Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
EXCESSIVE MEDICARE 
REIMBURSEMENT 
FOR IPRATROPIUM BROMIDE 
JANET REHNQUIST 
Inspector General 
MARCH 2002 
OEI-03-01-00411  O I G
FFICE OF  NSPECTOR  ENERAL

http://www.oig.hhs.gov/ 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as amended, 
is to protect the integrity of the Department of Health and Human Services (HHS) programs, as well as 
the health and welfare of beneficiaries served by those programs.  This statutory mission is carried out 
through a nationwide network of audits, investigations, and inspections conducted by the following 
operating components: 
Office of Audit Services 
The OIG's Office of Audit Services (OAS) provides all auditing services for HHS, either by conducting 
audits with its own audit resources or by overseeing audit work done by others.  Audits examine the 
performance of HHS programs and/or its grantees and contractors in carrying out their respective 
responsibilities and are intended to provide independent assessments of HHS programs and operations in 
order to reduce waste, abuse, and mismanagement and to promote economy and efficiency throughout the 
Department. 
Office of Evaluation and Inspections 
The OIG's Office of Evaluation and Inspections (OEI) conducts short-term management and program 
evaluations (called inspections) that focus on issues of concern to the Department, the Congress, and the 
public.  The findings and recommendations contained in the inspections reports generate rapid, accurate, 
and up-to-date information on the efficiency, vulnerability, and effectiveness of departmental programs. 
Office of Investigations 
The OIG's Office of Investigations (OI) conducts criminal, civil, and administrative investigations of 
allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment by 
providers.  The investigative efforts of OI lead to criminal convictions, administrative sanctions, or civil 
monetary penalties.  The OI also oversees State Medicaid fraud control units which investigate and 
prosecute fraud and patient abuse in the Medicaid program. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to OIG, rendering 
advice and opinions on HHS programs and operations and providing all legal support in OIGs internal 
operations.  The OCIG imposes program exclusions and civil monetary penalties on health care providers 
and litigates those actions within the Department.  The OCIG also represents OIG in the global settlement 
of cases arising under the Civil False Claims Act, develops and monitors corporate integrity agreements, 
develops model compliance plans, renders advisory opinions on OIG sanctions to the health care 
community, and issues fraud alerts and other industry guidance.  E X E C U T I V E   S U M M A R Y  
PURPOSE 
This report compares the amount Medicare reimburses for ipratropium bromide to the prices 
available to the Department of Veterans Affairs (VA) and acquisition costs for suppliers. 
BACKGROUND 
Medicare does not pay for over-the-counter or most outpatient prescription drugs.  However, 
Medicare Part B will cover drugs that are necessary for the effective use of durable medical 
equipment.  One such product, ipratropium bromide, is an inhalation drug commonly used with 
a nebulizer to treat patients suffering from bronchitis or emphysema.  Medicare and its 
beneficiaries paid $348 million for ipratropium bromide in 2000. Medicare reimburses a 
covered drug at 95 percent of the drugs average wholesale price.  Medicare payments include 
both the 80 percent that Medicare reimburses and the 20 percent coinsurance payment for 
which beneficiaries are responsible. 
Ipratropium bromide is usually provided to Medicare beneficiaries by suppliers, who then 
submit claims for reimbursement to Medicare. Suppliers can purchase drugs through group 
purchasing organizations, wholesalers, and directly from manufacturers.  Unlike Medicare, the 
VA provides veterans with drugs purchased directly from manufacturers or wholesalers.  There 
are several purchase options available to the VA, including the Federal Supply Schedule, 
blanket purchase agreements, and VA national contracts. 
We compared Medicares current reimbursement amount for ipratropium bromide to amounts 
paid by the VA and acquisition costs for suppliers and wholesalers. We obtained 
reimbursement amounts for ipratropium bromide from Medicare and acquisition costs from the 
VA.  To obtain supplier and wholesaler acquisition costs, we collected prices from wholesale 
catalogs, supplier invoices, and Drug Topics Red Book. 
i 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  FINDINGS 
Medicare and its beneficiaries would save $279 million a year if ipratropium 
bromide were reimbursed at the median price paid by the VA 
The Medicare reimbursement amount for ipratropium bromide is more than five times greater 
