Medicare Paid Millions Extra for Part B Drugs, Audit Finds

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By Sara Merken

Medicare and its beneficiaries paid an additional $366 million from 2014 through 2016 due to decisions to include certain self-administered drugs in payment calculations, a government oversight agency found.

Two noncovered self-administered versions of drugs were used in calculating payments for drugs under Medicare Part B, which does not usually cover self-administered drugs, a Department of Health and Human Services Office of Inspector General report posted Nov. 27 found. The agency recommends a legislative change to address the issue.

Medicare coverage of outpatient prescription drugs is generally covered under the Part D benefit, but certain drugs, usually those administered in a physician’s office, are covered under Part B.

Policy makers have been grappling with rising drug costs for some time, and the rates of Part B reimbursements directly correlate to the amount Medicare beneficiaries pay in out-of-pocket coinsurance. A continuing pattern of inflated drug costs is a potential concern for both Medicare and its beneficiaries, policy analysts told Bloomberg Law.

The two noncovered prescription drugs factored into the calculations were Orencia, used to treat moderate to severe rheumatoid arthritis and other forms of arthritis, and Cimzia, used to treat rheumatoid arthritis and Crohn’s disease, among other things.

OIG Recommendation

The OIG recommends that the Centers for Medicare & Medicaid Services seek a legislative fix that would “provide the agency flexibility to determine when noncovered versions of a drug should be included in Part B payment amount calculations” based on cost implications and other relevant factors, the report said.

The CMS and a federal court interpret the current law to require the inclusion of certain noncovered drugs in limited circumstances when calculating payment amounts, the report said. Medicare bases payment amounts on a manufacturer-reported calculation, and criteria for including drugs in payment calculations may differ from criteria for covering a drug under Part B.

For example, the CMS included the manufacturer-reported calculation for one version of Orencia prior to 2014 when calculating the drug’s Part B payment amount. In the first quarter of 2014, Orencia’s manufacturer began reporting data for a new higher-priced version of the drug. The CMS, in following its pricing policy, blended the data for the physician- and self-administered versions in the third quarter of that year when calculating the drug price, even though self-administered drugs are usually not included in Part B coverage.

“So many drug pricing and payment issues are complex and difficult to address—the fix for this one, however, just makes common sense,” David Tawes, regional inspector general for evaluation and inspections at the OIG, told Bloomberg Law in an email Nov. 28. Tawes was the team leader for the study.

“Making the change we recommend would have very limited (if any) impact on patient access, would not favor one product over another, and also would not create disincentives for physicians to prescribe a particular drug. It’s just good policy,” Tawes said.

The CMS did not agree with the OIG recommendation because modifying the legislation “could limit the flexibility afforded to healthcare professionals which could negatively impact access to medically necessary drugs as well as increase the cost of these drugs,” the agency said in comments provided in the report.

The agency did not respond to a Bloomberg Law request for comment.

Payment Reforms

“Policy makers are looking for concrete policy options to address rising costs,” Allan Coukell, Pew Charitable Trusts’ senior director for health programs, told Bloomberg Law Nov. 29. The increased spending on drugs is a major concern for policy makers, and the Part B program is one of the areas in which spending is growing quickly due to the introduction of new high-cost drugs administered by physicians. Pew is a nonprofit that focuses on public policy.

Medicare withdrew an Obama-era Part B drug payment demonstration proposal in October that would have tested alternative payment approaches to drugs administered in a physician’s office.

The OIG recommendation may be perceived as “simpler” than the demo because although it would change the base price calculation for Part B drugs, the demonstration program would have altered the payment system through comprehensive structural reforms, Casey Schwarz, senior counsel for education and federal policy at the Medicare Rights Center, told Bloomberg Law Nov. 29. The Medicare Rights Center is a consumer organization that works to ensure access to affordable health care for seniors and people with disabilities with offices in Washington and New York.

Payments for Part B medications provide a significant source of revenue for the doctors supplying the medication, so providers pushed back on the proposed demonstration program, she said. On the other hand, there is also a lot of interest in adjustments to how Medicare pays for drugs, Schwarz said.

Future Savings

“A savings of $366 million over three years isn’t huge in context, but it’s still a large sum considering the situation,” Tawes said of the OIG’s findings.

Although the dollars aren’t significant in the grand scheme of payments right now, “the potential for this pattern to increase is large,” Coukell said.

A potential concern for both Medicare and its beneficiaries is the general pattern of inflated Medicare costs due to products with expensive delivery systems, because there is no way of knowing how many drugs reimbursed under Part B may have a costly self-injection version in the future, he said.

A reduction in Medicare spending on drug costs “translates directly to reductions in Medicare beneficiary out-of-pocket costs,” because beneficiaries pay a standard 20 percent in coinsurance, Schwarz said.

Medicare beneficiaries spent $73.2 million more than they would have if the payment amounts were set using only physician-administered versions of the drugs in the three years looked at in the study. With the OIG recommendation, a typical beneficiary’s copayments for Orencia, one of the drugs in the calculation, would have been $494 per month instead of $665 per month, the report found.

“A beneficiary that could see a $2,000-plus annual savings on a drug would no doubt see this change as significant,” Tawes said.

To contact the reporter on this story: Sara Merken in Washington at smerken@bloomberglaw.com

To contact the editor responsible for this story: Brian Broderick at bbroderick@bloomberglaw.com

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