Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
Omission Of Drugs From 
The Federal Upper Limit List in 2001 
Inspector General 
February 2004 
OEI-03-02-00670  O I G
FFICE OF  NSPECTOR  ENERAL

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 short-term 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. 
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.  The OI also oversees State Medicaid fraud control units which investigate and 
prosecute fraud and patient abuse in the Medicaid program. 
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 OIGs 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 model compliance plans, 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 
This inspection: (1) determined whether drugs that met the criteria established by Federal laws 
and regulations were included on the Federal Upper Limit list in 2001, and (2) calculated the 
potential savings that could have resulted in 2001 if additional drugs that met the established 
criteria had been included on the Federal Upper Limit list. 
BACKGROUND 
In 1987, 42 CFR  447.332 authorized the Centers for Medicare & Medicaid Services 
(CMS) (formerly the Health Care Financing Administration) to establish Federal Upper Limits 
in order to limit the amount that Medicaid could reimburse for multiple-source drugs.  A 
multiple-source drug is defined as a drug marketed or sold by two or more manufacturers or 
labelers or a drug marketed or sold by the same manufacturer or labeler under two or more 
different proprietary names or both under a proprietary name and without such a name. 
According to the State Medicaid Manual, these reimbursement limits, commonly known as 
Federal Upper Limits, were established to ensure that the Federal Government acts as a 
prudent payer by taking advantage of current market prices for multiple-source drugs. 
The regulation required CMS to establish a Federal Upper Limit amount for a drug product 
(i.e., each specific dosage form and dosage amount of a drug) when: (1) all versions of a drug 
product had been classified as therapeutically equivalent by the Food and Drug Administration 
(FDA), and (2) at least three suppliers of the drug product are listed in current editions (or 
updates) of published compendia of cost information for drugs available for sale nationally. The 
Omnibus Budget Reconciliation Act of 1990, however, changed this criteria by requiring a 
Federal Upper Limit when three or more versions of a drug product have been rated 
therapeutically and pharmaceutically equivalent by FDA, regardless of the ratings of other 
versions. The Federal Upper Limit amount for a drug is set at 150 percent of the published 
price for the least costly therapeutically-equivalent product plus a reasonable dispensing fee. 
CMS publishes the list of drug products for which Federal Upper Limits have been established 
in the State Medicaid Manual and on its website at www.cms.gov/medicaid/drugs/drug10.asp. 
We obtained a list of the top 200 multiple-source drugs based on retail sales for the year 2001, 
and determined if the drugs were on CMSs November 2001 Federal Upper Limit list. For 
each of the drugs not on the Federal Upper Limit list, we determined if any forms or strengths 
met the criteria for inclusion on the list.  We then calculated a Federal Upper Limit amount for 
any drug products that met the criteria by multiplying the lowest 
i
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  price published in the Red Book for Windows by 150 percent. We determined each States 
average payment for these drug products by obtaining payment and utilization data from CMS. 
For drug products whose Federal Upper Limit amount would have been less than a States 
average payment amount, we calculated potential Medicaid savings by multiplying the price 
difference by Medicaid utilization. We then aggregated the individual savings for each State to 
determine the overall potential savings to Medicaid. 
FINDING 
Ninety drug products met the established criteria but were not included on the 
Federal Upper Limit list in 2001. 
If CMS had included 55 of these drug products on the Federal Upper Limit list, the Medicaid 
program could have saved $123 million in 2001. This represents 30 percent of the $411 
million Medicaid reimbursed for these 55 products that year.  Four drug products alone 
accounted for 71 percent of the $123 million in potential Medicaid savings. The Medicaid 
program could have saved $88 million in 2001 by placing these 4 products (albuterol aerosol, 
ipratropium bromide solution, enalapril maleate 20 mg tablets, and clozapine 100 mg tablets) on 
the Federal Upper Limit list. 
The remaining 35 of the 90 drug products met the criteria for inclusion on the Federal Upper 
Limit list but did not have any associated savings. However, States would pay the Federal 
Upper Limit amount only if it were less than the estimated acquisition cost or State maximum 
allowed cost.  Therefore, States would not have made higher payments if these products had 
been included on the Federal Upper Limit list. 
After the start of this inspection but prior to the release of the final report, CMS added 9 of the 
90 products to the Federal Upper Limit list.  Seven of these drug products (albuterol aerosol, 
ipratropium bromide solution, aspirin/butalbital/caffeine tablets, and 4 strengths of enalapril 
maleate tablets) accounted for a significant portion ($94 million) of the savings we calculated for 
2001. 
RECOMMENDATION 
Federal Upper Limits were created to help Medicaid save money by taking advantage of lower 
prices for multiple-source drugs available in the marketplace.  Although the Federal Upper 
Limit list already includes over 400 drug products, there are more that could be added.  At a 
time when Medicaid prescription drug costs are increasing, efforts should be made to include 
on the Federal Upper Limit list all drugs that meet the requirements.  This could result in millions 
of dollars in savings to both State Medicaid programs and the Federal Government. 
ii
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  We recommend that CMS take steps to ensure that all drugs meeting the criteria set 
forth in Federal laws and regulations are included on the Federal Upper Limit list. 
Agency Comments 
CMS states that they do not agree with the Office of Inspector Generals (OIGs) savings 
estimates.  Specifically, CMS states that OIG used only the Red Book to identify suppliers and 
prices, and did not subsequently verify the information provided in the Red Book with suppliers. 
In addition, CMS states that three of the products that we identified as leading to the most 
savings were recently added to the Federal Upper Limit list. Therefore, CMS believes that our 
savings estimates should be reduced accordingly. CMS also believes that it is nearly impossible 
to say with certainty that a particular group of products has been incorrectly excluded from the 
Federal Upper Limit list at any one time since pricing and product information changes 
frequently.  CMS believes that their efforts to add and remove drug products on the Federal 
Upper Limit list should be recognized by OIG. Finally, CMS states it does not believe that 
products that would not lead to savings should be included on the Federal Upper Limit list. 
While CMS disagrees with our savings estimates, we are unable to determine if they concur 
with our recommendation that drugs which meet the criteria should be included on the Federal 
Upper Limit list, as well as what, if any, actions CMS plans to take in response to our report. 
OIG stands by the drugs identified as meeting the criteria, the subsequent savings estimates, and 
our recommendation. 
iii
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  T A B L E   O F   C O N T E N T S  
PAGE

