Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JANET REHNQUIST 

Inspector General 

MARCH 2002 

OEI-03-01-00411 

EXCESSIVE MEDICARE 

REIMBURSEMENT 

FOR IPRATROPIUM BROMIDE 
OFFICE OF INSPECTOR GENERAL

http://www.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 

PURPOSE 

This report compares the amount Medicare reimburses for ipratropium bromide to the prices 

available to the Department of Veterans Affairs (VA) and acquisition costs for suppliers. 

BACKGROUND 

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 drug commonly used with 

a nebulizer to treat patients suffering from bronchitis or emphysema. Medicare and its 

beneficiaries paid $348 million for ipratropium bromide in 2000. Medicare reimburses a 

covered drug at 95 percent of the drug’s average wholesale price. Medicare payments include 

both the 80 percent that Medicare reimburses and the 20 percent coinsurance payment for 

which beneficiaries are responsible. 

Ipratropium bromide is usually provided to Medicare beneficiaries by suppliers, who then 

submit claims for reimbursement to Medicare. Suppliers can purchase drugs through group 

purchasing organizations, wholesalers, and directly from manufacturers. Unlike Medicare, the 

VA provides veterans with drugs purchased directly from manufacturers or wholesalers. There 

are several purchase options available to the VA, including the Federal Supply Schedule, 

blanket purchase agreements, and VA national contracts. 

We compared Medicare’s current reimbursement amount for ipratropium bromide to amounts 

paid by the VA and acquisition costs for suppliers and wholesalers. We obtained 

reimbursement amounts for ipratropium bromide from Medicare and acquisition costs from the 

VA. To obtain supplier and wholesaler acquisition costs, we collected prices from wholesale 

catalogs, supplier invoices, and Drug Topics Red Book. 

Medicare Reimbursement for Ipratropium Bromide i OEI-03-01-00411 
FINDINGS 

Medicare and its beneficiaries would save $279 million a year if ipratropium 

bromide were reimbursed at the median price paid by the VA 

The Medicare reimbursement amount for ipratropium bromide is more than five times greater 

than the VA price. The VA purchases generic ipratropium bromide through the Federal Supply 

Schedule for a median price of only $0.66 per milligram (mg), while Medicare reimburses 

$3.34 per mg. We estimate that Medicare and its beneficiaries would save $279 million a year 

if reimbursement for ipratropium bromide were set at the median amount available to the VA. 

Medicare beneficiaries would receive $56 million of this savings through reduced coinsurance 

payments. The VA’s median acquisition cost for ipratropium bromide through the Federal 

Supply Schedule has fallen by almost 50 percent over the last three years, from $1.29 per 

mg in 1998 to $0.66 per mg in 2001. During the same time period, Medicare’s reimbursement 

amount has remained constant at $3.34 per mg. 

Medicare and its beneficiaries would save between $223 million and $262 million a 

year if ipratropium bromide were reimbursed at prices available to suppliers 

We found that the median catalog price of ipratropium bromide was $0.82 per mg, the median 

supplier invoice price was $1.18 per mg, and the median wholesale acquisition cost reported by 

manufacturers was $1.20 per mg. If Medicare based ipratropium bromide reimbursement on 

these prices, the program and its beneficiaries would save between $223 million and $262 

million a year. 

Less than 1 percent of ipratropium bromide suppliers were responsible for 

providing the majority of the product to Medicare beneficiaries in 2000 

Medicare reimbursed 5,652 pharmaceutical suppliers for ipratropium bromide claims in 2000. 

However, just 23 suppliers received more than $2 million each in reimbursement for 

ipratropium bromide that year, with five suppliers having between $10 million and $58 million in 

paid claims. These 23 suppliers, who all provided home-delivery/mail order services to 

beneficiaries, received nearly 60 percent of the Medicare payments for ipratropium bromide in 

2000. Therefore, the majority of the ipratropium bromide supplied to Medicare beneficiaries 

was provided by suppliers that purchase a large quantity of the product. We believe that 

suppliers that purchase such large quantities of ipratropium bromide may receive volume 

discounts from manufacturers and wholesalers. 

Medicare Reimbursement for Ipratropium Bromide ii OEI-03-01-00411 
RECOMMENDATION 

Medicare should reduce excessive reimbursement amounts for ipratropium 

bromide 

Despite numerous attempts by the Centers for Medicare & Medicaid Services (CMS) to lower 

reimbursement amounts for prescription drugs, the findings of this report illustrate that Medicare 

pays too much for ipratropium bromide. We have consistently found that the published average 

wholesale prices currently used by Medicare to establish reimbursement amounts bear little or 

no resemblance to actual wholesale prices that are available to suppliers and large government 

purchasers. 

