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Department of Health and Human Services
 

OFFICE OF 

INSPECTOR GENERAL 

UNIT OF MEASURE 


INCONSISTENCIES IN THE 


MEDICAID PRESCRIPTION DRUG 


PROGRAM
 

Daniel R. Levinson
 

Inspector General 


November 2007
 

OEI-05-07-00050
 
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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 

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. 
 

Δ EXECUTIVE SUMMARY 

OBJECTIVE 

(1) To estimate the amount of inappropriate Medicaid rebate claims 

caused by unit of measure inconsistencies. 

(2) To determine how often States convert their Medicaid utilization 

data to correct for unit of measure inconsistencies. 

BACKGROUND 

The Medicaid prescription drug program has two elements: 

reimbursements and rebates. State Medicaid agencies reimburse retail 

pharmacies for prescription drugs dispensed to Medicaid beneficiaries. 

Afterwards, State Medicaid agencies receive statutorily defined rebates 

from manufacturers for each unit of a drug for which they reimbursed 

pharmacies. 

Although reimbursements and rebates are both elements of Medicaid’s 

prescription drug program, each uses a different unit of measure 

standard. Medicaid reimbursements are based on the National Council 

for Prescription Drug Programs’ (NCPDP) unit of measure standards. 

Medicaid rebates are based on the Centers for Medicare & Medicaid 

Services’ (CMS) unit of measure standards. 

In general, pharmacies request reimbursement from States based on 

NCPDP units, while States claim Medicaid rebates from manufacturers 

using CMS units. Therefore, States must convert utilization data from 

NCPDP units to CMS units before requesting rebates from 

manufacturers. 

To determine how many drugs reimbursed by State Medicaid agencies 

have unit of measure inconsistencies, we compared NCPDP and CMS 

units of measure for drugs reimbursed by State Medicaid agencies 

during the first two quarters of 2006. To estimate the amount of 

Medicaid rebates inappropriately claimed, we subtracted the Medicaid 

rebates that States should have claimed, if they converted all utilization 

data, from the rebates that States actually claimed. To determine how 

often States convert their Medicaid utilization data to correct for unit of 

measure inconsistencies, we determined whether States reported 

utilization data in CMS units. 

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EXECUTIVE SUMMARY 
 

FINDINGS 

Unit of measure inconsistencies resulted in an estimated 

$11.8 million in inappropriately claimed Medicaid rebates during the 

first 6 months of 2006. During the first two quarters of 2006, States 

inappropriately overclaimed an estimated $8.1 million and 

underclaimed an estimated $3.7 million in Medicaid rebates, for a total 

of $11.8 million inappropriately claimed rebates. Inappropriately 

claimed rebates can lead to incorrect Medicaid rebate payments or 

disputes with manufacturers. 

Most unit of measure inconsistencies involve the unit type “each.” 

Of 213 drugs identified with unit of measure inconsistencies, 193 have 

the NCPDP or CMS unit type “each.” The NCPDP and CMS have 

different guidance regarding the unit type “each.” For some product 

types, CMS guidance is not as specific as NCPDP guidance. For other 

product types, CMS and NCPDP guidance are in conflict. 

On average, States convert less than half of their utilization data for 

drugs with unit of measure inconsistencies. We estimate that, on 

average, States converted utilization data for 45 percent of drugs with 

unit of measure inconsistencies. States convert a greater percentage of 

utilization data for drugs with larger dollar value discrepancies between 

rebate claims. 

States cannot efficiently detect or correct for unit of measure 

inconsistencies. Because NCPDP and CMS package sizes are not 

always comparable, States cannot efficiently use package size 

comparisons to identify unit of measure inconsistencies. Additionally, 

incomplete guidance hinders States’ ability to convert unit of measure 

inconsistencies. Further, inaccurate reporting of the CMS package size 

by manufacturers may result in States incorrectly converting for unit of 

measure inconsistencies. 

