DEPARTMENT OF HEALTH Al~D HUMAl~ SERVICES 
OFFICE OF INSPECTOR GENERAL 
vVASlllNGTON, DC  2020 l 
DEC  2 4 2012 
TO: 	 Marilyn Tavenner 
Acting Administrator 
Centers for Medicare & Medicaid Services 
FROM:  Stuart Wright. 
Deputy Inspector General 
for Evaluation and Inspections 
SUBJECT: 	 Memorandum Report:  Comparison ofSecond-Quarter 2012 Average 
Sales Prices and Average Manufacturer Prices:  Impact on Medicare 
Reimbursement/or Fourth Quarter 2012, OEI-03-13-00100 
This review was conducted in accordance with the statutory mandate for the Office of 
Inspector General (OIG) to identify Medicare Part B prescription drugs with average 
sales prices (ASP) that exceed average manufacturer prices (AMP) by at least 5 percent. 
This review estimated the financial impact of lowering reimbursement amounts for drugs 
that met the 5-percent threshold to 103 percent ofthe AMPs, and also examined the 
potential effect of a November 2012 final rule that, among other things, specifies the 
circumstances under which the Centers for Medicare & Medicaid Services (CMS) will 
make AMP-based price substitutions. 
SUMMARY 
When Congress established ASP as the primary basis for Medicare Part B drug 
reimbursement, it also mandated that OIG compare ASPs with AMPs and directed CMS 
to lower reimbursement for drugs with ASPs that exceed AMPs by a threshold of 
5 percent.  Since the implementation of the ASP payment methodology in 2005, OIG has 
fulfilled its responsibility by issuing 27 reports comparing ASPs and AMPs. However, 
CMS has yet to lower reimbursement in response to OIG's findings and 
recommendations.  This latest comparison examines drugs that exceeded the 5-percent 
threshold based on either complete or partial AMP data in the second quarter of2012.  Of 
the 388 drug codes with complete AMP data, 19 exceeded the 5-percent threshold.  If 
reimbursement amounts for all 19 codes had been based on 103 percent ofthe AMPs in 
the fourth quarter of2012, Medicare would have saved an estimated $553,000 in that 
quarter alone.  Under CMS's price substitution policy, reimbursement amounts for 6 of 
the 19 drugs would have been reduced, saving an estimated $477,000 in the quarter.  Of 
the 67 drug codes with partial AMP data, 10 exceeded the 5-percent threshold.  CMS has 
Comparison of Second-Quarter 2011 ASPs and AMPs (OEI-03-13-00100)  Page 2  Marilyn Tavenner 
 
 
expressed concern that partial AMP data may not adequately reflect market trends and 
therefore will not apply its price substitution policy to drugs with partial AMP data.  
However, we found that pricing comparisons for 6 of the 10 codes with partial AMP data 
seemed to accurately capture market trends; therefore, price reductions may be 
appropriate in these cases.  We could not perform pricing comparisons for an additional 
50 drug codes because none of the associated drug products had corresponding AMP 
data.  Manufacturers for 9 percent of the associated drug products had Medicaid drug 
rebate agreements and were therefore generally required to submit AMPs.   
 
BACKGROUND 
 
The Social Security Act (the Act) mandates that OIG compare ASPs to AMPs.1  If OIG 
finds that the ASP for a drug exceeds the AMP by a certain percentage (currently                           
5 percent), the Act states that 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 that ... 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   
 
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 
CMS contracts with private companies to process and pay Medicare Part B claims, 
including those for prescription drugs.  To obtain reimbursement for covered outpatient 
prescription drugs, health care providers submit claims to Medicare contractors 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 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 manufacturer or package size information.   
                                                 
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 provides the Secretary with authority 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. 
Comparison of Second-Quarter 2012 ASPs and AMPs (OEI-03-13-00100)  Page 3  Marilyn Tavenner 
 
 
Medicare and its beneficiaries spent over $12 billion for Part B drugs in 2011.5  Although 
Medicare paid for more than 500 outpatient prescription drug HCPCS codes that year, 
most of the spending for Part B drugs was concentrated on a relatively small subset of 
those codes.  In 2011, 62 HCPCS codes accounted for 90 percent of the expenditures for 
Part B drugs, with only 13 of these codes representing the majority of total Part B drug 
expenditures. 
 
Reimbursement Methodology for Part B Drugs and Biologicals  
Medicare Part B pays for most covered drugs using a reimbursement methodology based 
on ASPs.6  As defined by law, an ASP is 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.7  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.8  Sales that are nominal in amount are 
exempted from the ASP calculation, as are sales excluded from the determination of best 
price in Medicaids drug rebate program.9, 10 
 
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 (NDC) on a 
quarterly basis, with submissions due 30 days after the close of each quarter.11  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 crosswalks manufacturers NDCs to 
HCPCS codes.  CMS uses information in this crosswalk file to calculate volume-
weighted ASPs for covered HCPCS codes.   
 
