Department of Health and Human Services
 
OFFICE OF 

   
INSPECTOR GENERAL 

 
 
 
 
 
 
 
 
MED ICARE PAYMENT FOR 

 
I  
  RINOTECAN 

 
 
 
 
 
 
 
Daniel R. Levinson 
  
Inspector General 

 
August 2008 
 
OEI-03-08-00310 
   
Office of Inspector General

http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as  
amended, is  to protect the integrity of the Department of  Health and Human Services  
(HHS)  programs, as well as the health and welfare of beneficiaries  served by those 
programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
investigations, and inspections conducted by the  following operating components:  
Office of Audit Services 
The Office  of  Audit Services  (OAS) provides auditing services  for HHS, either by  conducting  
audits  with its own audit resources or by  overseeing  audit work done by others.  Audits  
examine the performance of HHS programs and/or its grantees and contractors in carrying  
out their respective responsibilities and are intended  to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and  
mismanagement and promote economy and efficiency  throughout  HHS. 
Office of Evaluation and Inspections  
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving  program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of  fraud and misconduct  related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/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 for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and abuse cases involving HHS programs,  including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In  connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program  guidance, publishes fraud alerts, and provides other  
guidance  to  the health care industry concerning the anti-kickback statute and other  OIG  
enforcement authorities.    
  
