Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

E F
XAMINING  LUCTUATIONS IN 

A M
VERAGE  ANUFACTURER 

P
RICES

Daniel R. Levinson

Inspector General 

May 2007

OEI-03-06-00350
 Office of Inspector General 

http://oig.hhs.gov 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 
amended, is to protect the integrity of the Department of Health and Human Services (HHS) 
programs, as well as the health and welfare of beneficiaries served by those programs. This 
statutory mission is carried out through a nationwide network of audits, investigations, and 
inspections conducted by the following operating components: 
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examine the performance of HHS programs and/or its grantees and contractors in carrying out 
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programs and operations.  These assessments help reduce waste, abuse, and mismanagement 
and promote economy and efficiency throughout HHS. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide HHS,  
Congress, and the public with timely, useful, and reliable information on significant issues.  
Specifically, these evaluations focus on preventing fraud, waste, or abuse and promoting 
economy, efficiency, and effectiveness in departmental programs.  To promote impact, the reports 
also present practical recommendations for improving program operations. 
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations of 
allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment 
by providers.  The investigative efforts of OI lead to criminal convictions, administrative 
sanctions, or civil monetary penalties.  
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to OIG, 
rendering advice and opinions on HHS programs and operations and providing all legal support 
in OIGs internal operations.  OCIG imposes program exclusions and civil monetary penalties 
on health care providers and litigates those actions within HHS.  OCIG also represents OIG in 
the global settlement of cases arising under the Civil False Claims Act, develops and monitors 
corporate integrity agreements, develops compliance program guidances, renders advisory 
opinions on OIG sanctions to the health care community, and issues fraud alerts and other 
industry guidance.    E X E C U T I V E   S U M M A R Y  

OBJECTIVE 
To determine the extent to which average manufacturer prices (AMP) 
fluctuated between the second quarter of 2005 and the second quarter of 
2006. 
BACKGROUND 
Pursuant to provisions of the Deficit Reduction Act of 2005 (DRA), the 
Centers for Medicare & Medicaid Services (CMS) was required to make 
AMP data available to States as of July 1, 2006.  States will have the 
option of using these AMP data to set drug reimbursement amounts in 
their Medicaid programs. As of January 1, 2007, AMPs are also to be 
used to establish Medicaid Federal upper limit amounts.  In response to 
these changes, industry representatives have expressed concerns that 
(1) the AMP is too volatile to serve as the basis for Medicaid payment, 
and (2) the 2-month lag between when AMPs are reported to the States 
and when reimbursement amounts are established may cause 
pharmacies to absorb price increases in the interim. 
At the time of this review, Federal law defined the AMP as the average 
price paid to the manufacturer for a drug in the United States by 
wholesalers for drugs distributed to the retail pharmacy class of trade 
after deducting customary prompt pay discounts.  As a result of 
provisions in the DRA, beginning January 1, 2007, manufacturers are 
no longer to include customary prompt pay discounts when reporting 
AMPs. Through 2006, manufacturers reported AMPs for their covered 
outpatient drugs to CMS by the national drug codes (NDC) each 
quarter.  However, effective January 1, 2007, the DRA requires 
manufacturers to report AMPs to CMS on both a monthly and a 
quarterly basis. Because the monthly AMP data submitted to CMS by 
manufacturers will reflect sales from up to 60 days prior, there will be 
at least a 2-month lag between the sales period for which AMPs are 
reported and the effective date of the Medicaid reimbursement amounts. 
For this inspection, we calculated the percentage difference among all 
quarterly AMPs between the second quarter of 2005 and the second 
quarter of 2006.  These results were then broken down by drug category 
(single-source, innovator multiple-source, or noninnovator multiple-
source) and for the top 50 NDCs ranked by total Medicaid 
reimbursement within each category.  In general, single-source drugs 
are brand name products for which there are no available generics, 
OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  i  EE XX EE CC UU TT II VV EE    SS UU MM MM AA RR YY
innovator multiple-source drugs are brand name products for which 
there are available generics, and noninnovator multiple-source drugs 
are generic products. Manufacturers provide CMS with the drug type 
for each of their NDCs in conjunction with AMP data. 
FINDINGS 
Overall, 39 percent of average manufacturer prices stayed the same 
between quarters, and an additional 16 percent changed by less than 
2 percent.  During the period under review, an average of 39 percent of 
AMPs did not change between quarters, and another 16 percent of 
AMPs changed by less than 2 percent. Twenty-four percent of AMPs 
fluctuated by more than 10 percent from quarter to quarter. Of this 
number, half increased and half decreased. 
Average manufacturer prices for single-source drugs changed more 
frequently than those for other drug types, but most changes were 
relatively small. An average of 78 percent of AMPs for single-source 
NDCs changed from quarter to quarter during the period under review. 
However, of those that changed, slightly more than half fluctuated by 
2 percent or less. Only 7 percent of single-source NDCs, on average, 
had AMPs that changed by more than 10 percent between quarters. 
In comparison, the AMPs for 67 percent of innovator multiple-source 
and 58 percent of noninnovator multiple-source NDCs changed between 
quarters. However, the size of these changes tended to be larger than 
the changes for single-source NDCs. 
Average manufacturer prices for high-expenditure drugs changed 
more frequently than those for other drugs, with single-source drugs 
being especially prone to price increases. AMPs for the top 50 NDCs 
by total Medicaid reimbursement in each category (single-source, 
innovator multiple-source, and noninnovator multiple-source) 
experienced more fluctuation between quarters than all AMPs as a 
whole. On average, AMPs for 3 percent to 5 percent of the top 50 NDCs 
in each category stayed the same from quarter to quarter, compared to 
22 percent to 42 percent among all NDCs in each category. 
AMPs for the top 50 noninnovator multiple-source NDCs showed the 
most variability, with more than half changing by at least 10 percent 
between quarters. At the same time, virtually all (99 percent) of the top 
50 single-source NDCs changed by less than 10 percent between 
quarters. AMPs for the top 50 innovator multiple-source NDCs changed 
OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  ii  EE XX EE CC UU TT II VV EE    SS UU MM MM AA RR YY
at rates that fell between noninnovator multiple-source and single-
source NDCs. 
Overall, 42 percent of AMPs for the top 50 noninnovator multiple-source 
NDCs increased and 54 percent decreased between each quarter during 
the period under review. In contrast, AMPs associated with the top 
50 single-source NDCs increased more than they decreased. An average 
of 79 percent of AMPs for the top 50 single-source NDCs increased 
between each quarter, with 41 percent increasing by at least 2 percent. 
CONCLUSION 
In this review, we found that the majority of AMPs did not fluctuate 
substantially from quarter to quarter and that roughly equal numbers 
of AMPs decreased as increased. However, when compared to AMPs for 
other drug types, AMPs for single-source drugs, especially those with 
high Medicaid expenditures, were more prone to increases between 
quarters. Although these increases tended to be relatively small, States 
may want to take the potential effects of AMP increases during the lag 
period into account when developing any AMP-based reimbursement 
formulas. 
It is important to note that this analysis focused on quarterly AMP 
data, because CMS had yet to begin collecting AMPs on a monthly basis 
at the time of our review. Once AMP data are reported on a monthly 
basis, we expect the size and the number of fluctuations between 
reporting periods to be reduced. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS believes this report shows that AMPs can be used appropriately to 
set Medicaid payment to pharmacies. However, CMS notes that the 
new definition of AMP (as established by the DRA) excludes customary 
prompt pay discounts and includes sales of authorized generics. 
Therefore, CMS states that the Office of Inspector Generals (OIG) 
findings may not be comparable to actual experience once the final 
regulation implementing these changes is issued and the new AMP 
definition takes effect. 
CMS also notes that more than half of AMPs for noninnovator multiple-
source drugs varied by 10 percent or more. Although this is a high 
percentage change, noninnovator multiple-source drugs are usually 
OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  iii  E X E C U T I V E   S U M M A R Y