Calculation of Volume-Weighted ASPs 
Fourth-quarter 2012 Medicare payments for most covered drug codes were based on                 
second-quarter 2012 ASP submissions from manufacturers, which were volume weighted 
                                                 
5 Medicare expenditures for Part B drugs in 2011 were calculated using CMSs Part B Analytics and 
Reports (PBAR).  The PBAR data for 2011 were 98-percent complete when the data were downloaded in 
May 2012. 
6 Several Part B drugs, including certain vaccines and blood products, are not paid for under the ASP 
methodology.  
7 Section 1847A(c) of the Act, as added by the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003, P.L. 108-173. 
8 Section 1847A(c)(3) of the Act.  
9 Section 1847A(c)(2) of the Act.  
10 Pursuant to  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. 
11 Section 1927(b)(3) of the Act.  
Comparison of Second-Quarter 2012 ASPs and AMPs (OEI-03-13-00100)  Page 4  Marilyn Tavenner 
 
 
using an equation that involves the following variables:  the ASP for the 11-digit 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.12  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 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 NDC when 
developing its crosswalk files.   
 
Under the ASP pricing methodology, the Medicare allowance for most Part B drugs is 
equal to 106 percent of the volume-weighted ASP for the HCPCS code.13  Medicare 
beneficiaries are generally responsible for 20 percent of this amount in the form of 
coinsurance.   
 
The Medicaid Drug Rebate Program and AMPs 
In general, for Federal payment to be available for covered outpatient drugs provided 
under Medicaid, the Act mandates that drug manufacturers enter into rebate agreements 
with the Secretary and pay quarterly rebates to State Medicaid agencies.14  Under these 
rebate agreements and pursuant to the Act, manufacturers must provide CMS with the 
AMPs for each of their NDCs.15  As further explained in regulation, manufacturers are 
required to submit AMPs within 30 days after the end of each quarter.16   
 
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, the 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.17, 18   
                                                 
12 The equation that CMS currently uses to calculate volume-weighted ASPs is described in  1847A(b)(6) 
of the Act.  It is also provided in Appendix A.   
13 Section 1847A(b)(1) of the Act.   
14 Sections 1927(a)(1) and (b)(1) of the Act. 
15 Section 1927(b)(3) of the Act. 
16 42 CFR  447.510.   
17 Section 1927(k)(1) of the Act, as amended by  2503 of the Patient Protection and Affordable Care Act,                            
P.L. 111-148.    
18 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 a pharmacy that dispenses 
prescription medications to patients primarily through the mail; nursing home, long-term-care, or hospital 
pharmacies; clinics; charitable or not-for-profit pharmacies; government pharmacies; or pharmacy benefit 
managers. 
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Penalties for Failure To Report Timely Drug Pricing Data 
Pursuant to the Act, manufacturers that fail to provide ASP and AMP data on a timely 
basis may be subject to civil money penalties and/or termination from the drug rebate 
program.19, 20  Accordingly, CMS has terminated rebate agreements with a number of 
manufacturers for failure to report AMPs and, for the purposes of evaluating potential 
civil money penalties, has referred to OIG manufacturers that failed to submit timely 
ASPs and AMPs.  In accordance with an enforcement initiative announced in September 
2010, OIG has imposed civil monetary penalties on certain manufacturers that failed to 
report timely ASPs and/or AMPs.21 
 
OIGs Monitoring of ASPs and AMPs 
To comply with its statutory mandate, OIG has issued 23 quarterly pricing comparisons 
since the ASP reimbursement methodology for Part B drugs was implemented in January 
2005.  In addition, OIG has completed four annual overviews of ASPs and AMPs, which 
examined data across all four quarters of 2007, 2008, 2009, and 2010.   
 
OIG has consistently recommended that CMS develop a price substitution policy and 
lower the reimbursement amounts for drugs that exceed the 5-percent threshold as 
directed by the Act.  Although CMS has yet to make any changes to Part B drug 
reimbursement as a result of OIGs studies, the agency published a final rule in 
November 2012 that, among other things, specifies the circumstances under which  
AMP-based price substitutions will occur beginning in 2013.22, 23  
 
CMSs Price Substitution Policy 
According to its November 2012 final rule, CMS will substitute 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.24  
Because CMS believes that comparisons based on partial AMP data may not adequately 
reflect market trends,25 the agency will lower reimbursement amounts only when ASP 
                                                 
