Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
M
EDICARE 
R F L
EIMBURSEMENT  OR  UPRON 
Inspector General 
January 2004 
OEI-03-03-00250  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 recommen dations 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.  A B S T R A C T

Medicare and its beneficiaries paid $677 million for Lupron in 
calendar year (CY) 2002, accounting for 8 percent of all 
Medicare drug reimbursements that year. In 2003, the 
Medicare reimbursement amount for Lupron was set at 95 
percent of the drugs average wholesale price, as required by 
Federal law. Medicare carriers often use local medical review 
policies (LMRPs) in order to further specify the circumstances 
under which a service is covered and paid by the program. One 
type of LMRP, a least costly alternative policy, states that the 
carrier will not cover the additional cost of a more expensive 
product if a clinically comparable product costs less.  According 
to the LMRPs of many carriers, a single dose of the drug Zoladex 
has been found by many experts to be clinically comparable to a 
single dose of Lupron. In the second quarter of 2003, the 
Medicare reimbursement amount for a single dose of Zoladex 
was $446.49, 27 percent less than the reimbursement amount 
for a single dose of Lupron ($611.56).  Therefore, in jurisdictions 
where a carrier applies a least costly alternative policy, 
physicians that administer Lupron are generally reimbursed the 
Zoladex amount. We obtained and reviewed LMRPs from all 
Medicare carriers. We found that carriers in 10 of 57 
jurisdictions did not apply a least costly alternative policy to 
Lupron. In 2002, the carriers in these 10 jurisdictions 
reimbursed a total of $147 million for the drug. If these carriers 
implemented a least costly alternative policy, their 
reimbursement amount for Lupron would be cut by 27 percent, 
saving Medicare and its beneficiaries $40 million per year. We 
recommended that CMS encourage all Medicare carriers to 
apply a least costly alternative policy to Lupron. 
OEI-03-03-00250  MEDICARE REIMBURSEMENT F OR L UPRON  i  T A B L E   O F   C O N T E N T S

A B S T R A C T  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .  i

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

F I N D I N G  
Medicare and its beneficiaries would save $40 million per year 

if all carriers applied a least costly alternative policy ....................... 5

R E C O M M E N D A T I O N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .  6