We understand that unlike most drugs covered by Medicare, ipratropium bromide is usually 

provided by suppliers rather than administered by physicians. These suppliers obviously need 

to make a profit from the products they provide, yet the spread between what Medicare 

reimburses for ipratropium bromide and the price at which suppliers are able to purchase the 

drug is significant. Reimbursement levels for ipratropium bromide not only impact the Medicare 

program, but also affect Medicare beneficiaries who pay increased coinsurance amounts. 

We offer the following options for reducing excessive reimbursement amounts for covered 

drugs: 

< Authorizing a commission to set payment rates. 

< Calculating national estimated acquisition costs based upon the average manufacturer 

prices reported to the Medicaid program. 

< Collecting more accurate average wholesale prices from drug pricing catalogs or other 

sources. 

< Increasing the discount of the published average wholesale prices. 

< Basing payment on physician/supplier acquisition costs. 

< Establishing manufacturers’ rebates similar to those used in the Medicaid program. 

Medicare Reimbursement for Ipratropium Bromide iii OEI-03-01-00411 
< Creating a fee schedule for covered drugs based on the Federal Supply Schedule. 

< Using CMS’ inherent reasonableness authority. 

< Using competitive bidding. 

Agency Comments 

The CMS agreed that the amounts being reimbursed for drugs in the Medicare program are 

excessive, and that it is clear that the payment system for outpatient drugs needs revision. The 

agency noted that it must find a way to ensure that the program pays appropriately for all 

Medicare benefits, including covered drugs and the services required to furnish those drugs. 

The CMS went on to state that they are looking forward to working with the Congress and the 

OIG to revise the Medicare payment system for prescription drugs. 

Medicare Reimbursement for Ipratropium Bromide iv OEI-03-01-00411 
TABLE OF CONTENTS 

PAGE

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

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

FINDINGS 

Department of Veterans Affairs Costs .......................................... 6

Supplier Acquisition Costs .................................................. 7

Suppliers Reimbursed by Medicare ........................................... 9

RECOMMENDATION ....................................................... 10

APPENDICES

A. Selected OIG Reports on Drug Reimbursement ............................... 12

B. Calculation of Potential Savings for Ipratropium Bromide ........................ 13

C. Centers for Medicare & Medicaid Services Comments ......................... 14

Medicare Reimbursement for Ipratropium Bromide v OEI-03-01-00411 
INTRODUCTION 

PURPOSE 

This report compares the amount Medicare reimburses for ipratropium bromide to the prices 

available to the Department of Veterans Affairs (VA) and acquisition costs for suppliers. 

BACKGROUND 

Medicare Coverage of Ipratropium Bromide 

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 drug commonly used with 

a nebulizer to treat patients suffering from chronic bronchitis or emphysema. Ipratropium 

bromide is usually provided to beneficiaries by suppliers, who then submit claims for 

reimbursement to Medicare. Medicare and beneficiary payments for ipratropium bromide have 

risen substantially over the last several years, from $14 million in 1995 to $348 million in 2000. 

Payments for ipratropium bromide accounted for more than half of the $683 million Medicare 

paid for all inhalation drugs in 2000. Medicare payments include both the 80 percent that 

Medicare reimburses and the 20 percent coinsurance payment for which beneficiaries are 

responsible. 

Medicare Drug Reimbursement 

The Centers for Medicare & Medicaid Services (CMS), which administers the Medicare 

program, contracts with four durable medical equipment regional carriers to process all claims 

for durable medical equipment and associated supplies including inhalation drugs. Each carrier 

is responsible for determining the reimbursement amount for inhalation drugs in their respective 

region based on Medicare’s reimbursement methodology. 

Medicare’s current reimbursement methodology for prescription drugs is defined by Section 

4556 of the Balanced Budget Act of 1997. The carriers base their reimbursement amount for a 

covered drug on its average wholesale price as published in Drug Topics Red Book or similar 

pricing publications used by the pharmaceutical industry. If a drug is available only as a single 

brand-name product, reimbursement is calculated by taking 95 percent of the drug’s average 

wholesale price. For drugs like ipratropium bromide that have both brand and generic sources 

available, reimbursement is based on 95 percent of the median average wholesale price for 

Medicare Reimbursement for Ipratropium Bromide 1 OEI-03-01-00411 
generic sources. However, if a brand-name product’s average wholesale price is lower than 

the median generic price, Medicare reimburses 95 percent of the lowest brand price. 