19 Sections 1927(b)(3)(C)(i) and (4)(B)(i) of the Act. 
20 The Secretary delegated to OIG the responsibility to impose civil money penalties for violations of                                    
 1927(b)(3)(C) of the Act in 59 Fed. Reg. 52967 (Oct. 20, 1994). 
21 OIG, Special Advisory Bulletin:  Average Manufacturer Price and Average Sales Price Reporting 
Requirements, September 2010.  Available online at http://www.oig.hhs.gov. 
22 77 Fed. Reg. 68892, 69368 (Nov. 16, 2012). 
23 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; however, the agency opted not to finalize this proposed 
rule based, in part, on 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)).  Although that final 
rule took effect in January 2012, CMS did not implement that policy in light of access concerns related to 
drug shortages. 
24 77 Fed. Reg. 68892, 69368 (Nov. 16, 2012). 
25 76 Fed. Reg. 73026, 73289 (Nov. 28, 2011) 
Comparison of Second-Quarter 2012 ASPs and AMPs (OEI-03-13-00100)  Page 6  Marilyn Tavenner 
 
 
and AMP comparisons are based on the same set of NDCs (i.e., based on complete AMP 
data).26  Price substitutions will take effect in the quarter after OIG shares the results of its 
most recent pricing comparison and remain in effect for one quarter.27, 28  Drugs identified 
by the Food and Drug Administration (FDA) as being in short supply will not be eligible 
for price substitution.29 
 
METHODOLOGY 
 
We obtained a file from CMS containing NDC-level ASP data from the second quarter of 
2012, which were used to establish Part B drug reimbursement for the fourth quarter of 
2012.  This file also includes information that crosswalks NDCs to their corresponding 
HCPCS codes.  Both the ASP data and the crosswalk data were current as of                            
September 20, 2012.  We also obtained AMP data from CMS for the second quarter of 
2012, which were current as of August 6, 2012. 
 
Analyzing ASP Data From the Second Quarter of 2012 
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.  As of September 2012, CMS had 
established prices for 511 HCPCS codes based on the ASP reimbursement methodology 
mandated by the Act.30  Reimbursement amounts for the 511 HCPCS codes were based 
on ASP data for 3,186 NDCs.   
 
Analyzing AMP Data From the Second Quarter of 2012 
To ensure that the broadest range of drug codes is subject to OIGs pricing comparisons, 
we divided HCPCS codes into the following three groups:                       
 
(1) HCPCS codes with complete AMP datai.e., HCPCS codes with AMP data 
for every NDC that CMS used in its calculation of volume-weighted ASPs; 
 
                                                 
26 77 Fed. Reg. 68892, 69368 (Nov. 16, 2012). 
27 See, e.g., 76 Fed. Reg. 73026, 73473 (Nov. 28, 2011).  After that one quarter, the reimbursement amount 
will be either 106 percent of the volume-weighted ASP for the current quarter or, if the HCPCS code 
continues to meet CMSs price substitution criteria, 103 percent of the volume-weighted AMP for the 
current quarter. 
28 To prevent CMSs policy from inadvertently raising the Medicare reimbursement amount, a price 
substitution will not occur when the substituted amount is greater than the ASP-based payment amount 
calculated for the quarter in which the price substitution would take effect (77 Fed. Reg. 68892, 69368 
(Nov. 16, 2012)).  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.  
29 77 Fed. Reg. 68892, 69368 (Nov. 16, 2012). 
30 Section 1847A(b)(6) of the Act. 
Comparison of Second-Quarter 2012 ASPs and AMPs (OEI-03-13-00100)  Page 7  Marilyn Tavenner 
 
 
(2) HCPCS codes with partial AMP datai.e., HCPCS codes with AMP data for 
only some of the NDCs that CMS used in its calculation of volume-weighted 
ASPs; and   
 
(3) HCPCS codes with no AMP datai.e., HCPCS codes with no AMP data for 
any of the NDCs that CMS used in its calculation of volume-weighted ASPs.   
 
As previously noted, the AMP for each NDC is reported for the lowest identifiable 
quantity of the drug contained in that NDC (e.g., 1 milliliter, one tablet, one capsule).                 
In contrast, the ASP is reported for the entire amount of the drug contained in the NDC 
(e.g., 50 milliliters, 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.   
 
To calculate converted AMPs for NDCs in the first and second groups, we multiplied 
the AMP by the total amount of the drug contained in each NDC, as identified by sources 
such as the CMS crosswalk file, manufacturer Web sites, drug labels, Thomson Reuters 
Red Book, and FDAs NDC directory.31  For certain NDCs, we were unable to identify 
the amount of the drug reflected by the ASP or AMP and therefore could not calculate a 
converted AMP.  Because of these unsuccessful AMP conversions, six HCPCS codes 
were removed from our analysis.  
 
