Department of Health and Human Services
 
OFFICE OF 

INSPECTOR GENERAL 

C T -Q
OMPARISON OF  HIRD UARTER 
2006 A S P
VERAGE  ALES  RICES TO 
A M P : 
VERAGE  ANUFACTURER  RICES
I M
MPACT ON  EDICARE 
R F
EIMBURSEMENT FOR  IRST 
Q 2007 
UARTER 
Daniel R. Levinson
 
Inspector General 

July 2007 

OEI-03-07-00140 
 Office of Inspector General 
http://oig.hhs.gov 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 
amended, is to protect the integrity of the Department of Health and Human Services (HHS) 
programs, as well as the health and welfare of beneficiaries served by those programs. This 
statutory mission is carried out through a nationwide network of audits, investigations, and 
inspections conducted by the following operating components: 
Office of Audit Services 
The Office of Audit Services (OAS) provides all auditing services for HHS, either by conducting 
audits with its own audit resources or by overseeing audit work done by others.  Audits 
examine the performance of HHS programs and/or its grantees and contractors in carrying out 
their respective responsibilities and are intended to provide independent assessments of HHS 
programs and operations.  These assessments help reduce waste, abuse, and mismanagement 
and promote economy and efficiency throughout HHS. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide HHS,  
Congress, and the public with timely, useful, and reliable information on significant issues.  
Specifically, these evaluations focus on preventing fraud, waste, or abuse and promoting 
economy, efficiency, and effectiveness in departmental programs.  To promote impact, the reports 
also present practical recommendations for improving program operations. 
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations of 
allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment 
by providers.  The investigative efforts of OI lead to criminal convictions, administrative 
sanctions, or civil monetary penalties.  
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to OIG, 
rendering advice and opinions on HHS programs and operations and providing all legal support 
in OIGs internal operations.  OCIG imposes program exclusions and civil monetary penalties 
on health care providers and litigates those actions within HHS.  OCIG also represents OIG in 
the global settlement of cases arising under the Civil False Claims Act, develops and monitors 
corporate integrity agreements, develops compliance program guidances, renders advisory 
opinions on OIG sanctions to the health care community, and issues fraud alerts and other 
industry guidance.    E X E C U T I V E   S U M M A R Y
OBJECTIVE 
1. 	 To determine whether average sales prices (ASP) for individual 
Medicare Part B prescription drugs exceeded average manufacturer 
prices (AMP) by at least 5 percent during the third quarter of 2006. 
2. 	 To determine the impact of lowering reimbursement amounts for 
drugs that meet the 5-percent threshold.   
BACKGROUND 
Since January 2005, Medicare Part B has been paying for most covered 
drugs using a reimbursement methodology based on ASPs. Section 
1847A(c) of the Social Security Act (the Act) defines an ASP as a 
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.  The ASP is net of any price 
concessions.  Manufacturers report ASPs by national drug codes (NDC) 
and must provide the Centers for Medicare & Medicaid Services (CMS) 
with the ASP and volume of sales for each of their NDCs on a quarterly 
basis. 
Although manufacturers submit ASP data by NDCs, CMS does not 
reimburse Medicare providers for drugs using NDCs.  Instead, CMS 
uses Healthcare Common Procedure Coding System (HCPCS) codes. 
More than one NDC may meet the definition of a particular HCPCS 
code; therefore, CMS uses NDC-level information submitted by the 
manufacturers to calculate an ASP for each covered HCPCS code. 
When CMS calculates payment amounts for HCPCS codes, it must 
weight ASPs at the NDC level by the amount of the drug sold during the 
quarter.  Under the ASP pricing methodology, Medicares allowance for 
most Part B drug codes is equal to 106 percent of the volume-weighted 
ASPs for those HCPCS codes.  
Section 1847A(d)(2)(B) of the Act mandates that the Office of Inspector 
General (OIG) compare ASPs with AMPs.  As defined in section 
1927(k)(1) of the Act during the time period covered by our review, an 
AMP was the average price paid to the manufacturer for the drug in the 
United States by wholesalers for drugs distributed to the retail 
pharmacy class of trade, minus customary prompt pay discounts.  As 
part of the Medicaid drug rebate program, manufacturers must provide 
CMS with the AMP for each of their NDCs on a quarterly basis, 
pursuant to section 1927(b)(3) of the Act.  If OIG finds that the ASP for 
  OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  i  E X E C U T I V E   S U M M A R Y  
a drug exceeds the AMP by a certain threshold (currently 5 percent), 
section 1847A(d)(3)(A) of the Act states that the Secretary of the 
Department of Health and Human Services (the Secretary) may 
disregard the ASP for the drug when setting reimbursement.  Section 
1847A(d)(3)(C) goes on to state    . . . 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 the 
(i) widely available market price . . . (if any); or (ii) 103 percent of the 
average manufacturer price . . . .   
For this study, we obtained CMSs ASP data from the third quarter of 
2006, which were used to establish volume-weighted ASPs and 
reimbursement amounts for the first quarter of 2007.  We also obtained 
CMSs AMP data from the third quarter of 2006.  We used these AMP 
data to calculate volume-weighted AMPs using the same method that 
CMS uses to calculate volume-weighted ASPs.  Ultimately, we 
compared volume-weighted ASPs to volume-weighted AMPs for 
326 HCPCS codes and identified codes for which ASPs exceeded AMPs 
by at least 5 percent. 
FINDINGS 
For 39 of 326 HCPCS codes reviewed, the volume-weighted ASP 
exceeded the volume-weighted AMP by at least 5 percent.  Based on 
our analysis of data from the third quarter of 2006, 39 of the  
326 HCPCS codes included in our review had an ASP that exceeded the 
AMP by at least 5 percent. Of these 39 HCPCS codes, 12 were also 
identified in a previous OIG report as having ASPs that exceeded AMPs 
by at least 5 percent in the fourth quarter of 2005.  Four of the twelve 
also met the 5-percent threshold in OIGs initial comparison of ASPs 
and AMPs, which used data from the third quarter of 2004.  In other 
words, ASPs for these four drugs have exceeded AMPs by at least    
5 percent in each of our three reports, dating back more than 2 years. 
If reimbursement amounts for these 39 codes had been based on  
103 percent of the AMP during the first quarter of 2007, we estimate 
that Medicare expenditures would have been reduced by $13 million. 
One of the thirty-nine HCPCS codes (J7620) accounted for over                  
60 percent of the $13 million.  The ASP for this code also exceeded the 
AMP by at least 5 percent in a previous OIG report comparing prices 
from the fourth quarter of 2005.  
  OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  ii  E X E C U T I V E   S U M M A R Y
  