than the VA price.  The VA purchases generic ipratropium bromide through the Federal Supply 
Schedule for a median price of only $0.66 per milligram (mg), while Medicare reimburses 
$3.34 per mg. We estimate that Medicare and its beneficiaries would save $279 million a year 
if reimbursement for ipratropium bromide were set at the median amount available to the VA. 
Medicare beneficiaries would receive $56 million of this savings through reduced coinsurance 
payments. The VAs median acquisition cost for ipratropium bromide through the Federal 
Supply Schedule has fallen by almost  50 percent over the last three years, from $1.29 per 
mg in 1998 to $0.66 per mg in 2001. During the same time period, Medicares reimbursement 
amount has remained constant at $3.34 per mg. 
Medicare and its beneficiaries would save between $223 million and $262 million a 
year if ipratropium bromide were reimbursed at prices available to suppliers 
We found that the median catalog price of ipratropium bromide was $0.82 per mg, the median 
supplier invoice price was $1.18 per mg, and the median wholesale acquisition cost reported by 
manufacturers was $1.20 per mg. If Medicare based ipratropium bromide reimbursement on 
these prices, the program and its beneficiaries would save between $223 million and $262 
million a year. 
Less than 1 percent of ipratropium bromide suppliers were responsible for 
providing the majority of the product to Medicare beneficiaries in 2000 
Medicare reimbursed 5,652 pharmaceutical suppliers for ipratropium bromide claims in 2000. 
However, just 23 suppliers received more than $2 million each in reimbursement for 
ipratropium bromide that year, with five suppliers having between $10 million and $58 million in 
paid claims. These 23 suppliers, who all provided home-delivery/mail order services to 
beneficiaries, received nearly 60 percent of the Medicare payments for ipratropium bromide in 
2000. Therefore, the majority of the ipratropium bromide supplied to Medicare beneficiaries 
was provided by suppliers that purchase a large quantity of the product. We believe that 
suppliers that purchase such large quantities of ipratropium bromide may receive volume 
discounts from manufacturers and wholesalers. 
ii 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  RECOMMENDATION 
Medicare should reduce excessive reimbursement amounts for ipratropium 
bromide 
Despite numerous attempts by the Centers for Medicare & Medicaid Services (CMS) to lower 
reimbursement amounts for prescription drugs, the findings of this report illustrate that Medicare 
pays too much for ipratropium bromide.  We have consistently found that the published average 
wholesale prices currently used by Medicare to establish reimbursement amounts bear little or 
no resemblance to actual wholesale prices that are available to suppliers and large government 
purchasers. 
We understand that unlike most drugs covered by Medicare, ipratropium bromide is usually 
provided by suppliers rather than administered by physicians. These suppliers obviously need 
to make a profit from the products they provide, yet the spread between what Medicare 
reimburses for ipratropium bromide and the price at which suppliers are able to purchase the 
drug is significant. Reimbursement levels for ipratropium bromide not only impact the Medicare 
program, but also affect Medicare beneficiaries who pay increased coinsurance amounts. 
We offer the following options for reducing excessive reimbursement amounts for covered 
drugs: 
<  Authorizing a commission to set payment rates. 
<	 Calculating national estimated acquisition costs based upon the average manufacturer 
prices reported to the Medicaid program. 
<	 Collecting more accurate average wholesale prices from drug pricing catalogs or other 
sources. 
<  Increasing the discount of the published average wholesale prices. 
<  Basing payment on physician/supplier acquisition costs. 
<  Establishing manufacturers rebates similar to those used in the Medicaid program. 
iii 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  <  Creating a fee schedule for covered drugs based on the Federal Supply Schedule. 
<  Using CMS inherent reasonableness authority. 
<  Using competitive bidding. 
Agency Comments 
The CMS agreed that the amounts being reimbursed for drugs in the Medicare program are 
excessive, and that it is clear that the payment system for outpatient drugs needs revision.  The 
agency noted that it must find a way to ensure that the program pays appropriately for all 
Medicare benefits, including covered drugs and the services required to furnish those drugs. 
The CMS went on to state that they are looking forward to working with the Congress and the 
OIG to revise the Medicare payment system for prescription drugs. 
iv 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  T A B L E   O F   C O N T E N T S  
PAGE

