Despite the anemia drug Epogen being among the most expensive prescription drugs available through the Medicare system, the federal government pays hospitals based on estimated use in a year rather than using hard data to make payments, according to a Washington Post investigation.
Medicare estimates how much it will spend annually in 2012 based on data used from five years ago. The estimates are gleaned based purely on Epogen’s use in dialysis treatments but are distorted by a financial incentive for hospitals to administer the drug and to buy it in large quantities.
Before actually realizing how much it overspent the previous year, the government pays ahead for Epogen using that old data. The flawed system has resulted in hundreds of millions of dollars in unnecessary spending on one single drug. Epogen use, according to the Post’s analysis on Medicare overspending, has dropped 25 percent since 2007.
The analysis showed that the government overspends by as much as $400 million a year on Epogen, alone.
Although data has shown that Epogen is not as effective as previously thought and is actually putting patients at greater risk of developing cancer or suffering a heart attack, hospitals still have a large financial stake in using the drug. At one time in 2007, 80 percent of all dialysis patients were receiving excessive levels of Epogen – compared to the new level deemed safe – and sales topped $8 billion.
Once hospitals realized what Medicare was willing to spend on the drug, they could get it at reduced costs and still get paid by the healthcare system to administer the drug. Some hospitals received a 30 percent mark-up on the actual money they spent on Epogen when they eventually received their Medicare payments.