United States Government Accountability Office

GAO Report to Congressional Committees

MEDICARE 

OUTPATIENT 

PAYMENTS 

Rates for Certain 

Radioactive Sources 

Used in Brachytherapy 

Could Be Set 

Prospectively 

July 2006 

 

GAO-06-635 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

July 2006

MEDICARE OUTPATIENT PAYMENTS

Rates for Certain Radioactive Sources 

Used in Brachytherapy Could Be Set 

Prospectively 

Highlights of GAO-06-635, a report to 

congressional committees 

Generally, in paying for hospital 

outpatient procedures, Medicare

makes prospectively set payments

that are intended to cover the costs 

of all items and services delivered

with the procedure. Medicare pays

separately for some technologies

that are too new to be represented

in the claims data used to set rates. 

It also pays separately for certain 

technologies that are not new, such

as radioactive sources used in 

brachytherapy, a cancer treatment.

The Medicare Prescription Drug, 

Improvement, and Modernization 

Act of 2003 required separate 

payment for the radioactive

sources. It also directed GAO to 

make recommendations regarding 

future payment. GAO examined 

(1) how Medicare determines 

payment amounts for technologies

that are not new but are separately 

paid and (2) how payment amounts 

for iodine, palladium, and iridium 

sources used in brachytherapy 

could be determined.

What GAO Recommends

GAO recommends that Medicare 

(1) in paying separately for iodine

and palladium, use outpatient 

claims to set prospective rates, and 

(2) use claims data to evaluate the 

unit cost of iridium, so that a

suitable separate payment 

methodology can be determined. In 

response, CMS stated that it will 

take GAO’s recommendations into

consideration. 

In paying separately for technologies that are not new, the Centers for 

Medicare & Medicaid Services (CMS) generally sets prospective rates based 

on the average unit cost of the technologies across hospitals. For example, 

CMS currently pays separate prospective rates for certain high-cost drugs 

based on the mean per-unit acquisition cost, as derived by CMS from data 

provided by drug manufacturers. A prospective rate is desirable because

basing a rate on an average encourages those hospitals that provide the 

technology to minimize their acquisition costs. However, when CMS 

determines that the unit cost of a technology designated for separate 

payment varies substantially and unpredictably over time, or that reasonably 

accurate data are not available, it pays each hospital its cost for the 

technology. For example, CMS pays each hospital its cost for corneal 

transplant tissue, because it determined that the fees eye banks charge 

hospitals vary substantially and unpredictably. 

GAO’s analysis suggests that CMS could set prospective payment rates for 

iodine and palladium because their unit costs are generally stable and CMS 

can base the payments on reasonably accurate data. According to interviews 

GAO conducted with hospitals and manufacturers, iodine and palladium 

have an identifiable unit cost that does not vary unpredictably over time. In 

addition, the results of GAO’s survey of hospital purchase prices suggest that 

the unit cost of iodine and palladium does not vary substantially.

Furthermore, GAO found that Medicare claims would be a reasonably 

accurate source of data for setting prospective rates for these sources. GAO 

was not able to determine a suitable methodology for paying separately for 

iridium. In contrast with iodine and palladium, which are permanently 

implanted in patients, iridium is reused across multiple patients, making its 

unit cost more difficult to determine. Although GAO surveyed hospitals on 

the unit cost of iridium, it did not receive sufficient data to identify and 

evaluate an average unit cost across hospitals. However, CMS has outpatient 

claims data from all hospitals that have used iridium. In order to identify a 

suitable methodology for determining a separate payment amount, CMS 

would be able to use these data to establish an average cost and evaluate

whether the cost varies substantially and unpredictably. 

www.gao.gov/cgi-bin/getrpt?GAO-06-635.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact A. Bruce 

Steinwald at (202) 512-7119 or 

steinwalda@gao.gov. 
Contents 

Letter 1

Results in Brief 3

Background 5

When Paying Separately for Technologies That Are Not New, 

CMS’s General Practice Is to Set a Rate Based on an Average

Cost across Hospitals 8 

When Paying Separately for Iodine and Palladium, CMS Could Set 

Prospective Rates, but Suitable Payment Methodology for 

Iridium Is Unclear 10 

Conclusions 13

Recommendations for Executive Action 14 

Agency and External Reviewer Comments and Our Evaluation 14 

Appendix I GAO Survey of Hospital Purchase Prices for 

Iodine, Palladium, and Iridium Sources Used in 

Brachytherapy 19 

Appendix II Comments from the Centers for Medicare & 

Medicaid Services 26 

Appendix III GAO Contact and Staff Acknowledgments 28 

Table 

Table 1: Reported Iodine and Palladium Purchase Prices, July 2003-

June 2004 11 

Page i GAO-06-635 Medicare Payment for Brachytherapy Sources
Abbreviations 

ABS American Brachytherapy Society 

ACCC Association of Community Cancer Centers 

ACRO American College of Radiation Oncology 

APC ambulatory payment classification 

ASP average sales price 

ASTRO American Society for Therapeutic Radiation and Oncology

CAB Coalition for the Advancement of Brachytherapy

CMS Centers for Medicare & Medicaid Services 

MMA Medicare Prescription Drug, Improvement, and 

 Modernization Act of 2003 

OPPS outpatient prospective payment system 

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Page ii GAO-06-635 Medicare Payment for Brachytherapy Sources
United States Government Accountability Office

Washington, DC 20548 

July 24, 2006

Congressional Committees 

Under Medicare’s hospital outpatient prospective payment system (OPPS), 

hospitals are paid a fixed, predetermined—that is, prospectively set—

amount for each procedure they provide to Medicare beneficiaries.1

Hospitals are expected to use this prospective payment to cover the costs

of items and services, such as anesthesia and medical supplies, associated

with the procedure. In creating one payment bundle for items and services

associated with a procedure, Medicare provides hospitals with an 

incentive to operate efficiently, as they retain the difference if the payment

exceeds the cost the hospital incurs in performing the procedure. 

Although bundled payment is a fundamental principle of the OPPS, 

Medicare pays separately for certain high-cost technologies because 

bundling them into a payment with their associated procedures could 

financially disadvantage hospitals even if they operate efficiently.2

 Some 

technologies are paid separately because they are new and their costs are 

not represented in the historical data used to set bundled payments for 

procedures. However, certain other technologies that are not new and 

have historical claims have also been designated for separate payment 

either by Congress or by the agency that administers Medicare, the 

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

Health and Human Services. 

Brachytherapy is an example of a procedure involving a technology that is

not new and is separately paid. During the procedure, radioactive 

materials, called sources, are implanted in or near a cancerous tumor. The 

three radioactive sources most commonly used in this treatment are 

iodine-125 and palladium-103, which provide a prolonged, low dose of 

radioactivity, and iridium-192, which provides a brief, high dose of 

 1

For purposes of this report, “procedure” can refer to a service that constitutes a clinical 

course of action, such as an outpatient surgery; a medical test; or another service, such as 

an office visit. 

2

In this report, we use “technologies” to refer to certain products that are used in outpatient 

procedures. These products include drugs; devices; biologicals, which are derived from 

living sources, including humans, animals, or microorganisms; and radiopharmaceuticals, 

which are radioactive chemical agents provided orally, injected, or provided through other 

means for diagnostic or therapeutic purposes. 

