Medicare
Payment for Blood Clotting Factor Exceeds Providers' Acquisition Cost Gao ID: GAO-03-184 January 10, 2003In 2001, Medicare's outpatient expenditures for blood clotting factor used to treat the estimated 1,100 beneficiaries with hemophilia totaled about $105 million, or more than 2 percent of total Medicare spending on outpatient drugs. Earlier work by GAO indicated that Medicare's payment for certain outpatient drugs is substantially higher than providers' acquisition costs. Concerns have been raised about Medicare's payment for blood clotting factor. GAO was asked to compare provider costs of purchasing clotting factor with Medicare's payment for it and to identify costs to providers associated with delivering clotting factor.
Medicare's payment for clotting factor, like other outpatient drugs, is 95 percent of the average wholesale price (AWP), a price established for each drug by its manufacturer. Medicare's payment is substantially more than the actual acquisition costs of hemophilia treatment centers (HTC) and homecare companies, which provide a majority of Medicare beneficiaries with clotting factor. Most HTCs obtain prices from manufacturers that are 35 to 48 percent below AWP by participating in a federal program that guarantees them low prices. Homecare companies obtain prices that range from 22 to 40 percent below AWP. Providers incur additional costs associated with delivering clotting factor that are not separately reimbursed by Medicare. GAO estimates that these additional costs in 2000 and 2001 ranged from $0.03 to $0.08 per unit sold by HTCs. (Hemophilia patients use an average of 78,000 units of clotting factor annually.) GAO did not receive enough data from homecare companies to estimate their costs. Delivery costs are generated in inventory management, specialized refrigerated storage, shipping, and the provision of ancillary supplies such as needles, syringes, and tourniquets to patients.
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Director: Team: Phone:GAO-03-184, Medicare: Payment for Blood Clotting Factor Exceeds Providers' Acquisition Cost
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Report to the Ranking Minority Member, Subcommittee on Health,
Committee on Ways and Means, House of Representatives:
United States General Accounting Office:
GAO:
January 2003:
Medicare:
Payment for Blood Clotting Factor Exceeds Providers‘ Acquisition Cost:
Medicare Payment for Clotting Factor:
GAO-03-184:
GAO Highlights:
Highlights of GAO-03-184, a report to Ranking Minority Member,
Subcommittee
on Health, Committee on Ways and Means, House of Representatives:
MEDICARE
Payment for Blood Clotting Factor Exceeds Providers‘ Acquisition Cost
Why GAO Did This Study:
In 2001, Medicare‘s outpatient expenditures for blood clotting factor
used
to treat the estimated 1,100 beneficiaries with hemophilia totaled
about
$105 million, or more than 2 percent of total Medicare spending on
outpatient
drugs. Earlier work by GAO indicated that Medicare‘s payment for
certain
outpatient drugs is substantially higher than providers‘
acquisition costs.
Concerns have been raised about Medicare‘s payment for blood
clotting factor.
GAO was asked to compare provider costs of purchasing clotting
factor with
Medicare‘s payment for it and to identify costs to providers
associated with
delivering clotting factor.
What GAO Found:
Medicare‘s payment for clotting factor, like other outpatient
drugs, is 95
percent of the average wholesale price (AWP), a price established
for each
drug by its manufacturer. Medicare‘s payment is substantially
more than
the actual acquisition costs of hemophilia treatment centers
(HTC) and
homecare companies, which provide a majority of Medicare
beneficiaries with
clotting factor. Most HTCs obtain prices from manufacturers
that are 35 to
48 percent below AWP by participating in a federal program
that guarantees
them low prices. Homecare companies obtain prices that range
from 22 to 40
percent below AWP. Providers incur additional costs associated
with delivering
clotting factor that are not separately reimbursed by Medicare.
GAO estimates
that these additional costs in 2000 and 2001 ranged from $0.03
to $0.08 per
unit sold by HTCs. (Hemophilia patients use an average of
78,000 units of
clotting factor annually.) GAO did not receive enough data
from homecare
companies to estimate their costs. Delivery costs are
generated in inventory
management, specialized refrigerated storage, shipping,
and the provision of
ancillary supplies such as needles, syringes, and
tourniquets to patients.
Medicare Payment and Provider Acquisition Prices for Blood
Clotting Factor
as a Percentage of Average Wholesale Price, 2001 and 2002
[See PDF For Image]
[End of Figure]
What GAO Recommends:
GAO recommends that the Administrator of the Centers for
Medicare & Medicaid
Services (CMS) establish Medicare payment levels for
clotting factor that are
more closely related to providers‘ acquisition costs and
then establish a separate
payment for the cost of delivering clotting factor to
Medicare beneficiaries.
The Department of Health and Human Services (HHS) agreed with
our recommendations.
To view the full report, including the scope
and methodology, click on the link above.