   
  E X E C U T I V E   S U M M A R Y
OBJECTIVE 
 
To compare the first-quarter 2008 Medicare payment amount to 
manufacturer prices for irinotecan hydrochloride in March 2008. 
BACKGROUND 
Irinotecan hydrochloride (hereinafter referred to as irinotecan) is an 
injectable drug used to treat patients with colorectal cancer.  The 
Food and Drug Administration approved the first generic version of 
irinotecan on February 20, 2008.  This study examines the difference 
between the Medicare payment amount and manufacturer-reported 
sales prices during March 2008.  At that time, generic versions of 
irinotecan were available for purchase, but not yet factored into the  
calculation of the Medicare payment  amount because of the            
two-quarter lag between the time when sales occur and the time when 
these sales  become the basis for Medicare payment.   
Sections 1847A(d)(1) and (2) of the Social Security Act (the Act), as 
added by the Medicare  Prescription Drug, Improvement, and  
Modernization Act of 2003, P.L. No. 108-173, direct the Office of 
Inspector General (OIG) to undertake studies that compare average 
sales prices (ASP) to widely available market prices and average 
manufacturer prices (AMP).  If OIG finds that the ASP for a drug 
exceeds the  widely available market price by a certain threshold  
(currently 5 percent), section 1847A(d)(3) of the Act states that the 
Secretary of the Department of Health and Human Services (the 
Secretary) may disregard the ASP for the drug when setting 
reimbursement.  After being so informed by OIG, the Secretary shall 
substitute, effective as of the next quarter, the payment amount for 
that drug with the lesser of the widely available market price, or    
103 percent of the AMP. 
We collected pricing and other information (e.g., sales volume and 
discounts) from seven manufacturers of irinotecan (one brand-name 
manufacturer and six generic manufacturers).  To calculate the average 
manufacturer sales price, we divided total sales (net of discounts, where 
available) for March 2008 by the total number of units sold during that 
month. We compared the first-quarter 2008 Medicare payment amount 
to the March 2008 average manufacturer sales price calculated by OIG.  
We also estimated the amount that  Medicare would have saved in 
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E X E C U T I V E   S U M M A R Y   
March 2008 if reimbursement had been based on average manufacturer 
sales prices. 
FINDING 
In March 2008, the Medicare payment amount for irinotecan was 
more than double the OIG-calculated average manufacturer sales  
price.  The Medicare payment amount for irinotecan ($126.31) exceeded  
the OIG-calculated  average manufacturer sales price ($51.59) by          
145 percent in March 2008.   Lower priced generic  versions accounted for 
the vast majority (86 percent) of irinotecan sales in March 2008.  The 
average manufacturer sales price for generic irinotecan was $40.66; the 
average manufacturer sales price for the brand-name product was nearly  
three times greater.   
Further, we  estimate that had the Medicare payment amount for 
irinotecan been based  on the average manufacturer sales price in    
March 2008, Medicare expenditures for this drug would have been 
reduced by $6.5 million in that month alone. 
RECOMMENDATION 
Because of the two-quarter lag in CMSs standard process for 
establishing Medicare payment amounts, the underlying pricing issues  
identified in this report are not limited to irinotecan.  Absent a change  
in the standard process, Medicare payment amounts for drugs with new 
generic versions will continue to be temporarily higher than 
manufacturer sales prices, sometimes substantially.   
We therefore recommend that CMS explore options to expedite the 
process to ensure that Medicare payment amounts for drugs with 
newly available generic versions accurately reflect market prices. The  
Secretary has the authority to lower Medicare payment amounts based 
on the results of OIG studies comparing ASPs to AMPs and widely 
available market prices; however, CMS has yet to make any changes as  
a result of OIGs pricing comparisons.  Further, the effectiveness of  
using this authority to address the disparities between Medicare 
payment amounts and market prices  for drugs with newly available 
generics is limited by timing issues.  In addition to the time needed to 
collect data on widely available market prices, pricing changes based on  
these data would not take effect until the quarter after OIG provides the 
pricing data to CMS.  Therefore, CMS should explore alternative 
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E X E C U T I V E   S U M M A R Y   
options to address pricing discrepancies arising from newly available 
generic drugs, which may include seeking a legislative change.     
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
In its comments on the draft report, CMS concurred with our 
recommendation.  CMS expressed its commitment to ensuring 
accurate payments for drug products under the ASP methodology and  
will review any specific suggestions  OIG may have to further this 
goal. CMS noted that the third-quarter 2008 Medicare payment 
amount for irinotecan is $74.75, representing a 40-percent decrease 
from the previous quarter ($126.24).  CMS also noted that this 
decrease results in a payment differential per unit for the third 
quarter that is substantially lower than the differential for March 
2008, demonstrating that the ASP methodology reflects market-based 
prices over time.    
OIGs recommendation focuses on exploring options to reduce the  
time it takes for ASP to  reflect market-based prices.  The third-
quarter payment amount is still substantially higher than the 
average manufacturer sales price OIG found for March 2008 ($51.59), 
further illustrating the effects of the two-quarter lag.  The first full 
quarter of generic sales data for irinotecan will not be reflected in the 
Medicare payment amount until October 2008almost 8 months 
after the first generic versions reached the market.  
 
 
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  T A B L E   O F   C O N T E N T S
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
  
 
 
I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1 
  
 
 
F I N D IN G . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8 
  
  Medicare payment was more than double the OIG-calculated ...........
  average manufacturer sales price in March 2008 . . . . . . . . . . . . . .  8  
 
R E C O MMEN D A T ION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10 
  
Agency Comments and Office of Inspector General Response . . .  11 

 
APPENDIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12 
  
Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12 
  
 
 
A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14 
    
  
   
