Medicare: Payments for Covered Outpatient Drugs Exceed Providers' Costs

Abstract

A letter report issued by the General Accounting Office with an abstract that begins "Although physicians and other health care providers acknowledge that they can buy drugs for prices lower than Medicare payments, they contend that they need drug payments in excess of their actual costs to compensate for inadequate or nonexistent Medicare payments for administrating the drugs. Physicians are able to obtain Medicare-covered drugs at prices significantly below current Medicare payments, which are set at 95 percent of average wholesale prices (AWP). The prices paid by wholesalers and group purchasing organizations that would be generally available to physicians were considerably less than AWPs used to establish the Medicare payment for these drugs. The difference between these prices and AWP for physician-administered drugs in GAO's sample varied by drug. For most physician-administered drugs, the average discount from AWP ranged from 13 percent to 34 percent; two physician-administered drugs had discounts of 65 percent and 86 percent. Other suppliers are also able to buy drugs at prices that are considerably less than the AWP used to establish the applicable Medicare payment. Pharmacy suppliers were predominant billers for 10 of the high-expenditure and high-volume Medicare-covered drugs GAO analyzed. These suppliers generally provide two types of drugs--drugs administered through durable medical equipment (DME) and covered oral drugs, such as certain immunosuppressives. Also, suppliers generally receive a payment from Medicare for DME and supplies. Private and other public payers use different payment methods for drugs and their administration. Private health plans use their drug-purchase and patient volume to negotiate favorable prices for drugs and physician and supplier services related to supplying or delivering the drugs. Other public payers also use their purchasing volume along with information about actual transaction prices from private payers to lower their drug payments."