Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

 

BENEFICIARY UTILIZATION OF 

ALBUTEROL AND 

LEVALBUTEROL UNDER 

MEDICARE PART B 

 

Daniel R. Levinson 

Inspector General 

August 2009 

OEI-03-07-00440 
 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on significant 

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI 

reports also present practical recommendations for improving program operations. 

Office of Investigations 

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 

of fraud and misconduct related to HHS programs, operations, and beneficiaries. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

law enforcement authorities. The investigative efforts of OI often lead to criminal 

convictions, administrative sanctions, and/or civil monetary penalties. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities. 

The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 

audits with its own audit resources or by overseeing audit work done by others. Audits 

examine the performance of HHS programs and/or its grantees and contractors in carrying 

out their respective responsibilities and are intended to provide independent assessments of 

HHS programs and operations. These assessments help reduce waste, abuse, and 

mismanagement and promote economy and efficiency throughout HHS. 

Office of Audit Services 

Office of Inspector General 

http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 

amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: 
Δ EXECUTIVE SUMMARY 

OBJECTIVE

To determine whether shifts in utilization patterns for albuterol and 

levalbuterol from January 1, 2003, through December 31, 2007, 

coincided with changes in Medicare Part B payment and coding policy. 

BACKGROUND 

Two inhalation drugs, albuterol and levalbuterol, are bronchodilators 

used primarily to treat asthma and chronic obstructive pulmonary 

disease. Some clinical studies suggest that levalbuterol has a greater 

efficacy and fewer side effects than albuterol; however, other trials have 

failed to detect any clinical advantage. 

In 2003 and 2004, albuterol and levalbuterol were included in the same 

payment code and had the same Medicare payment amount, based on 

the median average wholesale price (AWP) of all versions of both drugs. 

Effective January 1, 2005, the Centers for Medicare & Medicaid 

Services (CMS) established separate payment codes and separate 

payment amounts for the drugs. At the same time, under the Medicare 

Prescription Drug, Improvement, and Modernization Act of 2003 

(MMA), Medicare reimbursement for an inhalation drug was set at 

106 percent of the drug’s average sales price (ASP). These changes 

increased the payment amount for levalbuterol from $0.39 to $1.28 per 

half milligram (mg), but decreased the payment amount for albuterol 

from $0.39 to $0.07 per mg in the first quarter of 2005 (for treatment 

purposes, 1 mg of albuterol is generally equivalent to 0.5 mg of 

levalbuterol). 

Effective July 1, 2007, CMS recombined albuterol and levalbuterol into 

a single code, resulting in a Medicare payment amount of $0.53 per mg 

of albuterol and per 0.5 mg of levalbuterol. As of April 1, 2008, CMS 

again reestablished separate payment codes and payment amounts for 

these two drugs ($0.28 per 0.5 mg of levalbuterol and $0.04 per mg of 

albuterol). 

We surveyed the suppliers and physicians for 312 beneficiaries who had 

albuterol and/or levalbuterol claims between January 1, 2003, and 

December 31, 2007 (response rate of 96 percent for suppliers and 

60 percent for physicians). Based on supplier responses, we calculated 

the percentage of beneficiaries who were changed to albuterol from 

levalbuterol and vice versa. To estimate the impact of changing 

between the two drugs on supplier reimbursement, we compared 

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EXECUTIVE SUMMARY 

Medicare’s quarterly payment amounts for albuterol and levalbuterol to 

the estimated supplier acquisition cost (based on manufacturer-reported 

ASP). Using physician responses, we also determined reasons why 

changes occurred. 

FINDINGS 

Shifts in utilization patterns for albuterol and levalbuterol coincided 

with changes in payment and coding. In 2003 and 2004, Medicare 

reimbursement favored albuterol (from a supplier’s reimbursement 

perspective) and nearly all beneficiaries (97 percent) received that drug. 

Specifically, in the fourth quarter of 2004, Medicare paid suppliers an 

average of almost five times more than their cost for albuterol, but 

significantly less than their cost for levalbuterol. 

As a result of payment and coding changes that took effect on 

January 1, 2005, reimbursement became much more favorable for 

levalbuterol. We estimate that during the initial quarter after the 

coding and reimbursement change, suppliers were being reimbursed 

roughly at cost for albuterol, but 68 percent above cost for levalbuterol. 

Twenty-five percent of beneficiaries who were on albuterol in 2004 were 

changed to levalbuterol between January 1, 2005, and June 30, 2007. 

As of July 1, 2007, CMS calculated one payment amount for albuterol 

and levalbuterol, which was based on the volume-weighted ASP for both 

drugs. As a result, suppliers were being reimbursed at almost 10 times 

their cost for albuterol, but roughly half their cost for levalbuterol. 

After this payment and coding change, two-thirds of the beneficiaries in 

our sample who received levalbuterol as of June 2007 were changed to 

albuterol. 

Despite the move to ASP, average per-beneficiary spending on 

albuterol and levalbuterol actually increased above pre-MMA levels. 

In the first half of 2003, because almost all of the beneficiaries 

(97 percent) were receiving albuterol rather than levalbuterol, the 

former accounted for the vast majority of spending during this time. 

The change to an ASP-based reimbursement system in January 2005 

lowered the Medicare payment amount for albuterol by 83 percent. 

However, because utilization began slowly shifting to levalbuterol, 

overall per-beneficiary spending did not decline proportionally. 

As the number of beneficiaries shifting to levalbuterol increased, so did 

the average spending per beneficiary. Between January 1 and 

June 30, 2007, when more than a quarter of beneficiaries were receiving 

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EXECUTIVE SUMMARY 

levalbuterol, Medicare paid an average of $600 per beneficiary for both 

albuterol and levalbuterol, or $94 more per beneficiary than in the first 

half of 2003. 

Physicians in our sample typically cited clinical reasons for 

changing beneficiaries from albuterol to levalbuterol, but financial 

reasons for changing in the opposite direction. For 64 percent of 

beneficiaries in our sample who were changed from albuterol to 

levalbuterol between January 1, 2005, and June 30, 2007 (i.e., when 

levalbuterol became the more favorable drug from a reimbursement 

perspective), physicians reported that the changes occurred because of 

clinical reasons. During this same period, physicians for just 8 percent of 

beneficiaries in our sample cited financial reasons for the change to 

levalbuterol. 

However, for 58 percent of beneficiaries in our sample who changed from 

levalbuterol to albuterol after July 1, 2007 (i.e., when albuterol became 

the more favorable drug from a reimbursement perspective), physicians 

reported that the prescriptions were changed because of financial 

concerns. 

CONCLUSION 

Between January 2005 and June 2007, when Medicare reimbursement 

shifted to favor the more expensive levalbuterol, one-quarter of the 

beneficiaries were changed from albuterol to the costlier product. 

Although a number of physicians cited clinical reasons for changing 

prescriptions, reimbursement considerations may have also played a 

role—especially given that some changes appear to have been completed 

by the suppliers without the physicians’ knowledge and that the 

majority of the beneficiaries remained on albuterol despite the large 

differences in payment levels. 

As a result of the July 1, 2007, payment and coding changes, most 

suppliers may have been losing money by providing levalbuterol, and at 

that time, many beneficiaries were changed back to albuterol, even 

though in some cases (according to physicians) albuterol had initially 

caused side effects. At this same time, however, the payment situation 

not only created a disincentive for levalbuterol, but also caused 

albuterol to be reimbursed at more than 10 times its cost. 

As of April 1, 2008, CMS implemented a provision of the Medicare, 

Medicaid, and SCHIP Extension Act of 2007 that once again lowered 

albuterol reimbursement so that payment more accurately reflected 

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EXECUTIVE SUMMARY 

acquisition cost. However, the same provision prevented CMS from 

addressing any underpayment for levalbuterol. 

