Department of Health and Human Services


OFFICE OF 

INSPECTOR GENERAL 

MONITORING MEDICARE 


PART B DRUG PRICES: 


A COMPARISON OF AVERAGE 


SALES PRICES TO AVERAGE 


MANUFACTURER PRICES


Daniel R. Levinson


Inspector General 


April 2006


OEI-03-04-00430

Office of Inspector General 

http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 

amended, is to protect the integrity of the Department of Health and Human Services (HHS) 

programs, as well as the health and welfare of beneficiaries served by those programs. This 

statutory mission is carried out through a nationwide network of audits, investigations, and 

inspections conducted by the following operating components: 

Office of Audit Services 

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

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

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

respective responsibilities and are intended to provide independent assessments of HHS programs 

and operations. These assessments help reduce waste, abuse, and mismanagement and promote 

economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide the HHS, 

Congress, and the public with timely, useful, and reliable information on significant issues. 

Specifically, these evaluations focus on preventing fraud, waste, or abuse and promoting economy, 

efficiency, and effectiveness in departmental programs. To promote impact, the reports also 

present practical recommendations for improving program operations. 

Office of Investigations 

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

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

by providers. The investigative efforts of OI lead to criminal convictions, administrative 

sanctions, or civil monetary penalties. 

Office of Counsel to the Inspector General 

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

rendering advice and opinions on HHS programs and operations and providing all legal support 

in OIG’s internal operations. OCIG imposes program exclusions and civil monetary penalties on 

health care providers and litigates those actions within HHS. OCIG also represents OIG in the 

global settlement of cases arising under the Civil False Claims Act, develops and monitors 

corporate integrity agreements, develops compliance program guidances, renders advisory 

opinions on OIG sanctions to the health care community, and issues fraud alerts and other 

industry guidance. 
ΔINTROD UCT ION

 EXECUTIVE SUMMAR Y 

OBJECTIVE 

To determine whether average sales prices (ASP) for individual 

Medicare Part B prescription drugs exceed average manufacturer prices 

(AMP) by at least 5 percent. 

BACKGROUND 

Expenditures for Medicare Part B drugs have tripled over the past 

several years, increasing from approximately $3.3 billion in 1998 to over 

$10 billion in 2004. In 2005, Medicare Part B began paying for most 

covered drugs using a new methodology based on ASPs. Manufacturers 

report ASPs by national drug code (NDC) and must provide the Centers 

for Medicare & Medicaid Services (CMS) with the ASP and volume of 

sales for each of their NDCs on a quarterly basis.1 

Although manufacturers submit ASP data by NDCs, CMS does not 

reimburse Medicare providers for drugs using NDCs. Instead, CMS 

uses Healthcare Common Procedure Coding System (HCPCS) codes.2 

More than one NDC may meet the definition of a particular HCPCS 

code; therefore, CMS uses NDC-level information submitted by the 

manufacturers to calculate an ASP for each covered HCPCS code. 

When CMS calculates payment amounts for HCPCS codes, it must 

weight ASPs at the NDC level by the amount of the drug sold during the 

quarter. Under the ASP pricing methodology, Medicare’s allowance for 

most Part B drug codes is equal to 106 percent of the volume-weighted 

ASPs for those HCPCS codes. 

However, according to a recent Office of Inspector General (OIG) report 

entitled “Calculation of Volume-Weighted Average Sales Price for 

Medicare Part B Prescription Drugs” (OEI-03-05-00310), the way that 

CMS calculates a volume-weighted ASP is incorrect. In that report, we 

proposed an alternate method for calculating a volume-weighted ASP 

and recommended that CMS adopt this alternate method for calculating 

volume-weighted ASP. 

1An NDC is an 11-digit identifier that indicates the manufacturer, the product dosage form, 

and the package size of a drug. 

2CMS established the HCPCS to provide a standardized coding system for describing the 

specific items and services provided in the delivery of health care. 

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EXE CUTIVE S U MMAR Y

Section 1847A(d)(2)(B) of the Social Security Act (the Act) mandates 

that OIG compare ASPs with AMPs.3 Pursuant to section 1847A(d)(3) 

of the Act, the Secretary of the Department of Health and Human 

Services may disregard the ASP for a drug or biological that exceeds the 

AMP for the product by at least 5 percent. 

For this inspection, we obtained CMS’s volume-weighted ASPs for the 

first quarter of 2005, which it calculated based on data submitted by 

manufacturers for the third quarter of 2004. We also obtained AMP 

data from CMS from the third quarter of 2004. We used these AMP 

data to calculate volume-weighted AMPs using both CMS’s and OIG’s 

methods. Ultimately, we compared volume-weighted ASPs to volumeweighted AMPs for 364 HCPCS codes, and identified codes for which 

the ASP exceeded the AMP by at least 5 percent according to either 

CMS’s calculation or OIG’s calculation. 

FINDING 

ASPs for certain HCPCS codes exceeded AMPs by at least 

5 percent; however, the HCPCS codes that met the threshold 

differed depending on the method used to calculate volumeweighted ASP and AMP. Based on our analysis of data from the third 

quarter of 2004, a total of 51 HCPCS codes had an ASP that exceeded 

the AMP by at least 5 percent as a result of CMS’s calculation. 

