U.S.  Department of Health  and Human Services  
Office of Inspector  General 
Data Snapshot 
August  2020, OEI-03-20-00130  
 
Medicare Part B Drug Payments: Impact of Price Substitutions 
Based on 2018 Average Sales Prices 
What OIG Did  
When Congress established  average sales  prices (ASPs)  as the basis for reimbursement for  Key Takeaway  
Medicare Part B drugs,  it  also provided a mechanism for monitoring market prices and  
limiting potentially excessive payment amounts.   Generally, Part  B-covered drugs are those 
Medicare and its  
that are injected or infused in physicians'  offices  or hospital outpatient settings.   The Social 
beneficiaries saved  
Security Act (the Act) mandates that the Office of  Inspector General (OIG)  compare ASPs  
$4.4 million over  
with average manufacturer prices (AMPs).  If OIG finds that the ASP for a drug exceeds the 
AMP by a  certain percentage (currently  5 percent), the Act directs the Secretary of Health  1 year based 
and Human Services to substitute the ASP-based payment amount with a  lower calculated   on CMSs  
rate.  Through regulation,  the Centers for  Medicare & Medicaid Services (CMS)  stated that it  price-substitution 
would make  this substitution only if the ASP for a  drug exceeds the AMP by 5 percent in the  policy that limits  
two  previous consecutive quarters or  three  of  the previous  four  quarters.   excessive payments 
for drugs in Medicare 
This data snapshot quantifies the savings to Medicare and its beneficiaries that are a direct  
result  of CMSs price-substitution policy based on ASPs from 2018.  To determine these  Part B.  
savings, we calculated the difference between ASP-based payment and AMP-based  
payment for each drug  with a price substitution.   We then applied this difference to the 
Medicare  utilization for each of these drugs  when  the substitution occurredthe fourth 
quarter of  2018 through  the third quarter of  2019to  calculate the savings based on 2018  
ASP data.  
   Results  
CMSs price-substitution policy saved Medicare and its  Exhibit 1: Results of the Medicare Part B  
beneficiaries $4.4 million  over 1 year   Price-Substitution Policy  
 
   CMS initiated price substitutions for  16 drugs  based on 
2018  data.  
   Price substitutions for these drugs saved  Medicare and its  
beneficiaries  $4.4 million  over  1 year,  as shown in 
Exhibit  1.  
   Since CMS instituted its price-substitution policy in 2013,  
Medicare and its beneficiaries have saved  $67 million,  
including the $4.4  million amount in  2018.  
Expanding the  price-substitution  policy could have 
generated  additional savings for Medicare and its 
beneficiaries  
If CMS expanded its price-substitution criteria to include drugs  
that exceeded the 5-percent threshold in a single quarter,  
Medicare and its beneficiaries could have saved up to an 
additional $1.7  million  over 1 year for  another  17  drugs.  
These 17  drugs  exceeded the 5-percent threshold in at least   Source: OIG analysis of ASP and AMP data from 2018.  
one  quarter, but  they  were not eligible for price substitution 
because they did not meet CMSs requirement that prices  
exceed the threshold in the two  previous  consecutive 
quarters or three  of the previous  four  quarters.1  
  Data Snapshot: Impact of Price Substitutions Based on 2018  Average Sales Prices   1      Why This  Matters  
Medicare Part B annually spends billions to cover  a limited number of outpatient prescription drugs.   To  
safeguard  Medicare and  its beneficiaries from excessive payment  amounts, Congress established  
a  mechanism for monitoring market prices, and CMS implemented a price-substitution policy that results in 
lower  costs for important, lifesaving drugs covered by Medicare Part B.  
Since CMS implemented  the policy in 2013,  OIG has produced annual reports quantifying the valuable 
savings to Medicare and  its beneficiaries that  are a direct result of CMSs  price-substitution  policy.   These 
reports document millions in actual annual savings and continue to demonstrate that price substitution is an  
important and effective mechanism  for ensuring  reasonable payments for drugs in Medicare Part B.    
 
