Department of Health & Human Services 
OFFICE OF 
   
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
M   B -N D : 
EDICAID  RAND AME  RUGS
 
R P A O  
ISIN  G  RICES  RE  FFSET
 
M R  
BY  ANUFACTURER  EBATES
 
 
 
 
 
 
Daniel R. Levinson  
Inspector General 
 
August 2011 
OEI-03-10-00260      
   
E X EE CX UE TC IUVTE I   VS EU  MSMUAMR MY A  R Y  
OBJECTIVE
 
To assess changes in prices for brand-name prescription drugs since 
2005 and their potential financial impact on the Medicaid program. 
BACKGROUND 
According to a series of reports issued by AARP, published prices for the 
most widely used brand-name prescription drugs have risen 
significantly since 2002, substantially outpacing the inflation rate.  
Senator Bill Nelson expressed concern over the reported price increases 
and requested that the Office of Inspector General (OIG) review drug 
pricing changes and their impact on Government health care programs, 
such as Medicaid.  To address Senator Nelsons concerns, this study 
looked beyond reported increases in published prices to examine 
changes in transaction-based drug prices and Medicaid payments. 
In 2009, Medicaid spent approximately $26 billion for prescription 
drugs (not including rebates), with brand-name drugs generally 
accounting for about 80 percent of this total.  For Federal payment to be 
available for covered outpatient drugs under Medicaid, drug 
manufacturers must, among other things, enter into rebate agreements 
with the Secretary of Health & Human Services, report quarterly 
average manufacturer prices (AMP) to the Centers for Medicare                     
& Medicaid Services (CMS) for each of their covered outpatient drugs, 
and pay quarterly rebates to State Medicaid agencies.  The rebate 
amount for any given drug generally depends on the quarterly AMP 
submitted by the manufacturer, as well as whether the drug is brand-
name or generic.  Manufacturers pay a higher rebate for brand-name 
drugs than for generic drugs.   
For this study, we selected all brand-name drugs used by Medicaid 
beneficiaries in 2009 and calculated median changes in their wholesale 
acquisition costs (WACthe published prices examined by AARP), 
AMPs, Medicaid payment amounts, and rebate-adjusted Medicaid 
payment amounts during the 5-year period between the first quarter of 
2005 and the first quarter of 2010. 
We then examined these changes in relation to the consumer price 
index, which measures the inflation rate for a market basket of 
consumer goods and services.  We also analyzed a subset of high-dollar 
brand-name drugs used by Medicaid beneficiaries in 2009.    
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  i      
   
E X E C U T I V E   S U M M A R Y  
FINDINGS 
Overall, prices and payment amounts for Medicaid brand-name 
drugs increased at about three times the inflation rate between 
2005 and 2010.  Over this 5-year period, WACs, AMPs, and Medicaid 
payment amounts increased between 34 and 40 percent at the median 
while the inflation rate increased only 13 percent.  In addition to 
outpacing inflation overall, increases in WACs, AMPs, and Medicaid 
payment amounts for brand-name drugs outpaced the inflation rate in 
each of the 5 years under review.  For the 50 Medicaid brand-name 
drugs with the highest expenditures, total median increases in prices 
and payment amounts not only outpaced the inflation rate, but also 
outpaced total median increases in prices and payment amounts for 
brand-name drugs as a whole.   
Significant increases in prices and payment amounts for 
brand-name drugs were offset by savings generated from the 
Medicaid drug rebate program.  We found that when the per-unit 
payment amounts for all Medicaid brand-name drugs were adjusted 
to account for the rebates paid to States by manufacturers, the                        
per-unit net cost to Medicaid increased at a much lower rate than 
other points of comparison between 2005 and 2009 (rebate data were 
not available for 2010).  In fact, Medicaids rebate-adjusted payment 
amounts for brand-name drugs actually declined at the median in 3 of 
4 years, lagging behind the inflation rate.   
CONCLUSION 
Taken as a whole, the results of our study indicate that price increases 
for brand-name drugs may not necessarily translate to corresponding 
increases in Medicaid costs.  Much like AARP, we found that median 
increases in WACs for Medicaid brand-name drugs outpaced the 
inflation rate during the 5-year period under review, as did AMPs and 
the amounts Medicaid paid to cover pharmacies ingredient costs.  
However, these increases were offset by rebates that manufacturers 
paid to States.  Because of the savings generated by the rebate program, 
Medicaids net costs for brand-name drugs actually increased at a lower 
rate than other points of comparison, including the inflation rate.   
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  ii      
   
E X E C U T I V E   S U M M A R Y  
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS expressed its belief that the Medicaid drug rebate program has 
been effective in helping to offset the increasing cost of drugs in the 
Medicaid program.  CMS also offered two technical comments, both of 
which reiterated information provided by OIG in the body of the report.  
We did not make any changes to the report based on CMSs comments.
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  iii    
  T A B L E   O F   C O N T E N T S  
EX ECUT I VE  SUM M ARY  .....................................i 
 
 
I NT RO DU CT I O N  ............................................ 1 
 
 
F I NDI NG S  .................................................  10 
Overall, prices and payment amounts for Medicaid brand-name             
drugs increased at about three times the inflation rate                
between 2005 and 2010 ..................................  10 
Significant increases in prices and payment amounts for             
brand-name drugs were offset by savings generated from the 
Medicaid drug rebate program ............................ 12 
 
 
CO NCL U SI O N  ............................................. 15 
Agency Comments and Office of Inspector General Response .... 15 
 
APP EN DI X ES  ............................................. 16 
  A:  Detailed Methodology for Identifying State Dispensing                           
Fees and Calculating Medicaid Payment Amounts                                   
for Ingredients ...................................... 16 
B:  Additional Information About Changes in Prices and Payment 
Amounts for the Top 50 Medicaid Brand-Name Drugs ...... 17 
C:  Agency Comments ................................... 19 
 
