Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

M D P
EDICAID  RUG  RICE 

C : 

OMPARISONS
A M P
VERAGE  ANUFACTURER  RICE 

P P
TO  UBLISHED  RICES

Daniel R. Levinson

Inspector General 

June 2005 

OEI-05-05-00240
 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 OIG's 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 in order to reduce waste, abuse, and 
mismanagement and to promote economy and efficiency throughout the department. 
Office of Evaluation and Inspections 
The OIG's Office of Evaluation and Inspections (OEI) conducts management and 
program evaluations (called inspections) that focus on issues of concern to the 
department, the Congress, and the public. The findings and recommendations contained 
in the inspections reports generate rapid, accurate, and up-to-date information on the 
efficiency, vulnerability, and effectiveness of departmental programs.  The OEI also 
oversees State Medicaid fraud control units, which investigate and prosecute fraud and 
patient abuse in the Medicaid program. 
Office of Investigations 
The OIG's 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.  The OCIG imposes program exclusions and 
civil monetary penalties on health care providers and litigates those actions within the 
department.  The 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.    E X E C U T I V E   S U M M A R Y  

OBJECTIVE 
To examine the differences between the published prices States use to 
set Medicaid reimbursement rates (i.e., average wholesale price and 
wholesale acquisition cost) and a statutorily defined price calculated 
from actual sales transactions (i.e., average manufacturer price) for 
drugs reimbursed by Medicaid. 
BACKGROUND 
Medicaid expenditures for prescription drugs continue to be a major 
concern to the Administration, Congress, and States; and Medicaid drug 
reimbursement changes are being considered.  Most prescription drugs 
reimbursed by Medicaid are dispensed by pharmacies.  The Office of 
Inspector General (OIG) has found evidence that Medicaid drug 
reimbursements exceed pharmacies actual acquisition costs. 
In general, States reimburse pharmacies for drugs at the lower of 
estimated acquisition cost (EAC) plus a dispensing fee or the 
pharmacys usual and customary charge to the public.  The EAC is the 
States best estimate of the price generally and currently paid by 
providers for the drug. 
States often lack access to drug pricing data based on actual sales and 
instead estimate pharmacy acquisition costs using published prices, 
namely, average wholesale price (AWP) and wholesale acquisition cost 
(WAC). Neither AWP nor WAC are necessarily based on actual sales 
transactions. The AWP is not defined in statute or regulations, and 
until recently, the same was true for WAC.  OIG has recommended that 
Medicaid should base reimbursement on pricing data that more 
accurately reflects actual acquisition costs. 
The Average manufacturer price (AMP) is the average price paid by 
wholesalers for drugs distributed to the retail class of trade, net of 
customary prompt pay discounts.  The AMP is statutorily defined and 
its calculation is based on actual sales transactions. Drug 
manufacturers must report AMP data for all Medicaid-covered drugs to 
the Centers for Medicare & Medicaid Services (CMS) quarterly as a 
requirement of the Medicaid drug rebate program.  Most State Medicaid 
agencies do not have access to AMP data, which is proprietary.  
To explore the potential impact of moving to a sales-based price to 
estimate pharmacy acquisition cost, this inspection compares AMP to 
OEI-05-05-00240  MEDICAID DRUG PRICE COMPARISONS:  AVERAGE MANUFACTURER PRICE TO PUBLISHED PRICES  i  E X E C U T I V E   S U M M A R Y  
AWP and WAC for national drug codes (NDC) reimbursed by Medicaid.  
We compared AMP to AWP for 24,101 NDCs and AMP to WAC for 
19,475 of those NDCs (4,626 NDCs had an AWP but no WAC value).  
We compared the per unit prices in place on January 1, 2005.  We 
calculated median comparisons for all of the NDCs, as well as for each 
drug category: single source (single source brands), innovator 
multisource (multisource brands), and non-innovator multisource 
(generics).  This analysis focuses on the comparison of a sales-based 
price to the published prices associated with the drug itself (i.e., the 
ingredient cost) and does not address the professional costs associated 
with dispensing the drug or the dispensing fees. 
A companion report, Medicaid Drug Price Comparison:  Average Sales 
Price to Average Wholesale Price (OEI-03-05-00200), examines the 
differences between average sales price (a statutorily defined price 
based on actual sales and used for Medicare Part B drug 
reimbursement) and AWP. That analysis includes approximately 
2,100 NDCs that are covered by both Medicaid and Medicare Part B.  
FINDINGS 
Average manufacturer price is substantially lower than both average 
wholesale price and wholesale acquisition cost.  At the median, AMP 
is 59 percent lower than AWP.  Forty-nine States use AWP to estimate 
pharmacy acquisition costs. The median State EAC formula is AWP 
minus 12 percent.  For 98 percent of Medicaid-reimbursed NDCs, this 
median State EAC formula would reimburse at a price higher than 
AMP. 
At the median, AMP is 25 percent lower than WAC.  Among the eight 
States that use WAC in their EAC, the median State EAC formula is 
WAC plus 8.5 percent.  For 96 percent of NDCs, this median EAC would 
reimburse at a price higher than AMP. 
Generic drugs exhibit the largest differences between average 
manufacturer price and the published prices. For generic drugs, 
AMP is 70 percent lower than AWP at the median.  In comparison, AMP 
is 23 percent lower than AWP at the median for single source brands 
and 28 percent lower for multisource brands. 
State estimates of pharmacy acquisition cost exceed AMP even among 
States with additional discounts for generics.  Seven States use EAC 
formulas that specify a greater discount off AWP for generic drugs than 
brand name drugs. However, these formulas range from AWP minus  
OEI-05-05-00240  MEDICAID DRUG PRICE COMPARISONS:  AVERAGE MANUFACTURER PRICE TO PUBLISHED PRICES  ii  E X E C U T I V E   S U M M A R Y  
20 percent to AWP minus 50 percent, resulting in estimates of 
pharmacy acquisition cost that are higher than the median AMP for 
generics, which is equal to AWP minus 70 percent.   
For generic drugs, AMP is 40 percent lower than WAC at the median. 
In comparison, AMP is 4 percent lower than WAC for single source 
brands and 8 percent lower than WAC for multisource brands at the 
median. 
No States use a WAC-based EAC formula with additional discounts 
taken for generics.  State EAC formulas that use WAC range from WAC 
plus 5 percent to WAC plus 12 percent.  The median AMP is lower than 
these formulas in all drug categories, but the largest difference is for 
generics where AMP is 40 percent lower than WAC.  
CONCLUSION 
The Administration and Congress have expressed interest in aligning 
Medicaid drug reimbursement more closely with pharmacy acquisition 
cost by using prices based on actual sales rather than published prices.  
OIG has also recommended that Medicaid should base reimbursement 
on pricing data that more accurately reflects actual acquisition costs. 
This inspection provides additional evidence that published prices used 
as a basis for reimbursement are higher than prices based on actual 
sales. AMP, which is calculated based on statute and actual sales 
transactions, is substantially lower than either of the published prices 
(i.e., AWP and WAC).  As a result, States estimates of pharmacy 
acquisition costs, which are based on AWP and/or WAC, are also 
substantially higher than AMP.  These differences are greatest for 
generic drugs. 
Comparing a statutorily defined, sales-based price to published prices 
provides valuable information to those considering the implications of 
changing Medicaids drug reimbursement methodology.  The substantial 
disparities between AMP and the published prices currently being used 
indicate that changing the basis of Medicaid reimbursement could have 
a significant impact on Medicaid expenditures. 
Agency Comments 
CMS commented that these companion reports make clear that current 
Medicaid payment rules result in overpayments for drugs and 
emphasize the need for reform.  CMS stated that Congress should enact 
legislation similar to the reform of Medicare Part B (i.e., switch to ASP 
OEI-05-05-00240  MEDICAID DRUG PRICE COMPARISONS:  AVERAGE MANUFACTURER PRICE TO PUBLISHED PRICES  iii  as the basis of reimbursement) to ensure that Medicaid payment for 
drugs is related to actual prices paid by pharmacies. 
OEI-05-05-00240  MEDICAID DRUG PRICE COMPARISONS:  AVERAGE MANUFACTURER PRICE TO PUBLISHED PRICES  iv    T A B L E   O F   C O N T E N T S  