Medicare Reimbursement for Ipratropium Bromide 2 OEI-03-01-00411 
Recent Attempts to Lower Medicare Drug Reimbursement 

Section 4316 of the Balanced Budget Act of 1997 allows the Department of Health and 

Human Services to diverge from Medicare’s statutorily defined payment method if the method 

results in payment amounts which are not inherently reasonable. In late 1998, CMS regional 

carriers attempted to use this authority to lower what it considered excessive reimbursement for 

several items. However, the lower reimbursement amounts were never implemented as 

Congress suspended the use of inherent reasonableness through a provision of the Medicare, 

Medicaid, and SCHIP Balanced Budget Refinement Act of 1999. This provision required (1) 

the General Accounting Office (GAO) to complete a study on the potential effects of using 

inherent reasonableness measures, and (2) the Department of Health and Human Services to 

publish new inherent reasonableness regulations based on the findings of the GAO report. The 

GAO report, issued in July 2000, found that inherent reasonableness reductions for some items 

were justified; however, the GAO questioned the methodology the carriers used in their 

collection of pricing data for other items. The Department has not issued any new inherent 

reasonableness regulations since the publication of the GAO report. 

The CMS has also included ipratropium bromide and several other inhalation drugs in a 

competitive bidding project in the San Antonio, Texas area that seeks to use market forces to 

set accurate reimbursement amounts 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 reimbursement amounts for these 

items went into effect on February 1, 2001. The new reimbursement amount for ipratropium 

bromide set by the competitive bidding process is approximately 24 percent below the usual 

Medicare amount. The CMS hopes to use the results from these demonstrations more 

generally in the Medicare program. 

On May 31, 2000, CMS announced plans for Medicare to utilize newly available average 

wholesale prices for approximately 50 drugs. The new prices were developed for Medicaid 

through investigations conducted by the Department of Justice and the National Association of 

Medicaid Fraud Control Units. The revised pricing data was obtained from wholesale pricing 

catalogs and then provided to First DataBank, publisher of a pricing compendium used by the 

pharmaceutical industry. First DataBank agreed to use the new data when reporting average 

wholesale prices to the States. However, the Medicare, Medicaid, and SCHIP Benefits 

Improvement and Protection Act of 2000, enacted by Congress in December 2000, placed a 

moratorium on any decreases in Medicare drug reimbursement amounts. The Act required 

GAO to complete a comprehensive study addressing both the appropriateness of drug 

reimbursement amounts and the adequacy of current payments for related practice expenses. 

The Department of Health and Human Services must then revise CMS’ drug reimbursement 

methodology based on GAO’s recommendations. 

Medicare Reimbursement for Ipratropium Bromide 3 OEI-03-01-00411 
The GAO issued the first of two reports addressing drug pricing issues on September 21, 

2001. This report found that physicians and suppliers can obtain covered drugs for 

substantially less than the Medicare reimbursement amount. The GAO concluded that 

Medicare should revise its drug payment methodology to more closely reflect available market 

prices. The second report, to be released before the end of 2001, will address whether 

Medicare is adequately reimbursing certain Medicare providers for related practice expenses. 

Department of Veterans Affairs Drug Reimbursement 

Unlike Medicare, the Department of Veterans Affairs (VA) purchases drugs for its healthcare 

system directly from manufacturers or wholesalers. There are several options available to the 

VA when purchasing drugs, with the most common being the Federal Supply Schedule. The 

Federal Supply Schedule provides agencies like the 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, contracts are awarded to companies to provide 

supplies over a given period of time at the Federal Supply Schedule price. However, the 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. 

Cost of Drugs for Suppliers 

Suppliers can purchase drug products through group purchasing organizations, wholesalers, and 

directly from manufacturers. Group purchasing organizations 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 who accepts the group purchasing organization’s price. Wholesalers purchase large 

volumes of drugs from manufacturers and sell them directly to suppliers. 

Related Work by the Office of Inspector General 

The Office of Inspector General (OIG) has studied a number of issues relating to Medicare 

drug reimbursement. Brief summaries of selected studies are presented in Appendix A. 

METHODOLOGY 

Medicare Reimbursement 

Medicare classifies drugs using codes in the Healthcare Common Procedure Coding System. 

