Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

M M
ONITORING  EDICARE 

P B D P : 

ART  RUG  RICES
A C A
OMPARISON OF  VERAGE 

S P A
ALES  RICES TO  VERAGE 

M P
ANUFACTURER  RICES

Daniel R. Levinson

Inspector General 

April 2006

OEI-03-04-00430
 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 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 the 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 OIGs 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.  I N T R O D U C T I O N
  E X E C U T I V E   S U M M A R Y  

OBJECTIVE 
To determine whether average sales prices (ASP) for individual 
Medicare Part B prescription drugs exceed average manufacturer prices 
(AMP) by at least 5 percent. 
BACKGROUND 
Expenditures for Medicare Part B drugs have tripled over the past 
several years, increasing from approximately $3.3 billion in 1998 to over 
$10 billion in 2004. In 2005, Medicare Part B began paying for most 
covered drugs using a new methodology based on ASPs.  Manufacturers 
report ASPs by national drug code (NDC) and must provide the Centers 
for Medicare & Medicaid Services (CMS) with the ASP and volume of 
sales for each of their NDCs on a quarterly basis.1 
Although manufacturers submit ASP data by NDCs, CMS does not 
reimburse Medicare providers for drugs using NDCs.  Instead, CMS 
uses Healthcare Common Procedure Coding System (HCPCS) codes.2 
More than one NDC may meet the definition of a particular HCPCS 
code; therefore, CMS uses NDC-level information submitted by the 
manufacturers to calculate an ASP for each covered HCPCS code. 
When CMS calculates payment amounts for HCPCS codes, it must 
weight ASPs at the NDC level by the amount of the drug sold during the 
quarter.  Under the ASP pricing methodology, Medicares allowance for 
most Part B drug codes is equal to 106 percent of the volume-weighted 
ASPs for those HCPCS codes. 
However, according to a recent Office of Inspector General (OIG) report 
entitled Calculation of Volume-Weighted Average Sales Price for 
Medicare Part B Prescription Drugs (OEI-03-05-00310), the way that 
CMS calculates a volume-weighted ASP is incorrect.  In that report, we 
proposed an alternate method for calculating a volume-weighted ASP  
and recommended that CMS adopt this alternate method for calculating 
volume-weighted ASP.  
1An NDC is an 11-digit identifier that indicates the manufacturer, the product dosage form, 
and the package size of a drug. 
2CMS established the HCPCS to provide a standardized coding system for describing the 
specific items and services provided in the delivery of health care.   
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  i  EE XX EE CC UU TT II VV EE    SS UU MM MM AA RR YY
Section 1847A(d)(2)(B) of the Social Security Act (the Act) mandates 
that OIG compare ASPs with AMPs.3 Pursuant to section 1847A(d)(3) 
of the Act, the Secretary of the Department of Health and Human 
Services may disregard the ASP for a drug or biological that exceeds the 
AMP for the product by at least 5 percent. 
For this inspection, we obtained CMSs volume-weighted ASPs for the 
first quarter of 2005, which it calculated based on data submitted by 
manufacturers for the third quarter of 2004. We also obtained AMP 
data from CMS from the third quarter of 2004. We used these AMP 
data to calculate volume-weighted AMPs using both CMSs and OIGs 
methods. Ultimately, we compared volume-weighted ASPs to volume-
weighted AMPs for 364 HCPCS codes, and identified codes for which 
the ASP exceeded the AMP by at least 5 percent according to either 
CMSs calculation or OIGs calculation. 
FINDING 
ASPs for certain HCPCS codes exceeded AMPs by at least 
5 percent; however, the HCPCS codes that met the threshold 
differed depending on the method used to calculate volume-
weighted ASP and AMP. Based on our analysis of data from the third 
quarter of 2004, a total of 51 HCPCS codes had an ASP that exceeded 
the AMP by at least 5 percent as a result of CMSs calculation. 
However, according to OIGs method for calculating volume-weighted 
ASPs and AMPs, only 38 HCPCS codes met the 5-percent threshold. 
For 34 HCPCS codes, the volume-weighted ASPs exceeded the volume-
weighted AMPs by at least 5 percent regardless of whether CMSs or 
OIGs calculation was used. An additional 4 HCPCS codes met the 
5-percent threshold using OIGs calculation but not CMSs calculation. 
Another 17 HCPCS codes met the 5-percent threshold using CMSs 
calculation but not OIGs calculation. 
SUMMARY 
For the purpose of monitoring new prices based on ASPs, sections 
1847A(d)(2)(B) and 1847A(d)(3) of the Act mandate that OIG perform 
comparisons between ASPs and AMPs to identify drugs for which the 
ASP exceeds the AMP by at least 5 percent. This review is the first of 
3CMS collects AMPs as part of its Medicaid rebate agreements with manufacturers and as 
required by section 1927 of the Act. 
OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  ii  E X E C U T I V E   S U M M A R Y  
such comparisons.  We found that certain HCPCS codes did, in fact, 
meet the 5-percent threshold specified in the Act.  However, the number 
of codes that met the threshold, and the monetary differences between 
ASPs and AMPs for those codes, depended on the method used to 
calculate volume-weighted ASPs and volume-weighted AMPs.  Although 
34 HCPCS codes met the 5-percent threshold regardless of whether 
CMSs or OIGs calculation was used, other codes only met the threshold 
using one calculation or the other. 
Pursuant to section 1847A(d)(3) of the Act, the Secretary has authority 
to lower the reimbursement amount for a drug with an ASP that 
exceeds the AMP by the 5-percent threshold.  Therefore, differences 
between the results of CMSs calculation and OIGs calculation could 
affect whether published reimbursement amounts for certain Medicare 
Part B drugs are adjusted.  This, in turn, affects manufacturers, 
providers, and Medicare beneficiaries.  It is therefore critical that CMS 
modify its calculation as soon as possible, both to ensure that 
reimbursement amounts are calculated correctly and to ensure that 
future comparisons between ASPs and AMPs yield the most meaningful 
results. 
AGENCY COMMENTS 
Overall, CMS indicated that the information in our report is helpful in 
its continuing efforts to monitor payment adequacy under the ASP 
methodology.  However, CMS noted that OIGs review was conducted 
using data submitted during the initial implementation phase of the 
ASP methodology.  According to CMS, much of the estimated savings 
identified in the report did not persist in subsequent quarters, and 
payment limits for many codes have since been revised.  
Although CMS acknowledges the Secretarys authority to adjust the 
ASP payment limits when certain conditions are met, it believes that 
other issues should be considered, including the timing and frequency of 
pricing comparisons, stabilization of ASP reporting, the effective date 
and duration of rate substitution, and the accuracy of the ASP and AMP 
data. 
OFFICE OF INSPECTOR GENERAL RESPONSE 
This report found that comparisons between ASPs and AMPs yield 
different results depending on the method used to calculate volume-
weighted ASPs and volume-weighted AMPs.  Although CMS indicated 
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  iii  E X E C U T I V E   S U M M A R Y  
that our report is helpful, CMSs comments on the draft report 
addressed neither the incorrect calculation nor the impact that it has on 
the comparison between ASPs and AMPs.  We continue to believe that 
CMS is calculating volume-weighted ASPs incorrectly, and that this 
incorrect calculation results in reimbursement amounts that are 
inaccurate and inconsistent with the ASP payment methodology set 
forth in section 1847A(b) of the Act. Furthermore, we believe that the 
incorrect calculation affects the results of mandated comparisons 
between ASPs and AMPs, and could continue to do so in the future. 
We acknowledge CMSs concern that our findings should be examined in 
light of other important considerations.  However, we are unsure of 
what, if any, specific steps CMS plans to take as a result of the report. 
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  iv    T A B L E   O F   C O N T E N T S  

