Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
M C C
E  DICARE  OULD  OLLECT 
 
B I P
ILLIONS  F  HARMACEUTICAL 
 
 
M W
ANUFACTURERS  ERE 
R T P R
EQUIRED  O  AY  EBATES 
P B D  
FOR  ART    RUGS 
 
Daniel R. Levinson   
Inspector General  
 
September 2013 
OEI-12-12-00260   
   
EXECUTIVE SUMMARY:  MEDICARE COULD COLLECT BILLIONS IF 
PHARMACEUTICAL MANUFACTURERS WERE REQUIRED TO PAY 
REBATES FOR PART B DRUGS  
OEI-12-12-00260 
 
WHY WE DID THIS STUDY 
 
Statutorily mandated rebates enabled Medicaid to recoup a substantial percentage of the 
$28 billion spent on prescription drugs in 2011.  That same year, Medicare Part B 
expenditures exceeded $16 billion on prescription drugs; however, no similar rebate 
authority exists for Part B to reduce the costs of drugs to the program.  In response to a 
congressional request, the Office of Inspector General (OIG) estimated in 2011 that if 
pharmaceutical manufacturers had been required to pay rebates similar to those under 
Medicaid for 20 high-expenditure Part B brand-name drugs, Medicare could have 
collected up to $2.4 billion in rebates, representing as much as 26 percent of expenditures 
for those drugs in 2010. Whereas our original analysis was limited to 20 brand-name  
drugs, this current study provides a more thorough examination of the potential 
collections associated with Part B rebates, as well as implementation issues. 
 
HOW WE DID THIS STUDY  
 
For each of the 60 Healthcare Common Procedure Coding System codes that represented 
85 percent ($13.9 billion) of total 2011 Part B drug expenditures, we calculated how 
much manufacturers would have owed in rebates based on average manufacturer prices 
(AMP-based rebates) and average sales prices (ASP-based rebates).  We reviewed 
previous OIG work and documented the methodological challenges we encountered in 
this study to identify issues that would need to be addressed before implementing a rebate 
program under Medicare Part B.   
 
WHAT WE FOUND 
 
Medicare could have collected $3.1 billion if pharmaceutical manufacturers had been  
required in 2011 to pay AMP-based rebates for 60 high-expenditure Part B drugs, 
representing 22 percent of spending for those drugs.  Requiring manufacturers to pay 
ASP-based rebates for the same 60 drugs could have garnered Medicare $2.7 billion in 
rebate payments, representing 20 percent of spending.  However, several implementation 
issues related to claims and data would need to be addressed if such a rebate program  
were implemented.   
 
WHAT WE RECOMMEND  
 
We recommend that the Centers for Medicare & Medicaid Services (CMS) examine the 
additional potential impacts of establishing a prescription drug rebate program under 
Medicare Part B and, if appropriate, seek legislative change.  As part of its consideration, 
CMS should address administrative issues that may hinder rebate collections.  CMS did 
not concur with our recommendation.   
   
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 

Background..................................................................................................1 

Methodology................................................................................................7 

Findings......................................................................................................13 

Medicare could have collected at least $2.7 billion in 2011 if 

manufacturers of Part B drugs had been required to pay rebates 

similar to those under Medicaid .....................................................13 

Several implementation issues related to claims and data would 

need to be addressed if Congress were to establish a 

comprehensive drug rebate program under Medicare Part B  ........14 

Conclusion and Recommendations ............................................................18 

            Agency Comments and Office of Inspector General Response .....19 

Appendix....................................................................................................20 

A: 	Drug Descriptions ....................................................................20 

B: 	Estimated 2011 AMP-Based and ASP-Based Part B Rebates  

for 60 High-Expenditure Drugs ...............................................22 

C: Agency Comments  ...................................................................24 

Acknowledgments......................................................................................26 

 
   
   
OBJECTIVES 
1. 	  To calculate the total rebates that could have been collected in 2011 if 
manufacturers had been required to pay rebates for drugs covered 
under Medicare Part B. 
2. 	  To identify implementation issues that would need to be addressed if 
such rebates were required. 
BACKGROUND 
The Medicaid Drug Rebate Program  was created to reduce State and 
Federal Medicaid expenditures for prescription drugs.  In general, States 
cover prescription drugs produced by manufacturers that have entered into 
rebate agreements, and in turn, manufacturers are required to provide 
rebates on these drugs to the States.  Under this program, Federal and 
State governments recouped $13 billion of the $28 billion spent by 
Medicaid on prescription drugs in 2011.1 Medicare Part B spent 
$16.4 billion on prescription drugs that same year.  However, unlike 
Medicaid, Medicare has no requirement for manufacturers to pay rebates, 
despite the fact that Medicare accounts for a substantial share of the 
market for the types of drugs covered under Part B.2    
In 2011, Senator Herb Kohl requested that the Office of Inspector General 
(OIG) identify the potential savings associated with requiring 
manufacturers of Medicare Part B drugs to pay rebates similar to those 
under Medicaid. OIG responded to Senator Kohl in a letter dated    
October 6, 2011.3  In this response, we estimated that a Part B rebate 
program could have recouped between 21 and 26 percent of expenditures 
in 2010 (up to $2.4 billion) for just 20 brand-name drugs.  This current 
study provides a more current and complete picture by encompassing a 
larger number of drugs, including multiple-brand and generic products; 
updating rebate calculations based on 2011 data; and discussing possible 
implementation issues.  
 
1 Medicaid expenditures were calculated using data from the Centers for Medicare & 
Medicaid Services (CMS) Medicaid Budget and Expenditures System.   

2 In 2010, Medicare spending accounted for the majority of total U.S. spending for 35 of 

the 55  highest-expenditure Part B drugs.  See Government Accountability Office (GAO), 

Medicare: High-Expenditure Part B  Drugs, GAO-13-46R, October 2012. 

3 Letter from Inspector  General Daniel R. Levinson to Senator Herb  Kohl,  Chairman, 

Senate Special Committee on Aging.  Accessed at 

http://www.aging.senate.gov/HHSOIG.pdf on October 11, 2012. 

Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  1 
(OEI-12-12-00260)  
   
   
Medicare Part B Coverage of Prescription Drugs 
Although Medicare Part D covers most outpatient prescription drugs, 
Medicare continues to cover a limited number of drugs and biologicals 
(hereinafter referred to collectively as drugs) under its Part B benefit.  
Part B-covered drugs generally fall into the following three categories:   
drugs furnished incident to a physicians service (e.g., injectable drugs 
used in connection with the treatment of cancer); drugs explicitly covered 
by statute (e.g., some vaccines and oral anticancer drugs); and drugs used 
in conjunction with durable medical equipment (e.g., inhalation drugs).4   
Medicare beneficiaries can receive Part B drugs through physician offices; 
hospital outpatient departments; durable medical equipment (DME) 
suppliers; and, in certain specific instances, pharmacies. 
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 payment 
for covered drugs, providers submit claims to their Medicare contractors 
using Healthcare Common Procedure Coding System (HCPCS) codes.  
HCPCS codes provide a standardized system for describing specific items 
and services provided in the delivery of health care.  In the case of 
prescription drugs, each HCPCS code defines the drugs name and the 
amount of drug represented by one unit of the HCPCS code but does not 
specify manufacturer or package size information. 
Medicare and its beneficiaries spent $16.4 billion for Part B drugs in all 
settings in 2011.5   Although Part B paid for more than 700 outpatient 
prescription drug HCPCS codes that year, most spending was concentrated 
on a relatively small subset, with 72 HCPCS codes accounting for 
90 percent of total expenditures.   
Payments in the physician office, supplier, and pharmacy settings. 
Medicare pays physicians, DME suppliers, and pharmacies for most 
Part B drugs using a methodology based on average sales prices (ASP).6,  7    
 
4 42 CFR   414.900(b) and Medicare Benefit Policy Manual, Pub.  No. 100-2, ch. 15,  
 50. 
 
