Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
U : E M
PDATE XCESSIVE  EDICARE 
R
EIMBURSEMENT FOR 
I B
PRATROPIUM  ROMIDE 
Inspector General 
January 2004 
OEI-03-03-00520  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 OIG's Office of Audit Services (OAS) provides all auditing services for HHS, either by 
conducting audits with its own audit resources or by overseeing audit work done by others. 
Audits examine the performance of HHS programs and/or its grantees and contractors 
in carrying out their respective responsibilities and are intended to provide independent 
assessments of HHS programs and operations in order to reduce waste, abuse, and 
mismanagement and to promote economy and efficiency throughout the department. 
Office of Evaluation and Inspections 
The OIG's Office of Evaluation and Inspections (OEI) conducts short-term management 
and program evaluations (called inspections) that focus on issues of concern to the 
department, the Congress, and the public. The findings and recommendations contained 
in the inspections reports generate rapid, accurate, and up-to-date information on the 
efficiency, vulnerability, and effectiveness of departmental programs. 
Office of Investigations 
The OIG's Office of Investigations (OI) conducts criminal, civil, and administrative 
investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries 
and of unjust enrichment by providers. The investigative efforts of OI lead to criminal 
convictions, administrative sanctions, or civil monetary penalties. The OI also oversees 
State Medicaid fraud control units, which investigate and prosecute fraud and patient 
abuse in the Medicaid program. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
OIG, rendering advice and opinions on HHS programs and operations and providing all 
legal support in OIG's internal operations. The OCIG imposes program exclusions and 
civil monetary penalties on health care providers and litigates those actions within the 
department. The OCIG also represents OIG in the global settlement of cases arising 
under the Civil False Claims Act, develops and monitors corporate integrity agreements, 
develops model compliance plans, renders advisory opinions on OIG sanctions to the 
health care community, and issues fraud alerts and other industry guidance.  E X E C U T I V E   S U M M A R Y

OBJECTIVE 
To update data provided in a 2002 report comparing Medicare 
reimbursement for ipratropium bromide to prices available to 
Medicaid, the supplier community, and the Department of 
Veterans Affairs (VA). 
BACKGROUND 
Ipratropium bromide is an inhalation drug commonly used with 
a nebulizer to treat patients suffering from chronic bronchitis or 
emphysema.  Prior to 2004, Medicares reimbursement 
methodology for ipratropium bromide and other prescription 
drugs was set forth in section 1842(o) of the Social Security Act, 
as amended by section 4556 of the Balanced Budget Act of 1997. 
At the time, reimbursement for a covered drug was set at 95 
percent of the drugs average wholesale price (AWP). Recently, 
the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 lowered reimbursement for many 
Part B drugs, including ipratropium bromide. In 2004, 
Medicare reimbursement for ipratropium bromide will be 80 
percent of AWP. 
Medicare beneficiaries are responsible for paying a 20 percent 
coinsurance payment for covered drugs. In calendar year (CY) 
2002, Medicare and its beneficiaries paid $594 million for 
ipratropium bromide, up from $348 million in CY 2000. 
Ipratropium bromide is usually provided to Medicare 
beneficiaries by pharmacies, which then submit claims for 
reimbursement to Medicare. Medicaid beneficiaries also obtain 
ipratropium bromide through pharmacies. Pharmacies can 
purchase drug products through group purchasing organizations 
(GPOs), wholesalers, and directly from manufacturers. Unlike 
Medicare and Medicaid, VA provides veterans with drugs 
purchased directly from manufacturers or wholesalers. There 
are several purchase options available to VA, including the 
Federal Supply Schedule, blanket purchase agreements, and VA 
national contracts. 
