Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
M P
EDICARE  AYMENTS FOR 
 
D   U T T W
RUGS  SED  O  REAT  ET 
 
A  -R M
GE ELATED  ACULAR 
 
D  
EGENERATION
 
 
Daniel R. Levinson  
Inspector General 
 
April 2012 
OEI-03-10-00360   
   
EXECUTIVE SUMMARY:  MEDICARE PAYMENTS FOR DRUGS USED TO 
TREAT WET AGE-RELATED MACULAR DEGENERATION 
OEI-03-10-00360 
 
WHY WE DID THIS STUDY  
 
Wet age-related macular degeneration (AMD), a leading cause of vision loss in people aged 
60 and older, affects millions of Americans.  Lucentis is a Medicare Part B-covered drug 
approved by the Food and Drug Administration (FDA) for the treatment of wet AMD.  
Avastin is a Part B-covered drug approved by FDA for the treatment of various forms of 
cancer, but smaller doses of the drug are being used off-label to treat wet AMD.  A dose of 
Avastin used to treat wet AMD costs a small fraction of the cost of a dose of Lucentis.  The 
Centers for Medicare & Medicaid Services (CMS) established a national Medicare payment 
amount for Lucentis; however, there is no national Medicare payment amount for Avastin 
when used to treat wet AMD in a physicians-office setting.  In 2010, combined Part B 
expenditures for Lucentis and Avastin totaled nearly $2 billion.   
 
HOW WE DID THIS STUDY 
 
Using Medicare claims data, we selected 2 stratified random samples:  1 sample of 
160 physicians who received Medicare payment for Lucentis and 1 sample of 
160 physicians who received Medicare payment for Avastin.  We sent electronic surveys 
asking physicians to provide the total dollar amount and quantity purchased of Lucentis 
and Avastin in the first quarter of 2010.  We also asked physicians to describe the factors 
that they consider when choosing Avastin instead of Lucentis for the treatment of wet 
AMD.  We compared physician acquisition costs to Medicare payment amounts obtained 
from CMS and Medicare contractors.  Additionally, we analyzed Medicare contractor 
payment policies and the reasons physicians reported for administering Avastin instead of 
Lucentis. 
 
WHAT WE FOUND 
 
In the first quarter of 2010, physician acquisition costs for Lucentis and Avastin were 
5 and 53 percent below the Medicare payment amount, respectively.  Medicare 
contractors payment amounts for Avastin when used to treat wet AMD differed by as 
much as 28 percent, although payment policies were similar.  Additionally, we found that 
the majority of physicians who administered Avastin to treat wet AMD reported the 
substantial cost difference compared to Lucentis as a primary factor in their decision. 
 
WHAT WE RECOMMEND 
 
We recommend that CMS (1) establish a national payment code for Avastin when used 
for the treatment of wet AMD and (2) educate providers about the clinical and payment 
issues related to Lucentis and Avastin.  CMS did not concur with our first 
recommendation at this time but did concur with our second recommendation. 
 
   
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 
Background ..................................................................................................1 
Methodology ................................................................................................5 
Findings......................................................................................................10 
Physician acquisition costs for Lucentis were 5 percent below the 
Medicare payment amount in the first quarter of 2010 ..................10 
Physician acquisition costs for Avastin were 53 percent below the 
average Medicare contractor payment amount in the first quarter  
of 2010; however, these acquisition costs were nearly four times 
the rescinded national Medicare payment amount from the 
previous quarter .............................................................................10 
Contractors payment amounts for Avastin differed by as much          
as 28 percent, although payment policies were similar ................. 11 
The majority of physicians who administered Avastin to treat         
wet AMD reported the substantial cost difference compared to 
Lucentis as a primary factor in their decision ................................12 
Conclusion and Recommendations ............................................................13 
Agency Comments and Office of Inspector General Response .....14 
Appendixes ................................................................................................15 
A:  Confidence Intervals ................................................................15 
B:  Agency Comments ...................................................................16 
Acknowledgments......................................................................................18 
   
   
OBJECTIVES 
1.  To compare the Medicare payment amount for Lucentis to physicians 
acquisition costs.  
2.  To determine the average Medicare contractor payment amount for 
Avastin when used to treat wet age-related macular degeneration 
(AMD) and compare it to physicians acquisition costs.   
3.  To examine Medicare contractor payment policies for Avastin when 
used to treat AMD.   
4.  To examine the factors considered by physicians when choosing 
Avastin for the treatment of AMD. 
BACKGROUND 
AMD, a leading cause of vision loss in people aged 60 and older, affects 
millions of Americans, according to the National Eye Institute (NEI), part of 
the National Institutes of Health (NIH).  Wet AMD is an advanced form of 
the disease that reduces the ability to see objects clearly and inhibits the 
performance of common daily tasks, such as reading and driving.   
Lucentis is a Part B-covered drug approved by the Food and Drug 
Administration (FDA) for the treatment of wet AMD.  Avastin is a 
Part B-covered drug approved by FDA for the treatment of various forms of 
cancer, but smaller doses of the drug (usually prepared for an additional cost 
by compounding pharmacies) are being used off-label to treat wet AMD.1  A 
dose of Avastin used to treat wet AMD costs a small fraction of the cost of a 
dose of Lucentis.  In 2010, combined Part B expenditures for Lucentis and 
Avastin totaled nearly $2 billion.     
Medicare Part B Coverage of Prescription Drugs 
Although Medicare Part D covers most outpatient prescription drugs, the 
Centers for Medicare & Medicaid Services (CMS) continues to cover a 
limited number of outpatient prescription drugs and biologicals 
(hereinafter referred to as drugs) under its Part B benefit.  Part B-covered 
drugs generally fall into the following categories:  drugs furnished incident 
to a physicians service (e.g., injectable drugs such as Lucentis and 
Avastin); drugs explicitly covered by statute (e.g., some vaccines and oral 
anticancer drugs); and drugs used in conjunction with durable medical  
 
