Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
C A S
OM  PARING  VERAGE  ALES 
 
P A
RICES AND  VERAGE 
 
 
M P
ANUFACTURER  RICES FOR 
 
 
M P B D : 
EDICARE  ART    RUGS   
 
A O 2012 
N  VERVIEW OF 
 
Daniel R. Levinson   
Inspector General  
 
March 2014  
OEI-03-13-00570 
   
   
EXECUTIVE SUMMARY:  COMPARING AVERAGE SALES PRICES AND 
AVERAGE MANUFACTURER PRICES FOR MEDICARE PART B DRUGS:        
AN OVERVIEW OF 2012  
OEI-03-13-00570 
 
WHY WE DID THIS STUDY 
When Congress established average sales prices (ASPs) as the primary basis for 
Medicare Part B drug reimbursement, it also mandated that the Office of Inspector 
General (OIG) compare ASPs with average manufacturer prices (AMPs) and directed the 
Centers for Medicare & Medicaid Services (CMS) to substitute payment amounts for 
drugs with ASPs that exceed AMPs by a threshold of 5 percent.  To comply with its 
statutory mandate, OIG has completed 29 quarterly pricing comparisons since the ASP 
reimbursement methodology for Part B drugs was implemented in January 2005.  CMS 
began substituting payment amounts in April 2013 in accordance with its published price 
substitution policy, which currently applies to only certain codes with complete AMP 
data. 
 
HOW WE DID THIS STUDY  
We identified (1) drug codes that would have been eligible for price substitution on the 
basis of data from one or more quarters of 2012, (2) the codes for which CMS actually 
substituted prices, and (3) the codes that would not have been eligible for price 
substitution because they did not meet one or more of CMSs substitution criteria.  We  
also estimated savings for each of the drug codes that exceeded the 5-percent threshold in 
a given quarter of 2012. 
 
WHAT WE FOUND 
Under CMSs price substitution policy, 14 drug codes would have been subject to 
reimbursement reductions on the basis of data from 2012, saving Medicare and its 
beneficiaries an estimated $1.8 million between the fourth quarter of 2012 and the third 
quarter of 2013. However, because CMS did not begin substituting prices until the 
second quarter of 2013, only eight drug codes were actually subject to reductions, 
generating an estimated $819,000 in savings.  If CMS had expanded its price substitution 
criteria, the agency could have generated a quarter of a million dollars in additional 
savings. 
 
WHAT WE RECOMMEND  
CMS has already generated savings by implementing its current price substitution criteria 
and could achieve even greater savings by expanding those criteria.  Therefore, we 
recommend that CMS (1) expand the price substitution policy to include drug codes with 
complete AMP data in a single quarter and (2) expand the price substitution policy to 
include drug codes with partial AMP data.  CMS did not concur with either of our 
recommendations. 
   
   
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................5 

Findings........................................................................................................8 

CMSs price substitution policy would have saved Medicare and 
its beneficiaries almost $2 million over 1 year ................................8 

Expanding the price substitution criteria would have generated                
a quarter of a million dollars in additional savings for                    
Medicare and its beneficiaries .........................................................9 

Conclusion and Recommendations ............................................................11
  
Agency Comments and Office of Inspector General Response .................13 

Appendixes ................................................................................................14 

A: CMSs Equation for Calculating Volume-Weighted Average 

Sales Prices ....................................................................................14 

B: Detailed Methodology for Calculating Volume-Weighted                        

Average Manufacturer Prices for 2012 ..........................................15 

C: Nineteen Drug Codes That Would Have Been Eligible for  

Price Reduction If Criteria Had Been Expanded to Include All 

Codes With Complete Average Manufacturer Price Data ..............17 

D: Five Drug Codes That Would Have Been Eligible for                       

Price Reduction If Criteria Had Been Expanded to Include Codes                 

With Partial Average Manufacturer Price Data ..............................18 

E: Agency Comments  ...................................................................19 

Acknowledgments......................................................................................21 

 
   
   
OBJECTIVES 
1. 	  To estimate the financial impact of substituting Medicare Part B 
reimbursement amounts for drugs in 2012 that met criteria established 
by the Centers for Medicare & Medicaid Services (CMS).   
2. 	  To estimate the financial impact of expanding CMSs criteria for price 
substitution. 
BACKGROUND 
The Social Security Act (the Act) mandates that the Office of Inspector  
General (OIG) compare average sales prices (ASPs) with average 
manufacturer prices (AMPs).1  The Act states that if OIG finds that the 
ASP for a drug exceeds the AMP by a certain percentage (currently 
5 percent), the Secretary of Health and Human Services (the Secretary) 
may disregard the ASP for the drug when setting reimbursement 
amounts.2,  3   The Act further states: 
... the Inspector General shall inform the Secretary (at such times 
as the Secretary may specify to carry out this subparagraph) and 
the Secretary shall, effective as of the next quarter, substitute for 
the amount of payment ... the lesser of (i) the widely available 
market price ... (if any); or (ii) 103 percent of the average 
manufacturer price....4  
Coverage of Prescription Drugs Under Medicare Part B  
Medicare Part B covers a limited number of outpatient prescription drugs, 
including injectable drugs administered by a physician; oral anticancer 
drugs and immunosuppressive drugs; drugs used in conjunction with 
durable medical equipment; and some vaccines.  
Payments for Prescription Drugs Under Medicare Part B  
To obtain reimbursement for covered outpatient prescription drugs, health 
care providers submit claims to Medicare contractors using Healthcare 
Common Procedure Coding System (HCPCS) codes.  In the case of 
prescription drugs, each HCPCS code defines the drug name and the 
amount of the drug represented by the HCPCS code but does not specify 
the manufacturer or package size.  
 