We obtained Medicares CY 2003 reimbursement amount for 
ipratropium bromide. For comparison, we: (1) obtained 
Medicaids 2003 reimbursement amount for ipratropium 
OEI-03-03-00520  UPDATE:  EXCESSIVE MEDICARE REIMBURSEMENT FOR IPRATROPIUM BROMIDE  i  EE XX EE CC UU TT II VV EE    SS UU MM MM AA RR YY  
bromide by reviewing the Federal Upper Limit list, 
(2) estimated 2003 pharmacy acquisition costs for ipratropium 
bromide by obtaining pricing information from a national 
wholesaler/distributor and a GPO, and (3) determined the VAs 
2003 payment amount for ipratropium bromide by accessing 
pricing data available on its website. We also obtained 
manufacturer-reported wholesale acquisition costs (WACs) from 
the January 2003 edition of the Drug Topics Red Book.  We 
calculated potential savings by multiplying Medicares 2002 
total payments for ipratropium bromide by the percentage 
difference between the Medicare reimbursement amount and 
the Medicaid reimbursement amount. 
The exact savings estimates presented in this report are for 
2002.  Because the 2004 reimbursement amount for ipratropium 
bromide was lowered to 80 percent of AWP from 95 percent of 
AWP, the savings that Medicare would achieve by paying the 
Medicaid Federal Upper Limit Amount would now be lower. 
However, the difference in price between Medicare and Medicaid 
would still be large, and significant savings would still result if 
Medicare were able to reimburse ipratropium bromide at the 
Federal Upper Limit amount. 
FINDINGS 
Medicare continues to pay more for ipratropium bromide 
than other payors, costing the program and its beneficiaries 
millions of dollars a year.  In 2003, the Centers for Medicare & 
Medicaid Services (CMS) set the Medicaid Federal Upper Limit 
amount for ipratropium bromide at $1.17 per milligram (mg), 65 
percent less than the $3.34 that Medicare pays for the same 
amount of the drug. If Medicare could reimburse for 
ipratropium bromide at the Medicaid Federal Upper Limit 
Amount, Medicare and its beneficiaries would have saved $386 
million in 2002. Approximately $77 million of the savings would 
have resulted from reduced coinsurance payments. 
Data collected from a drug wholesaler/distributor and a GPO 
showed that pharmacies were able to purchase ipratropium 
bromide for substantially less than the Medicare reimbursement 
amount. In spring 2003, the median price of ipratropium 
bromide at the wholesaler/distributor was $0.57 per mg, while it 
was $0.05 higher ($0.62 per mg) at the GPO. Medicares 
OEI-03-03-00520  UPDATE:  EXCESSIVE MEDICARE REIMBURSEMENT FOR IPRATROPIUM BROMIDE  ii  E X E C U T I V E   S U M M A R Y  
reimbursement amount of $3.34 per mg was over five times 
more for the same amount of the drug. We did not collect data 
from pharmacies regarding any additional costs related to 
providing ipratropium bromide to Medicare beneficiaries. 
Furthermore, manufacturer-reported WACs published in the 
Red Book also showed that pharmacies were able to purchase 
ipratropium bromide for prices substantially below the Medicare 
reimbursement amount. In January 2003, the median WAC 
reported in the Red Book was $1.01 per mg. 
If Medicare were able to use prices available to the supplier 
community as a basis for ipratropium bromide reimbursement, 
the program and its beneficiaries would save millions of dollars 
a year. 
Since our 2002 report, which was based on 2001 data, the price 
at which ipratropium bromide was available to the supplier 
community had decreased, while the Medicare reimbursement 
amount had remained the same. In 2001, we calculated that the 
median price of ipratropium bromide through 
wholesaler/distributors and GPOs was $0.82 per mg, 
substantially higher than 2003 prices. In addition, 
manufacturer-reported WACs also decreased, from a median of 
$1.20 per mg in 2001 to $1.01 in 2003. 
The median Federal Supply Schedule price available to VA for 
ipratropium bromide was $0.39 per mg. In comparison, 
Medicare reimbursed 8 times more ($0.47 per mg) for the same 
amount of the drug in 2003. However, it should be noted that, 
unlike Medicare, VA purchases drugs for its health care system 
directly from manufacturers or wholesalers, rather than 
reimbursing pharmacies for the drug. 
