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 S.llVJCIS (
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~'o l- DEPARTMENT OF HEALTH &. HUMAN SERVICES Office of Inspector General
..+,..l(.....1)0 Washington, 0 C. 20201
1 7 2009
TO: Charlene Frizzera
Acting Administrator
Centers for Medicare & Medicaid Services
Daniel R. Levinson ~ R. X~
FROM:
Inspector General
SUBJECT: Memorandum Report: "Comparison of Third-Quarter 2008 Average Sales Prices
and Average Manufacturer Prices: Impact on Medicare Reimbursement for First
Quarter 2009," OEI-03-09-00150
This review was conducted in accordance with the congressional mandate for the Office of
Inspector General (OIG) to review average sales prices (ASP) and average manufacturer prices
(AMP) for Medicare Part B prescription drugs and identify ASPs that exceed AMPs by at least
5 percent. The review also determined the impact of lowering reimbursement amounts for drugs
that meet the 5-percent threshold.
the ASP reimbursement methodology in 2005, OIG has issued 10 reports
Since the advent of 
comparing ASPs to AMPs. This is OIG's 11 th pricing comparison, and it examines drugs that
met the 5-percent threshold based on either complete or partial AMP data in the third quarter of
2008.1 Of the 325 drugs with complete AMP data, 15 met the 5-percent threshold under the
these fifteen drugs
revised ASP payment methodology recently mandated by statute. Twelve of 
were previously eligible for price adjustment under the revised methodology, with two drugs
meeting the 5-percent threshold in each ofthe past seven quarters. We estimate that, if
the AMPs, Medicare
reimbursement amounts for allIS drugs had been based on 103 percent of 
expenditures would have been reduced by almost three-quarters of a milion dollars in the first
the 129 drugs with only partial AMP data in the third quarter of2008, I
quarter of2009. Of 
21 had ASPs that exceeded the AMPs by at least 5 percent in the third quarter of 2008. Under
the 21 drugs would have met the 5-percent threshold in at least
the revised methodology, 12 of 
two of the past seven quarters, dating back to the first quarter of 2007. We estimate that
Medicare expenditures would have been reduced by $9 milion during the first quarter of 2009 if
the AMPs. We could
reimbursement amounts for all  21 drugs had been based on 103 percent of 
not perform pricing comparisons for an additional 67 drugs because none of the drug products
i In quarters prior to 2008, OIG performed pricing comparisons only for those drugs with AMP data for every drug
product used by the Centers for Medicare & Medicaid Services (CMS) to calculate the Medicare reimbursement
amount. As ofthe first quarter of2008, we began additionally examining drugs with only partial AMP data
the products used to establish Medicare reimbursement). This
(i.e., drugs with AMP data for some, but not all, of 
ensures that a broader range of drugs is subject to OIG's pricing comparisons.
OEI-03-09-00 150 Comparison of  Third-Quarter 2008 ASPs and AMPs Page 2  Charlene Frizzera 
 
 
used to establish Medicare reimbursement had corresponding AMP data.  Manufacturers for 
almost 30 percent of those drug products had Medicaid drug rebate agreements and were 
therefore generally required to submit AMPs.  OIG will continue to work with CMS to evaluate 
and pursue appropriate actions against those manufacturers that fail to submit required data.   
 
BACKGROUND 
 
Section 1847A(d)(2)(B) of the Social Security Act (the Act) mandates that OIG compare ASPs 
to AMPs.  Pursuant to sections 1847A(d)(3)(A) and (B) of the Act, if OIG finds that the ASP for 
a drug exceeds the AMP by a certain percentage (currently 5 percent), the Secretary of the 
Department of Health and Human Services (the Secretary) may disregard the ASP for the drug 
when setting reimbursement amounts.  Section 1847A(d)(3)(C) of the Act goes on to state that   
. . . the Inspector General shall inform the Secretary (at such times as the Secretary may specify 
to carry out this subparagraph) and the Secretary shall, effective as of the next quarter, substitute 
for the amount of payment . . . the lesser of (i) the widely available market price . . . (if any); or 
(ii) 103 percent of the average manufacturer price . . . .   
 
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 
CMS contracts with private companies, known as Medicare Administrative Contractors (MAC), 
to process and pay Medicare Part B claims, including those for prescription drugs.  To obtain 
reimbursement for covered outpatient prescription drugs, physicians and suppliers submit claims 
to their MACs using procedure codes.  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.  In the case of prescription drugs, each 
HCPCS code defines the drug name and dosage size but does not specify manufacturer or 
package size information.   
 
Medicare and its beneficiaries spent approximately $11 billion for Part B drugs in 2007.2  
Although Medicare paid for more than 600 outpatient prescription drug HCPCS codes that year, 
most of the spending for Part B drugs was concentrated on a relatively small subset of those 
codes.  In 2007, 52 codes accounted for 90 percent of the expenditures for Part B drugs, with 
only 11 of these drugs representing half of the total Part B drug expenditures. 
 