EXECUTIVE SUMMARY ......................................... i

INTRODUCTION ................................................ 1 

FINDINGS ....................................................... 9 

AMP is substantially lower than AWP and WAC . . . . . . . . . . . . . .  9

Generic drugs exhibit the greatest percent differences. . . . . . . . .  11

CONCLUSION .................................................. 15 

END NOTES .................................................... 17 

APPENDIXES .................................................. 20 

A.  Key Terms and Acronyms, Distribution Chart. . . . . . . . . . . . .  20

B.  Additional Data Populations:  Medicaid-covered Drugs  . . . . .  22

C.  Additional Measures:  Ranges and Interquartile Ranges  . . . .  23

D.  AgencyComments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  24

ACKNOWLEDGMENTS ......................................... 27
   I N T R O D U C T I O N  

OBJECTIVE 
To examine the differences between the published prices States use to 
set Medicaid reimbursement rates (i.e., average wholesale price and 
wholesale acquisition cost) and a statutorily defined price based on 
actual sales transactions (i.e., average manufacturer price) for drugs 
reimbursed by Medicaid. 
BACKGROUND 
All State Medicaid programs include outpatient prescription drug 
coverage, an optional benefit. Nationally, Medicaid spent over 
$34 billion on prescription drugs in 2003.1  Over 41 million beneficiaries 
were enrolled in Medicaid in 2003.2 
Approximately 6 million of these beneficiaries are dually eligible for 
Medicaid and Medicare (dual eligibles).3  Currently, Medicaid provides 
drug coverage for these dual eligibles, but in 2006, coverage for these 
beneficiaries will be transferred from Medicaid to Medicare.4 
Concerns about Medicaid Drug Reimbursement 
Medicaid expenditures for prescription drugs continue to be a major 
concern to the Administration, Congress, and States.  The Presidents 
2006 budget proposes restructuring Medicaid pharmacy reimbursement 
to save an estimated $542 million in fiscal year (FY) 2006 and    
$15.1 billion over 10 years.5  The House Energy and Commerce 
Subcommittee on Oversight and Investigations held a hearing in 
December 2004 on Medicaid Prescription Drug Reimbursement:  Why 
the Government Pays Too Much and explored potential reforms.6 
Congress has established a Medicaid commission to provide 
recommendations to achieve $10 billion in overall Medicaid savings over 
the next 5 years and to consider longer-term performance goals and 
recommendations.7  The National Governors Association and National 
Conference of State Legislatures are also working on proposals to 
reduce Medicaid spending, including spending on prescription drugs.8 
The Office of Inspector General (OIG) has found evidence that because 
States lack accurate drug pricing data, Medicaid drug reimbursements 
exceed pharmacies actual acquisition costs.  OIG has also found that 
Medicaid drug reimbursements exceed the prices paid by other Federal 
programs.  OIG has recommended that Medicaid should base 
reimbursement on pricing data that more accurately reflects actual 
acquisition costs.9 
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Medicaid Drug Reimbursement 
Drug Cost Reimbursement. 
Most prescription drugs reimbursed by Medicaid are dispensed by 
pharmacies.  Within Federal parameters intended to ensure that 
Medicaid acts as a prudent buyer, each State determines its own 
pharmacy reimbursement formula(s).10  In general, States reimburse 
pharmacies for drug costs at the lower of estimated acquisition cost 
(EAC) plus a dispensing fee or the pharmacys usual and customary 
charge to the public.  Some multiple source drugs (i.e., drugs with 
equivalent generic versions) have a Federal upper limit (FUL) or a State 
maximum allowable cost (MAC). 
The EAC is the State Medicaid agencys best estimate of the price 
generally and currently paid by providers for the drug.11  The Centers 
for Medicare & Medicaid Services (CMS) does not prescribe a method for 
calculating EAC; instead, each State establishes and specifies its own 
EAC formula in its Medicaid State plan.  
Estimating pharmacy acquisition cost presents a challenge for States 
because States lack access to drug pricing information calculated from 
actual drug sales. Instead, States rely on the published prices available 
in drug pricing compendia, despite the previously identified flaws of 
these published prices. 
Forty-nine States (including the District of Columbia) use average 
wholesale price (AWP) minus a discount percentage in their EAC 
formulas.  Eight States use wholesale acquisition cost (WAC) plus a 
markup percentage in their EAC formulas.  Six of these eight States use 
both AWP and WAC, e.g., the lesser of AWP minus 12 percent or WAC 
plus 8 percent.  Some States use more complex EAC formulas.  For 
example, seven States specify different formulas for brand name drugs 
versus generic drugs.  Other States vary their formulas based on the 
pharmacys characteristics (e.g., chain versus non-chain pharmacies). 
For certain multiple source drugs that meet specified criteria, CMS sets 
specific Federal upper limit amounts based on the published prices.  The 
FUL amount equals 150 percent of the lowest published price of any 
therapeutically equivalent version of the drug published in the national 
pricing compendia.12  Additionally, some States establish MAC 
reimbursement levels at a rate below an established FUL or for drugs 
for which CMS has not set an FUL amount.  Thirty-nine States had 
MAC programs as of January 1, 2005.13 
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Dispensing Fees. 
In addition to reimbursing pharmacies for the cost of the drug (also 
known as the ingredient cost), States are required to determine 
reasonable dispensing fees.14  This fee represents the charge for the 
professional services provided by a pharmacist when dispensing a 
prescription.  States dispensing fees to retail pharmacies range from 
$2.00 to $12.50.15 
Drug Pricing Data 
Currently, three types of drug pricing data are readily available and 

