Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

Inspector General 

January 2004 

OEI-03-03-00510 

UPDATE: EXCESSIVE MEDICARE 

REIMBURSEMENT FOR 

ALBUTEROL 
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 albuterol to prices available to Medicaid, the 

supplier community, and the Department of Veterans Affairs 

(VA). 

BACKGROUND 

Albuterol is an inhalation drug commonly used with a nebulizer 

to treat patients suffering from asthma or emphysema. Prior to 

2004, Medicare’s reimbursement methodology for albuterol 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 albuterol. In 

2004, Medicare reimbursement for albuterol 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 $412 million for the 

unit-dose solution form of albuterol, up from $296 million in CY 

2000. 

Albuterol is usually provided to Medicare beneficiaries by 

pharmacies, which then submit claims for reimbursement to 

Medicare. Medicaid beneficiaries also obtain albuterol 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 

albuterol. For comparison, we: (1) obtained Medicaid’s 2003 

reimbursement amount for albuterol by reviewing the Federal 

Upper Limit list, (2) estimated 2003 pharmacy acquisition costs 

OEI - 03 - 03 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL i 
EXECUTIVE SUMMARY 

for albuterol by obtaining pricing information from a national 

wholesaler/distributor and a GPO, and (3) determined the VA’s 

2003 payment amount for albuterol by accessing pricing data 

available on its website. We also obtained manufacturerreported 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 albuterol 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 albuterol 

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 albuterol at the Federal Upper Limit amount. 

FINDINGS 

Medicare continues to pay more for albuterol 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 albuterol at $0.17 per milligram (mg), compared to $0.47 per 

mg for Medicare. If Medicare could reimburse for albuterol at 

the Federal Upper Limit amount, the program would have saved 

$263 million in 2002. Approximately $53 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 albuterol for 

substantially less than the Medicare reimbursement amount. In 

spring 2003, the median price of albuterol at both the 

wholesaler/distributor and GPO was $0.06 per mg. Medicare’s 

reimbursement amount of $0.47 per mg was nearly eight times 

more for the same amount of the drug. We did not collect data 

from pharmacies regarding any additional costs related to 

providing albuterol to Medicare beneficiaries. 

OEI - 03 - 03 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL ii 
EXECUTIV E SUMMARY 

Furthermore, manufacturer-reported WACs published in the 

Red Book also showed that pharmacies were able to purchase 

albuterol for prices substantially below the Medicare 

reimbursement amount. In January 2003, the median WAC 

reported in the Red Book was $0.08 per mg. 

If Medicare were able to use prices available to the supplier 

community as a basis for albuterol 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 albuterol 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 albuterol through wholesaler/distributors and GPOs was 

$0.08 per mg, 33 percent higher than the 2003 price of $0.06 per 

mg. In addition, manufacturer-reported WACs had also 

decreased, from a median of $0.11 per mg in 2001 to $0.08 in 

2003. 

The median Federal Supply Schedule price available to VA for 

generic albuterol was $0.05 per mg. In comparison, Medicare 

reimbursed over 9 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. Both the VA Federal 

Supply Schedule price and the Medicare reimbursement amount 

for albuterol have remained constant since our previous report. 

CONCLUSION 

Despite numerous attempts by CMS to lower reimbursement 

amounts for prescription drugs, Medicare still pays a high 

premium for albuterol. This report is part of a series of reports 

on albuterol 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 albuterol 

OEI - 03 - 03 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL iii 
EXECUTIVE SUMMARY 

than they did several years ago. In addition, Medicare’s total 

reimbursement for albuterol 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, 

albuterol 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 albuterol 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-ninth 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 

albuterol. Based on this new Act, Medicare will reimburse 

albuterol 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 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL iv 
TABLE OF CONTENTS

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

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

FINDINGS

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

CONCLUSION ................................ ................... 10

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

OEI - 03 - 03 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL v
INTRODUCTION

OBJECTIVE 

To update data provided in a 2002 report comparing Medicare 

reimbursement for albuterol to prices available to Medicaid, the 

supplier community, and the Department of Veterans Affairs 

(VA). 

BACKGROUND 

Medicare Coverage of Albuterol 

Currently, Medicare Part B 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, albuterol, is an 

inhalation solution commonly used with a nebulizer to treat 

patients suffering from asthma or emphysema. Albuterol is 

typically provided to Medicare beneficiaries by pharmacies. 

