( t DEPARTMENT OF HEALTH &. HUMAN SERVICES Office of Inspector General
'..
'l..l~""JO Washington, D.C. 20201
"""4"""CS U'.
FEB 1 a 2009
TO: Charlene Frizzera
Acting Administrator
Centers for Medicare & Medicaid Services
FROM: Daniel R. Levinson
Inspector General
SUBJECT: Memorandum Report: "Comparison of Second-Quarter 2008 Average Sales
Prices and Average Manufacturer Prices: Impact on Medicare
Reimbursement for Fourth Quarter 2008," OEI-03-09-00050
This review was conducted in accordance with the congressional mandate for the Office of
Inspector General (OIG) to review average sales prices (ASP) and average manufacturer
prices (AMP) for Medicare Part B prescription drugs and identify ASPs that exceed AMPs
by at least 5 percent. The review also determined the impact of lowering reimbursement
amounts for drugs that meet the 5-percent threshold.
the ASP reimbursement methodology in 2005, OIG has issued nine
Since the advent of 
reports comparing ASPs to AMPs. This is OIG's 10th pricing comparison, and it examines
drugs that met the 5-percent threshold based on either complete or partial AMP data. i Ofthe
303 drugs with complete AMP data in the second quarer of2008, 10 met the 5-percent
threshold under the revised ASP payment methodology recently mandated by statute. Eight
of these ten drugs were previously eligible for price adjustment under the revised payment
the past six
methodology, with three drugs meeting the 5-percent threshold in each of 
quarters. If reimbursement amounts for all 10 drugs had been based on 103 percent of the
AMPs, we estimate that Medicare expenditures would have been reduced by over half a
milion dollars in the fourth quarer of2008. Ofthe 143 drugs with only partial AMP data,
21 had ASPs that exceeded the AMPs by at least 5 percent in the second quarter of2008.
the 21 drugs would have met the
Under the revised ASP payment methodology, 9 of 
the past six quarters, dating back to the first quarter of
5-percent threshold in at least two of 
2007. We estimate that Medicare expenditures would have been reduced by $3 milion
during the fourth quarter of 2008 if reimbursement amounts for all 21 drugs had been based
on 103 percent of the AMPs. We could not perform pricing comparisons for an additional
i In quarte s prior to 2008, OIG perfonned pricing comparisons only for those drugs with AMP data for every
drug product used by the Centers for Medicare & Medicaid Services (CMS) to calculate the Medicare
the first quarter of2008, we began additionally examining drugs with only
reimbursement amount. As of 
partial AMP data (i.e., drugs with AMP data for some, but not all, ofthe products used to establish Medicare
reimbursement). This ensures that a broader range of drugs is subject to OIG's pricing comparisons.
OEI-03-09-00050 Comparison of Second-Quarter 2008 ASPs and A s Page 2  Charlene Frizzera 
 
 
68 drugs because none of the drug products used to establish Medicare reimbursement had 
corresponding AMP data.  Manufacturers for almost one-fifth of those drug products had 
Medicaid drug rebate agreements and were therefore generally required to submit AMPs.  
OIG will continue to work with CMS to evaluate and pursue appropriate actions against 
those manufacturers that fail to submit required data.   
 
BACKGROUND 
 
Section 1847A(d)(2)(B) of the Social Security Act (the Act) mandates that OIG compare 
ASPs to 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 amounts.  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 Medicare Administrative Contractors 
(MAC), 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 MACs 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 approximately $11 billion for Part B drugs in 2007.2  
Although Medicare paid for more than 600 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 2007, 52 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. 
 