1
 The term off-label use refers to the prescribing of FDA-approved medications by 
physicians for purposes outside the scope of the drugs approved labels. 
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  1   
   
equipment (e.g., inhalation drugs).2  Medicare beneficiaries can receive 
Part B-covered drugs in several settings, including physicians offices and 
hospital outpatient departments. 
Medicare Part B Payments for Prescription Drugs 
CMS contracts with private companies (i.e., contractors) to process and 
pay Medicare Part B claims, including those for prescription drugs.3  To 
obtain payment for covered outpatient prescription drugs, health care 
providers submit claims to their Medicare contractors using codes 
established by CMS, called Healthcare Common Procedure Coding 
System (HCPCS) codes.4  In 2010, Medicare and its beneficiaries spent 
$12 billion for Part B drugs. 
Payment Methodology for Part B Drugs  
CMS pays physicians for most Part B-covered drugs using a methodology 
based on average sales prices (ASP).5  The ASP is defined as a 
manufacturers sales of a drug to all purchasers in the United States in a 
calendar quarter divided by the total number of units of the drug sold by the 
manufacturer in that same quarter.6  Manufacturers provide CMS with the 
ASP and volume of sales for their drugs on a quarterly basis.7 
As required by law, CMS sets a single national payment amount for most 
Part B-covered prescription drugs at 106 percent of the volume-weighted 
ASP.8  Medicare beneficiaries are generally responsible for 20 percent of this 
amount in the form of coinsurance. 
 
2
 Section 1861(s)(2) of the Social Security Act (the Act), 42 U.S.C.  1395x(s)(2); 42 CFR  
 414.900(b) and CMS, Medicare Benefit Policy Manual (BPM), Pub. 100-02, ch. 15,  50. 
3
 CMS is transitioning from a system of fiscal intermediaries and carriers to Medicare 
Administrative Contractors.  Medicare contracting reform was mandated by the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003, P.L. 108-173  911 (Dec. 8, 
2003).   
4
 HCPCS codes provide a standardized system for describing the specific items and services 
provided in the delivery of health care.  In the case of prescription drugs, each HCPCS code 
defines the drug name and the amount of drug represented by the code but does not specify 
manufacturer or package size information.   
5
 Several Part B drugs, including certain vaccines and blood products, are not paid under the 
ASP methodology.  See sections 1847A(a)(1) and 1842(o)(1) of the Act, 42 U.S.C.  
 1395w-3a(a)(1) and 1395u(o)(1). 
6
 Per section 1847A(c) of the Act, the ASP is net of any price concessions, such as volume 
discounts, prompt pay discounts, cash discounts, free goods contingent on purchase 
requirements, chargebacks, and rebates other than those obtained through the Medicaid drug 
rebate program.  Sales that are nominal in amount are exempted from the ASP calculation, as 
are sales excluded from the determination of best price in the Medicaid drug rebate 
program.  
7
 Sections 1847A(f) and 1927(b)(3) of the Act, 42 U.S.C  1396r-8(b)(3). 
8
 Section 1847A(b) of the Act.   
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  2   
   
Part B-Covered Drugs Used to Treat Wet AMD 
Lucentis, which was approved by FDA in 2006 to treat wet AMD, is 
manufactured by Genentech.  This drug is sold in single-use vials and 
administered by physicians through a monthly 0.5-mg intravitreal 
injection (i.e., delivered via the eye).  Genentech also manufactures 
Avastin, which FDA approved in 2004 to treat various forms of cancer.  
Ophthalmologists also use Avastin in an off-label manner to treat wet 
AMD.  When using Avastin to treat wet AMD, physicians typically inject 
a much smaller amount of it (1.25 mg per month) than when the drug is 
used in cancer treatments.9   
Both Lucentis and Avastin are typically administered by physicians in an 
office setting.  However, Avastin is sold by Genentech in 100-mg or 400-mg 
vials that are intended for use in treating cancer.  The smaller (1.25-mg) 
Avastin dose used to treat wet AMD must be prepared in a sterile 
environment through a process known as compounding.10, 11  Compounding 
is a pharmacy practice that enables physicians to prescribeand patients to 
takemedicines that are specially prepared by pharmacists to meet patients 
individual needs.12   
Physicians who use Avastin to treat wet AMD obtain the drug primarily 
through two methods.  Some physicians purchase Avastin in 100-mg or 
400-mg vials and send the vials to compounding pharmacies.  Therefore, 
in addition to the cost of acquiring Avastin, these eye doctors typically 
incur separate compounding costs.  Other physicians purchase 
ready-to-use syringes prefilled with smaller doses of Avastin, directly from 
a compounding pharmacy.  In these cases, the drug costs and 
compounding costs are combined into a single price.  
Medicare Payment for Lucentis and Avastin 
For Lucentis, physicians bill for and are paid under HCPCS code J2778.  
The Medicare payment amount for one dose of Lucentis administered in a 
physicians office, typically 0.5 mg (one vial), was $2,023 in the first quarter 
 
