Department of Health and Human Services
 
OFFICE OF 

 
INSPECTOR GENERAL 

 
 
 
 
 
 
 
 
U  NIT OF MEASURE 

 
I
NCONSISTENCIES IN THE 

 
 
M P D
EDICAID  RESCRIPTION  RUG 

 
  P  
ROGRAM 

 
 
 
   
 
 
 
 
 
 
 
Daniel R. Levinson 
  
Inspector General 

 
November 2007 
 
OEI-05-07-00050 
 
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Office of Inspector General 

 
http://oig.hhs.gov 
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452,  
as amended, is to  protect the integrity of  the Department of Health and Human Services 
(HHS)  programs, as well as the health and welfare of beneficiaries  served by those 
programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
investigations, and inspections conducted by the  following operating components:  
Office of Audit Services 
The Office of Audit Services (OAS) provides all auditing services  for HHS, either by  
conducting audits with its  own audit resources or by overseeing audit work done by others.   
Audits examine the performance of HHS programs and/or its grantees and  contractors  
in carrying out  their respective responsibilities and are intended  to provide independent  
assessments of  HHS programs and operations.  These assessments help reduce waste, 
abuse, and mismanagement  and  promote economy and  efficiency throughout HHS. 
Office of Evaluation and Inspections  
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on 
significant issues.  Specifically, these evaluations focus on preventing fraud,  waste,  or  
abuse and promoting  economy, efficiency, and effectiveness  in departmental programs.  
To promote impact, the reports also present practical recommendations for improving 
program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative  
investigations  of  allegations of wrongdoing  in HHS  programs or to HHS  beneficiaries  
and of unjust enrichment by  providers.  The investigative  efforts  of OI lead to  criminal  
convictions, administrative sanctions,  or  civil monetary penalties.  
Office of Counsel to the Inspector General 
The  Office of Counsel to the Inspector General (OCIG)  provides  general legal services  to  
OIG, rendering  advice and opinions on HHS programs and operations and  providing all  
legal support in OIG's internal operations.   OCIG imposes program exclusions and civil 
monetary penalties  on health care providers and litigates  those actions  within HHS.   
OCIG also  represents OIG in the global settlement of  cases  arising under the Civil False 
Claims Act, develops and monitors corporate integrity agreements, develops compliance 
program guidances, renders advisory opinions on OIG sanctions to  the health care  
community,  and issues fraud alerts  and other industry  guidance.  
 
  OEI-05-07-00050  UNIT OF MEASURE INCONSISTENCIES IN THE MEDICAID PRESCRIPTION DRUG PROGRAM  i 
   
  E X E C U T I V E   S U M M A R Y  
OBJECTIVE 
(1)  To estimate the amount of inappropriate Medicaid rebate claims 
caused by unit of measure inconsistencies. 
(2)  To determine how often States convert their Medicaid utilization 
data to correct for unit of measure inconsistencies. 
BACKGROUND 
The Medicaid prescription drug program has two elements:   
reimbursements and rebates.  State Medicaid agencies reimburse retail 
pharmacies  for prescription drugs dispensed to  Medicaid beneficiaries.  
Afterwards, State Medicaid agencies receive statutorily defined rebates 
from manufacturers for each unit of a drug for which they reimbursed 
pharmacies. 
Although reimbursements and rebates are both elements of Medicaids 
prescription drug program, each uses a different unit of measure 
standard.  Medicaid reimbursements are based  on the National Council 
for Prescription Drug Programs (NCPDP) unit of measure standards.  
Medicaid rebates are based on the Centers for Medicare & Medicaid  
Services (CMS) unit of measure standards. 
In general, pharmacies request reimbursement from States based on 
NCPDP units, while States claim Medicaid rebates from manufacturers 
using CMS units. Therefore, States must convert utilization data from 
NCPDP units to CMS units before requesting rebates from 
manufacturers. 
To determine how many drugs reimbursed by State Medicaid agencies 
have unit of measure inconsistencies, we compared NCPDP and CMS 
units of measure for drugs reimbursed by State Medicaid agencies  
during the first two quarters of 2006.  To estimate the amount of 
Medicaid rebates inappropriately claimed, we subtracted the Medicaid 
rebates that States should have claimed, if they converted all utilization 
data, from the rebates that States actually claimed.  To determine how 
often States convert their Medicaid utilization data to correct for unit of 
measure inconsistencies, we determined whether States reported  
utilization data in CMS units. 
 
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E X E C U T I V E   S U M M A R Y
   
FINDINGS 
Unit of measure inconsistencies  resulted in an estimated            
$11.8  million in inappropriately claimed Medicaid rebates  during  the 
first 6 months of 2006.  During the first two quarters of 2006, States 
inappropriately overclaimed an estimated $8.1 million and 
underclaimed an estimated $3.7 million in Medicaid rebates, for a total 
of $11.8 million inappropriately claimed rebates. Inappropriately 
claimed rebates can lead to incorrect Medicaid rebate payments or  
disputes with manufacturers.   
Most unit of measure inconsistencies involve the unit type each.  
Of 213 drugs identified with unit of measure inconsistencies, 193 have 
the NCPDP or CMS unit type each.  The NCPDP and CMS have 
different guidance regarding the unit type each.  For some product 
types, CMS guidance is not as specific as NCPDP guidance. For other 
product types, CMS and NCPDP guidance are in conflict.    
On average, States convert less than half of their utilization data for 
drugs with unit of measure inconsistencies.  We estimate that, on 
average, States converted utilization data for 45 percent of drugs with 
unit of measure inconsistencies.  States convert a greater percentage of 
utilization data for drugs with larger dollar value discrepancies between 
rebate claims. 
States cannot efficiently detect or correct for unit of measure 
inconsistencies.  Because NCPDP and CMS package sizes are not 
always comparable, States cannot efficiently use package size 
comparisons to identify unit of measure inconsistencies.  Additionally, 
incomplete  guidance hinders States ability to convert unit of measure 
inconsistencies.  Further, inaccurate reporting of the CMS package size 
by manufacturers may result in States incorrectly converting for unit of 
measure inconsistencies.  
RECOMMENDATIONS 
To reduce the potential for inappropriately claimed Medicaid rebates  
because of unit of measure inconsistencies, we make the following 
recommendations: 
CMS should provide more specific guidance to manufacturers  
regarding the unit type each. 
Specifically, CMS could provide more detailed guidance for unit types 
where its standards are not as specific as NCPDP standards.   
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E X E C U T I V E   S U M M A R Y   
Additionally, CMS could provide further clarification for unit types 
where its standards are in conflict with NCPDP standards.  Further, 
CMS could provide manufacturers with a detailed framework or 
analytic process to help them determine whether a drug should be an 
each or a different unit type. 
CMS should improve its guidance to States regarding detecting and 
converting  unit of measure inconsistencies. 
Specifically, CMS could advise States about how to appropriately use 
CMS package size data to identify drugs with unit of measure 
inconsistencies and how to correctly convert utilization data.  CMS 
could also encourage States to make systems enhancements to better 
detect and correct for unit of measure inconsistencies.  Additionally, 
CMS could maintain a list of drugs with unit of measure inconsistencies  
on its Dispute Resolution Program Web site. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS disagreed with both recommendations.  CMS does not believe      
(1) that unit of measure inconsistencies account for significant improper 
Medicaid rebate payments and (2) that the issue warrants further  
action beyond its current approach.   
We recognize that inappropriate Medicaid rebate claims caused by unit 
of measure inconsistencies represent less than 1 percent of total rebate 
claims. However, as our analysis of NCPDP and CMS data shows, unit  
of measure inconsistencies remain a problem within the Medicaid 
prescription drug program with an estimated $11.8 million in  
inappropriately claimed Medicaid rebates during a 6-month period.  
Further, the effects of unit of measure inconsistencies may grow as 
average manufacturer price data are increasingly used for Medicaid  
reimbursement. 
We support the efforts already undertaken by CMS to prevent and 
correct for unit of measure inconsistencies.  CMS has issued guidance to 
manufacturers and States regarding the issue.  However, we maintain 
that CMS should implement the recommendations to assist 
manufacturers and States in resolving remaining unit of measure 
inconsistencies.  
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  T A B L E   O F   C O N T E N T S  
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
  