EXECUTIVE SUMMARY ...................................................... i

INTRODUCTION .............................................................1

FINDINGS 
Department of Veterans Affairs Costs.......................................... 6

Supplier Acquisition Costs  ..................................................7

Suppliers Reimbursed by Medicare  ...........................................9

RECOMMENDATION  ....................................................... 10

APPENDICES

A. Selected OIG Reports on Drug Reimbursement ...............................12

B. Calculation of Potential Savings for Ipratropium Bromide  ........................13

C. Centers for Medicare & Medicaid Services Comments  .........................14

v 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  I N T R O D U C T I O N  
PURPOSE 
This report compares the amount Medicare reimburses for ipratropium bromide to the prices 
available to the Department of Veterans Affairs (VA) and acquisition costs for suppliers. 
BACKGROUND 
Medicare Coverage of Ipratropium Bromide 
Medicare does not pay for over-the-counter or most outpatient prescription drugs.  However, 
Medicare Part B will cover drugs that are necessary for the effective use of durable medical 
equipment.  One such product, ipratropium bromide, is an inhalation drug commonly used with 
a nebulizer to treat patients suffering from chronic bronchitis or emphysema. Ipratropium 
bromide is usually provided to beneficiaries by suppliers, who then submit claims for 
reimbursement to Medicare.  Medicare and beneficiary payments for ipratropium bromide have 
risen substantially over the last several years, from $14 million in 1995 to $348 million in 2000. 
Payments for ipratropium bromide accounted for more than half of the $683 million Medicare 
paid for all inhalation drugs in 2000.  Medicare payments include both the 80 percent that 
Medicare reimburses and the 20 percent coinsurance payment for which beneficiaries are 
responsible. 
Medicare Drug Reimbursement 
The Centers for Medicare & Medicaid Services (CMS), which administers the Medicare 
program, contracts with four durable medical equipment regional carriers to process all claims 
for durable medical equipment and associated supplies including inhalation drugs. Each carrier 
is responsible for determining the reimbursement amount for inhalation drugs in their respective 
region based on Medicares reimbursement methodology. 
Medicares current reimbursement methodology for prescription drugs is defined by Section 
4556 of the Balanced Budget Act of 1997. The carriers base their reimbursement amount for a 
covered drug on its average wholesale price as published in Drug Topics Red Book or similar 
pricing publications used by the pharmaceutical industry. If a drug is available only as a single 
brand-name product, reimbursement is calculated by taking  95 percent of the drugs average 
wholesale price.  For drugs like ipratropium bromide that have both brand and generic sources 
available, reimbursement is based on 95 percent of the median average wholesale price for 
1 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  generic sources. However, if a brand-name products average wholesale price is lower than 
the median generic price, Medicare reimburses 95 percent of the lowest brand price. 
2 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  Recent Attempts to Lower Medicare Drug Reimbursement 
Section 4316 of the Balanced Budget Act of 1997 allows the Department of Health and 
Human Services to diverge from Medicares statutorily defined payment method if the method 
results in payment amounts which are not inherently reasonable. In late 1998, CMS regional 
carriers attempted to use this authority to lower what it considered excessive reimbursement for 
several items. However, the lower reimbursement amounts were never implemented as 
Congress suspended the use of inherent reasonableness through a provision of the Medicare, 
Medicaid, and SCHIP Balanced Budget Refinement Act of 1999. This provision required (1) 
the General Accounting Office (GAO) to complete a study on the potential effects of using 
inherent reasonableness measures, and (2) the Department of Health and Human Services to 
publish new inherent reasonableness regulations based on the findings of the GAO report.  The 
GAO report, issued in July 2000, found that inherent reasonableness reductions for some items 
were justified; however, the GAO questioned the methodology the carriers used in their 
collection of pricing data for other items.  The Department has not issued any new inherent 
reasonableness regulations since the publication of the GAO report. 
The CMS has also included ipratropium bromide and several other inhalation drugs in a 
competitive bidding project in the San Antonio, Texas area that seeks to use market forces to 
set accurate reimbursement amounts for durable medical equipment and related supplies.  In 
November 2000, CMS announced the selection of durable medical equipment suppliers who 
had submitted competitive bids for the included items.  New reimbursement amounts for these 
items went into effect on February 1, 2001.  The new reimbursement amount for ipratropium 
bromide set by the competitive bidding process is approximately 24 percent below the usual 
Medicare amount. The CMS hopes to use the results from these demonstrations more 
generally in the Medicare program. 
On May 31, 2000, CMS announced plans for Medicare to utilize newly available average 
wholesale prices for approximately 50 drugs. The new prices were developed for Medicaid 
through investigations conducted by the Department of Justice and the National Association of 
Medicaid Fraud Control Units.  The revised pricing data was obtained from wholesale pricing 
catalogs and then provided to First DataBank, publisher of a pricing compendium used by the 
pharmaceutical industry. First DataBank agreed to use the new data when reporting average 
wholesale prices to the States. However, the Medicare, Medicaid, and SCHIP Benefits 
Improvement and Protection Act of 2000, enacted by Congress in December 2000, placed a 
moratorium on any decreases in Medicare drug reimbursement amounts.  The Act required 