9
 Physicians administer approximately 1.25 mg of Avastin every 4 to 6 weeks to treat wet 
AMD.  However, physicians could administer hundreds of milligrams of Avastin per cancer 
treatment depending on the patients weight and type of cancer.  For example, a 150-pound 
person being treated for lung cancer could be administered approximately 1,000 mg of 
Avastin every 3 weeks. 
10
 James Folk, M.D.  Avastin.  Accessed at http://www.medrounds.org on May 19, 2011. 
11
 Because Avastin is packaged in 100- and 400-mg vials that exceed the 1.25-mg dose 
commonly used for treating wet AMD, physicians often use compounding pharmacies to 
repackage the drug into single-use syringes that contain the smaller dose for intravitreal use.  
In August 2011, in response to a cluster of eye infections traced to patients who had received 
Avastin repackaged by a pharmacy in Florida, FDA alerted health care professionals of 
infection risk from repackaged Avastin intravitreal injections.   
12
 Compounding is not exclusive to drugs used for off-label purposes.   
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  3   
   
of 2010.  In total, Medicare and its beneficiaries spent $1.1 billion for 
Lucentis in 2010.  
As of September 2011, CMS does not have a single HCPCS code or 
payment amount for Avastin when used to treat wet AMD in a             
physicians-office setting.  Medicare contractors that process and pay claims 
determine the Medicare payment amount for Avastin used to treat wet 
AMD.13  The contractors also instruct physicians administering Avastin in an 
office setting to use the HCPCS codes for unclassified drugs (J3490), 
unclassified biologics (J3590), or Avastin used to treat cancer (J9035).  
Regardless of the HCPCS code used, the Medicare payment amount for one 
Avastin dose used to treat wet AMD is always substantially less than the 
Medicare payment amount for Lucentis.  In total, Medicare and its 
beneficiaries spent $27 million for Avastin used to treat wet AMD in 2010.14 
In August 2009, CMS announced that it would create a new HCPCS code 
(Q2024), to take effect in the fourth quarter of 2009, for the use of Avastin 
in treating wet AMD.  This change would have set a national Medicare 
payment amount at $7.185 for every 1.25-mg dose (an amount determined 
by taking the payment amount for the 10-mg dose of Avastin and dividing 
it by 8).15  Some doctors expressed concern that this new payment amount 
would not cover the extra compounding costs that they incurred when 
using Avastin to treat wet AMD.  In an October 2009 letter to CMS, a 
member of Congress noted this concern, writing that the new payment 
policy could cause physicians to switch from Avastin to the more 
expensive Lucentis.  This, in turn, would have resulted in higher payment 
amounts and coinsurance for Medicare and its beneficiaries.  In 
November 2009, CMS decided to rescind the new payment code (Q2024) 
and policy.  Payment reverted to the previous codes established by 
individual Medicare contractors. 
National Eye Institute Study 
In 2008, NEI began the Comparison of AMD Treatments Trials (CATT) to 
assess the safety and effectiveness of Lucentis and Avastin to treat wet 
AMD.  NEI is also determining whether both drugs remain effective when 
doses are administered more than 1 month apart. 
 
13
 Off-label use is covered by Medicare if the Medicare contractor determines the use to be 
medically accepted.  See BPM, ch. 15,  50.4.2.  Moreover, Medicare contractors determine 
pricing for compounded drugs.  See BPM, ch. 17,  20.1.2. 
14
 Because there is not a unique HCPCS code for Avastin used to treat wet AMD, we 
projected a total based on Part B claims data.    
15
 When CMS created the new HCPCS code Q2024 to pay for Avastin used to treat wet 
AMD, it took the payment amount for J9035 ($57.479) and divided it by 8, arriving at an 
amount of $7.185.  
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  4   
   
