I 

Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

A COMPARISON OF 

ALBUTEROL SULFATE PRICES 
OFFICE OF INSPECTOR GENERAL 

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 sewed by those programs. This 

statutory mission is carried out through a nationwide network of audits, investigations, and 

inspections conducted by three OIG operating components: the Office of Audit Services, the 

Office of Investigations, and the Office of Evaluation and Inspections. The OIG also informs 

the Secretary of HHS of program and management problems and recommends courses to 

correct them. 

OFFICE OF AUDIT SERVICES 

The OIGS 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 INVESTIGATIONS 

The OIG’S Office of Investigations (01) 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 01 lead to criminal convictions, 

administrative sanctions, or civil money penalties. The 01 also oversees State Medicaid fraud 

control units which investigate and prosecute fraud and patient abuse in the Medicaid program. 

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 these inspection 

reports generate rapid, accurate, and up-to-date information on the efficiency, vulnerability, 

and effectiveness of departmental programs. This report was prepared in the Philadelphia 

Regional Office under the direction of Robert A. Vito, Regional Inspector General. 

PHILADELPHIA REGIONAL STAFF HEADQUARTERS STAFF 

Linda M. Ragone, Project Leader Mary Beth Clarke, Program Specialist


Robert Katz, Program Analyst


Nancy Molyneaux, Program Analyst


Cynthia Hansford, Program Assistant


To obtain copies of this repo~ please call the PhiladelphiaRegional Office at (8(M))531-9562. 
Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

A COMPARISON OF


ALBUTEROL SULFATE PRICES


@ sERVICES 

$$ %--
 $


$ JUNE GIBBS BROWN 

~ Inspector General 

s

‘3 

$
 ‘+++

%d~~ JUNE 1996 

> 0EI-03-94-O0392 
EXECUTIVE SUMMARY 

PURPOSE 

To assess the appropriateness of the amount Medicare allows for albuterol sulfate, a 

prescription inhalation drug used innebulizers. 

BACKGROUND 

A nebulizer is a type of durable medical equipment (DME) through which


prescription drugs are administered for inhalation therapy. Patients with conditions


such as asthma or emphysema may require treatment that involves the use of a


nebulizer. The nebulizer is used by placing an inhalation prescription drug into its


reservoir which is then converted into a fine spray by the power source and inhaled by


the user.


One prescription drug that is commonly used for inhalation therapy with nebulizers is


albuterol sulfate (0.083% concentration). Between January of 1994 and February of


1995, Medicare allowed $182 million for this drug, 68 percent of the $269 million in


total Medicare allowances for all nebulizer drugs.


We surveyed pharmaceutical buying groups, mail-order pharmacies, and retail


pharmacy stores and compared their prices for generic versions of albuterol sulfate to


the amount that Medicare allows.


FINDINGS 

Many phamacies surveyedchargedcustornemlessfor genericalbuterolsu@atethan 

Mkdicarealk9wed 

A customer would pay less than Medicare for albuterol sulfate in more than half of 

the retail stores surveyed and in all of the mail-order pharmacies contacted. Fifty-five 

percent of retail pharmacy stores (60 of 109) charged less for generic versions of 

albuterol sulfate than the $0.43 per milliliter that Medicare allowed. Four mail-order 

pharmacies charged between 2 and 12 percent less than Medicare reimburses, and one 

charged 53 percent less. 

AU jive buyinggroupsSLUVeyedhad negotiatedpricessubstantial~lowerthunMedicare 

reimbumementfor albuterolsulfate. 

The generic drug prices the five buying groups negotiated ranged from 56 to 70 

percent less than the $0.43 Medicare allowed per milliliter of albuterol sulfate. The 

pharmacies that are members of these buying groups purchase albuterol sulfate at 

these lower prices. Therefore, the average wholesale price used to determine 

i 
Medicare’s allowance for albuterol sulfate was significantly higher than the wholesale 

price paid by thousands of the buying groups’ member pharmacies. 