relevant to the Medicaid program: AWP, WAC, and AMP.  A fourth 

price, average sales price (ASP), is used by the Medicare program to

calculate reimbursement amounts for the subset of drugs that are 

covered by Medicare Part B.  See Appendix A for a list of key drug 

pricing terms and acronyms and a chart depicting an example of a 

Medicaid drug distribution chain. 

Published prices:  AWP and WAC.  
Average wholesale price and wholesale acquisition cost are prices that 
are published in commercial drug pricing compendia by private 
companies, such as First Databank and Medi-Span, based on pricing 
information reported by manufacturers.16  Neither AWP nor WAC are 
necessarily based on actual sales transactions. The AWP is not defined 
in statute or regulations, and until recently, the same was true for 
WAC.  The AWP is often considered a price for wholesalers to charge 
retailers.  As currently defined in statute, WAC is:  
. . . the manufacturers list price for the drug or biological to 
wholesalers or direct purchasers in the United States, not 
including prompt pay or other discounts, rebates or reductions in 
price, for the most recent month for which the information is 
available, as reported in wholesale price guides or other 
publications of drug or biological pricing data.17 
As mentioned earlier, State Medicaid agencies generally use AWP 
and/or WAC to estimate pharmacy acquisition costs for drug 
reimbursement.  However, studies, investigations, and audits by OIG, 
the Department of Justice, and others have found that these published 
prices, particularly AWP, substantially overstate the actual prices 
pharmacies pay for drugs.   
Recognizing the flaws of AWP, the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003, Public Law 108-173, 
changed the basis of Medicare Part B drug reimbursement from AWP to 
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ASP, a statutorily defined price calculated from actual sales 

transactions. The Administration has proposed similar reforms for

Medicaid.18

Prices based on actual sales:  AMP and ASP. 
Average manufacturer price is the average price paid to the 
manufacturer by wholesalers for drugs distributed to the retail 
pharmacy class of trade minus customary prompt pay discounts.  Its 
calculation is statutorily defined and based on actual sales 
transactions.19  Because AMP is calculated from sales that have already 
occurred, it is a retrospective price.  
Drug manufacturers are required to report AMP data for all Medicaid-
covered drugs to CMS quarterly as a requirement of the Medicaid drug 
rebate program.20  State Medicaid agencies do not currently have access 
to AMP data, which is proprietary. 
While AMP is statutorily defined, there are some weaknesses associated 
with it. CMS has not issued final regulations regarding AMP 
calculation.  The Government Accountability Office (GAO) recently 
released a report on the Medicaid rebate program that found inadequate 
oversight of manufacturers AMP calculations and variation across 
manufacturers in how AMP was calculated.21 
Average sales price is also statutorily defined and is based on actual 
sales transactions.  It is defined as the manufacturers unit sales to all 
purchasers (with certain exceptions) in a calendar quarter divided by 
the total number of units sold by the manufacturer during that same 
quarter, net any price concessions (such as volume, prompt pay, and 
cash discounts), free goods contingent on purchase requirements, 
chargebacks, and rebates (other than Medicaid rebates).22  The ASP 
must be calculated and reported to CMS quarterly for drugs covered by 
Medicare Part B.  Most drugs reimbursed by Medicaid are not covered 
by Medicare Part B and do not have an ASP value reported to CMS. 
Companion Report:  Average Sales Price to Average Wholesale Price 
OIG is issuing a companion report entitled, Medicaid Drug Price 
Comparison:  Average Sales Price to Average Wholesale Price  
(OEI-03-05-00200), concurrent with this report.  This companion report 
shares a similar objective, i.e., to compare statutorily defined drug 
prices based on actual sales to published prices.  The primary difference 
is scope. The companion report analyzes drugs that are covered by both 
Medicaid and Medicare Part B (approximately 2,100 national drug 
codes [NDC]) and focuses on comparing ASP to AWP.  In contrast, this 
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report includes Medicaid-reimbursed drugs (approximately 
24,000 NDCs) and compares AMP to the published prices (AWP and 
WAC). The AMP is the only statutorily defined, sales-based price 
reported to CMS for all drugs in the Medicaid program. 
METHODOLOGY 
National Drug Codes Reviewed 
We focused our analysis on pricing data for Medicaid-reimbursed drugs, 
i.e., the population of NDCs reimbursed by Medicaid during the first 
two quarters of calendar year 2004 (January 1 through June 30, 2004), 
the most recent reimbursement data available. This population 
includes all drugs with an AMP value and at least one other price (AWP 
and/or WAC) in place on January 1, 2005. We used the 11-digit NDCs 
that Medicaid uses to identify unique formulations of each drug, 
including the manufacturer, strength, and package size. This 
population includes 25,560 NDCs. 
In addition, we analyzed pricing data for Medicaid-covered drugs with 
an AMP value and at least one other price (AWP and/or WAC) in place 
January 1, 2005. This population includes additional drugs that 
Medicaid covers but that had no reimbursement from January 1 
through June 30, 2004. This analysis is presented in Appendix B and 
includes 28,557 NDCs. 
Excluded NDCs. 
From our total population of Medicaid-reimbursed NDCs, we excluded 
3 percent of NDCs at both ends of the distribution of AMP to AWP 
ratios. As explained below, this provides a conservative estimate of the 
differences between these prices. Our population for analysis of 
Medicaid-reimbursed drugs includes 24,101 NDCs for the AMP to AWP 
comparisons. Only 19,475 of these NDCs had WAC values and are 
therefore included in the AMP to WAC comparisons. 
At the low end, we excluded all NDCs for which the AWP values were 
less than the AMP values. Approximately 3 percent of Medicaid-
reimbursed NDCs had AWP values below AMP. In principle, it seems 
unlikely for AWP to be below AMP because AWP is used to represent a 
transaction further down the distribution chain than AMP (see 
Appendix A for an example of the distribution chain). The AMP is an 
average of actual sales from manufacturers to wholesalers. The AWP is 
a published price that is generally used to represent a price for 
wholesalers to charge retailers. While there are known incentives for a 
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manufacturer to increase an AWP relative to actual sales prices, there 
are no similar known incentives for a manufacturer to decrease an AWP 
below actual sales prices. It is likely that where AWP is lower than 
AMP, it is the result of a technical error such as a unit definition 
inconsistency, a data timing issue, or a reporting error. 
We also excluded the NDCs at the high end where AWP values exceeded 
AMP by the greatest percentages. Unlike the NDCs where AWP is less 
than AMP, there is no apparent reason to assume that an extremely 
high AWP (relative to AMP) is incorrect and therefore the result of a 
unit definition inconsistency, a data timing issue, or a reporting error. 
However, it is plausible that errors occur with the same frequency at 
the high end of the distribution as at the low end.  Therefore, we used a 
3 percent threshold to parallel the exclusion of 3 percent of NDCs at the 
low end.  We did this by drug category; i.e., single source (single source 
brands), innovator multisource (multisource brands), and non-
innovator multisource (generics); because the distribution of AMP to 
AWP ratios differed substantially by category. CMS designates each 
NDC as single source, innovator multisource, or non-innovator 
multisource in the Medicaid Drug Rebate Initiative files.  
As a result, our calculations may underestimate the extent to which 