ACKNO WL E DG M E N T S .....................................  22      
   
I N TI NR OT DR UO CD TU I CO TN I  O N  
OBJECTIVE 
To assess changes in prices for brand-name prescription drugs since 
2005 and their potential financial impact on the Medicaid program. 
BACKGROUND 
According to a series of reports issued by AARP, published prices for the 
most widely used brand-name prescription drugs have risen 
significantly since 2002.1  For example, one of the more recent reports 
found that published prices for widely used brand-name drugs increased 
by 9.7 percent from April 2009 to March 2010, exceeding both the 
inflation rate and the rate of increase for the same group of drugs 
during any of the previous 8 years.2  Senator Bill Nelson expressed 
concern over the reported price increases and requested that the Office 
of Inspector General (OIG) review changes in drug pricing and their 
effects on Government health care programs, such as Medicaid. 
OIG has a long history of examining Medicaid payment amounts for 
prescription drugs, which are typically based on published prices like 
those examined in AARPs reports.  A number of OIG studies have 
demonstrated that these published prices, which do not represent actual 
transaction prices, often exceed actual drug acquisition costs.3  To 
address Senator Nelsons concerns, this current study looked beyond the 
reported increases in published prices by examining changes in 
transaction-based prices, as well as the financial effect of price changes 
on the Medicaid program. 
Medicaid Payments for Prescription Drugs 
All 50 States and the District of Columbia (hereinafter referred to as 
States) offer prescription drug coverage under Medicaid.  Beneficiaries 
typically obtain covered drugs from pharmacies, which bill and are 
 
1 Reports in AARPs Rx Watchdog series are available online at http://www.aarp.org. 
2 L. Purvis and S.W. Schondelmeyer, Rx Watchdog Report:  Brand Name Drug Prices 
Continue to Climb Despite Low General Inflation Rate, May 2010.  Accessed at 
http://www.aarp.org on May 19, 2010. 
3 OIG, Medicaid Pharmacy  Additional Analyses of the Actual Acquisition Cost of 
Prescription Drug Products, A-06-02-00041, September 2002; OIG, Deficit Reduction Act of 
2005:  Impact on the Medicaid Federal Upper Limit Program, OEI-03-06-00400, June 2007; 
OIG, A Comparison of Federal Upper Limit Amounts to Acquisition Costs, Medicare 
Payment Amounts, and Retail Prices, OEI-03-08-00490, August 2009. 
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  1      
   
I N T R O D U C T I O N  
reimbursed by State Medicaid agencies.4  In 2005, Medicaid paid in 
excess of $43 billion for prescription drugs; however, drug expenditures 
decreased by almost half in the following year, when drug coverage for 
dual eligible beneficiaries (i.e., beneficiaries eligible for both Medicaid 
and Medicare) shifted from Medicaid to Medicare Part D.  Since 2006, 
Medicaid payments for prescription drugs have remained relatively 
steady.  In 2009, Medicaid drug expenditures totaled approximately    
$26 billion (not including rebates).  Brand-name drugs generally 
account for about 80 percent of the total dollars reimbursed. 
Federal regulations require, with certain exceptions, that each State 
Medicaid agencys reimbursement for covered outpatient drugs not 
exceed (in the aggregate) the lower of the estimated acquisition cost 
plus a reasonable dispensing fee or the providers usual and customary 
charge to the public.5  The Centers for Medicare & Medicaid Services 
(CMS) allows States the flexibility to define estimated acquisition cost, 
with most States basing their calculations on the average wholesale 
prices (AWP) or wholesale acquisition costs (WAC) published in national 
compendia, adjusted by a certain percentage.6, 7, 8  
The AWP is not defined in law or regulation.  Rather, it is a list price 
that is typically either suggested by the manufacturer or calculated 
based on a markup of another price, such as WAC.9  Pursuant  to the 
Social Security Act (the Act), the WAC is defined as the manufacturer's 
list price for the drug or biological to wholesalers or direct purchasers in 
the United States as reported in wholesale price guides or other 
publications of drug or biological pricing data.10  WACs and AWPs do 
 
4 Most States require some beneficiary cost sharing for Medicaid prescription drugs.  In the 
fourth quarter of 2010, 40 States required copayments from beneficiaries, ranging from 
$0.50 to $3 per prescription.  One State required certain beneficiaries to pay 2.5 percent of 
drug costs in the form of coinsurance (up to $300).  The remaining 10 States did not require 
any beneficiary cost sharing for prescription drugs. 
5 42 CFR  447.512.   
6 CMS, Medicaid Prescription Reimbursement Information by State  Quarter Ending 
December 2010, accessed at www.cms.gov on January 28, 2011.  
7 States also have flexibility when determining dispensing fees.  In the fourth quarter of 
2010, State dispensing fees for brand-name drugs ranged from $1.50 to $10.64, excluding 
fees for compounded and mail-order prescriptions and intravenous therapy.   
8 To limit reimbursement amounts for certain multiple-source drugs, Medicaid also uses the 
Federal upper limit (FUL) and State maximum allowable cost programs.   
9 First Data Bank, Inc., NDDF Plus Documentation, April 2008. 
10 Section 1847A(c)(6)(B) of the Act. 
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  2      
   
I N T R O D U C T I O N  
not represent actual transaction prices and do not include prompt pay 
or other discounts, rebates, or price reductions.11   
The Medicaid Drug Rebate Program 
For Federal payment to be available for covered outpatient drugs under 
Medicaid, the Act mandates that drug manufacturers enter into rebate 
agreements with the Secretary of Health & Human Services and pay 
quarterly rebates to States.12, 13  As a result of these rebates, Medicaid 
recouped approximately one-third of its expenditures for prescription 
drugs between 2006 and 2009, yielding an average annual savings of 
about $8 billion.   
As part of the Medicaid drug rebate program, manufacturers must 
provide CMS with the average manufacturer price (AMP) for each of 
their national drug codes (NDC) on a quarterly basis.14  An NDC is a 
unique 11-digit identifier that represents a specific manufacturer, 
product, and package size.  During the period covered by this review, 
the AMP was generally defined in statute as 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.15, 16   
The Medicaid unit rebate amount (URA) for any given drug generally 
depends on the quarterly AMP submitted by the manufacturer, as well 
as whether the drug is a brand-name or generic.  Manufacturers pay a 
higher rebate for brand-name drugs than for generic drugs.  From 1996 
to 2009, the URA for a generic drug was 11 percent of the AMP and the 
basic URA for a brand-name drug was the greater of 15.1 percent of the  
 