RECOMMENDATION 
This is OIGs third review comparing ASPs and AMPs, and we 
identified 39 HCPCS codes that are eligible for price adjustments under 
authority of the Secretary.  Of these 39 codes, 4 have met the threshold 
for price adjustments in all three of OIGs studies comparing ASPs and 
AMPs. An additional eight HCPCS codes were previously eligible for 
price adjustments as a result of OIGs second report, which used data 
from the fourth quarter of 2005. 
We therefore recommend that CMS adjust Medicare reimbursement 
amounts for drugs that meet the 5-percent threshold specified in section 
1847A(d)(3) of the Act.  CMS may want to specifically focus on those drugs 
that, according to the three OIG reports, have ASPs that consistently meet 
this threshold. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS expressed a desire to better understand the sources of fluctuating 
differences between ASPs and AMPs, with the intent of developing a 
process to adjust payment amounts based on the results of OIGs pricing 
comparisons. CMS would like to collaborate with OIG to minimize the 
time lag between OIG analysis and the implementation of quarterly 
ASP prices.  To help ensure that ASP submissions are correct, CMS 
suggests that OIG focus its activities on manufacturers of drugs whose 
ASPs consistently differ from AMPs.  CMS did not specify what steps it 
will take to adjust Medicare reimbursement amounts for drugs that 
meet the 5-percent threshold specified in section 1847A(d)(3) of the Act. 
OIG acknowledges that manufacturers drug prices will inevitably 
fluctuate to some extent.  However, the difference between ASPs and 
AMPs has not fluctuated considerably for 12 of the 39 HCPCS codes 
identified in this report.  Rather, these codes have been consistently 
identified as having ASPs at or above the 5-percent threshold. OIG 
continues to recommend that the Medicare reimbursement amounts for 
these 12 codes, as well as the other codes identified in the report, be 
adjusted pursuant to section 1847A(d)(3) of the Act.  As in the past, OIG 
will work with CMS to ensure that pricing comparison data are 
available to the Agency in a timely manner.  In addition, we will 
consider CMSs suggestion to focus our activities on manufacturers of 
drugs whose ASPs consistently differ from AMPs. 
  OEI-03-07-00140  COMPARISON OF THIRD- QUARTER 2006 ASP S AND AMPS  iii    T A B L E   O F   C O N T E N T S  
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
  
I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1
  
F I N D IN G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9
  
Results of ASP to AMPComparison. . . . . . . . . . . . . . . . . . . . . . . . .  9
  
R E C O MMEN D A T ION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11
  
Agency Comments andOffice of Inspector General Response . . .  11 

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
  
A: 	Equation Used by CMS To Calculate Volume-Weighted 

   ASPs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13
  
B:	  Thirty-nine HCPCS Codes With an ASP That Exceeded the  

AMP by at Least 5 Percent. . . . . . . . . . . . . . . . . . . . . . . . . . . .  14
  
