DEPARTMENt OF HEALTH .~'lD HUMAN SERVJ~!ES 
OFFICE OF INSPECTOR GENERAL 
WASHINGTON, DC  20201 
DEC  12    2012 
TO:  Marilyn Tavenner 
Acting Administrator 
Centers for Medicare & Medicaid Services 
FROM:  Stuart Wright 
Deputy Inspector General 
for Evaluation and Inspections 
SUBJECT:  Memorandum Report: Comparison ofFirst-Quarter 2012 Average Sales 
Prices and Average Manufacturer Prices:  Impact on .Medicare 
Reimbursementfor Third Quarter 2012, OEI-03-12-00730 
This review was conducted in accordance with the statutory mandate for the Office of 
Inspector General (OIG) to identify Medicare Part B prescription drugs with average 
sales prices (ASP) that exceed average manufacturer prices (AMP) by at least 5 percent. 
This review estimated the financial impact oflowering reimbursement amounts for drugs 
that met the 5-percent threshold to I 03 percent of the AMPs, and also examined the 
potential effect of a November 2012 final rule that, among other things, specifies the 
circumstances under which the Centers for Medicare & Medicaid Services (CMS) wili 
make AMP-based price substituti.ons. 
SUMMARY 
When Congress estahlished ASP as the primary basis for Medicare P~B drug 
reimbursement, it also mandated that OIG compare ASPs with AMPs and directed CMS 
to lower reimbursement for drugs with ASPs that exceed AMPs by athreshold of 
5 percent.  Since the impiementation ofthe ASP payment methodology in 2005, OIG has 
fulfilled its responsibility by issuing 26 reports comparing ASPs and AMPs. However, 
CMS has yet to lower reimbursement in response to OIG's findings and   
recommendations.  This latest comparison examines drugs that exceeded the 5-percent 
threshold based on either complete or partial AMP data in the first quarter of2012.  Of 
the 385 drug codes with complete AMP data, 22 exceeded the 5-percent threshold.  If 
reimbursement amounts for all 22 codes had been based on 103 percent of the AMPs in 
the third quarter of2012, Medicare would have saved an estimated $739,000 in that  . 
quarter alone.  Under'CMS's price substitution policy, reimbursement amounts for 15 of 
the 22 drugs would have been reduced, saving an estimated $606,000 in the quarter.  Of 
the 64 drug codes with partial AMP data, 6 exceeded the 5percent threshold.  CMS has 
Comparison of First-Quarter 2011 ASPs and AMPs (OEI-03-12-00730)  Page 2  Marilyn  Tavenner 
 
 
expressed concern that partial AMP data may not adequately reflect market trends and 
therefore  will  not apply its price substitution  policy to drugs with partial AMP data.  
However, we found that pricing  comparisons  for two of the six codes with partial AMP 
data seemed to accurately  capture market trends; therefore,  price reductions may be 
appropriate in these cases.  We could not perform pricing  comparisons  for an additional 
52 drug codes because none of the associated drug products had corresponding  AMP 
data.  Manufacturers  for 9 percent of the associated drug products had Medicaid drug 
rebate agreements  and were therefore generally  required to submit  AMPs.   
 
BACKGROUND 
 
The Social Security Act (the Act) mandates that OIG compare ASPs to AMPs.1  If OIG 
finds that the ASP for a drug exceeds the AMP by a certain percentage (currently                            
5 percent), the Act states that the Secretary of Health  and Human Services (the Secretary) 
may disregard the ASP for the drug when setting  reimbursement  amounts.2,  3  The Act 
further  states that ... the Inspector General shall inform  the Secretary (at such times as 
the Secretary may specify to carry out this subparagraph) and the Secretary shall, 
effective  as of the next quarter, substitute  for the amount of payment ... the lesser of                     
(i) the widely available  market price ... (if any); or (ii) 103 percent of the average 
manufacturer  price....4   
 
Medicare Part B Coverage of Prescription Drugs 
Medicare Part B covers only a limited  number of outpatient  prescription  drugs.  Covered 
drugs include  injectable  drugs administered  by a physician;  certain self-administered 
drugs, such as oral anticancer  drugs and immunosuppressive  drugs; drugs used in 
conjunction  with durable medical  equipment;  and some vaccines.   
 
Medicare Part B Payments for Prescription Drugs 
CMS contracts with private companies to process and pay Medicare Part B claims, 
including  those for prescription  drugs.  To obtain reimbursement  for covered outpatient 
prescription  drugs, health care providers submit  claims  to Medicare contractors using 
procedure codes.  CMS established  the Healthcare Common Procedure Coding System 
(HCPCS) to provide a standardized  coding system for describing  the specific items and 
services provided in the delivery  of health care.  In the case of prescription  drugs, each 
HCPCS code defines the drug name and the amount of the drug represented by the 
HCPCS code but does not specify manufacturer  or package size information.    
 
                                                 
1 Section 1847A(d)(2)(B)  of the Act. 
2 Section 1847A(d)(3)(A)  of the Act. 
3 Section 1847A(d)(3)(B)(ii)  of the Act provides the Secretary with authority to adjust the applicable 
threshold percentage in 2006 and subsequent years; however, the threshold percentage has been maintained 
at 5 percent. 
4 Section 1847A(d)(3)(C)  of the Act. 
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 3  Marilyn  Tavenner 
 
 
Medicare and its beneficiaries  spent over $12 billion  for Part B drugs in 2011.5  Although 
Medicare paid for more than 500 outpatient  prescription  drug HCPCS codes that year, 
most of the spending  for Part B drugs was concentrated on a relatively  small subset of 
those codes.  In 2011, 62 HCPCS codes accounted for 90 percent of the expenditures  for 
Part B drugs, with only 13 of these codes representing  the majority  of total Part B drug 
expenditures. 
 
