Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JUNE GIBBS BROWN 

Inspector General 

NOVEMBER 1998 

OEI-03-97-00293 

Comparing Drug Reimbursement: 

Medicare and 

Department of Veterans Affairs 
OFFICE OF INSPECTOR GENERAL 

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

protect the integrity of the Department of Health and Human Services programs as well as the 

health and welfare of beneficiaries served by them. This statutory mission is carried out through a 

nationwide program of audits, investigations, inspections, sanctions, and fraud alerts. The 

Inspector General informs the Secretary of program and management problems and recommends 

legislative, regulatory, and operational approaches to correct them. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 

Inspector General. It conducts short-term management and program evaluations (called 

inspections) that focus on issues of concern to the Department, the Congress, and the public. The 

inspection reports provide findings and recommendations on the efficiency, vulnerability, and 

effectiveness of departmental programs. 

OEI's Philadelphia Regional Office prepared this report under the direction of Robert A. Vito, 

Regional Inspector General, and Linda M. Ragone, Deputy Regional Inspector General. Principal 

OEI staff included: 

REGION HEADQUARTERS 

David Tawes, Lead Analyst Lisa A. Foley, Program Specialist 

Nancy J. Molyneaux 

To obtain copies of this report, please call the Philadelphia Regional Office at (800) 531-9562. 

Reports are also available on the World Wide Web at our home page address: 

http://www.dhhs.gov/progorg/oei 
EXECUTIVE SUMMARY

PURPOSE 

To compare Medicare allowances for prescription drugs with drug acquisition prices currently 

available to the Department of Veterans Affairs. 

BACKGROUND 

Medicare allowances for prescription drugs totaled almost $2.3 billion in 1996. In 1997, 

allowances rose to approximately $2.75 billion. 

Medicare does not pay for over-the-counter or most outpatient prescription drugs. However, 

under specific circumstances, Medicare Part B covers drugs used with durable medical equipment 

or infusion devices. Medicare also covers certain drugs used in association with organ 

transplantation, dialysis, chemotherapy, and pain management for cancer treatment. Additionally, 

the program covers certain vaccines, such as those for influenza and hepatitis B. 

Physicians and suppliers usually bill Medicare directly for the prescription drugs they provide to 

beneficiaries. Medicare Part B reimburses covered drugs at 95 percent of the drugs’ average 

wholesale prices (AWPs). The beneficiary is responsible for a 20 percent coinsurance payment. 

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

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

to the VA, including the Federal Supply Schedule, Blanket Purchase Agreements, and VA 

national contracts. 

We focused our inspection on 34 drug codes, each with over $10 million in Medicare allowed 

charges for 1996. We then compared the amount Medicare reimbursed for these drugs to the 

VA’s Federal Supply Schedule acquisition costs during the first quarter of 1998. 

FINDINGS 

Medicare and its beneficiaries could save $1 billion in 1998 if the allowed amounts for 34 

drugs were equal to prices obtained by the VA. 

After comparing the median Medicare allowance with the corresponding median VA acquisition 

cost for 34 drugs, we estimated that Medicare and its beneficiaries could save $1.03 billion in 

1998 if the Medicare allowed amounts for 34 drugs were equal to prices obtained by the VA 

under the Federal Supply Schedule. 

This savings represents almost half of the $2.07 billion in reimbursement that Medicare and its 

beneficiaries paid for these 34 drugs in 1997. The estimated savings for individual drugs ranged 

from a high of $276 million for J9217 (leuprolide acetate) to a low of $16,460 for K0523 

(concentrated metaproteranol sulfate). 

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Medicare allowed between 15 and 1600 percent more than the Department of Veterans Affairs 

paid for the 34 drugs reviewed. 

The Medicare allowance was greater than the VA acquisition cost for every drug reviewed. For 3 

of the 34 drugs, Medicare allowed more than 16 times the VA acquisition cost. Eleven drugs had 

Medicare allowances that were between two and six times higher than the VA cost. For only two 

drugs was the difference between Medicare reimbursement and VA cost less than 25 percent. 

