Medicare Outpatient Payments: Rates for Certain Radioactive Sources Used in Brachytherapy Could Be Set Prospectively
Published: 2006-07-24T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Generally, in paying for hospital outpatient procedures, Medicare makes prospectively set payments that are intended to cover the costs of all items and services delivered with the procedure. Medicare pays separately for some technologies that are too new to be represented in the claims data used to set rates. It also pays separately for certain technologies that are not new, such as radioactive sources used in brachytherapy, a cancer treatment. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 required separate payment for the radioactive sources. It also directed GAO to make recommendations regarding future payment. GAO examined (1) how Medicare determines payment amounts for technologies that are not new but are separately paid and (2) how payment amounts for iodine, palladium, and iridium sources used in brachytherapy could be determined.
section_title: What GAO Found
paragraphs: In paying separately for technologies that are not new, the Centers for Medicare & Medicaid Services (CMS) generally sets prospective rates based on the average unit cost of the technologies across hospitals. For example, CMS currently pays separate prospective rates for certain high-cost drugs based on the mean per-unit acquisition cost, as derived by CMS from data provided by drug manufacturers. A prospective rate is desirable because basing a rate on an average encourages those hospitals that provide the technology to minimize their acquisition costs. However, when CMS determines that the unit cost of a technology designated for separate payment varies substantially and unpredictably over time, or that reasonably accurate data are not available, it pays each hospital its cost for the technology. For example, CMS pays each hospital its cost for corneal transplant tissue, because it determined that the fees eye banks charge hospitals vary substantially and unpredictably. GAO's analysis suggests that CMS could set prospective payment rates for iodine and palladium because their unit costs are generally stable and CMS can base the payments on reasonably accurate data. According to interviews GAO conducted with hospitals and manufacturers, iodine and palladium have an identifiable unit cost that does not vary unpredictably over time. In addition, the results of GAO's survey of hospital purchase prices suggest that the unit cost of iodine and palladium does not vary substantially. Furthermore, GAO found that Medicare claims would be a reasonably accurate source of data for setting prospective rates for these sources. GAO was not able to determine a suitable methodology for paying separately for iridium. In contrast with iodine and palladium, which are permanently implanted in patients, iridium is reused across multiple patients, making its unit cost more difficult to determine. Although GAO surveyed hospitals on the unit cost of iridium, it did not receive sufficient data to identify and evaluate an average unit cost across hospitals. However, CMS has outpatient claims data from all hospitals that have used iridium. In order to identify a suitable methodology for determining a separate payment amount, CMS would be able to use these data to establish an average cost and evaluate whether the cost varies substantially and unpredictably.

section_title: Letter
paragraphs: Under Medicare’s hospital outpatient prospective payment system (OPPS),  hospitals are paid a fixed, predetermined—that is, prospectively set— amount for each procedure they provide to Medicare beneficiaries.  Hospitals are expected to use this prospective payment to cover the costs  of items and services, such as anesthesia and medical supplies, associated  with the procedure. In creating one payment bundle for items and services  associated with a procedure, Medicare provides hospitals with an  incentive to operate efficiently, as they retain the difference if the payment  exceeds the cost the hospital incurs in performing the procedure.  Although bundled payment is a fundamental principle of the OPPS,  Medicare pays separately for certain high-cost technologies because  bundling them into a payment with their associated procedures could  financially disadvantage hospitals even if they operate efficiently. Some  technologies are paid separately because they are new and their costs are  not represented in the historical data used to set bundled payments for  procedures. However, certain other technologies that are not new and  have historical claims have also been designated for separate payment  either by Congress or by the agency that administers Medicare, the  Centers for Medicare & Medicaid Services (CMS) in the Department of  Health and Human Services.
Brachytherapy is an example of a procedure involving a technology that is  not new and is separately paid. During the procedure, radioactive  materials, called sources, are implanted in or near a cancerous tumor. The  three radioactive sources most commonly used in this treatment are  iodine-125 and palladium-103, which provide a prolonged, low dose of  radioactivity, and iridium-192, which provides a brief, high dose of  radioactivity. In 2002, these three sources were billed on 98 percent of the  claims for radioactive sources associated with brachytherapy. Medicare  pays separately for these, as well as other radioactive sources associated  with brachytherapy, at each hospital’s cost. According to our estimates,  payments in 2004 for iodine, palladium, and iridium sources represented  less than one-half of 1 percent of the $15.9 billion in OPPS spending.
The Medicare Prescription Drug, Improvement, and Modernization Act of  2003 (MMA) required that all radioactive sources used in brachytherapy be  paid separately rather than bundled into payment for their associated  procedures. The MMA specified that these separate payments be made at  each hospital’s cost through December 31, 2006. While the MMA required  separate payment after this date as well, it did not specify a methodology  for determining the separate payment amounts. Rather, it directed us to  conduct a study and make recommendations regarding future payment for  radioactive sources. As discussed with the committees of jurisdiction, this  report examines (1) how CMS determines payment amounts for  technologies that are not new but are separately paid and (2) how  payment amounts for iodine, palladium, and iridium sources used in  brachytherapy could be determined.