In April 2011, NEI released the preliminary results from the first year of 
the CATT.  NEI found that Avastin was as effective as Lucentis in treating 
wet AMD.16  It also found evidence that Avastin and Lucentis could be 
administered effectively at longer intervals than the normal 
once-per-month schedule.  Finally, NEI found that serious adverse events 
(primarily hospitalizations) occurred at a rate of 24 percent for patients 
receiving Avastin and a rate of 19 percent for patients receiving Lucentis.  
However, NEI was unable to determine a causal link between the type of 
treatment and particular adverse events.  Longer term study results will 
provide additional information about the relative safety and efficacy of 
Avastin and Lucentis.  
Related Office of Inspector General Work 
A September 2011 Office of Inspector General (OIG) audit report17 found 
that if Medicare reimbursement for all beneficiaries treated for wet AMD 
with Avastin or Lucentis had been based on the Avastin payment amount, 
Medicare and its beneficiaries would have saved approximately 
$1.4 billion.  Twenty percent of these savings would have been from 
decreases in beneficiary copayments.  Conversely, the report found that if 
Medicare reimbursement for all beneficiaries treated for wet AMD with 
Avastin or Lucentis had been based on the Lucentis payment amount, 
spending for Medicare and its beneficiaries would have increased by 
$1.9 billion.  Similarly, 20 percent of that total would have been from 
increases in beneficiary copayments.  OIG recommended that CMS 
(1) consider the results of that report when evaluating coverage and 
reimbursement policies related to Avastin and Lucentis and (2) seek 
additional authority as necessary to control Part B drug expenditures.  
METHODOLOGY 
Data Sources and Collection 
Sample Selection.  We extracted all Part B drug claims for Lucentis 
(HCPCS code J2778) and Avastin (HCPCS codes J3490, J3590, J9035, 
and Q2024) with dates of service in the first quarter of 2010 from CMSs 
National Claims History File.  The sampling frame for this analysis 
included only claims associated with the treatment of wet AMD in 
ophthalmologists offices in the 50 States and the District of Columbia 
based on the claims HCPCS codes, physician specialty code, diagnosis 
code, place of service code, and procedure code for related treatment.  See 
Table 1 for a detailed description of the criteria for claims selection.   
 
16
 NEI, NIH Study finds Avastin and Lucentis are equally effective in treating age-related 
macular degeneration, April 2011.  Accessed at http://www.nei.nih.gov on May 4, 2011.   
17
 OIG, Review of Medicare Part B Avastin and Lucentis Treatments for Age-Related Macular 
Degeneration (A-01-10-00514), September 2011.   
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  5   
   
           Table 1.  Claims Selection Criteria 
Criteria   Value for Inclusion in Sampling Frame  
HCPCS Code   J2778 (Lucentis); J3490, J3590, J9035, Q2024 (Avastin) 
Physician Specialty  Code   18 (ophthalmologist) 
Diagnosis Code  36252 (exudative (wet) senile macular degeneration, i.e., wet AMD)  
Place of Service   11 (office)  
Procedure Code for  67028 (intravitreal (eye) injection) 
Related Treatment 
                Source:  Part B claims data  dictionary, OIG analysis of Part B claims data, 2010.   
After selecting the claims that met the above criteria, we grouped them by 
prescribing physician and summarized the claims data in each group.  
From these summarized data, we selected 2 stratified random samples:  
1 sample of 160 physicians who received Medicare payment for Lucentis 
and 1 sample of 160 physicians who received Medicare payment for 
Avastin.  To increase the precision of our estimates and to keep the sample 
size within reason, we stratified each sample based on total allowed 
charges for administering Avastin or Lucentis.18  See Table 2 for a 
description of our sampling frame. 
Table 2. Sampling Frame 
Number of Physicians  Number of  
Description of Stratum  
in Population   Physicians in Sample  
Physicians with allowed charges  $190,000 in the 
1,334  68 
first quarter of 2010 
s 
nti
e
Luc Pfirhsyt sqiuciaarntesr  woift h2 0a1llo0w  ed charges > $190,000 in the  369  92 
       Total   1,703  160 
Physicians with allowed charges  $4,600 in the 
1,623  67 
first quarter of 2010 
 n 
sti
va Physicians with allowed charges > $4,600 in the 
A 490  93 
first quarter of 2010 
       Total  2,113   160 
                     Source:  OIG analysis of Lucentis and Avastin Medicare Part B claims, 2010.   
Medicare Payment Amounts and Policies. We obtained from CMSs Web 
site the first-quarter 2010 Medicare payment amount for Lucentis.  
 
18 
 We  ran simulations of our universe to determine the dividing point for each stratum (i.e., 
$190,000 for Lucentis and $4,600 for Avastin).    
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)   6  
   