GAO to complete a comprehensive study addressing both the appropriateness of drug 
reimbursement amounts and the adequacy of current payments for related practice expenses. 
The Department of Health and Human Services must then revise CMS drug reimbursement 
methodology based on GAOs recommendations. 
3 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  The GAO issued the first of two reports addressing drug pricing issues on September 21, 
2001. This report found that physicians and suppliers can obtain covered drugs for 
substantially less than the Medicare reimbursement amount.  The GAO concluded that 
Medicare should revise its drug payment methodology to more closely reflect available market 
prices.  The second report, to be released before the end of 2001, will address whether 
Medicare is adequately reimbursing certain Medicare providers for related practice expenses. 
Department of Veterans Affairs Drug Reimbursement 
Unlike Medicare, the Department of Veterans Affairs (VA) purchases drugs for its healthcare 
system directly from manufacturers or wholesalers.  There are several options available to the 
VA when purchasing drugs, with the most common being the Federal Supply Schedule. The 
Federal Supply Schedule provides agencies like the VA with a simple process for purchasing 
commonly used products in any quantity while still obtaining the discounts associated with 
volume buying.  Using competitive procedures, contracts are awarded to companies to provide 
supplies over a given period of time at the Federal Supply Schedule price. However, the VA is 
sometimes able to negotiate prices lower than Federal Supply Schedule amounts through other 
avenues such as blanket purchase agreements and VA national contracts. 
Cost of Drugs for Suppliers 
Suppliers can purchase drug products through group purchasing organizations, wholesalers, and 
directly from manufacturers. Group purchasing organizations provide their members with lower 
cost products by negotiating prices for specific drugs from manufacturers. The member can 
then purchase drugs at the negotiated price either directly from the manufacturer or from a 
wholesaler who accepts the group purchasing organizations price.  Wholesalers purchase large 
volumes of drugs from manufacturers and sell them directly to suppliers. 
Related Work by the Office of Inspector General 
The Office of Inspector General (OIG) has studied a number of issues relating to Medicare 
drug reimbursement. Brief summaries of selected studies are presented in Appendix A. 
METHODOLOGY 
Medicare Reimbursement 
Medicare classifies drugs using codes in the Healthcare Common Procedure Coding System. 
These codes, commonly referred to as procedure codes, specify the type of drug, the form of 
4 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  the drug, and in most cases a dosage amount. The procedure code for ipratropium bromide is 
J7644, defined as ipratropium bromide, inhalation solution administered through durable 
medical equipment, unit dose form, per milligram (mg). The term unit dose refers to a 2.5 
milliliter (ml) solution of 0.02 percent ipratropium bromide. We obtained current fee schedule 
reimbursement amounts for procedure code 
J7644 from the four durable medical equipment regional carriers. The reimbursement amount 
for ipratropium bromide was the same for each of the four carriers. 
We accessed CMS National Claims History File to determine Medicares total payments for 
ipratropium bromide and other inhalation drugs in 2000.  We also used this file to analyze 
ipratropium bromide supplier data for the year 2000. 
Matching Procedure Codes to National Drug Codes 
The VA and suppliers use national drug codes rather than procedure codes to identify drug 
products.  Because of these coding differences, we used the April 2001 CD-ROM edition of 
Drug Topics Red Book to identify the specific national drug codes that match the procedure 
code definition for ipratropium bromide. Each drug manufactured or distributed in the United 
States has a unique national drug code.  National drug codes identify the manufacturer of the 
drug, the product dosage form, and the package size.  Because Medicare uses only generic 
versions of ipratropium bromide to determine its reimbursement amount, we only selected 
generic ipratropium bromide national drug codes. We found 17 national drug codes for generic 
ipratropium bromide that matched the procedure code definition of J7644. 
The procedure code for the unit dose form of ipratropium bromide is reimbursed per mg. 
However, VA prices and wholesale prices were all based on 2.5 ml vials of 0.02 percent 
ipratropium bromide solution. Consequently, we needed to convert ml prices of ipratropium 
bromide into mg prices. A 2.5 ml vial of 0.02 percent ipratropium bromide solution contains 
0.5 mg of the drug.  Therefore, 1 ml of solution contains 0.2 mg of ipratropium bromide (0.5 
divided by 2.5).  For each national drug code, we multiplied the number of milliliters of 
ipratropium bromide solution by 0.2 to determine the milligram amount, e.g., 75 ml of solution 
multiplied by 0.2 equals 15 mg.  We then divided the drug price by the number of milligrams to 
determine a per mg price. 
Department of Veterans Affairs Prices 
To determine the VAs current costs for ipratropium bromide, we obtained a file from the VA 
website containing their 2001 contracted prices.  The VA pricing file contained Federal Supply 
Schedule prices for 9 of the 17 matching ipratropium bromide national drug codes. To 
determine a single VA price, we calculated the median price per mg for these 9 codes. 
5 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  We also compared the 2001 VA prices for ipratropium bromide to VA prices in the years 
1998 through 2000. We determined the total percentage change in VA prices between 1998 
and subsequent years.  We then multiplied these numbers by the amount Medicare paid in a 
given year.  These figures represent the amount Medicare total payments would have differed if 
the Medicare reimbursement amount changed at the same rate as the VA price.  Since 2001 
payment data is not yet available, we estimated 2001 Medicare payments by using the dollar 
amount actually paid for ipratropium bromide in 2000. 