 
 
I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1 
  
 
 
F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10 
  
  States inappropriately claimed $11.8 million in Medicaid            
rebates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   10 
  
  Most inconsistencies involve the unit type each. . . . . . . . . . . . .  10 
  
  States convert less than half of their utilization data. . . . . . . . . .  13 
  
  States cannot efficiently detect inconsistencies. . . . . . . . . . . . . . .  14
  
 
R E C O MMEN D A T ION S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17 
  
  Agency Comments and Office of Inspector General Response . . .  18 

 
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22 
  
  A:  Detailed Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22 
  
  B: Detailed Examples Regarding Utilization Data Conversion . .  25 

  C:  Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27 
  
 
A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30 
  
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  I N T R O D U C T I O N  
OBJECTIVES 
(1)  To estimate the amount of inappropriate Medicaid rebate claims 
caused by unit of measure inconsistencies. 
(2)  To determine how often States convert their Medicaid utilization 
data to correct for unit of measure inconsistencies. 
BACKGROUND 
Medicaid is a jointly funded Federal and State health insurance 
program for low-income  and medically needy persons.  Individual States  
establish eligibility requirements, benefit packages, and payment rates 
for their Medicaid programs under broad Federal standards 
administered by the Centers for Medicare & Medicaid Services (CMS).  
All State Medicaid programs have elected to include prescription drug 
coverage. 
Medicaid Prescription Drug Payments 
The Medicaid prescription drug program has two elements:   
reimbursements and rebates.  State Medicaid agencies reimburse retail 
pharmacies  for prescription drugs dispensed to  Medicaid beneficiaries.  
Afterwards, State Medicaid agencies receive statutorily defined rebates 
from manufacturers for each unit of drug for which they reimburse 
pharmacies. 
Medicaid Reimbursement. CMS sets maximum drug reimbursement 
limits to ensure that the Federal Government acts as a prudent buyer.1   
Within these Federal parameters, each State determines its own 
pharmacy reimbursement formula. 
For certain multiple source drugs with sufficient numbers of equivalent 
products, CMS sets specific Federal upper limit amounts. As of 
January 1, 2007, any drug with at least two therapeutically equivalent 
versions is included in the Federal upper limit list.2 Additionally, 
Federal upper limit amounts are now based on 250 percent of the lowest 
reported average manufacturer price (AMP).3   
 
1 Federal Upper Limits Overview.  Available online at 

http://www.cms.hhs.gov/FederalUpperLimits/. Accessed on August 9, 2007. 

2 Section 6001(a)(1)(B) of the Deficit Reduction Act. 

3 Section 6001(a)(2) of the Deficit Reduction Act. 

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For a drug without a Federal upper limit, State Medicaid 
reimbursements do not exceed the lower of (1) its estimated  acquisition 
cost (EAC) plus a dispensing fee  or (2) the providers usual and 
customary charge to the public for the drug.4 Although CMS does not 
stipulate a method for calculating the EAC, States typically calculate  
the EAC based upon  either the wholesaler acquisition cost (WAC) plus a 
markup percentage or average wholesale price (AWP) less a discount 
percentage. Both the WAC and the AWP are suggested list prices that 
are not necessarily based on actual sales. 
Medicaid Rebates. The Omnibus Budget Reconciliation Act of 1990 
created the Medicaid drug rebate program, which mandates that for a 
drug to be eligible for Medicaid reimbursement its manufacturer must 
enter into rebate agreements with the Secretary  of the Department of 
Health and Human Services and pay quarterly rebates to State 
Medicaid agencies.5  
The Medicaid unit rebate amount (URA) is the amount a manufacturer 
pays a State for each unit of a drug for which the State reimbursed 
pharmacies. The formula used to calculate the URA depends on 
whether the drug is a brand name or generic. The URA for brand name 
drugs is the greater of 15.1 percent  of the AMP or the difference  
between the AMP and the Best Price (BP).6 For generic drugs, the URA 
is 11 percent of the AMP. The AMP is the average price paid by 
wholesalers  for products  distributed to the retail class of trade. The BP  
is the lowest price available from the manufacturer to any purchaser 
(other than  those excluded by law).7   
Every quarter, CMS calculates the  URA for each drug using AMP and 
BP data from manufacturers and provides the URA to State Medicaid  
agencies. To determine the total rebates due from manufacturers, a 
State multiplies the URA by the total number of units reimbursed by 
the State during the quarter. States send utilization data to 
 
4 42 CFR  447.331(b). On July  17, 2007, CMS issued a final rule (with an effective date of 

October 1, 2007) that removes 42 CFR  447.331  but includes the substance of that section 

in a new section designated as 42  CFR  447.512. 72 Fed. Reg. 39412, 39154. 

5  1927 of the Social Security Act (Act). 

6 This summary is not meant to capture the full complexity of the Federal Medicaid rebate 

formula for brand name drugs,  which includes  an additional calculation using an inflation 

factor. 

7  1927(c)(1)(C)(i) of the Act. 

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I N T R O D U C T I O N   
manufacturers to claim  rebates and to CMS for oversight.  Figure 1,  
below, illustrates the Medicaid prescription drug payment system. 
 
Figure 1. Me dicaid Prescription Drug Payment System 
 
Pharmacy sends claim to State for  State sends manufacturer 
 prescriptions dispensed to  quarterly utilization data to 
Medicaid beneficiaries  claim Medicaid rebates 
 
 
 
  STATE 
PHARMACY   State reimburses  Manufacturer pays  
pharmacy   MEDICAID   State a quarterly  
Pharm acy   AGENCY   rebate for each unit 
of drug reimbursed  
dispenses 
prescr iptions to 
State sends 
Medicaid  CMS sends 
quarterly 
benef iciaries  utilization data  calculated 
URA to States 
to CMS for 
  oversight  MANUFACTURER 
 
 
MEDICAID    Manufacturer sends quarterly 
BENFICIARIES  pricing data to CMS for the 
  CMS  calculation of URA 
Source:  Office of  Inspector General, 2007. 
 
