United States Government Accountability Office

Washington, DC 20548 

July 14, 2005 

The Honorable Michael O. Leavitt

The Secretary of Health and Human Services

Subject: Medicare: Radiopharmaceutical Purchase Prices for CMS Consideration in 

 Hospital Outpatient Rate-Setting

i t t

 

Dear Mr. Secretary: 

In our recent report on hospital outpatient drug purchase prices, Medicare: Drug 

Purchase Prices for CMS Considerat on in Hospital Ou patient Rate-Set ing, we stated 

that we would issue a subsequent report with radiopharmaceutical purchase price 

information.1 This report contains that information. 

Medicare pays hospitals for drugs and other pharmaceutical products that

beneficiaries receive as part of their treatment in hospital outpatient departments. 

Specifically, the Centers for Medicare & Medicaid Services (CMS) in the Department 

of Health and Human Services (HHS) uses an outpatient prospective payment system 

(OPPS) to pay hospitals fixed, predetermined rates for services. These services 

include pharmaceutical products—drugs, biologicals,

2

 and radiopharmaceuticals3—

given to beneficiaries in outpatient settings. When OPPS was first developed as 

directed by the Balanced Budget Act of 1997,4

 the rates for hospital outpatient

services and drugs and radiopharmaceuticals were based on hospitals’ 1996 median 

costs. However, these rates prompted concerns that payments to hospitals would not 

reflect the cost of newly introduced pharmaceutical products used to treat, for 

example, cancer, rare blood disorders, and other serious conditions. In turn, 

congressional concerns were raised that beneficiaries might lose access to some of 

these products if hospitals avoided providing them because of a perceived shortfall in 

payments. 

1

GAO, GAO-05-581R (Washington, D.C.: June 30, 2005).

2

In this report, the term drugs refers to both drugs and biologicals. Biologicals are products derived

from living sources, including humans, animals, and microorganisms. 

3

Radiopharmaceuticals are radioactive substances used for diagnostic or therapeutic purposes.

4

Pub. L. No. 105-33, § 4523, 111 Stat. 251, 445—450.

 GAO-05-733R Hospital Radiopharmaceutical Prices
In response to these concerns, the Medicare, Medicaid, and SCHIP Balanced Budget

Refinement Act of 1999 authorized pass-through payments, which are a way to 

augment, on a temporary basis, the OPPS payments for newly introduced 

pharmaceutical products first used after 1996.5

 The Medicare Prescription Drug, 

Improvement, and Modernization Act of 2003 (MMA) modified this payment method 

for some of these pharmaceutical products.6

 As part of the modification, the MMA

defined a new payment category—specified covered outpatient drugs (SCOD)—

which includes many of these newly introduced pharmaceutical products. The MMA 

defined a SCOD as a drug or radiopharmaceutical used in hospital outpatient 

departments, covered by Medicare, and for which CMS has established a separate

ambulatory payment classification (APC) group.

7

 The MMA established a 

methodology for CMS to follow in setting payment rates for SCODs in 2004 and 2005. 

CMS defines SCODs by their Healthcare Common Procedure Coding System

(HCPCS) codes, which CMS assigns to products, supplies, and services for billing 

purposes. The MMA also directed us to collect data on hospitals’ acquisition costs of 

SCODs and to provide information based on these data to the Secretary of Health and 

Human Services for his consideration in setting 2006 Medicare payment rates.8

 The 

MMA directed us to collect these data by surveying a large sample of hospitals. 

In summary, we obtained from our survey data the average and median purchase 

prices for each of nine radiopharmaceutical SCOD categories. Purchase pricerefers 

to the price that hospitals pay upon receiving the product and is the key component 

of hospital acquisition costs. These nine categories represent 9 percent of all 

Medicare spending on SCODs in the first 9 months of 2004. The purchase price 

information takes account of discounts taken at the time hospitals received the 

product but excludes any rebates paid subsequent to the receipt of the product. 

Background 

Radiopharmaceuticals are primarily used for diagnostic purposes but are also used in 

treating some diseases. Radiopharmaceuticals have two components: a medicine or 

pharmaceutical agent, which is nonradioactive, and a radioisotope, which is 

 

i i

5

Pub. L. No. 106-113, app. F, § 201(b), 113 Stat. 1501A-321, 1501A-337—1501A-339.

6

Pub. L. No. 108-173, § 621(a), 117 Stat. 2066, 2307—2310. 

7

Under OPPS, CMS groups services into APCs on the basis of their clinical and cost similarities. All 

services that are grouped into the same APC have the same base payment rate. The MMA required 

CMS to establish a separate APC for a pharmaceutical product if the cost per administration is $50 or

more. MMA 117 Stat. 2310. Drugs that cost less than $50 per administration are bundled with other

services for payment purposes. CMS has interpreted the cost per administration as the median cost 

per day. 

8

MMA 117 Stat. 2308. In addition, the MMA required the Medicare Payment Advisory Commission, 

known as MedPAC, to report on hospitals’ overhead costs and related expenses for SCODs for the

Secretary’s consideration in setting 2006 payment rates. MMA 117 Stat. 2309. Overhead costs are not

part of acquisition costs. MedPAC’s mandated report is Chapter 6, “Payment for pharmacy handling 

costs in hospital outpatient departments,” in Issues in a Modern zed Med care Program (Washington, 

D.C.: MedPAC, June 2005). 

