Medicare Outpatient Payments
Rates for Certain Radioactive Sources Used in Brachytherapy Could Be Set Prospectively Gao ID: GAO-06-635 July 24, 2006Generally, 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.
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.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-06-635, Medicare Outpatient Payments: Rates for Certain Radioactive Sources Used in Brachytherapy Could Be Set Prospectively
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
July 2006:
Medicare Outpatient Payments:
Rates for Certain Radioactive Sources Used in Brachytherapy Could Be
Set Prospectively:
Medicare Payment for Brachytherapy Sources:
GAO-06-635:
GAO Highlights:
Highlights of GAO-06-635, a report to congressional committees
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.
What GAO Recommends:
GAO recommends that Medicare
(1) in paying separately for iodine and palladium, use outpatient
claims to set prospective rates, and (2) use claims data to evaluate
the unit cost of iridium, so that a suitable separate payment
methodology can be determined. In response, CMS stated that it will
take GAO‘s recommendations into consideration.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-635].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact A. Bruce Steinwald at
(202) 512-7119 or steinwalda@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
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 Iodine and Palladium, CMS Could Set
Prospective Rates, but Suitable Payment Methodology for Iridium Is
Unclear:
Conclusions:
Recommendations for Executive Action:
Agency and External Reviewer Comments and Our Evaluation:
Appendix I: GAO Survey of Hospital Purchase Prices for Iodine,
Palladium, and Iridium Sources Used in Brachytherapy:
Appendix II: Comments from the Centers for Medicare & Medicaid
Services:
Appendix III: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Reported Iodine and Palladium Purchase Prices, July 2003-June
2004:
Abbreviations:
ABS: American Brachytherapy Society:
ACCC: Association of Community Cancer Centers:
ACRO: American College of Radiation Oncology:
APC: ambulatory payment classification:
ASP: average sales price:
ASTRO: American Society for Therapeutic Radiation and Oncology:
CAB: Coalition for the Advancement of Brachytherapy:
CMS: Centers for Medicare & Medicaid Services:
MMA: Medicare Prescription Drug, Improvement, and Modernization Act of
2003:
OPPS: outpatient prospective payment system:
United States Government Accountability Office:
Washington, DC 20548:
July 24, 2006:
Congressional Committees:
Under Medicare's hospital outpatient prospective payment system (OPPS),
hospitals are paid a fixed, predetermined--that is, prospectively set-
-amount for each procedure they provide to Medicare
beneficiaries.[Footnote 1] Hospitals are expected to use this
prospective payment to cover the costs of items and services, such as
anesthesia and medical supplies, associated with the procedure. In
creating one payment bundle for items and services associated with a
procedure, Medicare provides hospitals with an incentive to operate
efficiently, as they retain the difference if the payment exceeds the
cost the hospital incurs in performing the procedure. Although bundled
payment is a fundamental principle of the OPPS, Medicare pays
separately for certain high-cost technologies because bundling them
into a payment with their associated procedures could financially
disadvantage hospitals even if they operate efficiently.[Footnote 2]
Some technologies are paid separately because they are new and their
costs are not represented in the historical data used to set bundled
payments for procedures. However, certain other technologies that are
not new and have historical claims have also been designated for
separate payment either by Congress or by the agency that administers
Medicare, the Centers for Medicare & Medicaid Services (CMS) in the
Department of Health and Human Services.
Brachytherapy is an example of a procedure involving a technology that
is not new and is separately paid. During the procedure, radioactive
materials, called sources, are implanted in or near a cancerous tumor.
The three radioactive sources most commonly used in this treatment are
iodine-125 and palladium-103, which provide a prolonged, low dose of
radioactivity, and iridium-192, which provides a brief, high dose of
radioactivity.[Footnote 3] In 2002, these three sources were billed on
98 percent of the claims for radioactive sources associated with
brachytherapy. Medicare pays separately for these, as well as other
radioactive sources associated with brachytherapy,[Footnote 4] at each
hospital's cost.[Footnote 5] According to our estimates, payments in
2004 for iodine, palladium, and iridium sources represented less than
one-half of 1 percent of the $15.9 billion in OPPS spending.
The Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (MMA) required that all radioactive sources used in brachytherapy
be paid separately rather than bundled into payment for their
associated procedures.[Footnote 6] The MMA specified that these
separate payments be made at each hospital's cost through December 31,
2006. While the MMA required separate payment after this date as well,
it did not specify a methodology for determining the separate payment
amounts. Rather, it directed us to conduct a study and make
recommendations regarding future payment for radioactive sources. As
discussed with the committees of jurisdiction, this report examines (1)
how CMS 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.
To examine how CMS determines payment amounts for technologies that are
not new but are separately paid, we reviewed federal law and regulation
pertaining to the OPPS. We also interviewed officials at CMS. To
examine how payment amounts for iodine, palladium, and iridium sources
used in brachytherapy could be determined, we conducted a survey of
purchase prices paid by 121 hospitals from July 1, 2003, through June
30, 2004.[Footnote 7] These hospitals were selected to be
representative of all hospitals purchasing these sources in 2002, the
most recent year from which data could be used to construct a
sample.[Footnote 8] We assessed the reliability of the data we received
from these hospitals. After excluding questionable data, we determined
that the remaining data were suitable for our purposes. Our final
results represented data from 62 hospitals, or slightly more than 50
percent of the hospitals in our sample. Our results can be generalized
to the larger population of hospitals providing these sources in the
outpatient setting that met our sampling criteria. (See app. I for more
information on our hospital survey.) We also interviewed
representatives from a trade association of radioactive source
manufacturers, six radioactive source manufacturers, three associations
representing physicians and other health professionals involved in
brachytherapy, an association of cancer hospitals, and seven individual
hospitals. We conducted a site visit to a hospital that provides
brachytherapy. We also reviewed federal law and regulation pertaining
to the OPPS and interviewed officials at CMS. We did our work in
accordance with generally accepted government auditing standards from
June 2004 through July 2006.
Results in Brief:
When paying separately for technologies that are not new, CMS's general
practice is to set prospective rates based on an average--that is, the
mean or median--unit cost of the technologies across hospitals. For
example, CMS currently pays separate prospective rates for certain high-
cost drugs and biologicals[Footnote 9] based on the mean estimated per-
unit acquisition cost, as derived by CMS from data provided by drug
manufacturers. 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. If CMS determines that a technology's unit
cost varies substantially and unpredictably, or that reasonably
accurate data on which to base an average unit cost are not available,
CMS pays for the technology at each hospital's cost. When the cost of a
technology varies substantially and unpredictably, a prospective rate
based on a historical average may not adequately pay hospitals even if
they operate efficiently. One example of such a technology is corneal
transplant tissue. After analyzing data submitted by hospitals and
other stakeholders, CMS determined that the fees eye banks charge
hospitals for corneal transplant tissue vary substantially and
unpredictably over time and across eye banks in a given year. 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 to hospitals. As a result of the variation
in fees hospitals pay, CMS pays for the tissue at each hospital's cost.