Reimbursement Methodology for Part B Drugs and Biologicals  
Medicare Part B pays for most covered drugs using  a reimbursement  methodology  based 
on ASPs.6  As defined by law, an ASP is a manufacturers  sales of a drug to all 
purchasers in the United States in a calendar quarter divided by the total number  of units 
of the drug sold by the manufacturer  in that same quarter.7  The ASP is net of any price 
concessions, such as volume  discounts,  prompt pay discounts, cash discounts, free goods 
contingent  on purchase requirements,  chargebacks, and rebates other than those obtained 
through  the Medicaid drug rebate program.8  Sales that are nominal  in amount are 
exempted from the ASP calculation,  as are sales excluded from the determination  of best 
price in Medicaids drug rebate program.9, 10 
 
Manufacturers  that participate  in the Medicaid drug rebate program must provide CMS 
with the ASP and volume  of sales for each of their national  drug codes (NDC) on a 
quarterly  basis, with submissions  due 30 days after the close of each quarter.11  An NDC 
is an 11-digit identifier  that represents a specific  manufacturer,  product, and package size. 
 
Because Medicare Part B reimbursement  for outpatient  drugs is based on HCPCS codes 
rather than NDCs and more than one NDC may meet the definition  of a particular 
HCPCS code, CMS has developed a file that crosswalks  manufacturers  NDCs to 
HCPCS codes.  CMS uses information  in this crosswalk file to calculate volume-
weighted  ASPs for covered HCPCS codes.   
 
Calculation of Volume-Weighted  ASPs 
Third-quarter  2012 Medicare payments for most covered drug codes were based on                 
first-quarter  2012 ASP submissions  from manufacturers,  which were volume  weighted 
                                                 
5 Medicare expenditures for Part B drugs in 2011 were calculated using CMSs Part B Analytics and 
Reports (PBAR).  The PBAR data for 2011 were 98-percent complete when the data were downloaded in 
May 2012. 
6 Several Part B drugs, including certain vaccines and blood products, are not paid for under the ASP 
methodology.  
7 Section 1847A(c) of the Act, as added by the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003, P.L. 108-173. 
8 Section 1847A(c)(3)  of the Act.  
9 Section 1847A(c)(2)  of the Act.  
10 Pursuant to  1927(c)(1)(C)(i)  of the Act, best price is the lowest price available from the manufacturer 
during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit 
entity, or governmental entity within the United States, with certain exceptions. 
11 Section 1927(b)(3)  of the Act.  
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 4  Marilyn  Tavenner 
 
 
using  an equation that involves  the following  variables:   the ASP for the 11-digit NDC as 
reported by the manufacturer,  the volume  of sales for the NDC as reported by the 
manufacturer,  and the number of billing  units in the NDC as determined  by CMS.12  The 
amount of the drug contained in an NDC may differ  from the amount of the drug 
specified  by the HCPCS code that providers use to bill Medicare.  Therefore, the number 
of billing  units in an NDC describes the number of HCPCS code units that are in that 
NDC.  For instance, an NDC may contain 10 milliliters  of Drug A, but the corresponding 
HCPCS code may be defined as only 5 milliliters  of Drug A.  In this case, there are two 
billing  units in the NDC.  CMS calculates  the number of billing  units in each NDC when 
developing  its crosswalk files.    
 
Under the ASP pricing  methodology,  the Medicare allowance  for most Part B drugs is 
equal to 106 percent of the volume-weighted  ASP for the HCPCS code.13  Medicare 
beneficiaries  are generally  responsible  for 20 percent of this amount in the form of 
coinsurance.    
 
The Medicaid Drug Rebate Program  and AMPs 
In general,  for Federal payment to be available  for covered outpatient  drugs provided 
under Medicaid, the Act mandates that drug manufacturers  enter into rebate agreements 
with the Secretary and pay quarterly rebates to State Medicaid agencies.14  Under these 
rebate agreements  and pursuant to the Act, manufacturers  must provide CMS with the 
AMPs for each of their  NDCs.15  As further  explained  in regulation,  manufacturers  are 
required to submit AMPs within  30 days after the end of each quarter.16   
 
The AMP is generally  calculated  as a weighted  average of prices for all of a 
manufacturers  package sizes of a drug and is reported for the lowest identifiable  quantity 
of the drug (e.g., 1 milliliter,  one tablet, one capsule).  By law, AMP is defined as the 
average price paid to the manufacturer  for the drug in the United States by                                   
(1) wholesalers  for drugs distributed  to retail community  pharmacies  and (2) retail 
community  pharmacies  that purchase drugs directly  from the manufacturer.17,  18   
                                                 
12 The equation that CMS currently uses to calculate volume-weighted ASPs is described in  1847A(b)(6) 
of the Act.  It is also provided in Appendix A.   
13 Section 1847A(b)(1) of the Act.   
14 Sections 1927(a)(1)  and (b)(1) of the Act. 
15 Section 1927(b)(3)  of the Act. 
16 42 CFR  447.510.    
17 Section 1927(k)(1)  of the Act, as amended by  2503 of the Patient Protection and Affordable Care Act,                            
P.L. 111-148.     
18 Pursuant to  1927(k)(10)  of the Act, retail community pharmacy means an independent, chain, 
supermarket, or mass merchandiser pharmacy that is licensed as a pharmacy by the State and that dispenses 
medications to the general public at retail prices.  Such term does not include a pharmacy that dispenses 
prescription medications to patients primarily through the mail; nursing home, long-term-care, or hospital 
pharmacies; clinics; charitable or not-for-profit pharmacies; government pharmacies; or pharmacy benefit 
managers. 
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 5  Marilyn  Tavenner 
 