  I N T R O D U C T I O N  
OBJECTIVE 
To compare the first-quarter 2008 Medicare payment amount to 
manufacturer prices for irinotecan hydrochloride in March 2008. 
BACKGROUND 
Irinotecan hydrochloride (hereinafter referred to as irinotecan) is an 
injectable drug used to treat patients with colorectal cancer.  The 
Food and Drug Administration (FDA) approved the first generic 
version of irinotecan on February 20, 2008.  This study examines the 
difference between the Medicare payment amount and         
manufacturer-reported sales prices during March 2008.  At that time, 
generic versions of irinotecan were available for purchase, but not yet 
factored into the calculation of the Medicare payment amount.   
Medicare Part B Payment for Irinotecan 
Medicare Part B covers a limited number of outpatient prescription 
drugs, including drugs used in conjunction with durable medical 
equipment; injectable drugs administered by a physician (such as 
irinotecan); certain self-administered drugs, such as oral anticancer 
drugs and immunosuppressive drugs; and some vaccines.1  To obtain 
Medicare payment for Part B-covered drugs like irinotecan, physicians 
submit claims using codes established by the Centers for Medicare & 
Medicaid Services (CMS) as part of the Healthcare Common Procedure  
Coding System (HCPCS).2  The HCPCS codes provide a standardized  
coding system for describing the specific items and services provided in 
the delivery of health care.  In the case of prescription drugs, each 
HCPCS code defines the drug name and dosage  size but does not specify 
manufacturer or package size information. Medicare and its 
beneficiaries paid $132 million for irinotecan in 2007.3    
Medicare payment methodology. The Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA), P.L. 108-173, 
 
1 For the purpose of this report, the term Part B-covered drugs refers to outpatient 
prescription drugs covered by Medicare Part B.  Part B-covered drugs do not refer to drugs  
billed under Part A but paid  with Part B funds,  such as drugs administered in a dialysis  
setting.   
2 CMS contracts with private companies, known as carriers, to process and pay Medicare 
Part B claims. 
3 Medicare Part B Extract and Summary System, updated through March 2008                  
(98 percent of claims reported), accessed on May 15, 2008.   
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changed the basis of payment for most Part B-covered drugs  to average 
sales price (ASP) effective January 1, 2005. Prior to 2005, Medicare 
generally paid for these drugs based on the average wholesale price  
(AWP).4 Previous reports by the Office of Inspector General (OIG) and 
the Government Accountability Office found that the AWP-based 
reimbursements were often significantly higher for Part B-covered 
drugs than the prices that drug manufacturers,  wholesalers, and  
similar entities actually charged the physicians and suppliers that 
purchased these drugs.5  
Section 1847A(c) of the Social Security Act (the Act), as added by the 
MMA, defines the ASP as a manufacturers sales of a drug to all 
purchasers in the United States in a calendar quarter divided by the 
total number of units of the drug sold by the manufacturer in that same 
quarter. The ASP includes all sales (e.g., sales to pharmacies that are 
reimbursed by Medicaid or private insurance plans), not just sales 
reimbursed by Medicare Part B. The ASP is net of any price 
concessions, such as volume, prompt pay, and 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 the 
Medicaid drug rebate program.7  8  
Manufacturers report ASPs by national drug codes (NDC), which are 
11-digit identifiers that indicate the drug name, the manufacturer of the 
drug, the product dosage form, and the package  size. Manufacturers 
must provide CMS with the ASP and volume  of sales for each NDC on a 
 
