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DEPARTMENT OF HEALTH &. HUMAN SERVICES Office of Inspector General
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"".4.l.''.'.'.'ClJa''.'''' Washington, D.C. 20201
DEe 1 3 2007
TO: Kerry Weems
Acting Administrator
Centers for Medicare & Medicaid Services
Daniel R. Levinson ~ ~ ~
FROM:
Inspector General
SUBJECT: Memorandum Report: "Comparison of Second-Quarter 2007 Average Sales
Prices and Average Manufacturer Prices: Impact on Medicare
Reimbursement for Fourth Qllarter 2007," OEI-03-08-00010
This memorandum report compares average sales prices (ASP) and average manufacturer
prices (AMP) for Medicare Par B prescription drugs and identifies drgs with ASPs that
2007. It also determines
exceeded AMPs by at least 5 percent during the second quarter of 
the impact of lowering reimbursement amounts for drugs that meet the 5-percent threshold.
This is the Offce of Inspector General's (OIG) fift report comparing ASPs and AMPs. i
We identified 22 of292 drug codes with ASPs that exceeded AMPs by at least 5 percent in
these 22 codes, 16 also met the threshold for price
the second quarter of2007. Of 
the prior OIG studies comparing ASPs and AMPs. If
adjustments in at least one of 
reimbursement amounts for all 22 codes were based on 103 percent of AMP, we estimate that
Medicare expenditures would be reduced by $8 milion during the fourth quarter of 2007
alone.
BACKGROUND
the Social Security Act (the Act) mandates that OIG compare
Section 1847A(d)(2)(B) of 
ASPs with AMPs. IfOIG finds that the ASP for a drug exceeds the AMP by a certain
the Act states that the Secretary of
threshold (currently 5 percent), section 1847A(d)(3)(A) of 
the Department of Health and Human Services (the Secretary) may disregard the ASP for the
the Act goes on to state
drug when setting reimbursement. Section 1847A(d)(3)(C) of 
". . . the Inspector General shall inform the Secretary (at such times as the Secretary may
specify to carry out this subparagraph) and the Secretary shall, effective as of the next
quarter, substitute for the amount of payment. . . the lesser of (i) the widely available market
the average manufacturer price. . . . "
price. . . (if any); or (ii) 103 percent of 
lSince the ASP reimbursement methodology for Part B prescription drugs was implemented in January 2005,
OIG has completed four other reports comparing ASPs to AMPs: OEI-03-04-00430, April 2006;
OEI-03-06-00370, July 2006; OEI-03-07-00 140, July 2007; and OEI-03-07-00530, September 2007. Page 2  Kerry Weems 
 
 
Medicare Part B Coverage of Prescription Drugs 
Medicare Part B covers only a limited number of outpatient prescription drugs.  Covered 
drugs include injectable drugs administered by a physician; certain self-administered drugs, 
such as oral anticancer drugs and immunosuppressive drugs; drugs used in conjunction with 
durable medical equipment; and some vaccines.  
 
Medicare Part B Payments for Prescription Drugs 
The Centers for Medicare & Medicaid Services (CMS) contracts with private companies, 
known as carriers, to process and pay Medicare Part B claims, including those for 
prescription drugs. To obtain reimbursement for covered outpatient prescription drugs, 
physicians and suppliers submit claims to their carriers using procedure codes.  CMS 
established the Healthcare Common Procedure Coding System (HCPCS) to provide a 
standardized coding system for describing the specific items and services provided in the 
delivery of health care. In the case of prescription drugs, each HCPCS code defines the drug 
name and dosage size but does not specify manufacturer or package size information.   
 
Medicare and its beneficiaries spent about $11 billion for Part B drugs in 2006.  Although 
Medicare paid for more than 650 outpatient prescription drug HCPCS codes that year, the 
majority of spending for Part B drugs was concentrated on a relatively small subset of those 
codes. In 2006, 56 codes represented 90 percent of the expenditures for Part B drugs, with 
only 11 of these drugs representing half of the total Part B drug expenditures. 
 