These codes, commonly referred to as procedure codes, specify the type of drug, the form of 

Medicare Reimbursement for Ipratropium Bromide 4 OEI-03-01-00411 
the drug, and in most cases a dosage amount. The procedure code for ipratropium bromide is 

J7644, defined as “ipratropium bromide, inhalation solution administered through durable 

medical equipment, unit dose form, per milligram (mg).” The term “unit dose” refers to a 2.5 

milliliter (ml) solution of 0.02 percent ipratropium bromide. We obtained current fee schedule 

reimbursement amounts for procedure code 

J7644 from the four durable medical equipment regional carriers. The reimbursement amount 

for ipratropium bromide was the same for each of the four carriers. 

We accessed CMS’ National Claims History File to determine Medicare’s total payments for 

ipratropium bromide and other inhalation drugs in 2000. We also used this file to analyze 

ipratropium bromide supplier data for the year 2000. 

Matching Procedure Codes to National Drug Codes 

The VA and suppliers use national drug codes rather than procedure codes to identify drug 

products. Because of these coding differences, we used the April 2001 CD-ROM edition of 

Drug Topics Red Book to identify the specific national drug codes that match the procedure 

code definition for ipratropium bromide. Each drug manufactured or distributed in the United 

States has a unique national drug code. National drug codes identify the manufacturer of the 

drug, the product dosage form, and the package size. Because Medicare uses only generic 

versions of ipratropium bromide to determine its reimbursement amount, we only selected 

generic ipratropium bromide national drug codes. We found 17 national drug codes for generic 

ipratropium bromide that matched the procedure code definition of J7644. 

The procedure code for the unit dose form of ipratropium bromide is reimbursed per mg. 

However, VA prices and wholesale prices were all based on 2.5 ml vials of 0.02 percent 

ipratropium bromide solution. Consequently, we needed to convert ml prices of ipratropium 

bromide into mg prices. A 2.5 ml vial of 0.02 percent ipratropium bromide solution contains 

0.5 mg of the drug. Therefore, 1 ml of solution contains 0.2 mg of ipratropium bromide (0.5 

divided by 2.5). For each national drug code, we multiplied the number of milliliters of 

ipratropium bromide solution by 0.2 to determine the milligram amount, e.g., 75 ml of solution 

multiplied by 0.2 equals 15 mg. We then divided the drug price by the number of milligrams to 

determine a per mg price. 

Department of Veterans Affairs Prices 

To determine the VA’s current costs for ipratropium bromide, we obtained a file from the VA 

website containing their 2001 contracted prices. The VA pricing file contained Federal Supply 

Schedule prices for 9 of the 17 matching ipratropium bromide national drug codes. To 

determine a single VA price, we calculated the median price per mg for these 9 codes. 

Medicare Reimbursement for Ipratropium Bromide 5 OEI-03-01-00411 
We also compared the 2001 VA prices for ipratropium bromide to VA prices in the years 

1998 through 2000. We determined the total percentage change in VA prices between 1998 

and subsequent years. We then multiplied these numbers by the amount Medicare paid in a 

given year. These figures represent the amount Medicare total payments would have differed if 

the Medicare reimbursement amount changed at the same rate as the VA price. Since 2001 

payment data is not yet available, we estimated 2001 Medicare payments by using the dollar 

amount actually paid for ipratropium bromide in 2000. 

Medicare Reimbursement for Ipratropium Bromide 6 OEI-03-01-00411 
Prices Available to Suppliers and Wholesalers 

To determine actual wholesale prices for ipratropium bromide, we reviewed print and online 

catalogs for 2001 from three drug wholesalers and two group purchasing organizations. The 

five pricing sources we used provide drug products to suppliers and physician practices 

throughout the country. We computed a single catalog price for ipratropium bromide by 

calculating the median price per mg of the corresponding national drug codes. 

In addition to catalog prices, we also used actual ipratropium bromide invoices to determine 

supplier acquisition costs. The invoices were collected by the OIG during a review of inhalation 

drug utilization. The invoices were obtained during site visits to suppliers throughout the 

country, and were for ipratropium bromide purchased between June 1998 and June 2000. To 

determine a single invoice price, we calculated the median price per mg for the 48 invoice 

prices collected from suppliers. 

We also obtained manufacturer-reported wholesale acquisition costs from the April 2001 CDROM edition of Drug Topics Red Book. The Drug Topics Red Book defines wholesale 

acquisition cost 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. 

Five of the 17 ipratropium bromide national drug codes had wholesale acquisition costs 

reported in 2001. From these costs, we calculated a median per mg wholesale acquisition cost 

for ipratropium bromide. 