6 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  Prices Available to Suppliers and Wholesalers 
To determine actual wholesale prices for ipratropium bromide, we reviewed print and online 
catalogs for 2001 from three drug wholesalers and two group purchasing organizations.  The 
five pricing sources we used provide drug products to suppliers and physician practices 
throughout the country.  We computed a single catalog price for ipratropium bromide by 
calculating the median price per mg of the corresponding national drug codes. 
In addition to catalog prices, we also used actual ipratropium bromide invoices to determine 
supplier acquisition costs.  The invoices were collected by the OIG during a review of inhalation 
drug utilization.  The invoices were obtained during site visits to suppliers throughout the 
country, and were for ipratropium bromide purchased between June 1998 and June 2000. To 
determine a single invoice price, we calculated the median price per mg for the 48 invoice 
prices collected from suppliers. 
We also obtained manufacturer-reported wholesale acquisition costs from the April 2001 CD-
ROM edition of Drug Topics Red Book. The Drug Topics Red Book defines wholesale 
acquisition cost as manufacturer-quoted list prices to wholesale distributors; these prices are not 
reflective of bids, rebates, volume purchase agreements, or other types of exclusive contracts. 
Five of the 17 ipratropium bromide national drug codes had wholesale acquisition costs 
reported in 2001.  From these costs, we calculated a median per mg wholesale acquisition cost 
for ipratropium bromide. 
Calculating Potential Medicare Savings 
To calculate potential Medicare savings, we compared Medicares reimbursement amount for 
1 mg of ipratropium bromide to VA prices, wholesale acquisition costs, catalog prices, and 
invoice prices. We determined the percentage difference in prices by subtracting the median 
source price from the Medicare reimbursement amount, and then dividing this number by the 
Medicare reimbursement amount. These percentages indicate how much Medicare would save 
if reimbursement for ipratropium bromide was based on prices provided by other sources. We 
then multiplied these percentages by the total amount Medicare paid for ipratropium bromide in 
2000 to calculate dollar savings. A table showing the data used to calculate potential savings is 
presented in Appendix B. 
___________ 
This inspection was conducted in accordance with the Quality Standards for Inspections 
issued by the Presidents Council on Integrity and Efficiency. 
7 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  8 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  F I N D I N G S  
Medicare and its beneficiaries would save $279 million a  year 
if ipratropium bromide were reimbursed at the price paid by 
the VA 
The Medicare reimbursement amount for ipratropium bromide is over five times 
greater than the median VA price 
The median Federal Supply Schedule price available to the VA for generic ipratropium 
bromide is only $0.66 per mg, compared to Medicares reimbursement of $3.34 per mg.  We 
estimate that Medicare and its beneficiaries would save $279 million a year if reimbursement for 
ipratropium bromide were set at the median amount paid by the VA under the Federal Supply 
Schedule. The savings represent 80 percent of the $348 million Medicare paid for ipratropium 
bromide in 2000. 
Medicare beneficiaries would receive $56 million of the $279 million in savings through reduced 
coinsurance payments.  A Medicare beneficiary using a typical monthly amount of ipratropium 
bromide (50 mg) would pay $33.40 in Medicare coinsurance.  That coinsurance amount is 
slightly more than what the VA would pay outright ($33.00) to purchase one months supply of 
the drug. Table 1 below compares the Medicare reimbursement amount to median prices 
available to the VA. It also provides Medicare savings and beneficiary coinsurance based on 
Medicare reimbursement and VA prices. 
TABLE 1: COMPARING MEDICARE REIMBURSEMENT TO VA PRICES 
Cost of Typical  Monthly Medicare  Potential Annual 
Pricing Source  Median  Individual Monthly  Beneficiary  Medicare and 
for  Price  Usage  Coinsurance Based  Beneficiary 
Ipratropium Bromide  per mg  (50 mg)  on Source Price  Savings 
Medicare  $3.34  $167.00  $33.40  N/A 
Department of Veterans Affairs  $0.66  $33.00  $6.60  $278,854,770 
Sources: 2001 Medicare carrier and Department of Veterans Affairs websites 
Between 1998 and 2001, the median VA cost for ipratropium bromide decreased 
by almost half, while the Medicare reimbursement amount remained the same 
The median VA price for generic ipratropium bromide has fallen by almost 50 percent over the 
last three years, from $1.29 per mg in 1998 to $0.66 per mg in 2001.  During the same time 
9 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  period, Medicares reimbursement amount (based on reported average wholesale prices) has 
remained constant at $3.34 per mg.  The graph on the next page illustrates the changes in VA 
and Medicare pricing over the last 3 years.  If the Medicare reimbursement amount for 
ipratropium bromide decreased at a rate equal to the VAs 
purchase price, Medicare and its beneficiaries would have saved $55 million in 1999 and $121 
million in 2000. The program could save $170 million in 2001. 
GRAPH 1: COMPARISON OF IPRATROPIUM BROMIDE PRICES, 1998-2001 
$3.50 
$3.34  $3.34  $3.34  $3.34 
$3.00 
$2.50 
$2.00 
g 
m
r 
e
p
e 
c Medicare 
ri
P $1.50 
VA Median 
$1.29 
$1.00 
$1.01 
$0.84 
$0.50  $0.66 
$0.00 
1998  1999  2000  2001 
Year 
Sources: Medicare carrier and Department of Veterans Affairs websites 
10 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  Medicare and its beneficiaries would save between $223 
million and $262 million a year if ipratropium bromide were 
reimbursed at prices available to wholesalers and suppliers 
Medicare payments for ipratropium bromide would be reduced by 75 percent if 
reimbursement amounts were based on prices listed in wholesale catalogs 
Medicare and its beneficiaries would save $262 million a year if the reimbursement amount for 
ipratropium bromide equaled the median price available to suppliers through wholesalers and 
group purchasing organizations.  This represents 75 percent of the  $348 million Medicare and 
