U.S. Department of  Health  and  Human Services  
Office of Inspector General  
Technical Assistance Brief: 
Implementation of  
Inflation-Indexed Rebates for  
Part B Drugs  
Ann Maxwell  
Deputy  Inspector General  
   for Evaluation and Inspections  
February  2023, OEI-BL-23-00170   U.S. Department of Health and Human Services  
 Office  of  Inspector  General  
 
February  2023, OEI -BL- 23 -00170  
 
 
 
 
Technical Assistance Brief: 
Why OIG Did This Review  
Implementation of Inflation-Indexed 
The IRA  requires  CMS  to  calculate inflation -indexed  
Rebates for Part  B Drugs  
rebates for certain Part  B drugs beginning in 2023.  
Prior  OIG  work estimated that Medicare could  
The Inflation Reduction Act of 2022 (IRA)  directs  
collect billions of dollars in inflation -indexed rebates  
drug manufacturers to pay  quarterly  rebates to  the  
similar to those authorized  by the IRA.  OIG faced  
U.S. Department of Health and Human Services  
several methodological challenges when conducting  
this past work that could be informative for CMS  (HHS)  for certain drugs and biologicals  (hereinafter  
and stakeholders  as the agency implements the new   referred to as drugs)  covered under Medicare 
rebate provisions.   This  technical  assistance  brief  is   Part  B.  Manufacturers  owe rebates if the Part  B 
intended as technical assistance for CMS to consider   payment amount  for their drug rises faster than 
as it implements  these new  provisions.   
inflation.   Rebate provisions  took  effect  in  
How OIG Did This Review   January  2023.1    
This  technical  assistance  brief  compiles insights on   Over the past decade, OIG  has issued  three reports 
potential challenges in implementing inflation - projecting  how much Medicare could save if  
indexed rebates for Part  B drugs.  The insights  
manufacturers paid rebates for Part  B drugs  similar  
provided are drawn from OIG s prior evaluations of  
to those owed under  Medicaid.  Our most recent  
Part B drug rebates and our larger body of  
work  estimated  that Medicare could  have collected  
prescription drug work.   
$1.4  billion  in  2015  had manufacturers  been 
Challenges That OIG Identified   required to pay  inflation-indexed  rebates for  
64  high-expenditure Part  B drugs.2    
On the basis of our prior oversight work, we  
anticipate that unless  CMS takes action to remedy  
OIG faced several methodological  challenges  when 
several administrative issues, the agency will face  
conducting the analysis for  our  past work  on Part B  
the following challenges in  implementing rebates:  
rebates.  This  technical  assistance  brief  compiles  
   Identifying  products subject to Part B rebates; 
insights from  this  work  specifically, as well as  from  
and  
our extensive body of prescription  drug work  in  
   Excluding claims from Part  B rebate  general.   We summarize  significant  administrative  
calculations that were already subject to:    challenges that CMS  will face in implementing  Part  B 
o   Rebates under the Medicaid  Drug   rebate provisions  and  also identify potential 
Rebate  Program, and    solutions to mitigate these challenges.  The potential  
solutions are not official recommendations to  CMS;  
o   Discounts under the  340B Drug  
rather,  they are rooted in  findings  from  prior OIG 
Discount Program.  
evaluations  and offer  summary-level  technical  
We propose potential solutions to mitigate each  
assistance to  the agency.   OIG is also providing more 
administrative issue.  
detailed technical assistance on these issues to CMS  
staff in conjunction with this  technical  assistance  
brief.   Other solutions may be identified as the new  
rebate program is implemented. 
   