CMS could set prospective payment rates for iodine and palladium due to
the general stability in their unit cost and the availability of
reasonably accurate data. According to interviews we conducted with
hospital and manufacturer officials, iodine and palladium have an
identifiable unit cost, the price per source. When we surveyed
hospitals on their purchase prices, we found that the prices do not
vary substantially or unpredictably. Furthermore, we determined that a
reasonably accurate source of data, historical OPPS claims, is
available for setting prospective rates for iodine and palladium. We
were unable to identify a methodology CMS could use to determine future
payment amounts for iridium. In contrast to iodine and palladium, where
multiple sources are permanently implanted in one patient, a single
iridium source is temporarily implanted. Because an iridium source can
be implanted in multiple patients over its 3-month life span,[Footnote
10] and each patient can receive multiple treatments with the source,
the appropriate unit cost of an iridium source is the average cost of
all treatments administered across all patients. Although we surveyed
hospitals on the per-treatment costs of iridium, we did not receive
sufficient data to estimate an average cost across hospitals. However,
hospital claims data are available to CMS for estimating an average per-
treatment cost across hospitals that have used iridium. Using these
data, CMS would be able to evaluate whether the range of cost
comprising the average is substantial and whether cost varies
unpredictably over time. Such an analysis would help CMS identify a
suitable methodology for determining a separate payment amount.
In this report, we make recommendations to the Secretary of Health and
Human Services regarding payment for iodine, palladium, and iridium
sources. Specifically, we recommend that the Secretary direct the
Administrator of CMS to (1) set prospective payment rates for iodine
and palladium sources, with each rate based on the source's mean or
median cost across hospitals estimated from OPPS claims data, and (2)
use claims data to evaluate the unit cost of iridium, so that a
suitable, separate payment methodology can be determined. In response,
CMS stated that it will take GAO's recommendations into consideration.
Background:
Iodine, palladium, and iridium are the radioactive sources most
commonly used in brachytherapy. The brachytherapy procedure is
typically performed in the outpatient setting where, under the OPPS,
costs associated with a procedure are generally bundled in order to
promote hospital efficiency. However, since the OPPS was implemented in
2000, an increasing number of technologies have been paid separately.
Except in 2003, the one year in which iodine and palladium used to
treat prostate cancer and iridium were bundled into payment for
brachytherapy procedures, all radioactive sources used in brachytherapy
have been paid separately.
Radioactive Sources Used in Brachytherapy:
Radioactive sources are used in brachytherapy to treat a variety of
types of cancers. The most prevalent brachytherapy procedure is low-
dose brachytherapy with iodine or palladium, which is typically
provided for early-stage prostate cancer. During this procedure,
approximately 20 to 200 tiny iodine or palladium sources are implanted
in the prostate, deliver radiation over a period of months, and then
remain permanently in the body. Generally, the choice between iodine
and palladium is determined by the aggressiveness of the tumor, and the
number of sources by the size of the prostate.[Footnote 11]
In recent years, utilization of the high-dose brachytherapy procedure,
which typically uses iridium, has grown. Iridium can be used to treat a
variety of advanced-stage cancers--most commonly gynecological cancers.
In high-dose brachytherapy, a single, highly radioactive iridium source
is implanted in the tumorous area for a brief period--a matter of
minutes or hours--and then withdrawn. Depending on a patient's clinical
needs, the patient may receive one or more such treatments, also known
as fractions, with the same source over the course of several days.
Because an iridium source emits sufficient radiation for 3 months, the
same source can be used to treat multiple patients.
Evolution of Medicare Payment for Outpatient Services:
The payment methodology for outpatient services has varied in the
degree to which it relies on bundled payments to promote hospital
efficiency. Prior to OPPS implementation in 2000, payment for
outpatient items and services was not bundled; rather, hospitals were
paid under a complex array of cost-based reimbursement methods and fee
schedules. Generally, neither of these payment methodologies provides a
strong incentive to furnish services efficiently. Under a cost-based
methodology, each hospital is paid its cost based on information it
reports to CMS. Under a fee schedule methodology, all hospitals receive
a prospectively determined rate for each item and service they provide,
but little incentive exists for them to provide only the necessary
items and services.
Under the Balanced Budget Act of 1997, CMS was required to implement
the OPPS, which was designed to streamline the historically complex
system of payment for outpatient care and better promote hospital
efficiency.[Footnote 12] CMS assigns each outpatient procedure to one
of approximately 850 ambulatory payment classification (APC) groups.
Each APC group includes procedures that share cost and clinical
similarities and has one payment rate for all procedures in the
group.[Footnote 13] To set an APC rate, CMS uses historical claims to
calculate a median cost across a group's procedures that includes the
costs of the associated bundled services and supplies, which are known
as "packaged" costs. A median, rather than a mean, gives less weight to
extreme values. That median cost is then converted into a numeric
weight, which determines the payment hospitals receive for all
procedures assigned to the APC. Because the OPPS provides a single
payment to cover the average total cost of a procedure, the incentive
for each hospital to efficiently provide the necessary items and
services associated with that procedure is greater than when the
hospital is paid its cost or a separate fee schedule payment for each
item and service used in the procedure.
Although bundling is a fundamental principle of the OPPS, the number of
technologies that are paid separately from their associated procedures
has increased since the implementation of the payment system.[Footnote
14] Beginning in 2000, the first year of the OPPS, CMS was required to
make temporary, separate payments--referred to as "transitional pass-
through payments"--for technologies that it determines to meet
specified criteria for being new and high cost.[Footnote 15] These
payments supplement the bundled payments for outpatient procedures
associated with the technologies, and are designed to compensate
hospitals for the additional cost. A new technology is eligible for
pass-through payments for 2 to 3 years, after which time the technology
is no longer considered new and CMS can include the technology in the
payment bundle for the associated procedure. Over time, other high-cost
technologies that are not new--mainly certain drugs and
radiopharmaceuticals--have also been designated for separate payment
either by Congress or by CMS.