When Congress and CMS make coding and reimbursement decisions, it 

is important they take into consideration that the new policies may 

affect what drug a beneficiary is prescribed. In some cases, this may 

limit access to a potentially more effective product; in others, utilization 

could be driven toward a more expensive product that offers no clinical 

advantage. In future studies, the Office of Inspector General will 

continue to monitor the utilization of and payment for these and other 

drugs, with the goal of identifying inappropriate Medicare payments. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

In its comments on the draft report, CMS stated that the agency is 

aware of the impact that changes in payment methodologies can have 

on access to prescription drugs. However, CMS noted that in the case of 

albuterol and levalbuterol, changes to coding and pricing were not 

discretionary but instead were made to comply with legislative 

mandates. CMS stated that the agency has monitored and will continue 

to monitor spending and utilization for both drugs to help ensure price 

stability and access while fulfilling legal mandates. 

In its technical comments, CMS noted two areas for further OIG 

investigation: (1) cases in which physicians were reportedly unaware of 

the medication changes; and (2) the clinical rationales for changing 

medications, including whether reports of clinical complications truly 

reflect actual complications. OIG will review cases in which 

prescription changes occurred without the physicians’ knowledge to 

determine whether further investigation is warranted; however, OIG 

does not believe further investigation on physician rationales for 

prescription changes is necessary. We did not make any changes to the 

report based on CMS’s comments. 
Δ TABLE OF CONTENTS 

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

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

FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 

 Shifts in utilization patterns for albuterol and levalbuterol 

 coincided with changes in payment and coding . . . . . . . . . . . . . . . 13 

 Despite the move to ASP, average per-beneficiary spending on 

 albuterol and levalbuterol actually increased above pre-MMA 

 levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 

 Physicians in our sample typically cited clinical reasons for 

 changing beneficiaries from albuterol to levalbuterol, but 

 financial reasons for changing in the opposite direction . . . . . . . . 18 

 

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 

 Agency Comments and Office of Inspector General 

 Response . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 

A: Confidence Intervals for Percentages . . . . . . . . . . . . . . . . . . . . 24 

 B: Average Monthly Difference Between 

 Reimbursement and Cost for Albuterol and Levalbuterol. . . . . . . 25 

 

 C: Agency Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 

 

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
 

Δ INTRODUCTION 

OBJECTIVE 

To determine whether shifts in utilization patterns for albuterol and 

levalbuterol from January 1, 2003, through December 31, 2007, 

coincided with changes in Medicare Part B payment and coding policy. 

BACKGROUND 

Medicare Part B Coverage of Inhalation Drugs 

Although Medicare Part D covers most outpatient prescription drugs, 

inhalation drugs are covered under Part B when administered in the 

home through a nebulizer.1 A nebulizer is a type of durable medical 

equipment (DME) item that is provided to Medicare beneficiaries by 

DME suppliers. DME suppliers also provide inhalation drugs, which 

are covered under Part B as a supply necessary for the nebulizer to 

perform its function. Physicians typically prescribe inhalation drugs to 

treat and prevent symptoms associated with lung diseases, such as 

asthma and chronic obstructive pulmonary disorder. Long-term use is 

often required because inhalation drugs treat incurable and chronic 

diseases. 

Two inhalation drugs, albuterol and levalbuterol, are bronchodilators 

used primarily to treat asthma and chronic obstructive pulmonary 

disease. The drugs essentially have the same chemical composition, 

except that levalbuterol contains only one of the two albuterol isomers. 

Some clinical studies suggest that because it lacks this isomer, 

levalbuterol has greater efficacy and produces fewer side effects than 

albuterol. However, other trials have failed to detect any clinical 

advantage of levalbuterol over albuterol.2 Levalbuterol (brand name 

Xopenex) is a single-source drug manufactured by Sepracor and has no 

1 Medicare Part D covers inhalation drugs that (1) are not administered through a 

nebulizer, such as those delivered through a metered-dose inhaler; or (2) are administered 

through a nebulizer, but are not used in a patient’s home (e.g., used in a hospital or skilled 

nursing facility by a beneficiary who does not have Part A coverage, who has exhausted his 

or her Part A coverage, or whose stay is noncovered). Hereinafter, all references to 

inhalation drugs in this report refer to inhalation drugs covered under Part B, 

i.e., administered in the home through a nebulizer. 

2 National Heart, Lung, and Blood Institute, National Asthma Education and Prevention 

Program, “Expert Panel Report 3: Guidelines for the Diagnosis and Management of 

Asthma.” Published on August 28, 2007. Available online at 

http://www.nhlbi.nih.gov/guidelines/asthma/asthgdln.pdf. Accessed on January 4, 2008. 

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INTRODUCTION 

available generic versions. Albuterol is a multiple-source drug with 

generic versions available from numerous manufacturers. 

2 

ed on 

 

The Centers for Medicare & Medicaid Services (CMS) contracts with 

four geographically defined DME Medicare Administrative Contractors 

(MAC) to process and pay for DME claims, including those for 

inhalation drugs.3 For Medicare to pay for an inhalation drug, the 

DME supplier must have a signed prescription from the treating 

physician and the physician’s identification number must be list

the submitted claim form. Generally, Medicare will pay 80 percent of 

the authorized reimbursement amount to the DME supplier providing 

the inhalation drug; the beneficiary is responsible for the remaining 

20 percent in the form of coinsurance. 

When a supplier submits a claim for reimbursement, the drug dispensed 

is identified on the claim using codes established by CMS as part of the 

Healthcare Common Procedure Coding System (HCPCS). The HCPCS 

codes provide a standardized system for describing the specific items 

and services provided in the delivery of health care. In the case of 

prescription drugs, each HCPCS code defines the drug name and dosage 

size but does not specify manufacturer or package size information.4 

Medicare Part B Payment Methodology for Inhalation Drugs 

Medicare’s payment methodology for inhalation drugs administered 

through a nebulizer has undergone significant changes over the past 

5 years, with the intent of making Medicare payments more reflective 

of acquisition costs. Pursuant to section 1842(o) of the Social Security 

Act (the Act), as amended by section 4556 of the Balanced Budget Act 

of 1997, P.L. No. 105-33, payment for inhalation drugs furnished on or 

after January 1, 1998, was set at 95 percent of the drug’s average 

wholesale price (AWP). However, reports by the Government 

3 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 

P.L. No. 108-173 (MMA), included provisions that required CMS to implement competitive 

procedures to replace DME regional carriers with DME MACs. In 2006, CMS competitively 

selected four DME MACs and began to transition claims administration activities from 

DME regional carriers to DME MACs. As of June 1, 2007, the four DME MACs awarded 

contracts were the National Heritage Insurance Company for Jurisdiction A; AdminaStar 

Federal, Inc., for Jurisdiction B; CIGNA Government Service, LLC, for Jurisdiction C; and 

Noridian Administrative Services for Jurisdiction D. 

4 Typically, HCPCS codes correspond to a single drug distributed by one or more 

manufacturers. However, in some cases, HCPCS codes may represent several different 

drugs. 

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INTRODUCTION 

Accountability Office (GAO)5 and the Office of Inspector General 

(OIG) consistently demonstrated that suppliers could obtain drugs 

well below the Medicare payment amount under the AWP method. 

OIG issued several reports that focused specifically on the 

high-volume inhalation drug albuterol.6 Based in part on this work, 

sections 303(b)(2) and 305(a) of the MMA, P.L. No. 108-173, lowered 

the Medicare payment to 80 percent of AWP for some of the most 

commonly dispensed inhalation drugs, such as albuterol, in 2004.7 

Other inhalation drugs were reimbursed at 85 percent of AWP.8 

For 2005 and subsequent years, sections 303(c)(1) and 305(a) of the 

MMA changed the basis of payment for inhalation drugs (and most 

other Part B prescription drugs as well) to 106 percent of the 

volume-weighted average sales price (ASP).9 Section 1847A(c) of the 

Act, as added by the MMA, generally defines ASP as a manufacturer’s 

sales of a drug to all purchasers in the United States in a calendar 

quarter divided by the total number of units of the drug sold by the 

manufacturer in that same quarter. CMS calculates a volume-weighted 

ASP for each covered HCPCS code by using an equation that involves 

manufacturer-reported ASP data, the volume of sales reported by the 

manufacturers, and the number of billing units in the national drug 

code determined by CMS. 