Using NDCs with successful AMP conversions, we then calculated a volume-weighted 
AMP for each of the corresponding HCPCS codes, consistent with CMSs methodology 
for calculating volume-weighted ASPs.  When calculating the volume-weighted AMP for 
a HCPCS code with partial AMP data, we excluded any NDCs without AMPs; however, 
we did not exclude those NDCs from the corresponding volume-weighted ASP.  This 
means that the volume-weighted AMP for a HCPCS code with partial AMP data is based 
on fewer NDCs than the volume-weighted ASP for that same code.  Appendix B provides 
a more detailed description of the methods we used to both convert AMPs and calculate 
volume-weighted AMPs.  Table 1 provides the final number of HCPCS codes and NDCs 
included in our analysis after we removed NDCs with either no AMP data or 
unsuccessful AMP conversions.   
 
Table 1:  Number of Drug Codes and NDCs Included in OIGs Pricing Comparison 
Number of   Number of 
Availability of AMP Data for HCPCS Codes 
HCPCS Codes   NDCs  
Complete AMP Data  388  1,857 
Partial AMP Data  67  752 
No AMP Data  50  204 
Source:  OIG analysis of second-quarter 2012 ASP and AMP data, 2012. 
                                                 
31 We did not calculate converted AMPs for NDCs in the third group because they had no AMP data. 
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Comparing Second-Quarter 2012 Volume-Weighted ASPs and AMPs for HCPCS 
Codes With Complete AMP Data  
For each of the 388 HCPCS codes with complete AMP data, we compared the volume-
weighted ASP and AMP and determined whether the ASP for the code exceeded the 
AMP by at least 5 percent.  For HCPCS codes that exceeded the 5-percent threshold, we 
reviewed the associated NDCs to verify the accuracy of the billing unit information.  
According to our review, none of the HCPCS codes that exceeded the threshold based on 
complete AMP data was associated with questionable billing units.       
 
For each of the HCPCS codes that exceeded the 5-percent threshold, we estimated the 
monetary impact of lowering reimbursement to 103 percent of the AMP.32  First, we 
calculated 103 percent of the volume-weighted AMP and subtracted this amount from the 
fourth-quarter 2012 reimbursement amount for the HCPCS code.  To estimate the 
financial effect for the fourth quarter of 2012, we then multiplied the difference by      
one-fourth of the number of services that were allowed by Medicare for each HCPCS 
code in 2011, as reported in the PBAR.33, 34   
 
To determine which HCPCS codes would have been subject to CMSs price substitution 
policy, we identified codes with complete AMP data that met the 5-percent threshold in 
two consecutive or three of four quarters and were not identified by FDA as being in 
short supply.  We then totaled the estimated fourth-quarter 2012 savings for that subset of 
codes.   
 
Comparing Second-Quarter 2012 Volume-Weighted ASPs and AMPs for HCPCS 
Codes With Partial AMP Data  
For each of the 67 HCPCS codes with partial AMP data, we compared the volume-
weighted ASP and AMP and determined whether the ASP for the code exceeded the 
AMP by at least 5 percent.  For HCPCS codes that exceeded the 5-percent threshold, we 
reviewed the associated NDCs to verify the accuracy of the billing units.  According to 
our review, four of the HCPCS codes that exceeded the threshold based on partial AMP 
data were associated with questionable billing units.  Because volume-weighted ASPs 
and AMPs are calculated using this billing unit information, we could not be certain that 
the results for these codes were correct.  Therefore, we excluded these HCPCS codes 
from our count of codes with partial AMP data that exceeded the 5-percent threshold.     
                                                 
32 Section 1847A(d)(3)(C) of the Act directs the Secretary to replace payment amounts for drugs that 
exceed the 5-percent threshold 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. 
33 The PBAR data for 2011 were 98-percent complete when the data were downloaded in May 2012. 
34 This estimate assumes that the number of services allowed by Medicare in 2011 remained consistent 
from one quarter to the next and that there were no significant changes in utilization between 2011 and 
2012. 
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For each of the remaining HCPCS codes that exceeded the 5-percent threshold based on 
partial AMP data, we determined whether missing AMPs unduly influenced the results of 
our pricing comparison.  As mentioned previously, the volume-weighted AMP for a 
HCPCS code with partial AMP data is based on fewer NDCs than the volume-weighted 
ASP for that same code.  Therefore, there may be a disparity between the volume-
weighted ASP and AMP that would not exist if AMP data were available for the full set 
of NDCs.  In other words, the volume-weighted ASP for the HCPCS code could exceed 
the volume-weighted AMP by at least 5 percent only because AMPs for certain NDCs 
were not represented. 
 
