Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

Inspector General 

January 2004 

OEI-03-03-00250 

MEDICARE 

REIMBURSEMENT FOR LUPRON 
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 recommen dations 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. 
ABSTRACT

Medicare and its beneficiaries paid $677 million for Lupron in 

calendar year (CY) 2002, accounting for 8 percent of all 

Medicare drug reimbursements that year. In 2003, the 

Medicare reimbursement amount for Lupron was set at 95 

percent of the drug’s average wholesale price, as required by 

Federal law. Medicare carriers often use local medical review 

policies (LMRPs) in order to further specify the circumstances 

under which a service is covered and paid by the program. One 

type of LMRP, a least costly alternative policy, states that the 

carrier will not cover the additional cost of a more expensive 

product if a clinically comparable product costs less. According 

to the LMRPs of many carriers, a single dose of the drug Zoladex 

has been found by many experts to be clinically comparable to a 

single dose of Lupron. In the second quarter of 2003, the 

Medicare reimbursement amount for a single dose of Zoladex 

was $446.49, 27 percent less than the reimbursement amount 

for a single dose of Lupron ($611.56). Therefore, in jurisdictions 

where a carrier applies a least costly alternative policy, 

physicians that administer Lupron are generally reimbursed the 

Zoladex amount. We obtained and reviewed LMRPs from all 

Medicare carriers. We found that carriers in 10 of 57 

jurisdictions did not apply a least costly alternative policy to 

Lupron. In 2002, the carriers in these 10 jurisdictions 

reimbursed a total of $147 million for the drug. If these carriers 

implemented a least costly alternative policy, their 

reimbursement amount for Lupron would be cut by 27 percent, 

saving Medicare and its beneficiaries $40 million per year. We 

recommended that CMS encourage all Medicare carriers to 

apply a least costly alternative policy to Lupron. 

OEI - 03 - 03 - 00250 MEDICARE REIMBURSEMENT F OR L UPRON i 
TABLE OF CONTENTS

ABSTRACT ................................ ........................ i

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

FINDING 

Medicare and its beneficiaries would save $40 million per year 

if all carriers applied a least costly alternative policy ....................... 5

RECOMMENDATION ................................ ............. 6

APPENDIX ................................ ........................ 7

ACKNOWLEDGMENTS ................................ ........... 9

OEI - 03 - 03 - 00250 MEDICARE REIMBURSEMENT F OR L UPRON ii
INTRODUCTION

OBJECTIVE 

To determine the amount Medicare would save if all carriers 

established a least costly alternative policy for Lupron 

(leuprolide acetate 7.5 milligrams (mg) depot suspension). 

BACKGROUND 

Medicare Reimbursement of Lupron 

Currently, Medicare Part B does not pay for over-the-counter or 

most outpatient prescription drugs. However, under specific 

circumstances, Medicare Part B covers drugs used with durable 

medical equipment or infusion devices. Medicare also covers 

certain drugs used in association with organ transplantation, 

dialysis, chemotherapy, and pain management. One such drug, 

leuprolide acetate (brand name Lupron), is used in the 

treatment of advanced prostate cancer. Lupron is manufactured 

by TAP Pharmaceutical Products Inc. 

The Centers for Medicare & Medicaid Services (CMS) contracts 

with companies, known as carriers, to process and reimburse 

most Part B claims, including claims for prescription drugs. 

Twenty carriers currently serve 57 specific jurisdictions. 

Physicians submit claims for Lupron to the carrier in their area, 

and are subsequently reimbursed by Medicare. 

Medicare=s reimbursement methodology for Lupron and other 

prescription drugs is defined by section 1842(o) of the Social 

Security Act (the Act), as amended by section 4556 of the 

Balanced Budget Act of 1997. The Act states that 

reimbursement for a covered drug is to be set at 95 percent of 

the drug’s average wholesale price (AWP). CMS directs carriers 

to obtain AWP data from the Red Book or similar pricing 

publications used by the pharmaceutical industry. 

