Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
P B P D
A  RT    AYMENTS FOR  RUGS 
 
I T D
NFUSED  HROUGH  URABLE 
 
M E  
  EDICAL  QUIPMENT
 
 
 
 
Daniel R. Levinson  
Inspector General 
 
February 2013 
OEI-12-12-00310   
   
EXECUTIVE SUMMARY:  PART B PAYMENTS FOR DRUGS INFUSED 
THROUGH DURABLE MEDICAL EQUIPMENT 
OEI-12-12-00310 
 
 
WHY WE DID THIS STUDY  
 
Medicare pays 106 percent of the average sales price (ASP) for most drugs covered under 
Part B.  However, payment amounts for infusion drugs administered in conjunction with 
durable medical equipment (DME) are instead set at 95 percent of the drugs average 
wholesale prices (AWP) that were in effect on October 1, 2003.  Numerous Office of 
Inspector General reports have shown that AWPs greatly exceed drug acquisition costs.  
Basing payments for DME infusion drugs on AWPs set almost a decade ago raises 
concerns about whether Medicare payment levels are appropriate. 
 
HOW WE DID THIS STUDY 
 
For every year between 2005 and 2011, we compared the ASP (which serves as an 
estimate for provider acquisition cost) of each DME infusion drug to its AWP-based 
Medicare payment amount.  ASPs are statutorily defined and based on actual sales data.  
We also calculated how much Medicare would have saved between 2005 and 2011 had 
payment been based on ASPs rather than AWPs.   
 
WHAT WE FOUND 
 
Overall, Medicare payment amounts for DME infusion drugs exceeded ASPs by 54 to 
122 percent annually.  Most individual drugs had Medicare payment amounts that 
exceeded ASPs, many by more than two times, in each year.  However, for as many as 
one-third of DME infusion drugs in each year, the payment amounts were below their 
ASPs, meaning that Medicare may be underpaying providers for these drugs.  Medicare 
spending on DME infusion drugs would have been reduced by 44 percent ($334 million) 
between 2005 and 2011 had payment been based on ASPs. 
   
WHAT WE RECOMMEND  
 
Our results once again show that AWPs are unrelated to actual prices in the marketplace 
and that the reliance on an AWP-based payment methodology has cost Medicare 
hundreds of millions of dollars.  Therefore, we recommend that the Centers for Medicare 
& Medicaid Services (CMS) either (1) seek a legislative change requiring DME infusion 
drugs to be paid using the ASP methodology or (2) include DME infusion drugs in the 
next round of the competitive bidding program.  CMS partially concurred with the 
recommendation to seek a legislative change and concurred with the recommendation to 
include DME infusion drugs in the next round of the competitive bidding program. 
   
   
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 
Background ..................................................................................................1 
Methodology ................................................................................................5 
Findings........................................................................................................7 
Overall, Medicare payment amounts for DME infusion drugs 
exceeded ASPs by 54 to 122 percent annually from 2005 to      
2011 ..................................................................................................7 
Medicare and its beneficiaries would have saved $334 million 
between 2005 and 2011 if payments for DME infusion drugs had 
been based on ASPs .........................................................................9 
Conclusion and Recommendations ............................................................ 11 
            Agency Comments .........................................................................12 
Appendixes ................................................................................................13 
A.  Durable Medical Equipment Infusion Drug Descriptions ........13 
B.  Annual Savings Under Average Sales Price Methodology ......15 
C.  Agency Comments ...................................................................16 
Acknowledgments......................................................................................18 
 
 
 
 
 
 
 
 
 
 
 
   
   
