DEPARTMENT OF HEALTH & HUMAN SERVICES 	 Office of Inspector General 
Washington. D.C. 20201 
FEB  14  2011 
TO: 	 Donald M. Berwick, M.D. 

Administrator 

Centers for Medicare & Medicaid Services 

FROM:  Stuart Wright 

Deputy Inspector General 

for Evaluation and Inspections 

SUBJECT: 	 Memorandum Report:  Comparison ofSecond-Quarter 2010 Average Sales 
Prices and Average Manufacturer Prices:  Impact on Medicare Reimbursement 
for Fourth Quarter 2010, OEI-03-11-00030 
This review was conducted in accordance with the statutory mandate for the Office of Inspector 
General (OIG) to compare 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 estimated the financial impact of lowering reimbursement amounts 
for drugs that exceeded the 5-percent threshold to 103 percent ofthe AMP, pursuant to statute. 
SUMMARY 
Since the advent ofthe ASP reimbursement methodology, OIG has issued 18 reports comparing 
ASPs to AMPs.  This latest pricing comparison examines drugs that exceeded the 5-percent 
threshold based on either complete or partial AMP data in the second quarter of2010.  Of the 
350 drug codes with complete AMP data in that quarter, 10 exceeded the 5-percent threshold. 
Over half ofthe 10 codes were also eligible for price reduction in at least one ofthe three 
previous quarters.  Ifreimbursement amounts for all 10 codes with complete AMP data had been 
based on 103 percent ofthe AMPs during the fourth quarter of201 0, we estimate that Medicare 
and its beneficiaries would have saved over $700,000 in that quarter alone.  Of the 106 drug 
codes with only partial AMP data in the second quarter of201O, 15 had ASPs that exceeded the 
AMPs by at least 5 percent.  Although CMS has expressed concern that partial AMP data may 
not adequately reflect market trends, we found that pricing comparisons for 5 ofthe 15 codes 
seemed to accurately capture underlying market trends even though AMP data were missing for 
some ofthe associated drug products.  Therefore, price reductions may be appropriate in these 
five cases.  We could not perform pricing comparisons for an additional 54 drug codes because 
none ofthe drug products used to establish Medicare reimbursement had corresponding AMP 
data.  Manufacturers for 16 percent ofthose drug products had Medicaid drug rebate agreements 
and were therefore generally required to submit AMPs. 
OEI-03-11-00030  Comparison ofSecond-Quarter 2010 ASPs and AMPs  Page 2  Donald M. Berwick, M.D. 
 
 
BACKGROUND 
 
The Social Security Act (the Act) mandates that OIG compare ASPs to AMPs.1  If OIG finds 
that the ASP for a drug exceeds the AMP by a certain percentage (currently 5 percent), section 
1847A(d)(3)(A) of the Act states that the Secretary of Health & Human Services (the Secretary) 
may disregard the ASP for the drug when setting reimbursement amounts.2  Section 
1847A(d)(3)(C) of the Act further states that ... the Inspector General shall inform the Secretary 
(at such times as the Secretary may specify to carry out this subparagraph) and the Secretary 
shall, effective as of the next quarter, substitute for the amount of payment ... the lesser of (i) the 
widely available market price ... (if any); or (ii) 103 percent of the average manufacturer 
price....   
 
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 
The Centers for Medicare & Medicaid Services (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, health care providers 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 the amount of the drug represented by the HCPCS code but does not specify 
manufacturer or package size information.   
 
Medicare and its beneficiaries spent over $11 billion for Part B drugs in 2009.3  Although 
Medicare paid for nearly 800 outpatient prescription drug HCPCS codes that year, most of the 
spending for Part B drugs was concentrated on a relatively small subset of those codes.  In 2009, 
64 HCPCS codes accounted for 90 percent of the expenditures for Part B drugs, with only 13 of 
these codes representing the majority (52 percent) of total Part B drug expenditures. 
 
                                                 
1 Section 1847A(d)(2)(B) of the Act. 
2 Section 1847A(d)(3)(B)(ii) of the Act provides the Secretary with authority to adjust the applicable threshold 
percentage in 2006 and subsequent years; however, the threshold percentage has been maintained at 5 percent. 
3 Medicare expenditures for Part B drugs in 2009 were calculated using CMSs Part B Analytics and Reports 
(PBAR).  The PBAR data for 2009 were downloaded in March 2010. 
OEI-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs  
  Page 3  Donald M. Berwick, M.D. 
 
 
Reimbursement Methodology for Part B Drugs and Biologicals  
Medicare Part B pays for most covered drugs using a reimbursement methodology based on 
ASPs.4  As defined by law, an ASP is a manufacturers sales of a drug to all purchasers in the 
United States in a calendar quarter divided by the total number of units of the drug sold by the 
manufacturer in that same quarter.5  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.6  Sales that are nominal in amount are exempted from the ASP calculation, as 
are sales excluded from the determination of best price in Medicaids drug rebate program.7, 8 
 
Manufacturers that participate in the Medicaid drug rebate program must provide CMS with the 
ASP and volume of sales for each of their national drug codes (NDC) on a quarterly basis, with 
submissions due 30 days after the close of each quarter.9  An NDC is an 11-digit identifier that 
represents a specific manufacturer, product, and package size. 
 