2 GAO-05-733R Hospital Radiopharmaceutical Prices
radioactive. The first component targets specific places in the body (e.g., brain, 

liver), while the second component emits radiation to allow imaging of the interior of

the body. 

Hospitals can purchase radiopharmaceuticals in one or more ways. They can 

purchase a unit dose or a multidose vial of the product that has been prepared by a 

nuclear pharmacy independent of the hospital, or they can purchase the product’s 

radioactive and nonradioactive components separately and prepare the 

radiopharmaceutical in-house. For example, to acquire Technetium Tc 99m 

Sestamibi, a radiopharmaceutical for myocardial imaging, a hospital can either order 

a ready-to-use unit dose of the product from an independent nuclear pharmacy or 

create a dose in-house after purchasing separately Technetium Tc 99m—the 

radioactive component—and a preparation kit that includes the nonradioactive agent. 

In a survey conducted by the Society of Nuclear Medicine and the Society of Nuclear 

Medicine Technologist Section, 76 percent of hospitals reported that they purchased 

their radiopharmaceuticals in unit doses.9

 

Scope and Methodology

In our report on hospital drug prices, we presented results drawn from our survey 

data on purchase price information on 53 SCOD drug categories, for the period July 1, 

2003, through June 30, 2004. These 53 SCOD categories represented 86 percent of 

Medicare spending for SCODs during the first 9 months of 2004.10 In this report, we

present our survey results for nine radiopharmaceutical SCOD categories for the 

period July 1, 2003, through June 30, 2004. These nine represented 9 percent of 

Medicare spending for SCODs during the first 9 months of 2004.11 The previous report

and this report together provide purchase price information on SCODs that

accounted for 95 percent of all Medicare spending on SCODs during the first 9 

months of 2004. We report here the average and median purchase prices for the nine 

radiopharmaceutical SCOD categories. The purchase price information takes 

account of volume and other discounts, but it excludes rebates, which manufacturers

may give after a hospital has paid for the radiopharmaceuticals, and payments made 

to hospitals by group purchasing organizations, which negotiate prices with

manufacturers on behalf of their member hospitals. 

Hospitals’ purchase prices of the radiopharmaceutical products included here were 

obtained from the same survey that produced the hospital outpatient drug purchase 

prices. Specifically, we surveyed 1,400 acute care, Medicare-certified hospitals,12

 

l i

9

See Denise A. Merlino, “Nuclear Medicine Facility Survey: SNM 2003 Survey Reporting on 2002 Cost 

and Utilization,” Journal of Nuc ear Medic ne Technology, vol. 32, no. 4 (2004), 215-219. 

10See GAO-05-581R. 

11In this report, the term SCOD includes both pharmaceutical products that currently meet the 

definition of SCODs and those that do not meet the definition now but may be considered SCODs in 

the future. 

12Forty-eight of these hospitals were in our pilot survey, which began on August 5, 2004. 

3 GAO-05-733R Hospital Radiopharmaceutical Prices
expecting that this would yield responses from about 1,000 hospitals.

13 We conducted 

the survey from September 27, 2004, through February 22, 2005, and received usable 

information on radiopharmaceuticals from 808 hospitals, which gave us a response 

rate of 61 percent.14 We asked the hospitals to provide price data for SCODs

purchased from July 1, 2003, through June 30, 2004. Using our survey data, we 

calculated average and median purchase prices of a product’s unit dose. To ensure 

the soundness of our approach to data collection and analysis, we obtained 

comments from an advisory panel of experts in pharmaceutical economics, 

pharmacy, medicine, survey sampling, and Medicare payment. To assess the 

reliability of our data, we checked for anomalies and outliers, asked hospitals for 

clarification as needed, and discussed technical issues with a nuclear pharmacist. On 

this basis, we determined that the data were sufficiently reliable for our purposes. 

(For details on our methods, see enc. I.) 

Our results have certain limitations. First, despite a large overall sample size, our 

estimates of average and median purchase prices are more precise for 

radiopharmaceuticals that were purchased by a larger number of hospitals than for 

radiopharmaceuticals that were purchased by relatively few hospitals. Second, we 

limited our detailed results to hospitals’ purchase prices because we could not fully 

account for rebates or payments from group purchasing organizations. Third, the 

average and median purchase prices we report refer to a specific time period and 

might have increased or decreased since then. In addition, our estimated purchase 

prices are based on hospitals’ unit dose purchases only; we do not report prices for 

the generally less prevalent forms—multidoses or doses prepared in-house using a 

kit. We performed our work according to generally accepted government auditing 

standards from March 2004 through July 2005.

Hospitals’ Acquisition Costs 

for Selected Radiopharmaceutical SCOD Categories 

The following section presents detailed information on purchase prices—the key 

component of hospital acquisition costs—for certain radiopharmaceutical SCOD 

categories for the period July 1, 2003, through June 30, 2004.15 We also present 

limited information on rebates, another component of acquisition costs. 

Table 1 contains information on average and median purchase prices. We order the 

SCOD categories by their rank in Medicare spending for radiopharmaceutical SCODs

and have identified the SCOD categories by their HCPCS codes. For each SCOD 

 13We contracted for data collection and much of the data processing with a large survey firm with

experience in conducting health care surveys. 