Calculating Potential Medicare Savings 

To calculate potential Medicare savings, we compared Medicare’s reimbursement amount for 

1 mg of ipratropium bromide to VA prices, wholesale acquisition costs, catalog prices, and 

invoice prices. We determined the percentage difference in prices by subtracting the median 

source price from the Medicare reimbursement amount, and then dividing this number by the 

Medicare reimbursement amount. These percentages indicate how much Medicare would save 

if reimbursement for ipratropium bromide was based on prices provided by other sources. We 

then multiplied these percentages by the total amount Medicare paid for ipratropium bromide in 

2000 to calculate dollar savings. A table showing the data used to calculate potential savings is 

presented in Appendix B. 

___________ 

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

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

Medicare Reimbursement for Ipratropium Bromide 7 OEI-03-01-00411 
Medicare Reimbursement for Ipratropium Bromide 8 OEI-03-01-00411 
FINDINGS 

Medicare and its beneficiaries would save $279 million a year 

if ipratropium bromide were reimbursed at the price paid by 

the VA 

The Medicare reimbursement amount for ipratropium bromide is over five times 

greater than the median VA price 

The median Federal Supply Schedule price available to the VA for generic ipratropium 

bromide is only $0.66 per mg, compared to Medicare’s reimbursement of $3.34 per mg. We 

estimate that Medicare and its beneficiaries would save $279 million a year if reimbursement for 

ipratropium bromide were set at the median amount paid by the VA under the Federal Supply 

Schedule. The savings represent 80 percent of the $348 million Medicare paid for ipratropium 

bromide in 2000. 

Medicare beneficiaries would receive $56 million of the $279 million in savings through reduced 

coinsurance payments. A Medicare beneficiary using a typical monthly amount of ipratropium 

bromide (50 mg) would pay $33.40 in Medicare coinsurance. That coinsurance amount is 

slightly more than what the VA would pay outright ($33.00) to purchase one month’s supply of 

the drug. Table 1 below compares the Medicare reimbursement amount to median prices 

available to the VA. It also provides Medicare savings and beneficiary coinsurance based on 

Medicare reimbursement and VA prices. 

TABLE 1: COMPARING MEDICARE REIMBURSEMENT TO VA PRICES 

Pricing Source 

for 

Ipratropium Bromide 

Median 

Price 

per mg 

Cost of Typical 

Individual Monthly 

Usage 

(50 mg) 

Monthly Medicare 

Beneficiary 

Coinsurance Based 

on Source Price 

Potential Annual 

Medicare and 

Beneficiary 

Savings 

Medicare $3.34 $167.00 $33.40 N/A 

Department of Veterans Affairs $0.66 $33.00 $6.60 $278,854,770 

Sources: 2001 Medicare carrier and Department of Veterans Affairs websites 

Between 1998 and 2001, the median VA cost for ipratropium bromide decreased 

by almost half, while the Medicare reimbursement amount remained the same 

The median VA price for generic ipratropium bromide has fallen by almost 50 percent over the 

last three years, from $1.29 per mg in 1998 to $0.66 per mg in 2001. During the same time 

Medicare Reimbursement for Ipratropium Bromide 9 OEI-03-01-00411 
period, Medicare’s reimbursement amount (based on reported average wholesale prices) has 

remained constant at $3.34 per mg. The graph on the next page illustrates the changes in VA 

and Medicare pricing over the last 3 years. If the Medicare reimbursement amount for 

ipratropium bromide decreased at a rate equal to the VA’s 

purchase price, Medicare and its beneficiaries would have saved $55 million in 1999 and $121 

million in 2000. The program could save $170 million in 2001. 

$3.34 $3.34 $3.34 

$1.29 

$1.01 

$0.84 

$0.66 

$3.34 

$0.00 

$0.50 

$1.00 

$1.50 

$2.00 

$2.50 

$3.00 

$3.50 

1998 1999 2000 2001 

Year 

Price per mg 

Medicare 

VA Median 

GRAPH 1: COMPARISON OF IPRATROPIUM BROMIDE PRICES, 1998-2001 

Sources: Medicare carrier and Department of Veterans Affairs websites 

Medicare Reimbursement for Ipratropium Bromide 10 OEI-03-01-00411 
Medicare and its beneficiaries would save between $223 

million and $262 million a year if ipratropium bromide were 

reimbursed at prices available to wholesalers and suppliers 

Medicare payments for ipratropium bromide would be reduced by 75 percent if 

reimbursement amounts were based on prices listed in wholesale catalogs 

Medicare and its beneficiaries would save $262 million a year if the reimbursement amount for 

ipratropium bromide equaled the median price available to suppliers through wholesalers and 

group purchasing organizations. This represents 75 percent of the $348 million Medicare and 

its beneficiaries paid for the drug in 2000. Catalog prices for generic ipratropium bromide 

ranged from a low of $0.64 per mg to a high of $1.56 per mg. The Medicare reimbursement 

amount ($3.34 per mg) was over four times more than the median catalog price ($0.82 per 

mg). Table 2 below compares the Medicare reimbursement amount to median prices available 

to suppliers and wholesalers. It also provides Medicare savings and beneficiary coinsurance 

based on various sources. 