Dispensing fees. In addition to paying the cost of the drug itself, 

Medicare also pays a separate dispensing fee for inhalation drugs under 

the DME benefit. Dispensing fees are intended to cover any reasonable 

pharmacy costs associated with distributing the drug, but do not include 

administrative fees. Prior to 2005, Medicare paid a monthly 

$5 fee to the supplier each time an inhalation drug was dispensed.10 In 

2005, Medicare raised the dispensing fee to $57 for a 30-day supply or 

$80 for a 90-day supply of inhalation drugs.11 According to CMS, 

5 GAO, “Payments for Covered Outpatient Drugs Exceed Providers’ Cost,” GAO-01-1118 

(September 21, 2001). 

6 For example, see “Excessive Medicare Reimbursement for Albuterol” 

(OEI-03-01-00410), March 2002. 

7 Sections 1842(o)(1)(G)(i) and 1842(o)(4)(B), (C), and (D) of the Act. 

8 Section 1842(o)(4)(A) of the Act. 

9 Sections 1842(o)(1)(G)(ii) and 1847A of the Act. 

10 CMS Press Release, “Appropriate Payments, High-Quality Care for Beneficiaries 

Using Inhalation Drugs.” November 2, 2005. 

11 69 Fed. Reg. 66236, 66425 (Nov. 15, 2004) (codifying earlier version of 42 CFR 

§ 414.1001(c) and (d)). 

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INTRODUCTION 

because of the “overall reduction in payment for inhalation drugs,” the 

dispensing fee was increased because the agency was “concerned about 

beneficiary access to these drugs.”12 Effective January 1, 2006, 

Medicare began paying $57 for the first time a beneficiary was 

dispensed a 30-day supply of an inhalation drug and $33 for each 

subsequent month, or $66 for a 90-day supply.13 As of December 1, 

2008, dispensing fees for inhalation drugs were still paid at this same 

rate. 

Medicare Payment and Coding for Albuterol and Levalbuterol 

January 1, 2003–December 31, 2004. Medicare payment and coding for 

albuterol and levalbuterol have undergone several changes since 2003 

(see Table 1 on page 6 for details).14 In 2003 and 2004, albuterol and 

levalbuterol were both paid for under the same HCPCS code 

(J7619).15 At that time, the payment amount for this code was based 

on the median AWP of all versions of both drugs. In 2003, this 

resulted in a Medicare payment amount of $0.47 per milligram (mg) 

of albuterol or per 0.5 mg of levalbuterol (despite levalbuterol’s 

much-higher AWP).16 In 2004, Medicare paid $0.39 for these dosages 

of both drugs. 

January 1, 2005–June 30, 2007. Effective January 1, 2005, CMS 

established separate HCPCS codes and separate payment amounts 

for albuterol (J7613) and levalbuterol (J7614).17 At the same time, 

CMS also implemented the ASP methodology as mandated by the 

MMA. As a result, in the first quarter of 2005, the Medicare payment 

amount for albuterol decreased to $0.07 per mg, while the Medicare 

payment amount for levalbuterol increased to $1.28 per 0.5 mg. 

Between January 1, 2005, and June 30, 2007, Medicare payment 

amounts varied slightly from quarter to quarter. However, Medicare 

12 69 Fed. Reg. 47488, 47549 (Aug. 5, 2004). 

13 42 CFR § 414.1001(c) and (d). 

14 For the purpose of this review, albuterol and levalbuterol refer to unit-dose forms of 

these drugs; this review does not include the concentrated forms. 

15 68 Fed. Reg. 50428, 50450 (Aug. 20, 2003). 

16 For treatment purposes, 1 mg of albuterol is generally equivalent to 0.5 mg of 

levalbuterol. 

17CMS, “January 2005 Payment Allowance Limits for Medicare Part B Drugs.” 

Downloaded from a link entitled “Jan 2005 ASP Pricing File and ASP NOC Pricing File.” 

Available online at 

http://www.cms.hhs.gov/McrPartBDrugAvgSalesPrice/02a_2005aspfiles.asp#TopOfPage. 

Accessed on March 30, 2009. 

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INTRODUCTION 

continued to pay for albuterol and levalbuterol separately during this 

time. 

July 1, 2007–March 31, 2008. CMS reestablished a single HCPCS code 

(Q4094) for albuterol and levalbuterol effective July 1, 2007, as 

described in a May 2007 coding announcement.18 Thus, as of 

July 1, 2007, the Medicare payment amount for the code was based on 

the volume-weighted ASP for both albuterol and levalbuterol. 

According to the coding announcement, this change was made to 

ensure that payments reflected the “grandfathering” provision of 

section 1847A of the Act, which states: 

With respect to single source drugs or biologicals that are 

within the same billing and payment code as of October 1, 

2003, the Secretary shall treat such single source drugs or 

biologicals as if the single source drugs or biologicals were 

multiple source drugs.19 

This coding change had a substantial impact on the Medicare 

payment amounts for both drugs. The Medicare payment amount for 

albuterol in the third quarter of 2007 was about 6.5 times higher than 

the payment amount in the second quarter ($0.08 per mg compared to 

$0.53 per mg). However, the payment amount for levalbuterol had 

decreased by almost two-thirds (from $1.54 per 0.5 mg to $0.53 per 

0.5 mg). 

April 1, 2008–Present. Section 112(b)(2) of the Medicare, Medicaid, and 

SCHIP Extension Act of 2007 (Extension Act) established a special 

rule that addressed the application of the “grandfathering” provision 

of the Act.20 This provision of the Extension Act provides flexibility in 

payment determinations designed to yield the lowest payment 

amount for certain drugs, including albuterol and levalbuterol. More 

specifically, effective April 1, 2008, this provision allows payment 

amounts for single-source drugs that are treated as multiple-source 

drugs under the grandfathering clause to be based on the lower of 

(1) the payment amount determined when the grandfathering clause 

18 CMS Coding Announcement. Available online at 

http://www.cms.hhs.gov/MedHCPCSGenInfo/Downloads/051807_coding_annoucement.pdf. 

Accessed on August 25, 2008. 

19 Section 1847A(c)(6)(C)(ii) of the Act. CMS’s change affected Medicare payment for 

several other drugs as well. We did not examine the potential impact on Medicare 

expenditures for any drugs other than albuterol and levalbuterol. 

20 Section 1847A(c)(6)(C)(ii) of the Act. 

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INTRODUCTION 

is applied or (2) the payment amount when the grandfathering clause 

is not applied.21

Effective April 1, 2008, CMS implemented these provisions of the 

Extension Act by establishing separate HCPCS codes and payment 

amounts for albuterol and levalbuterol. By doing so, CMS set the 

payment amount for albuterol in the second quarter of 2008 at $0.04 

per mg and for levalbuterol at $0.28 per 0.5 mg. This is a 92-percent 

decrease in the payment amount for albuterol and a 47-percent 

decrease for levalbuterol. A summary of the different payment and 

coding methodologies and their impact on Medicare payment amounts 

is presented in Table 1. 

 Table 1: Medicare Payment Amounts for Albuterol and Levalbuterol

95% of 

AWP 

80% of 

AWP 

106% of ASP 

2003 2004 2005 

(1st Qtr) 

2006 

(1st Qtr) 

2007 

 (2nd Qtr) 

2007 

(3rd Qtr) 

2008 

(2nd Qtr) 

 Combined Payment Codes 

Albuterol (unit dose), 1 mg 

Levalbuterol (unit dose), 0.5 mg 

$0.47 $0.39 - - - $0.53 - 

Separate Payment Codes 

Albuterol (unit dose), 1 mg - $0.07 $0.06 $0.08 - $0.04 

Levalbuterol (unit dose), 0.5 mg - $1.28 $1.34 $1.54 - $0.28 

 Source: Quarterly Medicare payment amounts from CMS’s Web site. 