1 Section 1847A(d)(2)(B)  of the Act. 

2 Section 1847A(d)(3)(A)  of the Act.  

3 Section 1847A(d)(3)(B)(ii) of the Act authorizes the Secretary to adjust the applicable 

threshold percentage in  2006 and subsequent  years; however, the threshold percentage 
 
has been  maintained at 5 percent.
    
4 Section 1847A(d)(3)(C)  of the Act. 

Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  1 
   
   
Medicare and its beneficiaries spent $13.6 billion for Part B drugs in 
2012.5   Although Medicare paid for more than 700 outpatient prescription 
drug HCPCS codes that year, spending for Part B drugs was concentrated 
on a relatively small subset of those codes.  In 2012, 72 HCPCS codes 
accounted for 90 percent of the expenditures for Part B drugs; only 16 of 
these codes represented the majority of Part B drug expenditures. 
Reimbursement Methodology for Part B Drugs 
Medicare Part B pays for most covered drugs using a reimbursement 
methodology based on ASPs.  As defined by law, an ASP is the 
manufacturers sales of a drug to all purchasers in the United States in a 
calendar quarter divided by the total number of units of the drug sold by 
the manufacturer in that same quarter.6  Manufacturers that participate in 
the Medicaid drug rebate program must provide CMS with the ASP and 
volume of sales for each of their national drug codes (NDCs) on a 
quarterly basis; submissions are due 30 days after the close of each 
quarter.7   An NDC is an 11-digit identifier that represents a specific 
manufacturer, product, and package size. 
Because Medicare Part B reimbursement for outpatient drugs is based on  
HCPCS codes rather than NDCs and  more than one NDC may meet the  
definition of a particular HCPCS code, CMS has developed a file that 
matches, or crosswalks, manufacturers NDCs to HCPCS codes.  CMS 
uses information in this crosswalk file to calculate volume-weighted ASPs  
for covered HCPCS codes.8  
 
5 Medicare expenditures for Part B drugs in  2012  were calculated using CMSs Part B  
Analytics Reporting  System (PBAR).  

6 Section 1847A(c) of the Act.  The ASP is net of any price concessions, with limited  

exceptions. 

7 Section 1927(b)(3)  of the Act.  

8 The equation that CMS uses to calculate volume-weighted ASPs  is described  in
  
section 1847A(b)(6)  of the Act and is  provided in Appendix  A. 
 
Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  2 
   
   
Under the ASP pricing methodology, the Medicare reimbursement for 
most Part B drugs is equal to 106 percent of the volume-weighted ASP for 
the HCPCS code.9, 10  However, there is a two-quarter lag between the sales 
period for which ASPs are reported and the effective date of the 
reimbursement amounts.  For example, ASPs from the first quarter of 
2012 were used to establish reimbursement amounts for the third quarter 
of 2012. 
Manufacturer Reporting of AMPs  
In addition to providing quarterly ASPs, manufacturers that participate in 
the Medicaid drug rebate program must provide CMS with the AMP for 
each of their NDCs on a quarterly basis; quarterly AMP submissions are 
due 30 days after the end of each quarter. 11  
The AMP is generally calculated as a weighted average of prices for all of 
a manufacturers package sizes of a drug and is reported for the lowest 
identifiable quantity of the drug (e.g., 1 milliliter, one tablet, one capsule).  
By law,  AMP is defined as the average price paid to the manufacturer for 
the drug in the United States by (1) wholesalers for drugs distributed to 
retail community pharmacies and (2) retail community pharmacies that 
purchase drugs directly from the manufacturer.12, 13    
OIGs Monitoring of ASPs and AMPs  
To comply with its statutory mandate, OIG has completed 29 quarterly 
pricing comparisons since the ASP  reimbursement methodology for Part B 
drugs was implemented in January 2005.14 In addition, OIG has 
 
9 Section 1847A(b)(1)  of the  Act.  Medicare beneficiaries are responsible for 20 percent  
of this amount  in the form of coinsurance.  
10 Part B claims dated  on  or after  April 1, 2013, incur a reduction in payment in  
accordance with the Budget Control Act of 2011 and the American Taxpayer Relief Act 
of 2012 (see CMS Medicare  FFS Provider e-News,  Mandatory Payment Reductions in 
the Medicare Fee-for-Service (FFS) Program Sequestration, March 8, 2013).  Under  
this mandatory payment reduction, the effective payment rate for most Part B drugs is 
104.3 percent of  the volume-weighted ASP. 
   
11 Section 1927(b)(3)  of the Act and 42 CFR   447.510(a) and (d). 

12 Section 1927(k)(1)  of the Act, as amended by  2503 of the Patient Protection and 

Affordable Care Act, P.L. 111-148.    
13 Pursuant to   1927(k)(10)  of the Act, retail community pharmacy means an  
independent, chain, supermarket,  or mass merchandiser pharmacy that is licensed as a 
pharmacy by the State and that dispenses medications to the general  public at retail  
prices. Such term does not include pharmacies that dispense prescription medications to 
patients primarily through the mail; pharmacies in  nursing homes, long-term-care 
facilities, or hospitals; clinics; charitable or not-for-profit pharmacies; government 
pharmacies; or pharmacy benefit managers.  
14 This report total includes pricing comparisons for five quarters that were  not made 
available to the public.  OIG issued the results for these quarters directly to CMS to  
facilitate price substitutions.  
Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  3 
   