 
Penalties for Failure To Report Timely Drug Pricing Data 
Pursuant to the Act, manufacturers  that fail to provide ASP and AMP data on a timely 
basis may be subject to civil  money penalties and/or termination  from the drug rebate 
program.19, 20  Accordingly,  CMS has terminated  rebate agreements  with a number of 
manufacturers  for failure  to report AMPs and, for the purposes of evaluating  potential 
civil  money penalties,  has referred to OIG manufacturers  that failed  to submit  timely 
ASPs and AMPs.  In accordance with an enforcement  initiative  announced  in September 
2010, OIG has imposed civil  monetary penalties  on certain manufacturers  that failed to 
report timely  ASPs and/or AMPs.21 
 
OIGs Monitoring of ASPs and AMPs 
To comply with its statutory mandate, OIG has issued 22 quarterly  pricing  comparisons 
since the ASP reimbursement  methodology  for Part B drugs was implemented  in January 
2005.  In addition,  OIG has completed four annual  overviews of ASPs and AMPs, which 
examined  data across all four quarters of 2007, 2008, 2009, and 2010, respectively.    
 
OIG has consistently  recommended  that CMS develop a price substitution  policy and 
lower the reimbursement  amounts  for drugs that exceed the 5-percent threshold  as 
directed by the Act.  Although  CMS has yet to make any changes to Part B drug 
reimbursement  as a result of OIGs studies, the agency published  a final  rule in 
November 2012 that, among other things,  specifies  the circumstances  under which         
AMP-based price substitutions  will  occur beginning  in 2013.22, 23  
 
CMSs Price Substitution Policy 
According  to its November 2012 final  rule, CMS will  substitute  103 percent of the AMP 
for the ASP-based reimbursement  amount when OIG identifies  a HCPCS code that 
exceeds the 5-percent threshold in two consecutive  quarters or three of four quarters.24  
Because CMS believes  that comparisons  based on partial AMP data may not adequately 
reflect market trends, 25 the agency will  lower reimbursement  amounts only when ASP 
                                                 
19 Sections 1927(b)(3)(C)(i)  and (4)(B)(i)  of the Act. 
20 The Secretary delegated to OIG the responsibility to impose civil money penalties for violations of                                    
 1927(b)(3)(C)  of the Act in 59 Fed. Reg. 52967 (Oct. 20, 1994). 
21 OIG, Special Advisory Bulletin:  Average Manufacturer Price and Average Sales Price Reporting 
Requirements, September 2010.  Available online at http://www.oig.hhs.gov. 
22 77 Fed. Reg. 68892, 69368 (Nov. 16, 2012). 
23 This is the third time that CMS has pursued rulemaking on AMP-based price substitutions.  In July 2010, 
CMS published a proposed rule that specified the circumstances under which AMP-based price 
substitutions would occur, effective January 2011; however, the agency opted not to finalize this proposed 
rule based, in part, on impending changes to the definition of AMP (75 Fed. Reg. 73170, 73471                             
(Nov. 29, 2010)).  In November 2011, CMS published a final rule that again specified circumstances under 
which price substitutions would occur (76 Fed. Reg. 73026, 73473 (Nov. 28, 2011)).  Although that final 
rule took effect in January 2012, CMS did not implement that policy in light of access concerns related to 
drug shortages. 
24 77 Fed. Reg. 68892, 69368 (Nov. 16, 2012). 
25 76 Fed. Reg. 73026, 73289 (Nov. 28, 2011). 
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 6  Marilyn  Tavenner 
 
 
and AMP comparisons  are based on the same set of NDCs (i.e., based on complete AMP 
data).26  Price substitutions  will take effect in the quarter after OIG shares the results of its 
most recent pricing  comparison and remain  in effect for one quarter.27, 28  Drugs identified 
by the Food and Drug Administration  (FDA) as being in short supply will  not be eligible 
for price substitution.29 
 
METHODOLOGY 
 
We obtained a file  from CMS containing  NDC-level ASP data from the first quarter of 
2012, which were used to establish  Part B drug reimbursement  for the third quarter of 
2012.  This file  also includes  information  that crosswalks NDCs to their corresponding 
HCPCS codes.  Both the ASP data and the crosswalk data were current as of                            
June 21, 2012.  We also obtained AMP data from CMS for the first quarter of 2012, 
which were current  as of May 7, 2012. 
 
Analyzing ASP Data From the First Quarter of 2012 
As mentioned  previously,  Medicare does not base reimbursement  for covered drugs on 
NDCs; instead, it uses HCPCS codes.  Therefore,  CMS uses ASP information  submitted 
by manufacturers  for each NDC to calculate  a volume-weighted  ASP for each covered 
HCPCS code.  When calculating  these volume-weighted  ASPs, CMS includes  only 
NDCs with ASP submissions  that are deemed valid.  As of June 2012, CMS had 
established  prices for 514 HCPCS codes based on the ASP reimbursement  methodology 
mandated by the Act.30  Reimbursement  amounts for the 514 HCPCS codes were based 
on ASP data for 3,197 NDCs.   
 