A P P E N D I X . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . .  7

A C K N O W L E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . .  9

OEI-03-03-00250  MEDICARE REIMBURSEMENT F OR L UPRON  ii
 I N T R O D U C T I O N

OBJECTIVE 
To determine the amount Medicare would save if all carriers 
established a least costly alternative policy for Lupron 
(leuprolide acetate 7.5 milligrams (mg) depot suspension). 
BACKGROUND 
Medicare Reimbursement of Lupron 
Currently, Medicare Part B does not pay for over-the-counter or 
most outpatient prescription drugs. However, under specific 
circumstances, Medicare Part B covers drugs used with durable 
medical equipment or infusion devices. Medicare also covers 
certain drugs used in association with organ transplantation, 
dialysis, chemotherapy, and pain management.  One such drug, 
leuprolide acetate (brand name Lupron), is used in the 
treatment of advanced prostate cancer. Lupron is manufactured 
by TAP Pharmaceutical Products Inc. 
The Centers for Medicare & Medicaid Services (CMS) contracts 
with companies, known as carriers, to process and reimburse 
most Part B claims, including claims for prescription drugs. 
Twenty carriers currently serve 57 specific jurisdictions. 
Physicians submit claims for Lupron to the carrier in their area, 
and are subsequently reimbursed by Medicare. 
Medicare=s reimbursement methodology for Lupron and other 
prescription drugs is defined by section 1842(o) of the Social 
Security Act (the Act), as amended by section 4556 of the 
Balanced Budget Act of 1997. The Act states that 
reimbursement for a covered drug is to be set at 95 percent of 
the drugs average wholesale price (AWP). CMS directs carriers 
to obtain AWP data from the Red Book or similar pricing 
publications used by the pharmaceutical industry. 
Recently, the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 lowered payments for many Part B 
drugs by revising section 1842(o) of the Act. According to the 
Medicare Prescription Drug, Improvement, and Modernization 
Act of 2003, 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 will be the percentage of the 
AWP indicated in the table. If the percentage in the table is less 
OEI-03-03-00250  MEDICARE REIMBURSEMENT F OR L UPRON  1  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 Lupron will be 81 percent of 
the AWP. 
Medicare beneficiaries are responsible for paying a 20 percent 
copayment for Lupron and other covered drugs. In 2002, 
Medicare and its beneficiaries paid $677 million for Lupron (7.5 
mg depot suspension), accounting for 8 percent of all Medicare 
drug reimbursement that year. 
Local Medical Review Polices 
Medicare carriers issue local medical review policies (LMRPs) in order to 
further specify the circumstances under which a service is covered by the 
program. According to CMSs Medicare Program Integrity Manual 
(Chapter 13, Section 1.3): 
Contractors develop LMRPs by considering medical 
literature, the advice of local medical societies and medical 
consultants, and public comments. If a contractor develops 
an LMRP, its LMRP applies only within the area it services. 
While another contractor may come to a similar decision, 
CMS does not require it to do so. 
The contractors are required to ensure that all LMRPs are consistent 
with all statutes, rulings, regulations, and national coverage, 
payment, and coding policies. 
Carriers Use of Least Costly Alternative Policy 
According to carrier LMRPs, a least costly alternative policy means that 
the carrier will not cover the additional cost of a more expensive product 
if a clinically comparable product costs less. Carriers use of a least 
costly alternative is supported by CMS in its Program Integrity Manual 
(Chapter 13, Section 5.4), which states, Least costly alternative is a 
national policy provision that must be applied by contractors when 
determining payment for all durable medical equipment (DME). 
Contractors have the discretion to apply this principal to payment for 
non-DME services as well. 
Over the last several years, many carriers have implemented a least 
costly alternative policy for Lupron. According to carrier LMRPs, a 
single dose of the drug goserelin acetate (i.e., 3.6 mg implant, brand 
name Zoladex) has been found by many experts to be clinically 
comparable to a single dose of Lupron (7.5 mg depot suspension). As of 
the second quarter of 2003, the Medicare reimbursement amount for a 
OEI-03-03-00250  MEDICARE REIMBURSEMENT F OR L UPRON  2  I N T R O D U C T I O N  
single dose of Zoladex is $446.49, 27 percent less than the 
reimbursement amount for a single dose of Lupron ($611.56). Therefore, 
in jurisdictions where a carrier applies the least costly alternative policy, 
physicians that administer Lupron are generally reimbursed the Zoladex 
amount. In some instances, however, the full reimbursement amount 
may still be paid if the physician can document why the more costly 
treatment option (i.e., Lupron) is medically necessary. Furthermore, 
some carriers allow reimbursement to be made at the higher amount if 
the beneficiary was already being treated with Lupron at the time the 
least costly alternative policy was enacted. 
Related Work by the Office of Inspector General (OIG) 
OIG has consistently found that Medicares usual 
reimbursement amount for Lupron (based on average wholesale 
price) is excessive. For example, in our report Medicare 
Payments for Prescription Drugs--Response to Request from 
Representative W. J. Tauzin (June 2001), we calculated that the 
Medicare reimbursement amount for Lupron in 2000 was more 
than double the Department of Veterans Affairs (VA) purchase 
price. According to our findings, excessive reimbursement for 
Lupron alone was costing the Medicare program up to $359 
million per year. 
In another of our reports, Medicare Reimbursement of 
Prescription Drugs (January 2001), we found that Medicare 
would have saved almost $100 million in 1999 by reimbursing 
for Lupron at the actual wholesale price available to the 
physician/supplier community. 
METHODOLOGY 
We reviewed laws and regulations concerning Medicare drug 
reimbursement. We obtained and reviewed LMRPs from all 
Medicare carriers in order to determine which carriers currently 
apply a least costly alternative policy to Lupron. We accessed 
CMSs Part B Extract Summary System to determine each 
carriers 2002 total reimbursement for Lupron. To calculate the 
potential savings that would be achieved if carriers not using 
least costly alternative implemented such a policy, we (1) added 
the total reimbursement for Lupron by all carriers not using a 
least costly alternative policy, and (2) multiplied this figure by 
27 percent. 
OEI-03-03-00250  MEDICARE REIMBURSEMENT F OR L UPRON  3  I N T R O D U C T I O N  
Note on Savings Estimates:  The savings estimates presented in 
this report are based on 2003 reimbursement amounts. In 2003, 
Medicare reimbursed 95 percent of the AWP for both Lupron 
and Zoladex. Based on provisions of the recently passed 
Medicare Prescription Drug, Improvement, and Modernization 
Act of 2003, Medicare will reimburse Lupron at 81 percent of the 
AWP in 2004. Zoladex will be reimbursed at 80 percent of the 
AWP. 
This study was conducted in accordance with the Quality 
Standards for Inspections issued by the President=s Council on 
Integrity and Efficiency. 
OEI-03-03-00250  MEDICARE REIMBURSEMENT F OR L UPRON  4  F I N D I N G