To examine how CMS determines payment amounts for technologies that  are not new but are separately paid, we reviewed federal law and  regulation pertaining to the OPPS. We also interviewed officials at CMS.  To examine how payment amounts for iodine, palladium, and iridium  sources used in brachytherapy could be determined, we conducted a  survey of purchase prices paid by 121 hospitals from July 1, 2003, through  June 30, 2004. These hospitals were selected to be representative of all  hospitals purchasing these sources in 2002, the most recent year from  which data could be used to construct a sample. We assessed the  reliability of the data we received from these hospitals. After excluding  questionable data, we determined that the remaining data were suitable  for our purposes. Our final results represented data from 62 hospitals, or  slightly more than 50 percent of the hospitals in our sample. Our results  can be generalized to the larger population of hospitals providing these  sources in the outpatient setting that met our sampling criteria. (See app. I  for more information on our hospital survey.) We also interviewed  representatives from a trade association of radioactive source  manufacturers, six radioactive source manufacturers, three associations  representing physicians and other health professionals involved in  brachytherapy, an association of cancer hospitals, and seven individual  hospitals. We conducted a site visit to a hospital that provides  brachytherapy. We also reviewed federal law and regulation pertaining to  the OPPS and interviewed officials at CMS. We did our work in  accordance with generally accepted government auditing standards from  June 2004 through July 2006.
subsections: section_title: Background
paragraphs: Iodine, palladium, and iridium are the radioactive sources most commonly  used in brachytherapy. The brachytherapy procedure is typically  performed in the outpatient setting where, under the OPPS, costs  associated with a procedure are generally bundled in order to promote  hospital efficiency. However, since the OPPS was implemented in 2000, an  increasing number of technologies have been paid separately. Except in  2003, the one year in which iodine and palladium used to treat prostate  cancer and iridium were bundled into payment for brachytherapy  procedures, all radioactive sources used in brachytherapy have been paid  separately.
subsections: section_title: Radioactive Sources Used in Brachytherapy
paragraphs: Radioactive sources are used in brachytherapy to treat a variety of types of  cancers. The most prevalent brachytherapy procedure is low-dose  brachytherapy with iodine or palladium, which is typically provided for  early-stage prostate cancer. During this procedure, approximately 20 to  200 tiny iodine or palladium sources are implanted in the prostate, deliver  radiation over a period of months, and then remain permanently in the  body. Generally, the choice between iodine and palladium is determined  by the aggressiveness of the tumor, and the number of sources by the size  of the prostate.
In recent years, utilization of the high-dose brachytherapy procedure,  which typically uses iridium, has grown. Iridium can be used to treat a  variety of advanced-stage cancers—most commonly gynecological  cancers. In high-dose brachytherapy, a single, highly radioactive iridium  source is implanted in the tumorous area for a brief period—a matter of  minutes or hours—and then withdrawn. Depending on a patient’s clinical  needs, the patient may receive one or more such treatments, also known  as fractions, with the same source over the course of several days.  Because an iridium source emits sufficient radiation for 3 months, the  same source can be used to treat multiple patients.
section_title: Evolution of Medicare Payment for Outpatient Services
paragraphs: The payment methodology for outpatient services has varied in the degree  to which it relies on bundled payments to promote hospital efficiency.  Prior to OPPS implementation in 2000, payment for outpatient items and  services was not bundled; rather, hospitals were paid under a complex  array of cost-based reimbursement methods and fee schedules. Generally,  neither of these payment methodologies provides a strong incentive to  furnish services efficiently. Under a cost-based methodology, each hospital  is paid its cost based on information it reports to CMS. Under a fee  schedule methodology, all hospitals receive a prospectively determined  rate for each item and service they provide, but little incentive exists for  them to provide only the necessary items and services.
Under the Balanced Budget Act of 1997, CMS was required to implement  the OPPS, which was designed to streamline the historically complex  system of payment for outpatient care and better promote hospital  efficiency. CMS assigns each outpatient procedure to one of  approximately 850 ambulatory payment classification (APC) groups. Each  APC group includes procedures that share cost and clinical similarities  and has one payment rate for all procedures in the group. To set an APC  rate, CMS uses historical claims to calculate a median cost across a  group’s procedures that includes the costs of the associated bundled  services and supplies, which are known as “packaged” costs. A median,  rather than a mean, gives less weight to extreme values. That median cost  is then converted into a numeric weight, which determines the payment  hospitals receive for all procedures assigned to the APC. Because the  OPPS provides a single payment to cover the average total cost of a  procedure, the incentive for each hospital to efficiently provide the  necessary items and services associated with that procedure is greater  than when the hospital is paid its cost or a separate fee schedule payment  for each item and service used in the procedure.