Because there is no national payment amount for Avastin when used to 
treat wet AMD in a physicians-office setting, we obtained first-quarter 
2010 Medicare payment amounts and coverage policies for it from all      
11 Medicare contractors that paid claims for Part B-covered drugs in the 
first quarter of 2010.  In addition, we obtained from CMSs Web site the 
(now-rescinded) fourth-quarter 2009 national Medicare payment amount 
for Avastin when used to treat wet AMD.    
Physician Surveys.  We sent electronic surveys to the physicians in each 
sample, using mailing addresses obtained from CMS.  We made up to three 
attempts to contact the physicians in each sample to increase the response 
rate.  Between January and April 2011, 131 of 160 (82 percent) physicians 
who administered Lucentis responded to our survey and 122 of 
160 (76 percent) physicians who administered Avastin responded to our 
survey.   
In the survey, we asked physicians to provide us with the total dollar 
amount they purchased, the quantity they purchased, and any discounts or 
rebates they received for Lucentis or Avastin in the first quarter of 2010.  
We asked physicians who administered Avastin to describe the steps taken 
to prepare Avastin for the treatment of wet AMD (i.e., compounding), 
including identifying the entity responsible for compounding and the total 
cost of compounding.  We also asked physicians how many 1.25-mg doses 
of Avastin were produced from the vials purchased.  Additionally, we 
asked physicians to describe the factors that they consider when choosing 
Avastin instead of Lucentis for the treatment of wet AMD.19   
Data Analysis  
Lucentis.  Of the 131 responding physicians, 125 supplied complete data 
that could be used in our analysis.20  To calculate physicians first-quarter 
2010 average acquisition cost for Lucentis, we summed acquisition costs 
(net of discounts) among all respondents and divided that number by the 
number of vials purchased.  We compared the first-quarter 2010 Medicare 
payment amount to physicians average acquisition cost and calculated the 
percentage difference.  We also calculated the acquisition cost of Lucentis 
for each individual responding physician and determined the percentage of 
physicians that purchased the drug at prices below the Medicare payment 
amount.21  
 
19
 We asked this question because Avastin is not approved by FDA to treat wet AMD.  
Conversely, as Lucentis is approved by FDA to treat wet AMD, we did not ask why 
physicians use Lucentis instead of Avastin.    
20
 Six responding physicians were excluded for not providing complete data. 
21
 All of the cost calculations were weighted based on the stratified sample selection.   
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  7   
   
Avastin.  Of the 122 responding physicians, 113 supplied complete data that 
could be used in our analysis.22  We then calculated the average first-quarter 
2010 Medicare payment amount for Avastin when used to treat wet AMD 
based on payment amounts provided by 10 of the 11 Medicare contractors.23   
To calculate physicians average acquisition costs for Avastin in the first 
quarter of 2010, we summed acquisition costs (net of discounts) among all 
respondents and divided that number by the number of doses purchased.  We 
compared the average first-quarter 2010 Medicare payment amount to 
physicians average acquisition cost and calculated the percentage 
difference.  In addition, we compared physicians average acquisition cost to 
the rescinded national Medicare payment amount from the fourth quarter of 
2009.24   
Additionally, we calculated both the average drug costs and average 
compounding costs (i.e., the two components of physicians acquisition 
costs) separately by (1) dividing the drug acquisition costs by the number of 
doses purchased and (2) dividing compounding costs by the number of doses 
purchased.25   
We reviewed each contractors payment amounts and policies for Avastin 
used to treat wet AMD to determine the extent to which payment amounts 
and payment policies differed.  We calculated the difference in contractor 
payment amounts and identified the payment and diagnosis codes that 
contractors required physicians to use when submitting claims for Avastin 
used to treat wet AMD.    
We reviewed the reasons physicians reported for using Avastin instead of 
Lucentis to treat wet AMD and determined the frequency of each factor.26  
Because Lucentis is approved by FDA for the treatment of wet AMD, we 
did not ask a similar question of physicians who administered Lucentis. 
Limitations 
The analysis and results in this report are based only on physicians and 
contractors self-reported data.  We did not verify the accuracy or 
completeness of physicians or contractors responses. 
 
22
 Nine responding physicians were excluded for not providing complete data.   
23
 One contractor bases its payment for Avastin used to treat wet AMD on cost and does not 
have a single payment amount.  Therefore, we excluded this contractor from our calculation of 
an average Medicare payment amount.  Several other contractors reported a single payment 
amount that we included in our calculation, but noted that they paid based on cost if that 
amount was lower than the usual payment amount.      
24
 All cost calculations were weighted based on the stratified sample selection.   
25
 Because of the small number of physicians who provided these data, we were unable to 
project these results.   
26
 These calculations were weighted based on the stratified sample selection.   
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  8   
   
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency. 
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  9   
   
FINDINGS 
Physician acquisition costs for Lucentis were 
5 percent below the Medicare payment amount in the 
first quarter of 2010 
On average, physicians paid $1,928 (net of discounts) per vial of Lucentis 
in the first quarter of 2010.  This was 5 percent below the Medicare 
payment amount of $2,023 during that quarter.  Nearly all physicians 
(98 percent) purchased Lucentis at a price below the Medicare payment 
amount during the time period under review.
Physician acquisition costs for Avastin were 
53 percent below the average Medicare contractor 
payment amount in the first quarter of 2010; however, 
these acquisition costs were nearly four times the 
rescinded national Medicare payment amount from the 
previous quarter 
On average, physicians paid $26 per dose of Avastin (including drug and 
compounding costs) in the first quarter of 2010.  This was 53 percent below 
the average Medicare contractor payment amount of $55 per dose in that 
quarter.  Almost all physicians (96 percent) were able to purchase Avastin to 
treat wet AMD at a price below the average Medicare contractor payment 
amount.   
In contrast, average physician acquisition costs substantially exceeded the 
national Medicare payment amount of about $7 that CMS proposed and then 
rescinded for the fourth quarter of 2009.  The average acquisition cost
$26 per doseis almost 4 times greater than the rescinded national payment 
amount.27  Because CMS rescinded the national payment amount and policy, 
there is currently no national payment amount for Avastin used to treat wet 
AMD in a physicians-office setting.  Had the national payment amount been 
implemented, physicians would have been reimbursed at 72 percent below 
their costs.   
Physicians who purchased Avastin in vials (as opposed to in prefilled 
syringes) needed to compound the drug prior to administering it to 
patients.  For responding physicians from the sample, the two components 
of the total costi.e., the average drug cost ($15 per dose) and the average 
compounding cost ($10 per dose)by themselves exceeded the rescinded 
Medicare payment amount.  We could not calculate separate drug and 
 