   
completed five annual overviews of ASPs and AMPs for the years 2007 
through 2011.  OIG has consistently recommended that CMS lower 
reimbursement for drugs that exceed the 5-percent threshold as directed by  
the Act.  
AMP-Based Price Substitutions 
In November 2012, CMS published a final rule that, among other things, 
specifies the criteria for AMP-based price substitutions.15, 16 Pursuant to 
this final rule, CMS substitutes 103 percent of the AMP for the ASP-based 
reimbursement amount when OIG identifies a HCPCS code that exceeds 
the 5-percent threshold in two consecutive quarters or three of four 
quarters.17  Because CMS believes that comparisons based on partial AMP  
data may not adequately reflect market trends, the agency lowers 
reimbursement amounts only when ASP and AMP comparisons are based 
on the same set of NDCs (i.e., are based on complete AMP data).18  To  
prevent the price substitution policy from inadvertently raising Medicare 
reimbursement amounts, CMS does not substitute prices when the 
substituted amount is greater than the ASP-based payment amount 
calculated for the quarter in which the price substitution takes effect.19   
CMS also does not substitute prices when the drug and dosage form  
described by the HCPCS code are identified by the Food and Drug 
Administration (FDA) as being in short supply.20 Price substitutions take 
effect in the quarter after OIG shares the results of its most recent pricing 
comparison and remain in effect for one quarter.21  
 
15 77 Fed. Reg. 68892, 69368  (Nov. 16, 2012). 

16 This is the third time that CMS has pursued rulemaking on  AMP-based price 

substitutions.  In July 2010, CMS published a proposed rule that specified the 

circumstances under which AMP-based price substitutions would occur, effective 

January 2011(75 Fed. Reg. 40040, 40259  (July 13, 2010)); however, the agency opted  not 

to finalize this  proposed  rule  partly on the basis of impending changes to the definition of 
 
AMP (75 Fed. Reg. 73170, 73471 (Nov. 29, 2010)).  In November  2011, CMS published 
 
a final rule that again specified circumstances under which  price substitutions would 

occur (76 Fed. Reg. 73026, 73473 (Nov. 28, 2011)), but the agency did not  implement 

that policy in light of access concerns related to drug shortages. 

17 77 Fed. Reg.  68892, 69368  (Nov. 16, 2012).  CMS has expressed concern that price 

substitutions based on results from a single quarter will not accurately account for 

temporary  fluctuations in market prices and  believes that focusing  on  drugs that
  
consistently exceed the threshold over multiple quarters is more appropriate.  See, e.g., 
                
76  Fed.  Reg.  73026, 73288, 73291 (Nov. 28, 2011). 

18 76 Fed. Reg. 73026, 73289  (Nov. 28, 2011). 

19 77 Fed. Reg. 68892, 69368  (Nov. 16, 2012).  See also 75  Fed. Reg. 40040, 40158 
 
(July 13, 2010).  For example, if the AMP-based substitution amount were $5 and the 

ASP-based reimbursement amount were $4 for the quarter in which the substitution 

would take  place, CMS would  not make the price substitution.  
 
20 77 Fed. Reg. 68892, 69368  (Nov. 16, 2012).   

21 See, e.g., 76 Fed. Reg. 73026, 73473  (Nov. 28, 2011).   

Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  4 
   
   
CMS began applying its price substitution policy to reimbursement 
amounts published for the second quarter of 2013.  Because of the                    
two-quarter lag between the period for which ASPs are reported and the 
effective date of reimbursement amounts and the additional quarter that is 
necessary for OIG to complete its pricing comparison, there is a                   
three-quarter lag between the ASP reporting period and the effective date 
of the price substitutions. Therefore, price substitutions that were 
published by CMS for the second quarter of 2013 were based on 
comparison of ASPs and AMPs from the third quarter of 2012. 
METHODOLOGY 
We obtained files from CMS containing NDC-level ASP data from the 
first through fourth quarters of 2012, which were used to establish               
Part B drug reimbursement amounts for the third quarter of 2012 through 
the second quarter of 2013, respectively.   These files also include 
information that crosswalks NDCs to their corresponding HCPCS codes.  
We also obtained ASP-based reimbursement amounts for the quarters in 
which price substitutions would have occurred/did occur (i.e., the fourth 
quarter of 2012 through the third quarter of 2013),22 as well as  AMP data 
and wholesale acquisition cost (WAC) data from CMS for the first through 
fourth quarters of 2012.23  
Calculating Volume-Weighted AMPs for 2012  
As part of our analysis for each quarter of 2012, we calculated a 
volume-weighted AMP for each HCPCS code, consistent with CMSs 
methodology for calculating volume-weighted ASPs.  To ensure that the 
broadest range of drug codes is subject to OIGs pricing comparisons, we 
examined HCPCS codes with complete AMP data (i.e., HCPCS codes 
with AMP data for every NDC that CMS used in its calculation of         
volume-weighted ASPs), as well as HCPCS codes with partial AMP data 
(i.e., HCPCS codes with AMP data for only some of the NDCs that CMS 
used in its calculation of volume-weighted ASPs). 
For all HCPCS codes with partial AMPs, we accounted for missing data 
by substituting each missing AMP value with the manufacturer-reported 
 
22 Of these four  quarters, CMS made actual AMP-based  price substitutions only in the 
second and third quarters of  2013. 
  
23 ASP, WAC, and crosswalk data from the first through  fourth quarters  of 2012  were 
 
current as of June 2012, September  2012, December 2012, and March 2013, respectively.  

AMP data from  the first through  fourth  quarters  of 2012 were current as of May 2012, 

August 2012, January  2013, and March  2013, respectively.  

Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  5 
   
   
WAC for the NDC.24 This approach enabled us to calculate 
volume-weighted AMPs for these HCPCS codes using the full set of 
NDCs.  Because WACs do not represent actual transaction prices and do 
not include prompt pay discounts or other discounts, rebates, or price 
reductions, they are typically higher than AMPs and therefore function as 
conservative proxies for missing AMP values.25, 26 Appendix B describes 
in more detail the methods used to calculate volume-weighted AMPs for 
all HCPCS codes. 
Comparing Volume-Weighted ASPs and AMPs for 2012 
For each quarter of 2012, we compared the volume-weighted ASPs and 
AMPs and identified all HCPCS codes with ASPs that exceeded the AMPs 
by at least 5 percent. 
In addition, we identified codes with complete AMP data that exceeded 
the threshold in two consecutive quarters or three of four quarters,27 codes 
that were identified by FDA as being in short supply,28 and codes with 
AMP-based substitution amounts that were greater than the ASP-based 
payment amounts for the quarter in which the price substitution would 
have occurred.29     
We merged the results of the four quarterly pricing comparisons and 
identified (1) the HCPCS codes that would have been eligible for price 
substitution on the basis of data from one or more quarters of 2012, (2) the 
codes for which CMS actually substituted prices, and (3) the codes that 
would not have been eligible for price substitution because they did not 
meet one or more of CMSs criteria. 
 
24 Pursuant to section 1847A(c)(6)(B) of the Act, the WAC is defined as the 
manufacturers list price for the drug  or biological to wholesalers or direct purchasers in  
the United States as reported  in wholesale price guides or  other publications of  pricing  
data for drugs  or biologicals.  
25  First Databank, Inc., Drug Pricing Policy, accessed at http://www.fdbhealth.com/  
policies/drug-pricing-policy on  October 23, 2013. 

26  WACs were greater than AMPs for over 90 percent of NDCs included  in CMSs 

quarterly ASP files for 2012;  median percentage differences in each quarter ranged from 
 
42  to 51 percent.
    
27 To accurately identify codes that exceeded the 5-percent threshold in two consecutive  

or three of  four quarters, our  pricing comparisons from the first three quarters  of 2012 

also examined quarterly results from 2011. 

28 To identify drugs that FDA determined to be in short supply, we consulted FDAs 

Current Drug  Shortages Index, available online at http://www.fda.gov/drugs/drugsafety/ 
 
drugshortages.   Accessed on  September 24, 2012; November 6, 2012;  February 4,  2013;
  
and April 4, 2013.   
  
29  As mentioned previously, AMP-based price substitutions based on  pricing data from  

the first through fourth  quarters of 2012  would have applied in the fourth quarter of  2012
  
through the third quarter  of  2013, respectively.   

Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  6 
   
   
We also estimated savings for each of the HCPCS codes that exceeded the 
5-percent threshold in a given quarter of 2012.30   To do this, we calculated 
103 percent of the volume-weighted AMP and subtracted this amount 
from the reimbursement amount for the HCPCS code during the quarter in 
which the price substitution would have occurred/did occur.31 For 
example, for each code that exceeded the threshold in the first quarter of 
2012, we subtracted 103 percent of that quarters volume-weighted AMP  
from the published reimbursement amount for the fourth quarter of 2012.  
Then, to estimate the financial effect of lowering reimbursement for the 
applicable quarter, we multiplied the difference by one-fourth of the 
number of services that were allowed by Medicare for each HCPCS code 
in 2012, as reported in the PBAR. 
Limitations 
We did not verify the accuracy of manufacturer-reported ASP, AMP,  and 
WAC data, nor did we verify the underlying methodology used by 
manufacturers to calculate ASPs and AMPs.  We also did not verify the 
accuracy of CMSs crosswalk files or examine NDCs that CMS opted to  
exclude from its calculation of Part B drug reimbursement amounts. 
Manufacturers are required to submit their quarterly ASP and AMP data to 
CMS within 30 days after the close of the quarter.  Our analyses were 
performed on ASP and AMP data compiled by CMS soon after that 
deadline. We did not determine whether manufacturers provided any 
updated data to CMS at a later date. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency. 
 
30 Our  published quarterly pricing comparisons for the first and second  quarters of  2012  
contained savings estimates that may differ from the savings estimates presented in this 
annual overview because of updated data and changes to the way OIG compares prices 
for HCPCS codes with  partial AMPs.  Results from our quarterly pricing comparisons for 
the third and fourth quarters of 2012 did not contain  savings  estimates and  were not  made 
available to the public. 
31 Savings estimates for price substitutions that occurred in the second and third  quarters 
of 2013 were calculated without regard to the reductions imposed by sequestration.   
Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  7 
   
   
FINDINGS 
CMSs price substitution policy would have saved 
Medicare and its beneficiaries almost $2 million over 
1 year  
Of the 472 HCPCS codes examined during 2012, 14 met all of CMSs 
price substitution criteria during at least one quarter.   These codes 
exceeded the 5-percent threshold in two consecutive quarters or three of 
four quarters using complete AMP data, were not identified by FDA as 
being in short supply, and had AMP-based substitution amounts that were 
less than the ASP-based reimbursement amounts for the quarter(s) in 
which a substitution would have occurred/did occur.32 If CMS had 
substituted the ASP-based reimbursement amounts with 103 percent of the 
AMPs for all 14 HCPCS codes during the applicable quarters, Medicare 
and its beneficiaries would have saved an estimated $1.8 million between 
the fourth quarter of 2012 and the third quarter of 2013.33    
 
Because CMS did not begin lowering reimbursement amounts for eligible 
drugs until the second quarter of 2013, only 8 of the 14 eligible HCPCS 
codes were subject to actual price substitutions.  According to OIG 
estimates, price substitutions in the second and third quarters of 2013 for 
these eight HCPCS codes saved Medicare and its beneficiaries 
approximately $819,000, which represents 46 percent of the total 
estimated savings for the year.    
 