Reimbursement Methodology for Part B Drugs and Biologicals  
Since January 2005, Medicare Part B has been paying for most covered drugs using a 
reimbursement methodology based on ASPs.2  Section 1847A(c) of the Act, as added by the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Public Law  
108-173, defines an ASP as a manufacturers sales of a drug to all purchasers in the United 
States in a calendar quarter divided by the total number of units of the drug sold by the 
manufacturer in that same quarter.  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.3  Sales that are nominal in amount are exempted from the ASP calculation, 
as are sales excluded from the determination of best price in the Medicaid drug rebate 
program.4 5
 
                                                 
2 In  2004, the reimbursement amount for most covered drugs was based on 85  percent  of the average wholesale 

price as published in  national pricing compendia, such as the Red Book.  Prior to 2004, Medicare Part B 

reimbursed for covered  drugs based  on the lower of either the billed amount or 95  percent of the average 

wholesale price. 

3 Section 1847A(c)(3) of the Act.  

4 Pursuant to section 1927(c)(1)(C)(i)  of the Act,  best price is the lowest price available from the 

manufacturer  during the rebate period to any wholesaler, retailer, provider, health maintenance organization, 

nonprofit entity, or governmental entity within the United States, with certain exceptions. 

5 Section 1847A(c)(2) of the Act.  

Comparison of Second-Quarter  2007  ASPs and AMPs    OEI-03-08-00010   
  Page 3  Kerry Weems 
 
 
Manufacturers report ASPs by national drug codes (NDC), which are 11-digit identifiers that 
indicate the manufacturer, product dosage form, and package size of the drug.  Manufacturers 
must provide CMS with the ASP and volume of sales for each NDC on a quarterly basis, 
with submissions due 30 days after the close of each quarter.6  
 
Because Medicare Part B reimbursement for outpatient drugs is based on HCPCS codes 
rather than NDCs, and more than one NDC may meet the definition of a particular HCPCS 
code, CMS has developed a file that crosswalks manufacturers NDCs to HCPCS codes.  
CMS uses information in this crosswalk to calculate volume-weighted ASPs for covered 
HCPCS codes. 
 
Second-quarter 2007 ASP submissions from manufacturers served as the basis for fourth-
quarter 2007 Medicare allowances for most covered drug codes.  Under the ASP pricing 
methodology, the Medicare allowance for most Part B drugs is equal to 106 percent of the 
ASP for the HCPCS code. Medicare beneficiaries are responsible for 20 percent of this 
amount in the form of coinsurance.   
 
The Medicaid Drug Rebate Program and Average Manufacturer Prices 
For Federal payment to be available for covered outpatient drugs provided under Medicaid, 
sections 1927(a)(1) and (b)(1) of the Act mandate that drug manufacturers enter into rebate 
agreements with the Secretary and pay quarterly rebates to State Medicaid agencies.  Under 
these rebate agreements and pursuant to section 1927(b)(3) of the Act, manufacturers must 
provide CMS with the AMP for each of their NDCs on a quarterly basis, with submissions 
due 30 days after the close of each quarter.7     
 
As generally defined in section 1927(k)(1) of the Act, the AMP is the average price paid to 
the manufacturer for the drug in the United States by wholesalers for drugs distributed to the 
retail pharmacy class of trade.  Prior to the passage of the Deficit Reduction Act of 2005 
(DRA), Public Law 109-171, manufacturers were required to deduct customary prompt pay 
discounts when calculating AMPs.  However, section 6001(c)(1) of the DRA amended 
section 1927(k)(1) of the Act such that AMPs must be determined without regard to 
customary prompt pay discounts, effective January 2007.  In December 2006, CMS 
instructed manufacturers to exclude customary prompt pay discounts from their AMP 
calculations as of January 2007.8  In July 2007, CMS published a final rule (72 FR 39241; 
July 17, 2007), which, among other things, implements section 6001(c)(1) of the DRA and 
clarifies the way in which the AMP must be calculated.  Specifically, 42 CFR  447.504 of 
the final regulation clarifies the manner in which the AMP is to be determined.  
 