CHALLENGE #1   
 
 
Identifying  products subject to Part  B rebates  
Requirement  in  IRA   Challenge   Potential  Solutions  
Only  single -source drugs are  Rebates are  calculated on the basis   1)   Require  providers to include on 
subject to Part  B rebates.   Single - of  increases in  Part B  payment   claims national drug codes  
source drugs are typically brand-  amounts, which are set at the   (NDCs)  identifying the specific  
name products with no available  HCPCS  code level.   However,  in a   drug administered and the 
generic versions.   small number of  cases,  a single   manufacturer  of the drug;  or  
HCPCS code  may  represent  several  
2)   For HCPCS  codes associated 
single -source drugs  from  different  
  with single -source  drugs from  
manufacturers.    
multiple manufacturers, develop 
a method to apportion the 
For these codes, CMS  would  find it  
number of  units  and amount  of  
difficult to determine which 
rebates  to each manufacturer.  
manufacturer(s) owe rebates, as 
well as  the number of units  and   
amount of rebates associated with  
each drug.   
Rebates are calculated on the basis of  HCPCS-level payment  
amounts.  However, a small number of HCPCS codes  represent  
single-source drugs  from  multiple  manufacturers.  
The IRA  requires  that only single-source drugs  (or biologicals, including biosimilars) may be  
rebatablei.e., subject  to Part  B rebates.3   In general terms, a single-source drug would 
typically be a brand-name product  with no available generic versions.4    
Medicare pays for Part  B  drugs at the HCPCS code level.5   A  HCPCS code defines  a  drugs name 
and the amount of drug  represented by  one unit  of the code but does not specify manufacturer  
or package size  information.   Drugs  from multiple manufacturers  may meet the definition of a  
HCPCS code.  
As required by the IRA,  CMS  must calculate  any  inflation-indexed rebates for Part  B drugs  for  
each calendar  quarter  by multiplying  (1)  the amount  by which the HCPCS codes  payment  
amount in that quarter  exceeds  its  inflation-adjusted payment amount  (i.e., the inflation-
adjusted payment amount in the benchmark quarter)  and (2)  the total number of  Part  B units  
furnished  for the HCPCS code  for that quarter.6   If the  HCPCS  codes payment amountwhich is  
Technical Assistance Brief: Implementation of Inflation-Indexed Rebates for Part  B Drugs  
OEI-BL-23-00170   Results |  2  
  calculated on the basis  of manufacturer-reported  average sales pricesrises faster than  
inflation,  then rebates  are owed for that drug.   If  a HCPCS code is associated with single source 
drug(s) produced by just  one manufacturer, rebate calculations  will be relatively straightforward.   
However, in a small number of cases,  a HCPCS code  may be associated with  single-source drugs  
produced by multiple manufacturers.   For example,  5 of the 60  HCPCS  codes for which  OIG  
calculated potential  Part  B rebates in a  past  study  represented  2  or more  single-source  drugs  
produced by more than 1  manufacturer.7   For  HCPCS codes  associated with  multiple  
manufacturers,  CMS  will face  the following  challenges in calculating  rebates:     
Determining  how many units to invoice for each  manufacturer.   Part  B claims  
generally  do not include  a  drug code  (i.e.,  NDC)  identifying  the specific  drug  
administered  and the manufacturer of the drug.8   As a result, for HCPCS codes 
associated with single-source drugs  from  multiple manufacturers,  CMS cannot determine 
the exact number  of  units  for which each manufacturer owes rebates.     
Determining  the rebate amount  owed by  each manufacturer.   CMS calculates  
payment  amounts by averaging pricing data for all  drugs that meet the definition of  the 
HCPCS code.   As a result, price increases for just one drug may  disproportionately  cause 
the HCPCS  codes payment amount to rise faster than inflation  and therefore require 
manufacturer(s)  to pay rebates for the HCPCS  code.   
For HCPCS codes  crosswalked to single-source drugs from more than one manufacturer,  
a manufacturer may  raise concerns about CMSs rebate requests if  its  drugs price 
remained relatively steady and thus is not the product which triggered the rebate.9    
To address  these  challenges,  CMS could  choose among  the following  options:    
Require providers to include NDCs on Part  B  claims  
CMS  could explore requiring providers to include NDCs  on claims, thus enabling the agency to  
identify the number of units and rebate amount  owed by each manufacturer. A similar  
requirement for  Medicaid drug claims has helped State Medicaid agencies collect additional 
Medicaid rebates on physician-administered drugs.10  
Develop a  methodology  to apportion units and rebates to each 
manufacturer    
If CMS does not require providers to include NDCs on claims, the  agency would need to  
apportion the units to each associated single-source drug  and, thereby, to each manufacturer.   
OIG developed a similar  methodology  for its past  work calculating potential rebates for  Part  B 
drugs, using nonpublic  sales data reported to CMS for each NDC to estimate  the percentage of  
Part B-paid units  represented by each NDC (i.e., one manufacturers product  represented  
70  percent of total sales,  and another  manufacturers product  represented  30  percent).11  
CMS would  also  need to  develop a method to  apportion  the rebate amount to the appropriate 
single-source drug  and its manufacturer.   The calculation  could be based on the change in each 
single-source drugs  ASP.         
Technical Assistance Brief: Implementation of Inflation-Indexed Rebates for Part  B Drugs  
OEI-BL-23-00170   Results |  3  
   
