Report to the Ranking Minority 

Member, Subcommittee on Health, 

Committee on Ways and Means, House 

of Representatives 

United States General Accounting Office

GAO 

January 2003 MEDICARE

Payment for Blood 

Clotting Factor 

Exceeds Providers’ 

Acquisition Cost 

GAO-03-184 
Medicare’s payment for clotting factor, like other outpatient drugs, is 95 

percent of the average wholesale price (AWP), a price established for each 

drug by its manufacturer. Medicare’s payment is substantially more than the 

actual acquisition costs of hemophilia treatment centers (HTC) and 

homecare companies, which provide a majority of Medicare beneficiaries 

with clotting factor. Most HTCs obtain prices from manufacturers that are 

35 to 48 percent below AWP by participating in a federal program that 

guarantees them low prices. Homecare companies obtain prices that range 

from 22 to 40 percent below AWP. 

Providers incur additional costs associated with delivering clotting factor 

that are not separately reimbursed by Medicare. GAO estimates that these 

additional costs in 2000 and 2001 ranged from $0.03 to $0.08 per unit sold by 

HTCs. (Hemophilia patients use an average of 78,000 units of clotting factor 

annually.) GAO did not receive enough data from homecare companies to 

estimate their costs. Delivery costs are generated in inventory management, 

specialized refrigerated storage, shipping, and the provision of ancillary 

supplies such as needles, syringes, and tourniquets to patients. 

MEDICARE

Payment for Blood Clotting Factor 

Exceeds Providers’ Acquisition Cost 

www.gao.gov/cgi-bin/getrpt?GAO-03-184.

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact Laura A. 

Dummit at (202) 512-7119. 

Highlights of GAO-03-184, a report to 

Ranking Minority Member, Subcommittee 

on Health, Committee on Ways and 

Means, House of Representatives 

January 2003 

In 2001, Medicare’s outpatient 

expenditures for blood clotting 

factor used to treat the estimated 

1,100 beneficiaries with hemophilia 

totaled about $105 million, or more 

than 2 percent of total Medicare 

spending on outpatient drugs. 

Earlier work by GAO indicated that 

Medicare’s payment for certain 

outpatient drugs is substantially 

higher than providers’ acquisition 

costs. Concerns have been raised 

about Medicare’s payment for 

blood clotting factor. GAO was 

asked to compare provider costs of 

purchasing clotting factor with 

Medicare’s payment for it and to 

identify costs to providers 

associated with delivering clotting 

factor. 

GAO recommends that the 

Administrator of the Centers for 

Medicare & Medicaid Services 

(CMS) establish Medicare payment 

levels for clotting factor that are 

more closely related to providers’ 

acquisition costs and then establish 

a separate payment for the cost of 

delivering clotting factor to 

Medicare beneficiaries. The 

Department of Health and Human 

Services (HHS) agreed with our 

recommendations. 
Page i GAO-03-184 Medicare Payment for Clotting Factor 

Letter 1

Results in Brief 3

Background 4

Small Number of Providers Buy Clotting Factor Directly from 

Manufacturers 7

Providers Obtain Clotting Factor Products for Substantially Less 

than Medicare’s Payment 10

Providers Incur Costs Associated with Delivering Clotting Factor 

to Medicare Beneficiaries That Are Not Separately Reimbursed 11

Conclusions 13

Recommendations for Executive Action 14

Agency Comments 14

Appendix I Scope and Methodology 16 

Appendix II Comments from the Department of Health and 

Human Services 18 

Table 

Table 1: Disease Type and Disease Severity for the Total 

Hemophilia Population and the Medicare Subpopulation 7

Figure 

Figure 1: Participants in the Clotting Factor Market 9 

Contents 
Page ii GAO-03-184 Medicare Payment for Clotting Factor 

Abbreviations 

AMP average manufacturer price 

AWP average wholesale price 

CDC Centers for Disease Control and Prevention 

CMS Centers for Medicare & Medicaid Services 

HHS Department of Health and Human Services 

HIV human immunodeficiency virus 

HRSA Health Resources and Services Administration 

HTC hemophilia treatment center 

OIG Office of Inspector General 
Page 1 GAO-03-184 Medicare Payment for Clotting Factor 

January 10, 2003 

The Honorable Pete Stark 

Ranking Minority Member 

Subcommittee on Health 

Committee on Ways and Means 

House of Representatives 

Dear Mr. Stark: 

In 2001, Medicare’s outpatient expenditures for blood clotting factor 

totaled about $105 million, or more than 2 percent of total Medicare 

spending on all covered outpatient drugs and biologicals.1

 Blood clotting 

factor is a biological used by persons with hemophilia to prevent 

uncontrolled internal bleeding that could result in disability or death.2

 The 

Centers for Disease Control and Prevention (CDC) estimate that 

approximately 18,000 Americans, nearly all male, have hemophilia and 

about 1,100 of these individuals are Medicare beneficiaries. 