5 This estimate  does not include Part B  drugs used to treat end-stage renal  disease 

because Medicare now pays for these drugs using a  bundled rate. 
  
6 Several Part B drugs, including certain vaccines and blood products, are not paid  on the 
 
basis of  ASPs.  Sections 1847A(a)(1)  and 1842(o)(1) of  the Social Security Act (the Act).  

See also Medicare Claims Processing  Manual, Pub. No. 100-04, ch. 17,  20.1.3. 
 
7 Section 1847A(c) of the Act defines ASP as a manufacturers sales of  a drug  (with
  
certain exceptions) to all purchasers in the United States in  a quarter divided by the 

number of units of the drug sold  by the manufacturer in that same quarter.  The ASP is 
 
net of any  price concessions,  such as volume discounts, prompt pay  discounts, cash
  
discounts, free goods contingent  on purchase requirements, chargebacks,  and  rebates 

other than those obtained through the Medicaid drug rebate program.
   
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  2 
(OEI-12-12-00260)  
   
   
Manufacturers provide CMS with the ASP and volume of sales for their 
drugs on a quarterly basis, with submissions due 30 days after the close of 
each quarter.8  Payment amounts for most Part B prescription drugs are 
equal to 106 percent of the volume-weighted ASPs for the individual 
drugs represented by the HCPCS code (or the actual charge billed on the 
claim, if that amount is lower).  Medicare beneficiaries are responsible for 
20 percent of this amount in coinsurance.    
Payments in the hospital outpatient setting. Medicare also pays hospital 
outpatient departments for Part B-covered drugs on the basis of ASPs, but  
only when the drugs are considered separately payable.  A drug is 
separately payable when (1) its estimated per-drug, per-day costs are 
greater than $70 (for 2011), or (2) it has been granted pass-through 
status by CMS, regardless of whether the cost exceeds the $70 per day 
packaging threshold. 9,  10   In contrast, packaged drugs are inexpensive 
Part B drugs that do not exceed the packaging threshold and are also not 
pass-through drugs.  CMS does not make separate payments for packaged 
drugs; it includes payment for these drugs as part of the payment for the 
treatment during which the drugs are administered. 
Unlike for other Part B drugs, the Act does not define a set payment 
methodology (e.g., 106 percent of ASP) for certain separately payable 
drugs administered in a hospital outpatient setting.  Rather, through the 
rulemaking process, CMS annually updates the ASP-based payment 
methodology for separately payable drugs that are not pass-through drugs.  
For 2011, CMS set the Medicare payment amount for non-pass-through 
separately payable drugs at 105 percent of ASP (see Table 1).  The 
payment method for pass-through drugs is the same as the payment 
method for drugs in physician office settings (i.e., 106 percent of ASP).11    
   
   
 
8  Sections 1847A(f) and 1927(b)(3) of  the Act. 

9 75 Fed. Reg. 71800, 71939  (Nov. 24, 2010). 

10 Section 1833(t)(6)(A) of the Act provides for temporary additional payments, or  

transitional pass-through payments, for certain drugs, including new drugs and  orphan 
 
drugs.  Section 1833(t)(6)(A)(i) of the Act defines orphan  drugs as drugs that are used 

for a rare disease or condition with  respect to which the drug  has been  designated as an 

orphan drug  under section 526 of the Federal Food, Drug and Cosmetic Act. 

11 75 Fed. Reg. 71800, 71932  (Nov. 24, 2010). 
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  3 
(OEI-12-12-00260)  
   
   
    Table 1: Medicare Part B Payment Methodologies for Covered Drugs  
Drug Type   Medicare Payment Methodology  for 2011  
Drugs administered in physicians offices 
106 percent of ASP 
or dispensed by  suppliers/pharmacies 
Drugs administered in hospital outpatient 
105 percent of ASP  
settings that exceed the $70 threshold 
Drugs administered in hospital outpatient 
106 percent of ASP 
settings that are considered pass-through  
Packaged drugs   Not applicable; payment included in related service 
                   
                   Source:  OIG analysis of Medicare payment methodologies (Feb. 13, 2012).   
 
       
 
Medicaid Payment for Prescription Drugs 
   
Medicaid beneficiaries typically receive covered drugs through 
pharmacies, which are reimbursed by State Medicaid agencies.  Federal 
regulations require, with certain exceptions, that each State Medicaid 
agencys reimbursement for a covered outpatient drug not exceed (in the 
aggregate) the lower of (1) the estimated acquisition cost plus a reasonable 
dispensing fee or (2) the providers usual and customary charge to the 
public for the drug.12  CMS gives States flexibility to define estimated 
acquisition cost; most States base their calculation on list prices 
published in national compendia.13,  14  For certain multiple-source drugs 
(i.e., generic drugs and brand-name drugs for which generic alternatives 
are available), States also use the Federal upper limit program and/or State 
maximum allowable cost programs in setting reimbursement amounts.  
The Medicaid law limits cost-sharing  for beneficiaries, and the Medicaid 
program generally imposes lower cost-sharing requirements for 
beneficiaries than does Medicare.15     
Medicaid Drug Rebate Program 
The Omnibus Budget Reconciliation Act of 1990 created the Medicaid 
drug rebate program to reduce State and Federal Medicaid expenditures 
for prescription drugs. For Federal financial participation to be available 
 
12 42 CFR   447.512(b).  CMS issued a proposed  rule in February  2012 that would 
replace estimated acquisition cost with actual acquisition cost as the basis of Medicaid 
pharmacy reimbursement.  See 77 Fed. Reg. 5318, 5320  (Feb. 2, 2012).   
13 Historically, the majority of States have  used average wholesale prices (AWP) or 
wholesale acquisition costs (WAC) to set reimbursement and had obtained these data  
from the publisher First  DataBank.  First  DataBank stopped publishing AWPs as of 
September 2011.  AWPs and WACs are derived from  manufacturer-reported list prices.  
14 CMS, Medicaid Covered Outpatient Prescription Drug Reimbursement Information by 
StateQuarter Ending June 2012. Accessed at http://www.medicaid.gov on  
November 16, 2012.  
15  Sections 1916 and 1916A of  the Act. 
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  4 
(OEI-12-12-00260)  
   
   
for covered outpatient drugs provided under Medicaid, manufacturers 
must enter into rebate agreements with the Secretary of Health and Human 
Services and pay quarterly rebates to State Medicaid agencies.16 Fifty 
States and the District of Columbia, as well as approximately 
600 pharmaceutical companies, participate in the Medicaid drug rebate 
program.17  From 2005 to 2011, the Medicaid program collected 
approximately $9.7 billion per year, on average, in prescription drug 
rebates. 
Under their rebate agreements and pursuant to section 1927(b)(3) of the 
Act, manufacturers must provide CMS with the average manufacturer 
price (AMP) for each of their national drug codes (NDC) on a monthly 
and quarterly basis.18,  19  In the Medicaid drug rebate program, drugs are 
generally categorized as one of three types:  single-source, innovator 
multiple-source, or noninnovator multiple-source.  In general terms, a 
single-source drug would typically be a brand-name product with no 
available generic versions.  An innovator multiple-source drug would 
typically be a brand-name product that has available generic versions.  A  
noninnovator multiple-source drug would be a generic version of any 
innovator product. Manufacturers provide CMS with the drug category 
for each of their NDCs in conjunction with AMP data.   
Manufacturers of single-source and innovator multiple-source drugs must 
also provide CMS with the best price for each NDC.20 Manufacturers of 
noninnovator multiple-source drugs are not required to provide best prices 
for those NDCs. 
Medicaid Drug Rebate Calculation 
Basic Rebate.  For rebate purposes, manufacturers must provide AMP and 
best-price data to CMS within 30 days of the end of each quarter.  CMS 
uses this information to calculate a unit rebate amount (URA) every 
quarter for each NDC included in the Medicaid drug rebate program.   
 