C:	  AgencyComments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
  
A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
     I N T R O D U C T I O N
OBJECTIVE 
1. 	 To determine whether average sales prices (ASP) for individual 
Medicare Part B prescription drugs exceeded average manufacturer 
prices (AMP) by at least 5 percent during the third quarter of 2006. 
2. 	 To determine the impact of lowering reimbursement amounts for 
drugs that meet the 5-percent threshold.   
BACKGROUND 
Section 1847A(d)(2)(B) of the Social Security Act (the Act) mandates 
that the Office of Inspector General (OIG) compare ASPs with AMPs.  If 
OIG finds that the ASP for a drug exceeds the AMP by a certain 
threshold (currently 5 percent), section 1847A(d)(3)(A) of the Act states 
that the Secretary of the Department of Health and Human Services 
(the Secretary) may disregard the ASP for the drug when setting 
reimbursement.  Section 1847A(d)(3)(C) of the Act goes on to state   
. . . 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 the (i) widely available market 
price . . . (if any); or (ii) 103 percent of the average manufacturer   
price . . . . 
Medicare Part B Coverage of Prescription Drugs 
Medicare Part B covers only a limited number of outpatient prescription 
drugs. Covered drugs include injectable drugs administered by a 
physician; certain self-administered drugs, such as oral anticancer 
drugs and immunosuppressive drugs; drugs used in conjunction with 
durable medical equipment; and some vaccines. 
Medicare Part B Payments for Prescription Drugs 
The Centers for Medicare & Medicaid Services (CMS) contracts with 
private companies, known as carriers, to process and pay Medicare 
Part B claims, including those for prescription drugs.  To obtain 
reimbursement for covered outpatient prescription drugs, physicians 
and suppliers submit claims to their carriers using procedure codes. 
CMS established the Healthcare Common Procedure Coding System 
(HCPCS) to provide a standardized coding system for describing the 
specific items and services provided in the delivery of health care. In 
  OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  1  I N T R O D U C T I O N  
the case of prescription drugs, each HCPCS code defines the drug name 
and dosage size but does not specify manufacturer or package size 
information. 
Medicare and its beneficiaries spent almost $10 billion for Part B drugs 
in 2005.1  Although Medicare paid for almost 550 outpatient 
prescription drug HCPCS codes that year, the majority of spending for 
Part B drugs was concentrated on a relatively small subset of those 
codes.  In 2005, 53 codes represented 90 percent of the expenditures for 
Part B drugs, with only 11 of these drugs representing half of the total 
Part B drug expenditures. 
Reimbursement Methodology for Part B Drugs and Biologicals  
Since January 2005, Medicare Part B has been paying for most covered 
drugs using a reimbursement methodology based on ASPs.2  Section 
1847A(c) of the Act, as added by the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003, Public Law 108-173, 
defines an ASP as a 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.  The 
ASP is net of any price concessions, such as volume discounts, prompt 
pay discounts, cash discounts; free goods contingent on purchase 
requirements; chargebacks; and rebates other than those obtained 
through the Medicaid drug rebate program.3 Sales that are nominal in 
amount are exempted from the ASP calculation, as are sales excluded 
from the determination of best price in the Medicaid drug rebate 
program.4,5 
Manufacturers report ASPs by national drug codes (NDC), which are 
11-digit identifiers that indicate the manufacturer of the drug, the 
product dosage form, and the package size.  Manufacturers must 
1 At the time of this report, information regarding complete 2006 Part B drug expenditures 

was not yet available.  Therefore, we used total expenditures from 2005. 

2 In 2004, the reimbursement amount for most covered drugs was based on 85 percent of 

the average wholesale price as published in national pricing compendia, such as the Red
 
Book. Prior to 2004, Medicare Part B reimbursed for covered drugs based on the lower of 

either the billed amount or 95 percent of the average wholesale price. 

3 Section 1847A(c)(3) of the Act.  

4 Pursuant to section 1927(c)(1)(C)(i) of the Act, best price is the lowest price available 

from the manufacturer during the rebate period to any wholesaler, retailer, provider, health
 
maintenance organization, nonprofit entity, or governmental entity within the United 

States, with certain exceptions. 