RECOMMENDATIONS 

The Department of Veterans Affairs purchases drugs for its healthcare system directly from 

manufacturers or wholesalers. Conversely, Medicare reimburses doctors and suppliers for drugs 

which they administer or supply to beneficiaries. We recognize that the Health Care Financing 

Administration (HCFA) and the VA operate under different statutory constraints. Nevertheless, 

the fact remains that another Federal agency can get prescription drugs for a drastically lower 

price than Medicare. 

Previous reports of the Office of Inspector General found that actual wholesale prices available to 

physicians and suppliers are often significantly lower than the Medicare allowed amounts. This 

report provides additional evidence that the published AWPs used in determining the Medicare 

allowed amounts for certain prescription drugs can be many times greater than the actual 

acquisition costs available in the marketplace. 

We believe our current findings provide further support for recommendations made in earlier 

reports. We previously recommended that HCFA reexamine its Medicare drug reimbursement 

methodologies with the goal of reducing payments as appropriate. The HCFA concurred with 

this recommendation. We outlined a number of options for implementing this recommendation, 

including: (1) greater discounting of published average wholesale prices, (2) basing payment on 

acquisition costs, (3) establishing manufacturers’ rebates similar to those used in the Medicaid 

program, and (4) using competitive bidding. 

We continue to support the need for a comprehensive statutory reform of Medicare's prescription 

drug reimbursement methodology. A number of proposals addressing reform have been offered 

by both the Administration and members of Congress. However, until legislation can be enacted 

providing for such reform, we recommend that HCFA utilize the new inherent reasonableness or 

competitive bidding authorities provided in the Balanced Budget Act of 1997 to reduce 

Medicare’s unreasonably high payments for certain drugs. 

AGENCY COMMENTS 

The HCFA concurred with our recommendations, stating that it appreciates the OIG’s continuous 

efforts to assist it in obtaining the lowest prices for covered drugs. The HCFA noted that it has 

made several efforts to reduce excessive reimbursement rates, including using an inherent 

reasonableness adjustment for albuterol sulfate. The OIG supports these efforts and we believe 

HCFA should continue to use its inherent reasonableness authority to lower inappropriate 

payments for other drugs with excessive reimbursement rates. 

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TABLE OF CONTENTS

PAGE

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

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

FINDINGS ................................................................ 6

Potential savings of $1 billion ................................................. 6

Medicare allowances are greater than VA cost ..................................... 6

RECOMMENDATIONS .................................................... 8

APPENDICES

A: Description of 34 HCPCS Codes ........................................... A-1

B: Estimated 1998 Savings by HCPCS Code .................................... B-1

C: Health Care Financing Administration Comments ............................... C-1
INTRODUCTION

PURPOSE 

To compare Medicare allowances for prescription drugs with drug acquisition prices currently 

available to the Department of Veterans Affairs. 

BACKGROUND 

Medicare allowances for prescription drugs totaled almost $2.3 billion in 1996. In 1997, 

allowances rose to approximately $2.75 billion. Medicare allowances include both the Medicare 

payment and the 20 percent copayment made by the beneficiary. 

Medicare Coverage and Payment of Prescription Drugs 

Medicare does not pay for over-the-counter or most outpatient prescription drugs. However, 

under specific circumstances, Medicare Part B covers drugs used with durable medical equipment 

(DME) or infusion devices. Medicare also covers certain drugs used in association with organ 

transplantation, dialysis, chemotherapy, and pain management for cancer treatment. Additionally, 

the program covers certain vaccines, such as those for influenza and hepatitis B. 

Physicians and suppliers usually bill Medicare directly for the prescription drugs they provide to 

beneficiaries. Medicare Part B reimburses covered drugs at 95 percent of the drugs’ average 

wholesale prices (AWPs). The beneficiary is responsible for a 20 percent coinsurance payment. 

The Health Care Financing Administration (HCFA) contracts with local carriers and four DME 

regional carriers (DMERCs) to process Part B claims and establish the Medicare allowed amounts 

for covered drugs. These carriers determine the allowed amount for a drug based on the AWPs 

as reported in the Red Book or similar pricing publications used by the pharmaceutical industry. If 

a drug has both brand and generic sources available, reimbursement is based on 95 percent of the 

median AWP for generic sources. However, if a brand name product’s AWP is lower than the 

median generic price, a new median including the brand must be calculated. Beginning in 1999, 

Medicare will calculate the AWP for multiple-source drugs at the lower of the median generic 

AWP or the lowest brand-name AWP. 