11 First Data Bank, Inc., NDDF Plus Documentation, April 2008. 
12 Sections 1927(a)(1) and (b)(1) of the Act. 
13 Sections 1927(k)(23) of the Act define a covered outpatient drug.   
14 Section 1927(b)(3) of the Act. 
15 Section 1927(k)(1) of the Act. 
16 Section 2503 of the Patient Protection and Affordable Care Act (Affordable Care Act), 
P.L. 111-148, changed the definition of AMP, effective October 2010.  However, those 
changes are not relevant for the purposes of this study. 
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  3      
   
I N T R O D U C T I O N  
AMP or the difference between the AMP and best price.17, 18, 19  If the 
AMP for a brand-name drug has risen faster than inflation, then the 
drugs manufacturer must pay an additional rebate over and above the 
basic URA.20   
CMS calculates a URA for each NDC and transmits that information to 
States.  States then determine the total quarterly rebates that 
participating manufacturers owe by multiplying the URA for a specific 
drug by the number of units of that drug dispensed to beneficiaries in 
that quarter. 
METHODOLOGY 
Scope 
For this study, we selected all brand-name drugs (i.e., NDCs) used by 
Medicaid beneficiaries in 2009 and calculated median changes in their 
WACs, AMPs, and Medicaid payment amounts during the 5-year period 
between the first quarter of 2005 and the first quarter of 2010.  Because 
data on Medicaid rebates were not available for 2010, we performed the 
same calculations described above for rebate-adjusted Medicaid  
 
17 Section 1927(c) of the Act. 
18 Pursuant to  1927(b)(3)(A)(i)(II) of the Act, manufacturers must provide a quarterly 
best price for each of their brand-name drugs.  Best price is generally defined by                        
 1927(c)(1)(C) of the Act as the lowest price available from the manufacturer to any 
purchaser in the United States, with certain exceptions. 
19 Effective January 2010,  2501(a) of the Affordable Care Act increases the URA for 
brand-name drugs to the greater of 23.1 percent of the AMP or the difference between AMP 
and best price (with certain exceptions).  Section 2501(b) of the Affordable Care Act 
increases the URA for generic drugs to 13 percent. 
20 Section 1927(c)(2) of the Act.  To determine whether a brand-name drug is subject to the 
increased rebate amount, CMS compares the reported AMP for a given quarter to its 
inflation-adjusted baseline AMP.  The baseline AMP for a drug is the AMP for the first 
quarter after the drugs initial market date.  To adjust the baseline AMP for inflation, CMS 
first divides the baseline AMP by the baseline consumer price index for all urban consumers 
(consumer price index), which is the consumer price index for the first month prior to the 
first quarter after the drugs initial market date.  The result of that calculation is then 
multiplied by the quarterly consumer price index, which is the consumer price index for the 
month prior to the quarter being calculated.  If the reported AMP is greater than the 
inflation-adjusted baseline AMP, then the difference is added to the URA. 
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  4      
   
I N T R O D U C T I O N  
payment amounts during the 4-year period between the first quarter of 
2005 and the first quarter of 2009.21 
Data Sources and Data Collection 
We obtained files from CMS containing Medicaid drug utilization data 
for the 5-year period between 2005 and 2010.  These files, which were 
current as of July 19, 2010, included the total Medicaid expenditures 
(ingredient costs plus dispensing fees), the total number of 
prescriptions, and the total number of units dispensed by each State for 
each NDC in each quarter.22  In addition, CMS provided us with States 
dispensing fees for the first quarter of each year from 2005 to 2010.  We 
also obtained CMSs AMP data for the first quarter of each year 
between 2005 and 2010, including the URA for each NDC and whether 
that NDC represented a brand-name or generic drug.  AMP data for the 
first quarters of 2005 through 2009 were current as of July 13, 2010.  
AMP data for the first quarter of 2010 were current as of May 10, 2010. 
As an additional source for determining whether an NDC represents a 
brand-name or generic drug, we downloaded the Medicaid drug product 
file for the second quarter of 2010 from CMSs Web site, which was the 
most current file available at the time of our analysis.23 
We obtained WACs from 2005 through 2010 from First Data Banks 
National Drug Data File.  WACs were available monthly rather than 
quarterly; therefore, we used data from March of each year when 
tracking this pricing point.   
To examine price trends for consumer goods in general, we used the 
consumer price index as calculated by the Bureau of Labor Statistics 
(BLS).  According to BLS, the consumer price index measures the 
average change over time in the prices paid by urban consumers for a  
 
21 We were unable to obtain URAs for the first quarter of 2010 from CMS because the 
agencys systems had not yet been modified to reflect the rebate changes implemented by 
the Affordable Care Act.  In lieu of calculating and sending URAs to States to determine the 
rebate amounts owed by participating manufacturers, CMS instructed manufacturers to 
calculate and pay first-quarter 2010 rebates directly to States in accordance with the rebate 
changes. 
22 At the time of our analysis, Arizona did not participate in the rebate program and had no 
reported utilization data.  Therefore, Arizona was not included in our review. 
23 CMS, Medicaid Drug Rebate Program Drug Product Data, accessed at 
http://www.cms.gov on August 10, 2010. 
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  5      
   
