Medicare Part B Reimbursement of Prescription Drugs . Drug Price Variation subsequent to the Medicare Modernization Act

06/01/2014

The MMA reimbursement change did not alter the process through which providers negotiated with drug manufacturers over the price of drugs and would not be expected to have any effect on price volatility. Medicare Part B reimbursement rates do not establish future prices - they are based on prices previously obtained in the market. Thus, shortages (or surpluses) of a given drug will lead to price increases (or decreases), just as had been the case before the MMA. As had been the case under the prior reimbursement mechanism, the two-quarter delay in updating reimbursement rates means that when the market price of a drug rises, reimbursement rates lag prices; conversely, when the market price of a drug falls, reimbursement rates exceed prices. Over the period since the MMA, drug prices have generally fallen,18 so that reimbursement rates, based on lagged prices, have generally been more than 6 percent above the prevailing ASP. However, some analysts have suggested that if providers are more sensitive to losses than to gains, manufacturers may be reluctant to raise drug prices by more than 6 percent within a quarter since providers might face losses on purchases during the period before Medicare updates the reimbursement rate to reflect a higher ASP.

To examine the possibility that Medicare Part B reimbursement rules lead to low price volatility and discourage price increases above 6 percent, we analyzed quarterly ASPs and Medicare Part B reimbursement rates for covered drugs from 2005 to 2013 using ASP Drug Pricing Files and Part B National Summary Data Files provided by CMS.19 For each HCPCS code (n = 735), we calculated the percentage change in ASP from the previous quarter and determined how frequently ASP changed by various specified magnitudes (e.g., 6 percent). We also calculated the coefficient of variation of the quarterly ASPs per HCPCS code to standardize how much a single drug's ASP varied over time and then compared the degree of variation over time across all Part B drugs. The coefficient of variation is the ratio of the standard deviation to the mean.

The empirical results provide strong evidence against the claim that manufacturers do not raise drug prices by more than 6 percent within a quarter. ASPs for nearly three-quarters (73 percent) of HCPCS codes increased by more than 6 percent from the previous quarter at least once between 2005 and 2013. Table 1 reports the distribution of how frequently ASP increased by more than 6 percent from the previous quarter.

Table 1. Distribution of How Frequently Quarterly ASP Increased by More Than 6 Percent per HCPCS Code

Percentage of Quarters in which
ASP Increased by More Than 6 Percent
Number of
HCPCS Codes
Percentage of HCPCS Codes
None 202 27.5%
0% to 5% 45 6.1%
5% to 10% 77 10.5%
10% to 15% 104 14.1%
15% to 20% 56 7.6%
20% to 25% 97 13.2%
25% to 30% 47 6.4%
30% to 35% 51 6.9%
More than 35% 56 7.6%
Total 735 100%

Increases in ASP of this magnitude are not uncommon. On average, a HCPCS code experienced a greater than 6 percent increase in ASP during 15 percent of all quarters, with many HCPCS codes experiencing increases of this magnitude more often. Moreover, this analysis underestimates how often individual manufacturers raised drug prices by more than 6 percent since ASP averages different manufactures' prices for the same drug. Figure 2 graphs how frequently quarterly ASP changed by various magnitudes ranging from decreases of more than 20 percent to increases of more than 20 percent. The graph shows a declining distribution of progressively larger changes in quarterly ASP with no concentration at 6 percent.

Figure 2. Frequency and Magnitude of Changes in Quarterly ASP

Figure 2. Frequency and Magnitude of Changes in Quarterly ASP

Percentage Change in ASP from the Previous Quarter Percentage of All Quarters
-20+ 3.28
-19 0.32
-18 0.30
-17 0.39
-16 0.39
-15 0.39
-14 0.46
-13 0.57
-12 0.62
-11 0.82
-10 0.73
-9 1.06
-8 1.14
-7 1.07
-6 1.63
-5 1.72
-4 2.28
-3 2.78
-2 3.70
-1 6.07
0 28.16
1 8.59
2 6.03
3 4.78
4 3.41
5 2.78
6 2.24
7 1.68
8 1.23
9 1.14
10 1.05
11 0.68
12 0.66
13 0.46
14 0.54
15 0.47
16 0.51
17 0.36
18 0.35
19 0.24
20+ 4.90

Overall, the quarterly ASPs for many drugs experienced considerable variation between 2005 and 2012. The average coefficient of variation of quarterly ASPs per HCPCS code was 0.22, with a range between 0 and 1.9. Table 2 reports the distribution of the coefficient of variation of the quarterly ASPs per HCPCS code.