   What OIG  Concludes  
Since the inception of CMSs  price-substitution  policy, Medicare  and its beneficiaries have saved  
$66.9  million.   However, CMS could  have achieved  even greater savings for Medicare and its beneficiaries by  
expanding its criteria for AMP-based price substitutions.   Specifically, Medicare  and its beneficiaries could  
have saved up to  an additional $30.8  million  since 2013 if CMS had expanded its criteria for price 
substitutions.  
OIG has previously recommended that CMS expand the price-substitution  criteria.   However, CMS did not  
concur  with expanding the price-substitution  policy  and expressed  concern that expanding  
price-substitution  criteria may impede physician and beneficiary access to  drugs.   OIG agrees that access to  
prescription drugs should always be considered  when contemplating pricing policies, and OIG supports  
current safeguards to prevent substitutions for drugs that  the Food and Drug Administration  has identified  
as being in short supply.   However, OIG continues 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.   To  
provide greater flexibility and achieve this  continued balance, any future expansion of the 
payment-substitution policy could contain a provision that would prevent  a price substitution when there 
are indications that the substitution amount  would be below provider  acquisition costs.  
To more effectively limit excessive payment amounts based on ASPs and to generate greater savings for  
Medicare and its beneficiaries, we continue to believe that CMS should expand its price-substitution criteria  
to include some additional drugs.   For  example, a  more expansive policy might include all drugs (with  
complete AMP data) that  exceed the 5-percent threshold  in a single quarter.   However, CMS  also could  
consider  other approaches to  expanding the  price-substitution policy  that are designed to  capture more  
drugs that repeatedly exceed the threshold.  
 
  Agency Comments and OIG Response  
CMS responded that it continues to not concur with our recommendation.  CMS stated  that  as additional  
data becomes available and as it continues to gain experience with the price-substitution policy, it will 
consider further changes as necessary.  CMS believes the current policy safeguardswhich identify drugs  
that exceed the 5-percent threshold for  two  consecutive quarters or  three of  four  quartersidentify drugs  
that consistently exceed  the threshold.  CMSs full comments are included in the Appendix.   
 
OIG continues to believe that expanding the policy can achieve a balance between safeguarding  access to  
drugs and ensuring that  Medicare and its beneficiaries do not overpay  for  drugs.  Our examination of 2018  
data shows that if the policy had been expanded to include the 17  drugs that exceeded the  5-percent  
threshold in a single quarter, beneficiaries and the program  could have saved up to an additional  
$1.7  million.  To help ensure that CMS has sufficient information for its consideration regarding the 
price-substitution  policy,  OIG will continue to provide CMS  with the results from our quarterly pricing  
comparisons, along with annual reports on the impact of the price-substitution policy.  
  Data Snapshot: Impact of Price Substitutions Based on 2018  Average Sales Prices   2      Data: Results  of  the Medicare Part B Price-Substitution  Policy  
 
Exhibit 2: Price substitutions saved Medicare and its beneficiaries $4.4 million  
 
   Quarter(s) in Which Price Substitution Occurred    
 
Fourth   First  Second   Third  
     
Quarter  Quarter  Quarter  Quarter 
Drug   Description   2018   2019   2019   2019   Savings  
     
