Department of Health and Human Services
OFFICE OF 
 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
O  UTLIER AVERAGE 
 
M P
ANUFACTURER  RICES IN THE 
 
 
F U L
EDERAL  PPER  IMIT 
 
  P  
ROGRAM
 
 
 
 
Daniel R. Levinson  
Inspector General 
 
September 2009 
OEI-03-07-00740    
Office of Inspector General 
http://oig.hhs.gov 
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 
amended, is to protect the integrity of the Department of Health and Human Services 
(HHS) programs, as well as the health and welfare of beneficiaries served by those 
programs.  This statutory mission is carried out through a nationwide network of audits, 
investigations, and inspections conducted by the following operating components: 
Office of Audit Services 
The Office of Audit Services (OAS) provides 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.   
   
 E X E C U T I V E   S U M M A R Y  
OBJECTIVES
 
1.  To determine whether any Federal upper limit (FUL) drugs met the 
outlier criteria because of inconsistencies in how unit types were 
reported.  
2.  To determine whether the outlier average manufacturer prices 
(AMP) for FUL drugs are accurate. 
3.  To determine whether drugs with outlier AMPs are commonly 
available in the marketplace. 
BACKGROUND 
The Deficit Reduction Act of 2005 (DRA) made significant changes to 
Medicaids FUL program, which is designed to ensure that the Federal 
Government acts as a prudent buyer by taking advantage of current 
market prices for multiple-source drugs.  Under new DRA 
requirements, FUL amounts for most multiple-source drugs are to be 
based on 250 percent of the lowest reported AMP for each drug rather 
than 150 percent of the lowest price published in the national 
compendia of drug cost information.  The DRA provisions additionally 
require AMP data to be made available to both States and the public.   
As generally defined in statute, 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.  Manufacturers must 
provide the Centers for Medicare & Medicaid Services (CMS) with the 
AMP for each of their drug products on both a monthly and quarterly 
basis.  If a product has been discontinued, the manufacturer must 
provide CMS with the termination date. 
As reports by the Office of Inspector General (OIG) and the Government 
Accountability Office have previously shown, the lowest AMP for many 
FUL drugs falls below pharmacy acquisition costs even when multiplied 
by 250 percent.  To address this issue, CMS announced plans to remove 
outlier AMPs from the FUL calculation.  Pursuant to this outlier policy, 
CMS will exclude (with certain exceptions) the lowest AMP from the 
FUL calculation if it is more than 60 percent below the second-lowest 
AMP.  According to CMS, the outlier policy is designed to ensure that 
two or more drug products can be purchased at or below the FUL 
amount. 
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E X E C U T I V E   S U M M A R Y  
In preparation for changes to the FUL calculation, CMS has taken steps 
to ensure that AMP data submitted by manufacturers are correct.  In 
addition to requiring manufacturers to certify their pricing data, CMS 
contacted the manufacturers of certain drugs in March 2007 and 
encouraged them to review their AMP submissions for accuracy.  
However, very few manufacturers directly notified CMS as to whether 
their AMPs were accurate or inaccurate.  CMS has also reminded 
manufacturers to report termination dates of discontinued drug 
products in a timely manner. 
Although many Medicaid drug-related changes enacted by the DRA took 
effect on January 1, 2007, CMS has yet to use AMP data when 
establishing FUL amounts.  In December 2007, the U.S. District Court 
for the District of Columbia issued a preliminary injunction to prevent 
the implementation of AMP-based FULs.  In July 2008, the Medicare 
Improvements for Patients and Providers Act of 2008 directed CMS to 
refrain from implementing new FUL amounts or publicly disclosing 
AMP data until October 1, 2009.  Until that time, AMPs will remain 
confidential and FULs will continue to be based on published prices. 
This study examined 242 FUL drugs with AMPs that would have met 
CMSs outlier criterion if the changes enacted by the DRA had been in 
effect for January 2008.  We determined whether outlier AMPs for these 
drugs had a unit of submission that differed from that of other AMPs 
associated with the drugs.  In addition, we contacted the manufacturers 
of drug products with outlier AMPs and asked them to verify the 
accuracy of those AMP submissions.  We also asked them whether the 
products in question were commonly available to the retail pharmacy 
class of trade.   
FINDINGS 
Because of unit-type discrepancies, some AMPs may not have 
actually been outliers.  Of the 242 outlier AMPs identified by CMS,            
18 may only have appeared as outliers because of discrepancies in the 
unit types for which AMPs were reported.  Most of the outlier AMPs 
with inconsistent units of submission were reported in milliliters, 
whereas other AMPs for the same drugs were typically reported in units 
of each (which typically denotes a whole package, regardless of the 
amount of drug contained in that package).  Because these 18 drugs 
may not have been outliers, we did not determine whether their AMPs 
were accurate or whether the drug was commonly available.  
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E X E C U T I V E   S U M M A R Y  
According to manufacturers, most outlier AMPs were accurate.  We 
reviewed the accuracy of January 2008 AMPs for 185 of the 242 outlier 
drugs identified by CMS.  Of these 185 outlier AMPs, manufacturers 
reported that 81 percent (150 of 185) were accurate, 18 percent (33 of 
185) were inaccurate, and 1 percent (2 of 185) were potentially 
inaccurate.  According to corrected AMP data provided by 
manufacturers, over half of the inaccurate AMPs (18 of 33) would have 
remained outliers under CMSs current policy, even with revised data.  
As a result, these 18 AMPs would still have been excluded from CMSs 
FUL calculations.   
According to manufacturers, the vast majority of drug products with 
outlier AMPs were commonly available to the retail pharmacy class 
of trade.  Manufacturers reported that 89 percent of outlier drugs 
included in this review (165 of 185) were commonly available to the 
retail pharmacy class of trade.  Only 3 percent (6 of 185) were reported 
as not commonly available.  For an additional 3 percent (6 of 185), the 
manufacturer could not state with certainty that the products were 
commonly available.  The remaining 4 percent of outlier drugs (8 of 185) 
have been terminated by manufacturers and therefore should have been 
eliminated from FUL calculations before CMSs outlier policy was 
applied.   
RECOMMENDATIONS 
To ensure fair and adequate reimbursement, CMS plans to remove 
outlier AMPs from future FUL calculations.  In January 2008, AMPs for 
242 FUL drugs met CMSs definition of an outlier.  This study 
demonstrates that a large majority of these outlier AMPs are, according 
to manufacturers, accurate and reflective of sales to the retail pharmacy 
class of trade.  However, we found potential issues with approximately 
20 percent of the outlier AMPs for FUL drugs.  Some AMPs identified 
by CMS as outliers may only have appeared as such because of 
discrepancies in the unit of AMP submission.  Furthermore, according 
to manufacturers, some outlier AMPs are not accurate and would no 
longer be outliers if revised data were used.  Also, several outlier drug 
products are no longer sold by manufacturers and therefore should not 
be included in FUL calculations.    
We recognize that CMS has taken steps to proactively resolve potential 
problems with FUL amounts based on AMP data.  Furthermore, 
because CMS may set FULs based only on the data provided by 
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E X E C U T I V E   S U M M A R Y  
manufacturers, it is incumbent upon manufacturers to report accurate 
AMPs, termination dates, and units of measure for their covered 
outpatient drugs.   
OIG supports CMSs continuing efforts to ensure the integrity of future 
FUL amounts based on AMPs and further recommends that CMS: 
Examine the units of AMP submission for all FUL drugs before 
establishing FUL amounts. 
Direct manufacturers to periodically examine their monthly AMP 
calculations to ensure accurate reporting of data. 
Continue directing manufacturers to report termination dates for 
discontinued drug products as soon as they are known. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with our first and third recommendations but did not 
explicitly concur or not concur with our second recommendation. 
Without further information from OIG regarding the causes of the 
inaccurate AMPs identified in this report, CMS does not believe that 
our second recommendation can be implemented.  CMS believes it 
would not be beneficial to instruct manufacturers to reexamine their 
AMPs without giving them an indication of the specific problems that 
need to be addressed. 
However, directing manufacturers to periodically review their monthly 
AMP calculations could ensure more accurate reporting of data, even 
without detailed guidance.  As a result of OIGs work, some 
manufacturers examined and revised their monthly AMP calculations 
and did so without guidance on the problems that should be addressed.  
We will provide CMS with any explanations offered by manufacturers 
for their AMP revisions, including changes to lagged price concession 
data or chargeback smoothing methods.  We will also provide CMS with 
details regarding how inaccurate AMPs for individual drug products 
changed as a result of manufacturers corrections.   
  OEI-03-07-00740  OUTLIER AVERAGE MANUFACTURER PRICES IN THE FEDERAL UPPER LIMIT PROGRAM  iv   
 T A B L E   O F   C O N T E N T S  
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
 