CHALLENGE #2  
 
Identifying units  that would be  subject to Medicaid drug rebates  
Requirement  in  IRA   Challenge   Potential  Solutions  
CMS must exclude  from  Part  B  There are no fields on Part  B claims   1)   Use the MMA File  to identify  
rebate calculations  units  subject to   that indicate  whether  Medicaid  will   whether  a Part  B claim  is for a  
Medicaid rebates.   pay a portion  of  the claim  and that,   dual- eligible  enrollee;   
  as a result, the units  would  be 
2)   Add  a field to Part  B claims  to  
Units on a Part  B claim would be   subject to Medicaid rebates.    
indicate whether  Medicaid  will 
subject to Medicaid rebates if  
pay  a portion of the claim; or  
Medicaid  pays a portion  of a claim,  
which could be the case if  the claim   3)   Develop an automated  
is  for an individual enrolled in both  mechanism to identify  Part B  
Medicare and Medicaid  (known as   claims for  which Medicaid  will 
a  dual- eligible enrollee).    pay  a portion.  
 
Part  B claims  do not  indicate  whether the units on the claim  would  
be subject to Medicaid rebates  
The IRA requires CMS to  exclude from  Part  B rebate calculations units that  are already subject to  
discounts  from the 340B  Drug Discount  Program  or the Medicaid Drug Rebate Program.12, 13   
Units on a Part  B claim would be subject to  Medicaid rebates if Medicaid pays any portion of the 
claim, which could be the case if the claim was for a dual-eligible enrollee.  Dual-eligible  
enrollees are typically individuals with low income  who are enrolled in both Medicare and  
Medicaid.   
Integration and coordination between Medicare and Medicaid  is  an ongoing issue and a key  
area of focus for CMS and State Medicaid agencies.14   Medicare and Medicaid were originally  
created as distinct programs, and claims are  generally  processed separately.  There are no fields  
on a  Part  B claim that would  allow CMS to determine whether the units on the claim  will  be  
subject to Medicaid rebates.    
To address these challenges, CMS  could explore the following solutions:  
   
Technical Assistance Brief: Implementation of Inflation-Indexed Rebates for Part  B Drugs  
OEI-BL-23-00170   Results |  4  
  Use the MMA File to identify whether a Part B claim is for a dual-
eligible  enrollee  
Currently, CMS may be limited to using existing enrollment data to identify Part  B claims for  
dual-eligible enrollees.  CMSs  MMA File in the Integrated Data  Repository contains Medicare 
enrollee identification numbers for dual-eligible enrollees.15   After a claim is  paid, CMS could  
match Medicare enrollee identification numbers in the MMA File for dual-eligible enrollees to  
Medicare identification numbers on Part  B  claims,  and subsequently exclude any associated  
claims  from rebate consideration if the claim date falls within the period of dual enrollment.   
Due to the limited availability of Medicaid claims data at the time of OIGs  previous work related  
to  Part B  rebates,  we used a similar matching process to identify Part  B claims for dual-eligible  
enrollees.16   However, systematically excluding all Part  B drug claims for dual-eligible enrollees,  
even if Medicaid did not pay a portion of the claim, would result in Medicare not receiving all  
the rebates it is owed.  
Add a field to Part B claims to indicate whether Medicaid  will pay  a 
portion of the claim  
In general,  a patient enrolled in both Medicaid and Medicare Part  B would  notify their provider  
of their dual-eligibility  status.  If  CMS adds  a field  to Part  B claims  indicating dual-eligible status,  
providers could  specify  on  the claim  whether the patient is enrolled in both Medicaid and  
Medicare Part  B.   CMS  could use information from the provider to  exclude all  Part  B claims  for  
dual-eligible enrollees.   However,  as with  the aforementioned solution,  using  this  method  would  
also  result in Medicare not receiving all the rebates it is owed.  
Develop an automated mechanism to identify Part B claims for  which  
Medicaid  will pay  a portion   
CMS  could develop a mechanism that  automatically flags in the agencys  system, upon receipt,  
Part  B  claims for which Medicaid will pay a portion.  To automate the process and effectively  
exclude these claims  from rebate calculations, CMS may need to integrate (1)  Medicare claims  
processing systems; (2)  Medicaid claims processing systems; and  (3)  real-time enrollment data.    
       