RECOMMENDATIONS 

To reduce the potential for inappropriately claimed Medicaid rebates 

because of unit of measure inconsistencies, we make the following 

recommendations: 

CMS should provide more specific guidance to manufacturers 

regarding the unit type “each.” 

Specifically, CMS could provide more detailed guidance for unit types 

where its standards are not as specific as NCPDP standards. 

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EXECUTIVE SUMMARY 

Additionally, CMS could provide further clarification for unit types 

where its standards are in conflict with NCPDP standards. Further, 

CMS could provide manufacturers with a detailed framework or 

analytic process to help them determine whether a drug should be an 

“each” or a different unit type. 

CMS should improve its guidance to States regarding detecting and 

converting unit of measure inconsistencies. 

Specifically, CMS could advise States about how to appropriately use 

CMS package size data to identify drugs with unit of measure 

inconsistencies and how to correctly convert utilization data. CMS 

could also encourage States to make systems enhancements to better 

detect and correct for unit of measure inconsistencies. Additionally, 

CMS could maintain a list of drugs with unit of measure inconsistencies 

on its Dispute Resolution Program Web site. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS disagreed with both recommendations. CMS does not believe 

(1) that unit of measure inconsistencies account for significant improper 

Medicaid rebate payments and (2) that the issue warrants further 

action beyond its current approach. 

We recognize that inappropriate Medicaid rebate claims caused by unit 

of measure inconsistencies represent less than 1 percent of total rebate 

claims. However, as our analysis of NCPDP and CMS data shows, unit 

of measure inconsistencies remain a problem within the Medicaid 

prescription drug program with an estimated $11.8 million in 

inappropriately claimed Medicaid rebates during a 6-month period. 

Further, the effects of unit of measure inconsistencies may grow as 

average manufacturer price data are increasingly used for Medicaid 

reimbursement. 

We support the efforts already undertaken by CMS to prevent and 

correct for unit of measure inconsistencies. CMS has issued guidance to 

manufacturers and States regarding the issue. However, we maintain 

that CMS should implement the recommendations to assist 

manufacturers and States in resolving remaining unit of measure 

inconsistencies. 

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Δ TABLE OF CONTENTS 

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

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

FINDINGS ................................................ 10 
 

States inappropriately claimed $11.8 million in Medicaid 

rebates .............................................. 10 
 

Most inconsistencies involve the unit type “each” ............. 10 
 

States convert less than half of their utilization data .......... 13 
 

States cannot efficiently detect inconsistencies ............... 14 
 

RECOMMENDATIONS ..................................... 17 
 

Agency Comments and Office of Inspector General Response . . . 18 

APPENDIXES ............................................. 22 
 

A: Detailed Methodology ................................ 22 
 

B: Detailed Examples Regarding Utilization Data Conversion . . 25 

C: Agency Comments ................................... 27 
 

ACKNOWLEDGMENTS .................................... 30 
 
 

 

 

 

Δ INTRODUCTION 

OBJECTIVES 

(1) To estimate the amount of inappropriate Medicaid rebate claims 

caused by unit of measure inconsistencies. 

(2) To determine how often States convert their Medicaid utilization 

data to correct for unit of measure inconsistencies. 

BACKGROUND 

Medicaid is a jointly funded Federal and State health insurance 

program for low-income and medically needy persons. Individual States 

establish eligibility requirements, benefit packages, and payment rates 

for their Medicaid programs under broad Federal standards 

administered by the Centers for Medicare & Medicaid Services (CMS). 

All State Medicaid programs have elected to include prescription drug 

coverage. 

Medicaid Prescription Drug Payments 

The Medicaid prescription drug program has two elements: 

reimbursements and rebates. State Medicaid agencies reimburse retail 

pharmacies for prescription drugs dispensed to Medicaid beneficiaries. 

Afterwards, State Medicaid agencies receive statutorily defined rebates 

from manufacturers for each unit of drug for which they reimburse 

pharmacies. 