Medicare Reimbursement of Albuterol 

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 albuterol. Each 

DMERC is responsible for determining the reimbursement 

amount for albuterol in their respective region, based on 

Medicare’s reimbursement methodology. 

Prior to 2004, Medicare=s reimbursement methodology for 

albuterol 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 covered drugs was to 

be set at 95 percent of the drug’s average wholesale price (AWP). 

CMS directed carriers to obtain AWP data from the Drug Topics 

Red Book or similar pricing publications used by the 

pharmaceutical industry. In 2003, each DMERC reimbursed 

$0.47 per milligram (mg) for the unit-dose solution form of 

albuterol. 

Recently, the Medicare Prescription Drug, Improvement, and 

Modernization Act of 2003 (Act) lowered reimbursement for 

many Part B drugs in 2004 and beyond by revising section 

OEI - 03 - 03 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL 1 
INTRODUCTION 

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 albuterol will be 80 percent 

of AWP. 

Medicare paid $412 million for the unit-dose solution form of 

albuterol in calendar year (CY) 2002, up from $296 million in 

CY 2000. This total represents 5 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 this Act, new pricing 

data may be useful for setting Medicare reimbursement 

amounts in the future. 

Recent Attempts to Lower Medicare Reimbursement 

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, 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 Balanced Budget Refinement Act of 1999. 

OEI - 03 - 03 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL 2 
INTRODUCTION 

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 albuterol 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 albuterol set by the 

competitive bidding process was $0.32 per mg, approximately 32 

percent below the usual Medicare price. CMS hopes to use the 

results from these demonstrations more generally in the 

Medicare program. 

Medicaid Reimbursement of Albuterol 

As with Medicare, Medicaid beneficiaries typically receive 

albuterol 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 

drug. CMS allows States flexibility in defining estimated 

OEI - 03 - 03 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL 3 
INTRODUCTION 

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 AWPs 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 Albuterol 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 Albuterol 

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 

associated with volume buying. Using competitive procedures, 

OEI - 03 - 03 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL 4 
INTRODUCTION 

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 Albuterol 

OIG has consistently found that Medicare’s usual 

reimbursement amount for albuterol (based on AWP) is 

excessive. For example, in our report Excessive Medicare 

Reimbursement for Albuterol (March 2002), we calculated that 

the Medicare reimbursement amount for albuterol in 2000 was 

more than 9 times higher than the VA purchase price, and 

nearly 6 times the actual acquisition cost to pharmacies. 

According to our findings, excessive reimbursement for albuterol 

alone was costing Medicare and its beneficiaries up to $264 

million per year. 

In another of our reports, Medicare Reimbursement for 

Albuterol (June 2000), we found that Medicare would have 

saved almost $120 million in 1999 by reimbursing for albuterol 

at the amount paid by Medicaid. 

In addition to the OIG, GAO has also found that Medicare 

reimbursement for albuterol 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 albuterol was 

85 percent below the published AWP 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 the unit-dose 

solution form of albuterol in CY 2002. We obtained Medicare’s 

CY 2003 reimbursement amounts for albuterol from all 4 

DMERCs. 

To determine Medicaid’s 2003 reimbursement amount for 

albuterol, we obtained pricing information for the drug from the 

Medicaid Federal Upper Limit list. 

To estimate pharmacy acquisition costs for albuterol, we 

obtained spring 2003 pricing information for albuterol from a 

OEI - 03 - 03 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL 5 
INTRODUCTION INTRODUCTION 

national wholesaler/distributor and from a GPO. As an 

additional estimate of pharmacy acquisition costs, we also 

obtained manufacturer-reported WACs from the January 2003 

edition of the Red Book. The Red Book defines WAC 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 albuterol, 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 

albuterol 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 albuterol in 2002 to calculate dollar 

savings. 

