U.S. Department  of  Health and  Human Services 
Office of  Inspector  General 
Data Snapshot
September 2022,  OEI--03--22--00170 
Medicare  Part  B Drug Payments:  Impact  of Price Substitutions Based  
on 2020 Average Sales Prices 
Why This  Matters 
Medicare Part B  annually spends billions to cover a  limited  number 
of  outpatient  prescription drugs.  Generally, Part  B-covered drugs 
Key Takeaways 
are those that  are injected or infused  in physicians  offices or 
outpatient settings. 
 Since 2013,  Medicare and its
beneficiaries have saved       
When Congress established  average sales prices (ASPs)  as the 
$73.1  million as a  result of 
basis for reimbursement for Medicare Part B  drugs, it  also  
CMSs price-substitution policy
provided  a mechanism for monitoring  market  prices and limiting  
for  Part B-covered  drugs.
potentially excessive payment  amounts for these drugs.   The Social  
Security Act  (the Act)  mandates that the Office of  Inspector 
 Medicare and  its beneficiaries
General (OIG) compare ASPs with average manufacturer prices 
lost out  on $2.8 million in
(AMPs).1  If OIG finds that  the ASP  for a drug exceeds the AMP  by 
savings for 7 drugs because
5 percent, the Act directs the Secretary of  Health and Human 
CMS  did not  correctly
Services to  substitute the ASP-based payment  amount  with a  
implement price reductions.  
lower calculated  rate.2  Through regulation, the Centers for 
Medicare & Medicaid  Services (CMS)  stated  that  it would  make   The program and  its
this reduction only if  the ASP  for a  drug  exceeds the AMP  by         
beneficiaries could  have  
5 percent  in the two  previous consecutive quarters or three of  the 
realized  an  additional             
previous four quarters.3
$5.4  million in savings if CMS 
had  expanded  the                
This data snapshot is one in a  series of annual reportsproduced  
price-substitution criteria.      
since CMS implemented the price-substitution policy in 2013 
that quantifies the savings to Medicare and  its beneficiaries that  
result  from CMSs price-substitution policy.  
What  OIG Did 
This data snapshot quantifies the actual and  lost  savings to Medicare and  its beneficiaries that resulted  from 
the price-substitution policy based  on ASPs from 2020.   To determine these  savings,  we calculated the  
difference between ASP-based  payment  and AMP-based payment for each drug  with a  price substitution.  To  
calculate the savings based  on 2020  ASP  data, we multiplied  this difference by the Medicare utilization for each 
drug  during  the time period  in which the price reduction occurredthe fourth quarter of 2020  through the 
third  quarter of  2021.  We also  determined  the potential  savings that  could  result from an expansion of  the         
price-substitution criteria. 
Medicare  Part B  Drug  Payments:  Impact of  Price Substitutions  Based  on 2020 Average  Sales  Prices  1  Results 
Because  CMS  did not implement all eligible  drug  price reductions,  savings  that should have  
totaled  $2.8 million over  1 year  amounted  to only  $8,158. 
Exhibit 1.   Lost savings and  actual   There were 11 drugs eligible for price reductions based on 
savings calculated by OIG for Part B   2020 ASPs. However, CMS did not  correctly implement  
drugs  based on 2020  ASPs     price reductions for seven of  these eligible drugs. 
Consequently, the price reductions made by CMS based  
$2.8 million  on 2020  ASP data amounted  to only $8,158  in actual  
savingsa loss of  $2.8  million in savings to  Medicare and  
its  beneficiaries.4  This is the  lowest  savings amount  
achieved since the  inception of  the price substitution 
policy in 2013.  The actual  and  lost savings for each of  the 
11 drugs eligible for price reductions are  provided  in the 
Appendix.  
OIG alerted CMS  to the incorrect  payment amounts for 
the seven drugs when we discovered them in February 
2022.  When reviewing  payment  amounts for the second  
$8,158 
quarter of 2021,  OIG  determined that CMS  had  set  the  
Medicare payment  amounts for two  drugs at  ASP  plus           
6 percent rather than at  AMP  plus 3 percentthe amount  
Source:  OIG analysis  of  ASP  and  AMP data  from  2020. 
at which payments should have been set  if CMS had  
implemented the appropriate price reduction.  OIG also 
determined  that CMS implemented incorrectand smallerprice reductions for five additional  drugs.  For 
these five drugs,  CMS  erroneously set  the payment  amounts at  100 percent of the ASP rather than at  the 
correct amountAMP  plus 3 percent. 
