Ignoring previous cost-cutting recommendations from its own watchdogs, the Centers for Medicare and Medicaid Services (CMS) wasted nearly $251 million in taxpayer dollars on infusion drugs in just 18 months by using outdated drug pricing estimates, which drove up the cost of prescription injectable drugs for an aging baby boomer population.
In addition, roughly $50 million of the overpayments could have reduced coinsurance costs for Medicare and Medicaid beneficiaries using infusion drugs to treat diseases like cancer, diabetes, congestive heart failure and rheumatoid arthritis, according to a new report.
Watchdog groups say that the report released by the Department of Health and Human Services Office of Inspector General highlights a troubling culture of federal indifference at the taxpayers’ expense.
“The Obama administration’s Medicare overseers have demonstrated reckless disregard for taxpayer dollars. In previous administrations this kind of revelation would result in firings,” Rick Manning, president of Americans for Limited Government, told The Washington Times.
For refusing to implement simple cost-saving measures and wasting hundreds of millions of taxpayer dollars at the expense of medicare beneficiaries, the Centers for Medicare and Medicaid Services wins this week’s Golden Hammer, a weekly distinction awarded by The Washington Times highlighting dubious examples of wasteful federal spending.
Michael Cannon, director of health policy studies at the Cato Institute, said that, for CMS, ignoring watchdog advice is business as usual.
“This is typical. Congress and CMS routinely ignore recommendations made by inspector[s] general and other reports on how to reduce waste and improper payments in Medicare and Medicaid,” Mr. Cannon said. “Why? Congress is spending other people’s money. So who cares if they waste it.”
In the 2013 report, investigators found that Medicare Part B payments for infusion drugs listed in CMS payment limit files exceeded acquisition costs by 54 percent to 122 percent annually because CMS was using the average wholesale price of the drugs rather than the average sale price, or the price the drugs would actually fetch on the market, to calculate the payment to the vendor.
The wholesale price is actually more expensive than the market price because of the introduction of generics and increased competition in the drug category. A generic is a drug that is comparative to a brand name, which manufacturers are able to produce at a much lower price once the brand name’s patent has expired.
Under federal guidelines, CMS is paying the average wholesale price on this class of drugs from a pricing average created in October 2003, which doesn’t account for market changes in drug pricing.
Investigators reported in 2013 that Medicare spending on infusion drugs would have been reduced by $334 million between 2005 and 2011 had payments been based on average sale prices instead.
According to the latest report, CMS spent about $712 million over the past six quarters using federally required wholesale pricing standards to calculate payments, but by using actual sale price, the CMS potential expenditures would have been $461 million, a 35 percent savings.
Overall, wholesale-based payment amounts exceeded estimated acquisition costs by 35 percent to 85 percent, according to the report.
“Among individual drugs, the quarterly AWP-based payment amounts were often more than twice the estimated acquisition costs. For example, the AWP-based payment amount for milrinone lactate has been set at $51.58 for more than 10 years. However, during the period under review, the estimated acquisition cost of milrinone lactate ranged from $2.44 to $3.99, meaning that Medicare paid providers 13 to 21 times their estimated cost for the drug,” the report states.
Ryan Ellis, tax policy director at Americans for Tax Reform, scoffed at the agency’s pricing policy.
“Can regular families do this too? Can we pick a year when gas prices were low for us and tell our local filling station we’re going to pay that rate instead? Of course not. Prices for things change, and taxpayers shouldn’t be paying a higher price for something when the free market has reduced the cost,” Mr. Ellis said.
Additionally, infusion drugs are not included in the CMS competitive bidding program, which would reduce expenses for Medicare and its beneficiaries.
CMS already secures competitive prices from prosthetics and orthotics suppliers through the bidding process, but so far, infusion drugs have not been added to the program.
Inspectors recommended that CMS take steps to seek a legislative change that would allow them to use current average sale prices and include infusion drugs in the bidding program, reiterating the same recommendations made in 2013.
A spokesman for CMS was unable to comment on the latest report and deferred to the agency’s response in 2013.
CMS agreed with the recommendations, but said any request for a legislative change would have to be included in the president’s annual budget.
The agency did agree to include infusion drugs in future rounds of competitive bidding, but not until 2017 at the earliest.