Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

Inspector General 

February 2004 

OEI-03-02-00670 

Omission Of Drugs From 

The Federal Upper Limit List in 2001 
OFFICE OF INSPECTOR GENERAL


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 OIG's Office of Audit Services (OAS) provides all auditing services for HHS, either by conducting 

audits with its own audit resources or by overseeing audit work done by others. Audits examine the 

performance of HHS programs and/or its grantees and contractors in carrying out their respective 

responsibilities and are intended to provide independent assessments of HHS programs and operations in 

order to reduce waste, abuse, and mismanagement and to promote economy and efficiency throughout the 

Department. 

Office of Evaluation and Inspections 

The OIG's Office of Evaluation and Inspections (OEI) conducts short-term management and program 

evaluations (called inspections) that focus on issues of concern to the Department, the Congress, and the 

public. The findings and recommendations contained in the inspections reports generate rapid, accurate, 

and up-to-date information on the efficiency, vulnerability, and effectiveness of departmental programs. 

Office of Investigations 

The OIG's Office of Investigations (OI) conducts criminal, civil, and administrative investigations of 

allegations of wrongdoing in HHS programs or to HHS beneficiaries and of unjust enrichment by 

providers. The investigative efforts of OI lead to criminal convictions, administrative sanctions, or civil 

monetary penalties. The OI also oversees State Medicaid fraud control units which investigate and 

prosecute fraud and patient abuse in the Medicaid program. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to OIG, rendering 

advice and opinions on HHS programs and operations and providing all legal support in OIG’s internal 

operations. The OCIG imposes program exclusions and civil monetary penalties on health care providers 

and litigates those actions within the Department. The OCIG also represents OIG in the global settlement 

of cases arising under the Civil False Claims Act, develops and monitors corporate integrity agreements, 

develops model compliance plans, renders advisory opinions on OIG sanctions to the health care 

community, and issues fraud alerts and other industry guidance. 
EXECUTIVE SUMMARY 

OBJECTIVE 

This inspection: (1) determined whether drugs that met the criteria established by Federal laws 

and regulations were included on the Federal Upper Limit list in 2001, and (2) calculated the 

potential savings that could have resulted in 2001 if additional drugs that met the established 

criteria had been included on the Federal Upper Limit list. 

BACKGROUND 

In 1987, 42 CFR § 447.332 authorized the Centers for Medicare & Medicaid Services 

(CMS) (formerly the Health Care Financing Administration) to establish Federal Upper Limits 

in order to limit the amount that Medicaid could reimburse for multiple-source drugs. A 

multiple-source drug is defined as “a drug marketed or sold by two or more manufacturers or 

labelers or a drug marketed or sold by the same manufacturer or labeler under two or more 

different proprietary names or both under a proprietary name and without such a name.” 

According to the State Medicaid Manual, these reimbursement limits, commonly known as 

Federal Upper Limits, were established to ensure that the Federal Government acts as a 

prudent payer by taking advantage of current market prices for multiple-source drugs. 

The regulation required CMS to establish a Federal Upper Limit amount for a drug product 

(i.e., each specific dosage form and dosage amount of a drug) when: (1) all versions of a drug 

product had been classified as therapeutically equivalent by the Food and Drug Administration 

(FDA), and (2) at least three suppliers of the drug product are listed in current editions (or 

updates) of published compendia of cost information for drugs available for sale nationally. The 

Omnibus Budget Reconciliation Act of 1990, however, changed this criteria by requiring a 

Federal Upper Limit when three or more versions of a drug product have been rated 

therapeutically and pharmaceutically equivalent by FDA, regardless of the ratings of other 

versions. The Federal Upper Limit amount for a drug is set at 150 percent of the published 

price for the least costly therapeutically-equivalent product plus a reasonable dispensing fee. 

CMS publishes the list of drug products for which Federal Upper Limits have been established 

in the State Medicaid Manual and on its website at www.cms.gov/medicaid/drugs/drug10.asp. 

We obtained a list of the top 200 multiple-source drugs based on retail sales for the year 2001, 

and determined if the drugs were on CMS’s November 2001 Federal Upper Limit list. For 

each of the drugs not on the Federal Upper Limit list, we determined if any forms or strengths 

met the criteria for inclusion on the list. We then calculated a Federal Upper Limit amount for 

any drug products that met the criteria by multiplying the lowest 

Omission of Drugs from the FUL List in 2001 i OEI-03-02-00670 
price published in the Red Book for Windows by 150 percent. We determined each State’s 

average payment for these drug products by obtaining payment and utilization data from CMS. 