OPPS Payment for Radioactive Sources:
The payment methodology for radioactive sources associated with
brachytherapy has changed several times since the inception of the
OPPS. CMS was required to make separate pass-through payments for all
radioactive sources associated with brachytherapy beginning in 2000. In
2003, these technologies were no longer eligible for pass-through
payments. Because they are considered devices by Medicare, and devices
are typically bundled into payment for their associated procedures, CMS
bundled iodine and palladium into the payment bundle for the low-dose
brachytherapy procedure for prostate cancer, and iridium into the
payment bundle for the high-dose brachytherapy procedure, regardless of
cancer type. For iodine and palladium sources provided for conditions
other than prostate cancer, CMS continued to pay separately. Instead of
paying separately for these radioactive sources at each hospital's
cost, CMS set prospective rates for 2003 based on the median cost of
each source across hospitals. The MMA mandated that all brachytherapy
sources be paid separately after 2003 and specified that from January
1, 2004, through December 31, 2006, separate payments for the sources
be at each hospital's cost. The MMA did not specify a methodology for
paying separately after this date.
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. However, certain technologies may
vary in cost substantially and unpredictably or there may not be
reasonably accurate data on which to base an average cost across
hospitals. In either case, CMS pays for these technologies at each
hospital's cost.
When Paying Separately for Technologies That Are Not New, CMS's General
Practice Is to Set Prospective Rates:
Although CMS does not use published criteria to determine payment
amounts for separately paid technologies that are not new, we found
that its general practice is to pay prospectively based on the average
historical cost of each technology 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.[Footnote
16]
To set prospective rates for these separately paid technologies, CMS
currently uses two sources of historical data: manufacturer data and
OPPS claims. For example, CMS pays for certain high-cost drugs
prospectively based on average per-unit acquisition cost.[Footnote 17]
To calculate hospital acquisition cost, CMS relies on per-unit average
sales price (ASP) data, which manufacturers are required to submit to
CMS and are used in making payments for physician-administered
drugs.[Footnote 18] CMS also uses ASP data to pay a per-unit rate for
particular orphan drugs, which are drugs used to treat patients with
rare conditions and are typically high in cost. For drugs where CMS
does not have ASP data, CMS pays based on the mean cost calculated from
OPPS claims.
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. If the cost varies
substantially and unpredictably, a prospective rate based on a
historical average may not adequately pay hospitals even if they
operate efficiently. CMS pays each hospital's cost, for example, for
corneal transplant tissue and certain vaccines, including those for flu
and pneumonia.[Footnote 19] CMS uses this methodology for corneal
transplant tissue because, after analyzing data submitted by hospitals
and other stakeholders, the agency determined that the fees eye banks
charge hospitals for this tissue can vary substantially and
unpredictably over time and across eye banks in a given year. 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. The cost to hospitals of providing
vaccines also varies substantially and unpredictably due to instability
in the nation's vaccine supply.
In other cases, CMS makes cost-based payments for technologies when it
determines that reasonably accurate historical data on unit cost are
not available. For example, the MMA mandated separate payment for
certain radiopharmaceuticals. As we discussed in our 2006 report on
OPPS payment for certain drugs and radiopharmaceuticals,[Footnote 20]
differences among hospitals in how these technologies are purchased
make it difficult for CMS to set a prospective rate based on an average
cost across hospitals. As a result, payment for these
radiopharmaceuticals is based on each hospital's cost.
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. We were unable to establish a unit cost for
iridium and, as a result, could not identify a suitable payment
methodology. 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.
CMS Could Set Prospective Payment Rates for Iodine and Palladium:
Our analysis suggests that CMS would be able to develop prospective
rates for iodine and palladium beginning in 2007. 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. Both hospitals and manufacturers
told us that hospitals generally purchase iodine and palladium sources
at a per-source price, making the calculation of a unit cost
straightforward. According to our survey of 121 hospitals on the prices
they paid during 1 year--specifically, from July 2003 through June
2004--the range of iodine and palladium prices is not wide.[Footnote
21] This is indicated by the relative level of precision--technically,
the coefficient of variation--achieved for our estimated mean
price.[Footnote 22] (See table 1.) We also note that iodine and
palladium are not subject to the same supply and demand conditions as
corneal transplant tissue and flu and pneumonia vaccines--conditions
that lead to substantial and unpredictable cost variation from year to
year.
Table 1: Reported Iodine and Palladium Purchase Prices, July 2003-June
2004:
Type of source: Iodine;
Number of reported purchases[A]: 1,926;
Number of hospitals reporting purchases: 52;
Estimated mean price per source[B]: $29.54;
Coefficient of variation for the mean estimate[C]: 1.59%.
Type of source: Palladium;
Number of reported purchases[A]: 941;
Number of hospitals reporting purchases: 40;
Estimated mean price per source[B]: $45.35;
Coefficient of variation for the mean estimate[C]: 0.68%.
Source: GAO survey of purchase prices from July 2003 through June 2004.
[A] A reported purchase refers to an individual hospital's purchase of
a given quantity of the radioactive source at a particular price on a
specific date.
[B] The estimated mean price per source is weighted according to the
methodology described in app. I.
[C] The coefficient of variation measures the magnitude of dispersion
around the mean. In statistical terms, a coefficient of variation below
10 percent is considered to be low. (See Morris H. Hansen, William N.
Hurwitz, and William G. Madow, Sample Survey Methods and Theory (New
York: John Wiley & Sons, 1953), 124,129-130.)
[End of table]
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. However, we found that OPPS claims
provide a reasonably accurate source of data for setting a prospective
rate for iodine and palladium sources. To determine if claims could be
used as a reasonable data source, we compared the payment rates for
2003 and the proposed payment rates for 2004,[Footnote 23] which were
based on median costs calculated from historical claims, with the
median of the per-source purchase prices reported directly to us by
hospitals. Although the payment rates applied only to sources used in
non-prostate brachytherapy, CMS officials told us that they were
calculated using prostate and non-prostate brachytherapy claims with
iodine and palladium sources. We found that for iodine the
prospectively set rate for 2003 and proposed rate for 2004 were $31.33
and $36.35, respectively, and the median of reported purchase prices
was $25.37.[Footnote 24] For palladium, the prospectively set rate for
2003 and proposed rate for 2004 were $43.96 and $44.00, respectively,
and the median reported purchase price was $45.46.
Since 2004, when CMS was required to pay separately for all iodine and
palladium sources, the agency has been accumulating claims data that
include separate charges for these sources. As a result, CMS will have
data from 2005 for the 2007 payment year.[Footnote 25] These data could
be used to set prospective payment rates, either based on a mean--as is
currently done with certain high-cost drugs--or based on a median--
which CMS used to set the 2003 and proposed 2004 rates for iodine and
palladium sources.