If a manufacturer disagrees with a States rebate claim, a manufacturer 
may dispute the rebate claim.  A manufacturer may withhold payment 
for units in dispute.  In 1994, CMS established the Dispute Resolution 
Program to  address the problem of unpaid and disputed rebates.8 As 
part of the program, CMS provides States and manufacturers with 
written guidance to prevent the most common disputes. 
Unit of Measure Standards  
How units are defined determines the number of units in a package, or 
package size.  The unit of measure and package size are used together  
to calculate the per unit reimbursement and per unit rebate amounts 
used for Medicaid prescription drug payments.  Although 
 
8 CMS, Background of the Dispute Resolution Program.  Available online at 
http://www.cms.hhs.gov/MedicaidDrugRebateDispR/downloads/drpbkgrnd.pdf. Accessed on 
July 19, 2007. 
  OEI-05-07-00050   UNIT OF MEASURE INCONSISTENCIES IN THE  MEDICAID PRESCRIPTION  DRUG  PROGRAM   3    
   
I N T R O D U C T I O N   
reimbursements and rebates are both elements of Medicaids 
prescription drug payment system, each uses a different unit of measure 
standard. 
Retail Standards. In 1993, the National Council for Prescription Drug 
Programs (NCPDP) developed unit of measure standards to facilitate 
uniform billing units in all retail transactions.  According to NCPDPs 
Billing Unit Standards, there are three possible unit types for which 
all drugs may be defined: each, milliliter, and gram.9  Because Medicaid 
reimburses retail pharmacies for prescription  drugs dispensed to 
beneficiaries, Medicaid bases reimbursements on NCPDP unit of 
measure standards. 
CMS Standards.   CMS developed unit of measure standards for use in 
the Medicaid drug rebate program.  Because AMP and URA are 
calculated for the Medicaid drug rebate program, both are defined using 
CMS unit standards. CMSs Medicaid Drug Rebate Operational Guide 
lists eight unit types: each, capsule, tablet, suppository, milliliter,   
antihemophilic, transdermal patch, and gram.  In 1993, CMS agreed to 
align its standards with NCPDP standards when defining unit of 
measure for  the Medicaid drug rebate program, with exceptions for 
specific packaging and dosage reasons.10      
Using Retail and CMS Standards. Although NCPDP and CMS unit of 
measure standards serve their unique purposes, if used together, the 
inconsistencies between the two standards have potential financial 
implications for Medicaid reimbursements and rebates. 
In general, pharmacies request reimbursement from States based on 
NCPDP units.  But for States to claim the appropriate Medicaid rebate,  
States must use the CMS unit of measure to determine their utilization 
to report to  manufacturers and CMS.  For drugs with different unit of 
measure standards, States must convert their utilization data from 
NCPDP units to CMS units before requesting rebates from 
manufacturers. CMSs Dispute Resolution Program Best Practices 
 
9 National Council for Prescription Drug Programs, Basic Guide to Standards.  Available 
online at http://www.ncpdp.org/PDF/Basic_guide_to_standards.pdf. Accessed on April 26, 
2007. 
10 Medicaid  Drug Rebate Program Bulletin  for Participating Drug Manufacturers, Release 
Number 8.  Available online at 
http://www.cms.hhs.gov/MedicaidDrugRebateProgram/03_DrugMfrReleases.asp. Accessed on 
August 3, 2007.  
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instructs States to ensure that utilization data are reported to 
manufacturers and CMS using the CMS unit of measure standard.11    
Figure 2 provides theoretical examples of a State using NCPDP and  
CMS unit of measure standards in the Medicaid prescription drug 
program. In the first example, the State converts its utilization data to 
claim the appropriate number of Medicaid rebates. In the second  
example, the State does not convert its utilization data and underclaims 
Medicaid rebates. 
 
  Figure 2. Using NCPDP and CMS Unit of Measure Standards 
 
Reimbursement   Rebates  
AIS 
NCPDP Unit of Measure Standard   CMS Unit of Measure Standard 
 Each  Milliliter 
Example 1:  State conve rts utilization data  to  CMS unit of measure 
 
State  State correctly claims  
Pharmacy dispenses     reimburses   15 rebates (e.g., 1 rebate 
3 vials, each    pharmacy for   for each milliliter 
reconstituted to       3 each  dispensed)  
 
5 milliliters, for a     
total of 15 milliliters 
PHARMACY   STATE MEDICAID AGENCY  MANUFACTURER 
 
State Converts Utilization Data 
 
       3 each = 15 milliliters 
 
Example 2: State does not convert utilization data to CMS unit of measure  
 
 
State 
Pharmacy dispenses   
reimburses 
re3c ovniasltsit,u etaecdh t o    pharmacy for   Scltaaitme sin 3a prepbroaptersia  tely 
  3 each 
5 milliliters, for a 
     
total of 15 milliliters 
 
PHARMACY  SSTTAATTEE MMEEDDICICAIIDDA AGGEENNCCYY  MANUFACTURER 
 
STASTtaEt eM DEoDesI CNAotI DC oAnGveErNt CY
  Utilization Data 
 
Source: Office of  Inspector General, 2007. 
 
 
 
11 Dispute Resolution Best Practices. Available online at 
http://www.cms.hhs.gov/MedicaidDrugRebateDispR/03_DRPBestPractices.asp#TopOfPage. Accessed 
on August 2, 2007. 
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Changes to Medicaid Prescription Drug Payments 
Over the last decade, the Office of Inspector General (OIG) has issued a 
series of reports that highlighted the deficiencies of using AWP and  
WAC as a basis for Medicaids reimbursement amounts because of their  
disconnect from actual sales prices.   These findings were presented  
during testimony before the Senate Committee on Finance.12  Based in 
part on this work, the Deficit Reduction Act of 2005 (DRA) made a 
number of changes in how Medicaid drugs are reimbursed.13   The DRA 
made the AMP available to the States. The AMP data provide States 
with a new source of pricing data for their reimbursement formulas.  
The DRA also mandated the use of AMP in the reimbursement formula 
for Federal upper limits. 
With changes in Medicaid reimbursement, unit of measure 
inconsistencies may affect future Medicaid reimbursement.   Because 
AMP uses CMSs unit of measure standards, using AMP to determine 
appropriate pharmacy payments will require that States convert 
reimbursement units into the NCPDP standards used in the retail 
market. 
Related OIG Work 
In July 2006, OIG issued Review of 340B Prices (OEI-05-02-00073). 
During that review, we found that inconsistent drug pricing data 
produced incorrect Government ceiling prices. We identified instances 
in which the unit of measure differed between NCPDP and CMS. OIG 
recommended that the Health Resources and Services Administration 
work with CMS to identify drugs for which the unit of measure is 
captured differently by NCPDP and CMS. 
In April 2007, the OIG report States Use of New Drug Pricing Data in 
the Medicaid Program (OEI-03-06-00490) found that a majority of 
States surveyed have concerns about  the accuracy of AMP data received 
from CMS.  Specifically, five States described inconsistencies between  
the AMP units reported  by CMS and the typical unit definition of the 
associated drug products. OIG recommended that CMS provide States 
 