Analyzing AMP Data From the First Quarter of 2012 
To ensure that the broadest range of drug codes is subject to OIGs pricing  comparisons, 
we divided  HCPCS codes into the following  three groups:                       
 
(1) HCPCS codes with complete AMP datai.e., HCPCS codes with AMP data 
for every NDC that CMS used in its calculation  of volume-weighted  ASPs; 
 
                                                 
26 77 Fed. Reg. 68892, 69368 (Nov. 16, 2012). 
27 See, e.g., 76 Fed. Reg. 73026, 73473 (Nov. 28, 2011).  After that one quarter, the reimbursement amount 
will be either 106 percent of the volume-weighted ASP for the current quarter or, if the HCPCS code 
continues to meet CMSs price substitution criteria, 103 percent of the volume-weighted AMP for the 
current quarter. 
28 To prevent CMSs policy from inadvertently raising the Medicare reimbursement amount, a price 
substitution will not occur when the substituted amount is greater than the ASP-based payment amount 
calculated for the quarter in which the price substitution would take effect (77 Fed. Reg. 68892, 69368 
(Nov. 16, 2012)).  For example, if the AMP-based substitution amount were $5 and the ASP-based 
reimbursement amount were $4 for the quarter in which the substitution would take place, CMS would not 
make the price substitution.  
29 77 Fed. Reg. 68892, 69368 (Nov. 16, 2012). 
30 Section 1847A(b)(6) of the Act. 
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 7  Marilyn  Tavenner 
 
 
(2) HCPCS codes with  partial AMP datai.e., HCPCS codes with AMP data for 
only some of the NDCs that CMS used in its calculation  of volume-weighted 
ASPs; and   
 
(3) HCPCS codes with no AMP datai.e., HCPCS codes with no AMP data for 
any of the NDCs that CMS used in its calculation  of volume-weighted  ASPs.   
 
As previously  noted, the AMP for each NDC is reported for the lowest identifiable 
quantity  of the drug contained in that NDC (e.g., 1 milliliter,  one tablet, one capsule).                
In contrast, the ASP is reported for the entire amount of the drug contained in the NDC 
(e.g., 50 milliliters,  100 tablets).  To ensure that the AMP would be comparable to the 
ASP, it was necessary to convert the AMP for each NDC so that it represented the total 
amount of the drug contained in that NDC.   
 
To calculate  converted AMPs for NDCs in the first and second groups, we multiplied 
the AMP by the total amount of the drug contained in each NDC, as identified  by sources 
such as the CMS crosswalk file, manufacturer  Web sites, drug labels, Thomson  Reuters 
Red Book, and FDAs NDC directory.31  For certain NDCs, we were unable to identify 
the amount of the drug reflected by the ASP or AMP and therefore could not calculate  a 
converted AMP.  Because of these unsuccessful  AMP conversions,  13 HCPCS codes 
were removed from our analysis.   
 
Using NDCs with successful  AMP conversions,  we then calculated  a volume-weighted 
AMP for each of the corresponding  HCPCS codes, consistent  with  CMSs methodology 
for calculating  volume-weighted  ASPs.  When calculating  the volume-weighted  AMP for 
a HCPCS code with partial AMP data, we excluded any NDCs without  AMPs; however, 
we did not exclude those NDCs from the corresponding  volume-weighted  ASP.  This 
means that the volume-weighted  AMP for a HCPCS code with partial AMP data is based 
on fewer NDCs than the volume-weighted  ASP for that same code.  Appendix  B provides 
a more detailed description  of the methods we used to both convert AMPs and calculate 
volume-weighted  AMPs.  Table 1 provides the final  number of HCPCS codes and NDCs 
included  in our analysis  after we removed NDCs with either no AMP data or 
unsuccessful  AMP conversions.    
 
Table 1:  Number of Drug Codes and NDCs Included in OIGs Pricing Comparison 
Number of   Number of 
Availability of AMP Data for HCPCS Codes 
HCPCS Codes   NDCs  
Complete AMP Data  385  1,713 
Partial AMP Data  64  728 
No AMP Data  52  208 
Source:  OIG analysis of first-quarter 2012 ASP and AMP data, 2012. 
                                                 
31 We did not calculate converted AMPs for NDCs in the third group because they had no AMP data. 
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Comparing  First-Quarter  2012 Volume-Weighted ASPs and AMPs for HCPCS 
Codes With Complete AMP Data  
For each of the 385 HCPCS codes with complete AMP data, we compared the volume-
weighted  ASP and AMP and determined  whether the ASP for the code exceeded the 
AMP by at least 5 percent.  For HCPCS codes that exceeded the 5-percent threshold, we 
reviewed the associated NDCs to verify  the accuracy of the billing  unit information.   
According  to our review,  none of the HCPCS codes that exceeded the threshold  based on 
complete AMP data was associated with questionable  billing  units.       
 
For each of the HCPCS codes that exceeded the 5-percent threshold,  we estimated  the 
monetary impact of lowering  reimbursement  to 103 percent of the AMP.32  First, we 
calculated  103 percent of the volume-weighted  AMP and subtracted this amount from the 
third-quarter  2012 reimbursement  amount for the HCPCS code.  To estimate the financial 
effect for the third quarter of 2012, we then multiplied  the difference  by one-fourth  of the 
number of services that were allowed by Medicare for each HCPCS code in 2011, as 
reported in the PBAR.33, 34   
 
To determine  which HCPCS codes would have been subject to CMSs price substitution 
policy, we identified  codes with complete AMP data that met the 5-percent threshold  in 
two consecutive  or three of four quarters and were not identified  by FDA as being in 
short supply.  We then totaled the estimated  third-quarter  2012 savings  for that subset of 
codes.   
 