27
 This calculation assumes that the Medicare payment amount stayed the same from the 
fourth quarter of 2009 to the first quarter of 2010.   
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  10   
   
compounding costs for physicians who purchased Avastin in syringes 
because the drug in these syringes had already undergone the 
compounding process prior to purchase.  
Contractors payment amounts for Avastin differed by 
as much as 28 percent, although payment policies 
were similar 
Generally, CMS is required to set a national Medicare payment amount for 
Part B-covered drugs at 106 percent of ASP.  However, as previously stated, 
there is no national Medicare payment amount for Avastin used to treat wet 
AMD in a physicians-office setting; Medicare contractors must set the 
payment amount in their jurisdictions.  Consequently, payment amounts 
differed by as much as 28 percent in the first quarter of 2010 (although 5 of 
the 11 contractors had the same payment amount).28  Ten Medicare 
contractors reported per-dose payment amounts for Avastin ranging from 
$45 (1 contractor) to $57 (7 contractors) per dose during the first quarter of 
2010.  The remaining contractor paid claims based on cost and did not 
establish a specific payment amount. 
Similarly, Medicare contractors established their own policies for the 
coding and payment of Avastin claims when the drug is used to treat wet 
AMD.  All contractors instructed providers to use one of three HCPCS 
billing codes (J3490, J3590, or J9035) on these claims.  Additionally, all 
contractors except one reported that they require a related diagnosis code 
for wet AMD and/or procedure code on these claims.  See Table 3 for a 
description of contractor payment amounts and policies. 
           Table 3.  Contractor Payment Amounts and Policies 
Contractor      HCPCS Codes               Payment Amount   Related Diagnosis or                
Procedure Code Required   
1    J3590                                    $50.00                                         Yes 
2  J9035                                    $57.46                                          Yes 
3  J9035                                    $57.46                                         Yes 
4  J3590                                    $45.00                                          No  
5  J3490                                     $50.00                                         Yes 
6                  J9035                                   $57.46                                         Yes 
7                  J9035                                     $57.46                                         Yes 
8       J3590 or J3490  .                                  $57.40                                          Yes 
9  J9035                                       $57.46                                         Yes 
10  J3590 or J3490                                    $57.44                                         Yes 
11  J3590 or J3490          Based on invoice cost                                        Yes 
                                  Source:  OIG analysis of Medicare contractor responses, 2010.   
 
28
 Two additional contractors had payment amounts within $0.06 of the five contractors with 
the same payment amount.   
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  11   
   
The majority of physicians who administered Avastin 
to treat wet AMD reported the substantial cost 
difference compared to Lucentis as a primary factor in 
their decision 
Physicians reported several reasons for using Avastin rather than Lucentis to 
treat wet AMD with cost being the primary factor (70 percent).  Forty-five 
percent reported efficacy/effectiveness as a reason, and 40 percent cited 
patient insurance coverage.  Additional reasonscited by 1 to 14 percent of 
physiciansincluded less frequent injections, patient preference, patient 
condition, ease of use, and safety.  One physician reported giving Avastin to 
all patients unless they do not respond to that treatment.  
Based on our analysis, the final cost of a dose of Avastin is about 1 percent 
the cost of a dose of Lucentis, on average ($26 vs. $1,928).  Physician 
acquisition costs for Lucentis are much higher; those costs, in turn, are 
passed on to the Medicare program and beneficiaries in the form of higher 
program payments and coinsurance.  Beneficiaries would pay approximately 
$400 in coinsurance for each dose of Lucentis, compared to approximately 
$11 in coinsurance for each dose of Avastin.  One physicians rationale for 
choosing Avastin raised all of these concerns:  
I believe that Avastin works as well if not better than Lucentis.  
Why would I not want to save expenses for my patients, our 
society, and government by using a product I believe is as effective 
as the incredibly more expensive alternative?  My personal income 
would have been higher if I had used Lucentis, but I do not believe 
that is the right thing to do. 
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  12   
   