its beneficiaries paid for the drug in 2000.  Catalog prices for generic ipratropium bromide 
ranged from a low of $0.64 per mg to a high of $1.56 per mg. The Medicare reimbursement 
amount ($3.34 per mg) was over four times more than the median catalog price ($0.82 per 
mg).  Table 2 below compares the Medicare reimbursement amount to median prices available 
to suppliers and wholesalers. It also provides Medicare savings and beneficiary coinsurance 
based on various sources. 
TABLE 2 : COMPARING MEDICARE REIMBURSEMENT TO SUPPLIER/WHOLESALER PRICES 
Cost of Typical  Monthly Medicare  Potential Annual 
Pricing Source  Median  Individual Monthly  Beneficiary  Medicare and 
for  Price  Usage  Coinsurance Based  Beneficiary 
Ipratropium Bromide  per mg  (50 mg)  on Source Price  Savings 
Medicare  $3.34  $167.00  $33.40  N/A 
Wholesale Catalogs  $0.82  $41.00  $8.20  $262,206,724 
Supplier Invoices  $1.18  $59.00  $11.80  $224,748,621 
Wholesale Acquisition Cost  $1.20  $60.00  $12.00  $222,667,615 
Sources: 2001 Medicare carrier websites, 2001 wholesale catalogs, 1998-2000 supplier invoices, 2001 Drug Topics Red Book 
Medicare payments for ipratropium bromide would be reduced by 65 percent if 
reimbursement amounts were based on supplier invoice prices 
Invoices reviewed by the OIG listed prices ranging from $0.95 to $1.46 per mg for ipratropium 
bromide purchased by suppliers between 1998 and 2000.  The median price for ipratropium 
bromide purchased by these suppliers was $1.18 per mg, 65 percent less than the Medicare 
11 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  reimbursement amount.  Medicare and its beneficiaries would save $225 million a year if 
ipratropium bromide were reimbursed at the median invoice price. 
Medicare payments for ipratropium bromide would be reduced by 64 percent if 
reimbursement amounts were based on manufacturer-reported wholesale 
acquisition costs 
Published wholesale acquisition costs for ipratropium bromide ranged from $1.12 to $1.20 per 
mg in April 2001.  The median wholesale acquisition cost was $1.20 per mg.  Individual drug 
manufacturers reported these wholesale acquisition costs to Drug Topics Red Book. The Drug 
Topics Red Book defines wholesale acquisition cost as manufacturer-quoted list prices to 
wholesale distributors; these prices are not reflective of bids, rebates, volume purchase 
agreements, or other types of exclusive contracts. If Medicare based its reimbursement for 
ipratropium bromide on manufacturer-reported wholesale acquisition costs rather than average 
wholesale prices, the program and its beneficiaries would save $223 million a year. 
Less than 1 percent of ipratropium bromide suppliers were 
responsible for providing the majority of the product to 
Medicare beneficiaries in 2000 
Medicare reimbursed 5,652 pharmaceutical suppliers for ipratropium bromide claims in 2000. 
However, just 23 suppliers received more than $2 million each in reimbursement for 
ipratropium bromide that year, with five suppliers having between $10 million and $58 million in 
paid claims. These 23 suppliers, who all provided home-delivery/mail order services to 
beneficiaries, received nearly 60 percent of the Medicare payments for ipratropium bromide in 
2000. Therefore, the majority of the ipratropium bromide supplied to Medicare beneficiaries 
was provided by suppliers that purchase a large quantity of the product. We believe that 
suppliers that purchase such large quantities of ipratropium bromide may receive volume 
discounts from manufacturers and wholesalers. 
12 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  R E C O M M E N D A T I O N  
Medicare should reduce excessive reimbursement amounts for ipratropium 
bromide 
Despite numerous attempts by CMS to lower reimbursement amounts for prescription drugs, 
the findings of this report illustrate that Medicare pays too much for ipratropium bromide. We 
have consistently found that the published average wholesale prices currently used by Medicare 
to establish reimbursement amounts bear little or no resemblance to actual wholesale prices that 
are available to suppliers and large government purchasers. 
We understand that unlike most drugs covered by Medicare, ipratropium bromide is usually 
provided by suppliers rather than administered by physicians. These suppliers obviously need 
to make a profit from the products they provide, yet the spread between what Medicare 
reimburses for ipratropium bromide and the price at which suppliers are able to purchase the 
drug is significant. Reimbursement levels for ipratropium bromide not only impact the Medicare 
program, but also affect Medicare beneficiaries who pay increased coinsurance amounts: 
We offer the following options for reducing excessive reimbursement amounts for covered 
drugs. 
<  Authorizing a commission to set payment rates. 
<	 Calculating national estimated acquisition costs based upon the average manufacturer 
prices reported to the Medicaid program. 
<	 Collecting more accurate average wholesale prices from drug pricing catalogs or other 
sources. 
<  Increasing the discount of the published average wholesale prices. 
<  Basing payment on physician/supplier acquisition costs. 
<  Establishing manufacturers rebates similar to those used in the Medicaid program. 
<  Creating a fee schedule for covered drugs based on the Federal Supply Schedule. 
<  Using CMS inherent reasonableness authority. 
13 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  <  Using competitive bidding. 
Agency Comments 
The CMS agreed that the amounts being reimbursed for drugs in the Medicare program are 
excessive, and that it is clear that the payment system for outpatient drugs needs revision.  The 
agency noted that it must find a way to ensure that the program pays appropriately for all 
Medicare benefits, including covered drugs and the services required to furnish those drugs. 
The CMS went on to state that they are looking forward to working with the Congress and the 
OIG to revise the Medicare payment system for prescription drugs. The full text of CMS 
comments is presented in Appendix C. 
14 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  Selected OIG Reports on Drug Reimbursement