Page 1 GAO-06-635 Medicare Payment for Brachytherapy Sources
radioactivity.3

 In 2002, these three sources were billed on 98 percent of the 

claims for radioactive sources associated with brachytherapy. Medicare 

pays separately for these, as well as other radioactive sources associated 

with brachytherapy,4

 at each hospital’s cost.5 According to our estimates, 

payments in 2004 for iodine, palladium, and iridium sources represented 

less than one-half of 1 percent of the $15.9 billion in OPPS spending. 

The Medicare Prescription Drug, Improvement, and Modernization Act of 

2003 (MMA) required that all radioactive sources used in brachytherapy be

paid separately rather than bundled into payment for their associated 

procedures.6 The MMA specified that these separate payments be made at 

each hospital’s cost through December 31, 2006. While the MMA required 

separate payment after this date as well, it did not specify a methodology 

for determining the separate payment amounts. Rather, it directed us to 

conduct a study and make recommendations regarding future payment for 

radioactive sources. As discussed with the committees of jurisdiction, this 

report examines (1) how CMS determines payment amounts for 

technologies that are not new but are separately paid and (2) how 

payment amounts for iodine, palladium, and iridium sources used in 

brachytherapy could be determined. 

To examine how CMS determines payment amounts for technologies that 

are not new but are separately paid, we reviewed federal law and 

regulation pertaining to the OPPS. We also interviewed officials at CMS. 

To examine how payment amounts for iodine, palladium, and iridium 

sources used in brachytherapy could be determined, we conducted a 

 3

For the remainder of this report, we refer to iodine-125 as “iodine,” palladium-103 as 

“palladium,” and iridium-192 as “iridium.” While iridium-192 can also be provided in lowdose form, this method of treatment is rare. Therefore, we refer to iridium in its high-dose 

form, unless otherwise specified. 

4

Medicare pays for 12 radioactive sources used in brachytherapy: high- and low-activity 

iodine, high- and low-activity palladium, gold-198, low-dose iridium, high-dose iridium, 

yttrium-90, cesium-131, liquid iodine-125, ytterbium-169, and linear palladium-103. 

5

Unless otherwise specified, paying “at each hospital’s cost” refers to a particular 

methodology CMS uses to estimate a hospital’s cost of providing a technology. This 

methodology relies on the charge a hospital identifies on its claim for reimbursement,

which CMS converts to cost using the ratio of aggregate costs and charges from the

hospital’s most recent cost report. An alternative method of paying at each hospital’s cost

relies on the costs reported by the hospital on its most recent cost report. 

6

Pub. L. No. 108-173, § 621(b), 117 Stat. 2066, 2310 (to be codified at 42 U.S.C. §

1395l(t)(2)(H) and (16)(C)). 

Page 2 GAO-06-635 Medicare Payment for Brachytherapy Sources
survey of purchase prices paid by 121 hospitals from July 1, 2003, through

June 30, 2004.7

 These hospitals were selected to be representative of all

hospitals purchasing these sources in 2002, the most recent year from 

which data could be used to construct a sample.8

 We assessed the 

reliability of the data we received from these hospitals. After excluding 

questionable data, we determined that the remaining data were suitable 

for our purposes. Our final results represented data from 62 hospitals, or 

slightly more than 50 percent of the hospitals in our sample. Our results 

can be generalized to the larger population of hospitals providing these 

sources in the outpatient setting that met our sampling criteria. (See app. I 

for more information on our hospital survey.) We also interviewed 

representatives from a trade association of radioactive source 

manufacturers, six radioactive source manufacturers, three associations 

representing physicians and other health professionals involved in 

brachytherapy, an association of cancer hospitals, and seven individual 

hospitals. We conducted a site visit to a hospital that provides 

brachytherapy. We also reviewed federal law and regulation pertaining to

the OPPS and interviewed officials at CMS. We did our work in 

accordance with generally accepted government auditing standards from 

June 2004 through July 2006. 

When paying separately for technologies that are not new, CMS’s general 

practice is to set prospective rates based on an average—that is, the mean

or median—unit cost of the technologies across hospitals. For example, 

CMS currently pays separate prospective rates for certain high-cost drugs 

and biologicals9

 based on the mean estimated per-unit acquisition cost, as 

derived by CMS from data provided by drug manufacturers. A prospective 

rate, even for technologies that are separately paid, is desirable because 

basing a rate on an average encourages those hospitals that provide the 

technology to minimize their acquisition costs. If CMS determines that a 

technology’s unit cost varies substantially and unpredictably, or that 

reasonably accurate data on which to base an average unit cost are not 

available, CMS pays for the technology at each hospital’s cost. When the 

Results in Brief 

 7

Specifically, we asked hospitals to report the prices they paid for sources upon receiving 

the product. These prices are net of discounts, but they do not reflect rebates from 

manufacturers, which are not commonly provided for brachytherapy sources, nor any costs 

hospitals may incur in storing and handling the radioactive sources. 

8

These hospitals were Medicare providers as of July 2004. 

9

For the remainder of this report, we use “drugs” to refer to both drugs and biologicals. 

Page 3 GAO-06-635 Medicare Payment for Brachytherapy Sources
cost of a technology varies substantially and unpredictably, a prospective 

rate based on a historical average may not adequately pay hospitals even if 

they operate efficiently. One example of such a technology is corneal 

transplant tissue. After analyzing data submitted by hospitals and other 

stakeholders, CMS determined that the fees eye banks charge hospitals for 

corneal transplant tissue vary substantially and unpredictably over time 

and across eye banks in a given year. The amount of the fee charged by an 

eye bank depends heavily on the level of charitable donations it receives, 

which it uses to subsidize the cost of providing the tissue to hospitals. As a 

result of the variation in fees hospitals pay, CMS pays for the tissue at each 

hospital’s cost. 

CMS could set prospective payment rates for iodine and palladium due to 

the general stability in their unit cost and the availability of reasonably 

accurate data. According to interviews we conducted with hospital and 

manufacturer officials, iodine and palladium have an identifiable unit cost, 

the price per source. When we surveyed hospitals on their purchase 

prices, we found that the prices do not vary substantially or unpredictably. 

Furthermore, we determined that a reasonably accurate source of data,

historical OPPS claims, is available for setting prospective rates for iodine 

and palladium. We were unable to identify a methodology CMS could use 

to determine future payment amounts for iridium. In contrast to iodine 

and palladium, where multiple sources are permanently implanted in one

patient, a single iridium source is temporarily implanted. Because an 

iridium source can be implanted in multiple patients over its 3-month life 

span,10 and each patient can receive multiple treatments with the source, 

the appropriate unit cost of an iridium source is the average cost of all 

treatments administered across all patients. Although we surveyed 

hospitals on the per-treatment costs of iridium, we did not receive 

sufficient data to estimate an average cost across hospitals. However, 

hospital claims data are available to CMS for estimating an average pertreatment cost across hospitals that have used iridium. Using these data,

CMS would be able to evaluate whether the range of cost comprising the 

average is substantial and whether cost varies unpredictably over time. 

Such an analysis would help CMS identify a suitable methodology for 

determining a separate payment amount. 

 10We use “life span” to refer to the period of time iridium is sufficiently radioactive to be 

used for high-dose brachytherapy. 

