DEPARTMENT OFHEALTH & HUMANSERVICES Office ofInspector General
Washington. D.C.20201
MAY - 6 2008
TO: Kerry Weems
Acting Administrator
Centers for Medicare & Medicaid Services
.A/J.~
f\
FROM: Daniel R. Levinson ~ ~. V1a.
Inspector General
SUBJECT: Memorandum Report: "ComparisonofThird-Quarter2007 Average Sales
Prices and Average ManufacturerPrices: Impact on Medicare
Reimbursement for First Quarter2008," OEI-03-08-00130
This congressionally mandated reviewcompares average sales prices (ASP) to average
manufacturer prices (AMP) for Medicare Part B prescription drugs and identifies drugs with
ASPs that exceeded AMPs by at least 5percent during the third quarterof2007. It also
determines the impact ofloweringreimbursementamounts for drugs that meet the 5-percent
threshold.
This is the Office ofInspector General's (OIG) sixthreport comparing ASPs to AMPs.'
Unlike mostofOIG's previous pricing comparisons, this reportconsiders boththe current
ASP payment methodology and a revised ASP paymentmethodology recently mandated by
statute. Specifically, in December2007, the Medicare, Medicaid, and SCHIP ExtensionAct
of2007, P.L. 110-173, amended section 1847A(b) ofthe Social Security Act(the Act) and
changed the way inwhich the Centers for Medicare & Medicaid Services (CMS) calculates
volume-weighted ASPs, effective April 1, 2008.
Using CMS's current ASP payment amount methodology, we identified41 of369 drug
codes withASPs that exceededAMPs by at least 5 percent inthe third quarter of2007. Of
the 41 codes, 31 also met the threshold for price adjustments in atleast one ofthe prior OIG
studies comparing ASPs to AMPs. Ifreimbursementamounts for all 41 codes were based on
103 percentofAMP, we estimate that Medicare expenditures would be reduced by
$16 million during the first quarterof2008 alone.
'Sincethecurrentaveragesales price(ASP) reimbursement methodologyfor PartBprescriptiondrugs was
implemented inJanuary2005, the OfficeofInspectorGeneral (OlG) hascompleted five otherreports
comparingASPs to average manufacturerprices(AMP): OEI-03-04-00430,April 2006;OEI-03-06-00370,
July2006; OEI-03-07-00140,July2007;OEI-03-07-00530, September2007; and OEI-03-08-0001O,
December2007.
OEI-03-08-00130 ComparisonofThird-Quarter2007 ASPsand AMPs Page 2  Kerry Weems 
 
 
Under the revised payment methodology effective in April 2008, ASPs for 35 of 369 drug 
codes would have exceeded AMPs by at least 5 percent.  Of these 35 codes, 32 also met the 
5-percent threshold under CMSs current method for volume-weighting data.  An additional 
three Healthcare Common Procedure Coding System (HCPCS) codes would have met the  
5-percent threshold using the revised ASP payment methodology but not the current 
methodology.  If reimbursement amounts for these 35 codes were based on 103 percent of 
the AMP, we estimate that Medicare expenditures would be reduced by $13 million during 
the first quarter of 2008. 
 
BACKGROUND 
 
Section 1847A(d)(2)(B) of the Act mandates that OIG compare ASPs with AMPs.  If OIG 
finds that the ASP for a drug exceeds the AMP by a certain percentage (currently 5 percent), 
section 1847A(d)(3)(A) of the Act states that the Secretary of the Department of Health and 
Human Services (the Secretary) may disregard the ASP for the drug when setting 
reimbursement.  Section 1847A(d)(3)(C) of the Act goes on to state 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 . . . .   
 
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, 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 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 accounted for 90 percent of the expenditures for Part B drugs, with 
only 11 of these drugs representing half of the total Part B drug expenditures. 
 
OEI-03-08-00130                 Comparison of Third-Quarter  2007  ASPs and  AMPs      
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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,  
P.L. No. 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  
 
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. 
 
Calculation of Volume-Weighted Average Sales Prices 
To calculate volume-weighted ASPs, CMS uses 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.  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 
                                                 
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 Social Security Act (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.  

