----_._-- -
AUG  10  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 ofFourth-Quarter 201 J Average Sales Prices 
and Average Manufacturer Prices:  Impact 011 Aledicare Reimbursement/or 
Second Quarter 2012, OEI-03-12-00410 
This review was conducted in accordance with the statutory mandate for the Office ofInspector 
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 of the AMPs, and also examined the potential effect of a July 2012 proposed rule 
that, among other things, specifies the circumstances under which the Centers for Medicare & 
Medicaid Services (CMS) will make AMP-based price substitutions. 
SUMMARY 
To ensure that ASP-based reimbursement amounts do not result in excessive payments, Congress 
mandated that OIG monitor ASPs by comparing them with AMPs and widely available market 
prices and directed CMS to lower reimbursement for certain drugs based on OIG's findings. 
Since the implementation of the ASP payment methodology in 2005, OIG has fulfilled its 
responsibility by issuing 25 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-perccnt threshold based on either complete or 
partial AMP data in the fourth quarter of 20 11 . Of the 383 drug codes with complete AMP data, 
29 exceeded the 5-percent threshold.  If reimbursement amounts for all 29 codes had been based 
on 103 percent of the AMPs in the second quarter of 20 12, Medicare would have saved an 
estimated $4.6 million in that quarter alone.  Under CMS's proposed price substitution policy, 
reimbursement amounts for 14 of the 29 drugs would have been reduced, saving an estimated 
$4.2 million in the quarter.  Of the 63 drug codes with partial AMP data, 10 exceeded the 
5-percent threshold.  CMS has expressed concern that partial AMP data may not adequately 
reflect market trends and therefore will not apply its price substitution policy to drugs with 
Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 2  Marilyn Tavenner 
 
 
partial AMP data.  However, we found that pricing comparisons for half 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 48 drug 
codes because none of the associated drug products had corresponding AMP data.  
Manufacturers for 8 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.   
 
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 
                                                 
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. 

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. 
Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 3  Marilyn Tavenner 
 
 
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 
Second-quarter 2012 Medicare payments for most covered drug codes were based on                 
fourth-quarter 2011 ASP submissions from manufacturers, which were volume weighted 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 
                                                 
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.  

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.  
  
 
Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 4  Marilyn Tavenner 
 
 
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.  Medicare beneficiaries are 
generally responsible for 20 percent of this amount in the form of coinsurance.   
 
The Medicaid Drug Rebate Program and AMPs 
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.13  Under these rebate agreements and pursuant to 
the Act, manufacturers must provide CMS with the AMPs for each of their NDCs.14  As further 
explained in regulation, manufacturers are required to submit AMPs within 30 days after the end 
of each quarter.15    
 
The AMP is generally calculated as a weighted average of prices for all of a manufacturers 
package sizes of a drug and is reported for the lowest identifiable quantity of the drug (e.g.,                  
1 milliliter, one tablet, one capsule).  By law, AMP is defined as the average price paid to the 
manufacturer for the drug in the United States by (1) wholesalers for drugs distributed to retail 
community pharmacies and (2) retail community pharmacies that purchase drugs directly from  
the manufacturer.16, 17,  18    
 
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 
                                                 
13
 Sections 1927(a)(1) and (b)(1) of the Act. 

14
 Section 1927(b)(3) of the Act. 

15
 42 CFR  447.510.
  
16
 Section 1927(k)(1) of the Act, as amended by   2503 of the Patient Protection and Affordable Care Act,     
                       
P.L. 111-148.   
17
 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. 

18
 Prior to October 2010, the AMP was generally defined by statute to be 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.  

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). 
Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 5  Marilyn Tavenner 
 
 
to OIG manufacturers that failed to submit timely ASPs and AMPs.  In accordance with an 
enforcement initiative announced in September 2010, OIG has begun imposing civil money 
penalties on certain manufacturers that fail to report timely ASPs and/or AMPs.21  
 
OIGs Monitoring of ASPs and AMPs 
To comply with its statutory mandate, OIG has issued 21 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, respectively.   
 