Because Medicare Part B reimbursement for outpatient drugs is based on HCPCS codes rather 
than NDCs and more than one NDC may meet the definition of a particular HCPCS code, CMS 
has developed a file that crosswalks manufacturers NDCs to HCPCS codes.  CMS uses 
information in this crosswalk file to calculate volume-weighted ASPs for covered HCPCS codes.   
 
Calculation of Volume-Weighted ASPs 
Fourth-quarter 2010 Medicare payments for most covered drug codes were based on                 
second-quarter 2010 ASP submissions from manufacturers, which were volume-weighted using 
an equation that involves the following variables:  the ASP for the 11-digit NDC as reported by 
the manufacturer, the volume of sales for the NDC as reported by the manufacturer, and the 
number of billing units in the NDC as determined by CMS.10  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.   
                                                 
4 Several Part B drugs, including certain vaccines and blood products, are not paid for under the ASP methodology.  
5 Section 1847A(c) of the Act, as added by the Medicare Prescription Drug, Improvement, and Modernization Act of 
2003, P.L. 108-173. 
6 Section 1847A(c)(3) of the Act.  
7 Section 1847A(c)(2) of the Act.  
8 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. 
9 Section 1927(b)(3) of the Act.  
10 The equation that CMS currently uses to calculate volume-weighted ASPs is described in section 1847A(b)(6) of 
the Act.  It is also provided in Appendix A.   
 
OEI-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs  
  Page 4  Donald M. Berwick, M.D. 
 
 
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 
generally responsible for 20 percent of this amount in the form of coinsurance.   
 
The Medicaid Drug Rebate Program and AMPs 
For Federal payment to be available for covered outpatient drugs provided under Medicaid, the 
Act mandates that drug manufacturers enter into rebate agreements with the Secretary and pay 
quarterly rebates to State Medicaid agencies.11  Under these rebate agreements and pursuant to 
the Act, manufacturers must provide CMS with the AMPs for each of their NDCs.12  As further 
explained in regulation, manufacturers are required to submit AMPs within 30 days after the end 
of each month and each quarter.13   
 
During the second quarter of 2010, the AMP was generally defined by statute to be 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.14, 15  The AMP is generally calculated as a 
weighted average of prices for all of a manufacturers package sizes of a drug and is reported for 
the lowest identifiable quantity of the drug (e.g., 1 milliliter, 1 tablet, 1 capsule).16   
 
Penalties for Failure To Report Timely Drug Pricing Data 
Under the law, manufacturers that fail to provide ASP and AMP data on a timely basis may be 
subject to civil money penalties and/or termination from the drug rebate program.17, 18  
Accordingly, CMS has terminated rebate agreements with a number of manufacturers for failure 
to report AMPs and, for the purposes of evaluating potential civil money penalties, has referred 
to OIG manufacturers that failed to submit timely AMPs.19  At the time of our review, no 
manufacturers had been terminated or formally referred to OIG for failure to report timely ASPs.  
In September 2010, OIG announced a new enforcement initiative under which OIG would begin 
imposing civil money penalties on manufacturers that failed to report timely ASPs and/or AMPs. 
 
                                                 
11 Sections 1927(a)(1) and (b)(1) of the Act. 
12 Section 1927(b)(3) of the Act. 
13 42 CFR  447.510.   
14 Section 1927(k)(1) of the Act. 
15 Effective October 2010, section 2503 of the Patient Protection and Affordable Care Act (Affordable Care Act), 
P.L. 111-148, changes the definition of AMP in a way that is not relevant for the purposes of this report.  However, 
it may affect pricing comparisons between ASPs and AMPs for the fourth quarter of 2010 and beyond. 
16 During the second quarter of 2010, 42 CFR  447.504(i) specified that a quarterly AMP should be calculated as a 
weighted average of monthly AMPs in the quarter.    
17 Sections 1927(b)(3)(C)(i) and (4)(B)(i) of the Act. 
18 The Secretary delegated to OIG the responsibility to impose civil money penalties for violations of section 
1927(b)(3)(C) of the Act in 59 Fed. Reg. 52967 (Oct. 20, 1994). 
19 CMS began referring noncompliant manufacturers to OIG in response to a 2005 report entitled Deficiencies in the 
Oversight of the 340B Drug Pricing Program (OEI-05-02-00072).  As part of this report, OIG recommended that 
CMS consider referring manufacturers whose pricing data submissions do not comply with reporting requirements 
to OIG so that penalties could be imposed in appropriate cases. 
OEI-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs  
  Page 5  Donald M. Berwick, M.D. 
 