                                                 
6 Section 1927(b)(3)  of the Act.  

7 Pursuant to section 6001(b)(1)(A)  of the DRA, manufacturers must also report  AMPs on a monthly basis, 

effective January 2007.  Drug  manufacturers will continue to  report quarterly AMP data in addition to their 

monthly submissions.  

8 Medicaid  Drug Rebate Program Bulletin for Participating  Drug Manufacturers, Release No. 76,   
                     
December 15, 2006. 

Comparison of Second-Quarter  2007  ASPs and AMPs    OEI-03-08-00010   
  Page 4  Kerry Weems 
 
 
The AMP is generally calculated as a weighted average of prices for all of a manufacturers 
package sizes of a drug sold during a given quarter and is reported for the lowest identifiable 
quantity of the drug (e.g., 1 milligram, 1 milliliter, 1 tablet, 1 capsule).   
 
Office of Inspector Generals Monitoring of Average Sales Prices and Average 
Manufacturer Prices 
Since the ASP reimbursement methodology for Part B prescription drugs was implemented 
in January 2005, OIG has completed four reports comparing ASPs and AMPs.  A description 
of each report is provided in Appendix A.  
  
Although CMS has acknowledged the Secretarys authority to adjust ASP payment limits 
based on the findings of these studies, the agency has yet to make any changes to Part B drug 
reimbursement as a result of OIGs pricing comparisons.  In commenting on one of OIGs 
reports, CMS expressed a desire to better understand fluctuating differences between ASPs 
and AMPs, with the intent of developing a process to adjust payment amounts based on the 
results of OIGs pricing comparisons.9  However, CMS has not specified what, if any, steps it 
will take to adjust Medicare reimbursement amounts for drugs that meet the 5-percent 
threshold specified in section 1847A(d)(3) of the Act. 
 
METHODOLOGY 
 
We obtained from CMS NDC-level ASP data from the second quarter of 2007, which were 
used to establish Part B drug reimbursement amounts for the fourth quarter of 2007.  In 
addition, we obtained the file that CMS used to crosswalk NDCs to their corresponding 
HCPCS codes. Both the ASP data and the crosswalk file were updated as of September 
2007. We also obtained AMP data from  CMS for the second quarter of 2007.   
 
Calculation of Volume-Weighted Average Sales Price 
As mentioned previously, Medicare does not base reimbursement for covered drugs on 
NDCs; instead, it uses HCPCS codes.  Therefore, CMS uses ASP information submitted by 
manufacturers for each NDC to calculate a volume-weighted ASP for each covered HCPCS 
code. When calculating these volume-weighted ASPs, CMS includes only NDCs with ASP 
submissions that are deemed valid.  We did not examine NDCs that CMS opted to exclude 
from its calculation, nor did we verify  the accuracy of CMSs crosswalk files. 
 
As of September 2007, CMS had established prices for 515 HCPCS codes based on the ASP 
reimbursement methodology.10  Reimbursement amounts for the 515 HCPCS codes were 
based on ASP data for 3,176 NDCs. 
 
To calculate the volume-weighted ASPs for these 515 codes, CMS used an equation that 
involves the following variables:  the ASP for the NDC as reported by the manufacturer, the 
                                                 
9 OEI-03-07-00140, July 2007. 

10 Several Part B drugs, including certain vaccines and blood products, are not paid  under the ASP 
 
methodology.
   
Comparison of Second-Quarter  2007  ASPs and AMPs    OEI-03-08-00010   
  Page 5  Kerry Weems 
 
 
volume of sales for the NDC as reported by the manufacturer, and the number of billing units 
in the NDC as determined by CMS.  The amount of the drug contained in an NDC may differ 
from the amount of the drug specified by the HCPCS code that providers use to bill 
Medicare.  Therefore, the number of billing units in an NDC describes the number of HCPCS 
code units that are in that NDC.  For instance, an NDC may contain a total of 10 milliliters of  
Drug A, but the corresponding HCPCS code may be defined as only 5 milliliters of Drug A.  
In this case, there are two billing units in the NDC.  CMS calculates the number of billing 
units in each 11-digit NDC when developing its crosswalk files.  A more detailed description 
of CMSs method of calculating volume-weighted ASPs is provided in Appendix B.   
 