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 proposed rule in July 2012 that, among other things, specifies the 
circumstances under which AMP-based price substitutions will occur, effective                              
January 2013.22, 23   
 
CMSs Price Substitution Policy 
According to its July 2012 proposed 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, 
the proposed rule states that HCPCS codes exceeding the 5-percent threshold based on partial 
AMP data will not be eligible for price substitution.  The proposed rule additionally states that 
price substitutions will take effect in the quarter after OIG shares the results of its most recent 
                                                 
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. 44722, 45057 (July 30, 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 price substitutions would occur, effective January
  
2011; however, the agency did 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 concerns about drug shortages.
 
24
 77 Fed. Reg. 44722, 45057 (July 30, 2012). 

Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 6  Marilyn Tavenner 
 
 
pricing comparison and remain in effect for one quarter.25,  26  Drugs identified by the Food and 
Drug Administration (FDA) as being in short supply will not be eligible for price substitution.27  
METHODOLOGY 
 
We obtained a file from CMS containing NDC-level ASP data from the fourth quarter of 2011, 
which were used to establish Part B drug reimbursement for the second 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 March 23, 2012.  We also obtained AMP 
data from CMS for the fourth quarter of 2011, which were current as of April 10, 2012. 
 
Analyzing ASP Data From the Fourth Quarter of 2011 
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 March 2012, CMS had established prices for             
508 HCPCS codes based on the ASP reimbursement methodology mandated by the Act.28   
Reimbursement amounts for the 508 HCPCS codes were based on ASP data for 3,144 NDCs.   
 
Analyzing AMP Data From the Fourth Quarter of 2011 
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; 
 
(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 
                                                 
25
 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. 
26
 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.  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.  
27
 77 Fed. Reg. 44722, 45057 (July 30, 2012). 
28
 Section 1847A(b)(6) of the Act. 
Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 7  Marilyn Tavenner 
 
 
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 the Food 
and Drug Administrations NDC directory.29  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, 14 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   383  1,724  
Partial AMP Data   63  708 
No AMP Data   48  199 
Source: OIG analysis of fourth-quarter 2011 ASP and AMP data, 2012. 
 
Comparing Fourth-Quarter 2011 Volume-Weighted ASPs and AMPs for HCPCS Codes 
With Complete AMP Data  
For each of the 383 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, one of the 
HCPCS codes that exceeded the threshold based on complete AMP data was associated with 
questionable billing units.  Because volume-weighted ASPs and AMPs are calculated using this 
                                                 
29 
 We did not calculate converted AMPs for NDCs in the third group because they had no AMP data. 
Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 8  Marilyn Tavenner 
 
 
billing unit information, we could not be certain that the results for this code were correct.  
Therefore, we excluded this HCPCS code from our count of codes with complete AMP data that 
exceeded the 5-percent threshold.     
 
Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 9  Marilyn Tavenner 
 
 
For each of the remaining HCPCS codes that exceeded the 5-percent threshold, we estimated the 
monetary impact of lowering reimbursement to 103 percent of the AMP.30  First, we calculated 
103 percent of the volume-weighted AMP and subtracted this amount from the second-quarter 
2012 reimbursement amount for the HCPCS code.  To estimate the financial effect for the 
second 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.31, 32    
 
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 2011 savings for that subset of codes.   
 
Comparing Fourth-Quarter 2011 Volume-Weighted ASPs and AMPs for HCPCS Codes 
With Partial AMP Data 
For each of the 63 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, three 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. 
 
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.  
 
                                                 
30 
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.

31   
The PBAR data for 2011 were 98-percent complete when the data were downloaded in May 2012.
 
32 
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.
 
Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 10  Marilyn Tavenner 
 
 
CMS has expressed concern that partial AMP data may not adequately reflect market trends.33   
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.34  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 were likely responsible for the HCPCS code initially exceeding 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 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 study was conducted in accordance with the Quality Standards for Inspection and 
Evaluation issued by the Council of the Inspectors General on Integrity and Efficiency. 
 
RESULTS  
 
Of the 383 Drug Codes With Complete AMP Data, Volume-Weighted ASPs for                      
29 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 fourth quarter of 
2011, 29 of the 383 HCPCS codes with complete AMP data (8 percent) exceeded this 5-percent 
threshold.  Table 2 describes the extent to which ASPs exceeded AMPs for the 29 HCPCS codes.  
                                                 
33
 76 Fed. Reg. 73026, 73289 (Nov. 28, 2011).