 
Office of Inspector Generals Monitoring of ASPs and AMPs 
In accordance with its statutory mandate, OIG has issued 16 quarterly pricing comparisons since 
the ASP reimbursement methodology for Part B drugs was implemented in January 2005.  In 
addition, OIG has completed two annual overviews of ASPs and AMPs, which examined data 
across all four quarters of 2007 and 2008, respectively.  A list of all 18 reports is provided in 
Appendix B.   
 
Although OIG has consistently recommended that CMS develop a price substitution policy and 
subsequently lower reimbursement for drugs that exceed the 5-percent threshold, no price 
substitutions have been made to date.  In July 2010, CMS published a proposed rule that, among 
other things, specified the circumstances under which AMP-based price substitutions would 
occur.20  However, the agency has opted not to finalize the price substitution policy from the 
proposed rule, thereby suspending any plans to lower reimbursement amounts based on the 
results of OIGs pricing comparisons.21, 22 
 
METHODOLOGY 
 
We obtained a file from CMS containing NDC-level ASP data from the second quarter of 2010, 
which were used to establish Part B drug reimbursement for the fourth quarter of 2010.  This file 
also includes information that crosswalks NDCs to their corresponding HCPCS codes.  Both the 
ASP data and the crosswalk data were current as of September 27, 2010.  We also obtained AMP 
data from CMS for the second quarter of 2010, which were current as of August 3, 2010. 
 
Analyzing ASP Data From the Second Quarter of 2010 
As mentioned previously, Medicare does not base reimbursement for covered drugs on NDCs; 
instead, it uses HCPCS codes.  Therefore, CMS uses ASP information submitted by 
manufacturers for each NDC to calculate a volume-weighted ASP for each covered HCPCS 
code.  When calculating these volume-weighted ASPs, CMS includes only NDCs with ASP 
submissions that are deemed valid.   
 
As of October 2010, CMS had established prices for 519 HCPCS codes based on the ASP 
reimbursement methodology mandated by section 1847A(b)(6) of the Act.  Reimbursement 
amounts for the 519 HCPCS codes were based on ASP data for 3,001 NDCs.   
 
Analyzing AMP Data From the Second Quarter of 2010 
To ensure that the broadest range of drug codes is subject to OIGs pricing comparisons, we 
divided HCPCS codes into the following three groups:                       
                                                 
20 75 Fed. Reg. 40040, 40259 (July 13, 2010).   
21 75 Fed. Reg. 73170, 73471 (Nov. 29, 2010). 
22 CMS cited a number of factors in support of its decision not to finalize the price substitution policy, including an 
ongoing preliminary injunction issued on December 19, 2007, by the United States District Court for the District of 
Columbia, as well as upcoming regulations that will implement changes to the definition of AMP pursuant to section 
2503 of the Affordable Care Act.  On December 14, 2010, the preliminary injunction was vacated.  
OEI-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs  
  Page 6  Donald M. Berwick, M.D. 
 
 
(1) HCPCS codes with complete AMP datai.e., HCPCS codes with AMP data for 
every NDC that CMS used in its calculation of volume-weighted ASPs; 
 
(2) HCPCS codes with partial AMP datai.e., HCPCS codes with AMP data for only 
some of the NDCs that CMS used in its calculation of volume-weighted ASPs; and   
 
(3) HCPCS codes with no AMP datai.e., HCPCS codes with no AMP data for any of 
the NDCs that CMS used in its calculation of volume-weighted ASPs.   
 
As previously noted, the AMP for each NDC is reported for the lowest identifiable quantity of 
the drug contained in that NDC (e.g., 1 milliliter, 1 tablet, 1 capsule).  In contrast, the ASP is 
reported for the entire amount of the drug contained in the NDC (e.g., 50 milliliters, 100 tablets).  
To ensure that the AMP would be comparable to the ASP, it was necessary to convert the AMP 
for each NDC so that it represented the total amount of the drug contained in that NDC.   
 
To calculate converted AMPs for NDCs in the first and second groups, we multiplied the AMP 
by the total amount of the drug contained in each NDC, as identified by sources such as the CMS 
crosswalk file, manufacturer Web sites, Thomson Reuters Red Book, and the Food and Drug 
Administrations NDC directory.23  For certain NDCs, we were unable to successfully identify 
the amount of the drug reflected by the ASP and therefore could not calculate a converted AMP.  
Because of these unsuccessful AMP conversions, a total of 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 CMSs methodology for calculating 
volume-weighted ASPs.  When calculating the volume-weighted AMP for a HCPCS code with 
partial AMP data, we excluded any NDCs without AMPs; however, we did not exclude those 
NDCs from the corresponding volume-weighted ASP.  This means that the volume-weighted 
AMP for a HCPCS code with partial AMP data is based on fewer NDCs than the                         
volume-weighted ASP for that same code.  Appendix C provides a more detailed description of 
the methods we used to both convert AMPs and calculate volume-weighted AMPs.  Table 1 
provides the final number of HCPCS codes and NDCs included in our analysis after we removed 
NDCs with either no AMP data or unsuccessful AMP conversions.   
 
                                                 
23 We did not calculate converted AMPs for NDCs in the third group because those NDCs had no AMP data. 
OEI-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs  
  Page 7  Donald M. Berwick, M.D. 
 