Comparing  First-Quarter  2012 Volume-Weighted ASPs and AMPs for HCPCS 
Codes With Partial  AMP Data  
For each of the 64 HCPCS codes with partial  AMP data, we compared the volume-
weighted  ASP and AMP and determined  whether the ASP for the code exceeded the 
AMP by at least 5 percent.  For HCPCS codes that exceeded the 5-percent threshold, we 
reviewed the associated NDCs to verify  the accuracy of the billing  units.  According  to 
our review,  one of the HCPCS codes that exceeded the threshold  based on partial AMP 
data was associated with  questionable  billing  units.  Because volume-weighted  ASPs and 
AMPs are calculated  using  this billing  unit information,  we could not be certain that the 
results for this code was correct.  Therefore, we excluded this HCPCS code from our 
count of codes with partial AMP data that exceeded the 5-percent threshold.     
                                                 
32 Section 1847A(d)(3)(C)  of the Act directs the Secretary to replace payment amounts for drugs that 
exceed the 5-percent threshold with the lesser of the widely available market price for the drug (if any) or 
103 percent of the AMP.  For the purposes of this study, we used 103 percent of the AMP to estimate the 
impact of lowering reimbursement amounts.  If widely available market prices had been available for these 
drugs and lower than 103 percent of the AMP, the savings estimate presented in this report would have 
been greater. 
33 The PBAR data for 2011 were 98-percent complete when the data were downloaded in May 2012. 
34 This estimate assumes that the number of services allowed by Medicare in 2011 remained consistent 
from one quarter to the next and that there were no significant changes in utilization between 2011 and 
2012. 
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 9  Marilyn  Tavenner 
 
 
For each of the remaining  HCPCS codes that exceeded the 5-percent threshold  based on 
partial AMP data, we determined  whether missing  AMPs unduly  influenced  the results of 
our pricing  comparison.  As mentioned  previously,  the volume-weighted  AMP for a 
HCPCS code with partial AMP data is based on fewer NDCs than the volume-weighted 
ASP for that same code.  Therefore, there may be a disparity  between the volume-
weighted  ASP and AMP that would not exist if AMP data were available  for the full  set 
of NDCs.  In other words, the volume-weighted  ASP for the HCPCS code could exceed 
the volume-weighted  AMP by at least 5 percent only because AMPs for certain NDCs 
were not represented. 
 
CMS has expressed concern that partial AMP data may not adequately  reflect market 
trends.35  Therefore, to identify  HCPCS codes with partial AMP data that exceeded the             
5-percent threshold  only because AMP data were missing,  we reanalyzed  pricing  data 
after accounting  for the missing  values.  Specifically,  we replaced each missing  AMP 
with its corresponding  ASP and recalculated  the volume-weighted  AMPs using  those 
imputed  prices.36  We then compared those new volume-weighted  AMPs to the volume-
weighted  ASPs originally  calculated by CMS. 
 
If a HCPCS code no longer  exceeded the 5-percent threshold,  we concluded that the 
missing  AMPs likely  caused the HCPCS code to initially  exceed the threshold,  as 
opposed to an actual disparity  between ASPs and AMPs in the marketplace.   
 
If a HCPCS code continued  to exceed the 5-percent threshold, we concluded that missing 
AMPs had little  impact on the results of our pricing  comparison.   These HCPCS codes 
likely  exceeded the threshold as a result of actual pricing  differences  between ASPs and 
AMPs.  Because price substitutions  for these HCPCS codes may be warranted, we also 
identified  which of these HCPCS codes met the threshold  in two consecutive  or three of 
four quarters.   
 
Limitations 
We did not verify  the accuracy of manufacturer-reported  ASP and AMP data, nor did we 
verify  the underlying  methodology  used by manufacturers  to calculate  ASPs and AMPs.  
Furthermore,  we did not verify  the accuracy of CMSs crosswalk files  or examine  NDCs 
that CMS opted to exclude from its calculation  of Part B drug reimbursement  amounts.   
 
Manufacturers  are required to submit their quarterly ASP and AMP data to CMS 30 days 
after the close of the quarter.  Our analyses were performed on ASP and AMP data 
                                                 
35 76 Fed. Reg. 73026, 73289 (Nov. 28, 2011). 
36 Although an NDCs ASP is not usually the same as its AMP, ASPs were within 3 percent of the AMPs at 
the median during the last three quarters of 2011 and the first quarter of 2012.  Therefore, we believe that 
ASP acts as a reasonable proxy for AMP, ensuring that the NDC is represented in both the volume-
weighted ASP and the volume-weighted AMP for the HCPCS code.   
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 10  Marilyn  Tavenner 
 
 
compiled  by CMS soon after that deadline.  We generally  did not determine  whether 
manufacturers  provided additional  or revised pricing  data to CMS at a later date. 
 
Standards   
This inspection  was conducted in accordance with the Quality Standards for Inspection 
and Evaluation approved by the Council  of the Inspectors General on Integrity  and 
Efficiency. 
 
RESULTS 
 
Of the 385 Drug Codes With Complete AMP Data, Volume-Weighted  ASPs for                      
22 Exceeded the Volume-Weighted  AMPs by at Least 5 Percent  
As mandated by the Act, OIG compared ASPs to AMPs to identify  instances  in which the 
ASP for a particular  drug exceeded the AMP by a threshold of 5 percent.  In the first 
quarter of 2012, 22 of the 385 HCPCS codes with complete AMP data (6 percent) 
exceeded this 5-percent threshold.   Table 2 describes the extent to which ASPs exceeded 
AMPs for the 22 HCPCS codes.  For half of the codes, the volume-weighted  ASP 
exceeded the volume-weighted  AMP by more than 20 percent.  A list of all 22 HCPCS 
codes, including  their descriptions  and HCPCS dosage amounts, is presented in        
Appendix  C. 
 