34
 Although an NDCs ASP is not usually the same as its AMP, ASPs in 2011 were within 3 percent of the AMPs at the 

median.  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.   

Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 11  Marilyn Tavenner 
 
 
For 14 of the codes, the volume-weighted ASP exceeded the volume-weighted AMP by more 
than 20 percent. A list of all 29 HCPCS codes, including their descriptions and HCPCS dosage 
amounts, is presented in Appendix C. 
 
Table 2:  Extent to Which ASPs Exceeded AMPs for  
29 HCPCS Codes With Complete AMP Data 
Percentage   Number of Codes 
5.009.99%  7 
10.0019.99%  8 
20.0029.99%  3 
30.0039.99%  3 
40.0049.99%  2 
50.0059.99%  0 
60.0069.99%  2 
70.0079.99%  0 
80.0089.99%  0 
90.0099.99%  0 
100% and above   4 
Total   29 
Source: OIG analysis of fourth-quarter 2011 ASP and AMP data, 2011. 
 
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 shall 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 
29 codes with complete AMP data had been based on 103 percent of the AMPs during the 
second quarter of 2012, Medicare expenditures would have been reduced by an estimated                 
$4.6 million in that quarter alone.35    
 
If CMSs proposed price substitution policy had been in effect, reimbursement amounts for 
almost half of the HCPCS codes (14 of 29) would have been reduced. These 14 HCPCS codes  
had complete AMP data and met the 5-percent threshold in either two consecutive quarters or 
three of four quarters (see Table 3).36  If reimbursement amounts for the 14 codes had been based 
on 103 percent of the AMPs during the second quarter of 2012, Medicare expenditures would 
have been reduced by an estimated $4.2 million.  One of these HCPCS codes accounted for the 
vast majority of the $4.2 million.  If the reimbursement amount for HCPCS code J7620 had been 
based on 103 percent of the AMP during the second quarter of 2012, Medicare expenditures 
would have been reduced by an estimated $3.6 million. 
 
                                                 
35
 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.  
36
 None of the drugs represented by the 14 HCPCS codes were identified by FDA as being in short supply as of July 2012. 
Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 12  Marilyn Tavenner 
 
 
Table 3:  Fourteen HCPCS Codes With Complete AMP Data in the Fourth Quarter of        
2011 That Would Have Met CMSs Criteria for Price Substitution 
 
  Previous Comparisons of ASPs  and AMPs  
Fourth   Third   Second   First  
HCPCS   Quarter    Quarter    Quarter    Quarter    
Code   2011   2011   2011   2011  
J1205  X  X  X  X 
J1650  X  X  X  X 
J9214  X  X  X  X 
J0713  X  X  X   
J1070  X  X  X   
J2501  X  X  X   
J2780  X  X  X   
J3303  X  X  X   
J7620  X  X  X   
J9045  X  X    X* 
J0500  X  X 
J1742  X  X 
J2675  X  X 
J9211  X  X 
 
* In this quarter, the code exceeded the 5-percent threshold based on partial AMP data.   
 
Source: OIG analysis of ASP and AMP data from the first through the fourth    
                                            
 
quarters of 2011.
 
 
Of the 63 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 63 HCPCS 
codes for which only partial AMP data were available.  ASPs for 10 of these 63 HCPCS codes 
(16 percent) exceeded the AMPs by at least 5 percent in the fourth quarter of 2011.  A list of the 
10 HCPCS codes, including their descriptions and HCPCS dosage amounts, is presented in 
Appendix D. 
For half of the HCPCS codes, missing AMPs likely had little influence on the outcome of the 
pricing comparisons. Five 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 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 five HCPCS codes, price substitutions may be legitimately 
warranted in these cases. ASPs for four of these five HCPCS codes repeatedly exceeded the              
5-percent threshold in either two consecutive or three of four quarters.   
For the remaining 5 of 10 HCPCS codes, ASPs no longer exceeded the AMPs by at least                     
5 percent in the fourth quarter of 2011, suggesting that these codes initially exceeded the 
Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 13  Marilyn Tavenner 
 
 
threshold because of missing AMPs rather than a genuine pricing disparity between the ASPs 
and AMPs. 
 