 
                                                 
2 Medicare expenditures for Part B drugs were calculated using 2007 data in CMSs Part B Extract and Summary 
System (BESS), which were 98 percent complete at the time of extraction. 
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 3  Charlene Frizzera 
 
 
Reimbursement Methodology for Part B Drugs and Biologicals  
Since January 2005, Medicare Part B has been paying for most covered drugs using a 
reimbursement methodology based on ASPs.3  Section 1847A(c) of the Act, as added by the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003, P.L. No. 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, cash discounts, free goods contingent on purchase requirements, chargebacks, and 
rebates other than those obtained through the Medicaid drug rebate program.4  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.5 6 
 
Manufacturers report ASPs by national drug codes (NDC), which are 11-digit identifiers that 
indicate the manufacturer, product dosage form, and package size of the drug.  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.7 
 
Because Medicare Part B reimbursement for outpatient drugs is based on HCPCS codes rather 
than NDCs and more than one NDC may meet the definition of a particular HCPCS code, CMS 
has developed a file that crosswalks manufacturers NDCs to HCPCS codes.  CMS uses 
information in this crosswalk file to calculate volume-weighted ASPs for covered HCPCS codes.   
 
Calculation of Volume-Weighted Average Sales Prices 
To calculate volume-weighted ASPs, CMS uses an equation that involves the following 
variables:  the ASP for the 11-digit 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 NDC when 
developing its crosswalk files.   
 
                                                 
3 In 2004, the reimbursement amount for most covered drugs was based on 85 percent of the average wholesale 
price as published in national pricing compendia, such as the Red Book.  Before 2004, Medicare Part B 
reimbursed for covered drugs based on the lower of either the billed amount or 95 percent of the average wholesale 
price. 
4 Section 1847A(c)(3) of the Act.  
5 Pursuant to section 1927(c)(1)(C)(i) of the Act, best price is the lowest price available from the manufacturer 
during the rebate period to any wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or 
governmental entity within the United States, with certain exceptions. 
6 Section 1847A(c)(2) of the Act.  
7 Section 1927(b)(3) of the Act.  
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 4  Charlene Frizzera 
 
 
Before April 2008, CMS calculated volume-weighted ASPs using the equation presented in 
Appendix A.  However, section 112(a) of the Medicare, Medicaid, and SCHIP Extension Act of 
2007, P.L. No. 110-173, changed section 1847A(b) of the Act to require that CMS compute 
volume-weighted ASPs using a revised methodology, effective April 2008.  This revised 
methodology was proposed by OIG in a February 2006 report entitled Calculation of                
Volume-Weighted Average Sales Price for Medicare Part B Prescription Drugs                                 
(OEI-03-05-00310).  The revised equation for calculating volume-weighted ASPs is also 
provided in Appendix A.   
 
First-quarter 2009 Medicare allowances for most covered drug codes were based on                 
third-quarter 2008 ASP submissions from manufacturers, which were volume-weighted using the 
revised methodology.  Under the ASP pricing methodology, the Medicare allowance for most 
Part B drugs is equal to 106 percent of the volume-weighted 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 Average Manufacturer Prices 
For Federal payment to be available for covered outpatient drugs provided under Medicaid, 
sections 1927(a)(1) and (b)(1) of the Act mandate that drug manufacturers enter into rebate 
agreements with the 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, with submissions due 30 days 
after the close of each quarter.8    
 
As generally defined in section 1927(k)(1) of the Act, the AMP is the average price paid to the 
manufacturer for the drug in the United States by wholesalers for drugs distributed to the retail 
pharmacy class of trade.  Before the passage of the DRA, manufacturers were required to deduct 
customary prompt pay discounts when calculating AMPs.  However, section 6001(c)(1) of the 
DRA amended section 1927(k)(1) of the Act, such that AMPs must be determined without 
regard to customary prompt pay discounts, effective January 2007.  In December 2006, CMS 
instructed manufacturers to exclude customary prompt pay discounts from their AMP 
calculations as of January 2007.9  In July 2007, CMS published a final rule at 72 Fed. Reg. 
39142 (July 17, 2007) that, among other things, implements section 6001(c)(1) of the DRA and 
clarifies the way in which the AMP must be calculated.  Specifically, 42 CFR  447.504 of the 
final regulation clarifies the manner in which the AMP is to be determined.10 
 
                                                 
8 Section 6001(b)(1)(A) of the Deficit Reduction Act of 2005 (DRA), P.L. No. 109-171, changed section 1927(b) of 
the Act to require that manufacturers also report AMPs on a monthly basis, effective January 2007.  Drug 
manufacturers will continue to report quarterly AMP data in addition to their monthly submissions.  
9 CMS, Medicaid Drug Rebate Program, Bulletin for Participating Drug Manufacturers, Release No. 76,                          
December 15, 2006. 
10 In December 2007, the United States District Court for the District of Columbia preliminarily enjoined the 
implementation of the regulation for certain purposes not relevant to this report.  Section 203 of the Medicare 
Improvements for Patients and Providers Act of 2008 also delayed the implementation of certain aspects of the 
regulation and the DRA requirements.  Again, those aspects are not relevant for the purposes of this report. 
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 5  Charlene Frizzera 
 
 
The AMP is generally 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 milliliter, 1 tablet, 1 capsule).   
 
If a manufacturer fails to provide AMP data in a timely manner, civil monetary penalties may be 
imposed.11  In addition, pursuant to section 1927(b)(4)(B) of the Act, the Secretary may 
terminate a rebate agreement for violation of the requirements of the agreement or other good 
cause shown.  CMS has terminated a number of manufacturers for failure to report drug-pricing 
data as required by section 1927 of the Act.  CMS has also provided OIG with information about 
manufacturers that failed to submit drug-pricing data for the purposes of evaluating potential 
civil monetary penalty actions.  
 