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

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

FINDING

Ninety drug products met the criteria for a Federal Upper Limit in 2001  ................ 6

RECOMMENDATION  ........................................................ 8

APPENDIX

A. Drug Products With Federal Upper Limit Savings  ............................. 10

B. Centers for Medicare & Medicaid Servicess Comments........................12

ACKNOWLEDGMENTS ..................................................... 15

iv
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  I N T R O D U C T I O N  
OBJECTIVE 
This inspection: (1) determined whether drugs that met the criteria established by Federal laws 
and regulations were included on the Federal Upper Limit list in 2001, and (2) calculated the 
potential savings that could have resulted in 2001 if additional drugs that met the established 
criteria had been included on the Federal Upper Limit list. 
BACKGROUND 
Medicaid Program 
Medicaid is a jointly-funded, Federal-State health insurance program for certain low income 
and medically-needy people. Individual States establish eligibility requirements, benefit 
packages, and payment rates for their Medicaid program under broad Federal standards set by 
the Centers for Medicare & Medicaid Services (CMS) (formerly the Health Care Financing 
Administration). Federal regulations mandate that States provide basic services to beneficiaries 
in order to receive Federal matching funds.  States may also receive Federal funding if they 
provide other optional services.  One of the most commonly covered optional services that 
States provide is prescription drug coverage. All 50 States and the District of Columbia 
currently offer prescription drug coverage under the Medicaid program. In calendar year 
2001, Medicaid payments for prescription drugs totaled almost $24 billion. 
Medicaid Drug Reimbursement Methodology 
Each Medicaid agency is required to submit a State plan to CMS describing its payment 
methodology for covered drugs. Federal regulations require that each States reimbursement 
for a drug not exceed the lower of its estimated acquisition cost plus a reasonable dispensing 
fee or the providers usual and customary charge to the public for the drug. States have 
implemented dispensing fees that range from $2.00 to $5.60 per prescription. 
CMS allows States flexibility in defining estimated acquisition cost.  Most States base their 
calculation of estimated acquisition cost on a drugs average wholesale price discounted by a 
certain percentage. This discount ranged from 5 percent to 15 percent in the year 2001. A 
small number of States use wholesale acquisition costs rather than average wholesale prices 
when determining estimated acquisition cost. Average wholesale prices and wholesale 
acquisition costs are reported by companies, such as First DataBank and Medical Economics. 
1
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  For certain drugs, States also use the Federal Upper Limit and State Maximum Allowable Cost 
programs in determining reimbursement amounts.  CMS has established Federal Upper Limit 
amounts for over 400 drugs.  In addition, more than half of the States have implemented a 
Maximum Allowable Cost program in order to reduce reimbursement amounts for certain 
drugs. Individual States determine the types of drugs that are included in their Maximum 
Allowable Cost program, and the method by which the Maximum Allowable Cost for a drug is 
calculated. 
In summary, States often use a variety of different pricing mechanisms when setting 
reimbursement amounts. In most cases, States reimburse for a drug at the lower of its 
estimated acquisition cost, the Federal Upper Limit amount, the Maximum Allowable Cost, or 
the providers usual and customary charge. 
Federal Upper Limit List 
In 1987, 42 CFR  447.332 authorized CMS to establish Federal Upper Limits in order to 
limit the amount that Medicaid could reimburse for multiple-source drugs. A multiple-source 
drug is defined as   . . . a drug marketed or sold by two or more manufacturers or labelers or a 
drug marketed or sold by the same manufacturer or labeler under two or more different 
proprietary names or both under a proprietary name and without such a name. According to 
the State Medicaid Manual, these reimbursement limits, commonly known as Federal Upper 
Limits, were established to ensure that the Federal Government acts as a prudent payer by 
taking advantage of current market prices for multiple-source drugs. 
The regulation required CMS to establish a Federal Upper Limit amount for a drug product 
(i.e., each specific dosage form and dosage amount of a drug) when: (1) all versions of a drug 