 
I N T RO DU C T IO N . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 
 
 
F I N D ING S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 
  Because of unit-type discrepancies, some AMPs may not have             
actually been outliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 
  According to manufacturers, most outlier AMPs were accurate. . 12 
  According to manufacturers, the vast majority of drug products            
with outlier AMPs were commonly available to the                                 
retail pharmacy class of trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 
   
 
R E C OMME N DA TIO N S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 
Agency Comments and Office of Inspector General Response . . . 16 
 
 
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 
A:  Differences Between the Lowest and Second-Lowest Average 
Manufacturer Prices for Outlier Drugs . . . . . . . . . . . . . . . . . . 18 
B:  Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 
   
A CKN OW LEDGMEN TS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22   
   
 I N T R O D U C T I O N  
OBJECTIVES 
1.  To determine whether any Federal upper limit (FUL) drugs met the 
outlier criteria because of inconsistencies in how unit types were 
reported. 
2.  To determine whether the outlier average manufacturer prices 
(AMP) for FUL drugs are accurate. 
3.  To determine whether drugs with outlier AMPs are commonly 
available in the marketplace. 
BACKGROUND 
Pursuant to section 1927(e) of the Social Security Act (the Act), as 
amended by the Deficit Reduction Act of 2005 (DRA), P.L. No. 109-171, 
Medicaid FULs for most multiple-source drugs are to be based on 250 
percent of the lowest AMP submitted by any manufacturer of the drug.  
As reports by the Office of Inspector General (OIG) and the Government 
Accountability Office (GAO) have shown, the lowest AMP for many of 
these drugs falls below pharmacy acquisition costs even when 
multiplied by 250 percent.1  Pharmacy and patient groups have 
expressed great concern that this could impact Medicaid beneficiaries 
access to certain products.2 
In an attempt to address this issue, the Centers for Medicare & 
Medicaid Services (CMS) announced plans to remove outlier AMPs from 
the FUL calculation.  Pursuant to 42 CFR  447.514(c), published July 
17, 2007, CMS will exclude the lowest AMP from the FUL calculation if 
it is less than 40 percent of the second-lowest AMP, with certain 
exceptions.3  In other words, the lowest AMP is considered to be an 
outlier if it is more than 60 percent below the second-lowest AMP.  
 
1 OIG, Deficit Reduction Act of 2005:  Impact on the Medicaid Federal Upper Limit 
Program (OEI-03-06-00400), June 2007 and GAO, Medicaid Outpatient Prescription 
Drugs:  Estimated 2007 Federal Upper Limits for Reimbursement Compared with Retail 
Pharmacy Acquisition Costs (GAO-07-239R), December 2006.  These studies were 
conducted before changes to the definition of an AMP, such as the exclusion of prompt-pay 
discounts, took effect.   
2 An example includes the National Association of Chain Drug Stores, Implications of 
Federal Medicaid Generic Drug Payment Reductions for State Policymakers, May 2007 
Issue Brief. 
3 Pursuant to 42 CFR  447.514(c)(3), the outlier policy will not apply when the FUL group 
includes only the brand name drug and the first new generic or authorized generic drug 
that has entered the market.   
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I N T R O D U C T I O N  
 
According to CMS, the outlier policy is designed to help ensure that two 
or more drug products can be purchased at or below the FUL amount.4  
In OIGs report, Deficit Reduction Act of 2005:  Impact on the Medicaid 
Federal Upper Limit Program (OEI-03-06-00400), we found that                  
14 percent of the lowest AMPs met the outlier threshold in the second 
quarter of 2006.   
Medicaid Reimbursement for Prescription Drugs 
Currently, all 50 States and the District of Columbia (hereinafter 
referred to as States) offer prescription drug coverage under Medicaid.  
Medicaid beneficiaries typically obtain covered drugs from pharmacies.  
Pharmacies bill State Medicaid agencies using national drug codes 
(NDC), which are 11-digit identifiers that indicate a drugs 
manufacturer, product dosage form, and package size.  Pharmacies are 
then reimbursed for these drugs by State Medicaid agencies.  In 
calendar year 2007, Medicaid payments for prescription drugs totaled 
approximately $22 billion.5 
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 for the drugs.6  CMS allows States the flexibility to 
define estimated acquisition cost, with most States basing their 
calculations on list prices published in the national drug compendia 
(e.g., Micromedexs Redbook).  For certain drugs, States also use the
 