Medicare Spending for Albuterol and Levalbuterol 

In 2004, albuterol and levalbuterol accounted for 31 percent 

($404 million) of the $1.3 billion Medicare spent on inhalation drugs. 

Following the MMA-mandated change to an ASP-based reimbursement 

methodology, spending on albuterol and levalbuterol dropped to 

$234 million in 2005 (30 percent of the $784 million spent on all 

inhalation drugs). By 2007, total Medicare spending for albuterol and 

levalbuterol had increased to $385 million, an amount approaching the 

pre-ASP level. These drugs accounted for nearly 40 percent of the 

$1 billion Medicare spent on inhalation drugs.22 See Table 2 for details 

21 Section 1847A(b)(7)(A) of the Act. 

22 Medicare Part B Extract and Summary System (BESS) (98 percent of claims reported). 

Accessed on June 17, 2008. 

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INTRODUCTION 

on total Medicare payments for albuterol and levalbuterol from 2003 

through 2007. 

Table 2: Total Medicare Spending on Albuterol an

95% of 

d Lev

AWP 

albuter

80% of 

ol 

AWP 106% of ASP 

2003 

Combined Payment Codes

Albuterol (unit dose), 1 mg; levalbuterol (unit dose), $484 million 

0.5 mg

Separate Payment Codes

Albuterol (unit dose), 1 mg - 

Levalbuterol (unit dose), 0.5 mg - 

Total Medicare spending on albuterol and $484 million levalbuterol 

 *Albuterol and levalbuterol had separate payment amounts in the first half of 2007 and 

 Source: BESS 2003–2006 data accessed on June 11, 2007; BESS 2007 data accessed on

2004 

$404 million 

- 

- 

$404 million 

combined payment am

 July 15, 2008. 

2005 

- 

$57 million 

$177 million 

$234 million 

ounts for the second half. 

$39 million 

$334 million 

$373 million 

2006 2007* 

- $162 million 

$17 million 

$206 million 

$385 million 

METHODOLOGY 

Sample Selection 

Our sample was limited to beneficiaries who had received albuterol or 

levalbuterol continuously from the first half of 2003 through the fourth 

quarter of 2007, provided by the same supplier and prescribed by the 

same physician. It was also limited to suppliers and physicians that 

were not under current investigation. Therefore, our sample may be 

projected only to beneficiaries who meet these criteria. 

We obtained 100 percent of Medicare DME claims for albuterol and 

levalbuterol from CMS’s National Claims History file for 2003 through 

2007. Using these data, we first identified the beneficiaries with claims 

for albuterol/levalbuterol (HCPCS code Q4094) in the fourth quarter of 

2007 (319,849 beneficiaries). Among this group, we identified all of the 

beneficiaries who had at least one albuterol or levalbuterol claim in both 

the first and second halves of each year from 2003 through 2007 

(36,585 beneficiaries). 

We further limited our sample to include only the beneficiaries who, 

according to the claims data, had not changed their prescribing 

physicians and suppliers during this time. Using the group of 

beneficiaries with albuterol and levalbuterol claims in each half of 2003 

through 2007, we matched the physician’s unique physician 

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INTRODUCTION 

identification number (UPIN) listed on every claim in the first half of 

2007 to the UPIN listed on every albuterol and levalbuterol claim since 

January 2003. We then matched the supplier’s provider identification 

number to each provider identification number listed on each claim 

during this time. We selected only those beneficiaries whose claims 

always listed the same UPIN and provider identification number 

between 2003 and 2007. In total, 7,426 beneficiaries met these criteria 

(2 percent of the 319,849 beneficiaries with albuterol/levalbuterol claims 

in the fourth quarter of 2007). 

We randomly selected a sample of 400 beneficiaries from the group of 

7,426 beneficiaries. We removed from our sample beneficiaries who 

received drugs from the six suppliers that were under investigation.23 

Our final sample of 312 beneficiaries were prescribed inhalation drugs 

by 304 physicians and provided inhalation drugs by 154 suppliers. 

Data Collection 

Because the HCPCS codes used prior to 2005 and in the second half of 

2007 did not enable us to differentiate between albuterol and 

levalbuterol from the claims data alone, we contacted the supplier and 

physician for each beneficiary. We used the provider and physician 

identification numbers listed on the claim and cross-referenced these 

to address databases (i.e., National Supplier Clearinghouse and UPIN 

Registry) to contact each beneficiary’s supplier and prescribing 

physician. 

Supplier requests. For each beneficiary, we requested that the supplier 

complete a dispensing table to show the drug dispensed, the dates 

dispensed, the drug’s strength and volume, and the number of vials 

provided. We also requested copies of the beneficiary’s original 

physician-signed prescriptions for albuterol and/or levalbuterol. If a 

beneficiary changed between the two drugs from January 1, 2005, 

through December 31, 2007, we asked the supplier to describe what 

prompted each change. 

At the end of June 2008, we sent requests to the 154 suppliers 

associated with the 312 beneficiaries. As of September 2008, we had 

23 These six suppliers provided inhalation drugs to 88 of the 400 beneficiaries. 

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INTRODUCTION 

received responses from 143 suppliers for 300 beneficiaries.24 25 Two 

beneficiaries were not included in any of the analyses because the 

supplier reported that they were on compounded versions of the drugs 

the entire time, yielding a total possible sample size of 298 (response 

rate of 96 percent).26 

Physician requests. For each beneficiary in our sample, we asked his or 

her physician to provide the beneficiary’s albuterol and levalbuterol 

prescription history from January 1, 2003, through December 31, 

2007. By doing so, we were able to determine whether and how often 

the beneficiary changed between albuterol and levalbuterol. We 

asked each physician to report the reason for (1) changes from 

albuterol to levalbuterol on or after January 1, 2005; and (2) changes 

from levalbuterol to albuterol on or after July 1, 2007. For these 

changes, we projected the percentages to our population. 

We sent requests to the 304 physicians who prescribed albuterol or 

levalbuterol to the 312 beneficiaries at the end of June 2008. As of 

September 2008, we had received responses from 181 physicians for 

186 beneficiaries that could be included in the analysis of physician 

responses (response rate of 60 percent). In addition, we received 

physician responses for 46 beneficiaries who could not be included in 

the analysis because (1) the physician reported prescribing both drugs 

to the beneficiary at the same time, (2) the physician stated that 

neither of the drugs was prescribed for the beneficiary during the 

requested timeframe, (3) the physician reported that he or she had 

never seen the beneficiary (at least not in the last 5 years), or (4) the 

physician did not have records identifying the drug and/or dates 

prescribed.27 

24 Six suppliers returned their beneficiary surveys after the deadline and after the 

analyses were completed. Therefore, these were not included in the analyses. One supplier 

for one beneficiary reported that it never provided either drug to the beneficiary. There 

were an additional four suppliers (accounting for five beneficiaries) that we referred for 

investigation because their surveys were returned to us marked undeliverable. 

25 We sent up to two follow-up surveys and made several attempts to contact 

nonresponding suppliers. 

26 Pharmacy compounding is a practice in which pharmacists combine, mix, or alter 

ingredients, such as albuterol and ipratropium bromide, to create unique medications that 

meet specific needs of individual patients. 

27 For cases in which physicians responded that they prescribed neither drug or did not 

treat the beneficiaries, we will provide our Office of Investigations (OI) with information 

about the supplier that billed for the drug. 

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INTRODUCTION 

Among the nonresponding physicians, 72 physicians associated with 

73 beneficiaries (23 percent) did not return completed surveys and 

had no contact with our office.28 An additional four physicians 

declined to respond to our request, two addresses could not be found, 

and one doctor had died and the office closed over a year ago. 

Data Analysis 

Because the suppliers dispensed the drugs to the beneficiaries, we 

used their responses to determine the percentage of beneficiaries with 

drug utilization changes. We calculated the percentage of 

beneficiaries who were (1) on albuterol in 2004 and then changed to 

levalbuterol between January 1, 2005, and July 1, 2007 (following the 

change to ASP); and (2) on levalbuterol as of June 2007 (before the 

payment coding change) and then changed to albuterol in the second 

half of 2007.29 30 We also calculated the percentage of beneficiaries 

who were changed to the less profitable drug during each of these 

periods. 