product had been classified as therapeutically equivalent by the Food and Drug Administration 
(FDA), and (2) at least three suppliers of the drug product are listed in current editions (or 
updates) of published compendia of cost information for drugs available for sale nationally. The 
Omnibus Budget Reconciliation Act of 1990, however, changed this criteria by requiring a 
Federal Upper Limit when three or more versions of a drug product have been rated 
therapeutically and pharmaceutically equivalent by FDA, regardless of the ratings of other 
versions. FDA identifies equivalent drug products in their publication Approved Drug 
Products with Therapeutic Equivalence Evaluations. According to FDA, drugs that are 
therapeutically equivalent are designated as A-rated. 
The regulation sets the Federal Upper Limit amount at 150 percent of the published price for 
the least costly therapeutically-equivalent product that can be purchased in quantities of 100 
tablets or capsules plus a reasonable dispensing fee. If the drug product is not available in 
quantities of 100 or if the drug product is a liquid, then the Federal Upper Limit amount should 
be based on a commonly listed size. States are required to meet the Federal Upper Limit 
requirements only in the aggregate.  This means that a State can pay more than the Federal 
Upper Limit amount for certain products as long as it pays less than the Federal Upper Limit 
amount for other products. 
2
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  CMS publishes the list of drug products for which Federal Upper Limits have been established 
in the State Medicaid Manual. The Federal Upper Limit list is also available on CMSs 
website at www.cms.gov/medicaid/drugs/drug10.asp. Any revisions to the Federal Upper 
Limit list are typically noted in Medicaid program memoranda and on the CMS website.  CMS 
establishes an upper limit for specific forms and strengths for each multiple-source drug on the 
list. The Federal Upper Limit list also provides the source of the pricing information used to 
calculate the upper limit amount for each drug. 
METHODOLOGY 
Information from CMS 
We met with CMS staff to obtain a better understanding of how CMS administers Federal 
Upper Limits.  We discussed with CMS the procedures used to identify drugs that should be 
placed on the Federal Upper Limit list, as well as the methods used to calculate the Federal 
Upper Limit amount.  CMS also provided documentation of these procedures. 
Determining Whether Drugs Met Federal Upper Limit Criteria 
Determining Drugs Not Currently on the Federal Upper Limit List. We obtained a list 
of the top 200 multiple-source drugs based on retail sales for the year 2001 from Drug Topics 
magazine.  We compared the Drug Topics list to CMSs November 2001 Federal Upper 
Limit list.  In making this comparison: 
(1) If Drug Topics listed a specific form for a drug, then we determined if this specific form was 
on the Federal Upper Limit list. 
(2) If Drug Topics did not list a specific form, then we determined if any form of the drug was 
on the Federal Upper Limit list. 
For example, if Drug Topics magazine placed ibuprofen liquid on its list of top 200 multiple-
source drugs, then the liquid form of ibuprofen would need to be specifically mentioned on the 
Federal Upper Limit list. However, had Drug Topics simply listed ibuprofen (with no specific 
form), then we determined if any forms of ibuprofen were part of the Federal Upper Limit list. 
If any form of the drug appeared on the Federal Upper Limit list, then we concluded that the 
drug was included. In total, we determined that 64 of the 200 multiple-source drugs from the 
Drug Topics list were not included on the Federal Upper Limit list as of November 2001. 
Identifying All Versions of the 64 Drugs Not on the Federal Upper Limit List. Because 
CMS calculates an upper limit amount for every form and strength of a drug (i.e., each specific 
drug product) that meets the criteria set forth by Federal laws and regulations, we needed to 
identify all the forms and strengths for each of the 64 multiple-source drugs not on the Federal 
Upper Limit list. We used the October 2001 edition of the Red Book for Windows (published 
by Medical Economics) to gather this information. 
3
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  According to the Red Book, these 64 multiple-source drugs were associated with 200 different 
drug products in various forms and strengths. 
We then compiled a list of all the national drug codes (NDCs) associated with each of the 200 
drug products.  Each individual drug product manufactured or distributed in the United States 