6 Section 1927(b)(3)  of the Act.  

OEI-03-08-00130                 Comparison of Third-Quarter  2007  ASPs and  AMPs      
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each NDC when developing its crosswalk files.  The equation that CMS currently uses to 
calculate volume-weighted ASPs is provided in Appendix A.   
 
Third-quarter 2007 ASP submissions from manufacturers served as the basis for first-quarter 
2008 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.   
 
Recent Changes to the Calculation of Volume-Weighted Average Sales Prices  
In December 2007, the Medicare, Medicaid, and SCHIP Extension Act of 2007 was enacted.  
Section 112(a) of this law changed section 1847A(b)(6) of the Act to require that CMS 
compute volume-weighted ASP using a revised methodology effective April 2008.  This 
revised methodology was initially proposed by OIG in a February 2006 report entitled 
Calculation of Volume-Weighted Average Sales Price for Medicare Part B Prescription 
Drugs (OEI-03-05-00310). The revised equation for calculating volume-weighted ASPs is 
provided in Appendix A. 
 
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), P.L. No. 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 39142) 
(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.9  
                                                 
7 Section 6001(b)(1)(A) of the Deficit Reduction  Act of 2005  (DRA) changed section  1927(b)  of the Act to  

require that manufacturers 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. 

9 In December 2007, the United States District Court for the District of Columbia preliminarily enjoined the 

implementation of  the regulation for certain purposes  not relevant  to  this report. 

OEI-03-08-00130                 Comparison of Third-Quarter  2007  ASPs and  AMPs      
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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 five reports comparing ASPs to AMPs.  A description 
of each report is provided in Appendix B.  
  
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.10  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 third quarter of 2007, which were 
used to establish Part B drug reimbursement amounts for the first quarter of 2008.  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 current as of January 5, 2008.  
We also obtained AMP data from CMS for the third quarter of 2007, which was current as of 
November 9, 2007.   
 
Analysis of Average Sales Price Data 
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 January 2008, CMS had established prices for 521 HCPCS codes based on the current 
ASP reimbursement methodology.11  Reimbursement amounts for the 521 HCPCS codes 
were based on ASP data for 3,262 NDCs. 
 
                                                 
10 OEI-03-07-00140, July 2007. 

11 Several Part B drugs, including certain vaccines and blood products, are not paid  under the ASP 
 
methodology.
   
OEI-03-08-00130                 Comparison of Third-Quarter  2007  ASPs and  AMPs      
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To anticipate how the statutorily mandated revised ASP payment methodology would affect 
OIGs pricing comparisons, we used the revised equation to calculate an alternate                
volume-weighted ASP for each of the 521 HCPCS codes included in this study.  To 
determine what the Medicare reimbursement amount would be according to the revised 
methodology, we then multiplied the alternate volume-weighted ASPs for the 521 codes by 
1.06.12   
 
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 3,262 NDCs that CMS used 
in its calculation of volume-weighted ASPs for the 521 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 138 HCPCS codes using this conservative approach.  
The remaining 383 HCPCS codes had AMP data for every NDC that CMS used in its 
calculation of volume-weighted ASPs.  These 383 HCPCS codes represented 1,956 NDCs.   
 
We then multiplied the AMPs for these 1,956 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 eight NDCs, we 
could not successfully identify the amount of the drug reflected by the ASP and therefore 
could not calculate a converted AMP.  These eight NDCs were crosswalked to 14 HCPCS 
codes. We did not include these 14 HCPCS codes (66 NDCs) in our final analysis.   
 
Using the converted AMPs for the remaining 1,890 NDCs, we then calculated two different 
volume-weighted AMPs for each of the codes, consistent with the two methodologies for 
calculating volume-weighted ASPs.  The first volume-weighted AMP was calculated using 
the current method for volume-weighting data, and the second volume-weighted AMP was 
calculated using the revised method for volume-weighting data.  We calculated                  
volume-weighted AMPs for a total of 369 HCPCS codes.  We did not verify the accuracy of 
manufacturer-reported ASP and AMP data.   
 