Suitable Methodology for Determining Separate Payment Amount for
Iridium Is Unclear:
Due to the reusable nature of the iridium source, identifying its unit
cost is not as straightforward as identifying the unit cost of iodine
and palladium. Over the course of its 3-month life span, an iridium
source can be temporarily implanted in multiple patients and each of
those patients can receive about 1 to 10 such treatments with the same
source. Therefore, the appropriate unit cost of an iridium source is
the per-treatment cost--the average cost of all treatments administered
across all patients over a 3-month period. When hospitals purchase an
iridium source, they may not know the exact number of patients they
will treat or the number of treatments each of those patients will
receive. Therefore, hospitals must bill Medicare based on projections
of their unit cost, and will only be able to identify their actual unit
cost retrospectively.
We asked hospitals to provide the per-treatment cost of iridium sources
they purchased over a previous 12-month period in order to identify a
unit cost. However, we did not receive enough data to identify the per-
treatment cost. Of 121 total hospitals surveyed, 19 responded with data
on iridium, and the majority of these 19 hospitals did not provide data
we could use to estimate the cost per treatment. Specifically, 11
either did not provide the number of treatments, reported a
questionable source price, or both. Eight hospitals reported a source
price and the number of treatments from which a unit cost could be
calculated. However, among these 8 hospitals there were inconsistencies
in the data provided. Some hospitals reported the total price of their
iridium contracts,[Footnote 26] while other hospitals isolated the
price of the radioactive source within their contracts and reported
that price. Because we could not establish a unit cost, we could not
assess if the unit cost of iridium varies substantially and
unpredictably over time.
Although we could not identify an average per-treatment cost from our
survey data, CMS has OPPS claims data from hospitals that provided
iridium. Using these data, CMS would be able to evaluate whether the
range of costs comprising the average is substantial and whether the
cost varied unpredictably. Such an analysis would help CMS identify a
suitable methodology for determining a separate payment amount.
Conclusions:
Under the OPPS, an increasing number of technologies have been
designated for separate payment, either by Congress or by CMS. Pursuant
to the MMA, radioactive sources used in brachytherapy, including
iodine, palladium, and iridium, are among those technologies. 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 addition, CMS has data
available to identify reliable average costs across hospitals to set
prospective payment rates beginning in 2007. Paying prospectively in
this manner would help encourage hospital efficiency. However, we were
not able to identify a suitable methodology for determining a separate
payment amount for iridium sources because we did not receive
sufficient information from hospitals to estimate an average per-
treatment cost across hospitals. 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.
Recommendations for Executive Action:
In order to promote the efficient delivery of radioactive sources
associated with outpatient brachytherapy, we recommend that the
Secretary of Health and Human Services direct the Administrator of CMS
to take the following two actions:
* Set prospective payment rates for iodine and palladium sources with
each rate based on the source's average--that is, the mean or median--
unit cost across hospitals estimated from OPPS claims data.
* Use claims data to evaluate the unit cost of iridium so that a
suitable, separate payment methodology can be determined.
Agency and External Reviewer Comments and Our Evaluation:
We received written comments on a draft of this report from CMS (see
app. II). We also received oral comments from individuals at five
organizations representing manufacturers of radioactive sources used in
brachytherapy and providers of brachytherapy. These included the
Coalition for the Advancement of Brachytherapy, which represents
manufacturers of radioactive sources; the Association of Community
Cancer Centers (ACCC), which represents hospitals that provide cancer
treatment; and three organizations representing physicians and others
involved in providing brachytherapy: the American College of Radiation
Oncology (ACRO), the American Brachytherapy Society (ABS), and the
American Society for Therapeutic Radiation and Oncology (ASTRO). We
also received technical comments from CMS and the external reviewers,
which we incorporated as appropriate.
CMS Comments and Our Evaluation:
In reviewing our draft report, CMS stated that it appreciated our
analysis and will consider our recommendations on iodine, palladium,
and iridium as it develops payment policy for 2007. CMS also noted that
we did not make recommendations on payment for other radioactive
sources associated with brachytherapy that may be separately payable in
2007.
As stated in our draft report, we examined how payment amounts for
iodine, palladium, and iridium could be determined. In 2002, these
three sources were billed on 98 percent of the claims for radioactive
sources associated with brachytherapy. Medicare pays for seven other
radioactive sources used in brachytherapy--gold-198, low-dose iridium,
yttrium-90, cesium-131, liquid iodine-125, ytterbium-169, and linear
palladium-102. We did not examine how payment for those sources could
be determined because sufficient data on those sources were not
available in the 2002 claims used to construct the sample of hospitals
for our survey. Medicare did not pay for cesium-131, ytterbium-169, and
linear palladium-102 in 2002, and gold-198, low-dose iridium, liquid
iodine-125, and yttrium-90 together appeared on 2 percent of the
approximately 22,000 claims for radioactive sources in that year.
Although we did not examine how payment amounts could be determined for
these seven sources, the analytical framework we used may apply to them
as well.
Manufacturer and Provider Comments and Our Evaluation:
Comments from external reviewers representing manufacturers of
radioactive sources and providers of brachytherapy centered on three
different areas: our recommendation to pay prospectively for iodine and
palladium sources; our recommendation that CMS evaluate the unit cost
of iridium; and payment for radioactive sources other than iodine,
palladium, and iridium.
Representatives from CAB disagreed with our recommendation to set
prospective rates for iodine and palladium using OPPS claims data. They
asserted that price variation due to the range of available iodine and
palladium products makes it inappropriate to pay for sources
prospectively based on averages. In their opinion, our finding that the
unit costs of iodine and palladium sources are generally stable was
compromised by limitations in our hospital survey--specifically, our
exclusion of outlier data and the absence of source configuration
information in many of the surveys we received from hospitals. ACCC
stated that OPPS claims data are flawed and that prospective rates may
be appropriate but only when a more accurate data source is available.
They also noted, as did ACRO representatives, that costs incurred by
hospitals for storing and handling radioactive sources were not
represented in our survey results. Representatives from ASTRO, ABS, and
ACRO agreed with our recommendation that payment can be based on an
average. ACRO representatives cautioned that the data used to set the
payment must be representative of different types of hospitals, and ABS
representatives suggested that the data should reflect the increased
use of stranded sources, which they stated are more costly but
considered clinically advantageous by many physicians.
Regarding our recommendation that CMS use OPPS claims data to evaluate
the unit cost of iridium in order to determine a suitable separate
payment methodology, representatives from CAB said the report
accurately conveys the difficulties of identifying a per-unit cost for
iridium. However, they disagreed with our recommendation because they
said it would not be possible for CMS to fully evaluate a unit cost
using OPPS claims data, which they asserted to be flawed. They stated
that the cost of iridium varies substantially and unpredictably and
would not be appropriate for prospective payment based on an average.