has a unique NDC.  NDC identifies the manufacturer of the drug product, the product dosage 
form, and the package size. For each NDC, the Red Book provides published prices (usually 
average wholesale prices and wholesale acquisition costs), supplier information, and FDA 
therapeutic equivalency data. The Red Book also lists whether the individual drug product is a 
brand or generic version. 
Determining if the 200 Drug Products Met Federal Upper Limit Criteria. We used the 
Red Book to determine whether each of the 200 drug products met the established criteria for 
inclusion on the Federal Upper Limit list. We first determined whether each of the drug 
products had at least three versions deemed therapeutically-equivalent (A-rated) by FDA. For 
any drug products that met this criteria, we verified that there were at least three suppliers listed 
in the Red Book. In all, 90 of the 200 drug products met the criteria for inclusion on the 
Federal Upper Limit list.  These 90 drug products comprised different forms and strengths of 
42 drugs from Drug Topics list of the top 200 multiple-source drugs. Table 1 below illustrates 
the steps taken to reach this number. 
Table 1: Number of Drugs and Drug Products in Each Stage of Methodology 
Methodology Step  Number of Drugs  Number of Drug Products 
Drug Topics Top 200  200  Not determined 
Multiple-Source Drugs 
Drugs on Drug Topics 
List Not on the Federal  64  200 
Upper Limit List 
Drugs Not on Federal 
Upper Limit list that Met  42  90 
Federal Upper Limit 
Criteria 
Calculating Federal Upper Limit Amounts 
To calculate a Federal Upper Limit amount for the 90 drug products that met the criteria for 
inclusion, we used pricing information and therapeutic equivalency data from the Red Book. 
Federal regulations set the upper limit amount at 150 percent of the least costly therapeutically-
equivalent product that can be purchased in package sizes of 100 (with certain exceptions). 
Therefore, we determined which of the A-rated versions available in a package size of 100 had 
the lowest price listed in the Red Book. If a product was not available in a package size of 
100, we determined the lowest price for the most common package size listed in the Red Book. 
We then multiplied this price by 150 percent to determine the Federal Upper Limit amount for 
the drug product. This potential Federal Upper Limit amount would apply to all NDCs 
4
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  associated with the drug product.  We did not verify that the prices published in the Red Book 
were actually available in the marketplace. 
Calculating Medicaid Payments 
To determine the amount Medicaid reimbursed for the 90 drug products that met the Federal 
Upper Limit criteria, we downloaded 50 Medicaid payment and utilization files for calendar 
year 2001 from CMSs website.  We did not include Arizona because its drug payment and 
utilization file was not available. Each file contained variables representing total State payments, 
number of units reimbursed, and number of prescriptions written for every NDC listed on a 
paid claim in 2001. We removed NDCs associated with brand versions of the drug product 
from the file.  We excluded brand versions because many State Medicaid agencies require a 
generic version of the drug product to be dispensed. 
The total State payment amount listed in the files included both the payments for the drug 
product and the dispensing fees paid to the pharmacy. To determine a States payments for the 
drug product only, we: 
(1) Aggregated total State payments, number of units reimbursed, and number of prescriptions 
written for all generic NDCs associated with the product 
(2) Calculated the total amount the State paid in dispensing fees for the drug product by 
multiplying the States dispensing fee by the number of prescriptions written for the product 
(3) Subtracted this amount from the total State payments for the drug product 
We then calculated the average State payment by dividing the States payments for the drug 
product (without the dispensing fee) by the number of units reimbursed.  One of the 90 drug 
products did not have payment data listed in the State files, and was therefore, not included in 
subsequent calculations. 
Calculating Potential Savings 
We calculated the difference between the average State payment and the potential Federal 
Upper Limit amount. If the potential Federal Upper Limit amount for a drug product was less 
than the average State payment, we multiplied the price difference by the number of units 
reimbursed in order to determine each States potential savings for the product.  For each of 
the drug products with potential savings, we added the savings among all States. Finally, we 