RECOMMENDATION 

We believe the findings of this report complement and reinforce those of our earlier 

report, Medicare Payments for Nebulizer Drugs, by providing evidence that Medicare’s 

allowance for nebulizer drugs may be inappropriately high. In the earlier report, we 

found that Medicaid State agencies were reimbursing less for albuterol sulfate than 

Medicare. We have provided evidence in this report that mail-order pharmacies and 

many retail pharmacy stores charge customers less for generic versions of albuterol 

sulfate than Medicare allows. Currently, the DMERCS are utilizing the median of 

average wholesale prices for generic versions of albuterol sulfate to determine the 

allowance amount. We believe using the median of the published average wholesale 

prices does not reflect the actual wholesale pricing of albuterol sulfate that is occurring 

in the marketplace. 

We therefore continue to believe that HCFA should reexamine its Medicare drug 

reimbursement methodologies with the goal of reducing payments for prescription 

drugs, as we recommended in our earlier report. 

AGENCY COMMENTS 

The HCFA concurred with our recommendation. In exploring new strategies for 

changing Medicare’s payment for prescription drugs, HCFA has constructed a 

framework to calculate drug prices centrally. They are also reviewing other 

approaches that could improve Medicare drug reimbursement. For the complete text 

of HCFA’S comments, see Appendix A. 

OIG RESPONSE 

We support HCFA’S efforts to revise its drug reimbursement mechanisms to more 

appropriately pay for prescription drugs covered under the Medicare program. We 

believe revisions to the current payment methodologies that take into account the 

actual costs of these drugs would provide significant savings to the Medicare program. 

ii 
TABLE OF CONTENTS


PAGE 

EXECUTIVESUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..i


INTRODUCI’ION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...1


FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...4


�Pharmacies’ prices were less than Medicare allowances . . . . . . . . . . . . . . . . . . . 4


�Buying groups negotiated lower prices than Medicare allowed . . . . . . . . . . . . . 5


RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7


APPENDIX A Agency Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..A-l

INTRODUCTION


PURPOSE 

To assess the appropriateness of the amount Medicare allows for albuterol sulfate, a 

prescription inhalation drug used in nebulizers. 

BACKGROUND 

A nebulizer is a type of durable medical equipment (DME) through which


prescription drugs are administered for inhalation therapy. It consists essentially of


two components: (1) a power source such as an air compressor or ultrasonic device,


and (2) a dispensing mechanism consisting of flexible tubing, a mouthpiece, and liquid


reservoir. Patients with conditions such as asthma or emphysema may require


treatment that involves the use of a nebulizer. The nebulizer is used by placing an


inhalation prescription drug into its reservoir which is then converted into a fine spray


by the power source and inhaled by the user.


One prescription drug that is commonly used for inhalation therapy with nebulizers is


albuterol sulfate (0.083% concentration). Between January of 1994 and February of


1995, Medicare allowed $182 million for albuterol sulfate (code J7620). This


represents 68 percent of the $269 million in total Medicare allowances for all


nebulizer drugs. Medicare allowances for all nebulizer drugs have increased more


than 200 percent between 1992 and 1994.


Paymentof NebuiherDrugsin theMedicarel%ogram 

Title XVIII of the Social Security Act authorizes coverage of DME under Medicare 

Part B. Section 2100.5 of the Medicare Carriers Manual specifies instances involving 

covered uses of outpatient prescription drugs, including drugs used in conjunction with 

DME. The Manual specifies that drugs are covered under Medicare Part B as long as 

the drugs are necessary for the effective use of the DME. This includes inhalation 

drugs used in nebulizers. 

According to 42 Code of Federal Regulations 405.517, Medicare computes an allowed 

amount for drugs based on the lower of the Estimated Acquisition Cost (EAC) or the 

national Average Wholesale Price (AWP). The allowed amount is the price that 

Medicare and its beneficiaries pay a drug supplier. If a drug has multiple sources (as 

does albuterol sulfate), the price is based on the lower of the EAC or the median of 

the national AWP for all generic sources. The EAC is determined based on surveys 

of the actual invoice prices paid for the drug. The AWP is determined through Z7ze 

Red Book or similar price listings used in the pharmaceutical industry. 

The Health Care Financing Administration (HCFA) designated four Durable Medical 

Equipment Regional Carriers (DMERCS) to process all claims for durable medical 

1

equipment, prosthetics, orthotics, and supplies, including nebulizer drugs. Effective 

October 1, 1993, the DMERCS replaced the local carriers which had previously 

processed these claims. Each DMERC is responsible for determining the pricing for 

albuterol sulfate in their regions based on the computation stated in the regulations. 