14Of the 1,400 hospitals, 1,322 had submitted Medicare claims for radiopharmaceuticals for the first 6 

months of 2003. 

15Although SCODs by definition are used in hospital outpatient departments, the data we received from

hospitals may represent radiopharmaceuticals that were used for both inpatients and outpatients and 

for Medicare and non-Medicare patients. 

4 GAO-05-733R Hospital Radiopharmaceutical Prices
category, we present both the average and the median purchase prices, as well as 

other information that provides context, including the CMS payment rate. The CMS 

payment rate for 2005 is specified for each HCPCS for a billing unit, which, for the 

products in this report, is a dose or is measured in millicuries (mCi). In table 1, we 

report the purchase prices by CMS billing unit. 

For two radiopharmaceutical products, our data suggest that it may be more 

meaningful to estimate their purchase prices per dose rather than per billing unit. 

CMS pays for these radiopharmaceuticals in billing units defined as a certain number 

of mCi. However, for each of these two radiopharmaceuticals, whether hospitals 

purchased larger doses (more mCi) or smaller doses (fewer mCi), the price was 

about the same. For Q3005—Technetium Tc 99m Mertiatide—the billing unit is one 

mCi, yet doses that differed in size (number of mCi) had purchase prices that were 

very similar. The two most common doses—5 mCi and 10 mCi—had average 

purchase prices of $132.30 and $130.51, respectively. Similarly, for Q3008—Indium In 

111 Pentetreotide—while the billing unit is 3 mCi, this product’s purchase price per 

dose varied relatively little with the size of the dose purchased. For the two most 

common doses—3 mCi and 6 mCi—the average purchase prices were $1,176.10 and 

$1,373.89, respectively. 

5 GAO-05-733R Hospital Radiopharmaceutical Prices
6 GAO-05-733R Hospita

Table 1: Purchase Prices for Radiopharmaceuticals Accounting for 9 Percent of Medicare Spending on SCODs 

Rank in Medicare spending on radiopharmaceutical SCODs 

HCPCS code Description

Medicare 

spending 

on SCOD, 

2004a 

($ in 

millions) 

% of 

Medicare 

spending 

on SCODs, 

2004a

Number 

of 

hospitals 

in sample 

Total 

number of 

hospitalsb

CMS 

payment 

rate for 

2005c ($) 

Average 

purchase 

priced ($)

co

i

the 

1 A9500 Technetium Tc 99m 

Sestamibi, per dose 66.5 3.4 405 2,477 106.32 75.15 73.2

2 A9502 Technetium Tc 99m 

Tetrofosmin, per dose 38.8 2.0 174 964 104.58 70.70 67.

3 C1775 Fluorodeoxyglucose (FDG)

F18, per dose (4-40 mCi/ml) 32.1 1.6 71 687 221.11 287.90 

4 C1083 Yttrium 90 Ibritumomab 

Tiuxetan, per dose 7.1 0.4 80 130 20,948.25 19,614.96 

1

5 A9505 Thallous Chloride TL 201, 

per mCi 6.7 0.3 292 1,199 18.29 17.18 16.

6 Q3005 Technetium Tc 99m 

Mertiatide, per mCig 6.2 0.3 292 1,655 31.13 27.40 26.4

7 A9507 Indium In 111 Capromab 

Pendetide, per dose 4.8 0.2 56 262 1,915.23 1,801.12 

8 Q3008 Indium In 111 Pentetreotide, 

per 3 mCih 4.5 0.2 193 666 1,079.00 1,279.55

9 A9521 Technetium Tc 99m 

Exametazime, per dose 3.8 0.2 180 773 778.13 455.59

Sources: GAO survey and CMS. Notes: mCi = millicurie, ml = milliliter aMedicare spending is for the period January 1, 2004, through September 30, 2004. The percentage of Medicare spending is based on all SCODs—both drugs and bThis estimate of the total number of hospitals in the population is based on our sample. cThis is the payment rate specified for each HCPCS for 2005. It incorporates CMS’s April 2005 update. dThis price is based on data provided by the hospitals in our survey and does not reflect delivery fees or any other ancillary costs associated with purchasing or adm

hospitals to report prices for drugs purchased from July 1, 2003, through June 30, 2004. We weighted the prices by the volume purchased as well as by the sample 

eThe confidence interval measures the precision of the estimate. The narrower the interval, the greater the precision. fThe median purchase price is the midpoint of all prices reported by hospitals in our sample. This price does not reflect delivery fees or any other ancillary costs ass

administering this product. Half of the prices reported by hospitals are above the median and half are below. The median is weighted by volume purchased and by 

gThe billing unit of measure for Q3005, Technetium Tc 99m Mertiatide, is per mCi. The per mCi purchase price reported is based on purchase prices for two comm

mCi. Since in our data the 5 mCi dose is more common than the 10 mCi dose and the purchase price of a 5 mCi dose and of a 10 mCi dose were similar, we treatedose. 

hThe billing unit of measure for Q3008, Indium In 111 Pentetreotide, is per 3 mCi. The per mCi purchase price reported is based on purchase prices for two commo

mCi. Since a 3 mCi dose is the billing unit specified by CMS for Q3008 and since in our data the purchase price of a 3 mCi dose and of a 6 mCi dose varied relativwere a 3 mCi dose. 
7 GAO-05-733R Hospital Radiopharmaceutical Prices 

 

In contrast to the detailed purchase price information in table 1, our information on 

the rebate component of hospitals’ acquisition costs is limited. About 3 percent of 

sample hospitals that purchased any of the nine radiopharmaceuticals reported 

receiving one or more rebates. Most of these rebates were directly attributed to 

specific radiopharmaceutical SCOD categories. The remaining rebates were for 

multiple products and could not be attributed to any single SCOD category. Most of 

the rebates came from one company. 