Currently, Medicare carriers in 47 of 57 jurisdictions apply a 
least costly alternative policy to Lupron. Carriers in these 47 
jurisdictions reimburse $446.49 for 7.5 mg of Lupron, 27 percent 
less than carriers in the 10 
Medicare and its beneficiaries would save 
jurisdictions without a least 
$40 million per year if 10 carriers not using least 
costly alternative policy (who
costly alternative implemented such a policy. 
reimburse $611.56 for the same 
amount). In 2002, the carriers that did not have a least costly 
alternative policy reimbursed a total of $147 million for Lupron, 
accounting for 22 percent of all Medicare payments for the drug. 
If these carriers implemented a least costly alternative policy, 
their reimbursement amount for the drug would be cut by 27 
percent. This reduction would save Medicare and its 
beneficiaries $40 million per year. 
OEI-03-03-00250  MEDICARE REIMBURSEMENT F OR L UPRON  5  R E C O M M E N D A T I O N

Medicare carriers representing 10 of 57 jurisdictions have not 
implemented a least costly alternative policy for Lupron. As a 
result, these carriers are paying substantially more for the drug 
than carriers serving 47 other localities. If carriers in these 10 
jurisdictions adopted a least costly alternative policy, Medicare 
and its beneficiaries could save $40 million per year. Although 
CMS does not require carriers to have identical medical policies, 
this seems to be a situation where all carriers would benefit 
from utilizing a least costly alternative policy for Lupron. 
Therefore, we recommend that CMS encourage all Medicare 
carriers to apply a least costly alternative policy to Lupron. 
Agency Comments 
CMS partially concurred with our recommendation, agreeing to 
facilitate communication between carriers that have adopted a 
least costly alternative policy and those that have not. CMS 
stated that they will continue to monitor the use of these policies 
for Lupron and other drugs while also pursuing other initiatives 
to reduce excessive growth in drug spending. However, CMS 
stated that although they provide oversight of the development 
of contractor LMRPs, they do not generally influence the 
application of these guidelines in specific circumstances. The 
full text of CMSs comments is presented in the appendix. 
OEI-03-03-00250  MEDICARE REIMBURSEMENT F OR L UPRON  6  A P P E N D I X

Centers for Medicare & Medicaid Services Comments 
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 A P P E N D I X  
OEI-03-03-00250  MEDICARE REIMBURSEMENT F OR L UPRON  8
 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-03-03-00250  MEDICARE REIMBURSEMENT F OR L UPRON  9