 
Table 1:  Number of Drug Codes and NDCs Included in OIGs Pricing Comparison 
Number of   Number of 
Availability of AMP Data for HCPCS Codes 
HCPCS Codes   NDCs  
Complete AMP Data  350  1,353 
Partial AMP Data  106  821 
No AMP Data  54  236 
Source:  OIG analysis of second-quarter 2010 ASP and AMP data, 2010. 
 
Comparing Second-Quarter 2010 Volume-Weighted ASPs and AMPs for HCPCS Codes 
With Complete AMP data  
For each of the 350 HCPCS codes with complete AMP data, we compared the volume-weighted 
ASP and AMP and determined whether the ASP for the code exceeded the AMP by at least                
5 percent.  For HCPCS codes that exceeded the 5-percent threshold, we reviewed the associated 
NDCs to verify the accuracy of the billing unit information.  According to our review, none of 
the HCPCS codes that exceeded the threshold were associated with questionable billing units.  
However, we excluded one HCPCS code from our findings because the manufacturer of the 
corresponding NDC indicated to OIG that the AMP data were not correct.24   
  
For each of the remaining HCPCS codes that exceeded the 5-percent threshold, we estimated the 
monetary impact of lowering reimbursement to 103 percent of the AMP.25  First, we calculated 
103 percent of the volume-weighted AMP and subtracted this amount from the fourth-quarter 
2010 reimbursement amount for the HCPCS code.  To estimate the financial effect for the fourth 
quarter of 2010, we then multiplied the difference by one-fourth of the number of services that 
were allowed by Medicare for each HCPCS code in 2009, as reported in the PBAR.26, 27   
 
We additionally determined whether HCPCS codes with complete AMP data also exceeded the                      
5-percent threshold in any of the three previous quarters, dating back to the third quarter of 2009.  
We then totaled the estimated savings for that subset of codes. 
 
                                                 
24 In the course of a previous study (see OEI-03-09-00350), a manufacturer notified us that the AMPs for one of its 
NDCs were incorrect for all four quarters of 2008.  The second-quarter 2010 AMP for that NDC was the same as the 
fourth-quarter 2008 AMP identified by the manufacturer as incorrect; therefore, we assumed that the second-quarter 
2010 AMP was incorrect as well.  We will provide the name of this manufacturer to CMS for followup. 
25 Section 1847A(d)(3)(C) of the Act directs the Secretary to replace payment amounts for drugs that exceed the   
5-percent threshold with the lesser of the widely available market price for the drug (if any) or 103 percent of the 
AMP.  For the purposes of this study, we used 103 percent of the AMP to estimate the impact of lowering 
reimbursement amounts.  If widely available market prices had been available for these drugs and lower than  
103 percent of the AMP, the savings estimate presented in this report would have been greater. 
26 The PBAR data for 2009 were 98 percent complete when the data were downloaded in March 2010. 
27 This estimate assumes that the number of services that were allowed by Medicare in 2009 remained consistent 
from one quarter to the next and that there were no significant changes in utilization between 2009 and 2010. 
OEI-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs  
  Page 8  Donald M. Berwick, M.D. 
 
 
Comparing Second-Quarter 2010 Volume-Weighted ASPs and AMPs for HCPCS Codes 
With Partial AMP data  
For each of the 106 HCPCS codes with partial AMP data, we compared the volume-weighted 
ASP and AMP and determined whether the ASP for the code exceeded the AMP by at least                 
5 percent.  For HCPCS codes that exceeded the 5-percent threshold, we reviewed the associated 
NDCs to verify the accuracy of the billing units.  According to our review, NDCs for two codes 
had billing unit information in CMSs crosswalk file that may not have accurately reflected the 
number of billing units actually contained in the NDC.  Because volume-weighted ASPs and 
AMPs are calculated using this billing unit information, we could not be certain that the results 
for these two codes were correct.  Therefore, we excluded these HCPCS codes from our findings. 
 
For each of the remaining HCPCS codes that exceeded the 5-percent threshold, we determined 
whether missing AMPs unduly influenced the results of our pricing comparison.  As mentioned 
previously, the volume-weighted AMP for a HCPCS code with partial AMP data is based on 
fewer NDCs than the volume-weighted ASP for that same code.  Therefore, there may be a 
disparity between the volume-weighted ASP and AMP that would not exist if AMP data were 
available for the full set of NDCs.  In other words, the volume-weighted ASP for the HCPCS 
code could exceed the volume-weighted AMP by at least 5 percent only because AMPs for 
certain NDCs were not represented. 
 
CMS has expressed concern that partial AMP data may not adequately reflect market trends.28  
Therefore, to identify HCPCS codes with partial AMP data that exceeded the 5-percent threshold 
only because AMP data were missing, we reanalyzed pricing data after accounting for the 
missing values.  Specifically, we replaced each missing AMP with its corresponding ASP and 
recalculated the volume-weighted AMPs using those imputed prices.29  We then compared those 
new volume-weighted AMPs to the volume-weighted ASPs originally calculated by CMS. 
 