Agency Comments and Our Evaluation 

We received comments on a draft of this report from HHS (see enc. II). HHS stated 

that paying appropriately for radiopharmaceuticals and the overhead costs of 

handling them within the hospital is a priority. HHS commended our efforts and 

acknowledged the challenges of accurately surveying hospitals for 

radiopharmaceutical acquisition costs. It stated that we found at least one 

radiopharmaceutical SCOD for which rebates may affect its acquisition cost. HHS 

also stated that it had concerns regarding the limitations of our study. One concern 

pertained to variation in the dosages of radiopharmaceuticals purchased; the other 

concern pertained to potential changes in purchase prices since the time of our data 

collection. HHS stated that it would take into account our data on hospital purchase 

prices in developing 2006 Medicare payment rates for SCODs. HHS added that, in 

developing payment rates for 2006 and future years, it considered it important to have 

a methodology that can be updated appropriately and that reflects rebates and other 

components of radiopharmaceutical acquisition costs. 

Despite the limitations that HHS noted, we believe our estimates of average purchase 

price for each radiopharmaceutical SCOD category that we report are sufficiently 

accurate for use in developing Medicare rates for SCOD categories. We have clarified 

our report regarding rebates: We did not find that one radiopharmaceutical SCOD 

accounted for most rebates, but rather that radiopharmaceutical rebates were 

relatively rare and that most rebates were attributable to specific 

radiopharmaceuticals. Although it is possible for radiopharmaceuticals in our survey 

to be purchased in different types of doses—unit doses, multidoses, and kits for 

doses prepared in-house—as a practical matter, most radiopharmaceuticals are 

purchased as unit doses, and we have added information on that to the report. In our 

survey, about 85 percent of hospitals reported purchasing the nine 

radiopharmaceuticals listed in table 1 only as unit doses, while about 13 percent 

reported purchasing unit doses as well as multidoses, kits for in-house preparation, 

or both.16 HHS also expressed concerns about whether our data are sufficiently 

current for use in Medicare rate-setting. If HHS uses our purchase price data in 

developing SCOD payment rates, it can mitigate the effect of time lags by adjusting 

radiopharmaceutical purchase prices in line with the expected increase or decrease 

in hospital drug prices for the coming year. HHS regularly uses a similar approach in 

other payment systems, including the hospital inpatient payment system. 

16Less than 2 percent of hospitals reported purchasing only multidoses, kits, or both. 
- - - - - 

We are sending copies of this report to the Senate Committee on Finance, the House 

Committee on Energy and Commerce, and the House Committee on Ways and Means. 

We will also make copies available to others on request. The report is available at no 

charge on GAO’s Web site at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact me at (202) 

512-7119 or steinwalda@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. GAO staff

who made major contributions to this report are listed in enclosure III. 

Sincerely yours, 

A. Bruce Steinwald 

A. Bruce Steinwald 

Director, Health Care 

Enclosures - 3 

8 GAO-05-733R Hospital Radiopharmaceutical Prices
Enclosure I Enclosure I 

9 GAO-05-733R Hospital Outpatient Radiopharmaceutical Prices

Methodology

This enclosure summarizes the sample design, methods for conducting the survey 

and processing data submissions, and the methods we used for estimating average 

and median purchase prices of specified covered outpatient drugs (SCOD). It also 

names the members of the advisory panel that commented on our approach to 

data collection and analysis. We did our work in accordance with generally 

accepted government auditing standards from March 2004 through July 2005. 

Sample Design 

We developed a stratified random sample of hospitals. The population consisted 

of 3,450 hospitals (1) that had charged Medicare for SCODs during the first half of 

2003 and (2) that were still Medicare providers on July 1, 2004. To achieve a 

sample of 1,000 hospitals, which we determined would meet the Medicare 

Prescription Drug, Improvement, and Modernization Act of 2003’s (MMA) 

requirement for a large sample, we drew a sample of 1,400 hospitals from the 

population, on the basis of an expected response rate for all SCODs of 71 percent. 

A pilot sample of 48 hospitals was included in the 1,400. (Of the 1,400 hospitals, 

1,322 had submitted Medicare claims for radiopharmaceuticals for the first 

6 months of 2003.) 