priced far lower than the other categories of drugs, making the absolute 
change modest.  In future work, CMS would like OIG to add an 
additional analysis of absolute price changes in this area of work.   
OIG agrees that AMPs will likely change as a result of CMSs final rule 
implementing the DRA-related definitional changes.  However, the 
analysis presented in this report can serve as the baseline for future 
studies that address how DRA provisions impact AMP.  Finally, OIG 
will consider including analyses of absolute price changes in future 
work in this area. 
OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  iv    T A B L E   O F   C O N T E N T S  

EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

FINDINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .. . ... . .. . .  . .  7

Each quarter, 39 percent of AMPs did not change  . . . . . . . . . . . .  . 7

AMPs for single-sourcedrugs had more fluctuation. . . . . . . . . . . .  8

AMPs for high-expenditure drugs had more fluctuation. . . . . . . . .  9

CONC LUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

Agency Comments andOffice of Inspector General Response . . .  11

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13

A. 	Quarterly, Yearly, and Average Percent Changes in AMPs   

 forAll NDCs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13

B.	  Quarterly Percent Changes in AMPs by Drug Category. . . . .  14

C. 	Quarterly Percent Changes in AMPs for Top 50 NDCs by   

 byDrug Category  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17

D.  Agency Comments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20

A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22

OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  v    I N T R O D U C T I O N  