However, according to OIG’s method for calculating volume-weighted 

ASPs and AMPs, only 38 HCPCS codes met the 5-percent threshold. 

For 34 HCPCS codes, the volume-weighted ASPs exceeded the volumeweighted AMPs by at least 5 percent regardless of whether CMS’s or 

OIG’s calculation was used. An additional 4 HCPCS codes met the 

5-percent threshold using OIG’s calculation but not CMS’s calculation. 

Another 17 HCPCS codes met the 5-percent threshold using CMS’s 

calculation but not OIG’s calculation. 

SUMMARY 

For the purpose of monitoring new prices based on ASPs, sections 

1847A(d)(2)(B) and 1847A(d)(3) of the Act mandate that OIG perform 

comparisons between ASPs and AMPs to identify drugs for which the 

ASP exceeds the AMP by at least 5 percent. This review is the first of 

3CMS collects AMPs as part of its Medicaid rebate agreements with manufacturers and as 

required by section 1927 of the Act. 

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EXE CUTIVE S U MMAR Y 

such comparisons. We found that certain HCPCS codes did, in fact, 

meet the 5-percent threshold specified in the Act. However, the number 

of codes that met the threshold, and the monetary differences between 

ASPs and AMPs for those codes, depended on the method used to 

calculate volume-weighted ASPs and volume-weighted AMPs. Although 

34 HCPCS codes met the 5-percent threshold regardless of whether 

CMS’s or OIG’s calculation was used, other codes only met the threshold 

using one calculation or the other. 

Pursuant to section 1847A(d)(3) of the Act, the Secretary has authority 

to lower the reimbursement amount for a drug with an ASP that 

exceeds the AMP by the 5-percent threshold. Therefore, differences 

between the results of CMS’s calculation and OIG’s calculation could 

affect whether published reimbursement amounts for certain Medicare 

Part B drugs are adjusted. This, in turn, affects manufacturers, 

providers, and Medicare beneficiaries. It is therefore critical that CMS 

modify its calculation as soon as possible, both to ensure that 

reimbursement amounts are calculated correctly and to ensure that 

future comparisons between ASPs and AMPs yield the most meaningful 

results. 

AGENCY COMMENTS 

Overall, CMS indicated that the information in our report is helpful in 

its continuing efforts to monitor payment adequacy under the ASP 

methodology. However, CMS noted that OIG’s review was conducted 

using data submitted during the initial implementation phase of the 

ASP methodology. According to CMS, much of the estimated savings 

identified in the report did not persist in subsequent quarters, and 

payment limits for many codes have since been revised. 

Although CMS acknowledges the Secretary’s authority to adjust the 

ASP payment limits when certain conditions are met, it believes that 

other issues should be considered, including the timing and frequency of 

pricing comparisons, stabilization of ASP reporting, the effective date 

and duration of rate substitution, and the accuracy of the ASP and AMP 

data. 

OFFICE OF INSPECTOR GENERAL RESPONSE 

This report found that comparisons between ASPs and AMPs yield 

different results depending on the method used to calculate volumeweighted ASPs and volume-weighted AMPs. Although CMS indicated 

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EXE CUTIVE S U MMAR Y 

that our report is helpful, CMS’s comments on the draft report 

addressed neither the incorrect calculation nor the impact that it has on 

the comparison between ASPs and AMPs. We continue to believe that 

CMS is calculating volume-weighted ASPs incorrectly, and that this 

incorrect calculation results in reimbursement amounts that are 

inaccurate and inconsistent with the ASP payment methodology set 

forth in section 1847A(b) of the Act. Furthermore, we believe that the 

incorrect calculation affects the results of mandated comparisons 

between ASPs and AMPs, and could continue to do so in the future. 

We acknowledge CMS’s concern that our findings should be examined in 

light of other important considerations. However, we are unsure of 

what, if any, specific steps CMS plans to take as a result of the report. 

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Δ T ABLE OF CONTENTS 

EXECUTI VE SUMMARY ......................................... i

INTRODUCTI ON ................................................ 1 

FINDI NG ......................................................... 8 

Results of Comparisons Between ASPs and AMPs ............. 8

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

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

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

APPENDI XES .................................................. 13 

A: Equations Used by CMS and OIG to Calculate VolumeWeighted ASPs and AMPs ............................ 13

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

the AMP by at Least 5 Percent Regardless of Whether

CMS’s or OIG’s Calculation Was Used................... 14

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

by at Least 5 Percent Using OIG’s Calculation but not 

CMS’s Calculation................................... 15

D: Seventeen HCPCS Codes With an ASP That Exceeded 

the AMP by at Least 5 Percent Using CMS’s Calculation 

but not OIG’s Calculation............................. 16

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

ACKN O W LEDGMENTS ......................................... 19
Δ INTRODU C TION 

OBJECTIVE 

To determine whether average sales prices (ASP) for individual 

Medicare Part B prescription drugs exceed average manufacturer prices 

(AMP) by at least 5 percent. 