TABLE 2 : COMPARING MEDICARE REIMBURSEMENT TO SUPPLIER/WHOLESALER PRICES 

Pricing Source 

for 

Ipratropium Bromide 

Median 

Price 

per mg 

Cost of Typical 

Individual Monthly 

Usage 

(50 mg) 

Monthly Medicare 

Beneficiary 

Coinsurance Based 

on Source Price 

Potential Annual 

Medicare and 

Beneficiary 

Savings 

Medicare $3.34 $167.00 $33.40 N/A 

Wholesale Catalogs $0.82 $41.00 $8.20 $262,206,724 

Supplier Invoices $1.18 $59.00 $11.80 $224,748,621 

Wholesale Acquisition Cost $1.20 $60.00 $12.00 $222,667,615 

Sources: 2001 Medicare carrier websites, 2001 wholesale catalogs, 1998-2000 supplier invoices, 2001 Drug Topics Red Book 

Medicare payments for ipratropium bromide would be reduced by 65 percent if 

reimbursement amounts were based on supplier invoice prices 

Invoices reviewed by the OIG listed prices ranging from $0.95 to $1.46 per mg for ipratropium 

bromide purchased by suppliers between 1998 and 2000. The median price for ipratropium 

bromide purchased by these suppliers was $1.18 per mg, 65 percent less than the Medicare 

Medicare Reimbursement for Ipratropium Bromide 11 OEI-03-01-00411 
reimbursement amount. Medicare and its beneficiaries would save $225 million a year if 

ipratropium bromide were reimbursed at the median invoice price. 

Medicare payments for ipratropium bromide would be reduced by 64 percent if 

reimbursement amounts were based on manufacturer-reported wholesale 

acquisition costs 

Published wholesale acquisition costs for ipratropium bromide ranged from $1.12 to $1.20 per 

mg in April 2001. The median wholesale acquisition cost was $1.20 per mg. Individual drug 

manufacturers reported these wholesale acquisition costs to Drug Topics Red Book. The Drug 

Topics Red Book defines wholesale acquisition cost 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. If Medicare based its reimbursement for 

ipratropium bromide on manufacturer-reported wholesale acquisition costs rather than average 

wholesale prices, the program and its beneficiaries would save $223 million a year. 

Less than 1 percent of ipratropium bromide suppliers were 

responsible for providing the majority of the product to 

Medicare beneficiaries in 2000 

Medicare reimbursed 5,652 pharmaceutical suppliers for ipratropium bromide claims in 2000. 

However, just 23 suppliers received more than $2 million each in reimbursement for 

ipratropium bromide that year, with five suppliers having between $10 million and $58 million in 

paid claims. These 23 suppliers, who all provided home-delivery/mail order services to 

beneficiaries, received nearly 60 percent of the Medicare payments for ipratropium bromide in 

2000. Therefore, the majority of the ipratropium bromide supplied to Medicare beneficiaries 

was provided by suppliers that purchase a large quantity of the product. We believe that 

suppliers that purchase such large quantities of ipratropium bromide may receive volume 

discounts from manufacturers and wholesalers. 

Medicare Reimbursement for Ipratropium Bromide 12 OEI-03-01-00411 
RECOMMENDATION 

Medicare should reduce excessive reimbursement amounts for ipratropium 

bromide 

Despite numerous attempts by CMS to lower reimbursement amounts for prescription drugs, 

the findings of this report illustrate that Medicare pays too much for ipratropium bromide. We 

have consistently found that the published average wholesale prices currently used by Medicare 

to establish reimbursement amounts bear little or no resemblance to actual wholesale prices that 

are available to suppliers and large government purchasers. 

We understand that unlike most drugs covered by Medicare, ipratropium bromide is usually 

provided by suppliers rather than administered by physicians. These suppliers obviously need 

to make a profit from the products they provide, yet the spread between what Medicare 

reimburses for ipratropium bromide and the price at which suppliers are able to purchase the 

drug is significant. Reimbursement levels for ipratropium bromide not only impact the Medicare 

program, but also affect Medicare beneficiaries who pay increased coinsurance amounts: 

We offer the following options for reducing excessive reimbursement amounts for covered 

drugs. 