 
J0287   Amphotericin b lipid complex   $4,730  
     
 
J0289   Amphotericin b liposome injection   $38,927  
       
J0670   Mepivacaine HCl injection   $2,588  
     
 
J0878   Daptomycin injection   $1,009,005  
     
 
J1335   Ertapenem injection   $6,303  
 
     
J1570   Ganciclovir  sodium injection   $25,951  
     
 
J1580   Garamycin gentamicin injection   $3,914  
     
 
J1670   Tetanus immune globulin injection   $35,057  
     
 
J1740   Ibandronate sodium injection   $13,070  
     
 
J1955   Levocarnitine injection   $1,367  
       
J2501   Paricalcitol   $355  
 
     
J2720   Protamine sulfate injection   $400  
       
J3486   Ziprasidone mesylate   $30  
       
J7520   Sirolimus oral   $3,304,957  
       
J9100   Cytarabine HCl injection   $3,037  
     
 
Q0167   Dronabinol oral   $241  
       
Total   $4,449,932  
         
Source: OIG analysis of ASP and AMP data from 2018.  
  Data Snapshot: Impact of Price Substitutions Based on 2018  Average Sales Prices   3      Methodology  
Data Collection.   We obtained  National Drug Code-level ASP data  and AMP data for Part B drugs  from CMS  
for 2018.   We  also obtained ASP-based reimbursement amounts and  Part  B drug utilization for the quarters  
in which price substitutions occurredi.e., the fourth quarter of  2018 through the third quarter  of 2019.   In 
addition, we obtained the drugs that had price substitutions based on data from 2018.  
Data Analysis.   For each quarter of  2018, we calculated the volume-weighted AMP for drugs  consistent with 
CMSs methodology for  calculating volume-weighted  ASPs.   We then compared the volume-weighted ASPs  
and AMPs and identified  all drugs with ASPs that  exceeded the AMPs by at least 5 percent.   We also 
identified drugs that exceeded the 5-percent threshold but did not meet CMSs duration criteria  for price 
substitutioni.e., they did not exceed the threshold in the two  previous  consecutive quarters or three of the 
previous four  quarters.  
To calculate the savings  associated with price substitutions or potential price substitutions that  could be 
made by expanding the policy,  we first reduced AMP-based and  ASP-based reimbursement amounts  
(103  percent of the volume-weighted AMP  and 106 percent of the volume-weighted ASP, respectively) by  
the 2-percent  reduction required by sequestration legislation.   We then subtracted the AMP-based  
reimbursement amount from the ASP-based reimbursement  amount  for the quarter in which the price 
substitution occurred  and multiplied the difference by the Part B utilization for each drug in the respective 
quarter that the price substitution occurred.  
Limitations.   We did not verify the accuracy  of manufacturer-reported ASP  and AMP data, nor did we verify  
the underlying methodology  that  manufacturers used  to calculate ASPs and AMPs.   We also did not verify  
the  accuracy of CMSs  calculations of reimbursement amounts for Part B drugs.  
Manufacturers are required to submit their quarterly ASP  and AMP data to  CMS  within 30 days  of  the close 
of the quarter.   We did not determine whether manufacturers provided any updated data to CMS at a later  
date.  
 
   Standards  
We conducted this study in accordance with the Quality Standards for  Inspection and Evaluation  issued by  
the Council of the Inspectors General on Integrity  and Efficiency.  
 
   Acknowledgments 
Conswelia McCourt served as team leader for this study.  Office of Evaluation and Inspections staff who  
provided support include Althea Hosein,  Christine Moritz, and Michael  Novello.   This report was prepared  
under the direction of Linda Ragone, Regional Inspector General for  Evaluation and Inspections in the 
Philadelphia regional office, and  Edward Burley,  Deputy Regional Inspector General.  
To obtain additional information concerning this report or to obtain copies, contact the Office of  Public  
Affairs at  Public.Affairs@oig.hhs.gov.  
 
   Endnote  
1  These 17  drugs had  complete AMP data, were not identified by  the Food and Drug Administration  as 
being in short supply, and did not have AMP-based substitution amounts  that were greater than the 
ASP-based reimbursement amounts in the quarters during which the substitutions would have occurred.  
   
Data Snapshot: Some Drug Manufacturers Report Inaccurate  Drug Product Data to CMS   4  
  A ppendix:  Agency Comments  
Data Snapshot: Some Drug Manufacturers Report Inaccurate  Drug Product Data to CMS   5  
   
Data Snapshot: Some Drug Manufacturers Report Inaccurate  Drug Product Data to CMS   6