The VA price for ipratropium bromide has decreased 
substantially since our previous report, while Medicares price 
has remained constant. The VA price has fallen from $0.66 per 
mg in 2001 to $0.39 per mg in 2003 (in 1998, the VA price was 
even higher at $1.29 per mg). 
CONCLUSION 
Despite numerous attempts by CMS to lower reimbursement 
amounts for prescription drugs, Medicare still pays a high 
OEI-03-03-00520  UPDATE:  EXCESSIVE MEDICARE REIMBURSEMENT FOR IPRATROPIUM BROMIDE  iii  E X E C U T I V E   S U M M A R Y  
premium for ipratropium bromide. This report is part of a series 
of reports on ipratropium bromide that have consistently found 
that the published average wholesale prices, which, as 
prescribed by Federal law, form the basis of Medicare drug 
reimbursement, bear little or no resemblance to actual 
wholesale prices that are available to pharmacies and large 
Government purchasers. 
Because of Medicares reliance on published average wholesale 
prices, the programs reimbursement remains constant, despite 
the fact that other purchasers pay significantly less for 
ipratropium bromide than they did several years ago. In 
addition, Medicares total reimbursement for ipratropium 
bromide continues to increase substantially each year. 
Consequently, the Medicare program loses progressively more 
money every year. 
We understand that, unlike most drugs covered by Medicare, 
ipratropium bromide is usually provided by pharmacies rather 
than administered by physicians. These pharmacies obviously 
need to make a profit from the products they supply, yet the 
spread between what Medicare reimburses for ipratropium 
bromide and the price at which suppliers are able to purchase 
the drug is significant. 
Furthermore, we recognize that the VA acts as a purchaser of 
drugs while Medicare reimburses pharmacies for the product. 
However, the fact that one Government agency is able to 
purchase a drug for one-eighth of Medicares reimbursement 
amount is disconcerting. 
Congress has recently passed the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (Act). This Act 
provides for numerous changes in Medicares reimbursement 
methodology for drugs covered under Part B, including 
ipratropium bromide. Based on the new Act, Medicare will 
reimburse ipratropium bromide at 80 percent of AWP in 2004. 
We hope that the data presented in this report is helpful to CMS 
in determining an appropriate payment amount for the drug 
beyond 2004. 
OEI-03-03-00520  UPDATE:  EXCESSIVE MEDICARE REIMBURSEMENT FOR IPRATROPIUM BROMIDE  iv  T A B L E   O F   C O N T E N T S

E X E C U T I V E   S U M M A R Y  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . .   i

I N T R O D U C T I O N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .  1

F I N D I N G S  
Medicare continues to pay more than other payors ................................... 7

C O N C LU S I O N   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . .  10

A C K N O W L E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .  11

OEI-03-03-00250  MEDICARE REIMBURSEMENT F OR IPRATROPIUM BROMIDE  v
 I N T R O D U C T I O N

OBJECTIVE 
To update data provided in a 2002 report comparing Medicare 
reimbursement for ipratropium bromide to prices available to 
Medicaid, the supplier community, and the Department of 
Veterans Affairs (VA). 
BACKGROUND 
Medicare Coverage of Ipratropium Bromide 
Currently, Medicare does not pay for over-the-counter or most 
outpatient prescription drugs. However, Medicare Part B will 
cover drugs that are necessary for the effective use of durable 
medical equipment. One such product, ipratropium bromide, is 
an inhalation solution commonly used with a nebulizer to treat 
patients suffering from chronic bronchitis or emphysema. 
Ipratropium bromide is typically provided to Medicare 
beneficiaries by pharmacies. 
Medicare Reimbursement of Ipratropium Bromide 
The Centers for Medicare & Medicaid Services (CMS) contracts 
with four companies, known as durable medical equipment 
regional carriers (DMERCs), to process and reimburse medical 
equipment and supply claims, including ipratropium bromide. 