I N T R O D U C T I O N  
market basket of consumer goods and services.24  For the purposes of 
this study, we used the consumer price index for all items, with 
adjustments made for seasonal variations.  Because the consumer price 
index is calculated monthly rather than quarterly, we used data from 
March of each year when tracking this measure. 
Analysis Variables Defined 
For the purposes of this report, the points of comparison used to 
examine pricing and payment trends are defined as follows: 
WACs.  A WAC is a published price that does not represent actual sales 
transactions and does not account for price concessions.  WACs and 
other published prices, such as AWPs, are often used by States to 
establish Medicaid payment amounts.25  
AMPs.  Generally speaking, an AMP is the average price paid by 
wholesalers for a drug distributed to pharmacies, accounting for certain 
price concessions.  AMPs are based on actual sales transactions and are 
used to calculate Medicaid URAs. 
Medicaid payment amounts.  A Medicaid payment amount is the average 
per-unit amount jointly paid by the Federal Government and State 
Medicaid agencies to cover pharmacies ingredient costs for an 
outpatient prescription drug.  Medicaid payment amounts do not 
include dispensing fees and do not account for rebates collected under 
the rebate program. 
Rebate-adjusted Medicaid payment amounts.  A rebate-adjusted payment 
amount is the Medicaid payment amount minus the URA paid to States by 
manufacturers.  The rebate-adjusted payment amount represents the net 
cost to Medicaid for an outpatient prescription drug. 
 
24 BLS, Consumer Price Index Frequently Asked Questions, accessed at http://www.bls.gov 
on December 8, 2010.  According to BLS, the all-urban consumer group represents about                  
87 percent of the total U.S. population and includes professionals, the self-employed, the 
poor, the unemployed, and retired people, as well as urban wage earners and clerical 
workers.  Not included in the CPI are the spending patterns of people living in rural 
nonmetropolitan areas, farm families, people in the Armed Forces, and those in institutions, 
such as prisons and mental hospitals. 
25 We did not include AWPs in our analysis because they have typically been calculated as a 
markup of WACs and therefore generally have rates of change that are identical to the 
rates of change in WACs.   
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  6      
   
II NN TT RR OO DD UU CC TT II OO NN   
Inflation rate.  The inflation rate represents changes in the consumer price 
index, which reflects spending patterns for almost all residents of urban or 
metropolitan areas for all goods and services purchased for consumption. 
Analysis of All Brand-Name Drugs Reimbursed by Medicaid 
Using the utilization, AMP, and drug product files, we identified                 
6,821 NDCs representing brand-name drugs paid for by Medicaid in 
2009.26  We calculated changes in prices and payments for these drugs 
and compared those changes to the inflation rate. 
Changes in drug prices.  To capture trends in prices for brand-name 
drugs as a whole, we first calculated the total percentage changes in 
WACs and AMPs for each NDC over the entire 5-year period between 
the first quarter of 2005 and the first quarter of 2010.  We then used 
first-quarter data in each year to calculate annual percentage changes 
in WACs and AMPs for each NDC.  Using those data, we then 
calculated median total rates of change and median annual rates of 
change in WACs and AMPs for the entire group of brand-name drugs 
over the past 5 years.  The number of Medicaid brand-name NDCs with 
WACs and AMPs in each year is listed in Table 1.   
Table 1:  Number of NDCs Included in OIGs Analysis of Price Changes 
    Number of Brand-Name NDCs   
With   With  
Medicaid  Rebate-Adjusted 
First Quarter                Payment  Medicaid Payment 
of the Year  With AMPs  With WACs  Amounts  Amounts 
2005  4,168  3,595  3,582  3,355 
2006  4,734  4,220  4,066  3,816 
2007  5,350  4,832  4,633  4,245 
2008  5,932  5,436  5,219  4,594 
2009  6,426  5,966  5,905  5,225 
2010  6,193  6,227  5,894  N/A 
OIG identified 6,821 NDCs representing brand-name drugs paid for by Medicaid in 2009.  For the purposes of our study, 
Medicaid payment amounts represent the ingredient cost portion only.   
Source:  OIG analysis of AMPs and Medicaid payment amounts from the first quarter of 2005 to the first quarter of 2010 and 
WACs from March 2005 to March 2010. 
 
26 Four States (California, Kansas, Missouri, and New York) had utilization data for only 
three of the four quarters of 2009; two States (Alabama and Arkansas) had utilization data 
for only two of the four quarters in 2009; and one State (Wisconsin) had no utilization data 
for any quarter of 2009.  
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  7      
   
I N T R O D U C T I O N  
Changes in Medicaid payment amounts.  For the first quarter of every 
year from 2005 to 2010, we calculated an average Medicaid payment 
amount per unit for each brand-name NDC.27  Because Medicaids total 
expenditure data include dispensing fees, we calculated the average 
Medicaid payment amount for only the ingredient cost by subtracting 
the total dispensing fees from the total expenditures for each drug.  To 
calculate total dispensing fees, which vary by State, we multiplied each 
States dispensing fee by the total number of prescriptions dispensed for 
each drug in that State.  We then summarized the ingredient-cost 
expenditures for each drug across States and divided those total 
expenditures by the total units.  For more details regarding our 
calculation of ingredient costs and the use of dispensing fees, see 
Appendix A. 
We calculated the total percentage change in Medicaid payment 
amounts for each NDC from the first quarter of 2005 to the first quarter 
of 2010, as well as the year-to-year percentage changes.  Using those 
data, we then calculated median total rates of change and median 
annual rates of change in Medicaid payment amounts for the entire 
group of brand-name drugs during the 5-year period under review.   
To determine the extent to which any increases in Medicaid payment 
amounts were offset by increases in Medicaid rebate amounts, we 
subtracted the URA from the average Medicaid payment amount per 
unit for each brand-name drug.  We then calculated changes in these 
rebate-adjusted payment amounts.  Because rebate amounts were not 
available for the first quarter of 2010, we were able to calculate median 
rates of change in rebate-adjusted payment amounts only for the              
4-year period between 2005 and 2009.  
The number of Medicaid brand-name NDCs with ingredient costs and 
rebate-adjusted reimbursement amounts is specified in Table 1.   
Changes in the consumer price index.  To measure changes in the 
inflation rate, we calculated the total percentage change in the 
consumer price index over the entire 5-year period between March 2005 
 