Representatives from ASTRO, ABS, and ACRO agreed with our
recommendation, although they expressed confidence that the unit cost
of iridium would be found to vary substantially and unpredictably and
would therefore be inappropriate for prospective payment based on an
average cost calculated across hospitals.
Finally, other comments focused on payment for radioactive sources
other than iodine, palladium, and iridium. Representatives of ASTRO and
CAB noted that we did not specifically address payment for the other
radioactive sources used in brachytherapy--gold-198, low-dose iridium,
yttrium-90, cesium-131, liquid iodine-125, ytterbium-169, and linear
palladium-102--and ASTRO asked whether we would be making
recommendations on payment for these other radioactive sources.
Concerning the comments that variation in source price makes it
inappropriate to pay prospectively for sources, as noted in the draft
report, we based our finding on the low coefficient of variation we
calculated from surveys received from our representative sample of
hospitals. We do not believe that our exclusion of outlier data masked
the true degree of price variation. We used standard statistical
trimming principles, which resulted in the exclusion of only 2 percent
of reported purchases of iodine and none of the reported purchases of
palladium. Although many of the responding hospitals did not indicate
on the survey the configuration of the sources purchased, we instructed
hospitals to list prices for all sources purchased during the survey
period. Therefore, the variation we calculated from hospital responses
can be expected to reflect the range of products purchased by hospitals
at the time. Representatives from ACRO and ABS stated that they
believed the average prices presented in the draft report were
consistent with prices for the types of sources--loose, low-activity
sources--commonly used during the survey period. If costlier stranded
sources have become more frequently used since the survey period of
July 1, 2003 through June 30, 2004, as stated by representatives of
ACRO and ABS, the use of those sources would be captured in OPPS claims
data from subsequent years and reflected in future prospectively set
rates. Regarding the concerns about basing prospectively set rates for
iodine and palladium on OPPS claims data, as noted in the draft report,
we based our recommendation on our comparison of average purchase
prices for those sources from our hospital survey with CMS payment
rates for 2003 and proposed payment rates for 2004, which CMS derived
from OPPS claims data. Concerning the comments about the cost of
storing and handling radioactive sources, CMS has provided guidance to
hospitals on how they can receive reimbursement for those costs.
With respect to our recommendation on payment for iridium, as noted in
the draft report, we are recommending that CMS use its claims data to
evaluate whether the range of costs comprising the average for a given
year is substantial across hospitals and whether this average unit cost
varied unpredictably over time. 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.
As we noted in our response to comments received from CMS, we limited
our examination of payment for radioactive sources to iodine,
palladium, and iridium because sufficient data on the other sources
were unavailable in the 2002 claims used to construct the sample of
hospitals for our survey, and these three sources were billed on 98
percent of the claims for radioactive sources associated with
brachytherapy.
We are sending a copy of this report to the Administrator of CMS. We
will also provide copies to others on request. The report is available
at no charge on GAO's Web site at [Hyperlink, http://www.gao.gov].
If you or your staffs have any questions, please contact me at (202)
512-7119 or steinwalda@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made major contributions to this
report are listed in appendix III.
Signed by:
A. Bruce Steinwald:
Director, Health Care:
List of Committees:
The Honorable Charles E. Grassley:
Chairman:
The Honorable Max Baucus:
Ranking Minority Member:
Committee on Finance:
United States Senate:
The Honorable Joe L. Barton:
Chairman:
The Honorable John D. Dingell:
Ranking Minority Member:
Committee on Energy and Commerce:
House of Representatives:
The Honorable William M. Thomas:
Chairman:
The Honorable Charles B. Rangel:
Ranking Minority Member:
Committee on Ways and Means:
House of Representatives:
The Honorable Nathan Deal:
Chairman:
The Honorable Sherrod Brown:
Ranking Minority Member:
Subcommittee on Health Committee on Energy and Commerce:
House of Representatives:
The Honorable Nancy Johnson:
Chairman:
The Honorable Pete Stark:
Ranking Minority Member:
Subcommittee on Health Committee on Ways and Means:
House of Representatives:
[End of section]
Appendix I: GAO Survey of Hospital Purchase Prices for Iodine,
Palladium, and Iridium Sources Used in Brachytherapy:
This appendix summarizes the sample design, methods for collecting and
processing the data, and methods for estimating mean and median
purchase prices for iodine and palladium sources used in
brachytherapy.[Footnote 27] Though we were not able to estimate mean
and median purchase prices for iridium, this appendix also includes a
discussion of the data we received.
Sample Design:
We developed a random sample of hospitals to survey for the purchase
prices of iodine, palladium, and iridium sources used in brachytherapy.
The sample frame consisted of 949 hospitals that (1) had charged
Medicare for radioactive sources during 2002, the most recent year for
which usable data were available;[Footnote 28] (2) were still Medicare
providers on July 1, 2004; and (3) were a subset of sample hospitals
drawn for a survey we conducted of hospital outpatient drug
prices.[Footnote 29] The sampling frame contained 98 percent of the 968
hospitals that submitted Medicare claims for the three brachytherapy
sources in 2002. We drew a sample of 121 hospitals from the sample
frame, on the basis of an expected response rate of 50 percent. Our
results can be generalized to the larger population of hospitals
providing iodine and palladium in the outpatient setting and meeting
the above criteria.
To improve the precision of our estimates of mean and median purchase
price, we stratified the sample of hospitals. The objective was to
obtain a sample of hospitals that mirrored the distribution of
hospitals billing Medicare for these sources. Because we did not have a
measure of purchase price of radioactive sources at the time we
selected the sample, we used total hospital outpatient drug charges to
Medicare as a proxy for purchase price variation. We used a regression
model to identify stratification factors (such as teaching hospital
status) that would maximize the difference in mean purchase price (as
proxied by Medicare drug charges) among strata. We grouped hospitals
into major teaching hospital, nonmajor teaching hospital, urban
nonteaching hospital, and rural nonteaching hospital strata. We placed
small hospitals in a separate stratum to ensure that hospitals with no
or minimal charges for drugs during the first 6 months of 2003 were
appropriately represented.
In our sample design, we defined a major teaching hospital as a
hospital for which the ratio of residents to the average daily number
of patients was at least 1 to 4 and a nonmajor teaching hospital as one
having a ratio of residents to patients of less than 1 to 4. We defined
a hospital as urban if it was located in a county considered a
metropolitan statistical area (as defined by the Office of Management
and Budget) and rural if it was located in a county not considered a
metropolitan statistical area. We defined a small hospital as a
hospital with total Medicare drug charges of less than $10,000 during
the first 6 months of 2003.