For more information, contact Laura A. Dummit at
(202) 512-7119
Contents:
Letter:
Results in Brief:
Background:
Small Number of Providers Buy Clotting Factor Directly from
Manufacturers:
Providers Obtain Clotting Factor Products for Substantially Less than
Medicare‘s Payment:
Providers Incur Costs Associated with Delivering Clotting Factor to
Medicare Beneficiaries That Are Not Separately Reimbursed:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Health and
Human Services:
Table:
Table 1: Disease Type and Disease Severity for the Total Hemophilia
Population and the Medicare Subpopulation:
Figure:
Figure 1: Participants in the Clotting Factor Market:
Abbreviations:
AMP average manufacturer price:
AWP average wholesale price:
CDC Centers for Disease Control and Prevention:
CMS Centers for Medicare & Medicaid Services:
HHS Department of Health and Human Services:
HIV human immunodeficiency virus:
HRSA Health Resources and Services Administration:
HTC hemophilia treatment center:
OIG Office of Inspector General:
United States General Accounting Office:
Washington, DC 20548:
January 10, 2003:
The Honorable Pete Stark
Ranking Minority Member
Subcommittee on Health
Committee on Ways and Means
House of Representatives:
Dear Mr. Stark:
In 2001, Medicare‘s outpatient expenditures for blood clotting factor
totaled about $105 million, or more than 2 percent of total Medicare
spending on all covered outpatient drugs and biologicals.[Footnote 1]
Blood clotting factor is a biological used by persons with hemophilia
to prevent uncontrolled internal bleeding that could result in
disability or death.[Footnote 2] The Centers for Disease Control and
Prevention (CDC) estimate that approximately 18,000 Americans, nearly
all male, have hemophilia and about 1,100 of these individuals are
Medicare beneficiaries.
Medicare‘s payment for clotting factor, like other outpatient drugs and
biologicals, is 95 percent of the average wholesale price (AWP). Often
described as a ’sticker price“ or ’list price,“ AWP is established for
each drug by its manufacturer. Medicare‘s AWP-based payment has
recently come under scrutiny. In 2001, we reported that providers were
able to purchase certain drugs at prices significantly less than the
payment they received from Medicare.[Footnote 3] Although providers
contended that this overpayment was necessary to compensate for
underpayment for other services, we concluded that Medicare should not
rely on potential overpayments for some services to offset potential
inadequate payments for other services.
The method of delivery of clotting factor has implications for Medicare
payment. Most outpatient drugs covered by Medicare are administered in
a physician‘s office. When a beneficiary visits a physician in order to
receive a drug, the physician receives one payment from Medicare for
the drug and another payment through the physician fee schedule for
administering the drug. Clotting factor, however, is generally not
administered in a physician‘s office. Medicare pays clotting factor
providers, mainly hemophilia treatment centers (HTC)[Footnote 4] and
homecare companies,[Footnote 5] solely for the drug. These providers
generally purchase clotting factor products directly from the
manufacturers, rather than from drug wholesalers, and deliver them
directly to the very small hemophilia population.[Footnote 6]
Because clotting factor products were not included in our 2001 report,
you asked us to evaluate whether Medicare‘s payment for clotting factor
is higher than its acquisition cost and to identify and describe any
aspects of the production and delivery of clotting factor that may
relate to how Medicare payment should be determined. In this report, we
(1) describe characteristics of the clotting factor delivery system,
(2) compare provider costs of purchasing clotting factor with
Medicare‘s payment for it, and
(3) identify any costs to providers associated with delivering clotting
factor and furnishing related services to Medicare beneficiaries with
hemophilia.
To conduct this study, we obtained data on the hemophilia population
from CDC. We analyzed the most recent data available from the Health
Resources and Services Administration (HRSA) on HTC clotting factor
acquisition prices obtained through a federal discount program. We also
analyzed data on clotting factor acquisition prices from two large,
national homecare companies. In addition, we analyzed acquisition price
data provided to us by an HTC association for seven HTCs that had
purchased clotting factor outside the federal discount program. We also
analyzed related data on clotting factor prices from the Centers for
Medicare & Medicaid Services (CMS), the agency that administers
Medicare. We analyzed data on provider delivery costs for four HTCs,
which we obtained from a representative of an HTC association, and for
two large, national homecare companies, which we contacted directly. We
interviewed officials at the Department of Health and Human Services
(HHS) Office of Inspector General (OIG), two patient advocacy
organizations, four of the six clotting factor manufacturers, two
wholesalers, and several additional HTCs and homecare companies. Our
work was performed from February through December 2002 in accordance
with generally accepted government auditing standards. See appendix I
for more detailed discussion of our scope and methodology.
Results in Brief:
The clotting factor market is characterized by a small number of
manufacturers and providers. The six clotting factor manufacturers sell
their products directly to providers, predominantly HTCs and homecare
companies. About half of the 137 HTCs can provide clotting factor and
related ancillary supplies, such as syringes and bandages, to their
patients. Individuals may also obtain clotting factor from homecare
companies, which ship drugs and biologicals and related ancillary
supplies directly to persons with chronic conditions. Shortages of
particular clotting factor products periodically occur. When HTCs and
homecare companies need to obtain a clotting factor product outside
their typical supply arrangements, such as during a shortage, they may
purchase it from certain specialty wholesalers, known as distributors.