4 72 Fed. Reg. 39216 (July 17, 2007). 
5 Calculated using national summary data for 2007.  This amount includes both Federal 
and State payments.  Rebates collected by States under the Medicaid drug rebate program 
(section 1927 of the Act) were not subtracted from this figure.  Because of problems with 
South Dakotas utilization data for the third quarter of 2007, payments for this State were 
excluded from the total.  Data for additional States may not have been complete at the time 
of extraction.  Therefore, the 2007 drug expenditures presented in this report may 
underestimate Medicaids actual expenditures.  National and State utilization data are 
available online at http://www.cms.hhs.gov/MedicaidDrugRebateProgram/SDUD/list.asp.  
Accessed on September 17, 2008. 
6 42 CFR  447.331(b).  On July 17, 2007, CMS issued a final regulation that would remove 
42 CFR  447.331 but include the unchanged substance of this section in a new section,     
42 CFR  447.512.  
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I N T R O D U C T I O N  
   
FUL program or State maximum allowable cost programs in setting 
reimbursement amounts.7   
The FUL Program  
The FUL program was created to ensure that the Federal Government 
acts as a prudent buyer by taking advantage of current market prices 
for multiple-source drugs.  CMS publishes the FUL list, as well as any 
revisions, on its Web site.  CMS establishes a FUL for specific forms and 
strengths for each multiple-source drug on the list.     
Prior to the DRA, section 1927(e)(4) of the Act and 42 CFR  447.332 
required CMS to establish a FUL amount for a drug when three or more 
formulations of the drug were rated as therapeutically equivalent by the 
Food and Drug Administration and at least three suppliers of the drug 
were listed in current editions (or updates) of the published compendia 
of cost information for drugs available for sale nationally.   
As originally set forth in 42 CFR  447.332, FUL amounts are equal to 
150 percent of the price published in a national compendia for the least 
costly therapeutically equivalent product that can be purchased by 
pharmacists in quantities of 100 tablets or capsules, plus a reasonable 
dispensing fee.  For liquid drugs or drugs not typically available in 
quantities of 100, the FUL amount is based on the price for a commonly 
listed size of the product.  States are required to meet FUL 
requirements only in the aggregate, i.e., a State may pay more than the 
FUL amount for certain products as long as these payments are 
balanced out by lower payments for other products. 
Changes to FULs Under the Deficit Reduction Act of 2005 
The DRA made significant changes to the FUL program.  To be included 
on the FUL list under DRA requirements, a drug needs only two 
therapeutically and pharmaceutically equivalent versions and must be 
listed in a nationally available pricing compendium by a minimum of 
only two suppliers.8  In addition, FUL amounts are to be based on                
250 percent of the lowest reported AMP for each drug rather than               
150 percent of the lowest price published in the national compendia.9   
 
7 Many States have implemented maximum allowable cost programs to limit 
reimbursement amounts for certain drugs.  Individual States determine the types of drugs 
that are included in their maximum allowable cost programs and the methods by which the 
maximum allowable cost for a drug is calculated. 
8 DRA  6001(a)(1)(B) and (a)(3); 42 CFR  447.514(a)(1)(i) and (ii). 
9 DRA  6001(a)(2). 
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I N T R O D U C T I O N  
 
As generally defined in section 1927(k)(1) of the Act, an 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.10  The AMP is generally calculated as a 
weighted average of prices for a manufacturers package sizes of a drug 
sold during a given quarter and is reported for the lowest identifiable 
quantity of the drug as measured by one of eight unit types:  capsule, 
tablet, milliliter, gram, each, suppository, transdermal patch, and 
injectable antihemophilic factor units.11 12  (For example, an AMP 
might be submitted for 1 tablet, 1 milliliter, or 1 gram.)   
Pursuant to sections 1927(b)(3) and (k)(8) 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.13  If 
an NDC has been discontinued, the manufacturer must provide CMS 
with the products termination date.14 15   
Under the DRA changes, manufacturers must also report AMPs on a 
monthly basis, with submissions due 30 days after the end of the 
month.16  The DRA provisions additionally require CMS to disclose 
AMP data to both States and the public.17 
 
10 Prior to the enactment 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. 
11 These eight unit types are specified by CMS in its Definitions for Drug Product Data.  
Available online at http://www.cms.hhs.gov/MedicaidDrugRebateProgram/downloads/ 
proddata.pdf.  Accessed on September 23, 2008. 
12 Because AMPs are averaged across different package sizes of a drug, the most commonly 
used package size will no longer be considered when computing new FUL amounts.   
13 Quarterly AMP data are collected for the purposes of calculating rebates owed to 
Medicaid by drug manufacturers. 
14 CMS, Drug Manufacturer Release Number 79 (August 15, 2007), and 72 Fed. Reg. 39142, 
39207 (July 17, 2007). 
15 According to CMS, a drugs termination date depends on the reason it is being 
discontinued by the manufacturer.  If a drug product is removed from the shelf immediately 
because of a health or safety concern, the termination date is the date removed.  Otherwise, 
the termination date is the shelf life of the last batch sold.  In either case, the manufacturer 
must continue reporting the products AMP for 1 full year after its termination date. 
16 DRA  6001(b)(1)(A). 
17 DRA  6001(b).  Prior to the DRA, section 1927(b)(3)(D) of the Act guaranteed the 
confidentiality of AMP data reported by manufacturers (with certain exceptions).   
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I N T R O D U C T I O N  
FUL amounts established under the DRA are to be based on monthly, 
rather than quarterly, AMP data18 and will derive from AMPs 
representing transactions that occurred 3 months previously.19  For 
example, if new DRA requirements had been in effect during August 
2008, FUL amounts published for that month would have been based on 
AMPs submitted by manufacturers for sales in May 2008.   
In preparation for changes to the FUL calculation, CMS has taken steps 
to ensure that AMP data submitted by manufacturers are correct.  For 
example, CMS requires manufacturers to certify their monthly and 
quarterly AMPs before submission.  Furthermore, CMS contacted              
100 manufacturers in March 2007 and encouraged them to review the 
accuracy of their AMP data for certain drugs.  However, very few 
manufacturers directly notified CMS as to whether their AMPs were 
accurate or inaccurate.   
Implementation of FUL Amounts Based on Average Manufacturer Prices 
In July 2007, CMS published a final rule that, among other things, 
implemented the DRA provisions relating to FULs.20  According to the 
outlier policy set forth in 42 CFR  447.514(c), the lowest AMP will be 
excluded from the FUL calculation if it is less than 40 percent of the 
second-lowest AMP.21  In other words, the lowest AMP is considered to 
be an outlier if it is more than 60 percent below the second-lowest AMP.  
Pursuant to 42 CFR  447.514(c)(3), the outlier policy will not apply 
when the FUL group includes only the brand name drug and the first 
new generic or authorized generic drug that has entered the market.  
AMPs for terminated NDCs will also be excluded from new FUL 
calculations.22   
Although the final regulation took effect on October 1, 2007, CMS has 
yet to use AMP data when establishing FUL amounts.23  Initially, CMS 
planned to issue the first AMP-based FULs on December 30, 2007.  
However, on December 19, 2007, the U.S. District Court for the District 
of Columbia preliminarily enjoined the implementation of CMSs final 
 