AWP exceeds AMP by excluding these NDCs at the high end.

Data Sources 
AMP. 
We used the AMP per unit values that were reported by manufacturers 
to CMS and were in place on January 1, 2005.  We obtained this data 
from the Medicaid Drug Rebate Initiative files that CMS uses to 
administer the Medicaid drug rebate program. The AMP values that 
are in place on January 1, 2005, are based on sales from July 1 through 
September 30, 2004, which are reported to CMS by manufacturers by 
October 30, 2004. 
AWP and WAC. 
We used the AWP per unit and the WAC per unit values that were in 
effect on January 1, 2005, as publisheded in First Databanks National 
Drug Data File.  First Databank is the source from which State 
Medicaid agencies typically obtain AWP and WAC data for pharmacy 
reimbursement.23 
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State EAC Formulas. 
We obtained the State EAC formulas that were in effect on January 1, 
2005, from the CMS Web site. CMS compiles this information from 
approved State plans. 
Medicaid Reimbursement Data.  
Overall, we used the Medicaid reimbursement data available on the 
CMS Web site from the State Drug Utilization Files.  At the time of our 
analysis, this data had been last updated in February 2005.  The most 
recent national data included reimbursement by NDC for the first two 
quarters of calendar year 2004 (i.e., January 1 through June 30, 2004).  
We used this data to define our population of Medicaid-reimbursed 
drugs, to calculate weighted averages, and to identify the top 200 drugs 
based on Medicaid expenditures.  We recognize that CMSs State Drug 
Utilization Files may not contain complete drug reimbursement data, 
but we believe that they are sufficient for purposes of this analysis.  
In addition, we used data from the Medicaid Statistical Information 
System (MSIS) to identify drug reimbursement amounts for Medicaid 
beneficiaries who are not eligible for Medicare (non-dual eligibles).  
While total reimbursement amounts were available through June 2004, 
the most recent MSIS eligibility data to identify non-dual eligibles was 
from FY 2003 for 38 States with MSIS data.  We used this data to 
calculate weighted averages based on reimbursement for the non-dual 
eligible population to determine whether the weighted averages would 
differ when limited to this beneficiary subpopulation compared to the 
entire Medicaid beneficiary population. 
Analysis 
For our population of Medicaid-reimbursed drugs, we calculated the 
following ratios by unit prices for all NDCs:  (1) AMP to AWP, (2) AMP 
to WAC, and (3) WAC to AWP. For each set of price comparison ratios, 
we calculated the median, average, weighted average, range, and 
interquartile range.  The weighted average weights each NDC 
according to Medicaid expenditures, i.e., the differences between prices 
for NDCs with higher Medicaid expenditures count more in the 
weighted average than NDCs with lower Medicaid expenditures.  The 
interquartile range measures the difference between the 25th and 
75th percentile of the distribution, i.e., the middle 50 percent of the 
distribution.  Appendix C provides the ranges and interquartile ranges. 
We made these comparisons for the overall population of Medicaid-
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reimbursed drugs as well as for each drug category, i.e., single source 
brands, multisource brands, and generic drugs. 
We also conducted this analysis for a subset of drugs with the highest 
Medicaid expenditures. Specifically, we analyzed pricing data for the 
top 200 NDCs by Medicaid expenditures in 2004 for each of 3 categories. 
For State EAC formulas, we calculated the median, mode, and range of 
percent discounts for the 49 States that use AWP in their formula. We 
made calculations specific to brand name drugs and generic drugs 
because seven States have separate formulas for each. We also 
calculated the median, mode, and range of percent markups of WAC for 
the eight States that use WAC in their formulas. These States do not 
distinguish brand name versus generic drugs in their WAC-based 
formulas. 
This analysis focuses on the comparison of a sales-based price to the 

published prices associated with the drug itself (i.e., the ingredient 

cost). It does not address the professional costs associated with 

dispensing the drug nor the dispensing fees paid by State Medicaid

agencies in addition to their estimates of pharmacy acquisition cost. 

Limitations 
We intend this inspection to provide information that is useful to those 
who are considering changing the basis of Medicaid reimbursement 
from a published price to a price based on actual sales. However, our 
analysis compares price points and not actual reimbursements. It is a 
theoretical analysis that is useful to estimate the impact of such a 
reimbursement change, but it does not measure the actual impact of 
such a change for three main reasons. First, States do not always 
reimburse at the amount that their EAC formulas would predict.24 
Second, our analysis does not capture the full complexity of Medicaid 
reimbursement, which can include tiered EAC formulas as well as other 
price points (i.e., usual and customary charge, FUL amounts, and State 
MAC amounts). Third, we are comparing published prices and State 
EAC formulas to AMP. However, if the basis of Medicaid 
reimbursement were changed to AMP, it would likely be AMP plus a 
markup percentage. For example, Medicare Part B moved to a sales-
based price (i.e., ASP) and reimburses at ASP plus 6 percent. 
Standards 
This inspection was conducted in accordance with the Quality 

Standards for Inspections issued by the Presidents Council on 

Integrity and Efficiency.