OBJECTIVES 
1.  To compare Medicare payment amounts based on average wholesale 
prices (AWP) to average sales prices (ASP) for Part B durable medical 
equipment (DME) infusion drugs between 2005 and 2011. 
2.  To determine how much Medicare would have saved on DME infusion 
drugs between 2005 and 2011 had payment been based on the ASP 
methodology. 
BACKGROUND  
Infusion drugs administered in conjunction with DME are one of the few 
types of drugs that are paid by Medicare Part B using AWPs instead of 
ASPs.  Numerous Office of Inspector General (OIG) reports have found 
that AWPs often greatly exceed the drugs actual costs.  Partly on the basis 
of this work, the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA) replaced AWP with ASPa 
benchmark that reflects actual prices in the marketplaceas the pricing 
method for most Part B drugs beginning on January 1, 2005.1  However, 
the MMA excluded infusion drugs used with DME from the new ASP 
methodology and set their payment amount at 95 percent of the AWPs that 
were in effect on October 1, 2003.2   
Medicare Part B Coverage of Infusion Pumps 
In infusion therapy, drugs are typically administered intravenously using a 
needle, catheter, or device such as an infusion pump to control the rate of 
drug flow.3  Physicians often prescribe infusion therapy when oral 
medications may not effectively treat the patients condition.4  Infusion 
therapy is commonly used to treat acute conditions, such as pain and 
infections, and chronic conditions, such as cancer, multiple sclerosis, and 
rheumatoid arthritis.5  Infusion therapy is often provided in the home 
rather than in inpatient settings to reduce costs associated with inpatient 
care and maintain patient convenience and comfort.6     
In general, external and implantable pumps used in infusion therapy are 
covered by Medicare under the DME benefit when they are used as 
 
1 MMA, P.L. 108-173,  303(c) (adding section 1847A of the Social Security Act (the 
Act)). 
2 MMA, P.L. 108-173,  303(b) (amending section 1842(o)(1) to set a different payment 
methodology for infusion drugs administered through DME at 1842(o)(1)(D)(i)). 
3 National Home Infusion Association (NHIA), Infusion FAQs.  Accessed at 
http://www.nhia.org on July 18, 2012.   
4 NHIA, About Infusion Therapy.  Accessed at http://www.nhia.org on July 18, 2012. 
5 NHIA, Infusion FAQs.  Accessed at http://www.nhia.org on July 18, 2012.   
6 Ibid. 
 
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Part B Payments for Drugs Infused Through Durable Medical Equipment (OEI-12-12-00310) 
   
   
specified by the Medicare National Coverage Determinations Manual.  
For example, Medicare covers external infusion pumps when used to treat 
iron poisoning, thromboembolic disease, and diabetes, among other 
conditions.  Implantable infusion pumps are covered when they are used to 
treat certain conditions, including chronic intractable pain, chronic 
intractable spasticity, and liver cancer. 7   
Medicare Part B Coverage of DME Infusion Drugs 
Part B-covered drugs generally fall into the following categories: drugs 
furnished incident to a physicians service (e.g., injectable drugs used in 
connection with the treatment of cancer); drugs explicitly covered by 
statute (e.g., some vaccines and oral anticancer drugs); and drugs used in 
conjunction with DME (e.g., certain inhalation and infusion drugs). 8, 9  
Medicare Part B covers drugs used in infusion therapy under its DME 
benefit if (1) the drug is necessary for the effective use of a covered 
external or implantable infusion pump and (2) the drug being used with 
the pump is itself reasonable and necessary for the patients treatment.10  
From 2005 to 2011, the Centers for Medicare & Medicaid Services (CMS) 
classified 31 to 38 drugs as DME infusion in any given quarter.11 
Medicare Part B Payments for DME Infusion Drugs   
CMS pays physicians and DME suppliers for most Part B-covered drugs 
using a methodology based on ASPs.  Section 1847A(c) of the Act defines 
ASP as a manufacturers sales of a drug (with certain exceptions) 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.  
The ASP is net of any price concessions, such as volume discounts, 
prompt pay discounts, cash discounts, free goods contingent on 
purchase requirements, chargebacks, and rebates other than those obtained 
through the Medicaid drug rebate program.  As such, it can be considered 
a proxy for providers acquisition costs.  Manufacturers provide CMS with 
the ASPs and volume of sales for each of their drug products on a 
quarterly basis, with submissions due 30 days after the close of each 
quarter.  Medicare payments for most Part B-covered prescription drugs 
are equal to 106 percent of the volume-weighted ASPs for the HCPCS 
 
7 Medicare National Coverage Determinations Manual, ch. 1  280.14.   
8 Infusion drugs used in conjunction with DME will hereinafter be referred to as DME 
infusion drugs. 
9 42 CFR  414.900(b) and Medicare Benefit Policy Manual, ch. 15  50. 
10 Medicare National Coverage Determinations Manual, ch. 1  280.14. 
11 DME infusion drugs are classified and paid using Healthcare Common Procedure 
Coding System (HCPCS) codes.  In the case of prescription drugs, each HCPCS code 
defines the drug name and the amount of drug represented by the HCPCS code but does 
not specify manufacturer or package size information. 
 