For drug products whose Federal Upper Limit amount would have been less than a State’s 

average payment amount, we calculated potential Medicaid savings by multiplying the price 

difference by Medicaid utilization. We then aggregated the individual savings for each State to 

determine the overall potential savings to Medicaid. 

FINDING 

Ninety drug products met the established criteria but were not included on the 

Federal Upper Limit list in 2001. 

If CMS had included 55 of these drug products on the Federal Upper Limit list, the Medicaid 

program could have saved $123 million in 2001. This represents 30 percent of the $411 

million Medicaid reimbursed for these 55 products that year. Four drug products alone 

accounted for 71 percent of the $123 million in potential Medicaid savings. The Medicaid 

program could have saved $88 million in 2001 by placing these 4 products (albuterol aerosol, 

ipratropium bromide solution, enalapril maleate 20 mg tablets, and clozapine 100 mg tablets) on 

the Federal Upper Limit list. 

The remaining 35 of the 90 drug products met the criteria for inclusion on the Federal Upper 

Limit list but did not have any associated savings. However, States would pay the Federal 

Upper Limit amount only if it were less than the estimated acquisition cost or State maximum 

allowed cost. Therefore, States would not have made higher payments if these products had 

been included on the Federal Upper Limit list. 

After the start of this inspection but prior to the release of the final report, CMS added 9 of the 

90 products to the Federal Upper Limit list. Seven of these drug products (albuterol aerosol, 

ipratropium bromide solution, aspirin/butalbital/caffeine tablets, and 4 strengths of enalapril 

maleate tablets) accounted for a significant portion ($94 million) of the savings we calculated for 

2001. 

RECOMMENDATION 

Federal Upper Limits were created to help Medicaid save money by taking advantage of lower 

prices for multiple-source drugs available in the marketplace. Although the Federal Upper 

Limit list already includes over 400 drug products, there are more that could be added. At a 

time when Medicaid prescription drug costs are increasing, efforts should be made to include 

on the Federal Upper Limit list all drugs that meet the requirements. This could result in millions 

of dollars in savings to both State Medicaid programs and the Federal Government. 

Omission of Drugs from the FUL List in 2001 ii OEI-03-02-00670 
We recommend that CMS take steps to ensure that all drugs meeting the criteria set 

forth in Federal laws and regulations are included on the Federal Upper Limit list. 

Agency Comments 

CMS states that they do not agree with the Office of Inspector General’s (OIG’s) savings 

estimates. Specifically, CMS states that OIG used only the Red Book to identify suppliers and 

prices, and did not subsequently verify the information provided in the Red Book with suppliers. 

In addition, CMS states that three of the products that we identified as leading to the most 

savings were recently added to the Federal Upper Limit list. Therefore, CMS believes that our 

savings estimates should be reduced accordingly. CMS also believes that it is nearly impossible 

to say with certainty that a particular group of products has been incorrectly excluded from the 

Federal Upper Limit list at any one time since pricing and product information changes 

frequently. CMS believes that their efforts to add and remove drug products on the Federal 

Upper Limit list should be recognized by OIG. Finally, CMS states it does not believe that 

products that would not lead to savings should be included on the Federal Upper Limit list. 

While CMS disagrees with our savings estimates, we are unable to determine if they concur 

with our recommendation that drugs which meet the criteria should be included on the Federal 

Upper Limit list, as well as what, if any, actions CMS plans to take in response to our report. 

OIG stands by the drugs identified as meeting the criteria, the subsequent savings estimates, and 

our recommendation. 

Omission of Drugs from the FUL List in 2001 iii OEI-03-02-00670 
TABLE OF CONTENTS 

PAGE

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

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

FINDING

Ninety drug products met the criteria for a Federal Upper Limit in 2001 ................ 6

RECOMMENDATION ........................................................ 8

APPENDIX

A. Drug Products With Federal Upper Limit Savings ............................. 10

B. Centers for Medicare & Medicaid Services’s Comments ........................ 12

ACKNOWLEDGMENTS ..................................................... 15

Omission of Drugs from the FUL List in 2001 iv OEI-03-02-00670 
INTRODUCTION 

OBJECTIVE 

This inspection: (1) determined whether drugs that met the criteria established by Federal laws 

and regulations were included on the Federal Upper Limit list in 2001, and (2) calculated the 

potential savings that could have resulted in 2001 if additional drugs that met the established 

criteria had been included on the Federal Upper Limit list. 