Medicare’s payment for clotting factor, like other outpatient drugs and 

biologicals, is 95 percent of the average wholesale price (AWP). Often 

described as a “sticker price” or “list price,” AWP is established for each 

drug by its manufacturer. Medicare’s AWP-based payment has recently 

come under scrutiny. In 2001, we reported that providers were able to 

purchase certain drugs at prices significantly less than the payment they 

received from Medicare.3

 Although providers contended that this 

overpayment was necessary to compensate for underpayment for other 

 1

Under Medicare part B, outpatient prescription drugs and biologicals are covered if they 

are not usually self-administered and are provided incident to a physician’s services or if 

they are used in conjunction with durable medical equipment. Certain self-administered 

drugs and biologicals, such as oral drugs used in association with cancer treatment and 

blood clotting factor (and the items related to the administration of such factor), are also 

covered. 

2

Hemophilia is a deficiency in one of the proteins that causes blood to clot, referred to as a 

blood clotting factor. Hereafter, we refer to blood clotting factor as “clotting factor” and 

use the term to generally refer to both the deficient proteins and the biological substance 

infused for hemophilia treatment. 

3

U.S. General Accounting Office, Medicare: Payments for Covered Outpatient Drugs 

Exceed Providers’ Cost, GAO-01-1118 (Washington, D.C.: Sept. 21, 2001). 

United States General Accounting Office

Washington, DC 20548 
Page 2 GAO-03-184 Medicare Payment for Clotting Factor 

services, we concluded that Medicare should not rely on potential 

overpayments for some services to offset potential inadequate payments 

for other services. 

The method of delivery of clotting factor has implications for Medicare 

payment. Most outpatient drugs covered by Medicare are administered in a 

physician’s office. When a beneficiary visits a physician in order to receive 

a drug, the physician receives one payment from Medicare for the drug 

and another payment through the physician fee schedule for administering 

the drug. Clotting factor, however, is generally not administered in a 

physician’s office. Medicare pays clotting factor providers, mainly 

hemophilia treatment centers (HTC)4

 and homecare companies,5 solely for 

the drug. These providers generally purchase clotting factor products 

directly from the manufacturers, rather than from drug wholesalers, and 

deliver them directly to the very small hemophilia population.6

Because clotting factor products were not included in our 2001 report, you 

asked us to evaluate whether Medicare’s payment for clotting factor is 

higher than its acquisition cost and to identify and describe any aspects of 

the production and delivery of clotting factor that may relate to how 

Medicare payment should be determined. In this report, we (1) describe 

characteristics of the clotting factor delivery system, (2) compare provider 

costs of purchasing clotting factor with Medicare’s payment for it, and 

(3) identify any costs to providers associated with delivering clotting 

factor and furnishing related services to Medicare beneficiaries with 

hemophilia. 

To conduct this study, we obtained data on the hemophilia population 

from CDC. We analyzed the most recent data available from the Health 

Resources and Services Administration (HRSA) on HTC clotting factor 

acquisition prices obtained through a federal discount program. We also 

analyzed data on clotting factor acquisition prices from two large, national 

 4

HTCs are federally funded facilities that provide medical care to persons with hemophilia. 

Created in 1975 [see Pub. L. No. 94-63, § 606, 89 Stat. 304, 350 (1975)], HTCs are currently 

funded by the Health Resources and Services Administration’s Maternal and Child Health 

Bureau and CDC. 

5

Homecare companies are also known as “specialty pharmacies.” 

6

There are 13 unique clotting factor products used to treat the two most common types of 

hemophilia. These products vary by manufacturer, protein composition, and manufacturing 

process. 
Page 3 GAO-03-184 Medicare Payment for Clotting Factor 

homecare companies. In addition, we analyzed acquisition price data 

provided to us by an HTC association for seven HTCs that had purchased 

clotting factor outside the federal discount program. We also analyzed 

related data on clotting factor prices from the Centers for Medicare & 

Medicaid Services (CMS), the agency that administers Medicare. We 

analyzed data on provider delivery costs for four HTCs, which we obtained 

from a representative of an HTC association, and for two large, national 

homecare companies, which we contacted directly. We interviewed 

officials at the Department of Health and Human Services (HHS) Office of 

Inspector General (OIG), two patient advocacy organizations, four of the 

six clotting factor manufacturers, two wholesalers, and several additional 

HTCs and homecare companies. Our work was performed from February 

through December 2002 in accordance with generally accepted 

government auditing standards. See appendix I for more detailed 

discussion of our scope and methodology. 

The clotting factor market is characterized by a small number of 

manufacturers and providers. The six clotting factor manufacturers sell 

their products directly to providers, predominantly HTCs and homecare 

companies. About half of the 137 HTCs can provide clotting factor and 

related ancillary supplies, such as syringes and bandages, to their patients. 

Individuals may also obtain clotting factor from homecare companies, 

which ship drugs and biologicals and related ancillary supplies directly to 

persons with chronic conditions. Shortages of particular clotting factor 

products periodically occur. When HTCs and homecare companies need to 

obtain a clotting factor product outside their typical supply arrangements, 

such as during a shortage, they may purchase it from certain specialty 

wholesalers, known as distributors. 

