Department of Health and Human Services
OFFICE OF 
    
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
BENEF ICIARY UTILIZATION OF 
 
A
LBUTEROL AND 
 
 
L U
EVALBUTEROL  NDER 
 
M  P B 
EDICARE  ART 
 
 
 
 
Daniel R. Levinson  
Inspector General 
 
August 2009 
OEI-03-07-00440   
Office of Inspector General 
http://oig.hhs.gov 
 
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amended, is to protect the integrity of the Department of Health and Human Services 
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The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
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enforcement authorities. 
     
 E X E C U T I V E   S U M M A R Y  
OBJECTIVE
 
To determine whether shifts in utilization patterns for albuterol and 
levalbuterol from January 1, 2003, through December 31, 2007, 
coincided with changes in Medicare Part B payment and coding policy. 
BACKGROUND 
Two inhalation drugs, albuterol and levalbuterol, are bronchodilators 
used primarily to treat asthma and chronic obstructive pulmonary 
disease.  Some clinical studies suggest that levalbuterol has a greater 
efficacy and fewer side effects than albuterol; however, other trials have 
failed to detect any clinical advantage.   
In 2003 and 2004, albuterol and levalbuterol were included in the same 
payment code and had the same Medicare payment amount, based on 
the median average wholesale price (AWP) of all versions of both drugs.  
Effective January 1, 2005, the Centers for Medicare & Medicaid 
Services (CMS) established separate payment codes and separate 
payment amounts for the drugs.  At the same time, under the Medicare 
Prescription Drug, Improvement, and Modernization Act of 2003 
(MMA), Medicare reimbursement for an inhalation drug was set at    
106 percent of the drugs average sales price (ASP).  These changes 
increased the payment amount for levalbuterol from $0.39 to $1.28 per 
half milligram (mg), but decreased the payment amount for albuterol 
from $0.39 to $0.07 per mg in the first quarter of 2005 (for treatment 
purposes, 1 mg of albuterol is generally equivalent to 0.5 mg of 
levalbuterol).   
Effective July 1, 2007, CMS recombined albuterol and levalbuterol into 
a single code, resulting in a Medicare payment amount of $0.53 per mg 
of albuterol and per 0.5 mg of levalbuterol.  As of April 1, 2008, CMS 
again reestablished separate payment codes and payment amounts for 
these two drugs ($0.28 per 0.5 mg of levalbuterol and $0.04 per mg of 
albuterol). 
We surveyed the suppliers and physicians for 312 beneficiaries who had 
albuterol and/or levalbuterol claims between January 1, 2003, and 
December 31, 2007 (response rate of 96 percent for suppliers and         
60 percent for physicians).  Based on supplier responses, we calculated 
the percentage of beneficiaries who were changed to albuterol from 
levalbuterol and vice versa.  To estimate the impact of changing 
between the two drugs on supplier reimbursement, we compared 
  OEI-03-07-00440    BENEFICIARY UTILIZATION OF ALBUTEROL AND LEVALBUTEROL UNDER MEDICARE PART B  i   
   
E X E C U T I V E   S U M M A R Y  
Medicares quarterly payment amounts for albuterol and levalbuterol to 
the estimated supplier acquisition cost (based on manufacturer-reported 
ASP).  Using physician responses, we also determined reasons why 
changes occurred.   
FINDINGS 
Shifts in utilization patterns for albuterol and levalbuterol coincided 
with changes in payment and coding.  In 2003 and 2004, Medicare 
reimbursement favored albuterol (from a suppliers reimbursement 
perspective) and nearly all beneficiaries (97 percent) received that drug.  
Specifically, in the fourth quarter of 2004, Medicare paid suppliers an 
average of almost five times more than their cost for albuterol, but 
significantly less than their cost for levalbuterol.   
As a result of payment and coding changes that took effect on      
January 1, 2005, reimbursement became much more favorable for 
levalbuterol.  We estimate that during the initial quarter after the 
coding and reimbursement change, suppliers were being reimbursed 
roughly at cost for albuterol, but 68 percent above cost for levalbuterol.   
Twenty-five percent of beneficiaries who were on albuterol in 2004 were 
changed to levalbuterol between January 1, 2005, and June 30, 2007.   
As of July 1, 2007, CMS calculated one payment amount for albuterol 
and levalbuterol, which was based on the volume-weighted ASP for both 
drugs.  As a result, suppliers were being reimbursed at almost 10 times 
their cost for albuterol, but roughly half their cost for levalbuterol.  
After this payment and coding change, two-thirds of the beneficiaries in 
our sample who received levalbuterol as of June 2007 were changed to 
albuterol. 
Despite the move to ASP, average per-beneficiary spending on 
albuterol and levalbuterol actually increased above pre-MMA levels.  
In the first half of 2003, because almost all of the beneficiaries            
(97 percent) were receiving albuterol rather than levalbuterol, the 
former accounted for the vast majority of spending during this time.  
The change to an ASP-based reimbursement system in January 2005 
lowered the Medicare payment amount for albuterol by 83 percent.  
However, because utilization began slowly shifting to levalbuterol, 
overall per-beneficiary spending did not decline proportionally. 
As the number of beneficiaries shifting to levalbuterol increased, so did 
the average spending per beneficiary.  Between January 1 and         
June 30, 2007, when more than a quarter of beneficiaries were receiving 
  OEI-03-07-00440  BENEFICIARY UTILIZATION OF ALBUTEROL AND LEVALBUTEROL UNDER MEDICARE PART B  ii   
   
E X E C U T I V E   S U M M A R Y  
levalbuterol, Medicare paid an average of $600 per beneficiary for both 
albuterol and levalbuterol, or $94 more per beneficiary than in the first 
half of 2003. 
Physicians in our sample typically cited clinical reasons for 
changing beneficiaries from albuterol to levalbuterol, but financial 
reasons for changing in the opposite direction.  For 64 percent of 
beneficiaries in our sample who were changed from albuterol to 
levalbuterol between January 1, 2005, and June 30, 2007 (i.e., when 
levalbuterol became the more favorable drug from a reimbursement 
perspective), physicians reported that the changes occurred because of 
clinical reasons.  During this same period, physicians for just 8 percent of 
beneficiaries in our sample cited financial reasons for the change to 
levalbuterol.   
However, for 58 percent of beneficiaries in our sample who changed from 
levalbuterol to albuterol after July 1, 2007 (i.e., when albuterol became 
the more favorable drug from a reimbursement perspective), physicians 
reported that the prescriptions were changed because of financial 
concerns.     
CONCLUSION 
Between January 2005 and June 2007, when Medicare reimbursement 
shifted to favor the more expensive levalbuterol, one-quarter of the 
beneficiaries were changed from albuterol to the costlier product.  
Although a number of physicians cited clinical reasons for changing 
prescriptions, reimbursement considerations may have also played a 
roleespecially given that some changes appear to have been completed 
by the suppliers without the physicians knowledge and that the 
majority of the beneficiaries remained on albuterol despite the large 
differences in payment levels. 
As a result of the July 1, 2007, payment and coding changes, most 
suppliers may have been losing money by providing levalbuterol, and at 
that time, many beneficiaries were changed back to albuterol, even 
though in some cases (according to physicians) albuterol had initially 
caused side effects.  At this same time, however, the payment situation 
not only created a disincentive for levalbuterol, but also caused 
albuterol to be reimbursed at more than 10 times its cost.  
As of April 1, 2008, CMS implemented a provision of the Medicare, 
Medicaid, and SCHIP Extension Act of 2007 that once again lowered 
albuterol reimbursement so that payment more accurately reflected 
  OEI-03-07-00440  BENEFICIARY UTILIZATION OF ALBUTEROL AND LEVALBUTEROL UNDER MEDICARE PART B  iii   
   
E X E C U T I V E   S U M M A R Y  
acquisition cost.  However, the same provision prevented CMS from 
addressing any underpayment for levalbuterol.   
When Congress and CMS make coding and reimbursement decisions, it 
is important they take into consideration that the new policies may 
affect what drug a beneficiary is prescribed.  In some cases, this may 
limit access to a potentially more effective product; in others, utilization 
could be driven toward a more expensive product that offers no clinical 
advantage.  In future studies, the Office of Inspector General will 
continue to monitor the utilization of and payment for these and other 
drugs, with the goal of identifying inappropriate Medicare payments. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
In its comments on the draft report, CMS stated that the agency is 
aware of the impact that changes in payment methodologies can have 
on access to prescription drugs.  However, CMS noted that in the case of 
albuterol and levalbuterol, changes to coding and pricing were not 
discretionary but instead were made to comply with legislative 
mandates.  CMS stated that the agency has monitored and will continue 
to monitor spending and utilization for both drugs to help ensure price 
stability and access while fulfilling legal mandates.     
In its technical comments, CMS noted two areas for further OIG 
investigation:  (1) cases in which physicians were reportedly unaware of 
the medication changes; and (2) the clinical rationales for changing 
medications, including whether reports of clinical complications truly 
reflect actual complications.  OIG will review cases in which 
prescription changes occurred without the physicians knowledge to 
determine whether further investigation is warranted; however, OIG 
does not believe further investigation on physician rationales for 
prescription changes is necessary.  We did not make any changes to the 
report based on CMSs comments.  
 