Comparing Volume-Weighted ASPs to Volume-Weighted AMPs 
For each of the 369 HCPCS codes included in our study, we then compared the                  
volume-weighted ASPs and AMPs that resulted from CMSs current calculation.  We also 
compared the volume-weighted ASPs and AMPs that resulted from the revised calculation.  
                                                 
12We multiplied the alternate volume-weighted ASPs  by 1.06 because Medicare reimbursement amounts are 
based on  106 percent of  volume-weighted ASPs.  
OEI-03-08-00130                 Comparison of Third-Quarter  2007  ASPs and  AMPs      
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We identified codes with an ASP that exceeded the AMP by at least 5 percent according to 
either the current or revised calculation. 
 
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, an NDC for one code had billing unit information in CMSs crosswalk file that  
may not have accurately reflected the number of billing units actually contained in the NDC.  
Because volume-weighted ASPs and AMPs are calculated using this billing unit information, 
we could not be certain that the result for this code was correct.  Therefore, we did not 
include this code in our findings. 
 
For the remaining HCPCS codes, we then estimated the monetary impact of lowering 
reimbursement to 103 percent of the AMP.13  For each of the HCPCS codes that met the              
5-percent threshold under CMSs current payment methodology, we calculated 103 percent 
of the volume-weighted AMP and subtracted this amount from the first-quarter 2008 
reimbursement amount for the HCPCS code, which is equal to 106 percent of the                 
volume-weighted ASP.  For each of the codes that met the 5-percent threshold under the 
revised payment methodology, we subtracted 103 percent of the revised volume-weighted 
AMP from the alternate reimbursement amount for the HCPCS code (106 percent of the 
revised volume-weighted ASP).  To estimate the financial effect for the first quarter of 2008, 
we then multiplied the differences 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.14  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  
The definition of AMP changed in January 2007, such that AMPs must now be determined 
without regard to customary prompt pay discounts.15  Because manufacturers are still 
required to include customary prompt pay discounts in their ASP calculations, the dynamic 
between ASPs and AMPs may be different in this report as compared to that in previous OIG 
reports monitoring ASPs and AMPs.   
 
 
 
                                                 
13 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 of the Department of Health and Human Services 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.
14 At the time of  extraction,  2006 Part B Extract and Summary System (BESS) data were 99  percent complete.     
15 Section 1927(k)(1) of the Act (as amended  by section 6001(c)(1) of the DRA) and Medicaid Drug Rebate  
Program Bulletin for Participating  Drug Manufacturers, Release No. 76, December 15, 2006. 
OEI-03-08-00130                 Comparison of Third-Quarter  2007  ASPs and  AMPs      
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Standards 
This inspection 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 
 
Under CMSs Current Payment Methodology, Volume-Weighted ASPs for 41 of                  
369 HCPCS Codes Exceeded the Volume-Weighted AMPs by at Least 5 Percent 
Consistent with sections 1847A(d)(2)(B) and 1847A(d)(3) of 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 third quarter of 2007, 41 of the 369 HCPCS codes included in 
our review (11 percent) met this 5-percent threshold.  A list of the 41 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 41 HCPCS 
codes.16  For 17 of the 41 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 41 HCPCS Codes 
Percentage Difference  Number of 
Between ASP and AMP  HCPCS Codes 
5.00%9.99%  12 
10.00%19.99%  12 
20.00%29.99%  7 
30.00%39.99%  1 
40.00%49.99%  0 
50.00%59.99%  0 
60.00%69.99%  4 
70.00%79.99%  1 
80.00%89.99%  2 
90.00%99.99%  0 
100% and above  2 
     Total  41 
Source: OIG analysis of third-quarter 2007 ASP and AMP data, 2007. 
 
