FINDINGS

An analysis of contract prices available to suppliers from one wholesaler and one group purchasing organization, and contract prices negotiated by one supplier directly with enteral nutrition formula manufacturers indicated that the Medicare payment amount for Category I formulas exceeded median contract prices by 70 to 115 percent. Of the three sources reviewed, the supplier who negotiated prices directly with manufacturers obtained the lowest median contract price for Category I formulas.

Individual contract prices for Category I formulas varied widely, from a low of $0.18 per unit to a high of $0.86 per unit. Contract prices for only three products exceeded the Medicare reimbursement amount of $0.61 per unit. Seventy-five percent of individual contract prices were lower than $0.42 per unit. If Medicare’s payment amount for these formulas had been set at the median of purchase prices reviewed, we estimate that the program and its beneficiaries could have saved over $82 million in calendar year 2001. The actual savings to Medicare and its beneficiaries would likely be lower than the estimate of potential savings, since this estimate does not account for any additional supplier costs related to enteral nutrition formulas. Table 3 presents a summary of our comparison of contract prices to Medicare’s payment amount and our estimates of potential program savings.

Members of one group purchasing organization were able to obtain Category I formulas for a median price of $0.36 per unit.
The group purchasing organization contracts we reviewed contained prices for 88 individual Category I enteral nutrition formulas. We found that suppliers who are members of this group purchasing organization were able to purchase Category I formulas for a median contract price of $0.36 per unit.

The group purchasing organization’s contract prices for 86 of 88 individual formula products ranged from $0.18 per unit for Meritene® powdered formula to $0.48 per unit for Resource® Just for Kids with Fiber – a pediatric formula packaged in Tetra Brik® Paks. Medicare’s reimbursement amount was 26 percent to 231 percent higher than individual product prices available to the group purchasing organization members. For two products, contract prices exceeded Medicare’s reimbursement amount. Portagen® powdered formula was priced at $0.81 per unit; and Introlite® – a half-calorie liquid formula used to introduce tube feeding – was priced at $0.74 per unit.

Suppliers were able to obtain Category I formulas from one wholesaler for a median price of $0.34 per unit.
We arrayed wholesale contract prices for 41 individual Category I enteral nutrition formulas and found that suppliers were able to obtain these products for a median contract price of $0.34 per unit, compared to the Medicare payment amount of $0.61 per unit.

The wholesaler’s contract prices for 40 of 41 individual formula products ranged from $0.18 per unit for a standard, canned, tube-feeding formula called Isosource® to $0.49 per unit for Glytrol® – a formula for patients with hyperglycemia – in pre-filled sterile containers. Medicare’s payment amount of $0.61 per unit was 25 percent to 235 percent higher than these wholesale contract prices. At $0.86 per unit, a specialty powdered formula called Portagen® was the only product with a wholesale contract price that exceeded the Medicare payment amount.

One supplier was able to purchase Category I formulas for a median price of as low as $0.28 per unit by negotiating directly with formula manufacturers.
We reviewed contracts for enteral nutrition products that one supplier negotiated directly with two formula manufacturers. Rather than listing a single contract price, one of the two manufacturers provided the supplier with three contract prices for each product. The three contract prices were based on the number of cases of the product the supplier ordered in 1 month. The larger the volume of formula purchased per month, the lower the per unit contract price (see Table 3). If the supplier purchased one to nine cases of a particular Category I formula each month, it paid a median price of $0.36 per unit. For 10 to 29 cases each month, the supplier paid $0.29 per unit. For 30 or more cases of a Category I formula each month, the supplier paid $0.28 per unit.

At 1 to 9 cases per month, manufacturers’ contract prices for 46 of 48 individual formula products ranged from $0.19 per unit for Meritene® powdered formula to $0.58 per unit for a canned pediatric product called Pediasure® Enteral Formula. Medicare’s reimbursement amount was 6 percent to 218 percent higher than these individual product prices. Contract prices for two products – Introlite® and Pediasure® Enteral Formula with Fiber – exceeded Medicare’s reimbursement amount. At 10 to 29 cases per month and 30 or more cases per month, all of the manufacturers’ contract prices were lower than the Medicare payment amount of $0.61 per unit.

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