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code (or the actual billed charge, if that amount is lower).  Medicare 
beneficiaries are responsible for 20 percent of this amount in coinsurance, 
as well as for any deductible.  
Unlike most drugs covered under Part B, DME infusion drugs are not paid 
on the basis of ASPs.  Rather, section 1842(o)(1)(D)(i) of the Act, as 
amended by the MMA, sets payment amounts for these drugs at 
95 percent of the AWPs that were in effect on October 1, 2003.12  Statutes 
and regulations do not define AWP, and AWPs do not represent actual 
transactional prices.  Rather, AWPs are the list prices established by drug 
manufacturers and reported by publishers such as Red Book.   
For a single-source DME infusion drug, the Part B payment amount for a 
HCPCS code is based on 95 percent of the drugs AWP on 
October 1, 2003.13  For a multiple-source DME infusion drug, payment is 
based on 95 percent of the median AWP on October 1, 2003, for generic 
sources.  However, if the lowest AWP among brand-name products is less 
than the generic sources median AWP, Medicare pays 95 percent of this 
brand-name products AWP.  Each quarter, CMS publishes on its Web site 
the AWP-based payment amounts for DME infusion drugs.14  Medicare 
beneficiaries are responsible for 20 percent of the payment amount in 
coinsurance, as well as for any deductible. 
In 2011, Medicare and its beneficiaries spent approximately $125 million 
for 21 DME infusion drugs.  (The other 10 drugs classified as DME 
infusion were not associated with any Part B expenditures.)  However, 
just 3 of the 21 drugs accounted for 91 percent of expenditures, with a 
single drug (milrinone lactate) accounting for 62 percent of the total.15, 16 
Competitive Bidding for DME Infusion Drugs 
The DME, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive 
Bidding Program was mandated by section 302 of the MMA to reduce 
 
12 According to section 20.1.3 of chapter 17 of the Medicare Claims Processing Manual, 
this payment methodology does not apply if the drug is compounded or furnished 
incident to a professional service.  Also, pursuant to section 1842(o)(1)(D)(ii) of the Act, 
payments for DME infusion drugs are not based on 95 percent of AWP if furnished in 
competitive bidding areas.  However, CMS is implementing the competitive bidding 
program by phasing in specific items.  Medicare Claims Processing Manual, ch. 36 
 20.1.  At this time, DME infusion drugs have not been designated for inclusion in the 
competitive bidding program. 
13 Medicare Claims Processing Manual, ch. 17  20.4. 
14 Although the payment amounts remain constant, the HCPCS codes classified as DME 
infusion and thus subject to AWP-based payment may change from quarter to quarter. 
15 2011 National Claims History (NCH) DME file.  Claims data are added to NCH files 
on a rolling basis.  Therefore, the 2011 NCH DME file did not include 100 percent of 
claims for DME infusion drugs when OIG analyzed it in April 2012. 
16 Milrinone lactate (brand name Primacor) is used to treat congestive heart failure. 
 
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expenses for Medicare and its beneficiaries.17  DME suppliers submit bids 
to become Medicare contract suppliers and to furnish items in competitive 
bidding areas.  Payment amounts resulting from the bids replace current 
fee-schedule payment amounts for the items.18  The competitive bidding 
program has been implemented in phases beginning with bids for items 
with the highest cost and highest volume or with the largest savings 
potential.19  On January 1, 2011, CMS launched the initial phase in nine 
geographic areas for nine product categories.20  Pursuant to the Patient 
Protection and Affordable Care Act, all areas will have competitive 
bidding or payment rate adjustments based on competitive bid rates by 
2016.21  At this time, DME infusion drugs have not been included as part 
of the competitive bidding process.  According to CMS staff, the agency 
intends to include DME infusion drugs in a future phase of the program; 
however, no definitive plans for their inclusion have been announced. 
Previous OIG Work  
Since 1997, OIG has released numerous reports showing that AWPs 
greatly exceed acquisition costs.  For example, a 2001 OIG report found 
that Part B payment amounts, which were set at 95 percent of AWP, 
exceeded actual wholesale prices (obtained from wholesaler catalogs) for 
24 drugs with the highest total Medicare payments.22  If Medicare had 
reimbursed these drugs at the actual wholesale prices, it would have saved 
$761 million a year.  Another OIG report found that Medicare payments 
for end stage renal disease drugs, which were set at 95 percent of AWP, 
exceeded amounts paid by the Department of Veterans Affairs (VA) in 
1999.23  Medicare Part B payment amounts would have been nearly halved 
for five drugs had payment amounts been based on VA acquisition costs.  
Both of these studies recommended that CMS reduce excessive Medicare 
payment amounts. 
 
