As mandated by the MMA, we conducted a hospital  survey and provided HHS with information about prices hospitals paid for  SCOD products. MMA Required Us to Survey Hospitals to Determine Their Acquisition Costs for SCOD Products

As directed by the MMA, we conducted a survey of a large sample of  hospitals to determine their acquisition costs for SCOD products. MMA Defined ASP, Which Is Reported by Manufacturers and Used to Set Rates for Drug SCODs

ASP is a price measure established in the MMA to provide a basis for  payment rates for physician-administered drugs and now used by CMS in  setting rates for drug SCODs. Our analysis indicates that large,  urban, major teaching hospitals generally paid lower prices, on average,  for all SCOD products than did hospitals grouped by other combinations  of factors. For example, compared with small urban hospitals with other  teaching programs, large major teaching hospitals in urban areas paid  prices, on average, that were an estimated 4 percent lower for drugs and 3  percent lower for radiopharmaceuticals. However, for CMS to use such a survey to routinely collect data in  the future for SCOD rate-setting, the burden could outweigh the benefit. We  found that, as a data source for estimating hospitals’ SCOD acquisition  costs, hospitals offered a key advantage: our average purchase prices  obtained from hospitals, by definition, represent actual prices paid by  hospitals. As collectors of data on SCOD prices, we also experienced difficulties  obtaining the information needed from hospitals. CMS Faces Challenges in Future Data Collection Efforts to Set SCOD Payment Rates Accurately

CMS will face important challenges in its efforts to collect accurate data  for setting SCOD payment rates. Validating ASP Would Pose Challenges for CMS Because of Lack of Detail in Data

Under CMS’s current policy, manufacturers are required to report only  summary ASP data, limiting CMS’s ability to validate the data’s accuracy. CMS instructs  manufacturers to average together prices for each drug paid by all U.S.  purchasers. In its final rule, CMS did not  present evidence that hospitals and physicians pay similar prices for these  radiopharmaceutical drugs nor, if these prices differ, whether using these  physician data would be appropriate for use in setting hospital outpatient  rates. In contrast, we found that the diversity of forms in which  radiopharmaceutical SCODs can be purchased—ready-to-use unit doses,  multidoses, or separately purchased radioactive and nonradioactive  components—complicates CMS’s efforts to select a data source that can  provide reasonably accurate price data efficiently. Our experience  suggests that the best option available to CMS, in terms of accuracy and  efficiency, is to collect price data on radiopharmaceuticals purchased in  ready-to-use unit doses, the form in which an estimated three-quarters of  hospitals purchase these products. Recommendations for Executive Action

To ensure that Medicare payments for SCOD products are based on  sufficiently accurate data, we recommend that the Secretary of Health and  Human Services take the following two actions:    validate, on an occasional basis, manufacturers’ reported drug ASPs as a  measure of hospitals’ acquisition costs using a survey of hospitals or other  method that CMS determines to be similarly accurate and efficient; and    use unit-dose prices paid by hospitals when available as the data source  for setting and updating Medicare payment rates for radiopharmaceutical  SCODs. Other things equal, a rural hospital paid prices for radiopharmaceutical  SCODs that were an estimated 4.4 percent higher than urban hospitals,  while large hospitals paid prices an estimated 3.1 percent lower than small  hospitals.
Why GAO Did This Study

In 2003, the Medicare Modernization Act required the Centers for Medicare & Medicaid Services (CMS) to establish payment rates for a set of new pharmaceutical products--drugs and radiopharmaceuticals--provided to beneficiaries in a hospital outpatient setting. These products were classified for payment purposes as specified covered outpatient drugs (SCOD). The legislation directed CMS to set 2006 Medicare payment rates for SCODs equal to hospitals' average acquisition costs and included requirements for GAO. As directed, GAO surveyed hospitals and issued two reports, providing information to use in setting 2006 SCOD rates. To address other requirements in the law, this report analyzes SCOD price variation across hospitals, advises CMS on future surveys it might undertake, and examines both lessons from the GAO survey and future challenges facing CMS.

What GAO Found

Analyzing pharmaceutical price data collected from its 2004 survey of hospitals, GAO found that prices hospitals paid for SCOD products varied across hospitals. Certain factors--namely, whether the hospital had a major teaching program or not, was in an urban or rural area, and had a large or small hospital outpatient department--were associated with whether hospitals paid higher or lower prices for SCOD products. Major teaching hospitals paid prices that were an estimated 3.2 percent lower than those paid by nonteaching hospitals for drug SCODs; rural hospitals paid prices an estimated 4.4 percent higher than those paid by urban hospitals for radiopharmaceutical SCODs; and large hospitals paid prices an estimated 1.4 percent lower than those paid by small hospitals for drug SCODs and 3.1 percent lower for radiopharmaceutical SCODs. Combining these factors, GAO found that large, urban, major teaching hospitals--compared with other hospitals--generally paid lower prices, on average, for all SCOD products. From conducting its hospital survey, GAO learned a key lesson that CMS could use in the future: such a survey would not be practical for collecting the data needed to set and update SCOD rates routinely but would be useful for validating, on occasion, CMS's rate-setting data. GAO's survey produced accurate hospital drug price data, but it also created a considerable burden for hospitals as the data suppliers and considerable costs for GAO as the data collector. Nonetheless, the benefit of collecting actual prices paid by hospitals could make such surveys advantageous for occasionally validating CMS's proxy for SCODs' average acquisition costs--the average sales price (ASP) data that manufacturers report. CMS will face important challenges as it seeks to obtain accurate data on hospitals' acquisition costs for drug and radiopharmaceutical SCODs. Regarding drugs, CMS lacks the detail on manufacturers' ASP data needed to determine if rates developed from these data are appropriate for hospitals. Manufacturers report ASP as a single price paid by all purchasers, making it impossible to distinguish the price paid by hospitals alone. CMS instructs manufacturers to report ASP net of rebates but does not specify how to allocate individual product rebates when several products are purchased. Regarding radiopharmaceuticals, GAO found that the diversity of forms in which they can be purchased--ready-to-use unit doses, multidoses, or separately purchased radioactive and non-radioactive substances--complicates CMS's efforts to select a data source that can provide reasonably accurate price data efficiently. Efficiency as well as accuracy is a factor in selecting a data source because radiopharmaceuticals account for only 1.5 percent of Medicare hospital outpatient spending. GAO's experience suggests that the best option available to CMS, in terms of accuracy and efficiency, is to collect price data on radiopharmaceuticals purchased in ready-to-use unit doses, the form in which an estimated three-quarters of hospitals purchase these products.