Office of Inspector Generals Monitoring of Average Sales Prices and Average 
Manufacturer Prices 
In accordance with its congressional mandate, OIG has issued nine quarterly pricing 
comparisons since the ASP reimbursement methodology for Part B drugs was implemented in 
January 2005.  In addition, OIG recently completed an annual overview of ASPs and AMPs, 
which examined data across all four quarters of 2007 using the revised ASP payment 
methodology recently implemented by CMS.  A list of all 10 reports is provided in Appendix B.   
 
Although CMS has acknowledged the Secretarys authority to adjust ASP payment limits based 
on the findings of OIGs pricing comparisons, CMS has yet to make any changes to Part B drug 
reimbursement as a result of these studies.  Rather, CMS has emphasized both the complexity of 
substituting payment amounts and the importance of proceeding cautiously to avoid unintended 
consequences.12  In commenting on OIGs reports, CMS has expressed a desire to both better 
understand fluctuating differences between ASPs and AMPs and engage stakeholders, with the 
intent of developing a process for making price substitutions.13  However, CMS has not specified 
what, if any, steps it will take to adjust Medicare reimbursement amounts for drugs that meet the 
5-percent threshold specified in section 1847A(d)(3) of the Act. 
 
OIG will continue to meet its congressional mandate by issuing reports based on quarterly 
pricing comparisons, along with annual overviews to summarize findings across each calendar 
year. 
 
METHODOLOGY 
 
We obtained a file from CMS containing NDC-level ASP data from the third quarter of 2008, 
which were used to establish Part B drug reimbursement amounts for the first quarter of 2009.  
This file also includes information that crosswalks NDCs to their corresponding HCPCS codes.   
                                                 
11 Pursuant to section 1927(b)(3)(C) of the Act. 
12 OEI-03-08-00450, December 2008. 
13 OEI-03-07-00140, July 2007, and OEI-03-08-00450, December 2008. 
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 6  Charlene Frizzera 
 
 
Both the ASP data and the crosswalk data were current as of December 18, 2008.  We also 
obtained AMP data from CMS for the third quarter of 2008, which were current as of  
November 6, 2008. 
 
Analysis of Average Sales Price Data From the Third Quarter of 2008 
As mentioned previously, Medicare does not base reimbursement for covered drugs on NDCs; 
instead, it uses HCPCS codes.  Therefore, CMS uses 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 includes only NDCs with ASP 
submissions that are deemed valid.   
 
As of December 2008, CMS had established prices for 532 HCPCS codes based on the revised 
ASP reimbursement methodology mandated by section 112(a) of the Medicare, Medicaid, and 
SCHIP Extension Act of 2007.14  Reimbursement amounts for the 532 HCPCS codes were based 
on ASP data for 3,340 NDCs.   
 
Analysis of Average Manufacturer Price Data From the Third Quarter of 2008 
In quarters prior to 2008, OIG performed pricing comparisons for only those drug codes with 
AMP data for every drug product used by CMS to calculate the Medicare reimbursement 
amount.  As a result of that conservative approach, at least 17 percent of HCPCS codes were 
excluded from our analysis in any given quarter.  As of the first quarter of 2008, we began 
additionally examining drug codes with only partial AMP data (i.e., drug codes with AMP data 
for some, but not all, of the products used to establish Medicare reimbursement).  This ensures 
that a broader range of drug codes is subject to OIGs pricing comparisons. 
 
For the purposes of this report, we divided HCPCS codes into the following three groups:                       
 
(1) HCPCS codes with AMP data for every NDC that CMS used in its calculation of 
volume-weighted ASPs, 
 
(2) HCPCS codes with AMP data for only some of the NDCs that CMS used in its 
calculation of volume-weighted ASPs, and   
 
(3) HCPCS codes with no AMP data for any of the NDCs that CMS used in its 
calculation of volume-weighted ASPs.   
 
As previously noted, the AMP for each NDC is reported for the lowest identifiable quantity of 
the drug contained in that NDC (e.g., 1 milliliter, 1 tablet, 1 capsule).  In contrast, the 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.   
                                                 
14 Several Part B drugs, including certain vaccines and blood products, are not paid under the ASP methodology.  
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 7  Charlene Frizzera 
 
 
To calculate converted AMPs for NDCs in the first and second groups, we multiplied the AMP 
by the total amount of the drug contained in each NDC, as identified by sources such as the CMS 
crosswalk file, manufacturer Web sites, the Red Book, and the Food and Drug 
Administrations NDC directory.  For certain NDCs, we were unable to successfully identify the 
amount of the drug reflected by the ASP and therefore could not calculate a converted AMP.  
Because of these unsuccessful AMP conversions, 11 HCPCS codes were removed from our 
analysis.  
 
Using NDCs with successful AMP conversions, we then calculated a volume-weighted AMP for 
each of the corresponding HCPCS codes, consistent with the revised methodology for 
calculating volume-weighted ASPs.  Appendix C provides a more detailed description of the 
methods we used to both convert AMPs and calculate volume-weighted AMPs.  Table 1 
provides the final number of HCPCS codes and NDCs included in our analysis after we removed 
NDCs with either no AMP data or unsuccessful AMP conversions.   
 
Table 1:  Number of Drug Codes and NDCs Included in OIGs Pricing Comparison 
Number of   Number of 
Availability of AMP Data for HCPCS Code 
HCPCS Codes   NDCs  
Complete AMP Data  325  1,291 
Partial AMP Data  129  1,083 
No AMP Data  67  222 
Source:  OIG analysis of third-quarter 2008 ASP and AMP data, 2009. 
 
