Report: Medicare overpays on meds by hundreds of millions

Unlike most of the drugs covered by Medicare, “infusion drugs” that administer medication through a device such as a catheter or needle are set at average wholesale prices, which are set by drug manufacturers and reported in the industry’s Red Book. The result is a cost 54 to 122 percent above the market price.

Other drug reimbursements are set by the "average sales price" as set forth by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Infusion drugs are excluded from the law’s payment requirements, said the Department of Health and Human Services' inspector general, which spurred the investigation.

According to the report, Medicare would be paying 44 percent less for the drugs if it used the average price figures, or a savings of $334 million between 2005-2011.

The inspector general suggested that the Centers for Medicare and Medicaid Services (CMS) “seek legislative change” regarding the medications to adhere to the average prices or including the devices that administer the medication in the next round of competitive bidding. 

CMS partially agreed to ask Congress to amend the rules and said it would proceed with the competitive bidding program recommendation.