Although bundling is a fundamental principle of the OPPS, the number of  technologies that are paid separately from their associated procedures has  increased since the implementation of the payment system. Beginning in  2000, the first year of the OPPS, CMS was required to make temporary,  separate payments—referred to as “transitional pass-through payments”— for technologies that it determines to meet specified criteria for being new  and high cost. These payments supplement the bundled payments for  outpatient procedures associated with the technologies, and are designed  to compensate hospitals for the additional cost. A new technology is  eligible for pass-through payments for 2 to 3 years, after which time the  technology is no longer considered new and CMS can include the  technology in the payment bundle for the associated procedure. Over time,  other high-cost technologies that are not new—mainly certain drugs and  radiopharmaceuticals—have also been designated for separate payment  either by Congress or by CMS.
section_title: OPPS Payment for Radioactive Sources
paragraphs: The payment methodology for radioactive sources associated with  brachytherapy has changed several times since the inception of the OPPS.  CMS was required to make separate pass-through payments for all  radioactive sources associated with brachytherapy beginning in 2000. In  2003, these technologies were no longer eligible for pass-through  payments. Because they are considered devices by Medicare, and devices  are typically bundled into payment for their associated procedures, CMS  bundled iodine and palladium into the payment bundle for the low-dose  brachytherapy procedure for prostate cancer, and iridium into the  payment bundle for the high-dose brachytherapy procedure, regardless of  cancer type. For iodine and palladium sources provided for conditions  other than prostate cancer, CMS continued to pay separately. Instead of  paying separately for these radioactive sources at each hospital’s cost,  CMS set prospective rates for 2003 based on the median cost of each  source across hospitals. The MMA mandated that all brachytherapy  sources be paid separately after 2003 and specified that from January 1,  2004, through December 31, 2006, separate payments for the sources be at  each hospital’s cost. The MMA did not specify a methodology for paying  separately after this date.
section_title: When Paying Separately for Technologies That Are Not New, CMS’s General Practice Is to Set a Rate Based on an Average Cost across Hospitals
paragraphs: When paying separately for technologies that are not new, CMS’s general  practice is to set a prospective rate for all hospitals, based on an average  unit cost across hospitals. However, certain technologies may vary in cost  substantially and unpredictably or there may not be reasonably accurate  data on which to base an average cost across hospitals. In either case,  CMS pays for these technologies at each hospital’s cost.
subsections: section_title: When Paying Separately for Technologies That Are Not New, CMS’s General Practice Is to Set Prospective Rates
paragraphs: Although CMS does not use published criteria to determine payment  amounts for separately paid technologies that are not new, we found that  its general practice is to pay prospectively based on the average historical  cost of each technology across hospitals. A prospective rate, even for  technologies that are separately paid, is desirable because basing a rate on  an average encourages those hospitals that provide the technology to  minimize their acquisition costs.
To set prospective rates for these separately paid technologies, CMS  currently uses two sources of historical data: manufacturer data and OPPS  claims. For example, CMS pays for certain high-cost drugs prospectively  based on average per-unit acquisition cost. To calculate hospital  acquisition cost, CMS relies on per-unit average sales price (ASP) data,  which manufacturers are required to submit to CMS and are used in  making payments for physician-administered drugs. CMS also uses ASP  data to pay a per-unit rate for particular orphan drugs, which are drugs  used to treat patients with rare conditions and are typically high in cost.  For drugs where CMS does not have ASP data, CMS pays based on the  mean cost calculated from OPPS claims.
section_title: Certain Technologies That Are Not New and Are Not Suitable for Prospective Payment Are Paid at Cost
paragraphs: When a technology’s unit cost varies substantially and unpredictably, or  when reasonably accurate cost data are not available, CMS pays for the  technology at each hospital’s cost. If the cost varies substantially and  unpredictably, a prospective rate based on a historical average may not  adequately pay hospitals even if they operate efficiently. CMS pays each  hospital’s cost, for example, for corneal transplant tissue and certain  vaccines, including those for flu and pneumonia. CMS uses this  methodology for corneal transplant tissue because, after analyzing data  submitted by hospitals and other stakeholders, the agency determined that  the fees eye banks charge hospitals for this tissue can vary substantially  and unpredictably over time and across eye banks in a given year. The  amount of the fee charged by an eye bank depends heavily on the level of  charitable donations it receives, which it uses to subsidize the cost of  providing the tissue. The cost to hospitals of providing vaccines also varies  substantially and unpredictably due to instability in the nation’s vaccine  supply.