Each DMERC is responsible for determining the reimbursement 
amount for ipratropium bromide in their respective region, 
based on Medicares reimbursement methodology. 
Prior to 2004, Medicare=s reimbursement methodology for 
ipratropium bromide and other prescription drugs was set forth 
in section 1842(o) of the Social Security Act, as amended by 
section 4556 of the Balanced Budget Act of 1997. At the time, 
the Social Security Act stated that reimbursement for a covered 
drug was to be set at 95 percent of the drugs average wholesale 
price (AWP). CMS directed carriers to obtain average wholesale 
price data from the Drug Topics Red Book or similar pricing 
publications used by the pharmaceutical industry. In 2003, each 
DMERC reimbursed $3.34 per milligram (mg) for ipratropium 
bromide. 
Recently, the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (Act) lowered payments for many 
OEI-03-03-00520  UPDATE:  EXCESSIVE MEDICARE REIMBURSEMENT FOR IPRATROPIUM BROMIDE  1  I N T R O D U C T I O N  
Part B drugs in 2004 and beyond by revising Section 1842(o) of 
the Social Security Act. According to the new Act, the payment 
for a drug contained in the table, Medicare Part B Drugs in 
Most Recent GAO and OIG Studies published in the Federal 
Register (68 FR 50445) will be the percentage of the AWP 
indicated in the table. If the percentage in the table is less than 
80 percent, then the percentage applied to reimbursement will 
be 80 percent. Based on the data presented in this table, in 
2004, Medicare reimbursement for ipratropium bromide will be 
80 percent of AWP. 
Medicare paid $594 million for ipratropium bromide in calendar 
year (CY) 2002, up from $348 million in 2000. This total 
represents 7 percent of the $8.2 billion Medicare paid for all 
prescription drugs in 2002. Medicare payments include both the 
80 percent that Medicare reimburses, and the 20 percent 
coinsurance payment for which beneficiaries are responsible. 
CMS Use of Office of Inspector General (OIG) Data 
In a proposed rule published in the Federal Register on August 
20, 2003 CMS states, If the OIG performs a new market 
analysis, we expect to incorporate this information into the 
Medicare payment limits...Initially, we would use the market 
analyses available to us from GAO and OIG studies to transition 
widely available market prices into the Medicare payments. 
Because of the passage of the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003, the proposed rule 
did not take effect. However, according to the Act, new pricing 
data may be useful for setting Medicare reimbursement 
amounts in the future. 
Recent Attempts to Lower Medicare Reimbursment 
Inherent Reasonableness.  Section 4316 of the Balanced Budget 
Act of 1997 allows CMS to diverge from Medicare=s statutorily-
defined payment method if the method results in payment 
amounts that are not inherently reasonable. In late 1998, CMS 
attempted to use this authority to lower what it considered 
excessive reimbursement for several items. One of these items 
was albuterol, an inhalation drug similar to ipratropium 
bromide, which was targeted for an 11 percent fee reduction. 
However, the lower prices were never implemented, as Congress 
suspended the use of CMSs inherent reasonableness authority 
through a provision of the Medicare, Medicaid, and SCHIP 
OEI-03-03-00520  UPDATE:  EXCESSIVE MEDICARE REIMBURSEMENT FOR IPRATROPIUM BROMIDE  2  I N T R O D U C T I O N  
Balanced Budget Refinement Act of 1999. This provision 
required the General Accounting Office (GAO) to complete a 
study on the potential effects of using inherent reasonableness 
measures before CMS could invoke the authority. The GAO 
report, issued in July 2000, found that inherent reasonableness 
reductions for some items were justified. However, GAO 
questioned the methodology that the carriers used in their 
collection of pricing data for albuterol. 
On February 11, 2003, a new interim final rule for the 
application of inherent reasonableness went into effect. 