Technical Assistance Brief: Implementation of Inflation-Indexed Rebates for Part  B Drugs  
OEI-BL-23-00170   Results |  5  
   
CHALLENGE #3  
 
Identifying units purchased at discount prices under the 340B Drug Discount  
Program  
Requirement  in  IRA   Challenge   Potential  Solution  
CMS must exclude  from  Part  B  CMS recently announced that   Monitor  the use of  340B modifiers,  
rebate calculations  units  that were  modifiers indicating that a drug was   especially among covered  entities  
already subject to discounts  for  purchased at 340B discount prices   that had  not used the modifier  prior 
drugs purchased  by covered   will be  required  on all Part  B claims   to  the new program guidance.  
entities at discount prices  under the  for these drugs  effective 
340B Drug Discount Program.   January  2024.    
The modifier requirement is new for  
 
non- hospital covered entities, as  
well as affiliated physicians and  
suppliers.   It may take  time for  
these covered entities, providers,  
and suppliers to adjust their billing  
systems to the new  requirement.  
CMS must exclude units for drugs purchased at 340B discount prices  
from rebate calculations   
The 340B Drug Discount  Program  (340B  Program) requires drug manufacturers to provide 
discounted outpatient drugs to certain eligible health care entities, known as  covered entities.   
Covered entities generally serve a disproportionate share of patients  with low  incomes.17   A 
covered entity may not necessarily purchase all of its drugs at 340B discount prices.  
The IRA requires CMS to  exclude from  Part  B rebate calculations units that  were already subject  
to discounts  for  drugs purchased by  covered entities  (i.e.,  340B-purchased drugs).18   A previous  
OIG study found that Medicare spent $3.5  billion on  340B-purchased drugs  in 2013,  
representing nearly one-fifth of the $19  billion that Part  B spent that  year  on the HCPCS codes  
included in our review.19    
 