4 In 2004, the reimbursement amount for most covered drugs was based on either 
80 or 85 percent of the AWP as published in national pricing compendia, such as the Red  
Book. Prior to 2004, Medicare Part B reimbursed for covered drugs based on the lower of 
either the billed amount or 95 percent of the AWP. 
5 OEI-03-00-00310, January 2001; OEI-03-97-00290, December 1997; GAO-01-1118, 
September 2001. 
6 Section 1847A(c)(3) of the Act. 
7 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. 
8 Section 1847A(c)(2) of the Act. 
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quarterly basis, with submissions due 30 days after the close of the 
quarter.9    
Because Medicare payment for Part B-covered 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 the crosswalk to calculate volume-weighted ASPs for 
covered HCPCS codes. 
Because Medicare payment amounts  are based on ASPs reported by 
manufacturers within 30 days after the end of the applicable calendar 
quarter, there is a two-quarter lag between the time when sales 
reflected in the ASP occur and the time when these sales become the  
basis for Medicare payment amounts. For example, third-quarter 2007 
ASP data from manufacturers served as the basis for first-quarter 2008 
Medicare payment amounts for most  Part B-covered drug codes, 
including irinotecan. Effective January 1, 2005, Medicare payment 
amounts for most Part B-covered prescription  drugs are equal to        
106 percent of the volume-weighted ASPs for the HCPCS codes.  
Medicare beneficiaries are responsible for 20 percent of this amount in 
the form  of coinsurance.   
Generic Versions of Irinotecan 
On February 20, 2008, FDA approved the first generic versions of 
irinotecan. As of May 2008, nine manufacturers had received FDA 
approval to market the drug. The generic versions of irinotecan are 
identical, or  bioequivalent, to the brand-name version in dosage form, 
safety, strength, route of administration, quality, performance 
characteristics, and intended use, according to FDA. Although generic 
drugs are chemically identical to their branded counterparts, they are 
typically sold at substantial discounts from the branded price.10   
However, because of the two-quarter lag, the Medicare payment amount 
for brand-name and generic irinotecan will be based on only 
brand-name ASPs and will not include the ASPs for generic irinotecan 
until the third quarter of 2008 (beginning July 1, 2008). In addition, 
because the generic versions were not sold until the middle of the first 
quarter, the full impact of generic irinotecan will not be realized in 
 
9 Section 1927(b)(3) of the Act. 
10 FDA. Office of Generic Drugs. Available online at http://www.fda.gov/cder/ogd/. 
Accessed on May 5, 2008. 
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I N T R O D U C T I O N   
July 2008; i.e., the first full quarter of sales will be for the period from 
April 1 to June 30, 2008, which then  are reflected in the Medicare 
payment amount starting October 1, 2008.   
Office of Inspector General Authority to Conduct Medicare Drug Pricing 
Studies 
Sections 1847A(d)(1) and (2) of the Act, as added by the MMA, direct 
OIG to undertake studies that compare ASPs to widely available 
market prices and average manufacturer prices (AMP).11  12  Related 
to this requirement, OIG has completed six reports comparing ASPs 
to AMPs and one report comparing ASPs to widely available market 
prices.13  In determining widely available market prices, OIG is 
authorized to consider information from sources including (but not 
limited to) manufacturers, wholesalers, distributors, physicians, and 
suppliers.14    
If OIG finds that the ASP exceeds the widely available market price 
or AMP by a certain threshold (currently 5 percent), the Secretary of 
the Department of Health and Human Services (the Secretary) may 
disregard the ASP for the drug when setting reimbursement.15 After  
being so informed by OIG, the Secretary shall substitute, effective as 
of the next quarter, the payment amount for that drug with the lesser 
of the widely available market price, or 103 percent of the AMP.16   
Although CMS acknowledged the Secretarys authority to adjust ASP 
payment limits based on the findings of these studies, the agency has  
yet to make any changes to Part B drug reimbursement as a result of 
OIGs pricing comparisons. 
In commenting on one of  OIGs reports, CMS expressed a desire to  
better understand the fluctuating differences between ASPs and 
AMPs, with the intent of developing a process to adjust payment 
 