Provider costs for acquiring clotting factor are significantly below
Medicare‘s payment, which is 95 percent of AWP. Through a federal drug
discount program, HTCs obtain prices from manufacturers that are
approximately 35 to 48 percent below AWP. Homecare companies are able
to obtain clotting factor at prices 22 to 40 percent below AWP. HTCs
and homecare companies do not generally face higher acquisition prices
from manufacturers during product shortages.
Medicare does not make a separate payment to providers for the costs of
delivering clotting factor, which include dispensing costs and
furnishing related ancillary supplies. We estimate that dispensing and
ancillary supply costs in 2000 and 2001 ranged from approximately $0.03
to $0.08 for each unit of clotting factor provided by HTCs.[Footnote 7]
We did not receive enough data from homecare companies to estimate
their costs. Clotting factor‘s biological properties and complex dosing
protocols contribute to dispensing costs in the form of inventory
management, storage, and shipping. In addition, the cost of ancillary
supplies that are necessary for infusing clotting factor, such as
needles, syringes, and tourniquets, is not reimbursed by Medicare.
While providers may also furnish other services for which they are not
separately reimbursed, such as patient education and community
outreach, these services are not Medicare-covered benefits, and they
are generally targeted to younger patients who are not Medicare
beneficiaries.
While Medicare‘s payment for clotting factor is high enough to more
than reimburse both acquisition and delivery costs, we believe that
Medicare‘s overpayment for acquisition costs should not be used to
compensate for the lack of payment for delivery costs. Therefore, we
recommend that the Administrator of CMS establish Medicare payment
amounts for clotting factor delivered on an outpatient basis that are
more closely related to providers‘ acquisition costs. When payments are
reduced to reflect costs more accurately, the Administrator should
establish a separate payment for the costs of delivering clotting
factor to Medicare beneficiaries. In commenting on a draft of this
report, HHS agreed with our recommendations.
Background:
The two most common types of hemophilia are a deficiency in clotting
factor VIII, hemophilia A, and a deficiency in clotting factor IX,
hemophilia B. Hemophilia can be mild, moderate, or severe depending on
the amount of the clotting factor present in the blood. People with
severe hemophilia, for example, have less than 1 percent of the normal
level of clotting factor VIII or IX. The level of clotting factor
deficiency contributes to the risk that a particular bleeding episode
poses to an individual. In individuals with severe hemophilia, bleeding
into the joints and adjoining tissues can occur spontaneously, without
an actual injury. Persons with mild hemophilia usually experience
prolonged bleeding only after surgery or a major trauma, such as a head
wound.
Hemophilia Is Treated with Clotting Factor:
Historically, people with hemophilia relied on high-volume transfusions
of whole blood or plasma for treatment. These treatments, however, did
not provide enough clotting factor to stop serious bleeding and could
be performed only in a medical facility. With the introduction in the
1960s of concentrated clotting factor products that could be infused at
home, hemophilia began to be more effectively and conveniently treated.
Early clotting factor products were produced from human plasma.
Recombinant clotting factor products, which are genetically engineered
or cloned, were introduced in the 1990s to reduce the risk of blood-
borne infections. New manufacturing processes and safety protocols have
also reduced the risk of infections to individuals using plasma
clotting factor products. Because recombinant products are not derived
from human plasma, they are generally considered the current treatment
of choice, although many older individuals continue to use plasma
products. There is not enough recombinant clotting factor manufactured
to treat all individuals with hemophilia.
Both plasma and recombinant clotting factor are biological substances
that differ in many respects from conventional, chemically synthesized
drugs. For example, biologicals such as clotting factor are derived
from living sources, so the concentration and potency of the original
source material can vary. Furthermore, biologicals cannot be
manipulated during the manufacturing process in a way that produces a
consistent and precise yield of product. As a biological product,
clotting factor is susceptible to microbial contamination and sensitive
to environmental conditions, such as temperature.
Individuals with hemophilia generally self-infuse clotting
factor.[Footnote 8] Clotting factor can be infused on demand, when a
bleeding episode occurs, or for prevention, known as prophylactic use.
By self-infusing, individuals can avoid waiting for care at a medical
facility. Timely infusion relieves short-term pain and swelling and
helps prevent chronic joint disease, which results from recurrent
bleeding into the joints. Prophylactic infusions can be intermittent,
such as before major surgery, or continuous, to prevent uncontrolled
bleeding over time. Continuous prophylactic infusion is generally
confined to younger individuals to prevent prolonged bleeding episodes
and long-term complications. Physicians prescribe a dosage of clotting
factor units that is based on the nature of treatment.[Footnote 9]
Generally, younger and smaller individuals are prescribed lower
quantities of clotting factor than older and larger individuals.
Because people infuse clotting factor in large doses, a substantial
quantity is used annually in the United States. Total clotting factor
use is about 1 billion units per year. Although the average annual use
of clotting factor VIII for a person with hemophilia A is 78,000 units,
individual use varies widely. In any given year, approximately 23
percent of individuals with hemophilia use no clotting factor at all,
while a very small percentage of individuals may use more than 500,000
units.