Comparing Volume-Weighted ASPs to Volume-Weighted AMPs for the Third Quarter of 
2008 Using the Revised ASP Payment Methodology 
For each of the HCPCS codes included in our study, we compared the volume-weighted ASP 
and AMP and determined whether the ASP for the code exceeded the AMP by at least 5 percent.  
 
For those HCPCS codes that met or exceeded the 5-percent threshold, we reviewed the 
associated NDCs to verify the accuracy of the billing unit information.  According to our review, 
NDCs for four 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.  Because    
volume-weighted ASPs and AMPs are calculated using this billing unit information, we could 
not be certain that the results for these codes were correct.  Therefore, we did not consider these 
four HCPCS codes as having met the 5-percent threshold. 
 
For the remaining HCPCS codes, we then estimated the monetary impact of lowering 
reimbursement to 103 percent of the AMP.15  For each of the HCPCS codes that met the              
                                                 
15 Section 1847A(d)(3)(C) of the Act directs the Secretary to replace payment amounts for drugs that meet the   
5-percent threshold with the lesser of the widely available market price for the drug (if any) or 103 percent of the 
AMP.  For the purposes of this study, we used 103 percent of the AMP to estimate the impact of lowering 
reimbursement amounts.  If widely available market prices had been available for these drugs and lower than  
103 percent of the AMP, the savings estimate presented in this report would have been greater. 
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 8  Charlene Frizzera 
 
 
5-percent threshold, we calculated 103 percent of the volume-weighted AMP and subtracted this 
amount from the first-quarter 2009 reimbursement amount for the HCPCS code, which is equal 
to 106 percent of the volume-weighted ASP.  To estimate the financial effect for the first quarter 
of 2009, we then multiplied the difference by one-fourth of the number of services that were 
allowed by Medicare for each HCPCS code in 2007, as reported in BESS.16  This estimate 
assumes that the number of services that were allowed by Medicare in 2007 remained consistent 
from one quarter to the next and that there were no significant changes in utilization between 
2007 and 2008. 
 
Identifying Codes That Would Also Have Met the 5-Percent Threshold in Previous 
Quarters Under the Revised Payment Methodology 
Using volume-weighted ASPs and AMPs calculated under the revised ASP payment 
methodology,17 we determined whether codes meeting the 5-percent threshold in the third 
quarter of 2008 would have also met the 5-percent threshold in any of the six previous quarters, 
dating back to the first quarter of 2007.   
   
Limitations 
We did not verify the accuracy of manufacturer-reported ASP and AMP data, nor did we verify 
the underlying methodology used by manufacturers to calculate ASPs and AMPs.  Furthermore, 
we did not verify the accuracy of CMSs crosswalk files or examine NDCs that CMS opted to 
exclude from its calculation of Part B drug reimbursement amounts.  
 
Manufacturers are required to submit their quarterly ASP and AMP data to CMS 30 days after 
the close of the quarter.  Our analyses were performed on ASP and AMP data compiled by CMS 
soon after that deadline.  We did not verify whether manufacturers later provided revised or 
missing data to CMS. 
 
Furthermore, the definition of AMP changed effective January 2007, such that AMPs must now 
be determined without regard to customary prompt pay discounts.18  Because manufacturers are 
still required to include customary prompt pay discounts in their ASP calculations, the dynamic 
between ASPs and AMPs may be different in this report as compared to that in OIG reports 
using prices submitted before 2007.   
 
Standards   
This inspection 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. 
                                                 
16 At the time of extraction, 2007 BESS data were 98 percent complete.     
17 CMS was not required to apply the revised ASP payment methodology to ASP data submitted by manufacturers 
prior to the fourth quarter of 2007.  However, to establish a more useful and consistent benchmark for comparisons 
of ASPs and AMPs over time, OIG recently completed a report examining ASPs and AMPs for all four quarters of 
2007 using the revised methodology (i.e., we recalculated volume-weighted ASPs and AMPs using the revised 
methodology for the first three quarters of 2007).  We used these recalculated ASPs and AMPs in this current report. 
18 Section 1927(k)(1) of the Act (as amended by section 6001(c)(1) of the DRA) and CMS, Medicaid Drug Rebate 
Program, Bulletin for Participating Drug Manufacturers, Release No. 76, December 15, 2006. 
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 9  Charlene Frizzera 
 
 
RESULTS 
 
Of the 325 Drug Codes With Complete AMP Data, Volume-Weighted ASPs for                      
15 Exceeded the Volume-Weighted AMPs by at Least 5 Percent  
Consistent with sections 1847A(d)(2)(B) and 1847A(d)(3) of the Act, OIG compared ASPs to 
AMPs to identify instances in which the ASP for a particular drug exceeded the AMP by a 
threshold of 5 percent.  Under the revised ASP payment methodology mandated by statute, 15 of 
the 325 HCPCS codes with complete AMP data (5 percent) met this 5-percent threshold in the 
third quarter of 2008.  A list of the 15 HCPCS codes, including their descriptions and HCPCS 
dosage amounts, is presented in Appendix D.   
 
Table 2 describes the extent to which ASPs exceeded AMPs for the 15 HCPCS codes.19  For 
four of the codes, volume-weighted ASPs exceeded volume-weighted AMPs by 20 percent or 
more.  The ASPs for two of these codes were more than double the AMPs. 
 