Provider costs for acquiring clotting factor are significantly below 

Medicare’s payment, which is 95 percent of AWP. Through a federal drug 

discount program, HTCs obtain prices from manufacturers that are 

approximately 35 to 48 percent below AWP. Homecare companies are able 

to obtain clotting factor at prices 22 to 40 percent below AWP. HTCs and 

homecare companies do not generally face higher acquisition prices from 

manufacturers during product shortages. 

Medicare does not make a separate payment to providers for the costs of 

delivering clotting factor, which include dispensing costs and furnishing 

Results in Brief 
Page 4 GAO-03-184 Medicare Payment for Clotting Factor 

related ancillary supplies. We estimate that dispensing and ancillary 

supply costs in 2000 and 2001 ranged from approximately $0.03 to $0.08 for 

each unit of clotting factor provided by HTCs.7

 We did not receive enough 

data from homecare companies to estimate their costs. Clotting factor’s 

biological properties and complex dosing protocols contribute to 

dispensing costs in the form of inventory management, storage, and 

shipping. In addition, the cost of ancillary supplies that are necessary for 

infusing clotting factor, such as needles, syringes, and tourniquets, is not 

reimbursed by Medicare. While providers may also furnish other services 

for which they are not separately reimbursed, such as patient education 

and community outreach, these services are not Medicare-covered 

benefits, and they are generally targeted to younger patients who are not 

Medicare beneficiaries. 

While Medicare’s payment for clotting factor is high enough to more than 

reimburse both acquisition and delivery costs, we believe that Medicare’s 

overpayment for acquisition costs should not be used to compensate for 

the lack of payment for delivery costs. Therefore, we recommend that the 

Administrator of CMS establish Medicare payment amounts for clotting 

factor delivered on an outpatient basis that are more closely related to 

providers’ acquisition costs. When payments are reduced to reflect costs 

more accurately, the Administrator should establish a separate payment 

for the costs of delivering clotting factor to Medicare beneficiaries. In 

commenting on a draft of this report, HHS agreed with our 

recommendations. 

The two most common types of hemophilia are a deficiency in clotting 

factor VIII, hemophilia A, and a deficiency in clotting factor IX, hemophilia 

B. Hemophilia can be mild, moderate, or severe depending on the amount 

of the clotting factor present in the blood. People with severe hemophilia, 

for example, have less than 1 percent of the normal level of clotting factor 

VIII or IX. The level of clotting factor deficiency contributes to the risk 

that a particular bleeding episode poses to an individual. In individuals 

with severe hemophilia, bleeding into the joints and adjoining tissues can 

occur spontaneously, without an actual injury. Persons with mild 

 7

Clotting factor dosage is measured in international units; one international unit is the 

amount of clotting factor contained in one milliliter of normal plasma. The average annual 

use of clotting factor by patients with the most common form of hemophilia, based on CDC 

statistics for 1998, is 78,000 units. 

Background 
Page 5 GAO-03-184 Medicare Payment for Clotting Factor 

hemophilia usually experience prolonged bleeding only after surgery or a 

major trauma, such as a head wound. 

Historically, people with hemophilia relied on high-volume transfusions of 

whole blood or plasma for treatment. These treatments, however, did not 

provide enough clotting factor to stop serious bleeding and could be 

performed only in a medical facility. With the introduction in the 1960s of 

concentrated clotting factor products that could be infused at home, 

hemophilia began to be more effectively and conveniently treated. 

Early clotting factor products were produced from human plasma. 

Recombinant clotting factor products, which are genetically engineered or 

cloned, were introduced in the 1990s to reduce the risk of blood-borne 

infections. New manufacturing processes and safety protocols have also 

reduced the risk of infections to individuals using plasma clotting factor 

products. Because recombinant products are not derived from human 

plasma, they are generally considered the current treatment of choice, 

although many older individuals continue to use plasma products. There is 

not enough recombinant clotting factor manufactured to treat all 

individuals with hemophilia. 

Both plasma and recombinant clotting factor are biological substances 

that differ in many respects from conventional, chemically synthesized 

drugs. For example, biologicals such as clotting factor are derived from 

living sources, so the concentration and potency of the original source 

material can vary. Furthermore, biologicals cannot be manipulated during 

the manufacturing process in a way that produces a consistent and precise 

yield of product. As a biological product, clotting factor is susceptible to 

microbial contamination and sensitive to environmental conditions, such 

as temperature. 

Individuals with hemophilia generally self-infuse clotting factor.8

 Clotting 

factor can be infused on demand, when a bleeding episode occurs, or for 

prevention, known as prophylactic use. By self-infusing, individuals can 

avoid waiting for care at a medical facility. Timely infusion relieves shortterm pain and swelling and helps prevent chronic joint disease, which 

results from recurrent bleeding into the joints. Prophylactic infusions can 

 8

Young children and individuals with severe disabilities, who may require assistance from 

caregivers, are exceptions. 