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  F I N D I N G S

Average manufacturer price is substantially  For Medicaid-reimbursed drugs, 
lower than both average wholesale price and  AMP is substantially lower than 
either of the published prices, 
wholesale acquisition cost 
namely, AWP and WAC.  The AMP 
is also lower than State estimates of pharmacy acquisition costs, which 
incorporate AWP and WAC.   
At the median, AMP is equal to AWP minus 59 percent; in contrast, States 
median estimated acquisition cost formula is AWP minus 12 percent.  
At the median of over 24,000 Medicaid-reimbursed NDCs, AMP is   
59 percent lower than AWP.  To illustrate this 59 percent difference, for 
one NDC the AMP is $1.07 per pill, while the AWP is $2.61 per pill for 
the same drug.  The median AWP-based State EAC formula is AWP 
minus 12 percent.  This median State EAC formula would estimate 
pharmacy acquisition cost at $2.30 per pill for this same NDC.  
Forty-nine States estimate pharmacy acquisition cost using AWP minus 
a discount percentage. However, even with the discount percentage, 
AMP is still lower than these States estimates of pharmacy acquisition 
cost.  The AWP minus 12 percent is the median and is also the most 
common EAC formula based on AWP. 
For 98 percent of Medicaid-reimbursed NDCs, the median State EAC 
formula based on AWP results in reimbursement amounts higher than 
AMP. In other words, AMP is less than AWP minus 12 percent for 
these NDCs.  Conversely, for 2 percent of NDCs, the median State EAC 
formula would reimburse at a price below AMP. 
The relationship between AMP and AWP does not change when claims for dual 
eligibles are excluded.  In 2006, the drug coverage for beneficiaries who 
are eligible for both Medicare and Medicaid (i.e., dual eligibles) will be 
transferred from Medicaid to Medicare Part D.  Thus, we explored 
whether this shift would impact the relationship between AMP and 
AWP. We compared the average difference between AMP and AWP 
accounting for Medicaid reimbursement for all beneficiaries to the 
average difference accounting for reimbursement claims for non-dual 
eligibles only.  Despite differences in drug utilization patterns between 
dual eligibles and non-dual eligibles, the relationship between AMP and 
AWP did not change when we excluded claims for dual eligibles.25 
At the median, AMP is equal to WAC minus 25 percent; in contrast, States 
median WAC-based EAC formula is WAC plus 8.5 percent. 
At the median of over 19,000 NDCs, average manufacturer price is 
equal to WAC minus 25 percent.26  To illustrate this 25 percent 
OEI-05-05-00240  MEDICAID DRUG PRICE COMPARISONS:  AVERAGE MANUFACTURER PRICE TO PUBLISHED PRICES  9  F I N D I N G
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difference, for one NDC, the AMP is $1.59 per pill, while the WAC is 
$2.11 per pill.  The median State EAC formula (WAC plus 8.5 percent) 
would estimate pharmacy acquisition cost at $2.29 per pill for this NDC. 
Eight States use WAC to estimate pharmacy acquisition cost.27 All of 
these States add a percentage markup to the WAC price, ranging from 
5 percent to 12 percent. WAC plus 8.5 percent is the median. 
For 96 percent of Medicaid-reimbursed NDCs, the median WAC-based 
State EAC formula results in reimbursement amounts higher than 
AMP. In other words, AMP is less than WAC plus 8.5 percent for these 
NDCs. Conversely, for 4 percent of NDCs, the median State EAC 
formula based on WAC would reimburse at a price below AMP. 
At the median, WAC is 22 percent lower than AWP.  While AMP is 
considerably lower than both WAC and AWP, the comparisons make it 
clear that WAC is the lower of the two published prices. This is logical 
if WAC is meant to represent an earlier point in the distribution chain 
(prices paid by wholesalers) than AWP (prices paid by retailers).  We 
compared WAC to AWP directly to determine how these published 
prices relate to one another.  For over 99 percent of NDCs, WAC is lower 
than AWP. At the median, WAC is 22 percent lower than AWP. 
At the median, the AWP and WAC values in the pricing compendium for 
January 1, 2005, had not been updated in more than 2 years.  At the 
median, AWP values were last updated 33 months ago, and WAC values 
were last updated 29 months ago according to First Databanks 
National Drug Data File.28  Overall, NDCs with higher Medicaid 
expenditures were updated more recently.  When weighted by Medicaid 
expenditures, the average timespan since the last AWP update is   
14 months; the unweighted average is 43 months.   
In comparison, AMP is calculated and reported to CMS each quarter 
and reflects sales that occurred 6 months prior.  As of January 1, 2005, 
only 8 percent of NDCs had AWP values that were updated within the 
prior 6 months.  However, these 8 percent of NDCs account for almost 
37 percent of expenditures because the published prices for higher 
expenditure NDCs tend to be updated more frequently than the 
published prices for lower expenditure NDCs.  Ten percent of WAC 
values had been updated within the prior 6 months.  Similarly, this  
10 percent of NDCs accounted for 37 percent of expenditures. 
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Generic drugs exhibit the largest differences  When we analyzed the Medicaid-
between average manufacturer price and the  reimbursed NDCs by the three 
drug categories (single source 
published prices 
brands, multisource brands, and 
generics), we found dramatic differences across the categories. Generics 
demonstrated substantially larger differences between AMP and the 
published prices (AWP and WAC) than either of the brand name drug 
categories. Generic drugs comprise 76 percent of the Medicaid-
reimbursed NDCs. 
For generic drugs, AMP is 70 percent lower than AWP at the median. 
For generic drugs, AMP is 70 percent lower than AWP at the median. 
In comparison, AMP is 23 percent lower than AWP at the median for 
single source brands and 28 percent lower than AWP for multisource 
brands. Table 1 presents the comparisons of AMP to AWP overall and 
for each drug category. The values indicate the percentage by which 
AMP is lower than AWP. 
Table 1.  AMP to AWP Comparisons by Drug Category: AMP = AWP  X%
Weighted 
  Median  Average  Average* 
Single Source Brands 
23%  25%  24% 
3,527 NDCs 
Multisource Brands 
28%  40%  36% 
2,356 NDCs 
Generics 
70%  65%  74% 
18,218 NDCs 
Source: Office of Inspector General, Analysis of Medicaid drug pricing data, 2005. 
*Weighted by Medicaid expenditures. 
The weighted average indicates that, for generic drugs, the disparity 
between AMP and AWP is greater for drugs with higher Medicaid 
expenditures than for drugs with lower Medicaid expenditures. The 
weighted average is weighted by Medicaid expenditures (i.e., NDCs with 
higher Medicaid expenditures count more than those with lower 
expenditures) and thereby links the price differences with Medicaid 
reimbursement.  Price and utilization are two important factors that 
may contribute to this pattern for generics. On the one hand, as the 
AWP of a drug increases the reimbursement price based on AWP also 
OEI-05-05-00240  MEDICAID DRUG PRICE COMPARISONS:  AVERAGE MANUFACTURER PRICE TO PUBLISHED PRICES  11  F I N D I N G S  
increases, which could drive expenditures higher.  On the other hand, 
high utilization of a drug can lead to both high expenditures on that 
drug and increased incentives to inflate AWP for that drug.   
Notably, brand name drugs do not exhibit this same pattern.  For 
brands, the weighted averages are slightly lower than the unweighted 
averages.  This indicates that overall the disparities between AMP and 
AWP are not larger for brand name drugs with higher expenditures 
compared to brand name drugs with lower expenditures. 
This is especially true for the top 200 generic drugs by Medicaid 
expenditures.  In this subset, AMP is 78 percent lower than AWP at the 
median. In comparison, AMP is 23 percent less than AWP for the top 
200 single source brands, and 28 percent less than AWP for the top 
200 multisource brands. Table 2 displays these comparisons.  The 
values indicate the percentage by which AMP is lower than AWP. 
Table 2. AMP to AWP Comparisons for Top 200 NDCs    
by Medicaid Expenditures:  AMP = AWP  X%
  Median 
Top 200 NDCs:  Single Source Brands  23% 
Top 200 NDCs:  Multisource Brands  28% 
Top 200 NDCs:  Generics  78% 
Source:  Office of Inspector General, Analysis of Medicaid drug pricing data, 2005. 
State estimates of pharmacy acquistion cost exceed AMP even among States 
with additional discounts for generics. Of the 49 States that use EAC 
formulas based on AWP, 7 States specify a greater discount off of AWP 
for generic drugs than for brand name drugs.  Among these seven 
States, the EAC formulas for generic drugs range from AWP minus 
20 percent to AWP minus 50 percent.  Even with these greater 
discounts, the median AMP (equal to AWP minus 70 percent) remains 
lower than States estimated acqusition costs for generic drugs.  Table 3 
(on the next page) provides a summary of State EAC formulas for all 
49 States that use AWP as well as the separate generic EAC formulas 
specified by 7 of these States.  
OEI-05-05-00240  MEDICAID DRUG PRICE COMPARISONS:  AVERAGE MANUFACTURER PRICE TO PUBLISHED PRICES  12  F I N D I N G S  