Data Collection and Data Processing:
To develop our survey of hospital purchase prices for radioactive
sources, we interviewed representatives from the Coalition for the
Advancement of Brachytherapy (CAB). CAB reports that it represents
manufacturers of 90 percent of all brachytherapy sources and 100
percent of high-dose rate brachytherapy sources in the United States.
We also interviewed representatives of the American Brachytherapy
Society, the American College of Radiation Oncology, the American
Society for Therapeutic Radiology and Oncology, and the Association of
Community Cancer Centers. We also interviewed representatives from six
radioactive source manufacturers and seven hospitals and officials at
the Centers for Medicare & Medicaid Services. In developing the survey,
we obtained information from these associations and individual
hospitals and pilot tested the survey with 5 hospitals prior to sending
it to the entire sample of 121 hospitals. As a result, we clarified
certain protocols and procedures but did not substantially change the
survey instrument.
The survey instrument was five pages long with one page for each
radioactive source, one page for rebate data, and one page defining the
terms in the previous pages. We collected data by reported purchase--
that is, the purchase of a given quantity of a radioactive source at a
particular price on a specific date. For iodine and palladium sources,
we asked hospitals to provide the name of the manufacturer; the number
of sources; the price per source; and certain characteristics of the
sources purchased, such as radioactivity level. For iridium, we asked
hospitals to provide the name of the manufacturer, the number of
treatments delivered,[Footnote 30] the source price, and the rebate
eligibility. We also asked hospitals to report information on any
rebates they received for these purchases.
We contracted with Westat to administer the survey. Westat began data
collection on September 27, 2004. Key components of the data collection
protocol were:
* a first mailing to the chief executive officer or chief financial
officer of each hospital explaining the survey, followed by a telephone
call to identify the main point of contact;
* a second mailing to the main contact outlining the data that were
needed and describing the options for submitting the data;
* a follow-up telephone call to facilitate the main contact's
understanding of the data collection, provide technical assistance as
needed, and obtain some basic information about the hospital; and:
* telephone calls at regular intervals to remind the hospitals to
submit their data and to provide assistance as needed.
Hospitals could submit data in one of three ways: by uploading
electronic files through the study Web site, by sending an e-mail to
the study address with data attached, or by sending electronic media or
paper submissions through the mail. When our contractor received a
brachytherapy survey from a hospital, it forwarded the survey to us for
processing and analysis.
Of the 121 hospitals surveyed, 62 hospitals submitted usable data,
resulting in an overall response rate of 51 percent. We considered
iodine and palladium data usable if we were able to identify the price
per source and the number of sources purchased. We considered iridium
data usable if we were able to identify the price per source and the
number of fractions provided with the source. Of the 62 hospitals, 52
hospitals submitted usable data for iodine and 40 hospitals submitted
usable data for palladium, with some providing data for both
radioactive sources. Sixty-five percent of hospitals providing data for
iodine and 63 percent of hospitals providing data for palladium were
teaching hospitals.
Our data were not sufficient to measure overall price differences by
radioactivity level and other characteristics across each of the two
types of sources. Specifically, hospitals did not indicate activity
level for 37 percent of their reported purchases of iodine and 47
percent of their reported purchases of palladium. They did not indicate
source configuration for 43 percent of their reported purchases of
iodine and 51 percent of their reported purchases of
palladium.[Footnote 31] Although we did not receive enough data from
hospitals to reliably identify any price differences by source
characteristic, we instructed hospitals to report all their purchases
during the survey period. Therefore, any price variation due to source
characteristic should be reflected in our data.
We applied statistical trimming rules to eliminate outliers in the
data. Accordingly, 2 percent of the reported purchases of iodine were
trimmed, and none of the reported purchases of palladium were trimmed.
The resulting data allowed us to calculate the mean and median price
per source for iodine and palladium.
Few hospitals reported receiving rebates. This is consistent with
information we received from hospitals during interviews--that
manufacturer rebates were not commonly provided for radioactive
sources. Therefore, we did not factor rebates into our mean and median
purchase prices.
We determined that there were insufficient data to estimate the price
of iridium. Of the 19 hospitals submitting iridium data, 11 either did
not provide number of treatments, reported a questionable iridium
source price, or both. Eight hospitals reported an iridium source price
and the number of treatments from which a unit cost could be
calculated. However, among these 8 hospitals there were inconsistencies
in the data provided. Some hospitals reported the total price of their
iridium contracts, which includes the cost of maintaining the iridium
source, while other hospitals isolated the price of the iridium source
within the contracts and reported that price.
Estimates of Mean and Median Purchase Prices for Iodine and Palladium
Sources:
This section describes the rationale and method for weighting the
hospital sample, calculating mean purchase price, calculating median
purchase price, and calculating the associated coefficients of
variation--or standard error reflecting sample design and weights.
Weighting the Hospital Sample:
To estimate hospitals' mean and median purchase prices for iodine and
palladium sources, the sample hospitals' purchase price data were
weighted to make them representative of the sample frame of hospitals
from which the sample was drawn. The less likely that a hospital was
sampled, the larger its weight. For example, if each hospital had a 1
in 10 probability of being sampled, its sample weight was 10. That is,
each hospital in the sample represents 10 hospitals in the sample
frame. Consequently, if 5 hospitals in a sample bought a particular
radioactive source, and the sample weight was 10, we estimate that 50
hospitals in the frame bought that radioactive source. In this report,
we refer to sample weights as "hospital weights." Our sample was
stratified, so all hospitals in a particular stratum (for example,
major teaching hospitals) had the same weight. Since in our sample the
probability of a hospital's being selected varied by stratum, hospitals
in different strata had different weights.
We calculated the hospital weight as:
W(jh)= N(jh)/R(jh)
where:
* W(jh) denotes the hospital weight for the j-th radioactive source in
the h-th stratum;
* N(jh) denotes the sample frame (the total number of hospitals) that
according to Medicare outpatient claims, billed for the j-th
radioactive source in the h-th stratum; and:
* R(jh) denotes the total number of hospitals in the h-th stratum that
purchased the j-th radioactive source, according to their survey
submissions.
This weight recognizes that not all hospitals responded to our survey,
since the weight's denominator is R(jh)--the number of hospitals that
responded to the survey and indicated that they bought the j-th
radioactive source.
Mean Purchase Price Using Volume and Hospital Weights:
To summarize hospitals' purchase prices for iodine and palladium
sources--reflecting purchases made, in many cases, at different prices
and in different quantities--we calculated a mean purchase price for
each radioactive source. This mean purchase price for a particular
radioactive source is, in effect, a weighted mean. To reflect the
differences among hospitals in purchase prices and purchase volumes, we
used both the hospital weights and purchase volume as weighting
variables in estimating the mean purchase price. All calculations were
done at the individual purchase level but reflect the hospital and
purchase volume weighting variables.