Table 2:  Extent to Which ASPs Exceeded AMPs for 
22 HCPCS Codes With Complete AMP Data 
Percentage   Number of Codes 
5.009.99%  8 
10.0019.99%  3 
20.0029.99%  5 
30.0039.99%  2 
40.0049.99%  1 
50.0059.99%  1 
60.0069.99%  0 
70.0079.99%  0 
80.0089.99%  0 
90.0099.99%  0 
100% and above  2 
     Total  22 
Source:  OIG analysis of first-quarter 2012 ASP and AMP data, 2012. 
 
Pursuant to section 1847A(d)(3) of the Act, the Secretary may disregard the ASP for a 
drug that exceeds the 5-percent threshold  and shall substitute  the payment amount with 
the lesser of either the widely  available  market price or 103 percent of the AMP.  If 
reimbursement  amounts for all 22 codes with complete AMP data had been based on                  
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 11  Marilyn  Tavenner 
 
 
103 percent of the AMPs during  the third  quarter of 2012, Medicare expenditures  would 
have been reduced by an estimated  $739,000.37   
 
If CMSs price substitution  policy had been in effect, reimbursement  amounts for 15 of 
the 22 HCPCS codes would have been reduced.  These 15 HCPCS codes had complete 
AMP data, exceeded the 5-percent threshold in either two consecutive  quarters or three of 
four quarters, and were not identified  by FDA as being in short supply as of September 
2012 (see Table 3).38  If reimbursement  amounts for the 15 codes had been based on              
103 percent of the AMPs during  the third  quarter of 2012, Medicare expenditures  would 
have been reduced by an estimated  $606,000.   
 
Table 3:  Fifteen HCPCS Codes With Complete AMP Data in the First Quarter                         
of 2012 That Would Have Met CMSs Criteria for Price Substitution 
 
  Previous Comparisons of ASPs and AMPs 
First  Fourth  Third  Second 
HCPCS  Quarter    Quarter    Quarter    Quarter   
Code  2012  2011  2011  2011 
J0500  X  X  X   
J0610  X  X     
J0670  X  X     
J1205  X  X  X  X 
J1742  X  X  X   
J1756  X  X     
J1955  X  X     
J2501  X  X  X  X 
J2675  X  X  X   
J2780  X  X  X  X 
J9045  X  X  X   
J9065  X  X    X 
J9211  X  X  X   
J9214  X  X  X  X 
Q0166  X    X  X 
 
Source:  OIG analysis of ASP and AMP data from the second through fourth quarters of                                                   
2011 and the first quarter of 2012. 
 
                                                 
37 All savings estimates in this report assume that the number of services allowed by Medicare in 2011 
remained consistent from one quarter to the next and that there were no significant changes in utilization 
between 2011 and 2012.  
38 Two additional HCPCS codes had complete AMP data and exceeded the 5-percent threshold in two 
consecutive or three of four quarters; however, the drugs represented by these HCPCS codes were 
identified by FDA as being in short supply at the time of our analysis. 
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 12  Marilyn  Tavenner 
 
 
Of the 64 Drug Codes With Partial AMP Data, Volume-Weighted ASPs for                          
6 Exceeded the Volume-Weighted  AMPs by at Least 5 Percent    
In addition  to examining  HCPCS codes with complete AMP data, we examined                               
64 HCPCS codes for which only partial AMP data were available.   ASPs for 6 of these 
64 HCPCS codes (9 percent) exceeded the AMPs by at least 5 percent in the first quarter 
of 2012.  A list of the six HCPCS codes, including  their descriptions  and HCPCS dosage 
amounts,  is presented in Appendix  D.   
For one-third of the HCPCS codes, missing  AMPs likely  had little  influence  on the 
outcome of the pricing  comparisons.   Two of the six HCPCS codes with partial AMP 
data continued  to exceed the threshold  when we accounted for missing  AMPs, suggesting 
that the pricing  comparisons  for these codes were accurately  capturing  underlying  market 
trends even though  AMP data were not available  for the full  set of NDCs.  Because 
missing  AMPs likely  had little  influence  on the pricing  comparison  results for these two 
HCPCS codes, price substitutions  may be legitimately  warranted in these cases.  Both of 
these codes exceeded the 5-percent threshold in either two consecutive  or three of four 
quarters.   
For the remaining  four of six HCPCS codes, ASPs no longer exceeded the AMPs by at 
least 5 percent in the first  quarter of 2012, suggesting  that these codes initially  exceeded 
the threshold because of missing  AMPs rather than a genuine  pricing  disparity  between 
the ASPs and AMPs. 
 
Pricing Comparisons Could Not Be Performed on 52 Drug Codes Because No AMP 
Data Were Available 
For 52 HCPCS codes, OIG could not compare ASPs and AMPs because there were no 
AMP data for any of the 208 NDCs that CMS used when calculating  drug reimbursement 
amounts for these codes.  In 2011, Medicare allowances  for these 52 codes totaled                       
$338 million.39 
 
Manufacturers  for 9 percent of the NDCs without  AMP data (19 of 208) participated  in 
the Medicaid drug rebate program  as of the first  quarter of 2011 and were therefore 
generally  required to submit  AMP data for their covered outpatient  drugs.40, 41, 42   
 
                                                 
39 Of the 52 HCPCS codes with no associated AMP data, three were not listed in the 2011 PBAR file.  As a 
result, these codes were not included in the total Medicare allowances for the year.  
40 To determine whether a manufacturer participated in the Medicaid drug rebate program, we consulted 
CMSs labeler contact file for the first quarter of 2012, which was obtained from CMS on October 2, 2012. 
41 Although manufacturers with rebate agreements are required to submit AMP data for their covered 
outpatient drugs, there may be valid reasons why an AMP was not provided for a specific NDC in a given 
quarter.  For example, a manufacturer may not have been required to submit an AMP if the drug product 
had been terminated and there was no drug utilization during the quarter.   
42 These 19 NDCs were crosswalked to 13 HCPCS codes. 
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 13  Marilyn  Tavenner 
 
 
Manufacturers  for the remaining  189 of 208 NDCs did not participate in the Medicaid 
drug rebate program and therefore were not required to submit AMP data.   
 