17 Medicare Claims Processing Manual, ch. 36  10. 
18 Ibid. 
19 Medicare Claims Processing Manual, ch. 36  20.1. 
20 CMS, DMEPOS Competitive Bidding.  Accessed at https://www.cms.gov on July 12, 
2012. 
21 The Patient Protection and Affordable Care Act, P.L. 111-148  6410. 
22 OIG, Medicare Reimbursement of Prescription Drugs, OEI-03-00-00310, 
January 2001. 
23 OIG, Medicare Reimbursement of End Stage Renal Disease Drugs, OEI-03-00-00020, 
June 2000. 
 
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METHODOLOGY 
Data Collection  
Selection of Drugs.  We used CMSs payment amount files to select the 
HCPCS codes that were paid on the basis of DME infusion payment limits 
(i.e., 95 percent of AWPs from October 1, 2003) in each quarter between 
2005 and 2011.  As previously stated, during that time, 31 to 38 HCPCS 
codes were classified as DME infusion drugs in any given quarter.  See 
Appendix A for a list of these drugs. 
Total Part B Expenditures and Utilization for DME Infusion Drugs.  We 
obtained all paid Part B DME claims for infusion drug HCPCS codes from 
the 20052011 NCH DME files to determine quarterly utilization and 
spending.  If a HCPCS code did not have any associated expenditures in a 
particular quarter, we removed the code from the analysis for that quarter 
(i.e., our analysis includes only codes for which there were Part B 
expenditures).  As a result, between 7 and 13 HCPCS codes were removed 
from our analysis in any given quarter. 
AWP-Based Payment Amounts.  We obtained the AWP-based payment 
amounts for all relevant HCPCS codes in every quarter between 2005 and 
2011 from CMSs payment amount files.  
ASPs and ASP-Based Payment Amounts.  CMS also calculates ASP-based 
payment amounts for the HCPCS codes under review for situations when 
the drugs are provided incident to a professional service (e.g., the identical 
drug is paid on the basis of its ASP rather than AWP when it is 
administered in a physicians office rather than infused in a patients 
home).24  We obtained the ASP-based payment amounts for all relevant 
HCPCS codes in every quarter under review from CMSs payment amount 
files.  We used the ASP-based payment amounts to calculate ASPs by 
dividing each HCPCS codes ASP-based payment amount by 1.06.25  As 
previously stated, because ASPs are based on actual sales in the 
marketplace, they provide a reasonable estimate of the acquisition costs of 
these drugs for providers.  
 
24 Medicare Claims Processing Manual, ch. 17  20.1.3.  
25 There is a two-quarter lag between the time when ASP sales occur and when Medicare 
payment amounts reflect those sales.  As a result, ASPs in a given quarter were calculated 
using ASP-based payment amounts from two quarters later (e.g., fourth-quarter 2011 
ASPs were calculated by dividing second-quarter 2012 payment amounts by 1.06).  We 
removed between zero and four HCPCS codes from our comparisons in any given quarter 
because there were no ASP-based payment data in the relevant quarter on which to base 
our calculations. 
 
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Data Analysis 
Comparing ASPs and Medicare Payment Amounts Between 2005 and 
2011.  We first estimated an annual ASP for each HCPCS code by 
weighting the ASP in each quarter by Part B utilization in that quarter.  We 
then calculated the difference between the AWP-based payment amount 
and the annual ASP for each HCPCS code.  For every year from 2005 
through 2011, we counted the number of DME infusion drug HCPCS 
codes that had Medicare payment amounts that exceeded their annual 
ASPs and the number of codes with Medicare payment amounts that were 
less than their annual ASPs.  We examined whether the number of HCPCS 
codes with Medicare payments amounts above and below their annual 
ASPs changed during this period.   
To determine an overall difference between Medicare payment amounts 
and ASPs across all DME infusion drugs in each year, we calculated a 
median difference among all the individual HCPCS codes.  We tracked 
these median differences over the entire 20052011 period to determine 
whether the relationship between ASPs and Medicare payment amounts 
changed across the entire group of DME infusion drugs during this time.   
Determination of Potential Savings.  For each HCPCS code, we multiplied 
its utilization by its ASP-based payment amount for every quarter between 
2005 and 2011 to determine how much would have been spent if payments 
for DME infusion drugs had been set at 106 percent of ASP (i.e., the 
methodology used to pay for most Part B drugs).  We then subtracted the 
result from actual expenditures in the relevant quarter to determine the 
difference in spending between the AWP-based and ASP-based payment 
methodologies.  We added the quarterly results to determine the total 
savings in each year from 2005 to 2011. 
Limitations 
We did not review Part B claims for accuracy, nor did we review any 
documentation in support of the claims included in our study.  We also did 
not examine any infusion-related services (either covered or uncovered) 
that may have been provided to beneficiaries who received DME infusion 
drugs. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency. 
   