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

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

FINDING ......................................................... 8 

Results of ComparisonsB  etween ASPs and AMPs  . . . . . . . . . . . . .  8

SUMMARY ...................................................... 11 

Agency Comments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  11

Office of Inspector General Response  . . . . . . . . . . . . . . . . . . . . . .  12

APPENDIXES .................................................. 13 

A: 	Equations Used by CMS and OIG to Calculate Volume-

Weighted ASPs and AMPs . . . . . . . . . . . . . . . . . . . . . . . . . . . .  13

B: 	Thirty-four HCPCS Codes With an ASP That Exceeded 

the AMP by at Least 5 Percent Regardless of Whether

CMSs or OIGs Calculation WasUsed. . . . . . . . . . . . . . . . . . .  14

C: 	Four HCPCS Codes With an ASP That Exceeded the AMP   

by at Least 5 Percent Using OIGs Calculation but not 

CMSs Calculation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15

D: 	Seventeen HCPCS Codes With an ASP That Exceeded  

the AMP by at Least 5 Percent Using CMSs Calculation  

but not OIGs Calculation. . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16

E:	  Centers for Medicare&   Medicaid Services Comments. . . . . .  17

ACKNOWLEDGMENTS ......................................... 19
   I N T R O D U C T I O N  

OBJECTIVE 
To determine whether average sales prices (ASP) for individual 
Medicare Part B prescription drugs exceed average manufacturer prices 
(AMP) by at least 5 percent. 
BACKGROUND 
Medicare Part B Coverage of Prescription Drugs 
Medicare Part B covers only a limited number of outpatient prescription 
drugs. Covered drugs include injectable drugs administered by a 
physician; certain self-administered drugs, such as oral anticancer 
drugs and immunosuppressive drugs; drugs used in conjunction with 
durable medical equipment; and some vaccines. 
Medicare Part B Payments for Prescription Drugs 
The Centers for Medicare & Medicaid Services (CMS) contracts with 
private companies, known as carriers, to process and pay Medicare Part 
B claims, including those for prescription drugs.  Claims for drugs that 
are used with medical equipment are typically processed by one of four 
durable medical equipment regional carriers (DMERC).  Claims for 
other types of covered drugs are processed by local carriers. To obtain 
reimbursement for covered outpatient prescription drugs, physicians 
and suppliers submit claims using procedure codes that are associated 
with covered drugs.  CMS established the Healthcare Common 
Procedure Coding System (HCPCS) to provide a standardized coding 
system for describing the specific items and services provided in the 
delivery of health care.  Each HCPCS code for outpatient prescription 
drugs defines the drug name and dosage size but does not specify 
manufacturer information or package size data. 
Expenditures for Part B drugs have tripled over the past several years, 
increasing from approximately $3.3 billion in 1998 to over $10 billion in 
2004. Although Medicare covers over 550 outpatient prescription drug 
HCPCS codes, the majority of spending for Part B drugs is concentrated 
on a relatively small subset of those codes.  In 2004, 43 codes 
represented 90 percent of the expenditures for Part B drugs, with only  
9 of these drugs representing half of the total Part B drug expenditures. 
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  1  I N T R O D U C T I O N  
Reimbursement Methodology for Part B Drugs and Biologicals in 2005 
In 2005, Medicare began paying for most drugs using an entirely new 
methodology based on ASPs.1  Section 1847A(c) of the Social Security 
Act (the Act), as added by the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA), Public Law 108-
173, defines an 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 is net of any price concessions such as volume 
discounts, prompt pay discounts, and cash discounts; free goods 
contingent on purchase requirements; chargebacks; and rebates other 
than those obtained through 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 in the 
Medicaid drug rebate program.2,3 
Manufacturers report ASPs by national drug codes (NDC), which are 
11-digit identifiers that indicate 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 
quarterly basis, with submissions due 30 days after the close of each 
quarter.4 
Given that Medicare reimbursement for outpatient drugs is based on 
HCPCS codes rather than NDCs, and that more than one NDC may 
meet the definition of a particular HCPCS code, CMS has developed a 
file that crosswalks manufacturers NDCs to HCPCS codes.  CMS uses 
information in this crosswalk to calculate volume-weighted ASPs for 
covered HCPCS codes. 
Third-quarter 2004 ASP submissions from manufacturers served as the 
basis for first-quarter 2005 Medicare allowances for most covered drug 
codes.  Under the ASP pricing methodology, the Medicare allowance for 
1For 2004, the reimbursement amount for most covered drugs was based on 85 percent of 
the average wholesale price (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. 
2Pursuant 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. 
3Section 1847A(c) of the Act.  
4Section 1927(b)(3) of the Act.  
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  2  IIII NNNN TTTT RRRR OOOO DDDD UUUU CCCC TTTT IIII OOOO NNNN
most Part B drugs is equal to 106 percent of the ASP for the HCPCS 
code. Medicare beneficiaries are responsible for 20 percent of this 