16 Sections 1927(a)(1) and (b)(1) of the Act. 
17 CMS, Medicaid Drug Rebate Program.   Accessed at http://www.medicaid.gov/ on  
November 16, 2012.  
18 Effective October 2010, the Patient Protection and Affordable Care Act revised the 
definition of AMP to  be 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.  
19 The NDC is an  11-digit code that is divided into three segments identifying (1) the firm  
that manufactures, distributes, or repackages the drug product; (2) the specific strength, 
dosage form, and formulation of the product for a particular firm; and (3) the products 
package size. 
20 Section 1927(b)(3)(A)(i)(II) of the Act.  Best price is defined in 1927(c)(1)(C) of the  
Act as the lowest price available from the manufacturer during the rebate  period to any  
wholesaler, nonprofit entity, or governmental entity within the United States, with certain  
exceptions. 
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  5 
(OEI-12-12-00260)  
   
   
Pursuant to section 1927(c) of the Act, the formula used to calculate the 
URA depends on the drug category reported by the manufacturer.  The 
basic URA for a noninnovator multiple-source drug is 13 percent of the 
AMP.   The basic URA for a single-source or innovator multiple-source 
drug is the greater of 23.1 percent of the AMP or the difference between 
the AMP and best price.21 In addition, for drugs approved exclusively for 
pediatric indications and certain blood-clotting factors, the basic rebate is 
the greater of 17.1 percent of AMP or the difference between the AMP and 
the best price. 
If the AMP for a brand-name drug has risen faster than inflation, the 
drugs manufacturer must pay an additional rebate over and above the 
basic URA.22  Prior OIG work has demonstrated that this aspect of the 
rebate program helps protect Medicaid from rising drug costs; substantial 
increases in prices for Medicaid brand-name drugs (about three times the 
rate of inflation) between 2005 and 2010 were largely offset by rebate 
payments.23  
CMS provides the URA (basic and additional) for each NDC to State 
Medicaid agencies each quarter.  Within 60 days after the end of the 
quarter, State Medicaid agencies must send each manufacturer an invoice 
with the URA and number of units reimbursed for each NDC.  To  
determine the total rebate due from manufacturers for each NDC, the URA  
is multiplied by the total number of units of the NDC reimbursed by the 
State during the quarter.  This utilization figure should include all units for 
which Medicaid paid a portion of the claim, including Part B claims for 
beneficiaries who are eligible for both Medicare and Medicaid (hereinafter  
referred to as dual eligibles) for which Medicaid covered any Part B 
coinsurance or deductible. Manufacturers must pay rebates to States 
within 30 days of the date on the rebate invoices. 
The 340B Program and Prohibition of Duplicate Discounts.   The Veterans 
Health Care Act of 1992 established the 340B Program in section 340B of 
 
21 Section 1927(c)  of the Act.   
22 Section 1927(c)(2) of the Act. To determine whether a brand-name drug is subject to  
the increased rebate amount,  CMS compares the reported AMP for a given quarter to its 
inflation-adjusted  baseline AMP.  The baseline AMP for a drug is the AMP for the first 
quarter after the drugs initial market date.  To adjust the baseline AMP for inflation,  
CMS first  divides the baseline AMP by the baseline consumer price index for all urban  
consumers (consumer price index), which is the consumer price index for the first month 
prior to the first quarter after the drugs initial market date.  The result of that calculation  
is then multiplied  by the quarterly consumer price index, which is the consumer price 
index for the month prior to the quarter being  calculated.  If the reported AMP is greater 
than the inflation-adjusted baseline AMP, then the difference is added to the URA. 
23 OIG,  Medicaid Brand-Name Drugs:  Rising  Prices Are Offset by Manufacturer 
Rebates, OEI-03-10-00260, August 2011.   
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  6 
(OEI-12-12-00260)  
   
   
the Public Health Service Act.  The 340B Program requires drug 
manufacturers to provide discounted outpatient drugs to certain eligible 
health care entities, known as covered entities.24 Covered entities serve 
the underinsured or uninsured and include disproportionate share 
hospitals25, family planning clinics, and federally qualified health centers, 
among others.  As of January 2013, approximately 20,451 entities were 
participating in the 340B Program.    
In general, State Medicaid agencies are responsible for ensuring that 
manufacturers do not provide duplicate discounts for drugs purchased 
under the 340B program.  Manufacturers provide duplicate discounts 
when they pay Medicaid rebates to States for drugs sold at discounted 
prices through the 340B Program.  Duplicate discounts are prohibited by 
law.26   To prevent subjecting drug manufacturers to duplicate discounts 
when claiming Medicaid rebates, States need to exclude claims for drugs 
purchased under the 340B program (340B claims) from the utilization data 
that they send to manufacturers.   
METHODOLOGY 
Data Collection 
Total Part B Expenditures and Utilization. We obtained all paid claims  
(i.e., physician claims, DME claims, and hospital outpatient claims) for 
Part B drug HCPCS codes from the 2011 National Claims History (NCH) 
file to determine quarterly utilization and spending.27  
NDCs. We obtained from CMS the 2011 quarterly crosswalk files that 
link HCPCS codes to the related NDCs included in the ASP calculation, 
including a determination of how many units of a given NDC are 
represented by the HCPCS code.28    
Medicaid Rebate Amounts.   We obtained from CMS the Medicaid URAs 
for all NDCs associated with the relevant HCPCS codes in each quarter of 
2011.   
 
24 Covered entities do not necessarily purchase all of their drugs at 340B prices. 

25 A disproportionate share hospital is a hospital with a disproportionately large share of  

low-income patients.  CMS, Medicare Disproportionate Share Hospital, ICN 006741. 

January 2013. 

26  42 U.S.C.  256b(a)(5)(A). 

27 Claims are added to NCH files on a rolling basis.  Therefore, the 2011 NCH  files did 

not include 100 percent of claims  when  OIG analyzed the files in May 2012. 

28 Because Medicare Part B reimbursement for outpatient drugs  is based on HCPCS 

codes rather than  on 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. 
 
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  7 
(OEI-12-12-00260)  
   
   
ASP Data. We obtained from CMS the quarterly ASPs and number of 
units sold as reported by manufacturers for all NDCs associated with the 
relevant HCPCS codes in each quarter of 2011.   
Dual-Eligible Data. We obtained the 2011 beneficiary enrollment 
database from CMS, which includes a variable noting whether a 
beneficiary is enrolled in both Medicare and Medicaid. 
340B Data.   We obtained the database of 340B-covered entities from the 
Health Resources and Services Administration (HRSA) on June 7, 2012, 
to identify providers eligible for 340B pricing. 
Previous OIG Work. We reviewed prior OIG work on the Medicaid rebate 
program to identify issues that would affect the implementation of a 
similar rebate program in Medicare Part B. 
Data Analysis  
Selection of Drugs. Using data from the NCH file, we summarized 
Medicare expenditures and utilization by HCPCS code for all Part B drugs 
in all settings in 2011.  We selected the 72 HCPCS codes with the highest 
total expenditures (constituting 90 percent of Medicare Part B total 
spending) for review.   
We removed 3 of the 72 HCPCS codes from our analysis because the 
codes represented Not Otherwise Classified (NOC) drugs, meaning that 
the drugs being billed could not be readily identified.  We also removed 
five additional HCPCS codes because  they were not paid on the basis of 
ASPs in 2011.29  We then removed four additional HCPCS codes from our 
analysis because they did not meet the definition of a covered outpatient 
drug under Medicaid and manufacturers were therefore not subject to 
rebate agreements requiring them to report AMP or ASP data.30  We then 
used CMSs ASP files to identify all NDCs that are crosswalked to the 
remaining 60 HCPCS codes.  These 60 codes accounted for 85 percent 
($13.9 billion) of Part B drug expenditures in 2011 (see Table 2).  
   