aggregated the savings for all drug products to determine the overall potential savings to the 
Medicaid program. 
This study was conducted in accordance with the Quality Standards for Inspections issued by 
the Presidents Council on Integrity and Efficiency. 
5
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  F I N D I N G  
Ninety drug products met the established criteria but were not 
included on the Federal Upper Limit list in 2001 
Each of the 90 drug products had at least 3 versions rated therapeutically equivalent by FDA, 
and were available from 3 or more suppliers. These 90 drug products accounted for $667 
million in Medicaid reimbursement in 2001. Prior to the release of this report, CMS added 9 of 
the 90 products to the Federal Upper Limit list. 
Adding 55 of the 90 drug products to the Federal Upper Limit list could have 
saved Medicaid $123 million in 2001 
Medicaid could have saved $123 million in 2001 by adding 55 drug products to the Federal 
Upper Limit list.  This represents 30 percent of the $411 million Medicaid reimbursed for the 
55 products that year. Each of these drug products had at least three versions rated 
therapeutically equivalent by FDA and were available from three or more suppliers. These 55 
products represented various forms and strengths of 25 drugs from Drug Topics magazines list 
of top 200 multiple-source drugs by retail sales in 2001. 
Four drug products accounted for 71 percent of the $123 million in potential Medicaid savings 
in 2001. The Medicaid program could have saved $88 million in 2001 by placing these four 
products (albuterol aerosol, ipratropium bromide solution, enalapril maleate 20 mg tablets, and 
clozapine 100 mg tablets) on the Federal Upper Limit list.  Albuterol aerosol accounted for 42 
percent of overall savings. The State of New York alone could have realized $9.2 million in 
savings had albuterol aerosol been included on the list in 2001. The total savings attributed to 
the four products are shown in Table 2 on the following page. A complete list of the 55 drug 
products and their savings is presented in Appendix A. We did not verify that the prices 
published in the Red Book were available in the marketplace. 
An additional 35 drug products met the criteria for inclusion on the Federal Upper Limit list but 
did not have any associated savings.  These 35 drug products represented various forms and 
strengths of 23 drugs from Drug Topics magazines list of top multiple-source drugs by retail 
sales. For 34 of these 35 drug products, no State had an average payment amount for the 
product that was less than the potential Federal Upper Limit amount. Medicaid did not make 
any payments for 1 of the 35 drug products.  Therefore, this product did not have any potential 
savings. States reimburse for a drug at the lower of its estimated acquisition cost, the Federal 
Upper Limit amount, the Maximum Allowable Cost, or the providers usual and customary 
charge. States would only pay the Federal Upper Limit amount for a drug product if it were 
the lowest of these options. Therefore, States would not have made higher payments if these 
35 products had been included on the Federal Upper Limit list. 
6
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  Table 2: Drug Products With The Highest Potential Federal Upper Limit Savings 
Potential 
Total  Federal Upper  Potential 
Drug Product  Medicaid Reimbursement  Limit Amount  Savings 
Albuterol Aerosol,  $87,481,266  $0.39  $52,299,768 
0.09 mg/inh1 
Ipratropium Bromide, 0.02%  $65,156,902  $0.34  $19,945,230 
solution2 
Enalapril Maleate,  $21,332,860  $0.72  $7,918,226 
20 mg tablet 2 
Clozapine,  $83,652,722  $2.48  $7,742,010 
100 mg tablet 
Total  $257,623,750  $87,905,234 
Source: OIG analysis of 2001 Medicaid drug utilization and payment data and October 2001 Red Book pricing data 
After the start of this inspection but prior to the release of the final report, CMS added 9 of the 
90 products to the Federal Upper Limit list.  Seven of these drug products (albuterol aerosol, 
ipratropium bromide solution, aspirin/butalbital/caffeine tablets, and four strengths of enalapril 
maleate tablets) accounted for a significant portion ($94 million) of the savings we calculated for 
2001.  Albuterol aerosol was added to the Federal Upper Limit list on March 11, 2003, 
ipratropium bromide and enalapril maleate were added on August 24, 2003, and 
aspirin/butalbital/caffeine was added on November 2, 2003.  According to our analysis, adding 
the other two products (buspirone hydrochloride and oxaprozin) would not have led to any 
savings that year. 
1
Albuterol aerosol was added to the Federal Upper Limit list on March 11, 2003.