 
 
  OEI-03-07-00440  BENEFICIARY UTILIZATION OF ALBUTEROL AND LEVALBUTEROL UNDER MEDICARE PART B  iv   
 T A B L E   O F   C O N T E N T S  
 
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
 
 
 
I N T RO DUC T IO N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 
 
 
F I N D IN G S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 
  Shifts in utilization patterns for albuterol and levalbuterol                  
         coincided with changes in payment and coding. . . . . . . . . . . . . . . 13 
  Despite the move to ASP, average per-beneficiary spending on  
         albuterol and levalbuterol actually increased above pre-MMA  
         levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 
  Physicians in our sample typically cited clinical reasons for         
         changing beneficiaries from albuterol to levalbuterol, but  
         financial reasons for changing in the opposite direction. . . . . . . . 18 
   
CONC LUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 
  Agency Comments and Office of Inspector General 
   Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 
 
 
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 
A:  Confidence Intervals for Percentages. . . . . . . . . . . . . . . . . . . . 24 
         B:  Average Monthly Difference Between  
  Reimbursement and Cost for Albuterol and Levalbuterol. . . . . . . 25 
          
         C:  Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 
 
           
A C K NO WL E D G M E N T S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 
   
   
 I N T R O D U C T I O N  
OBJECTIVE 
To determine whether shifts in utilization patterns for albuterol and 
levalbuterol from January 1, 2003, through December 31, 2007, 
coincided with changes in Medicare Part B payment and coding policy. 
BACKGROUND 
Medicare Part B Coverage of Inhalation Drugs 
Although Medicare Part D covers most outpatient prescription drugs, 
inhalation drugs are covered under Part B when administered in the 
home through a nebulizer.1  A nebulizer is a type of durable medical 
equipment (DME) item that is provided to Medicare beneficiaries by 
DME suppliers.  DME suppliers also provide inhalation drugs, which 
are covered under Part B as a supply necessary for the nebulizer to 
perform its function.  Physicians typically prescribe inhalation drugs to 
treat and prevent symptoms associated with lung diseases, such as 
asthma and chronic obstructive pulmonary disorder.  Long-term use is 
often required because inhalation drugs treat incurable and chronic 
diseases.   
Two inhalation drugs, albuterol and levalbuterol, are bronchodilators 
used primarily to treat asthma and chronic obstructive pulmonary 
disease.  The drugs essentially have the same chemical composition, 
except that levalbuterol contains only one of the two albuterol isomers.  
Some clinical studies suggest that because it lacks this isomer, 
levalbuterol has greater efficacy and produces fewer side effects than 
albuterol.  However, other trials have failed to detect any clinical 
advantage of levalbuterol over albuterol.2  Levalbuterol (brand name 
Xopenex) is a single-source drug manufactured by Sepracor and has no 
 
1 Medicare Part D covers inhalation drugs that (1) are not administered through a 
nebulizer, such as those delivered through a metered-dose inhaler; or (2) are administered 
through a nebulizer, but are not used in a patients home (e.g., used in a hospital or skilled 
nursing facility by a beneficiary who does not have Part A coverage, who has exhausted his 
or her Part A coverage, or whose stay is noncovered).  Hereinafter, all references to 
inhalation drugs in this report refer to inhalation drugs covered under Part B,                   
i.e., administered in the home through a nebulizer.   
2 National Heart, Lung, and Blood Institute, National Asthma Education and Prevention 
Program, Expert Panel Report 3:  Guidelines for the Diagnosis and Management of 
Asthma.  Published on August 28, 2007.  Available online at 
http://www.nhlbi.nih.gov/guidelines/asthma/asthgdln.pdf.  Accessed on January 4, 2008. 
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I N T R O D U C T I O N  
available generic versions.  Albuterol is a multiple-source drug with 
generic versions available from numerous manufacturers.   
The Centers for Medicare & Medicaid Services (CMS) contracts with 
four geographically defined DME Medicare Administrative Contractors 
(MAC) to process and pay for DME claims, including those for 
inhalation drugs.3  For Medicare to pay for an inhalation drug, the 
DME supplier must have a signed prescription from the treating 
physician and the physicians identification number must be listed on 
the submitted claim form.  Generally, Medicare will pay 80 percent of 
the authorized reimbursement amount to the DME supplier providing 
the inhalation drug; the beneficiary is responsible for the remaining            
20 percent in the form of coinsurance. 
When a supplier submits a claim for reimbursement, the drug dispensed 
is identified on the claim using codes established by CMS as part of the 
Healthcare Common Procedure Coding System (HCPCS).  The 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 dosage 
size but does not specify manufacturer or package size information.4   
Medicare Part B Payment Methodology for Inhalation Drugs 
Medicares payment methodology for inhalation drugs administered 
through a nebulizer has undergone significant changes over the past      
5 years, with the intent of making Medicare payments more reflective 
of acquisition costs.  Pursuant to section 1842(o) of the Social Security 
Act (the Act), as amended by section 4556 of the Balanced Budget Act 
of 1997, P.L. No. 105-33, payment for inhalation drugs furnished on or 
after January 1, 1998, was set at 95 percent of the drugs average 
wholesale price (AWP).  However, reports by the Government 
 
3 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003,         
P.L. No. 108-173 (MMA), included provisions that required CMS to implement competitive 
procedures to replace DME regional carriers with DME MACs.  In 2006, CMS competitively 
selected four DME MACs and began to transition claims administration activities from 
DME regional carriers to DME MACs.  As of June 1, 2007, the four DME MACs awarded 
contracts were the National Heritage Insurance Company for Jurisdiction A; AdminaStar 
Federal, Inc., for Jurisdiction B; CIGNA Government Service, LLC, for Jurisdiction C; and 
Noridian Administrative Services for Jurisdiction D.  
4 Typically, HCPCS codes correspond to a single drug distributed by one or more 
manufacturers.  However, in some cases, HCPCS codes may represent several different 
drugs.  
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Accountability Office (GAO)5 and the Office of Inspector General 
(OIG) consistently demonstrated that suppliers could obtain drugs 
well below the Medicare payment amount under the AWP method.  
OIG issued several reports that focused specifically on the            
high-volume inhalation drug albuterol.6  Based in part on this work, 
sections 303(b)(2) and 305(a) of the MMA, P.L. No. 108-173, lowered 
the Medicare payment to 80 percent of AWP for some of the most 
commonly dispensed inhalation drugs, such as albuterol, in 2004.7  
Other inhalation drugs were reimbursed at 85 percent of AWP.8   
For 2005 and subsequent years, sections 303(c)(1) and 305(a) of the 
MMA changed the basis of payment for inhalation drugs (and most 
other Part B prescription drugs as well) to 106 percent of the       
volume-weighted average sales price (ASP).9  Section 1847A(c) of the 
Act, as added by the MMA, generally defines ASP 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.  CMS calculates a volume-weighted 
ASP for each covered HCPCS code by using an equation that involves 
manufacturer-reported ASP data, the volume of sales reported by the 
manufacturers, and the number of billing units in the national drug 
code determined by CMS.   
Dispensing fees.  In addition to paying the cost of the drug itself, 
Medicare also pays a separate dispensing fee for inhalation drugs under 
the DME benefit.  Dispensing fees are intended to cover any reasonable 
pharmacy costs associated with distributing the drug, but do not include 
administrative fees.  Prior to 2005, Medicare paid a monthly                 
$5 fee to the supplier each time an inhalation drug was dispensed.10  In 
2005, Medicare raised the dispensing fee to $57 for a 30-day supply or 
$80 for a 90-day supply of inhalation drugs.11  According to CMS, 
 