CMS confirmed  that  it  input incorrect  second-quarter 2021  payment  amounts for these drugs in its pricing  
files.  In March 2022,  CMS  corrected  the second-quarter 2021  payment amounts for the seven drugs.  
Although CMS  corrected  these  payment  amounts for these drugs in its pricing  files, it  stated  that  it will not  
take action to retroactively reduce the payment  amounts for these  drugs on second-quarter 2021 claims 
paid prior to  the pricing correction implemented in March 2022. 
Medicare and its  beneficiaries  could realize millions  in additional savings  if CMS  expanded 
its price-substitution criteria.   
If CMS  had  expanded its price-substitution criteria to include drugs that exceeded  the 5-percent threshold  
in just  a  single quarter,  Medicare and  its beneficiaries could  have saved  an additional  $5.4  million over         
1 year for another 14 drugs.5  These 14 drugs exceeded the 5-percent  threshold  in at  least one quarter, but  
they were not eligible for price substitution because they did  not meet  CMSs requirement for prices to  
exceed the threshold  in the 2 previous consecutive quarters or 3 of  the previous 4 quarters.  
Since  2013, Medicare and its beneficiaries have  saved millions as a  result  of  reductions in 
Part  B  drug prices.  
From 2013  through 2020, Medicare and  its beneficiaries saved $73.1  million as a result of  CMSs                 
price-substitution policy for Part B-covered drugs.     
Medicare  Part B  Drug  Payments:  Impact of  Price Substitutions  Based  on 2020 Average  Sales  Prices  2  What  OIG Concludes 
Since the inception of  CMSs price-substitution policy, Medicare and its beneficiaries have saved  $73.1  million, 
which highlights the significance of  this effort  to  reduce costs while maintaining  access to  lifesaving  drugs.  Our 
findings indicate that  CMS could  have achieved  even greater savings for Medicare  and its beneficiaries by 
accurately implementing price reductions and expanding the price-substitution policy.  
Price reductions play an important  role in lowering  drug  costs.  Therefore, CMSs error in not  accurately 
implementing all  price reductions demonstrates a gap in oversight that  prevented the  program and its 
beneficiaries from realizing  millions in savings.  OIG is conducting  further work  to  examine CMSs oversight  of  
ASP data and  will  continue to work  with CMS  to ensure that CMS  maximizes the savings available to Medicare 
and  its beneficiaries.6 
In addition to  the lost savings, we identified  $5.4  million in savings that  could  have been realized if CMS had  
expanded  the price-substitution criteria.  OIG has previously recommended  that  CMS  expand  the                
price-substitution criteria.7  However, CMS did  not  concur with expanding the price-substitution policy and  
expressed  concern that  expanding the criteria  may impede physician and beneficiary access to  drugs.   OIG  
agrees that access to prescription drugs should  always be considered when contemplating  pricing  policies, and  
OIG supports current safeguards to prevent  reductions for drugs that the  Food  and  Drug Administration (FDA)  
has identified  as being in short supply.  However, OIG  continues to  believe that  CMS can achieve a better 
balance between safeguarding  access to  drugs and ensuring that Medicare and its beneficiaries do not  overpay 
for drugs.  We continue to believe that to more effectively limit  excessive payment  amounts based  on ASPs and  
to  generate greater savings for Medicare and its beneficiaries, CMS should expand  its price-substitution criteria  
to  include drugs that  exceeded  the 5-percent threshold  in just a single quarter. 
Medicare  Part B  Drug  Payments:  Impact of  Price Substitutions  Based  on 2020 Average  Sales  Prices  3  Appendix 
Exhibit  2.  CMSs  price reductions based  on 2020  ASP data  resulted  in  limited  savings.  
HCPCS  
Drug  Actual Savings  Lost Savings 
Code 
J7626  Budesonide,  noncompounded unit  $0  $2,794,213 
J0610  Calcium  gluconate  injection  $5,367  $2,420 
J2720  Protamine  sulfate  injection  $409  $134 
J2501  Paricalcitol  $113  $33 
Q0166  Granisetron  $13  $33 
J8530  Cyclophosphamide  $0  $4 
J0720  Chloramphenicol sodium  injection  $152  $3 
J2400  Chloroprocaine  HCl injection  $339  $0 
J9100  Cytarabine  injection  $631  $0 
J9360  Vinblastine  sulfate  injection  $471  $0 
Q0167  Dronabinol  $663  $0 
Total  $8,158  $2,796,840 
Source: OIG analysis  of ASP  and  AMP  data from 2020. 