BACKGROUND 

Medicare Part B Coverage of Prescription Drugs 

Medicare Part B covers only a limited number of outpatient prescription 

drugs. Covered drugs include injectable drugs administered by a 

physician; certain self-administered drugs, such as oral anticancer 

drugs and immunosuppressive drugs; drugs used in conjunction with 

durable medical equipment; and some vaccines. 

Medicare Part B Payments for Prescription Drugs 

The Centers for Medicare & Medicaid Services (CMS) contracts with 

private companies, known as carriers, to process and pay Medicare Part 

B claims, including those for prescription drugs. Claims for drugs that 

are used with medical equipment are typically processed by one of four 

durable medical equipment regional carriers (DMERC). Claims for 

other types of covered drugs are processed by local carriers. To obtain 

reimbursement for covered outpatient prescription drugs, physicians 

and suppliers submit claims using procedure codes that are associated 

with covered drugs. CMS established the Healthcare Common 

Procedure Coding System (HCPCS) to provide a standardized coding 

system for describing the specific items and services provided in the 

delivery of health care. Each HCPCS code for outpatient prescription 

drugs defines the drug name and dosage size but does not specify 

manufacturer information or package size data. 

Expenditures for Part B drugs have tripled over the past several years, 

increasing from approximately $3.3 billion in 1998 to over $10 billion in 

2004. Although Medicare covers over 550 outpatient prescription drug 

HCPCS codes, the majority of spending for Part B drugs is concentrated 

on a relatively small subset of those codes. In 2004, 43 codes 

represented 90 percent of the expenditures for Part B drugs, with only 

9 of these drugs representing half of the total Part B drug expenditures. 

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INTROD UCT ION 

Reimbursement Methodology for Part B Drugs and Biologicals in 2005 

In 2005, Medicare began paying for most drugs using an entirely new 

methodology based on ASPs.1 Section 1847A(c) of the Social Security 

Act (the Act), as added by the Medicare Prescription Drug, 

Improvement, and Modernization Act of 2003 (MMA), Public Law 108-

173, defines an ASP as a manufacturer’s sales of a drug to all 

purchasers in the United States in a calendar quarter divided by the 

total number of units of the drug sold by the manufacturer in that same 

quarter. The ASP is net of any price concessions such as volume 

discounts, prompt pay discounts, and cash discounts; free goods 

contingent on purchase requirements; chargebacks; and rebates other 

than those obtained through the Medicaid drug rebate program. Sales 

that are nominal in amount are exempted from the ASP calculation, as 

are sales excluded from the determination of “best price” in the 

Medicaid drug rebate program.

2,3 

Manufacturers report ASPs by national drug codes (NDC), which are 

11-digit identifiers that indicate the manufacturer of the drug, the 

product dosage form, and the package size. Manufacturers must 

provide CMS with the ASP and volume of sales for each NDC on a 

quarterly basis, with submissions due 30 days after the close of each 

quarter.4 

Given that Medicare reimbursement for outpatient drugs is based on 

HCPCS codes rather than NDCs, and that more than one NDC may 

meet the definition of a particular HCPCS code, CMS has developed a 

file that “crosswalks” manufacturers’ NDCs to HCPCS codes. CMS uses 

information in this crosswalk to calculate volume-weighted ASPs for 

covered HCPCS codes. 

Third-quarter 2004 ASP submissions from manufacturers served as the 

basis for first-quarter 2005 Medicare allowances for most covered drug 

codes. Under the ASP pricing methodology, the Medicare allowance for 

1For 2004, the reimbursement amount for most covered drugs was based on 85 percent of 

the average wholesale price (AWP) as published in national pricing compendia such as the 

“Red Book.” Prior to 2004, Medicare Part B reimbursed for covered drugs based on the 

lower of either the billed amount or 95 percent of the AWP. 

2Pursuant to section 1927(c)(1)(C)(i) of the Act, “best price” is the lowest price available 

from the manufacturer during the rebate period to any wholesaler, retailer, provider, 

health maintenance organization, nonprofit entity, or governmental entity within the 

United States, with certain exceptions. 

3Section 1847A(c) of the Act. 

4Section 1927(b)(3) of the Act. 

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INTROD UCT ION

most Part B drugs is equal to 106 percent of the ASP for the HCPCS 

code. Medicare beneficiaries are responsible for 20 percent of this 

amount in the form of coinsurance. 

The Medicaid Drug Rebate Program and AMPs 

In order for Federal payment to be available for outpatient drugs 

covered under Medicaid, sections 1927(a)(1) and (b)(1) of the Act 

mandate that drug manufacturers enter into rebate agreements with 

the Secretary of the Department of Health and Human Services 

(Secretary) and pay quarterly rebates to State Medicaid agencies. 

Under these rebate agreements, and pursuant to section 1927(b)(3) of 

the Act, manufacturers must provide CMS with the AMP for each of 

their NDCs on a quarterly basis. As defined in section 1927(k)(1) of the 

Act, the AMP is the average unit price paid to the manufacturer by 

wholesalers in the United States for drugs distributed to the retail 

pharmacy class of trade, minus customary prompt pay discounts. The 

AMP is calculated as a weighted average of prices for all of a 

manufacturer’s package sizes of a drug sold during a given quarter, and 

is reported for the lowest identifiable quantity of the drug (e.g., 1 

milligram, 1 milliliter, one tablet, one capsule). 

