Report Template Update  = 04-30-05_rev.13  
Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

A C A
OMPARISON OF  VERAGE 

S P W
ALES  RICES TO  IDELY 

A M P : 

VAILABLE  ARKET  RICES
F Q 2005 

OURTH  UARTER 
Daniel R. Levinson

Inspector General 

June 2006 

OEI-03-05-00430
 Report Template Update  = 04-30-05_rev.13  
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 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.  These assessments help to 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.  Specifically, these evaluations focus on preventing fraud, waste, or 
abuse and promoting economy, efficiency, and effectiveness in departmental programs.  
To promote impact, the reports also present practical recommendations for improving 
program operations. 
Office of Investigations 
The 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. OCIG imposes program exclusions and civil 
monetary penalties on health care providers and litigates those actions within HHS. 
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.  Report Template Update  = 04-30-05_rev.13 
  E X E C U T I V E   S U M M A R Y  

OBJECTIVE 
To determine whether the volume-weighted average sales prices (ASP) 
for a select group of Medicare Part B prescription drugs exceed their 
widely available market prices by at least 5 percent. 
BACKGROUND 
The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) established a new prescription drug benefit available to 
all Medicare beneficiaries under Medicare Part D.  However, a limited 
number of outpatient prescription drugs are still covered under 
Medicare Part B. These include injectable drugs administered by a 
physician; certain self-administered drugs, such as oral anticancer 
drugs and immunosuppressive drugs; drugs used in conjunction with 
durable medical equipment; and some vaccines. 
Expenditures for Part B drugs totaled more than $9 billion in calendar 
year 2005. Although Medicare covers more than 500 outpatient 
prescription procedure codes, the majority of spending for Part B drugs 
is concentrated on a relatively small subset of those codes. 
Medicares reimbursement amount for covered outpatient drugs is 
generally equal to 106 percent of the volume-weighted ASP.  The 
Centers for Medicare & Medicaid Services (CMS) uses ASP information 
submitted by manufacturers for each drug to calculate a volume-
weighted ASP for each covered procedure code. The MMA defines ASP 
as a manufacturers sales of a drug to all nonexempt 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 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 paid under the Medicaid 
drug rebate program. 
Sections 1847A(d)(1) and 1847A(d)(2)(A) of the Social Security Act (the 
Act) mandate that the Office of Inspector General (OIG) conduct surveys 
to determine widely available market prices and compare ASPs with 
these widely available market prices. Section 1847A(d)(5)(A) 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.  Pursuant to Section 1847A(d)(3)(C), if OIG determines 
that the ASP for a drug exceeds the widely available market prices by 
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E X E C U T I V E   S U M M A R Y  
5 percent and so informs the Secretary of the Department of Health and 
Human Services, the Secretary shall substitute the payment amount for 
that drug with the lesser of the widely available market price, or 
103 percent of the average manufacturer price (AMP) as reported for 
Medicaid drug rebate purposes.    
We selected a sample of procedure codes based on the results of a 
September 2005 OIG report that calculated physicians estimated 
purchase prices for oncology drugs. For the nine procedure codes in our 
sample, we compared second-quarter 2005 volume-weighted ASPs (the 
basis of fourth-quarter 2005 Medicare reimbursement amounts) to 
fourth-quarter 2005 widely available market prices, and identified codes 
for which the ASP exceeded the widely available market price by at 
least 5 percent. We estimated the amount that Medicare would save by 
lowering reimbursement to the widely available market price for any 
procedure codes that met or exceeded the 5-percent threshold. 
FINDINGS 
For 5 of the 9 procedure codes under review, the volume-weighted 
ASP exceeded the widely available market price by at least   
5 percent.   Five of the nine procedure codes included in our study met 
or surpassed the 5-percent threshold defined by the Act. For these 5 
codes, the difference between the ASPs and the widely available market 
prices calculated by OIG ranged from 17 to 185 percent.  We estimate 
that Medicare expenditures would be reduced by as much as $67 million 
in 2006 if reimbursement amounts were lowered to the widely available 
market price for these 5 codes. 
The widely available market prices for these drugs may be even lower 
than the amounts we found, as all five specialty distributors offered 
price discounts to physician customers that were not reflected in our 
calculation.  We did not take discounts into account when determining 
widely available market prices because these discounts were not 
routinely available to all physician customers. 
The most common type of price discount offered to physician customers 
was a percentage off the list or net price when a customer pays his/her 
balance within a certain time period (i.e., a prompt pay discount). In 
general, the more quickly payment is made, the higher the discount the 
customer receives.  Three of the five companies that responded to our 
request offered this type of incentive, with percentage discounts ranging 
from 1 to 3 percent, depending on the time of payment.  Anywhere from 
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E X E C U T I V E   S U M M A R Y  
10 to 90 percent of physician customers of these companies take 
advantage of prompt pay discounts.  A fourth company offered a prompt 
pay discount for only one of the drugs it sold.  This discount ranged from 
1 to 4 percent. 
In addition, companies also offered other types of discounts to group 
purchasing organizations and members of State oncology associations. 
SUMMARY 
Section 1847A(d)(2)(A) of the Act mandates that OIG perform 
comparisons between ASPs and widely available market prices to 
identify drugs for which ASP exceeds widely available market prices by 
5 percent.  This study is the first of these comparisons.  Based on our 
analysis, we have identified five procedure codes that met the criterion 
for a price adjustment. Pursuant to the Act, the Secretary shall reduce 
the reimbursement for these 5 codes to the lesser of the widely available 
market price, or 103 percent of the AMP.  We estimate that lowering the 
reimbursement to the widely available market price would reduce 
Medicare expenditures by as much as $67 million in 2006. If 
103 percent of AMP is lower than the widely available market price for 
any of these 5 codes, then Medicare expenditures would be reduced even 
further. 
Agency Comments and Office of Inspector General Response 
CMS shares OIGs concern that Medicare pay appropriately for Part B 
drugs, and states that our findings are helpful to its ongoing efforts to 
enhance implementation of the ASP methodology.  However, CMS notes 
that because OIGs analysis focuses on fourth-quarter 2005 
reimbursement amounts, the report does not reflect the downward 
trend in drug prices and Medicare reimbursement that has occurred for 
some drugs since our analysis.  CMS believes that Medicare savings 
would be substantially less than the amount estimated in the report. 
Based on CMSs comments, it is unclear what, if any, specific steps the 
agency plans to take to further reduce Medicare reimbursement 
amounts for the drugs identified in this report.  OIG recognizes the fact 
that the ASPs and the resulting Medicare reimbursement amounts for 
some of the drugs in our review have decreased since our analysis was 
completed.  However, even with these recent reductions, widely 
available market prices for 4 out of the 5 procedure codes still meet the 
5-percent threshold when compared to fourth-quarter 2005 ASPs (the 
basis of second-quarter 2006 reimbursement amounts).  
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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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10