 
29 Four of the five HCPCS codes represented vaccinesdrugs for which manufacturers  
are not  required to submit ASP data to CMS.  The fifth code represented a newly  
approved  drug  that was not included in CMSs ASP pricing  file in  2011, but was paid on  
the basis of  ASPs in  2012. 
30 Three HCPCS codes represent hyaluronan (Synvisc or Synvisc-One,  Hyalgan or  
Supartz, and  Orthovisc) and the fourth  represents Apligraf skin substitute.  All of these 
products are considered devices and not drugs by Medicaid and the U.S. Food and  
Drug Administration (FDA).   
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  8 
(OEI-12-12-00260)  
   
   
Table 2: Summary of Part B Drug HCPCS Codes Included in Analysis  
2011 Part B 
Number of HCPCS Codes   Percentage of Total 
Spending  
712 (All Part B HCPCS codes)  $16.4 billion  100% 
72 (Codes with the highest Part B expenditures)  $14.8 billion  90% 
69 (After 3 NOC codes removed)  $14.4 billion  88% 
64 (After 4 vaccines and 1 newly approved drug 
$14.2 billion  87% 
removed)  
60 (After 4 devices removed)  $13.9 billion  85% 
              
Source:  OIG analysis of 2011 NCH file (Feb. 13,  2012). 
Categorization of Drugs. Using CMSs fourth-quarter ASP file, we 
categorized the 60 HCPCS codes as representing a single-brand drug, 
multiple-brand drug, or generic drug (see Appendix A for a list of the 
60 HCPCS codes and their respective categorizations).  A single-brand 
HCPCS code represents only one brand-name drug (and no generics) 
produced by a single manufacturer.  We classified 48 of the 60 HCPCS 
codes as single brand.  A multiple-brand HCPCS code represents two or 
more brand-name drugs produced by more than one manufacturer.  We  
classified 5 of the 60 HCPCS codes as multiple brand.  A generic HCPCS 
code represents either a combination of brand-name and generic drugs or 
of generic drugs only. Generic drugs are also produced by more than one 
manufacturer.  We classified 7 of the 60 HCPCS codes as generic.31   
Calculation of AMP-Based Rebate Amounts. We calculated a rebate 
amount for each NDC within a HCPCS code using the Medicaid URAs 
(which include basic and  additional rebates) reported for the associated 
NDCs in each quarter of 2011.  AMPs (and URAs) are calculated for the 
lowest identifiable quantity of the drug contained in that NDC (e.g., 
1 milliliter, one tablet).  In contrast, Part B payment amounts and 
utilization are reported by HCPCS code for the entire amount of the drug 
contained in the NDC (e.g., 50 milliliters, 100 tablets).  To ensure that the 
rebate amount is representative of the correct number of units for the 
HCPCS code, we used CMSs crosswalk file to convert the URA of each 
NDC so that it would represent the amount of the drug specified by the 
HCPCS code. 
Determination of ASP-Based Rebate Amounts. Because Part B payments 
for most covered drugs are based on ASPs, we also calculated an 
 
31 Two of the generic HCPCS codes represented brand-name drugs of which generic 
versions  become available at some point in  2011.  
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  9 
(OEI-12-12-00260)  
   
   
estimated rebate based on those amounts in each quarter of 2011.  We first 
calculated a basic URA for each crosswalked NDC by substituting ASP for 
AMP in the rebate formula (i.e., for single-source and innovator multiple-
source drugs, the greater of 23.1 percent of ASP or the difference between 
ASP and best price; for noninnovator multiple-source drugs, 13 percent of 
ASP; and for drugs approved exclusively for pediatric indications and 
certain blood-clotting factors, the greater of 17.1 percent of ASP or the 
difference between ASP and best price).  For brand-name drugs, we then 
calculated the additional inflation-based rebate using the same method that 
CMS uses to calculate the additional rebate for Medicaid drugs (i.e., using 
the base-date ASP to track changes in ASPs against inflation).32   We then 
added the basic rebate amount to any additional inflation-based rebate 
amount to calculate the ASP-based URA for each NDC.   
Removing Claims for Which Manufacturers Would Not Owe Rebates. 
Before calculating the total potential Part B rebate amounts, we removed 
Part B claims for dual-eligible beneficiaries from our analysis because 
those claims should have already been subject to Medicaid rebates.  We  
identified all Part B drug claims for dual eligibles by matching the Part B 
drug claims against the beneficiary enrollment file.   
We also removed 340B claims from our analysis because duplicate 
discounts are prohibited by law. 33  Using HRSAs file of 340B-covered 
entities from June 7, 2012, we identified and removed any Part B drug 
claims submitted by covered entities.  We then summarized the utilization 
for the remaining claims to determine the total units of each HCPCS code 
that would have been subject to rebates in 2011.   
Claims associated with dual eligibles or with 340B-covered entities 
represented 29 percent of expenditures and 36 percent of utilization for the 
60 HCPCS codes included in our review. In other words, $4 billion of the 
$13.9 billion spent on these 60 HCPCS codes in 2011 would not have 
been subject to rebates, and any associated claims were therefore removed 
from our rebate calculations.34          
Total Rebate Calculations. After removing dual-eligible and 340B claims, 
we apportioned the remaining utilization among the individual NDCs 
within each HCPCS code. Because NDC-level utilization is not tracked 
under Part B, we used CMSs ASP files to determine the percentage of 
total sales of a HCPCS code represented by each NDC (i.e., one NDC 
 
32 We defined base-date ASP as the drugs ASP in the first reported quarter or, for 

older drugs, the drugs ASP when the ASP-based payment went into effect in 2005. 
 
33  42 U.S.C.  256b(a)(5)(A). 

34 Among the individual  HCPCS codes,  between 10 percent and 77  percent  of spending
  
and between 10  percent and 96  percent  of utilization was removed from our analysis. 
 
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  10 
(OEI-12-12-00260)  
   
   
represented 10 percent of total sales, and another NDC represented 
15 percent).  We then multiplied these percentages by the total quarterly 
utilization of each HCPCS code to estimate utilization for each NDC.35  To  
determine total rebate amounts, we multiplied the estimated utilization of  
each NDC by its AMP-based and ASP-based rebate amounts and 
summarized the NDC-level figures by HCPCS code (see Appendix B for 
total rebate calculations).  Rebate calculations are based on historical 
pricing and utilization data. These calculations do not attempt to account 
for potential changes in pricing or utilization that might result from  
implementation of a rebate requirement. 
Implementation Issues Related to Calculating and Collecting Rebates for 
Part B. We reviewed previous OIG work involving Medicaid rebates, 
manufacturer-reported AMP  and ASP data, and the 340B Program to 
identify potential issues that would need to be addressed before 
implementing a Part B rebate program.  We also reviewed issues that we 
encountered during the analysis of this study, such as identifying claims  
for drugs purchased at 340B prices and obtaining information to calculate 
drug rebates. 
Limitations 
We did not review Part B claims for accuracy.  We also did not review 
manufacturer-reported drug data or the CMS crosswalk files for accuracy.  
Because there is no identifier in the NCH claims data indicating that a 
drug was purchased at 340B prices, we removed all claims submitted by 
340B-covered entities from our analysis.  We identified these entities 
using HRSAs database of covered entities, which prior OIG work has 
found to contain inaccuracies.36, 37  Given the problems  with this database  
and issues with identifying 340B drugs in NCH claims data, we may have 
inadvertently removed claims for drugs not purchased at 340B prices, 
possibly resulting in underestimating potential collections associated with  
a Part B rebate program.    
Furthermore, our rebate estimates apply only to the 60 drugs in our sample 
that represent 85 percent of expenditures; the estimates cannot be 
 