Hemophilia Is Treated with 

Clotting Factor 
Page 6 GAO-03-184 Medicare Payment for Clotting Factor 

be intermittent, such as before major surgery, or continuous, to prevent 

uncontrolled bleeding over time. Continuous prophylactic infusion is 

generally confined to younger individuals to prevent prolonged bleeding 

episodes and long-term complications. Physicians prescribe a dosage of 

clotting factor units that is based on the nature of treatment.9

 Generally, 

younger and smaller individuals are prescribed lower quantities of clotting 

factor than older and larger individuals. 

Because people infuse clotting factor in large doses, a substantial quantity 

is used annually in the United States. Total clotting factor use is about 1 

billion units per year. Although the average annual use of clotting factor 

VIII for a person with hemophilia A is 78,000 units, individual use varies 

widely. In any given year, approximately 23 percent of individuals with 

hemophilia use no clotting factor at all, while a very small percentage of 

individuals may use more than 500,000 units. 

According to CDC estimates, 6 percent of the hemophilia population, or 

about 1,100 individuals, are Medicare beneficiaries.10 The average age of a 

Medicare beneficiary with hemophilia is 53, nearly three decades older 

than the average age of the total hemophilia population, which is 24.11 In 

addition, Medicare beneficiaries with hemophilia show higher rates of 

chronic joint disease and two viral infections, hepatitis C and human 

immunodeficiency virus (HIV), than the general hemophilia population. 

Because clotting factor products were not available when most Medicare 

beneficiaries were young, they typically experienced prolonged and 

repeated bleeding episodes, a situation that in vulnerable joint areas leads 

to the destruction of joint tissues. As a result, 28 percent of Medicare 

 9

An individual’s prescription varies according to weight and whether the individual is 

infusing on demand or for prophylactic purposes. Physicians use their own discretion in 

calculating the exact quantity to prescribe in any given situation. According to a physician 

at one HTC, a 150 lb. individual with a moderate injury should be prescribed approximately 

1,500 to 2,000 units of factor VIII. The same individual should be prescribed 3,000 to 3,500 

units for a severe injury, such as a head injury. While patients infuse once or twice in 

response to a bleeding episode, those under preventive treatment infuse three times per 

week to maintain their baseline amount of clotting factor. According to the physician we 

consulted, a total of 5,700 to 6,500 units of factor VIII infused over the course of each week 

would be a suitable preventive strategy for a 150 lb. individual. 

10CDC bases these estimates on data from the 1993-1998 Hemophilia Surveillance System 

Project, the most recent data available. 

11Certain disabled individuals qualify for Medicare in addition to individuals age 65 and 

over. 

Characteristics of 

Medicare Beneficiaries 

with Hemophilia 
Page 7 GAO-03-184 Medicare Payment for Clotting Factor 

beneficiaries with hemophilia have chronic joint disease, compared to 14 

percent of the general hemophilia population. Also, because many 

Medicare beneficiaries began using clotting factor products before the 

blood supply was tested for hepatitis C and HIV and before recombinant 

products were available, beneficiaries have high rates of infection with 

those viruses: 60 percent have hepatitis C and 45 percent have HIV. For the 

total hemophilia population, the rates of hepatitis C and HIV infection are 

39 and 24 percent, respectively. 

The Medicare beneficiary subpopulation and overall hemophilia 

population do not differ, however, in terms of the frequency of disease 

type or severity of clotting factor deficiency (see table 1). Also, the annual 

use of clotting factor among Medicare beneficiaries and the overall 

population with hemophilia is similar. 

Table 1: Disease Type and Disease Severity for the Total Hemophilia Population 

and the Medicare Subpopulation 

Percentage of total 

hemophilia population 

Percentage of Medicare 

hemophilia 

subpopulation 

Type of clotting factor deficiency 

• Factor VIII (hemophilia A) 79 80 

• Factor IX (hemophilia B) 21 20 

Total 100 100 

Severity 

• Mild 32 32 

• Moderate 24 23 

• Severe 41 43 

• Unknown 3 2 

Total 100 100 

Source: CDC analysis of data from the 1993-1998 Hemophilia Surveillance System Project. 

A small number of providers and manufacturers are involved in the 

clotting factor market. The two main types of providers, HTCs and 

homecare companies, furnish clotting factor and related ancillary supplies 

to individuals with hemophilia. These providers obtain clotting factor 

directly from the six clotting factor manufacturers. Providers rarely 

purchase from distributors. 

Small Number of 

Providers Buy 

Clotting Factor 

Directly from 

Manufacturers 
Page 8 GAO-03-184 Medicare Payment for Clotting Factor 

HTCs and homecare companies are the two main providers of clotting 

factor. HTCs provide annual checkups and ongoing medical care, physical 

therapy, and social and other services to persons with hemophilia. HTCs 

are located in 47 states, the District of Columbia, Puerto Rico, and Guam 

and treat an average of about 90 hemophilia patients each. Approximately 

half the HTCs, 67 out of 137, can furnish clotting factor and related 

ancillary supplies to individuals they treat.12

Homecare companies are the main source of clotting factor for individuals 

who do not obtain their clotting factor from HTCs. There are several large 

national homecare companies, as well as smaller regional companies. 