Once we determined the number of beneficiaries who were changed 

from one drug to the other, we compared the prescription reports from 

those beneficiaries’ suppliers with those of the corresponding 

physicians. Using the physician responses, we determined what 

prompted the physicians to change the beneficiaries from albuterol to 

levalbuterol between January 1, 2005, and June 30, 2007, or from 

levalbuterol to albuterol in the second half of 2007. Because of a low 

physician response rate and a small sample size, we did not make 

projections based on physician responses. 

10 

Additionally, for the beneficiaries who were changed to a more 

profitable drug (i.e., changed to levalbuterol between 

January 1, 2005, and June 30, 2007; or changed to albuterol after 

June 30, 2007), we compared physician and supplier responses. We 

received both physician and supplier responses for 50 of the 

28 We sent up to two follow-up surveys to physicians who had not responded to the 

original request by the due date. 

29 We analyzed only changes between albuterol and levalbuterol; supplier and physician 

responses indicating changes between compounded drugs (e.g., albuterol/ipratropium 

bromide) were excluded from each analysis. 

30 We projected the results to the population for the first change (i.e., from albuterol to 

levalbuterol following the change to ASP). However, because we selected a subset of 

beneficiaries for the second change (i.e., beneficiaries on levalbuterol as of June 2007 who 

were changed to albuterol in the second half of 2007), our sample size for this analysis was 

reduced to 63 beneficiaries. Therefore, we were unable to reliably project this percentage. 

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INTRODUCTION 

78 beneficiaries with this type of change. We calculated the number 

of beneficiaries whose suppliers reported changes that the physicians 

did not report.31 

To estimate the impact of changing between the two drugs on supplier 

reimbursement, we compared Medicare’s quarterly payments for 

albuterol and levalbuterol to the estimated supplier acquisition costs. 

We based our estimate of acquisition costs in each quarter on the 

manufacturer-reported ASPs reflecting sales during that same 

quarter. We multiplied the difference between supplier acquisition 

cost and average reimbursement by 90 vials to approximate the net 

difference per month.32 33 Using claims data in CMS’s National 

Claims History file and information from supplier responses, we also 

determined the average spending per beneficiary in our sample on 

albuterol and levalbuterol in the first half of each year from 2003 to 

2007.34 

Limitations 

We limited our sample to include beneficiaries with albuterol or 

levalbuterol claims during the first and second half of each year 

between January 1, 2003, and December 31, 2007, who had the same 

physician and the same supplier for all 5 years. Because beneficiaries 

may change their doctors or suppliers within a 5-year period, our 

sample may not be representative of all beneficiaries who were 

prescribed inhalation drugs. 

By selecting a sample of beneficiaries who each had only one supplier 

and one physician, we may also have eliminated potentially fraudulent 

DME suppliers. As demonstrated in a prior OIG report, beneficiaries in 

11 

31 As previously noted, this analysis includes physician responses. We did not project 

these figures because of a low sample size and a low physician response rate. 

32 Prescribing information on the Food and Drug Administration’s Web site states that 

patients may benefit from using 2.5 mg of albuterol or 1.25 mg of levalbuterol three times a 

day, which would be approximately 90 vials per month. 

33 We used the most common dosages per vial reported by suppliers for each drug: 

2.5 mg/3 milliliter (mL) of albuterol and 1.25 mg/3 mL of levalbuterol. Levalbuterol is 

available in three doses: 0.31 mg, 0.63 mg, and 1.25 mg. The manufacturer prices each vial 

the same, regardless of the dose it contains. However, CMS bases the reimbursement on 

the dose in each vial (i.e., per mg). This creates a potential disconnection between pricing 

and reimbursement and may produce an incentive for manufacturers to purchase the 

highest dosage of 1.25 mg/3 mL. 

34 Because we could not differentiate between albuterol and levalbuterol claims in 2003 

and 2004, to calculate the average albuterol and levalbuterol spending, we used the 

information from the supplier responses to identify the drug listed on the claim. 

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INTRODUCTION 

South Florida, a high-risk area for fraudulent and excessive DME 

billings, have a much higher rate of multiple suppliers per beneficiary 

than anywhere else. Because we removed the beneficiaries with 

multiple suppliers, our percentage of beneficiaries who were changed to 

a more profitable drug and average spending calculations may be lower 

than if the beneficiaries associated with these suppliers were included. 

Our analysis of supplier reimbursement includes only Medicare 

payments for the ingredient cost portion. We did not analyze the impact 

of dispensing fees (which were the same for both drugs) in our review. 

In addition, we did not address clinical issues associated with either 

drug. 

Standards 

This study was conducted in accordance with the “Quality Standards for 

Inspections” approved by the Council of the Inspectors General on 

Integrity and Efficiency. 

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FINDINGS Δ FINDINGS 

Shifts in utilization patterns for albuterol and 

levalbuterol coincided with changes in payment 

and coding 

Medicare payment and coding for 

albuterol and levalbuterol have 

undergone several changes since 

2003. Between 2003 and 2007, 

utilization patterns for both drugs among beneficiaries fluctuated 

noticeably—almost always shifting toward the drug with the more 

profitable cost and reimbursement difference (i.e., more favorable for 

the supplier from a reimbursement perspective). Figure 1 on page 16 

illustrates the changes in utilization among beneficiaries from 2003 to 

2007. 

In 2003 and 2004, Medicare reimbursement favored albuterol and nearly all 

beneficiaries received that drug 

Albuterol and levalbuterol were both included in the same HCPCS code 

and paid by Medicare at the same AWP-based rate in 2003 and 2004. 

However, the actual acquisition cost of albuterol was much lower than 

the actual acquisition cost of levalbuterol.35 We estimate that in the 

fourth quarter of 2004, suppliers could purchase a typical monthly 

supply (90 vials) of albuterol for around $19, while a similar supply of 

levalbuterol cost $164. Medicare reimbursed suppliers approximately 

$88 for either drug in the fourth quarter of 2004, meaning that 

suppliers were reimbursed almost five times their cost for albuterol, but 

substantially less than their cost for levalbuterol (almost 50 percent 

below their average acquisition cost for a month’s supply). 

Ninety-seven percent of beneficiaries received albuterol in the fourth 

quarter of 2004, but only 3 percent received levalbuterol (based on 

supplier responses). These figures were relatively constant during the 

entire period from January 1, 2003, through December 31, 2004. Refer 

to Appendix A for the percentages and confidence intervals cited in this 

report. 

Between January 2005 and June 2007, Medicare reimbursement favored 

levalbuterol; during that period, one-quarter of beneficiaries who were using 

albuterol were changed to levalbuterol 

Effective January 1, 2005, CMS established separate HCPCS codes 

and separate payment amounts for albuterol and levalbuterol. At the 

same time, CMS implemented the ASP methodology as mandated by 

35 Average acquisition cost was based on manufacturer-reported ASP data from the 

quarter under review. 

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FINDINGS 

the MMA. As a result, instead of favoring albuterol, reimbursement 

became much more favorable for levalbuterol. 

During the initial quarter after the 2005 coding and reimbursement 

change, Medicare’s payment for the typical monthly supply of albuterol 

fell from $88 to $15, while payment for levalbuterol jumped from $88 to 

$288. According to ASP data, suppliers paid, on average, $14 for a 

monthly supply of albuterol and $171 for levalbuterol. In other words, 

suppliers were now being reimbursed roughly at cost for albuterol, but 

68 percent above cost for levalbuterol. Medicare reimbursement 

continued to greatly favor levalbuterol between January 2005 and July 

2007, even though actual differences between Medicare payment and 

acquisition costs for the two drugs shifted slightly (see Table 3). 

