Currently, Medicare pays a dispensing fee of $5 monthly per patient for  inhalation therapy drugs. Suppliers’ Acquisition Costs Of Inhalation Therapy Drugs Varied Widely

We found that 2003 per unit acquisition costs for the three inhalation  therapy drugs most frequently billed to Medicare varied widely among the  12 suppliers in our sample (see table 1). Although costs  varied, they were not always lower for large suppliers. For example, the  lowest acquisition cost for ipratropium bromide was obtained by one of the  small suppliers, and the highest acquisition cost was obtained by one of the  large suppliers. Using the lowest and highest per unit  acquisition costs reported by our suppliers for 2003, we estimated a  difference of $119 to $129 per patient, per month between what suppliers  received in payment from Medicare at a rate of 95 percent of AWP and the  acquisition costs they incurred for a typical monthly supply of albuterol  sulfate. For ipratropium bromide, we estimated that the difference  between the 2003 payment rate and lowest and highest acquisition costs  was $162 to $187 per patient per month for a typical monthly supply. We also found  that larger suppliers did not necessarily have lower dispensing costs. Using 2003 data obtained from 12 inhalation  therapy suppliers, we estimated that the cost of dispensing inhalation  therapy drugs ranged from $7 to $204 per patient per month. Because of the difference between the acquisition prices of the drugs and  Medicare’s payment for them, suppliers indicated that they were able to  incur the costs associated with providing services that benefited both  beneficiaries and their physicians. All suppliers in our sample  made phone calls to beneficiaries to ask them if they needed medication  refills, to coordinate a refill delivery, and to check on the beneficiaries’  compliance with their prescribed drug regimens. Most suppliers made  these calls on a monthly basis, but one reported that it did so twice a  month. Several suppliers reported that they incurred substantial costs to  ship drugs overnight to beneficiaries; most did so on an as-needed basis,  although one supplier did so routinely. Some costs incurred by  suppliers are necessary to dispense inhalation therapy drugs to Medicare  beneficiaries, for example, maintaining a licensed pharmacy and billing  Medicare. These necessary costs may no longer be covered when Medicare  drug payments are closer to acquisition costs with the implementation of  the ASP-based payment system. These 12 suppliers accounted for more than 42  percent of 2003 Medicare inhalation therapy payments. For each supplier, we divided  inhalation therapy drug dispensing costs by the number of reported  inhalation therapy patient-months to determine per patient monthly drug  dispensing costs.
Why GAO Did This Study

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) revised the payment formula for most of the outpatient drugs, including inhalation therapy drugs, covered under Medicare part B. Under the revised formula, effective 2005, Medicare's payment is intended to be closer to acquisition costs. The Centers for Medicare & Medicaid Services (CMS), the agency that administers Medicare, also pays suppliers of inhalation therapy drugs a $5 per patient per month dispensing fee. Suppliers have raised concerns that once drug payments are closer to acquisition costs, they will no longer be able to use overpayments on drugs to subsidize dispensing costs, which they state are higher than $5. As directed by MMA, GAO (1) examined suppliers' acquisition costs of inhalation therapy drugs and (2) identified costs to suppliers of dispensing inhalation therapy drugs to Medicare beneficiaries.

What GAO Found

Using cost data obtained from 12 inhalation therapy suppliers that accounted for more than 42 percent of 2003 Medicare inhalation therapy payments, GAO found that 2003 acquisition costs for the three inhalation therapy drugs representing approximately 98 percent of Medicare inhalation therapy drug expenditures varied widely. For example, per unit acquisition costs for ipratropium bromide, the inhalation therapy drug with the highest Medicare expenditures, ranged from $0.23 to $0.64. Although costs varied, they were not always lower for the 4 largest suppliers. The lowest acquisition cost for ipratropium bromide was obtained by one of the small suppliers, and the highest by one of the large suppliers. GAO estimated that the 2003 Medicare payment rate per patient, per month was between $119 to $129 higher than suppliers' acquisition costs for a typical monthly supply of albuterol sulfate and between $162 to $187 higher for a typical monthly supply of ipratropium bromide. GAO estimated 2003 per patient monthly dispensing costs of $7 to $204 for the 12 inhalation therapy suppliers, which included patient care costs, such as pharmacy and shipping, and administrative and overhead costs, such as billing. Large suppliers did not necessarily have lower dispensing costs. Because Medicare payments for drugs have been much higher than suppliers' acquisition costs, suppliers indicated they were able to provide services that benefited both beneficiaries and their physicians, a fact that raises questions about the services necessary to dispense inhalation therapy drugs. For example, several suppliers reported that they incur substantial costs to ship drugs overnight to beneficiaries; most did so on an as-needed basis, although one did so routinely. All suppliers in GAO's sample made phone calls to beneficiaries to ask them if they needed medication refills, to coordinate a refill delivery, and to check on the beneficiaries' compliance with their prescribed drug regimens. Most suppliers made these calls on a monthly basis, but one reported that it did so twice a month.