The mean purchase price is estimated from our sample data, based on the
following equation:
Y(j) = N(h)/(The Sum of (h) times n(h) times the sum of (i) times
y*(jhi) / N(h)/(The Sum of (h) times n(h) times the sum of (i) x*(jhi):
where:
* N(h) represents the total number of hospitals in the h-th stratum;
* n(h)h represents the size of the sample of hospitals in the h-th
stratum;
* y*(jhi) = The sum of (k) times y(jhik), which represents the total
dollar amount for the j-th radioactive source listed on the k-th
invoice for the i-th hospital in the h-th stratum; and:
* x*(jhi) = The sum of (k) x(jhik), which represents the total number
of units for the j-th radioactive source listed on the k-th invoice for
the i-th hospital in the h-th stratum.
The equation estimates the mean purchase price of a radioactive source
as the ratio of the total amount purchased in dollars to the total
number of units purchased.
Median Purchase Price Using Volume and Hospital Weights:
In addition to the mean purchase price, we calculated the estimated
median of each radioactive source's purchase price. To calculate this
median, we first applied volume and hospital weights to each hospital's
purchases of a given radioactive source; we then ranked the weighted
hospitals' purchase prices from lowest to highest and selected the
midpoint of these prices. More precisely, the estimated median--based
on the population cumulative density function F for hospital purchase
prices--is given by:
X(0.5) = inf {y(jhik) : F(y(jhik)) is greater or equal to 0.5},
where:
* X(0.5) denotes the median estimate of hospital purchase price for a
particular radioactive source;
* y(jhik) denotes the unit purchase price of the j-th radioactive
source listed in the k-th invoice record submitted in our survey by the
i-th hospital in the h-th stratum;
* F, the cumulative density function, is the probability that the
variable y(jhik) takes on a value greater than or equal to a particular
value (in this case, 0.5);
* inf {a : b} refers to the minimum value of a, which satisfies the
condition specified in b (in this case b is the condition that F(yjhik)
is greater than or equal to 0.5); and:
* the estimated population cumulative density function, F, is defined
as:
F(x) = N(h)/ [The sum of (h) times n(h) times the sum of (i) times the
sum of (k) times I(y(jhik) is less than or equal to x)]/ N(h)/ the sum
of (h) times n(h) times the sum of (i) times the sum of (k). .
Coefficients of Variation for Mean Purchase Price:
To assess the precision of our estimates of the mean purchase price, we
calculated coefficients of variation for the estimated mean purchase
price. We also used the coefficients of variations as an indicator of
price variability across hospitals. We estimated the mean purchase
prices, median purchase prices, and the coefficients of variation for
the means using specialized software for survey data analysis--
SUDAAN®.[Footnote 32]
[End of section]
Appendix II: Comments from the Centers for Medicare & Medicaid
Services:
Department Of Health & Human Services:
Centers for Medicare & Medicaid services:
200 Independence Avenue SW:
Washington, DC 20201:
Jun 08 2006:
TO: A. Bruce Steinwald:
Director, Health Care:
FROM: Mark B. McClellan, M.D., Ph.D.
Administrator:
Subject: Government Accountability Office's (GAO) Draft Report:
"Medicare Outpatient Payments: Rates for Certain Radioactive Sources
Used in Brachytherapy Could Be Set Prospectively" (GAO-06-635):
Thank you for the opportunity to review and comment on the GAO draft
report entitled "Medicare Outpatient Payments: Rates for Certain
Radioactive Sources Used in Brachytherapy Could Be Set Prospectively."
The report summarizes GAO's position regarding the payment rates for
brachytherapy sources in the Outpatient Prospective Payment System
(OPPS).
The Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (MMA) instructed the Centers for Medicare & Medicaid Services
(CMS) to pay hospitals for outpatient brachytherapy sources based on
charges reduced to cost beginning January 1, 2004 through December 31,
2006. The MMA also mandated the creation of separate groups of covered
hospital outpatient services that classify brachytherapy devices (seeds
or radioactive sources) separately from other services or groups of
services. The additional groups are to be created in a manner
reflecting the number, isotope, and radioactive intensity of the
devices of brachytherapy furnished, including separate groups for
Palladium-103 and Iodine-125.
One further MMA provision requires the GAO to conduct a study to
determine appropriate payment amounts for devices of brachytherapy, and
to submit a report on its study with recommendations to Congress and
the Secretary. This report presents the GAO's analysis on the three
brachytherapy sources that are most commonly used for malignant tumors,
Iodine-125, Palladium-103, and high dose rate Iridium-192. The GAO's
analysis suggests that prospective payment rates could beset for Iodine-
125 and Palladium-103 because the unit costs are generally stable and
reasonably accurate data is available. The GAO report states that it
was not able to determine a suitable payment methodology for Iridium-
192.
The GAO recommends that CMS:
(1) Set prospective rates for Iodine-125 and Palladium-103 sources,
with each rate based on the respective mean or median cost, across
hospitals, estimated from OPPS claims data.
(2) Use claims data to evaluate the unit cost of Iridium-192, so that a
suitable separate payment methodology can be determined.
The GAO made no recommendations for the remaining nine brachytherapy
sources that may be separately payable in the OPPS as of January 1,
2007.
The CMS has not yet proposed a methodology to pay for brachytherapy
sources as of January 1, 2007. The OPPS proposed rule for CY 2007
payment is expected to be published in July 2006. We appreciate the
GAO's analysis and will consider their recommendations as we develop
our policies for the proposed rule.
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
A. Bruce Steinwald, (202) 512-7119 or steinwalda@gao.gov:
Acknowledgments:
In addition to the contact above, Maria Martino, Assistant Director;
Shamonda Braithwaite; Melanie Anne Egorin; Hannah Fein; Nora Hoban; Dae
Park; Dan Ries; Anna Theisen-Olson; Yorick F. Uzes; and Craig Winslow
made contributions to this report.
FOOTNOTES
[1] For purposes of this report, "procedure" can refer to a service
that constitutes a clinical course of action, such as an outpatient
surgery; a medical test; or another service, such as an office visit.
[2] In this report, we use "technologies" to refer to certain products
that are used in outpatient procedures. These products include drugs;
devices; biologicals, which are derived from living sources, including
humans, animals, or microorganisms; and radiopharmaceuticals, which are
radioactive chemical agents provided orally, injected, or provided
through other means for diagnostic or therapeutic purposes.
[3] For the remainder of this report, we refer to iodine-125 as
"iodine," palladium-103 as "palladium," and iridium-192 as "iridium."