RelatedWorkby the ~ce of IhspectorGeneral 

In a recent report entitled, Medicare Payments for Nebulizer Drugs (OEI-03-94-O0390), 

the OIG found that Medicaid reimbursed albuterol sulfate and other nebulizer drugs 

at significantly lower prices than Medicare. For albuterol sulfate, Medicare and its 

beneficiaries paid $34 million more in 17 States than the amount that Medicaid would 

have paid. In a related report, Suppliers’ Acquzkition Costs for Albuterol Su~ate 

(OEI-03-94-O0393), Medicare’s allowances for albuterol sulfate were found to 

substantially exceed suppliers’ actual acquisition costs for the drug. 

This inspection was conducted as part of Operation Restore Trust (ORT). The 

initiative, focused in five States, involves multi-disciplinary teams of State and Federal 

personnel seeking to reduce fraud, waste, and abuse in nursing homes, hospices, home 

health agencies, and by durable medical equipment suppliers. 

METHODOIX)GY 

For the purposes of comparing pricing information, we collected data from 

pharmaceutical purchasing organizations or buying groups, mail-order pharmacies, and 

retail pharmacy stores. We used Medicare’s allowed amount for this comparison. The 

allowed amount includes the 80 percent the Medicare program pays directly to the 

supplier and the 20 percent copayment for which the beneficiary is responsible. 

Since albuterol sulfate (0.0839% concentration) is a multiple source drug with both 

brand and generic versions, the DMERCS base their reimbursement on the lower of 

the estimated acquisition cost (EAC) or the median of the national average wholesale 

price (AWP) for all generic sources. At the present time, the four DMERCS base 

their reimbursement allowance on the AWP for the generic sources of albuterol 

sulfate. Due to the fact that Medicare uses the prices of generic drugs to compute 

reimbursement for albuterol sulfate, we compared Medicare’s reimbursement amount 

with the prices that buying groups negotiated or pharmacies charged for the generic 

versions of albuterol sulfate. 

The pricing for albuterol sulfate, during the time of our beginning survey work in April 

1995, was $0.43 per milliliter in three DMERCS and $0.40 in one DMERC. Since 90 

percent of the albuterol sulfate paid for by the DMERCS in 1994 was in the three 

DMERCS with reimbursement of $0.43, we believe it is fair to use this single price for 

comparison purposes. The allowance for albuterol sulfate can be updated on a 

quarterly basis by the DMERCS. Since the time of our inspection work, one DMERC 

has increased the allowance amount, one has decreased the allowance amount, and 

2

two remain at $0.43. We have chosen to use $0.43 as the Medicare allowance since 

that was the amount that was in effect at the start of our data collection. 

Surveyof BuyingGroupsandMail-OrderPharmacks 

Using a standardized data collection instrument, we obtained pricing information on 

albuterol sulfate from buying groups and mail order pharmacies. We surveyed five 

buying groups which were considered prominent within the industry. The groups 

ranged in size from 970 to 2500 member stores nationwide. Buying groups negotiate 

prices for prescription drugs from drug manufacturers/suppliers. Pharmacies that 

belong to the buying groups are able to purchase drugs based on these negotiated 

prices. We also selected five of the largest mail-order pharmacies that did not require 

customers to be a member of a particular insurance plan but would service any 

eligible person. However, for one of the mail-order pharmacies, the customer had to 

be a member of a senior citizen organization and the membership fee for joining the 

organization was factored into the price. We also obtained any additional fees such as 

shipping and handling or membership fees that might be charged by the mail-order 

pharmacies. We factored these charges into the prices. 

Surveyof RetailPharmacyStores 

Using a standardized data collection instrument, we contacted retail pharmacy stores 

in four States to determine their prices for albuterol sulfate. We purposefully selected 

four States (California, Florida, Missouri, and North Carolina) for which statewide 

information on pharmacies was available through our Office of Audit Services (OAS). 

For each State, we randomly selected 35 retail chain pharmacies. Ninety-six percent 

of the pharmacies in our survey (134 of 140) provided information to us. Seventyeight percent of the retail pharmacies (109 of 140) provided us with prices for the 

generic versions of albuterol sulfate. 

This inspection was conducted in accordance with the Quality Standards for Inspections 

issued by the President’s Council on Integrity and Efficiency. 