5 GAO, Payments for Covered Outpatient Drugs Exceed Providers Cost, GAO-01-1118 
(September 21, 2001). 
6 For example, see Excessive Medicare Reimbursement for Albuterol                         
(OEI-03-01-00410), March 2002. 
7 Sections 1842(o)(1)(G)(i) and 1842(o)(4)(B), (C), and (D) of the Act. 
8 Section 1842(o)(4)(A) of the Act. 
9 Sections 1842(o)(1)(G)(ii) and 1847A of the Act. 
10 CMS Press Release, Appropriate Payments, High-Quality Care for Beneficiaries 
Using Inhalation Drugs.  November 2, 2005.  
11 69 Fed. Reg. 66236, 66425 (Nov. 15, 2004) (codifying earlier version of 42 CFR              
 414.1001(c) and (d)). 
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because of the overall reduction in payment for inhalation drugs, the 
dispensing fee was increased because the agency was concerned about 
beneficiary access to these drugs.12  Effective January 1, 2006, 
Medicare began paying $57 for the first time a beneficiary was 
dispensed a 30-day supply of an inhalation drug and $33 for each 
subsequent month, or $66 for a 90-day supply.13  As of December 1, 
2008, dispensing fees for inhalation drugs were still paid at this same 
rate. 
Medicare Payment and Coding for Albuterol and Levalbuterol 
January 1, 2003December 31, 2004.  Medicare payment and coding for 
albuterol and levalbuterol have undergone several changes since 2003 
(see Table 1 on page 6 for details).14  In 2003 and 2004, albuterol and 
levalbuterol were both paid for under the same HCPCS code 
(J7619).15  At that time, the payment amount for this code was based 
on the median AWP of all versions of both drugs.  In 2003, this 
resulted in a Medicare payment amount of $0.47 per milligram (mg) 
of albuterol or per 0.5 mg of levalbuterol (despite levalbuterols    
much-higher AWP).16  In 2004, Medicare paid $0.39 for these dosages 
of both drugs.  
January 1, 2005June 30, 2007.  Effective January 1, 2005, CMS 
established separate HCPCS codes and separate payment amounts 
for albuterol (J7613) and levalbuterol (J7614).17  At the same time, 
CMS also implemented the ASP methodology as mandated by the      
MMA.  As a result, in the first quarter of 2005, the Medicare payment 
amount for albuterol decreased to $0.07 per mg, while the Medicare 
payment amount for levalbuterol increased to $1.28 per 0.5 mg.  
Between January 1, 2005, and June 30, 2007, Medicare payment 
amounts varied slightly from quarter to quarter.  However, Medicare 
 
12 69 Fed. Reg. 47488, 47549 (Aug. 5, 2004). 
13 42 CFR  414.1001(c) and (d).  
14 For the purpose of this review, albuterol and levalbuterol refer to unit-dose forms of 
these drugs; this review does not include the concentrated forms. 
15 68 Fed. Reg. 50428, 50450 (Aug. 20, 2003). 
16 For treatment purposes, 1 mg of albuterol is generally equivalent to 0.5 mg of 
levalbuterol.  
17CMS, January 2005 Payment Allowance Limits for Medicare Part B Drugs.   
Downloaded from a link entitled Jan 2005 ASP Pricing File and ASP NOC Pricing File. 
Available online at 
http://www.cms.hhs.gov/McrPartBDrugAvgSalesPrice/02a_2005aspfiles.asp#TopOfPage.  
Accessed on March 30, 2009. 
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continued to pay for albuterol and levalbuterol separately during this 
time. 
July 1, 2007March 31, 2008.  CMS reestablished a single HCPCS code 
(Q4094) for albuterol and levalbuterol effective July 1, 2007, as 
described in a May 2007 coding announcement.18  Thus, as of          
July 1, 2007, the Medicare payment amount for the code was based on 
the volume-weighted ASP for both albuterol and levalbuterol.  
According to the coding announcement, this change was made to 
ensure that payments reflected the grandfathering provision of 
section 1847A of the Act, which states:   
With respect to single source drugs or biologicals that are      
within the same billing and payment code as of October 1, 
2003, the Secretary shall treat such single source drugs or 
biologicals as if the single source drugs or biologicals were 
multiple source drugs.19   
This coding change had a substantial impact on the Medicare 
payment amounts for both drugs.  The Medicare payment amount for 
albuterol in the third quarter of 2007 was about 6.5 times higher than 
the payment amount in the second quarter ($0.08 per mg compared to 
$0.53 per mg).  However, the payment amount for levalbuterol had 
decreased by almost two-thirds (from $1.54 per 0.5 mg to $0.53 per  
0.5 mg). 
April 1, 2008Present.  Section 112(b)(2) of the Medicare, Medicaid, and 
SCHIP Extension Act of 2007 (Extension Act) established a special 
rule that addressed the application of the grandfathering provision 
of the Act.20  This provision of the Extension Act provides flexibility in 
payment determinations designed to yield the lowest payment 
amount for certain drugs, including albuterol and levalbuterol.  More 
specifically, effective April 1, 2008, this provision allows payment 
amounts for single-source drugs that are treated as multiple-source 
drugs under the grandfathering clause to be based on the lower of     
(1) the payment amount determined when the grandfathering clause 
 
18 CMS Coding Announcement.  Available online at 
http://www.cms.hhs.gov/MedHCPCSGenInfo/Downloads/051807_coding_annoucement.pdf.  
Accessed on August 25, 2008.    
19 Section 1847A(c)(6)(C)(ii) of the Act.  CMSs change affected Medicare payment for 
several other drugs as well.  We did not examine the potential impact on Medicare 
expenditures for any drugs other than albuterol and levalbuterol.   
20 Section 1847A(c)(6)(C)(ii) of the Act. 
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I N T R O D U C T I O N  
is applied or (2) the payment amount when the grandfathering clause 
is not applied.21 
Effective April 1, 2008, CMS implemented these provisions of the 
Extension Act by establishing separate HCPCS codes and payment 
amounts for albuterol and levalbuterol.  By doing so, CMS set the 
payment amount for albuterol in the second quarter of 2008 at $0.04 
per mg and for levalbuterol at $0.28 per 0.5 mg.  This is a 92-percent 
decrease in the payment amount for albuterol and a 47-percent 
decrease for levalbuterol.  A summary of the different payment and 
coding methodologies and their impact on Medicare payment amounts 
is presented in Table 1. 
  Table 1:  Medicare Payment Amounts for Albuterol and Levalbuterol 
  95% of  80% of  106% of ASP 
AWP  AWP 
             
2003  2004  2005  2006  2007    2007    2008 
(1st Qtr)  (1st Qtr)   (2nd Qtr)  (3rd Qtr)  (2nd Qtr) 
 Combined Payment Codes 
Albuterol (unit dose), 1 mg   $0.47  $0.39  -  -  -  $0.53  - 
Levalbuterol (unit dose), 0.5 mg  
Separate Payment Codes 
Albuterol (unit dose), 1 mg     -  $0.07  $0.06  $0.08  -  $0.04 
Levalbuterol (unit dose), 0.5 mg     -  $1.28  $1.34  $1.54  -  $0.28 
  Source:  Quarterly Medicare payment amounts from CMSs Web site. 
 