                                                 
2 Medicare expenditures for Part B drugs were calculated using 2007 data in CMSs Part B Extract and 
Summary System (BESS), which were 98-percent complete at the time of extraction. 
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 3  Charlene Frizzera 
 
 
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.3  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.4  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.5 6 
 
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.7 
 
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 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 
each NDC when developing its crosswalk files.   
                                                 
3 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.  Before 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. 
4 Section 1847A(c)(3) of the Act.  
5 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. 
6 Section 1847A(c)(2) of the Act.  
7 Section 1927(b)(3) of the Act.  
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 4  Charlene Frizzera 
 
 
Before April 2008, CMS calculated volume-weighted ASPs using the equation presented in 
Appendix A.  However, section 112(a) of the Medicare, Medicaid, and SCHIP Extension Act 
of 2007, P.L. No. 110-173, changed section 1847A(b) of the Act to require that CMS 
compute volume-weighted ASPs using a revised methodology, effective April 2008.  This 
revised methodology was 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 also 
provided in Appendix A.   
 
Fourth-quarter 2008 Medicare allowances for most covered drug codes were based on                 
second-quarter 2008 ASP submissions from manufacturers, which were volume-weighted 
using the revised methodology.  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.  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.8    
 
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.  Before the passage of the DRA, 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 2007.9  In July 2007, CMS published a final rule 
at 72 Fed. Reg. 39142 (July 17, 2007) that, 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.10 
                                                 
8 Section 6001(b)(1)(A) of the Deficit Reduction Act of 2005 (DRA), P.L. No. 109-171, 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.  
9 CMS, Medicaid Drug Rebate Program, Bulletin for Participating Drug Manufacturers, Release No. 76,                          
December 15, 2006. 
10 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.  Section 203 of the Medicare 
Improvements for Patients and Providers Act of 2008 also delayed the implementation of certain aspects of the 
regulation and the DRA requirements.  Again, those aspects are not relevant for the purposes of this report. 
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 5  Charlene Frizzera 
 
 
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 milliliter, 1 tablet, 1 capsule).   
 
If a manufacturer fails to provide AMP data in a timely manner, civil monetary penalties may 
be imposed.11  In addition, pursuant to section 1927(b)(4)(B) of the Act, the Secretary may 
terminate a rebate agreement for violation of the requirements of the agreement or other 
good cause shown.  CMS has terminated a number of manufacturers for failure to report 
drug-pricing data as required by section 1927 of the Act.  CMS has also provided OIG with 
information about manufacturers that failed to submit drug-pricing data for the purposes of 
evaluating potential civil monetary penalty actions.  
 
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 issued nine quarterly reports comparing ASPs and AMPs.  In 
addition, OIG recently completed an annual overview of ASPs and AMPs, which examined 
data across all four quarters of 2007 using the revised ASP payment methodology recently 
implemented by CMS.  A list of all nine reports is provided in Appendix B.   
 
Although CMS has acknowledged the Secretarys authority to adjust ASP payment limits 
based on the findings of OIGs pricing comparisons, CMS has yet to make any changes to 
Part B drug reimbursement as a result of these studies.  Rather, CMS has emphasized both 
the complexity of substituting payment amounts and the importance of proceeding cautiously 
to avoid unintended consequences.12  In commenting on OIGs reports, CMS has expressed a 
desire to both better understand fluctuating differences between ASPs and AMPs and engage 
stakeholders, with the intent of developing a process for making price substitutions.13  
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. 
 
OIG will continue to meet its congressional mandate by issuing reports based on quarterly 
pricing comparisons, along with annual overviews to summarize findings across each 
calendar year. 
 
METHODOLOGY 
 
We obtained from CMS NDC-level ASP data from the second quarter of 2008, which were 
used to establish Part B drug reimbursement amounts for the fourth 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                  
                                                 
11 Pursuant to section 1927(b)(3)(C) of the Act. 
12 OEI-03-08-00450, December 2008. 
13 OEI-03-07-00140, July 2007, and OEI-03-08-00450, December 2008. 
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 6  Charlene Frizzera 
 
 
September 18, 2008.  We also obtained AMP data from CMS for the second quarter of 2008, 
which were current as of August 14, 2008. 
 
Analysis of Average Sales Price Data From the Second Quarter of 2008 
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 2008, CMS had established prices for 523 HCPCS codes based on the 
revised ASP reimbursement methodology mandated by section 112(a) of the Medicare, 
Medicaid, and SCHIP Extension Act of 2007.14  Reimbursement amounts for the                            
523 HCPCS codes were based on ASP data for 3,356 NDCs.   
 
