GAO reports on Medicare hospital outpatient drug prices

Healthcare Purchasing News, August, 2005

In a review of the draft of GAO's report on Medicare hospital outpatient drug prices, HHS commended GAO's efforts and acknowledged the challenges of accurately surveying hospitals for drug acquisition costs. HHS also stated that it had concerns regarding the limitations of GAO's study. For example, HHS cited the difficulties that hospitals had in attributing rebates from manufacturers and payments from group purchasing organizations to hospitals' purchases of individual drug products.

In addition, HHS anticipated concerns that purchase prices of drugs might have changed after the sample period for which we collected price data. HHS stated that it would take account of our data on hospital purchase prices in developing 2006 Medicare payment rates for SCODs. HHS added that, in developing payment rates for 2006 and future years, it considered it important to have a methodology that can be updated appropriately and that reflects rebates and other components of drug acquisition costs. Despite the limitations that CMS noted, GAO believes its estimates of average purchase price for each SCOD category that it reports are sufficiently accurate for use in developing Medicare rates for SCOD categories. Moreover, these data are the only publicly available source of information on what hospitals are paying for these drugs. As HHS pointed out, the draft report indicated that the lack of comprehensive rebate data was a limitation of the study. However, hospitals reported no rebates for 14 of the 53 SCOD categories. In addition, GAO found that, for nearly all other SCOD categories, rebates were reported by a small number of hospitals; consequently, the effect of rebates on acquisition cost averaged across all hospitals is likely to be small. While we believe that purchase price is currently an adequate measure of hospitals' acquisition costs, this measure could be improved by adjusting purchase price for rebates if a different rebate data source or estimating method were available, http:// www.gao.gov/new.items/d05581r.pdf