 
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FINDINGS 
Overall, Medicare payment amounts for DME infusion 
drugs exceeded ASPs by 54 to 122 percent annually 
from 2005 to 2011 
Given that ASPs should reflect providers acquisition costs, our analysis 
suggests that Medicare overpaid for DME infusion drugs by a substantial 
margin in each year from 2005 to 2011.  Although overall differences were 
smallest in 2006, Medicare payment amounts that year still exceeded 
ASPs by 54 percent at the median (see Figure 1).  In contrast, the largest 
spread was in 2009, when payment amounts were more than double the 
ASPs at the median.   
Figure 1:  Median Difference Between ASPs and Medicare Payment 
Amounts From 20052011 for All DME Infusion Drugs 
140%
e 
r
a
c
di 120%
e
M
d 
n
a 100%
Ps ts 
Sn
Au
en mo 80%
eA
wt 
tn
ee 60%
Bm
e y
ncPa
e
r 40%
e
f
f
Di
n  20%
a
di
e
M
0%
2005 2006 2007 2008 2009 2010 2011
Year 
 
   Source: OIG analysis of CMSs 20052011 payment amount files. 
From 2005 to 2011, the majority of drugs had Medicare 
payment amounts that exceeded ASPs; however, as many as 
one-third of drugs had payment amounts that were less than 
ASPs each year, meaning that providers were potentially being 
underpaid for some products 
In each year under review, 67 to 86 percent of DME infusion drug HCPCS 
codes had Medicare payment amounts that exceeded their ASPs (see 
Table 1).  In many of these cases (between 46 and 52 percent each year), 
 
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Medicare paid providers at rates that were more than double the ASPs of 
the drugs.  For example, in 2011, 10 of the 21 HCPCS codes for DME 
infusion drugs had AWP-based payment amounts that were at least twice 
the ASPs, with 4 of these being paid at more than 10 times the market 
prices.   
In contrast, from 2005 to 2011, 14 to 33 percent of HCPCS codes (as 
many as 7 drugs per year) had ASPs that exceeded their Medicare payment 
amounts.  In other words, Medicare reimbursement may not have been 
sufficient to cover the average cost of these drugs, possibly because 
payment amounts had remained unchanged since 2003.  For example, in 
2005, the annual ASP of the drug ganciclovir sodium was $34.33 and 
Medicare paid providers $35.25 (a spread of 3 percent).26  The following 
year, the annual ASP of the drug increased to $36.78 but the Medicare 
payment amount stayed the same.  By 2011, the ASP of ganciclovir 
sodium had risen to $65.03, yet Medicare payment was still $35.25 (or 
46 percent below ASP). 
Table 1:  Percentage of Drugs With Medicare Payment Amounts Greater 
and Less Than ASPs 
  2005  2006  2007  2008  2009  2010  2011 
n=29  n=24  n=26  n=26  n=23  n=23  n=21 
Payment is 
greater than  86%  79%  73%  73%  70%  74%  67% 
ASP 
Payment is less 
14%  21%  27%  27%  30%  26%  33% 
than ASP 
                                 Source: OIG analysis of CMSs 20052011 payment amount files. 
The DME infusion drug with the highest expenditures in each 
of the last 6 years had Medicare payment amounts that were 
10 to 18 times greater than ASPs 
In every year under review except 2005, Medicare spent more on 
milrinone lactate than on any other DME infusion drug.  From 2005 to 
2011, expenditures for milrinone lactate accounted for 24 to 62 percent of 
total yearly spending in the DME infusion category, despite the fact that 
only a small percentage of providers supplied the drug.  For example, in 
 