Comparing Average Sales Price to Widely Available Market
Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  10

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12

  AgencyComments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  12

Office of Inspector General Response. . . . . . . . . . . . . . . . . . . . . . .  13

APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  14

A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
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  I N T R O D U C T I O N  

OBJECTIVE 
To determine whether the volume-weighted average sales prices (ASP) 
for a select group of Medicare Part B prescription drugs exceed their 
widely available market prices by at least 5 percent. 
BACKGROUND 
Medicare Coverage of Prescription Drugs 
The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) established a new prescription drug benefit available to 
all Medicare beneficiaries under Medicare Part D.  However, a limited 
number of outpatient prescription drugs are still covered under 
Medicare Part B. These include injectable drugs administered by a 
physician; certain self-administered drugs, such as oral anticancer 
drugs and immunosuppressive drugs; drugs used in conjunction with 
durable medical equipment; and some vaccines. 
Part B claims for most prescription drugs are processed and paid for by 
carriers. Claims for drugs that are used with medical equipment are 
typically processed and paid by one of four durable medical equipment 
regional carriers (DMERCs).  To obtain Medicare reimbursement for 
covered outpatient prescription drugs, physicians and suppliers submit 
claims using procedure codes.  Procedure codes define the type of drug 
and, in most cases, a dosage amount.  In contrast, manufacturers and 
distributors identify prescription drugs using an 11-digit National Drug 
Code (NDC) that indicates the manufacturer of the drug, the product 
dosage form, and the package size. One or more NDCs may meet the 
definition of a particular procedure code. 
Medicare Part B Payments for Prescription Drugs 
Expenditures for Part B drugs totaled over $9 billion in calendar year 
2005. Although Medicare covers more than 500 outpatient prescription 
drug procedure codes, the majority of spending for Part B drugs is 
concentrated on a relatively small subset of those codes. 
Medicare Drug Reimbursement Methodologies 
Reimbursement methodologies prior to and during 2004. Prior to 2004, 
Medicare Part B reimbursed covered drugs based on the lower of either 
the billed amount or 95 percent of the average wholesale price (AWP) as 
published in national pricing compendia such as the Red Book.  
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However, numerous reports by the Office of Inspector General (OIG)1 
and the Government Accountability Office (GAO)2 indicated that 
Medicare reimbursement amounts were significantly higher than the 
prices that drug manufacturers, wholesalers, and other similar entities 
actually charge the physicians and suppliers who purchase these drugs. 
The MMA made significant changes to the way Medicare Part B 
reimburses for covered drugs.  The MMA specified that the 
reimbursement rate for most outpatient prescription drugs furnished on 
or after January 1, 2004, must be set at 85 percent of the AWP until a 
new methodology could be implemented in 2005.  
Current reimbursement methodology. In 2005, Medicare began paying for 
most Part B drugs using an entirely new methodology based on the ASP 
rather than the AWP.  The MMA defines ASP as a manufacturers sales 
of a drug to all nonexempt 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 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 paid under the Medicaid drug rebate program.  Sales that 
are nominal in amount are exempted from the ASP calculation, as are 
sales excluded from the determination of best price for Medicaid drug 
rebate purposes, which is the lowest price paid by any purchaser with 
certain exceptions. 
Manufacturers must provide the Centers for Medicare & Medicaid 
Services (CMS) with the ASP and volume of sales for each NDC on a 
quarterly basis, with submissions due 30 days after the close of the 
quarter. Manufacturers were required to submit their initial quarterly 
ASP data by April 30, 2004.  If ASPs were not available during the 
initial quarter, manufacturers were required to report the wholesale 
acquisition cost (WAC) of the drug, which is defined in section 
1847A(c)(6) of the Social Security Act (the Act) to be the manufacturers 
list price to wholesalers or direct purchasers in the United States, 
excluding price concessions as reported in publications of pricing data.   
1 For example, see Excessive Medicare Reimbursement for Ipratropium Bromide,    
OEI-03-01-00411, and Medicare Reimbursement of Prescription Drugs, OEI-03-00-00310. 