Medicare  Part B  Drug  Payments:  Impact of  Price Substitutions  Based  on 2020 Average  Sales  Prices  4  Methodology 
Data Collection   
We obtained national drug  code (NDC)-level  ASP  data and  AMP  data for Part  B  drugs from CMS  for 2020. In 
addition, we obtained the list  of drugs that  were eligible for price reductions based  on ASP  data from 2020  and  
the corresponding  Medicare payment amounts.  In January 2022,  we obtained  Part B  drug utilization data from 
CMSs Part  B  Analytic Reports, which includes Medicare Part  B  physician and  supplier data.  We  collected     
ASP-based  reimbursement amounts and Part  B  drug utilization data  for the quarters in which price reductions 
occurredi.e., the fourth quarter of  2020  through the third quarter of  2021.  We  requested from CMS  
information to  (1) confirm that  it  did not  implement price reductions for all  eligible drugs and (2)  determine 
whether it would  retroactively reduce payment  amounts on claims for drugs that  did  not  have accurate price 
reductions.   
Data Analysis 
For each quarter of  2020,  we calculated the volume-weighted  AMP for drugs consistent with CMSs 
methodology for calculating volume-weighted  ASPs.  We then compared  the volume-weighted  ASPs and  
AMPs and identified all drugs with ASPs that  exceeded  AMP  by at least  5 percent.  We also identified drugs 
that  exceeded the 5-percent threshold but (1)  did  not  undergo  a correct  price reduction and  (2) did not  meet  
CMSs duration criteria for price reductioni.e., they did not  exceed the threshold  in the two  previous 
consecutive quarters or three of  the previous four quarters.   
Actual Savings.  To calculate the actual  savings associated  with drugs that  underwent  price reductions, we first  
identified  the  drugs for which CMS implemented price reductions.8  We did this by comparing  the AMP-based  
reimbursement amountcalculated  by OIGto  the drugs payment  amounts for the applicable quarter.  If the 
amounts matched, we determined that the drug underwent  a  correct  price  reduction.   For these  drugs,  we then 
subtracted  the AMP-based reimbursement  amount  from the ASP-based reimbursement amount  that otherwise 
would  have been in effect  for the quarter in which the price reduction occurred.  We multiplied  this difference 
by each drugs Part  B  utilization for the quarter(s)  in which the price reduction occurred.  
Lost Savings.  To determine the  lost savings associated  with drugs that were eligible for price reductions but for 
which CMS did  not  implement the correct  price reduction,  we compared  the AMP-based reimbursement 
calculated  by OIGto  the drugs payment  amounts for the applicable quarter.  If the amounts did not  match, 
we determined that the drug did  not undergo  the correct  price reduction.   
We determined  that the Medicare payment amounts for HCPCS  codes J7626 and  J8530 in CMSs drug  pricing  
files were set  at ASP  plus 6 percent  and not  AMP plus 3 percentthe amount  the payments should have been 
set  at  if CMS had implemented the appropriate price reduction.  For these drugs, we subtracted  the 
AMP-based  reimbursement  amount  from the ASP-based reimbursement amount  that was in effect  for the 
quarter in which the price reduction should  have occurred.  To  calculate the total  savings lost, we multiplied  
this difference by each drugs Part  B  utilization for the quarter in which the price reduction should have  
occurred.    
We also determined that  CMS implemented incorrectand  smallerprice reductions for HCPCS  codes J0610, 
J0720, J2501, J2720, and  Q0166, i.e., the payment  amounts were based  on 100  percent of  the ASP and  not the 
AMP plus 3 percent.  Because the payment  amounts for these five drugs did  not reflect all  eligible reductions, 
these drugs had both actual  and lost savings in the quarter for which the pricing  error occurred.  We calculated  
the actual  and lost savings using  the same methods described above. 
Expanded Savings.  To  determine the  savings associated  with potential  price reductions that  could  be made by 
expanding the number of  drugs eligible for price substitution, we identified the drugs with an ASP  that  
exceeded AMP  by at  least 5 percent  in only a single quarter.  For these drugs, we also  determined  whether they 
met CMSs additional  requirements for price substitution.  For drugs to  be eligible  for price substitution, CMS  
also  requires that  drugs (1)  have complete AMP  data, (2)  not  be identified  as being in short  supply by FDA, and 
Medicare  Part B  Drug  Payments:  Impact of  Price Substitutions  Based  on 2020 Average  Sales  Prices  5  Methodology (continued) 
(3) not  have an AMP-based  substitution amount  that is greater than the ASP-based  reimbursement amount  for 
the quarter in which substitutions would  occur.  To  calculate the potential  savings for the drugs that  exceeded  
the 5-percent threshold, we subtracted  each drugs AMP-based  reimbursement amount  from the ASP-based  
reimbursement amount  that  was in effect  for the quarter in which the price reduction could  have occurred.  We  
multiplied this difference by each drugs Part  B  utilization for the quarter(s)  in which the price reduction could  
have occurred. 