amount in the form of coinsurance. 
The Medicaid Drug Rebate Program and AMPs 
In order for Federal payment to be available for outpatient drugs 
covered under Medicaid, sections 1927(a)(1) and (b)(1) of the Act 
mandate that drug manufacturers enter into rebate agreements with 
the Secretary of the Department of Health and Human Services 
(Secretary) and pay quarterly rebates to State Medicaid agencies. 
Under these rebate agreements, and pursuant to section 1927(b)(3) of 
the Act, manufacturers must provide CMS with the 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 by 
wholesalers in the United States for drugs distributed to the retail 
pharmacy class of trade, minus customary prompt pay discounts. The 
AMP is calculated as a weighted average of prices for all of a 
manufacturers package sizes of a drug sold during a given quarter, and 
is reported for the lowest identifiable quantity of the drug (e.g., 1 
milligram, 1 milliliter, one tablet, one capsule). 
Office of Inspector Generals Monitoring of ASPs and AMPs 
Section 1847A(d)(2)(B) of the Act mandates that the Office of Inspector 
General (OIG) compare ASPs with AMPs. If OIG determines that the 
ASP for a drug exceeds the AMP by at least 5 percent, the Secretary has 
authority to substitute the payment amount for that drug product with 
103 percent of the AMP for the drug.5 
Related Work by the Office of Inspector General 
Section 303(c)(3) of MMA also mandated that OIG determine whether 
physician practices in the specialties of hematology, hematology/ 
oncology, and medical oncology could obtain drugs and biologicals for 
the treatment of cancer patients at 106 percent of the ASP. OIG 
completed this study in September 2005 and issued the report, 
Adequacy of Medicare Part B Drug Reimbursement to Physician 
Practices for the Treatment of Cancer Patients, (A-06-05-00024). 
According to this report, physician practices in the specialties of 
hematology, hematology/oncology, and medical oncology could generally 
purchase drugs for the treatment of cancer patients at or below the 
reimbursement rate established under the ASP payment methodology. 
5Section 1847A(d)(3) of the Act. 
OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  3  II NN TT RR OO DD UU CC TT II OO NN
Recently, OIG issued another report discussing the method CMS uses to 
calculate a reimbursement amount for a HCPCS code. This report will 
be described in greater detail in the Methodology. 
METHODOLOGY 
We obtained CMSs volume-weighted ASPs for the first quarter of 2005, 
which it calculated based on NDC-level data submitted by 
manufacturers for the third quarter of 2004. In addition, we obtained 
the file that CMS used to crosswalk NDCs to their corresponding 
HCPCS codes. Both the volume-weighted ASPs and the crosswalk file 
were updated as of January 13, 2005. We also obtained AMP data from 
CMS for the third quarter of 2004. 
Calculation of Volume-Weighted Average Sales Price 
As mentioned previously, Medicare does not base reimbursement for 
covered drugs on NDCs; instead, it uses HCPCS codes. Therefore, CMS 
uses the ASP information submitted by manufacturers for each NDC to 
calculate a volume-weighted ASP for each covered HCPCS code. When 
calculating these volume-weighted ASPs, CMS only includes NDCs with 
ASP submissions that are deemed valid. We did not examine the NDCs 
that CMS opted to exclude from its calculation, nor did we verify the 
accuracy of CMSs crosswalk files. 
As of January 13, 2005, CMS had established prices for 459 HCPCS 
codes based on the ASP reimbursement methodology. This total 
excludes HCPCS code J3490, which is defined as unclassified drugs. 
Reimbursement amounts for the 459 HCPCS codes were based on ASP 
data for 2,399 NDCs. 
To calculate the volume-weighted ASPs for these 459 codes, CMS used 
an equation that involves the following variables: 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 HCPCS 
code that providers use to bill Medicare. Therefore, the number of 
billing units in an NDC describes the number of HCPCS code units that 
are in that NDC. For instance, an NDC may contain a total of 
10 milliliters of Drug A, but the corresponding HCPCS code may be 
defined as only 5 milliliters of Drug A. In this case, there are two billing 
units in the NDC. CMS calculates the number of billing units in each 
11-digit NDC when developing its crosswalk files. A more detailed 
OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  4  I N T R O D U C T I O N  
description of CMSs method of calculating volume-weighted ASP is 
provided in Appendix A. 
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 method for calculating volume-
weighted ASP is incorrect because CMS does not use billing units 
consistently throughout its equation.  As a result, many HCPCS codes 
have a reimbursement amount that is higher or lower than the amount 
that would have been calculated if billing units were used consistently. 
In the above-referenced report, OIG proposed an alternate equation that 
we believe uses billing units correctly.  We used this equation to 
calculate an alternate volume-weighted ASP for each of the 459 HCPCS 
codes.  To determine what the Medicare reimbursement amount would 
be according to OIGs calculation, we then multiplied OIGs volume-
weighted ASPs for the 459 codes by 1.06.  A more detailed description of 
OIGs calculation is presented in Appendix A. 
Analysis of Average Manufacturer Price Data 
An AMP is reported for the lowest identifiable quantity of the drug 
contained in the NDC (e.g., 1 milligram, 1 milliliter, one tablet, one 