2 For example, see Medicare: Payments for Covered Outpatient Exceed Providers 
Costs, GAO-01-1118, and Medicare Physician Fee Schedule:  Practice Expense Payments 
to Oncologists Indicate Need for Overall Refinements, GAO-02-53. 
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Given that Medicare reimbursement for outpatient drugs is based on 
procedure codes rather than NDCs, and that more than one NDC may 
meet the definition of a particular procedure code, CMS has developed a 
file that crosswalks manufacturers NDCs to procedure codes. CMS 
uses this crosswalk information to help calculate volume-weighted ASPs 
for covered procedure codes. 
As set forth in Section 1847A(b) of the Act, as of January 1, 2005, 
Medicares allowance for covered outpatient drugs became equal to 
106 percent of one of the following: 
o If a drug is available only in brand form (i.e., is a single-source 
drug), the lesser of either the volume-weighted ASPs for that drug 
or the volume-weighted WACs for that drug; or 
o If a drug is available in both brand and generic forms (i.e., is a 
multiple-source drug), the volume-weighted average of the ASPs 
reported for that drug. 
Second-quarter 2005 ASP submissions from manufacturers serve as 
the basis for fourth-quarter 2005 Medicare allowances for most 
covered procedure codes. 
Collection of Widely Available Market Prices 
Sections 1847A(d)(1) and 1847A(d)(2)(A) of the Act mandate that OIG 
conduct surveys to determine widely available market prices and 
compare ASPs with these widely available market prices. Section 
1847A(d)(5)(A) 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. Pursuant to section 
1847A(d)(5)(b) of the Act, OIG should consider information from one or 
more of the following sources: 
o Manufacturers 
o Wholesalers 
o Distributors 
o Physician supply houses 
o Specialty pharmacies 
o Group purchasing arrangements 
o Surveys of physicians 
o Surveys of suppliers 
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o Insurers 
o Private health plans 
If OIG determines that the ASP for a drug exceeds widely available 
market prices by 5 percent, OIG shall inform the Secretary of the 
Department of Health and Human Services (Secretary).  Under Section 
1847A(d)(3)(C): 
. . . the Secretary shall, effective as of the next quarter, substitute 
for the amount of payment otherwise determined under this 
section for such drug or biological the lesser of 
(i) the widely available market price for the drug or biological (if 
any); or 
(ii) 103 percent of the average manufacturer price.3 
Related Work by the Office of Inspector General 
The MMA mandated that OIG conduct a study on the ability of 
physician practices of different sizes in the specialties of hematology, 
hematology/oncology, and medical oncology to obtain drugs and 
biologicals at 106 percent of the ASP.  OIG completed this study in 
September 2005.4  OIGs review focused on purchases made by 
physician practices in these three specialties during the first quarter of 
2005 (January through March).  For the analysis, OIG selected 
40 procedure codes that represented more than 94 percent of the  
$4.5 billion in total 2004 Medicare expenditures for drugs administered 
by physician practices in the 3 mandated specialties.  These 40 codes 
accounted for 63 percent of the $9.4 billion in overall Part B spending 
for prescription drugs in 2004.  
OIG requested copies of all drug purchase invoices for the sampled 
practice/months5 from the sampled physician practices.  OIG calculated 
3 For covered outpatient drugs to be eligible for reimbursement by Medicaid, sections 
1927(a)(1) and 1927(b)(2) of the Act mandate that drug manufacturers enter into rebate 
agreements with the Secretary and pay quarterly rebates to State Medicaid agencies.  
Under section 1927(b)(3) and the rebate agreements, manufacturers must provide the 
Secretary with average manufacturer prices (AMP) for each of their NDCs on a quarterly 
basis. As defined in section 1927(k)(1) of the Act, the AMP is the average unit price paid to 
the manufacturer for the drug in the United States by wholesalers for drugs distributed to 
the retail pharmacy class of trade, minus customary prompt pay discounts. 
4 Adequacy of Medicare Part B Drug Reimbursement to Physician Practices for the 
Treatment of Cancer Patients, A-06-05-00024. 
5 A practice/month represents a month in the first quarter of 2005 in which a physician    
practice could have purchased a drug. 
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the average price for each practice/month (net of rebates and other price 
concessions, not including prompt-pay discounts) for drugs associated 
with each procedure code and used the calculated average prices for the 
estimates. OIG then compared these average price estimates with 