< Authorizing a commission to set payment rates. 

< Calculating national estimated acquisition costs based upon the average manufacturer 

prices reported to the Medicaid program. 

< Collecting more accurate average wholesale prices from drug pricing catalogs or other 

sources. 

< Increasing the discount of the published average wholesale prices. 

< Basing payment on physician/supplier acquisition costs. 

< Establishing manufacturers’ rebates similar to those used in the Medicaid program. 

< Creating a fee schedule for covered drugs based on the Federal Supply Schedule. 

< Using CMS’ inherent reasonableness authority. 

Medicare Reimbursement for Ipratropium Bromide 13 OEI-03-01-00411 
< Using competitive bidding. 

Agency Comments 

The CMS agreed that the amounts being reimbursed for drugs in the Medicare program are 

excessive, and that it is clear that the payment system for outpatient drugs needs revision. The 

agency noted that it must find a way to ensure that the program pays appropriately for all 

Medicare benefits, including covered drugs and the services required to furnish those drugs. 

The CMS went on to state that they are looking forward to working with the Congress and the 

OIG to revise the Medicare payment system for prescription drugs. The full text of CMS’ 

comments is presented in Appendix C. 

Medicare Reimbursement for Ipratropium Bromide 14 OEI-03-01-00411 
Selected OIG Reports on Drug Reimbursement

Medicare Reimbursement of Prescription Drugs (OEI-03-00-00310), January 2001. We found

that Medicare and its beneficiaries would save $1.6 billion a year if 24 drugs were reimbursed at

amounts available to the VA. We also found that Medicare would save $761 million a year by

paying the actual wholesale price for 24 drugs.

Medicare Reimbursement of Albuterol (OEI-03-00-00311), June 2000. We found that Medicare

and its beneficiaries would save $120 million or $209 million a year if albuterol was reimbursed at

amounts available through Medicaid and the VA, respectively. Medicare and its beneficiaries would

save $47 million or $115 million a year if Medicare reimbursed albuterol at prices available at chain and

Internet pharmacies.

Comparing Drug Reimbursement: Medicare and the Department of Veterans Affairs

(OEI-03-97-00293), November 1998. We found that Medicare would save $1 billion in 1998 if the

allowed amounts for 34 drugs were equal to prices obtained by the VA. Furthermore, Medicare

allowed between 15 and 1600 percent more than the VA for the 34 drugs reviewed.

Are Medicare Allowances for Albuterol Sulfate Reasonable? (OEI-03-97-00292), 

August 1998. We found that Medicare would allow between 56 to 550 percent more than the VA

would pay for generic versions of albuterol sulfate in 1998, and 20 percent more than the average

Medicaid payment for albuterol sulfate in 1997. We also found that Medicare allowed 333 percent

more than available acquisition costs for the drug in 1998. Customers of mail-order pharmacies would

pay up to 30 percent less than Medicare for albuterol sulfate in 1998.

Excessive Medicare Payments for Prescription Drugs (OEI-03-97-00290), December 1997. 

We found that Medicare allowances for 22 drugs exceeded actual wholesale prices by $447 million in

1996. For more than one-third of the 22 drugs reviewed, Medicare allowed amounts were more than

double the actual wholesale prices available to physicians and suppliers. Furthermore, we found that

there was no consistency among Medicare carriers in establishing and updating drug reimbursement

amounts. 

A Comparison of Albuterol Sulfate Prices (OEI-03-94-00392), June 1996. We found that many

of the pharmacies surveyed charged customers less than the Medicare allowed amount for generic

albuterol sulfate. The five buying groups surveyed had negotiated prices between 56 and 70 percent

lower than Medicare’s reimbursement amount for the drug.

Suppliers’ Acquisition Costs for Albuterol Sulfate (OEI-03-94-00393), June 1996. We found

that Medicare’s allowances for albuterol sulfate substantially exceeded suppliers’ acquisition costs for

the drug. The Medicare program could have saved $94 million of the $182 million allowed for albuterol

Medicare Reimbursement for Ipratropium Bromide 15 OEI-03-01-00411 
during the 14-month review period if Medicare reimbursement amounts had been based on average 

supplier invoice costs. 