Analysis of Average Manufacturer Price Data   
An AMP is reported for the lowest identifiable quantity of the drug contained in the NDC 
(e.g., 1 milligram, 1 milliliter, 1 tablet, 1 capsule).  In contrast, an ASP is reported for the 
entire amount of the drug contained in the NDC (e.g., for 50 milliliters, for 100 tablets).              
To ensure that the AMP would be comparable to the ASP, it was necessary to convert the 
AMP for each NDC so that it represented the total amount of the drug contained in that NDC.   
 
In making these conversions, we examined AMPs only for those 3,176 NDCs that CMS used 
in its calculation of volume-weighted ASPs for the 515 codes.  If AMP data were not 
available for one or more of these NDCs, we excluded the corresponding HCPCS code from  
our analysis.  We excluded a total of 211 HCPCS codes using this conservative approach.  
The remaining 304 HCPCS codes had AMP data for every NDC that CMS used in its 
calculation of volume-weighted ASPs.  These 304 HCPCS codes represented 1,224 NDCs.   
 
We then multiplied the AMPs for these 1,224 NDCs by the total amount of the drug 
contained in each NDC, as identified by sources such as the CMS crosswalk file, 
manufacturer Web sites, the Red Book, and the Food and Drug Administrations NDC 
directory. We will refer to the resulting amounts as converted AMPs.  For five NDCs, we 
could not successfully identify the amount of the drug reflected by the ASP and therefore 
could not calculate a converted AMP.  These five NDCs were crosswalked to 12 HCPCS 
codes. We did not include these 12 HCPCS codes (50 NDCs) in our final analysis.   
 
Using the converted AMPs for the remaining 1,174 NDCs, we then calculated                      
volume-weighted AMPs for each of the codes using the same method that CMS uses to  
calculate volume-weighted ASPs.  We calculated volume-weighted AMPs for a total of               
292 HCPCS codes.  We did not independently verify the accuracy of manufacturer-reported 
ASP and AMP data. 
 
Comparing Volume-Weighted ASPs to Volume-Weighted AMPs 
For each of the 292 HCPCS codes included in our study, we then compared the                       
volume-weighted ASPs and AMPs and identified codes with ASPs that exceeded AMPs by 
at least 5 percent. 
Comparison of Second-Quarter  2007  ASPs and AMPs    OEI-03-08-00010   
  Page 6  Kerry Weems 
 
 
For those HCPCS codes that met or exceeded the 5-percent threshold, we conducted a review 
of the associated NDCs to verify the accuracy of the billing unit information.  According to 
our review, NDCs for two codes had billing unit information in CMSs crosswalk file that 
may not have accurately reflected the number of billing units actually contained in the NDCs.  
Because volume-weighted ASPs and AMPs are calculated using this billing unit information, 
we could not be certain that the result for these codes were correct.  Therefore, we did not 
include these codes in our findings. 
 
For the remaining HCPCS codes, we then estimated the monetary impact of lowering 
reimbursement to 103 percent of the AMP.11  First, we calculated 103 percent of the 
volume-weighted AMP and subtracted this amount from the fourth-quarter 2007 
reimbursement amount for the HCPCS code, which is equal to 106 percent of the                
volume-weighted ASP.  To estimate the financial effect for the fourth quarter of 2007, we 
then multiplied the difference by one-fourth of the number of services that were allowed by 
Medicare for each HCPCS code in 2006, as reported in CMSs Part B Extract and Summary 
System (BESS).12  This estimate assumes that the number of services that were allowed by 
Medicare in 2006 remained consistent from one quarter to the next and that there were no 
significant changes in utilization between 2006 and 2007. 
 