Office of Inspector General’s Monitoring of ASPs and AMPs 

Section 1847A(d)(2)(B) of the Act mandates that the Office of Inspector 

General (OIG) compare ASPs with AMPs. If OIG determines that the 

ASP for a drug exceeds the AMP by at least 5 percent, the Secretary has 

authority to substitute the payment amount for that drug product with 

103 percent of the AMP for the drug.5 

Related Work by the Office of Inspector General 

Section 303(c)(3) of MMA also mandated that OIG determine whether 

physician practices in the specialties of hematology, hematology/ 

oncology, and medical oncology could obtain drugs and biologicals for 

the treatment of cancer patients at 106 percent of the ASP. OIG 

completed this study in September 2005 and issued the report, 

“Adequacy of Medicare Part B Drug Reimbursement to Physician 

Practices for the Treatment of Cancer Patients,” (A-06-05-00024). 

According to this report, physician practices in the specialties of 

hematology, hematology/oncology, and medical oncology could generally 

purchase drugs for the treatment of cancer patients at or below the 

reimbursement rate established under the ASP payment methodology. 

5Section 1847A(d)(3) of the Act. 

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INTROD UCT ION

Recently, OIG issued another report discussing the method CMS uses to 

calculate a reimbursement amount for a HCPCS code. This report will 

be described in greater detail in the Methodology. 

METHODOLOGY 

We obtained CMS’s volume-weighted ASPs for the first quarter of 2005, 

which it calculated based on NDC-level data submitted by 

manufacturers for the third quarter of 2004. In addition, we obtained 

the file that CMS used to crosswalk NDCs to their corresponding 

HCPCS codes. Both the volume-weighted ASPs and the crosswalk file 

were updated as of January 13, 2005. We also obtained AMP data from 

CMS for the third quarter of 2004. 

Calculation of Volume-Weighted Average Sales Price 

As mentioned previously, Medicare does not base reimbursement for 

covered drugs on NDCs; instead, it uses HCPCS codes. Therefore, CMS 

uses the ASP information submitted by manufacturers for each NDC to 

calculate a volume-weighted ASP for each covered HCPCS code. When 

calculating these volume-weighted ASPs, CMS only includes NDCs with 

ASP submissions that are deemed valid. We did not examine the NDCs 

that CMS opted to exclude from its calculation, nor did we verify the 

accuracy of CMS’s crosswalk files. 

As of January 13, 2005, CMS had established prices for 459 HCPCS 

codes based on the ASP reimbursement methodology. This total 

excludes HCPCS code J3490, which is defined as “unclassified drugs.” 

Reimbursement amounts for the 459 HCPCS codes were based on ASP 

data for 2,399 NDCs. 

To calculate the volume-weighted ASPs for these 459 codes, CMS used 

an equation that involves the following variables: the ASP for the NDC 

as reported by the manufacturer, the volume of sales for the NDC as 

reported by the manufacturer, and the number of billing units in the 

NDC as determined by CMS. The amount of the drug contained in an 

NDC may differ from the amount of the drug specified by the HCPCS 

code that providers use to bill Medicare. Therefore, the number of 

billing units in an NDC describes the number of HCPCS code units that 

are in that NDC. For instance, an NDC may contain a total of 

10 milliliters of Drug A, but the corresponding HCPCS code may be 

defined as only 5 milliliters of Drug A. In this case, there are two billing 

units in the NDC. CMS calculates the number of billing units in each 

11-digit NDC when developing its crosswalk files. A more detailed 

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INTROD UCT ION 

description of CMS’s method of calculating volume-weighted ASP is 

provided in Appendix A. 

In a recent OIG report entitled “Calculation of Volume-Weighted 

Average Sales Price for Medicare Part B Prescription Drugs” (OEI-03-

05-00310), OIG stated that CMS’s method for calculating volumeweighted ASP is incorrect because CMS does not use billing units 

consistently throughout its equation. As a result, many HCPCS codes 

have a reimbursement amount that is higher or lower than the amount 

that would have been calculated if billing units were used consistently. 

In the above-referenced report, OIG proposed an alternate equation that 

we believe uses billing units correctly. We used this equation to 

calculate an alternate volume-weighted ASP for each of the 459 HCPCS 

codes. To determine what the Medicare reimbursement amount would 

be according to OIG’s calculation, we then multiplied OIG’s volumeweighted ASPs for the 459 codes by 1.06. A more detailed description of 

OIG’s calculation is presented in Appendix A. 

Analysis of Average Manufacturer Price Data 

An AMP is reported for the lowest identifiable quantity of the drug 

contained in the NDC (e.g., 1 milligram, 1 milliliter, one tablet, one 

capsule). In contrast, an ASP is reported for the entire amount of the 

drug contained in the NDC (e.g., for 50 milliliters, for 100 tablets). To 

ensure that the AMP would be comparable to the ASP, it was necessary 

to convert the AMP for each NDC so that it represented the total 

amount of the drug contained in that NDC. 

In making these conversions, we examined AMPs only for those 

2,399 NDCs that CMS used in its calculation of volume-weighted ASP 

for the 459 HCPCS codes. If AMP data were not available for one or 

more of these NDCs, we excluded the corresponding HCPCS code from 

our analysis. Ultimately, we excluded 80 HCPCS codes (718 NDCs). 