Medicaid Reimbursement. CMS sets maximum drug reimbursement 

limits to ensure that the Federal Government acts as a prudent buyer.1 

Within these Federal parameters, each State determines its own 

pharmacy reimbursement formula. 

For certain multiple source drugs with sufficient numbers of equivalent 

products, CMS sets specific Federal upper limit amounts. As of 

January 1, 2007, any drug with at least two therapeutically equivalent 

versions is included in the Federal upper limit list.2 Additionally, 

Federal upper limit amounts are now based on 250 percent of the lowest 

reported average manufacturer price (AMP).3 

1 “Federal Upper Limits Overview.” Available online at 

http://www.cms.hhs.gov/FederalUpperLimits/. Accessed on August 9, 2007. 

2 Section 6001(a)(1)(B) of the Deficit Reduction Act. 

3 Section 6001(a)(2) of the Deficit Reduction Act. 

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INTROD U C T I O N 

For a drug without a Federal upper limit, State Medicaid 

reimbursements do not exceed the lower of (1) its estimated acquisition 

cost (EAC) plus a dispensing fee or (2) the provider’s usual and 

customary charge to the public for the drug.4 Although CMS does not 

stipulate a method for calculating the EAC, States typically calculate 

the EAC based upon either the wholesaler acquisition cost (WAC) plus a 

markup percentage or average wholesale price (AWP) less a discount 

percentage. Both the WAC and the AWP are suggested list prices that 

are not necessarily based on actual sales. 

Medicaid Rebates. The Omnibus Budget Reconciliation Act of 1990 

created the Medicaid drug rebate program, which mandates that for a 

drug to be eligible for Medicaid reimbursement its manufacturer must 

enter into rebate agreements with the Secretary of the Department of 

Health and Human Services and pay quarterly rebates to State 

Medicaid agencies.5 

The Medicaid unit rebate amount (URA) is the amount a manufacturer 

pays a State for each unit of a drug for which the State reimbursed 

pharmacies. The formula used to calculate the URA depends on 

whether the drug is a brand name or generic. The URA for brand name 

drugs is the greater of 15.1 percent of the AMP or the difference 

between the AMP and the Best Price (BP).6 For generic drugs, the URA 

is 11 percent of the AMP. The AMP is the average price paid by 

wholesalers for products distributed to the retail class of trade. The BP 

is the lowest price available from the manufacturer to any purchaser 

(other than those excluded by law).7 

Every quarter, CMS calculates the URA for each drug using AMP and 

BP data from manufacturers and provides the URA to State Medicaid 

agencies. To determine the total rebates due from manufacturers, a 

State multiplies the URA by the total number of units reimbursed by 

the State during the quarter. States send utilization data to 

4 42 CFR § 447.331(b). On July 17, 2007, CMS issued a final rule (with an effective date of 

October 1, 2007) that removes 42 CFR § 447.331 but includes the substance of that section 

in a new section designated as 42 CFR § 447.512. 72 Fed. Reg. 39412, 39154. 

5 § 1927 of the Social Security Act (Act). 

6 This summary is not meant to capture the full complexity of the Federal Medicaid rebate 

formula for brand name drugs, which includes an additional calculation using an inflation 

factor. 

7 § 1927(c)(1)(C)(i) of the Act. 

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INTRODUCTION 

manufacturers to claim rebates and to CMS for oversight. Figure 1, 

below, illustrates the Medicaid prescription drug payment system. 

State reimburses 

pharmacy 

Pharmacy sends claim to State for 

prescriptions dispensed to 

Medicaid beneficiaries 

State sends manufacturer 

quarterly utilization data to 

claim Medicaid rebates 

Manufacturer pays 

State a quarterly 

rebate for each unit 

of drug reimbursed Pharmacy 

dispenses 

prescriptions to 

Medicaid 

beneficiaries 

PHARMACY 

MEDICAID 

BENFICIARIES 

STATE 

MEDICAID 

AGENCY 

MANUFACTURER 

Figure 1. Medicaid Prescription Drug Payment System 

Source: Office of Inspector General, 2007. 