11 Section 1927(k)(1) of the Act generally defines AMP as the average price paid to the 
manufacturer by wholesalers in the United States for drugs distributed to the retail 
pharmacy class of trade. 
12 Section 1847A(d)(5) of the Act defines widely available market price to be the price 
that a prudent physician or supplier would pay for the drug, net of any routinely available 
price concessions.   
13 OEI-03-04-00430, April 2006; OEI-03-05-00430, June 2006; OEI-03-06-00370,            
July 2006; OEI-03-07-00140, July 2007; OEI-03-07-00530, September 2007;                      
OEI-03-08-00010, December 2007; and OEI-03-08-00130, May 2008. 
14 Section 1847A(d)(5)(B) of the Act.   
15 Section 1847A(d)(3)(A) of the Act.   
16 Section 1847A(d)(3)(C) of the Act.   
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amounts based on the results of OIGs comparisons.17 However, CMS 
has not specified what, if any, steps it will take to adjust Medicare 
payment amounts.   
METHODOLOGY 
Scope and Data Collection 
Scope. We  compared the Medicare  payment amount from the first and  
second quarters of 2008 to manufacturer sales prices from March 2008. 
We obtained Medicare payment data from CMS and manufacturer sales 
data from irinotecan manufacturers.      
Manufacturer sales data.  In April 2008, we sent surveys to seven 
manufacturers that have FDA approval to produce and market 
brand-name and generic irinotecan (one brand-name manufacturer and 
six generic manufacturers).18 The surveys requested that the 
manufacturers provide total irinotecan sales and sales volume for 
March 2008 by NDC.19  20 We also asked manufacturers to include any 
discounts and rebates that they offered to their customers. All seven  
manufacturers responded to our  survey; six manufacturers provided us 
with irinotecan sales data.21       
CMS data.   We obtained the Medicare payment amount for irinotecan 
from CMS for the first and second quarters of 2008 (based on      
volume-weighted ASPs from the third and fourth quarters of 2007, 
respectively). 
Data Analysis 
To calculate the average manufacturer sales price, we summarized the 
total irinotecan sales (including brand-name and generic irinotecan) for   
 
17 OEI-03-07-00140, July 2007. 
18 Two additional manufacturers received approval to produce irinotecan; however, we  
excluded these manufacturers from our analysis. One manufacturer received FDA approval 
to market irinotecan after we began  data collection; the other manufacturer is not based in  
the United States. Additionally, the manufacturer of brand-name irinotecan also produces 
a generic version through a subsidiary company; we consider the data for both products to 
be from the same respondent. 
19 Several manufacturers stated that the data were the same as the ASP data they would 
report to CMS. 
20 One manufacturer provided data that included  sales from February  28 through 
March 31, 2008.    
21 The manufacturer that did not provide sales data responded that it did not have any 
irinotecan sales for the period under review (March 2008). 
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March 2008 to all customers, net of discounts, where available, and 
divided that number by the total number of units sold during that 
month.22 This figure is hereinafter referred to as the average 
manufacturer sales price.     
Comparing Medicare payment amount to manufacturer sales prices.   We 
compared the first-quarter 2008 Medicare payment amount for irinotecan 
to the average manufacturer sales prices from March 2008. We calculated 
the percentage difference between the average manufacturer sales price 
and the Medicare payment amount for irinotecan. 
Brand-name and generic product sales.   The average manufacturer sales 
prices include prices for both generic and brand-name products; the 
Medicare payment amount from the first quarter of 2008 includes only 
ASPs for brand-name products. We  also calculated separate average 
manufacturer sales prices for brand-name and generic versions of  
irinotecan and determined the percentage of manufacturer sales in   
March 2008 for both versions.   
Monetary impact.  We estimated what the monetary impact would have 
been in March 2008 if Medicare had based payment for irinotecan on the 
average manufacturer sales price calculated for this report. We subtracted 
the March 2008 average manufacturer sales price from the first-quarter 
2008 Medicare payment amount for irinotecan. To estimate the financial 
impact for March 2008, we multiplied the difference by one-twelfth of the 
number of services allowed by Medicare for irinotecan in 2007, as reported 
in CMSs Part B Extract and Summary System.23   This estimate assumes  
that the number of services allowed by Medicare in 2007 remained 
consistent from 1 month  to the next  and that there were no significant 
changes in utilization between 2007 and 2008. We also estimated what 
the financial impact would have been if Medicare had based payment for 
irinotecan on the average manufacturer sales price during the time the  
Medicare payment amount included  brand-name prices only,  i.e., March to   
June 2008.  
Limitations 
This study compares 1 month of manufacturer sales data to one quarter 
of Medicare payment data; we were unable to collect a full quarter of 
 