CONCLUSION AND RECOMMENDATIONS 
Lucentis and Avastin are the primary drugs that ophthalmologists use to treat 
wet AMD, a leading cause of severe vision loss that affects millions of 
Americans.  Congressional interest, media reports, and other OIG work have 
recently focused on the substantial price difference between Lucentis and 
Avastin as well as on physician reimbursement concerns.  Additionally, in 
April 2011, NEI released the preliminary results of the CATT, which found 
that Avastin was equally as effective as Lucentis in treating wet AMD.   
Our findings indicate that in the first quarter of 2010, physicians could 
purchase both Lucentis and Avastin at prices below their Medicare payment 
amounts.  The results also demonstrate that physicians acquisition costs for 
Avastin used to treat wet AMD ($26) are substantially lower than acquisition 
costs for Lucentis ($1,928).  The majority of physicians who used Avastin 
generally reported that they chose the drug because of its substantially lower 
costs.  Our findings also highlight the variability in contractor payment in 
the absence of a national Medicare payment amount.   
Given the lack of a national payment policy for Avastin used to treat wet 
AMD in a physicians-office setting and the substantial difference in cost 
of the two drugs to Medicare and its beneficiaries, we recommend that 
CMS:  
Establish a National Payment Code for Avastin When Used for 
the Treatment of Wet AMD 
Generally, the law requires CMS to set a national payment amount for 
Part B-covered drugs at 106 percent of ASP, an amount that is based on 
actual sales data and is consistent nationwide.  Currently, CMS does not 
have a national payment amount for Avastin used to treat wet AMD; 
consequently, the Medicare contractor in each jurisdiction has to set its 
own payment amount.  Most contractors paid nearly identical amounts for 
Avastin used to treat wet AMD and had similar payment policies, although 
in some cases contractor payment amounts differed by up to 28 percent.   
We recognize that physicians incur additional costs (i.e., compounding 
costs) when using Avastin to treat wet AMD and that these costs are not 
factored into the drugs ASP.  The unique circumstances surrounding the 
acquisition and administration of Avastin to treat wet AMD in a 
physicians-office setting would need to be considered when setting a 
payment amount.  To help establish a national payment amount, CMS 
could use physician acquisition cost data collected by OIG. 
Educate Providers About the Clinical and Payment Issues 
Related to Lucentis and Avastin 
Our findings show that physicians can purchase Avastin at a much lower 
price than Lucentis and that many physicians are using Avastin because it 
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  13   
   
is a lower cost alternative.  CMS could direct a provider education 
initiative to educate ophthalmologists about the clinical issues regarding 
Lucentis and Avastin (e.g., the results of the CATT) as well as the 
implications of the wide variance in cost on the program and beneficiaries.   
 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS did not concur with our first recommendation at this time, but did 
note the existence of a unique code and payment amount for intraocular 
doses of Avastin in the hospital outpatient setting.  CMS concurred with 
our second recommendation.  
In not concurring with our recommendation to establish a national 
payment code for Avastin when used to treat wet AMD, CMS noted that it 
had previously taken steps to create a national payment code and amount 
in 2009, but that the code was rescinded in light of beneficiary access 
concerns.   
CMS concurred with our recommendation to educate providers about the 
clinical and payment issues related to Lucentis and Avastin.  CMS stated 
that it plans to inform claims processing contractors about our findings 
related to Avastin payment amounts.  Further, CMS noted that it will 
instruct contractors to make our reports findings available to providers.  
We acknowledge that the previous attempt to establish a national payment 
code and amount for the intraocular use of Avastin in physicians offices 
raised concerns over beneficiary access and that the unique circumstances 
surrounding the acquisition and administration of the drug would need to 
be considered when setting a payment amount.  However, given the lack 
of a national payment policy, the substantial cost difference between these 
two drugs, and the existence of a unique payment code and amount for 
intraocular doses of Avastin in the hospital outpatient setting, we continue 
to believe that CMS should establish a national payment code and amount 
for Avastin when administered in a physicians office that takes all of these 
factors into account.   
For the full text of CMSs comments, see Appendix B.     
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  14   
   
APPENDIX A 
Confidence Intervals 
             Point      95% Confidence   
Drug  Estimate Description           Sample Size 
        Estimate                    Interval 
Physician average acquisition cost in the first  $1,924.44 to 
124*  $1,928.46 
quarter of 2010  $1,932.49 
s  Percentage difference between average 
nti acquisition cost and the first-quarter 2010  124*  -4.67  -4.87 to -4.47 
e
c Medicare payment amount 
u
L
Percentage of physicians whose average 
acquisition cost was below the first-quarter  124*  98.34  89.42 to 99.76 
2010 Medicare payment amount 
Physician average acquisition cost in the first 
106**  $26.05  $23.71 to $28.40 
quarter of 2010 
Percentage difference between average 
acquisition cost and the first-quarter 2010  106**  -52.63  -56.91 to -48.35 
Medicare payment amount 
Percentage of physicians whose average 
acquisition cost was below the first-quarter  106**  95.86  86.60 to 98.81 
2010 Medicare payment amount 
Percentage difference between average 
physician acquisition cost and the rescinded  106**  -72.42  -74.90 to -69.94 
fourth-quarter 2009 Medicare payment amount 
Number of times the average acquisition cost 
exceeded the rescinded fourth-quarter 2009  106**  3.63  3.30 to 3.95 
Medicare payment amount 
Average physician cost of Avastin as a 
percentage of average physician cost of  ***  1.35  1.23 to 1.47 
Lucentis 
n  Percentage of physicians who cited cost as a 
sti reason for administering Avastin   113  69.99  58.73 to 79.27 
a
v
A Percentage of physicians who cited efficiency 
or effectiveness as a reason for administering  113  45.13  34.39 to 56.34 
Avastin 
Percentage of physicians who cited patient 
insurance as a reason for administering  113  39.83  29.27 to 51.43 
Avastin 
Percentage of physicians who cited less 
frequent of injection as a reason for  113  12.05  6.66 to 20.83 
administering Avastin 
Percentage of physicians who cited patient 
preference as a reason for administering  113  13.66  7.43 to 23.76 
Avastin 
Percentage of physicians who cited patient 
113  7.83  3.29 to 17.51 
condition as a reason for administering Avastin 
Percentage of physicians who cited ease of 
113  0.77  0.22 to 2.67 
use as a reason for administering Avastin 
Percentage of physicians who cited patient 
113  1.15  0.41 to 3.17 
safety as a reason for administering Avastin 
*The sample size is not 125 because 1 respondent reported not having purchased any Lucentis during the first quarter of 2010.  This physician 
submitted claims for Lucentis in the first quarter of 2010; however, according to this individuals response, the drugs were purchased during a 
previous quarter. 
**The sample size is not 113 because 7 respondents reported that they did not purchase any Avastin during the first quarter of 2010.  These 
physicians submitted claims for Avastin in the first quarter of 2010; however, according to their responses, the drugs were purchased during a 
previous quarter. 
***This point estimate is based on 2 samples:  1 sample of 124 respondents (Lucentis) and 1 sample of 106 respondents (Avastin).   
 