Total Savings.  To calculate the overall savings associated  with actual  price reductions since CMS implemented  
price reductions, we added the total  annual  savings that  OIG calculated  for each year from 2013  through 2020.   
Limitations.  We did not  verify the accuracy of  manufacturer-reported  ASP and  AMP data, nor did  we verify the 
underlying  methodology that manufacturers used  to calculate ASPs and AMPs.   Manufacturers are required to  
submit  their quarterly ASP  and AMP  data  to  CMS within 30 days of  the close of  the quarter.  We did  not  
determine whether manufacturers later provided  any updated  data  to  CMS.  To calculate savings, we used  
Part  B  utilization data  obtained  in January 2022.  CMS  implemented  the correction to  the  second-quarter   
2021 payment  amounts in March 2022.   Therefore, any claims for the drugs associated  with incorrect payment  
amounts billed  after CMS implemented the corrected  payment  amounts would  not  be included in our 
calculation  of savings. 
Standards 
We conducted  this study in accordance with the Quality  Standards  for  Inspection and Evaluation  issued by the 
Council of  the Inspectors General  on Integrity and Efficiency. 
Acknowledgments 
Conswelia  McCourt  served  as the team leader for this study.  Others in the Office of  Evaluation and  Inspections 
who conducted this study include Emily Dieckman.  Office of Evaluation and  Inspections headquarters staff  
who  provided  support  include Kaliane Davidson and Christine  Moritz. 
This report was prepared under the direction of Linda  Ragone, Regional Inspector General  for Evaluation and  
Inspections in the Philadelphia  regional  office,  and  Edward  Burley, Deputy Regional  Inspector General. 
To  obtain additional information concerning  this report or to  obtain copies, contact  the Office of Public Affairs 
at  Public.Affairs@oig.hhs.gov. 
Medicare  Part B  Drug  Payments:  Impact of  Price Substitutions  Based  on 2020 Average  Sales  Prices  6  Endnotes 
1 Section  1847A(d)(2) of  the Act.   
2 Section  1847A(d)(3) of  the Act. 
3 42 CFR  414.904(d)(3). 
4 CMS reported  that  it calculated  lost savings that were 2 percent lessor  approximately $53,500 lessthan 
OIGs calculation of  lost  savings.  
5 One of  the drugs that  met  the criteria  for inclusion in the expansion of  price  substitutions analysis did  not  
have a  payment  amount  based on ASP  during  the quarter in which the substitution would  have taken place.  
For this drug, we used  the  same method  to calculate potential  savings as we used  for drugs with ASP-based  
payment  amounts.  We subtracted  the AMP-based reimbursement  amount  from the actual  payment amount  
and multiplied that  difference by the drugs Part  B  utilization. 
6 OIG, OIG Work Plan.   Accessed at  https://www.oig.hhs.gov/reports-and-publications/workplan/summary/wp-
summary-0000627.asp on July 18, 2022.   
7 OIG,  Medicare Part B  Drug Payments: Impact of  Price Substitutions Based on  2017  Average Sales  Prices, 
OEI-03-19-00260, August  2019.  
8 Part  B  claims dated  on or after April  1, 2013,  incur a reduction in payment  in accordance with the Budget  
Control Act  of 2011  and  the American Taxpayer Relief  Act  of 2012  (see  CMS Medicare  FFS Provider e-News, 
Mandatory Payment  Reductions in the Medicare  Fee-for-Service (FFS) Program Sequestration,                 
March 8, 2013).  Under this mandatory payment reduction, Medicares portion of the payment rate for most  
Part  B  drugs is reduced  by 2 percent.  This reduction does not  apply to  the coinsurance  portion of  the 
Medicare allowed  amount  for Part  B  drugs.   However, the sequestration payment  reduction was suspended  
from May 1, 2020, through December 31, 2021.  (See the Coronavirus Aid, Relief, and  Economic Security 
(CARES)  Act (P.L. No. 116-136  3709);  the Consolidated  Appropriations Act, 2021  (P.L. 116-260);  and the Act to  
Prevent Across-the-Board  Direct  Spending Cuts, and for Other Purposes (P.L. No.  117-7)).   
Medicare  Part B  Drug  Payments:  Impact of  Price Substitutions  Based  on 2020 Average  Sales  Prices  7