reimbursement amounts published by CMS on May 12, 2005, for the 
first quarter of 2005. 
OIG concluded that physician practices in the three specialties could 
generally purchase drugs for the treatment of cancer patients at less 
than the MMA-established reimbursement rates, i.e., 106 percent of the 
ASP. Overall, the report found that the average prices paid for drugs 
associated with 35 of the 396 procedure codes were less than the 
Medicare reimbursement amounts based on ASP. OIG also estimated 
that for 35 of the 39 codes, physician practices could purchase drugs at 
less than the reimbursement amounts for at least half of the 
practice/months. 
6 OIG did not receive enough responses for one code to reliably estimate the average 
purchase price or the number of practice/months for which physician practices were able to 
purchase drugs at less than the reimbursement amount. 
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METHODOLOGY 
We reviewed the estimated purchase prices for the 40 procedure codes 
identified in the September 2005 OIG report described earlier in this 
report. Additional analysis performed by our office found that second-
quarter 2005 volume-weighted ASPs exceeded the estimated purchase 
prices physicians paid for the drugs included in the study by at least 
5 percent for 9 of the 40 procedure codes. These nine procedure codes, 
listed in Table 1 below, form the sample of this current study. Table 1 
also shows the estimated purchase prices in the first quarter of 2005, 
the second-quarter 2005 volume-weighted ASPs, and the percentage 
difference between the two amounts for each of the nine procedure 
codes. We used second-quarter 2005 volume-weighted ASPs in this 
comparison to account for any changes in the volume-weighted ASPs 
after the publication of the earlier OIG report. 
Table 1. Nine Procedure Codes With Volume-Weighted ASPs That Exceeded Estimated 
Purchase Prices to Physicians by at Least 5 Percent 
Procedure Code  Short Description  Estimated  Second-Quarter  Percentage 
Purchase Price*  2005 ASP**  Difference 
J1100  Dexamethasone sodium phosphate  $0.05  $0.103  106.4% 
J9045  Carboplatin  $16.24  $33.259  104.8% 
J1260  Dolasetron mesylate  $4.04  $6.147  52.2% 
J9390  Vinorelbine tartrate  $35.71  $40.410  13.2% 
J9060  Cisplatin  $2.05  $2.239  9.2% 
J0640  Leucovorine calcium  $1.16  $1.248  7.6% 
J1441  Filgrastim G-CSF  $245.46  $263.743  7.4% 
J9370  Vincristine sulfate  $3.18  $3.399  6.9% 
J1626  Granisetron HCl  $6.39  $6.735  5.4% 
*Source: Office of Inspector General, Office of Audit Services, First Quarter 2005. 
**Source: CMSs crosswalk file updated December 8, 2005. 
Note: All figures in the table have been rounded. 
Average Sales Prices 
We contacted CMS to obtain volume-weighted ASPs for the nine 
procedure codes for the second quarter of 2005. These ASPs serve as 
the basis of fourth-quarter 2005 reimbursement amounts. In addition, 
we obtained the file that CMS uses to crosswalk NDCs to their 
corresponding procedure codes. Both the volume-weighted ASPs and 
the crosswalk file were updated as of December 8, 2005. As mentioned 
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I N T R O D U C T I O N  
previously, Medicare does not base reimbursement for covered drugs on 
NDCs; instead, it uses procedure codes.  Therefore, CMS uses ASP 
information submitted by manufacturers for each NDC to calculate a 
volume-weighted ASP for each covered procedure code.  When 
calculating these volume-weighted ASPs, CMS only includes NDCs with 
ASP submissions that are deemed valid.  
To calculate the volume-weighted ASPs for procedure codes, CMS uses 
an equation that involves the following factors:  the ASP for the NDC as 
reported by the manufacturer, the volume of sales for the NDC as 
reported by the manufacturer, and the number of billing units in the 
NDC as determined by CMS.  The amount of the drug contained in an 
NDC may differ from the amount of the drug specified by the procedure 
code that providers use to bill Medicare.  Therefore, the number of 
billing units in an NDC describes the number of procedure code units 
that are in that NDC.  CMS calculates the number of billing units in 
each NDC when developing its crosswalk files.  We did not 
systematically verify the accuracy of the billing unit information.7 
Widely Available Market Prices 
Although the Act names numerous entities from which OIG may obtain 
data, we believed that it would be most effective to collect pricing 
information from the sources from which physicians were most likely to 
have purchased the drugs under review.   Based on information from 
the drug industry and our own analysis, we identified five specialty 
distributors that provide a majority of the oncology pharmaceuticals 
purchased by oncology practices:  Oncology Therapeutic Network, 