12 Testimony of Robert A. Vito, Regional Inspector General IV Evaluations and Inspections, 
U.S. Department of Health and  Human Services, before the Senate Committee on Finance 
(June 29, 2005). Available at http://oig.hhs.gov/testimony/docs/2005/50629-vito-fin.pdf. 
Accessed on May 23, 2007. 
13 Section 6001(b) of the DRA.  
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with the unit definition for drug products in AMP files distributed to 
States. 
METHODOLOGY 
This study identifies drugs, by National Drug Code (NDC),14 with 
inconsistencies between the NCPDP and CMS units of measure during  
the first and second quarters of 2006. This review only estimates the 
amount of inappropriate Medicaid  rebate claims caused by unit of 
measure inconsistencies. This review does not determine the amount 
inappropriately paid because we did  not determine the number of rebate 
claims disputed by manufacturers. 
Below we provide an overview of our methodology. For further detail, 
see Appendix A.  
Data Collection 
From CMSs Web site, we obtained Medicaid utilization data to produce 
a list of drugs reimbursed by State Medicaid agencies during the first  
half of 2006.15    
From CMS, we obtained its units of  measure and package sizes as well 
as AMP and URA for the first and second quarter of 2006. Because 
AMP and URA are calculated for the purpose of the Medicaid drug 
rebate program, both are provided per CMS unit.  
From First DataBank, a third-party provider  of drug pricing data, we  
obtained NCPDP units of measure and package sizes as well as product 
descriptions and drug pricing data. We  obtained pricing data per 
package and per unit. Because pricing data from First DataBank are  
used in the retail market, per unit pricing data supplied by First 
DataBank are provided per NCPDP  unit. 
Further, to  understand the challenges associated with detecting and 
correcting for unit of measure inconsistencies, we interviewed CMS 
staff. Additionally, we discussed unit of measure inconsistencies with 
four State  Medicaid drug rebate directors and a fiscal intermediary, 
which operates Medicaid drug rebate programs for four States. We also 
 
14 An  NDC is a three-segment universal product identifier that specifies a drugs 

manufacturer, product name, and package size. 

15 We included Medicaid utilization data from the District of Columbia. Additionally, we 

did  not include Arizona in our analysis because Arizona does not participate in the Medicaid
  
drug rebate program. 
 
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reviewed CMSs Medicaid Drug Rebate Operations Manual and Best 
Practices Guide to Dispute Resolution. 
Data Analysis 
We conducted our analysis in two stages. First, we compiled a list of all 
drugs with unit of measure inconsistencies. Second, for these drugs, we 
determined whether States reported  utilization to manufacturers and 
CMS in the correct unit of measure.    
Determining Drugs With Unit of Measure Inconsistencies. There were  
two scenarios that created unit of measure inconsistencies: the unit 
types did not match (e.g., milliliter versus each) or there were different 
interpretations of the same unit type. 
To identify drugs for which the unit types did not match, we compared  
the NCPDP  unit of measure to the CMS unit of measure. We counted  
drugs as having a unit of measure inconsistency when the NCPDP and 
CMS unit types did not match.       
To identify drugs with different interpretations of the same unit type, 
we compared the NCPDP and CMS package sizes for drugs with the 
same unit type. If a drug was described with the same unit of measure 
by both NCPDP and CMS, but the package sizes were different, we  
concluded that this inconsistency was the result of different  
interpretations of the same unit type.      
In cases in which we were unable to determine whether the drug had a 
unit of measure inconsistency, we were conservative in our analysis and 
assumed that the drug did not have  a unit of measure inconsistency.   
Determining State Conversion of Utilization Data. Because State 
utilization data sent to CMS do not contain unit of measure 
information, we determined whether States used the CMS unit of 
measure for rebates by comparing the actual per unit reimbursement to 
an estimated per unit cost in NCPDP units and an estimated per unit 
cost in CMS units. If the actual per unit reimbursement was closer to  
the estimate calculated with NCPDP units, we  concluded that the State 
was using NCPDP units to report utilization and did not convert its 
utilization data. In cases in which we were unable to determine 
whether the actual unit cost was closer to the NCPDP or CMS per unit  
cost, we were conservative in our analysis and assumed that the State 
converted the units. 
 
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I N T R O D U C T I O N   
Estimating Inappropriate Rebate Claims. To estimate the amount of 
Medicaid rebates inappropriately claimed, we subtracted Medicaid 
rebates that States should have claimed, if they converted all utilization 
data, from rebates that States actually claimed. 
Limitations 
We used States estimated acquisition cost reimbursement formulas to  
determine per unit reimbursement from the aggregate data.  Although 
State Medicaid reimbursement is typically based on estimated 
acquisition cost reimbursement formulas, it may also be based on other 
reimbursement methodologies. 
According to CMS staff, States may request manufacturers to  convert 
utilization data to correct for unit of  measure inconsistencies.  Because 
manufacturers may make these conversions after receiving rebate 
invoices from States, they are not reflected in the utilization data 
reported by States.  However, the extent to which drugs are converted  
by manufacturers is unknown by CMS. 
Because of these limitations, we present all of our data as estimates. 
For 2,231 drugs, we were unable to determine if the drug had a unit of 
measure inconsistency because of different NCPDP and CMS definitions 
of package size.  Additionally, for 332 drugs we were unable to 
determine if the drug had a unit of  measure inconsistency because of 
possible errors in the package size data reported to CMS. In these  
cases, we were conservative in our analysis and assumed that the drug  
did not have an inconsistency.  As a result, our estimates of 
inappropriately claimed Medicaid rebates may be low given our 
conservative methodological approach.  
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections issued by the Presidents Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
  OEI-05-07-00050   UNIT OF MEASURE INCONSISTENCIES IN THE  MEDICAID PRESCRIPTION  DRUG  PROGRAM   9    
   
  F I N D I N G S  
Unit of measure inconsistencies resulted  Unit of measure inconsistencies, if 
in an estimated $11.8 million in  not converted, result in  States 
inappropriately claiming Medicaid 
inappropriately claimed Medicaid rebates 
rebates.  During the first two 
during the first 6 months of 2006 
quarters of  2006, States  
inappropriately overclaimed an estimated $8.1 million and 
underclaimed an estimated $3.7 million in Medicaid rebates, for a total 
of $11.8 million inappropriately claimed rebates. 
Overall, the amount of inappropriately claimed  rebates because of unit 
of measure inconsistencies represents less than 1 percent of total rebate 
claims. However, regardless of the amount, inappropriately claimed 
Medicaid rebates can lead to incorrect Medicaid rebate payments or 
disputes with manufacturers.   
Interviews with four State Medicaid drug rebate directors suggested 
that in their States, many rebate claims for drugs with unit of measure 
inconsistencies are disputed, especially for those inconsistencies that 
may lead to overclaiming.  Overall, disputed claims can take months or 
years to resolve, tying up valuable resources and delaying rebate 
payments. Prior OIG work found that 15 States had inadequate dispute 
resolution and rebate collection processes.16    
 
Most unit of measure inconsistencies      We identified 213 drugs with unit of 
involve the unit type each  measure inconsistencies during the first 
two quarters of 2006. Of the 213 drugs, 
193 have the CMS or NCPDP unit type each.  Of those, 112 drugs 
have the NCPDP unit type each,  52 drugs have the CMS unit type 
each, and 29 drugs have both the NCPDP and CMS unit type each.    
Most drugs have a mismatch between the unit types each and  
milliliter or each and gram.  A smaller percentage involves different 
interpretations of the unit type each.  Table 1, on the next page, 
provides the number of  drugs identified with unit of measure 
inconsistencies by NCPDP and CMS unit type. 
 