Table 3. State Estimated Acquisition Cost Formulas Based on AWP 
State EAC Formula  Median  Mode  Range 
All States formulas 
AWP - 12%  AWP - 12%  AWP - 5% to AWP - 50% 
(49 States) 
Generic-specific formulas 
AWP - 27%  AWP - 20%  AWP  20% to AWP - 50% 
(7 States) 
Source:  Office of Inspector General, Analysis of State estimated acquisition cost formulas, 2005. 
For generic drugs, AMP is 40 percent lower than WAC at the median. 
The differences between AMP and WAC are also much greater for 
generic drugs than either of the two brand name drug categories. For 
generics, AMP is equal to WAC minus 40 percent at the median.  In 
comparison, AMP equals WAC minus 4 percent at the median for single 
source brands and WAC minus 8 percent for multisource brands.   
Table 4 presents the comparisons of AMP to WAC overall and for each 
drug category. The values indicate the percentage by which AMP is 
lower than WAC. 
Table 4. AMP to WAC Comparisons by Drug Category:  AMP = WAC  X%
Weighted 
  Median  Average  Average* 
Single Source Brands 
4%  7%  6% 
3,502 NDCs 
Multisource Brands 
8%  19%  20% 
2,116 NDCs 
Generics 
40%  39%  59% 
13,857 NDCs 
Source:  Office of Inspector General, Analysis of Medicaid drug pricing data, 2005. 
* Weighted by Medicaid expenditures. 
Again, generic drugs with higher Medicaid expenditures demonstrate 
larger differences between AMP and WAC than generics with lower 
expenditures.  The weighted average difference between AMP and WAC 
is greater than the unweighted average (59 percent compared to 
39 percent) for generics. In contrast, for brand name drugs the 
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disparity between AMP and AWP is not larger for the drugs with higher 
expenditures compared to the drugs with lower expenditures. 
The top 200 generic drugs by Medicaid expenditures illustrate this 
point, as this subset shows a greater disparity between AMP and WAC 
than the full population of Medicaid-reimbursed generic NDCs.  For the 
top 200 generics, AMP is equal to WAC minus 59 percent at the median, 
compared to WAC minus 40 percent at the median for all Medicaid-
reimbursed generics. 
AMP is much lower than WAC-based State EAC formulas for generic drugs 
compared to brand name drugs. Eight States use WAC to estimate 
pharmacy acquisition cost. None specify a lower WAC-based formula 
for generic drugs compared to brand name drugs.  These State EAC 
formulas all include a percentage markup of WAC, ranging from WAC 
plus 5 percent to WAC plus 12 percent.  Table 5 summarizes these 
formulas. 
Table 5. State Estimated Acquisition Cost Formulas Based on WAC 
State EAC formula  Median  Mode  Range 
All Drugs (8 States)  WAC + 8.5%  WAC + 5%  WAC + 5% to WAC + 12% 
Source:  Office of Inspector General, Analysis of State estimated acquisition cost formulas, 2005. 
The median AMP is lower than these EAC formulas for all three drug 
categories. However, this difference is greatest among the generic 
drugs. For generics, AMP is equal to WAC minus 40 percent at the 
median, while State estimated acquisition costs equal WAC plus a 
markup of 5 to 12 percent.   
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The Administration and Congress have expressed interest in changing 
Medicaid drug reimbursement to align more closely with pharmacy 
acquisition cost by using prices based on actual sales rather than the 
published prices currently used.  OIG has conducted numerous reviews 
of Medicaid drug reimbursement and has found that Medicaid drug 
reimbursements exceed pharmacies actual acquisition costs and exceed 
prices paid by other Federal programs.  OIG has recommended that 
Medicaid should base reimbursement on pricing data that more 
accurately reflects actual acquisition costs.   
This inspection provides additional evidence that published prices are 
higher than prices based on actual sales transactions.  We found that 
AMP, which is calculated based on statute and actual sales 
transactions, is substantially lower than either of the published prices 
(i.e., AWP and WAC).  As a result, States estimates of pharmacy 
acquisition costs, which are based on AWP and/or WAC, are also 
substantially higher than AMP.  The differences between AMP and the 
published prices were especially large for generic drugs. 
Our companion report, Medicaid Drug Price Comparison: Average 
Sales Price to Average Wholesale Price (OEI-03-05-00200), found 
similar results when comparing ASP, the statutorily defined price used 
for Medicare reimbursement, to AWP. That analysis demonstrated that 
ASP is substantially lower than AWP for the drugs covered by both 
Medicaid and Medicare Part B. 
We intend this inspection to provide useful information to those 
considering the implications of changing Medicaids drug 
reimbursement methodology.  The substantial disparities between 
prices based on actual sales (AMP and ASP) and the published prices 
currently being used indicate that changing the basis of Medicaid 
reimbursement could have a significant impact on Medicaid 
expenditures. 
Agency Comments 
CMS commented that these companion reports make clear that current 
Medicaid payment rules result in overpayments for drugs and 
emphasize the need for reform.  Similar problems with overpayments 
for Medicare drugs led to passage of the MMA provisions that changed 
the basis of reimbursement for drugs from AWP to ASP.  CMS 
reiterated that the Presidents 2006 budget proposes to solve this 
problem by the use of ASP so Medicaid drug prices will reflect actual 
OEI-05-05-00240  MEDICAID DRUG PRICE COMPARISONS:  AVERAGE MANUFACTURER PRICE TO PUBLISHED PRICES  15  C O N C L U S I O N  
costs.  CMS stated that Congress should enact legislation to ensure that 
Medicaid payment for drugs is related to actual prices paid by 
pharmacies.  The full text of CMSs comments is provided in 
Appendix D. 
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1 Testimony of Dennis Smith, Director of the Center for Medicaid and 
State Operations, Centers for Medicare & Medicaid Services, on 
Medicaid Prescription Drug Reimbursement before the House Energy 
and Commerce Subcommittee on Oversight and Investigations, 
December 7, 2004. 
2 Centers for Medicare & Medicaid Services.  2003 CMS Statistics.  
Available online at www.cms.hhs.gov/researchers/pubs/03cmsstats.pdf.  
3 Centers for Medicare & Medicaid Services.  A Strategy for 
Transitioning Dual Eligibles from Medicaid to Medicare Drug 
Coverage.  May 2, 2005.  Available online at 
http://www.cms.hhs.gov/medicarereform/strategyforduals.pdf. 
4 Ibid. 
5 United States House of Representatives Committee on the Budget. 
Analysis of the Presidents Budget for FY 2006.  Available online at 
http://www.house.gov/budget/analysisprez021105.pdf. 
6 Testimony transcript available online at 
http://www.oig.hhs.gov/testimony/docs/2004/reeb120704.pdf. 
7 Federal Register Notice. Medicaid Program; Establishment of the 
Medicaid Commission and Request for Nominations for Members.  
CMS-2214-N.  
8 Available online at www.ncsl.org and www.nga.org. 
9 Office of Inspector General reports:  Variations in State Medicaid Drug 
Prices, OEI-05-02-00681, issued September 2004; Medicaid 
PharmacyAdditional Analyses of the Actual Acquisition Cost of 
Prescription Drug Products, A-06-02-00041, issued September 2002; 
Cost Containment of Medicaid HIV/AIDS Drug Expenditures,  
OEI-05-99-00611, issued July 2001. 
OEI-05-05-00240  MEDICAID DRUG PRICE COMPARISONS:  AVERAGE MANUFACTURER PRICE TO PUBLISHED PRICES  17  10 Centers for Medicare & Medicaid Services State Medicaid Manual, 
Part 6. Available online at 
http://63.241.27.79/manuals/45_smm/sm_06_6000_to_6400.3.asp. 
11 Centers for Medicare & Medicaid Services State Medicaid Manual, 
Part 6. Available online at 
http://63.241.27.79/manuals/45_smm/sm_06_6000_to_6400.3.asp. 
12  42 CFR  447.332. 
13 Centers for Medicare & Medicaid Services.  Medicaid Prescription 
Reimbursement by State, Quarter Ending March 2005.  Available at: 
http://www.cms.hhs.gov/medicaid/drugs/pre0305.pdf. 
14 Centers for Medicare & Medicaid Services State Medicaid Manual, 
Part 6. 
15 Centers for Medicare & Medicaid Services. Medicaid Prescription 
Reimbursement by State, Quarter Ending March 2005. 
16 Three other drug price compendia are Multim, Gold Standard, and Red 
Book. 
17 Public Law 108-173, Section 303(c)6(B). 
18 Budget of the United State Government, Fiscal Year 2006.  Available 
online at http://www.whitehouse.gov/omb/budget/fy2006. 
19 42 U.S.C.  1396r-8(k)(1). 
20 Ibid. 
21 Government Accountability Office.  Medicaid Drug Rebate Program:  
Inadequate Oversight Raises Concerns about Rebates Paid to States. 
GAO-05-102.  February, 2005. 
22 42 CFR  414.804(a). 
23 Office of Inspector General.  Variation in State Medicaid Drug Prices.  
OEI-05-02-00681.  September 2004. 
OEI-05-05-00240  MEDICAID DRUG PRICE COMPARISONS:  AVERAGE MANUFACTURER PRICE TO PUBLISHED PRICES  18  24 Ibid. 
25 We compared the weighted average price differences based on all 
claims to weighted averages based on claims for non-dual eligibles only 
and found no difference.  Weighting by expenditures on non-dual 
eligibles only, AMP is 33 percent lower than AWP on average.  
Likewise, weighting by expenditures on the full Medicaid population, 
AMP is 33 percent lower than AWP on average. 
26 Only 19,475 of the 24,101 NDCs included in the AMP to AWP analysis 
had WAC values listed in the pricing compendium. 
27 Six of these States use WAC in combination with AWP, e.g., the lesser 
of AWP minus 12 percent or WAC plus 8 percent. 
28 We rounded to the nearest full month increment.  List prices can be 
updated at any time including multiple times within a month. 
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KEY TERMS AND ACRONYMS, DRUG DISTRIBUTION CHART 