Medicare Spending for Albuterol and Levalbuterol  
In 2004, albuterol and levalbuterol accounted for 31 percent            
($404 million) of the $1.3 billion Medicare spent on inhalation drugs.  
Following the MMA-mandated change to an ASP-based reimbursement 
methodology, spending on albuterol and levalbuterol dropped to        
$234 million in 2005 (30 percent of the $784 million spent on all 
inhalation drugs).  By 2007, total Medicare spending for albuterol and 
levalbuterol had increased to $385 million, an amount approaching the 
pre-ASP level.  These drugs accounted for nearly 40 percent of the           
$1 billion Medicare spent on inhalation drugs.22  See Table 2 for details 
 
21 Section 1847A(b)(7)(A) of the Act. 
22 Medicare Part B Extract and Summary System (BESS) (98 percent of claims reported).  
Accessed on June 17, 2008.  
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on total Medicare payments for albuterol and levalbuterol from 2003 
through 2007.  
 
Table 2:  Total Medicare Spending on Albuterol and Levalbuterol 
 
95% of AWP  80% of AWP     106% of ASP 
2003  2004  2005  2006  2007* 
Combined Payment Codes 
Albuterol (unit dose), 1 mg; levalbuterol (unit dose),  $484 million  $404 million  -  -  $162 million 
0.5 mg 
Separate Payment Codes 
Albuterol (unit dose), 1 mg  -  -  $57 million  $39 million  $17 million 
Levalbuterol (unit dose), 0.5 mg  -  -  $177 million  $334 million  $206 million 
Total Medicare spending on albuterol and  $484 million  $404 million  $234 million  $373 million  $385 million 
levalbuterol 
  *Albuterol and levalbuterol had separate payment amounts in the first half of 2007 and combined payment amounts for the second half. 
   Source:  BESS 20032006 data accessed on June 11, 2007; BESS 2007 data accessed on July 15, 2008.  
 
METHODOLOGY 
Sample Selection 
Our sample was limited to beneficiaries who had received albuterol or 
levalbuterol continuously from the first half of 2003 through the fourth 
quarter of 2007, provided by the same supplier and prescribed by the 
same physician.  It was also limited to suppliers and physicians that 
were not under current investigation.  Therefore, our sample may be 
projected only to beneficiaries who meet these criteria. 
We obtained 100 percent of Medicare DME claims for albuterol and 
levalbuterol from CMSs National Claims History file for 2003 through 
2007.  Using these data, we first identified the beneficiaries with claims 
for albuterol/levalbuterol (HCPCS code Q4094) in the fourth quarter of 
2007 (319,849 beneficiaries).  Among this group, we identified all of the 
beneficiaries who had at least one albuterol or levalbuterol claim in both 
the first and second halves of each year from 2003 through 2007  
(36,585 beneficiaries).   
We further limited our sample to include only the beneficiaries who, 
according to the claims data, had not changed their prescribing 
physicians and suppliers during this time.  Using the group of 
beneficiaries with albuterol and levalbuterol claims in each half of 2003 
through 2007, we matched the physicians unique physician 
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identification number (UPIN) listed on every claim in the first half of 
2007 to the UPIN listed on every albuterol and levalbuterol claim since 
January 2003.  We then matched the suppliers provider identification 
number to each provider identification number listed on each claim 
during this time.  We selected only those beneficiaries whose claims 
always listed the same UPIN and provider identification number 
between 2003 and 2007.  In total, 7,426 beneficiaries met these criteria 
(2 percent of the 319,849 beneficiaries with albuterol/levalbuterol claims 
in the fourth quarter of 2007). 
We randomly selected a sample of 400 beneficiaries from the group of 
7,426 beneficiaries.  We removed from our sample beneficiaries who 
received drugs from the six suppliers that were under investigation.23  
Our final sample of 312 beneficiaries were prescribed inhalation drugs 
by 304 physicians and provided inhalation drugs by 154 suppliers. 
Data Collection 
Because the HCPCS codes used prior to 2005 and in the second half of 
2007 did not enable us to differentiate between albuterol and 
levalbuterol from the claims data alone, we contacted the supplier and 
physician for each beneficiary.  We used the provider and physician 
identification numbers listed on the claim and cross-referenced these 
to address databases (i.e., National Supplier Clearinghouse and UPIN 
Registry) to contact each beneficiarys supplier and prescribing 
physician.  
Supplier requests.  For each beneficiary, we requested that the supplier 
complete a dispensing table to show the drug dispensed, the dates 
dispensed, the drugs strength and volume, and the number of vials 
provided.  We also requested copies of the beneficiarys original 
physician-signed prescriptions for albuterol and/or levalbuterol.  If a 
beneficiary changed between the two drugs from January 1, 2005, 
through December 31, 2007, we asked the supplier to describe what 
prompted each change.   
At the end of June 2008, we sent requests to the 154 suppliers 
associated with the 312 beneficiaries.  As of September 2008, we had  
 
23 These six suppliers provided inhalation drugs to 88 of the 400 beneficiaries. 
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received responses from 143 suppliers for 300 beneficiaries.24 25  Two 
beneficiaries were not included in any of the analyses because the 
supplier reported that they were on compounded versions of the drugs 
the entire time, yielding a total possible sample size of 298 (response 
rate of 96 percent).26   
Physician requests.  For each beneficiary in our sample, we asked his or 
her physician to provide the beneficiarys albuterol and levalbuterol 
prescription history from January 1, 2003, through December 31, 
2007.  By doing so, we were able to determine whether and how often 
the beneficiary changed between albuterol and levalbuterol.  We 
asked each physician to report the reason for (1) changes from 
albuterol to levalbuterol on or after January 1, 2005; and (2) changes 
from levalbuterol to albuterol on or after July 1, 2007.  For these 
changes, we projected the percentages to our population.   
We sent requests to the 304 physicians who prescribed albuterol or 
levalbuterol to the 312 beneficiaries at the end of June 2008.  As of 
September 2008, we had received responses from 181 physicians for          
186 beneficiaries that could be included in the analysis of physician 
responses (response rate of 60 percent).  In addition, we received 
physician responses for 46 beneficiaries who could not be included in 
the analysis because (1) the physician reported prescribing both drugs 
to the beneficiary at the same time, (2) the physician stated that 
neither of the drugs was prescribed for the beneficiary during the 
requested timeframe, (3) the physician reported that he or she had 
never seen the beneficiary (at least not in the last 5 years), or (4) the 
physician did not have records identifying the drug and/or dates 
prescribed.27   
 
24 Six suppliers returned their beneficiary surveys after the deadline and after the 
analyses were completed.  Therefore, these were not included in the analyses.  One supplier 
for one beneficiary reported that it never provided either drug to the beneficiary.  There 
were an additional four suppliers (accounting for five beneficiaries) that we referred for 
investigation because their surveys were returned to us marked undeliverable.   
25 We sent up to two follow-up surveys and made several attempts to contact               
nonresponding suppliers. 
26 Pharmacy compounding is a practice in which pharmacists combine, mix, or alter 
ingredients, such as albuterol and ipratropium bromide, to create unique medications that 
meet specific needs of individual patients.  
27 For cases in which physicians responded that they prescribed neither drug or did not 
treat the beneficiaries, we will provide our Office of Investigations (OI) with information 
about the supplier that billed for the drug. 
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I N T R O D U C T I O N  
Among the nonresponding physicians, 72 physicians associated with 
73 beneficiaries (23 percent) did not return completed surveys and 
had no contact with our office.28  An additional four physicians 
declined to respond to our request, two addresses could not be found, 
and one doctor had died and the office closed over a year ago. 
Data Analysis 
Because the suppliers dispensed the drugs to the beneficiaries, we 
used their responses to determine the percentage of beneficiaries with 
drug utilization changes.  We calculated the percentage of 
beneficiaries who were (1) on albuterol in 2004 and then changed to 
levalbuterol between January 1, 2005, and July 1, 2007 (following the 
change to ASP); and (2) on levalbuterol as of June 2007 (before the 
payment coding change) and then changed to albuterol in the second 
half of 2007.29 30  We also calculated the percentage of beneficiaries 
who were changed to the less profitable drug during each of these 
periods. 
Once we determined the number of beneficiaries who were changed 
from one drug to the other, we compared the prescription reports from 
those beneficiaries suppliers with those of the corresponding 
physicians.  Using the physician responses, we determined what 
prompted the physicians to change the beneficiaries from albuterol to 
levalbuterol between January 1, 2005, and June 30, 2007, or from 
levalbuterol to albuterol in the second half of 2007.  Because of a low 
physician response rate and a small sample size, we did not make 
projections based on physician responses.  
Additionally, for the beneficiaries who were changed to a more 
profitable drug (i.e., changed to levalbuterol between                
January 1, 2005, and June 30, 2007; or changed to albuterol after 
June 30, 2007), we compared physician and supplier responses.  We 
received both physician and supplier responses for 50 of the              
 