     Table 2:  Extent to Which ASPs Exceeded AMPs for                                                                           
15 HCPCS Codes With Complete AMP Data 
Percentage by Which ASP  Number of HCPCS 
Exceeded AMP  Codes 
5.00%9.99%  7 
10.00%19.99%  4 
20.00%29.99%  1 
30.00%39.99%  0 
40.00%49.99%  0 
50.00%59.99%  1 
60.00%69.99%  0 
70.00%79.99%  0 
80.00%89.99%  0 
90.00%99.99%  0 
100% and above  2 
     Total  15 
Source:  OIG analysis of third-quarter 2008 ASP and AMP data, 2009. 
  
Most of the HCPCS codes (12 of 15) were previously identified by OIG as having ASPs that 
exceeded the AMPs by at least 5 percent.20  Under the revised methodology, two HCPCS codes 
(J1364 and Q0169) would have met the 5-percent threshold in each of the past seven quarters, 
dating back to the first quarter of 2007.  The remaining 10 HCPCS codes would have met the               
5-percent threshold in two of the seven quarters if the revised methodology had  
                                                 
19 Because of the confidential nature of ASP data, the information in the table is presented in ranges. 
20 We compared the results from this report to those in recent OIG reports (OEI-03-09-00050, OEI-03-08-00530, 
and OEI-03-08-00450) that examined ASPs and AMPs for the first and second quarters of 2008 and all four quarters 
of 2007 using the revised methodology.     
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 10  Charlene Frizzera 
 
 
been used since the beginning of 2007.  Table 3 presents a breakdown of the 12 HCPCS codes 
that previously met the threshold for price adjustments under the revised methodology. 
 
Table 3:  Twelve HCPCS Codes That Met the 5-Percent Threshold in the Third Quarter of 2008                   
and Previous Quarters Using Complete AMP Data 
 
  OIG Reports Comparing ASP and AMP 
Third  Second  First  Fourth  Third  Second  First 
HCPCS 
Quarter  Quarter  Quarter  Quarter  Quarter  Quarter  Quarter 
Code 
2008  2008  2008  2007  2007  2007  2007 
J1364  X  X  X  X  X  X  X 
Q0169  X  X  X  X  X  X  X 
J8515  X  X           
J9040  X  X*           
J9225  X  X           
J9370  X  X*           
J9375  X  X*           
J9380  X  X*           
J1020  X    X         
J2792  X    X         
J7500  X        X     
J7631  X        X     
 
* These codes met the 5-percent threshold in the second quarter of 2008 based on partial AMP data. 
 
Source:  OIG analysis of ASP and AMP data from the first three quarters of 2008 and all four quarters of 2007.
 
Lowering reimbursement amounts for the 15 HCPCS codes to 103 percent of the AMPs would 
have reduced Medicare allowances by almost three-quarters of a million dollars in the first 
quarter of 2009.  Sections 1847A(d)(3)(A) and (B) of the Act provide that the Secretary may 
disregard the ASP pricing methodology for a drug with an ASP that exceeds the AMP by at least 
5 percent.  Pursuant to section 1847A(d)(3)(C) of the Act, . . . the Secretary shall, effective as of 
the next quarter, substitute for the amount of payment . . . the lesser of (i) the widely available 
market price . . . (if any); or (ii) 103 percent of the average manufacturer price . . . .21  In this 
study, we identified 15 HCPCS codes that met the 5-percent threshold specified in the Act.  We 
estimate that, if reimbursement amounts for these 15 codes had been based on 103 percent of the 
AMPs during the first quarter of 2009, Medicare expenditures would have been reduced by 
$720,000 in that quarter.22 23  
                                                 
21 For the purposes of this study, we used 103 percent of the AMP to estimate the impact of lowering reimbursement 
amounts.  If widely available market prices had been available for these drugs and lower than 103 percent of the 
AMP, the savings estimates presented in this report would have been greater. 
22 This savings estimate assumes that the number of services that were allowed by Medicare in 2007 remained 
consistent from one quarter to the next and that there were no significant changes in utilization between                
2007 and 2008.  
23 One of the fifteen HCPCS codes did not have any services in the 2007 BESS file.  As a result, a savings estimate 
could not be calculated for this code.  
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 11  Charlene Frizzera 
 
 
One of the fifteen HCPCS codes accounted for over 70 percent of the estimated savings.  If the 
reimbursement amount for code J9225 had been based on 103 percent of the AMP during the 
first quarter of 2009, Medicare expenditures would have been reduced by an estimated $509,000.   
 
Of the 129 Drug Codes With Partial AMP Data, Volume-Weighted ASPs for                                
21 Exceeded the Volume-Weighted AMPs by at Least 5 Percent  
In addition to examining HCPCS codes with complete AMP data, we examined 129 HCPCS 
codes for which only partial AMP data were available.  Under the revised payment methodology, 
ASPs for 21 of these 129 HCPCS codes (16 percent) exceeded the AMPs by at least 5 percent in 
the third quarter of 2008.  A list of the 21 HCPCS codes, including their descriptions and 
HCPCS dosage amounts, is presented in Appendix E.   
 
Table 4 describes the extent to which ASPs exceeded AMPs for the 21 HCPCS codes.24  For 
almost half of the codes (10 of 21), volume-weighted ASPs exceeded volume-weighted AMPs 
by 20 percent or more.  The ASPs for three of these codes were more than double the AMPs. 
 
       Table 4:  Extent to Which ASPs Exceeded AMPs for                                                                          
21 HCPCS Codes With Partial AMP Data 
Percentage by Which ASP  Number of HCPCS 
Exceeded AMP  Codes 
5.00%9.99%  9 
10.00%19.99%  2 
20.00%29.99%  4 
30.00%39.99%  0 
40.00%49.99%  0 
50.00%59.99%  0 
60.00%69.99%  1 
70.00%79.99%  0 
80.00%89.99%  1 
90.00%99.99%  1 
100% and above  3 
     Total  21 
Source:  OIG analysis of third-quarter 2008 ASP and AMP data, 2009. 
 