In other cases, CMS makes cost-based payments for technologies when it  determines that reasonably accurate historical data on unit cost are not  available. For example, the MMA mandated separate payment for certain  radiopharmaceuticals. As we discussed in our 2006 report on OPPS  payment for certain drugs and radiopharmaceuticals, differences among  hospitals in how these technologies are purchased make it difficult for  CMS to set a prospective rate based on an average cost across hospitals.  As a result, payment for these radiopharmaceuticals is based on each  hospital’s cost.
section_title: When Paying Separately for Iodine and Palladium, CMS Could Set Prospective Rates, but Suitable Payment Methodology for Iridium Is Unclear
paragraphs: Based on our analysis, the absence of wide variability in the unit costs of  iodine and palladium and the availability of reasonably accurate historical  data makes these radioactive sources suitable for prospective payment  rates. We were unable to establish a unit cost for iridium and, as a result,  could not identify a suitable payment methodology. CMS has OPPS claims  data from hospitals that provided iridium, and would be able to use these  data to calculate an average unit cost across hospitals and to identify  which methodology is suitable for determining a separate payment  amount.
subsections: section_title: CMS Could Set Prospective Payment Rates for Iodine and Palladium
paragraphs: Our analysis suggests that CMS would be able to develop prospective rates  for iodine and palladium beginning in 2007. Based on interviews we  conducted with hospital and manufacturer officials, and the results of our  hospital survey, we determined that iodine and palladium have identifiable  unit costs and that these costs do not appear to vary substantially and  unpredictably across hospital purchases at a given point in time or from  year to year. Both hospitals and manufacturers told us that hospitals  generally purchase iodine and palladium sources at a per-source price,  making the calculation of a unit cost straightforward. According to our  survey of 121 hospitals on the prices they paid during 1 year—specifically,  from July 2003 through June 2004—the range of iodine and palladium  prices is not wide. This is indicated by the relative level of precision— technically, the coefficient of variation—achieved for our estimated mean  price. (See table 1.) We also note that iodine and palladium are not  subject to the same supply and demand conditions as corneal transplant  tissue and flu and pneumonia vaccines—conditions that lead to substantial  and unpredictable cost variation from year to year.
Although CMS uses ASP data to set a prospective rate for certain high-cost  drugs, CMS currently does not have ASP data for radioactive sources used  in brachytherapy. However, we found that OPPS claims provide a  reasonably accurate source of data for setting a prospective rate for iodine  and palladium sources. To determine if claims could be used as a  reasonable data source, we compared the payment rates for 2003 and the  proposed payment rates for 2004, which were based on median costs  calculated from historical claims, with the median of the per-source  purchase prices reported directly to us by hospitals. Although the payment  rates applied only to sources used in non-prostate brachytherapy, CMS  officials told us that they were calculated using prostate and non-prostate  brachytherapy claims with iodine and palladium sources. We found that  for iodine the prospectively set rate for 2003 and proposed rate for 2004  were $31.33 and $36.35, respectively, and the median of reported purchase  prices was $25.37. For palladium, the prospectively set rate for 2003 and  proposed rate for 2004 were $43.96 and $44.00, respectively, and the  median reported purchase price was $45.46.
Since 2004, when CMS was required to pay separately for all iodine and  palladium sources, the agency has been accumulating claims data that  include separate charges for these sources. As a result, CMS will have data  from 2005 for the 2007 payment year. These data could be used to set  prospective payment rates, either based on a mean—as is currently done  with certain high-cost drugs—or based on a median—which CMS used to  set the 2003 and proposed 2004 rates for iodine and palladium sources.
section_title: Suitable Methodology for Determining Separate Payment Amount for Iridium Is Unclear
paragraphs: Due to the reusable nature of the iridium source, identifying its unit cost is  not as straightforward as identifying the unit cost of iodine and palladium.  Over the course of its 3-month life span, an iridium source can be  temporarily implanted in multiple patients and each of those patients can  receive about 1 to 10 such treatments with the same source. Therefore, the  appropriate unit cost of an iridium source is the per-treatment cost—the  average cost of all treatments administered across all patients over a 3- month period. When hospitals purchase an iridium source, they may not  know the exact number of patients they will treat or the number of  treatments each of those patients will receive. Therefore, hospitals must  bill Medicare based on projections of their unit cost, and will only be able  to identify their actual unit cost retrospectively.
We asked hospitals to provide the per-treatment cost of iridium sources  they purchased over a previous 12-month period in order to identify a unit  cost. However, we did not receive enough data to identify the per- treatment cost. Of 121 total hospitals surveyed, 19 responded with data on  iridium, and the majority of these 19 hospitals did not provide data we  could use to estimate the cost per treatment. Specifically, 11 either did not  provide the number of treatments, reported a questionable source price, or  both. Eight hospitals reported a source price and the number of  treatments from which a unit cost could be calculated. However, among  these 8 hospitals there were inconsistencies in the data provided. Some  hospitals reported the total price of their iridium contracts, while other  hospitals isolated the price of the radioactive source within their contracts  and reported that price. Because we could not establish a unit cost, we  could not assess if the unit cost of iridium varies substantially and  unpredictably over time.