Over three-quarters of the HCPCS codes (31 of 41) were previously identified by OIG as 
having ASPs that exceeded the AMPs by at least 5 percent. Four HCPCS codes (J7620, 
J3410, J9214, and J2690) met the 5-percent threshold in five of OIGs six reports comparing  
                                                 
16 Because of the confidential nature of ASP data, the information in the table is presented in ranges. 
OEI-03-08-00130                 Comparison of Third-Quarter  2007  ASPs and  AMPs      
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ASPs to AMPs, dating back over 3 years.17  An additional three HCPCS codes met the                           
5-percent threshold in four of OIGs six pricing comparisons. Table 2 presents a breakdown 
of the 31 HCPCS codes that previously met the threshold for price adjustments. 
 
Table 2: 	Thirty-one HCPCS Codes That Met the 5-Percent Threshold in Third-Quarter 2007                         
     and Previous Quarters (According to CMSs Current Payment Methodology)  
OIG Comparisons of ASPs to AMPs 
HCPCS 
Third- Second-  First- Third- Fourth-  Third-
Code  
Quarter  Quarter  Quarter  Quarter  Quarter  Quarter 
2007  2007  2007  2006  2005  2004 
J9214  X  X  X  X  X   
J7620  X  X  X  X  X   
J2690  X  X  X  X  X 
J3410  X  X  X  X  X 
J7608  X  X  X  X     
J3475  X  X  X  X   
J1364  X  X  X  X 
Q0169  X  X  X 
J2060  X  X  X 
J7505  X  X  X 
J0280  X  X  X 
J2800  X  X  X 
J3010  X  X  X 
J7500  X  X  X 
J9065  X  X  X 
J0610  X  X  X 
J1240  X  X  X 
J1120  X  X 
J0476  X  X 
J9250  X  X 
J9260  X  X 
Q0176  X  X 
J2700  X  X 
J0636  X  X 
J7631  X  X 
J1850  X  X 
J3000  X  X 
J9190  X  X 
J2675  X  X 
J2730  X  X 
Q0175  X  X 
Source: OIG analysis of ASP and AMP data from third quarter 2007, second quarter 2007, first quarter 2007,                                            
third quarter 2006, fourth quarter 2005, and third quarter 2004. 
 
                                                 
17 If the revised method for volume-weighting data  had been  used, two of these four  Healthcare Common 
Procedure Coding System (HCPCS) codes (J9214 and J3410)  would not  have met the 5-percent threshold in the  
third quarter of 2007.   We did not determine whether these codes would have met the threshold in  previous  
quarters if the revised methodology had been used.   
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Lowering reimbursement amounts for the 41 HCPCS codes to 103 percent of the AMPs  
would reduce Medicare allowances by an estimated $16 million in the first quarter of 2008. 
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 
market price . . . (if any); or (ii) 103 percent of the average manufacturer price . . . .18  In this 
study, we identified 41 HCPCS codes that met the 5-percent threshold specified in the Act.  
If reimbursement amounts for these 41 codes were based on 103 percent of the AMPs during 
the first quarter of 2008, we estimate that Medicare expenditures would be reduced by                
$16 million in that quarter alone.19  
 
Two of the forty-one HCPCS codes accounted for 90 percent of the $16 million.  If the 
reimbursement amounts for codes J7620 and J0800 had been based on 103 percent of the 
AMP during the first quarter of 2008, Medicare expenditures would have been reduced by an 
estimated $9  million and $5 million, respectively.   
 
In addition to meeting the 5-percent threshold in this report, HCPCS code J7620 met the                   
5-percent threshold in four previous OIG reports.  As in this current review, the estimated 
savings for code J7620 accounted for the largest single share of the total savings identified in 
each of the four other OIG pricing comparisons, with estimated quarterly savings for this 
code ranging from $6 million to $8 million.   
 
Under the Revised Payment Methodology, Volume-Weighted ASPs for 35 of                          
369 HCPCS Codes Would Have Exceeded the Volume-Weighted AMPs by at 
Least 5 Percent 
If the revised ASP payment methodology had been used to volume-weight pricing data in the 
third quarter of 2007, 35 of the 369 HCPCS codes  included in our review (9 percent) would 
have met the 5-percent threshold specified in section 1847A(d)(3) of the Act.  
 