OBJECTIVE 
To determine the extent to which average manufacturer prices (AMP) 
fluctuated between the second quarter of 2005 and the second quarter of 
2006. 
BACKGROUND 
Pursuant to provisions of the Deficit Reduction Act of 2005 (DRA), 
Public Law 109-171, the Centers for Medicare & Medicaid Services 
(CMS) was required to make AMP data available to States as of   
July 1, 2006.1  States will have the option of using these AMP data to 
set drug reimbursement amounts in their Medicaid programs. In 
response to these changes, industry representatives have expressed 
concerns that (1) the AMP is too volatile to serve as the basis for 
Medicaids payment methodology, and (2) the 2-month lag between 
when AMPs are reported to the States and when reimbursement 
amounts are established may cause pharmacies to absorb price 
increases in the interim (particularly increases in prices for brand name 
drugs).2  This study assesses these concerns by examining historical 
changes in AMPs over time. 
Medicaid Coverage of Prescription Drugs 
All 50 States and the District of Columbia offer prescription drug 
coverage as part of their Medicaid programs.  Individual States 
establish eligibility requirements, benefits packages, and payment rates 
under broad Federal standards administered by CMS.  In 2005, 
Medicaid payments for prescription drugs totaled over $41 billion.3 
Medicaid Drug Reimbursement Methodology 
Typically, Medicaid beneficiaries obtain drugs through pharmacies.  To 
receive reimbursement for these drugs, pharmacies submit claims to 
State Medicaid agencies using the national drug codes (NDC), which are 
11-digit identifiers indicating the manufacturer of the drug, the product 
dosage form, and the package size. 
1 Deficit Reduction Act of 2005, section 6001(b). 
2 Medicaid Prescription Drugs:  Examining Options for Payment Reform. National 
Association of Chain Drug Stores statement to the House Energy and Commerce 
Committee, Subcommittee on Health, June 22, 2005, page 10. 
3 This amount includes both the Federal and State shares of payments.  Rebates collected 
under the Medicaid Drug Rebate program (section 1927 of the Social Security Act) were 
not subtracted from this figure. 
  OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  1  I N T R O D U C T I O N  
Pursuant to section 1902(a)(54) of the Social Security Act (the Act), each 
State is required to submit a Medicaid State plan to CMS describing its 
payment methodology for covered outpatient drugs.  Federal regulations 
require, with certain exceptions, that each States Medicaid 
reimbursement for a drug not exceed (in the aggregate) the lower of its 
estimated acquisition cost plus a reasonable dispensing fee or the 
providers usual and customary charge to the public.4 CMS allows 
States flexibility when defining estimated acquisition cost. Currently, 
most States base their calculations of estimated acquisition cost on a 
drugs average wholesale price discounted by a certain percentage.  For 
certain multiple-source drugs, States also use the Federal upper limit 
and/or State maximum allowable cost programs in determining 
reimbursement amounts.5 
Average Manufacturer Prices Prior to January 1, 2007 
For Federal payments to be available for covered outpatient drugs 
provided under Medicaid, sections 1927(a)(1) and (b)(1) of the Act 
require drug manufacturers to enter into rebate agreements with the 
Secretary of the Department of Health and Human Services (the 
Secretary) and pay quarterly rebates to State Medicaid agencies. Under 
these rebate agreements, and pursuant to section 1927(b)(3) of the Act, 
manufacturers must provide CMS with the AMP for each of their 
covered outpatient drugs by the NDC.  At the time of this review, the 
AMP was defined by section 1927(k)(1) of the Act as 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 
after deducting customary prompt pay discounts.6 
The AMP is calculated as a weighted average of prices for all the 
manufacturers package sizes of a covered outpatient drug sold during a 
given time period and is reported for the lowest identifiable quantity of 
the drug (e.g., 1 milligram, 1 milliliter, 1 tablet, or 1 capsule).  Through 
2006, manufacturers submitted AMP data on a quarterly basis, with 
submissions due 30 days after the close of the quarter. 
4 42 CFR  447.331(b). 
5 The Federal upper limit and State maximum allowable cost programs serve to control 
spending for multiple-source drugs.  CMS has currently established Federal upper limit 
amounts for more than 500 drugs.  In addition, numerous States have implemented 
maximum allowable cost programs to limit reimbursement amounts for certain drugs.   
6 Pursuant to section 6001(c)(1) of the DRA, as of January 1, 2007, the AMP will be 
determined without regard to customary prompt pay discounts extended to wholesalers.   
  OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  2  I N T R O D U C T I O N  
For purposes of the Medicaid drug rebate program, drugs are classified 
as one of three types:  single-source, innovator multiple-source, or 
noninnovator multiple-source.  Pursuant to section 1927(k)(7)(A) of the 
Act, these three categories are defined as follows: 
	 Single-source drug:  a covered outpatient drug produced or 
distributed under an original new drug application approved by 
the Food and Drug Administration (FDA), including a drug 
product marketed by any cross-licensed producers or distributors 
operating under the new drug application. 
	 Innovator multiple-source drug: a multiple-source drug that was 
originally marketed under an original new drug application 
approved by the FDA. 
	 Noninnovator multiple-source drug: a multiple-source drug that 
is not an innovator multiple-source drug. 
In general, single-source drugs are brand name products for which there 
are no available generics, innovator multiple-source drugs are brand 
name products for which there are available generics, and noninnovator 
multiple-source drugs are generic products.  Manufacturers provide 
CMS with the drug type for each of their NDCs in conjunction with 
AMP data. 
Medicaid Prescription Drug Reform 
In an effort to reduce Medicaid prescription drug expenditures, 
Congress recently enacted changes that affect payments for Medicaid 
prescription drugs.  Prior to the enactment of the DRA, section 
1927(b)(3)(D) of the Act prohibited the disclosure of AMP data, except in 
certain narrow circumstances.  During that time, AMP data were used 
primarily by CMS for purposes of the Medicaid drug rebate program. 
However, section 6001(b)(1)(B) of the DRA requires that AMPs be made 