 
Technical Assistance Brief: Implementation of Inflation-Indexed Rebates for Part  B Drugs  
OEI-BL-23-00170   Results |  6  
  Some  Part  B claims for 340B-purchased drugs may not be readily  
identifiable in 2023   
As of  2018, hospitals that participate in the 340B  Program  are required to  include modifiers on  
Part  B claims  indicating that the claim is  for a drug purchased at a discounted 340B price.20   CMS  
instituted this requirement to implement  a distinct  payment policy (that has since been 
rescinded) for drugs purchased at 340B prices  by  hospitals.21    
In recent rulemaking,  CMS requires hospitals participating  in the 340B Program  to continue 
using modifiers in 2023 to identify 340B-purchased drugs for informational purposes.22   CMS  
also recently released guidance requiring  (1)  hospitals participating in the 340B Program to  
continue using  modifiers  beyond 2023 and  (2)  covered entities that are not hospitals, such as  
Ryan White clinics and  hemophilia clinics,  as well  as individual providers and suppliers affiliated  
with covered entities, to include such modifiers on claims for  340B-purchased drugs  effective no  
later than January  1,  2024.23    
For 2023, CMS may not be able to solely  rely  on 340B modifiers  to  identify Part  B claims  for  
340B-purchased drugs.  CMS encouragesbut does not requirecovered  entities  that are not 
hospitals as  well as affiliated providers and suppliers to begin using the appropriate modifier  as  
soon as possible.   Some  of these covered entities, providers, and suppliers  may  use  340B  
modifiers for  a portion of 2023or not at allbecause  the modifier requirement is new for  
these entities and will require changes to billing systems that  could take time to operationalize.   
A previous OIG study found that Part  B expenditures for 340B-purchased drugs provided by  
covered entities that are not hospitals, as  well as  providers and suppliers  affiliated with covered  
entities, accounted for 3  percent of total associated Part  B drug expenditures.24    
CMS should  consider  monitoring  the use of 340B modifiers,  
especially among covered entities that had not used the modifier  
prior to  the new program guidance  
Had CMS not required modifiers, the agency  would not be able to exclude claims for  340B-
purchased drugs specifically, and  would  likely  instead need to exclude -all  claims submitted by  
covered entities.   OIG faced this challenge in previous work and needed to  use an extremely  
burdensome process  of  matching provider identifiers on Part  B  claims to the Health Resources  
and Services Administrations covered entities database.25   
Most  covered entities have been using 340B modifiers on Part  B  claims since 2018.   However,  
covered entities that are not hospitals, as  well as  providers and suppliers  affiliated with covered  
entities, have not been required to use the 340B modifiers.  CMS should  consider  monitoring  the 
use of 340B modifiers, especially  among  these covered entities, providers, and suppliers.   For  
2023 rebate calculations  in particular,  CMS may need to take steps to  identify  claims for  340B-
purchased drugs that are submitted without a  340B modifier.     
Technical Assistance Brief: Implementation of Inflation-Indexed Rebates for Part  B Drugs  
OEI-BL-23-00170   Results |  7  
   
CONCLUSION   
 
 
Medicares new authority to collect rebates for  certain  Part  B drugs has the potential to recoup 
billions of dollars for  Medicare and its enrollees.   Our most recent  work estimated that Medicare 
could have collected $1.4  billion had manufacturers been required in 2015 to pay  inflation-
indexed rebates  for 64  high-expenditure Part  B drugs.26    
However, several administrative issues hinder  the implementation of a  comprehensive rebate 
program.  The challenges and solutions we identify are rooted in findings from  our  past work  on 
Part B rebates  as  well as from our extensive body  of prescription drug  work in general.   OIG  
looks forward to  working with  CMS  as it navigates the complexities of the IRA Part  B rebate 
provisions  and ensures that Medicare appropriately collects all the rebates that are owed to the 
program.  
 
 
Technical Assistance Brief: Implementation of Inflation-Indexed Rebates for Part B Drugs   
OEI-BL-23-00170   Conclusion  | 8    
ACKNOWLEDGMENTS AND CONTACT  
 
Acknowledgments  
Bahar Adili  served as the team leader for this study.   Office of Evaluation and  
Inspections headquarters staff  who provided support include Melissa Baker  and 
Christine Moritz.   
This report was prepared under the direction of  Dave Tawes,  Regional Inspector  
General for  Evaluation and Inspections in the Baltimore  Regional Office; Heather  
Barton,  Deputy Regional Inspector General; and Louise Schoggen, Assistant Regional  
Inspector General.  
 