5 Section 1847A(c)(2) of the Act.  

  OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  2  III NNN TTT RRR OOO DDD UUU CCC TTT III OOO NNN
provide CMS with the ASP and volume of sales for each NDC on a 
quarterly basis, with submissions due 30 days after the close of each 
quarter.6 
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 crosswalks manufacturers NDCs to HCPCS codes. CMS uses 
information in this crosswalk to calculate volume-weighted ASPs for 
covered HCPCS codes. 
Third-quarter 2006 ASP submissions from manufacturers served as the 
basis for first-quarter 2007 Medicare allowances for most covered drug 
codes. Under the ASP pricing methodology, the Medicare allowance for 
most Part B drugs is equal to 106 percent of the ASP for the HCPCS 
code. Medicare beneficiaries are responsible for 20 percent of this 
amount in the form of coinsurance. 
The Medicaid Drug Rebate Program and AMP 
For Federal payment to be available for covered outpatient drugs 
provided under Medicaid, sections 1927(a)(1) and (b)(1) of the Act 
mandate that drug manufacturers enter into rebate agreements with 
the Secretary and pay quarterly rebates to State Medicaid agencies. 
Under these rebate agreements and pursuant to section 1927(b)(3) of 
the Act, manufacturers must provide CMS with the AMP for each of 
their NDCs on a quarterly basis, with submissions due 30 days after the 
close of each quarter.7 
As generally defined in section 1927(k)(1) of the Act, the AMP is the 
average price paid to the manufacturer for the drug in the United 
States by wholesalers for drugs distributed to the retail pharmacy class 
of trade. Prior to the passage of the Deficit Reduction Act of 2005 
(DRA), Public Law 109-171, manufacturers were required to deduct 
customary prompt pay discounts when calculating AMPs.8 However, 
section 6001(c)(1) of the DRA amended section 1927(k)(1) of the Act and 
the AMP is now determined without regard to customary prompt pay 
6 Section 1927(b)(3) of the Act. 

7 Pursuant to section 6001(b)(1)(A) of the DRA, manufacturers are also required to report 

AMPs on a monthly basis as of January 2007. Drug manufacturers will continue to report
 
quarterly AMP data in addition to their monthly submissions. 

8 Section 1927(k)(1) of the Act. 

OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  3  II NN TT RR OO DD UU CC TT II OO NN
discounts. CMS has instructed manufacturers to exclude customary 
prompt pay discounts from their AMP calculations as of January 2007. 9 
The AMP is calculated as a weighted average of prices for all of a 
manufacturers package sizes of a drug sold during a given quarter and 
is reported for the lowest identifiable quantity of the drug 
(e.g., 1 milligram, 1 milliliter, 1 tablet, 1 capsule). 
Office of Inspector Generals Monitoring of ASP and AMP 
In April 2006, OIG released the first of its reports comparing ASPs to 
AMPs. That report, entitled Monitoring Medicare Part B Drug Prices: 
A Comparison of Average Sales Prices to Average Manufacturer Prices 
(OEI-03-04-00430), identified 51 HCPCS codes with ASPs that exceeded 
AMPs by at least 5 percent in the third quarter of 2004. Given that 
OIGs review was conducted using data submitted during the initial 
implementation phase of the ASP methodology, CMS opted not to take 
action in response to OIGs findings. 
Three months later, OIG released a second report comparing ASPs to 
AMPs, entitled Comparison of Fourth Quarter 2005 Average Sales 
Prices to Average Manufacturer Prices: Impact on Medicare 
Reimbursement for Second Quarter 2006 (OEI-03-06-00370). 
According to this follow-up study, which used data from the fourth 
quarter of 2005, 46 of 341 HCPCS codes had ASPs that exceeded AMPs 
by at least 5 percent. Twenty of these forty-six codes had also met the 
5-percent threshold in OIGs initial pricing comparison of third-quarter 
2004 ASPs and AMPs. 
To date, CMS has not made any adjustments to Part B drug 
reimbursement as a result of the two OIG reports comparing ASPs and 
AMPs. In commenting on OIGs initial report, CMS acknowledged the 
Secretarys authority to adjust ASP payment limits when certain 
conditions are met. However, CMS stated that other issues should be 
considered before making any price reductions, including the timing and 
frequency of pricing comparisons, stabilization of ASP reporting, the 
effective date and duration of rate substitution, and the accuracy of ASP 
and AMP data. 
9 Medicaid Drug Rebate Program Bulletin for Participating Drug Manufacturers, Release 
No. 76, December 15, 2006. 
OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  4  II NN TT RR OO DD UU CC TT II OO NN