Although we could not identify an average per-treatment cost from our  survey data, CMS has OPPS claims data from hospitals that provided  iridium. Using these data, CMS would be able to evaluate whether the  range of costs comprising the average is substantial and whether the cost  varied unpredictably. Such an analysis would help CMS identify a suitable  methodology for determining a separate payment amount.
section_title: Conclusions
paragraphs: Under the OPPS, an increasing number of technologies have been  designated for separate payment, either by Congress or by CMS. Pursuant  to the MMA, radioactive sources used in brachytherapy, including iodine,  palladium, and iridium, are among those technologies. Based on our  analysis, CMS can pay separately for iodine and palladium sources using  prospective rates because the unit cost of the sources does not vary  substantially and unpredictably. In addition, CMS has data available to  identify reliable average costs across hospitals to set prospective payment  rates beginning in 2007. Paying prospectively in this manner would help  encourage hospital efficiency. However, we were not able to identify a  suitable methodology for determining a separate payment amount for  iridium sources because we did not receive sufficient information from  hospitals to estimate an average per-treatment cost across hospitals. In  order to identify a suitable methodology for determining a separate  payment amount, CMS would be able to use OPPS claims data to evaluate  whether the range of costs comprising the average is substantial and  whether the average per-treatment cost varies unpredictably over time.
section_title: Recommendations for Executive Action
paragraphs: In order to promote the efficient delivery of radioactive sources associated  with outpatient brachytherapy, we recommend that the Secretary of  Health and Human Services direct the Administrator of CMS to take the  following two actions:    Set prospective payment rates for iodine and palladium sources with each  rate based on the source’s average—that is, the mean or median—unit cost  across hospitals estimated from OPPS claims data.
Use claims data to evaluate the unit cost of iridium so that a suitable,  separate payment methodology can be determined.
section_title: Agency and External Reviewer Comments and Our Evaluation
paragraphs: We received written comments on a draft of this report from CMS (see  app. II). We also received oral comments from individuals at five  organizations representing manufacturers of radioactive sources used in  brachytherapy and providers of brachytherapy. These included the  Coalition for the Advancement of Brachytherapy, which represents  manufacturers of radioactive sources; the Association of Community  Cancer Centers (ACCC), which represents hospitals that provide cancer  treatment; and three organizations representing physicians and others  involved in providing brachytherapy: the American College of Radiation  Oncology (ACRO), the American Brachytherapy Society (ABS), and the  American Society for Therapeutic Radiation and Oncology (ASTRO). We  also received technical comments from CMS and the external reviewers,  which we incorporated as appropriate.
subsections: section_title: CMS Comments and Our Evaluation
paragraphs: In reviewing our draft report, CMS stated that it appreciated our analysis  and will consider our recommendations on iodine, palladium, and iridium  as it develops payment policy for 2007. CMS also noted that we did not  make recommendations on payment for other radioactive sources  associated with brachytherapy that may be separately payable in 2007.
As stated in our draft report, we examined how payment amounts for  iodine, palladium, and iridium could be determined. In 2002, these three  sources were billed on 98 percent of the claims for radioactive sources  associated with brachytherapy. Medicare pays for seven other radioactive  sources used in brachytherapy—gold-198, low-dose iridium, yttrium-90,  cesium-131, liquid iodine-125, ytterbium-169, and linear palladium-102. We  did not examine how payment for those sources could be determined  because sufficient data on those sources were not available in the 2002  claims used to construct the sample of hospitals for our survey. Medicare  did not pay for cesium-131, ytterbium-169, and linear palladium-102 in  2002, and gold-198, low-dose iridium, liquid iodine-125, and yttrium-90  together appeared on 2 percent of the approximately 22,000 claims for  radioactive sources in that year. Although we did not examine how  payment amounts could be determined for these seven sources, the  analytical framework we used may apply to them as well.
section_title: Manufacturer and Provider Comments and Our Evaluation
paragraphs: Comments from external reviewers representing manufacturers of  radioactive sources and providers of brachytherapy centered on three  different areas: our recommendation to pay prospectively for iodine and  palladium sources; our recommendation that CMS evaluate the unit cost of  iridium; and payment for radioactive sources other than iodine, palladium,  and iridium.
Representatives from CAB disagreed with our recommendation to set  prospective rates for iodine and palladium using OPPS claims data. They  asserted that price variation due to the range of available iodine and  palladium products makes it inappropriate to pay for sources  prospectively based on averages. In their opinion, our finding that the unit  costs of iodine and palladium sources are generally stable was  compromised by limitations in our hospital survey—specifically, our  exclusion of outlier data and the absence of source configuration  information in many of the surveys we received from hospitals. ACCC  stated that OPPS claims data are flawed and that prospective rates may be  appropriate but only when a more accurate data source is available. They  also noted, as did ACRO representatives, that costs incurred by hospitals  for storing and handling radioactive sources were not represented in our  survey results. Representatives from ASTRO, ABS, and ACRO agreed with  our recommendation that payment can be based on an average. ACRO  representatives cautioned that the data used to set the payment must be  representative of different types of hospitals, and ABS representatives  suggested that the data should reflect the increased use of stranded  sources, which they stated are more costly but considered clinically  advantageous by many physicians.