capsule). In contrast, an ASP is reported for the entire amount of the 
drug contained in the NDC (e.g., for 50 milliliters, for 100 tablets).  To 
ensure that the AMP would be comparable to the ASP, it was necessary 
to convert the AMP for each NDC so that it represented the total 
amount of the drug contained in that NDC.   
In making these conversions, we examined AMPs only for those 
2,399 NDCs that CMS used in its calculation of volume-weighted ASP 
for the 459 HCPCS codes.  If AMP data were not available for one or 
more of these NDCs, we excluded the corresponding HCPCS code from 
our analysis. Ultimately, we excluded 80 HCPCS codes (718 NDCs).  
The other 379 HCPCS codes had AMP data for every NDC that CMS 
used in its calculation of volume-weighted ASPs.  These 379 HCPCS 
codes represented 1,681 NDCs.   
We then multiplied the AMPs for these 1,681 NDCs by the total amount 
of the drug contained in each NDC, as identified by sources such as the 
CMS crosswalk file, the Red Book, manufacturer Web sites, and the 
Food and Drug Administrations NDC directory.  We will refer to the 
resulting amounts as converted AMPs.  For 27 NDCs, we could not 
successfully identify the amount of the drug reflected by the ASP and 
therefore could not calculate a converted AMP. These 27 NDCs were 
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  5  II NN TT RR OO DD UU CC TT II OO NN
crosswalked to 15 HCPCS codes. We did not include these 15 HCPCS 
codes (140 NDCs) in our final analysis. 
Using the converted AMPs for the remaining 1,541 NDCs, we then 
calculated two different volume-weighted AMPs for each of the codes: 
one using the method that CMS used to calculate a volume-weighted 
ASP, and the other using the method that OIG used to calculate a 
volume-weighted ASP. We calculated volume-weighted AMPs for a 
total of 364 HCPCS codes. We did not verify the accuracy of 
manufacturer-reported ASP and AMP data. 
Comparing Volume-Weighted ASPs to Volume-Weighted AMPs 
For each of the 364 HCPCS codes included in our study, we then 
compared the volume-weighted ASPs and AMPs that resulted from 
CMSs calculation. We also compared the volume-weighted ASPs and 
AMPs that resulted from OIGs calculation. We identified codes with an 
ASP that exceeded the AMP by at least 5 percent according to either 
CMSs or OIGs calculation. 
For those HCPCS codes that met or exceeded the 5-percent threshold, 
we conducted a review of the associated NDCs to verify the accuracy of 
the billing units information. According to our review, eight of the 
codes that met the 5-percent threshold had associated NDCs with 
potentially inaccurate billing units.6 Given that volume-weighted ASPs 
and AMPs were calculated using this billing unit information, we could 
not be certain that the results for these eight codes were correct. 
Therefore, we did not include these eight codes in our findings. 
For the remaining HCPCS codes, which both met the 5-percent 
threshold and had NDCs with accurate billing units, we then estimated 
the monetary impact of lowering reimbursement to 103 percent of the 
AMP.7 For each of the HCPCS codes that met the 5-percent threshold 
using CMSs equation, we calculated 103 percent of CMSs volume-
weighted AMP and subtracted this amount from the first-quarter 2005 
reimbursement amount for the HCPCS code, which is equal to 
106 percent of CMSs volume-weighted ASP. For each of the codes that 
met the 5-percent threshold using OIGs calculation, we subtracted 
6NDCs for these eight codes had billing unit information in CMSs crosswalk file that may 
not have accurately reflected the number of billing units actually contained in the NDC. 
7Pursuant to section 1847A(d)(3) of the Act, if OIG determines that the ASP for a drug 
exceeds the AMP by a threshold of 5 percent, the Secretary has authority to substitute the 
ASP-based payment with 103 percent of AMP. 
OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  6  I N T R O D U C T I O N  
103 percent of OIGs volume-weighted AMP from the alternate 
reimbursement amount for the HCPCS code (106 percent of OIGs 
volume-weighted ASP).  We then multiplied the differences by the 
number of services that were allowed by Medicare for each HCPCS code 
in 2004, as reported in CMSs Part B Extract and Summary System 
(BESS).8  This estimate assumes that the volume-weighted ASP for 
each HCPCS code will remain consistent throughout the year 2005.  
However, the ASP amounts submitted by manufacturers may actually 
vary from quarter to quarter. 
To determine how the differences between OIGs and CMSs 
calculations might affect the results of the mandated comparison 
between ASPs and AMPs, we then compared the HCPCS codes that met 
the 5-percent threshold using CMSs calculation to the codes that met 
the threshold using OIGs calculation.   
This study was conducted in accordance with the Quality Standards 
for Inspections issued by the President=s Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
8At the time of extraction, the BESS data were 96 percent complete for HCPCS codes 
processed by local carriers and 91 percent complete for HCPCS codes processed by the 
DMERCs. 
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  7    F I N D I N G  
ASPs for certain HCPCS codes exceeded AMPs by  Pursuant to sections 
at least 5 percent; however, the HCPCS codes that  1847A(d)(2)(B) and 
1847A(d)(3) of the Act, OIG 
met the threshold differed depending on the method 
must compare ASPs to AMPs 
used to calculate volume-weighted ASPs and AMPs 
and notify the Secretary if the 