Oncology Supply, Cardinal Specialty Distribution, Priority Healthcare, 
and Florida Infusion.  We contacted each of these distributors by mail to 
request fourth-quarter 2005 prices for any NDCs that correspond to the 
nine procedure codes in our study. We asked the companies to include 
all prices charged to different types of customers (e.g., physicians, 
hospitals, pharmacies, etc.).  In addition, for each of the drugs, we asked 
7 In a recent OIG report entitled Calculation of Volume-Weighted Average Sales Price 
for Medicare Part B Prescription Drugs (OEI-03-05-00310), OIG stated that CMSs 
calculation of volume-weighted ASP is incorrect because CMS does not use billing units 
consistently throughout its equation.  As a result, many procedure codes have 
reimbursement amounts that are higher or lower than the amounts that would have been 
calculated if billing units were used consistently.  In the above-referenced report, OIG 
proposed an alternative methodology that we believe uses billing units correctly.  However, 
for the purposes of this study we used the volume-weighted ASPs that CMS calculates using 
its equation. 
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I N T R O D U C T I O N  
for a description of any types of discounts they offer to customers, the 
amounts of those discounts, and the percentage of customers that 
receive those discounts. 
All five companies responded to our request.  Companies may have had 
multiple sales prices for each NDC.  Two companies submitted an 
average of their selling prices for each NDC, weighted by the number of 
units sold at each price. Another company provided all of its prices for 
each NDC and the number of units sold at each price, allowing us to 
calculate our own weighted average.  The final two companies provided 
only their list prices for each NDC. For these two companies, to be 
conservative, we used the highest list prices for each NDC in our 
analysis. 
We only included sales prices to physicians in our analysis.  Although 
we asked the specialty distributors to provide information regarding 
discounts offered to physicians, we did not take these discounts into 
account when analyzing prices because these discounts were not 
routinely available to all physician customers. 
To ensure that the market prices would be comparable to the volume-
weighted ASP for the procedure code, it was necessary to divide the 
price per NDC by the number of billing units in that NDC as listed on 
CMSs crosswalk file. This price represented a price for the amount of 
drug defined by the procedure code. If a company submitted prices for 
NDCs that were not included on CMSs crosswalk file, we calculated the 
billing units by using data from manufacturers Web sites.  Our final 
step was to calculate a median price for each of the nine procedure 
codes.  For the purposes of this report, widely available market prices 
refer to the median market price we calculated for each of the nine 
procedure codes.8 
Comparing Widely Available Market Prices to Average Sales Prices 
We determined the percentage difference between the second-quarter 
2005 volume-weighted ASPs and the fourth-quarter 2005 widely 
available market prices for each of the nine procedure codes.  We 
determined the percentage difference in prices by subtracting the widely 
available market price from the volume-weighted ASP and then 
dividing this number by the widely available market price. We 
8 Given the available data, we believed that the median was the most appropriate 
measure of the amount a prudent physician would pay for the drug. 
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identified any procedure codes for which the volume-weighted ASP 
exceeded the widely available market price by 5 percent. 
Calculating Potential Medicare Savings 
For the procedure codes that met the 5-percent threshold, we estimated 
the monetary impact of lowering the reimbursement amount to the 
widely available market price as found in this report. We subtracted 
the widely available market price from the fourth-quarter 2005 
reimbursement amount for the procedure code (equal to 106 percent of 
the volume-weighted ASP). We then multiplied the difference by the 
number of services that were allowed by Medicare for each procedure 
code in 2005, as reported in CMSs Part B Extract and Summary 
System9. This estimate assumes that 2006 utilization for each 
procedure code will be similar to 2005 utilization and the volume-
weighted ASP for each procedure code will remain consistent 
throughout 2006. 
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. 
9 At the time of extraction, CMSs Part B Extract and Summary System data were 
90 percent complete for procedure codes processed by local carriers and DMERCs. 
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F I N D I N G S  
  F I N D I N G  