CMS has expressed concern that partial AMP data may not adequately reflect market 
trends.35  Therefore, to identify HCPCS codes with partial AMP data that exceeded the             
5-percent threshold only because AMP data were missing, we reanalyzed pricing data 
after accounting for the missing values.  Specifically, we replaced each missing AMP 
with its corresponding ASP and recalculated the volume-weighted AMPs using those 
imputed prices.36  We then compared those new volume-weighted AMPs to the volume-
weighted ASPs originally calculated by CMS. 
 
If a HCPCS code no longer exceeded the 5-percent threshold, we concluded that the 
missing AMPs likely caused the HCPCS code to initially exceed the threshold, as 
opposed to an actual disparity between ASPs and AMPs in the marketplace.   
 
If a HCPCS code continued to exceed the 5-percent threshold, we concluded that missing 
AMPs had little impact on the results of our pricing comparison.  These HCPCS codes 
likely exceeded the threshold as a result of actual pricing differences between ASPs and 
AMPs.  Because price substitutions for these HCPCS codes may be warranted, we also 
identified which of these HCPCS codes met the threshold in two consecutive or three of 
four quarters.   
 
Limitations 
We did not verify the accuracy of manufacturer-reported ASP and AMP data, nor did we 
verify the underlying methodology used by manufacturers to calculate ASPs and AMPs.  
Furthermore, we 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 30 days 
after the close of the quarter.  Our analyses were performed on ASP and AMP data 
                                                 
35 76 Fed. Reg. 73026, 73289 (Nov. 28, 2011). 
36 Although an NDCs ASP is not usually the same as its AMP, ASPs were within 3 percent of the AMPs at 
the median during the last two quarters of 2011 and the first two quarter of 2012.  Therefore, we believe 
that ASP acts as a reasonable proxy for AMP, ensuring that the NDC is represented in both the volume-
weighted ASP and the volume-weighted AMP for the HCPCS code.   
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compiled by CMS soon after that deadline.  We generally did not determine whether 
manufacturers provided additional or revised pricing data to CMS at a later date. 
 
Standards   
This inspection was conducted in accordance with the Quality Standards for Inspection 
and Evaluation approved by the Council of the Inspectors General on Integrity and 
Efficiency. 
 
RESULTS 
 
Of the 388 Drug Codes With Complete AMP Data, Volume-Weighted ASPs for                      
19 Exceeded the Volume-Weighted AMPs by at Least 5 Percent  
As mandated by 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.  In the second 
quarter of 2012, 19 of the 388 HCPCS codes with complete AMP data (5 percent) 
exceeded this 5-percent threshold.  Table 2 describes the extent to which ASPs exceeded 
AMPs for the 19 HCPCS codes.  For more than one-third of the codes, the volume-
weighted ASP exceeded the volume-weighted AMP by more than 20 percent.  A list of 
all 19 HCPCS codes, including their descriptions and HCPCS dosage amounts, is 
presented in Appendix C. 
 
Table 2:  Extent to Which ASPs Exceeded AMPs for 
19 HCPCS Codes With Complete AMP Data 
Percentage   Number of Codes 
5.009.99%  9 
10.0019.99%  3 
20.0029.99%  2 
30.0039.99%  2 
40.0049.99%  3 
50.0059.99%  0 
60.0069.99%  0 
70.0079.99%  0 
80.0089.99%  0 
90.0099.99%  0 
100% and above  0 
     Total  19 
Source:  OIG analysis of second-quarter 2012 ASP and AMP data, 2012. 
 
Pursuant to section 1847A(d)(3) of the Act, the Secretary may disregard the ASP for a 
drug that exceeds the 5-percent threshold and substitute the payment amount with the 
lesser of either the widely available market price or 103 percent of the AMP.  If 
reimbursement amounts for all 19 codes with complete AMP data had been based on                  
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103 percent of the AMPs during the fourth quarter of 2012, Medicare expenditures would 
have been reduced by an estimated $553,000.37   
 
If CMSs price substitution policy had been in effect, reimbursement amounts for 6 of the 
19 HCPCS codes would have been reduced.  These six HCPCS codes had complete AMP 
data, exceeded the 5-percent threshold in either two consecutive quarters or three of four 
quarters, and were not identified by FDA as being in short supply as of November 2012 
(see Table 3).38  If reimbursement amounts for the six codes had been based on                          
103 percent of the AMPs during the fourth quarter of 2012, Medicare expenditures would 
have been reduced by an estimated $477,000.   
 
Table 3:  Six HCPCS Codes With Complete AMP Data in the Second Quarter                         
of 2012 That Would Have Met CMSs Criteria for Price Substitution 
 
  Previous Comparisons of ASPs and AMPs 
Second  First  Fourth  Third 
HCPCS  Quarter    Quarter    Quarter    Quarter   
Code  2012  2012  2011  2011 
J0610  X  X  X   
J1756  X  X  X   
J2501  X  X  X  X 
J9065  X  X  X   
J9211  X  X  X  X 
J9214  X  X  X  X 
 
Source:  OIG analysis of ASP and AMP data from last two quarters of 2011 and the first                                                 
two quarters of 2012. 
 
