If Congress Doesn't Fix Drug Rule, Medicare Might

Currently, Medicare pays for relatively few drugs delivered outside the hospital, mostly organ transplant and cancer medicines that must be administered in a physician's office. But by some accounts, the program is paying more than $1 billion more per year than it should, because it bases payments on published "average wholesale prices" that are in reality much higher than actual prices most doctors pay.

"It is clear that Medicare's payment system for those covered drugs...is seriously flawed," Medicare Administrator Tom Scully told the House Ways and Means Subcommittee on Health. "It is simply unacceptable for Medicare to continue paying for drugs in an outdated, noncompetitive way that costs beneficiaries and the program far more than it should," he said.

Congress all year has been vowing to fix the problem, but Republicans and Democrats on the three House and Senate committees that oversee the program have yet to reach agreement on the best way to do it. Complicating the situation is the fact that cancer specialists say Medicare underpays them for administering the drugs, and that the difference between what they pay to obtain the medications and what Medicare pays them is needed to correct for that underpayment.

Scully said if no agreement is reached on reforming the "AWP" formula, the administration will act within six months to designate one of its 23 private insurance carriers to set a "reference price" for all Medicare-covered drugs. That alone, he said, could save the program $100 million per year. Doing a better job figuring out what actual prices are being paid for the drugs, he said, then basing Medicare payments accordingly, could save another $500 million.

But Scully also repeated his desire for Congress to act, if only because Congress is clearly able to deal with the oncology payment problem, which the administration is not. "We need to pay appropriately for all Medicare benefits, including the prescription drugs we do cover and the services required to furnish those drugs," he said.

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This article posted October 19, 2002.