18 72 Fed. Reg. 39142, 39207 (July 17, 2007). 
19 CMS, Average Manufacturer Price/Federal Upper Limit Timeline, October 21, 2007.  
20 72 Fed. Reg. 39142, 39244 (July 17, 2007). 
21 CMS solicited public comment on the new outlier policy described in its final regulation, 
with comments due in January 2008.  However, as of November 2008, no additional 
information on CMSs outlier policy has been released. 
22 42 CFR  447.514(c)(1). 
23 As of November 2008. 
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I N T R O D U C T I O N  
 
rule concerning AMPs to the extent that it affects Medicaid 
reimbursement rates for retail pharmacies.  In July 2008, the Medicare 
Improvements for Patients and Providers Act of 2008 (Improvements 
Act), P.L. No. 110-275, further delayed the implementation of new FULs 
based on AMPs.  Pursuant to sections 203(a) and (b) of the 
Improvements Act, CMS must not take action to implement AMP-based 
FUL amounts or publicly disclose AMP data before October 1, 2009.  
Until that time, AMPs will remain confidential and FUL amounts will 
continue to be based on published prices.24   
Previous Office of Inspector General Work Regarding the FUL Program and 
Average Manufacturer Prices 
Previous OIG work found that the published prices used to set Medicaid 
FUL amounts before 2007 often greatly exceeded prices available in the 
marketplace.25  Based in part on this work, the DRA required that 
Medicaid FULs be based on 250 percent of the lowest AMP rather than 
on 150 percent of the lowest price published in the national compendia.   
In June 2007, OIG released a report assessing the potential effect of 
AMP-based FULs entitled Deficit Reduction Act of 2005:  Impact on the 
Medicaid FUL Program (OEI-03-06-00400).  According to this report, 
pre-DRA FUL amounts substantially exceeded estimated average 
pharmacy acquisition costs for 25 selected drugs in the second quarter 
of 2006 and would decrease considerably under the new calculation 
method established by the DRA.26  In fact, pharmacies would only have 
been able to purchase 6 of the 25 reviewed drugs for less than the new 
FUL amount, on average.  Furthermore, OIG found that the AMP used 
to set the FUL amount may be substantially lower than other AMPs 
associated with a drug.  Of the 521 drugs on the FUL list, the lowest 
AMP for 14 percent was more than 60 percent below the second-lowest 
AMP. 
Previous OIG work has also found that future Medicaid reimbursement 
could be affected by inconsistencies among the unit types used by 
manufacturers to report AMP data.  According to a 2007 report, CMSs 
 
24 Improvements Act  203(a)(1). 
25 OIG, Comparison of Medicaid Federal Upper Limit Amounts to Average Manufacturer 
Prices (OEI-03-05-00110), June 2005 and How Inflated Published Prices Affect Drugs 
Considered for the Federal Upper Limit List (OEI-03-05-00350), September 2005. 
26 At the time OIG conducted its assessment, CMS had not fully developed its outlier policy.  
Therefore, for the purposes of OIGs report, FUL amounts were calculated without regard to 
outlier AMPs. 
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I N T R O D U C T I O N  
unit of measure standards for the Medicaid drug rebate program are not 
always consistent with the unit standards established by the National 
Council for Prescription Drug Programs for retail transactions. 27  To 
address this issue, OIG recommended that CMS provide more specific 
guidance to manufacturers for certain units of measure, possibly 
including a detailed framework for selecting the appropriate unit type 
for a drug.  CMS disagreed with the suggestion that broad guidance 
could resolve issues that differ on a case-by-case basis and stated that it 
would be virtually impossible to develop a framework or process that 
would effectively apply to all products.   
METHODOLOGY 
Scope 
This study examined the accuracy of outlier AMPs that could affect new 
FUL amounts established under the DRA, as well as the availability of 
drug products with outlier AMPs.  We examined only those drugs 
identified by CMS as having a lowest AMP that is more than 60 percent 
below the second-lowest AMP.  This outlier criterion allows for only a 
single outlier for each FUL drug.  It does not capture instances in which 
the second-lowest AMP also differs substantially from the other AMPs 
associated with the drug.   
This study was not intended to address whether CMS should have an 
outlier policy, nor did we evaluate the effectiveness of CMSs current 
outlier policy.  Furthermore, we did not examine whether pharmacies 
can acquire drugs with outlier AMPs for those outlier prices. 
Data Sources 
We obtained the file that CMS used to determine new FUL amounts for 
eligible drugs based on AMP data from January 2008.28  This file 
contains information about multiple source drugs in the Medicaid 
program, including each drugs ingredients, strength, dosage, and route 
of administration; the NDC and January 2008 AMP for each individual 
drug product; therapeutic equivalency information; and whether the 
drug was eligible for inclusion on the FUL list under new DRA 
 