Characteristics of Medicare Beneficiaries with Hemophilia:
According to CDC estimates, 6 percent of the hemophilia population, or
about 1,100 individuals, are Medicare beneficiaries.[Footnote 10] The
average age of a Medicare beneficiary with hemophilia is 53, nearly
three decades older than the average age of the total hemophilia
population, which is 24.[Footnote 11] In addition, Medicare
beneficiaries with hemophilia show higher rates of chronic joint
disease and two viral infections, hepatitis C and human
immunodeficiency virus (HIV), than the general hemophilia population.
Because clotting factor products were not available when most Medicare
beneficiaries were young, they typically experienced prolonged and
repeated bleeding episodes, a situation that in vulnerable joint areas
leads to the destruction of joint tissues. As a result, 28 percent of
Medicare beneficiaries with hemophilia have chronic joint disease,
compared to 14 percent of the general hemophilia population. Also,
because many Medicare beneficiaries began using clotting factor
products before the blood supply was tested for hepatitis C and HIV and
before recombinant products were available, beneficiaries have high
rates of infection with those viruses: 60 percent have hepatitis C and
45 percent have HIV. For the total hemophilia population, the rates of
hepatitis C and HIV infection are 39 and 24 percent, respectively.
The Medicare beneficiary subpopulation and overall hemophilia
population do not differ, however, in terms of the frequency of disease
type or severity of clotting factor deficiency (see table 1). Also, the
annual use of clotting factor among Medicare beneficiaries and the
overall population with hemophilia is similar.
Table 1: Disease Type and Disease Severity for the Total Hemophilia
Population and the Medicare Subpopulation:
Type of clotting factor deficiency; Percentage of total hemophilia
population: [Empty]; Percentage of Medicare hemophilia subpopulation:
[Empty].
* Factor VIII (hemophilia A); Percentage of total hemophilia
population: 79; Percentage of Medicare hemophilia subpopulation: 80.
* Factor IX (hemophilia B); Percentage of total hemophilia population:
21; Percentage of Medicare hemophilia subpopulation: 20.
Total; Percentage of total hemophilia population: 100; Percentage of
Medicare hemophilia subpopulation: 100.
Severity; Percentage of total hemophilia population: [Empty];
Percentage of Medicare hemophilia subpopulation: [Empty].
* Mild; Percentage of total hemophilia population: 32; Percentage of
Medicare hemophilia subpopulation: 32.
* Moderate; Percentage of total hemophilia population: 24; Percentage
of Medicare hemophilia subpopulation: 23.
* Severe; Percentage of total hemophilia population: 41; Percentage of
Medicare hemophilia subpopulation: 43.
* Unknown; Percentage of total hemophilia population: 3; Percentage of
Medicare hemophilia subpopulation: 2.
Total; Percentage of total hemophilia population: 100; Percentage of
Medicare hemophilia subpopulation: 100.
Source: CDC analysis of data from the 1993-1998 Hemophilia Surveillance
System Project.
[End of table]
Small Number of Providers Buy Clotting Factor Directly from
Manufacturers:
A small number of providers and manufacturers are involved in the
clotting factor market. The two main types of providers, HTCs and
homecare companies, furnish clotting factor and related ancillary
supplies to individuals with hemophilia. These providers obtain
clotting factor directly from the six clotting factor manufacturers.
Providers rarely purchase from distributors.
HTCs and Homecare Companies Provide Clotting Factor:
HTCs and homecare companies are the two main providers of clotting
factor. HTCs provide annual checkups and ongoing medical care, physical
therapy, and social and other services to persons with hemophilia. HTCs
are located in 47 states, the District of Columbia, Puerto Rico, and
Guam and treat an average of about 90 hemophilia patients each.
Approximately half the HTCs, 67 out of 137, can furnish clotting factor
and related ancillary supplies to individuals they treat.[Footnote 12]
Homecare companies are the main source of clotting factor for
individuals who do not obtain their clotting factor from HTCs. There
are several large national homecare companies, as well as smaller
regional companies. Homecare companies ship drugs and related ancillary
supplies directly to individuals with chronic conditions. While
homecare companies do not provide physician services to their patients,
they may provide nursing services, patient education, community
outreach, and case management. Homecare companies can ship clotting
factor to individuals throughout the United States through their
licensed pharmacies.
Small Number of Clotting Factor Manufacturers Contribute to Periodic
Product Shortages:
There are six manufacturers of clotting factors VIII and IX that sell
directly to HTCs and homecare companies. In addition, distributors buy
the small amount of clotting factor, approximately 5 percent of all
clotting factor delivered in the United States, that manufacturers have
not sold to HTCs, homecare companies, or other medical entities such as
hospitals. These distributors sell to HTCs, homecare companies, and
hospitals and other medical entities to meet their emergency or short-
term needs. (See fig. 1 for a depiction of the clotting factor
market.):
Figure 1: Participants in the Clotting Factor Market:
[See PDF for image]
[End of figure]
Shortages of particular clotting factor products occur periodically.
Because the six manufacturers run at capacity, a decrease in production
by any one reduces availability of a particular product and strains the
general clotting factor supply. Increasing clotting factor production
in response to a shortage is difficult. Manufacturing clotting factor
takes an average of 6 months; opening an additional plant can take
several years. In 2001, there was a severe shortage of recombinant
clotting factor VIII when production problems at one manufacturer
occurred concurrently with a routine maintenance shutdown by another.