To improve the precision of our estimates of average and median purchase price, 

we stratified the sample of hospitals. The objective was to select strata that 

would represent very different average purchase prices for SCODs. Because we 

did not have a measure of purchase price at the time we selected the sample, we 

used total hospital outpatient SCOD charges to Medicare as a proxy for purchase 

price. We used a regression model to identify stratification factors (such as 

teaching hospital status) that would maximize the difference in average purchase 

price (as proxied by Medicare charges) among strata. We selected the strata of 

hospitals as follows. First, we grouped them into major teaching hospital, 

nonmajor teaching hospital, urban nonteaching hospital, and rural nonteaching 

hospital strata. Second, within each of these strata, we further divided the 

hospitals into several strata depending on the number of unique SCODs that the 

hospitals billed for. For example, one stratum contains major teaching hospitals 

that billed for fewer than 20 unique SCODs. Third, we placed small hospitals in a 

separate stratum to ensure that hospitals with no or minimal charges for SCODs 

during the first 6 months of 2003 were appropriately represented.1

In our sample design, we defined a major teaching hospital as a hospital for which 

the ratio of resident physicians to the average number of patients was at least 1 to 

4 and a nonmajor teaching hospital as one having a ratio of resident physicians to 

patients of less than 1 to 4. We defined an urban hospital as one located in a 

county that was considered a metropolitan statistical area (as defined by the 

 

1

Even if these hospitals did not have charges for SCODs in the first 6 months of 2003, they might 

have made purchases for SCODs after that time period. Therefore, it was important to include 

them in the sample. 
Enclosure I Enclosure I 

10 GAO-05-733R Hospital Outpatient Radiopharmaceutical Prices

Office of Management and Budget) and a rural hospital as one located in a county 

that was not considered a metropolitan statistical area. We defined a small 

hospital as a hospital for which the total charge amount to Medicare for SCODs 

during the first 6 months of 2003 was less than $10,000. The number of unique 

SCODs refers to the number of SCODs for which each hospital submitted 

Medicare claims during the first 6 months of 2003. (See table 2.) 

Table 2: Characteristics of Sample Strata 

Stratum 

Hospitals 

in the 

populationa

Average total 

chargesb ($)

Standard 

deviation of 

total 

chargesc ($)

Neyman 

allocation 

for total 

sample of 

1,400d

 

Target 

sample 

of 1,000e

Target 

response 

rate in %f

Major teaching hospitals

< 20 unique SCODs 75 238,949 320,349 21 11 52 

20-39 unique SCODs 111 861,415 1,805,586 111 96 86 

40-59 unique SCODs 96 2,297,626 1,985,026 96 91 95 

60+ unique SCODs 73 6,034,849 3,703,998 73 73 100 

Nonmajor teaching hospitals

< 20 unique SCODs 143 196,875 241,523 29 16 55 

20-39 unique SCODs 313 714,043 630,105 151 94 62 

40-59 unique SCODs 137 1,952,405 1,222,357 129 80 62 

60+ unique SCODs 34 5,242,311 3,410,652 34 34 100 

Urban nonteaching hospitals

< 20 unique SCODs 609 161,797 210,080 99 61 62 

20-39 unique SCODs 428 735,416 728,106 238 149 63 

40+ unique SCODs 126 2,232,851 1,837,833 126 110 87 

Rural nonteaching hospitals

< 20 unique SCODs 730 136,618 141,370 80 49 61 

20-39 unique SCODs 321 672,290 560,202 140 86 61 

40+ unique SCODs 53 2,072,873 1,382,985 53 35 66 

Small hospitals 201 3,679 3,116 20 15 75 

Total 3,450 1,400 1,000 71 

Source: GAO. 

a

Hospitals in the population refers to the number of hospitals that made any claims to Medicare for any SCOD from 

January 1, 2003, through June 30, 2003, and were still Medicare-certified hospitals on July 1, 2004. 

b

Total charges are the hospital outpatient charges to Medicare from January 1, 2003, through June 30, 2003. Average 

total charges refers to the average total charges per hospital. 

c

The standard deviation is a measure of variation around the average. 

d

The Neyman allocation is a method for determining the optimum sample size, that is, the sample size that results in the 

greatest precision. 

e

We expected an achieved sample of 1,000 (an overall response rate of 71 percent), and we applied the Neyman 

allocation to determine the optimum number of hospitals in each stratum. In some strata, the optimum allocation 

exceeded the number of hospitals in the population. In these instances, the excess hospitals were reallocated to the 

remaining strata according to the Neyman allocation. 

f

The target response rate is the ratio of the target sample to the total sample for each stratum. 
Enclosure I Enclosure I 

11 GAO-05-733R Hospital Outpatient Radiopharmaceutical Prices

 

To determine whether we had selected strata that represented substantially 

different average purchase prices for SCODs, we examined other possible 

stratification factors and compared the efficiency of our stratified sample with a 

simple random sample.2

 Other factors that we examined included hospital size 

(measured by both annual discharges and average number of patients), ownership 

status (for-profit, nonprofit), whether the hospital billed Medicare for 

radiopharmaceuticals, and whether the hospital billed Medicare for blood 

products. However, these other factors were highly correlated with the factors 

that we had selected and did not significantly improve the model. Stratification 

made the sample about 10 times more efficient than a simple random sample. 

To determine the appropriate number of hospitals in each stratum, we used the 

Neyman allocation—a method for determining the optimum sample size, that is, 

the sample size that results in the greatest precision. After the sample was 

selected, we established the optimal allocation of 1,000 hospitals—our target 

response—among strata, using another Neyman allocation. We used the results of 

this second allocation to establish target response rates by stratum. 