If a HCPCS code no longer exceeded the 5-percent threshold, we concluded that the missing 
AMPs were likely responsible for the HCPCS code initially exceeding the threshold, as opposed 
to an actual disparity between ASPs and AMPs in the marketplace.   
 
If a HCPCS code continued to exceed the 5-percent threshold, we concluded that missing AMPs 
had little impact on the results of our pricing comparison.  These HCPCS codes likely exceeded 
the threshold as a result of actual pricing differences between ASPs and AMPs.  Because price 
substitutions for these HCPCS codes may be warranted, we estimated the monetary impact of 
lowering reimbursement to 103 percent of the new volume-weighted AMPs.  We also 
determined whether any of these codes exceeded the threshold in any of the three previous 
quarters and totaled the estimated savings for that subset of codes.   
   
                                                 
28 75 Fed. Reg. 73170, 73471 (Nov. 29, 2010). 
29 Although an NDCs ASP is not usually the same as its AMP, it is generally within about 5 percent of the AMP on 
average.  Therefore, we believe that ASP acts as a reasonable proxy for AMP, ensuring that the NDC is represented 
in both the volume-weighted ASP and the volume-weighted AMP for the HCPCS code.   
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Limitations 
We did not verify the accuracy of manufacturer-reported ASP and AMP data, nor did we verify 
the underlying methodology used by manufacturers to calculate ASPs and AMPs.  Furthermore, 
we did not verify the accuracy of CMSs crosswalk files or examine NDCs that CMS opted to 
exclude from its calculation of Part B drug reimbursement amounts.  
 
Manufacturers are required to submit their quarterly ASP and AMP data to CMS 30 days after 
the close of the quarter.  Our analyses were performed on ASP and AMP data compiled by CMS 
soon after that deadline.  We did not determine whether manufacturers provided additional or 
revised pricing data to CMS at a later date. 
 
Standards   
This study was conducted in accordance with the Quality Standards for Inspection and 
Evaluation issued by the Council of the Inspectors General on Integrity and Efficiency. 
 
RESULTS 
 
Of the 350 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.  In the second quarter of 2010, 10 of the 350 HCPCS codes with complete 
AMP data (3 percent) exceeded this 5-percent threshold.  Table 2 describes the extent to which 
ASPs exceeded AMPs for the 10 HCPCS codes.  For two of the codes, the volume-weighted 
ASP exceeded the volume-weighted AMP by more than 20 percent.  A list of all 10 HCPCS 
codes, including their descriptions and HCPCS dosage amounts, is presented in Appendix D.   
 
Table 2:  Extent to Which ASPs Exceeded AMPs for  
10 HCPCS Codes With Complete AMP Data 
Percentage by Which ASP  Number of HCPCS 
Exceeded AMP  Codes 
5.00%9.99%  4 
10.00%19.99%  4 
20.00%29.99%  2 
30.00%39.99%  0 
40.00%49.99%  0 
50.00%59.99%  0 
60.00%69.99%  0 
70.00%79.99%  0 
80.00%89.99%  0 
90.00%99.99%  0 
100% and above  0 
     Total  10 
Source:  OIG analysis of second-quarter 2010 ASP and AMP data, 2010. 
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Pursuant to sections 1847A(d)(3) of the Act, the Secretary may disregard the ASP for a drug that 
exceeds the 5-percent threshold and shall substitute the payment amount with the lesser of either 
the widely available market price or 103 percent of the AMP.  If reimbursement amounts for all 
10 codes with complete AMP data had been based on 103 percent of the AMPs during the fourth 
quarter of 2010, we estimate that Medicare expenditures would have been reduced by                  
$713,000 in that quarter alone.30, 31   
 
Over half of the HCPCS codes (6 of 10) also exceeded the 5-percent threshold in at least one of 
the previous three quarters.  If reimbursement amounts for the six codes had been based on                             
103 percent of the AMPs during the fourth quarter of 2010, Medicare expenditures would have 
been reduced by an estimated $610,000 in that quarter.32  Table 3 presents a list of the six 
HCPCS codes with complete AMP data that previously exceeded the 5-percent threshold. 
 
Table 3:  Six HCPCS Codes With Complete AMP Data in the Second Quarter of 2010                              
That Also Exceeded the 5-Percent Threshold in Previous Quarters 
 
  OIG Reports Comparing ASP and AMP 
Second  First   Fourth  Third 
HCPCS 
Quarter   Quarter   Quarter   Quarter  
Code 
2010  2010  2009  2009 
J0210  X  X  X  X 
J1327  X  X  X  X 
J9214  X  X  X  X 
J0834  X  X     
J2675  X    X   
J2993  X      X 
 
Source:  OIG analysis of ASP and AMP data from the third quarter of 2009 through                                                                   
 
the second quarter of 2010.
In each quarter, codes exceeded the 5-percent threshold based on complete AMP data. 
 