16 Multistate Review of Medicaid Drug Rebate Programs, A-06-03-00048.  Available online 
at http://oig.hhs.gov/oas/reports/region6/60300048.pdf.  Accessed on July 5, 2007. 
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F I N D I N G S  

 
 
Table 1. Unit of Measure Inconsistencies by 
 NC  PDP and CMS Unit Type 
NCPDP Unit Type 
 
CMS Unit Type   Each  Milliliter  Gram 
Eac h  29  47  5 
Milliliter  56  8  0 
 
Gram  48  6  6 
Suppository   4  0  0 
 
Transdermal Patch  4  0  0 
Source :  OIG analysis of State Medicaid utilization data, 2007.  
Drugs with unit of measure inconsistencies involving the unit type 
each are continually added to the program.  Of the 193 drugs that we 
identified involving the unit type each, 87 drugs entered the market 
between 2000 and 2006, with 25 of these new drugs in 2005 and 2006.   
NCPDP and CMS have different guidance regarding the use of  the unit type  
each  
According to NCPDP guidance, there are three unit types:  each, 
milliliter, and gram.17  The unit type each is used for products that are 
not measured by volume or weight. Examples of products that must be 
defined as each according to NCPDP guidance include tablets, 
capsules, suppositories, transdermal patches, antihemophilic products, 
kits, powder-filled vials, and powdered  packets.  Additionally, packages 
with a quantity of less than one milliliter or gram should have the unit 
type each.  Further, according to NCPDP guidance, liquid-filled vials, 
ampules, and syringes are not considered an each but rather use 
milliliters. 
According to CMS guidance, there are eight unit types including each, 
milliliter, gram, transdermal patch, suppository, tablet, capsule, and 
antihemophilic factor.18   Although CMS has five additional unit types, 
all five would have the NCPDP unit type each.  CMS has not issued 
detailed guidance regarding specific use of the additional unit types.   
 
17 References to NCPDP guidance  cite the NCPDP Billing  Unit Standard Implementation 

Guide version 2.0, released in 2004. 

18 Medicaid Drug Rebate Program Quarterly Pricing Data Definitions, Medicaid Drug 
 
Rebate Operational Guide, page  F7e. 

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According to CMS, the unit type each refers to  drugs not identifiable 
by any other unit type.19 In March 2006, CMS issued Manufacturer 
Release No.  73, which provided further guidance  on use of the unit type  
each.20 Within the release, CMS stated that the only product types for  
which manufacturers should use the unit type each include     
powder-filled vials, ampules, syringes, packets, and kits. 
Even with the additional guidance in Manufacturer Release No. 73, 
differences  between NCPDP and CMS guidance on the unit type each  
remain. For some product types, CMS guidance is not as specific as 
NCPDP guidance. For example, NCPDP guidance provides specific 
instructions for products supplied as liquid-filled vials (milliliter), while 
CMS guidance does not. Also, NCPDP guidance provides specific 
instructions regarding products supplied as a suppository (e.g., each 
suppository is a unit, not the package, which can contain more than one 
suppository), while CMS guidance does not provide any clarifying 
instructions. For other product types, CMS and NCPDP guidance are in  
conflict. For instance, products described as ampules or syringes have 
the unit type milliliter according to  NCPDP guidance and the unit type 
each according to CMS guidance.21    
Differences between NCPDP and  CMS guidance are the result of 
different intended uses. NCPDP uses its unit of  measure standards for 
calculating pricing data used in the retail pharmacy industry (i.e., AWP 
and WAC). These data are provided for each drug by unique package 
size. On the other hand, CMS uses its unit of measure standards for the 
calculation of the AMP and the URA for the Medicaid drug rebate 
program. The AMP and the URA must be weighted to account for all 
sales regardless of the package size. Thus, CMS calculates the AMP 
and the URA for each drug unit regardless of package size.        
As a result of the required weighting for the AMP and the URA across 
package sizes, CMS staff advises manufacturers to give careful thought 
to the use of the unit type each.22 CMS further advises manufacturers 
not to use the unit type each if a manufacturer has multiple package 
 
19 Ibid. 
20 Medicaid  Drug Rebate Program Bulletin  for Participating Drug Manufacturers, Release 
Number 73. Available online at 
http://www.cms.hhs.gov/MedicaidDrugRebateProgram/03_DrugMfrReleases.asp. Accessed on 

August 2, 2007.
  
21 Ibid. 

22 Ibid. 

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sizes or may launch a future package size of the drug.23 In addition, 
manufacturers are encouraged to contact CMS in instances in which the 
unit type each may seem appropriate even though the drug does not 
fall into any of the product types CMS has designated as each. 
Despite this advice, CMS states in  Manufacturer Release No. 73 that 
manufacturers continue to inaccurately report drugs as unit type 
each.  
 
To deal with unit of measure 
On average, States convert less than half 
inconsistencies, States must convert 
of their utilization data for drugs with unit 
utilization data from NCPDP units 
of measure inconsistencies 
to CMS units. We estimate that, on 
average, States converted utilization data for 45 percent of drugs with 
unit of measure inconsistencies.    
States that reimburse for a greater number of drugs overall do not 
convert utilization data for drugs  with unit of measure inconsistencies 
at a higher rate. There is no relationship between the number of drugs  
reimbursed  and the percentage of utilization data converted to CMS 
units by States. 
The rates at which States converted their utilization data for drugs that 
lead to overclaiming and underclaiming were similar. On average, 
States converted 43 percent of drugs with unit of measure 
inconsistencies that would have led to overclaiming. States converted  
46 percent, on average, of drugs with unit of measure inconsistencies 
that would have led to underclaiming. 
States convert a greater percentage of utilization data for drugs with larger 
dollar value discrepancies between rebate claims 
The larger the dollar value between rebate claims based on NCPDP 
units and rebate claims based on CMS units, the more often States 
convert utilization data for that drug. On average, States convert        
18 percentage points more of the utilization data when the discrepancy 
is greater than $100 per drug compared to when the discrepancy is less 
than $10. 
 
 
23 Ibid. 
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Table 2 provides the percentage of utilization data converted by the 
dollar value  of the discrepancy. 
 
Table 2. Percentage of Utilization Data Conversions by   
the D ollar Value of the Discrepancy  
  Average Percentage of 
Dollar Value of the  Number of   Utilization Data Converted 
Discre pancy   Drugs  to CMS Units 
Less than $10  121  39% 
 
$10 - $50  29  53% 
$50 - $100  21  50% 
 
Over $100  42  57% 
Tota l  213  45%  
Source: OIG analysis of State Medicaid utilization data, 2007. 
 
States may convert a greater percentage of utilization data for drugs 
with larger dollar value discrepancies because the unit of measure 
inconsistencies are easier to identify for more expensive drugs. 
According to the four State Medicaid drug rebate  program directors we 
interviewed, one method for detecting unit of measure inconsistencies is  
to compare reimbursement amounts to rebate amounts. If a State 
claimed a rebate amount greater than total reimbursements or if the 
rebate amount is particularly small compared to total reimbursements, 
a State may suspect a unit of measure inconsistency. Because these 
comparisons are in the aggregate, identifying a unit of measure 
inconsistency is more difficult when the dollar difference would be 
relatively small. 
 