Data Collection and Data Processing 

We developed a survey instrument and tested it before sending it to the entire 

sample of 1,400 hospitals. We gave hospitals several options for submitting data, 

which we extracted from their submissions and put in a standard format. 

After consulting a number of experts, including pharmacists, hospital 

administrators, and representatives from industry groups, on methods of 

developing and administering the survey, we developed and pretested the survey 

instrument with 12 hospitals in June 2004. This initial instrument was limited to 

22 products. As a result of responses to the pretest, we modified the data 

collection instrument, and Westat, our data collection contractor, piloted the 

revised instrument with 48 hospitals beginning on August 5, 2004. As a result of 

the pilot, we clarified certain instructions and made changes in our procedures 

but did not significantly change the instrument. 

Westat began data collection from the 1,352 hospitals in the sample on September 

27, 2004.3

 Key components of the data collection protocol were as follows: 

• a first mailing to the chief executive officer or chief financial officer of 

each hospital explaining the survey, followed by a telephone call to identify 

the main point of contact; 

• a second mailing to the main contact outlining the data that were needed 

and describing the options for submitting the data; 

2

We measured efficiency by the size of the reduction in sample variation. 

3

We also used data from the 48 hospitals in the pilot survey, for a total sample of 1,400 hospitals. 
Enclosure I Enclosure I 

12 GAO-05-733R Hospital Outpatient Radiopharmaceutical Prices

• a follow-up telephone call to facilitate the main contact’s understanding of 

the data collection, provide technical assistance as needed, and obtain 

some basic information about the hospital; and 

• telephone calls at regular intervals to remind the hospitals to submit their 

data and to provide assistance as needed. 

Hospitals could submit data in one of three ways: by uploading electronic files 

through the study Web site, by sending an e-mail to the study address with data 

attached, or by sending electronic media or paper submissions through the mail. 

Electronic submissions took three forms: downloads from distributors’ and 

suppliers’ ordering systems, extracts from hospitals’ own databases, and entries 

made in a GAO-supplied Excel form. Paper submissions were most often copies 

of invoices. 

The contractor performed extensive follow-up. On average, Westat interviewers 

called each hospital 8 times before receiving a complete data submission. 

Hospitals that were late in responding received 15 calls on average. For drugs, we 

obtained an overall response rate of 83 percent. For radiopharmaceuticals, we 

obtained an overall response rate of 61 percent (based on the 1,322 hospitals in 

our sample that had submitted Medicare claims for radiopharmaceuticals for the 

first 6 months of 2003). 

Table 3: Response Rates for Radiopharmaceutical SCODs 

Stratum 

Response rate for 

radiopharmaceutical SCODsa

(percent) 

Major teaching hospitals 

< 20 unique SCODs 42 

20-39 unique SCODs 64b

40-59 unique SCODs 67b

60+ unique SCODs 59b

Nonmajor teaching hospitals 

< 20 unique SCODs 69 

20-39 unique SCODs 66 

40-59 unique SCODs 57 

60+ unique SCODs 74b

Urban nonteaching hospitals 

< 20 unique SCODs 60 

20-39 unique SCODs 60 

40+ unique SCODs 63b

Rural nonteaching hospitals 

< 20 unique SCODs 43 

20-39 unique SCODs 60 

40+ unique SCODs 62 

Small hospitals 100 

Total 61 

Source: GAO. 

a

Except where otherwise indicated, we counted as responses all hospitals that sent usable data on or before January 15, 

2005. 

b

We continued to process data received through February 22, 2005, for certain strata. 
Enclosure I Enclosure I 

13 GAO-05-733R Hospital Outpatient Radiopharmaceutical Prices

We extracted data from hospitals’ submissions and placed those data in a 

standard format for analysis. In many cases, hospitals submitted data on all drugs 

and radiopharmaceuticals purchased—not just SCODs—and consequently we 

needed to extract the SCOD drug and radiopharmaceutical data. Most data were 

submitted for periods of a day or a month, as we requested, but 19 hospitals in our 

sample submitted annual data on radiopharmaceuticals. 

Westat technical staff checked the data for consistency and reviewed each record 

to confirm that key information had been included. We excluded records that 

lacked key information and trimmed the data to exclude outliers. On average, 1.8 

percent of purchase records were excluded. 

Estimates of SCOD Average and Median Purchase Prices 

This section describes the rationale and method for weighting the hospital sample 

data, calculating average purchase price, calculating median purchase price, and 

calculating their confidence intervals. 

Weighting the Hospital Sample Data

To estimate hospitals’ average and median purchase prices for SCODs, the sample 

hospitals’ purchase price data are weighted to make them representative of the 

population of hospitals from which the sample is drawn. A survey sample is 

drawn from a population. To enable data from the sample to represent data from 

the population on purchase prices and other variables, the sample data are 

weighted: the less likely that a hospital will be sampled, the larger its weight. For 

example, if each hospital has a 1 in 10 probability of being sampled, its sample 

weight is 10. That is, each hospital in the sample represents 10 hospitals in the 

population. Consequently, if 5 hospitals in a sample buy a particular drug, and the 

sample weight is 10, we estimate that 50 hospitals in the population bought that 

drug. In this report, we refer to sample weights as “hospital weights.” Our sample 

is stratified, so all hospitals in a particular stratum (for example, major teaching 

hospitals) have the same weight. Since in our sample the probability of a 

hospital’s being selected varied by stratum, hospitals in different strata have 

different weights. 