METHODOLOGY 
We obtained from CMS NDC-level ASP data from the third quarter of 
2006, which were used to establish Part B drug reimbursement 
amounts for the first quarter of 2007. In addition, we obtained the file 
that CMS used to crosswalk NDCs to their corresponding HCPCS codes. 
Both the ASP data and the crosswalk file were updated as of December 
2006. We also obtained AMP data from CMS for the third quarter of 
2006. During the third quarter of 2006, manufacturers were required to 
deduct customary prompt pay discounts when calculating both ASPs 
and AMPs. 
Calculation of Volume-Weighted Average Sales Price 
As mentioned previously, Medicare does not base reimbursement for 
covered drugs on NDCs; instead, it uses HCPCS codes. Therefore, CMS 
uses ASP information submitted by manufacturers for each NDC to 
calculate a volume-weighted ASP for each covered HCPCS code. When 
calculating these volume-weighted ASPs, CMS includes only NDCs with 
ASP submissions that are deemed valid. We did not examine the NDCs 
that CMS opted to exclude from its calculation, nor did we verify the 
accuracy of CMSs crosswalk files. 
As of December 2006, CMS had established prices for 514 HCPCS codes 
based on the ASP reimbursement methodology.10  Reimbursement 
amounts for the 514 HCPCS codes were based on ASP data for 
3,160 NDCs. 
To calculate the volume-weighted ASPs for these 514 codes, CMS used 
an equation that involves the following variables: the ASP for the NDC 
as reported by the manufacturer, the volume of sales for the NDC as 
reported by the manufacturer, and the number of billing units in the 
NDC as determined by CMS. The amount of the drug contained in an 
NDC may differ from the amount of the drug specified by the HCPCS 
code that providers use to bill Medicare. Therefore, the number of 
billing units in an NDC describes the number of HCPCS code units that 
are in that NDC. For instance, an NDC may contain a total of 
10 milliliters of Drug A, but the corresponding HCPCS code may be 
defined as only 5 milliliters of Drug A. In this case, there are two billing 
units in the NDC. CMS calculates the number of billing units in each 
10 Several Part B drugs, including certain vaccines and blood products, are not paid under 
the ASP methodology. 
OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  5  III NNN TTT RRR OOO DDD UUU CCC TTT III OOO NNN
11-digit NDC when developing its crosswalk files. A more detailed 
description of CMSs method of calculating volume-weighted ASPs is 
provided in Appendix A. 
Analysis of Average Manufacturer Price Data 
An AMP is reported for the lowest identifiable quantity of the drug 
contained in the NDC (e.g., 1 milligram, 1 milliliter, 1 tablet, 1 capsule). 
In contrast, an ASP is reported for the entire amount of the drug 
contained in the NDC (e.g., for 50 milliliters, for 100 tablets). To ensure 
that the AMP would be comparable to the ASP, it was necessary to 
convert the AMP for each NDC so that it represented the total amount 
of the drug contained in that NDC. 
In making these conversions, we examined AMPs only for those 
3,160 NDCs that CMS used in its calculation of volume-weighted ASPs 
for the 514 codes. If AMP data were not available for one or more of 
these NDCs, we excluded the corresponding HCPCS code from our 
analysis. We excluded a total of 174 HCPCS codes using this 
conservative approach. The remaining 340 HCPCS codes had AMP 
data for every NDC that CMS used in its calculation of volume-weighted 
ASPs. These 340 HCPCS codes represented 1,639 NDCs. 
We then multiplied the AMPs for these 1,639 NDCs by the total amount 
of the drug contained in each NDC, as identified by sources such as the 
CMS crosswalk file, the Red Book, manufacturer Web sites, and the 
Food and Drug Administrations NDC directory. We will refer to the 
resulting amounts as converted AMPs. For 19 NDCs, we could not 
successfully identify the amount of the drug reflected by the ASP and 
therefore could not calculate a converted AMP. These 19 NDCs were 
crosswalked to 14 HCPCS codes. We did not include these 14 HCPCS 
codes (161 NDCs) in our final analysis. 
Using the converted AMPs for the remaining 1,478 NDCs, we then 
calculated volume-weighted AMPs for each of the codes using the same 
method that CMS uses to calculate volume-weighted ASPs. We 
calculated volume-weighted AMPs for a total of 326 HCPCS codes. We 
did not independently verify the accuracy of manufacturer-reported ASP 
and AMP data. 
Comparing Volume-Weighted ASPs to Volume-Weighted AMPs 
For each of the 326 HCPCS codes included in our study, we then 
compared the volume-weighted ASPs and AMPs and identified codes 
with ASPs that exceeded AMPs by at least 5 percent. 
OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  6  I N T R O D U C T I O N  
For those HCPCS codes that met or exceeded the 5-percent threshold, 
we conducted a review of the associated NDCs to verify the accuracy of 
the billing units information.  According to our review, two of the codes 
that met the 5-percent threshold had associated NDCs with potentially 