Contact  
To obtain additional information concerning this report, contact the Office of Public  
Affairs at  Public.Affairs@oig.hhs.gov.  OIG reports and other information can be found  
on  the OIG website at  oig.hhs.gov.  
Office  of Inspector General  
U.S. Department of Health and Human Services  
330 Independence Avenue, SW  
Washington, DC 20201  
Technical Assistance Brief: Implementation of Inflation-Indexed Rebates for Part B Drugs   
OEI-BL-23-00170   Acknowledgments and Contact |  9    
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1  The Centers for Medicare & Medicaid Services (CMS)  has until September 30, 2025, to invoice manufacturers for  
2023 and 2024 rebates. For each Part B rebatable drug, CMS is required to include  on invoices the total  number  
of units for which manufacturers owe rebates, the difference between the payment amount and the inflation-
adjusted payment  amount (i.e., the inflation-adjusted payment  amount in the benchmark quarter), and the rebate  
amount. Manufacturers must pay  rebates within 30  days of receiving the invoice. Rebates will be deposited into  
the Medicare Trust Fund. 42 U.S.C. 1395w-3a(i)(1) and (i)(6).  
2  This study  estimated  two inflation-indexed rebate calculationsone based on average sales prices (ASPs), and  
another based on average  manufacturer prices (AMPs). ASPs are used to calculate Part  B drug payment amounts  
and AMPs are used to calculate rebate amounts under the Medicaid Drug Rebate Program.   An  ASP-based  rebate 
program for Medicare Part  B drugs could  have resulted in $1.4 billion in inflation-indexed rebates in 2015 for  
64  high-expenditure drugs.   An AMP-based rebate program for the same 64  drugs could have resulted in  
$1.8  billion in inflation-indexed rebates that same year.   OIG,  Calculation of Potential Inflation-Indexed Rebates for  
Medicare Part  B Drugs, OEI-12-17-00180, August 2017. OIG also conducted the following work calculating  
potential Part  B drug rebates had manufacturers been required to pay rebates similar to those under Medicaid  
(i.e., both basic rebates  and inflation-indexed rebates):  OIG,  Medicare Could Collect Billions If Pharmaceutical 
Manufacturers Were Required To Pay  Rebates for Part B Drugs, OEI-12-12-00260, September 2013. Finally, in  
response to a Congressional request, OIG issued a letter to the member of Congress in 2011 estimating potential 
Part  B rebates for 20 HCPCS codes representing brand-name drugs produced by  a single manufacturer.  
3  42 U.S.C. 1395w-3a(i)(2)(A).  
4  Generic products and brand-name drugs for which there is a generic version  available  are not subject to Part  B 
rebates.  
5  To calculate HCPCS  code payment  amounts,  CMS averages pricing data by  sales volume for all national drug  
codes (NDCs)  crosswalked to a HCPCS  code. Medicare  pays for most Part  B drugs  at  106 percent of the volume-
weighted average sales prices.   42 U.S.C. 1395w-3a(b)(1).  
6  The components and calculation of the rebate amount are set forth in 42 U.S.C. 1395w-3a(i)(3).  
7  For that same study, 48 of the 60 HCPCS codes represented single-source drugs  produced by  a single  
manufacturer, and 7 of the  60 HCPCS  codes represented either a combination of brand-name and generic drugs  
or of generic drugs only. OIG,  Medicare Could Collect Billions If Pharmaceutical Manufacturers Were Required  To 
Pay Rebates for Part B Drugs, OEI-12-12-00260, September 2013.       
8  An 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  strength, dosage form, and  formulation of the product; and (3) 
the products package size.  
9  The IRA does not contain a mechanism for manufacturers to dispute rebate invoices. 42 U.S.C. 1395w-3a(i)(8).  
10  For many years, Medicaid faced problems  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.   Following the release of that OIG  
report, the  Deficit Reduction Act of 2005 (DRA), Pub. L. No. 109-171, specifically required States to collect rebates  
for certain physician-administered drugs for Federal financial participation to be available.   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.   See Section  
1927(a)(7) of the Social Security Act,  as added by section 6002 of the DRA;  OIG,  Medicaid Rebates for Physician-
 