35  We  determined that the number of units listed in the 2011  NCH file for two HCPCS 
codes (representing factor viii recombinant and factor viia, which are used to treat 
hemophilia) underrepresented the actual number of HCPCS units reimbursed by  a 
substantial margin.   We calculated the correct number of Medicare units by dividing the  
total Part B spending (after  removing  dual-eligible and  340B claims) by the Part B 
payment amount in each quarter.   
36 OIG,  Deficiencies in the 340B Drug  Discount Programs Database, OEI-05-02-00071, 
June 2004.  

37 OIG,  State Medicaid Policies and Oversight Activities Related to  340B-Purchased 

Drugs, OEI-05-09-00321, June 2011. 

 
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  11 
(OEI-12-12-00260)  
   
   
generalized to all drug HCPCS codes paid under Part B.  Our analysis did 
not address how implementation of Part B rebates could affect beneficiary 
cost-sharing, i.e., potential fluctuations in drug pricing and resulting copay 
obligations or the possibility that any of the potential rebate collections 
could be passed on to beneficiaries. Our analysis also did not examine the 
impact that the implementation of a Part B rebate program could have on 
provider acquisition costs, beneficiary access to useful therapies, and 
Medicare drug prices; on prices for uninsured patients and for other 
payers; on the pharmaceutical market in general; on supplemental 
insurance premiums; or on the administrative costs of establishing and 
operating a rebate program. 
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.  
   
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  12 
(OEI-12-12-00260)  
   
   
FINDINGS 
Medicare could have collected at least $2.7 billion in 
2011 if manufacturers of Part B drugs had been 
required to pay rebates similar to those under 
Medicaid 
Medicare and its beneficiaries spent $13.9 billion in 2011 for the 
60 selected high-expenditure Part B drugs.  If Medicare had applied an 
AMP-based methodology, it could have collected $3.1 billion in rebates 
from pharmaceutical manufacturers for the 60 drugs that year, which 
represents 22 percent of expenditures on those drugs.  If Medicare had 
applied an ASP-based methodology, it could have collected $2.7 billion in 
rebates from pharmaceutical manufacturers, which represents 20 percent 
of expenditures on those drugs. 
If Medicare had used an AMP-based methodology for rebates, 
the program could have potentially recouped 22 percent of 
expenditures for the 60 drugs under review 
Under an AMP-based rebate program (i.e., using the same rebate 
benchmark as Medicaid), manufacturers would potentially have owed 
$3.1 billion in rebates for the 60 drugs included in this review.  As a result, 
Medicare could have recouped 22 percent of the $13.9 billion in 
expenditures for these drugs. AMP-based rebates for just 10 of the 60 
HCPCS codes accounted for 55 percent of the total projected rebate 
amounts.  As shown in Table 3, most of the total projected rebate amounts 
were attributable to the 48 single-brand HCPCS codes, which represented 
$2.6 billion of the total rebates (and $11.8 billion of total expenditures). 
  
If Medicare had used an ASP-based methodology for rebates, 
the program could have potentially recouped 20 percent of 
expenditures for the 60 drugs under review 
Under an ASP-based rebate program, manufacturers would have 
potentially owed $2.7 billion in rebates for the 60 drugs included in this 
review.  As a result, Medicare could have recouped 20 percent of the 
$13.9 billion in expenditures for these drugs. ASP-based rebates for just 
10 of the 60 HCPCS codes accounted for 57 percent of total projected 
rebate amounts.  Once again, most of the total projected rebate amounts 
were attributable to single-brand HCPCS codes, which represented $2.4 
billion of the total rebates.   
 
 
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  13 
(OEI-12-12-00260)  
   
   
Table 3: Potential Rebates Associated With Each Drug Type 
HCPCS Classification   AMP-Based Rebates   ASP-Based Rebates  
Single-Brand (n=48)   $2,648,759,293   $2,353,138,619  
Multiple-Brand (n=5)  $159,580,380   $144,661,408 
Generic (n=7)   $273,240,243   $237,125,619 
TOTAL  $3,081,579,916   $2,734,925,646  
Source:  OIG analysis of CMSs  2011 AMP and ASP files and the 2011 NCH file (Nov. 20, 2012). 
Several implementation issues related to claims and 
data would need to be addressed if Congress were to 
establish a comprehensive drug rebate program for 
Medicare Part B 
The lack of NDC-level information on Part B claims, issues involving 
manufacturer-reporting of drug data, and difficulties in identifying drugs 
purchased under the 340B Program would all affect CMSs ability to 
calculate accurate rebates and invoice the appropriate manufacturers for 
drug claims.  OIG has identified many of these issues in prior reports and 
has made relevant recommendations.  
The use of HCPCS codes for Part B drugs would present 
challenges when identifying the manufacturer responsible for 
rebates 
The use of HCPCS codes rather than NDCs to bill for Part B drugs would 
need to be addressed before Medicare could effectively collect rebates for 
multiple-brand and generic drugs.  For 12 of the 60 HCPCS codes under 
review, CMSs crosswalk file lists NDCs from more than 1 manufacturer 
and multiple manufacturers reported sales during the quarters under 
review.  Therefore, without an NDC on the claim, CMS would not be able 
to determine the appropriate manufacturer to invoice. 
For many years, Medicaid faced a similar problem in collecting rebates for 
physician-administered drugs, i.e., the principal type of drug also covered 
under Medicare Part B. In 2004, OIG reported that only 17 States 
collected Medicaid rebates from manufacturers for physician-administered 
drugs in 2001.38   At that time, many States did not have a system to 
identify the manufacturer responsible for paying the rebates for these 
drugs, as most were using HCPCS codes rather than NDCs for physician-
administered drug claims. 
 
38 OIG,  Medicaid Rebates for  Physician-Administered Drugs, OEI-03-02-00660, 
April 2004. 
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  14 
(OEI-12-12-00260)  
   
   
Following the release of that OIG report, the Deficit Reduction Act of 
2005 (DRA) specifically required States to collect rebates for certain 
physician-administered drugs for Federal financial participation to be 
available.39   To assist States in meeting this requirement, the DRA also 
mandated that claims for certain physician-administered drugs include the 
NDC for the drug being billed. In a followup report released in 2011, OIG 
found that as of June 30, 2009, all States but one reported collecting at 
least a portion of the rebates owed for physician-administered drugs, and 
86 percent of States reported that they required NDCs on all 
physician-administered drug claims.40  
Even if providers billed Medicare with NDCs, information 
needed to calculate and collect Part B rebates may be 
unavailable or inaccurate 
Only manufacturers with Medicaid drug rebate agreements in effect are 
required to report ASPs and AMPs, among other drug information, to 
CMS.41  However, manufacturers of certain Part B drugs may not have 
Medicaid drug rebate agreements in effect.  For example, four  
high-expenditure Part B HCPCS codes were associated with products that 
FDA and Medicaid classified as devices (rather than drugs).  For that 
reason, the manufacturers are not required to pay Medicaid drug rebates, 
and they did not report any AMP data to CMS for the products.42   
A previous OIG study found that for certain Part B HCPCS codes, none of 
the associated drugs were manufactured by companies with Medicaid drug 
rebate agreements.43   Therefore, if these manufacturers chose not to report 
ASPs or AMPs, the missing pricing data would prevent Medicare from  
calculating and collecting rebates for the relevant drugs.  This barrier to a 
Part B drug rebate program would be addressed if CMS were to require all 
manufacturers of Part B drugs to report pricing data as OIG has 
recommended in the past. 
Furthermore, even if providers were required to report both NDCs and 
HCPCS codes on physician-administered drug claims, the information 
may be inaccurate.  In our June 2011 report on physician-administered 
drugs, OIG found that Medicaid providers incorrectly convert HCPCS 
 
39 Section 1927(a)(7) of the Act, as added by section 6002  of  the DRA.  
40 OIG,  States Collection of Medicaid Rebates for Physician-Administered Drugs, 
    
OEI-03-09-00410, June 2011. 