Box 1:  KEY TERMS AND ACRONYMS 
Average manufacturer price (AMP): The average unit price paid to manufacturers by 
wholesalers for drugs distributed to the retail class of trade minus customary promt pay 
discounts.  The AMP is statutorily defined and calculated from actual sales transactions. 
Manufacturers must report AMP to CMS quarterly for the Medicaid drug rebate program. 
Average wholesale price (AWP): A price published in national drug pricing compendia 
issued by private companies such as First Databank and Medi-Span, based on pricing 
information provided by manufacturers.  Its calculation is not defined in statute or 
regulation. It is generally considered a price for retailers.  
Estimated acquisition cost (EAC):  The State Medicaid agencys best estimate of the price 
generally and currently paid by providers for the drug.  Within Federal parameters, each 
State establishes its own EAC formula in its State plan. 
Multisource brand drugs: Innovator multisource drugs.  Brand name drugs that have 
generic equivalents.   
National drug code (NDC):  The 11-digit code that Medicaid uses to identify unique 
formulations of each drug, including the manufacturer, strength, and package size. 
Generic drugs: Non-innovator multisource drugs. 
Single source brand drugs: Single source drugs. Brand name drugs that have no generic 
equivalents. 
Wholesale acquisition cost (WAC): A price published in national drug pricing compendia 
issued by private companies such as First Databank and Medi-Span.  It is now statutorily
defined as the manufacturers list price for the drug to wholesalers or direct purchasers in 
the United States, not including prompt pay or other discounts, rebates or reductions in 
price, as reported in wholesale price guides or other publications of drug pricing data. 
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The following chart is a simplified depiction of a typical Medicaid drug 
distribution chain meant to illustrate the relationships among the various 
drugs prices.  It is not meant to capture the full complexity of the drug 
distribution chain. 
Chart 1.  Medicaid Drug Distribution Chain Example 
Manufacturers 
 