Many individuals were unable to obtain recombinant products at that
time, causing them to rely on plasma clotting factor, straining its
supply as well. Because some HTCs and homecare companies could not
obtain the needed clotting factor products from manufacturers, they
turned to distributors to obtain alternative products.
Providers Obtain Clotting Factor Products for Substantially Less than
Medicare‘s Payment:
HTCs and homecare companies are able to purchase clotting factor at
prices considerably lower than Medicare‘s payment for clotting factor.
Almost all HTCs that provide clotting factor participate in a federal
program that allows them to obtain prices from manufacturers that are
35 to 48 percent below AWP. Homecare companies can obtain prices that
range from 22 to 40 percent below AWP. While clotting factor shortages
can affect providers‘ ability to procure specific products for their
customers, HTCs and homecare companies do not generally face higher
acquisition prices from manufacturers during periods of product
shortages.
Providers Obtain Large Discounts from AWP:
In an analysis of 2001 and first quarter 2002 data, we found that HTCs
purchase clotting factor from manufacturers at a 35 to 48 percent
discount from AWP. The largest discounts are for plasma clotting factor
VIII products, and the smallest discounts are for recombinant clotting
factor VIII products, with the discounts for clotting factor IX
products falling in between. HTCs obtain these substantial discounts
through the Public Health Service 340B program,[Footnote 13] which
enables certain federally funded entities to buy drugs directly from
manufacturers at discounted prices.[Footnote 14] The 340B prices, which
are updated quarterly, equal a set discount from a manufacturer‘s
price.[Footnote 15]
Our analysis of data from 2001 and 2002 shows that homecare companies
can also purchase clotting factor from manufacturers at prices
substantially below Medicare‘s payment.[Footnote 16] With prices from
22 to 40 percent below AWP, the discounts that homecare companies
receive are somewhat less than those received by HTCs. Like HTCs,
homecare companies receive the largest discounts on plasma clotting
factor VIII products and the smallest on recombinant clotting factor
VIII products, with discounts for clotting factor IX products falling
in between.
Providers Do Not Generally Face Higher Prices during Shortages:
Because most HTCs obtain their prices through a federal discount
program, they are typically protected from price increases during
periods of product shortage. According to certain homecare companies
and other stakeholders we interviewed, shortages do not result in price
fluctuations for homecare companies over the course of the contracts
they sign with manufacturers. During shortages, sufficient supplies of
particular clotting factor products may not be available directly from
manufacturers. In such rare cases, providers may pay higher prices to
other entities, mainly distributors, to secure needed products.
However, a distributor we spoke with sold clotting factor products to
providers at prices that were still lower than Medicare‘s payment.
Providers Incur Costs Associated with Delivering Clotting Factor to
Medicare Beneficiaries That Are Not Separately Reimbursed:
Providers incur costs associated with delivering clotting factor that
are not separately reimbursed by Medicare. We estimate that total
delivery costs in 2000 and 2001 ranged from $0.03 to $0.08 per unit of
clotting factor sold by HTCs.[Footnote 17] We did not receive enough
data from homecare companies to estimate their costs. Delivery costs
are generated in inventory management, storage, shipping, and the
provision of ancillary supplies necessary for the infusion of clotting
factor. Providers may also furnish other services for which they are
not separately reimbursed, such as patient education and community
outreach. These services are not Medicare-covered benefits, and they
are generally targeted to younger patients who are not Medicare
beneficiaries.
Delivering Clotting Factor Generates Dispensing and Ancillary Supply
Costs:
Medicare does not make a separate payment for the costs of delivering
clotting factor, including costs associated with inventory management,
storage and shipping, and the provision of ancillary supplies. Due to
its complex dosing protocols and biological properties, clotting factor
requires considerable inventory management. Because the number of units
of clotting factor prescribed is determined by an individual‘s size and
treatment needs, each prescription is specific to the individual.
However, manufacturers sell vials of clotting factor in only three
standard concentrations: 250, 500, or 1,000 units per vial.
Furthermore, the unpredictability involved in manufacturing a
biological substance like clotting factor results in manufacturers‘
inability to predetermine the precise concentration of clotting factor
in a particular vial; they can only predict its concentration within 10
percent of the standard concentration. Therefore, a small-sized vial
may be labeled anywhere from 225 to 275 units, and a large-sized vial
may be labeled anywhere from 900 to 1,100 units. Managing clotting
factor inventory requires more staff time than managing the inventory
of conventional drugs, in large part due to the variations across
individual prescriptions and the variable concentrations in individual
vials.
Inventory management is further complicated by product recalls as well
as shortages. If a specific product or concentration is not available
as a result of a product recall or shortage, the provider must allocate
additional staff time to consult with an individual‘s physician to
determine an alternate plan of clotting factor treatment until the
preferred product is available again. One provider we spoke with said
that product recalls of clotting factor occur more often than for other
drugs because of sensitivity to the possibility of blood-borne
infection resulting from the use of clotting factor. In 2001, there was
one recall of a clotting factor VIII and one recall of a clotting
factor IX product.