The other 379 HCPCS codes had AMP data for every NDC that CMS 

used in its calculation of volume-weighted ASPs. These 379 HCPCS 

codes represented 1,681 NDCs. 

We then multiplied the AMPs for these 1,681 NDCs by the total amount 

of the drug contained in each NDC, as identified by sources such as the 

CMS crosswalk file, the “Red Book,” manufacturer Web sites, and the 

Food and Drug Administration’s NDC directory. We will refer to the 

resulting amounts as converted AMPs. For 27 NDCs, we could not 

successfully identify the amount of the drug reflected by the ASP and 

therefore could not calculate a converted AMP. These 27 NDCs were 

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INTROD UCT ION

crosswalked to 15 HCPCS codes. We did not include these 15 HCPCS 

codes (140 NDCs) in our final analysis. 

Using the converted AMPs for the remaining 1,541 NDCs, we then 

calculated two different volume-weighted AMPs for each of the codes: 

one using the method that CMS used to calculate a volume-weighted 

ASP, and the other using the method that OIG used to calculate a 

volume-weighted ASP. We calculated volume-weighted AMPs for a 

total of 364 HCPCS codes. We did not verify the accuracy of 

manufacturer-reported ASP and AMP data. 

Comparing Volume-Weighted ASPs to Volume-Weighted AMPs 

For each of the 364 HCPCS codes included in our study, we then 

compared the volume-weighted ASPs and AMPs that resulted from 

CMS’s calculation. We also compared the volume-weighted ASPs and 

AMPs that resulted from OIG’s calculation. We identified codes with an 

ASP that exceeded the AMP by at least 5 percent according to either 

CMS’s or OIG’s calculation. 

For those HCPCS codes that met or exceeded the 5-percent threshold, 

we conducted a review of the associated NDCs to verify the accuracy of 

the billing units information. According to our review, eight of the 

codes that met the 5-percent threshold had associated NDCs with 

potentially inaccurate billing units.6 Given that volume-weighted ASPs 

and AMPs were calculated using this billing unit information, we could 

not be certain that the results for these eight codes were correct. 

Therefore, we did not include these eight codes in our findings. 

For the remaining HCPCS codes, which both met the 5-percent 

threshold and had NDCs with accurate billing units, we then estimated 

the monetary impact of lowering reimbursement to 103 percent of the 

AMP.7 For each of the HCPCS codes that met the 5-percent threshold 

using CMS’s equation, we calculated 103 percent of CMS’s volumeweighted AMP and subtracted this amount from the first-quarter 2005 

reimbursement amount for the HCPCS code, which is equal to 

106 percent of CMS’s volume-weighted ASP. For each of the codes that 

met the 5-percent threshold using OIG’s calculation, we subtracted 

6NDCs for these eight codes had billing unit information in CMS’s crosswalk file that may 

not have accurately reflected the number of billing units actually contained in the NDC. 

7Pursuant to section 1847A(d)(3) of the Act, if OIG determines that the ASP for a drug 

exceeds the AMP by a threshold of 5 percent, the Secretary has authority to substitute the 

ASP-based payment with 103 percent of AMP. 

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INTROD UCT ION 

103 percent of OIG’s volume-weighted AMP from the alternate 

reimbursement amount for the HCPCS code (106 percent of OIG’s 

volume-weighted ASP). We then multiplied the differences by the 

number of services that were allowed by Medicare for each HCPCS code 

in 2004, as reported in CMS’s Part B Extract and Summary System 

(BESS).

8 This estimate assumes that the volume-weighted ASP for 

each HCPCS code will remain consistent throughout the year 2005. 

However, the ASP amounts submitted by manufacturers may actually 

vary from quarter to quarter. 

To determine how the differences between OIG’s and CMS’s 

calculations might affect the results of the mandated comparison 

between ASPs and AMPs, we then compared the HCPCS codes that met 

the 5-percent threshold using CMS’s calculation to the codes that met 

the threshold using OIG’s calculation. 

This study was conducted in accordance with the “Quality Standards 

for Inspections” issued by the President=s Council on Integrity and 

Efficiency and the Executive Council on Integrity and Efficiency. 

8At the time of extraction, the BESS data were 96 percent complete for HCPCS codes 

processed by local carriers and 91 percent complete for HCPCS codes processed by the 

DMERCs. 

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Δ FINDING 

ASPs for certain HCPCS codes exceeded AMPs by 

at least 5 percent; however, the HCPCS codes that 

met the threshold differed depending on the method 

used to calculate volume-weighted ASPs and AMPs 

Pursuant to sections 

1847A(d)(2)(B) and 

1847A(d)(3) of the Act, OIG 

must compare ASPs to AMPs 

and notify the Secretary if the 

ASP for a particular drug exceeds the AMP by a threshold of 5 percent. 

However, the HCPCS codes that meet this threshold may differ 

depending on whether CMS’s method or OIG’s method is used to 

calculate volume-weighted ASPs and volume-weighted AMPs. 