Thirty-two of the thirty-five HCPCS codes also met the 5-percent threshold under CMSs 
current method for volume-weighting data. For 18 of these 32 codes, the percentage 
difference between the ASPs and AMPs was the same regardless of which calculation was 
used. For the remaining codes, the extent to which ASPs exceeded AMPs differed.  For 
seven codes, the percentage difference between the ASP and AMP was greater under the 
revised methodology.  For an additional seven codes, the difference was less.  All 32 HCPCS 
                                                 
18 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. 
19 This  savings estimate is based on the Centers for Medicare  & Medicaid Services (CMS) current method for 
volume-weighting data and was calculated using one-fourth of the number of estimated services allowed by  
Medicare for each HCPCS code in 2006.  The 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.  Two HCPCS codes, Q0175 and Q0176,  were not listed  in the 
2006 BESS  data.  Therefore,  we could not estimate savings for these codes.  
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codes that met the 5-percent threshold using both the current and revised calculations are 
identified in Appendix C. 
 
An additional three HCPCS codes would have met the 5-percent threshold using the revised 
ASP payment methodology but not the current methodology. ASPs for HCPCS codes J2370, 
J2560, and J7679 would have exceeded the AMPs by at least 5 percent under the revised 
payment methodology which will take effect in April 2008; however, these codes did not 
meet the 5-percent threshold under CMSs current payment methodology.   
 
Lowering reimbursement amounts for the 35 HCPCS codes to 103 percent of the AMPs 
would have reduced Medicare allowances by an estimated $13 million in the first quarter of  
2008.20  As with CMSs current ASP payment methodology, HCPCS codes J7620 and J0800 
accounted for the majority of the estimated savings under the revised method for                 
volume-weighting data.  If the reimbursement amounts for these two codes had been based 
on 103 percent of the AMPs during the first quarter of 2008, Medicare expenditures would 
have been reduced by an estimated $7  million and $5 million, respectively.   
 
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 
at least 5 percent. This review is the sixth such comparison conducted by OIG, and we 
identified a total of 44 HCPCS codes that met the threshold for price adjustment under either 
the current ASP payment methodology or a revised methodology recently mandated by 
statute.  ASPs for 32 of the 44 HCPCS codes exceeded AMPs by at least 5 percent regardless 
of whether the current or revised ASP payment methodology was used.  An additional nine 
codes met the 5-percent threshold using CMSs current calculation but not the revised 
calculation. Another three codes met the 5-percent threshold using the revised calculation 
but not the current calculation.  Of the 41 codes that met the threshold under CMSs current 
payment methodology, 31 were previously identified by OIG as having ASPs that exceeded 
AMPs by at least 5 percent.  ASPs for 4 of the 31 HCPCS codes exceeded AMPs by at least 
5 percent in five of OIGs six reports comparing ASPs to AMPs, dating back over 3 years.   
   
We note that previous OIG reports comparing ASPs and AMPs have contained 
recommendations.  We are not making additional recommendations in this report and, as 
such, are issuing the report directly in final form.  If you have comments or questions about 
this report, please provide them within 60 days.  Please refer to report number 
OEI-03-08-00130 in all correspondence. 
                                                 
20 This  savings estimate is based on the revised method for volume-weighting data and was calculated using  
one-fourth of the number of estimated services allowed by  Medicare for each HCPCS code in 2006.   The 
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. Two 
HCPCS codes, Q0175 and Q0176, were not listed in the 2006 BESS  data; therefore, we could not estimate  
savings for these codes.   
OEI-03-08-00130                 Comparison of Third-Quarter  2007  ASPs and  AMPs      
  Page 12  Kerry Weems  
 
 
APPENDIX A 
 
In the following equations, a billing unit is defined as the number of Healthcare Common 
Procedure Coding System (HCPCS) code units that are contained in a national drug code 
(NDC). 
 