27 OIG, Unit of Measure Inconsistencies in the Medicaid Prescription Drug Program                 
(OEI-05-07-00050), November 2007. 
28 Although the AMP injunction and the Improvements Act prevent CMS from 
implementing new FUL amounts based on AMPs, CMS continues to collect monthly AMP 
data from manufacturers and compute new FUL amounts based on those AMPs.  
  OEI-03-07-00740  OUTLIER AVERAGE MANUFACTURER PRICES IN THE FEDERAL UPPER LIMIT PROGRAM  7   
   
I N T R O D U C T I O N  
 
requirements.  If a drug met the new requirements, the file indicated 
the FUL amount for the drug, as well as whether the drug had a lowest 
AMP that was more than 60 percent below the next lowest AMP.  
Based on data from January 2008, CMS identified 1,332 drugs that met 
new FUL requirements specified in 42 CFR 447.514.  These 1,332 drugs 
corresponded to 6,948 therapeutically equivalent 9-digit NDCs.29  
AMPs identified as outliers by CMS.  Of the 1,332 drugs in CMSs 
January 2008 FUL file, 242 (18 percent) were identified by CMS as 
having lowest AMPs that were more than 60 percent below the             
second-lowest AMPs.  We identified the 9-digit NDCs associated with 
the lowest AMPs for each of these drugs.  
Appendix A describes the extent to which outlier AMPs in CMSs file 
differed from the second-lowest AMPs. 
Examining units of AMP submission for outlier drugs.  While examining 
CMSs January 2008 FUL file, we became aware that the unit of AMP 
submission for any given FUL drug was not always consistent among 
manufacturers that sell the drug.  For example, if Drug X is sold in              
10-milliliter vials, manufacturer A might have submitted an AMP for                
1 milliliter, whereas manufacturer B might have submitted an AMP for 
1 vial.  These two AMPs would not represent the same amount of the 
drug and therefore would not be comparable for the purposes of 
identifying outliers and establishing FUL amounts.  
To determine the number of outliers affected by this issue, we reviewed 
the units of submission for each of the 242 outlier AMPs included in our 
study.30  We identified outlier AMPs with a unit of submission that 
appeared to be different from that of other AMPs associated with the 
drug.   
Data Collection 
Using address information downloaded from CMSs Web site, we 
contacted the manufacturers of the 242 drug products with  
 
29 The first 9 digits of an 11-digit NDC represent the manufacturer and dosage form of the 
drug, and the last 2 digits represent the package size of the drug.  As mentioned previously, 
an AMP is averaged across all package sizes for a drug.  Because the 9-digit NDC is the 
same across all package sizes, manufacturers calculate AMPs for NDCs at the 9-digit level 
rather than the 11-digit level. 
30 The file CMS used to calculate FULs based on January 2008 AMPs did not contain units 
of submission for the AMPs.  We therefore used the units of submission from CMSs first-
quarter 2008 AMP file.   
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I N T R O D U C T I O N  
January 2008 AMPs identified as outliers by CMS.31  Using written 
data collection instruments distributed by mail, we asked  
40 manufacturers to verify the accuracy of their January 2008 outlier 
AMP submissions.  If a manufacturer indicated that an outlier AMP 
was incorrect, we asked for corrected data.   
To determine whether drug products with outlier AMPs are available in 
the marketplace, we also asked manufacturers whether the products in 
question are commonly available to the retail pharmacy class of trade, 
as defined in 42 CFR  447.504(e).32   
We made as many as three attempts to contact 40 drug manufacturers 
between May and July 2008.  We received responses from 37 of the                
40 manufacturers.  The remaining three manufacturers never 
responded to our request despite what appeared to be accurate contact 
information. 
Analysis of Manufacturer Responses  
We aggregated manufacturers responses regarding the accuracy of 
outlier AMPs and the availability of drug products associated with those 
AMPs.  Outlier AMPs associated with the three nonrespondents were 
excluded from our analysis of manufacturers responses, as were outlier 
AMPs with a unit of submission that appeared to be different from that 
of other AMPs associated with the drug.   
If a manufacturer reported that an outlier AMP was incorrect, we 
determined whether the corrected AMP would still have been more than 
60 percent below the second-lowest AMP.  We also examined how FUL 
amounts would have been affected by the corrected AMPs provided by 
manufacturers. 
Limitations 
We did not independently verify whether FUL drugs in CMSs file 
actually met the requirements established under the DRA, nor did we 
independently determine which drugs had a lowest AMP that met 
 
31 Contact information for drug manufacturers that participate in the Medicaid drug rebate 
program is available online at http://www.cms.hhs.gov/MedicaidDrugRebateProgram/ 
10_DrugComContactInfo.asp.  Accessed on March 12, 2008. 
32 For the purposes of this study and pursuant to 42 CFR  447.504(e), retail pharmacy 
class of trade means any independent pharmacy, chain pharmacy, mail order pharmacy or 
other outlet that purchases drugs from a manufacturer, wholesaler, distributor, or other 
licensed entity and subsequently sells or provides the drugs to the general public. 
  OEI-03-07-00740  OUTLIER AVERAGE MANUFACTURER PRICES IN THE FEDERAL UPPER LIMIT PROGRAM  9   
   
I N T R O D U C T I O N  
CMSs outlier criterion.  Rather, we examined January 2008 AMPs for 
drugs that CMS had already identified as outliers.  
Information regarding the accuracy of AMP data and the availability of 
drug products to the retail pharmacy class of trade was self-reported by 
manufacturers.  Manufacturers were not required to furnish 
documentation demonstrating the way in which the outlier AMPs were 
calculated, nor were they required to provide sales data supporting the 
availability of drugs.  However, each respondent was asked to provide a 
signed statement certifying that the data provided was true and 
accurate to the best of his or her knowledge.  
Furthermore, AMPs are measures of central tendency for a range of 
prices available in the marketplace.  Therefore, if a manufacturer 
indicated that a drug product with an outlier AMP was available to the 
retail pharmacy class of trade, it does not necessarily mean that all 
pharmacies could purchase the drug product for a very low price.  
Rather, it means that the drug product was widely available for 
purchase at prices that, when averaged, resulted in the outlier AMP 
reported to CMS.    
Standards   
This study was conducted in accordance with the Quality Standards for 
Inspections approved by the Council of the Inspectors General on 
Integrity and Efficiency. 
  OEI-03-07-00740  OUTLIER AVERAGE MANUFACTURER PRICES IN THE FEDERAL UPPER LIMIT PROGRAM  10   
   