Technical Assistance Brief: Implementation of Inflation-Indexed Rebates for Part B Drugs  
OEI-BL-23-00170   Endnotes | 10    
Administered Drugs,  OEI-03-02-00660, April 2004; and OIG, States Collection of Medicaid Rebates for Physician-
Administered Drugs,  OEI-03-09-00410, June 2011.  
11  For two of OIGs previous studies estimating potential Part  B rebates, we developed a methodology to  
apportion HCPCS code units to the individual  NDCs crosswalked  to each HCPCS code.  Because NDC-level  
utilization is not tracked under Part B, we used  CMSs  nonpublic  ASP files to determine the percentage of total 
sales of a HCPCS code represented by each NDC (i.e.,  one NDC represented  70  percent of total sales,  and another  
NDC represented  30  percent). We then multiplied these percentages by  the total quarterly utilization of each  
HCPCS code to estimate utilization for each NDC.  OIG,  Medicare Could Collect Billions If Pharmaceutical 
Manufacturers Were Required To Pay  Rebates for Part B Drugs, OEI-12-12-00260, September 2013.  OIG,  
Calculation of Potential Inflation-Indexed Rebates for Medicare Part  B Drugs, OEI-12-17-00180, August 2017.    
12  42 U.S.C. 1395w-3a(i)(3)(B)(ii)(I).  
13  The Medicaid Drug Rebate Program  (MDRP) was created  in 1990 to reduce State and Federal Medicaid  
expenditures for prescription drugs.   Manufacturers pay quarterly rebates to State Medicaid agencies under MDRP  
in exchange for Medicaid  coverage of the manufacturers drugs.  Fifty states and the District of Columbia, as well  
as approximately 780 drug manufacturers, participate in this program.  Sections 1927(a)(1) and (b)(1) of the  Social 
Security  Act.   Also, see CMS,  Medicaid Drug Rebate Program.  Accessed at   
https://www.medicaid.gov/medicaid/prescription-drugs/medicaid-drug-rebate-program/index.html  on November  
21, 2022.  
14  For example: CMS,  SMDL #18-012 RE: Ten Opportunities to Better Serve Individuals Dually Eligible for Medicaid  
and Medicare. Accessed at  https://www.medicaid.gov/federal-policy-guidance/downloads/smd18012.pdf  on 
November 21, 2022.  
15  CMS,  Defining Medicare-Medicaid Dually Enrolled Beneficiaries in CMS Administrative Data March  2021.   
Accessed at  https://www.cms.gov/Medicare-Medicaid-Coordination/Medicare-and-Medicaid-
Coordination/Medicare-Medicaid-Coordination-Office/Downloads/MMCO_DualEligibleDefinition.pdf  on 
November  21, 2022.   CMS,  Medicare Advantage Prescription Drug State User Guide, Version 10.1, July  18, 2022. 
Accessed at  https://www.cms.gov/files/document/mapd-state-user-guide-version-101.pdf  on December  2, 2022.  
16  OIG,  Medicare Could Collect Billions If Pharmaceutical  Manufacturers Were Required To Pay  Rebates for Part B  
Drugs, OEI-12-12-00260, September 2013.  OIG,  Calculation of Potential Inflation-Indexed Rebates  for Medicare 
Part  B Drugs, OEI-12-17-00180, August 2017.    
17  To have their drugs covered by Medicaid, manufacturers must  agree to sell covered outpatient drugs at or  
below statutorily defined discount prices (340B ceiling  prices) to covered entities.   Examples of covered entities are 
disproportionate share hospitals, federally qualified health centers,  and critical access hospitals.  As of  
November  2022, approximately 55,000  covered  entity sites participate in the 340B Program.  Covered entities  may  
have multiple sites (i.e., covered  entity sites) for health  care delivery.   42 U.S.C.  256b(a)(1)  and  (a)(4).   HRSA,  
Covered Entity Database.  Accessed at  https://340bopais.hrsa.gov/  on November 18, 2022.    
18  42 U.S.C. 1395w-3a(i)(3)(B)(ii)(I).  
19  OIG,  Part  B Payments for 340B-Purchased Drugs, OEI-12-14-00030, November 2015.  Expenditures  for 340B-
purchased drugs  were concentrated among hospital outpatient settings rather than associated physicians offices  
and  durable medical  equipment  suppliers.   In  total, payments for 340B-purchased drugs accounted for almost half 
($3.2 billion) of Part B hospital outpatient drug expenditures.  We determined how much Part B spent on 340B-
purchased drugs in 2013 by identifying paid Medicare  Part  B claims from covered  entities.  
20  82 Fed. Reg. 59216, 59369 (Dec. 14, 2017).  CMS required modifiers JG and TB  on Part  B claims for 340B-
purchased drugs effective January 1, 2018.  The JG modifier triggered a payment  adjustment, whereas the TB  
modifier was used for informational purposes.  CMS also published the following  document outlining the  
modifier(s) each type of hospital covered  entity should use, and  addressing frequently asked questions: CMS, 
Medicare-FFS Program, Billing 340B Modifiers under the Hospital Outpatient Prospective Payment System (OPPS). 
Accessed at  https://www.cms.gov/medicare/medicare-fee-for-service-
 