Analysis of Average Manufacturer Price Data From the Second Quarter of 2008 
In quarters prior to 2008, OIG performed pricing comparisons for only those drug codes with 
AMP data for every drug product used by CMS to calculate the Medicare reimbursement 
amount.  As a result of that conservative approach, at least 17 percent of HCPCS codes were 
excluded from our analysis in any given quarter.  As of the first quarter of 2008, we began 
additionally examining drug codes with only partial AMP data (i.e., drug codes with AMP 
data for some, but not all, of the products used to establish Medicare reimbursement).  This 
ensures that a broader range of drug codes is subject to OIGs pricing comparisons. 
 
For the purposes of this report, we divided HCPCS codes into the following three groups:                       
 
(1) HCPCS codes with AMP data for every NDC that CMS used in its calculation of 
volume-weighted ASPs, 
 
(2) 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 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, 1 tablet, 1 capsule).  In contrast, the 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.   
                                                 
14 Several Part B drugs, including certain vaccines and blood products, are not paid under the ASP 
methodology.  
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 7  Charlene Frizzera 
 
 
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, the Red Book, and the Food and Drug 
Administrations NDC directory.  For certain NDCs, we were unable to successfully identify 
the amount of the drug reflected by the ASP and therefore could not calculate converted 
AMPs.  Because of these unsuccessful AMP conversions, nine 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 the revised methodology for 
calculating volume-weighted ASPs.  Appendix C provides a more detailed description of the 
methods that 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 Code 
HCPCS Codes   NDCs  
Complete AMP Data  303  1,202 
Partial AMP Data  143  1,139 
No AMP Data  68  433 
Source:  OIG analysis of second-quarter 2008 ASP and AMP data, 2008. 
 
Comparing Volume-Weighted ASPs to Volume-Weighted AMPs for the Second 
Quarter of 2008 Using the Revised ASP Payment Methodology 
For each of the HCPCS codes included in our study, we compared the volume-weighted 
ASPs and AMPs and identified codes with ASPs that exceeded the AMPs by at least                      
5 percent.  
 
For those HCPCS codes that met or exceeded the 5-percent threshold, we reviewed the 
associated NDCs to verify the accuracy of the billing unit information.  According to our 
review, NDCs for four 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 results for these codes were correct.  Therefore, we did not 
consider these four HCPCS codes as having met the 5-percent threshold.   
 
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 8  Charlene Frizzera 
 
 
For the remaining HCPCS codes, we then estimated the monetary impact of lowering 
reimbursement to 103 percent of the AMP.15  For each of the HCPCS codes that met the              
5-percent threshold, we calculated 103 percent of the volume-weighted AMP and subtracted 
this amount from the fourth-quarter 2008 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 2008, we then multiplied the difference by one-fourth of the number of 
services that were allowed by Medicare for each HCPCS code in 2007, as reported in 
BESS.16  This estimate assumes that the number of services that were allowed by Medicare 
in 2007 remained consistent from one quarter to the next and that there were no significant 
changes in utilization between 2007 and 2008. 
 
Identifying Codes That Would Also Have Met the 5-Percent Threshold in Previous 
Quarters Under the Revised Payment Methodology 
Using volume-weighted ASPs and AMPs calculated under the revised ASP payment 
methodology,17 we determined whether codes meeting the 5-percent threshold in the second 
quarter of 2008 would have also met the 5-percent threshold in any of the five previous 
quarters, dating back to the first quarter of 2007.   
   
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. 
 
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 compiled 
by CMS soon after that deadline.  We did not verify whether manufacturers later provided 
revised or missing data to CMS. 
 