inaccurate billing units.11 Given that volume-weighted ASPs and AMPs 
were calculated using this billing unit information, we could not be 
certain that the results for these two codes were correct. Therefore, we 
did not include these two codes in our findings. 
For the remaining HCPCS codes, we then estimated the monetary 
impact of lowering reimbursement to 103 percent of the AMP.12 First, 
we calculated 103 percent of the volume-weighted AMP and subtracted 
this amount from the first-quarter 2007 reimbursement amount for the 
HCPCS code, which is equal to 106 percent of the volume-weighted 
ASP. To estimate the financial effect for the first quarter of 2007, we 
then multiplied the difference by one-fourth of the number of services 
that were allowed by Medicare for each HCPCS code in 2006, as 
reported in CMSs Part B Extract and Summary System (BESS).13 This 
estimate assumes that the number of services that were allowed by 
Medicare in 2006 remained consistent from one quarter to the next and 
that there were no significant changes in utilization between 2006 and 
2007. 
Limitation 
In a February 2006 report entitled Calculation of Volume-Weighted 
Average Sales Price for Medicare Part B Prescription Drugs 
(OEI-03-05-00310), OIG stated that CMSs method for calculating the 
volume-weighted ASP is incorrect because CMS does not use billing 
units consistently throughout its equation.  As a result of this finding, 
OIG recommended that CMS change its calculation of volume-weighted 
11 NDCs for these two codes had billing unit information in CMSs crosswalk file that may 
not have accurately reflected the number of billing units actually contained in the NDC. 
12 Pursuant to section 1847A(d)(3) of the Act, if the ASP for a drug exceeds the AMP by at 
least 5 percent, the Secretary has authority to disregard the ASP pricing methodology for 
that drug and replace the payment amount for the drug code with the lesser of the widely 
available market price for the drug (if any) or 103 percent of the AMP.  For the purposes of 
this study, we used 103 percent of the AMP to estimate the impact of lowering 
reimbursement amounts.  If widely available market prices had been available for these 
drugs and lower than 103 percent of the AMP, the savings estimate presented in this 
report would have been greater. 
13 At the time of extraction, 2006 BESS data were only 66 percent complete.  Therefore, to 
estimate the number of services that would have been provided during the entirety of 
2006, we multiplied the number of allowed services currently reported in BESS by 1.515.    
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ASPs. Although CMS indicated that it may consider altering the ASP 
methodology, it has yet to do so. 
OIG continues to believe that CMS calculates volume-weighted ASPs 
incorrectly and that this incorrect calculation results in reimbursement 
amounts that are inaccurate and inconsistent with the ASP payment 
methodology set forth in section 1847A(b)(3) of the Act. However, to be 
consistent with the payment methodology currently used by CMS, OIG 
has opted to use CMSs calculation method when comparing ASPs and 
AMPs. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections issued by the President=s Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  8    F I N D I N G
For 39 of 326 HCPCS codes reviewed,      Consistent with sections 1847A(d)(2)(B) and 
the volume-weighted ASP exceeded the  1847A(d)(3) of the Act, OIG compared ASPs 
to AMPs to identify instances in which the 
volume-weighted AMP by at least 5 percent 
ASP for a particular drug exceeded the AMP 
by a threshold of 5 percent.  Thirty-nine of the three hundred and 
twenty-six HCPCS codes (12 percent) included in our review met or 
surpassed this 5-percent threshold in the third quarter of 2006.  Of 
these 39 HCPCS codes, 12 were also identified in a previous OIG report 
as having ASPs that exceeded AMPs by at least 5 percent in the fourth 
quarter of 2005.14  Four of the twelve also met the 5-percent threshold 
in OIGs initial comparison of ASPs and AMPs, which used data from 
the third quarter of 2004.15  In other words, the ASPs for these four 
drugs have exceeded the AMP by at least 5 percent in each of our three 
reports, dating back more than 2 years.  A list of all 39 HCPCS codes is 
presented in Appendix B. 
The table below describes the extent to which ASPs exceeded AMPs for 
the 39 HCPCS codes.  For 17 of the 39 codes, volume-weighted ASPs 
exceeded volume-weighted AMPs by 20 percent or more, with ASPs for 
6 of these exceeding AMPs by more than 60 percent.16 
Table: Extent to Which ASPs Exceeded AMPs for 39 HCPCS Codes 
Percentage Difference  Number of 
Between ASP and AMP  HCPCS Codes 
5%9%  12 
10%19%  10 
20%29%  7 
30%39%  2 
40%49%  2 
50%59%  0 
60%69%  2 
70%79%  0 
80%89%  1 
90%99%  2
 100% and above  1 
Total  39 
Source: OIG analysis of fourth-quarter 2006 ASP and AMP data, 2006. 
14  Comparison of Fourth-Quarter 2005 Average Sales Prices to Average Manufacturer 