In calculating weights, we took account of two distinctive facts about our survey: 

First, our sample is unusual in that we must treat it as a set of separate samples—

one for each SCOD—since the population of hospitals that buy a drug or 

radiopharmaceutical in a particular HCPCS varies depending on the SCOD. Some 

SCODs are bought by many hospitals, while others are bought by relatively few 

hospitals. Second, we lacked a direct measure of the number of hospitals in the 

population that bought a particular SCOD; consequently, we used the number of 

hospitals that billed for that SCOD, according to Medicare outpatient claims data, 

as a proxy or indirect measure of the population’s size. 
Enclosure I Enclosure I

14 GAO-05-733R Hospital Outpatient Radiopharmaceutical Prices

We calculated the hospital weight as 

where 

• Wjh denotes the hospital weight for the jth SCOD in the hth stratum, 

• Njh denotes the population (the total number of hospitals) that, 

according to Medicare outpatient claims, billed for the jth SCOD in

the hth

stratum, and 

• Rjh denotes the total number of hospitals in the hth stratum that 

purchased the j

th SCOD, according to their survey submissions. 

This weight recognizes that not all hospitals responded to our survey, since the 

weight’s denominator is Rjh—the number of hospitals that responded to the survey 

and indicated that they bought the jth drug.4

We made one adjustment to the hospital weight to take account of unusual 

circumstances. In some cases, the total number of hospitals in a stratum that

reported purchasing a particular SCOD exceeded our population estimates. This

situation resulted from imperfections in the Medicare claims data used as a proxy 

for purchase price. That is, in these cases Rjh exceeds Njh. Since that situation is 

implausible, we adjusted the size of the population derived from Medicare claims, 

as follows: 

N ’

jh = Njh * 

jh

jh

M

R

where 

• N ’

 

jhdenotes the adjusted population and 

• Mjh represents the number of hospitals in the hth stratum that 

purchased the j

th SCOD, according to their survey submissions, and 

that submitted an outpatient claim to Medicare for that drug. 

This adjustment makes the size of the adjusted population larger than the 

unadjusted population—the number of hospitals that billed Medicare for the drug. 

Sampling statisticians call this adjustment “post-stratification.” 

4

Our formulation of the hospital weight is an adaptation of the usual formulation, in which Njh is 

divided by njh, the number of hospitals in the hth stratum that purchased the jth SCOD. Unlike Rjh, njh

includes hospitals that did not respond to the survey and consequently is not appropriate for our

purpose. 
Enclosure I Enclosure I

15 GAO-05-733R Hospital Outpatient Radiopharmaceutical Prices

Average Purchase Price Using Volume and Hospital Weights 

To summarize hospitals’ purchase prices for each SCOD—reflecting purchases 

made, in many cases, at different prices and in different quantities—we calculated 

an average purchase price for each SCOD. This average purchase price for a 

particular SCOD is in effect a weighted average. To reflect the differences among 

hospitals in purchase prices and purchase volumes, we used both the hospital 

weights and purchase volume as weighting variables in estimating the average 

purchase price. 

The average purchase price is estimated from our sample data, based on the 

following equation: 

where 

• Nh

 represents the total number of hospitals in the hth stratum, 

• nh

 represents the size of the sample of hospitals in the hth stratum, 

• y*jhi = Σk yjhik , which represents the total dollar amount summed 

over all invoice records (k denotes an invoice record) for the j

th

SCOD purchased by the ith hospital in the hth stratum, and 

• x*jhi = Σk xjhik , which represents the total number of units summed 

over all invoice records (k denotes an invoice record) for the j

th

SCOD purchased by the ith hospital in the hth stratum. 

The equation estimates the average purchase price of a SCOD as the ratio of the 

total amount purchased in dollars to the total number of units purchased. For 

example, a total purchase amount of $50,000 and a total number of units

purchased of 1,000 milligrams yields an average purchase price of $50 per 

milligram. 

Median Purchase Price Using Volume and Hospital Weights

In addition to the average purchase price, we calculated the estimated median of 

each SCOD’s purchase price. To calculate this median, we first applied volume 

and hospital weights to each hospital’s purchases of a given SCOD; we then 

ranked the weighted hospitals’ purchase prices from lowest to highest and 

selected the midpoint of these prices. 

More precisely, the estimated median—based on the population cumulative 

density function F for hospital purchase prices—is given by 

X0.5 = inf { yjhik: F(yjhik ) ≥ 0.5 } , 
Enclosure I Enclosure I

16 GAO-05-733R Hospital Outpatient Radiopharmaceutical Prices

where 

 

• X0.5 denotes the median estimate of hospital purchase price for a 

particular SCOD, 

• yjhikdenotes the unit purchase price listed in the kth invoice record 

submitted in our survey by the ith hospital in the hth stratum, 

• F, the cumulative density function, is the probability that the 

variable Y takes on a value less than or equal to a particular value 

(in this case, yjhik), 

• inf { a :b } refers to the minimum value of a, which satisfies the 

condition specified in b (in this case b is the condition that F(yjhik ) ≥

0.5), and 

• the estimated population cumulative density function, F, is defined 

as 

 

F(x) = { Σh

h

h

n

N Σi Σk I(yjhik ≤ x) } / { Σh

h

h

n

N Σi Σk } 

In this equation for F(x), the hospital weights, 

h

h

n

N

, enter in both the 

numerator and the denominator. The term I (yjhik ≤ x) equals 1 if yjhik

≤ x and is zero otherwise; that is, if the purchase price of a SCOD by 

a hospital in the hth stratum is less than or equal to x (any specific 

value), this term takes on the value of 1. 