1. 	  The Equation Currently Used by the Centers for Medicare & Medicaid Services To 
Calculate a Volume-Weighted Average Sales Price (ASP)  
 
 
 
   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   
 
 
2. 	  The Revised Equation Specified in Section 112(a) of the Medicare, Medicaid, and 
SCHIP Extension Act of 2007 
 
 
 
  Volume-Weighted ASP  Sum of (ASP for NDC * Number of NDCs Sold)  
=  
for the Billing Unit of  
Sum of   (Number of NDCs Sold * Billing Units in NDC)  
 HCPCS Code  
OEI-03-08-00130                 Comparison of Third-Quarter  2007  ASPs and  AMPs      
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APPENDIX B 
 
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 drug 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 drug 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 drug 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 to AMPs.  An additional eight drug 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 to AMPs.   
  
In December 2007, OIG released its fifth comparison of ASPs to AMPs, entitled 
Comparison of Second-Quarter 2007 Average Sales Prices to Average Manufacturer Prices:  
Impact on Medicare Reimbursement for Fourth Quarter 2007 (OEI-03-08-00010).  This 
report identified 22 of 292 drug codes with ASPs that exceeded AMPs by at least 5 percent in 
the second quarter of 2007. Sixteen of the twenty-two codes also met the threshold for price 
adjustments in at least one of the prior OIG studies comparing ASPs to AMPs.   
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  Page 14  Kerry Weems  
 
 
APPENDIX C 
 
Forty-One Healthcare Common Procedure Coding System Codes With Average Sales 
Prices That Exceeded Average Manufacturer Prices by at Least 5 Percent Under the 
Current Payment Methodology 
HCPCS Code  Short Description  HCPCS Code Dosage 
J0210*  Methyldopate HCl injection  250 mg 
J0280  Aminophyllin 250 MG injection  250 mg 
J0476*  Baclofen intrathecal trial  50 mcg 
J0610  Calcium gluconate injection  10 mL 
J0636*  Calcitriol injection  0.1 mcg 
J0800*  Corticotropin injection  40 units 
J1120*  Acetazolamid sodium injection  500 mg 
J1240*  Dimenhydrinate injection  50 mg 
J1364*  Erythro lactobionate  500 mg 
J1580*  Garamycin gentamicin injection  80 mg 
J1631  Haloperidol decanoate injection  50 mg 
J1800*  Propranolol injection  1 mg 
J1840*  Kanamycin sulfate injection  500 mg 
J1850*  Kanamycin sulfate injection  75 mg 
J2060  Lorazepam injection  2 mg 
J2150*  Mannitol injection  50 mL 
J2430*  Pamidronate disodium  30 mg 
J2675*  Progesterone injection  50 mg 
J2690*  Procainamide HCl injection  1 g 
J2700*  Oxacillin sodium injection  250 mg 
J2730*  Pralidoxime chloride injection  1 g 
J2800*  Methocarbamol injection  10 mL 
J3000*  Streptomycin injection  1 g 
J3010  Fentanyl citrate injection  0.1 mg 
J3410  Hydroxyzine HCl injection  25 mg 
J3475  Magnesium sulfate injection  500 mg 
J7500*  Azathioprine oral   50 mg 
J7505*  Monoclonal antibodies  5 mg 
J7608  Acetylcysteine inhalation solution unit dose  1 g 
J7620*  Albuterol ipratrop non-compounded  2.5 MG/0.5 mg 
J7631*  Cromolyn sodium inhalation solution unit dose  10 mg 
J9050*  Carmus bischl nitro injection  100 mg 
J9065*  Cladribine injection  1 mg 
J9190*  Fluorouracil injection  500 mg 
J9208*  Ifosfamide injection  1 g 
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HCPCS Code  Short Description  HCPCS Code Dosage 
J9214  Interferon alfa-2b injection  1 million units 
J9250*  Methotrexate sodium injection  5 mg 
J9260*  Methotrexate sodium injection  50 mg 
Q0169*  Promethazine HCl oral  12.5 mg 
Q0175*  Perphenazine oral  4 mg 
Q0176*  Perphenazine oral  8 mg 
Source: Office of Inspector General analysis of third-quarter 2007 average sales prices and average manufacuturer prices  
data, 2008. 
Codes marked with an asterisk (*) also met the 5-percent threshold according to the revised method of volume-weighting the 
data. 
 
OEI-03-08-00130                 Comparison of Third-Quarter  2007  ASPs and  AMPs