28 We sent up to two follow-up surveys to physicians who had not responded to the 
original request by the due date.   
29 We analyzed only changes between albuterol and levalbuterol; supplier and physician 
responses indicating changes between compounded drugs (e.g., albuterol/ipratropium 
bromide) were excluded from each analysis.   
30 We projected the results to the population for the first change (i.e., from albuterol to 
levalbuterol following the change to ASP).  However, because we selected a subset of 
beneficiaries for the second change (i.e., beneficiaries on levalbuterol as of June 2007 who 
were changed to albuterol in the second half of 2007), our sample size for this analysis was 
reduced to 63 beneficiaries.  Therefore, we were unable to reliably project this percentage. 
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78 beneficiaries with this type of change.  We calculated the number 
of beneficiaries whose suppliers reported changes that the physicians 
did not report.31    
To estimate the impact of changing between the two drugs on supplier 
reimbursement, we compared Medicares quarterly payments for 
albuterol and levalbuterol to the estimated supplier acquisition costs.  
We based our estimate of acquisition costs in each quarter on the 
manufacturer-reported ASPs reflecting sales during that same 
quarter.  We multiplied the difference between supplier acquisition 
cost and average reimbursement by 90 vials to approximate the net 
difference per month.32 33  Using claims data in CMSs National 
Claims History file and information from supplier responses, we also 
determined the average spending per beneficiary in our sample on 
albuterol and levalbuterol in the first half of each year from 2003 to 
2007.34   
Limitations 
We limited our sample to include beneficiaries with albuterol or 
levalbuterol claims during the first and second half of each year 
between January 1, 2003, and December 31, 2007, who had the same 
physician and the same supplier for all 5 years.  Because beneficiaries 
may change their doctors or suppliers within a 5-year period, our 
sample may not be representative of all beneficiaries who were 
prescribed inhalation drugs.    
By selecting a sample of beneficiaries who each had only one supplier 
and one physician, we may also have eliminated potentially fraudulent 
DME suppliers.  As demonstrated in a prior OIG report, beneficiaries in 
 
31 As previously noted, this analysis includes physician responses.  We did not project 
these figures because of a low sample size and a low physician response rate.  
32 Prescribing information on the Food and Drug Administrations Web site states that 
patients may benefit from using 2.5 mg of albuterol or 1.25 mg of levalbuterol three times a 
day, which would be approximately 90 vials per month.   
33 We used the most common dosages per vial reported by suppliers for each drug:         
2.5 mg/3 milliliter (mL) of albuterol and 1.25 mg/3 mL of levalbuterol.  Levalbuterol is 
available in three doses:  0.31 mg, 0.63 mg, and 1.25 mg.  The manufacturer prices each vial 
the same, regardless of the dose it contains.  However, CMS bases the reimbursement on 
the dose in each vial (i.e., per mg).  This creates a potential disconnection between pricing 
and reimbursement and may produce an incentive for manufacturers to purchase the 
highest dosage of 1.25 mg/3 mL. 
34 Because we could not differentiate between albuterol and levalbuterol claims in 2003 
and 2004, to calculate the average albuterol and levalbuterol spending, we used the 
information from the supplier responses to identify the drug listed on the claim. 
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South Florida, a high-risk area for fraudulent and excessive DME 
billings, have a much higher rate of multiple suppliers per beneficiary 
than anywhere else.  Because we removed the beneficiaries with 
multiple suppliers, our percentage of beneficiaries who were changed to 
a more profitable drug and average spending calculations may be lower 
than if the beneficiaries associated with these suppliers were included.  
Our analysis of supplier reimbursement includes only Medicare 
payments for the ingredient cost portion.  We did not analyze the impact 
of dispensing fees (which were the same for both drugs) in our review.  
In addition, we did not address clinical issues associated with either 
drug. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections approved by the Council of the Inspectors General on 
Integrity and Efficiency. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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F I N D I N G S  
  F I N D I N G S  
Shifts in utilization patterns for albuterol and  Medicare payment and coding for 
levalbuterol coincided with changes in payment  albuterol and levalbuterol have 
and coding  undergone several changes since 
2003. Between 2003 and 2007, 
utilization patterns for both drugs among beneficiaries fluctuated 
noticeablyalmost always shifting toward the drug with the more 
profitable cost and reimbursement difference (i.e., more favorable for 
the supplier from a reimbursement perspective).  Figure 1 on  page 16 
illustrates the changes in utilization among beneficiaries from 2003 to 
2007. 
In 2003 and 2004, Medicare reimbursement favored albuterol and nearly all 
beneficiaries received that drug 
Albuterol and levalbuterol were both included in the same HCPCS code 
and paid by Medicare at the same AWP-based rate in 2003 and 2004.  
However, the actual acquisition cost of albuterol was much lower than 
the actual acquisition cost of levalbuterol.35  We estimate that in the 
fourth quarter of 2004, suppliers could purchase a typical monthly 
supply (90 vials) of albuterol for around $19, while a similar supply of 
levalbuterol cost $164.  Medicare reimbursed suppliers approximately 
$88 for either drug in the fourth quarter of 2004, meaning that 
suppliers were reimbursed almost five times their cost for albuterol, but 
substantially less than their cost for levalbuterol (almost 50 percent 
below their average acquisition cost for a months supply).   
Ninety-seven  percent of beneficiaries received albuterol in the fourth 
quarter of 2004, but only 3 percent received levalbuterol (based on 
supplier responses).  These figures were relatively constant during the 
entire period from January 1, 2003, through December 31, 2004.  Refer 
to Appendix A for the percentages and confidence intervals cited in this 
report. 
Between January 2005 and June 2007, Medicare reimbursement favored 
levalbuterol; during that period, one-quarter of beneficiaries who were using 
albuterol were changed to levalbuterol 
Effective January 1, 2005, CMS established separate HCPCS codes 
and separate payment amounts for albuterol and levalbuterol.  At the 
same time, CMS implemented the ASP methodology as mandated by 
 
35 Average acquisition cost was based on manufacturer-reported  ASP data from the 
quarter under review. 
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F I N D I N G S  
the MMA.  As a result, instead of favoring albuterol, reimbursement 
became much more favorable for levalbuterol.  
During the initial quarter after the 2005 coding and reimbursement 
change, Medicares payment for the typical monthly supply of albuterol 
fell from $88 to $15, while payment for levalbuterol jumped from $88 to 
$288.  According to ASP data, suppliers paid, on average, $14 for a 
monthly supply of albuterol and $171 for levalbuterol.  In other words, 
suppliers were now being reimbursed roughly at cost for albuterol, but 
68 percent above cost for levalbuterol.  Medicare reimbursement 
continued to greatly favor levalbuterol between January 2005 and July 
2007, even though actual differences between Medicare payment and 
acquisition costs for the two drugs shifted slightly (see Table 3). 
 
 Table 3:  Average Reimbursement and Cost Difference for a Monthly Supply of Albuterol and        
 Levalbuterol (Fourth Quarter 2004 and Second Quarter 2007) 
Supplier  Supplier 
Acquisition  Medicare  Acquisition  Medicare 
Timeframe 
Cost for  Reimbursement  Albuterol  Cost for  Reimbursement  Levalbuterol 
Albuterol  for Albuterol  Difference  Levalbuterol  for Levalbuterol  Difference 
4Q 2004  $19.10  $87.75  $68.65  $164.25  $87.75  -$76.50 
1Q 2005  $14.01  $14.63  $0.62  $171.00  $287.55  $116.55 
1Q 2006  $17.41  $13.50  -$3.91  $207.00  $301.05  $94.05 
2Q 2007  $11.25  $18.23  $6.98  $211.05  $345.38  $134.33 
Note:  All figures are average monthly amounts in each quarter for 225 mg of albuterol and 112.5 mg of levalbuterol. 
Refer to Appendix B for the difference between reimbursement and cost for all quarters between October 1, 2004, and December 31, 2007. 
Source:  Medicare payment amounts from CMSs Web site; OIG analysis of supplier acquisition data. 
  