Table 1 lists the 14 HCPCS codes, including the quarter(s) during which 
the price substitution would have occurred/did occur.    
 
32 Seven additional HCPCS codes exceeded the 5-percent threshold in two consecutive 
quarters or three of four quarters but  were identified as being in short supply and/or  had 
AMP-based substitution amounts that were greater than the ASP-based reimbursement 
amounts for the quarters in which the price substitutions would have occurred.  
33  As mentioned previously, AMP-based price substitutions calculated using pricing data 
from the first through fourth  quarters of  2012  would have been applied in the fourth  
quarter of 2012  through  the third quarter of 2013, respectively.  
Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  8 
   
   
Table 1: HCPCS Codes That Met CMSs Price Substitution Criteria  
Quarter(s) in Which Price Substitutions 
 
Would Have Occurred/Did Occur 
   
HCPCS  Description   HCPCS Code  Fourth  First  Second   Third 
Code     Dosage   Quarter   Quarter   Quarter   Quarter  
      2012   2013   2013   2013  
J0456  Azithromycin injection  500 mg     X*  X* 
J0500  Dicyclomine injection  20 mg   X    X* 
J0595  Butorphanol tartrate injection  1 mg    X* 
J0610  Calcium gluconate injection   10 mL   X  X   
J1205  Chlorothiazide sodium injection   500 mg   X     
J1570  Ganciclovir sodium injection   500 mg     X* 
J1756  Iron sucrose injection  1 mg  X  X   
J1955  Levocarnitine injection  1 gm  X     
J2501  Paricalcitol injection  1 mcg  X  X   
J2675  Progesterone injection  50 mg   X    X* 
J2780  Ranitidine HCl injection  25 mg   X     
J9065  Cladribine injection  1 mg  X  X  X* 
J9211  Idarubicin HCl injection  5 mg  X  X  X*  X* 
J9214  Interferon alfa-2b injection   1 million units   X  X  X*  X* 
Note:  Because  CMS began  making price substitutions in the second quarter of 2013, codes marked with an asterisk (*) had actual 
 
price substitutions in the specified quarters. 

Source:  OIG analysis of ASP and AMP data from 2011 and 2012. 

 
Expanding the price substitution criteria would have 
generated a quarter of a million dollars in additional 
savings for Medicare and its beneficiaries 
CMS has maintained a cautious approach to price substitutions to ensure  
that reimbursement is reduced only in appropriate cases.  However, this 
cautious approach reduces the effectiveness of statutorily mandated ASP  
monitoring by limiting the number of Part B drugs eligible for price 
substitution.  If CMS had expanded its price substitution criteria to include 
certain other Part B drugs in 2012, Medicare and its beneficiaries would 
have saved an additional $253,000 over 1 year.34    
An additional $225,000 would have been saved by expanding  
the criteria to include HCPCS codes with complete AMP data in 
a single quarter 
Nineteen HCPCS codes with complete AMP data exceeded the 5-percent 
threshold in at least one quarter of 2012 but were not eligible for price 
 
34 All savings estimates in this finding  have been rounded to the nearest thousand.  
Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  9 
   
   
substitution in that quarter because they did not meet CMSs duration 
criteria (i.e., did not exceed the threshold in two consecutive quarters or 
three of four quarters).35  Of these 19 HCPCS codes, 7 exceeded the 
threshold during multiple quarters of 2012, indicating that the price 
discrepancies were not merely the results of temporary price fluctuations.  
In fact, two of the codes were actually subject to price substitutions in 
subsequent quarters. If the 19 drug codes had been eligible for price 
reduction on the basis of data from a single quarter only, Medicare and its 
beneficiaries would have saved an additional $225,000 between the fourth  
quarter of 2012 and the third quarter of 2013.  A list of the 19 HCPCS 
codes is presented in Appendix C.   
An additional $29,000 would have been saved by expanding 
the criteria to include HCPCS codes with partial AMP data  
When we used WACs as proxies for missing AMPs, five HCPCS codes 
exceeded the threshold in at least one quarter of 2012.36,  37 Given that 
WACs were higher than AMPs for the vast majority of drug products 
covered under Part B in 2012, these results suggest that the ASPs for these 
five HCPCS codes may be excessive and that price substitutions may be 
warranted in these cases. We estimate that if reimbursement amounts for  
the five HCPCS codes had been based on 103 percent of the AMPs during 
the applicable quarters, Medicare expenditures would have been reduced 
by $29,000 between the fourth quarter of 2012 and the third quarter of 
2013. A list of the five HCPCS codes is presented in Appendix D.  
 
