Because Congress locked some drug costs at 2003 prices, Medicare has wasted $334 million dollars over the last six years by failing to buy medication at the best possible discount, according to a new investigation that reinforces just how prevalent waste and abuse are inside the government’s main health program for senior citizens. 

Investigators at the Health and Human Services Department Office of Inspector General said that Medicare Plan B purchased the drugs at an outdated average wholesale price, or AWP,  as opposed to the manufacturing price the government is supposed to receive.

“Our findings—like those of OIG’s previous studies in this area—demonstrate that AWPs are unrelated to the prices of drugs in the marketplace and that the reliance on an AWP-based payment methodology has cost the program hundreds of millions of dollars,” the inspector general said.

The culprit is infusion drugs in durable medical equipment – basically drugs meant to be used in home medical equipment like IV’s, catheters or infusion pumps.  But the drugs haven’t been purchased at the optimal sales price, investigators said.  Instead, Medicare officials have been following 2003 pricing guidelines set by Congress.

“Basing payments for DME infusion drugs on AWPs set almost a decade ago raises concerns about whether Medicare payment levels are appropriate,” the IG said.

For creating a scenario that kept taxpayers from getting the best prices — and failing to fix it for years — the Centers for Medicare and Medicaid Services, or CMS, and Congress jointly win this week’s Golden Hammer, a distinction awarded by the Washington Guardian to an egregious example of waste, fraud and abuse in government.

Through an update to the Social Security Act, lawmakers said that “in the case of infusion drugs furnished through an item of durable medical equipment,” prices “on or after January 1, 2004,” will be set at “95 percent of the average wholesale price for such drug in effect on October 1, 2003,” the law reads.

The inspector general said CMS needs to petition for a change in the law that would set prices to current levels, or to include infusion drugs in an already successful competitive bidding process.  Marilyn Tavenner, CMS acting administrator, agreed and said the agency is looking at both options.

Medicare has come under fire before for the exact same issue.  In fact, in January the Washington Guardian reported on Medicare’s overpayments with prescription medication.

For the six years covered by the latest review, investigators estimated the government had been paying between 54 percent and 122 percent more for the drugs than was necessary.  By using the wholesale price, investigators said CMS failed to get “any price concessions, such as volume discounts, ‘prompt pay’ discounts, cash discounts, free goods contingent on purchase requirements, chargebacks and rebates other than those obtained through the Medicaid drug rebate program.”

The IG also said that because medicine was being purchased at 2003 prices, the government might have been getting some drugs cheaper than current costs.  But investigators said it was a small amount, and is already calculated in the $334 million estimation. 

And investigators were able to identify the largest single problem: a drug called milrinone lactate, which is used to treat heart failure.  Medicare Plan B was paying a price for the drugs more than 18 times greater than the actual cost, the inspector general said. 

Of the $125 million Medicare spent in 2011 for 21 different infusion drugs, that particular drug accounted for 62 percent of the costs, according to the IG’s report.