Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

Inspector General 

January 2004 

OEI-03-03-00520 

UPDATE: EXCESSIVE MEDICARE 

REIMBURSEMENT FOR 

IPRATROPIUM BROMIDE 
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. 
EXECUTIVE SUMMARY

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, 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, reimbursement for a covered drug was set at 95 

percent of the drug’s 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 Medicare’s CY 2003 reimbursement amount for 

ipratropium bromide. For comparison, we: (1) obtained 

Medicaid’s 2003 reimbursement amount for ipratropium 

OEI - 03 - 03 - 00520 UPDATE : EXCESSIVE M EDICARE R EIMBURSEMENT FOR I PRATROPIUM BROMIDE i 
EXECUTIVE SUMMARY EXECUTIVE SUMMARY 

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 VA’s 

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 Medicare’s 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. Medicare’s 

OEI - 03 - 03 - 00520 UPDATE : EXCESSIVE M EDICARE R EIMBURSEMENT FOR I PRATROPIUM BROMIDE ii 
EXECUTIVE SUMMARY 

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 Medicare’s 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 M EDICARE R EIMBURSEMENT FOR I PRATROPIUM BROMIDE iii 
EXECUTIVE SUMMARY 

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 Medicare’s reliance on published average wholesale 

prices, the program’s reimbursement remains constant, despite 

the fact that other purchasers pay significantly less for 

ipratropium bromide than they did several years ago. In 

addition, Medicare’s 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 Medicare’s 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 Medicare’s 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 M EDICARE R EIMBURSEMENT FOR I PRATROPIUM BROMIDE iv 
TABLE OF CONTENTS

EXECUTIVE SUMMARY ................................ ......... i

INTRODUCTION ................................ .................. 1

FINDINGS 

Medicare continues to pay more than other payors ................................... 7

CONCL USION ................................ .................. 10

ACKNOWLEDGMENTS ................................ .......... 11

OEI - 03 - 03 - 00250 MEDICARE REIMBURSEMENT F OR IPRATROPIUM B ROMIDE v
INTRODUCTION

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 Medicare’s 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 drug’s 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 M EDICARE R EIMBURSEMENT FOR I PRATROPIUM BROMIDE 1 
INTRODUCTION 

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 statutorilydefined 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 CMS’s inherent reasonableness authority 

through a provision of the Medicare, Medicaid, and SCHIP 

OEI - 03 - 03 - 00520 UPDATE : EXCESSIVE M EDICARE R EIMBURSEMENT FOR I PRATROPIUM BROMIDE 2 
INTRODUCTION 

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 agency’s 

reimbursement for a drug not exceed the lower of its estimated 

acquisition cost plus a reasonable dispensing fee, or the 

provider’s usual and customary charge to the public for the 

OEI - 03 - 03 - 00520 UPDATE : EXCESSIVE M EDICARE R EIMBURSEMENT FOR I PRATROPIUM BROMIDE 3 
INTRODUCTION 

drug. CMS allows States flexibility in defining estimated 

acquisition cost. Like Medicare, most States base their 

calculation of estimated acquisition cost on a drug’s 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 GPO’s 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 M EDICARE R EIMBURSEMENT FOR I PRATROPIUM BROMIDE 4 
INTRODUCTION INTRODU INTRODUCTION

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 Medicare’s 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 CMS’s Part B Extract Summary 

System to determine Medicare’s total payments for ipratropium 

bromide in CY 2002. We obtained Medicare’s CY 2003 

reimbursement amounts for ipratropium bromide from all 4 

DMERCs. 

To determine Medicaid’s 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 M EDICARE R EIMBURSEMENT FOR I PRATROPIUM BROMIDE 5 
INTRODUCTION 

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 VA’s 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 Medicare’s reimbursement amount for 1 mg of 

ipratropium bromide to the Medicaid Federal Upper Limit 

amount. We determined the percentage difference in price by 

subtracting Medicaid’s price from Medicare’s 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 M EDICARE R EIMBURSEMENT FOR I PRATROPIUM BROMIDE 6 
FINDINGS

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 

Medicare continues to pay more for ipratropium prices available to the supplier 

bromide than other payors, costing the program community. If Medicare were 

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: 

$0.62 

$1.01 

$1.17 

$3.34 

$0.57 

$0.39 

$0.00 

$0.50 

$1.00 

$1.50 

$2.00 

$2.50 

$3.00 

$3.50 

$4.00 

Median VA Median 

Wholesaler 

Median GPO Median WAC Medicaid 

Federal Upper 

Limit 

Medicare 

Amount 

Comparison of Ipratropium Bromide Prices 

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 M EDICARE R EIMBURSEMENT FOR I PRATROPIUM BROMIDE 7 
FINDINGS 

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. Medicare’s 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 M EDICARE R EIMBURSEMENT FOR I PRATROPIUM BROMIDE 8 
FINDINGS 

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 Medicare’s 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 M EDICARE R EIMBURSEMENT FOR I PRATROPIUM BROMIDE 9 
CONCLUSION

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 Medicare’s reliance on published AWPs, the 

program’s reimbursement remains constant, despite the fact 

that other purchasers pay significantly less for ipratropium 

bromide than they did several years ago. In addition, 

Medicare’s 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 Medicare’s 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 Medicare’s 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 M EDICARE R EIMBURSEMENT FOR I PRATROPIUM BROMIDE 10 
ACKNOWLEDGMENTS

This report was prepared under the direction of Robert A Vito, 

Regional Inspector General for Evaluation and Inspections in 

the Philadelphia Regional Office, and 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 M EDICARE R EIMBURSEMENT FOR I PRATROPIUM BROMIDE 11