Table 3: Average Reimbursement and Cost Difference for a Monthly Supply of Albuterol and 

 Levalbuterol (Fourth Quarter 2004 and Second Quarter 2007)

 

Timeframe 

Supplier 

Acquisition 

Cost for 

Albuterol 

Medicare 

Reimbursement 

for Albuterol 

Albuterol 

Difference 

Supplier 

Acquisition 

Cost for 

Levalbuterol 

Medicare 

Reimbursement 

for Levalbuterol 

Levalbuterol 

Difference 

4Q 2004 $19.10 $87.75 $68.65 $164.25 $87.75 -$76.50 

1Q 2005 $14.01 $14.63 $0.62 $171.00 $287.55 $116.55 

1Q 2006 $17.41 $13.50 -$3.91 $207.00 $301.05 $94.05 

2Q 2007 $11.25 $18.23 $6.98 $211.05 $345.38 $134.33 

Note: All figures are average monthly amounts in each quarter for 225 mg of albuterol and 112.5 mg of levalbuterol. 

Refer to Appendix B for the difference between reimbursement and cost for all quarters between October 1, 2004, and December 31, 2007. 

Source: Medicare payment amounts from CMS’s Web site; OIG analysis of supplier acquisition data. 

Coinciding with the payment and coding changes, a number of 

beneficiaries began receiving levalbuterol in place of albuterol. 

Twenty-five percent of beneficiaries who were on albuterol in 2004 were 

changed to levalbuterol between January 1, 2005, and June 30, 2007. 

In our sample, almost one-third of these changes occurred in the initial 

two quarters after the payment and coding changes. 

Prescription changes in the opposite direction, from levalbuterol to 

albuterol, rarely happened during this period. Three percent of 

beneficiaries were changed from levalbuterol to albuterol between 

January 1, 2005, and June 30, 2007. In our sample of beneficiaries, 

more than half (five of nine) of these changes occurred in May or June of 

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FINDINGS 

2007, i.e., after the payment and coding changes were announced but 

before they took effect. 

From July through December 2007, Medicare reimbursement again favored 

albuterol; two-thirds of the beneficiaries in our sample who had been using 

levalbuterol were changed to albuterol 

As of July 1, 2007, CMS recombined albuterol and levalbuterol into a 

single HCPCS code and calculated the payment amount based on the 

volume-weighted ASP for both drugs. As a result, Medicare 

reimbursement again began to favor albuterol. 

Under the new payment and coding method, the Medicare payment 

amount for a typical monthly supply of albuterol increased from $18 in 

the second quarter of 2007 to $118 in the third quarter. The payment 

amount for levalbuterol decreased from $345 to $118. We estimate that 

suppliers’ acquisition cost for a monthly supply of albuterol averaged 

just $12, compared to $230 for levalbuterol (see Table 4). In other 

words, suppliers were reimbursed almost 10 times their cost for 

albuterol, but roughly half their cost for levalbuterol. In fact, for 

albuterol, the difference between Medicare reimbursement and 

acquisition cost was greater in the third quarter of 2007 than in the 

fourth quarter of 2004 ($106 compared to $69), i.e., before the 

MMA-mandated change to ASP took effect. 

 Table 4: Average Reimbursement and Cost Difference for a Monthly Supply of Albuterol and 

 Levalbuterol (Second to Fourth Quarter 2007) 

Supplier Supplier 

Acquisition Medicare Acquisition Medicare Timeframe 

Cost for Reimbursement Albuterol Cost for Reimbursement Levalbuterol 

Albuterol for Albuterol Difference Levalbuterol for Levalbuterol Difference 

2Q 2007 $11.25 $18.23 $6.98 $211.05 $345.38 $134.33 

3Q 2007 $12.38 $118.13 $105.75 $229.50 $118.13 -$111.37 

4Q 2007 $9.45 $94.28 $84.83 $234.00 $94.28 -$139.72 

Note: All figures are average monthly amounts in each quarter for 225 mg of albuterol and 112.5 mg of levalbuterol. 

Refer to Appendix B for the differences in reimbursement and cost for all quarters between October 1, 2004, and December 31, 2007. 

Source: Medicare payment amounts from CMS’s Web site; OIG analysis of supplier acquisition data. 

15 

Suppliers reported that two-thirds of beneficiaries in our sample who 

received levalbuterol as of June 2007 were changed to albuterol after 

the July 2007 payment and coding change.36 Almost all (95 percent) of 

36 Because only the 63 beneficiaries who were on levalbuterol as of June 2007 were 

included in this analysis, we are unable to reliably project this figure. 

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FINDINGS 

these changes occurred in the initial quarter after the change became 

effective, with more than half (54 percent) occurring in July. As 

previously mentioned, an additional five beneficiaries in our sample 

who were receiving levalbuterol moved to albuterol in May or June 

2007—after the payment and coding changes were announced but 

before they took effect. By December 31, 2007, 90 percent of 

beneficiaries were receiving albuterol and 10 percent were receiving 

levalbuterol. 

 Figure 1: Percentage of Beneficiaries on Albuterol and Levalbuterol (2003–2007) 

Reimbursement 

favored 

albuterol 

Reimbursement favored 

levalbuterol 

Reimbursement favored 

albuterol 

Albuterol Levalbuterol

Quarter

2Q07 4Q07 2Q03 4Q03 2Q04 4Q04 2Q05 4Q05 2Q06 4Q06

100%

80%

60%

40%

20%

0%

 Source: OIG analysis of supplier surveys, 2008. 

The April 1, 2008, payment and coding change led to a substantial 

decrease in Medicare payments for both drugs compared to the first 

quarter of 2008; as a result, albuterol was reimbursed at close to cost 

and levalbuterol reimbursement remained substantially below cost 

As of April 1, 2008, CMS had implemented provisions of the 

Extension Act by reestablishing separate HCPCS codes and payment 

amounts for albuterol and levalbuterol. As a result, Medicare’s 

payment amount for albuterol became much more reflective of the 

acquisition cost. We estimate that in the second quarter of 2008, a 

month’s supply of albuterol cost $9 and Medicare reimbursed $10. 

However, for levalbuterol, the average acquisition cost for a month’s 

supply was $205, but Medicare reimbursement was $63 (69 percent 

below cost). 

This change significantly decreased total Medicare payments for 

albuterol and levalbuterol. In the first quarter of 2008, when the 

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FINDINGS 

payment code and amount were still combined, Medicare paid 

$75 million for both drugs.37 However, because of the decrease in 

each drug’s payment amount on April 1, 2008, Medicare paid an 

average of only $7 million per quarter for these two drugs in the last 

three quarters of 2008. In total, Medicare paid $20 million for both 

drugs during this time ($9 million for albuterol and $11 for 

levalbuterol).38 

In the first half of 2003 

(when payment was based 

on AWP), Medicare spent 

an average of $506 on 

albuterol and levalbuterol for each beneficiary. Because almost all 

beneficiaries (97 percent) were receiving albuterol rather than 

levalbuterol, the former accounted for the vast majority of this 

spending. The change to an ASP-based reimbursement system in 

January 2005 lowered the Medicare payment amount for albuterol by 

83 percent. However, because utilization began slowly shifting to 

levalbuterol, per-beneficiary spending did not decline proportionally. 

Despite the move to ASP, average per-beneficiary 

spending on albuterol and levalbuterol actually 

increased above pre-MMA levels 

As the number of beneficiaries shifting to levalbuterol increased, so did 

the average spending per beneficiary. Between January 1 and 

June 30, 2007, when more than a quarter of beneficiaries were receiving 

levalbuterol, the average per-beneficiary spending was actually higher 

than pre-MMA levels. During these 6 months, Medicare paid an 

average of $600 per beneficiary for both albuterol and levalbuterol, or 

$94 more per beneficiary than in the first half of 2003. Figure 2, on 

page 18, shows how average per-beneficiary spending for the two drugs 

changed between 2003 and the first half of 2007, including how 

levalbuterol began to account for a much larger share of total payments. 