available to State Medicaid programs beginning July 1, 2006.  States 
will have the option to use these AMP data to help set reimbursement 
rates.  In addition, as of January 1, 2007, pursuant to section 6001(a) of 
the DRA, Federal upper limit amounts for certain multiple-souce drugs 
are to be based on 250 percent of the lowest reported AMP for each drug 
rather than 150 percent of the lowest price published in national 
compendia. 
Section 6001(b)(1)(A) of the DRA requires manufacturers, beginning 
January 1, 2007, to report AMPs to CMS on both a monthly and a 
quarterly basis, with monthly submissions due 30 days after the close of 
  OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  3  I N T R O D U C T I O N  
the month. Because the monthly AMP data submitted to CMS by the 
manufacturers will reflect sales from up to 60 days prior, there would be 
at least a 2-month lag between the sales period for which AMPs are 
reported and the effective date of the Medicaid reimbursement amounts. 
In addition, pursuant to section 6001(c)(1) of the DRA, as of   
January 1, 2007, the AMP will be determined without regard to 
customary prompt pay discounts extended to wholesalers, and such 
discounts will be reported separately to CMS.  In December 2006, CMS 
issued a  proposed regulation addressing the new AMP provisions of the 
DRA. 
Additional Office of Inpector General Work Regarding Average  
Manufacturer Prices 
The Office of Inspector General (OIG) is currently in the process of 
completing two companion reports addressing DRA-related AMP 
provisions. States Use of New Drug Pricing Data in the Medicaid 
Program (OEI-03-06-00490) examines the manner in which States are 
planning to use the newly available AMP data.  Deficit Reduction Act 
of 2005: Impact on the Medicaid Federal Upper Limit Program (OEI-
03-06-00400) assesses the potential changes in Federal upper limit 
amounts under the new AMP-based calculation method.   
In a June 2006 study, Determining Average Manufacturer Prices for 
Prescription Drugs Under the Deficit Reduction Act of 2005    
(A-06-06-00063), we found that existing requirements for determining 
certain aspects of AMPs are not clear and comprehensive, and 
manufacturers methods of calculating AMPs are inconsistent.  Our 
discussions with industry groups confirmed the need to clarify 
requirements and raised additional issues related to the 
implementation of DRA provisions. We recommended that the 
Secretary direct CMS, in promulgating the AMP regulation, to: 
(1) clarify requirements in regard to the definition of retail class of trade 
and the treatment of pharmacy benefit manager rebates and Medicaid 
sales and (2) consider addressing issues raised by industry groups. We 
also recommended that the Secretary direct CMS to: (1) issue guidance 
in the near future that specifically addresses the implementation of the 
AMP-related reimbursement provisions of the DRA and (2) encourage 
States to analyze the relationship between the AMP and pharmacy 
acquisition cost before using the AMP for their reimbursement 
methodology. 
  OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  4  I N T R O D U C T I O N  
In our June 2005 report, Comparison of Medicaid Federal Upper Limit 
Amounts to Average Manufacturer Prices (OEI-03-05-00110), we found 
that Federal upper limit amounts were five times higher than average 
AMPs (a figure that we used as an estimate of pharmacy acquisition 
costs) in the third quarter of 2004.  At that time, we recommended that 
CMS work with Congress to set Federal upper limit amounts that more 
closely resemble pharmacy acquisition costs. 
METHODOLOGY 
Data Sources and Scope 
We obtained AMP data for the second quarter of calendar year 2005 
through the second quarter of calendar year 2006 from CMS. Drug 
category data (single-source, innovator multiple-source, or noninnovator 
multiple-source) were included on the AMP files provided by CMS.  A 
total of 51,936 unique NDCs (5,403 single-source, 4,697 innovator 
multiple-source, and 41,836 noninnovator multiple-source) had an AMP 
value in at least one of the quarters under review.    
Data Analysis 
For each NDC, we calculated the percentage difference between 
quarterly AMP values and for the 1-year span between the first and last 
quarters.  NDCs that did not have AMP values for any particular 
quarter were excluded from the percentage difference calculations 
involving that quarter.7 
We grouped NDCs into ranges according to the percentage that the 
AMP had increased or decreased for a given time period.  To determine 
the average amount that AMPs fluctuated on a quarterly basis, we 
calculated the average percentage of NDCs that fell into each range over 
the four-quarter period. Frequency counts of AMP fluctuations based 
on drug categories were also performed.   
Using 2005 Medicaid drug utilization data downloaded from CMSs 
Web site, we identified the top 50 NDCs by total Medicaid 
reimbursement for each of the three categories. We then examined 
AMP fluctuations for the top 50 NDCs among each of the three drug 
7 The number of NDCs included in each quarterly percentage difference calculation ranged 
from 38,123 to 45,937.  
  OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  5  I N T R O D U C T I O N  
categories.8  We repeated the analysis described above to determine  
variation in AMPs for the top 50 NDCs as compared to NDCs for all 
drugs in each category. 
Limitations 
AMPs used in this study reflect the customary prompt pay discounts 
paid by manufacturers, because this is how AMPs were reported at 
the time of our analysis.  As a result of provisions in the DRA, 
beginning January 1, 2007, manufacturers are no longer to include 
customary prompt pay discounts when reporting AMPs.  
Furthermore, as of that same date, manufacturers are required to 
report AMPs to CMS on both a monthly and a quarterly basis. 
Standards 
This study was conducted in accordance with the Quality Standards 
for Inspections issued by the Presidents Council of Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency.  
8 Not all 50 NDCs within each category had AMP values for each quarter under review.  As 
a result, one single-source NDC was removed in the analysis of fluctuations between the 
first and second quarters of 2006.  In addition, one innovator multiple-source NDC and 
one noninnovator multiple-source NDC were removed in the analysis of fluctuations 
between the second and third quarters of 2005. 
  OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  6    F I N D I N G S