ASP for a particular drug exceeds the AMP by a threshold of 5 percent.  
However, the HCPCS codes that meet this threshold may differ 
depending on whether CMSs method or OIGs method is used to 
calculate volume-weighted ASPs and volume-weighted AMPs.  
According to CMSs calculation, a total of 51 HCPCS codes had an ASP 
that exceeded the AMP by at least 5 percent in the third quarter of 
2004. According to OIGs calculation, only 38 HCPCS codes met the  
5-percent threshold. 
The difference between CMSs calculation and OIGs calculation could 
also affect whether published reimbursement amounts for Medicare 
Part B drugs are adjusted.  Sections 1847A(d)(3)(A) and (B) of the Act 
grant the Secretary authority to disregard the ASP pricing methodology 
for a drug with an ASP that exceeds the AMP by at least 5 percent.  If 
that criterion is met, the Secretary has authority to lower the 
reimbursement amount for the drug to 103 percent of the AMP.9 If 
reimbursement amounts for the 51 HCPCS codes identified by CMSs 
calculation had been lowered to 103 percent of the AMP, Medicare 
allowances would have been reduced by an estimated $164 million in 
2005. Although fewer HCPCS codes met the 5-percent threshold using 
OIGs calculation, lowering the reimbursement amounts for those 
38 codes would have actually reduced Medicare allowances by a greater 
amountan estimated $172 million in 2005.   
As shown in Table 1, some HCPCS codes met the 5-percent threshold 
regardless of whether CMSs or OIGs calculation was used. Other 
codes only met the 5-percent threshold according to one calculation or 
the other. 
9Section 1847A(d)(3)(C) of the Act. 
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  8  F I N D I N G  
Table 1:  Results of the Comparison Between ASPs and AMPs Using CMSs and 
OIGs Calculations   
Number of  Reduction in 
HCPCS  Reimbursement 
Codes  (in millions) 
Met 5-percent threshold According to CMSs Calculation   51  $164 
Met Threshold According to Both CMSs and OIGs Calculations  34  $161 
Met Threshold According to CMSs Calculation Only  17  $3 
Met 5-percent threshold According to OIGs Calculation  38  $172 
Met Threshold According to Both CMSs and OIGs Calculations  34  $169 
Met Threshold According to OIGs Calculation Only  4  $3 
For 34 HCPCS codes, the volume-weighted ASPs exceeded the volume-
weighted AMPs by at least 5 percent regardless of whether CMSs or OIGs 
calculation was used 
According to our analysis, 34 HCPCS codes met the 5-percent threshold 
using either CMSs or OIGs calculation.  However, the extent to which 
ASPs exceeded AMPs may have been different depending on which 
calculation was used.   
For example, CMSs calculation for one HCPCS code resulted in a 
volume-weighted ASP of $4.82 and a volume-weighted AMP of $4.42.  
The difference between these two prices is 9 percent, which exceeds the 
5-percent threshold specified in the Act.  According to OIGs calculation 
for the same HCPCS code, the volume-weighted ASP should be $3.48 
and the volume-weighted AMP should be $3.30.  Here, the ASP exceeds 
the AMP by exactly 5 percent.  Although this HCPCS code meets the 
5-percent threshold regardless of which calculation is used, the prices 
themselves, and the percentage difference between those prices, can 
vary depending on whether CMSs or OIGs method is followed.  This, in 
turn, could affect how much providers would receive in reimbursement, 
particularly if the reimbursement amount were lowered to 103 percent 
of the AMP. 
According to CMSs calculation, lowering reimbursement for these  
34 HCPCS codes to 103 percent of the AMP would have reduced 
Medicare allowances by an estimated $161 million in 2005.  Using OIGs 
calculation for the same 34 codes, however, would have reduced 
Medicare allowances by an additional $8 million, for an estimated total 
of $169 million in 2005. 
A list of all 34 HCPCS codes is presented in Appendix B.   
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  9  FF II NN DD II NN GG
Four additional HCPCS codes met the 5-percent threshold using OIGs 
calculation but not CMS's calculation 
For four HCPCS codes, the volume-weighted ASP exceeded the AMP by 
at least 5 percent using OIGs calculation but not CMSs calculation. If 
the reimbursement amounts for these four codes had been lowered to 
103 percent of the AMP, we estimate that Medicare allowances would 
have been reduced by $2.7 million in 2005. These savings can be 
attributed almost entirely to one code, J0256.10 A list of these four 
HCPCS codes is presented in Appendix C. 
Another 17 HCPCS codes met the 5-percent threshold using CMSs 
calculation but not OIG's calculation 
For 17 HCPCS codes, the volume-weighted ASPs exceeded AMPs by at 
least 5 percent using CMSs calculation but not OIGs calculation. 
Lowering the reimbursement amounts for these 17 HCPCS codes to 
103 percent of the AMP would have reduced Medicare allowances by an 
estimated $2.7 million in 2005. The vast majority of these savings can 
be attributed to three HCPCS codes: J3301, J1080, and J1550.11 A list 
of all 17 HCPCS codes is presented in Appendix D. 
10HCPCS code J0256 represents an injection of alpha 1-proteinase inhibitorhuman, 10 
milligrams (mg). 
11HCPCS code J3301 represents an injection of triamcinolone acetonide, per 10 mg; HCPCS 
code J1080 represents an injection of testosterone cypionate, 1cc, 200 mg; and HCPCS code 
J1550 represents an injection of gamma globulin, intramuscular, 10 cc. 
OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  10  E X E C U T I V E   S U M M A R Y
  S U M M A R Y  