Coinciding with the payment and coding changes, a number of 
beneficiaries began receiving levalbuterol in place of albuterol.    
Twenty-five percent of beneficiaries who were on albuterol in 2004 were 
changed to levalbuterol between January 1, 2005, and June 30, 2007.  
In our sample, almost one-third of these changes occurred in the initial 
two quarters after the payment and coding changes.   
Prescription changes in the opposite direction, from levalbuterol to 
albuterol, rarely happened during this period.  Three percent of 
beneficiaries were changed from levalbuterol to albuterol between 
January 1, 2005, and June 30, 2007.  In our sample of beneficiaries, 
more than half (five of nine) of these changes occurred in May or June of 
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2007, i.e., after the payment and coding changes were announced but 
before they took effect.   
From July through December 2007, Medicare reimbursement again favored 
albuterol; two-thirds of the beneficiaries in our sample who had been using 
levalbuterol were changed to albuterol 
As of July 1, 2007, CMS recombined albuterol and levalbuterol into a 
single HCPCS code and calculated the payment amount based on the 
volume-weighted ASP for both drugs.  As a result, Medicare 
reimbursement again began to favor albuterol. 
Under the new payment and coding method, the Medicare payment 
amount for a typical monthly supply of albuterol increased from $18 in 
the second quarter of 2007 to $118 in the third quarter.  The payment 
amount for levalbuterol decreased from $345 to $118.  We estimate that 
suppliers acquisition cost for a monthly supply of albuterol averaged 
just $12, compared to $230 for levalbuterol (see Table 4).  In other 
words, suppliers were reimbursed almost 10 times their cost for 
albuterol, but roughly half their cost for levalbuterol.  In fact, for 
albuterol, the difference between Medicare reimbursement and 
acquisition cost was greater in the third quarter of 2007 than in the 
fourth quarter of 2004 ($106 compared to $69), i.e., before the        
MMA-mandated change to ASP took effect.   
  Table 4:  Average Reimbursement and Cost Difference for a Monthly Supply of Albuterol and     
  Levalbuterol (Second to Fourth Quarter 2007) 
Supplier  Supplier 
Acquisition  Medicare  Acquisition  Medicare 
Timeframe 
Cost for  Reimbursement  Albuterol  Cost for  Reimbursement  Levalbuterol 
Albuterol  for Albuterol  Difference  Levalbuterol  for Levalbuterol  Difference 
2Q 2007  $11.25  $18.23  $6.98  $211.05  $345.38  $134.33 
3Q 2007  $12.38  $118.13  $105.75  $229.50  $118.13  -$111.37 
4Q 2007  $9.45  $94.28  $84.83  $234.00  $94.28  -$139.72 
Note:  All figures are average monthly amounts in each quarter for 225 mg of albuterol and 112.5 mg of levalbuterol.   
Refer to Appendix B for the differences in reimbursement and cost for all quarters between October 1, 2004, and December 31, 2007. 
Source:  Medicare payment amounts from CMSs Web site; OIG analysis of supplier acquisition data. 
 
Suppliers reported that two-thirds of beneficiaries in our sample who 
received levalbuterol as of June 2007 were changed to albuterol after 
the July 2007 payment and coding change.36  Almost all (95 percent) of 
 
36 Because only the 63 beneficiaries who were on levalbuterol as of June 2007 were 
included in this analysis, we are unable to reliably project this figure.  
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F I N D I N G S  
these changes occurred in the initial quarter after the change became 
effective, with more than half (54 percent) occurring in July.  As 
previously mentioned, an additional five beneficiaries in our sample 
who were receiving levalbuterol moved to albuterol in May or June 
2007after the payment and coding changes were announced but 
before they took effect.  By December 31, 2007, 90 percent of 
beneficiaries were receiving albuterol and 10 percent were receiving 
levalbuterol.   
               Figure 1:  Percentage of Beneficiaries on Albuterol and Levalbuterol (20032007)  
 
100%
 
80%
 
60%
Reimbursement favored  Reimbursement favored   Reimbursement 
albuterol   levalbuterol   favored 
40%  albuterol 
 
20%
 
0%
2Q03  4Q03  2Q04 4Q04 2Q05 4Q05 2Q06 4Q06  2Q07  4Q07
Quarter
Albuterol Levalbuterol
 
        Source:  OIG analysis of supplier surveys, 2008. 
The April 1, 2008, payment and coding change led to a substantial 
decrease in Medicare payments for both drugs compared to the first 
quarter of 2008; as a result, albuterol was reimbursed at close to cost 
and levalbuterol reimbursement remained substantially below cost  
As of April 1, 2008, CMS had implemented provisions of the 
Extension Act by reestablishing separate HCPCS codes and payment 
amounts for albuterol and levalbuterol.  As a result, Medicares 
payment amount for albuterol became much more reflective of the 
acquisition cost.  We estimate that in the second quarter of 2008, a 
months supply of albuterol cost $9 and Medicare reimbursed $10.  
However, for levalbuterol, the average acquisition cost for a months 
supply was $205, but Medicare reimbursement was $63 (69 percent 
below cost).   
This change significantly decreased total Medicare payments for 
albuterol and levalbuterol.  In the first quarter of 2008, when the  
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payment code and amount were still combined, Medicare paid  
$75 million for both drugs.37  However, because of the decrease in 
each drugs payment amount on April 1, 2008, Medicare paid an 
average of only $7 million per quarter for these two drugs in the last 
three quarters of 2008.  In total, Medicare paid $20 million for both 
drugs during this time ($9 million for albuterol and $11 for 
levalbuterol).38  
Despite the move to ASP, average per-beneficiary  In the first half of 2003 
spending on albuterol and levalbuterol actually  (when payment was based 
increased above pre-MMA levels   on AWP), Medicare spent 
an average of $506 on 
albuterol and levalbuterol for each beneficiary.  Because almost all 
beneficiaries (97 percent) were receiving albuterol rather than 
levalbuterol, the former accounted for the vast majority of this 
spending.  The change to an ASP-based reimbursement system in 
January 2005 lowered the Medicare payment amount for albuterol by 
83 percent.  However, because utilization began slowly shifting to 
levalbuterol, per-beneficiary spending did not decline proportionally.  
As the number of beneficiaries shifting to levalbuterol increased, so did 
the average spending per beneficiary.  Between January 1 and          
June 30, 2007, when more than a quarter of beneficiaries were receiving 
levalbuterol, the average per-beneficiary spending was actually higher 
than pre-MMA levels.  During these 6 months, Medicare paid an 
average of $600 per beneficiary for both albuterol and levalbuterol, or 
$94 more per beneficiary than in the first half of 2003.  Figure 2, on 
page 18, shows how average per-beneficiary spending for the two drugs 
changed between 2003 and the first half of 2007, including how 
levalbuterol began to account for a much larger share of total payments.                   
Although the majority of beneficiaries remained on albuterol, the 
quarter who had been changed to levalbuterol contributed to a total 
increase in spending on both drugs.  The 29 percent of all beneficiaries 
on levalbuterol by June 2007 represented 90 percent of total spending  
 
37 Because the payment codes and payment amounts for albuterol and levalbuterol were 
combined in the first quarter of 2008, we cannot determine payments for either drug.  
38 Medicare BESS data (90 percent of claims reported).  Accessed on February 20, 2009. 
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for both drugs in the first half of 2007.  Medicare paid an average of $88 
per beneficiary for those who were on albuterol in the first half of 2007, 
but $1,776 per beneficiary on levalbuterol.   
Figure 2:  Average Amount Medicare Paid per Beneficiary for 
Albuterol and Levalbuterol 
$700 
$600 
$500 
$400 
$300 
$200 
$100 
$0 
First half 2003 First half 2004 First half 2005 First half 2006  First half 2007 
Albuterol Levalbuterol
 
Note:  Because levalbuterol and albuterol had combined HCPCS codes in the second half of 2007, we   
                            analyzed spending for the first half of 2007 and the first half of the prior years to remain consistent.  
         Source:  OIG analysis of National Claims History file, 2008. 
 