 F I N D I N G S  
Because of unit-type discrepancies,      Eighteen of the two hundred  
some AMPs may not have actually been outliers  forty-two outlier drugs identified by 
CMS (7 percent) may only have 
appeared to be outliers because of discrepancies in the unit types for 
which AMPs were reported.33  The lowest AMP for each of the 18 drugs 
had a unit of submission that differed from that of other AMPs 
associated with the drug and therefore may have represented a different 
amount of the drug.  If manufacturers of these 18 drug products had 
submitted their AMPs using the same unit as other AMPs for the drug, 
the AMPs may not have been classified as outliers.   
For example, Drug Y is sold in 20-milliliter vials by three different 
manufacturers.34  One manufacturer submitted an AMP of $65 for a 
vial.  Another manufacturer submitted an AMP of $60 for a vial.  A 
third manufacturer submitted an AMP of $3 for 1 milliliter of the drug.  
The $3 AMP appears to be an outlier but only because it represents a 
different amount of the drug.  If the third manufacturer had submitted 
an AMP for a vial rather than a milliliter, the AMP would have been 
$60 and would not have met any outlier criteria.   
Most of the outliers with inconsistent units of submission were reported in 
milliliters   
Lowest AMPs for 16 of the 18 drugs with unit-type discrepancies were 
reported in milliliters, whereas other AMPs for the same drugs were 
typically reported as each.  Each denotes a whole package, 
regardless of the amount of drug (milliliters, grams, etc.) contained in 
that package.  According to CMS, manufacturers should report AMPs in 
units of each when the drug product is a powder-filled vial, ampule, 
syringe, packet, or a kit containing two or more different items 
dispensed as one product and sold at a single price.  Some of the outlier 
AMPs reported in milliliters appear to represent powder-filled vials.  To 
successfully compare those AMPs to the AMPs reported for each vial, it 
would first be necessary to identify the amount of liquid used to 
reconstitute the powder.  This can sometimes be a difficult task. 
 
 
33 Because these 18 drugs may not have been outliers, we did not assess whether their 
AMPs were accurate or whether the drugs were commonly available. 
34 This example is based on data submitted for an actual outlier drug.  However, because of 
the confidential nature of AMP data, we cannot publicly disclose the name of the drug.   
  OEI-03-07-00740  OUTLIER AVERAGE MANUFACTURER PRICES IN THE FEDERAL UPPER LIMIT PROGRAM  11   
   
F I N D I N G S  
According to manufacturers,      We reviewed the accuracy of  
January 2008 AMPs for 185 of the  
most outlier AMPs were accurate  
242 outlier drugs identified by CMS.35  
Of these 185 products, manufacturers reported that 81 percent (150 of 
185) were accurate.  Another 18 percent (33 of 185) were reported as 
inaccurate by manufacturers.  An additional 1 percent (2 of 185) were 
reported as potentially inaccurate.36  
Over half of inaccurate AMPs would have remained outliers using corrected 
AMP data provided by manufacturers 
Manufacturers for the 33 drug products with inaccurate outlier AMPs 
provided OIG with corrected AMP data for January 2008.37  According 
to this corrected data, AMPs for over half (18 of 33) of the drug products 
would have remained outliers under CMSs outlier policy38, even with 
the corrected prices.  Because the corrected AMPs for these drugs were 
more than 60 percent below the second-lowest AMPs, they would still 
have been excluded from CMSs FUL calculations.   
AMPs for the remaining drug products (15 of 33) would no longer have 
been outliers under CMSs policy.  In other words, these AMPs would no 
longer have been more than 60 percent below the second-lowest AMP.  
Of the 15 drugs that no longer met CMSs outlier criteria, corrected 
AMPs for 12 were still the lowest AMPs.39  Therefore, if manufacturers 
had reported their January 2008 AMPs correctly, these 12 drugs would 
have been used to establish FUL amounts.40  As a result, FULs for the 
12 drugs would have actually been lowered by an average of 29 percent.  
 
35 The remaining 57 outlier drugs were excluded from our analysis because they had 
inconsistent units of AMP submission or the manufacturers did not respond to our request.    
36 According to the manufacturer for these two outlier drug products, data and 
programming errors had created inaccuracies in their monthly AMP calculations.  At the 
time of our survey, the manufacturer did not know how or if those errors had affected the 
outlier AMPs identified in our study.  We therefore classified these AMPs as potentially 
inaccurate. 
37 Manufacturers for drugs with inaccurate outlier AMPs were not asked why the reported 
inaccuracies occurred.  However, some respondents voluntarily provided explanations for 
the revisions, including changes to lagged price concession data or chargeback smoothing 
methods. 
38 As set forth in 42 CFR  447.514(c).  
39 Although the corrected AMPs for these 12 drugs were still the lowest AMPs, most were 
approximately two to seven times higher than the January 2008 AMPs initially submitted 
by the manufacturers. 
40 Under the DRA, FUL amounts are calculated by multiplying the lowest AMP for the 
drug by 250 percent, with certain exceptions. 
  OEI-03-07-00740  OUTLIER AVERAGE MANUFACTURER PRICES IN THE FEDERAL UPPER LIMIT PROGRAM  12   
   
F I N D I N G S  
For the remaining three drugs, corrected AMPs were not the lowest 
AMPs.  Therefore, FUL amounts for these three drugs would not have 
changed even if manufacturers had reported their January 2008 AMPs 
correctly. 
 
According to manufacturers, the vast majority of  CMSs outlier policy is designed 
in part to ensure that at least 
drug products with outlier AMPs were commonly 
two drug products are available 
available to the retail pharmacy class of trade 
at or below the FUL amount.41  
According to manufacturers, the vast majority of drugs with outlier 
AMPs (89 percent, 165 of 185) were commonly available to the retail 
pharmacy class of trade.42  Only 3 percent (6 of 185) of outlier drug 
products were reported as not commonly available.  For another                     
3 percent (6 of 185), the manufacturer could not state with certainty 
that the products are commonly available.   
According to manufacturers, the remaining 4 percent (8 of 185) of drugs 
that met CMSs outlier criteria have been terminated.  In fact, one of 
these products was discontinued by the manufacturer almost 2 years 
ago.  Pursuant to 42 CFR  447.514 (c)(1), the AMP of a terminated 
NDC should not be used to establish a FUL amount.  Therefore, these 
eight discontinued drug products should have been eliminated from 
FUL calculations before CMSs outlier policy was applied.   
 