27 Some States did not have utilization data for the first quarter of every year between 2005 
and 2010.  South Dakota had no utilization data for the first quarter of 2007; Wisconsin had 
no utilization data for the first quarter of 2009; and Alabama, Arkansas, California, Kansas, 
Nevada, New York, Rhode Island, South Dakota, and Wisconsin had no utilization data for 
the first quarter of 2010. 
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  8      
   
II NN TT RR OO DD UU CC TT II OO NN   
and March 2010, as well as the total percentage change in the consumer 
price index over the 4-year period between March 2005 and March 2009.  
We also calculated year-to-year percentage changes in the consumer 
price index.   
Analysis of High-Dollar Brand-Name Drugs Reimbursed by Medicaid 
To determine whether pricing and payment trends differed for                     
high-dollar Medicaid drugs, we selected the 50 NDCs representing 
brand-name drugs that had the highest Medicaid expenditures in 2009.  
We then compared the rates of change in prices and payment amounts 
for each of the top 50 NDCs (as calculated above) to the rates of change 
in prices and payment amounts for brand-name drugs as a whole.  
Limitations 
Because drugs reimbursed by Medicaid in 2009 may not have been 
marketed or covered in previous years, prices and Medicaid payment 
amounts were not available for all brand-name drugs in all 5 years 
under review.  Therefore, the number of drugs in our analysis files 
tended to decrease as we trended back in time (see Table 1 on           
page 7).   
We did not verify the accuracy or completeness of CMSs data or the 
accuracy of data in First Data Banks National Drug Data File.  
Furthermore, AMP data submitted by manufacturers are subject to 
revision.  Because manufacturers are generally required to report any 
revisions to their AMP data within 12 quarters from the quarter in 
which the data were initially due, some of the AMPs and URAs may 
have changed since the time of our analysis. 
We did not evaluate the appropriateness of Medicaid payment amounts 
for brand-name drugs relative to pharmacy acquisition costs.  Also, in 
calculating the per-unit net cost of drugs to Medicaid, we did not include 
the additional rebates that individual State Medicaid agencies are 
permitted to negotiate and collect from manufacturers.   
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors 
General on Integrity and Efficiency. 
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  9      
   
 F I N D I N G S  
For brand-name drugs covered 
Overall, prices and payment amounts for Medicaid               
by Medicaid, WACs, AMPs, and 
brand-name drugs increased at about three times 
Medicaid payment amounts rose 
the inflation rate between 2005 and 2010 
about three times faster than 
the inflation rate between 2005 and 2010.  Over this 5-year period, 
WACs for all Medicaid brand-name drugs increased 34 percent at the 
median, AMPs increased 40 percent at the median, and payment 
amounts increased 39 percent at the median.  During those same                    
5 years, the inflation rate increased only 13 percent.   
Increases in prices and payment amounts for Medicaid brand-name drugs 
outpaced the inflation rate in each individual year as well 
In addition to outpacing overall inflation from 2005 to 2010, median 
increases in WACs, AMPs, and Medicaid payment amounts outpaced 
the inflation rate in each of the 5 years under review.   
WACs for Medicaid brand-name drugs consistently increased about 5 percent per 
year, while the inflation rate increased no more than 4 percent per year.  As 
shown in Chart 1, the median annual increase in WACs for all Medicaid 
brand-name drugs remained constant from 2005 to 2010 at a rate of 
approximately 5 percent.  During that same time, the inflation rate did not 
rise above 4 percent and actually dipped below zero over the 1-year period 
ending with the first quarter of 2009.  From the first quarter of 2009 to the 
first quarter of 2010, the median increase in WACs was more than double 
the inflation rate.    
 
Chart 1:  Medicaid Brand-Name Drugs:  Median Annual Increases  
in WACs Outpaced the Inflation Rate From 2005 to 2010 
 
8%
 
e
g 6%
n
  ha
C
e  4%
  g
a
nt
  ce 2%
r
e
P
  n  0%
a
di
  Me
-2%
  2005 2006 2007 2008 2009
2006 2007 2008 2009 2010
 
  WAC Inflation Rate
Source:  OIG 2010 analysis of WAC and consumer price index data from March 2005 to March 2010.   
 
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  10      
   
F I N D I N G S  
AMPs and Medicaid payment amounts fluctuated at roughly the same rate, 
outpacing the inflation rate in every year, often by a substantial margin.  During 
the 5-year period between 2005 and 2010, the amount Medicaid paid to 
cover pharmacies ingredient costs for brand-name drugs fluctuated at 
roughly the same rate as manufacturers AMPs, which are based on actual 
sales transactions.  As shown in Chart 2, the median annual rate of 
increase for both points of comparison grew substantially from 2005 to 
2008 but then slowed from 2008 to 2010.28    
 
Chart 2:  Medicaid Brand-Name Drugs:  Median Annual          
Increases in AMPs and Medicaid Payment Amounts Outpaced                 
the Inflation Rate From 2005 to 2010   
  10%  
 
e 8%
g
n
  ha
C 6%
e 
  g
a
nt 4%
e
  c
r
e 2%
P
  n 
a
di 0%
  Me
-2%
 
2005 2006 2007 2008 2009
 
2006 2007 2008 2009 2010
 
AMP Medicaid Payment Amount Inflation Rate
 
Source:  OIG 2010 analysis of AMP data and Medicaid utilization data from the first quarter of 2005 to the first 
q uarter of 2010 and consumer price index data from March 2005 to March 2010.   
 