The exact savings estimates presented in this report are for 

2002. Because the 2004 reimbursement amount for albuterol 

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 albuterol 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 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL 6 
FINDINGS

In 2003, Medicare reimbursed $0.47 per mg for albuterol, an 

amount that was considerably higher than the reimbursement 

amounts of other Government payers and the prices available to 

Medicare continues to pay more for albuterol than the supplier community. If 

Medicare were able to base its other payers, costing the program and its reimbursement amount for 

beneficiaries millions of dollars a year. albuterol 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: 

$0.06 

$0.08 

$0.17 

$0.47 

$0.06 $0.05 

$0.00 

$0.05 

$0.10 

$0.15 

$0.20 

$0.25 

$0.30 

$0.35 

$0.40 

$0.45 

$0.50 

Median VA Median 

Wholesaler 

Median GPO Median WAC Medicaid 

Federal Upper 

Limit 

Medicare 

Amount 

Comparison of Albuterol 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 $263 million in 2002 if 

the program were able to reimburse albuterol at the Medicaid Federal 

Upper Limit amount. 

CMS sets the Medicaid Federal Upper Limit amount for albuterol at 

$0.17 per mg, compared to $0.47 per mg for Medicare. If Medicare 

were able to reimburse for albuterol at the Medicaid Federal Upper 

Limit amount, the program would have saved $263 million in 2002. 

Approximately $53 million of the savings would have had a direct 

OEI - 03 - 03 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL 7 
FINDINGS 

impact on Medicare beneficiaries in the form of reduced coinsurance 

payments. 

The Medicare reimbursement amount for albuterol was eight times 

higher than the median price available to the supplier community. 

Data collected from a drug wholesaler and a GPO showed that 

pharmacies were able to purchase albuterol for substantially 

less than the Medicare reimbursement amount. In spring 2003, 

the unit-dose solution form of albuterol was available from these 

sources at prices ranging from a low of $0.05 per mg to a high of 

$0.10 per mg. The median price of albuterol at both the 

wholesaler/distributor and GPO was $0.06 per mg. Medicare’s 

reimbursement amount of $0.47 per mg was nearly eight times 

more for the same amount of the drug. 

Pharmacies were able to acquire albuterol for less than a 

Medicare beneficiary would pay in coinsurance alone ($0.09 per 

mg). For example, a beneficiary using a typical monthly supply 

of albuterol (250 mg) would pay $23.50 in Medicare coinsurance. 

Through the sources we identified, pharmacies, on average, 

would pay just $15.00 for the same supply. We did not collect 

data from pharmacies regarding any additional costs related to 

providing albuterol to Medicare beneficiaries. 

Furthermore, manufacturer-reported WACs published in the 

Red Book also showed that pharmacies were able to purchase 

albuterol for prices substantially below Medicare. In January 

2003, the median WAC reported in the Red Book was $0.08 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 albuterol was available 

to the supplier community decreased, while the Medicare 

reimbursement amount remained the same. In 2001, we 

calculated that the median price of albuterol through 

wholesaler/distributors and GPOs was $0.08 per mg, 33 percent 

higher than the 2003 price of $0.06 per mg. In addition, 

manufacturer-reported WACs also decreased from a median of 

$0.11 per mg in 2001 to $0.08 in 2003. 

OEI - 03 - 03 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL 8 
FINDINGS 

If Medicare were able to use prices available to the supplier 

community as a basis for albuterol reimbursement, the program 

and its beneficiaries would save millions of dollars a year. 

The Medicare reimbursement amount for albuterol was over nine times 

higher than the median price available to VA. 

In 2003, the median Federal Supply Schedule price available to VA 

for albuterol was $0.05 per mg. In comparison, Medicare reimbursed 

nine times more ($0.47 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. 

Both the VA Federal Supply Schedule price and the Medicare 

reimbursement amount for albuterol have remained constant 

since our previous report (Excessive Medicare Reimbursement 

for Albuterol) in 2002 (based on 2001 data). The 2003 VA price, 

however, was still over 50 percent lower than it was in 1998 

($0.11 per mg), while the Medicare price had not changed during 

the same 5-year period. 

OEI - 03 - 03 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL 9 
CONCLUSION

Despite numerous attempts by CMS to lower reimbursement 

amounts for prescription drugs, Medicare still pays a high 

premium for albuterol. This report is part of a series of reports 

on albuterol which 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 albuterol than 

they did several years ago. In addition, Medicare’s total 

reimbursement for albuterol 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, 

albuterol 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 albuterol 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-ninth of Medicare’s reimbursement 

amount is troubling. 

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 

albuterol. Based on this new Act, Medicare will reimburse 

albuterol 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 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL 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 - 00510 UPDATE : EXCESSIVE M EDICARE REIMBURSEMENT FOR ALBUTEROL 11