• You want to know how bad Medicare is at paying for drugs? 

    Consider DuoNeb, which is used to treat chronic lung disease. The drug is nothing fancy: it’s just a combination of two cheap and widely available drugs—albuterol and ipratropium.

    You can pop DuoNeb in a nebulizer and administer both drugs at once. Or you can administer the two drugs separately. Apart from mild inconvenience, there’s no reason to pick DuoNeb over the two-drug sequence. And there’s good reason not to pick DuoNeb: a single dose is more expensive than one dose each of albuterol and ipratropium.

    Sensitive to the cost concern, Medicare announced in 2008 that it wouldn’t pay for the full costs of DuoNeb. (Because DuoNeb is administered through a nebulizer, which is considered durable medical equipment, it’s covered under Medicare Part B, not Part D.) Medicare would instead pay the combined price of the two component drugs—what it called the “least costly alternative.” Because … duh. It’s cheaper.

    At the prodding of DuoNeb’s manufacturer, Irene Hays, a Medicare beneficiary, sued over the least-costly-alternative policy. In a 2009, the D.C. Circuit sided with Hays.

    The court’s reasoning was based on the language of the Medicare statute. As the court saw it, the statute puts Medicare to a “binary choice.” Either DuoNeb isn’t covered at all or it’s covered at the full statutory rate, which is 106% of the average sales price. What Medicare can’t do is cover DuoNeb but pay less than the statutory rate.

    The trouble is that Medicare had no choice but to cover DuoNeb. By statute, Medicare can refuse to cover a medical treatment that is “not reasonable and necessary for the diagnosis or treatment of illness or injury.” The language is a little squirrelly: it’s plausible to think that a given treatment is “not reasonable” if an equally effective alternative is much cheaper.

    For now, however, Medicare reads the statute to preclude it from considering costs in making coverage decisions. If DuoNeb provides a medical benefit—and it does—then it’s covered, costs be damned. And once it’s covered, the D.C. Circuit reasoned, Medicare had to pay full freight.

    This is, in a word, stupid. Not the court’s decision, which I think is probably right. What’s stupid is that the law prevents Medicare from making common-sense decisions about how to spend taxpayer money. If we can’t fix a problem as easy as DuoNeb, we’ve got our work cut out for us.

    @nicholas_bagley

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