HCFA Payment Rate for Erythropoietin

Pursuant to a congressional request, GAO reviewed the methodology the Health Care Financing Administration (HCFA) used to establish Medicare's payment rate for erythropoietin (EPO). GAO found that the: (1) model HCFA used to set the initial payment rate for EPO contained the necessary cost components for establishing a reasonable Medicare payment rate; (2) estimates used to set the initial payment rate for EPO did not reflect the actual quantity of EPO administered because of problems in obtaining cost, production, dosage, and demographic information from the supplier; (3) Office of the Inspector General recommended that HCFA lower its EPO payment rate because the estimates used to calculate the initial payment rate were overstated; and (4) Medicare program can achieve significant savings when other pharmaceutical companies market and manufacture generic versions of EPO.