Medicare Reimbursement for Ipratropium Bromide 16 OEI-03-01-00411 
APPENDIX A 

Selected OIG Reports on Drug Reimbursement

Medicare Reimbursement of Prescription Drugs (OEI-03-00-00310), January 2001. We found 

that Medicare and its beneficiaries would save $1.6 billion a year if 24 drugs were reimbursed at 

amounts available to the VA. We also found that Medicare would save 

$761 million a year by paying the actual wholesale price for 24 drugs. 

Medicare Reimbursement of Albuterol (OEI-03-00-00311), June 2000. We found that Medicare 

and its beneficiaries would save $120 million or $209 million a year if albuterol was reimbursed at 

amounts available through Medicaid and the VA, respectively. Medicare and its beneficiaries would 

save $47 million or $115 million a year if Medicare reimbursed albuterol at prices available at chain and 

Internet pharmacies. 

Comparing Drug Reimbursement: Medicare and the Department of Veterans Affairs 

(OEI-03-97-00293), November 1998. We found that Medicare would save $1 billion in 1998 if the 

allowed amounts for 34 drugs were equal to prices obtained by the VA. Furthermore, Medicare 

allowed between 15 and 1600 percent more than the VA for the 34 drugs reviewed. 

Are Medicare Allowances for Albuterol Sulfate Reasonable? (OEI-03-97-00292), 

August 1998. We found that Medicare would allow between 56 to 550 percent more than the VA 

would pay for generic versions of albuterol sulfate in 1998, and 20 percent more than the average 

Medicaid payment for albuterol sulfate in 1997. We also found that Medicare allowed 333 percent 

more than available acquisition costs for the drug in 1998. Customers of mail-order pharmacies would 

pay up to 30 percent less than Medicare for albuterol sulfate in 1998. 

Excessive Medicare Payments for Prescription Drugs (OEI-03-97-00290), December 1997. 

We found that Medicare allowances for 22 drugs exceeded actual wholesale prices by $447 million in 

1996. For more than one-third of the 22 drugs reviewed, Medicare allowed amounts were more than 

double the actual wholesale prices available to physicians and suppliers. Furthermore, we found that 

there was no consistency among Medicare carriers in establishing and updating drug reimbursement 

amounts. 

A Comparison of Albuterol Sulfate Prices (OEI-03-94-00392), June 1996. We found that many 

of the pharmacies surveyed charged customers less than the Medicare allowed amount for generic 

albuterol sulfate. The five buying groups surveyed had negotiated prices between 56 and 70 percent 

lower than Medicare’s reimbursement amount for the drug. 

Suppliers’ Acquisition Costs for Albuterol Sulfate (OEI-03-94-00393), June 1996. We found 

that Medicare’s allowances for albuterol sulfate substantially exceeded suppliers’ acquisition costs for 

Medicare Reimbursement for Ipratropium Bromide 17 OEI-03-01-00411 
the drug. The Medicare program could have saved $94 million of the $182 million allowed for albuterol 

during the 14-month review period if Medicare reimbursement amounts had been based on average 

supplier invoice costs. 

Medicare Reimbursement for Ipratropium Bromide 18 OEI-03-01-00411 
APPENDIX 

B 

Calculation of Potential Savings for 

Ipratropium Bromide 

(1) To determine percentage differences in ipratropium bromide prices, we subtracted the source 

price from the Medicare price. We then divided this number by the Medicare price. 

(2) To calculate potential savings, we multiplied Medicare’s 2000 total payments ($347,527,960) 

for ipratropium bromide by the percentage difference in price. 

Price Source 

Range of per 

mg Prices 

Median 

Price 

per mg 

Medicare 

Price 

per mg 

Percentage 

Difference 

in Price* 

Potential 

Medicare and 

Beneficiary 

Savings 

Department of Veterans Affairs $0.59 to $0.73 $0.66 $3.34 80.2% $278,854,770 

Wholesale Catalogs $0.64 to $1.56 $0.82 $3.34 75.4% $262,206,724 

Supplier Invoices $0.95 to $1.46 $1.18 $3.34 64.7% $224,748,621 

Wholesale Acquisition Cost $1.12 to $1.20 $1.20 $3.34 64.1% $222,667,615 

*Percentage rounded to the nearest tenth 

Medicare Reimbursement for Ipratropium Bromide 19 OEI-03-01-00411 
APPENDIX 

C 

Centers for Medicare and Medicaid Services 

Comments 

Medicare Reimbursement for Ipratropium Bromide 20 OEI-03-01-00411 
APPENDIX 

C 

Medicare Reimbursement for Ipratropium Bromide 21 OEI-03-01-00411