BACKGROUND 

Medicaid Program 

Medicaid is a jointly-funded, Federal-State health insurance program for certain low income 

and medically-needy people. Individual States establish eligibility requirements, benefit 

packages, and payment rates for their Medicaid program under broad Federal standards set by 

the Centers for Medicare & Medicaid Services (CMS) (formerly the Health Care Financing 

Administration). Federal regulations mandate that States provide basic services to beneficiaries 

in order to receive Federal matching funds. States may also receive Federal funding if they 

provide other optional services. One of the most commonly covered optional services that 

States provide is prescription drug coverage. All 50 States and the District of Columbia 

currently offer prescription drug coverage under the Medicaid program. In calendar year 

2001, Medicaid payments for prescription drugs totaled almost $24 billion. 

Medicaid Drug Reimbursement Methodology 

Each Medicaid agency is required to submit a State plan to CMS describing its payment 

methodology for covered drugs. Federal regulations require that each State’s reimbursement 

for a drug not exceed the lower of its estimated acquisition cost plus a reasonable dispensing 

fee or the provider’s usual and customary charge to the public for the drug. States have 

implemented dispensing fees that range from $2.00 to $5.60 per prescription. 

CMS allows States flexibility in defining estimated acquisition cost. Most States base their 

calculation of estimated acquisition cost on a drug’s average wholesale price discounted by a 

certain percentage. This discount ranged from 5 percent to 15 percent in the year 2001. A 

small number of States use wholesale acquisition costs rather than average wholesale prices 

when determining estimated acquisition cost. Average wholesale prices and wholesale 

acquisition costs are reported by companies, such as First DataBank and Medical Economics. 

Omission of Drugs from the FUL List in 2001 1 OEI-03-02-00670 
For certain drugs, States also use the Federal Upper Limit and State Maximum Allowable Cost 

programs in determining reimbursement amounts. CMS has established Federal Upper Limit 

amounts for over 400 drugs. In addition, more than half of the States have implemented a 

Maximum Allowable Cost program in order to reduce reimbursement amounts for certain 

drugs. Individual States determine the types of drugs that are included in their Maximum 

Allowable Cost program, and the method by which the Maximum Allowable Cost for a drug is 

calculated. 

In summary, States often use a variety of different pricing mechanisms when setting 

reimbursement amounts. In most cases, States reimburse for a drug at the lower of its 

estimated acquisition cost, the Federal Upper Limit amount, the Maximum Allowable Cost, or 

the provider’s usual and customary charge. 

Federal Upper Limit List 

In 1987, 42 CFR § 447.332 authorized CMS to establish Federal Upper Limits in order to 

limit the amount that Medicaid could reimburse for multiple-source drugs. A multiple-source 

drug is defined as “ . . . a drug marketed or sold by two or more manufacturers or labelers or a 

drug marketed or sold by the same manufacturer or labeler under two or more different 

proprietary names or both under a proprietary name and without such a name.” According to 

the State Medicaid Manual, these reimbursement limits, commonly known as Federal Upper 

Limits, were established to ensure that the Federal Government acts as a prudent payer by 

taking advantage of current market prices for multiple-source drugs. 

The regulation required CMS to establish a Federal Upper Limit amount for a drug product 

(i.e., each specific dosage form and dosage amount of a drug) when: (1) all versions of a drug 

product had been classified as therapeutically equivalent by the Food and Drug Administration 

(FDA), and (2) at least three suppliers of the drug product are listed in current editions (or 

updates) of published compendia of cost information for drugs available for sale nationally. The 

Omnibus Budget Reconciliation Act of 1990, however, changed this criteria by requiring a 

Federal Upper Limit when three or more versions of a drug product have been rated 

therapeutically and pharmaceutically equivalent by FDA, regardless of the ratings of other 

versions. FDA identifies equivalent drug products in their publication Approved Drug 

Products with Therapeutic Equivalence Evaluations. According to FDA, drugs that are 

therapeutically equivalent are designated as “A-rated.” 

The regulation sets the Federal Upper Limit amount at 150 percent of the published price for 

the least costly therapeutically-equivalent product that can be purchased in quantities of 100 

tablets or capsules plus a reasonable dispensing fee. If the drug product is not available in 

quantities of 100 or if the drug product is a liquid, then the Federal Upper Limit amount should 

be based on a commonly listed size. States are required to meet the Federal Upper Limit 

requirements only in the aggregate. This means that a State can pay more than the Federal 

Upper Limit amount for certain products as long as it pays less than the Federal Upper Limit 

amount for other products. 