Of the 106 Drug Codes With Partial AMP Data, Volume-Weighted ASPs for                                
15 Exceeded the Volume-Weighted AMPs by at Least 5 Percent    
In addition to examining HCPCS codes with complete AMP data, we examined 106 HCPCS 
codes for which only partial AMP data were available.  ASPs for 15 of these 106 HCPCS codes  
(14 percent) exceeded the AMPs by at least 5 percent in the second quarter of 2010.  A list of the           
15 HCPCS codes, including their descriptions and HCPCS dosage amounts, is presented in 
Appendix E.   
                                                 
30 All savings estimates in this report assume that the number of services that were allowed by Medicare in 2009 
remained consistent from one quarter to the next and that there were no significant changes in utilization between                
2009 and 2010.  
31 Of the 10 HCPCS codes that met the 5-percent threshold using complete AMP data, 1 was not listed in the 2009 
PBAR file.  As a result, this code was not included in the estimated savings for this group. 
32 Of the six HCPCS codes with complete AMP data that met the 5-percent threshold in multiple quarters, one had 
no expenditures listed in the 2009 PBAR file.  As a result, this code was not included in the estimated savings for 
this group. 
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For 5 of the 15 HCPCS codes, missing AMPs likely had little influence on the outcome of the 
pricing comparisons.  Five of the 15 HCPCS codes with partial AMP data continued to exceed 
the threshold when we accounted for missing AMPs, suggesting that the pricing comparisons for 
these codes were accurately capturing underlying market trends even though AMP data were not 
available for the full set of NDCs.  Because missing AMPs likely had little influence on the 
pricing comparison results for these five HCPCS codes, price substitutions may be legitimately 
warranted in these cases.  If reimbursement amounts for the five codes had been based on                      
103 percent of the AMPs, we estimate that Medicare expenditures would have been reduced by                      
$239,000 during the fourth quarter of 2010.  
 
Table 4 describes the extent to which ASPs exceeded AMPs for the five HCPCS codes.  For one 
of the codes, volume-weighted ASPs exceeded AMPs by more than 20 percent. 
 
Table 4:  Extent to Which ASPs Exceeded AMPs for  
Five HCPCS Codes With Partial AMP Data 
Percentage by Which ASP  Number of HCPCS 
Exceeded AMP  Codes 
5.00%9.99%  2 
10.00%19.99%  2 
20.00%29.99%  1 
30.00%39.99%  0 
40.00%49.99%  0 
50.00%59.99%  0 
60.00%69.99%  0 
70.00%79.99%  0 
80.00%89.99%  0 
90.00%99.99%  0 
100% and above  0 
     Total  5 
Source:  OIG analysis of second-quarter 2010 ASP and AMP data, 2010. 
 
For the remaining 10 of 15 HCPCS codes, ASPs no longer exceeded the AMPs in the second 
quarter of 2010, indicating that these codes initially exceeded the threshold because of missing 
AMP data rather than a genuine pricing disparity between the ASPs and AMPs. 
 
Of the five HCPCS codes on which missing AMPs likely had little influence, three exceeded the               
5-percent threshold in at least one of the previous three quarters.  If reimbursement amounts for 
the three codes had been substituted with 103 percent of the AMPs, Medicare expenditures 
would have been reduced by an estimated $11,000 during the fourth quarter of 2010.                         
Table 5 presents a list of the three HCPCS codes with partial AMP data that also exceeded the                    
5-percent threshold in previous quarters. 
 
OEI-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs  
  Page 12  Donald M. Berwick, M.D. 
 
 
Table 5:  Three HCPCS Codes With Partial AMP Data in the Second Quarter of 2010                                 
That Also Exceeded the 5-Percent Threshold in Previous Quarters 
  OIG Reports Comparing ASP and AMP 
Second  First   Fourth  Third 
HCPCS 
Quarter   Quarter   Quarter   Quarter  
Code 
2010  2010  2009  2009 
   
J0560  X X X  X* 
   
J1940  X X X   
J7506  X  X    X 
Source:  OIG analysis of ASP and AMP data from the third quarter of 2009 through                                                         
the second quarter of 2010.   
*This code previously exceeded the 5-percent threshold during the specified quarter based                                                     
on complete AMP data.  For all other quarters, codes exceeded the 5-percent threshold based                                                  
on partial AMP data.   
 
Pricing Comparisons Could Not Be Performed on 54 Drug Codes Because No AMP Data 
Were Available 
For 54 HCPCS codes, OIG could not compare ASPs and AMPs because there were no AMP data 
for any of the 236 NDCs that CMS used when calculating drug reimbursement amounts for these 
codes.  In 2009, Medicare allowances for these 54 codes totaled $163 million.33 
 
Manufacturers for 16 percent of the NDCs without AMP data (38 of 236) participated in the 
Medicaid drug rebate program as of the second quarter of 2010 and were therefore generally 
required to submit AMP data for their covered outpatient drugs.34, 35, 36  The majority of these           
38 NDCs belonged to one manufacturer.  
 