F I N D I N G S  
During the period under review, 
Overall, 39 percent of average manufacturer 
an average of 39 percent of AMPs 
prices stayed the same between quarters, 
did not change between quarters, 
and an additional 16 percent changed by 
and an additional 16 percent of 
less than 2 percent 
AMPs changed by less than    
2 percent.  Twenty-four percent of AMPs fluctuated by more than    
10 percent, on average, from quarter to quarter.  Of this number, half 
increased and half decreased.  
Graph 1 presents the average percentage change in AMPs between 
quarters from the second quarter of 2005 through the second quarter of 
2006. The AMP fluctuations from quarter to quarter varied only 
slightly from the overall averages displayed in the graph. Fluctuations 
between each of the quarters under review, as well as the entire year as 
a whole, are presented in Appendix A.
 Graph 1: Average Percent Change in AMPs Between Quarters 
39 .2 
40 
s 
P
M
30 
A
f 
o
e 
g
a 20 
t
n
e 12. 4 
c
Per 10  5. 6  8.4  7. 4  8. 8  5. 6 
3. 5  2. 8  2. 7 
1.0  1. 5  1. 2 
0 
over -7550.%0 1 to -7255.%0 1 to -5100.%0 1 to -2-52.%0 1 to -10-0%. 01 to -2% no change 0.01 to 22.% 01 to 1100.% 01 to 2525.% 01 to 5500.% 01 to 75% over 75% 
- - -
Average Percent Change 
Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006. 
*Totals do not add up to 100% due to rounding. 
  OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  7   F I N D I N G S
  