Physicians in our sample typically cited clinical  Physicians who responded to 
reasons for changing beneficiaries from  our data request indicated 
that changes in beneficiary 
albuterol to levalbuterol, but financial reasons 
prescriptions for albuterol and 
for changing in the opposite direction 
levalbuterol occurred for both 
clinical and financial reasons.39 
Changes occurring between January 1, 2005, and June 30, 2007.  We 
received physician responses for 36 of the 69 beneficiaries in our sample 
who were changed from albuterol to levalbuterol between January 1, 
2005, and June 30, 2007 (i.e., when levalbuterol became the more 
favorable drug from a reimbursement perspective).  For 23 of the 36 
beneficiaries (64 percent), physicians reported that the changes 
occurred because of clinical reasons (e.g., albuterol has side effects, 
 
39 Given the small sample size and low response rate from physicians, we cannot 
accurately project these results with confidence. 
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F I N D I N G S  
levalbuterol is a more efficacious drug).  These physicians had 
previously prescribed albuterol to these beneficiaries for an average of 
2.7 years prior to the change.40   
Physicians for just three beneficiaries in our sample (8 percent) cited 
financial reasons for the change to levalbuterol during this same period.  
For example, one physician reported changing a beneficiary after the 
supplier mentioned the Medicare payment guidelines for the two drugs.  
For an additional three beneficiaries (8 percent), physicians reported 
that the changes occurred because the supplier actually requested 
levalbuterol to be prescribed in place of albuterol.  In the remaining 
cases, reasons given for the changes include (1) other physicians 
changed the beneficiaries prescriptions,41 and (2) the beneficiaries 
requested levalbuterol.  In some cases, the physicians offices had no 
documentation of the reasons for the changes. 
Changes occurring between July 1 and December 31, 2007.  We received 
physician responses for only 12 of the 41 beneficiaries in our sample 
who were changed from levalbuterol to albuterol between July 1 and 
December 31, 2007.  For 7 of 12 the beneficiaries (58 percent), 
physicians reported that the prescriptions were changed because of 
financial concerns.  For example, one physician reported that he 
changed a beneficiarys prescription because that patients insurance 
didnt cover levalbuterol.  Physicians also reported that changes to 
Medicare reimbursement prompted the prescription changes.  Physician 
responses for four of these seven beneficiaries indicated that they were 
originally changed from albuterol to levalbuterol because of albuterols 
side effects. 
During this same time, only one beneficiary was changed from 
levalbuterol to albuterol because of clinical reasons and an additional 
two because the beneficiaries requested albuterol. 
 
40 The average length of time on albuterol may be longer, but we did not request 
prescription history information prior to January 1, 2003.  
41 In these cases, the physician reported that the beneficiary was changed while being 
treated at a hospital by a different doctor.  These claims would be covered under Medicare 
Part A and would not appear in the claim files we used to select the beneficiaries in our 
sample.  
  OEI-03-07-00440  BENEFICIARY UTILIZATION OF ALBUTEROL AND LEVALBUTEROL UNDER MEDICARE PART B  19   
   
F I N D I N G S  
In a small number of cases, physicians were unaware that beneficiaries 
had been changed to a different drug 
Among the 50 beneficiaries with supplier-reported albuterol or 
levalbuterol changes for whom we also received physician responses, the 
suppliers dispensing history did not always match what the physicians 
reported prescribing.  In particular, physicians for 19 beneficiaries in 
our sample reported no knowledge of or consent to such changes.42   
In most of these cases (12 of 19 beneficiaries), the physician never 
reported any prescription changes from 2003 through 2007 while the 
supplier reported two changes between albuterol and levalbuterol that 
coincided with the Medicare payment and coding changes.  For example, 
one physician reported that only albuterol was prescribed for a 
particular beneficiary from January 1, 2003, until December 31, 2007.  
The supplier, however, reported that the beneficiary was changed from 
albuterol to levalbuterol in March 2006 and then changed back to 
albuterol in September 2007 (after the HCPCS coding change).   
The remaining seven beneficiaries had one supplier-reported change 
that did not match their physicians prescription histories (all but one of 
these from levalbuterol to albuterol following the coding change on             
July 1, 2007). 
 
 
 
 
 
 
 
 
 
 
 
 
42 If requested, we will provide information about these suppliers to CMS and OI.  
  OEI-03-07-00440  BENEFICIARY UTILIZATION OF ALBUTEROL AND LEVALBUTEROL UNDER MEDICARE PART B  20   
   
 C O N C L U S I O N  
 
Albuterol and levalbuterol are used to treat the same symptoms.  
Although some clinical studies suggest that levalbuterol has greater 
efficacy than albuterol, other trials have failed to detect any advantage 
to the patient.  It is beyond the scope of our study to address such 
clinical issues.  However, our findings illustrate that payment and 
coding issues, and not just clinical concerns, may affect which of the two 
drugs is prescribed and provided to Medicare beneficiaries. 
Prior to 2005, almost all of the beneficiaries in our review were 
receiving albuterol rather than levalbuterol.  Between January 2005 
and June 2007, when Medicare reimbursement shifted to favor the 
more expensive levalbuterol, one-quarter of beneficiaries were changed 
from albuterol to the costlier product.  Although a number of physicians 
cited clinical reasons for changing prescriptions, reimbursement 
considerations may have also played a roleespecially given that some 
changes appear to have been completed by suppliers without the 
physicians knowledge and that the majority of beneficiaries                
(75 percent) remained on albuterol. 
Effective July 1, 2007, payment rates were again significantly changed 
when CMS recombined the HCPCS codes for albuterol and levalbuterol 
and began calculating the Medicare payment amount as a            
volume-weighted average of both drugs.  Because most suppliers could 
not acquire levalbuterol at a price below the reimbursement amount, 
many may have lost money by providing the drug.  At that time, many 
beneficiaries were changed back to albuterol, even though in some cases 
(according to physicians), albuterol had initially caused side effects.  At 
this same time, however, the payment situation not only created a 
disincentive for levalbuterol, but also caused albuterol to be reimbursed 
at more than 10 times its cost.  Such a wide gulf between cost and 
reimbursement was exactly what the ASP-based methodology was 
created to avoid.  For example, such large financial incentives for 
supplying albuterol may have influenced a small number of suppliers in 
our sample to change beneficiaries to a new drug without the 
physicians consent.   
As of April 1, 2008, CMS implemented a provision of the Extension Act 
that once again lowered albuterol reimbursement so that payment more 
accurately reflected acquisition cost.  However, the same provision 
prevented CMS from addressing any underpayment for levalbuterol.   
  OEI-03-07-00440  BENEFICIARY UTILIZATION OF ALBUTEROL AND LEVALBUTEROL UNDER MEDICARE PART B  21   
   
C O N C L U S I O N  
Although our findings were limited to a small and specific subset of 
beneficiaries, there may have been similar utilization shifts between 
albuterol and levalbuterol among Medicare beneficiaries outside our 
sample.  Because the Medicare payment amounts and acquisition costs 
presented in this report were based on national cost and reimbursement 
data, all suppliersnot just the ones included in our samplewould 
likely have been subject to the same incentives to dispense one drug 
instead of the other.  Medicares total spending for the two drugs 
reflects this fact, as the program paid almost as much for albuterol and 
levalbuterol combined in 2007 as it did in 2004, despite the substantial 
changes to the payment amount under the ASP methodology.  Given 
that the number of Medicare beneficiaries with inhalation drug claims 
did not increase between 2004 and 2007, this could have occurred only if 
a large number of beneficiaries, and not just the limited subset on which 
our analysis was based, were shifted to the drug with the most favorable 
reimbursement.  
In some cases, this could not only have a significant impact on total 
Medicare spending but also limit beneficiary access to a potentially 
more effective product.  When Congress and CMS make reimbursement 
and coding decisions, it is important they take into consideration that 
these new policies may affect what drug a beneficiary is prescribed.  In 
some cases, this may limit access to a potentially more effective product; 
in others, utilization could be driven toward a more expensive product 
that offers no clinical advantage.  In future studies, OIG will continue to 
monitor the utilization of and payment for these and other drugs, with 
the goal of identifying inappropriate Medicare payments. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
In its comments on the draft report, CMS stated that the agency is 
aware of the impact that changes in payment methodologies can have 
on access to prescription drugs.  However, CMS noted that in the case of 
albuterol and levalbuterol, changes to coding and pricing were not 
discretionary but instead were made to comply with legislative 
mandates.  CMS stated that the agency has monitored and will continue 
to monitor spending and utilization for both drugs to help ensure price 
stability and access while fulfilling legal mandates.   
In addition, CMS provided several technical comments to our draft 
report.  These technical comments included two items that CMS 
  OEI-03-07-00440  BENEFICIARY UTILIZATION OF ALBUTEROL AND LEVALBUTEROL UNDER MEDICARE PART B  22   
   