 
28 The accelerated median rate of increase in AMP between 2007 and 2008 generally 
coincides with a number of significant AMP-related changes that took effect as a result of 
the Deficit Reduction Act of 2005, P.L. 109-171.  Such changes included requiring 
manufacturers to determine AMPs without regard to customary prompt pay discounts and 
using AMPs to establish FUL amounts for certain multiple-source drugs in the Medicaid 
program.  Regulations implementing these provisions took effect in October 2007; however, 
on December 19, 2007, the U.S. District Court for the District of Columbia issued a 
preliminary injunction prohibiting CMS from using AMPs in a way that affects Medicaid 
reimbursement rates (National Association of Chain Drug Stores, et al., v. U.S. Department 
of Health & Human Services, et al., Civil Action No. 1:07cv02017).  This injunction was 
vacated in December 2010.   
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  11      
   
F I N D I N G S  
In each year, the median increases in AMPs and Medicaid payment 
amounts rose faster than the inflation rate for other consumer goods 
and services.  As shown in Chart 2, discrepancies between the inflation 
rate and the two other points of comparison were greatest between 2006 
and 2009, when annual median increases in AMPs and Medicaid 
payment amounts were at least double the increases in the consumer 
price index.  In fact, between 2008 and 2009, AMPs and payment 
amounts for all Medicaid brand-name drugs each grew about 6 percent 
at the median while the cost of other common consumer goods and 
services shrank by almost half a percent. 
Prices and payment amounts increased at a higher rate for the                         
top 50 Medicaid brand-name drugs than for brand-name drugs as a whole 
For the 50 Medicaid brand-name drugs with the highest expenditures, 
total median increases in prices and payment amounts from 2005 to 
2010 not only outpaced the inflation rate, but also outpaced total 
median increases in prices and payment amounts for brand-name drugs 
as a whole.   
During the 5-year period under review, WACs and AMPs for the top            
50 brand-name drugs each increased a total of 49 percent at the median 
and Medicaid payment amounts increased 43 percent at the median 
(compared to total median increases of 34 percent, 40 percent, and                 
39 percent, respectively, for brand-name drugs as a whole).  This 
pattern held true not only for the top 50 drugs in the aggregate, but also 
for the majority of individual drugs in the top 50.  For additional 
information about changes in prices and payment amounts for the top 
50 Medicaid brand-name drugs, see Appendix B. 
 
Significant increases in prices and payment amounts  We found that when the                  
per-unit payment amounts for 
for brand-name drugs were offset by savings 
all Medicaid brand-name 
generated from the Medicaid drug rebate program 
drugs were adjusted to 
 
account for rebates paid to States by manufacturers, the per-unit net 
cost to Medicaid increased at a much lower rate than other points of 
comparison between 2005 and 2009.29  While WACs, AMPs, and 
unadjusted Medicaid payment amounts each increased by roughly                      
 
29 Because URAs were not available for the first quarter of 2010, we were able to examine 
the effects of rebates on Medicaid payment amounts only for the period from 2005 to 2009.   
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  12      
   
FF II NN DD II NN GG SS   
30 percent over the 4-year period under review and the consumer price 
index increased by 10 percent, rebate-adjusted Medicaid payment 
amounts for all brand-name drugs increased by only 2 percent.  In other 
words, although Medicaid payment amounts for brand-name drugs rose 
faster at the median than inflation, rebates paid by manufacturers 
helped protect the program from rising costs.   
Medicaids net costs for all brand-name drugs actually declined at the 
median in 3 of 4 years, lagging behind the inflation rate 
In 3 of the 4 years under review, rebate-adjusted payment amounts for 
Medicaid brand-name drugs actually declined at the median, dropping 
by as much as 3 percent over 1 year.  As shown in Chart 3, decreases in 
rebate-adjusted amounts during these 3 years lagged behind the 
inflation rate for other consumer goods and services.   
 
Chart 3:  Medicaid Brand-Name Drugs:  Rebate-Adjusted Medicaid 
Payment Amounts Declined at the Median in 3 of 4 Years  
  8%
 
e
g 6%
n
  ha
C
e  4%
  g
a
nt 2%
  ce
r
e
P 0%
  n 
a
di
  e -2%
M
  -4%
2005 2006 2007 2008
 
2006 2007 2008 2009
 
  Rebate-Adjusted Amount Inflation Rate
S ource:  OIG 2010 analysis of URAs and Medicaid utilization data from the first quarter of 2005 to the first quarter 
of 2009 and the consumer price index from March 2005 to March 2009.   
 
Overall, changes in Medicaid net costs for the top 50 drugs also lagged 
behind the inflation rate 
Trends in Medicaids net costs for the top 50 brand-name drugs closely 
resembled those for brand-name drugs as a whole, with rebates 
effectively mitigating rising prices and payments.  During the 4-year 
period between 2005 and 2009, rebate-adjusted Medicaid payment 
amounts for the top 50 drugs increased a total of only 6 percent at the 
median while the consumer price index increased 10 percent and WACs, 
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  13      
   
F I N D I N G S  
AMPs, and unadjusted Medicaid payment amounts each increased by 
more than a third.  
This pattern was evident not only for the top 50 drugs in the aggregate, 
but also for the majority of individual drugs with the highest 
expenditures.  We were able to calculate rebate-adjusted payment 
amounts for 35 high-dollar drugs for the entire period from 2005 to 
2009.  For many of these drugs, Medicaid net costs either increased at a 
lower rate than prices, unadjusted payment amounts, and inflation                
(15 of 35); or actually decreased (11 of 35).  For example, the                     
rebate-adjusted payment amount for one high-dollar drug decreased by 
31 percent over 4 years, while the WAC, AMP, and unadjusted payment 
amount increased between 27 and 40 percent (as shown in Table 2).30  
 
Table 2:  Changes in Pricing and Payment Amounts for One                                 
High-Dollar Brand-Name Drug Between 2005 and 2009  
First-Quarter  First-Quarter 
2005   2009  Dollar  Percentage 
Point of Comparison  Price per Unit   Price per Unit   Difference  Difference 
WAC  $3.96  $5.01  $1.05  27% 
AMP  $3.28  $4.39  $1.10  34% 
Medicaid Payment Amount  $3.68  $5.17  $1.48  40% 
Rebate-Adjusted Payment Amount  $2.97  $2.07  -$0.91  -31% 
The dollar differe nces between per-unit AMPs, Medicaid payment amounts, and rebate-adjusted payment amounts are off by                           
$0.01 because of rounding. 
Source:  OIG 20 10 analysis of AMP data and Medicaid utilization data from the first quarter of 2005 to the first quarter of 2009 and                            
WAC data from March 2005 to March 2009.   
   