Prices: Impact on Medicare Reimbursement for Second-Quarter 2006 (OEI-03-06-00370). 

15 Monitoring Medicare Part B Drug Prices:  A Comparison of Average Sales Price to 

Average Manufacturer Price (OEI-03-04-00430).     

16 Because of the confidential nature of ASP data, OIG is not publicly providing the exact 

percentages for each of the 39 HCPCS codes.   

  OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  9  F I N D I N G  
Lowering reimbursement amounts for these 39 HCPCS codes to 103 percent 
of the average manufacturer price would have reduced Medicare allowances 
by an estimated $13 million in the first quarter of 2007 
Sections 1847A(d)(3)(A) and (B) of the Act provide that the Secretary 
may disregard the ASP pricing methodology for a drug with an ASP 
that exceeds the AMP by at least 5 percent.  Pursuant to section 
1847A(d)(3)(C) of the Act, . . . the Secretary shall, effective as of the 
next quarter, substitute for the amount of payment . . . the lesser of the 
(i) widely available market price . . . (if any); or (ii) 103 percent of the 
average manufacturer price . . . . 17  In this study, we identified 
39 HCPCS codes that met or exceeded the 5-percent threshold specified 
in the Act.  If reimbursement amounts for these 39 codes were based on 
103 percent of the AMP during the first quarter of 2007, we estimate 
that Medicare expenditures would be reduced by $13 million in that 
quarter.18 
One of the thirty-nine HCPCS codes, J7620, accounted for over 
60 percent of the $13 million.  If the reimbursement amount for this one 
code were based on 103 percent of the AMP during the first quarter of 
2007, Medicare expenditures would be reduced by an estimated   
$8 million. The ASP for this code also exceeded the AMP by at least    
5 percent in a previous OIG report comparing prices from the fourth 
quarter of 2005.  Given that fourth-quarter 2005 ASPs were used to 
establish second-quarter 2006 reimbursement amounts, the previous 
report estimated that lowering reimbursement for J7620 to 103 percent 
of AMP for the second quarter of 2006 would have reduced Medicare 
expenditures by $6 million.  As in this report, the estimated savings for 
HCPCS code J7620 accounted for the largest single share of the total 
savings for that quarter. 
17 For the purposes of this study, we used 103 percent of the AMP to estimate the impact of 
lowering reimbursement amounts.  If widely available market prices had been available for 
these drugs and lower than 103 percent of the AMP, the savings estimate presented in this 
report would have been greater. 
18 This savings estimate is based on one-fourth of the number of estimated services allowed 
by Medicare for each HCPCS code in 2006. One HCPCS code, J8560, did not have any 
allowances in 2006 according to the BESS data. Therefore, there were no estimated savings 
for this code. 
  OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  10    R E C O M M E N D A T I O N
For the purpose of monitoring Medicare reimbursement amounts based 
on ASPs and consistent with sections 1847A(d)(2)(B) and 1847A(d)(3) of 
the Act, OIG compared ASPs to AMPs to identify instances in which the 
ASP for a particular drug exceeded the AMP by a threshold of 5 percent. 
This review is the third such comparison conducted by OIG, and we 
identified 39 HCPCS codes that are eligible for price adjustments under 
authority of the Secretary.  Of these 39 codes, 4 have met the threshold 
for price adjustments in all three of OIGs studies comparing ASPs and 
AMPs. An additional eight HCPCS codes were also previously eligible 
for price adjustments as a result of OIGs second report, which used 
data from the fourth quarter of 2005. 
We therefore recommend that CMS adjust Medicare reimbursement 
amounts for drugs that meet the 5-percent threshold specified in section 
1847A(d)(3) of the Act.  CMS may want to specifically focus on those drugs 
that, according to the three OIG reports, have ASPs that consistently meet 
this threshold. In addition, we note that the results of our review are 
based on data from the third quarter of 2006.  However, the definition of 
AMP changed in January 2007, such that AMPs are determined without 
regard to customary prompt pay discounts.  CMS should consider taking 
this change into account when adjusting Medicare reimbursement 
amounts. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
According to CMS, the results of this report imply that some fluctuation 
in the difference between ASPs and AMPs is to be expected. CMS 
expressed a desire to better understand the sources of such fluctuations, 
with the intent of developing a process to adjust payment amounts 
based on the results of OIGs pricing comparisons.  CMS would like to 
collaborate with OIG to minimize the time lag between OIG analysis 
and the implementation of quarterly ASP prices.  To help ensure that 
ASP submissions are correct, CMS suggests that OIG focus its activities 
on manufacturers of drugs whose ASPs consistently differ from AMPs. 
CMS did not specify what steps it will take to adjust Medicare 
reimbursement amounts for drugs that meet the 5-percent threshold 
specified in section 1847A(d)(3) of the Act.  See Appendix C for the full 
text of CMSs comments. 
Since the ASP pricing methodology was implemented in January 2005, 
OIG has completed three studies comparing ASPs and AMPs, as 
  OEI-03-07-00140  COMPARISON OF THIRD- QUARTER 2006 ASP S AND AMPS  11  R E C O M M E N D A T I O N  
mandated by sections 1847A(d)(2)(B) and 1847A(d)(3) of the Act.  To 
date, CMS has made no payment reductions for HCPCS codes with 
ASPs that meet the 5-percent threshold.   
OIG acknowledges that manufacturers drug prices will inevitably 
fluctuate to some extent.  However, the difference between ASPs and 
AMPs has not fluctuated considerably for 12 of the 39 HCPCS codes 
identified in this report.  Rather, these codes have been consistently 
identified as having ASPs at or above the 5-percent threshold. OIG 
continues to recommend that the Medicare reimbursement amounts for 
these 12 codes, as well as the other codes identified in the report, be 
adjusted pursuant to section 1847A(d)(3) of the Act.  As in the past, OIG 
will work with CMS to ensure that pricing comparison data are 
available to the Agency in a timely manner.  In addition, we will 
consider CMSs suggestion to focus our activities on manufacturers of 
drugs whose ASPs consistently differ from AMPs. 
  OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  12    A P P E N D I X   ~   A
Equation Used by the Centers for Medicare & Medicaid Services to Calculate 
Volume-Weighted Average Sales Prices 
In the following equation, a unit is defined as the entire amount of the drug 
contained in the NDC: 
ASP for NDC 
* Number of NDCs Sold 
Volume-Weighted ASP  Sum of 
Billing Units in NDC 
for the Billing Unit of  
= 
 HCPCS Code 
Sum of Number of NDCs Sold 
CMSs calculation of volume-weighted ASPs is discussed in greater detail in the OIG 
report, Calculation of Volume-Weighted Average Sales Price for Medicare Part B 
Prescription Drugs (OEI-03-05-00310).  This report found that CMSs method for 
calculating volume-weighted ASPs is incorrect because CMS does not use billing 
units consistently throughout its equation.  Therefore, OIG recommended that CMS 
adopt an alternate method for calculating volume-weighted ASPs.  Although CMS 
indicated that it may consider altering the ASP methodology, it has yet to do so. 
  OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  13    A P P E N D I X ~ B
Thirty-nine HCPCS Codes With an ASP That Exceeded the AMP by at Least 5 Percent 
HCPCS Code  Short Description  HCPCS Code Dosage 
J0256  Alpha 1 proteinase inhibitor  10 MG 
J0360**  Hydralazine hcl injection  20 MG 
J0456  Azithromycin  500 MG 
J0610*  Calcium gluconate injection  10 ML 
J0636  Inj calcitriol  0.1 MCG 
J0637  Caspofungin acetate  5 MG 
J0640*  Leucovorin calcium injection  50 MG 
J0694*  Cefoxitin sodium injection  1 GM 
J1110  Inj dihydroergotamine mesylt  1 MG 
J1260  Dolasetron mesylate  10 MG 
J1364  Erythro lactobionate   500 MG 
J1752  Iron dextran 267 injection  50 MG 
J1790  Droperidol injection  5 MG 
J1940  Furosemide injection  20 MG 
J1955  Inj levocarnitine  1 GM 
J2320  Nandrolone decanoate   50 MG 
J2321  Nandrolone decanoate   100 MG 
J2322  Nandrolone decanoate   200 MG 
J2545**  Pentamidine isethionte  300 MG 
J2680  Fluphenazine decanoate   25 MG 
J2700  Oxacillin sodium injection  250 MG 
J2792  Rho(D) immune globulin h, sd  100 IU 
J3010  Fentanyl citrate injection  0.1 MG 
J3230  Chlorpromazine hcl injection  50 MG 
J3410**  Hydroxyzine hcl injection  25 MG 
J3470  Hyaluronidase injection  150 UNITS 
J3472  Ovine  1000 USP UNITS 
J3475*  Inj magnesium sulfate  500 MG 
J7500  Azathioprine oral  50 MG 
J7501*  Azathioprine parenteral  100 MG 
J7608  Acetylcysteine inh sol u d  1 GM 
J7620*  Albuterol ipratrop non-comp1  2.5 MG/0.5 MG 
  OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  14  A P P E N D I X ~ B  