For the purpose of monitoring new prices based on ASPs, sections 
1847A(d)(2)(B) and 1847A(d)(3) of the Act mandate that OIG perform 
comparisons between ASPs and AMPs to identify drugs for which the 
ASP exceeds the AMP by at least 5 percent.  This review is the first of 
such comparisons.  We found that certain HCPCS codes did, in fact, 
meet the 5-percent threshold specified in the Act.  However, the number 
of codes that met the threshold, and the monetary differences between 
the ASPs and AMPs for those codes, depended on the method used to 
calculate volume-weighted ASPs and volume-weighted AMPs.  Although 
34 HCPCS codes met the 5-percent threshold regardless of whether 
CMSs or OIGs calculation was used, other codes only met the threshold 
using one calculation or the other. 
Pursuant to section 1847A(d)(3) of the Act, the Secretary has authority 
to lower the reimbursement amount for a drug with an ASP that 
exceeds the AMP by the 5-percent threshold.  Therefore, differences 
between the results of CMSs calculation and OIGs calculation could 
affect whether published reimbursement amounts for certain Medicare 
Part B drugs are adjusted.  This, in turn, affects manufacturers, 
providers, and Medicare beneficiaries.  It is therefore critical that CMS 
modify its calculation as soon as possible, both to ensure that 
reimbursement amounts are calculated correctly and to ensure that 
future comparisons between ASPs and AMPs yield the most meaningful 
results.12 
AGENCY COMMENTS 
Overall, CMS indicated that the information in our report is helpful in 
its continuing efforts to monitor payment adequacy under the ASP 
methodology.  However, CMS noted that OIGs review was conducted 
using data submitted during the initial implementation phase of the 
ASP methodology.  According to CMS, much of the estimated savings 
12Issues with CMSs calculation of volume-weighted ASP are discussed in greater detail in 
the OIG report, Calculation of Volume-Weighted Average Sales Price for Medicare Part B 
Prescription Drugs (OEI-03-05-00310).  This report found that CMSs method for 
calculating volume-weighted ASP is incorrect because CMS does not use billing units 
consistently throughout its equation.  Therefore, OIG recommended that CMS adopt an 
alternate method for calculating volume-weighted ASP, which does use billing units 
consistently.    
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  11  S U M M A R Y  
identified in the report did not persist in subsequent quarters, and 
payment limits for many codes have since been revised.  
Although CMS acknowledges the Secretarys authority to adjust the 
ASP payment limits when certain conditions are met, it believes that 
other issues should be considered, including the timing and frequency of 
pricing comparisons, stabilization of ASP reporting, the effective date 
and duration of rate substitution, and the accuracy of the ASP and AMP 
data. 
The full text of CMSs comments can be found in Appendix E. 
OFFICE OF INSPECTOR GENERAL RESPONSE 
This report found that comparisons between ASPs and AMPs yield 
different results depending on the method used to calculate volume-
weighted ASPs and volume-weighted AMPs.  Although CMS indicated 
that our report is helpful, CMSs comments on the draft report 
addressed neither the incorrect calculation nor the impact it has on the 
comparison between ASPs and AMPs.  We continue to believe that CMS 
is calculating volume-weighted ASPs incorrectly, and that this incorrect 
calculation results in reimbursement amounts that are inaccurate and 
inconsistent with the ASP payment methodology set forth in section 
1847A(b) of the Act.  Furthermore, we believe that the incorrect 
calculation affects the results of mandated comparisons between ASPs 
and AMPs, and could continue to do so in the future.   
We acknowledge CMSs concern that our findings should be examined in 
light of other important considerations.  However, we are unsure of 
what, if any, specific steps CMS plans to take as a result of the report. 
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  12  A P P E N D I X ~ A  
  AA PP PP EE NN DD II XX    ~~    AA  