AMPs for single-source NDCs 
Average manufacturer prices for single-source 
tended to change more frequently 
drugs changed more frequently than those for 
than did AMPs for multiple-source 
other drug types, but most changes were 
NDCs. During the period under 
relatively small 
review, an average of 78 percent of 
AMPs for single-source NDCs changed from quarter to quarter.  In 
comparison, AMPs for 67 percent of innovator multiple-source and   
58 percent of noninnovator multiple-source NDCs changed in the same 
timeframe. 
Although fewer AMPs for innovator and noninnovator multiple-source 
NDCs changed from quarter to quarter, any percentage changes tended 
to be larger than those for single-source drugs. An average of   
16 percent of AMPs for innovator multiple-source drugs and 27 percent 
of AMPs for noninnovator multiple-source drugs increased or decreased 
by at least 10 percent between quarters.  Among single-source drugs, 
the majority fluctuated by 2 percent or less.  Only 7 percent of   
single-source NDCs had AMPs that changed by more than 10 percent 
between quarters. 
Table 1 on the following page illustrates the average fluctuation 
between quarters for single-source, innovator multiple-source, and 
noninnovator multiple-source NDCs.  Tables that track the AMP 
changes for NDCs in each category between each of the quarters under 
review are presented in Appendix B. 
  OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  8  FFF III NNN DDD III NNN GGG SSS  
Table 1: Average Percent Change in AMPs Between Quarters by Category 
Innovator  Noninnovator 
Range of  Single-Source  Multiple-Source  Multiple-Source 
Fluctuation  NDCs  NDCs  NDCs  All Categories 
Over 75% 
0.5%  1.5%  3.2%  2.7% 
50.01 to 75% 
0.3%  0.8%  1.4%  1.2% 
25.01 to 50% 
0.7%  2.0%  3.2%  2.8% 
10.01 to 25% 
3.4%  4.5%  6.0%  5.6% 
2.01 to 10% 
24.9%  18.4%  10.0%  12.4% 
0.01 to 2 % 
23.1%  13.3%  6.3%  8.8% 
No Change 
22.4%  32.9%  42.1%  39.2% 
-0.01 to -2% 
16.1%  11.1%  5.8%  7.4% 
-2.01 to -10% 
6.1%  7.9%  8.8%  8.4% 
-10.01 to -25% 
1.5%  3.9%  6.4%  5.6% 
-25.01 to -50% 
0.6%  2.3%  4.0%  3.5% 
-50.01 to -75% 
0.2%  0.8%  1.8%  1.5% 
Over -75% 
0.1%  0.6%  1.2%  1.0% 
Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006. 
*Totals do not add up to 100% due to rounding. 
AMPs for the top 50 NDCs by 
Average manufacturer prices for high-
total Medicaid reimbursement 
expenditure drugs changed more frequently 
in each category (single-source, 
than those for other drugs, with single-source 
innovator multiple-source, and 
drugs being especially prone to price increases 
noninnovator multiple-source) 
experienced more fluctuation 
between quarters than all AMPs as a whole. On average, AMPs for 
3 percent to 5 percent of the top 50 NDCs in each category stayed the 
same from quarter to quarter, as compared to 22 percent to 42 percent 
among all NDCs in each category. 
AMPs for the top 50 noninnovator multiple-source NDCs showed the 
most variability, with more than half changing by at least 10 percent 
between quarters. In contrast, virtually all (99 percent) of the top 
50 single-source NDCs changed by less than 10 percent between 
quarters. AMPs for the top 50 innovator multiple-source NDCs changed 
at rates that fell between those for noninnovator multiple-source and 
single-source NDCs. 
Overall, 42 percent of AMPs for the top 50 noninnovator multiple-source 
NDCs increased and 54 percent decreased between each quarter during 
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the period under review.  In contrast, AMPs associated with the top 
50 single-source NDCs increased more than they decreased. An average 
of 79 percent of AMPs for the top 50 single-source NDCs increased 
between each quarter, with 41 percent increasing by at least 2 percent.  
Table 2 below shows the average quarterly fluctuations among the top 
50 NDCs in each category.  Tables that track AMP changes for the top 
50 single-source, innovator multiple-source, and noninnovator 
multiple-source NDCs between each of the quarters under review are 
presented in Appendix C. 
Table 2: Average Percent Change in AMPs Between Quarters for Top 50 NDCs by Category 
Range of  Innovator Multiple- Noninnovator Multiple-
Fluctuation  Single-Source NDCs  Source NDCs  Source NDCs 
Over 75% 
- 3.5%  5.5% 
50.01 to 75% 
- 2.0%  2.5% 
25.01 to 50% 
- 3.5%  5.5% 
10.01 to 25% 
0.5%  4.5%  8.0% 
2.01 to 10% 
40.2%  25.1%  15.5% 
0.01 to 2 % 
38.2%  27.7%  4.6% 
No Change 
2.5%  4.0%  4.5% 
-0.01 to -2% 
16.1%  13.0%  11.1% 
-2.01 to -10% 
2.5%  6.1%  11.1% 
-10.01 to -25% 
- 3.0%  13.6% 
-25.01 to -50% 
- 2.0%  10.6% 
-50.01 to -75% 
- 2.0%  5.0% 
Over -75% 
- 3.5%  2.5% 
Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006. 
*Totals do not add up to 100% due to rounding. 
  OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  10    C O N C L U S I O N  