The HCFA and its carriers identify drug products using codes in HCFA’s Common Procedure 

Coding System (HCPCS). The HCPCS codes define the type of drug, and in most cases, a 

dosage amount. The codes do not identify the specific drug product billed. 

Department of Veterans Affairs Payments for Prescription Drugs 

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

system directly from manufacturers or wholesalers. The VA uses National Drug Codes (NDCs) 

rather than HCPCS codes to identify drugs products. Each drug manufactured or distributed in 

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the United States has a unique NDC. The NDCs identify the manufacturer of the drug, the 

product dosage form, and the package size. 

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

Blanket Purchase Agreements, and VA national contracts. The Federal Supply Schedule provides 

agencies like the VA with a simple process for purchasing commonly-used products in various 

quantities while still obtaining the discounts associated with volume buying. Using competitive 

procedures, contracts are awarded to companies to provide services and supplies over a given 

period of time. Although the General Services Administration awards most Federal Supply 

Schedule contracts, the VA awards contracts for certain medical items. Agencies are not required 

to use the Federal Supply Schedule, however, and are able to negotiate prices lower than the 

Federal Supply Schedule price. 

New Authorities Provided by the Balanced Budget Act 

A provision within the Balanced Budget Act of 1997 allows Medicare to diverge from a 

statutorily defined payment method if the application results in a payment amount that is not 

inherently reasonable. Additionally, the Act provides HCFA with the authority to conduct 

competitive bidding demonstrations. The legislation authorizes up to five of these demonstrations 

for health care items and services covered by the Medicare fee-for-service program. All 

demonstrations must be completed by December 31, 2002. 

Related Work by the Office of Inspector General 

This report is one of several Office of Inspector General (OIG) reports concerning Medicare 

payments for prescription drugs. In 1997, we released Excessive Medicare Payments for 

Prescription Drugs (OEI 03-97-00290), which found that Medicare allowances for 22 drugs 

exceeded actual wholesale prices by $447 million in 1996. In 1996, we released a report entitled 

Appropriateness of Medicare Prescription Drug Allowances (OEI-03-96-00420) which 

compared Medicare drug reimbursement mechanisms with Medicaid mechanisms and found that 

Medicare could achieve significant savings by adopting reimbursement strategies similar to those 

used by Medicaid. The OIG has also released several reports focusing on the cost of inhalation 

drugs covered by Medicare. Medicare Payments for Nebulizer Drugs (OEI-03-94-00390), A 

Comparison of Albuterol Sulfate Prices (OEI-03-94-00392), and Suppliers’ Acquisition Costs for 

Albuterol Sulfate (OEI-03-94-00393) all found Medicare allowances for inhalation drugs to be 

excessive. 

METHODOLOGY 

We focused our inspection on the HCPCS codes with over $10 million in Medicare allowed 

charges for 1996. We then compared the amount Medicare reimburses for these drugs to the 

VA’s acquisition costs during the first quarter of 1998. 

We collected data from four sources. We accessed the HCFA National Claims History (NCH) 

File to get information concerning Medicare allowances and utilization for prescription drugs in 

1996 and 1997. We gathered reimbursement rates for specific Medicare drug codes by contacting 

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several carriers. We obtained drug acquisition costs from the VA. We used the CD-ROM 

version of the Red Book to help us match HCPCS codes to their equivalent NDCs. 

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Medicare Allowances for Prescription Drugs 

To determine total Medicare payments for prescription drugs, we compiled a list of HCPCS codes 

representing all drugs covered by Medicare in 1996. We selected 1996 because it was the most 

recent year with complete data in the NCH file. We then determined the Medicare allowance and 

utilization for each of the more than 400 HCPCS codes using HCFA’s Part B Extract Summary 

System (BESS). Next, we aggregated the individual allowances and utilization to determine the 

total allowance and utilization for all prescription drugs covered by Medicare in 1996. 

We arrayed the HCPCS codes by their allowances and found that 40 codes each had over $10 

million in allowances for 1996. These 40 codes represented just over $2 billion in allowances for 

1996, and comprised 88 percent of the total Medicare allowance for all prescription drugs. 