Over half of the 21 HCPCS codes with partial AMP data were previously identified by OIG as 
having ASPs that exceeded the AMPs by at least 5 percent.25  Under the revised methodology, 
one HCPCS code (J9260) would have met the 5-percent threshold in five of the past seven 
quarters.  Another six HCPCS codes would have met the 5-percent threshold in three of the 
seven quarters if the revised methodology had been used since the beginning of 2007.  Table 5 
                                                 
24 The information in the table is presented in ranges because of the confidential nature of ASP data. 
25 Results from this report were compared to those in recent OIG reports (OEI-03-09-00050, OEI-03-08-00530, and 
OEI-03-08-00450) that examined ASPs and AMPs for the first and second quarters of 2008 and all four quarters of 
2007 using the revised methodology.      
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 12  Charlene Frizzera 
 
 
presents a breakdown of the 12 HCPCS codes that previously met the threshold for price 
adjustments under the revised methodology. 
 
Table 5:  Twelve HCPCS Codes That Met the 5-Percent Threshold in the Third Quarter of 2008                   
and Previous Quarters Using Partial AMP Data 
 
  OIG Reports Comparing ASP and AMP 
Third  Second  First  Fourth  Third  Second  First 
HCPCS 
Quarter  Quarter  Quarter  Quarter  Quarter  Quarter  Quarter 
Code 
2008  2008  2008  2007  2007  2007  2007 
J9260  X  X  X*    X    X 
J0560  X  X*  X*         
J0670  X  X*  X*         
J1190  X  X*  X*         
J2310  X  X*  X*         
J9060  X    X*        X 
J9062  X    X*        X 
J1642  X  X*           
J7506  X  X*           
J9185  X  X*           
J0170  X    X*         
J0278  X    X         
* These codes previously met the 5-percent threshold during the specified quarter based on partial AMP data. 
Source:  OIG analysis of ASP and AMP data from the first two quarters of 2008 and all four quarters of 2007. 
 
Lowering reimbursement amounts for the 21 HCPCS codes to 103 percent of the AMPs would 
have reduced Medicare allowances by an estimated $9 million in the first quarter of 2009. 26 27 28  
One of the twenty-one HCPCS codes accounted for almost 80 percent of the $9 million.  If the 
reimbursement amount for code J7614 had been based on 103 percent of the AMPs during the 
first quarter of 2009, Medicare expenditures would have been reduced by an estimated  
$6.8 million. 
 
 
 
 
 
 
                                                 
26 For the purposes of this study, we used 103 percent of the AMP to estimate the impact of lowering reimbursement 
amounts.  If widely available market prices had been available for these drugs and lower than 103 percent of the 
AMP, the savings estimates presented in this report would have been greater. 
27 This savings estimate assumes that the number of services that were allowed by Medicare in 2007 remained 
consistent from one quarter to the next and that there were no significant changes in utilization between                
2007 and 2008.  
28 Two of the twenty-one HCPCS codes did not have any services in the 2007 BESS file.  As a result, savings 
estimates could not be calculated for these codes. 
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 13  Charlene Frizzera 
 
 
Pricing Comparisons Could Not Be Performed on 67 Drug Codes Because No AMP Data 
Were Available 
For 67 HCPCS codes, OIG could not compare ASPs and AMPs because there were no AMP data 
for any of the 222 NDCs that CMS used when calculating drug reimbursement amounts for these 
codes.  In 2007, Medicare allowances for these 67 codes totaled $15 million.29 
 
Almost 30 percent of NDCs without AMP data belonged to manufacturers with Medicaid drug 
rebate agreements.30  Manufacturers for 29 percent of the NDCs without AMP data (65 of 222) 
participated in the Medicaid drug rebate program as of the third quarter of 2008 and were 
therefore generally required to submit AMP data.31 32  The majority (65 percent) of these                  
65 NDCs belonged to three manufacturers.  
 
Manufacturers for the remaining 157 of 222 NDCs did not participate in the Medicaid drug 
rebate program and therefore were not required to submit AMP data.   
  
CONCLUSION 
 
To monitor Medicare reimbursement amounts based on ASPs and consistent with sections 
1847A(d)(2)(B) and 1847A(d)(3) of the Act, OIG compared ASPs and AMPs to identify 
instances in which the ASP for a particular drug exceeded the AMP by at least 5 percent.  This is 
OIGs 11th report comparing ASPs and AMPs, and it examines HCPCS codes with AMP data for 
every NDC that CMS used to establish reimbursement amounts, as well as HCPCS codes with 
only partial AMP data. 
 