CMS package size data are 
States cannot efficiently detect or correct for 
necessary to efficiently identify
unit of measure inconsistencies  
drugs with unit of measure 
inconsistencies and to appropriately convert utilization data to CMS 
units. However, States have not received complete guidance regarding 
how to efficiently use CMS package size data to identify and convert 
unit of measure inconsistencies.   Further, not all manufacturers 
correctly report the CMS package size to CMS. 
The State Medicaid drug rebate program directors we interviewed 
suggested that because of problems  with package size data, they must 
manually identify and correct for drugs with unit of measure 
inconsistencies. This requires them to engage in conversations with 
manufacturers and review product prescribing information.  Manually 
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identifying drugs with unit of measure inconsistencies is an inefficient 
method given that, on average, States reimburse pharmacists for over  
10,000 different drugs per quarter. 
Different interpretations of package size hinder States ability to identify unit 
of measure inconsistencies 
Because NCPDP and CMS package sizes are not always comparable, 
States cannot efficiently use package size comparisons to identify unit of 
measure inconsistencies. Typically, unit of measure inconsistencies can 
be identified by comparing NCPDP and CMS unit type and NCPDP and 
CMS package size. However, identifying unit of measure 
inconsistencies by comparing NCPDP and CMS package sizes is difficult 
because  NCPDP and CMS define package size  differently. NCPDP 
package size data are defined as the  number of units in the drugs 
package.24 CMS package size data are defined as the number of units 
within the smallest dispensable amount.25    
Because of different NCPDP and CMS interpretations of package size, 
we identified 2,231 drugs for which a package size comparison could not 
determine whether there was a unit of measure inconsistency. For 
these drugs, determining whether there is a unit of measure  
inconsistency is a labor intensive process requiring an indepth look into 
how each drug is packaged and dispensed.   
Incomplete guidance hinders States ability to convert unit of measure 
inconsistencies 
CMS guidance on how to convert utilization data from NCPDP units to 
CMS units once a unit of measure inconsistency is detected does not 
account for all conversions. CMS guidance instructs States to claim 
rebates using the CMS unit of measure, reminding States to multiply 
the number of scripts by the CMS package size to determine total 
utilization.26   However, this simple multiplication does not work in all 
circumstances. There are instances in which simple multiplication will 
result in an  incorrect conversion. See Appendix C for detailed examples  
in which simple multiplication would result in incorrect conversions. In  
 
24 Definition of package size, National Drug Data File, First Bank. 
25 Medicaid Drug Rebate Program Quarterly Pricing Data Definitions, Medicaid Drug  
Rebate Operational Guide, page  F7e. 
26 Medicaid Drug Rebate Program Letter to State Medicaid Directors, Release      
Number 61. Available online at 
http://www.cms.hhs.gov/MedicaidDrugRebateProgram/02_StateReleases.asp. Accessed on August 2, 
2007. 
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FF II NN DD II NN GG SS  
these cases,  States would need to divide or use a conversion factor 
rather than multiplying. 
Inaccurate reporting of the CMS package size by manufacturers may result 
in States incorrectly converting for unit of measure inconsistencies 
When package size is reported incorrectly, it can result in an apparent 
discrepancy between NCPDP and CMS package sizes when no actual 
discrepancy exits. Converting utilization data when there is not a real 
unit of measure inconsistency may cause incorrect Medicaid rebate 
claims and can delay rebate payments. Conversely, States may not 
convert utilization data for drugs that do have unit of measure 
inconsistencies because package sizes are reported as the same but are 
in fact different. 
For example, the package size for one drug supplied as a powder to be  
reconstituted for injection was inaccurately reported to CMS. The drug  
is supplied as 20 milligrams in a single dose vial and is then 
reconstituted to 1 milliliter. The manufacturer reported the CMS unit 
type as milliliter but incorrectly reported package size as 20 to CMS.  
The correct CMS package size would be 1, for the 1 milliliter. In this 
case, the manufacturer reported the number of milligrams in the vial, 
not the number of milliliters.   
We identified 332 drugs for which we were unable to determine whether 
there was a unit of measure inconsistency because of possible errors in  
the CMS package size reported by manufacturers.    
 
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R E C O M M E N D A T I O N S  
  R E C O M M E N D A T I O N S  
 
We found that during the first two quarters of 2006, States 
inappropriately overclaimed an estimated $8.1 million and 
underclaimed an estimated $3.7 million in Medicaid rebates, for a total 
of $11.8 million inappropriately claimed rebates. 
Inappropriately claimed Medicaid rebates can lead to incorrect rebate 
payments or disputes with manufacturers.  In addition, unit of measure  
inconsistencies have implications for future Medicaid reimbursement.   
With DRAs changes, CMS is using the AMP to calculate Federal upper 
limits and States may begin using the AMP to set pharmacy  
reimbursement in the future.  Unit  of measure inconsistencies may lead 
to errors in  calculating reimbursement amounts based on the AMP.   
Through a variety of actions, such as issuing written guidance for 
States, State Medicaid director letters, letters to manufacturers, and its 
Dispute Resolution Program, CMS has made important strides in 
improving the accuracy of rebate claims and reducing the number of 
disputes. However, unit of measure inconsistencies continue to affect 
the Medicaid prescription drug program.   To  reduce the potential for 
inappropriately claimed Medicaid rebates because of unit of measure 
inconsistencies, we recommend the following: 
CMS should provide more specific guidance to manufacturers regarding the 
unit type each 
Because most unit of measure inconsistencies involve the unit type 
each, CMS should provide more specific guidance to manufacturers 
regarding the use of the unit type each.  Specifically, CMS could: 
 	  Provide more detailed guidance for unit types where its 
standards are not as specific as NCPDP standards.  For 
example, CMS could provide more  detailed guidance for 
products described as a suppository.   
 	  Provide further clarification for unit types where its 
standards are in conflict with NCPDP standards.  For  
example, CMS could provide more  detailed guidance for 
products described as ampules or syringes.   
	   Provide manufacturers with a detailed framework or 
analytic process to help them determine whether  a drug 
should be an each or a different unit type.  Because 
manufacturers are in the unique position to identify or 
  OEI-05-07-00050   UNIT OF MEASURE INCONSISTENCIES IN THE  MEDICAID PRESCRIPTION  DRUG  PROGRAM   17    
   
R	 E C O M M E N D A T I O N S  
prevent unit of measure inconsistencies before they occur,  
manufacturers should carefully consider when  a drug should  
have the unit type each. 
As CMS staff advise, it is important that manufacturers choose the 
appropriate unit type from the beginning.  As the number of drugs with 
complex drug packaging and marketing increases, CMS should continue 
to work with manufacturers to prevent future unit of measure 
inconsistencies.    
CMS should improve its guidance to States regarding detecting and 
converting for unit of measure inconsistencies  
With States converting the utilization data for less than half of drugs 
with unit of measure inconsistencies, CMS should improve its guidance 
to States regarding unit of measure inconsistencies.  More specifically, 
CMS could: 
 	  Advise States about how to appropriately use CMS package 
size data to identify drugs with unit of measure 
inconsistencies. 
 	  Advise States how to correctly convert utilization data.  In 
particular, CMS could advise States about how  to convert 
utilization data when they must be divided by the NCPDP 
package size or when a conversion factor must be used. 
 	  Encourage States to make systems enhancements to better 
detect and correct for unit of measure inconsistencies. 
 	  Maintain a list of drugs with unit of measure inconsistencies  
on its Dispute Resolution Program Web site.  Updated 
periodically, the list could contain drugs identified by States, 
manufacturers, and CMS. Further, the list could contain the 
correct conversion factor to assist States when making 
conversions to utilization data.  Beyond assisting States in 
claiming the correct rebates, the list could facilitate the use 
of the appropriate unit of measure with AMP data for 
reimbursement. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS disagreed with both recommendations.  CMS does not believe      
(1) that unit of measure inconsistencies account for significant improper 
  OEI-05-07-00050   UNIT OF MEASURE INCONSISTENCIES IN THE  MEDICAID PRESCRIPTION  DRUG  PROGRAM   18    
   