Limitations  
In a February 2006 report entitled Calculation of Volume-Weighted Average Sales Price for 
Medicare Part B Prescription Drugs (OEI-03-05-00310), OIG stated that CMSs method for 
calculating the volume-weighted ASP is incorrect because CMS does not use billing units 
consistently throughout its equation.  As a result of this finding, OIG recommended that 
CMS change its calculation of volume-weighted ASPs.  Although CMS indicated that it may 
consider altering the ASP payment amount methodology, it has yet to do so.  
 
OIG maintains that CMS calculates volume-weighted ASPs incorrectly and that this incorrect 
calculation results in reimbursement amounts that are inaccurate and inconsistent with the 
ASP payment amount methodology set forth in section 1847A(b)(3) of the Act.  However, to 
be consistent with the payment amount methodology currently used by CMS, OIG has opted 
to use CMSs calculation method when comparing ASPs and AMPs. 
 
We also note that the definition of AMP changed in January 2007, such that AMPs must now 
be determined without regard to customary prompt pay discounts.13  Because manufacturers 
are still required to include customary prompt pay discounts in their ASP calculations, the 
                                                 
11 Pursuant to section 1847A(d)(3) of the Act,  if the ASP for a drug exceeds the AMP by at least 5 percent, the 
Secretary has authority to disregard the ASP  for that drug and replace the  payment amount for the drug code  
with the lesser of the widely available market price for the drug (if any) or 103 percent of the AMP.  For the 
purposes of this study,  we used  103 percent  of the AMP to  estimate the impact of lowering  reimbursement  
amounts.   If widely available market prices had been available for these drugs and lower than 103  percent of the 
AMP, the savings estimate presented in this report would have been greater. 
12 At the time of  extraction,  2006 BESS data were 99 percent  complete.     
13 Section 6001(c)(1) of the DRA and Medicaid  Drug  Rebate Program Bulletin for Participating  Drug  
Manufacturers, Release No. 76, December 15, 2006. 
Comparison of Second-Quarter  2007  ASPs and AMPs    OEI-03-08-00010   
  Page 7  Kerry Weems 
 
 
dynamic between ASPs and AMPs may be different in this report as compared to previous 
OIG reports monitoring ASPs and AMPs. 
 
Standards 
This study was conducted in accordance with the Quality Standards for Inspections issued 
by the Presidents Council on Integrity and Efficiency and the Executive Council on Integrity 
and Efficiency. 
 
RESULTS 
 
For 22 of 292 HCPCS Codes Reviewed, the Volume-Weighted ASP Exceeded the 
Volume-Weighted AMP by at Least 5 Percent 
Consistent with sections 1847A(d)(2)(B) and 1847A(d)(3) of the Act, OIG compared ASPs 
and AMPs to identify instances in which the ASP for a particular drug exceeded the AMP by 
a threshold of 5 percent. In the second quarter of 2007, 22 of the 292 HCPCS codes included 
in our review (8 percent) met or surpassed this 5-percent threshold. A list of the 22 HCPCS 
codes, their descriptions, and their HCPCS dosage amounts is presented in Appendix C.   
 
Table 1 below describes the extent to which ASPs exceeded AMPs for the 22 HCPCS 
codes.14  For 6 of the 22 codes, volume-weighted ASPs exceeded volume-weighted AMPs by                  
20 percent or more.  The ASPs for two of these codes were more than double the AMPs.  
 
Table 1: Extent to Which ASPs Exceeded AMPs for 22 HCPCS Codes 
Percentage Difference  Number of 
Between ASP and AMP  HCPCS Codes 
5.00%9.99%  8 
10.00%19.99%  8 
20.00%29.99%  1 
30.00%39.99%  1 
40.00%49.99%  2 
50.00%59.99%  0 
60.00%69.99%  0 
70.00%79.99%  0 
80.00%89.99%  0 
90.00%99.99%  0 
100% and above  2 
     Total  22 
Source: OIG analysis of second-quarter 2007 ASP and AMP data, 2007. 
 