According to the regulation, payment amounts may be 
considered unreasonable based on a number of criteria, 
including: (1) payment amounts are grossly excessive when 
compared to other purchasers in the same locality, or (2) 
payment amounts are grossly excessive when compared to 
acquisition costs. According to the regulation, a payment 
amount is considered grossly excessive if a reduction of at least 
15 percent is required to produce a realistic and equitable 
reimbursement amount. 
Competitive Bidding. CMS included ipratropium bromide and 
several other inhalation drugs in a competitive bidding project 
in the San Antonio, Texas area that sought to use market forces 
to set accurate prices for durable medical equipment and related 
supplies. In November 2000, CMS announced the selection of 
durable medical equipment suppliers who had submitted 
competitive bids for the included items. New prices for these 
items went into effect in the bidding area on February 1, 2001. 
The new reimbursement amount for ipratropium bromide set by 
the competitive bidding process was $2.55 per mg, 
approximately 24 percent below the usual Medicare amount. 
CMS hopes to use the results from these demonstrations more 
generally in the Medicare program. 
Medicaid Reimbursement of Ipratropium Bromide 
As with Medicare, Medicaid beneficiaries typically receive 
ipratropium bromide from pharmacies. Pharmacies are then 
reimbursed by the Medicaid program. 
Federal regulations require that each State Medicaid agencys 
reimbursement for a drug not exceed the lower of its estimated 
acquisition cost plus a reasonable dispensing fee, or the 
providers usual and customary charge to the public for the 
OEI-03-03-00520  UPDATE:  EXCESSIVE MEDICARE REIMBURSEMENT FOR IPRATROPIUM BROMIDE  3  I N T R O D U C T I O N  
drug. CMS allows States flexibility in defining estimated 
acquisition cost. Like Medicare, most States base their 
calculation of estimated acquisition cost on a drugs AWP 
discounted by a certain percentage. This discount ranged from 5 
percent to 15 percent in the year 2001. A few States use 
published wholesale acquisition costs (WACs) plus a percentage 
markup rather than average wholesale prices when calculating 
estimated acquisition cost. 
For certain drugs, States also use the Federal Upper Limit and 
State Maximum Allowable Cost programs in determining 
reimbursement amounts. According to CMS, the purpose of 
Federal Upper Limits is to ensure that the Federal Government 
acts as a prudent purchaser by taking advantage of current 
market prices for multiple-source products. CMS has 
established Federal Upper Limit amounts for over 400 drugs. In 
addition, more than half of the States have implemented a 
Maximum Allowable Cost program in order to reduce 
reimbursement amounts for certain drugs. Individual States 
determine the types of drugs that are included in their 
Maximum Allowable Cost program, and the method by which 
the Maximum Allowable Cost for a drug is calculated. 
Acquisition Sources of Ipratropium Bromide for Pharmacies 
Pharmacies can purchase drug products through several 
sources, including group purchasing organizations (GPOs), 
wholesalers/distributors, and directly from manufacturers. 
GPOs provide their members with lower cost products by 
negotiating prices for specific drugs from manufacturers. The 
member can then purchase drugs at the negotiated price either 
directly from the manufacturer or from a wholesaler/distributor 
who accepts GPOs price. Wholesalers/distributors purchase 
large volumes of drugs from manufacturers and sell them 
directly to physicians, suppliers, and pharmacies. 
VA Payments for Ipratropium Bromide 
Unlike Medicare and Medicaid, VA purchases drugs for its 
health care system directly from manufacturers or wholesalers. 
There are several options available to VA when purchasing 
drugs, with the most common being the Federal Supply 
Schedule. The Federal Supply Schedule provides agencies like 
VA with a simple process for purchasing commonly-used 
products in any quantity while still obtaining the discounts 
OEI-03-03-00520  UPDATE:  EXCESSIVE MEDICARE REIMBURSEMENT FOR IPRATROPIUM BROMIDE  4  III NNN TTT RRR OOO DDD UUU C CC TTT III OOO NNN  
associated with volume buying. Using competitive procedures, 
contracts are awarded to companies to provide supplies over a 
given period of time at the Federal Supply Schedule price. 