According to CMS’s calculation, a total of 51 HCPCS codes had an ASP 

that exceeded the AMP by at least 5 percent in the third quarter of 

2004. According to OIG’s calculation, only 38 HCPCS codes met the 

5-percent threshold. 

The difference between CMS’s calculation and OIG’s calculation could 

also affect whether published reimbursement amounts for Medicare 

Part B drugs are adjusted. Sections 1847A(d)(3)(A) and (B) of the Act 

grant the Secretary authority to disregard the ASP pricing methodology 

for a drug with an ASP that exceeds the AMP by at least 5 percent. If 

that criterion is met, the Secretary has authority to lower the 

reimbursement amount for the drug to 103 percent of the AMP.9 If 

reimbursement amounts for the 51 HCPCS codes identified by CMS’s 

calculation had been lowered to 103 percent of the AMP, Medicare 

allowances would have been reduced by an estimated $164 million in 

2005. Although fewer HCPCS codes met the 5-percent threshold using 

OIG’s calculation, lowering the reimbursement amounts for those 

38 codes would have actually reduced Medicare allowances by a greater 

amount—an estimated $172 million in 2005. 

As shown in Table 1, some HCPCS codes met the 5-percent threshold 

regardless of whether CMS’s or OIG’s calculation was used. Other 

codes only met the 5-percent threshold according to one calculation or 

the other. 

9Section 1847A(d)(3)(C) of the Act. 

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F I NDING 

Table 1: Results of the Comparison Between ASPs and AMPs Using CMS’s and 

OIG’s Calculations 

Number of 

HCPCS 

Codes 

Reduction in 

Reimbursement 

(in millions) 

Met 5-percent threshold According to CMS’s Calculation 51 $164 

Met Threshold According to Both CMS’s and OIG’s Calculations 

Met Threshold According to CMS’s Calculation Only 

34 

17 

$161 

$3 

Met 5-percent threshold According to OIG’s Calculation 38 $172 

Met Threshold According to Both CMS’s and OIG’s Calculations 

Met Threshold According to OIG’s Calculation Only 

34 

4 

$169 

$3 

For 34 HCPCS codes, the volume-weighted ASPs exceeded the volumeweighted AMPs by at least 5 percent regardless of whether CMS’s or OIG’s 

calculation was used 

According to our analysis, 34 HCPCS codes met the 5-percent threshold 

using either CMS’s or OIG’s calculation. However, the extent to which 

ASPs exceeded AMPs may have been different depending on which 

calculation was used. 

For example, CMS’s calculation for one HCPCS code resulted in a 

volume-weighted ASP of $4.82 and a volume-weighted AMP of $4.42. 

The difference between these two prices is 9 percent, which exceeds the 

5-percent threshold specified in the Act. According to OIG’s calculation 

for the same HCPCS code, the volume-weighted ASP should be $3.48 

and the volume-weighted AMP should be $3.30. Here, the ASP exceeds 

the AMP by exactly 5 percent. Although this HCPCS code meets the 

5-percent threshold regardless of which calculation is used, the prices 

themselves, and the percentage difference between those prices, can 

vary depending on whether CMS’s or OIG’s method is followed. This, in 

turn, could affect how much providers would receive in reimbursement, 

particularly if the reimbursement amount were lowered to 103 percent 

of the AMP. 

According to CMS’s calculation, lowering reimbursement for these 

34 HCPCS codes to 103 percent of the AMP would have reduced 

Medicare allowances by an estimated $161 million in 2005. Using OIG’s 

calculation for the same 34 codes, however, would have reduced 

Medicare allowances by an additional $8 million, for an estimated total 

of $169 million in 2005. 

A list of all 34 HCPCS codes is presented in Appendix B. 

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F I NDING

Four additional HCPCS codes met the 5-percent threshold using OIG’s 

calculation but not CMS's calculation 

For four HCPCS codes, the volume-weighted ASP exceeded the AMP by 

at least 5 percent using OIG’s calculation but not CMS’s calculation. If 

the reimbursement amounts for these four codes had been lowered to 

103 percent of the AMP, we estimate that Medicare allowances would 

have been reduced by $2.7 million in 2005. These savings can be 

attributed almost entirely to one code, J0256.10 A list of these four 

HCPCS codes is presented in Appendix C. 

Another 17 HCPCS codes met the 5-percent threshold using CMS’s 

calculation but not OIG's calculation 

For 17 HCPCS codes, the volume-weighted ASPs exceeded AMPs by at 

least 5 percent using CMS’s calculation but not OIG’s calculation. 

Lowering the reimbursement amounts for these 17 HCPCS codes to 

103 percent of the AMP would have reduced Medicare allowances by an 

estimated $2.7 million in 2005. The vast majority of these savings can 

be attributed to three HCPCS codes: J3301, J1080, and J1550.11 A list 

of all 17 HCPCS codes is presented in Appendix D. 

10HCPCS code J0256 represents an injection of alpha 1-proteinase inhibitor–human, 10 

milligrams (mg). 

11HCPCS code J3301 represents an injection of triamcinolone acetonide, per 10 mg; HCPCS 

code J1080 represents an injection of testosterone cypionate, 1cc, 200 mg; and HCPCS code 

J1550 represents an injection of gamma globulin, intramuscular, 10 cc. 