While iridium-192 can also be provided in low-dose form, this method of
treatment is rare. Therefore, we refer to iridium in its high-dose
form, unless otherwise specified.
[4] Medicare pays for 12 radioactive sources used in brachytherapy:
high-and low-activity iodine, high-and low-activity palladium, gold-
198, low-dose iridium, high-dose iridium, yttrium-90, cesium-131,
liquid iodine-125, ytterbium-169, and linear palladium-103.
[5] Unless otherwise specified, paying "at each hospital's cost" refers
to a particular methodology CMS uses to estimate a hospital's cost of
providing a technology. This methodology relies on the charge a
hospital identifies on its claim for reimbursement, which CMS converts
to cost using the ratio of aggregate costs and charges from the
hospital's most recent cost report. An alternative method of paying at
each hospital's cost relies on the costs reported by the hospital on
its most recent cost report.
[6] Pub. L. No. 108-173, § 621(b), 117 Stat. 2066, 2310 (to be codified
at 42 U.S.C. § 1395l(t)(2)(H) and (16)(C)).
[7] Specifically, we asked hospitals to report the prices they paid for
sources upon receiving the product. These prices are net of discounts,
but they do not reflect rebates from manufacturers, which are not
commonly provided for brachytherapy sources, nor any costs hospitals
may incur in storing and handling the radioactive sources.
[8] These hospitals were Medicare providers as of July 2004.
[9] For the remainder of this report, we use "drugs" to refer to both
drugs and biologicals.
[10] We use "life span" to refer to the period of time iridium is
sufficiently radioactive to be used for high-dose brachytherapy.
[11] Although iodine and palladium both emit relatively low levels of
radiation, palladium emits radiation at a higher rate, making it
generally appropriate for more aggressive tumors.
[12] Pub. L. No. 105-33, § 4523, 111 Stat. 251, 445-50.
[13] For example, APC 396, "Bone Imaging," includes the following
procedures: "bone imaging, limited area"; "bone imaging, multiple
areas"; and "bone imaging, whole body."
[14] See Medicare Payment Advisory Commission, Report to the Congress:
Selected Medicare Issues (Washington, D.C.: June 2000), and Barbara O.
Wynn, Medicare Payment for Hospital Outpatient Services: A Historical
Review of Policy Options, a working paper prepared for the Medicare
Payment Advisory Commission by RAND Health, June 2005.
[15] The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act
of 1999, Pub. L. No. 106-13, app. F, § 201(b), 113 Stat. 1501, 1501A-
337--1501A-339.
[16] For example, if two manufacturers sell the same technology, and
there is not a discernable difference in quality between the two
products, then the hospital would have the incentive to purchase the
technology from the manufacturer offering the lower purchase price.
[17] These include certain drugs known as specified covered outpatient
drugs and other drugs with per-day costs of $50 or more.
[18] The MMA required manufacturers to report quarterly ASPs for drugs
sold, with certain exceptions, to all purchasers. MMA §
303(i)(4)(B)(iii), 117 Stat. 2254. An ASP must be net of volume
discounts, prompt-pay discounts, cash discounts, free goods that are
contingent on any purchase requirement, chargebacks, and all rebates
but those owed to Medicaid. MMA § 303(c), 117 Stat. 2240-41.
[19] CMS pays hospitals at cost for corneal transplant tissue somewhat
differently than it pays hospitals at cost for other separately paid
technologies. Specifically, CMS instructs hospitals to record the
acquisition cost on the claim instead of a charge and pays them for
this amount. CMS later conducts a reconciliation of these payments with
the costs indicated on the hospital's annual cost report to ensure that
the payments were based on reasonable costs.
[20] GAO, Medicare Hospital Pharmaceuticals: Survey Shows Price
Variation and Highlights Data Collection Lessons and Outpatient Rate-
Setting Challenges for CMS, GAO-06-372 (Washington, D.C.: Apr. 28,
2006).
[21] Our survey requested per-source purchase prices from hospitals.
These prices do not reflect storage and handling costs associated with
the radioactive sources. Prior to April 1, 2004, CMS had not
articulated a policy specifically on reimbursement for these costs.
Effective on that date, CMS provided several avenues for hospitals to
identify the costs associated with the storage and handling of
radioactive sources, so that these costs might be recognized in the
payment system.
[22] To the extent that variation exists across either palladium or
iodine prices, it could be attributed to differential pricing by
specific source characteristics, such as radioactivity level or the
configuration in which they are purchased--that is, whether they are
stranded together for insertion or are individual, "loose" sources. We
did not receive enough data from hospitals to reliably identify any
price differences by source characteristic. However, we instructed
hospitals to report all their purchases during the survey period.
Therefore, any price variation due to source characteristic should be
reflected in our data. Regarding activity level, we note that the MMA
required CMS to establish payments that account for the radioactive
intensity of sources. As a result, in 2005, CMS established separate
billing codes for high-and low-activity iodine and palladium sources.
CMS is therefore expected to have the data available to set separate
rates for high-and low-activity iodine and palladium in 2007.
[23] These rates were proposed for 2004; however, they were not
implemented due to the MMA requirement to pay for the sources based on
each hospital's cost.
[24] The median reported price is weighted according to the methodology
described in app. I.
[25] All payment rates for a given year are based on claims for
services provided 2 years prior.
[26] Most hospitals purchase the iridium source as part of an annual
contract that covers the cost of four sources--one for each quarter--
and the cost of maintaining the sources.
[27] Radioactive sources commonly used in brachytherapy include iodine
and palladium, which provide a prolonged, low dose of radioactivity,
and iridium, which provides a brief, high dose of radioactivity.
[28] Although 2003 data were available at the time the sample was
constructed, there was neither a separate billing code for iridium
sources nor separate billing codes for iodine and palladium sources
used in prostate brachytherapy.
[29] GAO, Medicare: Drug Purchase Prices for CMS Consideration in
Hospital Outpatient Rate-Setting, GAO-05-733R (Washington, D.C.: June
30, 2005).
[30] The survey asked for number of fractions, which refers to the
number of individual treatments provided.
[31] Of the iodine and palladium purchases that contained information
on activity level, about 90 percent were identified as low activity. Of
the iodine and palladium purchases that contained information on source
configuration, 86 percent of the iodine purchases and 95 percent of the
palladium purchases were identified as loose.
[32] B.V. Shah, B.B. Barnwell, and G.S. Bieler, SUDAAN: User's Manual
Release 7.5, vols. 1 and 2 (Research Triangle Park, N.C.: Research
Triangle Institute, 1997). SUDAAN ® is a registered trademark of the
Research Triangle Institute.
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