Regarding our recommendation that CMS use OPPS claims data to  evaluate the unit cost of iridium in order to determine a suitable separate  payment methodology, representatives from CAB said the report  accurately conveys the difficulties of identifying a per-unit cost for iridium.  However, they disagreed with our recommendation because they said it  would not be possible for CMS to fully evaluate a unit cost using OPPS  claims data, which they asserted to be flawed. They stated that the cost of  iridium varies substantially and unpredictably and would not be  appropriate for prospective payment based on an average. Representatives  from ASTRO, ABS, and ACRO agreed with our recommendation, although  they expressed confidence that the unit cost of iridium would be found to  vary substantially and unpredictably and would therefore be inappropriate  for prospective payment based on an average cost calculated across  hospitals.
Finally, other comments focused on payment for radioactive sources other  than iodine, palladium, and iridium. Representatives of ASTRO and CAB  noted that we did not specifically address payment for the other  radioactive sources used in brachytherapy—gold-198, low-dose iridium,  yttrium-90, cesium-131, liquid iodine-125, ytterbium-169, and linear  palladium-102—and ASTRO asked whether we would be making  recommendations on payment for these other radioactive sources.
Concerning the comments that variation in source price makes it  inappropriate to pay prospectively for sources, as noted in the draft report,  we based our finding on the low coefficient of variation we calculated  from surveys received from our representative sample of hospitals. We do  not believe that our exclusion of outlier data masked the true degree of  price variation. We used standard statistical trimming principles, which  resulted in the exclusion of only 2 percent of reported purchases of iodine  and none of the reported purchases of palladium. Although many of the  responding hospitals did not indicate on the survey the configuration of  the sources purchased, we instructed hospitals to list prices for all sources  purchased during the survey period. Therefore, the variation we calculated  from hospital responses can be expected to reflect the range of products  purchased by hospitals at the time. Representatives from ACRO and ABS  stated that they believed the average prices presented in the draft report  were consistent with prices for the types of sources—loose, low-activity  sources—commonly used during the survey period. If costlier stranded  sources have become more frequently used since the survey period of   July 1, 2003 through June 30, 2004, as stated by representatives of ACRO  and ABS, the use of those sources would be captured in OPPS claims data  from subsequent years and reflected in future prospectively set rates.  Regarding the concerns about basing prospectively set rates for iodine and  palladium on OPPS claims data, as noted in the draft report, we based our  recommendation on our comparison of average purchase prices for those  sources from our hospital survey with CMS payment rates for 2003 and  proposed payment rates for 2004, which CMS derived from OPPS claims  data. Concerning the comments about the cost of storing and handling  radioactive sources, CMS has provided guidance to hospitals on how they  can receive reimbursement for those costs.
With respect to our recommendation on payment for iridium, as noted in  the draft report, we are recommending that CMS use its claims data to  evaluate whether the range of costs comprising the average for a given  year is substantial across hospitals and whether this average unit cost  varied unpredictably over time. Consistent with its general practice for  paying separately for technologies that are not new, CMS could pay for  iridium at each hospital’s cost if OPPS claims did not prove to be a  reasonable source of data or if CMS determined that the unit cost varies  substantially and unpredictably over time.
As we noted in our response to comments received from CMS, we limited  our examination of payment for radioactive sources to iodine, palladium,  and iridium because sufficient data on the other sources were unavailable  in the 2002 claims used to construct the sample of hospitals for our survey,  and these three sources were billed on 98 percent of the claims for  radioactive sources associated with brachytherapy.
We are sending a copy of this report to the Administrator of CMS. We will  also provide copies to others on request. The report is available at no  charge on GAO’s Web site at http://www.gao.gov.
If you or your staffs have any questions, please contact me at (202) 512- 7119 or steinwalda@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix III.
section_title: Appendix I: GAO Survey of Hospital Purchase Prices for Iodine, Palladium, and Iridium Sources Used in Brachytherapy
paragraphs: This appendix summarizes the sample design, methods for collecting and  processing the data, and methods for estimating mean and median  purchase prices for iodine and palladium sources used in brachytherapy.  Though we were not able to estimate mean and median purchase prices  for iridium, this appendix also includes a discussion of the data we  received.
subsections: section_title: Sample Design
paragraphs: We developed a random sample of hospitals to survey for the purchase  prices of iodine, palladium, and iridium sources used in brachytherapy.  The sample frame consisted of 949 hospitals that (1) had charged  Medicare for radioactive sources during 2002, the most recent year for  which usable data were available; (2) were still Medicare providers on  July 1, 2004; and (3) were a subset of sample hospitals drawn for a survey  we conducted of hospital outpatient drug prices. The sampling frame  contained 98 percent of the 968 hospitals that submitted Medicare claims  for the three brachytherapy sources in 2002. We drew a sample of 121  hospitals from the sample frame, on the basis of an expected response rate  of 50 percent. Our results can be generalized to the larger population of  hospitals providing iodine and palladium in the outpatient setting and  meeting the above criteria.
