Healthcare Business News

Inspector general sees savings in drug-price substitution policy

By Rich Daly
Posted: February 25, 2013 - 3:45 pm ET

Medicare would have saved about $7 million in 2011 if a long-awaited CMS drug-price substitution policy had been in effect, a government watchdog concluded.

In the HHS Office of the Inspector General's latest analysis of the differences (PDF) between average sales prices for medications covered by Medicare Part B and the average manufacturer prices for those pharmaceuticals in 2011, it found at least a 5% difference among 58 types of drugs. That difference cost the program $14.4 million in 2011, according to the analysis.

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Final rules issued in Nov. 16, 2012, to implement a drug-pricing policy change in the Social Security Act that intended to narrow the gap between those prices would have required manufacturers to discount about 40% of the drugs with identified price differences, saving Medicare about $7 million if the rule has been in effect in 2011, the report concluded.

The inspector general argued for broadening the drug-price comparison program beyond the approach taken last year by the CMS.

Such an expansion would run counter to the “cautious approach” the agency has taken to seeking lower Part B prices, Marilyn Tavenner, acting administrator for CMS, wrote to the inspector general.

“Public comments have supported such an approach, including the use of safeguards to provide assurances that the price substitution policy would be applied only when appropriate and will not affect access to the affected drugs by inadvertently lowering the payment amount to a level that is below the providers' acquisition costs,” Tavenner wrote.

The potential savings identified in the latest report on Medicare drug prices were a relatively small fraction of the $12 billion spent on Part B drugs in 2011. But the inspector general wrote that significant savings would have accrued if the CMS had acted on similar reports issued since 2006.

“In the long term, savings achieved through price substitution could reduce waste and conserve taxpayer funds at a time when increased focus has been placed on rising healthcare costs and fiscal responsibility,” the report stated.

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