3

FINDINGS•

MANYP HARMACIES SURVEYED CHARGED CUSTOMERS LESS FOR 

GENERIC ALBUTEROL SULFATE THAN MEDICARE ALLOWED. 

A customer would pay less than Medicare for albuterol sulfate in more than half of 

the retail stores surveyed and in all of the mail-order pharmacies contacted. 

More thanhay of retailpharmaciesSLUVeyedchtugedcustomtmlessfor genericalbuterol 

sulfatethanMedicareallowed 

Fifty-five percent of retail pharmacy stores (60 of 109) charged less for generic 

versions of albuterol sulfate than the $0.43 per milliliter that Medicare allowed. The 

chart below summarizes the prices that pharmacies charged for albuterol sulfate. 

Many Pharmacies’ Generic Prices For 

Albuterol Sulfate Are Less Than 

Medicare Reimbursement 

Percent of Pharmacle8 

30% '............................................................................................27% ... . . .......................

1


25% 

20% 

15% 

1o% 

6% 

nw


“‘“ $0.30 or Le$e 0.91-0.94 0.95-O.9e 0.99-0.42 0.4S-0.46 $0.4e or More


Albuterol Sulfate Price Per Milliliter 

Medloare Allowance = $0.49 

eouroo 1995 Retell Phermmy Survey 

Many of the pharmacies’ prices were significantly less than the amounts Medicare and 

its beneficiaries paid for albuterol sulfate. Sixteen percent of pharmacies charged at 

least 30 percent less for generic versions of albuterol sulfate than Medicare would 

have allowed for the same drugs. Eleven percent of pharmacies had prices between 

20 and 30 percent less than Medicare. Almost one-fifth of pharmacies (19 percent) 

charged between 10 and 19 percent less than the Medicare allowance of $0.43. In 

addition, more than one-third of pharmacies in our survey (39 percent) provide a 

further discount to senior citizens purchasing prescription drugs. 

4

All five mad-orderphazrnacieschargedless thantheMedicareallowancefor albuteml 

sulfate. 

All five of the mail-order pharmacies charged their customers less for albuterol sulfate 

then Medicare and its beneficiaries paid for albuterol sulfate. Four of these 

pharmacies’ charges ranged from $0.38 to $0.42, or between 2 to 12 percent less than 

Medicare allowances per milliliter of drug. One of them charged only $0.20, or 53 

percent less. If a Medicare beneficiary received 375 milliliters of albuterol sulfate per 

month for inhalation therapy, Medicare and the beneficiary would save anywhere from 

$4 to $87 a month if Medicare based its reimbursement on the prices charged by these 

mail order companies. The savings to Medicare and its beneficiaries could be even 

greater since four of the mail-order companies offer lower prices when larger volumes 

of drugs are purchased. For the example used above of 375 milliliters of albuterol 

sulfate, these pharmacies would have charged an additional 2 to 20 percent less per 

milliliter. 

ALL F~ BUYING GROUPS SURKt?YEDHAD NEGOTL41ED PMCES 

SUBST~LYLOmR THAN MEDICARE RHMBURSEMENT FOR 

ALBUTEROL SULFATE. 

The generic drug prices that five buying groups negotiated ranged from 56 to 70 

percent less than the $0.43 Medicare allowed per milliliter of albuterol sulfate. The 

thousands of pharmacies that are members of these buying groups purchase albuterol 

sulfate for the prices listed in the table below. These prices were significantly lower 

than the average wholesale prices for generic drugs that the DMERCS had been using 

to establish the pricing for albuterol sulfate. 

Price for Generic Version of Albuterol Sulfate 

II Type of Payer I Price per milliliter II 

II $0.13/$0.151 I 

II I $0.16 II 

II I II 

IIPharmaceutical Buying Groups I $0.16 II 

II I II 

II I $0.18 II 

II t II 

II I $0.18/$0.191 II 

1 Providedpricesfor more than one manufacturerof genericalbuterolsulfate. 

The buying groups were able to offer lower drug purchase prices to their member 

pharmacies because they negotiate prices directly with drug manufacturers/suppliers. 