41 Section 1927 of the Act. 

42 Although they were not  required to  do  so, the manufacturers reported ASP data to 

CMS for their products. 
 
43 OIG,  Average Sales Prices:  Manufacturer Reporting and CMS Oversight, 

OEI-03-08-00480, February  2010. 

Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  15 
(OEI-12-12-00260)  
   
   
code units to NDC units on claims and that providers list NDCs that do not 
correspond to the same drug as the HCPCS code.44 Because 
manufacturers are invoiced for rebates on the basis of the number of units 
billed, inaccurate conversions and incorrect codes may cause States to 
request substantially more or less than they are actually owed.  
HCPCS/NDC coding and conversion issues were cited by many States as 
a primary cause of manufacturer rebate disputes. 
Drugs purchased at 340B prices have proven challenging to 
identify 
If a Part B rebate program were implemented, Medicare would be 
responsible for ensuring that manufacturers do not provide duplicate 
discounts for drugs purchased under the 340B Program.  Like Medicaid, 
Medicare would need to exclude claims for drugs purchased at 
340B prices from the utilization data sent to drug manufacturers when 
collecting rebates. However, OIG has found that it is challenging for 
States to prevent duplicate discounts in Medicaid because they cannot 
identify 340B claims with current billing and claims policies.  A 2011 OIG 
study found that 31 States did not have an edit (i.e., a computerized system 
process) to identify physician-administered drug claims submitted by 
covered entities and/or did not require NDCs on 340B claims for 
physician-administered drugs.45   
Another OIG study found that 38 percent of sampled entities were 
incorrectly listed in the covered-entity database as participating in the 
340B Program.46  Because of potential inaccuracies, 30 States have 
established alternative files or processes to prevent duplicate discounts.47   
For example, nine of these States instruct covered entities to use the 
National Council for Prescription Drug Plan (NCPDP) Telecommunication 
Standard, an electronic standard used in pharmacies prescription drug 
transactions, to identify 340B claims.  Issues with 340B claims are another 
frequent source of rebate disputes in Medicaid. 
Problems with identifying drugs purchased at 340B prices could affect the 
accuracy of Part B rebates. For example, to be conservative in Part B 
rebate calculations, CMS could elect to exclude all claims submitted by 
covered entities because drugs that were purchased at 340B prices cannot 
 
44 OIG,  States Collection of Medicaid Rebates for Physician-Administered Drugs, 
 
OEI-03-09-00410, June 2011. 

45 Ibid. 

46 OIG,  Deficiencies in the 340B Drug  Discount Programs Database, OEI-05-02-00071, 

June 2004. 

47 OIG,  State Medicaid Policies and Oversight Activities Related to  340B-Purchased 

Drugs, OEI-05-09-00321, June 2011. 

Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  16 
(OEI-12-12-00260)  
   
   
be identified. This might result in unnecessarily excluding claims for 
drugs not purchased at 340B prices.  In this case, Medicare would not 
collect the full amount manufacturers owe in rebates.  On the other hand, 
if CMS could not identify claims submitted by covered entities, Medicare 
could exclude too few claims, and manufacturers would be billed in excess 
of the amounts owed in rebates.   
 
   
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  17 
(OEI-12-12-00260)  
   
   
CONCLUSION AND RECOMMENDATIONS 
The results of this current study build upon our original 2011 work and 
help inform analysis of the potential impact of a Part B rebate program.  
Our findings show that a Part B rebate program similar to the Medicaid 
rebate program could have yielded Medicare as much as $3.1 billion in 
rebates (representing 22 percent of spending) for 60 high-expenditure 
outpatient prescription drugs in 2011.   
Therefore, we recommend that CMS: 
Examine the additional potential impacts of establishing a 
prescription drug rebate program under Medicare Part B and, 
if appropriate, seek legislative change 
In evaluating the potential impact of establishing a prescription drug 
rebate program under Medicare Part B, CMS should take into account 
numerous factors that could influence drug pricing and utilization that 
would alter the expected rebate collections and net impact thereof.  Such 
analysis should consider how a rebate program might affect drug prices in 
Medicare and other markets, beneficiary access to useful therapies, 
beneficiary cost-sharing, provider acquisition costs, and administrative 
costs.  
As part of its consideration of a Medicare Part B prescription 
drug rebate program, address administrative issues that may  
hinder rebate collections in Part B 
Any consideration of a Part B rebate program must address the data- and 
claims-related issues described in our findings.  Many of the issues that 
impede rebate collection are similar to ones previously faced by Medicaid  
when collecting rebates for physician-administered drugs, and OIG 
recommendations have helped reduce (if not eliminate) existing problems.  
The following measures could help facilitate implementation of a 
Medicare Part B prescription drug rebate program:  
Require providers to include NDCs on Part B claims. 
Medicare would be able to effectively collect rebates for multiple-brand 
and generic Part B drugs only if NDCs were included on claims.  Prior to 
the implementation of new NDC-related requirements mandated by the 
DRA, most State Medicaid programs also had major issues collecting 
rebates for physician-administered drugs as claims for these products 
typically included only HCPCS codes.  However, because the DRA  
requires providers to include NDCs on certain physician-administered 
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  18 
(OEI-12-12-00260)  
   
   
drug claims, all States but one now collect Medicaid rebates for 
physician-administered drugs.48    
Require all manufacturers of Part B drugs to submit ASPs for their 
products. 
Pricing information for some Part B drugs may be unavailable because the 
manufacturers of those drugs do not have Medicaid drug rebate 
agreements in effect and are therefore not required to report ASPs and 
AMPs for their drugs. Without this pricing data, CMS would be unable to 
calculate and collect rebates for these drugs.   
Make claims for drugs purchased under the 340B Program readily 
identifiable.  
To prevent duplicate discounts for drugs purchased under the 340B Drug 
Pricing Program and to ensure the accuracy of Part B rebates, CMS should 
modify claims submission requirements for covered entities.  If drugs 
purchased under the 340B Drug Pricing Program are unidentifiable, CMS 
could incorrectly include or exclude these drugs when invoicing 
manufacturers.  Among other options, CMS could address this issue by 
requiring covered entities to use the NCPDP  Telecommunication Standard 
to identify 340B claims.  
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
In its comments on the draft report, CMS stated that although it 
appreciates our analysis of a potential Part B rebate program, a legislative 
change would be necessary to establish a Part B rebate program and that 
the annual Presidents Budget does not include such a proposal.  In 
addition, CMS stated that a comprehensive examination of the impact of a 
Part B rebate program would require significant resources.  CMS stated 
that given current priorities, it is unable to devote these resources for a 
proposal that neither is a provision of current law nor is actively under 
consideration. OIG recognizes the challenges of assessing a rebate 
program.  However, because of the potential to collect billions of dollars, 
we believe that a rebate program warrants further deliberation. 
 