 
41 72 Fed. Reg. 39216 (July 17, 2007). 
42 The remaining 57 outlier drugs were excluded from our analysis because they had 
inconsistent units of AMP submission or the manufacturers did not respond to our request.    
  OEI-03-07-00740  OUTLIER AVERAGE MANUFACTURER PRICES IN THE FEDERAL UPPER LIMIT PROGRAM  13   
   
 R E C O M M E N D A T I O N S  
 
The DRA made significant changes to Medicaids FUL program.  Under 
new DRA requirements, FUL amounts for most multiple-source drugs 
are to be based on 250 percent of the lowest reported AMP for each drug 
rather than 150 percent of the lowest price published in the national 
compendia.   
To ensure fair and adequate reimbursement, CMS plans to remove 
outlier AMPs from the FUL calculation.  As set forth in 42 CFR  
447.514(c), CMS will exclude (with certain exceptions) the lowest AMP 
from the FUL calculation if it is more than 60 percent below the  
second-lowest AMP.  This outlier policy is designed to ensure that at 
least two drugs are available at or below the FUL amount.   
In January 2008, the lowest AMPs for 242 FUL drugs met CMSs 
definition of an outlier.  This study demonstrates that a large majority 
of these outlier AMPs are, according to manufacturers, accurate and 
reflective of sales to the retail pharmacy class of trade.     
However, we found potential issues with about 20 percent of the outlier 
AMPs for FUL drugs.  Some AMPs identified by CMS as outliers may 
only have appeared as such because of discrepancies in the unit of AMP 
submission.  Furthermore, according to manufacturers, some outlier 
AMPs are not accurate and would no longer be outliers if revised data 
were used.  Also, several outlier drug products are no longer sold by 
manufacturers and therefore should not be included in FUL 
calculations.   
We recognize that CMS has taken steps to proactively resolve potential 
problems with AMP-based FUL amounts.  In addition to requiring 
manufacturers to certify their pricing data, CMS contacted the 
manufacturers of certain drugs in March 2007 and encouraged them to 
review their AMP submissions for accuracy.  CMS has also reminded 
manufacturers to report termination dates of discontinued drug 
products in a timely manner. 
We further recognize that under the DRA, CMS may set FULs based 
only on the data provided by manufacturers.  Therefore, drug 
manufacturers play an important role in helping to ensure that new 
FULs are appropriate and must make certain that pricing data, units of 
measure, and termination dates are reported to CMS in an accurate and 
timely way.  If and when CMS is permitted to publicly disclose AMP 
  OEI-03-07-00740  OUTLIER AVERAGE MANUFACTURER PRICES IN THE FEDERAL UPPER LIMIT PROGRAM  14   
   
R E C O M M E N D A T I O N S  
data, the resulting transparency may lead to more accurate reporting of 
pricing data.    
Consistent with past OIG recommendations, the DRA provisions are 
designed to make FULs more reflective of acquisition costs.  However, 
for the new methodology to be effective, the AMP data on which FULs 
are based must be accurate and timely.  We support CMSs continuing 
efforts to ensure the integrity of future FUL amounts based on AMPs 
and further recommend that CMS: 
Examine the units of AMP submission for all FUL drugs before establishing 
FUL amounts 
As noted in previous OIG work, inconsistencies in the units of AMP 
submission can have implications for future Medicaid reimbursement.  
For instance, CMS cannot effectively identify the lowest AMP for a FUL 
drug unless the units of AMP submission for each NDC are comparable.  
Therefore, to prevent inaccurate FUL calculations, CMS should ensure 
that the units of AMP submission are consistent across all AMPs for a 
drug.  If any AMP has a unit of submission that differs from that of 
other AMPs associated with the drug, CMS should take steps to adjust 
the data before identifying outliers and setting FUL amounts.  CMS 
should also notify manufacturers that submit AMPs using potentially 
inconsistent or inappropriate units of submission and request that they 
submit corrected information.   
Direct manufacturers to periodically examine their monthly AMP 
calculations to ensure accurate reporting of data   
In response to our study, a number of manufacturers reexamined and 
revised their monthly AMP calculations.  Such changes could 
significantly impact FUL amounts for multiple-source drugs.  Therefore, 
CMS should direct all manufacturers with rebate agreements to 
periodically reexamine their monthly AMP calculations and ensure that 
those calculations produce results that closely reflect the actual prices 
paid by AMP-eligible customers during each monthly reporting period. 
Continue directing manufacturers to report termination dates for 
discontinued drug products as soon as they are known 
Pursuant to 42 CFR  447.514 (c)(1), the AMP of a terminated NDC 
should not be used to establish a FUL amount beginning with the first 
day of the month after the actual termination date reported by the 
manufacturer.  Therefore, CMS should ensure that terminated drug 
products are not included in FUL calculations.  Although manufacturers 
are ultimately responsible for reporting termination dates for their 
  OEI-03-07-00740  OUTLIER AVERAGE MANUFACTURER PRICES IN THE FEDERAL UPPER LIMIT PROGRAM  15   
   
R E C O M M E N D A T I O N S  
drugs, CMS may wish to consult alternate sources when obtaining 
information about discontinued NDCs, such as different drug-pricing 
compendia.  If CMS finds evidence that a product has been 
discontinued, it could specifically direct the manufacturer to report a 
termination date for that product.  
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with our first and third recommendations, which 
concerned units of AMP submission and drug termination dates.  
Although CMS appreciated our second recommendation, which 
addressed the accuracy of manufacturers monthly AMP calculations, 
the agency did not explicitly concur or not concur.  Rather, CMS stated 
that it does not believe that this recommendation can be implemented 
without further information from OIG.  Specifically, according to CMS, 
OIG neither characterized the nature of AMP inaccuracies identified in 
this report nor confirmed the accuracy of corrected AMPs.  CMS further 
noted that when it asked certain manufacturers to review their AMPs 
for accuracy in March 2007, the respondents confirmed that their AMPs 
were correct.  CMS also reiterated that manufacturers must certify 
their AMP data upon submission.  Based on its previous experience and 
without additional information from OIG regarding the specific 
problems that should be addressed, CMS believes it would not be 
beneficial to instruct manufacturers to reexamine their AMPs.  
OIGs second recommendation sought to address our finding that                 
19 percent of outlier AMPs were identified by manufacturers as being 
inaccurate or potentially inaccurate, despite having been certified as 
correct when originally submitted to CMS.  As a result of OIGs work, a 
number of manufacturers examined and revised their monthly AMP 
calculations and did so without guidance on the specific problems that 
should be addressed.  Although the manufacturers that responded to 
CMSs March 2007 request confirmed that their AMP data were correct, 
CMS did not require manufacturers to reply and received responses 
from less than 20 percent of the manufacturers it contacted.  The 
remaining manufacturers may have adjusted their monthly AMPs 
without directly notifying CMS.  Directing manufacturers to periodically 
review their monthly AMP calculations could ensure more accurate 
reporting of data.   
  OEI-03-07-00740  OUTLIER AVERAGE MANUFACTURER PRICES IN THE FEDERAL UPPER LIMIT PROGRAM  16   
   