Recently, the Medicare Prescription Drug, Improvement, and 

Modernization Act of 2003 lowered payments for many Part B 

drugs by revising section 1842(o) of the Act. According to the 

Medicare Prescription Drug, Improvement, and Modernization 

Act of 2003, 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 will be the percentage of the 

AWP indicated in the table. If the percentage in the table is less 

OEI - 03 - 03 - 00250 MEDICARE REIMBURSEMENT F OR L UPRON 1 
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 Lupron will be 81 percent of 

the AWP. 

Medicare beneficiaries are responsible for paying a 20 percent 

copayment for Lupron and other covered drugs. In 2002, 

Medicare and its beneficiaries paid $677 million for Lupron (7.5 

mg depot suspension), accounting for 8 percent of all Medicare 

drug reimbursement that year. 

Local Medical Review Polices 

Medicare carriers issue local medical review policies (LMRPs) in order to 

further specify the circumstances under which a service is covered by the 

program. According to CMS’s Medicare Program Integrity Manual 

(Chapter 13, Section 1.3): 

Contractors develop LMRPs by considering medical 

literature, the advice of local medical societies and medical 

consultants, and public comments. If a contractor develops 

an LMRP, its LMRP applies only within the area it services. 

While another contractor may come to a similar decision, 

CMS does not require it to do so. 

The contractors are required to ensure that all LMRPs are consistent 

with all statutes, rulings, regulations, and national coverage, 

payment, and coding policies. 

Carriers’ Use of Least Costly Alternative Policy 

According to carrier LMRPs, a least costly alternative policy means that 

the carrier will not cover the additional cost of a more expensive product 

if a clinically comparable product costs less. Carriers’ use of a least 

costly alternative is supported by CMS in its Program Integrity Manual 

(Chapter 13, Section 5.4), which states, “Least costly alternative is a 

national policy provision that must be applied by contractors when 

determining payment for all durable medical equipment (DME). 

Contractors have the discretion to apply this principal to payment for 

non-DME services as well.” 

Over the last several years, many carriers have implemented a least 

costly alternative policy for Lupron. According to carrier LMRPs, a 

single dose of the drug goserelin acetate (i.e., 3.6 mg implant, brand 

name Zoladex) has been found by many experts to be clinically 

comparable to a single dose of Lupron (7.5 mg depot suspension). As of 

the second quarter of 2003, the Medicare reimbursement amount for a 

OEI - 03 - 03 - 00250 MEDICARE REIMBURSEMENT F OR L UPRON 2 
INTRODUCTION 

single dose of Zoladex is $446.49, 27 percent less than the 

reimbursement amount for a single dose of Lupron ($611.56). Therefore, 

in jurisdictions where a carrier applies the least costly alternative policy, 

physicians that administer Lupron are generally reimbursed the Zoladex 

amount. In some instances, however, the full reimbursement amount 

may still be paid if the physician can document why the more costly 

treatment option (i.e., Lupron) is medically necessary. Furthermore, 

some carriers allow reimbursement to be made at the higher amount if 

the beneficiary was already being treated with Lupron at the time the 

least costly alternative policy was enacted. 

Related Work by the Office of Inspector General (OIG) 

OIG has consistently found that Medicare’s usual 

reimbursement amount for Lupron (based on average wholesale 

price) is excessive. For example, in our report Medicare 

Payments for Prescription Drugs--Response to Request from 

Representative W. J. Tauzin (June 2001), we calculated that the 

Medicare reimbursement amount for Lupron in 2000 was more 

than double the Department of Veterans Affairs (VA) purchase 

price. According to our findings, excessive reimbursement for 

Lupron alone was costing the Medicare program up to $359 

million per year. 

In another of our reports, Medicare Reimbursement of 

Prescription Drugs (January 2001), we found that Medicare 

would have saved almost $100 million in 1999 by reimbursing 

for Lupron at the actual wholesale price available to the 

physician/supplier community. 