   
 
48 OIG,  States Collection of Medicaid Rebates for Physician-Administered Drugs,     
OEI-03-09-00410, June 2011. 
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  19 
(OEI-12-12-00260)  
   
   
APPENDIX A 
Drug Descriptions  
HCPCS  HCPCS 
HCPCS Code   Description  
Dosage   Classification  
J0129  Abatacept injection  10 mg   Single-Brand  
J0152  Adenosine injection  30 mg   Single-Brand  
J0256  Alpha 1 proteinase inhibitor  10 mg   Multiple-Brand  
J0583  Bivalirudin   1 mg  Single-Brand  
J0585  Botulinum toxin type a   1 unit  Single-Brand  
J0878  Daptomycin injection  1 mg  Single-Brand  
J0881  Darbepoetin alfa  1 mcg  Single-Brand  
J0885  Epoetin alfa  1000 units  Multiple-Brand  
J0894  Decitabine injection  1 mg  Single-Brand  
J1300  Eculizumab injection  10 mg   Single-Brand  
J1440  Filgrastim injection  300 mcg  Single-Brand  
J1441  Filgrastim injection  480 mcg  Single-Brand  
Immune globulin (privigen) 
J1459  500 mg   Single-Brand  
injection  
J1559  Hizentra injection  100 mg   Single-Brand  
J1561  Gamunex injection  500 mg   Single-Brand  
J1566  Immune globulin powder   500 mg   Multiple-Brand  
J1569  Gammagard liquid injection   500 mg   Single-Brand  
J1572  Flebogamma injection  500 mg   Single-Brand  
J1745  Infliximab injection  10 mg   Single-Brand  
J2260  Milrinone lactate injection  5 mg  Generic 
J2323  Natalizumab injection  1 mg  Single-Brand  
J2353  Octreotide depot injection   1 mg  Single-Brand  
J2357  Omalizumab injection  5 mg  Single-Brand  
Palonosetron hydrochloride 
J2469  25 mcg  Single-Brand  
injection  
J2505  Pegfilgrastim injection  6 mg  Single-Brand  
J2778  Ranibizumab injection  0.1 mg   Single-Brand  
J2785  Regadenoson injection  0.1 mg   Single-Brand  
J2796  Romiplostim injection  10 mcg  Single-Brand  
J3262  Tocilizumab injection  1 mg  Single-Brand  
J3285  Treprostinil injection  1 mg  Single-Brand  
J3487  Zoledronic acid  1 mg  Single-Brand  
J3488  Reclast injection  1 mg  Single-Brand  
J7189  Factor viia  1 mcg  Single-Brand  
J7192  Factor viii recombinant  1 IU   Multiple-Brand  
J7507  Tacrolimus oral  1mg  Generic 
J7517  Mycophenolate mofetil oral  250 mg   Generic 
J7518  Mycophenolic acid  180 mg   Single-Brand  
J7520  Sirolimus oral  1 mg  Single-Brand  
J7605  Arformoterol inhalation solution  15 mcg  Single-Brand  
Formoterol fumarate inhalation 
J7606  20 mcg  Single-Brand  
solution 
Albuterol and ipratropium 
J7620  2.5 mg/0.5 mg   Generic 
bromide  
J7626  Budesonide inhalation solution  Up to 0.50 mg   Generic 
J7686  Treprostinil inhalation solution  1.74 mg   Single-Brand  
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  20 
(OEI-12-12-00260)  
   
   
HCPCS  HCPCS 
HCPCS Code   Description  
Dosage   Classification  
Doxorubicin hydrochloride 
J9001  10 mg   Single-Brand  
injection 
J9025  Azacitidine injection  1 mg  Single-Brand  
J9033  Bendamustine injection  1 mg  Single-Brand  
J9035  Bevacizumab injection  10 mg   Single-Brand  
J9041  Bortezomib injection  0.1 mg   Single-Brand  
J9055  Cetuximab injection  10 mg   Single-Brand  
J9171  Docetaxel injection  1 mg  Generic 
Gemcitabine hydrochloride 
J9201  200 mg   Generic 
injection  
J9217  Leuprolide acetate suspension  7.5 mg   Multiple-Brand  
J9263  Oxaliplatin  0.5 mg   Single-Brand  
J9264  Paclitaxel protein bound   1 mg  Single-Brand  
J9303  Panitumumab injection  10 mg   Single-Brand  
J9305  Pemetrexed injection  10 mg   Single-Brand  
J9310  Rituximab injection  100 mg   Single-Brand  
J9355  Trastuzumab injection  10 mg   Single-Brand  
J9395  Fulvestrant injection  25 mg   Single-Brand  
Q4074   Iloprost inhalation solution  Up to 20 mcg   Single-Brand  
Source:  OIG analysis of  the CMS average sales price file for the fourth quarter of 2011. 
 
   
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  21 
(OEI-12-12-00260)  
   
   
APPENDIX B 
Estimated 2011 AMP-Based and ASP-Based Part B Rebates for 
60 High-Expenditure Drugs 
2011  Percentage  2011  Percentage 
Total 2011 Part  B 
HCPCS Code   AMP-Based  of Part B  ASP-Based   of Part B 
Expenditures  
Rebates  Spending   Rebates   Spending  
J0129  $242,621,080  $45,296,356   19%  $43,779,195   18%  
J0152  $39,187,453  $3,263,977   8%  $5,472,800   14%  
J0256  $38,814,546  $4,736,155   12%  $4,699,193   12%  
J0583  $55,106,985  $19,129,757   35%  $26,903,046   49%  
J0585  $136,604,360  $21,421,964   16%  $10,740,628   8%  
J0878  $48,882,977  $17,725,069   36%  $17,601,790   36%  
J0881  $383,226,086  $72,213,146   19%  $68,910,997   18%  
J0885  $315,462,628  $59,300,246   19%  $59,477,785   19%  
J0894  $115,821,603  $29,031,868   25%  $24,664,456   21%  
J1300  $56,786,248  $6,791,565   12%  $6,791,570   12%  
J1440  $49,660,422  $16,744,905   34%  $13,522,406   27%  
J1441  $102,526,925  $37,565,814   37%  $31,102,949   30%  
J1459  $105,355,271  $12,893,068   12%  $12,622,376   12%  
J1559  $89,229,433  $8,026,938   9%  $7,867,661   9%  
J1561  $152,594,293  $19,301,268   13%  $18,757,028   12%  
J1566  $54,839,875  $17,580,557   32%  $14,804,736   27%  
J1569  $183,952,086  $45,185,976   25%  $42,602,018   23%  
J1572  $73,565,788  $9,862,168   13%  $9,280,857   13%  
J1745  $884,009,825  $155,456,677   18%  $144,971,468   16%  
J2260  $77,197,786   $1,091,377   1%   $637,550   1%  
J2323  $164,272,185  $42,947,863   26%  $41,798,801   25%  
J2353  $218,148,095  $89,026,417   41%  $60,291,334   28%  
J2357  $116,626,156  $23,912,385   21%  $23,295,927   20%  
J2469  $184,722,551  $32,873,614   18%  $33,685,830   18%  
J2505  $905,463,334  $151,635,833   17%  $163,101,441   18%  
J2778  $1,378,203,139  $270,198,840   20%  $268,932,149   20%  
J2785  $194,402,526  $28,154,653   14%  $26,689,641   14%  
J2796  $72,036,293  $13,341,727   19%  $12,325,109   17%  
J3262  $47,296,258  $7,578,172   16%  $7,482,382   16%  
J3285  $137,058,446  $39,577,422   29%  $20,624,506   15%  
J3487  $271,797,552  $44,719,164   16%  $44,376,478   16%  
J3488  $211,617,887  $31,604,846   15%  $31,207,799   15%  
J7189  $116,085,003  $8,129,573   7%  $8,091,974   7%  
J7192  $158,214,783  $8,347,292   5%  $8,173,610   5%  
J7507  $216,943,580  $25,408,192   12%  $16,802,379   8%  
J7517  $76,360,922  $25,710,172   34%  $20,442,909   27%  
J7518  $87,389,642  $28,006,887   32%  $22,674,893   26%  
J7520  $47,168,605  $13,322,350   28%  $12,606,792   27%  
J7605  $88,787,349  $40,268,808   45%  $17,797,374   20%  
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  22 
(OEI-12-12-00260)  
   