Furthermore, the definition of AMP changed effective January 2007, such that AMPs must 
now be determined without regard to customary prompt pay discounts.18  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 OIG reports using prices submitted before 2007.   
                                                 
15 Section 1847A(d)(3)(C) of the Act directs the Secretary to replace payment amounts for drugs that meet 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. 
16 At the time of extraction, 2007 BESS data were 98 percent complete.     
17 CMS was not required to apply the revised ASP payment methodology to ASP data submitted by 
manufacturers prior to the fourth quarter of 2007.  However, to establish a more useful and consistent 
benchmark for comparisons of ASPs and AMPs over time, OIG recently completed a report examining ASPs 
and AMPs for all four quarters of 2007 using the revised methodology (i.e., we recalculated volume-weighted 
ASPs and AMPs using the revised methodology for the first three quarters of 2007).  We used these 
recalculated ASPs and AMPs in this current report. 
18 Section 1927(k)(1) of the Act (as amended by section 6001(c)(1) of the DRA) and CMS, Medicaid Drug 
Rebate Program, Bulletin for Participating Drug Manufacturers, Release No. 76, December 15, 2006. 
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 9  Charlene Frizzera 
 
 
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 
 
Of the 303 Drug Codes With Complete AMP Data, Volume-Weighted ASPs for                      
10 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.  Under the revised ASP payment methodology recently mandated by 
statute, 10 of the 303 HCPCS codes with complete AMP data (3 percent) met this 5-percent 
threshold in the second quarter of 2008.  A list of the 10 HCPCS codes, including their 
descriptions and HCPCS dosage amounts, is presented in Appendix D.   
 
Table 2 describes the extent to which ASPs exceeded AMPs for the 10 HCPCS codes.19  For 
two of the codes, volume-weighted ASPs exceeded volume-weighted AMPs by 50 percent or 
more.  The ASP for one of these codes was more than double the AMP. 
 
     Table 2:  Extent to Which ASPs Exceeded AMPs for                                                                     
10 HCPCS Codes With Complete AMP Data 
Percentage by Which ASPs  Number of HCPCS 
Exceeded AMPs  Codes 
5.00%9.99%  1 
10.00%19.99%  7 
20.00%29.99%  0 
30.00%39.99%  0 
40.00%49.99%  0 
50.00%59.99%  1 
60.00%69.99%  0 
70.00%79.99%  0 
80.00%89.99%  0 
90.00%99.99%  0 
100% and above  1 
     Total  10 
Source:  OIG analysis of second-quarter 2008 ASP and AMP data, 2008. 
  
                                                 
19 Because of the confidential nature of ASP data, the information in the table is presented in ranges. 
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 10  Charlene Frizzera 
 
 
Most of the HCPCS codes (8 of 10) were previously identified by OIG as having ASPs that 
exceeded the AMPs by at least 5 percent.20  Under the revised ASP payment methodology, 
three HCPCS codes (J1364, J2690, and Q0169) would have met the 5-percent threshold in 
each of the past six quarters, dating back to the first quarter of 2007.  An additional three 
HCPCS codes would have met the 5-percent threshold in four of the six quarters if the 
revised methodology had been used since the beginning of 2007.  Table 3 presents a 
breakdown of the eight HCPCS codes that previously met the threshold for price 
adjustments. 
 
Table 3:  Eight HCPCS Codes That Met the 5-Percent Threshold in the Second Quarter of 2008                   
and Previous Quarters (According to CMSs Revised Payment Methodology) 
 
OIG Comparisons of ASPs to AMPs 
HCPCS 
Second  First  Fourth  Third  Second  First 
Code 
Quarter  Quarter  Quarter  Quarter  Quarter  Quarter 
2008  2008  2007  2007  2007  2007 
J1364  X  X  X  X  X  X 
J2690  X  X  X  X  X  X 
Q0169  X  X  X  X  X  X 
J2760  X  X  X    X   
J9250  X   X*    X    X 
J9260  X   X*    X    X 
Q0168  X    X       
J9340  X        X   
* These two codes met the 5-percent threshold in the first quarter of 2008 based on partial AMP data. 
Source:  OIG analysis of ASP and AMP data from the first two quarters of 2008 and all four quarters of 2007. 
 