The member pharmacy would then purchase the prescription drug at the negotiated 

price plus a wholesaler upcharge. The upcharge is a percentage of the negotiated 

price that is applied to their members’ purchases. The upcharges that members of 

5 
these five buying groups paid ranged from 3 to 6 percent. The prices in the table 

include these upcharges and thereby represent a pharmacy’s total wholesale purchase 

price for one milliliter of albuterol sulfate. Therefore, the average wholesale price 

used to determine Medicare’s allowance for albuterol sulfate was more than double 

the wholesale price paid by thousands of the buying groups’ member pharmacies. 

6

RECOMMENDATION 

We believe the findings of this report complement and reinforce those of our earlier 

report, Medicare Payments for Nebulizer Drugs, by providing evidence that Medicare’s 

allowance for nebulizer drugs may be inappropriately high. In the earlier report, we 

found that Medicaid State agencies were reimbursing less for albuterol sulfate than 

Medicare. We have provided evidence in this report that mail-order pharmacies and 

many retail pharmacy stores charge customers less for generic versions of albuterol 

sulfate than Medicare allows. Currently, the DMERCS are utilizing the median of 

average wholesale prices for generic versions of albuterol sulfate to determine the 

allowance amount. We believe using the median of the published average wholesale 

prices does not reflect the actual wholesale pricing of albuterol sulfate that is occurring 

in the marketplace. 

We therefore continue to believe that HCFA should reexamin e its Medicare drug


reimbursement methodologies with the goal of reducing payments for prescription


drugs, as we recommended in our earlier report.


For our readers’ convenience, we repeat here the options contained in our prior


report for changing Medicare’s payment for prescription drugs.


Discounted Wholesale Price


Many State agencies use a discounted AWP to establish drug prices. Medicare should


have a similar option. Medicare could base its drug payment on the lower of a


discounted AWP or the median of the AWP for all generic sources, whichever results


in the lower cost to Medicare and its beneficiaries. To implement this


recommendation, HCFA would have to revise Medicare’s claims coding system which


does not identifj the manufacturer or indicate if the drug is a brand name or a generic


equivalent, information that is needed to discount the AWP and obtain a rebate for a


specific drug. Medicaid uses the National Drug Code (NDC) in processing drug


claims. The NDC identifies the manufacturer and reflects whether the drug is a brand


name or a generic equivalent.


Manufacturers’ Rebates


Medicare could develop a legislative proposal to establish a mandated manufacturers’


rebate program similar to Medicaid’s rebate program. We recognize that HCFA does


not have the authority to simply establish a mandated manufacturers’ rebate program 

similar to the program used in Medicaid. Legislation was required to establish the 

Medicaid rebate program, and would also be required to establish a Medicare rebate 

program. We have not thoroughly assessed how a Medicare rebate program might 

operate, what administrative complexities it might pose, or how a Medicare rebate 

program might differ from a Medicaid rebate program. We believe, however, the 

legislative effort would be worthwhile. The same manufacturers that provide rebates 

7

to Medicaid make the drugs that are used by Medicare beneficiaries and paid for by 

the Medicare program. 

Competitive Bidding 

Medicare could develop a legislative proposal to allow it to take advantage of its 

market position. While competitive bidding is not appropriate for every aspect of the 

Medicare program or in every geographic location, we believe that it can be effective 

in many instances, including the procurement of drugs. Medicare could ask 

pharmacies to compete for business to provide Medicare beneficiaries with 

prescription drugs. All types of pharmacies could compete for Medicare business, 

including independents, chains, and mail-order pharmacies. 

Inherent Reasonableness 

Since Medicare’s guidelines for calculating reasonable charges for drugs result in 

excessive allowances, the Secretary can use her “inherent reasonableness” authority to 

set special reasonable charge limits. If this option is selected, however, it will not be 

effective unless the Secretary’s authority to reduce inherently unreasonable payment 

levels is streamlined. The current inherent reasonableness process is resource 

intensive and time consuming, often taking two to four years to implement. Medicare 

faces substantial losses in potential savings--certainly in the millions of dollars--if 

reduced drug prices cannot be placed into effect quickly. 

Accmisition Cost 

Medicare could base the payment of drugs on the EAC. The DMERCS currently 

have this option; however, HCFA has been unsuccessful in gathering the necessary 

data to fully implement it. Once the problem of gathering the necessary data is 

overcome, the use of the EAC would result in lower allowed amounts. A variation of 

this option is to use actual rather than estimated acquisition cost. 