Source:  Office of Inspector General analysis of physicians average acquisition costs and survey responses.   
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  15  APPENDIX B 
Agency Comments 
/-""'..,
(~
DEPARTMENT OFHEALffi & HUMAN SERVlCFS  Centers for Medicare & Medicaid Servicas 
Administrator 
Washington. DC 20201 
JAN 1 9 2012
DATE: 
TO: 	 Daniel R. Levinson 
In~otor. General 
FROM: 	 Martl.Yn ~lfier 
Acting AOIllinhtrator 
SUBJECT: 	 Office ofInspector General (OIG) Draft Report: "Medicare Payments for Drugs 
Used to Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)" 
The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 
respond to the OIG Draft Report titled, Medicare Payments for Drugs Used to Treat Wet Age
Related Macular Degeneration (OEI-03-! 0-00360). OIG's objectives in this study were the 
following: 
1. To compare the Medicare payment amount for Lucentis to physicians' acquisition costs. 
2. To determine the average Medicare contractor payment amount for Avastin when used to treat 
wet age-related macular degeneration (AMD) and compare it to physicians' acquisition costs. 
3. To examine Medicare contractor payment policies for Avastin when used to treat AMD. 
4. 	To examine the factors considered by physrcians when choosing Avastin for the treatment of 
AMD. 
The OIG found that in the first quarter of2010, physician acquisition costs for Lucentis and 
Avastin were 5 and 53 percent below the Medicare payment amount, respectively. Medicare 
contractors' payment amounts for Avastin when used to treat wet AMD differed by as much as 28 
percent, although payment policies were similar. The majority ofphysicians who administered 
Avastin to treat wet AMD reported the substantial cost difference compared to Lucentis as a 
primary factor when deciding which drug to administer. 
OIG Rec9.mmendation 
Establish a national payment code for Avastin when used for the treatment of wet AMD. 
CMS Response 
We non-concur at this time with this recommendation tv establish a national price for Avastin 
doses used to treat macular degeneration in the office setting. As discussed in the report, eMS 
had taken steps to create a national price for intraocular doses of Avastin in 2009. The action 
was rescinded in light of beneficiary access concerns. We note that a related code (C92S7) is 
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEl-03-10-00360)  16   
   
Agency Comments (continued)   
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  17   
   
 
ACKNOWLEDGMENTS 
This report was prepared under the direction of Robert A. Vito, Regional 
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office, and David E. Tawes, Director, Prescription Drug Pricing 
Unit.   
Edward K. Burley served as the team leader for this study.  Other principal 
Office of Evaluation and Inspections staff from the Philadelphia regional 
office who contributed to the report include Daniel J. Mallinson; other 
central office staff who contributed include Kevin Farber, Scott Horning, 
Kevin Manley, and Tasha Trusty.   
 
 
Medicare Payments for Drugs Used To Treat Wet Age-Related Macular Degeneration (OEI-03-10-00360)  18   
Office of Inspector General 
http://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 Office of Audit Services (OAS) provides 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.  These assessments help reduce waste, abuse, and 
mismanagement and promote economy and efficiency throughout HHS. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud, waste, or abuse and promoting 
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 
of fraud and misconduct related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI utilizes its resources 
by actively coordinating with the Department of Justice and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to criminal 
convictions, administrative sanctions, and/or civil monetary penalties. 
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 for OIGs internal operations.  OCIG represents OIG in all civil and 
administrative fraud and abuse cases involving HHS programs, including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program guidance, publishes fraud alerts, and provides other 
guidance to the health care industry concerning the anti-kickback statute and other OIG 
enforcement authorities.