Lowering reimbursement amounts for the 10 HCPCS codes to 103 percent of the AMPs 
would have reduced Medicare allowances by over half a million dollars in the fourth 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 . . . .21  In this study, we identified 10 HCPCS codes that met the 5-percent threshold 
specified in the Act.  If reimbursement amounts for these 10 codes had been based on                        
                                                 
20 We compared the results from this report to those in recent OIG reports (OEI-03-08-00530 and                                  
OEI-03-08-00450) that examined ASPs and AMPs for the first quarter of 2008 and all four quarters of 2007 
using the revised methodology.     
21 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 estimates presented in this report would have been greater. 
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 11  Charlene Frizzera 
 
 
103 percent of the AMPs during the fourth quarter of 2008, we estimate that Medicare 
expenditures would have been reduced by $534,000 in that quarter.22 23  
 
One of the 10 HCPCS codes accounted for over 90 percent of the estimated savings.  If the 
reimbursement amount for code J9225 had been based on 103 percent of the AMP during the 
fourth quarter of 2008, Medicare expenditures would have been reduced by an estimated 
$496,000.   
 
Of the 143 Drug Codes With Partial AMP Data, Volume-Weighted ASPs for                                
21 Exceeded the Volume-Weighted AMPs by at Least 5 Percent  
In addition to examining HCPCS codes with complete AMP data, we examined 143 HCPCS 
codes for which only partial AMP data were available.  Under the revised payment 
methodology, ASPs for 21 of these 143 HCPCS codes (15 percent) exceeded the AMPs by at 
least 5 percent in the second quarter of 2008.  A list of the 21 HCPCS codes, including their 
descriptions and HCPCS dosage amounts, is presented in Appendix E.   
 
Table 4 describes the extent to which ASPs exceeded AMPs for the 21 HCPCS codes.24  For 
43 percent of the codes (9 of 21), volume-weighted ASPs exceeded volume-weighted AMPs 
by 20 percent or more.  The ASP for one of these codes was more than double the AMP. 
 
       Table 4:  Extent to Which ASPs Exceeded AMPs for                                                                    
21 HCPCS Codes With Partial AMP Data 
Percentage by Which ASP  Number of HCPCS 
Exceeded AMP  Codes 
5.00%9.99%  7 
10.00%19.99%  5 
20.00%29.99%  3 
30.00%39.99%  3 
40.00%49.99%  0 
50.00%59.99%  1 
60.00%69.99%  0 
70.00%79.99%  0 
80.00%89.99%  0 
90.00%99.99%  1 
100% and above  1 
     Total  21 
Source:  OIG analysis of second-quarter 2008 ASP and AMP data, 2008. 
 
                                                 
22 This savings estimate assumes that the number of services that were allowed by Medicare in 2007 remained 
consistent from one quarter to the next and that there were no significant changes in utilization between                
2007 and 2008.  
23 One of the 10 HCPCS codes did not have any services in the 2007 BESS file.  As a result, a savings estimate 
could not be calculated for this code.  
24 The information in the table is presented in ranges because of the confidential nature of ASP data. 
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 12  Charlene Frizzera 
 
 
Over 40 percent of the 21 HCPCS codes with partial AMP data were previously identified by 
OIG as having ASPs that exceeded the AMPs by at least 5 percent.25  Under the revised ASP 
payment methodology, two HCPCS codes (J1626 and J2700) would have met the 5-percent 
threshold in three of the past six quarters.  The remaining seven HCPCS codes would have 
met the 5-percent threshold in two of the six quarters if the revised methodology had been 
used since the beginning of 2007.  Table 5 presents a breakdown of the nine HCPCS codes 
that previously met the threshold for price adjustments. 
 