Page 4 GAO-06-635 Medicare Payment for Brachytherapy Sources
In this report, we make recommendations to the Secretary of Health and 

Human Services regarding payment for iodine, palladium, and iridium 

sources. Specifically, we recommend that the Secretary direct the 

Administrator of CMS to (1) set prospective payment rates for iodine and 

palladium sources, with each rate based on the source’s mean or median

cost across hospitals estimated from OPPS claims data, and (2) use claims 

data to evaluate the unit cost of iridium, so that a suitable, separate 

payment methodology can be determined. In response, CMS stated that it 

will take GAO’s recommendations into consideration. 

Iodine, palladium, and iridium are the radioactive sources most commonly 

used in brachytherapy. The brachytherapy procedure is typically 

performed in the outpatient setting where, under the OPPS, costs 

associated with a procedure are generally bundled in order to promote 

hospital efficiency. However, since the OPPS was implemented in 2000, an

increasing number of technologies have been paid separately. Except in 

2003, the one year in which iodine and palladium used to treat prostate 

cancer and iridium were bundled into payment for brachytherapy 

procedures, all radioactive sources used in brachytherapy have been paid

separately. 

Radioactive sources are used in brachytherapy to treat a variety of types of

cancers. The most prevalent brachytherapy procedure is low-dose 

brachytherapy with iodine or palladium, which is typically provided for 

early-stage prostate cancer. During this procedure, approximately 20 to 

200 tiny iodine or palladium sources are implanted in the prostate, deliver 

radiation over a period of months, and then remain permanently in the 

body. Generally, the choice between iodine and palladium is determined 

by the aggressiveness of the tumor, and the number of sources by the size 

of the prostate.11

Background 

Radioactive Sources Used 

in Brachytherapy 

In recent years, utilization of the high-dose brachytherapy procedure, 

which typically uses iridium, has grown. Iridium can be used to treat a 

variety of advanced-stage cancers—most commonly gynecological 

cancers. In high-dose brachytherapy, a single, highly radioactive iridium 

 11Although iodine and palladium both emit relatively low levels of radiation, palladium 

emits radiation at a higher rate, making it generally appropriate for more aggressive 

tumors. 

Page 5 GAO-06-635 Medicare Payment for Brachytherapy Sources
source is implanted in the tumorous area for a brief period—a matter of 

minutes or hours—and then withdrawn. Depending on a patient’s clinical

needs, the patient may receive one or more such treatments, also known 

as fractions, with the same source over the course of several days. 

Because an iridium source emits sufficient radiation for 3 months, the 

same source can be used to treat multiple patients. 

Evolution of Medicare 

Payment for Outpatient 

Services 

The payment methodology for outpatient services has varied in the degree 

to which it relies on bundled payments to promote hospital efficiency. 

Prior to OPPS implementation in 2000, payment for outpatient items and 

services was not bundled; rather, hospitals were paid under a complex 

array of cost-based reimbursement methods and fee schedules. Generally, 

neither of these payment methodologies provides a strong incentive to 

furnish services efficiently. Under a cost-based methodology, each hospital 

is paid its cost based on information it reports to CMS. Under a fee 

schedule methodology, all hospitals receive a prospectively determined 

rate for each item and service they provide, but little incentive exists for 

them to provide only the necessary items and services. 

Under the Balanced Budget Act of 1997, CMS was required to implement 

the OPPS, which was designed to streamline the historically complex 

system of payment for outpatient care and better promote hospital 

efficiency.

12 CMS assigns each outpatient procedure to one of

approximately 850 ambulatory payment classification (APC) groups. Each 

APC group includes procedures that share cost and clinical similarities 

and has one payment rate for all procedures in the group.13 To set an APC 

rate, CMS uses historical claims to calculate a median cost across a 

group’s procedures that includes the costs of the associated bundled 

services and supplies, which are known as “packaged” costs. A median, 

rather than a mean, gives less weight to extreme values. That median cost 

is then converted into a numeric weight, which determines the payment 

hospitals receive for all procedures assigned to the APC. Because the 

OPPS provides a single payment to cover the average total cost of a 

procedure, the incentive for each hospital to efficiently provide the 

necessary items and services associated with that procedure is greater 

 12Pub. L. No. 105-33, § 4523, 111 Stat. 251, 445-50. 

13For example, APC 396, “Bone Imaging,” includes the following procedures: “bone

imaging, limited area”; “bone imaging, multiple areas”; and “bone imaging, whole body.” 

Page 6 GAO-06-635 Medicare Payment for Brachytherapy Sources
than when the hospital is paid its cost or a separate fee schedule payment 

for each item and service used in the procedure.

Although bundling is a fundamental principle of the OPPS, the number of 

technologies that are paid separately from their associated procedures has 

increased since the implementation of the payment system.14 Beginning in

2000, the first year of the OPPS, CMS was required to make temporary, 

separate payments—referred to as “transitional pass-through payments”—

for technologies that it determines to meet specified criteria for being new 

and high cost.15 These payments supplement the bundled payments for 

outpatient procedures associated with the technologies, and are designed

to compensate hospitals for the additional cost. A new technology is 

eligible for pass-through payments for 2 to 3 years, after which time the 

technology is no longer considered new and CMS can include the 

technology in the payment bundle for the associated procedure. Over time, 

other high-cost technologies that are not new—mainly certain drugs and 

radiopharmaceuticals—have also been designated for separate payment 

either by Congress or by CMS. 

OPPS Payment for 

Radioactive Sources 

The payment methodology for radioactive sources associated with 

brachytherapy has changed several times since the inception of the OPPS. 

CMS was required to make separate pass-through payments for all 

radioactive sources associated with brachytherapy beginning in 2000. In

2003, these technologies were no longer eligible for pass-through 

payments. Because they are considered devices by Medicare, and devices 

are typically bundled into payment for their associated procedures, CMS 

bundled iodine and palladium into the payment bundle for the low-dose 

brachytherapy procedure for prostate cancer, and iridium into the 

payment bundle for the high-dose brachytherapy procedure, regardless of 

cancer type. For iodine and palladium sources provided for conditions 

other than prostate cancer, CMS continued to pay separately. Instead of 

paying separately for these radioactive sources at each hospital’s cost, 

CMS set prospective rates for 2003 based on the median cost of each 

 14See Medicare Payment Advisory Commission, Report to the Congress: Selected Medicare 

Issues (Washington, D.C.: June 2000), and Barbara O. Wynn, Medicare Payment for 

Hospital Outpatient Services: A Historical Review of Policy Options, a working paper 

prepared for the Medicare Payment Advisory Commission by RAND Health, June 2005. 

15The Medicare, Medicaid, and SCHIP Balanced Budget Refinement Act of 1999, Pub. L. No.

106-13, app. F, § 201(b), 113 Stat. 1501, 1501A-337—1501A-339. 

Page 7 GAO-06-635 Medicare Payment for Brachytherapy Sources
source across hospitals. The MMA mandated that all brachytherapy 

sources be paid separately after 2003 and specified that from January 1, 

2004, through December 31, 2006, separate payments for the sources be at

each hospital’s cost. The MMA did not specify a methodology for paying 

separately after this date. 