Medicare Reimbursement of Prescription Drugs (OEI-03-00-00310), January 2001. We found

that Medicare and its beneficiaries would save $1.6 billion a year if 24 drugs were reimbursed at

amounts available to the VA.  We also found that Medicare would save  $761 million a year by

paying the actual wholesale price for 24 drugs.

Medicare Reimbursement of Albuterol (OEI-03-00-00311), June 2000. We found that Medicare

and its beneficiaries would save $120 million or $209 million a year if albuterol was reimbursed at

amounts available through Medicaid and the VA, respectively.  Medicare and its beneficiaries would

save $47 million or $115 million a year if Medicare reimbursed albuterol at prices available at chain and

Internet pharmacies.

Comparing Drug Reimbursement: Medicare and the Department of Veterans Affairs

(OEI-03-97-00293), November 1998. We found that Medicare would save $1 billion in 1998 if the

allowed amounts for 34 drugs were equal to prices obtained by the VA. Furthermore, Medicare

allowed between 15 and 1600 percent more than the VA for the 34 drugs reviewed.

Are Medicare Allowances for Albuterol Sulfate Reasonable? (OEI-03-97-00292), 

August 1998.  We found that Medicare would allow between 56 to 550 percent more than the VA

would pay for generic versions of albuterol sulfate in 1998, and 20 percent more than the average

Medicaid payment for albuterol sulfate in 1997. We also found that Medicare allowed 333 percent

more than available acquisition costs for the drug in 1998.  Customers of mail-order pharmacies would

pay up to 30 percent less than Medicare for albuterol sulfate in 1998.

Excessive Medicare Payments for Prescription Drugs (OEI-03-97-00290), December 1997. 

We found that Medicare allowances for 22 drugs exceeded actual wholesale prices by $447 million in

1996. For more than one-third of the 22 drugs reviewed, Medicare allowed amounts were more than

double the actual wholesale prices available to physicians and suppliers.  Furthermore, we found that

there was no consistency among Medicare carriers in establishing and updating drug reimbursement

amounts. 

A Comparison of Albuterol Sulfate Prices (OEI-03-94-00392), June 1996. We found that many

of the pharmacies surveyed charged customers less than the Medicare allowed amount for generic

albuterol sulfate. The five buying groups surveyed had negotiated prices between 56 and 70 percent

lower than Medicares reimbursement amount for the drug.