R E C O M M E N D A T I O N S  
Because of the confidential nature of AMPs, we could not include in this 
report information on how individual AMPs changed as a result of 
manufacturers corrections.  Rather, we describe whether corrected 
AMPs still met CMSs outlier criteria and how corrected AMPs would 
have affected FUL amounts.  However, based on CMSs response, we 
will provide the agency with details regarding the differences between 
original and corrected January 2008 AMPs for each affected drug.  
Furthermore, although we did not specifically ask manufacturers why 
the reported inaccuracies occurred, we note on page 18 that some 
respondents voluntarily provided explanations for the revisions, 
including changes to lagged price concession data or chargeback 
smoothing methods.  We will provide CMS with any explanations 
provided by manufacturers for revisions to specific drug products. 
We ask that, in its final management decision, CMS explicitly state 
whether it concurs with our second recommendation and what steps, if 
any, it will take to implement it.  
For the full text of CMSs comments, see Appendix E. 
  OEI-03-07-00740  OUTLIER AVERAGE MANUFACTURER PRICES IN THE FEDERAL UPPER LIMIT PROGRAM  17   
   
 A P P E N D I X   ~   A  
Differences Between the Lowest and Second-Lowest Average 
Manufacturer Prices for Outlier Drugs 
On average, average manufacturer prices (AMP) for the 242 outlier 
drugs were 78 percent below the second-lowest AMPs.  The lowest AMP 
for 43 of the outlier drugs was at least 90 percent below the                      
second-lowest AMP, with 4 outlier AMPs being 99.99 percent below the 
next-lowest AMPs.  For example, the lowest AMP for Drug X was 
$0.000001, while the second lowest AMP was $0.074444. 
The table below describes the extent to which outlier AMPs differed 
from the second-lowest AMPs.   
Extent to Which Outlier AMPs Were Below Second-Lowest AMPs 
Percentage Below the  Number of Drugs 
Second-Lowest AMP  With Outlier AMPs 
60.00%69.99%  78 
70.00%79.99%  65 
80.00%89.99%  56 
90.00%99.99%  43 
     Total  242 
Source:  Office of Inspector Generals analysis of the January 2008 Federal                  
upper limit file prepared by the Centers for Medicare & Medicaid Services, 2008. 
 
 
  OEI-03-07-00740  OUTLIER AVERAGE MANUFACTURER PRICES IN THE FEDERAL UPPER LIMIT PROGRAM  18  x 
A  P  PEN  0  B 
Agency Comments 
~.sP."'VlC~ 
(  J/{-rrt. 
DEPARTMENT OF HEALTH & HUMAN SERVICES  Centel'S for Medicare & Medicaid Services 
'10",-.....!
~......... /I 

200 Independence Avenue SW 
Washington. DC 20201 
DATE: 	 MAY 2 2 2009 
TO: 	 Daniel R. Levinson 

Inspector General 

FROM: 	 Charlene Frizzera 

Acting Administrator 

SUBJECT: 	 Office of Inspector General (OIG) Draft Report "Outlier A verage Manufacturer 
Prices in the Federal UpperLimit Program" (OEI-03-07-00740) 
Thank you fDr the opportunity to review and comment Dn the subject draft report. The purpose 
of this OIG report was to determine: (1) the effect ofinconsistently reported unit.typeson outlier 
average manufacturer prices (AMPs) for Medicaid Federal upper limit (FUL) drugs, (2) the 
accuracy of outlier AMPs, and (3) the availability of drug products with outlier AMPS to the 
retail class of trade. 
Under section 1927 of the Social Security Act, manufacturers are required to report certain drug 
product and pricing data to the Centers for Medicare & Medicaid Services (eMS), including the 
AMP and unit type of the drug (e.g., tablet, milliliter, grain). Under the Deficit Reduction Act of 
2005 (ORA), FUL amounts for multiple source drugs are to be set at 250 percent of AMP for the 
least costly therapeutically equivalent drug. In accordance with CMS regulation, additional 
criteria would be used to calculate the fUL. One of these criteria is that drugs considered to be 
outliers would be excluded from this calculation. In accordance with the outlier policy set forth 
in 42 CFR 447.514, CMS would disregard the lowest AMP if it is more than 60 percent below 
the second lowest AMP in order to avoid a FUL being set below the cost at which the drug is 
nationally available. 
The OIG notes that CMS has taken steps to assure that manufacturer-submitted AMP data is 
correct, including requiring certification of such data, and encouraging manufacturers to report 
data in a timely manner, including termination dates of discontinued drugs. The OIG also notes 
by  u.s. 
that the preliminary injunction issued  the  District Court for the District ofC<;J1umbia 
prevents the implementation of AMP-based FULs and State access to AMP data, and prohibits 
eMS from taking any actions to implement the AMP rule to the extenlsuch action affects 
Medicaid reimbursement for such drugs. In addition, a moratorium in the Medicare 
Improvements for Patients and Providers Act of2008 prohibits CMS from issuing AMP-based 
FULs until October 1,2009. 
OEI030700740  OUTLIER AVERAGE MANUFACTURER PRICES IN THE FEDERAL UPPER LIMIT PROGRAM 
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A P P E N D I X   ~   B  
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A P P E N D I X   ~   B  
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 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 E. Tawes, Director of the Medicare and 
Medicaid Prescription Drug Unit.   
Lauren McNulty served as the team leader for this study.  Other 
principal Office of Evaluation and Inspections staff from the 
Philadelphia regional office who contributed include Eric Biersmith;  
central office staff who contributed to this report include Kevin Manley.  
 
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