For the remaining 9 of the 35 high-dollar drugs, rebate-adjusted 
payment amounts increased faster than inflation.  However, net costs 
for all but three of these increased at a lower rate than prices and 
unadjusted payment amounts.  
 
30 Section 1927(b)(3)(D) of the Act broadly guarantees the confidentiality of AMP data 
reported by manufacturers (with certain limited exceptions); therefore, we cannot disclose 
the names of the brand-name drugs in conjunction with AMP data. 
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  14      
   
 C O N C L U S I O N  
 A series of reports issued by AARP found that average increases in 
WACs for the most widely used brand-name prescription drugs far 
surpassed the price increases for other consumer goods and services.  
Given that Medicaid drug reimbursement amounts are typically based 
on published prices, such as WACs, AARPs findings raised concerns 
about the effects of the reported price increases on the Medicaid 
program.   
Taken as a whole, the results of our study indicate that price increases 
for brand-name drugs may not necessarily translate to corresponding 
increases in Medicaid costs.  Much like AARP, we found that median 
increases in WACs for Medicaid brand-name drugs outpaced the 
inflation rate during the 5-year period under review, as did AMPs and 
the amounts Medicaid paid to cover pharmacies ingredient costs.  
However, these increases were offset by rebates that manufacturers 
paid to States.  Because of the savings generated by the rebate program, 
Medicaids net costs for brand-name drugs actually increased at a lower 
rate than other points of comparison, including the inflation rate.  
Furthermore, States may have been deriving even greater benefit from 
the rebate program since January 2010, when the rebate percentage for 
brand-name drugs increased from 15.1 percent to 23.1 percent.  
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS expressed its belief that the Medicaid drug rebate program has 
been effective in helping to offset the increasing cost of drugs in the 
Medicaid program.  CMS also offered two technical comments, both of 
which reiterated information provided by OIG in the body of the report.  
We did not make any changes to the report based on CMSs comments.   
For the full text of CMSs comments, see Appendix C. 
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  15      
   
 AA PP PP EE NN DD II XX    ~~    AB   
Detailed Methodology for Identifying State Dispensing Fees and 
Calculating Medicaid Payment Amounts for Ingredients 
Generally speaking, State Medicaid agencies reimburse pharmacies for 
the ingredient costs of prescription drugs and for the costs of dispensing 
those drugs to beneficiaries.  However, the Centers for Medicare                         
& Medicaid Services Medicaid utilization data do not provide separate 
expenditure data for ingredient costs and dispensing fees; rather, they 
provide only the total Medicaid expenditures for each drug in each 
State.  To identify trends in ingredient costs for Medicaid brand-name 
drugs over the 5-year period between the first quarter of 2005 and the 
first quarter of 2010, it was necessary to subtract the total dispensing 
fees from the total expenditures for each national drug code (NDC) 
included in our study.   
Dispensing fees vary by State, and each State may have different 
dispensing fees for different types of drugs dispensed in different types 
of settings.  For the purposes of our study, we selected only those 
dispensing fees provided to outpatient, for-profit retail, and independent 
pharmacies.  Dispensing fees provided to nursing or long-term-care 
facilities were excluded from our analysis, as were dispensing fees for 
compounded drugs, unit dose drugs, and intravenous therapy.  Six 
States (Alaska, Nebraska, Tennessee, Texas, Utah, and Washington) 
had dispensing fees that could not easily be determined; therefore, 
utilization data from these States were excluded from our analysis.   
Dispensing fees for the remaining States ranged from $1.75 to $7.25. 
For the first quarter of each year from 2005 to 2010, we calculated total 
dispensing fees for each NDC in each State by multiplying the States 
dispensing fee by the total number of prescriptions dispensed in that 
State.  To identify total ingredient-cost expenditures for each NDC, we 
then subtracted the total dispensing fees from the total expenditures.  
We excluded any NDCs for which the ingredient cost was negative 
(assuming that this was the result of problematic expenditures data).  
To calculate an average Medicaid payment amount per unit for each  
brand-name NDC in our study, we then summarized the ingredient-cost 
expenditures for each drug across States and divided those total 
expenditures by the total units.   
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  16      
   
 A P P E N D I X   ~   B  
Additional Information About Changes in Prices and Payment 
Amounts for the Top 50 Medicaid Brand-Name Drugs  
For the top 50 Medicaid brand-name drugs, median annual increases in 
prices and unadjusted payment amounts not only outpaced the inflation 
rate, but also generally outpaced annual increases in wholesale 
acquisition costs (WAC), average manufacturer prices (AMP), and 
Medicaid payment amounts for brand-name drugs as a whole. 
As shown in Chart B-1a, median annual changes in WACs for the                       
top 50 drugs trended upward from 2005 to 2010, increasing from a low 
of approximately 6 percent in the first 2 years to a high of over                          
10 percent in the fifth year.  In contrast, median changes in WACs for 
brand-name drugs as a whole remained relatively constant at about                    
5 percent, so that by 2010 the median increase in WACs for drugs in the 
top 50 was double that for brand-name drugs as a whole.   
AMPs also typically increased at a higher rate for drugs in the                                  
top 50, particularly during the last 2 years under review.  Between 2008 
and 2010, median rates of increase for AMPs rose steadily for high-
dollar drugs but declined steadily for brand-name drugs as a whole.  As 
shown in Chart B-1b, AMPs for the top 50 drugs increased 11 percent at 
the median by 2010, whereas AMPs for all brand-name drugs increased 
only about 5 percent.  
Trends in median payment amounts for high-dollar drugs somewhat 
resembled those for brand-name drugs as a whole, with median rates of 
increase growing from 2005 to 2009 and declining from 2009 to 2010.  
However, as shown in Chart B-1c, median changes in unadjusted 
payment amounts were greater for the top 50 drugs, outpacing those for 
all brand-name drugs in 4 of the 5 years under review.   
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  17      
   