Using the revised ASP payment methodology recently implemented by CMS, we identified a 
total of 36 HCPCS codes in the third quarter of 2008 that met the threshold for price adjustment.  
Fifteen of the thirty-six HCPCS codes had complete AMP data.  Of these 15 codes, 12 were 
previously identified by OIG as having ASPs that exceeded the AMPs by at least 5 percent under 
the revised methodology.  Two of the twelve HCPCS codes (J1364 and Q0169) met the                            
5-percent threshold in each of the past seven quarters, dating back to the first quarter of 2007.  
The remaining 21 of 36 HCPCS codes also met the 5-percent threshold in the third quarter of 
2008 but did not have AMP data for every NDC that CMS used when calculating 
reimbursement.  Finally, we could not compare ASPs and AMPs for 67 HCPCS codes because 
AMP data were not submitted for any of the NDCs that CMS used to calculate reimbursement.  
Manufacturers for almost 30 percent of these NDCs had Medicaid drug rebate agreements and  
                                                 
29 Of the 67 HCPCS codes with no associated AMP data, 21 did not have any services in the 2007 BESS file.  As a 
result, these codes were not included in the total Medicare allowances for the year.  
30 To determine whether a manufacturer participated in the Medicaid drug rebate program, we consulted the list of 
participating drug companies posted on CMSs Web site. 
31 Although manufacturers with rebate agreements are generally required to submit AMP data, there may be valid 
reasons why an AMP was not provided for a specific NDC in a given quarter.  For example, a manufacturer may not 
have been required to submit an AMP if the drug product had been terminated and there was no drug utilization 
during the quarter.   
32 These 65 NDCs were crosswalked to 29 HCPCS codes. 
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 14  Charlene Frizzera 
 
 
were therefore generally required to submit AMPs.  OIG will continue to work with CMS to 
evaluate and pursue appropriate actions against those manufacturers that fail to submit required 
data.   
 
Some of OIGs previous reports comparing ASPs and AMPs have contained recommendations, 
which we continue to support.33  We are not making additional recommendations in this report 
and, as such, are issuing the report directly in final form.  If you have comments or questions 
about this report, please provide them within 60 days.  Please refer to report number  
OEI-03-09-00150 in all correspondence. 
                                                 
33 For example, OIG, Comparison of Average Sales Prices and Average Manufacturer Prices:  An Overview of 
2007, OEI-03-08-00450, December 2008. 
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 15  Charlene Frizzera 
 
 
APPENDIX A 
 
Equations Used by the Centers for Medicare & Medicaid Services To Calculate                   
Volume-Weighted Average Sales Prices 
In the following equations, a billing unit is defined as the number of Healthcare Common 
Procedure Coding System (HCPCS) code units that are contained in a national drug code (NDC). 
 
 
1.  The Revised Equation Used by the Centers for Medicare & Medicaid  
 Services (CMS) To Calculate Volume-Weighted Average Sales Prices (ASP)  
 Beginning April 1, 2008 
 
 
  Volume-Weighted ASP   Sum of  (ASP for NDC * Number of NDCs Sold) 
=  
for the Billing Unit of  
  Sum of   (Number of NDCs Sold * Billing Units in NDC) 
 HCPCS Code 
 
 
2.  The Equation Used by CMS To Calculate Volume-Weighted ASPs Before                       
April 1, 2008 
 
  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  
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 16  Charlene Frizzera 
 
 
APPENDIX B 
 
Previous Office of Inspector General Reports Comparing Average Sales Prices and Average 
Manufacturer Prices 
 
  Monitoring Medicare Part B Drug Prices:  A Comparison of Average Sales Prices to 
Average Manufacturer Prices (OEI-03-04-00430), April 2006 
 
  Comparison of Fourth-Quarter 2005 Average Sales Prices to Average Manufacturer 
Prices:  Impact on Medicare Reimbursement for Second Quarter 2006                                
(OEI-03-06-00370), July 2006 
 
  Comparison of Third-Quarter 2006 Average Sales Prices to Average Manufacturer Prices:  
Impact on Medicare Reimbursement for First Quarter 2007 (OEI-03-07-00140), July 2007 
 
  Comparison of First-Quarter 2007 Average Sales Prices to Average Manufacturer Prices:  
Impact on Medicare Reimbursement for Third Quarter 2007 (OEI-03-07-00530), 
September 2007 
 
  Comparison of Second-Quarter 2007 Average Sales Prices and Average Manufacturer 
Prices:  Impact on Medicare Reimbursement for Fourth Quarter 2007                                   
(OEI-03-08-00010), December 2007 
 
  Comparison of Third-Quarter 2007 Average Sales Prices and Average Manufacturer 
Prices:  Impact on Medicare Reimbursement for First Quarter 2008                                     
(OEI-03-08-00130), May 2008 
 
  Comparison of Fourth-Quarter 2007 Average Sales Prices and Average Manufacturer 
Prices:  Impact on Medicare Reimbursement for Second Quarter 2008                                     
(OEI-03-08-00340), August 2008 
 
  Comparison of Average Sales Prices and Average Manufacturer Prices:  An Overview of 
2007 (OEI-03-08-00450), December 2008 
 
  Comparison of First-Quarter 2008 Average Sales Prices and Average Manufacturer 
Prices:  Impact on Medicare Reimbursement for Third Quarter 2008                                     
(OEI-03-08-00530), December 2008 
 
  Comparison of Second-Quarter 2008 Average Sales Prices and Average Manufacturer 
Prices:  Impact on Medicare Reimbursement for Fourth Quarter 2008                                     
(OEI-03-09-00050), February 2009 
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 17  Charlene Frizzera 
 
 
APPENDIX C 
 
Detailed Methodology for Converting and Volume-Weighting Average Manufacturer 
Prices for the Third Quarter of 2008 
 
Healthcare Common Procedure Coding System codes with complete average manufacturer price 
data.  Of the 532 Healthcare Common Procedure Coding System (HCPCS) codes with 
reimbursement amounts based on average sales prices (ASP), 335 had average manufacturer 
prices (AMP) for every national drug code (NDC) that the Centers for Medicare & Medicaid 
Services (CMS) used to calculate volume-weighted ASPs.  These 335 HCPCS codes represented 
1,372 NDCs.  For 15 NDCs, we could not successfully identify the amount of the drug reflected 
by the ASP and therefore could not calculate a converted AMP.  These 15 NDCs were 
crosswalked to 10 HCPCS codes.  We did not include these 10 HCPCS codes (81 NDCs) in our 
final analysis.   
 