CMS 

Manufacturer sends quarterly 

pricing data to CMS for the 

calculation of URA 

State sends 

quarterly 

utilization data 

to CMS for 

oversight 

CMS sends 

calculated 

URA to States 

If a manufacturer disagrees with a State’s rebate claim, a manufacturer 

may dispute the rebate claim. A manufacturer may withhold payment 

for units in dispute. In 1994, CMS established the Dispute Resolution 

Program to address the problem of unpaid and disputed rebates.8 As 

part of the program, CMS provides States and manufacturers with 

written guidance to prevent the most common disputes. 

Unit of Measure Standards 

How units are defined determines the number of units in a package, or 

package size. The unit of measure and package size are used together 

to calculate the per unit reimbursement and per unit rebate amounts 

used for Medicaid prescription drug payments. Although 

8 CMS, “Background of the Dispute Resolution Program.” Available online at 

http://www.cms.hhs.gov/MedicaidDrugRebateDispR/downloads/drpbkgrnd.pdf. Accessed on 

July 19, 2007. 

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INTRODUCTION 

reimbursements and rebates are both elements of Medicaid’s 

prescription drug payment system, each uses a different unit of measure 

standard. 

Retail Standards. In 1993, the National Council for Prescription Drug 

Programs (NCPDP) developed unit of measure standards to facilitate 

uniform billing units in all retail transactions. According to NCPDP’s 

“Billing Unit Standards,” there are three possible unit types for which 

all drugs may be defined: each, milliliter, and gram.9 Because Medicaid 

reimburses retail pharmacies for prescription drugs dispensed to 

beneficiaries, Medicaid bases reimbursements on NCPDP unit of 

measure standards. 

CMS Standards. CMS developed unit of measure standards for use in 

the Medicaid drug rebate program. Because AMP and URA are 

calculated for the Medicaid drug rebate program, both are defined using 

CMS unit standards. CMS’s “Medicaid Drug Rebate Operational Guide” 

lists eight unit types: each, capsule, tablet, suppository, milliliter, 

antihemophilic, transdermal patch, and gram. In 1993, CMS agreed to 

align its standards with NCPDP standards when defining unit of 

measure for the Medicaid drug rebate program, with exceptions for 

specific packaging and dosage reasons.10 

Using Retail and CMS Standards. Although NCPDP and CMS unit of 

measure standards serve their unique purposes, if used together, the 

inconsistencies between the two standards have potential financial 

implications for Medicaid reimbursements and rebates. 

In general, pharmacies request reimbursement from States based on 

NCPDP units. But for States to claim the appropriate Medicaid rebate, 

States must use the CMS unit of measure to determine their utilization 

to report to manufacturers and CMS. For drugs with different unit of 

measure standards, States must convert their utilization data from 

NCPDP units to CMS units before requesting rebates from 

manufacturers. CMS’s “Dispute Resolution Program Best Practices” 

 OEI-05-07-00050 

9 National Council for Prescription Drug Programs, “Basic Guide to Standards.” Available 

online at http://www.ncpdp.org/PDF/Basic_guide_to_standards.pdf. Accessed on April 26, 

2007. 

10 “Medicaid Drug Rebate Program Bulletin for Participating Drug Manufacturers,” Release 

Number 8. Available online at 

http://www.cms.hhs.gov/MedicaidDrugRebateProgram/03_DrugMfrReleases.asp. Accessed on 

August 3, 2007. 