CONCLUSION 
 
When Congress established  ASP as the basis for Medicare Part B drug reimbursement,  it 
also provided a mechanism  for monitoring  market prices and limiting  potentially 
excessive payment amounts  based on ASPs.  Specifically,  the ASP statute mandates that 
OIG monitor ASPs by comparing  them with AMPs and widely  available  market prices, 
and directs CMS to lower reimbursement  for certain drugs based on OIGs findings.   
Since the ASP payment methodology  took effect in January 2005, OIG has fulfilled  its 
responsibility  to monitor ASP-based payment amounts by issuing  26 comparisons 
between ASPs and AMPs, each of which identified  Part B drugs that would have been 
eligible  for price reductions under the law.  However, CMS has yet to lower 
reimbursement  in response to OIGs findings  and recommendations.   
 
In this current report, we identified  28 HCPCS codes that exceeded the threshold  for 
price adjustment  in the first quarter of 2012.  Of these, 22 had complete AMP data (i.e., 
AMP data for every drug product that CMS used to establish  reimbursement  amounts).   If 
reimbursement  amounts for all 22 codes had been based on 103 percent of the AMPs in 
the third quarter of 2012, Medicare would have saved an estimated $739,000 in that 
quarter alone.  Under CMSs price substitution  policy, reimbursement  amounts for 15 of 
the 22 HCPCS codes would have been lowered to 103 percent of the AMP, thereby 
saving  Medicare and its beneficiaries  $606,000.  The remaining  6 of 28 HCPCS codes 
also exceeded the threshold for price adjustment  in the first quarter of 2012 but did so 
based on partial AMP data.  Although  CMSs price substitution  policy will  not apply to 
codes with partial AMP data, price reductions  may be legitimately  warranted for two of 
the six codes because missing  AMPs likely  had little  influence  on the pricing  comparison 
results.  We could not compare ASPs and AMPs for 52 HCPCS codes because AMP data 
were not submitted  for any of the NDCs that CMS used to calculate  reimbursement.   
Manufacturers  for 9 percent of these NDCs had Medicaid drug rebate agreements  and 
were therefore  generally  required to submit  AMPs.   
 
Although  we do not make recommendations  in this report, some of OIGs previous 
pricing  comparisons  have contained  recommendations,  which we continue  to support.43  
In response to OIGs most recent report with recommendations,  CMS expressed 
uncertainty  about the payoff associated with quarterly  pricing  comparisons,  stating  that 
                                                 
43 For example, OIG, Comparison of Average Sales Prices and Average Manufacturer Prices:  An 
Overview of 2007, OEI-03-08-00450,  December 2008; OIG, Comparison of Average Sales Prices and 
Average Manufacturer Prices:  An Overview of 2008, OEI-03-09-00350,  February 2010; OIG,  Comparison 
of Average Sales Prices and Average Manufacturer Prices:  An Overview of 2009, OEI-03-10-00380,  April 
2011; and OIG, Comparison of Average Sales Prices and Average Manufacturer Prices:  An Overview of 
2010, OEI-03-11-00410,  November 2011.  These reports are available online at https://www.oig.hhs.gov. 
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 14  Marilyn  Tavenner 
 
 
the price substitution  policy will  generate minor  savings  for the program.  Although  we 
acknowledge that the savings  from any single  OIG report may be modest relative  to total 
expenditures  for Part B drugs, significant  savings  would have accrued had CMS taken 
action immediately  after OIG issued its first pricing  comparison.   In the long term, 
savings  achieved through  price substitution  could reduce waste and conserve taxpayer 
funds at a time when increased focus has been placed on rising  health care costs and 
fiscal  responsibility.    
 
This report is being issued directly  in final  form because it contains  no recommendations.   
If you have comments  or questions  about this report, please provide them within  60 days.  
Please refer to report number  OEI-03-12-00730 in all correspondence. 
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 15  Marilyn  Tavenner 
 
 
APPENDIX A 
 
The Equation Used by the Centers for Medicare & Medicaid Services To Calculate            
Volume-Weighted Average Sales Prices on or After April 1, 2008 
 
A volume-weighted  average sales price (ASP) is calculated  for the dosage amount 
associated with the Healthcare Common Procedure Coding System (HCPCS) code.  In the 
following  equation,  the number  of billing  units  represents the number of HCPCS code 
doses that are contained in a national  drug code (NDC).   
 