When paying separately for technologies that are not new, CMS’s general 

practice is to set a prospective rate for all hospitals, based on an average 

unit cost across hospitals. However, certain technologies may vary in cost

substantially and unpredictably or there may not be reasonably accurate

data on which to base an average cost across hospitals. In either case, 

CMS pays for these technologies at each hospital’s cost. 

Although CMS does not use published criteria to determine payment 

amounts for separately paid technologies that are not new, we found that 

its general practice is to pay prospectively based on the average historical

cost of each technology across hospitals. A prospective rate, even for 

technologies that are separately paid, is desirable because basing a rate on

an average encourages those hospitals that provide the technology to 

minimize their acquisition costs.16

When Paying 

Separately for 

Technologies That Are 

Not New, CMS’s 

General Practice Is to 

Set a Rate Based on 

an Average Cost

across Hospitals 

When Paying Separately 

for Technologies That Are 

Not New, CMS’s General 

Practice Is to Set 

Prospective Rates 

To set prospective rates for these separately paid technologies, CMS 

currently uses two sources of historical data: manufacturer data and OPPS

claims. For example, CMS pays for certain high-cost drugs prospectively 

based on average per-unit acquisition cost.17 To calculate hospital 

acquisition cost, CMS relies on per-unit average sales price (ASP) data, 

which manufacturers are required to submit to CMS and are used in 

 16For example, if two manufacturers sell the same technology, and there is not a

discernable difference in quality between the two products, then the hospital would have 

the incentive to purchase the technology from the manufacturer offering the lower

purchase price. 

17These include certain drugs known as specified covered outpatient drugs and other drugs

with per-day costs of $50 or more. 

Page 8 GAO-06-635 Medicare Payment for Brachytherapy Sources
making payments for physician-administered drugs.18 CMS also uses ASP 

data to pay a per-unit rate for particular orphan drugs, which are drugs 

used to treat patients with rare conditions and are typically high in cost. 

For drugs where CMS does not have ASP data, CMS pays based on the 

mean cost calculated from OPPS claims. 

Certain Technologies That 

Are Not New and Are Not 

Suitable for Prospective 

Payment Are Paid at Cost 

When a technology’s unit cost varies substantially and unpredictably, or 

when reasonably accurate cost data are not available, CMS pays for the 

technology at each hospital’s cost. If the cost varies substantially and

unpredictably, a prospective rate based on a historical average may not 

adequately pay hospitals even if they operate efficiently. CMS pays each 

hospital’s cost, for example, for corneal transplant tissue and certain 

vaccines, including those for flu and pneumonia.19 CMS uses this 

methodology for corneal transplant tissue because, after analyzing data 

submitted by hospitals and other stakeholders, the agency determined that 

the fees eye banks charge hospitals for this tissue can vary substantially 

and unpredictably over time and across eye banks in a given year. The 

amount of the fee charged by an eye bank depends heavily on the level of

charitable donations it receives, which it uses to subsidize the cost of 

providing the tissue. The cost to hospitals of providing vaccines also varies 

substantially and unpredictably due to instability in the nation’s vaccine 

supply. 

In other cases, CMS makes cost-based payments for technologies when it

determines that reasonably accurate historical data on unit cost are not 

available. For example, the MMA mandated separate payment for certain 

radiopharmaceuticals. As we discussed in our 2006 report on OPPS 

 18The MMA required manufacturers to report quarterly ASPs for drugs sold, with certain 

exceptions, to all purchasers. MMA § 303(i)(4)(B)(iii), 117 Stat. 2254. An ASP must be net 

of volume discounts, prompt-pay discounts, cash discounts, free goods that are contingent 

on any purchase requirement, chargebacks, and all rebates but those owed to Medicaid.

MMA § 303(c), 117 Stat. 2240-41. 

19CMS pays hospitals at cost for corneal transplant tissue somewhat differently than it pays 

hospitals at cost for other separately paid technologies. Specifically, CMS instructs

hospitals to record the acquisition cost on the claim instead of a charge and pays them for 

this amount. CMS later conducts a reconciliation of these payments with the costs 

indicated on the hospital’s annual cost report to ensure that the payments were based on 

reasonable costs. 

Page 9 GAO-06-635 Medicare Payment for Brachytherapy Sources
payment for certain drugs and radiopharmaceuticals,20 differences among 

hospitals in how these technologies are purchased make it difficult for 

CMS to set a prospective rate based on an average cost across hospitals. 

As a result, payment for these radiopharmaceuticals is based on each

hospital’s cost. 

Based on our analysis, the absence of wide variability in the unit costs of 

iodine and palladium and the availability of reasonably accurate historical 

data makes these radioactive sources suitable for prospective payment 

rates. We were unable to establish a unit cost for iridium and, as a result, 

could not identify a suitable payment methodology. CMS has OPPS claims 

data from hospitals that provided iridium, and would be able to use these 

data to calculate an average unit cost across hospitals and to identify 

which methodology is suitable for determining a separate payment 

amount. 

Our analysis suggests that CMS would be able to develop prospective rates 

for iodine and palladium beginning in 2007. Based on interviews we 

conducted with hospital and manufacturer officials, and the results of our 

hospital survey, we determined that iodine and palladium have identifiable 

unit costs and that these costs do not appear to vary substantially and

unpredictably across hospital purchases at a given point in time or from 

year to year. Both hospitals and manufacturers told us that hospitals 

generally purchase iodine and palladium sources at a per-source price,

making the calculation of a unit cost straightforward. According to our 

survey of 121 hospitals on the prices they paid during 1 year—specifically, 

from July 2003 through June 2004—the range of iodine and palladium 

prices is not wide.21 This is indicated by the relative level of precision—

technically, the coefficient of variation—achieved for our estimated mean 

When Paying 

Separately for Iodine 

and Palladium, CMS 

Could Set Prospective 

Rates, but Suitable 

Payment Methodology 

for Iridium Is Unclear 

CMS Could Set 

Prospective Payment 

Rates for Iodine and 

Palladium 

 20GAO, Medicare Hospital Pharmaceuticals: Survey Shows Price Variation and

Highlights Data Collection Lessons and Outpatient Rate-Setting Challenges for CMS, 

GAO-06-372 (Washington, D.C.: Apr. 28, 2006). 

21Our survey requested per-source purchase prices from hospitals. These prices do not

reflect storage and handling costs associated with the radioactive sources. Prior to April 1, 

2004, CMS had not articulated a policy specifically on reimbursement for these costs. 

Effective on that date, CMS provided several avenues for hospitals to identify the costs 

associated with the storage and handling of radioactive sources, so that these costs might 

be recognized in the payment system. 

Page 10 GAO-06-635 Medicare Payment for Brachytherapy Sources
price.22 (See table 1.) We also note that iodine and palladium are not 

subject to the same supply and demand conditions as corneal transplant 

tissue and flu and pneumonia vaccines—conditions that lead to substantial 

and unpredictable cost variation from year to year. 