Omission of Drugs from the FUL List in 2001 2 OEI-03-02-00670 
CMS publishes the list of drug products for which Federal Upper Limits have been established 

in the State Medicaid Manual. The Federal Upper Limit list is also available on CMS’s 

website at www.cms.gov/medicaid/drugs/drug10.asp. Any revisions to the Federal Upper 

Limit list are typically noted in Medicaid program memoranda and on the CMS website. CMS 

establishes an upper limit for specific forms and strengths for each multiple-source drug on the 

list. The Federal Upper Limit list also provides the source of the pricing information used to 

calculate the upper limit amount for each drug. 

METHODOLOGY 

Information from CMS 

We met with CMS staff to obtain a better understanding of how CMS administers Federal 

Upper Limits. We discussed with CMS the procedures used to identify drugs that should be 

placed on the Federal Upper Limit list, as well as the methods used to calculate the Federal 

Upper Limit amount. CMS also provided documentation of these procedures. 

Determining Whether Drugs Met Federal Upper Limit Criteria 

Determining Drugs Not Currently on the Federal Upper Limit List. We obtained a list 

of the top 200 multiple-source drugs based on retail sales for the year 2001 from Drug Topics 

magazine. We compared the Drug Topics list to CMS’s November 2001 Federal Upper 

Limit list. In making this comparison: 

(1) If Drug Topics listed a specific form for a drug, then we determined if this specific form was 

on the Federal Upper Limit list. 

(2) If Drug Topics did not list a specific form, then we determined if any form of the drug was 

on the Federal Upper Limit list. 

For example, if Drug Topics magazine placed ibuprofen liquid on its list of top 200 multiplesource drugs, then the liquid form of ibuprofen would need to be specifically mentioned on the 

Federal Upper Limit list. However, had Drug Topics simply listed ibuprofen (with no specific 

form), then we determined if any forms of ibuprofen were part of the Federal Upper Limit list. 

If any form of the drug appeared on the Federal Upper Limit list, then we concluded that the 

drug was included. In total, we determined that 64 of the 200 multiple-source drugs from the 

Drug Topics list were not included on the Federal Upper Limit list as of November 2001. 

Identifying All Versions of the 64 Drugs Not on the Federal Upper Limit List. Because 

CMS calculates an upper limit amount for every form and strength of a drug (i.e., each specific 

drug product) that meets the criteria set forth by Federal laws and regulations, we needed to 

identify all the forms and strengths for each of the 64 multiple-source drugs not on the Federal 

Upper Limit list. We used the October 2001 edition of the Red Book for Windows (published 

by Medical Economics) to gather this information. 

Omission of Drugs from the FUL List in 2001 3 OEI-03-02-00670 
According to the Red Book, these 64 multiple-source drugs were associated with 200 different 

drug products in various forms and strengths. 

We then compiled a list of all the national drug codes (NDCs) associated with each of the 200 

drug products. Each individual drug product manufactured or distributed in the United States 

has a unique NDC. NDC identifies the manufacturer of the drug product, the product dosage 

form, and the package size. For each NDC, the Red Book provides published prices (usually 

average wholesale prices and wholesale acquisition costs), supplier information, and FDA 

therapeutic equivalency data. The Red Book also lists whether the individual drug product is a 

brand or generic version. 

Determining if the 200 Drug Products Met Federal Upper Limit Criteria. We used the 

Red Book to determine whether each of the 200 drug products met the established criteria for 

inclusion on the Federal Upper Limit list. We first determined whether each of the drug 

products had at least three versions deemed therapeutically-equivalent (A-rated) by FDA. For 

any drug products that met this criteria, we verified that there were at least three suppliers listed 

in the Red Book. In all, 90 of the 200 drug products met the criteria for inclusion on the 

Federal Upper Limit list. These 90 drug products comprised different forms and strengths of 

42 drugs from Drug Topics’ list of the top 200 multiple-source drugs. Table 1 below illustrates 

the steps taken to reach this number. 

Table 1: Number of Drugs and Drug Products in Each Stage of Methodology 

Methodology Step Number of Drugs Number of Drug Products 

Drug Topics’ Top 200 

Multiple-Source Drugs 

200 Not determined 

Drugs on Drug Topics’ 

List Not on the Federal 

Upper Limit List 

64 200 

Drugs Not on Federal 

Upper Limit list that Met 

Federal Upper Limit 

Criteria 

42 90 

Calculating Federal Upper Limit Amounts 

To calculate a Federal Upper Limit amount for the 90 drug products that met the criteria for 

inclusion, we used pricing information and therapeutic equivalency data from the Red Book. 

Federal regulations set the upper limit amount at 150 percent of the least costly therapeuticallyequivalent product that can be purchased in package sizes of 100 (with certain exceptions). 