UNIT OF MEASURE I NCONSISTENCIES IN THE MEDICAID P RESCRIPTION DRUG P ROGRAM 4 
 

 

AIS

STATE MEDICAID AGENCY

STATE MEDICID AGENCY

 

 

 

 

INTROD U C T I O N 

instructs States to ensure that utilization data are reported to 

manufacturers and CMS using the CMS unit of measure standard.11 

Figure 2 provides theoretical examples of a State using NCPDP and 

CMS unit of measure standards in the Medicaid prescription drug 

program. In the first example, the State converts its utilization data to 

claim the appropriate number of Medicaid rebates. In the second 

example, the State does not convert its utilization data and underclaims 

Medicaid rebates. 

Figure 2. Using NCPDP and CMS Unit of Measure Standards 

State correctly claims 

15 rebates (e.g., 1 rebate 

for each milliliter 

dispensed) 

State Converts Utilization Data 

3 each = 15 milliliters 

PHARMACY STATE MEDICAID AGENCY MANUFACTURER 

NCPDP Unit of Measure Standard 

Each 

CMS Unit of Measure Standard 

Milliliter 

Reimbursement Rebates 

State 

reimburses 

pharmacy for 

3 each 

Example 1: State converts utilization data to CMS unit of measure 

Pharmacy dispenses 

3 vials, each 

reconstituted to 

5 milliliters, for a 

total of 15 milliliters 

State inappropriately 

claims 3 rebates 

State Does Not Convert 

Utilization Data 

State 

reimburses 

pharmacy for 

3 each 

Pharmacy dispenses 

3 vials, each 

reconstituted to 

5 milliliters, for a 

total of 15 milliliters 

PHARMACY MANUFACTURER 

Example 2: State does not convert utilization data to CMS unit of measure 

STATE MEDICAID AGENCY 

Source: Office of Inspector General, 2007. 

11 “Dispute Resolution Best Practices.” Available online at 

http://www.cms.hhs.gov/MedicaidDrugRebateDispR/03_DRPBestPractices.asp#TopOfPage. Accessed 

on August 2, 2007. 

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INTROD U C T I O N 

Changes to Medicaid Prescription Drug Payments 

Over the last decade, the Office of Inspector General (OIG) has issued a 

series of reports that highlighted the deficiencies of using AWP and 

WAC as a basis for Medicaid’s reimbursement amounts because of their 

disconnect from actual sales prices. These findings were presented 

during testimony before the Senate Committee on Finance.12 Based in 

part on this work, the Deficit Reduction Act of 2005 (DRA) made a 

number of changes in how Medicaid drugs are reimbursed.13 The DRA 

made the AMP available to the States. The AMP data provide States 

with a new source of pricing data for their reimbursement formulas. 

The DRA also mandated the use of AMP in the reimbursement formula 

for Federal upper limits. 

With changes in Medicaid reimbursement, unit of measure 

inconsistencies may affect future Medicaid reimbursement. Because 

AMP uses CMS’s unit of measure standards, using AMP to determine 

appropriate pharmacy payments will require that States convert 

reimbursement units into the NCPDP standards used in the retail 

market. 

Related OIG Work 

In July 2006, OIG issued “Review of 340B Prices” (OEI-05-02-00073). 

During that review, we found that inconsistent drug pricing data 

produced incorrect Government ceiling prices. We identified instances 

in which the unit of measure differed between NCPDP and CMS. OIG 

recommended that the Health Resources and Services Administration 

work with CMS to identify drugs for which the unit of measure is 

captured differently by NCPDP and CMS. 

In April 2007, the OIG report “States’ Use of New Drug Pricing Data in 

the Medicaid Program” (OEI-03-06-00490) found that a majority of 

States surveyed have concerns about the accuracy of AMP data received 

from CMS. Specifically, five States described inconsistencies between 

the AMP units reported by CMS and the typical unit definition of the 

associated drug products. OIG recommended that CMS provide States 

12 Testimony of Robert A. Vito, Regional Inspector General IV Evaluations and Inspections, 

U.S. Department of Health and Human Services, before the Senate Committee on Finance 

(June 29, 2005). Available at http://oig.hhs.gov/testimony/docs/2005/50629-vito-fin.pdf. 