26 Ganciclovir sodium (brand name Cytovene) is an antiviral drug. 
 
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2011, just 5 percent of infusion drug providers had paid Part B claims for 
milrinone lactate.27   
In 5 of the 7 years, milrinone lactate also had the greatest difference 
between Medicare payment amounts and ASPs among all DME infusion 
drugs.  For example, in 2006, the annual ASP was $2.80 for milrinone 
lactate, while the AWP-based payment amount was more than 18 times 
greater ($51.58).28  In 2011, despite an increase in ASP (to $4.32 on 
average), Medicare was still paying almost 12 times the ASP.29   
Medicare and its beneficiaries would have saved 
$334 million between 2005 and 2011 if payments for 
DME infusion drugs had been based on ASPs 
If payment amounts for DME infusion drugs had been based on ASPs 
rather than AWPs between 2005 and 2011, total Medicare Part B spending 
would have been reduced by 44 percent (from $765 million to 
$431 million), a savings of $334 million.  One-fifth of the savings 
($67 million) would have been realized by beneficiaries in the form of 
reduced coinsurance.  Figure 2 shows the spending under the two 
methodologies each year. 
Potential savings based on the ASP methodology ranged from 28 percent 
in 2005 to 57 percent in 2011.  Reduced payments for milrinone lactate 
would have accounted for more than three-quarters of the savings in each 
year.  For example, in 2011, Medicare payments to just 263 providers for 
milrinone lactate would have been reduced by almost $71 million (or 
nearly 99 percent of the total savings for all DME infusion drugs) had 
reimbursement been set at 106 percent of ASP.  
Payment amounts for most drugs would have decreased under the ASP 
methodology.  However, because the ASP-based payment amounts for 
some drugs were higher than the existing AWP-based payment amounts 
(i.e., providers were likely being underpaid), Medicare spending would 
have actually increased for some drugs.  For example, in 2011, Medicare 
spending would have been reduced by $76 million for 14 drug codes but 
would have increased by $4 million for 7 drug codes, resulting in a net 
savings of $72 million.   
 
27 Of the 4,995 providers that had paid Part B claims for DME infusion drugs in 2011, 
only 263 had paid claims for milrinone lactate.   
28 The next highest spread was for bleomycin sulfate, at almost nine times the ASP. 
29 However, milrinone lactate no longer had the largest spread. 
 
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Figure 2:  Medicare Part B Spending for DME Infusion Drugs Under 
AWP-Based and ASP-Based Methodologies From 20052011 
$140
$120
$100
) 
s
n
o $80
Milli
(
g 
n $60
di
n
e
p
S
al  $40
t
o
T
$20
$0
2005 2006 2007 2008 2009 2010 2011
Year 
Spending under the AWP-based payment methodology
Spending under the ASP-based payment methodology
 
     
    Note: Medicare spending includes beneficiary copayments and deductibles.        
 
    Source: OIG analysis of CMSs 20052011 payment amount files. 
 
   
 
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CONCLUSION AND RECOMMENDATIONS 
Unlike most drugs covered under Medicare Part B, DME infusion drugs 
are still being paid under a flawed AWP-based reimbursement 
methodology.  Our findingslike those of OIGs previous studies in this 
areademonstrate that AWPs are unrelated to the prices of drugs in the 
marketplace and that the reliance on an AWP-based payment methodology 
has cost the program hundreds of millions of dollars.   
Furthermore, although the current methodology has led to excessive 
payments to providers for most DME infusion drugs, we also found that 
providers may actually be paid below their costs for a number of DME 
infusion drugs.  These payment-related issues could significantly affect 
drug utilization and acquisition.  For example, excessive payments could 
present incentives for providers to overutilize a particular product, while 
payments that are below cost could contribute to an inability or 
unwillingness to provide a particular drug.     
To ensure that payment amounts for DME infusion drugs more accurately 
reflect acquisition costs, we recommend that CMS either: 
Seek a legislative change requiring DME infusion drugs to be 
paid using the ASP methodology  
ASPs, which are based on actual sales and reported quarterly, are much 
more closely related to prices in the marketplace than AWPs set nearly a 
decade ago.  In 2011 alone, Medicare would have saved $72 million had it 
reimbursed on the basis of the ASP methodology. 
Include DME infusion drugs in the next round of competitive 
bidding 
The purpose of the DMEPOS competitive bidding program is to align 
Medicare payments with acquisition costs and ensure that providers will 
still be able to acquire items necessary to treat beneficiaries.  CMS has 
noted that it intends to include DME infusion drugs in future competitive 
bidding efforts; however, no definitive plans for their inclusion have been 
announced.  Given the payment issues discussed in this report, DME 
infusion drugs seem to be a prime candidate to be included sooner rather 
than later. 
 