Table 5:  Nine HCPCS Codes That Met the 5-Percent Threshold in the Second Quarter of 2008                   
and Previous Quarters (According to CMSs Revised Payment Methodology) 
 
OIG Comparisons of ASPs to AMPs 
HCPCS 
Second  First  Fourth  Third  Second  First 
Code 
Quarter  Quarter  Quarter  Quarter  Quarter  Quarter 
2008  2008  2007  2007  2007  2007 
J1626  X   X*  X       
J2700  X  X    X     
J0560  X   X*         
J0670  X   X*         
J1190  X   X*         
J2310  X   X*         
J9000  X   X*         
Q0175  X      X     
Q0176  X      X     
* These codes met the 5-percent threshold in the first quarter of 2008 based on partial AMP data. 
Source:  OIG analysis of ASP and AMP data from the first two quarters of 2008 and all four quarters of 2007. 
 
Lowering reimbursement amounts for the 21 HCPCS codes to 103 percent of the AMPs 
would have reduced Medicare allowances by an estimated $3 million in the fourth quarter of 
2008. 26 27 28  Two of the 21 HCPCS codes accounted for 80 percent of the $3 million.  If the 
reimbursement amounts for codes J1626 and J9185 had been based on 103 percent of the 
AMPs during the fourth quarter of 2008, Medicare expenditures would have been reduced by 
an estimated $1.7 million and $649,000, respectively. 
 
                                                 
25 Results from this report were compared to those in recent OIG reports (OEI-03-08-00530 and                                  
OEI-03-08-00450) that examined ASPs and AMPs for the first quarter of 2008 and all four quarters of 2007 
using the revised methodology.      
26 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 estimates presented in this report would have been greater. 
27 This savings estimate assumes that the number of services that were allowed by Medicare in 2007 remained 
consistent from one quarter to the next and that there were no significant changes in utilization between                
2007 and 2008.  
28 Two of the 21 HCPCS codes did not have any services in the 2007 BESS file.  As a result, savings estimates 
could not be calculated for these codes. 
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 13  Charlene Frizzera 
 
 
Pricing Comparisons Could Not Be Performed on 68 Drug Codes Because No AMP 
Data Were Available 
For 68 HCPCS codes, OIG could not compare ASPs and AMPs because there were no AMP 
data for any of the 433 NDCs that CMS used when calculating drug reimbursement amounts 
for these codes.  In 2007, Medicare allowances for these 68 codes totaled $59 million. 
 
Almost one-fifth of NDCs without AMP data belonged to manufacturers with Medicaid drug 
rebate agreements.29  Manufacturers for 19 percent of the NDCs without AMP data (81 of 
433) participated in the Medicaid drug rebate program as of the second quarter of 2008 and 
were therefore generally required to submit AMP data.30 31  The majority (69 percent) of 
these 81 NDCs belonged to three manufacturers.  
 
Manufacturers for the remaining 352 of 433 NDCs did not participate in the Medicaid drug 
rebate program and therefore were not required to submit AMP data.   
  
CONCLUSION 
 
To monitor 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 is OIGs 10th report comparing ASPs and AMPs, and it examined HCPCS codes with 
AMP data for every NDC that CMS used to establish reimbursement amounts, as well as 
HCPCS codes with only partial AMP data. 
 
Using the revised ASP payment methodology recently implemented by CMS, we identified a 
total of 31 HCPCS codes in the second quarter of 2008 that met the threshold for price 
adjustment.  Ten of the 31 HCPCS codes had complete AMP data.  Of these 10 codes,              
8 were previously identified by OIG as having ASPs that exceeded the AMPs by at least                  
5 percent under the revised payment methodology.  Three of the eight HCPCS codes (J1364, 
J2690, and Q0169) met the 5-percent threshold in each of the past six quarters, dating back to 
the first quarter of 2007.  The remaining 21 of 31 HCPCS codes also met the 5-percent 
threshold in the second quarter of 2008 but did not have AMP data for every NDC that CMS 
used when calculating reimbursement.  Finally, we could not compare ASPs and AMPs for 
68 HCPCS codes because AMP data were not submitted for any of the NDCs that CMS used 
to calculate reimbursement.  Manufacturers for almost one-fifth of these NDCs had  
Medicaid drug rebate agreements and were therefore generally required to submit AMPs.  
OIG will continue to work with CMS to evaluate and pursue appropriate actions against 
those manufacturers that fail to submit required data.   
                                                 