Clotting factor providers also incur costs associated with storing and
shipping clotting factor. Providers order tens of thousands of units of
clotting factor a year for each patient. Because clotting factor must
be refrigerated to prevent spoilage, the high volume of clotting factor
stored by providers requires large temperature-controlled areas with
sources of backup power. The shipment of clotting factor also involves
special arrangements. Glass vials of clotting factor must be securely
wrapped to prevent breakage and then packed with coolants. Providers
ship the products using overnight delivery services that track and
monitor the product along the delivery route to ensure that it is
delivered to the individual‘s door at a specific time. Many providers
have staff available 24 hours a day to ship clotting factor to patients
during emergencies. Some providers insure their shipments, while others
absorb the cost of any product lost, damaged, or spoiled during
shipment.
Providers incur costs for furnishing ancillary supplies necessary to
infuse clotting factor to individuals. These include needles, syringes,
alcohol wipes, bandages, medical tape, sterile gloves, tourniquets, and
needle disposal containers.
According to our analysis of data from four HTCs, the costs to HTCs for
dispensing clotting factor and providing ancillary supplies directly to
patients ranged from $0.03 to $0.08 per unit of clotting factor based
on data from 2000 and 2001. We did not receive enough data from
homecare companies to estimate their costs. Delivery costs reflect
fixed charges, such as rent and insurance, and costs that vary by the
quantity of clotting factor sold, such as shipping and ancillary
supplies. Therefore, providers‘ per unit costs may depend on their
overall product volume and the size of the individual orders.
Services Related to Clotting Factor Are Not Targeted towards Medicare
Beneficiaries:
HTCs and homecare companies state that they provide services related to
hemophilia, such as nursing services, patient education, education on
hemophilia to schools and community organizations, and case management,
that are not separately reimbursed by Medicare and must be covered
through clotting factor payments. To the extent that Medicare
beneficiaries receive services incident to a physician visit, such as
case management at an HTC or physician‘s office, these services are
compensated through Medicare‘s payment for the physician visit. Other
services are not covered under the Medicare program and predominantly
target families with young children and the schools and other community
institutions they attend.
Conclusions:
Medicare‘s payment for clotting factor delivered on an outpatient basis
is flawed in the same way that its payment is flawed for other
outpatient prescription drugs. In tying its payment to AWP, Medicare
has been paying substantially more than providers‘ actual acquisition
costs. The provider discounts that we report result in acquisition
costs that are substantially below Medicare‘s payment. However, the
lowest prices, those from the 340B program, are not available to all
Medicare providers of clotting factor.
Providers also incur costs in delivering clotting factor related to
inventory management, specialized storage, shipping procedures, and in
providing ancillary supplies. These costs are not separately paid by
Medicare. While we can only estimate the amount of delivery costs,
overpayments on clotting factor are sufficiently high to more than
cover them. However, we believe that Medicare overpayments for some
services should not be used to compensate for the lack of payments for
others.
Recommendations for Executive Action:
We recommend that the Administrator of CMS establish a Medicare payment
for clotting factor delivered on an outpatient basis that is more
closely related to providers‘ acquisition costs. Medicare‘s payment for
clotting factor should reflect actual market transaction prices. When
Medicare‘s payment for clotting factor more closely reflects
acquisition costs, we recommend that the Administrator establish a
separate payment for providers based on the costs of delivering
clotting factor to Medicare beneficiaries.
Agency Comments:
In commenting on a draft of our report, HHS noted that our findings
expand upon those in earlier reports by us and the HHS OIG on Medicare
payment for outpatient drugs to specifically include information on
payments for clotting factor. HHS agreed that Medicare should
appropriately pay for clotting factor and services related to
furnishing clotting factor. HHS‘s written comments are in appendix II.
The agency also provided technical comments, which we incorporated
where appropriate.
We also provided a copy of the draft to representatives of two
hemophilia associations, the National Hemophilia Foundation and the
Hemophilia Federation of America, for oral comment. They agreed with
our recommendations and provided technical comments, which we
incorporated where appropriate.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution of it until 30
days from the date of this report. We will then send copies of this
report to the Secretary of HHS and the Administrators of CMS and HRSA.
The report is available at no charge on GAO‘s Web site at MACROBUTTON
HtmlResAnchor http://www.gao.gov. We will also make copies available to
others on request.
If you or your staff have any questions, please call me at (202) 512-
7119 or Nancy A. Edwards at (202) 512-3340. Other major contributors to
this report include George H. Bogart, Beth Cameron Feldpush, and
Yorick F. Uzes.
Sincerely yours,
Laura A. Dummit
Director, Health Care--Medicare Payment Issues:
[End of section]
Appendix I: Scope and Methodology:
In conducting this study, we analyzed data from the Centers for
Medicare & Medicaid Services (CMS), the Health Resources and Services
Administration (HRSA), and the Centers for Disease Control and
Prevention (CDC). We also analyzed data from 11 hemophilia treatment
centers (HTC) and 2 homecare companies. We interviewed officials at the
Department of Health and Human Services Office of Inspector General, 2
patient advocacy organizations, 4 clotting factor manufacturers, 2 of
the 5 largest distributors, and several HTCs and homecare companies.