22 The unit values are based on the Medicare payment amount for irinotecan. Medicare 
payment for irinotecan is calculated per 20 milligrams. 
23 As of May 15, 2008, CMSs 2007 Medicare Part B Extract and Summary System was 
98 percent complete. 
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I N T R O D U C T I O N   
manufacturer sales data because manufacturers did not receive 
approval to market generic versions  of irinotecan until February 20, 
2008. We did not verify the accuracy of the sales data provided by the 
manufacturers.    
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections issued by the Presidents Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
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  F I N D I N G
The Medicare payment amount 
In March 2008, the Medicare payment amount for 
for irinotecan ($126.31) exceeded 
irinotecan was more than double the     
the OIG-calculated average 
OIG-calculated average manufacturer sales price   manufacturer sales price ($51.59) 
by 145 percent in March 2008.  
(See Table 1.)   
Table 1.  Volume-Weighted  ASP and Manufacturer Sales Price for Irinotecan  
HCPCS  Short Description   March 2008    First-Quarter       Percentage 
Code  Average  2008 Medicare   Difference 
Manufacturer    Payment  
Sales Price*  Amount** 
J9206  Irinotecan injection, 20 milligrams  $51.59  $126.31  145% 
*Source:  OIG analysis of March 2008 manufacturer sales prices for irinotecan.  The average manufacturer sales price includes both brand-name and 
generic irinotecan.    
**Source:  CMSs first-quarter 2008 ASP file (based on volume-weighted ASPs from the  third quarter of 2007). 
Generic irinotecan made  up the majority  of manufacturer sales and had  
substantially lower prices in March 2008   
Lower priced generic versions accounted for the vast majority            
(86 percent) of irinotecan sales in March 2008.  According to 
manufacturer sales prices and sales volume in March 2008, the 
average price for generic irinotecan  was $40.66; the average price for 
the brand-name product was nearly three times greater.24  Therefore,  
any purchaser acquiring generic irinotecan in March 2008 received 
Medicare payment that was approximately $85 more than the 
average manufacturer sales price.  In addition, because the Medicare 
payment amount changed minimally in the second quarter of 2008, 
manufacturer sales prices are likely to continue to be substantially 
lower than the Medicare payment amount during that period as 
well.25  26  
 
24 We are not publishing the brand-name average manufacturer sales price because of  
the proprietary  nature of the manufacturer sales data.   
25 The Medicare payment amount for irinotecan in the second quarter of 2008 was 
$126.24 per 20 milligrams.   
26 The Medicare payment amount for irinotecan in the third quarter of 2008 ($74.75) is 
41 percent lower than it was for the previous quarter.  This reduction is because of the 
inclusion of approximately 6 weeks of generic sales (generic irinotecan did  not enter the 
market until the middle of the first quarter).  The first full quarter of generic sales will be 
for the period from April 1 to June 30, 2008, which then will be reflected in the Medicare 
payment amount starting October 1, 2008.  It is likely that the Medicare payment amount 
will undergo another reduction at that time.   
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Medicare expenditures would have  been reduced by $6.5 million in      
March 2008 had the Medicare payment amount for irinotecan been based on  
the average manufacturer sales price   
We estimate that had the Medicare  payment amount for irinotecan 
been based on the calculated manufacturer prices in March 2008, 
Medicare expenditures for this drug would have  been  reduced by 
$6.5 million in that month alone. 
Further, because of the two-quarter lag, the lower generic sales prices  
for irinotecan are not reflected in the second-quarter 2008 
reimbursement amount. As a result, we estimate that Medicare 
expenditures could be reduced by a total of $26 million during the 
period between the initial approval of generic irinotecan and the time  
when the lower prices are included in the ASP calculation (i.e.,        
March to June 2008).27   
 
 
27 This assumes that expenditures would  have been reduced by $6.5 million per month 
for the 4 full months before generic prices were included in the Medicare payment amount 
(MarchJune 2008). 
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  R E C O M M E N D A T I O N  
 