Accessed on May 23, 2007. 

13 Section 6001(b) of the DRA. 

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INTROD U C T I O N 

with the unit definition for drug products in AMP files distributed to 

States. 

METHODOLOGY 

This study identifies drugs, by National Drug Code (NDC),14 with 

inconsistencies between the NCPDP and CMS units of measure during 

the first and second quarters of 2006. This review only estimates the 

amount of inappropriate Medicaid rebate claims caused by unit of 

measure inconsistencies. This review does not determine the amount 

inappropriately paid because we did not determine the number of rebate 

claims disputed by manufacturers. 

Below we provide an overview of our methodology. For further detail, 

see Appendix A. 

Data Collection 

From CMS’s Web site, we obtained Medicaid utilization data to produce 

a list of drugs reimbursed by State Medicaid agencies during the first 

half of 2006.15 

From CMS, we obtained its units of measure and package sizes as well 

as AMP and URA for the first and second quarter of 2006. Because 

AMP and URA are calculated for the purpose of the Medicaid drug 

rebate program, both are provided per CMS unit. 

From First DataBank, a third-party provider of drug pricing data, we 

obtained NCPDP units of measure and package sizes as well as product 

descriptions and drug pricing data. We obtained pricing data per 

package and per unit. Because pricing data from First DataBank are 

used in the retail market, per unit pricing data supplied by First 

DataBank are provided per NCPDP unit. 

Further, to understand the challenges associated with detecting and 

correcting for unit of measure inconsistencies, we interviewed CMS 

staff. Additionally, we discussed unit of measure inconsistencies with 

four State Medicaid drug rebate directors and a fiscal intermediary, 

which operates Medicaid drug rebate programs for four States. We also 

14 An NDC is a three-segment universal product identifier that specifies a drug’s 

manufacturer, product name, and package size. 

15 We included Medicaid utilization data from the District of Columbia. Additionally, we 

did not include Arizona in our analysis because Arizona does not participate in the Medicaid
 

drug rebate program.
 

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INTROD U C T U C T I O N I O N 

reviewed CMS’s “Medicaid Drug Rebate Operations Manual” and “Best 

Practices Guide to Dispute Resolution.” 

Data Analysis 

We conducted our analysis in two stages. First, we compiled a list of all 

drugs with unit of measure inconsistencies. Second, for these drugs, we 

determined whether States reported utilization to manufacturers and 

CMS in the correct unit of measure. 

Determining Drugs With Unit of Measure Inconsistencies. There were 

two scenarios that created unit of measure inconsistencies: the unit 

types did not match (e.g., milliliter versus each) or there were different 

interpretations of the same unit type. 

To identify drugs for which the unit types did not match, we compared 

the NCPDP unit of measure to the CMS unit of measure. We counted 

drugs as having a unit of measure inconsistency when the NCPDP and 

CMS unit types did not match. 

To identify drugs with different interpretations of the same unit type, 

we compared the NCPDP and CMS package sizes for drugs with the 

same unit type. If a drug was described with the same unit of measure 

by both NCPDP and CMS, but the package sizes were different, we 

concluded that this inconsistency was the result of different 

interpretations of the same unit type. 

In cases in which we were unable to determine whether the drug had a 

unit of measure inconsistency, we were conservative in our analysis and 

assumed that the drug did not have a unit of measure inconsistency. 

Determining State Conversion of Utilization Data. Because State 

utilization data sent to CMS do not contain unit of measure 

information, we determined whether States used the CMS unit of 

measure for rebates by comparing the actual per unit reimbursement to 

an estimated per unit cost in NCPDP units and an estimated per unit 

cost in CMS units. If the actual per unit reimbursement was closer to 

the estimate calculated with NCPDP units, we concluded that the State 

was using NCPDP units to report utilization and did not convert its 

utilization data. In cases in which we were unable to determine 

whether the actual unit cost was closer to the NCPDP or CMS per unit 

cost, we were conservative in our analysis and assumed that the State 

converted the units. 