Therefore, we determined which of the A-rated versions available in a package size of 100 had 

the lowest price listed in the Red Book. If a product was not available in a package size of 

100, we determined the lowest price for the most common package size listed in the Red Book. 

We then multiplied this price by 150 percent to determine the Federal Upper Limit amount for 

the drug product. This potential Federal Upper Limit amount would apply to all NDCs 

Omission of Drugs from the FUL List in 2001 4 OEI-03-02-00670 
associated with the drug product. We did not verify that the prices published in the Red Book 

were actually available in the marketplace. 

Calculating Medicaid Payments 

To determine the amount Medicaid reimbursed for the 90 drug products that met the Federal 

Upper Limit criteria, we downloaded 50 Medicaid payment and utilization files for calendar 

year 2001 from CMS’s website. We did not include Arizona because its drug payment and 

utilization file was not available. Each file contained variables representing total State payments, 

number of units reimbursed, and number of prescriptions written for every NDC listed on a 

paid claim in 2001. We removed NDCs associated with brand versions of the drug product 

from the file. We excluded brand versions because many State Medicaid agencies require a 

generic version of the drug product to be dispensed. 

The total State payment amount listed in the files included both the payments for the drug 

product and the dispensing fees paid to the pharmacy. To determine a State’s payments for the 

drug product only, we: 

(1) Aggregated total State payments, number of units reimbursed, and number of prescriptions 

written for all generic NDCs associated with the product 

(2) Calculated the total amount the State paid in dispensing fees for the drug product by 

multiplying the State’s dispensing fee by the number of prescriptions written for the product 

(3) Subtracted this amount from the total State payments for the drug product 

We then calculated the average State payment by dividing the State’s payments for the drug 

product (without the dispensing fee) by the number of units reimbursed. One of the 90 drug 

products did not have payment data listed in the State files, and was therefore, not included in 

subsequent calculations. 

Calculating Potential Savings 

We calculated the difference between the average State payment and the potential Federal 

Upper Limit amount. If the potential Federal Upper Limit amount for a drug product was less 

than the average State payment, we multiplied the price difference by the number of units 

reimbursed in order to determine each State’s potential savings for the product. For each of 

the drug products with potential savings, we added the savings among all States. Finally, we 

aggregated the savings for all drug products to determine the overall potential savings to the 

Medicaid program. 

This study was conducted in accordance with the Quality Standards for Inspections issued by 

the President’s Council on Integrity and Efficiency. 

Omission of Drugs from the FUL List in 2001 5 OEI-03-02-00670 
FINDING 

Ninety drug products met the established criteria but were not 

included on the Federal Upper Limit list in 2001 

Each of the 90 drug products had at least 3 versions rated therapeutically equivalent by FDA, 

and were available from 3 or more suppliers. These 90 drug products accounted for $667 

million in Medicaid reimbursement in 2001. Prior to the release of this report, CMS added 9 of 

the 90 products to the Federal Upper Limit list. 

Adding 55 of the 90 drug products to the Federal Upper Limit list could have 

saved Medicaid $123 million in 2001 

Medicaid could have saved $123 million in 2001 by adding 55 drug products to the Federal 

Upper Limit list. This represents 30 percent of the $411 million Medicaid reimbursed for the 

55 products that year. Each of these drug products had at least three versions rated 

therapeutically equivalent by FDA and were available from three or more suppliers. These 55 

products represented various forms and strengths of 25 drugs from Drug Topics magazine’s list 

of top 200 multiple-source drugs by retail sales in 2001. 

Four drug products accounted for 71 percent of the $123 million in potential Medicaid savings 

in 2001. The Medicaid program could have saved $88 million in 2001 by placing these four 

products (albuterol aerosol, ipratropium bromide solution, enalapril maleate 20 mg tablets, and 

clozapine 100 mg tablets) on the Federal Upper Limit list. Albuterol aerosol accounted for 42 

percent of overall savings. The State of New York alone could have realized $9.2 million in 

savings had albuterol aerosol been included on the list in 2001. The total savings attributed to 

the four products are shown in Table 2 on the following page. A complete list of the 55 drug 

products and their savings is presented in Appendix A. We did not verify that the prices 

published in the Red Book were available in the marketplace. 