Of the 67 Drug Codes With Partial AMP Data, Volume-Weighted ASPs for                          
10 Exceeded the Volume-Weighted AMPs by at Least 5 Percent    
In addition to examining HCPCS codes with complete AMP data, we examined                              
67 HCPCS codes for which only partial AMP data were available.  ASPs for 10 of these 
67 HCPCS codes (15 percent) exceeded the AMPs by at least 5 percent in the second 
quarter of 2012.  A list of the 10 HCPCS codes, including their descriptions and HCPCS 
dosage amounts, is presented in Appendix D.   
For over half of the HCPCS codes, missing AMPs likely had little influence on the 
outcome of the pricing comparisons.  Six of the ten HCPCS codes with partial AMP data 
continued to exceed the threshold when we accounted for missing AMPs, suggesting that 
the pricing comparisons for these codes were accurately capturing underlying market 
                                                 
37 All savings estimates in this report assume that the number of services allowed by Medicare in 2011 
remained consistent from one quarter to the next and that there were no significant changes in utilization 
between 2011 and 2012.  
38 One additional HCPCS code had complete AMP data and exceeded the 5-percent threshold in two 
consecutive or three of four quarters; however, the drug represented by this HCPCS code was identified by 
FDA as being in short supply at the time of our analysis. 
Comparison of Second-Quarter 2012 ASPs and AMPs (OEI-03-13-00100)  Page 12  Marilyn Tavenner 
 
 
trends even though AMP data were not available for the full set of NDCs.  Because 
missing AMPs likely had little influence on the pricing comparison results for these six 
HCPCS codes, price substitutions may be legitimately warranted in these cases.   
For the remaining 4 of 10 HCPCS codes, ASPs no longer exceeded the AMPs by at least 
5 percent in the second quarter of 2012, suggesting that these codes initially exceeded the 
threshold because of missing AMPs rather than a genuine pricing disparity between the 
ASPs and AMPs. 
 
Pricing Comparisons Could Not Be Performed on 50 Drug Codes Because No AMP 
Data Were Available 
For 50 HCPCS codes, OIG could not compare ASPs and AMPs because there were no 
AMP data for any of the 204 NDCs that CMS used when calculating drug reimbursement 
amounts for these codes.  In 2011, Medicare allowances for these 50 codes totaled                       
$337 million.39 
 
Manufacturers for 9 percent of the NDCs without AMP data (19 of 204) participated in 
the Medicaid drug rebate program as of the second quarter of 2011 and were therefore 
generally required to submit AMP data for their covered outpatient drugs.40, 41, 42   
 
Manufacturers for the remaining 185 of 204 NDCs did not participate in the Medicaid 
drug rebate program and therefore were not required to submit AMP data.   
 
CONCLUSION 
 
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 payment amounts based on ASPs.  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 based on OIGs findings.  
Since the ASP payment methodology took effect in January 2005, OIG has fulfilled its 
responsibility to monitor ASP-based payment amounts by issuing 27 comparisons 
between ASPs and AMPs, each of which identified Part B drugs that would have been 
                                                 
39 Of the 50 HCPCS codes with no associated AMP data, three were not listed in the 2011 PBAR file.  As a 
result, these codes were not included in the total Medicare allowances for the year.  
40 To determine whether a manufacturer participated in the Medicaid drug rebate program, we consulted 
CMSs Drug Manufacturer Contact Information for the second quarter of 2012, accessed at 
http://www.cms.gov on August 15, 2012. 
41 Although manufacturers with rebate agreements are required to submit AMP data for their covered 
outpatient drugs, there may be valid reasons why an AMP was not provided for a specific NDC in a given 
quarter.  For example, a manufacturer may not have been required to submit an AMP if the drug product 
had been terminated and there was no drug utilization during the quarter.   
42 These 19 NDCs were crosswalked to 13 HCPCS codes. 
Comparison of Second-Quarter 2012 ASPs and AMPs (OEI-03-13-00100)  Page 13  Marilyn Tavenner 
 
 
eligible for price reductions under the law.  However, CMS has yet to lower 
reimbursement in response to OIGs findings and recommendations.  
 