Homecare companies ship drugs and related ancillary supplies directly to 

individuals with chronic conditions. While homecare companies do not 

provide physician services to their patients, they may provide nursing 

services, patient education, community outreach, and case management. 

Homecare companies can ship clotting factor to individuals throughout 

the United States through their licensed pharmacies. 

There are six manufacturers of clotting factors VIII and IX that sell directly 

to HTCs and homecare companies. In addition, distributors buy the small 

amount of clotting factor, approximately 5 percent of all clotting factor 

delivered in the United States, that manufacturers have not sold to HTCs, 

homecare companies, or other medical entities such as hospitals. These 

distributors sell to HTCs, homecare companies, and hospitals and other 

medical entities to meet their emergency or short-term needs. (See fig. 1 

for a depiction of the clotting factor market.) 

 12According to an HTC representative, one reason some HTCs may not provide clotting 

factor is the high initial start-up costs of a factor program; such costs arise from the 

structural modifications to facilities that storing and dispensing clotting factor require, the 

initial supply of clotting factor, and the salaries for a dedicated staff to run the program. 

The HTC representative also stated that some HTCs affiliated with larger organizations, 

typically medical schools or hospitals, may have had difficulty receiving institutional 

approval for such a program. 

HTCs and Homecare 

Companies Provide 

Clotting Factor 

Small Number of Clotting 

Factor Manufacturers 

Contribute to Periodic 

Product Shortages 
Page 9 GAO-03-184 Medicare Payment for Clotting Factor 

Figure 1: Participants in the Clotting Factor Market 

Shortages of particular clotting factor products occur periodically. 

Because the six manufacturers run at capacity, a decrease in production 

by any one reduces availability of a particular product and strains the 

general clotting factor supply. Increasing clotting factor production in 

response to a shortage is difficult. Manufacturing clotting factor takes an 

average of 6 months; opening an additional plant can take several years. In 

2001, there was a severe shortage of recombinant clotting factor VIII when 

production problems at one manufacturer occurred concurrently with a 

routine maintenance shutdown by another. Many individuals were unable 

to obtain recombinant products at that time, causing them to rely on 

plasma clotting factor, straining its supply as well. Because some HTCs 

and homecare companies could not obtain the needed clotting factor 

products from manufacturers, they turned to distributors to obtain 

alternative products. 

Distributors

Six manufacturers of clotting factor

Patients Patients

Hemophilia treatment 

centers

Homecare

companies

Source: GAO.
Page 10 GAO-03-184 Medicare Payment for Clotting Factor 

HTCs and homecare companies are able to purchase clotting factor at 

prices considerably lower than Medicare’s payment for clotting factor. 

Almost all HTCs that provide clotting factor participate in a federal 

program that allows them to obtain prices from manufacturers that are 35 

to 48 percent below AWP. Homecare companies can obtain prices that 

range from 22 to 40 percent below AWP. While clotting factor shortages 

can affect providers’ ability to procure specific products for their 

customers, HTCs and homecare companies do not generally face higher 

acquisition prices from manufacturers during periods of product 

shortages. 

In an analysis of 2001 and first quarter 2002 data, we found that HTCs 

purchase clotting factor from manufacturers at a 35 to 48 percent discount 

from AWP. The largest discounts are for plasma clotting factor VIII 

products, and the smallest discounts are for recombinant clotting factor 

VIII products, with the discounts for clotting factor IX products falling in 

between. HTCs obtain these substantial discounts through the Public 

Health Service 340B program,13 which enables certain federally funded 

entities to buy drugs directly from manufacturers at discounted prices.14

The 340B prices, which are updated quarterly, equal a set discount from a 

manufacturer’s price.15

Our analysis of data from 2001 and 2002 shows that homecare companies 

can also purchase clotting factor from manufacturers at prices 

substantially below Medicare’s payment.16 With prices from 22 to 40 

percent below AWP, the discounts that homecare companies receive are 

somewhat less than those received by HTCs. Like HTCs, homecare 

companies receive the largest discounts on plasma clotting factor VIII 

 13See Pub. L. No. 102-585, Title VI, § 602, 106 Stat. 4943, 4967 (1992) (adding section 340B to 

the Public Health Service Act). 

14Of the 67 HTCs that can operate clotting factor programs, 4 have chosen not to participate 

in the 340B program. 

15Generally, the 340B price equals the average manufacturer price (AMP) minus 15.1 

percent. AMP represents the average unit price paid to the manufacturer by wholesalers for 

drugs distributed to retail pharmacies. Because wholesalers make up such a small portion 

of the clotting factor market, AMP calculations for clotting factor are based primarily on 

direct sales to providers. 