Using the converted AMPs for the remaining 1,291 NDCs, we then calculated a                      
volume-weighted AMP for each of the remaining 325 HCPCS codes consistent with the revised 
methodology for calculating volume-weighted ASPs.   
 
HCPCS codes with partial AMP data.  There were 130 HCPCS codes with AMP data for only 
some of the NDCs that CMS used in its calculation of volume-weighted ASPs.  These                 
130 HCPCS codes represented a total of 1,746 NDCs.  AMP data were either missing or 
unavailable for 648 of these NDCs, which were then excluded from our calculation of                
volume-weighted AMPs.34   
 
We calculated converted AMPs for each of the remaining 1,098 NDCs.  For 15 of the                  
1,098 NDCs, we could not successfully identify the amount of the drug reflected by the ASP and 
therefore could not calculate a converted AMP.  We removed these 15 NDCs from our 
analysis.35  As a result, one HCPCS code no longer had any NDCs with AMP data.  Therefore, 
this HCPCS code was removed from our analysis.   
 
Using the converted AMPs for the remaining 1,083 NDCs, we then calculated a                      
volume-weighted AMP for each of the remaining 129 HCPCS codes consistent with the revised 
methodology for calculating volume-weighted ASPs.   
 
                                                 
34 Although AMP data for these 648 NDCs were excluded from our calculation of volume-weighted AMPs, the 
corresponding ASPs were not excluded from the volume-weighted ASPs as determined by CMS.                     
Volume-weighted ASPs remained the same, regardless of the availability of AMP data.   
35 Although we removed NDCs with problematic AMP conversions, we did not remove the corresponding HCPCS 
codes, provided that other NDCs for those drug codes had usable AMP data.  This differs from our analysis of 
HCPCS codes with complete AMP data, in which we removed not only the NDCs with problematic AMP 
conversions, but also the corresponding HCPCS codes. 
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 18  Charlene Frizzera 
 
 
HCPCS codes with no AMP data.  For 67 HCPCS codes, there were no AMP data for any of the 
NDCs that CMS used in its calculation of volume-weighted ASPs.  These 67 HCPCS codes 
represented 222 NDCs.   
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 19  Charlene Frizzera 
 
 
APPENDIX D 
 
Fifteen Drug Codes With Complete Average Manufacturer Price Data That Met the              
5-Percent Threshold in the Third Quarter of 2008 
 
Drug            
Code  Short Description  Drug Code Dosage 
J0330  Succinycholine chloride injection  20 mg 
J0720  Chloramphenicol sodium injection  1 g 
J1020  Methylprednisolone injection  20 mg 
J1364  Erythro lactobionate  500 mg 
J2765  Metoclopramide HCl injection  10 mg 
J2792  Rho(D) immune globulin  100 units 
J7500  Azathioprine, oral  50 mg 
J7631  Cromolyn sodium inhalation solution  10 mg 
J8515  Cabergoline, oral  0.25 mg 
J9040  Bleomycin sulfate injection  15 units 
J9225  Histrelin implant  50 mg 
J9370  Vincristine sulfate injection  1 mg 
J9375  Vincristine sulfate injection  2 mg 
J9380  Vincristine sulfate injection  5 mg 
Q0169  Promethazine HCl, oral  12.5 mg 
Source:  Office of Inspector General analysis of third-quarter 2008 average sales price and average manufacturer price 
data, 2009. 
 
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs      
  Page 20  Charlene Frizzera 
 
 
APPENDIX E 
 
Twenty-One Drug Codes With Partial Average Manufacturer Price Data That Met the     
5-Percent Threshold in the Third Quarter of 2008 
 
Drug              
Code  Short Description  Drug Code Dosage 
J0170  Adrenalin epinephrin injection  1 mL 
J0278  Amikacin sulfate injection  100 mg 
J0560  Penicillin G benzathine injection  600000 units 
J0640  Leucovorin calcium injection  50 mg 
J0670  Mepivacaine HCl injection  10 mL 
J1190  Dexrazoxane HCl injection  250 mg 
J1642  Heparin sodium injection  10 units 
J2310  Naloxone HCl injection  1 mg 
J3250  Trimethobenzamide HCl injection  200 mg 
J7506  Prednisone, oral  5 mg 
J7612  Levalbuterol non-compounded  0.5 mg 
J7614  Levalbuterol non-compounded  0.5 mg 
J9045  Carboplatin injection  50 mg 
J9060  Cisplatin injection  10 mg 
J9062  Cisplatin injection  50 mg 
J9185  Fludarabine phosphate injection  50 mg 
J9260  Methotrexate sodium injection  50 mg 
J9390  Vinorelbine tartrate  10 mg 
Q0179  Ondansetron HCl, oral  8 mg 
Q9965  Low osmolar contrast material,100-199 mg/mL iodine  1 mL 
Q9966  Low osmolar contrast material, 200-299 mg/mL iodine  1 mL 
Source:  Office of Inspector General analysis of third-quarter 2008 average sales price and average manufacturer price 
 
data, 2009.
OEI-03-09-00150                                                       Comparison of Third-Quarter 2008 ASPs and AMPs