R E C O M M E N D A T I O N S  
Medicaid rebate payments and (2) that the issue warrants further  
action beyond its current approach. 
We recognize that inappropriate Medicaid rebate claims caused by unit 
of measure inconsistencies represent less than 1 percent of total rebate 
claims. However, as our analysis of NCPDP and CMS data shows, unit  
of measure inconsistencies remain a problem within the Medicaid 
prescription drug program with an estimated $11.8 million in  
inappropriately claimed Medicaid rebates during a 6-month period.  
Further, the effects of unit of measure inconsistencies may grow as 
AMP data are increasingly used for  Medicaid reimbursement. 
We support the efforts already undertaken by CMS to prevent and 
correct for unit of measure inconsistencies.  CMS has issued guidance to 
manufacturers and States regarding the issue.  However, we maintain 
that CMS should implement the recommendations to assist 
manufacturers and States in resolving remaining unit of measure 
inconsistencies. 
A detailed discussion of CMSs specific comments is presented below.  
The full text of CMSs comments is presented in Appendix C.  
Detailed Discussion of CMSs Comments 
Guidance to manufacturers.  CMS disagreed with the recommendation 
that it should provide more specific guidance to manufacturers 
regarding the unit type each.  CMS stated that it has already provided 
guidance regarding the unit type each in Manufacturer Release       
No. 73, issued March 2006, and that changes resulting from this 
guidance were implemented subsequent to the time period we reviewed.  
We found that even with the additional release,  differences  between 
NCPDP and CMS guidance remain.  We examined the unit types listed  
on CMSs Web site for the second quarter of 2007 for the drugs 
identified with unit of measure inconsistencies to determine whether 
the inconsistencies were resolved with the issuance of Manufacturer 
Release No. 73.  Of the 163 drugs for which we could compare unit 
types, 158 had the same unit type in the second quarter of 2007 as used 
in the analysis presented in this report.  We conclude that the unit of 
measure inconsistencies we identified in this report remain. 
CMS also stated that it did not believe that broad guidance could 
resolve unit of measure issues that differ on a case-by-case basis.  We 
agree that broad guidance may not be as useful as more specific 
guidance, similar to that provided in Manufacturer Release No. 73. As 
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R E C O M M E N D A T I O N S  
such, we continue to recommend that CMS provide manufacturers more 
specific guidance regarding the unit type each. 
CMS also stated that because packaging differs from one drug to the 
next, it is virtually impossible for CMS to develop a framework or  
process that would effectively apply to all products.  We appreciate the 
complexity involved with selecting a CMS unit type.  However, a 
framework could be useful to ensure  that manufacturers ask themselves 
the correct questions before choosing a unit type  appropriate for the  
Medicaid rebate program.  The framework could be a modified version of 
the decision tree used by industry when selecting an NCPDP unit type.   
In addition, for unique products, the decision tree could lead  
manufacturers to request more case-specific guidance from  CMS. 
Guidance to States. CMS disagreed with the recommendation that 
CMS advise States about how they could appropriately use CMS 
package size data to identify drugs with unit of measure inconsistencies 
and how to correctly convert these data.  Additionally, CMS stated that 
it has issued guidance to States on  an individual basis and on specific 
drugs that have widespread and significant financial impact on States.  
We support CMSs past efforts to provide States with guidance on unit 
of measure inconsistencies.  However, as noted in the report, drugs with 
unit of measure inconsistencies  resulting in smaller financial 
differences in rebates are less likely to be converted by States.  As such, 
issuing guidance only for drugs that have significant financial impact on  
States could leave other unit of measure inconsistencies unresolved. In 
addition, we encourage  CMS to be proactive in its guidance to alleviate 
problems before they cause a significant impact. 
CMS also disagreed with the suggestion that it could maintain a master  
list of drugs with unit of measure inconsistencies on the Dispute 
Resolution Program Web site.  CMS indicated that it alone cannot 
identify the drugs that have such issues and cannot offer a conversion 
solution that would apply to all States. We agree that CMS could not  
alone identify the drugs  that have unit of measure issues.  Instead, the 
drugs could be identified by manufacturers and States.   
The master list could be a formal process by which manufacturers  
communicate with States regarding unit of measure inconsistencies.   
This would provide all States with information about unit of measure 
inconsistencies identified by other States, manufacturers, or CMS.  In 
the report, we noted how difficult it  is to use CMS data to identify and 
correct for drugs with unit of measure inconsistencies.  Further, the list 
  OEI-05-07-00050   UNIT OF MEASURE INCONSISTENCIES IN THE  MEDICAID PRESCRIPTION  DRUG  PROGRAM   20    
   
R E C O M M E N D A T I O N S  
would also be a resource  for States opting to use the AMP as part of 
their reimbursement formulas, enabling them to avoid unit of measure  
inconsistencies that would lead to inappropriate pharmacy 
reimbursement. 
 
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  A P P E N D I X ~ A
DETAILED METHODOLOGY 
Data Analysis 
Determining Drugs With Unit of Measure Inconsistencies.  From the 
list of 28,091 drugs reimbursed by Medicaid during the first two 
quarters of  2006, we eliminated 1,766 drugs that did not have the 
National Council of Prescription Drug Program (NCPDP) and/or the 
Centers for Medicare &  Medicaid Services (CMS) unit type. 
Additionally, we eliminated drugs with a CMS unit type of               
antihemophilic factor (AHF), tablet (TAB), or capsule (CAP).  Because 
AHF products are made from human plasma and each vial contains a 
unique amount of product, AHF products are unlikely to have unit of 
measure inconsistencies.  We eliminated TAB and CAP drugs because 
they did not have unit of measure inconsistencies according to our 
analysis. Additionally, our interviews with State Medicaid directors  
indicated that TAB and CAP drugs do not typically have unit of  
measure inconsistencies.  We excluded 17 drugs with a CMS unit type of 
AHF and 15,397 drugs with a CMS unit type of TAB or CAP. 
From the remaining drugs with unit  type data for comparison, we 
divided drugs into two groups:  drugs for which the CMS and NCPDP 
unit type match and drugs for which the CMS and NCPDP unit type do 
not match. 
From the list of drugs for which the CMS and NCPDP unit type match, 
we eliminated 7,361 drugs for which the package sizes were also the 
same.  In these cases in  which the unit type and package size are 
identical, there are no unit of measure inconsistencies.  In addition, we 
eliminated 2,231 drugs for which the CMS and NCPDP package sizes 
could not be compared because of different NCPDP and CMS definitions 
of package size. 
From the list of drugs for which the  CMS and NCPDP unit types did not 
match, we eliminated 207 drugs for which the CMS and NCPDP 
package sizes were the same because these inconsistencies would not 
have a financial impact on the Medicaid prescription drug program.  
Unit of measure inconsistencies have a financial impact on the Medicaid 
drug rebate program if the unit of measure inconsistency leads to 
inappropriate Medicaid rebate claims.  If the NCPDP and CMS package 
sizes are the same, then  regardless of which unit of measure is used, the 
number of units claimed would be the same.   
  OEI-05-07-00050   UNIT OF MEASURE INCONSISTENCIES IN THE  MEDICAID PRESCRIPTION  DRUG  PROGRAM   22    
   
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Figure 3 below, illustrates the process used to identify drugs with unit 
of measure inconsistencies.   
 