We removed several HCPCS codes from our review. Codes J7699, J7999, and J3490 were 

removed because they are defined as either “not otherwise classified” or “unclassified” drugs. We 

also chose not to use code A4646, an iodine product. Two Factor VIII codes (J7190 and J7192) 

were removed because we knew from previous studies that they were difficult to match to NDCs. 

Finally, code J9010 (Doxorubicin, 50 mg) is no longer reimbursed by HCFA, and was therefore 

removed from review. 

Several other HCFA coding changes in 1997 and 1998 affected the drugs in our review. Code 

J1625 was deleted, and replaced with J1626. Inhalation codes J7610 and J7645 were changed to 

K0503 and K0518 respectively. Finally, HCFA deleted inhalation codes J7620 and J7670 and 

replaced them with two codes each, one representing a concentrated dose and the other a unit 

dose form of the drug. Code J7620 was changed to codes K0504 and K0505, while code J7670 

was changed to K0523 and K0524. After accounting for these changes, 35 HCPCS codes 

remained in our review. 

Carrier Reimbursement for Prescription Drugs 

Because Medicare does not have uniform national allowed amounts for prescription drugs, we 

had to collect reimbursement information from various carriers. We obtained first quarter 1998 

Medicare allowed amounts for the 35 HCPCS codes from five large Medicare carriers: Xact 

Medicare Services, United Healthcare Insurance Company, Blue Cross and Blue Shield of Texas, 

Blue Cross and Blue Shield of Florida, and Blue Cross and Blue Shield of South Carolina. We 

also received Medicare allowed amounts from the four DMERCs. To determine a single 

Medicare allowed amount, we calculated median prices for each HCPCS code based on this 

information. 

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Matching HCPCS Codes to NDCs 

Since the VA pays for drugs based on NDCs, we used the 1998 Red Book CD-ROM update to 

determine the specific NDCs that would match the HCPCS code definition for each of the 35 

drugs. Whenever possible, we selected NDCs that met the exact dosage delineated in the HCPCS 

code description. When this was not possible, we chose NDCs with doses for which a conversion 

factor to the HCPCS definition could be readily determined. 

VA Acquisition Costs for Prescription Drugs 

To determine the VA’s first quarter 1998 acquisition costs for the selected NDCs, we obtained a 

file from the VA containing contract acquisition costs. We selected the Federal Supply Schedule 

price for comparison purposes. However, some drugs had lower prices available to the VA based 

on other contractual methods. 

Eleven drugs had only one NDC match in the VA file, while six drugs had more than five 

matches. One HCPCS code (90724) and its corresponding NDCs did not have any matches in the 

VA file. This HCPCS code was therefore removed from the study, leaving 34 codes in our 

review. A list of the final 34 HCPCS codes and their corresponding descriptions is presented in 

Appendix A. 

These 34 HCPCS codes represented 17 single-source, 11 multiple-source, and 6 multiple-brand 

drugs. A single-source drug has only one brand of drug available. A multiple-source drug has 

both brand and generic sources available. A multiple-brand drug has more than one brand but no 

generic versions available. Of the 11 drugs with a single NDC match in the VA file, 8 were 

single-source drugs. 

Comparing Medicare Allowance Amounts to VA Acquisition Costs 

Using the Red Book and the HCPCS code definitions, we compared product descriptions for the 

34 drugs reviewed. For some NDCs, the corresponding HCPCS codes had an equivalent dosage, 

and therefore the VA cost could be easily compared to the Medicare allowed amount. If the two 

codes were not equal, we determined a conversion factor to match the NDC dosage and package 

size to the HCPCS dosage. We then took the Federal Supply Schedule contract price for the 

NDC and divided it by the conversion factor to determine the pricing of its HCPCS code 

equivalent. 

To compare VA costs to Medicare allowed amounts, we needed to determine a single VA price 

for each drug. For the 11 drugs with a single NDC match in the VA file, we simply used the 

Federal Supply Schedule contract price of that NDC. For the 23 drugs with multiple NDC 

matches in the VA file, we took the median of the Federal Supply Schedule contract prices. 

Calculating Potential Medicare Savings 

To calculate potential Medicare savings, we used the utilization numbers contained in the 1997 

BESS file. Although we used 1998 Medicare allowed amounts, we chose to use 1997 utilization 

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data for our calculations since the 1998 utilization data was incomplete at the time of our review. 