 
 
Volume-Weighted ASP   Sum of  (ASP for NDC * Number of NDCs Sold) 
 
for Dosage Amount        =             
 of HCPCS Code  Sum of   (Number of NDCs Sold * Number of Billing Units in NDC) 
 
 
 
 
 
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 16  Marilyn  Tavenner 
 
 
APPENDIX B 
 
Detailed Methodology for Converting  and Volume-Weighting  Average 
Manufacturer  Prices for the First Quarter of 2012 
 
Healthcare Common  Procedure Coding System codes with complete  average 
manufacturer  price data.  Of the 514 Healthcare  Common Procedure Coding System 
(HCPCS) codes with reimbursement  amounts  based on average sales prices (ASP),                     
397 had average manufacturer  prices (AMP) for every national  drug code (NDC) that the 
Centers for Medicare & Medicaid Services (CMS) used to calculate  volume-weighted 
ASPs.  These 397 HCPCS codes represented 1,969 NDCs.  For 19 NDCs, we could not 
successfully  identify  the amount of the drug reflected by the ASP and therefore could not 
calculate  a converted AMP.  These 19 NDCs were crosswalked to 12 HCPCS codes.  We 
did not include  these 12 HCPCS codes (256 NDCs) in our final  analysis.    
 
Using the converted AMPs for the remaining  1,713 NDCs, we calculated  a volume-
weighted  AMP for each of the remaining  385 HCPCS codes consistent  with CMSs 
methodology  for calculating  volume-weighted  ASPs.   
 
HCPCS codes with partial AMP data.  There were 65 HCPCS codes with AMP data for 
only some of the NDCs that CMS used in its calculation  of volume-weighted  ASPs.  
These 65 HCPCS codes represented a total of 1,020 NDCs.  AMP data were either 
missing  or unavailable  for 285 of these NDCs, which  were then excluded from our 
calculation  of volume-weighted  AMPs.44   
 
We calculated  converted AMPs for each of the remaining  735 NDCs.  For 7 of the                        
735 NDCs, we could not identify  the amount of the drug reflected by the ASP and 
therefore could not calculate  a converted AMP.  We removed these 7 NDCs from our 
analysis.45  As a result, one HCPCS code no longer had any NDCs with AMP data.  
Therefore, this HCPCS code was removed from our analysis.    
 
Using the converted AMPs for the remaining  728 NDCs, we then calculated  a                  
volume-weighted  AMP for each of the remaining  64 HCPCS codes consistent  with 
CMSs methodology  for calculating  volume-weighted  ASPs.   
 
                                                 
44 Although AMP data for these 285 NDCs were excluded from our calculation of volume-weighted AMPs, 
the corresponding ASPs were not excluded from the volume-weighted ASPs as determined by CMS.  
Volume-weighted ASPs remained the same, regardless of the availability of AMP data.   
45 Although we removed NDCs with problematic AMP conversions, we did not remove the corresponding 
HCPCS codes, provided that other NDCs for those drug codes had usable AMP data.  This differs from our 
analysis of HCPCS codes with complete AMP data, in which we removed not only the NDCs with 
problematic AMP conversions, but also the corresponding HCPCS codes. 
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 17  Marilyn  Tavenner 
 
 
HCPCS codes with no AMP data.  For 52 HCPCS codes, there were no AMP data for 
any of the NDCs that CMS used in its calculation  of volume-weighted  ASPs.  These                 
52 HCPCS codes represented 208 NDCs.   
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 18  Marilyn  Tavenner 
 
 
APPENDIX C 
 
Twenty-Two  Drug Codes With Complete Average Manufacturer Price Data That 
Exceeded the 5-Percent Threshold in the First Quarter of 2012 
Drug            
Code  Short Description  Drug Code Dosage 
J0500  Dicyclomine injection  20 mg 
J0595  Butorphanol tartrate injection  1 mg 
J0610  Calcium gluconate injection  10 mL 
J0636  Calcitriol injection  0.1 mcg 
J0670  Mepivacaine HCl injection  10 mL 
J1205  Chlorothiazide sodium injection  500 mg 
J1270  Doxercalciferol injection  1 mcg 
J1742  Ibutilide fumarate injection  1 mg 
J1756  Iron sucrose injection  1 mg 
J1955  Levocarnitine injection  1 g 
J2501  Paricalcitol injection  1 mcg 
J2675  Progesterone injection  50 mg 
J2780  Ranitidine HCl injection  25 mg 
J7500  Azathioprine, oral   50 mg 
J9045  Carboplatin injection  50 mg 
J9065  Cladribine injection  1 mg 
J9208  Ifosfamide injection  1 g 
J9211  Idarubicin HCl injection  5 mg 
J9214  Interferon alfa-2b injection  1 million units 
J9280  Mitomycin injection  5 mg 
J9360  Vinblastine sulfate injection  1 mg 
Q0166  Granisetron HCl, oral  1 mg 
g=gram, mcg=microgram, mg=milligram, mL=milliliter. 
Source:  Office of Inspector General analysis of first-quarter 2012 average sales price and average manufacturer price data, 2012. 
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)  Page 19  Marilyn  Tavenner 
 
 
APPENDIX D 
 
Six Drug Codes With Partial Average Manufacturer  Price Data That Exceeded the                     
5-Percent Threshold in the First Quarter of 2012 
 
Drug              
Code  Short Description  Drug Code Dosage 
90586  Bcg vaccine, for intravesical use  1 each 
J0171  Adrenalin epinephrine injection  0.1 mg 
J1650*  Enoxaparin sodium injection  10 mg 
J2700  Oxacillin sodium injection  250 mg 
J9031  Bcg live intravesical vaccine  1 each 
Q0163*  Diphenhydramine HCl injection  50 mg 
mg=milligram. 
*These drug codes continued to exceed the 5-percent threshold after the Office of Inspector General (OIG) accounted for 
missing average manufacturer prices (AMP).  
Source:  OIG analysis of first-quarter 2012 average sales price and AMPs, 2012. 
 
Comparison of First-Quarter 2012 ASPs and AMPs (OEI-03-12-00730)