 
Sixteen of the twenty-two HCPCS codes were previously identified by OIG as having ASPs  
that exceeded the AMPs by at least 5 percent. ASPs for four HCPCS codes (J7620, J9000, 
                                                 
14 Because of the confidential nature of ASP data, the information in the table is presented in ranges. 
Comparison of Second-Quarter  2007  ASPs and AMPs    OEI-03-08-00010   
  Page 8  Kerry Weems 
 
 
J9214, and J2690) exceeded AMPs by at least 5 percent in four of OIGs five reports 
comparing ASPs and AMPs, dating back almost 3 years.  An additional three HCPCS codes 
met the 5-percent threshold in three of OIGs five pricing comparisons.  Table 2 below 
presents a breakdown of the 16 HCPCS codes that previously met the threshold for price 
adjustments.  
 
Table 2: Sixteen HCPCS Codes That Met the 5-Percent Threshold in   
                                     
Second Quarter 2007 as Well as Previous Quarters
  
OIG Comparisons of ASPs and AMPs 
HCPCS 
Code   Second  First  Third  Fourth   Third 
Quarter  Quarter  Quarter  Quarter  Quarter 
2007  2007  2006  2005  2004 
J7620  X  X  X  X   
J9000  X  X  X  X   
J9214  X  X  X  X   
J2690  X  X  X  X 
J2321  X  X  X 
J7608  X  X  X 
J1790  X  X  X 
Q0169  X  X 
J2800  X  X 
J1457  X  X 
J8530  X  X 
J2060  X  X 
J7505  X  X 
J0280  X  X 
J0637  X    X 
J9340  X      X 
Source: OIG analysis of ASP and AMP data from second quarter 2007, first quarter 2007,         
                                        
third quarter 2006, fourth quarter 2005, and third quarter 2004. 

 
In each of OIGs four previous pricing comparisons, which used data from the first quarter of 
2007, the third quarter of 2006, the fourth quarter of 2005, and the third quarter of 2004, 
respectively, we identified three other HCPCS codes (J2545, J3410, and J9360) with ASPs 
that exceeded AMPs by at least 5 percent.  However, the three HCPCS codes could not be 
included in this current study because second-quarter 2007 AMP data were not available for 
one or more of the NDCs associated with each HCPCS code.   
 
Lowering reimbursement amounts for the 22 HCPCS codes to 103 percent of the AMPs  
would reduce Medicare allowances by an estimated $8 million in the fourth quarter of 2007. 
Sections 1847A(d)(3)(A) and (B) of the Act provide that the Secretary may disregard the 
ASP pricing methodology for a drug with an ASP that exceeds the AMP by at least 5 percent.  
Pursuant to section 1847A(d)(3)(C) of the Act, . . . the Secretary shall, effective as of the 
next quarter, substitute for the amount of payment . . . the lesser of (i) the widely available 
Comparison of Second-Quarter  2007  ASPs and AMPs    OEI-03-08-00010   
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market price . . . (if any); or (ii) 103 percent of the average manufacturer price . . . .  15  In 
this study, we identified 22 HCPCS codes that met or exceeded the 5-percent threshold 
specified in the Act. If reimbursement amounts for these 22 codes were based on 103 
percent of the AMPs during the fourth quarter of 2007, we estimate that Medicare 
expenditures would be reduced by $8 million in that quarter alone.16    
 
One of the twenty-two HCPCS codes, J7620, accounted for 85 percent of the                       
$8 million.  If the reimbursement amount for this one code were based on 103 percent of the 
AMP during the fourth quarter of 2007, Medicare expenditures would have been reduced by 
an estimated $7 million.  Furthermore, the ASP for this code exceeded the AMP by at least            
5 percent in three previous OIG reports, which compared prices from the first quarter of 
2007, the third quarter of 2006, and the fourth quarter of 2005, respectively.  As in this 
current review, the estimated savings for HCPCS code J7620 accounted for the largest single 
share of the total savings identified in each of the three other OIG pricing comparisons.  In 
those reports, OIG estimated that lowering reimbursement for J7620 to 103 percent of AMP 
would have reduced Medicare expenditures by $7 million in the third quarter of 2007,                   
$8 million in the first quarter of 2007, and $6 million in the second quarter of 2006.   
 