However, VA is sometimes able to negotiate prices lower than 
Federal Supply Schedule amounts through other avenues, such 
as blanket purchase agreements and VA national contracts. 
Related Work on Ipratropium Bromide 
OIG has previously found that Medicares usual reimbursement 
amount for ipratropium bromide (based on AWP) is excessive. 
In our report Excessive Medicare Reimbursement for 
Ipratropium Bromide (March 2002), we calculated that the 
Medicare reimbursement amount for ipratropium bromide in 
2000 was more than 5 times higher than the VA purchase price 
and over 4 times the actual acquisition cost to pharmacies. 
According to our findings, excessive reimbursement for 
ipratropium bromide alone was costing Medicare and its 
beneficiaries up to $279 million per year. 
In addition to OIG, GAO has also found that Medicare 
reimbursement for ipratropium bromide is excessive. In its 
September 2001 report, Medicare: Payments for Covered 
Outpatient Drugs Exceed Providers Costs (GAO-01-1118), GAO 
found that the average widely available price to pharmacies for 
ipratropium bromide was 78 percent below the published 
average wholesale price of the drug. 
METHODOLOGY 
We reviewed laws and regulations concerning Medicare drug 
reimbursement. We accessed CMSs Part B Extract Summary 
System to determine Medicares total payments for ipratropium 
bromide in CY 2002. We obtained Medicares CY 2003 
reimbursement amounts for ipratropium bromide from all 4 
DMERCs. 
To determine Medicaids 2003 reimbursement amount for 
ipratropium bromide, we obtained pricing information for the 
drug from the Medicaid Federal Upper Limit list. 
To estimate pharmacy acquisition costs for ipratropium 
bromide, we obtained spring 2003 pricing information for the 
drug from a national wholesaler/distributor and from a GPO. As 
an additional estimate of pharmacy acquisition costs, we also 
OEI-03-03-00520  UPDATE:  EXCESSIVE MEDICARE REIMBURSEMENT FOR IPRATROPIUM BROMIDE  5  I N T R O D U C T I O N  
obtained manufacturer-reported WACs from the January 2003 
edition of the Red Book.  The Red Book defines WACs as 
manufacturer-quoted list prices to wholesale distributors. These 
prices are not reflective of bids, rebates, volume purchase 
agreements, or other types of exclusive contracts. 
To determine the VAs 2003 payment amounts for ipratropium 
bromide, we accessed a file on their website that lists prices 
available to the agency through the Federal Supply Schedule. 
To calculate potential Medicare savings based on Medicaid, we 
compared Medicares reimbursement amount for 1 mg of 
ipratropium bromide to the Medicaid Federal Upper Limit 
amount. We determined the percentage difference in price by 
subtracting Medicaids price from Medicares price and then 
dividing the result by the Medicare price. This percentage 
indicates how much Medicare would save if the program could 
base reimbursement on the Medicaid Federal Upper Limit 
amount. We then multiplied the percentage difference by the 
total amount Medicare paid for ipratropium bromide in 2002 to 
calculate dollar savings. 
The exact savings estimates presented in this report are for 
2002. Because the 2004 reimbursement amount for ipratropium 
bromide was lowered to 80 percent of AWP from 95 percent of 
AWP, the savings that Medicare would achieve by paying the 
Medicaid Federal Upper Limit amount would now be lower. 
However, the difference in price between Medicare and Medicaid 
would still be large, and significant savings would still result if 
Medicare were able to reimburse ipratropium bromide at the 
Federal Upper Limit amount. 
This study was conducted in accordance with the Quality 
Standards for Inspections issued by the President=s Council on 
Integrity and Efficiency. 