Because two HCPCS codes underwent dosage changes between 1997 and 1998, we needed to 

determine a conversion factor to estimate utilization for the new dosages. In 1998, code J1625 

was changed to J1626, with the dosage changing from 1 milligram (mg) to 100 micrograms 

(mcg). Therefore, we estimated that utilization would increase by a factor of 10 (1 mg = 1000 

mcg). Also in 1998, the dosage of J1562 was changed from 500 milligrams to 5 grams (g). 

Therefore, we estimated that overall utilization would decrease by a factor of 10 at the new 

dosage (5000 mg = 5 g). 

Finally, for each drug, we compared the median Medicare allowed amount to the median VA 

acquisition cost for the first quarter of 1998. We multiplied the difference by the 1997 utilization 

of each drug to calculate the potential savings to Medicare if the program reimbursed drugs at VA 

cost rather than 95 percent of AWP. 

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6 
FINDINGS

MEDICARE AND ITS BENEFICIARIES COULD SAVE $1 BILLION IN 1998 IF THE 

ALLOWED AMOUNTS FOR 34 DRUGS WERE EQUAL TO PRICES OBTAINED BY 

THE DEPARTMENT OF VETERANS AFFAIRS. 

After comparing the median Medicare allowance with the corresponding median VA acquisition 

cost for 34 drugs, we estimated that Medicare and its beneficiaries could save $1.03 billion in 

1998 if the Medicare allowed amounts for 34 drugs were equal to prices obtained by the VA 

under the Federal Supply Schedule. The estimated savings represents almost half of the $2.07 

billion in reimbursement that Medicare and its beneficiaries paid for these 34 drugs in 1997. 

The estimated savings for individual drugs ranged from a high of $276 million for J9217 

(leuprolide acetate) to a low of $16,460 for K0523 (concentrated metaproterenol sulfate). Drugs 

with estimated savings greater than $20 million are listed below. A complete list of the 34 drugs, 

Medicare and VA median costs, and potential savings is provided in Appendix B. 

DRUGS WITH 1998 ESTIMATED SAVINGS OVER $20 MILLION 

HCPCS 

CODE GENERIC DRUG NAME 

VA 

MEDIAN MEDIAN 

HCFA 

DIFFERENCE 

NUMBER OF 

SERVICES 

ESTIMATED 

SAVINGS 

J9217 Leuprolide acetate $299.38 $513.60 $214.22 1,286,664 $275,629,162.08 

K0505 Albuterol sulfate (dose form) $0.12 $0.47 $0.35 343,627,175 $120,269,511.25 

J9202 Goserelin acetate $206.29 $389.98 $183.69 329,988 $60,615,495.72 

K0518 Ipratropium bromide $1.31 $3.34 $2.03 29,505,931 $59,897,039.93 

J9265 Paclitaxel $109.36 $173.50 $64.14 895,067 $57,409,597.38 

Q0136 Epoetin alpha $6.74 $12.00 $5.26 10,466,953 $55,056,172.78 

J0640 Leucovorin calcium $1.18 $20.45 $19.27 2,833,686 $54,605,129.22 

J9045 Carboplatin $39.50 $84.16 $44.66 982,275 $43,868,401.50 

J1626 Granisetron hcl $8.42 $16.85 $8.43 4,105,560 $34,609,870.80 

J1562 Immune globulin (5 g) $110.83 $439.38 $328.55 92,994 $30,553,178.70 

J9182 Etoposide $7.84 $132.25 $124.41 181,322 $22,558,270.02 

J9000 Doxorubicin $7.46 $43.23 $35.77 629,236 $22,507,771.72 

J1561 Immune globulin (500 mg) $27.71 $48.65 $20.94 1,039,526 $21,767,674.44 

J2430 Pamidronate disodium $104.39 $196.90 $92.51 229,935 $21,271,286.85 

MEDICARE ALLOWED BETWEEN 15 AND 1600 PERCENT MORE THAN THE 

DEPARTMENT OF VETERANS AFFAIRS PAID FOR THE 34 DRUGS REVIEWED. 

During the first quarter of 1998, Medicare allowed amounts were greater than the VA acquisition 

cost for every drug in our review. However, there was substantial variation in the difference 

between Medicare reimbursement and VA cost among the 34 drugs. 