CONCLUSION 
Pursuant to provisions of the DRA, CMS was required to make AMP 
data available to States as of July 1, 2006.  States will have the option 
of using these AMP data to set drug reimbursement amounts in their 
Medicaid programs.  In response to these changes, industry 
representatives have expressed concerns that (1) the AMP is too volatile 
to serve as the basis for Medicaids payment methodology, and (2) the   
2-month lag between when AMPs are reported to the States and when 
reimbursement amounts are established may cause pharmacies to 
absorb price increases in the interim.  
In this review, we found that the majority of AMPs did not fluctuate 
substantially from quarter to quarter and that roughly equal numbers 
of AMPs decreased as increased.  However, when compared to AMPs for 
other drug types, AMPs for single-source drugs, especially those with 
high Medicaid expenditures, were more prone to increases between 
quarters.  Although these increases tended to be relatively small, States 
may want to take the potential effects of AMP increases during the lag 
period into account when developing any AMP-based reimbursement 
formulas. 
Finally, it is important to note that this analysis focused on quarterly 
AMP data, because CMS had yet to begin collecting AMPs on a monthly 
basis at the time of our review.  Once AMP data are reported on a 
monthly basis, we expect the size and the number of fluctuations 
between reporting periods to be reduced. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS notes that the findings of this report are based on AMPs prior to 
January 2007.  Pursuant to provisions in the DRA, after this date, the 
definition of AMP excludes customary prompt pay discounts and 
includes sales of authorized generics.  Therefore, CMS states that OIGs 
findings may not be comparable to actual experience once the final 
regulation implementing these changes is issued and the new AMP 
definition takes effect. 
CMS also states that making AMP data available to States for 
reimbursement purposes will be a great improvement over the current 
situation, in which States base drug reimbursement on published prices 
in commercial compendia that have little relationship to market prices.  
  OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  11  C O N C L U S I O N  
Because AMP changes reflect market price changes and OIGs findings 
indicate that the variations occur equally in both directions, CMS 
believes this report shows AMPs can be used appropriately to establish 
Medicaid payment to pharmacies.   
CMS also notes that more than half of AMPs for noninnovator multiple-
source drugs varied by 10 percent or more.  Although this is a high 
percentage change, noninnovator multiple-source drugs are usually 
priced far lower than the other categories of drugs, making the absolute 
change modest.  In future work, CMS would like OIG to add an 
additional analysis of absolute price changes in this area of work.  The 
full text of CMSs comments is presented in Appendix D. 
OIG agrees that AMPs will likely change as a result of CMSs final rule 
implementing the DRA-related definitional changes.  However, the 
analysis presented in this report can serve as a baseline for future 
studies that address how the DRA provisions impact AMP.  Finally, 
OIG will consider including analyses of absolute price changes in future 
work in this area. 
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Table A-1: Quarterly, Yearly, and Average Percent Changes in AMPs for All NDCs 
Total 
Average  Change 
2nd Qtr 2005  3rd Qtr 2005  4th Qtr 2005  1st Qtr 2006  Change  2nd Qtr 2005 
Range of  to  to  to  to  Between   To 
Fluctuation  3rd Qtr 2005  4th Qtr 2005  1st Qtr 2006  2nd Qtr 2006  Quarters  2nd Qtr 2006 
Over 75%  2.2%  3.1%  2.3%  3.3%  2.7%  3.5% 
50.01 to 75%  0.8%  1.9%  0.9%  1.2%  1.2%  1.5% 
25.01 to 50%  2.7%  2.9%  2.2%  3.5%  2.8%  5.0% 
10.01 to 25%  5.4%  5.5%  4.9%  6.4%  5.6%  10.5% 
2.01 to 10%  12.2%  11.0%  12.4%  13.8%  12.4%  16.1% 
0.01 to 2 %  9.6%  8.7%  7.3%  9.5%  8.8%  5.5% 
No Change  37.5%  40.2%  41.9%  37.1%  39.2%  27.5% 
-0.01 to -2%  7.4%  8.3%  6.6%  7.1%  7.4%  4.9% 
-2.01 to -10%  9.3%  8.5%  8.0%  7.9%  8.4%  8.0% 
-10.01 to -25%  6.5%  4.8%  6.5%  4.8%  5.6%  7.6% 
-25.01 to -50%  3.9%  2.8%  4.1%  3.3%  3.5%  5.7% 
-50.01 to -75%  1.6%  1.3%  1.8%  1.5%  1.5%  2.7% 
Over -75%  1.0%  1.0%  1.3%  0.8%  1.0%  1.6% 
Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006.  
        *Totals do not add up to 100% due to rounding. 
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  A P P E N D I X ~ B  
Table B-1: Quarterly Percent Changes in AMPs for Single-Source NDCs 
Average 
2nd Qtr 2005  3rd Qtr 2005  4th Qtr 2005  1st Qtr 2006  Change 
Range of  to  to  to  to  Between 
Fluctuation  3rd Qtr 2005  4th Qtr 2005  1st Qtr 2006  2nd Qtr 2006  Quarters 
Over 75%  0.4%  0.7%  0.6%  0.5%  0.5% 
50.01 to 75%  0.2%  0.6%  0.2%  0.3%  0.3% 
25.01 to 50%  0.8%  0.6%  0.5%  0.7%  0.7% 
10.01 to 25%  3.3%  3.4%  3.5%  3.6%  3.4% 
2.01 to 10%  21.3%  17.3%  34.9%  26.0%  24.9% 
0.01 to 2 %  26.7%  24.9%  16.2%  24.8%  23.1% 
No Change  21.5%  23.4%  22.2%  22.6%  22.4% 
-0.01 to -2%  15.7%  19.9%  13.6%  15.4%  16.1% 
-2.01 to -10%  7.0%  7.7%  5.7%  4.3%  6.1% 
-10.01 to -25%  2.0%  1.1%  1.7%  1.2%  1.5% 
-25.01 to -50%  0.9%  0.3%  0.5%  0.6%  0.6% 
-50.01 to -75%  0.1%  0.1%  0.2%  0.1%  0.2% 
Over -75%  0.2%  0.1%  0.1%  0.1%  0.1% 
Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006.  
*Totals do not add up to 100% due to rounding. 
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Table B-2:  Quarterly Percent Changes in AMPs for Innovator Multiple-Source NDCs 
Average 
2nd Qtr 2005  3rd Qtr 2005  4th Qtr 2005  1st Qtr 2006  Change 
Range of  to  to  to  to  Between 
Fluctuation  3rd Qtr 2005  4th Qtr 2005  1st Qtr 2006  2nd Qtr 2006  Quarters 
Over 75%  1.5%  2.1%  0.8%  1.5%  1.5% 
50.01 to 75%  0.5%  1.1%  0.8%  0.9%  0.8% 
25.01 to 50%  1.6%  2.2%  1.9%  2.4%  2.0% 
10.01 to 25%  4.0%  4.9%  4.7%  4.3%  4.5% 
2.01 to 10%  19.2%  13.1%  21.9%  19.6%  18.4% 
0.01 to 2 %  15.3%  11.7%  10.3%  16.0%  13.3% 
No Change  31.0%  33.5%  35.1%  31.9%  32.9% 
-0.01 to -2%  9.8%  15.8%  10.4%  8.4%  11.1% 
-2.01 to -10%  7.8%  9.0%  6.0%  8.6%  7.9% 
-10.01 to -25%  5.1%  3.9%  3.9%  2.9%  3.9% 
-25.01 to -50%  2.6%  1.9%  2.6%  2.0%  2.3% 
-50.01 to -75%  0.7%  0.4%  0.9%  0.9%  0.8% 
Over -75%  0.9%  0.4%  0.7%  0.4%  0.6% 
Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006.  
*Totals do not add up to 100% due to rounding. 
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Table B-3: Quarterly Percent Changes in AMPs for Noninnovator Multiple-Source NDCs 
Average 
2nd Qtr 2005  3rd Qtr 2005  4th Qtr 2005  1st Qtr 2006  Change 
Range of  to  to  to  to  Between 
Fluctuation  3rd Qtr 2005  4th Qtr 2005  1st Qtr 2006  2nd Qtr 2006  Quarters 
Over 75%  2.5%  3.49%  2.8%  3.9%  3.2% 
50.01 to 75%  1.0%  2.2%  1.0%  1.3%  1.4% 
25.01 to 50%  3.0%  3.3%  2.4%  4.0%  3.2% 
10.01 to 25%  5.8%  5.8%  5.1%  7.1%  6.0% 
2.01 to 10%  10.3%  9.9%  8.3%  11.5%  10.0% 
0.01 to 2 %  6.7%  6.2%  5.7%  6.6%  6.3% 
No Change  40.4%  43.2%  45.3%  39.6%  42.1% 
-0.01 to -2%  6.1%  6.0%  5.2%  5.8%  5.8% 
-2.01 to -10%  9.8%  8.5%  8.5%  8.3%  8.8% 
-10.01 to -25%  7.2%  5.4%  7.4%  5.5%  6.4% 
-25.01 to -50%  4.4%  3.3%  4.7%  3.8%  4.0% 
-50.01 to -75%  1.9%  1.5%  2.1%  1.7%  1.8% 
Over -75%  1.1%  1.2%  1.5%  0.9%  1.2% 
Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006.  
*Totals do not add up to 100% due to rounding. 
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Table C-1: Quarterly Percent Changes in AMPs for Top 50 Single-Source NDCs 
Average 
2nd Qtr 2005  3rd Qtr 2005  4th Qtr 2005  1st Qtr 2006  Change 
Range of  to  to  to  to  Between 
Fluctuation  3rd Qtr 2005  4th Qtr 2005  1st Qtr 2006  2nd Qtr 2006*  Quarters 
Over 75%  - - - - -
50.01 to 75%  - - - - -
25.01 to 50%  - - - - -
10.01 to 25%  - - 2.0%  - 0.5% 
2.01 to 10%  40.0%  22.0%  54.0%  44.9%  40.2% 
0.01 to 2 %  44.0%  32.0%  34.0%  42.9%  38.2% 
No Change  - 4.0%  4.0%  2.0%  2.5% 
-0.01 to -2%  8.0%  40.0%  6.0%  10.2%  16.1% 
-2.01 to -10%  8.0%  2.0%  - - 2.5% 
-10.01 to -25%  - - - - -
-25.01 to -50%  - - - - -
-50.01 to -75%  - - - - -
Over -75%  - - - - -
Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006.  