For 5 of the 9 procedure codes under review, the  Five of the nine procedure codes 
volume-weighted ASP exceeded the widely  included in our study met or 
surpassed the 5-percent threshold 
available market price by at least 5 percent 
specified in Section 1847A(d)(3)(B) 
of the Act.10  Pursuant to Section 
1847A(d)(3)(C), OIG shall notify the Secretary if the ASP for a 
particular drug exceeds the widely available market price by a 
threshold of 5 percent.  The difference between ASP and widely 
available market price calculated by OIG for these 5 procedure codes 
ranged from 17 to 185 percent.  A list of these five procedure codes is 
presented in the table below. 
Table 2.  Five Procedure Codes With Volume-Weighted ASPs That Exceeded Widely Available Market 
Prices by at Least 5 Percent 
Procedure Code  Short Description  Widely Available  Second-Quarter  Percentage 
Market Price*  2005 ASP**  Difference 
J9045  Carboplatin  $11.667  $33.259  185.1% 
J1100  Dexamethasone sodium phosphate  $0.062  $0.103  65.2% 
J1260  Dolasetron mesylate  $3.926  $6.147  56.6% 
J9390  Vinorelbine tartrate  $31.000  $40.410  30.4% 
J1626  Granisetron HCl  $5.738  $6.735  17.4% 
*Source:  Office of Inspector General, Office of Evaluation and Inspections, fourth quarter 2005. 
**Source:  CMSs crosswalk file updated December 8, 2005. 
Note:  All figures in the table have been rounded. 
The widely available market prices for these drugs may be even lower 
than the prices we found, as all five specialty distributors offered price 
discounts to physician customers that were not reflected in our 
calculation.  We did not take discounts into account when determining 
widely available market prices because these discounts were not 
routinely available to all physician customers. 
The most common type of price discount offered to physician customers 
was a percentage off the list or net price when a customer pays his/her 
balance within a certain time period (i.e., a prompt pay discount). 
10 For this report we compared fourth-quarter 2005 market prices to second-quarter 2005 
volume-weighted ASPs (the basis of fourth-quarter 2005 reimbursement amounts).  The 
same 5 procedure codes met the 5-percent threshold when we compared widely available 
market prices to third-quarter 2005 volume-weighted ASPs (the basis of first-quarter 2006 
reimbursement amounts). 
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F I N D I N G