16See appendix I for a detailed discussion of our analysis of homecare company acquisition 

prices. 

Providers Obtain 

Clotting Factor 

Products for 

Substantially Less 

than Medicare’s 

Payment 

Providers Obtain Large 

Discounts from AWP 
Page 11 GAO-03-184 Medicare Payment for Clotting Factor 

products and the smallest on recombinant clotting factor VIII products, 

with discounts for clotting factor IX products falling in between. 

Because most HTCs obtain their prices through a federal discount 

program, they are typically protected from price increases during periods 

of product shortage. According to certain homecare companies and other 

stakeholders we interviewed, shortages do not result in price fluctuations 

for homecare companies over the course of the contracts they sign with 

manufacturers. During shortages, sufficient supplies of particular clotting 

factor products may not be available directly from manufacturers. In such 

rare cases, providers may pay higher prices to other entities, mainly 

distributors, to secure needed products. However, a distributor we spoke 

with sold clotting factor products to providers at prices that were still 

lower than Medicare’s payment. 

Providers incur costs associated with delivering clotting factor that are not 

separately reimbursed by Medicare. We estimate that total delivery costs 

in 2000 and 2001 ranged from $0.03 to $0.08 per unit of clotting factor sold 

by HTCs.17 We did not receive enough data from homecare companies to 

estimate their costs. Delivery costs are generated in inventory 

management, storage, shipping, and the provision of ancillary supplies 

necessary for the infusion of clotting factor. Providers may also furnish 

other services for which they are not separately reimbursed, such as 

patient education and community outreach. These services are not 

Medicare-covered benefits, and they are generally targeted to younger 

patients who are not Medicare beneficiaries. 

Medicare does not make a separate payment for the costs of delivering 

clotting factor, including costs associated with inventory management, 

storage and shipping, and the provision of ancillary supplies. Due to its 

complex dosing protocols and biological properties, clotting factor 

requires considerable inventory management. Because the number of units 

of clotting factor prescribed is determined by an individual’s size and 

treatment needs, each prescription is specific to the individual. However, 

 17A delivery cost of $0.03 to $0.08 per unit of factor is equivalent to about 4 to 17 percent of 

HTCs’ acquisition costs, depending on the specific product purchased, the individual 

provider, and the amount provided to the patient. 

Providers Do Not 

Generally Face Higher 

Prices during Shortages 

Providers Incur Costs 

Associated with 

Delivering Clotting 

Factor to Medicare 

Beneficiaries That Are 

Not Separately 

Reimbursed 

Delivering Clotting Factor 

Generates Dispensing and 

Ancillary Supply Costs 
Page 12 GAO-03-184 Medicare Payment for Clotting Factor 

manufacturers sell vials of clotting factor in only three standard 

concentrations: 250, 500, or 1,000 units per vial. Furthermore, the 

unpredictability involved in manufacturing a biological substance like 

clotting factor results in manufacturers’ inability to predetermine the 

precise concentration of clotting factor in a particular vial; they can only 

predict its concentration within 10 percent of the standard concentration. 

Therefore, a small-sized vial may be labeled anywhere from 225 to 275 

units, and a large-sized vial may be labeled anywhere from 900 to 1,100 

units. Managing clotting factor inventory requires more staff time than 

managing the inventory of conventional drugs, in large part due to the 

variations across individual prescriptions and the variable concentrations 

in individual vials. 

Inventory management is further complicated by product recalls as well as 

shortages. If a specific product or concentration is not available as a result 

of a product recall or shortage, the provider must allocate additional staff 

time to consult with an individual’s physician to determine an alternate 

plan of clotting factor treatment until the preferred product is available 

again. One provider we spoke with said that product recalls of clotting 

factor occur more often than for other drugs because of sensitivity to the 

possibility of blood-borne infection resulting from the use of clotting 

factor. In 2001, there was one recall of a clotting factor VIII and one recall 

of a clotting factor IX product. 

Clotting factor providers also incur costs associated with storing and 

shipping clotting factor. Providers order tens of thousands of units of 

clotting factor a year for each patient. Because clotting factor must be 

refrigerated to prevent spoilage, the high volume of clotting factor stored 

by providers requires large temperature-controlled areas with sources of 

backup power. The shipment of clotting factor also involves special 

arrangements. Glass vials of clotting factor must be securely wrapped to 

prevent breakage and then packed with coolants. Providers ship the 

products using overnight delivery services that track and monitor the 

product along the delivery route to ensure that it is delivered to the 

individual’s door at a specific time. Many providers have staff available 24 

hours a day to ship clotting factor to patients during emergencies. Some 

providers insure their shipments, while others absorb the cost of any 

product lost, damaged, or spoiled during shipment. 