  Sales-based Price:  AMP 
  Published Price: WAC 
Wholesalers 
  Pharmacys Actual Acquisition Cost 
  Published Price: AWP 
Retail Pharmacies 
  Reimbursement:  EAC (plus dispensing fee) 
Medicaid Agencies 
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ADDITIONAL DATA POPULATIONS:  MEDICAID-COVERED 
DRUGS 
In addition to Medicaid-reimbursed drugs, we analyzed the price 
comparisons for the population of Medicaid-covered drugs, including 
those with no reimbursement from January 1 through June 30, 2004.  
The population of Medicaid-covered drugs includes 28,557 NDCs, while 
Medicaid-reimbursed drugs includes 24,101 NDCs. 
We found similar patterns of price differences between AMP and the 
published prices for Medicaid-covered drugs as compared to Medicaid-
reimbursed drugs.  For Medicaid-covered drugs, AMP is 57 percent 
lower than AWP at the median, compared to 59 percent for Medicaid-
reimbursed drugs.  The AMP is 24 percent lower than WAC for 
Medicaid-covered drugs and     25 percent lower than WAC for 
Medicaid-reimbursed drugs. Table 6 displays these results. 
Table 6. Medicaid-covered drugs vs. Medicaid-reimbursed drugs 
AMP = AWP  X%  AMP = WAC  X% 
Median  Median 
Medicaid-covered Drugs  57%  24% 
Medicaid-reimbursed Drugs  59%  25% 
Source:  Office of Inspector General, Analysis of Medicaid drug pricing data, 2005. 
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ADDITIONAL MEASURES:  RANGES AND INTERQUARTILE 
RANGES 
In addition to the median, average, and weighted average, we calculated 
the range and interquartile range for each price comparison.  While the 
range measures the difference between the two ends of a distribution, 
the interquartile range measures the difference between the 25th and 
75th percentile of the distribution, i.e., the middle 50 percent of the 
distribution.  Table 7 displays these measures for the AMP to AWP 
comparsions, and Table 8 displays results of comparing AMP to WAC.  
Table 7. AMP to AWP Comparisons: AMP = AWP  X%
  Range*  Interquartile Range 
All Medicaid-reimbursed Drugs 
0% to 98%  28% to 83% 
24,101 NDCs 
Single Source Brands 
0% to 65%  22% to 27% 
3,527 NDCs 
Multisource Brands 
0% to 96%   22% to 56% 
2,356 NDCs 
 Generics 
0% to 98%  47% to 87% 
18,218 NDCs 
Source:  Office of Inspector General, Analysis of Medicaid drug pricing data, 2005. 
* We excluded 3 percent of NDCs at the high and low ends of the distribution.  See methodology for details. 
Table 8. AMP to WAC Comparisons:  AMP = WAC  X%
  Range*  Interquartile Range 
All Medicaid-reimbursed Drugs 
(-869%) to 98%  4% to 57% 
19,475 NDCs 
Single Source Brands 
(-28%) to 57%  2% to 9% 
3,502 NDCs 
Multisource Brands 
(-86%) to 95%  2% to 29% 
2,116 NDCs 
Generics 
(-869%) to 98%  14% to 64% 
13,857 NDCs 
Source:  Office of Inspector General, Analysis of Medicaid drug pricing data, 2005. 
* A negative difference indicates an AMP value greater than WAC.  This occurred for 9 percent of NDCs. 
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AGENCY COMMENTS 

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 A P P E N D I X ~ D  

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This report was prepared under the direction of William C. Moran, 
Regional Inspector General for Evaluation and Inspections in the 
Chicago regional office, and Ann Maxwell, Assistant Regional Inspector 
General. Other principal Office of Evaluation and Inspections staff who 
contributed include: 
Erin Lemire, Project Leader 
Tom Komaniecki, Senior Program Analyst 
Louise Schoggen, Intern 
Linda Boone Abbott, Program Specialist 
Tricia Davis, Director, Medicare and Medicaid Branch 
Technical Assistance  
Scott Horning, Program Analyst 
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