A P P E N D I X   ~   B  
Chart B-1.  Median Increases in WACs, AMPs, and Medicaid  
Payment Amounts Were Generally Greater for High-Dollar Drugs 
 
a.  WACs 
 
12.0%
 
e
  g 10.0%
n
a
  Ch 8.0%
  ge  All
a 6.0%
  ent Top 50
c
er 4.0%
  P
  dian  2.0%
e
  M 0.0%
2005 2006 2007 2008 2009
 
  2006 2007 2008 2009 2010
 
b.  AMPs 
 
12.0%
 
e
  ng 10.0%
a
h
  C 8.0%
  age  6.0% All
nt Top 50
  e
c
er 4.0%
  P
an  2.0%
  di
e
  M 0.0%
2005 2006 2007 2008 2009
 
2006 2007 2008 2009 2010
 
 
c.  Medicaid Payment Amounts 
12.0%
e
g 10.0%
n
a
h
C 8.0%
ge  All
a 6.0%
nt Top 50
e
c
er 4.0%
P
n 
a 2.0%
di
e
M 0.0%
2005 2006 2007 2008 2009
2006 2007 2008 2009 2010
Source:  Office of Inspector General 2010 analysis of WACs, AMP, and Medicaid utilization data from 2005 to 2010.   
  OEI-03-10-00260   RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  18  x  c 
A  P  PEN  D 
Agency Comments 
(~~ 	
DEPARTMENT OF HEALTH & HUMAN SERVICES  Centers for Medicare & Medioaid Services 
,S'r-
Administrator 
Washinglon. DC 20201 
JUN  2 9 2011
DATE: 
TO: 	 Daniel R. Levinson 

Inspector General 

FROM: 	 Donald M. Berwick, M:D. 

Administrator 

SUBJECT:  Office of Inspector General (OlG) Draft Report:  Medicaid Brand-Name Drugs: 
Rising Prices are Offset by Manufacturer Rebates (OEI-03-IO-00260) 
Thank you for the opportunity to review and comment on the OlG Draft Report entitled, 
"Medicaid Brand-Name Drugs: Rising Prices are Offset by Manufacturer Rebates," (OEI-03-10
00260). This report assesses changes in prices for brand-name prescription drugs since 2005 and 
their potential financial impact on the Medicaid program. The basis for the report was a series of 
reports issued by the American Association of Retired Persons (AARP) indicating that published 
prices for the most widely used brand-name prescription drugs have risen Significantly since 
2002, substantially outpacing inflation. To address Congressional concerns, this study looked 
beyond published prices to transaction based prices and Medicaid payments. 
While the OlG confirmed the AARP findings that price and payment amount increases did 
exceed the rate ofinflation, the OIG also found that price increases for brand-name drugs do not 
necessarily translate to corresponding increases in costs for the Medicaid program. The OlG 
stated that the price and payment increases were offset by the Medicaid drug rebate amounts that 
manufacturers paid to States. 
Specifically, the OIG found that overall, prices and payment amounts for Medicaid brand
name drugs increased at about three times the general rate ofinflation between 2005 and 
2010. Over this 5-year period, the OIG stated that Wholesale Acquisition Cost (WAC), 
Average Manufacturer Price (AMP), and Medicaid payment amounts increased between 34 
percent and 40 percent at the median, while the general inflation rate increased only 13 
percent.  In addition to outpacing the overall inflation rate, the OlG stated that these 
amounts outpaced the general inflation rate in each ofthe 5 years under review. The 01G 
also reported that the total median increases in prices and payment amounts for the 50 
Medicaid brand-name drugs with the .highest expenditures also outpaced general inflation 
rate as well as outpaced total increases in prices and payment amounts for brand-name drugs 
as a whole. 
However, the OIG noted that these increases in prices and payment amounts for brand-name 
drugs were offset by savings generated from the Medicaid. Drug Rebate Program. When the per
OEI0310-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  19      
   
A P P E N D I X   ~   C  
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  20      
   
A P P E N D I X   ~   C  
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  21      
   
  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 David Tawes, Director of the Medicare and Medicaid 
Prescription Drug Unit. 
Lauren McNulty served as the team leader for this study.  Central office 
staff who contributed include Kevin Manley.  
 
 
 
 
 
 
 
 
 
 
   
  OEI-03-10-00260  RISING PRICES FOR MEDICAID BRAND-NAME DRUGS ARE OFFSET BY REBATES  22    
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 & Human Services (HHS) 
programs, as well as the health and welfare of beneficiaries served by those programs.  This 
statutory mission is carried out through a nationwide network of audits, investigations, and 
inspections conducted by the following operating components: 
Office of Audit Services 
The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 
audits with its own audit resources or by overseeing audit work done by others.  Audits 
examine the performance of HHS programs and/or its grantees and contractors in carrying 
out their respective responsibilities and are intended to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and 
mismanagement and promote economy and efficiency throughout HHS. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud, waste, or abuse and promoting 
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 
of fraud and misconduct related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI utilizes its resources 
by actively coordinating with the Department of Justice and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to criminal 
convictions, administrative sanctions, and/or civil monetary penalties. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
OIG, rendering advice and opinions on HHS programs and operations and providing all 
legal support for OIGs internal operations.  OCIG represents OIG in all civil and 
administrative fraud and abuse cases involving HHS programs, including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program guidance, publishes fraud alerts, and provides other 
guidance to the health care industry concerning the anti-kickback statute and other OIG 
enforcement authorities.