When Paying Separately for Technologies That Are Not New, CMS’s General Practice Is to Set a Rate Based on an Average Cost across Hospitals

When paying separately for technologies that are not new, CMS’s general  practice is to set a prospective rate for all hospitals, based on an average  unit cost across hospitals. A prospective rate, even for  technologies that are separately paid, is desirable because basing a rate on  an average encourages those hospitals that provide the technology to  minimize their acquisition costs. Certain Technologies That Are Not New and Are Not Suitable for Prospective Payment Are Paid at Cost

When a technology’s unit cost varies substantially and unpredictably, or  when reasonably accurate cost data are not available, CMS pays for the  technology at each hospital’s cost. The  amount of the fee charged by an eye bank depends heavily on the level of  charitable donations it receives, which it uses to subsidize the cost of  providing the tissue. For example, the MMA mandated separate payment for certain  radiopharmaceuticals. When Paying Separately for Iodine and Palladium, CMS Could Set Prospective Rates, but Suitable Payment Methodology for Iridium Is Unclear

Based on our analysis, the absence of wide variability in the unit costs of  iodine and palladium and the availability of reasonably accurate historical  data makes these radioactive sources suitable for prospective payment  rates. CMS has OPPS claims  data from hospitals that provided iridium, and would be able to use these  data to calculate an average unit cost across hospitals and to identify  which methodology is suitable for determining a separate payment  amount. Based on interviews we  conducted with hospital and manufacturer officials, and the results of our  hospital survey, we determined that iodine and palladium have identifiable  unit costs and that these costs do not appear to vary substantially and  unpredictably across hospital purchases at a given point in time or from  year to year. Although CMS uses ASP data to set a prospective rate for certain high-cost  drugs, CMS currently does not have ASP data for radioactive sources used  in brachytherapy. Based on our  analysis, CMS can pay separately for iodine and palladium sources using  prospective rates because the unit cost of the sources does not vary  substantially and unpredictably. In  order to identify a suitable methodology for determining a separate  payment amount, CMS would be able to use OPPS claims data to evaluate  whether the range of costs comprising the average is substantial and  whether the average per-treatment cost varies unpredictably over time. As stated in our draft report, we examined how payment amounts for  iodine, palladium, and iridium could be determined. Consistent with its general practice for  paying separately for technologies that are not new, CMS could pay for  iridium at each hospital’s cost if OPPS claims did not prove to be a  reasonable source of data or if CMS determined that the unit cost varies  substantially and unpredictably over time.
Why GAO Did This Study

Generally, in paying for hospital outpatient procedures, Medicare makes prospectively set payments that are intended to cover the costs of all items and services delivered with the procedure. Medicare pays separately for some technologies that are too new to be represented in the claims data used to set rates. It also pays separately for certain technologies that are not new, such as radioactive sources used in brachytherapy, a cancer treatment. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 required separate payment for the radioactive sources. It also directed GAO to make recommendations regarding future payment. GAO examined (1) how Medicare determines payment amounts for technologies that are not new but are separately paid and (2) how payment amounts for iodine, palladium, and iridium sources used in brachytherapy could be determined.

What GAO Found

In paying separately for technologies that are not new, the Centers for Medicare & Medicaid Services (CMS) generally sets prospective rates based on the average unit cost of the technologies across hospitals. For example, CMS currently pays separate prospective rates for certain high-cost drugs based on the mean per-unit acquisition cost, as derived by CMS from data provided by drug manufacturers. A prospective rate is desirable because basing a rate on an average encourages those hospitals that provide the technology to minimize their acquisition costs. However, when CMS determines that the unit cost of a technology designated for separate payment varies substantially and unpredictably over time, or that reasonably accurate data are not available, it pays each hospital its cost for the technology. For example, CMS pays each hospital its cost for corneal transplant tissue, because it determined that the fees eye banks charge hospitals vary substantially and unpredictably. GAO's analysis suggests that CMS could set prospective payment rates for iodine and palladium because their unit costs are generally stable and CMS can base the payments on reasonably accurate data. According to interviews GAO conducted with hospitals and manufacturers, iodine and palladium have an identifiable unit cost that does not vary unpredictably over time. In addition, the results of GAO's survey of hospital purchase prices suggest that the unit cost of iodine and palladium does not vary substantially. Furthermore, GAO found that Medicare claims would be a reasonably accurate source of data for setting prospective rates for these sources. GAO was not able to determine a suitable methodology for paying separately for iridium. In contrast with iodine and palladium, which are permanently implanted in patients, iridium is reused across multiple patients, making its unit cost more difficult to determine. Although GAO surveyed hospitals on the unit cost of iridium, it did not receive sufficient data to identify and evaluate an average unit cost across hospitals. However, CMS has outpatient claims data from all hospitals that have used iridium. In order to identify a suitable methodology for determining a separate payment amount, CMS would be able to use these data to establish an average cost and evaluate whether the cost varies substantially and unpredictably.