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7 
1

Fourteen of the drugs in our study (41 percent) had Medicare allowances that were more than 

double the VA cost. For 11 of these drugs, Medicare allowed between two and six times the VA 

acquisition cost. For three drugs in our review (J0640, J9181, J9182), Medicare allowed more 

than 16 times the VA acquisition cost. The chart below illustrates these drugs and their 

comparative cost to Medicare. Appendix B lists the difference between Medicare reimbursement 

and VA cost for all 34 drugs. 

MEDICARE ALLOWS MORE THAN DOUBLE THE VA COST 

FOR 14 DRUGS 

100% 102% 113% 117% 126% 155% 192% 

292% 296% 

438% 479% 

1633% 1573% 1587%

0% 

100% 

200% 

300% 

400% 

500% 

600% 

700% 

800% 

900% 

1000% 

1100% 

1200% 

1300% 

1400% 

1500% 

1600% 

1700% 

1800% 

J1626 J0696 J9045 K0504 90732 K0518 J1245 K0505 J1562 K0503 J9000 J9181 J9182 J0640 

HCPCS CODE 

PERCENTAGE OVER VA ACQUISITION COST 

The remaining 20 drugs in our review also had Medicare reimbursements that were greater than 

VA acquisition cost. Eighteen of the 20 drugs had Medicare reimbursements between 44 and 93 

percent higher than VA acquisition cost. For only two drugs was the difference between 

Medicare reimbursement and VA cost less than 25 percent. 

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RECOMMENDATIONS

The Department of Veterans Affairs purchases drugs for its healthcare system directly from 

manufacturers or wholesalers. Conversely, Medicare reimburses doctors and suppliers for drugs 

which they administer or supply to beneficiaries. We recognize that HCFA and the VA operate 

under different statutory constraints. Nevertheless, the fact remains that another Federal agency 

can get prescription drugs for a drastically lower price than Medicare. 

Previous reports of the Office of Inspector General found that actual wholesale prices available to 

physicians and suppliers are often significantly lower than the Medicare allowed amounts. This 

report provides additional evidence that the published AWPs used in determining the Medicare 

allowed amounts for certain prescription drugs can be many times greater than the actual 

acquisition costs available in the marketplace. 

Our current findings provide further support for recommendations made in earlier reports. We 

previously recommended, and HCFA concurred, that HCFA reexamine its Medicare drug 

reimbursement methodologies with the goal of reducing payments as appropriate. We outlined a 

number of options for implementing this recommendation, including: (1) greater discounting of 

published average wholesale prices, (2) basing payment on acquisition costs, (3) establishing 

manufacturers’ rebates similar to those used in the Medicaid program, and (4) using competitive 

bidding. 

We continue to support the need for a comprehensive statutory reform of Medicare's prescription 

drug reimbursement methodology. A number of proposals addressing reform have been offered 

by both the Administration and members of Congress. However, until legislation can be enacted 

providing for such reform, we recommend that HCFA utilize the new inherent reasonableness or 

competitive bidding authorities provided in the Balanced Budget Act of 1997 to reduce 

Medicare’s unreasonably high payments for certain drugs. 

AGENCY COMMENTS 

The HCFA concurred with our recommendations, stating that it appreciates the OIG’s continuous 

efforts to assist it in obtaining the lowest prices for covered drugs. The HCFA noted that it 

proposed in the President’s fiscal year 1998 budget that drugs be reimbursed at the provider’s 

actual acquisition cost. The Congress did not enact the recommendation, and therefore the 

proposal was again submitted with the fiscal year 1999 budget. 

The HCFA further stated that DMERCs have issued inherent reasonableness notices to suppliers 

which proposed an 11 percent decrease in the reimbursement amount for albuterol sulfate. The 

HCFA indicated that other drugs may be reviewed for inherent reasonableness adjustments in the 

future. The full text of HCFA’s comments is provided in Appendix C. 

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OIG RESPONSE 

We fully support HCFA’s and the Administration’s continued efforts to reduce excessive 

payments for covered drugs. Until comprehensive reforms are enacted, we believe HCFA should 

continue to use its inherent reasonableness authority to lower inappropriate payments for other 

drugs with excessive reimbursement rates. 