Equations Used by CMS and OIG to Calculate Volume-Weighted ASPs and AMPs 
1.  The Equation Used by CMS to Calculate a Volume-Weighted ASP  
In the following equation, a unit is defined as the entire amount of the drug 

contained in the NDC: 

ASP for NDC 
* Number of NDCs Sold 
Volume-Weighted ASP  Sum of 
Billing Units in NDC 
for the Billing Unit of  
= 
 HCPCS Code 
Sum of Number of NDCs Sold 
2.  The Equation Used by OIG to Calculate a Volume-Weighted ASP  
We suggest that CMSs calculation should be modified by multiplying the number of 
NDCs sold by the number of billing units in the NDC in both the numerator and 
denominator of the equation: 
ASP for NDC  * Number of NDCs Sold * Billing Units in NDC 
Volume-Weighted ASP  Sum of 
Billing Units in NDC 
for the Billing Unit of  
= 
HCPCS Code 
Sum of   (Number of NDCs Sold * Billing Units in NDC) 
However, the terms Billing Units in NDC in the numerator of the equation cancel 
each other out: 
ASP for NDC  * Number of NDCs Sold * Billing Units in NDC 
Volume-Weighted ASP  Sum of 
Billing Units in NDC 
for the Billing Unit of  
= 

HCPCS Code 

Sum of  (Number of NDCs Sold * Billing Units in NDC)