OEI-03-03-00520  UPDATE:  EXCESSIVE MEDICARE REIMBURSEMENT FOR IPRATROPIUM BROMIDE  6  F I N D I N G S

In 2003, Medicare reimbursed $3.34 per mg for ipratropium 
bromide, an amount that was considerably higher than the 
reimbursement amounts of other Government payors and the 
prices available to the supplier 
Medicare continues to pay more for ipratropium 
community. If Medicare were 
bromide than other payors, costing the program 
able to base its reimbursement 
and its beneficiaries millions of dollars a year. 
amount for ipratropium 
bromide on prices available to these sources, the program and 
its beneficiaries could have saved millions of dollars in 2002. 
Chart 1 below compares the Medicare reimbursement amount to 
prices available to Medicaid, the supplier community, and VA. 
Chart 1: Comparison of Ipratropium Bromide Prices 
$4.00 
$3.50  $3.34 
$3.00 
$2.50 
nt 
u
o $2.00 
m
A
$1.50 
$1.17 
$1.01 
$1.00 
$0.57  $0.62 
$0.50  $0.39 
$0.00 
Median VA  Median  Median GPO  Median WAC  Medicaid  Medicare 
Wholesaler  Federal Upper 
Limit 
Source: VA website, OIG survey of pharmacy prices, 2003 Red Book , Medicaid Federal Upper Limit list, and 
DMERC pricing publications. 
Medicare and its beneficiaries would have saved $386 million in 2002 if 
the program were able to reimburse ipratropium bromide at the 
Medicaid Federal Upper Limit amount. 
CMS sets the Medicaid Federal Upper Limit amount for 
ipratropium bromide at $1.17 per mg, 65 percent less than 
Medicare ($3.34 per mg) for the same amount of the drug. If 
Medicare were able to reimburse for ipratropium bromide at the 
OEI-03-03-00520  UPDATE:  EXCESSIVE MEDICARE REIMBURSEMENT FOR IPRATROPIUM BROMIDE  7  F I N D I N G S  
Medicaid Federal Upper Limit amount, the program would have 
saved $386 million in 2002. Approximately $77 million of the 
savings would have had a direct impact on Medicare 
beneficiaries through reduced coinsurance payments. 
The Medicare reimbursement amount for ipratropium bromide was five 
times higher than the median price available to the supplier 
community. 
Data collected from a drug wholesaler/distributor and a GPO 
showed that pharmacies were able to purchase ipratropium 
bromide for substantially less than the Medicare reimbursement 
amount. In spring 2003, generic versions of ipratropium 
bromide were available from these sources at prices ranging 
from a low of $0.40 per mg to a high of $0.79 per mg. The 
median price of ipratropium bromide at the 
wholesaler/distributor was $0.57 per mg, while it was $0.05 
higher ($0.62 per mg) at GPO. Medicares reimbursement 
amount of $3.34 per mg was over five times more for the same 
amount of the drug. 
Pharmacies were able to acquire ipratropium bromide for less 
than a Medicare beneficiary would pay in coinsurance alone 
($0.67 per mg). For example, a beneficiary, using a typical 
monthly supply of ipratropium bromide (50 mg), would pay 
$33.40 in Medicare coinsurance. Through the sources we 
identified, pharmacies, on average, would pay between $28.50 
and $31.00 for the same supply. We did not collect data from 
pharmacies regarding any additional costs related to providing 
ipratropium bromide to Medicare beneficiaries. 
Furthermore, manufacturer-reported WACs published in the 
Red Book also showed that pharmacies were able to purchase 
ipratropium bromide for prices substantially below the Medicare 
reimbursement amount. In January 2003, the median WAC 
reported in the Red Book was $1.01 per mg. The Red Book 
defines WAC as manufacturer-quoted list prices to wholesale 
distributors, not reflective of bids, rebates, volume purchase 
agreements, or other types of exclusive contracts. 