Table 1: Reported Iodine and Palladium Purchase Prices, July 2003-June 2004 

Type of source

Number of 

reported 

purchasesa

Number of 

hospitals

reporting 

purchases

Estimated 

mean price per 

sourceb

Coefficient of

variation for 

the mean

estimatec

Iodine 1,926 52 $29.54 1.59%

Palladium 941 40 $45.35 0.68%

Source: GAO survey of purchase prices from July 2003 through June 2004. 

a

A reported purchase refers to an individual hospital’s purchase of a given quantity of the radioactive

source at a particular price on a specific date. 

b

The estimated mean price per source is weighted according to the methodology described in app. I.

c

The coefficient of variation measures the magnitude of dispersion around the mean. In statistical 

terms, a coefficient of variation below 10 percent is considered to be low. (See Morris H. Hansen, 

William N. Hurwitz, and William G. Madow, Sample Survey Methods and Theory (New York: John

Wiley & Sons, 1953), 124,129-130.) 

Although CMS uses ASP data to set a prospective rate for certain high-cost 

drugs, CMS currently does not have ASP data for radioactive sources used 

in brachytherapy. However, we found that OPPS claims provide a 

reasonably accurate source of data for setting a prospective rate for iodine 

and palladium sources. To determine if claims could be used as a 

reasonable data source, we compared the payment rates for 2003 and the

proposed payment rates for 2004,23 which were based on median costs 

 22To the extent that variation exists across either palladium or iodine prices, it could be 

attributed to differential pricing by specific source characteristics, such as radioactivity 

level or the configuration in which they are purchased—that is, whether they are stranded 

together for insertion or are individual, “loose” sources. We did not receive enough data

from hospitals to reliably identify any price differences by source characteristic. However, 

we instructed hospitals to report all their purchases during the survey period. Therefore, 

any price variation due to source characteristic should be reflected in our data. Regarding 

activity level, we note that the MMA required CMS to establish payments that account for 

the radioactive intensity of sources. As a result, in 2005, CMS established separate billing 

codes for high- and low-activity iodine and palladium sources. CMS is therefore expected

to have the data available to set separate rates for high- and low-activity iodine and 

palladium in 2007. 

23These rates were proposed for 2004; however, they were not implemented due to the 

MMA requirement to pay for the sources based on each hospital’s cost. 

Page 11 GAO-06-635 Medicare Payment for Brachytherapy Sources
calculated from historical claims, with the median of the per-source 

purchase prices reported directly to us by hospitals. Although the payment 

rates applied only to sources used in non-prostate brachytherapy, CMS 

officials told us that they were calculated using prostate and non-prostate 

brachytherapy claims with iodine and palladium sources. We found that 

for iodine the prospectively set rate for 2003 and proposed rate for 2004 

were $31.33 and $36.35, respectively, and the median of reported purchase 

prices was $25.37.

24 For palladium, the prospectively set rate for 2003 and 

proposed rate for 2004 were $43.96 and $44.00, respectively, and the 

median reported purchase price was $45.46. 

Since 2004, when CMS was required to pay separately for all iodine and

palladium sources, the agency has been accumulating claims data that 

include separate charges for these sources. As a result, CMS will have data

from 2005 for the 2007 payment year.25 These data could be used to set 

prospective payment rates, either based on a mean—as is currently done 

with certain high-cost drugs—or based on a median—which CMS used to 

set the 2003 and proposed 2004 rates for iodine and palladium sources. 

Suitable Methodology for 

Determining Separate 

Payment Amount for 

Iridium Is Unclear 

Due to the reusable nature of the iridium source, identifying its unit cost is 

not as straightforward as identifying the unit cost of iodine and palladium. 

Over the course of its 3-month life span, an iridium source can be 

temporarily implanted in multiple patients and each of those patients can 

receive about 1 to 10 such treatments with the same source. Therefore, the 

appropriate unit cost of an iridium source is the per-treatment cost—the 

average cost of all treatments administered across all patients over a 3-

month period. When hospitals purchase an iridium source, they may not 

know the exact number of patients they will treat or the number of 

treatments each of those patients will receive. Therefore, hospitals must 

bill Medicare based on projections of their unit cost, and will only be able 

to identify their actual unit cost retrospectively.

We asked hospitals to provide the per-treatment cost of iridium sources 

they purchased over a previous 12-month period in order to identify a unit 

cost. However, we did not receive enough data to identify the pertreatment cost. Of 121 total hospitals surveyed, 19 responded with data on

iridium, and the majority of these 19 hospitals did not provide data we 

 24The median reported price is weighted according to the methodology described in app. I.

25All payment rates for a given year are based on claims for services provided 2 years prior. 

Page 12 GAO-06-635 Medicare Payment for Brachytherapy Sources
could use to estimate the cost per treatment. Specifically, 11 either did not 

provide the number of treatments, reported a questionable source price, or

both. Eight hospitals reported a source price and the number of 

treatments from which a unit cost could be calculated. However, among 

these 8 hospitals there were inconsistencies in the data provided. Some 

hospitals reported the total price of their iridium contracts,26 while other 

hospitals isolated the price of the radioactive source within their contracts

and reported that price. Because we could not establish a unit cost, we 

could not assess if the unit cost of iridium varies substantially and 

unpredictably over time.

Although we could not identify an average per-treatment cost from our 

survey data, CMS has OPPS claims data from hospitals that provided 

iridium. Using these data, CMS would be able to evaluate whether the 

range of costs comprising the average is substantial and whether the cost 

varied unpredictably. Such an analysis would help CMS identify a suitable 

methodology for determining a separate payment amount. 

Under the OPPS, an increasing number of technologies have been 

designated for separate payment, either by Congress or by CMS. Pursuant 

to the MMA, radioactive sources used in brachytherapy, including iodine, 

palladium, and iridium, are among those technologies. Based on our 

analysis, CMS can pay separately for iodine and palladium sources using 

prospective rates because the unit cost of the sources does not vary 

substantially and unpredictably. In addition, CMS has data available to 

identify reliable average costs across hospitals to set prospective payment 

rates beginning in 2007. Paying prospectively in this manner would help 

encourage hospital efficiency. However, we were not able to identify a

suitable methodology for determining a separate payment amount for 

iridium sources because we did not receive sufficient information from 

hospitals to estimate an average per-treatment cost across hospitals. In 

order to identify a suitable methodology for determining a separate 

payment amount, CMS would be able to use OPPS claims data to evaluate

whether the range of costs comprising the average is substantial and 

whether the average per-treatment cost varies unpredictably over time. 

Conclusions 

 26Most hospitals purchase the iridium source as part of an annual contract that covers the 

cost of four sources—one for each quarter—and the cost of maintaining the sources. 

Page 13 GAO-06-635 Medicare Payment for Brachytherapy Sources
In order to promote the efficient delivery of radioactive sources associated 

with outpatient brachytherapy, we recommend that the Secretary of 

Health and Human Services direct the Administrator of CMS to take the 

following two actions: 

• Set prospective payment rates for iodine and palladium sources with each 

rate based on the source’s average—that is, the mean or median—unit cost 

across hospitals estimated from OPPS claims data. 

• Use claims data to evaluate the unit cost of iridium so that a suitable, 

separate payment methodology can be determined. 