In this current report, we identified 29 HCPCS codes that exceeded the threshold for 
price adjustment in the second quarter of 2012.  Of these, 19 had complete AMP data 
(i.e., AMP data for every drug product that CMS used to establish reimbursement 
amounts).  If reimbursement amounts for all 19 codes had been based on 103 percent of 
the AMPs in the fourth quarter of 2012, Medicare would have saved an estimated 
$553,000 in that quarter alone.  Under CMSs price substitution policy, reimbursement 
amounts for 6 of the 19 HCPCS codes would have been lowered to 103 percent of the 
AMPs, thereby saving Medicare and its beneficiaries $477,000.  The remaining 10 of              
29 HCPCS codes also exceeded the threshold for price adjustment in the second quarter 
of 2012 but did so based on partial AMP data.  Although CMSs price substitution policy 
will not apply to codes with partial AMP data, price reductions may be legitimately 
warranted for 6 of the 10 codes because missing AMPs likely had little influence on the 
pricing comparison results.  We could not compare ASPs and AMPs for 50 HCPCS 
codes because AMP data were not submitted for any of the NDCs that CMS used to 
calculate reimbursement.  Manufacturers for 9 percent of these NDCs had Medicaid drug 
rebate agreements and were therefore generally required to submit AMPs.   
 
Although we do not make recommendations in this report, some of OIGs previous 
pricing comparisons have contained recommendations, which we continue to support.43  
In response to OIGs most recent report with recommendations, CMS expressed 
uncertainty about the payoff associated with quarterly pricing comparisons, stating that 
the price substitution policy will generate minor savings for the program.  Although we 
acknowledge that the savings from any single OIG report may be modest relative to total 
expenditures for Part B drugs, significant savings would have accrued had CMS taken 
action immediately after OIG issued its first pricing comparison.  In the long term, 
savings achieved through price substitution could reduce waste and conserve taxpayer 
funds at a time when increased focus has been placed on rising health care costs and 
fiscal responsibility.   
 
This report is being issued directly in final form because it contains no recommendations.  
If you have comments or questions about this report, please provide them within 60 days.  
Please refer to report number OEI-03-13-00100 in all correspondence. 
                                                 
43 For example, OIG, Comparison of Average Sales Prices and Average Manufacturer Prices:  An 
Overview of 2007, OEI-03-08-00450, December 2008; OIG, Comparison of Average Sales Prices and 
Average Manufacturer Prices:  An Overview of 2008, OEI-03-09-00350, February 2010; OIG, Comparison 
of Average Sales Prices and Average Manufacturer Prices:  An Overview of 2009, OEI-03-10-00380, April 
2011; and OIG, Comparison of Average Sales Prices and Average Manufacturer Prices:  An Overview of 
2010, OEI-03-11-00410, November 2011.  These reports are available online at https://www.oig.hhs.gov. 
Comparison of Second-Quarter 2012 ASPs and AMPs (OEI-03-13-00100)  Page 14  Marilyn Tavenner 
 
 
APPENDIX A 
 
The Equation Used by the Centers for Medicare & Medicaid Services To Calculate            
Volume-Weighted Average Sales Prices on or After April 1, 2008 
 
A volume-weighted average sales price (ASP) is calculated for the dosage amount 
associated with the Healthcare Common Procedure Coding System (HCPCS) code.  In the 
following equation, the number of billing units represents the number of HCPCS code 
doses that are contained in a national drug code (NDC).   
 
 
 
Volume-Weighted ASP   Sum of  (ASP for NDC * Number of NDCs Sold) 
 
for Dosage Amount       =              
 of HCPCS Code  Sum of   (Number of NDCs Sold * Number of Billing Units in NDC) 
 
 
 
 
 
Comparison of Second-Quarter 2012 ASPs and AMPs (OEI-03-13-00100)  Page 15  Marilyn Tavenner 
 
 
APPENDIX B 
 
Detailed Methodology for Converting and Volume-Weighting Average 
Manufacturer Prices for the Second Quarter of 2012 
 
Healthcare Common Procedure Coding System codes with complete average 
manufacturer price data.  Of the 511 Healthcare Common Procedure Coding System 
(HCPCS) codes with reimbursement amounts based on average sales prices (ASP),                     
393 had average manufacturer prices (AMP) for every national drug code (NDC) that the 
Centers for Medicare & Medicaid Services (CMS) used to calculate volume-weighted 
ASPs.  These 393 HCPCS codes represented 1,931 NDCs.  For six NDCs, we could not 
successfully identify the amount of the drug reflected by the ASP and therefore could not 
calculate a converted AMP.  These six NDCs were crosswalked to five HCPCS codes.  
We did not include these 5 HCPCS codes (74 NDCs) in our final analysis.   
 
Using the converted AMPs for the remaining 1,857 NDCs, we calculated a volume-
weighted AMP for each of the remaining 388 HCPCS codes consistent with CMSs 
methodology for calculating volume-weighted ASPs.   
 