To improve the precision of our estimates of mean and median purchase  price, we stratified the sample of hospitals. The objective was to obtain a  sample of hospitals that mirrored the distribution of hospitals billing  Medicare for these sources. Because we did not have a measure of  purchase price of radioactive sources at the time we selected the sample,  we used total hospital outpatient drug charges to Medicare as a proxy for  purchase price variation. We used a regression model to identify  stratification factors (such as teaching hospital status) that would  maximize the difference in mean purchase price (as proxied by Medicare  drug charges) among strata. We grouped hospitals into major teaching  hospital, nonmajor teaching hospital, urban nonteaching hospital, and  rural nonteaching hospital strata. We placed small hospitals in a separate  stratum to ensure that hospitals with no or minimal charges for drugs  during the first 6 months of 2003 were appropriately represented.
In our sample design, we defined a major teaching hospital as a hospital  for which the ratio of residents to the average daily number of patients  was at least 1 to 4 and a nonmajor teaching hospital as one having a ratio  of residents to patients of less than 1 to 4. We defined a hospital as urban if  it was located in a county considered a metropolitan statistical area (as  defined by the Office of Management and Budget) and rural if it was  located in a county not considered a metropolitan statistical area. We  defined a small hospital as a hospital with total Medicare drug charges of  less than $10,000 during the first 6 months of 2003.
section_title: Data Collection and Data Processing
paragraphs: To develop our survey of hospital purchase prices for radioactive sources,  we interviewed representatives from the Coalition for the Advancement of  Brachytherapy (CAB). CAB reports that it represents manufacturers of   90 percent of all brachytherapy sources and 100 percent of high-dose rate  brachytherapy sources in the United States. We also interviewed  representatives of the American Brachytherapy Society, the American  College of Radiation Oncology, the American Society for Therapeutic  Radiology and Oncology, and the Association of Community Cancer  Centers. We also interviewed representatives from six radioactive source  manufacturers and seven hospitals and officials at the Centers for  Medicare & Medicaid Services. In developing the survey, we obtained  information from these associations and individual hospitals and pilot  tested the survey with 5 hospitals prior to sending it to the entire sample of  121 hospitals. As a result, we clarified certain protocols and procedures  but did not substantially change the survey instrument.
The survey instrument was five pages long with one page for each  radioactive source, one page for rebate data, and one page defining the  terms in the previous pages. We collected data by reported purchase—that  is, the purchase of a given quantity of a radioactive source at a particular  price on a specific date. For iodine and palladium sources, we asked  hospitals to provide the name of the manufacturer; the number of sources;  the price per source; and certain characteristics of the sources purchased,  such as radioactivity level. For iridium, we asked hospitals to provide the  name of the manufacturer, the number of treatments delivered, the source  price, and the rebate eligibility. We also asked hospitals to report  information on any rebates they received for these purchases.
We contracted with Westat to administer the survey. Westat began data  collection on September 27, 2004. Key components of the data collection  protocol were    a first mailing to the chief executive officer or chief financial officer of  each hospital explaining the survey, followed by a telephone call to  identify the main point of contact;    a second mailing to the main contact outlining the data that were needed  and describing the options for submitting the data;    a follow-up telephone call to facilitate the main contact’s understanding of  the data collection, provide technical assistance as needed, and obtain  some basic information about the hospital; and  telephone calls at regular intervals to remind the hospitals to submit their  data and to provide assistance as needed.
Hospitals could submit data in one of three ways: by uploading electronic  files through the study Web site, by sending an e-mail to the study address  with data attached, or by sending electronic media or paper submissions  through the mail. When our contractor received a brachytherapy survey  from a hospital, it forwarded the survey to us for processing and analysis.
Of the 121 hospitals surveyed, 62 hospitals submitted usable data, resulting  in an overall response rate of 51 percent. We considered iodine and  palladium data usable if we were able to identify the price per source and  the number of sources purchased. We considered iridium data usable if we  were able to identify the price per source and the number of fractions  provided with the source. Of the 62 hospitals, 52 hospitals submitted  usable data for iodine and 40 hospitals submitted usable data for  palladium, with some providing data for both radioactive sources. Sixty- five percent of hospitals providing data for iodine and 63 percent of  hospitals providing data for palladium were teaching hospitals.
Our data were not sufficient to measure overall price differences by  radioactivity level and other characteristics across each of the two types  of sources. Specifically, hospitals did not indicate activity level for   37 percent of their reported purchases of iodine and 47 percent of their  reported purchases of palladium. They did not indicate source  configuration for 43 percent of their reported purchases of iodine and   51 percent of their reported purchases of palladium. Although we did not  receive enough data from hospitals to reliably identify any price  differences by source characteristic, we instructed hospitals to report all  their purchases during the survey period. Therefore, any price variation  due to source characteristic should be reflected in our data.