C O N C L U S I O N  
believes OIG should investigate further.  These items are:  (1) cases in 
which physicians were reportedly unaware of the medication changes; 
and (2) the clinical rationales for changing medications, including 
whether reports of clinical complications truly reflect actual 
complications. 
OIG will review cases in which prescription changes occurred without 
the physicians knowledge to determine whether further investigation is 
warranted.  However, in regard to the second item, the clinical 
rationales we obtained from physicians provide sufficient justifications 
for changes to albuterol and levalbuterol prescriptions, and therefore no 
further investigation is necessary.  In addition, as CMS pointed out, 
while it is important to know the rationales for medication changes, the 
agency (as well as OIG) is limited in its ability to mandate and regulate 
a physicians decision to prescribe or not to prescribe a drug.   
We did not make any changes to the report based on CMSs comments.  
For the full text of CMSs comments, see Appendix C.  
 
  OEI-03-07-00440  BENEFICIARY UTILIZATION OF ALBUTEROL AND LEVALBUTEROL UNDER MEDICARE PART B  23   
   
C O N C L U S I O N  
 A P P E N D I X   ~   A  
 
Table A-1:  Confidence Intervals for Percentages 
Statistic  Sample  Percentage  95% Confidence Interval 
Size 
Percentage of beneficiaries who were on albuterol in the 
281  96.8%  94.0% to 98.5%* 
fourth quarter of 2004 (according to suppliers) 
Percentage of beneficiaries who were on levalbuterol in the 
281  3.2%  1.5% to 6.0%* 
fourth quarter of 2004 (according to suppliers) 
Percentage of beneficiaries on albuterol in 2004 who were 
272  25.0%  19.8% to 30.2% 
changed to levalbuterol between January 1, 2005, and        
June 30, 2007 (according to suppliers) 
Percentage of beneficiaries on levalbuterol who were 
281  3.2%  1.5% to 6.0%* 
changed to albuterol between January 1, 2005, and      
June 30, 2007 (according to suppliers) 
Percentage of beneficiaries on albuterol by          
280**  89.6%  85.5% to 93.0%* 
December 31, 2007 (according to suppliers) 
Percentage of beneficiaries on levalbuterol by       
280**  10.4%  7.1% to 14.5%* 
December 31, 2007 (according to suppliers) 
Percentage of beneficiaries on levalbuterol by               
279**  29.4%  24.0% to 34.8% 
June 30, 2007 (according to suppliers) 
*  This confidence interval was calculated with an exact method based on binomial distribution. 
** The sample size is not 281 because the beneficiarys supplier reported that it was missing dispensing records.  
Source:  Office of Inspector General analysis of supplier surveys, 2008. 
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  OEI-03-07-00440  BENEFICIARY UTILIZATION OF ALBUTEROL AND LEVALBUTEROL UNDER MEDICARE PART B  24   
   
  A P P E N D I X   ~   B
 
 
Table B-1:   Average Monthly Difference Between Reimbursement and   
Cost for Albuterol and Levalbuterol 
 
  Monthly Difference for  Monthly Difference for 
Quarter and Year 
Albuterol   Levalbuterol 
 
 
Fourth quarter 2004  $68.65  -$76.50 
 
First quarter 2005  $0.62  $116.55 
 
Second quarter 2005  $6.67  $136.58 
 
  Third quarter 2005   $2.11  $112.28 
  Fourth quarter 2005  -$1.10  $107.33 
 
First quarter 2006  -$3.91  $94.05 
 
Second quarter 2006  $3.90  $105.53 
 
Third quarter 2006   $4.65  $129.15 
 
  Fourth quarter 2006  -$3.92  $95.18 
  First quarter 2007  $0.23  $102.38 
 
Second quarter 2007  $6.98  $134.33 
 
Third quarter 2007   $105.75  -$111.37 
 
  Fourth quarter 2007  $84.83  -$139.72 
                       Source:  Medicare payment amounts from the Centers for Medicare & Medicaid Services Web  site; Office   
               of Inspector General analysis of supplier  acquisition data. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  OEI-03-07-00440   BENEFICIARY  UTILIZATION OF  ALBUTEROL AND  LEVALBUTEROL  UNDER MEDICARE PART B  25  ..
A P PEN 0
x c
Agency Comments
(~~'E DEPARTMENT OF HEALTf & IoUMAN SERVICES Caiilers for M13dicare &. Medicaid Services
Y1:;,,~
~~"da(l l;...
?OO Independence Aven4e SW
Washington, DC 20201
DATE: JUl 0 2 2009
TO: Daniel R. Levinson
.Inspector General
FROM: i;nariene l'rizzera
Acting Administrator
SUBJECT: Offce ofInspector General's Draft Report: "Beneficiiuy Utili;zation of Albuterol
and Levalbuterol Under Medicare Par B" (OEH3.07.00440) .
Than you for the opportunity to review and comment on the OffceofInspector General's
draft report entitled, "Beneficiary Utilization of Albuterol and Levalbuterol Under
(OIG) 
Medicare Par B." We  appreciate the OIG's continuing efforts to el!amine payments made under
the average sales price methodology. The OIG report p'resents findings f(om an analysis of
coding and payment changes made to these two inhalation drugs.
The OIG reviewed two specific Medicate Part B drugs, albuterol and levalbutel'l, both
bronchodilators used to treat asthma and .chronic obstructive pulmonary diseases (COPD).
Studies have shown a significant incidence of COPO in the adult population. .
The OIG concluded that a correlation el!ists between coding  and pricing changes and shifts in
prescribing patterns and utilization between the two drugs. Specifically, the OIG found  that at
times, prescribing patterns and utilization ofthese drugs  shifted toward the more  financially
profitable drug. -The OIG also found that somebeUt:flciaries were switched between the drugs'
more than once, often correlating with Medicare coding and payment limit chauges.
These drugs have been affected bya number of coding and pricing changes since  2003. It is
important to recognize that these changes were not discretionary; instead the changes were made
in order to comply with legislative mandates. As the OIGnoted, in :2003 and 2007, Congress
amended the Social Security Act to change the methodology used to pay claims for certain
Medicare Part B drugs and specifcally certain drugs adrni.nistered through durable medical
equipment.' The Centers fpr Medicare &- Medicaid Services (CMS)is aware of the impact that
changes in payment i;ethodologies canhave on access to prescription drugs. We have and wm
continue to closely monitOr spendingandutil;zationori these drugs to help balance our need to
assure stability in prices and access to drugs while discha(girig our legal mandates.
o E 1-0 3. 07 .00440 BENEFICIARY UTILIZATION OF ALBUTEROL AND LEVALBUTEROL UNDER MEDICARE PART B 26  
   
A P P E N D I X   ~   C  
     
 
 
  OEI-03-07-00440  BENEFICIARY UTILIZATION OF ALBUTEROL AND LEVALBUTEROL UNDER MEDICARE PART B  27   
   
 A C K N O W L E D G M E N T S  
 
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 of the Medicare and 
Medicaid Prescription Drug Unit.   
Stephanie Yeager served as the lead analyst for this study.  Other 
principal Office of Evaluation and Inspections staff from the 
Philadelphia regional office who contributed to the report include    
Kevin McAloon.  Central office staff who contributed include              
Rita Wurm, Kevin Manley, and Kevin Farber. 
  OEI-03-07-00440  BENEFICIARY UTILIZATION OF ALBUTEROL AND LEVALBUTEROL UNDER MEDICARE PART B  28