We received written comments on a draft of this report from CMS (see 

app. II). We also received oral comments from individuals at five 

organizations representing manufacturers of radioactive sources used in 

brachytherapy and providers of brachytherapy. These included the 

Coalition for the Advancement of Brachytherapy, which represents 

manufacturers of radioactive sources; the Association of Community 

Cancer Centers (ACCC), which represents hospitals that provide cancer 

treatment; and three organizations representing physicians and others 

involved in providing brachytherapy: the American College of Radiation 

Oncology (ACRO), the American Brachytherapy Society (ABS), and the 

American Society for Therapeutic Radiation and Oncology (ASTRO). We

also received technical comments from CMS and the external reviewers, 

which we incorporated as appropriate. 

In reviewing our draft report, CMS stated that it appreciated our analysis 

and will consider our recommendations on iodine, palladium, and iridium 

as it develops payment policy for 2007. CMS also noted that we did not 

make recommendations on payment for other radioactive sources 

associated with brachytherapy that may be separately payable in 2007. 

As stated in our draft report, we examined how payment amounts for 

iodine, palladium, and iridium could be determined. In 2002, these three 

sources were billed on 98 percent of the claims for radioactive sources 

associated with brachytherapy. Medicare pays for seven other radioactive

sources used in brachytherapy—gold-198, low-dose iridium, yttrium-90, 

cesium-131, liquid iodine-125, ytterbium-169, and linear palladium-102. We

did not examine how payment for those sources could be determined 

because sufficient data on those sources were not available in the 2002 

claims used to construct the sample of hospitals for our survey. Medicare 

did not pay for cesium-131, ytterbium-169, and linear palladium-102 in 

Recommendations for 

Executive Action 

Agency and External 

Reviewer Comments 

and Our Evaluation 

CMS Comments and Our 

Evaluation 

Page 14 GAO-06-635 Medicare Payment for Brachytherapy Sources
2002, and gold-198, low-dose iridium, liquid iodine-125, and yttrium-90 

together appeared on 2 percent of the approximately 22,000 claims for 

radioactive sources in that year. Although we did not examine how 

payment amounts could be determined for these seven sources, the 

analytical framework we used may apply to them as well. 

Comments from external reviewers representing manufacturers of 

radioactive sources and providers of brachytherapy centered on three 

different areas: our recommendation to pay prospectively for iodine and

palladium sources; our recommendation that CMS evaluate the unit cost of 

iridium; and payment for radioactive sources other than iodine, palladium, 

and iridium. 

Representatives from CAB disagreed with our recommendation to set 

prospective rates for iodine and palladium using OPPS claims data. They 

asserted that price variation due to the range of available iodine and 

palladium products makes it inappropriate to pay for sources 

prospectively based on averages. In their opinion, our finding that the unit

costs of iodine and palladium sources are generally stable was 

compromised by limitations in our hospital survey—specifically, our 

exclusion of outlier data and the absence of source configuration 

information in many of the surveys we received from hospitals. ACCC 

stated that OPPS claims data are flawed and that prospective rates may be 

appropriate but only when a more accurate data source is available. They

also noted, as did ACRO representatives, that costs incurred by hospitals 

for storing and handling radioactive sources were not represented in our 

survey results. Representatives from ASTRO, ABS, and ACRO agreed with 

our recommendation that payment can be based on an average. ACRO 

representatives cautioned that the data used to set the payment must be 

representative of different types of hospitals, and ABS representatives 

suggested that the data should reflect the increased use of stranded 

sources, which they stated are more costly but considered clinically 

advantageous by many physicians. 

Regarding our recommendation that CMS use OPPS claims data to 

evaluate the unit cost of iridium in order to determine a suitable separate 

payment methodology, representatives from CAB said the report 

accurately conveys the difficulties of identifying a per-unit cost for iridium. 

However, they disagreed with our recommendation because they said it 

would not be possible for CMS to fully evaluate a unit cost using OPPS 

claims data, which they asserted to be flawed. They stated that the cost of 

iridium varies substantially and unpredictably and would not be 

Manufacturer and Provider 

Comments and Our 

Evaluation 

Page 15 GAO-06-635 Medicare Payment for Brachytherapy Sources
appropriate for prospective payment based on an average. Representatives 

from ASTRO, ABS, and ACRO agreed with our recommendation, although 

they expressed confidence that the unit cost of iridium would be found to 

vary substantially and unpredictably and would therefore be inappropriate 

for prospective payment based on an average cost calculated across 

hospitals. 

Finally, other comments focused on payment for radioactive sources other 

than iodine, palladium, and iridium. Representatives of ASTRO and CAB 

noted that we did not specifically address payment for the other 

radioactive sources used in brachytherapy—gold-198, low-dose iridium, 

yttrium-90, cesium-131, liquid iodine-125, ytterbium-169, and linear 

palladium-102—and ASTRO asked whether we would be making 

recommendations on payment for these other radioactive sources. 

Concerning the comments that variation in source price makes it 

inappropriate to pay prospectively for sources, as noted in the draft report, 

we based our finding on the low coefficient of variation we calculated 

from surveys received from our representative sample of hospitals. We do

not believe that our exclusion of outlier data masked the true degree of 

price variation. We used standard statistical trimming principles, which 

resulted in the exclusion of only 2 percent of reported purchases of iodine

and none of the reported purchases of palladium. Although many of the 

responding hospitals did not indicate on the survey the configuration of 

the sources purchased, we instructed hospitals to list prices for all sources 

purchased during the survey period. Therefore, the variation we calculated 

from hospital responses can be expected to reflect the range of products 

purchased by hospitals at the time. Representatives from ACRO and ABS 

stated that they believed the average prices presented in the draft report 

were consistent with prices for the types of sources—loose, low-activity 

sources—commonly used during the survey period. If costlier stranded 

sources have become more frequently used since the survey period of 

July 1, 2003 through June 30, 2004, as stated by representatives of ACRO 

and ABS, the use of those sources would be captured in OPPS claims data 

from subsequent years and reflected in future prospectively set rates. 

Regarding the concerns about basing prospectively set rates for iodine and 

palladium on OPPS claims data, as noted in the draft report, we based our 

recommendation on our comparison of average purchase prices for those 

sources from our hospital survey with CMS payment rates for 2003 and 

proposed payment rates for 2004, which CMS derived from OPPS claims 

data. Concerning the comments about the cost of storing and handling 

radioactive sources, CMS has provided guidance to hospitals on how they 

can receive reimbursement for those costs. 

Page 16 GAO-06-635 Medicare Payment for Brachytherapy Sources
With respect to our recommendation on payment for iridium, as noted in 

the draft report, we are recommending that CMS use its claims data to 

evaluate whether the range of costs comprising the average for a given 

year is substantial across hospitals and whether this average unit cost 

varied unpredictably over time. Consistent with its general practice for 

paying separately for technologies that are not new, CMS could pay for 

iridium at each hospital’s cost if OPPS claims did not prove to be a 

reasonable source of data or if CMS determined that the unit cost varies 

substantially and unpredictably over time. 

As we noted in our response to comments received from CMS, we limited 

our examination of payment for radioactive sources to iodine, palladium, 

and iridium because sufficient data on the other sources were unavailable 

in the 2002 claims used to construct the sample of hospitals for our survey, 

and these three sources were billed on 98 percent of the claims for 

radioactive sources associated with brachytherapy. 

We are sending a copy of this report to the Administrator of CMS. We will 

also provide copies 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 staffs have any questions, 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 appendix III. 

