The Medicare system is recalculating how much it will reimburse hospitals and clinics for the drugs used to treat dialysis patients after federal auditors found recently that the program could save as much as $880 million annually.
An analysis by The Washington Post in August showed that the government was overspending by hundreds of millions for just one group of those drugs.
The overpayment occurs because the government reimburses hospitals and clinics under an assumption that the drugs are being given at the higher doses widely used in 2007. Since then, however, the use of the drugs has declined significantly, partly because of repeated government warnings about their safety and partly because Medicare removed the financial incentives for using larger doses.
“It’s good that Medicare is finally going to set a new, more accurate price,” said Dennis Cotter, president of the Medical Technology and Practice Patterns Institute, a research group, who called for price changes in 2011. “It’s unfortunate that they could have done this two years ago. This has so far cost taxpayers more than $1.6 billion.”
The overpayment, however, will continue until new rates are established in 2014. Medicare could propose a new price this June and finalize it in November.
The overpayment for the drugs reflects the promise and the complexity of large-scale reform of government health-care spending.
For years, a trio of anemia drugs — all manufactured by Amgen, a California biotech company — cost Medicare as much as $3 billion annually. Nearly two decades after their introduction in 1989, however, their purported benefits were found to be overstated, and the FDA issued warnings about their potentially deadly side effects, such as cancer, strokes and heart attacks.
In 2011, after years of urging by watchdog groups, the Medicare system removed the financial incentives for doctors and health-care facilities to use extra amounts of the anemia drugs for dialysis patients, one of the primary groups receiving them. Until then, larger doses meant bigger profits.
But the change didn’t save Medicare much money. Instead, the government has been paying hospitals and dialysis clinics for using the anemia drugs, and two others, as if the doses were as large as they were in 2007.
The government could have saved between $650 million and $880 million if the payments were based on the drugs’ current usage levels, the Government Accountability Office found in a December report. (Focusing on just the anemia drugs, the Post analysis indicated that the savings were in excess of $400 million.)
The GAO analysis “suggests that the bundled payment rate is too high and that Medicare is paying more than necessary for dialysis care,” the report said.
Medicare officials told the GAO that they had no immediate plans to recalculate the payment, according to the report, and that they did not have the authority from Congress.
The GAO then asked Congress to intervene. The legislation resolving the “fiscal cliff” this month ordered Medicare to “make reductions” to the payment for the drugs based on their lower usage levels.
Medicare officials said they are now recalculating the price.