Suppliers Acquisition Costs for Albuterol Sulfate (OEI-03-94-00393), June 1996.  We found

that Medicares allowances for albuterol sulfate substantially exceeded suppliers acquisition costs for

the drug. The Medicare program could have saved $94 million of the $182 million allowed for albuterol

15 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  during the 14-month review period if Medicare reimbursement amounts had been based on average 
supplier invoice costs. 
16 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  APPENDIX  A 
Selected OIG Reports on Drug Reimbursement

Medicare Reimbursement of Prescription Drugs (OEI-03-00-00310), January 2001. We found 
that Medicare and its beneficiaries would save $1.6 billion a year if 24 drugs were reimbursed at 
amounts available to the VA. We also found that Medicare would save 
$761 million a year by paying the actual wholesale price for 24 drugs. 
Medicare Reimbursement of Albuterol (OEI-03-00-00311), June 2000. We found that Medicare 
and its beneficiaries would save $120 million or $209 million a year if albuterol was reimbursed at 
amounts available through Medicaid and the VA, respectively.  Medicare and its beneficiaries would 
save $47 million or $115 million a year if Medicare reimbursed albuterol at prices available at chain and 
Internet pharmacies. 
Comparing Drug Reimbursement: Medicare and the Department of Veterans Affairs 
(OEI-03-97-00293), November 1998. We found that Medicare would save $1 billion in 1998 if the 
allowed amounts for 34 drugs were equal to prices obtained by the VA. Furthermore, Medicare 
allowed between 15 and 1600 percent more than the VA for the 34 drugs reviewed. 
Are Medicare Allowances for Albuterol Sulfate Reasonable? (OEI-03-97-00292), 
August 1998.  We found that Medicare would allow between 56 to 550 percent more than the VA 
would pay for generic versions of albuterol sulfate in 1998, and 20 percent more than the average 
Medicaid payment for albuterol sulfate in 1997. We also found that Medicare allowed 333 percent 
more than available acquisition costs for the drug in 1998.  Customers of mail-order pharmacies would 
pay up to 30 percent less than Medicare for albuterol sulfate in 1998. 
Excessive Medicare Payments for Prescription Drugs (OEI-03-97-00290), December 1997. 
We found that Medicare allowances for 22 drugs exceeded actual wholesale prices by $447 million in 
1996. For more than one-third of the 22 drugs reviewed, Medicare allowed amounts were more than 
double the actual wholesale prices available to physicians and suppliers.  Furthermore, we found that 
there was no consistency among Medicare carriers in establishing and updating drug reimbursement 
amounts. 
A Comparison of Albuterol Sulfate Prices (OEI-03-94-00392), June 1996. We found that many 
of the pharmacies surveyed charged customers less than the Medicare allowed amount for generic 
albuterol sulfate. The five buying groups surveyed had negotiated prices between 56 and 70 percent 
lower than Medicares reimbursement amount for the drug. 
Suppliers Acquisition Costs for Albuterol Sulfate (OEI-03-94-00393), June 1996.  We found 
that Medicares allowances for albuterol sulfate substantially exceeded suppliers acquisition costs for 
17 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  the drug. The Medicare program could have saved $94 million of the $182 million allowed for albuterol 
during the 14-month review period if Medicare reimbursement amounts had been based on average 
supplier invoice costs. 
18 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  APPENDIX 
B 
Calculation of Potential Savings for 
Ipratropium Bromide 
(1)	 To determine percentage differences in ipratropium bromide prices, we subtracted the source 
price from the Medicare price.  We then divided this number by the Medicare price. 
(2)	 To calculate potential savings, we multiplied Medicares 2000 total payments ($347,527,960) 
for ipratropium bromide by the percentage difference in price. 
Potential 
Median  Medicare  Percentage  Medicare and 
Range of per  Price  Price  Difference  Beneficiary 
Price Source  mg Prices  per mg  per mg  in Price*  Savings 
Department of Veterans Affairs  $0.59 to $0.73  $0.66  $3.34  80.2%  $278,854,770 
Wholesale Catalogs  $0.64 to $1.56  $0.82  $3.34  75.4%  $262,206,724 
Supplier Invoices  $0.95 to $1.46  $1.18  $3.34  64.7%  $224,748,621 
Wholesale Acquisition Cost  $1.12 to $1.20  $1.20  $3.34  64.1%  $222,667,615 
*Percentage rounded to the nearest tenth 
19 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  APPENDIX 
C 
Centers for Medicare and Medicaid Services 
Comments 
20 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411  APPENDIX 
C 
21 
Medicare Reimbursement for Ipratropium Bromide  OEI-03-01-00411