METHODOLOGY 

We reviewed laws and regulations concerning Medicare drug 

reimbursement. We obtained and reviewed LMRPs from all 

Medicare carriers in order to determine which carriers currently 

apply a least costly alternative policy to Lupron. We accessed 

CMS’s Part B Extract Summary System to determine each 

carrier’s 2002 total reimbursement for Lupron. To calculate the 

potential savings that would be achieved if carriers not using 

least costly alternative implemented such a policy, we (1) added 

the total reimbursement for Lupron by all carriers not using a 

least costly alternative policy, and (2) multiplied this figure by 

27 percent. 

OEI - 03 - 03 - 00250 MEDICARE REIMBURSEMENT F OR L UPRON 3 
INTRODUCTION 

Note on Savings Estimates: The savings estimates presented in 

this report are based on 2003 reimbursement amounts. In 2003, 

Medicare reimbursed 95 percent of the AWP for both Lupron 

and Zoladex. Based on provisions of the recently passed 

Medicare Prescription Drug, Improvement, and Modernization 

Act of 2003, Medicare will reimburse Lupron at 81 percent of the 

AWP in 2004. Zoladex will be reimbursed at 80 percent of the 

AWP. 

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 - 00250 MEDICARE REIMBURSEMENT F OR L UPRON 4 
FINDING

Currently, Medicare carriers in 47 of 57 jurisdictions apply a 

least costly alternative policy to Lupron. Carriers in these 47 

jurisdictions reimburse $446.49 for 7.5 mg of Lupron, 27 percent 

Medicare and its beneficiaries would save less than carriers in the 10 

$40 million per year if 10 carriers not using least jurisdictions without a least 

costly alternative policy (who costly alternative implemented such a policy. reimburse $611.56 for the same 

amount). In 2002, the carriers that did not have a least costly 

alternative policy reimbursed a total of $147 million for Lupron, 

accounting for 22 percent of all Medicare payments for the drug. 

If these carriers implemented a least costly alternative policy, 

their reimbursement amount for the drug would be cut by 27 

percent. This reduction would save Medicare and its 

beneficiaries $40 million per year. 

OEI - 03 - 03 - 00250 MEDICARE REIMBURSEMENT F OR L UPRON 5 
RECOMMENDATION

Medicare carriers representing 10 of 57 jurisdictions have not 

implemented a least costly alternative policy for Lupron. As a 

result, these carriers are paying substantially more for the drug 

than carriers serving 47 other localities. If carriers in these 10 

jurisdictions adopted a least costly alternative policy, Medicare 

and its beneficiaries could save $40 million per year. Although 

CMS does not require carriers to have identical medical policies, 

this seems to be a situation where all carriers would benefit 

from utilizing a least costly alternative policy for Lupron. 

Therefore, we recommend that CMS encourage all Medicare 

carriers to apply a least costly alternative policy to Lupron. 

Agency Comments 

CMS partially concurred with our recommendation, agreeing to 

facilitate communication between carriers that have adopted a 

least costly alternative policy and those that have not. CMS 

stated that they will continue to monitor the use of these policies 

for Lupron and other drugs while also pursuing other initiatives 

to reduce excessive growth in drug spending. However, CMS 

stated that although they provide oversight of the development 

of contractor LMRPs, they do not generally influence the 

application of these guidelines in specific circumstances. The 

full text of CMS’s comments is presented in the appendix. 

OEI - 03 - 03 - 00250 MEDICARE REIMBURSEMENT F OR L UPRON 6 
APPENDIX

Centers for Medicare & Medicaid Services Comments 

OEI - 03 - 03 - 00250 MEDICARE REIMBURSEMENT F OR L UPRON 7
APPENDIX 

OEI - 03 - 03 - 00250 MEDICARE REIMBURSEMENT F OR L UPRON 8
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 - 00250 MEDICARE REIMBURSEMENT F OR L UPRON 9