Confidence Intervals for Average Purchase Price 

and Median Purchase Price

To help assess the precision of our estimates of average and median purchase 

prices, we calculated confidence intervals for each measure. A confidence 

interval gives an estimated range of values, calculated from sample data (our 

survey), that is likely to include the true average of the population (in this case, 

the average purchase price for a particular SCOD). As is commonly done, we 

calculated 95 percent confidence intervals.5 The narrower the confidence interval 

around the average calculated from sample data, the more precise the estimated 

average is considered to be. 

We obtained the 95 percent confidence intervals of our estimated average 

purchase prices by using methods detailed in Cochran6

 and Hansen, Hurwitz, and 

 

li i

5

If independent samples are taken repeatedly from the same population, and a confidence interval

calculated for each sample, then a certain percentage of the intervals will include the unknown 

average for the population. The confidence interval is often calculated so that the percentage is 95 

percent. 

6

W.G. Cochran, Samp ng Techn ques, 3rd ed., Wiley Series in Probability and Mathematical

Statistics, section 11.7 (New York, N.Y.: John Wiley & Sons, 1977), 303. 
Enclosure I Enclosure I 

17 GAO-05-733R Hospital Outpatient Radiopharmaceutical Prices

 

Madow,7

 since our estimates were calculated from our survey—that is, from a 

stratified sample.8 To calculate the confidence interval for our estimates of 

median prices, we used the equations presented in Binder9 and Francisco and 

Fuller.10 We estimated the average purchase prices, median purchase prices, and 

the confidence intervals of both these averages and medians using specialized 

software for survey data analysis—SUDAAN®

.

11

Advisory Panel 

To provide us with advice on our methodology for collecting and analyzing 

acquisition cost data concerning SCODs, we convened a panel of experts with 

experience in pharmaceutical issues or in technical fields relevant to our survey. 

The panel met twice: first, to consult with us on sample design and the survey, 

and later to review our preliminary results. The panelists included the chairman, 

Joseph P. Newhouse, PhD—John D. MacArthur Professor of Health Policy and 

Management, Harvard University; Robert A. Berenson, MD—Senior Fellow, Urban 

Institute; Ernst R. Berndt, PhD—Professor of Applied Economics, Sloan School of 

Management, Massachusetts Institute of Technology; Andrea G. Hershey, 

PharmD—Clinical Coordinator, Pharmacy Residency Program Director, Union 

Memorial Hospital (Baltimore, Md.); and Richard L. Valliant, PhD—Senior 

Research Scientist, University of Michigan. 

t t

l, l

7

M.H. Hansen, W.N. Hurwitz, and W.G. Madow, Sample Survey Methods and Theory, vol. I,

Me hods and Applica ions, Wiley Publications in Statistics, sections 6.6 and 6.7 (New York, N.Y.: 

John Wiley & Sons, Inc., 1953), 252-259. 

8

More precisely, this is a stratified cluster sample. “Cluster” refers to the set of invoice records 

(for a given SCOD) reported by a hospital. The size of a cluster varied widely among hospitals—

from 1 invoice record for a given SCOD to over 800 records. 

9

D.A. Binder, “Use of Estimating Functions for Interval Estimation from Complex Surveys,” 

Proceedings of the Survey Research Methods Section, American Statistical Association (1991). 

10C.A. Francisco and W.A. Fuller, “Quantile Estimation with a Complex Survey Design,” Annals of

Statistics, 19 (1991), 454-469. 

11B.V. Shah, B.B. Barnwell, and G.S. Bieler, SUDAAN: User’s Manua Re ease 7.5, vols. 1 and 2 

(Research Triangle Park, N.C.: Research Triangle Institute, 1997). SUDAAN is a registered 

trademark of the Research Triangle Institute.

®
Enclosure II Enclosure II 

18 GAO-05-733R Hospital Outpatient Radiopharmaceutical Prices

Comments from the Department of Health and Human Services
Enclosure II Enclosure II 

19 GAO-05-733R Hospital Outpatient Radiopharmaceutical Prices
Enclosure III Enclosure III 

20 GAO-05-733R Hospital Outpatient Radiopharmaceutical Prices

GAO Contact and Staff Acknowledgments

GAO Contact 

A. Bruce Steinwald (202) 512-7119 or steinwalda@gao.gov 

Acknowledgments 

In addition to the contact named above, Phyllis Thorburn, Assistant Director; 

Todd Anderson; Hannah Fein; Kaycee Misiewicz; Elizabeth T. Morrison; Dae Park; 

Jonathan Ratner; Anna Theisen-Olson; and Mike Thomas made key contributions 

to this report. 

(290461) 
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