2
Ipratropium bromide solution and enalapril maleate tablets were added to the Federal Upper Limit list on 

August 24, 2003.

7
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  R E C O M M E N D A T I O N  
Federal Upper Limits were created to help Medicaid save money by taking advantage of lower 
prices for multiple-source drugs available in the marketplace.  Although the Federal Upper 
Limit list already includes over 400 drug products, there are more that could be added to the 
list.  At a time when Medicaid prescription drug costs are increasing, efforts should be made to 
include on the Federal Upper Limit list all drugs that meet the requirements. This could result in 
millions of dollars in savings to both State Medicaid programs and the Federal Government. 
We recommend that CMS take steps to ensure that all drugs meeting the criteria set 
forth in Federal laws and regulations are included on the Federal Upper Limit list. 
Agency Comments 
CMS states that they do not agree with the the Office of Inspector Generals (OIGs) savings 
estimates.  Specifically, CMS states that OIG used only the Red Book to identify suppliers and 
prices, and did not subsequently verify the information provided in the Red Book with suppliers. 
In addition, CMS states that three of the products that we identified as leading to the most 
savings were recently added to the Federal Upper Limit list. Therefore, CMS believes that our 
savings estimates should be reduced accordingly. CMS also believes that it is nearly impossible 
to say with certainty that a particular group of products has been incorrectly excluded from the 
Federal Upper Limit list at any one time since pricing and product information changes 
frequently.  CMS believes that their efforts to add and remove drug products on the Federal 
Upper Limit list should be recognized by OIG. Finally, CMS states it does not believe that 
products that would not lead to savings should be included on the Federal Upper Limit list. 
CMS also includes a technical comment stating that four sections of this report do not describe 
all the potential situations in which Federal Upper Limits may be established. CMS suggests 
that we revise these sections of the report. 
The full text of CMSs comments is presented in Appendix B. 
OIG Response 
In the report, we recommended that all products that meet the criteria set forth in the statute 
and regulation be included on the Federal Upper Limit list. The regulatory criteria only require 
that three suppliers who offer therapeutically-equivalent products be listed in current editions of 
national pricing compendia, and that the Federal Upper Limit amount be set at 150 percent of 
the lowest published price.  We strictly followed these criteria in identifying the 90 drug 
products that had not been included in 2001 and in calculating their potential Federal Upper 
Limit amounts. 
8
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  A P P E N D I XA   
CMS believes that drugs that meet the criteria but have no associated savings should not be 
included on the Federal Upper Limit list. However, the Omnibus Budget Reconciliation Act of 
1990 states that [CMS] shall establish a Federal upper reimbursement limit...  Furthermore, 
States reimburse for a drug at the lower of its estimated acquisition cost, the Federal Upper 
Limit amount, the Maximum Allowable Cost, or the providers usual and customary charge. 
Therefore, States would only pay the Federal Upper Limit amount for a drug product if it were 
the lowest of these options, and including a drug on the list would not lead to higher payments. 
In response to CMSs technical comment concerning therapeutic equivalency requirements, we 
point out that the statute explicitly requires the establishment of a Federal Upper Limit when 
there are at least three therapeutically equivalent products that have been A-rated by FDA. 
The statute states that [CMS] shall establish a Federal Upper reimbursement limit for each 
multiple source drug for which the FDA has rated three or more products therapeutically and 
pharmaceutically equivalent, regardless of whether all such additional formulations are rated as 
such... We believe that this statement is clear in its intent that CMS must set a Federal Upper 
Limit in situations in which three products have been A-rated by FDA and the other criteria are 
met. CMSs comments indicate that the agency takes the position that it also has the discretion 
to set Federal Upper Limits under certain additional circumstances. For the purposes of this 
report, OIG applied a conservative interpretation of the Federal Upper Limit criteria, but would 
expect additional savings to result from a broader application of the criteria. 
In conclusion, OIG believes that the savings estimates for 2001 presented in this report are 
correct for the time period we reviewed.  OIG also reaffirms its recommendation that CMS 
should include all products that meet the criteria on the Federal Upper Limit list. 
9
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  A P P E N D I XA   
Drug Products With Federal Upper Limit Savings