A. Bruce Steinwald 

Director, Health Care 

Page 17 GAO-06-635 Medicare Payment for Brachytherapy Sources
List of Committees 

The Honorable Charles E. Grassley 

Chairman 

The Honorable Max Baucus 

Ranking Minority Member 

Committee on Finance 

United States Senate 

The Honorable Joe L. Barton 

Chairman 

The Honorable John D. Dingell 

Ranking Minority Member 

Committee on Energy and Commerce 

House of Representatives 

The Honorable William M. Thomas 

Chairman 

The Honorable Charles B. Rangel 

Ranking Minority Member 

Committee on Ways and Means 

House of Representatives 

The Honorable Nathan Deal 

Chairman 

The Honorable Sherrod Brown 

Ranking Minority Member 

Subcommittee on Health

Committee on Energy and Commerce 

House of Representatives 

The Honorable Nancy Johnson 

Chairman 

The Honorable Pete Stark 

Ranking Minority Member 

Subcommittee on Health

Committee on Ways and Means 

House of Representatives 

Page 18 GAO-06-635 Medicare Payment for Brachytherapy Sources
A

Pr

Sourc

ppendix I: GAO Survey of Hospital Purchase

ices for Iodine, Palladium, and Iridium 

es Used in Brachytherapy

Page 19 GAO-06-635

Appendix I: GAO Survey of Hospital 

Purchase Prices for Iodine, Palladium, and 

Iridium Sources Used in Brachytherapy 

This appendix summarizes the sample design, methods for collecting and 

processing the data, and methods for estimating mean and median 

purchase prices for iodine and palladium sources used in brachytherapy.1

Though we were not able to estimate mean and median purchase prices 

for iridium, this appendix also includes a discussion of the data we 

received. 

We developed a random sample of hospitals to survey for the purchase 

prices of iodine, palladium, and iridium sources used in brachytherapy. 

The sample frame consisted of 949 hospitals that (1) had charged 

Medicare for radioactive sources during 2002, the most recent year for 

which usable data were available;2

 (2) were still Medicare providers on 

July 1, 2004; and (3) were a subset of sample hospitals drawn for a survey 

we conducted of hospital outpatient drug prices.3

 The sampling frame 

contained 98 percent of the 968 hospitals that submitted Medicare claims 

for the three brachytherapy sources in 2002. We drew a sample of 121 

hospitals from the sample frame, on the basis of an expected response rate 

of 50 percent. Our results can be generalized to the larger population of 

hospitals providing iodine and palladium in the outpatient setting and

meeting the above criteria. 

To improve the precision of our estimates of mean and median purchase 

price, we stratified the sample of hospitals. The objective was to obtain a

sample of hospitals that mirrored the distribution of hospitals billing 

Medicare for these sources. Because we did not have a measure of 

purchase price of radioactive sources at the time we selected the sample, 

we used total hospital outpatient drug charges to Medicare as a proxy for 

purchase price variation. We used a regression model to identify 

stratification factors (such as teaching hospital status) that would 

maximize the difference in mean purchase price (as proxied by Medicare

drug charges) among strata. We grouped hospitals into major teaching

Sample Design 

 1

Radioactive sources commonly used in brachytherapy include iodine and palladium, 

which provide a prolonged, low dose of radioactivity, and iridium, which provides a brief, 

high dose of radioactivity. 

2

Although 2003 data were available at the time the sample was constructed, there was 

neither a separate billing code for iridium sources nor separate billing codes for iodine and 

palladium sources used in prostate brachytherapy. 

3

GAO, Medicare: Drug Purchase Prices for CMS Consideration in Hospital Outpatient 

Rate-Setting, GAO-05-733R (Washington, D.C.: June 30, 2005). 

Medicare Payment for Brachytherapy Sources
Appendix I: GAO Survey of Hospital Purchase

Prices for Iodine, Palladium, and Iridium 

Sources Used in Brachytherapy

hospital, nonmajor teaching hospital, urban nonteaching hospital, and 

rural nonteaching hospital strata. We placed small hospitals in a separate 

stratum to ensure that hospitals with no or minimal charges for drugs 

during the first 6 months of 2003 were appropriately represented. 

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

for which the ratio of residents to the average daily number of patients 

was at least 1 to 4 and a nonmajor teaching hospital as one having a ratio 

of residents to patients of less than 1 to 4. We defined a hospital as urban if

it was located in a county considered a metropolitan statistical area (as 

defined by the Office of Management and Budget) and rural if it was 

located in a county not considered a metropolitan statistical area. We 

defined a small hospital as a hospital with total Medicare drug charges of 

less than $10,000 during the first 6 months of 2003. 

To develop our survey of hospital purchase prices for radioactive sources,

we interviewed representatives from the Coalition for the Advancement of 

Brachytherapy (CAB). CAB reports that it represents manufacturers of 

90 percent of all brachytherapy sources and 100 percent of high-dose rate

brachytherapy sources in the United States. We also interviewed 

representatives of the American Brachytherapy Society, the American 

College of Radiation Oncology, the American Society for Therapeutic 

Radiology and Oncology, and the Association of Community Cancer 

Centers. We also interviewed representatives from six radioactive source 

manufacturers and seven hospitals and officials at the Centers for 

Medicare & Medicaid Services. In developing the survey, we obtained 

information from these associations and individual hospitals and pilot 

tested the survey with 5 hospitals prior to sending it to the entire sample of 

121 hospitals. As a result, we clarified certain protocols and procedures 

but did not substantially change the survey instrument. 

The survey instrument was five pages long with one page for each 

radioactive source, one page for rebate data, and one page defining the

terms in the previous pages. We collected data by reported purchase—that 

is, the purchase of a given quantity of a radioactive source at a particular 

price on a specific date. For iodine and palladium sources, we asked 

hospitals to provide the name of the manufacturer; the number of sources; 

the price per source; and certain characteristics of the sources purchased,

such as radioactivity level. For iridium, we asked hospitals to provide the 

Data Collection and 

Data Processing 

Page 20 GAO-06-635 Medicare Payment for Brachytherapy Sources
Appendix I: GAO Survey of Hospital Purchase

Prices for Iodine, Palladium, and Iridium 

Sources Used in Brachytherapy

name of the manufacturer, the number of treatments delivered,4 the source 

price, and the rebate eligibility. We also asked hospitals to report 

information on any rebates they received for these purchases.

We contracted with Westat to administer the survey. Westat began data 

collection on September 27, 2004. Key components of the data collection 

protocol were 

• 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; 

• 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. When our contractor received a brachytherapy survey 

from a hospital, it forwarded the survey to us for processing and analysis.

Of the 121 hospitals surveyed, 62 hospitals submitted usable data, resulting 

in an overall response rate of 51 percent. We considered iodine and 

palladium data usable if we were able to identify the price per source and 

the number of sources purchased. We considered iridium data usable if we 

were able to identify the price per source and the number of fractions 

provided with the source. Of the 62 hospitals, 52 hospitals submitted 

usable data for iodine and 40 hospitals submitted usable data for 

palladium, with some providing data for both radioactive sources. Sixtyfive percent of hospitals providing data for iodine and 63 percent of 

hospitals providing data for palladium were teaching hospitals. 