Three of the five companies that responded to our request offered this 
type of incentive, with discounts ranging from 1 to 3 percent depending 
on the time of payment.  According to the companies, anywhere from 10 
to 90 percent of physician customers take advantage of prompt pay 
discounts.  A fourth company offered a prompt pay discount for only one 
of the drugs it sold.  This discount ranged from 1 to 4 percent. 
In addition to prompt pay discounts, one company offered a 2-percent 
discount for one drug to all physician customers at the time of purchase. 
This company also offers a retrospective rebate to group purchasing 
organizations (GPO). These rebates are paid retrospectively, 
approximately 30 days after the close of each quarter.  However, the 
company is not aware of what portion, if any, of the rebates is passed on 
to individual physicians.  Depending on the drug, these rebates ranged 
from 0.25 to 7.5 percent. 
Another company offered discounts to members of a GPO and to 
members of the State oncology association, which functions like a GPO. 
The discounts offered to members of the GPO and State oncology 
association were 2 and 0.25 percent, respectively. 
Lowering reimbursement amounts for these five codes to the widely 
available market price would reduce Medicare expenditures by $67 million in 
2006 
Section 1847A(d)(3)(C) of the Act states that OIG shall inform the 
Secretary if OIG finds that the ASP for a drug or biological exceeds such 
widely available market price for drugs by 5 percent.  If this criterion is 
met, the lesser of 103 percent of the AMP for the drug or the widely 
available market price for the drug shall be substituted for the ASP-
based payment amount.  In this study, we identified 5 codes that met or 
exceeded the 5-percent threshold specified in the Act.  Based on the 
number of allowed services in 2005, we estimate that Medicare 
expenditures would be reduced by $67 million in 2006 if reimbursement 
amounts for these five codes were lowered to the widely available 
market price.11  If 103 percent of AMP is lower than the widely available 
market price for any of these 5 codes, then Medicare expenditures would 
be reduced even further.12 
11 Medicare expenditures for these five codes totaled $315 million in 2005. 
12 Data needed to calculate fourth-quarter 2005 AMPs for the 5 codes were unavailable 
at the time of analysis. 
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  S U M M A R Y  