To obtain demographic and treatment information on the hemophilia
population and Medicare subpopulation, we used data from the 1993-1998
CDC Hemophilia Surveillance System Project, generally recognized as the
most complete and accurate data available. Through this project, CDC
collected medical records data on persons with hemophilia to estimate
its national prevalence. We used these data to determine
characteristics of Medicare beneficiaries with hemophilia and compare
them to the overall population with hemophilia.
To determine Medicare expenditures for clotting factor products, we
used 2001 data from the Medicare Part B Extract and Summary System,
which are the most recent data available. We limited our analysis to
four clotting factor payment categories of recombinant clotting factor
VIII, plasma clotting factor VIII, recombinant clotting factor IX, and
plasma clotting factor IX. These categories constituted over 90 percent
of Medicare expenditures on clotting factor in 2001.
We determined clotting factor acquisition prices for the two major
providers of clotting factor, HTCs and homecare companies. For HTCs, we
obtained 2001 and first quarter 2002 340B acquisition prices directly
from HRSA. The 340B prices are the discounted prices that HTCs receive
through their participation in a federal program.
We obtained 2002 homecare acquisition prices from two homecare
companies, which we supplemented with two other sources. First, we used
2001 and first quarter 2002 average manufacturer price (AMP) data
obtained from CMS. AMP reflects the average price paid to a
manufacturer by a purchaser for a drug, excluding 340B prices, other
federal prices, and sales to hospitals and health maintenance
organizations. Because of the limited number of provider types involved
in the clotting factor market, the exclusion of 340B prices from AMP
calculations, and the small market share of distributors, AMP is a
satisfactory proxy for homecare acquisition prices. Second, we used
acquisition prices from 2001, which we received from an HTC
association, for seven HTCs that had purchased clotting factor outside
of the 340B program. We combined these three data sources into a list
of acquisition prices for 2001 and 2002.
To obtain the estimated discounts from the average wholesale price
(AWP) for each provider type, we first averaged the acquisition prices
within product category and year for each of our four data sources: the
340B prices, the homecare company acquisition prices, the AMP prices,
and the HTC non-340B acquisition prices. We obtained AWP data from the
2001 and 2002 Drug Topics Red Book. To obtain AWP discounts, we
calculated the difference between the corresponding AWP and the average
acquisition prices to find the average discount, by product category
and year, for each of the four data sources. We then determined the
range of HTC discounts by listing the highest and lowest average
discounts among the four product categories for 2001 and first quarter
2002 340B prices. We determined the range of homecare company prices by
listing the highest and lowest average discounts among the four product
categories for 2002 homecare prices, 2001 and first quarter 2002 AMP
prices, and 2001 HTC non-340B prices.
To identify the categories of additional costs that providers incur in
delivering clotting factor, we relied on structured interviews with
providers. From information obtained in our interviews, we developed
cost categories and asked providers to give us their operating costs
for each of these categories for 1 full year and the total number of
clotting factor units they purchased during that year. Some HTCs were
unable to provide this information because they were financially
associated with larger institutions, such as hospitals, and could not
separate their costs from those of the institutions. We did obtain
costs from four HTCs and used these data to determine the range of HTC
additional costs. We did not receive enough data from homecare
companies to estimate their costs.
[End of section]
Appendix II: Comments from the Department of Health and Human Services:
DEPARTMENT OF HEALTH & HUMAN SERVICES:
Office of Inspector General:
Washington, D.C. 20201:
DEC 19 2002:
Ms. Laura A. Dummit:
Director, Health Care - Medicare Payment Issues United States General:
Accounting Office Washington, D.C. 20548:
Dear Ms. Dummit:
Enclosed are the department‘s comments on your draft report entitled,
’Medicare: Payment for Blood Clotting Factor Exceeds Providers‘
Acquisition Costs.“ The comments represent the tentative position of
the department and are subject to reevaluation when the final version
of this report is received.
The department also provided several technical comments directly to
your staff.
The department appreciates the opportunity to comment on this draft
report before its publication.
Sincerely,
Janet Rehnquist:
Inspector General:
Signed By Janet Rehnquist:
Enclosure:
The Office of Inspector General (OIG) is transmitting the department‘s
response to this draft report in our capacity as the department‘s
designated focal point and coordinator for General Accounting Office
reports. The OIG has not conducted an independent assessment of these
comments and therefore expresses no opinion on them.
Comments of the Department of Health and Human Services on the General
Accounting Office‘s Draft Report, ’Medicare: Payment for Blood Clotting
Factor Exceeds Providers‘ Acquisition Costs“ (GAO-03-184):
The Department of Health and Human Services (department) appreciates
the opportunity to comment on this draft report.
GAO Recommendation:
We recommend that the Administrator of CMS establish a Medicare payment
for clotting factor delivered on an outpatient basis that is more
closely related to providers‘ acquisition costs. Medicare‘s payment for
clotting factor should reflect actual market transaction prices. When
Medicare‘s payment for clotting factor more closely reflects
acquisition costs, we recommend that the Administrator establish a
separate payment for providers based on the costs of delivering
clotting factor to Medicare beneficiaries.