An additional 35 drug products met the criteria for inclusion on the Federal Upper Limit list but 

did not have any associated savings. These 35 drug products represented various forms and 

strengths of 23 drugs from Drug Topics magazine’s list of top multiple-source drugs by retail 

sales. For 34 of these 35 drug products, no State had an average payment amount for the 

product that was less than the potential Federal Upper Limit amount. Medicaid did not make 

any payments for 1 of the 35 drug products. Therefore, this product did not have any potential 

savings. States reimburse for a drug at the lower of its estimated acquisition cost, the Federal 

Upper Limit amount, the Maximum Allowable Cost, or the provider’s usual and customary 

charge. States would only pay the Federal Upper Limit amount for a drug product if it were 

the lowest of these options. Therefore, States would not have made higher payments if these 

35 products had been included on the Federal Upper Limit list. 

Omission of Drugs from the FUL List in 2001 6 OEI-03-02-00670 
Table 2: Drug Products With The Highest Potential Federal Upper Limit Savings 

Drug Product 

Total 

Medicaid Reimbursement 

Potential 

Federal Upper 

Limit Amount 

Potential 

Savings 

Albuterol Aerosol, 

0.09 mg/inh1 

$87,481,266 $0.39 $52,299,768 

Ipratropium Bromide, 0.02% 

solution2 

$65,156,902 $0.34 $19,945,230 

Enalapril Maleate, 

20 mg tablet 2 

$21,332,860 $0.72 $7,918,226 

Clozapine, 

100 mg tablet 

$83,652,722 $2.48 $7,742,010 

Total $257,623,750 $87,905,234 

Source: OIG analysis of 2001 Medicaid drug utilization and payment data and October 2001 Red Book pricing data 

After the start of this inspection but prior to the release of the final report, CMS added 9 of the 

90 products to the Federal Upper Limit list. Seven of these drug products (albuterol aerosol, 

ipratropium bromide solution, aspirin/butalbital/caffeine tablets, and four strengths of enalapril 

maleate tablets) accounted for a significant portion ($94 million) of the savings we calculated for 

2001. Albuterol aerosol was added to the Federal Upper Limit list on March 11, 2003, 

ipratropium bromide and enalapril maleate were added on August 24, 2003, and 

aspirin/butalbital/caffeine was added on November 2, 2003. According to our analysis, adding 

the other two products (buspirone hydrochloride and oxaprozin) would not have led to any 

savings that year. 

1

Albuterol aerosol was added to the Federal Upper Limit list on March 11, 2003.

2

Ipratropium bromide solution and enalapril maleate tablets were added to the Federal Upper Limit list on 

August 24, 2003.

Omission of Drugs from the FUL List in 2001 7 OEI-03-02-00670 
RECOMMENDATION 

Federal Upper Limits were created to help Medicaid save money by taking advantage of lower 

prices for multiple-source drugs available in the marketplace. Although the Federal Upper 

Limit list already includes over 400 drug products, there are more that could be added to the 

list. At a time when Medicaid prescription drug costs are increasing, efforts should be made to 

include on the Federal Upper Limit list all drugs that meet the requirements. This could result in 

millions of dollars in savings to both State Medicaid programs and the Federal Government. 

We recommend that CMS take steps to ensure that all drugs meeting the criteria set 

forth in Federal laws and regulations are included on the Federal Upper Limit list. 

Agency Comments 

CMS states that they do not agree with the the Office of Inspector General’s (OIG’s) savings 

estimates. Specifically, CMS states that OIG used only the Red Book to identify suppliers and 

prices, and did not subsequently verify the information provided in the Red Book with suppliers. 

In addition, CMS states that three of the products that we identified as leading to the most 

savings were recently added to the Federal Upper Limit list. Therefore, CMS believes that our 

savings estimates should be reduced accordingly. CMS also believes that it is nearly impossible 

to say with certainty that a particular group of products has been incorrectly excluded from the 

Federal Upper Limit list at any one time since pricing and product information changes 

frequently. CMS believes that their efforts to add and remove drug products on the Federal 

Upper Limit list should be recognized by OIG. Finally, CMS states it does not believe that 

products that would not lead to savings should be included on the Federal Upper Limit list. 

CMS also includes a technical comment stating that four sections of this report do not describe 

all the potential situations in which Federal Upper Limits may be established. CMS suggests 

that we revise these sections of the report. 

The full text of CMS’s comments is presented in Appendix B. 

OIG Response 

In the report, we recommended that all products that meet the criteria set forth in the statute 

and regulation be included on the Federal Upper Limit list. The regulatory criteria only require 

that three suppliers who offer therapeutically-equivalent products be listed in current editions of 

national pricing compendia, and that the Federal Upper Limit amount be set at 150 percent of 

the lowest published price. We strictly followed these criteria in identifying the 90 drug 

products that had not been included in 2001 and in calculating their potential Federal Upper 

Limit amounts. 