Our data were not sufficient to measure overall price differences by 

radioactivity level and other characteristics across each of the two types 

of sources. Specifically, hospitals did not indicate activity level for 

 4

The survey asked for number of fractions, which refers to the number of individual 

treatments provided. 

Page 21 GAO-06-635 Medicare Payment for Brachytherapy Sources
Appendix I: GAO Survey of Hospital Purchase

Prices for Iodine, Palladium, and Iridium 

Sources Used in Brachytherapy

37 percent of their reported purchases of iodine and 47 percent of their 

reported purchases of palladium. They did not indicate source 

configuration for 43 percent of their reported purchases of iodine and 

51 percent of their reported purchases of palladium.5

 Although we did not

receive enough data from hospitals to reliably identify any price 

differences by source characteristic, we instructed hospitals to report all 

their purchases during the survey period. Therefore, any price variation

due to source characteristic should be reflected in our data. 

We applied statistical trimming rules to eliminate outliers in the data. 

Accordingly, 2 percent of the reported purchases of iodine were trimmed, 

and none of the reported purchases of palladium were trimmed. The 

resulting data allowed us to calculate the mean and median price per 

source for iodine and palladium. 

Few hospitals reported receiving rebates. This is consistent with 

information we received from hospitals during interviews—that 

manufacturer rebates were not commonly provided for radioactive 

sources. Therefore, we did not factor rebates into our mean and median 

purchase prices. 

We determined that there were insufficient data to estimate the price of 

iridium. Of the 19 hospitals submitting iridium data, 11 either did not 

provide number of treatments, reported a questionable iridium source 

price, or both. Eight hospitals reported an iridium source price and the 

number of treatments from which a unit cost could be calculated. 

However, among these 8 hospitals there were inconsistencies in the data 

provided. Some hospitals reported the total price of their iridium 

contracts, which includes the cost of maintaining the iridium source, while 

other hospitals isolated the price of the iridium source within the 

contracts and reported that price. 

 5

Of the iodine and palladium purchases that contained information on activity level, about 

90 percent were identified as low activity. Of the iodine and palladium purchases that 

contained information on source configuration, 86 percent of the iodine purchases and 

95 percent of the palladium purchases were identified as loose. 

Page 22 GAO-06-635 Medicare Payment for Brachytherapy Sources
Appendix I: GAO Survey of Hospital Purchase

Prices for Iodine, Palladium, and Iridium 

Sources Used in Brachytherapy

This section describes the rationale and method for weighting the hospital

sample, calculating mean purchase price, calculating median purchase 

price, and calculating the associated coefficients of variation—or standard 

error reflecting sample design and weights. 

To estimate hospitals’ mean and median purchase prices for iodine and 

palladium sources, the sample hospitals’ purchase price data were 

weighted to make them representative of the sample frame of hospitals 

from which the sample was drawn. The less likely that a hospital was 

sampled, the larger its weight. For example, if each hospital had a 1 in 10

probability of being sampled, its sample weight was 10. That is, each 

hospital in the sample represents 10 hospitals in the sample frame. 

Consequently, if 5 hospitals in a sample bought a particular radioactive 

source, and the sample weight was 10, we estimate that 50 hospitals in the 

frame bought that radioactive source. In this report, we refer to sample 

weights as “hospital weights.” Our sample was stratified, so all hospitals in 

a particular stratum (for example, major teaching hospitals) had the same 

weight. Since in our sample the probability of a hospital’s being selected 

varied by stratum, hospitals in different strata had different weights. 

We calculated the hospital weight as

Wjh = jh

jh

R

N

where 

Estimates of Mean 

and Median Purchase

Prices for Iodine and 

Palladium Sources 

Weighting the Hospital 

Sample 

• Wjh denotes the hospital weight for the jth radioactive source in the hth

stratum; 

• Njh denotes the sample frame (the total number of hospitals) that 

according to Medicare outpatient claims, billed for the jth radioactive 

source in the hth stratum; and 

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

the jth radioactive source, 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 radioactive 

source. 

Page 23 GAO-06-635 Medicare Payment for Brachytherapy Sources
Appendix I: GAO Survey of Hospital Purchase

Prices for Iodine, Palladium, and Iridium 

Sources Used in Brachytherapy

To summarize hospitals’ purchase prices for iodine and palladium 

sources—reflecting purchases made, in many cases, at different prices and 

in different quantities—we calculated a mean purchase price for each 

radioactive source. This mean purchase price for a particular radioactive 

source is, in effect, a weighted mean. 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 mean purchase price. All calculations were done at the individual 

purchase level but reflect the hospital and purchase volume weighting 

variables. 

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

following equation: 

Yj

 = (Σh

h

h

n

N

Σi y*jhi) / (Σh

h

h

n

N

Σi x*jhi) 

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 for the j

th radioactive 

source listed on the kth invoice for the ith hospital in the hth stratum; and 

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

radioactive source listed on the kth invoice for the ith hospital in the hth

stratum. 

The equation estimates the mean purchase price of a radioactive source as

the ratio of the total amount purchased in dollars to the total number of 

units purchased. 

In addition to the mean purchase price, we calculated the estimated 

median of each radioactive source’s purchase price. To calculate this 

median, we first applied volume and hospital weights to each hospital’s 

purchases of a given radioactive source; 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}, 

Mean Purchase Price 

Using Volume and Hospital 

Weights

Median Purchase Price 

Using Volume and Hospital 

Weights

Page 24 GAO-06-635 Medicare Payment for Brachytherapy Sources
Appendix I: GAO Survey of Hospital Purchase

Prices for Iodine, Palladium, and Iridium 

Sources Used in Brachytherapy

where 

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

radioactive source; 

• yjhik denotes the unit purchase price of the jth radioactive source 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 yjhik

takes on a value greater than or equal to a particular value (in this case, 

0.5); 

• 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}. 

To assess the precision of our estimates of the mean purchase price, we

calculated coefficients of variation for the estimated mean purchase price. 

We also used the coefficients of variations as an indicator of price 

variability across hospitals. We estimated the mean purchase prices, 

median purchase prices, and the coefficients of variation for the means 

using specialized software for survey data analysis—SUDAAN®

.

6

Coefficients of Variation 

for Mean Purchase Price 

 6

B.V. Shah, B.B. Barnwell, and G.S. Bieler, SUDAAN: User’s Manual Release 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. 

Page 25 GAO-06-635 Medicare Payment for Brachytherapy Sources
Appendix II: Comments from the Centers for Appendix II: Comments from the Centers for Medicare & Medicaid Services 

Medicare & Medicaid Services 

Page 26 GAO-06-635 Medicare Payment for Brachytherapy Sources
Appendix II: Comments from the Centers for 

Medicare & Medicaid Services 

Page 27 GAO-06-635 Medicare Payment for Brachytherapy Sources
Appendix III: GAO Contact and Staff Acknowledgments 

Page 28 GAO-06-635

Appendix III: GAO Contact and Staff 

Acknowledgments 

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

In addition to the contact above, Maria Martino, Assistant Director; 

Shamonda Braithwaite; Melanie Anne Egorin; Hannah Fein; Nora Hoban; 

Dae Park; Dan Ries; Anna Theisen-Olson; Yorick F. Uzes; and Craig 

Winslow made contributions to this report. 

Medicare Payment for Brachytherapy Sources

Acknowledgments 

(290354) 
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