 
35 These 19  drugs were  not identified by  FDA  as being in short supply and  did not have  
AMP-based substitution amounts that were greater than the ASP-based reimbursement 
amounts in the quarter(s) during which the substitution(s) would have occurred. 
36 These five drugs were not identified by FDA as being in short supply and  did not have 
AMP-based substitution amounts that were greater than the ASP-based reimbursement 
amounts in the quarter(s) during which the substitution(s) would have occurred.   
37 An additional six HCPCS codes with partial AMP data exceeded the 5-percent 
threshold in at least one quarter of  2012  but were identified as being in short supply 
and/or having AMP-based substitution amounts  that were greater than the ASP-based 
reimbursement amounts for the quarters in which the price substitutions would have 
occurred. 
Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  10 
   
   
CONCLUSION AND RECOMMENDATIONS 
When Congress established ASP as the basis for Medicare Part B drug 
reimbursement, it also provided a mechanism for monitoring market prices 
and limiting potentially excessive  ASP-based payment amounts.  
Specifically, the ASP statute mandates that OIG monitor ASPs by 
comparing them with AMPs and widely available market prices and 
directs CMS to lower reimbursement  for certain drugs on the basis of 
OIGs findings.  Since the ASP payment methodology took effect in 
January 2005, OIG has fulfilled its responsibility to monitor ASP-based 
payment amounts by completing 29 quarterly comparisons of ASPs and 
AMPs and consistently recommending that CMS lower reimbursement for 
drugs that exceed the 5-percent threshold.  CMS began making price 
substitutions in April 2013. 
Currently, CMSs price substitution policy is relatively narrow in scope; it 
is limited to only certain codes with complete AMP data.  Under this 
policy, 14 drug codes would have been subject to reimbursement 
reductions on the basis of data from 2012, saving Medicare and its 
beneficiaries an estimated $1.8 million between the fourth quarter of 2012 
and the third quarter of 2013. However, because CMS did not begin 
substituting prices until the second quarter of 2013, only eight drug codes 
were actually subject to reductions, generating an estimated $819,000 in 
savings. 
Although the dollars associated with short-term payment adjustments may 
be modest relative to total expenditures for Part B drugs, savings achieved 
through price substitution in the long term could reduce waste and 
conserve taxpayer funds at a time when increased focus has been placed 
on rising health care costs and fiscal responsibility.   We estimate that CMS 
has already generated over $800,000 in savings by implementing its 
current price substitution criteria and that the agency could achieve even 
greater savings for Medicare and its beneficiaries by expanding those 
criteria. Therefore, we recommend that CMS: 
Expand the price substitution policy to include HCPCS codes with 
complete AMP data that exceed the threshold in a single quarter 
CMS has expressed concern that price substitutions based on results from 
a single quarter would not account for temporary fluctuations in market 
prices; therefore, the agency lowers reimbursement amounts for only those 
codes with complete AMP data that exceed the 5-percent threshold in two  
consecutive quarters or three of four quarters.  However, this cautious 
approach reduced the effectiveness of ASP monitoring in 2012.   
Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  11 
   
   
Even temporary fluctuations in ASPs and AMPs may represent legitimate  
pricing discrepancies that lead Medicare and its beneficiaries to overpay 
for certain drugs, if only for a single quarter.  Because price substitutions  
will remain in effect for only one quarter and will be resolved when any 
temporary fluctuations are corrected, we recommend that CMS include in 
its price substitution policy all HCPCS codes with complete AMP data that 
exceed the 5-percent threshold, regardless of the duration of the price 
discrepancies.  
Expand the price substitution policy to include HCPCS codes with 
partial AMP  data 
Because we used WACs as proxies for missing AMPs rather than 
removing the NDCs from our calculations, the pricing comparisons for 
HCPCS codes with partial AMP data in 2012 are based on the same set of 
NDCs. This new methodological approach should help alleviate CMSs 
concerns that comparisons for codes with partial AMP data may lead to 
incomplete and inaccurate volume-weighted prices because different sets 
of NDCs sales are used in the calculations.  Because the risk of 
substituting ASP-based reimbursement with an artificially low                
volume-weighted AMP is likely diminished when  WACs are used in place 
of missing AMP values, we recommend that CMS include HCPCS codes  
with partial AMP data in its price substitution policy. 
Furthermore, by excluding from its policy all codes with partial AMP data, 
CMS may inadvertently provide drug manufacturers with a disincentive to 
submit timely AMPs.  CMS could avoid this potential disincentive by 
expanding the price substitution policy to include HCPCS codes with 
partial AMPs. 
Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  12 
   
   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS did not concur with our recommendation to expand the price 
substitution policy to include HCPCS codes with complete AMP data that 
exceed the threshold in a single quarter.  CMS stated that it appreciates the 
potential for additional cost savings but is concerned that results from a 
single quarter may suggest aberrance rather than a market trend and that 
implementing a more aggressive version of the price substitution policy 
may affect access to the affected drugs by inadvertently lowering payment 
amounts below providers acquisition costs.  CMS additionally noted that 
implementing this recommendation would require the agency to undertake 
notice-and-comment rulemaking. 
CMS also did not concur with our recommendation to consider expanding 
the price substitution policy to include certain HCPCS codes with partial 
AMP data. CMS remains concerned that partial AMP data comparisons 
may not adequately account for market-related drug price changes and 
may lead to the substitution of inaccurate prices. According to CMS, 
these substitutions may impact physician and beneficiary access to drugs, 
even when using conservative approaches, such as substituting missing 
AMPs with WACs. 
OIG agrees that access to prescription drugs is a significant concern that 
should always be considered when contemplating pricing policies.  
However, we continue to believe that CMS can achieve a better balance 
between safeguarding access to drugs and ensuring that Medicare and its 
beneficiaries do not overpay for drugs with ASPs that exceed the AMPs 
by the threshold percentage. 
For the full text of CMSs comments, see Appendix E.   
 
Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  13 
   
   
APPENDIX A 
CMSs Equation for Calculating Volume-Weighted Average 
Sales Prices 
A volume-weighted ASP is calculated for the dosage amount associated 
with the HCPCS code. In the following equation, the Number of Billing 
Units represents the number of HCPCS code doses that are contained in 
an NDC.  CMS uses billing units when calculating a volume-weighted 
ASP because the amount of the drug represented by an NDC may differ 
from the amount of the drug specified by the HCPCS code. 
 
 
Volume-Weighted ASP  Sum of (ASP for NDC x Number of NDCs Sold)  
 
for Dosage Amount       =     
  of HCPCS Code   Sum of   (Number of NDCs Sold x Number of  Billing Units in NDC)  
   
Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  14 
   
   
APPENDIX B 
Detailed Methodology for Calculating Volume-Weighted 
Average Manufacturer Prices for 2012 
To ensure that the broadest range of drugs would be subject to OIGs 
pricing comparisons, we examined HCPCS codes with AMP data for 
every NDC that was used to calculate Medicare reimbursement (i.e., 
HCPCS codes with complete AMP data), as well as HCPCS codes with 
AMP data for only some of the NDCs that were used to calculate 
Medicare reimbursement (i.e., HCPCS codes with partial AMP data).  
Accounting for Missing AMPs 
For HCPCS codes with partial AMPs, we accounted for missing data by 
substituting each missing AMP value with the manufacturer-reported 
WAC for the NDC, as provided in CMSs quarterly ASP files.  If neither 
the WAC nor the AMP was available for a given NDC, we excluded the 
corresponding HCPCS code from the analysis.     
WACs function as conservative proxies for missing AMP values because  
WACs are typically higher than AMPs.  Unlike AMPs, WACs do not 
represent actual transaction prices and do not include prompt pay 
discounts or other discounts, rebates, or price reductions.  As a result, 
WACs usually exceed AMPs by a significant margin for both Medicare 
and Medicaid drugs. According to our analysis, WACs exceeded AMPs 
for over 90 percent of drug products included in CMSs quarterly ASP  
files; median percentage differences in each quarter ranged from 42 to 
51 percent. A 2005 OIG report found a similar trend among drugs 
reimbursed by Medicaid; AMP equaled WAC minus 25 percent at the 
median for all drugs and WAC minus 40 percent at the median for generic 
drugs.38    
There are also indications that WACs exceed drug acquisition costs.  
According to estimates in a 2011 OIG report, invoice prices for                     
single-source drugs averaged 99.46 percent of WACs, while invoice prices 
for multisource drugs averaged 66.68 percent of the WACs.39  
     
 
38OIG,  Medicaid Drug Price Comparisons:  Average Manufacturer Price to  Published 
Prices, OEI-05-05-00240, June 2005. 

39 OIG,  Review of Drug Costs to Medicaid Pharmacies and Their Relation to Benchmark 

Prices, A-06-11-00002, October 2011.  Invoice prices are the prices for drugs  as listed on 

invoices provided by  sampled pharmacies.  OIG did not attempt to identify any discounts, 

rebates, or other price incentives not reflected in the invoice prices.   

Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  15 
   
   
Calculating Converted AMPs  
Because an AMP is reported for the lowest identifiable quantity of the 
drug contained in the NDC (e.g., 1 milligram, 1 milliliter, one tablet, one 
capsule) and the ASP is reported for the entire amount of the drug 
contained in the NDC (e.g., 50 milliliters, 100 tablets), it was necessary to  
convert each  AMP so that it represents the total amount of the drug 
contained in the NDC.  To do this, we multiplied the AMP for each NDC 
in each quarter by the total amount of the drug contained in the NDC, as 
identified by sources such as CMSs crosswalk file, manufacturer Web 
sites, and drug labels. For some NDCs, we could not identify the amount 
of the drug reflected by the ASP or AMP and therefore could not calculate 
a converted AMP.   The extent to which NDCs with problematic AMP  
conversions affected our analysis differed depending on whether the 
associated HCPCS code had complete  AMP data or partial AMP data. 
HCPCS Codes With Complete AMP Data.  If a HCPCS code with 
complete AMP data had one or more NDCs with a problematic AMP  
conversion, we automatically excluded that HCPCS code from our pricing 
comparison for the quarter.  
HCPCS Codes With Partial AMP Data. If a HCPCS code with partial 
AMP data had one or more NDCs with a problematic AMP conversion, we 
did not automatically exclude that HCPCS code from our pricing 
comparison.  Rather, we replaced the converted AMP with the WAC for 
the NDC.  However, if the WAC was not available or if all of the NDCs 
associated with the HCPCS code had problematic AMP conversions, we 
dropped the HCPCS code from  that quarters analysis. 
Calculating Volume-Weighted AMPs 
We calculated a volume-weighted AMP for each HCPCS code consistent 
with the methodology for calculating volume-weighted ASP.  Because we 
used WACs as proxies for missing AMPs rather than removing the NDCs 
from our calculations, comparisons between ASPs and AMPs are based on 
the same set of NDCs for all HCPCS codes, including those with only 
partial AMP data.   
Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  16 
   
   
APPENDIX C   
Nineteen Drug Codes That Would Have Been Eligible for Price 
Reduction If Criteria Had Been Expanded To Include All Codes 
With Complete Average Manufacturer Price Data 
Quarter(s) in Which Price Substitutions 
 