Department Comment:
In previous reports, GAO and the department‘s Inspector General
confirmed that Medicare payments for drugs are substantially higher
than the actual costs to physicians and other providers acquiring these
drugs. This report expands the earlier findings to include payments for
blood-clotting factor. As with drug payments, providers indicate that,
although Medicare overpays for the cost of the clotting factor,
Medicare payments do not adequately compensate for the services related
to furnishing the clotting factor.
The department agrees with GAO that Medicare needs to pay appropriately
for all Medicare benefits, including blood clotting factor and the
services required to furnish it. We are committed to working with
Congress to amend the current system to make sure that Medicare pays a
fair, competitive price for all benefits, including those drugs the
program now covers.
[End of Section]
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FOOTNOTES
[1] Under Medicare part B, outpatient prescription drugs and
biologicals are covered if they are not usually self-administered and
are provided incident to a physician‘s services or if they are used in
conjunction with durable medical equipment. Certain self-administered
drugs and biologicals, such as oral drugs used in association with
cancer treatment and blood clotting factor (and the items related to
the administration of such factor), are also covered.
[2] Hemophilia is a deficiency in one of the proteins that causes blood
to clot, referred to as a blood clotting factor. Hereafter, we refer to
blood clotting factor as ’clotting factor“ and use the term to
generally refer to both the deficient proteins and the biological
substance infused for hemophilia treatment.
[3] U.S. General Accounting Office, Medicare: Payments for Covered
Outpatient Drugs Exceed Providers‘ Cost, GAO-01-1118 (Washington, D.C.:
Sept. 21, 2001).
[4] HTCs are federally funded facilities that provide medical care to
persons with hemophilia. Created in 1975 [see Pub. L. No. 94-63, § 606,
89 Stat. 304, 350 (1975)], HTCs are currently funded by the Health
Resources and Services Administration‘s Maternal and Child Health
Bureau and CDC.
[5] Homecare companies are also known as ’specialty pharmacies.“
[6] There are 13 unique clotting factor products used to treat the two
most common types of hemophilia. These products vary by manufacturer,
protein composition, and manufacturing process.
[7] Clotting factor dosage is measured in international units; one
international unit is the amount of clotting factor contained in one
milliliter of normal plasma. The average annual use of clotting factor
by patients with the most common form of hemophilia, based on CDC
statistics for 1998, is 78,000 units.
[8] Young children and individuals with severe disabilities, who may
require assistance from caregivers, are exceptions.
[9] An individual‘s prescription varies according to weight and whether
the individual is infusing on demand or for prophylactic purposes.
Physicians use their own discretion in calculating the exact quantity
to prescribe in any given situation. According to a physician at one
HTC, a 150 lb. individual with a moderate injury should be prescribed
approximately 1,500 to 2,000 units of factor VIII. The same individual
should be prescribed 3,000 to 3,500 units for a severe injury, such as
a head injury. While patients infuse once or twice in response to a
bleeding episode, those under preventive treatment infuse three times
per week to maintain their baseline amount of clotting factor.
According to the physician we consulted, a total of 5,700 to 6,500
units of factor VIII infused over the course of each week would be a
suitable preventive strategy for a 150 lb. individual.
[10] CDC bases these estimates on data from the 1993-1998 Hemophilia
Surveillance System Project, the most recent data available.
[11] Certain disabled individuals qualify for Medicare in addition to
individuals age 65 and over.
[12] According to an HTC representative, one reason some HTCs may not
provide clotting factor is the high initial start-up costs of a factor
program; such costs arise from the structural modifications to
facilities that storing and dispensing clotting factor require, the
initial supply of clotting factor, and the salaries for a dedicated
staff to run the program. The HTC representative also stated that some
HTCs affiliated with larger organizations, typically medical schools or
hospitals, may have had difficulty receiving institutional approval for
such a program.
[13] See Pub. L. No. 102-585, Title VI, § 602, 106 Stat. 4943, 4967
(1992) (adding section 340B to the Public Health Service Act).
[14] Of the 67 HTCs that can operate clotting factor programs, 4 have
chosen not to participate in the 340B program.
[15] Generally, the 340B price equals the average manufacturer price
(AMP) minus 15.1 percent. AMP represents the average unit price paid to
the manufacturer by wholesalers for drugs distributed to retail
pharmacies. Because wholesalers make up such a small portion of the
clotting factor market, AMP calculations for clotting factor are based
primarily on direct sales to providers.
[16] See appendix I for a detailed discussion of our analysis of
homecare company acquisition prices.
[17] A delivery cost of $0.03 to $0.08 per unit of factor is equivalent
to about 4 to 17 percent of HTCs‘ acquisition costs, depending on the
specific product purchased, the individual provider, and the amount
provided to the patient.
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analyses, recommendations, and other assistance to help Congress make
informed oversight, policy, and funding decisions. GAO‘s commitment to
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can print these documents in their entirety, including charts and other
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