Manufacturers for the remaining 198 of 236 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 its statutory 
mandate, 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 19th report comparing ASPs and 
AMPs, and it examines 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. 
 
                                                 
33 Of the 54 HCPCS codes with no associated AMP data, 6 were not listed in the 2009 PBAR file.  As a result, these 
codes were not included in the total Medicare allowances for the year.  
34 To determine whether a manufacturer participated in the Medicaid drug rebate program, we consulted CMSs 
Drug Company Contact Information, accessed at http://www.cms.gov on October 19, 2010. 
35 Although manufacturers with rebate agreements are required to submit AMP data for their covered outpatient 
drugs, there may be valid reasons why an AMP was not provided for a specific NDC in a given quarter.  For 
example, a manufacturer may not have been required to submit an AMP if the drug product had been terminated and 
there was no drug utilization during the quarter.   
36 These 38 NDCs were crosswalked to 18 HCPCS codes. 
OEI-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs  
  Page 13  Donald M. Berwick, M.D. 
 
 
We identified a total of 25 HCPCS codes that exceeded the threshold for price adjustment in the 
second quarter of 2010.  Of these 25 HCPCS codes, 10 had complete AMP data (i.e., AMP data 
for every drug product that CMS used to establish reimbursement amounts).  If reimbursement 
amounts for all 10 codes with complete AMP data had been based on 103 percent of the AMPs 
during the fourth quarter of 2010, we estimate that Medicare expenditures would have been 
reduced by $713,000 in that quarter alone.  The remaining 15 of 25 HCPCS codes also exceeded 
the 5-percent threshold in the second quarter of 2010 but did not have AMP data for every drug 
product that CMS used when calculating reimbursement.  For 5 of the 15 codes, price reductions 
may be legitimately warranted because missing AMPs likely had little influence on the pricing 
comparison results for these codes.  We could not compare ASPs and AMPs for 54 HCPCS 
codes because AMP data were not submitted for any of the NDCs that CMS used to calculate 
reimbursement.  Manufacturers for 16 percent 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.   
 
Some of OIGs previous reports comparing ASPs and AMPs have contained recommendations, 
which we continue to support.37  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-03-11-00030 in all correspondence. 
                                                 
37 For example, OEI-03-08-00450, December 2008; and OEI-03-09-00350, February 2010. 
OEI-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs  
  Page 14  Donald M. Berwick, M.D. 
 
 
APPENDIX A 
 
The Equation Used by the Centers for Medicare & Medicaid Services To Calculate            
Volume-Weighted Average Sales Prices on or After April 1, 2008 
 
A volume-weighted average sales price (ASP) is calculated for the dosage amount associated with 
the Healthcare Common Procedure Coding System (HCPCS) code.  In the following equation, the 
number of billing units represents the number of HCPCS code doses that are contained in a 
national drug code (NDC).   
 
 
 
Volume-Weighted ASP   Sum of  (ASP for NDC * Number of NDCs Sold) 
 
for Dosage Amount       =     
 of HCPCS Code  Sum of   (Number of NDCs Sold * Number of Billing Units in NDC) 
 
 
 
 
 
OEI-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs  
  Page 15  Donald M. Berwick, M.D. 
 
 
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-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs  
  Page 16  Donald M. Berwick, M.D. 
 
 
  Comparison of Second-Quarter 2008 Average Sales Prices and Average 
Manufacturer Prices:  Impact on Medicare Reimbursement for Fourth Quarter 
2008, OEI-03-09-00050, February 2009 
 
  Comparison of Third-Quarter 2008 Average Sales Prices and Average 
Manufacturer Prices:  Impact on Medicare Reimbursement for First Quarter 
2009, OEI-03-09-00150, April 2009 
 
  Comparison of Fourth-Quarter 2008 Average Sales Prices and Average 
Manufacturer Prices:  Impact on Medicare Reimbursement for Second Quarter 
2009, OEI-03-09-00340, August 2009 
 
  Comparison of First-Quarter 2009 Average Sales Prices and Average 
Manufacturer Prices:  Impact on Medicare Reimbursement for Third Quarter 
2009, OEI-03-09-00490, August 2009 
 
  Comparison of Second-Quarter 2009 Average Sales Prices and Average 
Manufacturer Prices:  Impact on Medicare Reimbursement for Fourth Quarter 
2009, OEI-03-09-00640, January 2010 
 
  Comparison of Average Sales Prices and Average Manufacturer Prices:  An 
Overview of 2008, OEI-03-09-00350, February 2010 
 
  Comparison of Third-Quarter 2009 Average Sales Prices and Average 
Manufacturer Prices:  Impact on Medicare Reimbursement for First Quarter 
2010, OEI-03-10-00150, April 2010 
 
  Comparison of Fourth-Quarter 2009 Average Sales Prices and Average 
Manufacturer Prices:  Impact on Medicare Reimbursement for Second Quarter 
2010, OEI-03-10-00350, July 2010 
 
  Comparison of First-Quarter 2010 Average Sales Prices and Average 
Manufacturer Prices:  Impact on Medicare Reimbursement for Third Quarter 
2010, OEI-03-10-00440, November 2010 
 
OEI-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs  
  Page 17  Donald M. Berwick, M.D. 
 
