4 billion in drug costs in 1999, 82% of which was spent on only 35 drugs, primarily cancer, inhalation therapy and oral immunosuppressive medications. The largest share of Part B covered drugs in 1999 was billed by physicians, mainly in the hematology oncology, medical oncology and urology specialties.

In an effort to rein in Medicare spending, Congress mandated that the program pay for the drugs at 95% of the AWP but never mandated how that price was to be determined. Drug companies treated the AWP as a "sticker price" and reported prices to drug compendia that didn't always correspond to the plain-English meaning of the term "wholesale."

But some drug companies sold the drugs to physicians and pharmacies for much less. The spread between the actual price paid by physicians and the amount the government reimbursed them -- the AWP discounted by 5% -- became a powerful marketing tool for pharmaceutical companies, congressional investigators claim. [...]