 
 
 
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AGENCY COMMENTS  
In its comments on the draft report, CMS partially concurred with the 
recommendation to seek a legislative change that would require DME 
infusion drugs to be paid using the ASP payment methodology.  The 
agency noted that section 1842(o)(1)(D) of the Social Security Act would 
need to be amended and the request for legislative change would need to 
be included in the annual Presidents Budget.   
CMS concurred with the recommendation to include DME infusion drugs 
in the next round of the DMEPOS competitive bidding program.  CMS 
stated that it plans to include infusion drugs in a future round of the 
program.   
CMS also provided several technical comments.  In response, we made 
minor revisions to the report, where appropriate.  CMSs comments are 
provided in Appendix C.   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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APPENDIX A 
Durable Medical Equipment Infusion Drug Descriptions  
Healthcare 
Common 
HCPCS Code 
Procedure Coding  Description 
Dosage 
System (HCPCS) 
Code 
J0285  Amphotericin b injection  50 mg 
J0287  Amphotericin b lipid complex injection  10 mg 
J0288  Amphotericin b cholesteryl sulfate complex injection  10 mg 
J0289  Amphotericin b liposome injection  10 mg 
J0475  Baclofen injection  10 mg 
J0476  Baclofen intrathecal trial injection  50 mcg 
J0735  Clonidine hydrochloride injection  1 mg 
J0895  Deferoxamine mesylate injection  500 mg 
J1170  Hydromorphone injection  4 mg 
J1230  Methadone injection  10 mg 
J1250  Dobutamine hydrochloride injection  250 mg 
J1325  Epoprostenol injection  .5 mg 
J1455  Foscarnet sodium injection  1000 mg 
J1570  Ganciclovir sodium injection  500 mg 
J1817  Insulin for insulin pump use  50 units 
J2175  Meperidine hydrochloride injection  100 mg 
J2260  Milrinone lactate injection  5 mg 
J2270  Morphine sulfate injection  10 mg 
J2271  Morphine sulfate injection   100 mg 
J2275  Morphine sulfate injection  10 mg 
J3010  Fentanyl citrate injection  .1 mg 
J9001  Doxorubicin hydrochloride liposome injection  10 mg 
J9040  Bleomycin sulfate injection  15 units 
J9065  Cladribine injection  1 mg 
J9100  Cytarabine hydrochloride injection  100 mg 
J9110  Cytarabine hydrochloride injection  500 mg 
J9190  Fluorouracil injection  500 mg 
J9200  Floxuridine injection  500 mg 
J9208  Ifosfamide injection  1 gm 
J9280  Mitomycin injection  5 mg 
 
13 
Part B Payments for Drugs Infused Through Durable Medical Equipment (OEI-12-12-00310) 
   
   
HCPCS Code 
HCPCS Code  Description 
Dosage 
J9355  Trastuzumab injection  10 mg 
J9360  Vinblastine sulfate injection  1 mg 
J9370  Vincristine sulfate injection  1 mg 
J9375  Vincristine sulfate injection  2 mg 
J9380  Vincristine sulfate injection  5 mg 
Q4075*  Acyclovir injection  5 mg 
Q4076*  Dopamine hydrochloride injection  40 mg 
Q4077*  Treprostinil injection  1 mg 
 
Note: The Centers for Medicare & Medicaid Services (CMS) did not classify all of the listed drugs as durable 
medical equipment infusion drugs in every quarter between 2005 and 2011.  
  
*HCPCS codes Q4075, Q4076, and Q4077 were deleted as of December 31, 2005.  They were replaced with 
HCPCS codes J0133, J1265, and J3285, respectively, as of January 1, 2006, and were no longer subject to the 
DME infusion payment limit during the subsequent quarters under review.     
 