AGENCY COMMENTS


The HCFA concurred with our recommendation to reexamine Medicare’s drug 

reimbursement methodologies with a goal of reducing payments. In exploring new 

strategies for changing Medicare’s payment for prescription drugs, HCFA has 

constructed a framework to calculate drug prices centrally. They have also developed 

a crosswalk between Medicare’s current coding system and the National Drug Codes 

(NDCS) to enable claims processing using the NDC. In addition, HCFA is examining 

the use of competitive bidding for nebulizers and associated drugs under its 

demonstration authority. 

The HCFA agreed with our concerns about invoking the inherent reasonableness 

authority and stated that it appreciated the OIG’S work in this area. The HCFA is 

8

currently addressing this issue through the regulatory process. The full text of HCFA’S 

comments are presented in Appendix A, 

OIG RESPONSE


We support HCFA’S efforts to revise its drug reimbursement mechanisms to more 

appropriately pay for prescription drugs covered under the Medicare program. We 

believe revisions to the current payment methodologies that take into account the 

actual costs of these drugs would provide significant savings to the Medicare program. 

9

APPENDIX A 

AGENCY COMMENTS 

A-1 
-,, ..*,, ~s‘ ~. 

. 

$ DEPARTMENTOF HEALTH & HUMAN SERVICES Health Care Fmancmg Admnmstrat[on 

:

z

% 

** %

$

4.,- > The Adfrunmtrator 

Washmigton, O.C. 20ZOX 

DATE: MAY -3 19% 

TO: June GibbsBrown 

Administrator 

FROM: Bruce C. Vladec M 

Administrator % 

SUBJECT: Office of Inspector General (OIG) Working Drafi Reports: Appropriateness 

of Medicare-Prescription Drug Allowance’’(OEI-03 -94-OO42O),“Suppiier 

Acquisition CostS for Albuterol Sulfate” (OEI-03-94-O0393), “A 

Comparison of Albuteroi S& Prices’’(OEI-03-94-OO392) 

We reviewed the subject reports Concetig Medicare payments for outpatient


prescription drugs. our detailed comments on the findkgs and recommendations are


attached for your co~idemtion. H you for the opportunity to review and COmment on


thereports.


Attachment 

A-2

Health Care Financing Administration (HCFA) Comments on 

office of InsDector General (OIG) Working Draft Renorts: 

“Medicare Prescription Drug Allowances.’’[0E03O949004201Ol 

“Sutmlier Accmisition Costs for Albuterol Sulfate.” 

f’OEI-03-94-00393). and “A Comparison of Albuteroi Sulfate Prices.” 

(OEI-03-94-00392\ 

OIG Recommendation 

HCFA should ree-e its kledicue drug reimbursement methodologies, with a goal of 

reducing payments as appropriate. 

HCFA Resuonse 

We concur. HCFA is examinin g ways to reduce payments for prescription drugs as 

follows: 

Discounted Wholesale Price 

k explotig new strategies for C- Medicare’s payment for prescription drugs, we 

be constructeda fhunework to caiculate drug prices centrally. Also, we are developing 

a crosswalk between the c~nt HCFA Common Procedure Coding Systems and the 

National Drug Code @DC) to process claims using the NDC. 

Manufacturer’s Rebates 

While the Administration included a rebate mechanism in its proposed Medicare drug 

benefit in the Heaith Care Reform legislatio~ it is not an option that HCFA is currentiy 

considering. 

Competitive Bidding 

HCFA is exploring the use of competitive bidding for nebuhzers and associate drugs 

under its demonstration authority. 

Inherent Reasonableness 

We agree and appreciate OIG’S work in this area. HCFA is addressing this issue through 

the regulatory process. This process has a comment period; therefore, it requires time to 

implement. 

A-3

Page 2 

Accmisition Cost 

This option involves ioweri.ng drug payments by basing them on the estimated acquisition 

cost. A 1994 sumey attempt was made by HCFA to collect the necessary data to fid.ly 

implement cument regulations. The smey was not approved by the Office of 

Management and Budget becme it was found to be too burdensome to pursue due to the 

large number of physicians and drugs involved. 

Technicai Comment 

We suggest OIG review the proportion of aibuterol actually obtained through a pharmacy, 

asopposed to a pharmacy selling to a d~ble medical equipment provider who in turn 

sells to the Medicare patient. 

A-4


—.—