Pricing Comparisons Could Not Be Performed on 48 Drug Codes Because No AMP Data 
Were Available 
For 48 HCPCS codes, OIG could not compare ASPs and AMPs because there were no AMP data 
for any of the 199 NDCs that CMS used when calculating drug reimbursement amounts for these 
codes. In 2011, Medicare allowances for these 48 codes totaled $337 million.37  
 
Manufacturers for 8 percent of the NDCs without AMP data (16 of 199) participated in the 
Medicaid drug rebate program as of the fourth quarter of 2011 and were therefore generally 
required to submit AMP data for their covered outpatient drugs.38, 39,  40    
 
Manufacturers for the remaining 183 of 199 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 ensuring that the new reimbursement methodology did not result in 
excessive payments.  Specifically, Congress mandated that OIG monitor ASPs by comparing 
them with AMPs and widely available market prices and directed 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 25 comparisons between ASPs and AMPs, each of which identified Part B drugs that 
would have been 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 39 HCPCS codes that exceeded the threshold for price 
adjustment in the fourth quarter of 2011.  Of these, 29 had complete AMP data (i.e., AMP data 
for every drug product that CMS used to establish reimbursement amounts).  If reimbursement 
amounts for all 29 codes had been based on 103 percent of the AMPs in the second quarter of 
2012, Medicare would have saved an estimated $4.6 million in that quarter alone.  Under CMSs 
proposed price substitution policy, reimbursement amounts for 14 of the 29 HCPCS codes would 
have been lowered to 103 percent of the AMP, thereby saving Medicare and its beneficiaries                  
                                                 
37
 Of the 48 HCPCS codes with no associated AMP data, one was not listed in the 2011 PBAR file.  As a result, this code 

was not included in the total Medicare allowances for the year.  

38
 To determine whether a manufacturer participated in the Medicaid drug rebate program, we consulted CMSs 

Participating Drug Companies, accessed at http://www.cms.gov on April 30, 2012. 

39
 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.
  
40
 These 16 NDCs were crosswalked to 12 HCPCS codes. 
Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 14  Marilyn Tavenner 
 
 
$4.2 million.  The remaining 10 of 39 HCPCS codes also exceeded the threshold for price 
adjustment in the fourth quarter of 2011 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 half of the 10 codes because missing AMPs likely had little influence 
on the pricing comparison results.   We could not compare ASPs and AMPs for 48 HCPCS codes 
because AMP data were not submitted for any of the NDCs that CMS used to calculate 
reimbursement.  Manufacturers for 8 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.41  In response to 
OIGs most recent report with recommendations, CMS expressed uncertainty about the payoff 
associated with quarterly pricing comparisons, stating that the proposed 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-03-12-00410 in all correspondence. 
                                                 
41
 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 Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 15  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 Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 16  Marilyn Tavenner 
 
 
APPENDIX B  
 
Detailed Methodology for Converting and Volume-Weighting Average Manufacturer 
Prices for the Fourth Quarter of 2011 
 
Healthcare Common Procedure Coding System codes with complete average manufacturer price 
data. Of the 508 Healthcare Common Procedure Coding System (HCPCS) codes with 
reimbursement amounts based on average sales prices (ASP), 396 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 396 HCPCS codes represented 
1,956 NDCs.  For 30 NDCs, we could not successfully identify the amount of the drug reflected 
by the ASP and therefore could not calculate a converted AMP.  These 30 NDCs were 
crosswalked to 13 HCPCS codes. We did not include these 13 HCPCS codes (232 NDCs) in our 
final analysis. 
 
Using the converted AMPs for the remaining 1,724 NDCs, we calculated a volume-weighted 
AMP for each of the remaining 383 HCPCS codes consistent with CMSs methodology for 
calculating volume-weighted ASPs.   
 