29 To determine whether a manufacturer participated in the Medicaid drug rebate program, we consulted the list 
of participating drug companies posted on CMSs Web site. 
30 Although manufacturers with rebate agreements are generally required to submit AMP data, 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.   
31 These 81 NDCs were crosswalked to 33 HCPCS codes. 
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 14  Charlene Frizzera 
 
 
Some of OIGs previous 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-03-09-00050 in all correspondence. 
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 15  Charlene Frizzera 
 
 
APPENDIX A 
 
Equations Used by the Centers for Medicare & Medicaid Services To Calculate                   
Volume-Weighted Average Sales Prices 
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 Revised Equation Used by the Centers for Medicare & Medicaid  
 Services (CMS) To Calculate Volume-Weighted Average Sales Prices (ASP)  
 Beginning April 1, 2008 
 
 
  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 
 
 
2.  The Equation Used by CMS To Calculate Volume-Weighted ASPs Before                       
April 1, 2008 
 
  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  
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 16  Charlene Frizzera 
 
 
APPENDIX B 
 
Previous Office of Inspector General Reports Comparing Average Sales Prices and Average 
Manufacturer Prices 
 
  Monitoring Medicare Part B Drug Prices:  A Comparison of Average Sales Prices to 
Average Manufacturer Prices (OEI-03-04-00430), April 2006 
 
  Comparison of Fourth-Quarter 2005 Average Sales Prices to Average Manufacturer 
Prices:  Impact on Medicare Reimbursement for Second Quarter 2006                                
(OEI-03-06-00370), July 2006 
 
  Comparison of Third-Quarter 2006 Average Sales Prices to Average Manufacturer 
Prices:  Impact on Medicare Reimbursement for First Quarter 2007                                      
(OEI-03-07-00140), July 2007 
 
  Comparison of First-Quarter 2007 Average Sales Prices to Average Manufacturer 
Prices:  Impact on Medicare Reimbursement for Third Quarter 2007                                  
(OEI-03-07-00530), September 2007 
 
  Comparison of Second-Quarter 2007 Average Sales Prices and Average Manufacturer 
Prices:  Impact on Medicare Reimbursement for Fourth Quarter 2007                                   
(OEI-03-08-00010), December 2007 
 
  Comparison of Third-Quarter 2007 Average Sales Prices and Average Manufacturer 
Prices:  Impact on Medicare Reimbursement for First Quarter 2008                                     
(OEI-03-08-00130), May 2008 
 
  Comparison of Fourth-Quarter 2007 Average Sales Prices and Average Manufacturer 
Prices:  Impact on Medicare Reimbursement for Second Quarter 2008                                     
(OEI-03-08-00340), August 2008 
 
  Comparison of Average Sales Prices and Average Manufacturer Prices:  An Overview 
of 2007 (OEI-03-08-00450), December 2008 
 
  Comparison of First-Quarter 2008 Average Sales Prices and Average Manufacturer 
Prices:  Impact on Medicare Reimbursement for Third Quarter 2008                                     
(OEI-03-08-00530), December 2008 
 
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 17  Charlene Frizzera 
 
 
APPENDIX C 
 
Detailed Methodology for Converting and Volume-Weighting Average Manufacturer 
Prices for the Second Quarter of 2008 
 
Healthcare Common Procedure Coding System codes with complete average manufacturer 
price data.  Of the 523 Healthcare Common Procedure Coding System (HCPCS) codes with 
reimbursement amounts based on average sales prices (ASP), 310 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 310 HCPCS codes 
represented 1,287 NDCs.  For six NDCs, we could not successfully identify the amounts of 
the drugs reflected by the ASPs and therefore could not calculate converted AMPs.  These 
six NDCs were crosswalked to seven HCPCS codes.  We did not include these seven HCPCS 
codes (85 NDCs) in our final analysis.   
 
Using the converted AMPs for the remaining 1,202 NDCs, we then calculated a                      
volume-weighted AMP for each of the remaining 303 HCPCS codes consistent with the 
revised methodology for calculating volume-weighted ASPs.   
 