 *There were 49 single-source NDCs between the first and second quarters of 2006. 

 *Totals do not add up to 100% due to rounding. 

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Table C-2: Quarterly Percent Changes in AMPs for Top 50 Innovator Multiple-Source NDCs 
Average 
2nd Qtr 2005  3rd Qtr 2005  4th Qtr 2005  1st Qtr 2006  Change 
Range of  to  to  to  to  Between 
Fluctuation  3rd Qtr 2005*  4th Qtr 2005  1st Qtr 2006  2nd Qtr 2006  Quarters 
Over 75%  - 4.0%  - 10.0%  3.5% 
50.01 to 75%  - 2.0%  4.0%  2.0%  2.0% 
25.01 to 50%  2.0%  6.0%  2.0%  4.0%  3.5% 
10.01 to 25%  4.1%  4.0%  6.0%  4.0%  4.5% 
2.01 to 10%  24.5%  18.0%  42.0%  16.0%  25.1% 
0.01 to 2 %  30.6%  26.0%  18.0%  36.0%  27.7% 
No Change  6.1%  4.0%  4.0%  2.0%  4.0% 
-0.01 to -2%  8.2%  28.0%  4.0%  12.0%  13.0% 
-2.01 to -10%  14.3%  4.0%  - 6.0%  6.1% 
-10.01 to -25%  2.0%  - 8.0%  2.0%  3.0% 
-25.01 to -50%  4.1%  - 2.0%  2.0%  2.0% 
-50.01 to -75%  - 4.0%  2.0%  2.0%  2.0% 
Over -75%  4.1%  - 8.0%  2.0%  3.5% 
Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006.  
 *There were 49 innovator multiple-source NDCs between the second and third quarters of 2005.
*Totals do not add up to 100% due to rounding. 
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Table C-3: Quarterly Percent Changes in AMPs for Top 50 Noninnovator Multiple-Source 
NDCs 
Average 
2nd Qtr 2005  3rd Qtr 2005  4th Qtr 2005  1st Qtr 2006  Change 
Range of  to  to  to  to  Between 
Fluctuation  3rd Qtr 2005*  4th Qtr 2005  1st Qtr 2006  2nd Qtr 2006  Quarters 
Over 75%  6.1%  2.0%  8.0%  6.0%  5.5% 
50.01 to 75%  2.0%  2.0%  4.0%  2.0%  2.5% 
25.01 to 50%  4.1%  - 6.0%  12.0%  5.5% 
10.01 to 25%  6.1%  6.0%  8.0%  12.0%  8.0% 
2.01 to 10%  8.2%  22.0%  16.0%  16.0%  15.5% 
0.01 to 2 %  10.2%  4.0%  2.0%  2.0%  4.6% 
No Change  - 6.0%  2.0%  10.0%  4.5% 
-0.01 to -2%  12.2%  8.0%  10.0%  14.0%  11.1% 
-2.01 to -10%  16.3%  16.0%  10.0%  2.0%  11.1% 
-10.01 to -25%  14.3%  12.0%  16.0%  12.0%  13.6% 
-25.01 to -50%  18.4%  8.0%  8.0%  8.0%  10.6% 
-50.01 to -75%  2.0%  10.0%  8.0%  - 5.0% 
Over -75%  - 4.0%  2.0%  4.0%  2.5% 
Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006.  
*There were 49 noninnovator multiple-source drugs between the second and third quarters of 2005. 
*Totals do not add up to 100% due to rounding. 
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Agency Comments 
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 A P P E N D I X   ~   D  

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   A C K N O W L E D G M E N T S  

This report was prepared under the direction of Robert A. Vito, 
Regional Inspector General for Evaluation and Inspections in the 
Philadelphia regional office, and David E. Tawes, Director of the 
Medicare and Medicaid Prescription Drug Unit. 
Other principal Office of Evaluation and Inspections staff from the 
Philadelphia regional office include Jessica Demko, Roman Strakovsky 
and Stephanie Yeager. Central office staff who contributed include 
Sarah Craren and Gina Maree. 
  OEI-03-06-00350  EXAMINING FLUCTUATIONS IN AVERAGE MANUFACTURER PRICES  22