 
APPENDIX C 
 
Detailed Methodology for Converting and Volume-Weighting Average Manufacturer 
Prices for the Second Quarter of 2010 
 
Healthcare Common Procedure Coding System codes with complete average manufacturer price 
data.  Of the 519 Healthcare Common Procedure Coding System (HCPCS) codes with 
reimbursement amounts based on average sales prices (ASP), 358 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 358 HCPCS codes represented 
1,395 NDCs.  For 10 NDCs, we could not successfully identify the amount of the drug reflected 
by the ASP and therefore could not calculate a converted AMP.  These 10 NDCs were 
crosswalked to 8 HCPCS codes.  We did not include these 8 HCPCS codes (42 NDCs) in our 
final analysis.   
 
Using the converted AMPs for the remaining 1,353 NDCs, we then calculated a                             
volume-weighted AMP for each of the remaining 350 HCPCS codes consistent with CMSs 
methodology for calculating volume-weighted ASPs.   
 
HCPCS codes with partial AMP data.  There were 107 HCPCS codes with AMP data for only 
some of the NDCs that CMS used in its calculation of volume-weighted ASPs.  These                 
107 HCPCS codes represented a total of 1,370 NDCs.  AMP data were either missing or 
unavailable for 541 of these NDCs, which were then excluded from our calculation of  
volume-weighted AMPs.38   
 
We calculated converted AMPs for each of the remaining 829 NDCs.  For 8 of the 829 NDCs, 
we could not successfully identify the amount of the drug reflected by the ASP and therefore 
could not calculate a converted AMP.  We removed these eight NDCs from our analysis.39  As a 
result, one HCPCS code no longer had any NDCs with AMP data.  Therefore, this HCPCS code 
was removed from our analysis.   
 
Using the converted AMPs for the remaining 821 NDCs, we then calculated a                  
volume-weighted AMP for each of the remaining 106 HCPCS codes consistent with CMSs 
methodology for calculating volume-weighted ASPs.   
 
                                                 
38 Although AMP data for these 541 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.   
39 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-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs  
  Page 18  Donald M. Berwick, M.D. 
 
 
HCPCS codes with no AMP data.  For 54 HCPCS codes, there were no AMP data for any of the 
NDCs that CMS used in its calculation of volume-weighted ASPs.  These 54 HCPCS codes 
represented 236 NDCs.   
OEI-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs  
  Page 19  Donald M. Berwick, M.D. 
 
 
APPENDIX D 
 
Ten Drug Codes With Complete Average Manufacturer Price Data That Exceeded the                            
5-Percent Threshold in the Second Quarter of 2010 
 
Drug            
Code  Short Description  Drug Code Dosage 
J0210  Methyldopate HCl injection  250 mg 
J0637  Caspofungin acetate injection  5 mg 
J0834  Cosyntropin cortrosyn injection  0.25 mg 
J1327  Eptifibatide injection  5 mg 
J2675  Progesterone injection  50 mg 
J2690  Procainamide HCl injection  1 g 
J2993  Reteplase injection  18.1 mg 
J7501  Azathioprine, parenteral  100 mg 
J9190  Fluorouracil injection  500 mg 
J9214  Interferon alfa-2b injection  1 million units 
mg=milligram, g=gram  
Source:  Office of Inspector General analysis of second-quarter 2010 average sales price and average                    
manufacturer price data, 2010. 
 
OEI-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs  
  Page 20  Donald M. Berwick, M.D. 
 
 
APPENDIX E 
 
Fifteen Drug Codes With Partial Average Manufacturer Price Data That Exceeded the                     
5-Percent Threshold in the Second Quarter of 2010 
 
Drug              
Code  Short Description  Drug Code Dosage 
90586  Bcg vaccine, intravesical  1 each 
J0560  Penicillin g benzathine injection  600,000 units 
J1626  Granisetron HCl injection  100 mcg 
J1940  Furosemide injection  20 mg 
J2310  Naloxone HCl injection  1 mg 
J2700  Oxacillin sodium injection  250 mg 
J7506  Prednisone, oral  5 mg 
J7611  Albuterol, noncompounded  1 mg 
J9031  Bcg live intravesical vaccine  1 each 
J9045  Carboplatin injection  50 mg 
Q0165  Prochlorperazine maleate, oral  10 mg 
Q0177  Hydroxyzine pamoate, oral  25 mg 
Q0178  Hydroxyzine pamoate, oral  50 mg 
Q9965  Low osmolar contrast material,100199 mg/ml iodine  1 ml 
Q9966  Low osmolar contrast material, 200299 mg/ml iodine  1 ml 
mcg=microgram, mg=milligram, and ml=milliliter 
Source:  Office of Inspector General analysis of second-quarter 2010 average sales price and average manufacturer 
 
price data, 2010.
 
OEI-03-11-00030  Comparison of Second-Quarter 2010 ASPs and AMPs