Although the majority of beneficiaries remained on albuterol, the 

quarter who had been changed to levalbuterol contributed to a total 

increase in spending on both drugs. The 29 percent of all beneficiaries 

on levalbuterol by June 2007 represented 90 percent of total spending 

17 

37 Because the payment codes and payment amounts for albuterol and levalbuterol were 

combined in the first quarter of 2008, we cannot determine payments for either drug. 

38 Medicare BESS data (90 percent of claims reported). Accessed on February 20, 2009. 

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FINDINGS 

for both drugs in the first half of 2007. Medicare paid an average of $88 

per beneficiary for those who were on albuterol in the first half of 2007, 

but $1,776 per beneficiary on levalbuterol. 

Figure 2: Average Amount Medicare Paid per Beneficiary for 

Albuterol and Levalbuterol 

18 

Note: Because levalbuterol and albuterol had combined HCPCS codes in the second half of 2007, we 

First half 2003 First half 2004 First half 2005 First half 2006 First half 2007 

$0

$100

$200

$300

$400

$500

$600

$700

Albuterol Levalbuterol

 analyzed spending for the first half of 2007 and the first half of the prior years to remain consistent. 

 Source: OIG analysis of National Claims History file, 2008. 

Physicians who responded to 

our data request indicated 

that changes in beneficiary 

prescriptions for albuterol and 

levalbuterol occurred for both 

clinical and financial reasons.39

Physicians in our sample typically cited clinical 

reasons for changing beneficiaries from 

albuterol to levalbuterol, but financial reasons 

for changing in the opposite direction 

Changes occurring between January 1, 2005, and June 30, 2007. We 

received physician responses for 36 of the 69 beneficiaries in our sample 

who were changed from albuterol to levalbuterol between January 1, 

2005, and June 30, 2007 (i.e., when levalbuterol became the more 

favorable drug from a reimbursement perspective). For 23 of the 36 

beneficiaries (64 percent), physicians reported that the changes 

occurred because of clinical reasons (e.g., albuterol has side effects, 

39 Given the small sample size and low response rate from physicians, we cannot 

accurately project these results with confidence. 

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FINDINGS 

levalbuterol is a more efficacious drug). These physicians had 

previously prescribed albuterol to these beneficiaries for an average of 

2.7 years prior to the change.40 

Physicians for just three beneficiaries in our sample (8 percent) cited 

financial reasons for the change to levalbuterol during this same period. 

For example, one physician reported changing a beneficiary after the 

supplier mentioned the Medicare payment guidelines for the two drugs. 

For an additional three beneficiaries (8 percent), physicians reported 

that the changes occurred because the supplier actually requested 

levalbuterol to be prescribed in place of albuterol. In the remaining 

cases, reasons given for the changes include (1) other physicians 

changed the beneficiaries’ prescriptions,41 and (2) the beneficiaries 

requested levalbuterol. In some cases, the physicians’ offices had no 

documentation of the reasons for the changes. 

Changes occurring between July 1 and December 31, 2007. We received 

physician responses for only 12 of the 41 beneficiaries in our sample 

who were changed from levalbuterol to albuterol between July 1 and 

December 31, 2007. For 7 of 12 the beneficiaries (58 percent), 

physicians reported that the prescriptions were changed because of 

financial concerns. For example, one physician reported that he 

changed a beneficiary’s prescription because that patient’s “insurance 

didn’t cover levalbuterol.” Physicians also reported that changes to 

Medicare reimbursement prompted the prescription changes. Physician 

responses for four of these seven beneficiaries indicated that they were 

originally changed from albuterol to levalbuterol because of albuterol’s 

side effects. 

During this same time, only one beneficiary was changed from 

levalbuterol to albuterol because of clinical reasons and an additional 

two because the beneficiaries requested albuterol. 

40 The average length of time on albuterol may be longer, but we did not request 

prescription history information prior to January 1, 2003. 

41 In these cases, the physician reported that the beneficiary was changed while being 

treated at a hospital by a different doctor. These claims would be covered under Medicare 

Part A and would not appear in the claim files we used to select the beneficiaries in our 

sample. 

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FINDINGS 

In a small number of cases, physicians were unaware that beneficiaries 

had been changed to a different drug 

Among the 50 beneficiaries with supplier-reported albuterol or 

levalbuterol changes for whom we also received physician responses, the 

suppliers’ dispensing history did not always match what the physicians 

reported prescribing. In particular, physicians for 19 beneficiaries in 

our sample reported no knowledge of or consent to such changes.42 

In most of these cases (12 of 19 beneficiaries), the physician never 

reported any prescription changes from 2003 through 2007 while the 

supplier reported two changes between albuterol and levalbuterol that 

coincided with the Medicare payment and coding changes. For example, 

one physician reported that only albuterol was prescribed for a 

particular beneficiary from January 1, 2003, until December 31, 2007. 

The supplier, however, reported that the beneficiary was changed from 

albuterol to levalbuterol in March 2006 and then changed back to 

albuterol in September 2007 (after the HCPCS coding change). 

The remaining seven beneficiaries had one supplier-reported change 

that did not match their physicians’ prescription histories (all but one of 

these from levalbuterol to albuterol following the coding change on 

July 1, 2007). 

20 

42 If requested, we will provide information about these suppliers to CMS and OI. 

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Δ CONCLUSION 

Albuterol and levalbuterol are used to treat the same symptoms. 

Although some clinical studies suggest that levalbuterol has greater 

efficacy than albuterol, other trials have failed to detect any advantage 

to the patient. It is beyond the scope of our study to address such 

clinical issues. However, our findings illustrate that payment and 

coding issues, and not just clinical concerns, may affect which of the two 

drugs is prescribed and provided to Medicare beneficiaries. 

Prior to 2005, almost all of the beneficiaries in our review were 

receiving albuterol rather than levalbuterol. Between January 2005 

and June 2007, when Medicare reimbursement shifted to favor the 

more expensive levalbuterol, one-quarter of beneficiaries were changed 

from albuterol to the costlier product. Although a number of physicians 

cited clinical reasons for changing prescriptions, reimbursement 

considerations may have also played a role—especially given that some 

changes appear to have been completed by suppliers without the 

physicians’ knowledge and that the majority of beneficiaries 

(75 percent) remained on albuterol. 

Effective July 1, 2007, payment rates were again significantly changed 

when CMS recombined the HCPCS codes for albuterol and levalbuterol 

and began calculating the Medicare payment amount as a 

volume-weighted average of both drugs. Because most suppliers could 

not acquire levalbuterol at a price below the reimbursement amount, 

many may have lost money by providing the drug. At that time, many 

beneficiaries were changed back to albuterol, even though in some cases 

(according to physicians), albuterol had initially caused side effects. At 

this same time, however, the payment situation not only created a 

disincentive for levalbuterol, but also caused albuterol to be reimbursed 

at more than 10 times its cost. Such a wide gulf between cost and 

reimbursement was exactly what the ASP-based methodology was 

created to avoid. For example, such large financial incentives for 

supplying albuterol may have influenced a small number of suppliers in 

our sample to change beneficiaries to a new drug without the 

physicians’ consent. 

As of April 1, 2008, CMS implemented a provision of the Extension Act 

that once again lowered albuterol reimbursement so that payment more 

accurately reflected acquisition cost. However, the same provision 

prevented CMS from addressing any underpayment for levalbuterol. 

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CONCLUSION 

Although our findings were limited to a small and specific subset of 

beneficiaries, there may have been similar utilization shifts between 

albuterol and levalbuterol among Medicare beneficiaries outside our 

sample. Because the Medicare payment amounts and acquisition costs 

presented in this report were based on national cost and reimbursement 

data, all suppliers—not just the ones included in our sample—would 

likely have been subject to the same incentives to dispense one drug 

instead of the other. Medicare’s total spending for the two drugs 

reflects this fact, as the program paid almost as much for albuterol and 

levalbuterol combined in 2007 as it did in 2004, despite the substantial 

changes to the payment amount under the ASP methodology. Given 

that the number of Medicare beneficiaries with inhalation drug claims 

did not increase between 2004 and 2007, this could have occurred only if 

a large number of beneficiaries, and not just the limited subset on which 

our analysis was based, were shifted to the drug with the most favorable 

reimbursement. 