HCPCS codes with partial AMP data.  There were 145 HCPCS codes with AMP data for 
only some of the NDCs that CMS used in its calculation of volume-weighted ASPs.  These                 
145 HCPCS codes represented a total of 1,636 NDCs.  AMP data were either missing or 
unavailable for 481 of these NDCs, which were then excluded from our calculation of 
volume-weighted AMPs.32   
 
We calculated converted AMPs for all of the remaining 1,155 NDCs.  For 16 of the                  
1,155 NDCs, we could not successfully identify the amounts of the drug reflected by the 
ASPs and therefore could not calculate converted AMPs.  We removed these 16 NDCs from 
our analysis.33  As a result, two HCPCS codes no longer had any NDCs with AMP data.  
Therefore, these two HCPCS codes were removed from our analysis.   
 
Using the converted AMPs for the remaining 1,139 NDCs, we then calculated a                      
volume-weighted AMP for each of the remaining 143 HCPCS codes, consistent with the 
revised methodology for calculating volume-weighted ASPs.   
 
                                                 
32 Although AMP data for these 481 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.   
33 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. 
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 18  Charlene Frizzera 
 
 
HCPCS codes with no AMP data.  For 68 HCPCS codes, there were no AMP data for any of 
the NDCs that CMS used in its calculation of volume-weighted ASPs.  These 68 HCPCS 
codes represented 433 NDCs.   
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 19  Charlene Frizzera 
 
 
APPENDIX D 
 
Ten Drug Codes With Complete Average Manufacturer Price Data That Met the              
5-Percent Threshold in the Second Quarter of 2008 
 
Drug            
Code  Short Description  Drug Code Dosage 
J1364  Erythro lactobionate  500 mg 
J2690  Procainamide HCl injection  1 g 
J2760  Phentolaine mesylate injection  5 mg 
J8515  Cabergoline, oral  0.25 mg 
J9225  Histrelin implant  50 mg 
J9250  Methotrexate sodium injection  5 mg 
J9260  Methotrexate sodium injection  50 mg 
J9340  Thiotepa injection  15 mg 
Q0168  Dronabinol, oral  5 mg 
Q0169  Promethazine HCl, oral  12.5 mg 
Source:  Office of Inspector General analysis of second-quarter 2008 average sales price and average 
manufacturer price data, 2008. 
 
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs     
  Page 20  Charlene Frizzera 
 
 
APPENDIX E 
 
Twenty-One Drug Codes With Partial Average Manufacturer Price Data That Met the 
5-Percent Threshold in the Second Quarter of 2008 
 
Drug              
Code  Short Description  Drug Code Dosage 
90376  Rabies immune globulin, heat treated  150 units 
J0500  Dicyclomine injection  20 mg 
J0560  Penicillin G benzathine injection  600,000 units 
J0670  Mepivacaine HCl injection  10 ML 
J1190  Dexrazoxane HCl injection  250 mg 
J1626  Granisetron HCl injection  100 mcg 
J1642  Heparin sodium injection  10 units 
J2310  Naloxone HCl injection  1 mg 
J2700  Oxacillin sodium injection  250 mg 
J7506  Prednisone, oral  5 mg 
J7509  Methylprednisolone, oral  4 mg 
J9000  Doxorubicin HCl  10 mg 
J9040  Bleomycin sulfate injection  15 units 
J9130  Dacarbazine injection  100 mg 
J9150  Daunorubicin  10 mg 
J9185  Fludarabine phosphate injection  50 mg 
J9370  Vincristine sulfate injection  1 mg 
J9375  Vincristine sulfate injection  2 mg 
J9380  Vincristine sulfate injection  5 mg 
Q0175  Perphenazine, oral  4 mg 
Q0176  Perphenazine, oral  8 mg 
Source:  Office of Inspector General analysis of second-quarter 2008 average sales price and average 
 
manufacturer price data, 2008.
OEI-03-09-00050                                                       Comparison of Second-Quarter 2008 ASPs and AMPs