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ΔEXE CUTIVE S U MMAR Y

 SUMMAR Y 

For the purpose of monitoring new prices based on ASPs, sections 

1847A(d)(2)(B) and 1847A(d)(3) of the Act mandate that OIG perform 

comparisons between ASPs and AMPs to identify drugs for which the 

ASP exceeds the AMP by at least 5 percent. This review is the first of 

such comparisons. We found that certain HCPCS codes did, in fact, 

meet the 5-percent threshold specified in the Act. However, the number 

of codes that met the threshold, and the monetary differences between 

the ASPs and AMPs for those codes, depended on the method used to 

calculate volume-weighted ASPs and volume-weighted AMPs. Although 

34 HCPCS codes met the 5-percent threshold regardless of whether 

CMS’s or OIG’s calculation was used, other codes only met the threshold 

using one calculation or the other. 

Pursuant to section 1847A(d)(3) of the Act, the Secretary has authority 

to lower the reimbursement amount for a drug with an ASP that 

exceeds the AMP by the 5-percent threshold. Therefore, differences 

between the results of CMS’s calculation and OIG’s calculation could 

affect whether published reimbursement amounts for certain Medicare 

Part B drugs are adjusted. This, in turn, affects manufacturers, 

providers, and Medicare beneficiaries. It is therefore critical that CMS 

modify its calculation as soon as possible, both to ensure that 

reimbursement amounts are calculated correctly and to ensure that 

future comparisons between ASPs and AMPs yield the most meaningful 

results.12 

AGENCY COMMENTS 

Overall, CMS indicated that the information in our report is helpful in 

its continuing efforts to monitor payment adequacy under the ASP 

methodology. However, CMS noted that OIG’s review was conducted 

using data submitted during the initial implementation phase of the 

ASP methodology. According to CMS, much of the estimated savings 

12Issues with CMS’s calculation of volume-weighted ASP are discussed in greater detail in 

the OIG report, “Calculation of Volume-Weighted Average Sales Price for Medicare Part B 

Prescription Drugs” (OEI-03-05-00310). This report found that CMS’s method for 

calculating volume-weighted ASP is incorrect because CMS does not use billing units 

consistently throughout its equation. Therefore, OIG recommended that CMS adopt an 

alternate method for calculating volume-weighted ASP, which does use billing units 

consistently. 

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SUMMAR Y 

identified in the report did not persist in subsequent quarters, and 

payment limits for many codes have since been revised. 

Although CMS acknowledges the Secretary’s authority to adjust the 

ASP payment limits when certain conditions are met, it believes that 

other issues should be considered, including the timing and frequency of 

pricing comparisons, stabilization of ASP reporting, the effective date 

and duration of rate substitution, and the accuracy of the ASP and AMP 

data. 

The full text of CMS’s comments can be found in Appendix E. 

OFFICE OF INSPECTOR GENERAL RESPONSE 

This report found that comparisons between ASPs and AMPs yield 

different results depending on the method used to calculate volumeweighted ASPs and volume-weighted AMPs. Although CMS indicated 

that our report is helpful, CMS’s comments on the draft report 

addressed neither the incorrect calculation nor the impact it has on the 

comparison between ASPs and AMPs. We continue to believe that CMS 

is calculating volume-weighted ASPs incorrectly, and that this incorrect 

calculation results in reimbursement amounts that are inaccurate and 

inconsistent with the ASP payment methodology set forth in section 

1847A(b) of the Act. Furthermore, we believe that the incorrect 

calculation affects the results of mandated comparisons between ASPs 

and AMPs, and could continue to do so in the future. 

We acknowledge CMS’s concern that our findings should be examined in 

light of other important considerations. However, we are unsure of 

what, if any, specific steps CMS plans to take as a result of the report. 

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ΔAPP E N D I X ~A APPENDIX ~ A 

Equations Used by CMS and OIG to Calculate Volume-Weighted ASPs and AMPs 

1. The Equation Used by CMS to Calculate a Volume-Weighted ASP 

In the following equation, a “unit” is defined as the entire amount of the drug 

contained in the NDC: 

ASP for NDC * Number of NDCs Sold 

Volume-Weighted ASP Sum of 

Billing Units in NDC for the Billing Unit of = HCPCS Code 

Sum of Number of NDCs Sold 

2. The Equation Used by OIG to Calculate a Volume-Weighted ASP 

We suggest that CMS’s calculation should be modified by multiplying the number of 

NDCs sold by the number of billing units in the NDC in both the numerator and 

denominator of the equation: 

ASP for NDC * Number of NDCs Sold * Billing Units in NDC 

Volume-Weighted ASP Sum of 

Billing Units in NDC for the Billing Unit of = HCPCS Code 

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

However, the terms “Billing Units in NDC” in the numerator of the equation cancel 

each other out: 

ASP for NDC * Number of NDCs Sold * Billing Units in NDC 

Volume-Weighted ASP Sum of 

Billing Units in NDC for the Billing Unit of = HCPCS Code 

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

Therefore, OIG’s equation is written in the following way: 