Providers incur costs for furnishing ancillary supplies necessary to infuse 

clotting factor to individuals. These include needles, syringes, alcohol 

wipes, bandages, medical tape, sterile gloves, tourniquets, and needle 

disposal containers. 
Page 13 GAO-03-184 Medicare Payment for Clotting Factor 

According to our analysis of data from four HTCs, the costs to HTCs for 

dispensing clotting factor and providing ancillary supplies directly to 

patients ranged from $0.03 to $0.08 per unit of clotting factor based on 

data from 2000 and 2001. We did not receive enough data from homecare 

companies to estimate their costs. Delivery costs reflect fixed charges, 

such as rent and insurance, and costs that vary by the quantity of clotting 

factor sold, such as shipping and ancillary supplies. Therefore, providers’ 

per unit costs may depend on their overall product volume and the size of 

the individual orders. 

HTCs and homecare companies state that they provide services related to 

hemophilia, such as nursing services, patient education, education on 

hemophilia to schools and community organizations, and case 

management, that are not separately reimbursed by Medicare and must be 

covered through clotting factor payments. To the extent that Medicare 

beneficiaries receive services incident to a physician visit, such as case 

management at an HTC or physician’s office, these services are 

compensated through Medicare’s payment for the physician visit. Other 

services are not covered under the Medicare program and predominantly 

target families with young children and the schools and other community 

institutions they attend. 

Medicare’s payment for clotting factor delivered on an outpatient basis is 

flawed in the same way that its payment is flawed for other outpatient 

prescription drugs. In tying its payment to AWP, Medicare has been paying 

substantially more than providers’ actual acquisition costs. The provider 

discounts that we report result in acquisition costs that are substantially 

below Medicare’s payment. However, the lowest prices, those from the 

340B program, are not available to all Medicare providers of clotting 

factor. 

Providers also incur costs in delivering clotting factor related to inventory 

management, specialized storage, shipping procedures, and in providing 

ancillary supplies. These costs are not separately paid by Medicare. While 

we can only estimate the amount of delivery costs, overpayments on 

clotting factor are sufficiently high to more than cover them. However, we 

believe that Medicare overpayments for some services should not be used 

to compensate for the lack of payments for others. 

Services Related to 

Clotting Factor Are Not 

Targeted towards 

Medicare Beneficiaries 

Conclusions 
Page 14 GAO-03-184 Medicare Payment for Clotting Factor 

We recommend that the Administrator of CMS establish a Medicare 

payment for clotting factor delivered on an outpatient basis that is more 

closely related to providers’ acquisition costs. Medicare’s payment for 

clotting factor should reflect actual market transaction prices. When 

Medicare’s payment for clotting factor more closely reflects acquisition 

costs, we recommend that the Administrator establish a separate payment 

for providers based on the costs of delivering clotting factor to Medicare 

beneficiaries. 

In commenting on a draft of our report, HHS noted that our findings 

expand upon those in earlier reports by us and the HHS OIG on Medicare 

payment for outpatient drugs to specifically include information on 

payments for clotting factor. HHS agreed that Medicare should 

appropriately pay for clotting factor and services related to furnishing 

clotting factor. HHS’s written comments are in appendix II. The agency 

also provided technical comments, which we incorporated where 

appropriate. 

We also provided a copy of the draft to representatives of two hemophilia 

associations, the National Hemophilia Foundation and the Hemophilia 

Federation of America, for oral comment. They agreed with our 

recommendations and provided technical comments, which we 

incorporated where appropriate. 

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution of it until 30 days from 

the date of this report. We will then send copies of this report to the 

Secretary of HHS and the Administrators of CMS and HRSA. The report is 

available at no charge on GAO’s Web site at http://www.gao.gov. We will 

also make copies available to others on request. 

Recommendations for 

Executive Action 

Agency Comments 
Page 15 GAO-03-184 Medicare Payment for Clotting Factor 

If you or your staff have any questions, please call me at (202) 512-7119 or 

Nancy A. Edwards at (202) 512-3340. Other major contributors to this 

report include George H. Bogart, Beth Cameron Feldpush, and 

Yorick F. Uzes. 

Sincerely yours, 

Laura A. Dummit 

Director, Health Care—Medicare Payment Issues 
Appendix I: Scope and Methodology 

Page 16 GAO-03-184 Medicare Payment for Clotting Factor 

In conducting this study, we analyzed data from the Centers for Medicare 

& Medicaid Services (CMS), the Health Resources and Services 

Administration (HRSA), and the Centers for Disease Control and 

Prevention (CDC). We also analyzed data from 11 hemophilia treatment 

centers (HTC) and 2 homecare companies. We interviewed officials at the 

Department of Health and Human Services Office of Inspector General, 2 

patient advocacy organizations, 4 clotting factor manufacturers, 2 of the 5 

largest distributors, and several HTCs and homecare companies. 

To obtain demographic and treatment information on the hemophilia 

population and Medicare subpopulation, we used data from the 1993-1998 

CDC Hemophilia Surveillance System Project, generally recognized as the 

most complete and accurate data available. Through this project, CDC 

collected medical records data on persons with hemophilia to estimate its 

national prevalence. We used these data to determine characteristics of 

Medicare beneficiaries with hemophilia and compare them to the overall 

population with hemophilia. 