We applied statistical trimming rules to eliminate outliers in the data.  Accordingly, 2 percent of the reported purchases of iodine were trimmed,  and none of the reported purchases of palladium were trimmed. The  resulting data allowed us to calculate the mean and median price per  source for iodine and palladium.
Few hospitals reported receiving rebates. This is consistent with  information we received from hospitals during interviews—that  manufacturer rebates were not commonly provided for radioactive  sources. Therefore, we did not factor rebates into our mean and median  purchase prices.
We determined that there were insufficient data to estimate the price of  iridium. Of the 19 hospitals submitting iridium data, 11 either did not  provide number of treatments, reported a questionable iridium source  price, or both. Eight hospitals reported an iridium source price and the  number of treatments from which a unit cost could be calculated.  However, among these 8 hospitals there were inconsistencies in the data  provided. Some hospitals reported the total price of their iridium  contracts, which includes the cost of maintaining the iridium source, while  other hospitals isolated the price of the iridium source within the  contracts and reported that price.
section_title: Estimates of Mean and Median Purchase Prices for Iodine and Palladium Sources
paragraphs: This section describes the rationale and method for weighting the hospital  sample, calculating mean purchase price, calculating median purchase  price, and calculating the associated coefficients of variation—or standard  error reflecting sample design and weights.
subsections: section_title: Weighting the Hospital Sample
paragraphs: To estimate hospitals’ mean and median purchase prices for iodine and  palladium sources, the sample hospitals’ purchase price data were  weighted to make them representative of the sample frame of hospitals  from which the sample was drawn. The less likely that a hospital was  sampled, the larger its weight. For example, if each hospital had a 1 in 10  probability of being sampled, its sample weight was 10. That is, each  hospital in the sample represents 10 hospitals in the sample frame.  Consequently, if 5 hospitals in a sample bought a particular radioactive  source, and the sample weight was 10, we estimate that 50 hospitals in the  frame bought that radioactive source. In this report, we refer to sample  weights as “hospital weights.” Our sample was stratified, so all hospitals in  a particular stratum (for example, major teaching hospitals) had the same  weight. Since in our sample the probability of a hospital’s being selected  varied by stratum, hospitals in different strata had different weights.
We calculated the hospital weight as    Wjh denotes the hospital weight for the jth radioactive source in the hth    Njh denotes the sample frame (the total number of hospitals) that  according to Medicare outpatient claims, billed for the jth radioactive  source in the hth stratum; and    Rjh denotes the total number of hospitals in the hth stratum that purchased  the jth radioactive source, according to their survey submissions.
This weight recognizes that not all hospitals responded to our survey,  since the weight’s denominator is Rjh—the number of hospitals that  responded to the survey and indicated that they bought the jth radioactive  source.
section_title: Mean Purchase Price Using Volume and Hospital Weights
paragraphs: To summarize hospitals’ purchase prices for iodine and palladium  sources—reflecting purchases made, in many cases, at different prices and  in different quantities—we calculated a mean purchase price for each  radioactive source. This mean purchase price for a particular radioactive  source is, in effect, a weighted mean. To reflect the differences among  hospitals in purchase prices and purchase volumes, we used both the  hospital weights and purchase volume as weighting variables in estimating  the mean purchase price. All calculations were done at the individual  purchase level but reflect the hospital and purchase volume weighting  variables.
Σ x*jhi)
N represents the total number of hospitals in the hth stratum;    n represents the size of the sample of hospitals in the hth stratum;    y*jhi = Σ yjhik, which represents the total dollar amount for the jth radioactive  source listed on the kth invoice for the ith hospital in the hth stratum; and    x*jhi = Σ xjhik, which represents the total number of units for the jth  radioactive source listed on the kth invoice for the ith hospital in the hth  stratum.
The equation estimates the mean purchase price of a radioactive source as  the ratio of the total amount purchased in dollars to the total number of  units purchased.
section_title: Median Purchase Price Using Volume and Hospital Weights
paragraphs: ΣΣ}.
section_title: Coefficients of Variation for Mean Purchase Price
paragraphs: To assess the precision of our estimates of the mean purchase price, we  calculated coefficients of variation for the estimated mean purchase price.  We also used the coefficients of variations as an indicator of price  variability across hospitals. We estimated the mean purchase prices,  median purchase prices, and the coefficients of variation for the means  using specialized software for survey data analysis—SUDAAN®.
section_title: Appendix II: Comments from the Centers for Medicare & Medicaid Services
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition to the contact above, Maria Martino, Assistant Director;  Shamonda Braithwaite; Melanie Anne Egorin; Hannah Fein; Nora Hoban;  Dae Park; Dan Ries; Anna Theisen-Olson; Yorick F. Uzes; and Craig  Winslow made contributions to this report.