Omission of Drugs from the FUL List in 2001 8 OEI-03-02-00670 
APPENDIX A 

CMS believes that drugs that meet the criteria but have no associated savings should not be 

included on the Federal Upper Limit list. However, the Omnibus Budget Reconciliation Act of 

1990 states that “[CMS] shall establish a Federal upper reimbursement limit...” Furthermore, 

States reimburse for a drug at the lower of its estimated acquisition cost, the Federal Upper 

Limit amount, the Maximum Allowable Cost, or the provider’s usual and customary charge. 

Therefore, States would only pay the Federal Upper Limit amount for a drug product if it were 

the lowest of these options, and including a drug on the list would not lead to higher payments. 

In response to CMS’s technical comment concerning therapeutic equivalency requirements, we 

point out that the statute explicitly requires the establishment of a Federal Upper Limit when 

there are at least three therapeutically equivalent products that have been A-rated by FDA. 

The statute states that “[CMS] shall establish a Federal Upper reimbursement limit for each 

multiple source drug for which the FDA has rated three or more products therapeutically and 

pharmaceutically equivalent, regardless of whether all such additional formulations are rated as 

such...” We believe that this statement is clear in its intent that CMS must set a Federal Upper 

Limit in situations in which three products have been A-rated by FDA and the other criteria are 

met. CMS’s comments indicate that the agency takes the position that it also has the discretion 

to set Federal Upper Limits under certain additional circumstances. For the purposes of this 

report, OIG applied a conservative interpretation of the Federal Upper Limit criteria, but would 

expect additional savings to result from a broader application of the criteria. 

In conclusion, OIG believes that the savings estimates for 2001 presented in this report are 

correct for the time period we reviewed. OIG also reaffirms its recommendation that CMS 

should include all products that meet the criteria on the Federal Upper Limit list. 

Omission of Drugs from the FUL List in 2001 9 OEI-03-02-00670 
APPENDIX A 

Drug Products With Federal Upper Limit Savings

The table below lists the 55 drug products that, if included on the Federal Upper Limit list, could have led to $123 million in 

Medicaid savings in 2001. Unless otherwise noted, drug information is based on package sizes of 100. 