HCPCS codes with partial AMP data. There were 64 HCPCS codes with AMP data for only 
some of the NDCs that CMS used in its calculation of volume-weighted ASPs.  These 
64 HCPCS codes represented a total of 989 NDCs. AMP data were either missing or unavailable 
for 273 of these NDCs, which were then excluded from our calculation of   
volume-weighted AMPs.42    
 
We calculated converted AMPs for each of the remaining 716 NDCs.  For 8 of the 
716 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 8 NDCs from our analysis.43  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 708 NDCs, we then calculated a                  
volume-weighted AMP for each of the remaining 63 HCPCS codes consistent with CMSs 
methodology for calculating volume-weighted ASPs.   
 
                                                 
42
 Although AMP data for these 273 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.   
43
 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 Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 17  Marilyn Tavenner 
 
 
HCPCS codes with no AMP data. For 48 HCPCS codes, there were no AMP data for any of the 
NDCs that CMS used in its calculation of volume-weighted ASPs.  These 48 HCPCS codes 
represented 199 NDCs. 
Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 18  Marilyn Tavenner 
 
 
APPENDIX C 
 
Twenty-Nine Drug Codes With Complete Average Manufacturer Price Data That 
Exceeded the 5-Percent Threshold in the Fourth Quarter of 2011 
 
  D   r u g    
 Code   Short Description   Drug Code Dosage  
 J0456  Azithromycin injection  500 mg  
 
J0500  Dicyclomine injection  20 mg  
 
 J0515  Benztropine mesylate injection  1 mg 
 
 J0595  Butorphanol tartrate injection  1 mg 
 
J0610  Calcium gluconate injection   10 mL  
 
 J0670  Mepivacaine HCl injection   10 mL  
 
J0713  Ceftazidime injection  500 mg  
 
 J0770  Colistimethate sodium injection   150 mg  
 
 J1070  Testosterone cypionate injection   100 mg  
 
J1205  Chlorothiazide sodium injection   500 mg  
 
 J1650  Eenoxaparin sodium injection   10 mg  
 
J1742  Ibutilide fumarate injection   1 mg 
 
 J1756  Iron sucrose injection  1 mg 
 
 J1955  Levocarnitine injection  1 g 
 
J2501  Paricalcitol injection  1 mcg 
 
 J2675  Progesterone injection  50 mg  
 
J2780  Ranitidine HCl injection  25 mg  
 
 J3303  Triamcinolone hexacetonide injection  5 mg 
 
 J3411  Thiamine HCl injection  100 mg  
 
J7620  Albuterol and ipratropium bromide, noncompounded  2.5 mg/0.5 mg  
 
 J7631  Cromolyn sodium, noncompounded, unit dose form  10 mg  
 
J8510  Busulfan, oral  2 mg 
 
 J9045  Carboplatin injection  50 mg  
 
 J9065  Cladribine injection  1 mg 
 
J9211  Idarubicin HCl injection  5 mg 
 
 J9214  Interferon alfa-2b injection   1 million units  
 
J9280  Mitomycin injection  5 mg 
 
 J9293  Mitoxantrone HCl injection   5 mg 
 
 Q0167   Dronabinol, oral  2.5 mg  
 
g=gram, mcg=microgram, mg=milligram, mL=milliliter 
Source: Office of Inspector General analysis of fourth-quarter 2011 average sales price and average                    
manufacturer price data, 2012.  
Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)  Page 19  Marilyn Tavenner 
 
 
APPENDIX D 
 
Ten Drug Codes With Partial Average Manufacturer Price Data That Exceeded the                     
5-Percent Threshold in the Fourth Quarter of 2011 
 
Drug      
Code   Short Description   Drug Code Dosage  
90586   Bcg vaccine, for intravesical use   1 each 
J0171  Adrenalin epinephrine injection  0.1 mg  
J1190  Dexrazoxane HCl injection   250 mg  
J2700  Oxacillin sodium injection   250 mg  
J2930*  Methylprednisolone injection  125 mg  
J9031  Bcg live intravesical vaccine  1 each 
Q0162*   Ondansetron, oral  1 mg 
Q0163*   Diphenhydramine HCl, oral   50 mg  
Q0164*   Prochlorperazine maleate, oral   5 mg 
Q0165*   Prochlorperazine maleate, oral   10 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 fourth-quarter 2011 average sales price and AMPs, 2012.
 
 
Comparison of Fourth-Quarter 2011 ASPs and AMPs (OEI-03-12-00410)