   
2011  Percentage  2011  Percentage 
Total 2011 Part  B 
HCPCS Code   AMP-Based  of Part B  ASP-Based   of Part B 
Expenditures  
Rebates  Spending   Rebates   Spending  
J7606  $45,028,692  $26,030,126   58%  $11,092,184   25%  
J7620  $42,317,828   $7,878,310   19%   $15,954,183   38%  
J7626  $188,089,307  $32,743,303   17%  $31,186,158   17%  
J7686  $85,265,114  $15,011,054   18%  $15,370,787   18%  
J9001  $68,417,727  $26,547,997   39%  $10,622,135   16%  
J9025  $183,229,371  $52,110,919   28%  $36,989,197   20%  
J9033  $205,375,262  $34,202,115   17%  $33,510,321   16%  
J9035  $916,856,239  $148,664,574   16%  $147,132,358   16%  
J9041  $314,484,519   $105,721,054   34%   $97,312,473   31%  
J9055  $237,004,599  $37,443,123   16%  $36,687,839   15%  
J9171  $361,874,603  $89,950,074   25%  $98,110,554   27%  
J9201  $255,099,464  $90,458,815   35%  $53,991,886   21%  
J9217  $259,416,825  $69,616,130   27%  $57,506,084   22%  
J9263  $444,619,885  $86,212,530   19%  $81,153,644   18%  
J9264  $111,742,094  $17,878,362   16%  $17,777,030   16%  
J9303  $49,123,947  $7,464,960   15%  $7,337,807   15%  
J9305  $415,627,110  $105,889,772   25%  $102,565,013   25%  
J9310  $1,242,467,898  $458,527,642   37%  $354,825,987   29%  
J9355  $378,059,453   $108,019,246   29%   $89,910,401   24%  
J9395  $116,516,160  $19,180,875   16%  $19,004,330   16%  
Q4074   $58,966,632  $14,645,874   25%  $11,273,438   19%  
Totals   $13,877,622,705  $3,081,579,916   22%  $2,734,925,646   20%  
Notes: Total Part B  expenditures were calculated using 2011 figures  for physician, outpatient hospital, and durable  medical                 
equipment claims.  Rebates based on  average manufacturer price and average sale price for 2011 were calculated  after 
removing claims for drugs purchased at 340B prices and claims for beneficiaries enrolled in both Medicare and Medicaid. 
Source:  OIG analysis of 2011 National Claims History files, Centers for Medicare & Medicaid Services (CMS) 2011  Medicaid  
unit rebate amounts files, and CMSs 2011 ASP files. 
   
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  23 
(OEI-12-12-00260)  
  APPENDIXC 
Agency Comments 
DEPAR1MENT OF HEALTH & HUMAN SERVICES  Centers for Medicare & Medicaid Services 
200 Independence Avenue SW 
Washington, DC 20201 
JUL l5 2013 
DATE: 
TO: 	 Daniel R. Levinson 
Inspector-General 
FROM: 	 Marilyn Tawriner 
Acting Admirlistrator 
SUBJECT: 	 Office oflnspector General (OIG) Draft Report: "Medicare Could Collect 
Billions IfPharmaceutical Manufacturers Were Required To Pay Rebates for Part 
B Drugs" OEI-12-12-00260 
The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 
respond to the above subject draft report. The objectives for this report are to (1) Calculate the 
total rebates that could have been collected in 2011 had manufacturers been required to pay 
rebates for drugs covered under Medicare Part B; and (2) Identify implementation issues that 
would need to be addressed if such rebates were required.  The OIG found that Medicare could 
have collected $3.1 billion ifpharmaceutical manufacturers had been required in 2011 to pay 
average manufacturer prices (AMP) based rebates for 60 high-expenditure Part B drugs, 
representing 22 percent ofspending for those drugs. Requiring manufacturers to pay ASP-based 
rebates for the same 60 drugs could have garnered Medicare $2.7 billion in rebate payments, 
representing 20 percent ofspending. However, several implementation issues related to claims 
and data would need to be addressed ifsuch a rebate program were implemented. 
The study also identified single-brand drugs (one brand-name drug produced by a single 
manufacturer and no generics) as the source for the majority ofthe estimated savings. However, 
the study did not estimate the administrative costs ofimplementing and maintaining such a 
program, or the impact on providers, manufacturers, or beneficiaries. 
The OIG recommendation and CMS response to the recommendation are discussed below. 
OIG Recommendation 
The OIG recommends that CMS examine the additional potential impacts ofestablishing a 
prescription drug rebate program under Medicare Part B and, ifappropriate, seek legislative 
change. As part ofits consideration ofa Medicare Part B prescription drug rebate program, 
address administrative issues that may hinder rebate collections in Part B. 
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  24 
(OEI-12-12-00260)   
   
 
 
 
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  25 
(OEI-12-12-00260)  
   
   
ACKNOWLEDGMENTS 
This report was prepared under the direction of David Tawes, Regional 
Inspector General for Evaluation and Inspections in the Baltimore regional 
office; Patricia Wheeler, Regional Inspector General for Audit Services in 
the Dallas regional office; Michael Armstrong, Regional Inspector General 
for Audit Services in the Boston regional office; and Stephen Conway, 
Director of Advanced Auditing Techniques.  
Office of Audit Services staff from the Dallas regional office who 
conducted this study include Paul Chesser and Kelsey Mitchell.  Office of 
Audit Services staff from the Boston regional office who conducted this 
study include Robert Broadhurst, Amy Harriman, Karen Lowe, 
Judith Reilly, and Leah Scott.  Office of  Audit Services staff from the 
Centers for Medicare & Medicaid Audits Division who conducted this 
study include Jeffrey Cohen.  Office of Evaluation and Inspections staff 
from the Baltimore regional office who conducted the study include Bahar 
Adili. Central office staff who provided support include Clarence Arnold,  
Mandy Walz, Meghan Kearns, and Christine Moritz.  
  
Medicare Could Collect Billions If Manufacturers Were Required To Pay Rebates for Part B Drugs  26 
(OEI-12-12-00260)  
   
Office of Inspector General
http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as  
amended, is  to protect the integrity of the Department of  Health and Human Services  
(HHS)  programs, as well as the health and welfare of beneficiaries  served by those 
programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
investigations, and inspections conducted by the  following operating components: 
Office of Audit Services 
The Office  of  Audit Services  (OAS) provides auditing services  for HHS, either by  conducting  
audits  with its own audit resources or by  overseeing  audit work done by others.  Audits  
examine the performance of HHS programs and/or its grantees and contractors in carrying  
out their respective responsibilities and are intended  to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and  
mismanagement and promote economy and efficiency  throughout  HHS. 
Office of Evaluation and Inspections 
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of  fraud and misconduct  related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/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 for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and abuse cases involving HHS programs,  including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In  connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program  guidance, publishes fraud alerts, and provides other  
guidance  to  the health care industry concerning the anti-kickback statute and other  OIG  
enforcement authorities.