Technical Assistance Brief: Implementation of Inflation-Indexed Rebates for Part B Drugs  
OEI-BL-23-00170   Endnotes | 11    
payment/hospitaloutpatientpps/downloads/billing-340b-modifiers-under-hospital-opps.pdf  on November 30,  
2022.   
21  Beginning in  calendar year (CY) 2018, CMS paid for 340B-purchased drugs under Part  Bs  hospital outpatient  
prospective payment  system (OPPS)  at ASP minus 22.5 percent to approximate a  minimum average discount  for  
340B-purchased drugs.  This policy has been the subject of significant litigation, including the Supreme  Courts  
recent decision in  American Hospital Association  v. Becerra, 142 S. Ct. 1896 (2022).   On June 15, 2022, the Supreme  
Court ruled that HHS cannot vary payment rates for drugs and biologicals by different hospital groups if HHS  has  
not conducted a  survey of hospitals acquisition costs  as required by  sections  1833(t)(14)(A)(iii)(I) and (t)(14)(D) of  
the Social Security Act.  CMS stated that due to the Supreme Courts decision, the agency will pay for 340B-
purchased drugs at ASP plus 6  percent (i.e., the default  payment rate under OPPS) in CY 2023.  87 Fed. Reg. 71748,  
71976 (Nov. 23, 2022); 82 Fed. Reg. 59216, 59369 (Dec. 14, 2017).  
22  CMS requires that the JG modifier be used by hospitals (except for rural sole community hospitals,  childrens  
hospitals, and OPPS-exempt cancer hospitals) to identify 340B-purchased drugs for informational purposes, rather  
than to trigger a payment  adjustment.  Rural sole community hospitals, childrens hospitals, and OPPS-exempt  
cancer hospitals will  continue to use the TB modifier to identify 340B drugs for informational purposes.  87  Fed. 
Reg. 71748, 71976 (Nov. 23, 2022).  
23  CMS,  Part  B Inflation Rebate Guidance: Use of the 340B Modifiers, December 20, 2022.  Accessed  at  
https://www.cms.gov/files/document/part-b-inflation-rebate-guidance340b-modifierfinal.pdf, on 
December  23,  2022.  
24  This study was conducted  prior to CMSs implementation of modifiers  for 340B-purchased drugs.  Therefore, we 
assumed that all drug  claims submitted by covered  entities were for 340B-purchased drugs.  We identified  claims  
for covered  entities by crosswalking provider  identifiers  associated with covered entities to Part  B claims.  OIG,  
Part  B Payments for 340B-Purchased Drugs, OEI-12-14-00030, November 2015.   
25  OIG,  Part  B Payments for 340B-Purchased Drugs, OEI-12-14-00030, November 2015.  
26  This study  estimated  two inflation-indexed rebate calculationsone based on average sales prices (ASPs), and  
another based on average  manufacturer prices (AMPs).  ASPs are used to calculate Part  B drug payment amounts  
and AMPs are used to calculate rebate amounts under the Medicaid Drug Rebate Program.   An  ASP-based  rebate 
program for Medicare Part  B drugs could have resulted in $1.4 billion in inflation-indexed rebates in 2015 for  
64  high-expenditure drugs.   An AMP-based rebate program for the same 64  drugs could have resulted in  
$1.8  billion in inflation-indexed rebates that same year.   OIG,  Calculation of Potential Inflation-Indexed Rebates for  
Medicare Part  B Drugs, OEI-12-17-00180, August 2017.     
Technical Assistance Brief: Implementation of Inflation-Indexed Rebates for Part B Drugs  
OEI-BL-23-00170   Endnotes | 12