Section 1847A(d)(2)(A) of the Act mandates that OIG perform 
comparisons between ASP and widely available market prices to 
identify drugs for which ASP exceeds widely available market prices by 
5 percent.  This study is the first of these comparisons.  Based on our 
analysis, we have identified five procedure codes that met the criteria 
for a price adjustment. Pursuant to the Act, the Secretary shall reduce 
the reimbursement for these 5 codes to the lesser of the widely available 
market price or 103 percent of the AMP. We estimate that lowering the 
reimbursement to the widely available market price would reduce 
Medicare expenditures by as much as $67 million in 2006. If 
103 percent of AMP is lower than the widely available market price for 
any of these 5 codes, then Medicare expenditures would be reduced even 
further. 
AGENCY COMMENTS 
CMS shares OIGs concern that Medicare pay appropriately for Part B 
drugs, and states that our findings are helpful to its ongoing efforts to 
enhance implementation of the ASP methodology.  However, CMS notes 
that because OIGs analysis focuses on fourth-quarter 2005 
reimbursement amounts, the report does not reflect the downward 
trend in drug prices and Medicare reimbursement that has occurred for 
some drugs since our analysis.   
According to CMS, although drug prices appear to have stabilized over 
the last few quarters, prices for some drugs (particularly generics) 
continue to decline.  CMS specifically cites carboplatin (the drug for 
which OIG found the largest discrepancy between ASP and widely 
available market price) as a prime example of this downward trend. 
CMS concludes that based on the price reductions for carboplatin and 
other drugs since the time of our analysis, Medicare savings would be 
substantially less than the amount estimated in the report. 
The full text of CMSs comments can be found in Appendix A. 
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S U M M A R Y  
OFFICE OF INSPECTOR GENERAL RESPONSE 
OIG acknowledges CMSs efforts in reducing Medicare reimbursement 
for Part B drugs.  However, based on CMSs comments, it is unclear 
what, if any, specific steps the agency plans to take to further reduce 
Medicare reimbursement amounts for the drugs identified in this 
report.   
We recognize that the ASPs and the resulting Medicare reimbursement 
amounts for some of the drugs in our review have decreased since our 
analysis was completed.  However, even with these recent reductions, 
widely available market prices for 4 out of the 5 procedure codes still 
meet the 5-percent threshold when compared to fourth-quarter 2005 
ASPs (the basis of second-quarter 2006 reimbursement amounts).     
For example, CMS is correct that the ASP for carboplatin has declined 
substantially since the time of our analyis, from $33.26 in the second 
quarter of 2005 to $13.08 in the fourth quarter of that year.  Despite 
this signficant reduction, the ASP for carboplatin still exceeds the 
widely available market price by 12 percent.  Therefore, while the 
potential savings caused by any price reductions for carboplatin and the 
other drugs would now be lower than the amount calculated in our 
report, four of the five drug products still meet the criteria specified in 
MMA.   
 
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  A P P E N D I X ~ A  

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A P P E N D I X ~ A  
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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 Tawes, Director, Medicare and Medicaid 
Prescription Drug Unit.  Other principal Office of Evaluation and 
Inspections staff who contributed include: 
Tanaz Dutia, Project Leader 
Linda Boone Abbott, Program Specialist 
Tricia Davis, Director, Medicare and Medicaid Branch 
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