Medicare, the US federal health insurance programme for seniors and the disabled, overpaid $6.5 million for Pfizer’s cancer drug Camptosar in March because of delays in updating its pricing formula after the first generic version of the drug appeared on February 20, says a government report.

Based on pricing, sales volume and discount information collected from Pfizer plus six manufacturers of generic versions of Camptostar (irinotecan), officials at the Health and Human Services Department Office of the Inspector General (OIG) calculated that the drug's average manufacturer sales price in March was $51.59. However, Medicare actually paid $126.31 - 145% more - for it during the month. The average price for generic versions, which accounted for 86% of sales in the month, was $40.66, while the brand-name product's average price was nearly three times higher, they add.

The generic versions of irinotecan which were available in March had not yet been factored into the calculation of Medicare’s payment for the month “because of the two-quarter lag between the time when sales occur and the time when these sales become the basis for Medicare payment,” says the OIG. But, if Medicare’s payments for the drug had been based on the $51.59 average calculated by the Office’s researchers, the programme’s spending on irinotecan would have been reduced by $6.5 million in March alone, they add.

The officials also warn that overpayments caused by this delay are not limited to irinotecan and that, without changes to the process, “Medicare payment amounts for drugs with new generic versions will continue to be temporarily higher than manufacturer sales prices, sometimes substantially.”

The Centers for Medicare and Medicaid, which administers the federal health programmes, must look at ways of speeding the process to ensure that the amount Medicare pays for drugs with newly-available generic versions accurately reflect market prices, and this could require legislative action, the OIG officials conclude. But change is needed, and urgently; under the current system, “the first full quarter of generic sales data for irinotecan will not be reflected in the Medicare payment amount until October 2008 – almost eight months after the first generic versions reached the market,” they say.