CONCLUSION 
 
For the purpose of monitoring Medicare reimbursement amounts based on ASPs and 
consistent with sections 1847A(d)(2)(B) and 1847A(d)(3) of the Act, OIG compared ASPs 
and AMPs to identify instances in which the ASP for a particular drug exceeded the AMP by 
a threshold of 5 percent. This review is the fifth such comparison conducted by OIG, and we 
identified 22 HCPCS codes that meet the threshold for price adjustment established by 
section 1847A(d)(3)(B) of the Act. Of these 22 codes, 16 were previously identified by OIG 
as having ASPs that exceeded the AMPs by at least 5 percent.  ASPs for 4 of the 16 HCPCS 
codes (J7620, J9000, J9214, and J2690) exceeded AMPs by at least 5 percent in four of 
OIGs five reports comparing ASPs and AMPs, dating back almost 3 years.  Three additional 
HCPCS codes met the 5-percent threshold in all of OIGs previous reports comparing ASPs 
and AMPs but could not be included in this current review because AMP data were 
unavailable for one or more of the NDCs associated with each HCPCS code.    
 
This report is being issued directly in final form because it contains no recommendations.  If 
you have comments or questions about this report, please provide them within 60 days.  
Please refer to report number OEI-03-08-00010 in all correspondence. 
                                                 
15 For the purposes of this study, we used 103  percent of the AMP to estimate the impact of lowering  
reimbursement amounts.  If  widely available market prices had been available for these drugs and lower than  
103 percent  of  the AMP, the savings estimate presented in this report  would have been  greater. 
16 This  savings estimate is based on one-fourth  of the number of estimated services allowed by Medicare  for 
each HCPCS code in 2006.   
Comparison of Second-Quarter  2007  ASPs and AMPs    OEI-03-08-00010   
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APPENDIX A 
 
Description of Previous Office of Inspector General Reports Comparing Average Sales 
Prices and Average Manufacturer Prices 
 
In April 2006, the Office of Inspector General (OIG) released the first of its reports 
comparing average sales prices (ASP) to average manufacturer prices (AMP).  That report, 
entitled Monitoring Medicare Part B Drug Prices:  A Comparison of Average Sales Prices to 
Average Manufacturer Prices (OEI-03-04-00430), identified 51 Healthcare Common 
Procedure Coding System (HCPCS) codes with ASPs that exceeded AMPs by at least                    
5 percent in the third quarter of 2004.  Because OIGs review was conducted using data 
submitted during the initial implementation phase of the ASP methodology, the Centers for 
Medicare & Medicaid Services (CMS) opted not to take action in response to OIGs findings.   
 
Three months later, OIG released a second report comparing ASPs to AMPs, entitled 
Comparison of Fourth-Quarter 2005 Average Sales Prices to Average Manufacturer Prices:  
Impact on Medicare Reimbursement for Second Quarter 2006 (OEI-03-06-00370).  
According to this follow-up study, which used data from the fourth quarter of 2005, 46 of 
341 HCPCS codes had ASPs that exceeded AMPs by at least 5 percent.  Twenty of these 
forty-six codes had also met the 5-percent threshold in OIGs initial pricing comparison of 
third-quarter 2004 ASPs and AMPs. 
 