To determine Medicare expenditures for clotting factor products, we used 

2001 data from the Medicare Part B Extract and Summary System, which 

are the most recent data available. We limited our analysis to four clotting 

factor payment categories of recombinant clotting factor VIII, plasma 

clotting factor VIII, recombinant clotting factor IX, and plasma clotting 

factor IX. These categories constituted over 90 percent of Medicare 

expenditures on clotting factor in 2001. 

We determined clotting factor acquisition prices for the two major 

providers of clotting factor, HTCs and homecare companies. For HTCs, we 

obtained 2001 and first quarter 2002 340B acquisition prices directly from 

HRSA. The 340B prices are the discounted prices that HTCs receive 

through their participation in a federal program. 

We obtained 2002 homecare acquisition prices from two homecare 

companies, which we supplemented with two other sources. First, we 

used 2001 and first quarter 2002 average manufacturer price (AMP) data 

obtained from CMS. AMP reflects the average price paid to a manufacturer 

by a purchaser for a drug, excluding 340B prices, other federal prices, and 

sales to hospitals and health maintenance organizations. Because of the 

limited number of provider types involved in the clotting factor market, 

the exclusion of 340B prices from AMP calculations, and the small market 

share of distributors, AMP is a satisfactory proxy for homecare acquisition 

prices. Second, we used acquisition prices from 2001, which we received 

from an HTC association, for seven HTCs that had purchased clotting 

Appendix I: Scope and Methodology 
Appendix I: Scope and Methodology 

Page 17 GAO-03-184 Medicare Payment for Clotting Factor 

factor outside of the 340B program. We combined these three data sources 

into a list of acquisition prices for 2001 and 2002. 

To obtain the estimated discounts from the average wholesale price 

(AWP) for each provider type, we first averaged the acquisition prices 

within product category and year for each of our four data sources: the 

340B prices, the homecare company acquisition prices, the AMP prices, 

and the HTC non-340B acquisition prices. We obtained AWP data from the 

2001 and 2002 Drug Topics Red Book. To obtain AWP discounts, we 

calculated the difference between the corresponding AWP and the average 

acquisition prices to find the average discount, by product category and 

year, for each of the four data sources. We then determined the range of 

HTC discounts by listing the highest and lowest average discounts among 

the four product categories for 2001 and first quarter 2002 340B prices. We 

determined the range of homecare company prices by listing the highest 

and lowest average discounts among the four product categories for 2002 

homecare prices, 2001 and first quarter 2002 AMP prices, and 2001 HTC 

non-340B prices. 

To identify the categories of additional costs that providers incur in 

delivering clotting factor, we relied on structured interviews with 

providers. From information obtained in our interviews, we developed 

cost categories and asked providers to give us their operating costs for 

each of these categories for 1 full year and the total number of clotting 

factor units they purchased during that year. Some HTCs were unable to 

provide this information because they were financially associated with 

larger institutions, such as hospitals, and could not separate their costs 

from those of the institutions. We did obtain costs from four HTCs and 

used these data to determine the range of HTC additional costs. We did not 

receive enough data from homecare companies to estimate their costs. 
Appendix II: Comments from the Department 

of Health and Human Services 

Page 18 GAO-03-184 Medicare Payment for Clotting Factor 

Appendix II: Comments from the Department 

of Health and Human Services 
Appendix II: Comments from the Department 

of Health and Human Services 

Page 19 GAO-03-184 Medicare Payment for Clotting Factor (290167) 
The General Accounting Office, the investigative arm of Congress, exists to 

support Congress in meeting its constitutional responsibilities and to help 

improve the performance and accountability of the federal government for the 

American people. GAO examines the use of public funds; evaluates federal 

programs and policies; and provides analyses, recommendations, and other 

assistance to help Congress make informed oversight, policy, and funding 

decisions. GAO’s commitment to good government is reflected in its core values 

of accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost is 

through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and fulltext files of current reports and testimony and an expanding archive of older 

products. The Web site features a search engine to help you locate documents 

using key words and phrases. You can print these documents in their entirety, 

including charts and other graphics. 

Each day, GAO issues a list of newly released reports, testimony, and 

correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site 

daily. The list contains links to the full-text document files. To have GAO e-mail 

this list to you every afternoon, go to www.gao.gov and select “Subscribe to daily 

E-mail alert for newly released products” under the GAO Reports heading. 

The first copy of each printed report is free. Additional copies are $2 each. A 

check or money order should be made out to the Superintendent of Documents. 

GAO also accepts VISA and Mastercard. Orders for 100 or more copies mailed to a 

single address are discounted 25 percent. Orders should be sent to: 

U.S. General Accounting Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Jeff Nelligan, managing director, NelliganJ@gao.gov (202) 512-4800 

U.S. General Accounting Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

GAO’s Mission 

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Mail or Phone 

To Report Fraud, 

Waste, and Abuse in 

Federal Programs 

Public Affairs