Would Have Occurred  
   
Drug  Description   Drug Code  Fourth  First  Second   Third  
Code     Dosage   Quarter   Quarter   Quarter   Quarter  
      2012   2013   2013   2013  
J0456*  Azithromycin injection  500 mg   X   
J0636  Calcitriol injection  0.1 mcg  X     
J0770  Colistimethate sodium injection   150 mg   X   
J1110  Dihydroergotamine mesylate injection  1 mg      X 
J1165  Phenytoin sodium injection   50 mg       X 
J1270  Doxercalciferol injection   1 mcg  X      X 
J1570*  Ganciclovir sodium injection   500 mg   X   
J1742*  Ibutilide fumarate injection   1 mg      X 
J1953*  Levetiracetam injection  10 mg     X 
J2360  Orphenadrine injection  60 mg   X    X 
J2720  Protamine sulfate injection   10 mg   X   
J2800  Methocarbamol injection  10 mL   X   
J3303  Triamcinolone hexacetonide injection  5 mg    X 
J3415  Pyridoxine HCl injection   100 mg     X 
J7500  Azathioprine, oral    50 mg   X     
J9060  Cisplatin injection  10 mg   X   
J9185  Fludarabine phosphate injection  50 mg       X 
J9208  Ifosfamide injection  1 g  X     
Q0164   Prochlorperazine maleate, oral   5 mg      X 
Note: All of the above codes were ineligible for price substitutions in  the given quarters  only because they did not meet CMSs duration criteria  
(i.e., did not exceed the  threshold in two consecutive quarters or three of  four  quarters).  Each code marked with an asterisk (*) either had 
actual price  substitutions in another quarter or would have had price substitutions in another quarter if the drug had not been  in short supply  or 
did not have an AMP-based  substitution amount that  was greater than the  ASP-based reimbursement amount. 
Source:  OIG analysis of ASP and AMP data from 2012. 
Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  17 
   
   
APPENDIX D 
Five Drug Codes That Would Have Been Eligible for Price 
Reduction If Criteria Had Been Expanded To Include Codes 
With Partial Average Manufacturer Price Data 
Quarter(s) in Which Price Substitutions 
 
Would Have Occurred  
   
Drug  Description   Drug Code  Fourth  First  Second   Third  
Code     Dosage   Quarter   Quarter   Quarter   Quarter  
      2012   2013   2013   2013  
J1650*  Enoxaparin sodium injection   10 mg   X     
J2515  Pentobarbital sodium injection   50 mg   X   
J2540  Penicillin g potassium injection  600,000 units   X   
Q0163*   Diphenhydramine HCl injection  50 mg   X   
Q0164   Prochlorperazine maleate, oral   5 mg  X   
* These drug codes also exceeded the 5-percent threshold on the basis of partial AMP data in other quarters  of 2012  but during  those quarters  
were identified as being in short supply or had AMP-based substitution amounts that were greater than  the ASP-based reimbursement  
amounts. 
Source:  OIG analysis of ASP and AMP data from 2012. 
Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  18 
  APPENDIX E 
Agency Comments 
(,.r:..:.."!"1'~ -	
DEPARTMENT OF HEALTH & HUMAN SERVICES  Centers for Medicare & Medicaid Services
Administrator 
Washington, DC 20201 
DATE:  JAN -~ 2014 
TO: 	 Daniel R. Levinson 

Inspector General 

FROM: 	 Marilyn Tavenner 

Administrotor 

SUBJECT: 	 Oftice of Inspector General (010) Draft Report: Comparing of Average Sales 
Prices and Average Manufacturer Prices for Medicare Part B Dmgs: An 
Overview of2012 (OEI-03-13-00570) 
The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 
comment on the above subject 010 draft report. This report is part of a series of average sales 
price (ASP) and average manufacturer price (AMP) comparisons required under section 
1847 A( d) of the Social Security Act.  OIG's objectives for the 2012 overview were to--(!) 
Estimate the financial impact of substituting Medicare Part B reimbursement amounts for drugs 
in 2012 that met criteria established by CMS; and (2) Estimate the financial impact of expanding 
CMS  s criteria for price substitution. 
The 2012 overview found that the AMP-based price substitution policy that was finalized during 
rulemaking (77 FR 68892,69140 (Nov. 16, 2012)) resulted in an estimated $819,000 in cost 
savings during the first two quarters after its implementation. Eight price substitutions were 
made during these two quarters.  However, OIG's review was conducted over a four quarter 
period, which began two quarters before the price substitution policy was implemented, and the 
overview identified a total of 14 Healthcare Common Procedure Coding System (HCPCS) codes 
that met the finalized price substitution criteria during the entire review period. Had all 14 
substitutions been made during the fourth quarter review period, the estimated savings would 
have increased to $1.8 million. oro also estimated that expanding the price substitution policy 
by including HCPCS codes that exceeded the threshold for a single quarter and by including 
HCPCS codes with partial AMP data could have resulted in an additional quarter of a million 
dollars in savings. 
In this overview, OIG substituted missing AMP data with manufacturer-reported wholesale 
acquisition cost (WAC). The 010 stated that this approach resulted in a conservative value for 
missing AMPs. Overall, this report identifies modest savings for the Medicare program that was 
achieved by the implementation of a price substitution policy. As with most previous AMP price 
substitution reports. the dmgs that exceeded the five percent substitution threshold were typically 
associated with low Medicare utilization. 010 recommendations and CMS responses to those 
recommendations are discussed below. 
Comparing ASPs and AMPs for Medicare Part B Drugs: An Overview of 2012 (OEI-03-13-00570)  19   
   
Agency Comments (continued)   
Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  20 
   
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of Robert A. Vito, Regional 
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office.   
Lauren McNulty served as the team leader for this study.  Central office 
staff who provided support include Meghan Kearns and Christine Moritz.  
 
 
 
Comparing ASPs and AMPs for Medicare Part B Drugs:  An Overview of 2012 (OEI-03-13-00570)  21 
   
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