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APPENDIX A

DESCRIPTION OF 34 HCPCS CODES 

1996 

HCPCS 

CODE 

1998 

HCPCS 

CODE 1998 DESCRIPTION CHANGES 

90732 90732 Immunization, active; Pneumococcal vaccine 

J0205 J0205 Injection, Alglucerase, per 10 units 

J0585 J0585 Botulinum toxin type A, per unit Changed 9/96 from per 100 units to per 1 unit 

J0640 J0640 Injection,Leucovorin calcium, per 50 mg 

J0696 J0696 Injection, Ceftriaxone sodium, per 250 mg 

J1245 J1245 Injection, Dipyridamole, per 10 mg 

J1440 J1440 Injection, Filgrastim (G-CSF), 300 mcg 

J1441 J1441 Injection, Filgrastim (G-CSF), 480 mcg 

J1561 J1561 Injection, Immune globulin, intravenous, 500 mg 

J1562 J1562 Injection, Immune globulin, intravenous, 5 g Changed 1/98 from per 500mg to per 5g 

J1625 J1626 Injection, Granisetron hydrochloride, per 100 mcg (J1626) 

Changed 1/98 from per 1mg (J1625) to per 100mcg 

J2405 J2405 Injection, Ondansetron HCl, per 1 mg 

J2430 J2430 Injection, Pamidronate disodium, per 30 mg 

J7610 K0503 Acetylcysteine, unit dose form, per gram (K0503) 

Changed 4/97 from 10%, per ml (J7610) to per gram 

J7620 K0504 Albuterol sulfate, concentrated form, per mg concentrated form (K0504) 

Changed 4/97 from .083%, per ml (J7620) to per mg, 

J7620 K0505 Albuterol sulfate, unit dose form, per mg dose form (K0505) 

Changed 4/97 from .083%, per ml (J7620) to per mg, unit 

J7645 K0518 Ipratropium bromide, unit dose form, per mg dose form (K0518) 

Changed 4/97 from .02%, per ml (J7645) to per mg, unit 

J7670 K0523 Metaproterenol sulfate, concentrated form, per 10 mg concentrated form (K0523) 

Changed 4/97 from .4%, per 2.5ml (J7670) to per 10mg, 

J7670 K0524 Metaproterenol sulfate, unit dose form, per 10 mg unit dose form (K0524) 