Drug Product 

Total Medicaid 

Reimbursement 

Potential Federal 

Upper Limit 

Potential 

Savings 

APAP/Butabital/Caffeine 

325 mg-50 mg-40 mg, Capsule $89,384.49 $0.36 $324 

325 mg-50 mg-40 mg, Tablet $3,909,337.28 $0.07 $2,660,418 

500 mg-50 mg-40 mg, Capsule $721,437.87 $0.69 $31,031 

500 mg-50 mg-40 mg, Tablet $2,506,195.89 $0.54 $706,407 

Albuterol 

.09 mg/inh, Aerosol, 17 gm1 $87,481,265.89 $0.39 $52,299,768 

2 mg/5 ml, Syrup, 480 ml $3,242,419.13 $0.02 $1,111,100 

Aspirin/Butalbital/Caffeine 

325 mg-50 mg-40 mg, Capsule $411,383.11 $0.57 $138 

325 mg-50 mg-40 mg, Tablet2 $536,594.21 $0.06 $363,022 

Aspirin/Butalbital/Caffeine/Codeine 

325 mg-50 mg-40 mg-30 mg, Capsule $2,188,509.43 $0.84 $179,712 

Bupropion HCL 

100 mg, Tablet $5,106,598.56 $0.80 $173,685 

75 mg, Tablet $4,759,489.74 $0.65 $1,656 

Clotrimazole 

1%, Cream, 15 gm $9,064,256.21 $0.23 $3,501,129 

1%, Solution, 30 ml $605,040.37 $0.61 $148 

Clozapine 

100 mg, Tablet $83,652,722.25 $2.48 $7,742,010 

25 mg, Tablet $7,907,922.22 $0.98 $578,799 

Cromolyn Sodium 

10 mg/ml, Solution, 2ml $6,187,808.53 $0.19 $1,338,246 

Desmopressin Acetate 

4 mcg/ml, Solution, 10 ml $512,170.58 $10.02 $199,539 

Diflorasone Diacetate 

.05%, Cream, 30 gm $842,858.89 $1.50 $262 

.05%, Ointment, 30 gm $1,016,670.39 $1.54 $315 

Dipyridamole 

25 mg, Tablet $366,648.16 $0.10 $152,414 

50 mg, Tablet $1,015,602.14 $0.13 $491,145 

75 mg, Tablet $339,020.00 $0.14 $6,575 

Enalapril Maleate 

2.5 mg, Tablet $4,782,059.14 $0.41 $1,544,162 3 

5 mg, Tablet3 $16,945,321.12 $0.51 $5,648,266 

10 mg, Tablet3 $20,365,750.25 $0.54 $6,767,074 

20 mg, Tablet3 $21,332,859.73 $0.72 $7,918,226 

Erythromycin 

250 mg, Enteric Coated Tablet $295,673.48 $0.22 $13,881 

Fluvoxamine Maleate 

25 mg, Tablet $1,643,208.29 $2.20 $114 

50 mg, Tablet $10,737,096.08 $2.47 $2,370 

Glyburide Micronized 

1.5 mg, Tablet $129,870.76 $0.25 $4,953 

3 mg, Tablet $1,479,788.03 $0.32 $6,346 

Omission of Drugs from the FUL List in 2001 10 OEI-03-02-00670 
APPENDIX A 

Drug Product 

Total Medicaid 

Reimbursement 

Potential Federal 

Upper Limit 

Potential 

Savings 

HC/Neo Sulf/Polymyx 

1%-0.35%-10000 U/mL, Solution-Otic, 10 ml $4,010,585.08 $1.53 $1,061,891 

1%-0.35%-10000 U/mL, Suspension-Otic, 10 ml $6,794,382.04 $1.53 $1,806,367 

Indomethacin 

25 mg, Capsule $234,076.01 $0.05 $23,200 

50 mg, Capsule $214,407.05 $0.08 $2,334 

75 mg, Extended Release Capsule $1,152,338.18 $0.69 $316,656 

Ipratropium Bromide 

0.02%, Solution, 2.5 ml3 $65,156,902.28 $0.34 $19,945,230 

Methadone HCL 

10 mg/mL, Solution, 946 ml $70,613.56 $0.10 $19,778 

40 mg, Tablet $301,985.47 $0.37 $64 

Methylphenidate HCl 

20 mg, Extended Release Tablet $7,440,180.34 $1.06 $141 

Morphine Sulfate 

15 mg, Extended Release Tablet $1,691,463.24 $0.80 $5,161 

Phentermine HCl 

30 mg, Capsule $136,369.61 $0.18 $104,872

37.5 mg, Capsule $1,993.44 $0.58 $947 

37.5 mg, Tablet $199,607.09 $0.30 $149,489 

Sotalol HCL 

80 mg, Tablet $6,536,421.53 $0.39 $4,947,453

120 mg, Tablet $1,063,691.05 $0.54 $785,364 

160 mg, Tablet $559,271.45 $0.67 $406,557 

240 mg, Tablet $97,550.50 $0.94 $72,637 

Timolol Maleate 

0.25%, Gel Forming Solution, 5 ml $268,795.65 $4.62 $1 

0.5%, Gel Forming Solution, 5ml $5,062,860.34 $5.50 $242 

Warfarin 

2.5 mg, Tablet $3,601,587.06 $0.58 $1,391

3 mg, Tablet $2,213,985.36 $0.58 $4,462 

4 mg, Tablet $2,144,529.40 $0.59 $1,741 

6 mg, Tablet $735,396.70 $0.84 $89 

7.5 mg, Tablet $1,071,049.80 $0.86 $87 

TOTAL $410,935,004.45 $123,099,389 

1

 Albuterol aerosol was added to the Federal Upper Limit list on March 11, 2003.

2

 Aspirin/Butalbital/Caffeine tablets were added to the Federal Upper Limit list on November 2, 2003.

3 Ipratropium bromide solution and enalapril maleate tablets were added to the Federal Upper Limit list on August 24, 

2003.

Omission of Drugs from the FUL List in 2001 11 OEI-03-02-00670 
APPENDIX B 

Centers for Medicare & Medicaid Services’s Comments

Omission of Drugs from the FUL List in 2001 12 OEI-03-02-00670 
APPENDIX B 

Omission of Drugs from the FUL List in 2001 13 OEI-03-02-00670 
APPENDIX B 

Omission of Drugs from the FUL List in 2001 14 OEI-03-02-00670 
ACKNOWLEDGMENTS 

This report was prepared under the direction of Robert A. Vito, Regional Inspector General for Evaluation 

and Inspections in Philadelphia, and Linda M. Ragone, Deputy Regional Inspector General. Other 

principal Office of Evaluation and Inspections staff who contributed include: 

David Tawes, Team Leader Linda Frisch, Program Specialist 

Tanaz Dutia, Program Analyst 

Omission of Drugs from the FUL List in 2001 15 OEI-03-02-00670