In some cases, this could not only have a significant impact on total 

Medicare spending but also limit beneficiary access to a potentially 

more effective product. When Congress and CMS make reimbursement 

and coding decisions, it is important they take into consideration that 

these new policies may affect what drug a beneficiary is prescribed. In 

some cases, this may limit access to a potentially more effective product; 

in others, utilization could be driven toward a more expensive product 

that offers no clinical advantage. In future studies, OIG will continue to 

monitor the utilization of and payment for these and other drugs, with 

the goal of identifying inappropriate Medicare payments. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

In its comments on the draft report, CMS stated that the agency is 

aware of the impact that changes in payment methodologies can have 

on access to prescription drugs. However, CMS noted that in the case of 

albuterol and levalbuterol, changes to coding and pricing were not 

discretionary but instead were made to comply with legislative 

mandates. CMS stated that the agency has monitored and will continue 

to monitor spending and utilization for both drugs to help ensure price 

stability and access while fulfilling legal mandates. 

In addition, CMS provided several technical comments to our draft 

report. These technical comments included two items that CMS 

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CONCLUSION 

believes OIG should investigate further. These items are: (1) cases in 

which physicians were reportedly unaware of the medication changes; 

and (2) the clinical rationales for changing medications, including 

whether reports of clinical complications truly reflect actual 

complications. 

OIG will review cases in which prescription changes occurred without 

the physicians’ knowledge to determine whether further investigation is 

warranted. However, in regard to the second item, the clinical 

rationales we obtained from physicians provide sufficient justifications 

for changes to albuterol and levalbuterol prescriptions, and therefore no 

further investigation is necessary. In addition, as CMS pointed out, 

while it is important to know the rationales for medication changes, the 

agency (as well as OIG) is limited in its ability to mandate and regulate 

a physician’s decision to prescribe or not to prescribe a drug. 

We did not make any changes to the report based on CMS’s comments. 

For the full text of CMS’s comments, see Appendix C. 

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ΔCONCLUSION APPENDIX ~ A 

Table A-1: Confidence Intervals for Percentages 

Statistic Sample 

Size 

Percentage 95% Confidence Interval 

Percentage of beneficiaries who were on albuterol in the 

fourth quarter of 2004 (according to suppliers) 281 96.8% 94.0% to 98.5%* 

Percentage of beneficiaries who were on levalbuterol in the 

fourth quarter of 2004 (according to suppliers) 281 3.2% 1.5% to 6.0%* 

Percentage of beneficiaries on albuterol in 2004 who were 

changed to levalbuterol between January 1, 2005, and 

June 30, 2007 (according to suppliers) 

272 25.0% 19.8% to 30.2% 

Percentage of beneficiaries on levalbuterol who were 

changed to albuterol between January 1, 2005, and 

June 30, 2007 (according to suppliers) 

281 3.2% 1.5% to 6.0%* 

Percentage of beneficiaries on albuterol by 

December 31, 2007 (according to suppliers) 280** 89.6% 85.5% to 93.0%* 

Percentage of beneficiaries on levalbuterol by 

December 31, 2007 (according to suppliers) 280** 10.4% 7.1% to 14.5%* 

Percentage of beneficiaries on levalbuterol by 

June 30, 2007 (according to suppliers) 279** 29.4% 24.0% to 34.8% 

* This confidence interval was calculated with an exact method based on binomial distribution. 

** The sample size is not 281 because the beneficiary’s supplier reported that it was missing dispensing records. 

Source: Office of Inspector General analysis of supplier surveys, 2008. 

 

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Table B-1: Average Monthly Difference Between Reimbursement and 

Cost for Albuterol and Levalbuterol 

Monthly Difference for Monthly Difference for Quarter and Year Albuterol Levalbuterol 

Fourth quarter 2004 $68.65 -$76.50 

First quarter 2005 $0.62 $116.55 

Second quarter 2005 $6.67 $136.58 

Third quarter 2005 $2.11 $112.28 

Fourth quarter 2005 -$1.10 $107.33 

First quarter 2006 -$3.91 $94.05 

Second quarter 2006 $3.90 $105.53 

Third quarter 2006 $4.65 $129.15 

Fourth quarter 2006 -$3.92 $95.18 

First quarter 2007 $0.23 $102.38 

Second quarter 2007 $6.98 $134.33 

Third quarter 2007 $105.75 -$111.37 

Fourth quarter 2007 $84.83 -$139.72 

 Source: Medicare payment amounts from the Centers for Medicare & Medicaid Services’ Web site; Office 

 of Inspector General analysis of supplier acquisition data. 

 

Δ APPENDIX ~ B 

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.. A P PEN 0 x c

Agency Comments

(~~'È DEPARTMENT OF HEALTf & IòUMAN SERVICES Y1:;,¡,~

~~"da(l l;...

Caiilers for M13diçare &. Medicaid Services

?OO Independence Aven4e SW

Washington, DC 20201

DATE: JUl 0 2 2009

TO: Daniel R. Levinson

.Inspector General

FROM: i;nariene l'rizzera

Açting Administrator

SUBJECT: Offce ofInspector General's Draft Report: "Beneficiiuy Utili;zation of Albuterol

and Levalbuterol Under Medicare Par B" (OEH3.07.00440) .

Than you for the opportunity to review and comment on the OffceofInspector General's

(OIG) draft report entitled, "Beneficiary Utilization of Albuterol and Levalbuterol Under

Medicare Par B." We appreciate the OIG's continuing efforts to el!amine payments made under

the average sales price methodology. The OIG report p'resents findings f(om an analysis of

coding and payment changes made to these two inhalation drugs.

The OIG reviewed two specific Medicate Part B drugs, albuterol and levalbutel'l, both

bronchodilators used to treat asthma and .chronic obstructive pulmonary diseases (COPD).

Studies have shown a significant incidence of COPO in the adult population. .

The OIG concluded that a correlation el!ists between coding and pricing changes and shifts in

prescribing patterns and utilization bétween the two drugs. Specifically, the OIG found that at

times, prescribing patterns and utilization ofthese drugs shifted toward the more financially

profitable drug. -The OIG also found that somebeUt:flciaries were switched between the drugs'

more than once, often correlating with Medicare coding and payment limit chauges.

These drugs have been affected bya number of coding and pricing changes since 2003. It is

important to recognize that these changes were not discretionary; instead the changes were made

in order to comply with legislative mandates. As the OIGnoted, in :2003 and 2007, Congress

amended the Social Security Act to change the methodology used to pay claims for certain

Medicare Part B drugs and specifcally certain drugs adrni.nistered through durable medical

equipment.' The Centers fpr Medicare &- Medicaid Services (CMS)is aware of the impact that

changes in payment i;ethodologies canhave on access to prescription drugs. We have and wm

continue to closely monitOr spendingandutil;zationori these drugs to help balance our need to

assure stability in prices and access to drugs while discha(girig our legal mandates.

o E 1-0 3. 07 .00440 BENEFICIARY UTILIZATION OF ALBUTEROL AND LEVALBUTEROL UNDER MEDICARE PART B 26
 

 O E I - 0 3 - 0 7 - 0 0 4 4 0 BENEFICIARY UTILIZATION OF ALBUTEROL AND L EVALBUTEROL UNDER MEDICARE PART B 27 

APPENDIX ~ C 

 
 

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Δ ACKNOWLEDGMENTS 

This report was prepared under the direction of Robert A. Vito, Regional 

Inspector General for Evaluation and Inspections in the Philadelphia 

regional office, and David E. Tawes, Director of the Medicare and 

Medicaid Prescription Drug Unit. 

Stephanie Yeager served as the lead analyst for this study. Other 

principal Office of Evaluation and Inspections staff from the 

Philadelphia regional office who contributed to the report include 

Kevin McAloon. Central office staff who contributed include 

Rita Wurm, Kevin Manley, and Kevin Farber.