Figure 3. Comparison of NCPDP and CMS Unit Types 
 
Drugs reimbursed 
  by Medicaid  
 
 
Excluded drugs if no  Drugs with  Excluded drugs with 
NCPDP and/or   First DataBank  CMS unit type AHF, 
 
CMS unit type data   data for  TAB, or CAP 
comparison 
 
 
CMS unit type  CMS unit type 
matches the  does not match 
 
NCPDP unit type   the NCPDP unit 
 
Excluded drugs  Drugs with 
  when the CMS  potential unit of 
and NCPDP  measure 
package sizes  inconsistencies 
 
matched  because of 
different unit 
types    
Excluded  Excluded  Drugs with potential   
drugs when  breakable  unit of measure 
CMS and  packages  inconsistencies   
NCPDP  with CMS  because of different 
package sizes  package  interpretations of the 
 
matched  size 1  same unit type 
 
 
Source: Office of  Insp ector General, 2007 
Determining State Conversion of Utilization Data. To determine 
whether States used the correct unit of measure for rebates,  we 
compared the actual per unit reimbursement to an estimated per unit 
cost in CMS units and an estimated per unit cost in NCPDP  units. 
When calculating actual per unit reimbursement, we subtracted 
dispensing fees paid from the dollars reimbursed reported in the 
Medicaid utilization data. We obtained State Medicaid prescription 
drug dispensing fees from CMSs Web site. 
To estimate the per unit cost in CMS units, we divided the average 
wholesale price (AWP) per drug package by the CMS package size. To  
estimate the per unit cost in NCPDP units, we used the per unit AWP 
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A P P E N D I X   ~   A  
from First DataBank.  Because the per unit AWP is used in retail 
transactions, it is based on NCPDP standards.   
Additionally, to make the actual per unit cost and the estimated per 
unit costs comparable, we subtracted each States reimbursement 
formula discount from the estimated per unit costs.  The total 
reimbursement figures reported in the utilization data reflect the 
discounts associated with each States estimated acquisition formula.  
Therefore, the actual per unit reimbursement also reflects this discount.  
For example, if a State reimburses pharmacies at the AWP  minus              
15 percent, then the States actual per unit cost would be approximately 
15 percent below the AWP.  In this example, we would have subtracted     
15 percent from the estimated per unit costs for this State to make the 
items comparable.  We obtained each States reimbursement formula 
from CMSs Web site.   
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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  A P P E N D I X ~ B  
DETAILED EXAMPLES REGARDING UTILIZATION DATA  
CONVERSION 
CMS guidance does not advise States how to convert utilization data 
from NCPDP units into CMS units.  CMS guidance only instructs States 
to multiply the number of packages dispensed by CMS package size. 27   
In some cases, this simple multiplication does not apply.   
Example 1: The NCPDP package size equals the number of milliliters or 
grams and the CMS package size equals 1 
The process of converting utilization data to CMS units may not be 
straightforward when the NCPDP package size equals the number of 
milliliters or grams and the CMS package size equals 1, representing 
an each.  In this situation, to correctly convert  utilization data to CMS 
units, States must divide their utilization data by the NCPDP package 
size. We identified 53 drugs with unit of measure inconsistencies for 
which States would have to divide utilization data by the NCPDP 
package size to correctly  convert utilization data to CMS units.  Figure 
4 provides a theoretical example of this type of conversion. 
 
 
 Figure 4. Conversion Requiring Division 
Reimb ursement   Rebates  
NCPDP unit of mea sure standard = milliliter  CMS unit of measure standard = each  
NCPDP package size = 5 milliliters  (1 syringe)  CMS package size = 1 each (1 syringe) 
 
State 
  reimburses   State correctly claims  
Pharmacy dispenses        
pharmacy for   three rebates (e.g. one  
three syringes, each   
15 milliliters  rebate for each syringe) 
with 5 milliliters, for a   
total of 15 milliliters    
PHA RMACY   STATE MEDICAID AGENCY  MANUFACTURER 
State Converts Utilization Data 
   
       15 milliliters  5 milliliters 
 
Source:  Office of  Inspector General, 2007. 
 
 
 
27 Medicaid Drug Rebate Program Letter to State Medicaid Directors, Release Number 
61. Available online at http://www.cms.hhs.gov/MedicaidDrugRebateProgram/02_StateReleases.asp. 
Accessed on August 2, 2007. 
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A P P E N D I X   ~   B  
Example 2: NCPDP and CMS package sizes equal the number of units but 
use different units of measure 
Converting utilization data by simply multiplying the number of 
NCPDP units by the CMS package size would  be inappropriate when  
both the CMS and NCPDP package size represent the number of units 
but use a different standard.  To appropriately convert utilization data 
to CMS units for these drugs, States must create a conversion factor by 
dividing the CMS package size by the NCPDP package size.  Utilization 
data must be multiplied by the conversion factor to correctly  convert 
NCPDP units into CMS units.  We identified 35 drugs with unit of 
measure inconsistencies for which States would have to use a 
conversion factor to appropriately convert utilization data to CMS units.         
Figure 5 provides a theoretical example of utilization data conversions 
when States must develop a conversion factor to  appropriately convert 
utilization data. 
 
 
Figure 5. Conversion Requiring Developing a Conversion Factor 
 
Reimbursement   Rebates  
 
NCPDP unit of measure standard = grams  CMS unit of measure standard = milliliters 

 
NCPDP package size = 3 grams (1 tube)  CMS package size = 5 milliliters (1 tube) 

  State  State correctly 
 
 
Pharmacy dispenses    
    reimburses  claims 15 rebates 

three 5 milliliter tubes  
 pharmacy for   (e.g. one rebate for 
 
of lotion containing
     9 grams  each milliliter)  
3 grams of product for  
   
a total of 15 milliliters 
  PHARMACY STATE MEDICAID AGENCY  MANUFACTURER 
or 9 grams 
 
State Converts Utilization Data 
    Conversion Factor = 5 milliliters  3 grams = 1.67 
 
9 grams * 1.67 = 15   
 
Source:  Office of  Inspecto r General, 2007. 
 
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 A P P E N D I X ~ C  
 
Agency Comments 
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A P P E N D I X   ~   C  
 
  OEI-05-07-00050  UNIT OF MEASURE INCONSISTENCIES IN THE MEDICAID PRESCRIPTION DRUG PROGRAM  28   
   
A P P E N D I X   ~   C  
 
  OEI-05-07-00050  UNIT OF MEASURE INCONSISTENCIES IN THE MEDICAID PRESCRIPTION DRUG PROGRAM  29   
   
A P P E N D I X   ~   B  
 A C K N O W L E D G M E N T S  
This report was prepared under the direction of Ann Maxwell, Regional 
Inspector General for Evaluation and Inspections in the Chicago 
regional office, and Thomas Komaniecki, Deputy Regional Inspector 
General.   
This study was led by Suzanne Bailey.  Other principal Office of 
Evaluation and Inspections staff from the Chicago regional office who 
contributed include Melissa Hafner and Mollie Hertel; central office 
staff who contributed include Cynthia Thomas and David Graf. 
 
  OEI-05-07-00050  UNIT OF MEASURE INCONSISTENCIES IN THE MEDICAID PRESCRIPTION DRUG PROGRAM  30