Volume-Weighted ASP Sum of (ASP for NDC * Number of NDCs Sold) 

for the Billing Unit of = 

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

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Δ APPENDIX ~ B 

Thirty-Four HCPCS Codes With an ASP That Exceeded the AMP by at Least 

5 Percent Regardless of Whether CMS’s or OIG’s Calculation Was Used 

Code Description 

J0360 Injection, hydralazine HCl, up to 20 mg 

J0470 Injection, dimercaprol, per 100 mg 

J0770 Injection, colistimethate sodium, up to 150 mg 

J1110 Injection, dihydroergotamine mesylate, per 1 mg 

J1180 Injection, dyphylline, up to 500 mg 

J1240 Injection, dymenhydrinate, up to 50 mg 

J1250 Injection, dobutamine, HCl, per 250 mg 

J1364 Injection, erythromycin lactobionate, per 500 mg 

J1940 Injection, furosemide, up to 20 mg 

J1955 Injection, levocarnitine, per 1 g 

J2324 Injection, nesiritide, 0.25 mg 

J2501 Injection, paricalcitol, 1 mcg 

J2545 Pentamidine isethionate, inhalation solution, per 300 mg 

J2675 Injection, progesterone, per 50 mg 

J2690 Injection, procainamide HCl, up to 1 g 

J2730 Injection, pralidoxime chloride, up to 1 g 

J3364 Injection, urokinase, 5,000 IU vial 

J3365 Injection, IV, urokinase, 250,000 IU vial 

J3415 Injection, pyridoxine HCl, 100 mg 

J3487 Injection, zoledronic acid, 1 mg 

J7517 Mycophenolate mofetil, oral, 250 mg 

J7644 Ipratropium bromide, inhalation solution administered through DME, unit dose form, per mg 

J9060 Cisplatin powder or solution, per 10 mg 

J9185 Fludarabine phosphate, 50 mg 

J9202 Goserelin acetate implant, per 3.6 mg 

J9219 Leuprolide acetate implant, 65 mg 

J9300 Gemtuzumab ozogamicin, 5 mg 

J9320 Streptozocin, 1 g 

J9360 Vinblastine sulfate, 1 mg 

J9370 Vincristine sulfate, 1 mg 

J9375 Vincristine sulfate, 2 mg 

J9380 Vincristine sulfate, 5 mg 

Q0164 Prochlorperazine maleate, 5 mg, oral 

Q0175 Perphenazine, 4 mg, oral 

Source: OIG Analysis of the ASP and AMP Data, 2005. 

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Δ APPENDIX ~ C 

Four HCPCS Codes With an ASP That Exceeded the AMP by at Least 5 Percent 

Using OIG’s Calculation but not CMS’s Calculation 

Code Description 

J0256 Injection, alpha 1-proteinase inhibitor – human, 10 mg 

J1790 Injection, droperidol, up to 5 mg 

J2993 Injection, reteplase, 18.1 mg 

Q0178 

Hydroxyzine pamoate, 50 mg, oral, FDA approved prescription anti-emetic, for use as a complete 

therapeutic substitute for an IV anti-emetic at the time of chemotherapy treatment, not to exceed 

a 48-hour dosage regimen 

Source: OIG Analysis of the ASP and AMP Data, 2005. 

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Δ APPENDIX ~ D 

Seventeen HCPCS Codes With an ASP That Exceeded the AMP by at Least 

5 Percent Using CMS’s Calculation but not OIG’s Calculation 

Code Description 

J1080 Injection, testosterone cypionate, 1 cc, 200 mg 

J1460 Injection, gamma globulin, intramuscular, 1 cc 

J1470 Injection, gamma globulin, intramuscular, 2 cc 

J1480 Injection, gamma globulin, intramuscular, 3 cc 

J1490 Injection, gamma globulin, intramuscular, 4 cc 

J1500 Injection, gamma globulin, intramuscular, 5 cc 

J1510 Injection, gamma globulin, intramuscular, 6 cc 

J1520 Injection, gamma globulin, intramuscular, 7 cc 

J1530 Injection, gamma globulin, intramuscular, 8 cc 

J1540 Injection, gamma globulin, intramuscular, 9 cc 

J1550 Injection, gamma globulin, intramuscular, 10 cc 

J1560 Injection, gamma globulin, intramuscular, over 10 cc 

J1630 Injection, haloperidol, up to 5 mg 

J1885 Injection, ketorolac tromethamine, per 15 mg 

J3301 Injection, triamcinolone acetonide, per 10 mg 

J3410 Injection, hydroxyzine HCl, up to 25 mg 

J3420 Injection, vitamin B-12 cyanocobalamin, up to 1,000 mcg 

Source: OIG Analysis of the ASP and AMP Data, 2005. 

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Δ APPENDIX E 

Comments from the Centers for Medicare & Medicaid Services 

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APP E N D I X ~ E 

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Δ ACKNOWLEDGMENTS 

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

General for Evaluation and Inspections in the Philadelphia regional office, and Linda 

M. Ragone, Deputy Regional Inspector General. Other principal Office of Evaluation 

and Inspections staff who contributed include: 

Lauren McNulty, Team Leader 

Edward Burley, Program Analyst 

Tanaz Dutia, Program Analyst

Linda Boone Abbott, Program Specialist

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