HCPCS Code  Short Description  HCPCS Code Dosage 
J7631  Cromolyn sodium inh sol u d  10 MG 
J8560  Etoposide oral  50 MG 
J9000*  Doxorubic hcl vl chemo  10 MG 
J9065  Inj cladribine  1 MG 
J9200  Floxuridine injection  500 MG 
J9214*  Interferon alfa-2b inj  1 MIL UNITS 
J9360**  Vinblastine sulfate inj  1 MG 
* 	 Codes were also identified in a previous OIG report as having ASPs that exceeded AMPs by at least 5 percent in 
the fourth quarter of 2005. 
** 	 Codes were also identified in two previous OIG reports as having ASPs that exceeded AMPs by at least                      
5 percent in both the fourth quarter of 2005 and the third quarter of 2004. 
Source: OIG analysis of third-quarter 2006 ASP and AMP data, 2006. 
  OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  15    A P P E N D I X   ~   C
Agency Comments 
  OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  16 
 A P P E N D I X   ~   C  

  OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  17 
   A C K N O W L E D G M E N T S
This report was prepared under the direction of Robert A. Vito, Regional 
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office, and David E. Tawes, Director of the Medicare and 
Medicaid Prescription Drug Unit.   
Lauren McNulty served as the team leader for this study.  Central office 
staff who contributed to this report include Linda Boone Abbott. 
  OEI-03-07-00140  COMPARISON OF THIRD-QUARTER 2006 ASPS AND AMPS  18