HCPCS codes with partial AMP data.  There were 68 HCPCS codes with AMP data for 
only some of the NDCs that CMS used in its calculation of volume-weighted ASPs.  
These 68 HCPCS codes represented a total of 1,051 NDCs.  AMP data were either 
missing or unavailable for 292 of these NDCs, which were then excluded from our 
calculation of volume-weighted AMPs.44   
 
We calculated converted AMPs for each of the remaining 759 NDCs.  For 7 of the                        
759 NDCs, we could not identify the amount of the drug reflected by the ASP and 
therefore could not calculate a converted AMP.  We removed these seven NDCs from our 
analysis.45  As a result, one HCPCS code no longer had any NDCs with AMP data.  
Therefore, this HCPCS code was removed from our analysis.   
 
Using the converted AMPs for the remaining 752 NDCs, we then calculated a                  
volume-weighted AMP for each of the remaining 67 HCPCS codes consistent with 
CMSs methodology for calculating volume-weighted ASPs.   
 
                                                 
44 Although AMP data for these 292 NDCs were excluded from our calculation of volume-weighted AMPs, 
the corresponding ASPs were not excluded from the volume-weighted ASPs as determined by CMS.  
Volume-weighted ASPs remained the same, regardless of the availability of AMP data.   
45 Although we removed NDCs with problematic AMP conversions, we did not remove the corresponding 
HCPCS codes, provided that other NDCs for those drug codes had usable AMP data.  This differs from our 
analysis of HCPCS codes with complete AMP data, in which we removed not only the NDCs with 
problematic AMP conversions, but also the corresponding HCPCS codes. 
Comparison of Second-Quarter 2012 ASPs and AMPs (OEI-03-13-00100)  Page 16  Marilyn Tavenner 
 
 
HCPCS codes with no AMP data.  For 50 HCPCS codes, there were no AMP data for 
any of the NDCs that CMS used in its calculation of volume-weighted ASPs.  These                 
50 HCPCS codes represented 204 NDCs.   
Comparison of Second-Quarter 2012 ASPs and AMPs (OEI-03-13-00100)  Page 17  Marilyn Tavenner 
 
 
APPENDIX C 
 
Nineteen Drug Codes With Complete Average Manufacturer Price Data That 
Exceeded the 5-Percent Threshold in the Second Quarter of 2012 
Drug            
Code  Short Description  Drug Code Dosage 
J0456  Azithromycin injection  500 mg 
J0595  Butorphanol tartrate injection  1 mg 
J0610  Calcium gluconate injection  10 mL 
J0770  Colistimethate sodium injection  150 mg 
J1570  Ganciclovir sodium injection  500 mg 
J1756  Iron sucrose injection  1 mg 
J2060  Lorazepam injection  2 mg 
J2360  Orphenadrine injection  60 mg 
J2501  Paricalcitol injection  1 mcg 
J2560  Phenobarbital sodium injection  120 mg 
J2720  Protamine sulfate injection  10 mg 
J2800  Methocarbamol injection  10 mL 
J3230  Chlorpromazine HCl injection  50 mg 
J3475  Magnesium sulfate injection  500 mg 
J9060  Cisplatin injection  10 mg 
J9065  Cladribine injection  1 mg 
J9211  Idarubicin HCl injection  5 mg 
J9214  Interferon alfa-2b injection  1 million units 
Q2009  Fosphenytoin injection  50 mg 
mcg=microgram, mg=milligram, mL=milliliter. 
Source:  Office of Inspector General analysis of second-quarter 2012 average sales price and average manufacturer price data, 
2012. 
Comparison of Second-Quarter 2012 ASPs and AMPs (OEI-03-13-00100)  Page 18  Marilyn Tavenner 
 
 
APPENDIX D 
 
Ten Drug Codes With Partial Average Manufacturer Price Data That Exceeded the                     
5-Percent Threshold in the Second Quarter of 2012 
 
Drug              
Code  Short Description  Drug Code Dosage 
J0171  Adrenalin epinephrine injection  0.1 mg 
J0515  Benztropine mesylate injection  1 mg 
J1030*  Methylprednisolone injection  40 mg 
J2515  Pentobarbital sodium injection  50 mg 
J2700  Oxacillin sodium injection  250 mg 
J2920*  Methylprednisolone injection  40 mg 
J2930*  Methylprednisolone injection  125 mg 
J7506*  Prednisone, oral  5 mg 
Q0163*  Diphenhydramine HCl injection  50 mg 
Q0164*  Prochlorperazine maleate, oral  5 mg 
mg=milligram. 
*These drug codes continued to exceed the 5-percent threshold after the Office of Inspector General (OIG) accounted for 
missing average manufacturer prices (AMP).  
Source:  OIG analysis of second-quarter 2012 average sales price and AMPs, 2012. 
 
Comparison of Second-Quarter 2012 ASPs and AMPs (OEI-03-13-00100)