Changed 4/97 from .4%, per 2.5ml (J7670) to per 10mg, 

J9000 J9000 Doxorubicin Hcl, 10 mg 

J9031 J9031 BCG, live (intravesical), per installation 

J9045 J9045 Injection, Carboplatin, 50 mg 

J9062 J9062 Injection, Cisplatin, 50 mg 

J9181 J9181 Injection, Etoposide, 10 mg 

J9182 J9182 Injection, Etoposide, 100 mg 

J9185 J9185 Injection, Fludarabine phosphate, 50 mg 

J9202 J9202 Goserelin acetate implant, per 3.6 mg 

J9214 J9214 Interferon alfa-2b, recombinant, 1 million units 

J9217 J9217 Leuprolide acetate (for depot suspension), 7.5 mg 

J9265 J9265 Injection, Paclitaxel, 30 mg 

J9293 J9293 Injection, Mitoxantrone HCl, per 5 mg 

J9390 J9390 Vinorelbine tartrate, per 10 mg 

K0121 K0121 Cyclosporine, oral, 25 mg 

Q0136 Q0136 Injection, Epoetin alpha, (non-ESRD), per 1000 units 

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APPENDIX B

HCPCS 

CODE GENERIC DRUG NAME 

VA 

MEDIAN MEDIAN 

HCFA 

DIFFERENCE 

PERCENTAGE NUMBER OF 

DIFFERENCE SERVICES 

ESTIMATED 

SAVINGS 

ESTIMATED 1998 SAVINGS BY HCPCS CODE 

90732 Pneumococcal vaccine $5.68 $12.84 $7.16 126% 1,752,024 $12,544,491.84 

J0205 Alglucerase $28.26 $35.15 $6.89 24% 143,084 $985,848.76 

J0585 Botulinum $2.41 $3.98 $1.57 65% 2,843,251 $4,463,904.07 

J0640 Leucovorin calcium $1.18 $20.45 $19.27 1633% 2,833,686 $54,605,129.22 

J0696 Ceftriaxone sodium $5.81 $11.73 $5.92 102% 1,121,918 $6,641,754.56 

J1245 Dipryidamole $9.65 $28.21 $18.56 192% 518,207 $9,617,921.92 

J1440 Filgrastim (300 mcg) $106.69 $153.24 $46.55 44% 367,795 $17,120,857.25 

J1441 Filgrastim (480 mcg) $169.55 $244.06 $74.51 44% 196,969 $14,676,160.19 

J1561 Immune globulin (500 mg) $27.71 $48.65 $20.94 76% 1,039,526 $21,767,674.44 

J1562 Immune globulin (5 g) $110.83 $439.38 $328.55 296% 92,994 $30,553,178.70 

J1626 Granisetron hcl $8.42 $16.85 $8.43 100% 4,105,560 $34,609,870.80 

J2405 Ondansetron hcl $5.03 $5.80 $0.77 15% 8,730,024 $6,722,118.48 

J2430 Pamidronate disodium $104.39 $196.90 $92.51 89% 229,935 $21,271,286.85 

J9000 Doxorubicin* $7.46 $43.23 $35.77 479% 629,236 $22,507,771.72 

J9031 BCG Live $78.22 $150.91 $72.69 93% 115,438 $8,391,188.22 

J9045 Carboplatin $39.50 $84.16 $44.66 113% 982,275 $43,868,401.50 

J9062 Cisplatin $100.09 $182.01 $81.92 82% 61,788 $5,061,672.96 

J9181 Etoposide (10 mg) $0.79 $13.22 $12.43 1573% 879,440 $10,931,439.20 

J9182 Etopisde (100 mg) $7.84 $132.25 $124.41 1587% 181,322 $22,558,270.02 

J9185 Fludarbine phosphate $110.70 $186.68 $75.98 69% 102,444 $7,783,695.12 

J9202 Goserelin acetate $206.29 $389.98 $183.69 89% 329,988 $60,615,495.72 

J9214 Interferon, alfa-2b $6.97 $10.74 $3.77 54% 1,112,282 $4,193,303.14 

J9217 Leuprolide acetate $299.38 $513.60 $214.22 72% 1,286,664 $275,629,162.08 

J9265 Paclitaxel $109.36 $173.50 $64.14 59% 895,067 $57,409,597.38 

J9293 Mitoxantrone HCl $101.56 $179.56 $78.00 77% 121,358 $9,465,924.00 

J9390 Vinorelbine tartrate $40.72 $61.47 $20.75 51% 350,891 $7,280,988.25 

K0121 Cyclosporine $.88 $1.41 $.53 60% 15,326,735 $8,123,169.55 

K0503 Acetylcysteine** $1.25 $6.73 $5.48 438% 1,861,345 $10,200,170.60 

K0504 Albuterol sulfate (concentrated)** $0.06 $0.13 $0.07 117% 15,474,404 $1,083,208.28 

K0505 Albuterol sulfate (dose form)** $0.12 $0.47 $0.35 292% 343,627,175 $120,269,511.25 

K0518 Ipratropium bromide** $1.31 $3.34 $2.03 155% 29,505,931 $59,897,039.93 

K0523 Metaproterenol sulfate (concentrated)** $0.18 $0.26 $0.08 44% 205,745 $16,459.60 

K0524 Metaproterenol sulfate (dose form)** $0.52 $0.83 $0.31 60% 7,427,068 $2,302,391.08 

Q0136 Epoetin alpha $6.74 $12.00 $5.26 78% 10,466,953 $55,056,172.78 

TOTAL $1,028,225,229.46 

* Though code J9010 was deleted as of 12/31/96, there was still some billing of it in 1997. Currently, code J9000 is used for all Doxorubicin 

billing. The number of services listed does not reflect that all 1998 billing for J9010 will be subsumed under J9000. Therefore, potential savings 

are underestimated. 

** Coding changes for inhalation drugs went into effect on April 1, 1997. The number of services listed reflects 1997 utilization for the K-codes 

only, and therefore does not represent services billed under previous codes from January 1997 through March 1997. Potential savings are 

therefore underestimated for these 6 codes. 

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APPENDIX C

HEALTH CARE FINANCING ADMINISTRATION COMMENTS

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C - 2
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