Therefore, OIGs equation is written in the following way: 
Volume-Weighted ASP  Sum of (ASP for NDC * Number of NDCs Sold) 
= 
for the Billing Unit of  
 HCPCS Code  Sum of  (Number of NDCs Sold * Billing Units in NDC) 
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  13    AAA PPP PPP EEE NNN DDD III XXX     ~~~     BBB    
Thirty-Four HCPCS Codes With an ASP That Exceeded the AMP by at Least       
5 Percent Regardless of Whether CMSs or OIGs Calculation Was Used 
Code  Description 
J0360  Injection, hydralazine HCl, up to 20 mg 
J0470  Injection, dimercaprol, per 100 mg 
J0770  Injection, colistimethate sodium, up to 150 mg 
J1110  Injection, dihydroergotamine mesylate, per 1 mg 
J1180  Injection, dyphylline, up to 500 mg 
J1240  Injection, dymenhydrinate, up to 50 mg 
J1250  Injection, dobutamine, HCl, per 250 mg 
J1364  Injection, erythromycin lactobionate, per 500 mg 
J1940  Injection, furosemide, up to 20 mg 
J1955  Injection, levocarnitine, per 1 g 
J2324  Injection, nesiritide, 0.25 mg 
J2501  Injection, paricalcitol, 1 mcg 
J2545  Pentamidine isethionate, inhalation solution, per 300 mg 
J2675  Injection, progesterone, per 50 mg 
J2690  Injection, procainamide HCl, up to 1 g 
J2730  Injection, pralidoxime chloride, up to 1 g 
J3364  Injection, urokinase, 5,000 IU vial 
J3365  Injection, IV, urokinase, 250,000 IU vial 
J3415  Injection, pyridoxine HCl, 100 mg 
J3487  Injection, zoledronic acid, 1 mg 
J7517  Mycophenolate mofetil, oral, 250 mg 
J7644  Ipratropium bromide, inhalation solution administered through DME, unit dose form, per mg 
J9060  Cisplatin powder or solution, per 10 mg 
J9185  Fludarabine phosphate, 50 mg  
J9202  Goserelin acetate implant, per 3.6 mg 
J9219  Leuprolide acetate implant, 65 mg 
J9300  Gemtuzumab ozogamicin, 5 mg 
J9320  Streptozocin, 1 g 
J9360  Vinblastine sulfate, 1 mg 
J9370  Vincristine sulfate, 1 mg 
J9375  Vincristine sulfate, 2 mg 
J9380  Vincristine sulfate, 5 mg 
Q0164  Prochlorperazine maleate, 5 mg, oral 
Q0175  Perphenazine, 4 mg, oral 
Source: OIG Analysis of the ASP and AMP Data, 2005. 
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  14    A P P E N D I X   ~   C  
Four HCPCS Codes With an ASP That Exceeded the AMP by at Least 5 Percent 
Using OIGs Calculation but not CMSs Calculation 
Code  Description 
J0256  Injection, alpha 1-proteinase inhibitor  human, 10 mg 
J1790  Injection, droperidol, up to 5 mg 
J2993  Injection, reteplase, 18.1 mg 
Hydroxyzine pamoate, 50 mg, oral, FDA approved prescription anti-emetic, for use as a complete 
Q0178  therapeutic substitute for an IV anti-emetic at the time of chemotherapy treatment, not to exceed 
a 48-hour dosage regimen 
Source: OIG Analysis of the ASP and AMP Data, 2005. 
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  15    A P P E N D I X   ~   D  
Seventeen HCPCS Codes With an ASP That Exceeded the AMP by at Least      
5 Percent Using CMSs Calculation but not OIGs Calculation 
Code  Description 
J1080  Injection, testosterone cypionate, 1 cc, 200 mg  
J1460  Injection, gamma globulin, intramuscular, 1 cc 
J1470  Injection, gamma globulin, intramuscular, 2 cc 
J1480  Injection, gamma globulin, intramuscular, 3 cc 
J1490  Injection, gamma globulin, intramuscular, 4 cc 
J1500  Injection, gamma globulin, intramuscular, 5 cc 
J1510  Injection, gamma globulin, intramuscular, 6 cc 
J1520  Injection, gamma globulin, intramuscular, 7 cc 
J1530  Injection, gamma globulin, intramuscular, 8 cc 
J1540  Injection, gamma globulin, intramuscular, 9 cc 
J1550  Injection, gamma globulin, intramuscular, 10 cc 
J1560  Injection, gamma globulin, intramuscular, over 10 cc 
J1630  Injection, haloperidol, up to 5 mg 
J1885  Injection, ketorolac tromethamine, per 15 mg 
J3301  Injection, triamcinolone acetonide, per 10 mg  
J3410  Injection, hydroxyzine HCl, up to 25 mg 
J3420  Injection, vitamin B-12 cyanocobalamin, up to 1,000 mcg 
Source: OIG Analysis of the ASP and AMP Data, 2005. 
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  16    A P P E N D I X   E  
Comments from the Centers for Medicare & Medicaid Services 
  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  17  A P P E N D I X   ~   E  

  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  18
   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 the Philadelphia regional office, and Linda 
M. Ragone, Deputy Regional Inspector General.  Other principal Office of Evaluation 
and Inspections staff who contributed include: 
Lauren McNulty, Team Leader 
Edward Burley, Program Analyst 
Tanaz Dutia, Program Analyst

Linda Boone Abbott, Program Specialist

  OEI-03-04-00430  COMPARISON OF AVERAGE SALES PRICE TO AVERAGE MANUFACTURER PRICE  19