The table below lists the 55 drug products that, if included on the Federal Upper Limit list, could have led to $123 million in 
Medicaid savings in 2001. Unless otherwise noted, drug information is based on package sizes of 100. 
Total Medicaid  Potential Federal  Potential 
Drug Product  Reimbursement  Upper Limit  Savings 
APAP/Butabital/Caffeine 
325 mg-50 mg-40 mg, Capsule  $89,384.49  $0.36  $324 
325 mg-50 mg-40 mg, Tablet  $3,909,337.28  $0.07  $2,660,418 
500 mg-50 mg-40 mg, Capsule  $721,437.87  $0.69  $31,031 
500 mg-50 mg-40 mg, Tablet  $2,506,195.89  $0.54  $706,407 
Albuterol 
.09 mg/inh, Aerosol, 17 gm1  $87,481,265.89  $0.39  $52,299,768 
2 mg/5 ml, Syrup, 480 ml  $3,242,419.13  $0.02  $1,111,100 
Aspirin/Butalbital/Caffeine 
325 mg-50 mg-40 mg, Capsule  $411,383.11  $0.57  $138 
325 mg-50 mg-40 mg, Tablet2  $536,594.21  $0.06  $363,022 
Aspirin/Butalbital/Caffeine/Codeine 
325 mg-50 mg-40 mg-30 mg, Capsule  $2,188,509.43  $0.84  $179,712 
Bupropion HCL 
100 mg, Tablet  $5,106,598.56  $0.80  $173,685 
75 mg, Tablet  $4,759,489.74  $0.65  $1,656 
Clotrimazole 
1%, Cream, 15 gm  $9,064,256.21  $0.23  $3,501,129 
1%, Solution, 30 ml  $605,040.37  $0.61  $148 
Clozapine 
100 mg, Tablet  $83,652,722.25  $2.48  $7,742,010 
25 mg, Tablet  $7,907,922.22  $0.98  $578,799 
Cromolyn Sodium 
10 mg/ml, Solution, 2ml  $6,187,808.53  $0.19  $1,338,246 
Desmopressin Acetate 
4 mcg/ml, Solution, 10 ml  $512,170.58  $10.02  $199,539 
Diflorasone Diacetate 
.05%, Cream, 30 gm  $842,858.89  $1.50  $262 
.05%, Ointment, 30 gm  $1,016,670.39  $1.54  $315 
Dipyridamole 
25 mg, Tablet  $366,648.16  $0.10  $152,414 
50 mg, Tablet  $1,015,602.14  $0.13  $491,145 
75 mg, Tablet  $339,020.00  $0.14  $6,575 
Enalapril Maleate 
2.5 mg, Tablet3  $4,782,059.14  $0.41  $1,544,162
5 mg, Tablet3  $16,945,321.12  $0.51  $5,648,266 
10 mg, Tablet3  $20,365,750.25  $0.54  $6,767,074 
20 mg, Tablet3  $21,332,859.73  $0.72  $7,918,226 
Erythromycin 
250 mg, Enteric Coated Tablet  $295,673.48  $0.22  $13,881 
Fluvoxamine Maleate 
25 mg, Tablet  $1,643,208.29  $2.20  $114 
50 mg, Tablet  $10,737,096.08  $2.47  $2,370 
Glyburide Micronized 
1.5 mg, Tablet  $129,870.76  $0.25  $4,953 
3 mg, Tablet  $1,479,788.03  $0.32  $6,346 
10
Omission of Drugs from the FUL List in 2001
  OEI-03-02-00670  A P P E N D I XA   
Total Medicaid  Potential Federal  Potential 
Drug Product  Reimbursement  Upper Limit  Savings 
HC/Neo Sulf/Polymyx 
1%-0.35%-10000 U/mL, Solution-Otic, 10 ml  $4,010,585.08  $1.53  $1,061,891 