Table 2. Distribution of the Coefficient of Variation of Quarterly ASPs per HCPCS Code

Coefficient of Variation of
Quarterly ASPs per HCPCS Code
Number of
HCPCS Codes
Percentage of HCPCS Codes
Zero 27 3.7%
0.0 to 0.1 264 36.0%
0.1 to 0.2 159 21.6%
0.2 to 0.3 105 14.3%
0.3 to 0.4 61 8.3%
0.4 to 0.5 40 5.4%
0.5 to 0.6 28 3.8%
0.6 to 0.7 13 1.8%
0.7 to 0.8 9 1.2%
0.8 to 0.9 4 0.5%
0.9 to 1.0 10 1.4%
More than 1.0 15 2.0%
Total 735 100%

Figure 3 graphs the quarterly ASPs and Medicare Part B reimbursement rates for three selected drugs to illustrate the variation in ASP.

Figure 3. Average Sales Prices and Medicare Part B Reimbursement Rates for Selected Drugs

Figure 3. Average Sales Prices and Medicare Part B Reimbursement Rates for Selected Drugs

Figure 3. Average Sales Prices and Medicare Part B Reimbursement Rates for Selected Drugs

Figure 3. Average Sales Prices and Medicare Part B Reimbursement Rates for Selected Drugs

HCPCS Code Drug Dosage Series Q3 2004 Q4 2004 Q1 2005 Q2 2005 Q3 2005 Q4 2005 Q1 2006 Q2 2006 Q3 2006 Q4 2006 Q1 2007 Q2 2007 Q3 2007 Q4 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009
J0698 Cefotaxime Sodium Injection 1000 MG Average Sales Price 4.74 4.66 4.10 4.03 4.10 4.07 4.10 3.93 4.18 4.61 10.08 4.27 3.42 3.99 4.16 4.54 4.28 3.89 3.84
J0698 Cefotaxime Sodium Injection 1000 MG Medicare Part B Payment Rate     5.02 4.94 4.35 4.27 4.35 4.32 4.35 4.16 4.43 4.88 10.68 4.53 3.63 4.23 4.41 4.81 4.53
J9000 Doxorubicin HCl Injection 10 MG Average Sales Price 4.01 5.09 5.58 5.50 5.59 5.93 5.80 5.66 5.88 5.95 5.78 5.97 6.45 4.48 4.60 4.39 3.58 3.72 3.38
J9000 Doxorubicin HCl Injection 10 MG Medicare Part B Payment Rate     4.26 5.39 5.92 5.84 5.93 6.29 6.15 6.00 6.24 6.31 6.12 6.32 6.83 4.75 4.88 4.66 3.79
J9150 Daunorubicin Injection 10 MG Average Sales Price 25.87 32.68 23.73 22.54 22.69 22.25 21.94 23.17 21.49 19.31 18.81 18.41 18.82 16.17 15.52 15.94 15.57 15.22 15.16
J9150 Daunorubicin Injection 10 MG Medicare Part B Payment Rate     27.43 34.64 25.15 23.90 24.05 23.59 23.26 24.56 22.78 20.47 19.94 19.52 19.95 17.14 16.45 16.90 16.50

 

HCPCS Code Drug Dosage Series Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013
J0698 Cefotaxime Sodium Injection 1000 MG Average Sales Price 3.91 4.43 4.48 4.81 4.18 3.04 1.68 1.48 1.64 1.61 1.74 1.43 1.95 1.66 1.66 1.74 1.65 1.90 1.84
J0698 Cefotaxime Sodium Injection 1000 MG Medicare Part B Payment Rate 4.12 4.08 4.15 4.69 4.75 5.10 4.44 3.23 1.78 1.57 1.74 1.71 1.84 1.52 2.06 1.76 1.76 1.85 1.75
J9000 Doxorubicin HCl Injection 10 MG Average Sales Price 3.48 3.28 2.87 2.95 2.72 3.25 3.30 2.86 4.53 3.66 3.28 3.10 3.35 3.21 3.70 2.88 3.28 2.93 2.92
J9000 Doxorubicin HCl Injection 10 MG Medicare Part B Payment Rate 3.95 3.58 3.69 3.48 3.04 3.12 2.88 3.45 3.50 3.03 4.81 3.88 3.48 3.29 3.55 3.41 3.92 3.05 3.47
J9150 Daunorubicin Injection 10 MG Average Sales Price 14.38 16.01 18.35 29.51 14.62 16.76 12.66 13.08 15.00 13.53 16.64 17.89 18.10 20.80 23.82 27.11 28.32 24.64 24.01
J9150 Daunorubicin Injection 10 MG Medicare Part B Payment Rate 16.14 16.07 15.24 16.97 19.46 31.28 15.50 17.76 13.42 13.86 15.90 14.34 17.64 18.96 19.19 22.05 25.25 28.73 30.02

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