OIG compared the Medicare payment amount to manufacturer prices 
and found that the Medicare payment amount for irinotecan ($126.31) 
was more than double the average manufacturer sales price ($51.59) in 
March 2008. Further, Medicare and its beneficiaries would have saved 
an estimated $6.5 million in March 2008 had Medicare payment 
amounts been based on  the average manufacturer sales price.  The 
recent approval of lower priced generic irinotecan, which accounted for 
86 percent of irinotecan manufacturer sales in March 2008, led to this 
substantial difference.   
Because of the two-quarter lag in the ASP system, the Medicare 
payment amount will not reflect any sales of lower priced generic 
irinotecan until the third quarter of  2008.  Further, because the generic 
versions were not sold until the middle of the quarter, the full impact of 
generic irinotecan will not be realized until the quarter beginning on             
October 1, 2008.  The results of this report indicate that the two-quarter 
lag in the ASP system leads to Medicare payment amounts that are 
substantially higher than manufacturer prices  when generic products 
first become available. 
The underlying pricing issues identified in this report are not limited to 
irinotecan because of the two-quarter lag in CMSs standard process for  
establishing Medicare payment amounts.  Absent a change in the 
standard process, Medicare payment amounts for drugs with new 
generic versions will continue to be temporarily higher than 
manufacturer sales prices, sometimes substantially.  
We therefore recommend that CMS explore options to expedite the 
process to ensure that Medicare payment amounts for drugs with 
newly available generic versions accurately reflect market prices.   
The Secretary has the authority to lower Medicare payment  amounts 
based on the results of OIG studies comparing ASPs to AMPs and 
widely available market prices; however, CMS has yet to make any 
changes as a result of OIGs pricing comparisons.  Further, the 
effectiveness of using this authority to address the disparities 
between Medicare payment amounts and market prices for drugs 
with newly available generics is limited by timing issues.  In addition 
to the time  needed to collect data on widely available market prices,  
pricing changes based on these data would not take effect until the 
quarter after OIG provides the pricing data to CMS.  Therefore, CMS 
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should explore alternative options to address pricing discrepancies 
arising from newly available generic drugs, which may include 
seeking a legislative change. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
In its comments on the draft report, CMS concurred with our 
recommendation. CMS expressed its commitment to ensuring 
accurate payments for drug products under the ASP methodology and  
will review any specific suggestions  OIG may have to further this 
goal. To that end, CMS stated that it continuously looks for  ways to 
improve the methods it uses to collect data. CMS noted that the 
third-quarter 2008 Medicare payment amount for irinotecan is 
$74.75, representing a 40-percent decrease from the previous quarter 
($126.24). CMS also noted that this decrease results in a payment 
differential per unit for the third quarter that is substantially lower 
than the differential for March 2008, demonstrating that the ASP 
methodology reflects market-based prices over time.    
OIGs recommendation focuses on exploring options to reduce the  
time it takes for ASP to  reflect market-based prices. The third-
quarter payment amount is still substantially higher than the 
average manufacturer sales price OIG found for March 2008 ($51.59), 
further illustrating the effects of the two-quarter lag. The first full 
quarter of generic sales data for irinotecan will not be reflected in the 
Medicare payment amount until October 2008almost 8 months 
after the first generic versions reached the market. 
The full text of CMSs comments is provided in the Appendix. 
  
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 A P P E N D I X  
 
Agency Comments 
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A P P E N D I X  
 
 
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  A C K N O W L E D G M E N T S  
A P P E N D I X ~ A  
 
This report was prepared under the  direction of  Robert A. Vito, Regional 
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office, and David E. Tawes, Director, Prescription Drug Pricing 
Unit. 
Edward K. Burley served as the team leader for this study.  Other 
principal Office of Evaluation and Inspections staff from the  
Philadelphia regional office who contributed to the report include    
Kevin McAloon; other central office staff who contributed include   
Kevin Manley.   
 
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