1%-0.35%-10000 U/mL, Suspension-Otic, 10 ml  $6,794,382.04  $1.53  $1,806,367 
Indomethacin 
25 mg, Capsule  $234,076.01  $0.05  $23,200 
50 mg, Capsule  $214,407.05  $0.08  $2,334 
75 mg, Extended Release Capsule  $1,152,338.18  $0.69  $316,656 
Ipratropium Bromide 
0.02%, Solution, 2.5 ml3  $65,156,902.28  $0.34  $19,945,230 
Methadone HCL 
10 mg/mL, Solution, 946 ml  $70,613.56  $0.10  $19,778 
40 mg, Tablet  $301,985.47  $0.37  $64 
Methylphenidate HCl 
20 mg, Extended Release Tablet  $7,440,180.34  $1.06  $141 
Morphine Sulfate 
15 mg, Extended Release Tablet  $1,691,463.24  $0.80  $5,161 
Phentermine HCl 
30 mg, Capsule  $136,369.61  $0.18  $104,872
37.5 mg, Capsule  $1,993.44  $0.58  $947 
37.5 mg, Tablet  $199,607.09  $0.30  $149,489 
Sotalol HCL 
80 mg, Tablet  $6,536,421.53  $0.39  $4,947,453
120 mg, Tablet  $1,063,691.05  $0.54  $785,364 
160 mg, Tablet  $559,271.45  $0.67  $406,557 
240 mg, Tablet  $97,550.50  $0.94  $72,637 
Timolol Maleate 
0.25%, Gel Forming Solution, 5 ml  $268,795.65  $4.62  $1 
0.5%, Gel Forming Solution, 5ml  $5,062,860.34  $5.50  $242 
Warfarin 
2.5 mg, Tablet  $3,601,587.06  $0.58  $1,391
3 mg, Tablet  $2,213,985.36  $0.58  $4,462 
4 mg, Tablet  $2,144,529.40  $0.59  $1,741 
6 mg, Tablet  $735,396.70  $0.84  $89 
7.5 mg, Tablet  $1,071,049.80  $0.86  $87 
TOTAL  $410,935,004.45  $123,099,389 
1 Albuterol aerosol was added to the Federal Upper Limit list on March 11, 2003.

2 Aspirin/Butalbital/Caffeine tablets were added to the Federal Upper Limit list on November 2, 2003.

3 
Ipratropium bromide solution and enalapril maleate tablets were added to the Federal Upper Limit list on August 24, 

2003.

11
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  A P P E N D I XB   
Centers for Medicare & Medicaid Servicess Comments

12
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  A P P E N D I XB   
13
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  A P P E N D I XB   
14
Omission of Drugs from the FUL List in 2001   OEI-03-02-00670  A C K N O W L E D G M E N T S  
This report was prepared under the direction of Robert A. Vito, Regional Inspector General for Evaluation 
and Inspections in Philadelphia, and Linda M. Ragone, Deputy Regional Inspector General. Other 
principal Office of Evaluation and Inspections staff who contributed include: 
David Tawes, Team Leader  Linda Frisch, Program Specialist 
Tanaz Dutia, Program Analyst 
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Omission of Drugs from the FUL List in 2001   OEI-03-02-00670