Since our last report, the price at which ipratropium bromide 
was available to the supplier community decreased, while the 
Medicare reimbursement amount remained the same. In 2001, 
we calculated that the median price of ipratropium bromide 
through wholesaler/distributors and GPOs was $0.82 per mg, 
OEI-03-03-00520  UPDATE:  EXCESSIVE MEDICARE REIMBURSEMENT FOR IPRATROPIUM BROMIDE  8  F I N D I N G S  
substantially higher than 2003 prices. In addition, 
manufacturer-reported WACs had also decreased from a median 
of $1.20 per mg in 2001 to $1.01 in 2003. 
If Medicare were able to use prices available to the supplier 
community as a basis for ipratropium bromide reimbursement, 
the program and its beneficiaries would save millions of dollars 
a year. 
The Medicare reimbursement amount for ipratropium bromide was 
eight times higher than the median price available to the VA. 
In 2003, the median Federal Supply Schedule price available to 
VA for ipratropium bromide was $0.39 per mg. In comparison, 
Medicare reimbursed eight times more ($3.34 per mg) for the 
same amount of the drug. However, it should be noted that, 
unlike Medicare, VA purchases drugs for its health care system 
directly from manufacturers or wholesalers, rather than 
reimbursing pharmacies for the drug. 
The VA price for ipratropium bromide decreased substantially 
since our previous report, while Medicares price has remained 
constant. The VA price has fallen from $0.66 per mg in 2001 to 
the 2003 price of $0.39 per mg (in 1998, the VA price was even 
higher at $1.29 per mg). 
OEI-03-03-00520  UPDATE:  EXCESSIVE MEDICARE REIMBURSEMENT FOR IPRATROPIUM BROMIDE  9  C O N C L U S I O N

Despite numerous attempts by CMS to lower reimbursement 
amounts for prescription drugs, Medicare still pays a high 
premium for ipratropium bromide. This report is part of a series 
of reports on ipratropium bromide that have consistently found 
that the published AWPs, which, as prescribed by Federal law, 
form the basis of Medicare drug reimbursement, bear little or no 
resemblance to actual wholesale prices that are available to 
pharmacies and large Government purchasers. 
Because of Medicares reliance on published AWPs, the 
programs reimbursement remains constant, despite the fact 
that other purchasers pay significantly less for ipratropium 
bromide than they did several years ago. In addition, 
Medicares total reimbursement for ipratropium bromide 
continues to increase substantially each year. Consequently, 
the Medicare program loses progressively more money every 
year. 
We understand that, unlike most drugs covered by Medicare, 
ipratropium bromide is provided by pharmacies rather than 
administered by physicians. These pharmacies obviously need 
to make a profit from the products they supply, yet the spread 
between what Medicare reimburses for ipratropium bromide 
and the price that suppliers pay for the drug is significant. 
Furthermore, we recognize that the VA acts as a purchaser of 
drugs while Medicare reimburses pharmacies for the product. 
However, the fact that one Government agency is able to 
purchase a drug for one-eighth of Medicares reimbursement 
amount is disconcerting. 
Congress has recently passed the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (Act). This Act 
provides for numerous changes in Medicares reimbursement 
methodology for drugs covered under Part B, including 
ipratropium bromide. Based on the new Act, Medicare will 
reimburse ipratropium bromide at 80 percent of AWP in 2004. 
We hope that the data presented in this report is helpful to CMS 
in determining an appropriate payment amount for the drug 
beyond 2004. 
OEI-03-03-00520  UPDATE:  EXCESSIVE MEDICARE REIMBURSEMENT FOR IPRATROPIUM BROMIDE  10  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 Linda M. Ragone, Deputy 
Regional Inspector General. Other principal Office of 
Evaluation and Inspections staff who contributed include: 
David Tawes, Team Leader 
Cynthia Hansford, Program Assistant 
Linda Frisch, Program Specialist 
OEI-03-03-00520  UPDATE:  EXCESSIVE MEDICARE REIMBURSEMENT FOR IPRATROPIUM BROMIDE  11