                               Source: CMSs 20052011 payment amount files. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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Part B Payments for Drugs Infused Through Durable Medical Equipment (OEI-12-12-00310) 
   
   
APPENDIX B 
Annual Savings Under the Average Sales Price Methodology 
Spending Under  Percentage 
Total Spending for  Savings Under 
Average Sales  Savings Under 
Durable Medical  ASP-Based 
Year  Price   ASP-Based 
Equipment (DME)  Payment 
(ASP)-Based  Payment 
Infusion Drugs  Methodology 
Methodology  Methodology 
2005  $129,917,517  $93,627,954  $36,289,563  28% 
2006  $86,313,154  $51,464,796  $34,848,358  40% 
2007  $89,365,108  $54,438,177  $34,926,931  39% 
2008  $100,700,741  $58,574,188  $42,126,553  42% 
2009  $108,419,875  $62,306,379  $46,113,495  43% 
2010  $124,990,747  $56,573,383  $68,417,364  55% 
2011  $125,459,122  $53,732,067  $71,727,055  57% 
  Total   $765,166,263  $430,716,945  $334,449,318  44% 
 
                                      Source: Office of Inspector General (OIG) analysis of the Centers for Medicare & Medicaid Services 20052011  
     payment amount files and OIG analysis of 2005-2011 National Claims History DME files. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
15 
Part B Payments for Drugs Infused Through Durable Medical Equipment (OEI-12-12-00310) 
  APPENDIXC 
Agency Comments 
l4 
_.._tlsP'<'ICt;, , 
"...- "" ~ 
DEPARTMENT OF HEALTII & HUMAN SERVICES  Centers for Medicare & Mecf.ca;d Services
Office of the Administrator 
Washington. DC 20201 
DEC 1 7 lOll 
DATE: 	
TO: 	 Daniel R. Levinson 

Inspector General 

FROM: 	 Marilyn Tavenner 

Acting Administrator 

SUBJECT: 	 Office of Inspector General ' s Draft Report: "Part B Payments for Drugs Infused 
through Durable Medical Equipment" (OEI-12-12-00310) 
The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 
respond to the OIG Draft Report titled, "Part B Payments for Drugs Infused Through Durable 
Medical Equipment " (OEI-12-12-0031 0) . 
The OIG's objectives were to compare Medicare payment amounts based on average wholesale 
prices (A WP) to average sales prices (ASP) for Part B durable medical equipment (DME) 
infusion drugs between 2005 and 2011 ; and determine how much Medicare would have saved on 
DME infusion drugs between 2005 and 2011 had payment been based on the ASP methodology. 
The OIG found that during each year between 2005 and 2011 the payment amounts for 67 to 86 
percent ofhealth care common procedures codes (HCPCS) identified by OIG as DME infusion 
drugs exceeded ASP by a substantial margin. The report also noted that as many as one third of 
the payment amounts were significantly less than ASP. Overall, the potential savings associated 
with using ASP-based payments instead of A WP-based payments ranged from 28 percent in 
2005 to 57 percent in 2011. The savings estimate totaled $334 million for the period 2005 to 
2011 . One drug, milrinone-anagent infused for the treatment of congestive heart failure, 
accounted for about three quarters of the potential savings for each year. 
OIG Recommendation 
CMS should revise payments for DME infusion drugs to reflect acquisition costs by either 
seeking a legislative change to pay infusion drugs under the same payment methodology as other 
Part B drugs (i.e, 106 percent of ASP) or including infusion drugs in the next round ofthe DME 
competitive bidding program. 
16 
Part B Payments for Drugs Infused Through Durable Medical Equipment (OEI-12-12-00310)   
   
 
   
 
17 
Part B Payments for Drugs Infused Through Durable Medical Equipment (OEI-12-12-00310) 
   
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of David Tawes, Regional 
Inspector General for Evaluation and Inspections in the Baltimore regional 
office.  
Bahar Adili served as the lead analyst for this study.  Central office staff 
who provided support include Berivan Demir Neubert, Kevin Farber, 
Scott Manley, and Christine Moritz.  
 
 
 
 
18 
Part B Payments for Drugs Infused Through Durable Medical Equipment (OEI-12-12-00310) 
   
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: 
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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 
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The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud, waste, or abuse and promoting 
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
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law enforcement authorities.  The investigative efforts of OI often lead to criminal 
convictions, administrative sanctions, and/or civil monetary penalties. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
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enforcement authorities.