In July 2007, OIG released its third comparison between ASPs and AMPs, entitled 
Comparison of Third-Quarter 2006 Average Sales Prices to Average Manufacturer Prices:  
Impact on Medicare Reimbursement for First Quarter 2007 (OEI-03-07-00140).  This report 
identified 39 of 326 HCPCS codes with ASPs that exceeded AMPs by at least 5 percent in 
the third quarter of 2006. Of these 39 codes, 4 met the threshold for price adjustments in all 
three of OIGs studies comparing ASPs and AMPs.  An additional eight HCPCS codes were 
previously eligible for price adjustments as a result of OIGs second report.  OIG 
recommended that CMS adjust Medicare reimbursement amounts for the 39 codes meeting 
the 5-percent threshold in the third quarter of 2006. 
 
OIG released its fourth pricing comparison 2 months later, entitled Comparison of First-
Quarter 2007 Average Sales Prices to Average Manufacturer Prices:  Impact on Medicare 
Reimbursement for Third Quarter 2007 (OEI-03-07-00530).  According to this report, ASPs 
for 34 of 371 drug codes exceeded AMPs by at least 5 percent in the first quarter of 2007.  Of 
these 34 codes, 20 also met the threshold for price adjustments in at least one of the prior 
OIG studies comparing ASPs and AMPs.   
 
Comparison of Second-Quarter  2007  ASPs and AMPs    OEI-03-08-00010   
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APPENDIX B 
 
Equation Used by the Centers for Medicare & Medicaid Services To Calculate           
Volume-Weighted Average Sales Prices  
 
In the following equation, a unit is defined as the entire amount of the drug contained in 
the national drug code (NDC): 
 
ASP for NDC 
* Number of NDCs Sold  
   Volume-Weighted ASP  Sum of 
Billing Units in NDC 
for the Billing Unit of  
  =  
 HCPCS Code  
Sum of Number of NDCs Sold   
 
 
The Centers for Medicare & Medicaids (CMS) calculation of volume-weighted average 
sales prices (ASP) is discussed in greater detail in the Office of Inspector General (OIG) 
report, Calculation of Volume-Weighted Average Sales Price for Medicare Part B 
Prescription Drugs (OEI-03-05-00310). This report found that CMSs method for 
calculating volume-weighted ASPs is incorrect because CMS does not use billing units 
consistently throughout its equation.  Therefore, OIG recommended that CMS adopt an 
alternate method for calculating volume-weighted ASPs.  Although CMS indicated that it 
may consider altering the ASP methodology, it has yet to do so. 
Comparison of Second-Quarter  2007  ASPs and AMPs    OEI-03-08-00010   
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APPENDIX C 
 
Twenty-Two Healthcare Common Procedure Coding System Codes With Average Sales 
Prices That Exceeded Average Manufacturer Prices by at Least 5 Percent 
HCPCS Code  Short Description  HCPCS Code Dosage 
J0280  Aminophyllin 250 mg injection  250 mg 
J0476  Baclofen intrathecal trial  50 mcg 
J0637  Caspofungin acetate  5 mg 
J1120  Acetazolamid sodium injection  500 mg 
J1457  Gallium nitrate injection  1 mg 
J1756  Iron sucrose injection  1 mg 
J1790  Droperidol injection  5 mg 
J2060  Lorazepam injection  2 mg 
J2321  Nandrolone decanoate 100 mg  100 mg 
J2690  Procainamide HCl injection  1 g 
J2760  Phentolaine mesylate injection  5 mg 
J2800  Methocarbamol injection  10 mL 
J3465  Voriconazole injection  10 mg 
J7505  Monoclonal antibodies  5 mg 
J7608  Acetylcysteine inhalation solution unit dose  1 g 
J7620  Albuterol and ipratropium bromide non-compounded  2.5 mg/0.5 mg 
J8530  Cyclophosphamide oral 25 mg  25 mg 
J9000  Doxorubic HCl 10 mg vial chemo  10 mg 
J9175  Elliotts b solution per ml  1 mL 
J9214  Interferon alfa-2b injection  1 million units 
J9340  Thiotepa injection  15 mg 
Q0169  Promethazine HCl oral  12.5 mg 
 
Source: OIG analysis of second-quarter 2007 ASP and AMP data, 2007. 
Comparison of Second-Quarter  2007  ASPs and AMPs    OEI-03-08-00010