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INTRODUCTION 

Estimating Inappropriate Rebate Claims. To estimate the amount of 

Medicaid rebates inappropriately claimed, we subtracted Medicaid 

rebates that States should have claimed, if they converted all utilization 

data, from rebates that States actually claimed. 

Limitations 

We used States’ estimated acquisition cost reimbursement formulas to 

determine per unit reimbursement from the aggregate data. Although 

State Medicaid reimbursement is typically based on estimated 

acquisition cost reimbursement formulas, it may also be based on other 

reimbursement methodologies. 

According to CMS staff, States may request manufacturers to convert 

utilization data to correct for unit of measure inconsistencies. Because 

manufacturers may make these conversions after receiving rebate 

invoices from States, they are not reflected in the utilization data 

reported by States. However, the extent to which drugs are converted 

by manufacturers is unknown by CMS. 

Because of these limitations, we present all of our data as estimates. 

For 2,231 drugs, we were unable to determine if the drug had a unit of 

measure inconsistency because of different NCPDP and CMS definitions 

of package size. Additionally, for 332 drugs we were unable to 

determine if the drug had a unit of measure inconsistency because of 

possible errors in the package size data reported to CMS. In these 

cases, we were conservative in our analysis and assumed that the drug 

did not have an inconsistency. As a result, our estimates of 

inappropriately claimed Medicaid rebates may be low given our 

conservative methodological approach. 

Standards 

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. 

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Δ FINDINGS 

Unit of measure inconsistencies resulted 

in an estimated $11.8 million in 

inappropriately claimed Medicaid rebates 

during the first 6 months of 2006 

Unit of measure inconsistencies, if 

not converted, result in States 

inappropriately claiming Medicaid 

rebates. During the first two 

quarters of 2006, States 

inappropriately overclaimed an estimated $8.1 million and 

underclaimed an estimated $3.7 million in Medicaid rebates, for a total 

of $11.8 million inappropriately claimed rebates. 

Overall, the amount of inappropriately claimed rebates because of unit 

of measure inconsistencies represents less than 1 percent of total rebate 

claims. However, regardless of the amount, inappropriately claimed 

Medicaid rebates can lead to incorrect Medicaid rebate payments or 

disputes with manufacturers. 

Interviews with four State Medicaid drug rebate directors suggested 

that in their States, many rebate claims for drugs with unit of measure 

inconsistencies are disputed, especially for those inconsistencies that 

may lead to overclaiming. Overall, disputed claims can take months or 

years to resolve, tying up valuable resources and delaying rebate 

payments. Prior OIG work found that 15 States had inadequate dispute 

resolution and rebate collection processes.16 

We identified 213 drugs with unit of 

measure inconsistencies during the first 

Most unit of measure inconsistencies 

involve the unit type “each” 

two quarters of 2006. Of the 213 drugs, 

193 have the CMS or NCPDP unit type “each.” Of those, 112 drugs 

have the NCPDP unit type “each,” 52 drugs have the CMS unit type 

“each,” and 29 drugs have both the NCPDP and CMS unit type “each.” 

Most drugs have a mismatch between the unit types “each” and 

milliliter or “each” and gram. A smaller percentage involves different 

interpretations of the unit type “each.” Table 1, on the next page, 

provides the number of drugs identified with unit of measure 

inconsistencies by NCPDP and CMS unit type. 

16 “Multistate Review of Medicaid Drug Rebate Programs,” A-06-03-00048. Available online 

at http://oig.hhs.gov/oas/reports/region6/60300048.pdf. Accessed on July 5, 2007. 

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FINDINGS 

Table 1. Unit of Measure Inconsistencies by

 NCPDP and CMS Unit Type 

CMS Unit Type 

NCPDP Unit Type 

Each Milliliter Gram 

Each 

Milliliter 

Gram 

Suppository 

Transdermal Patch 

29 

56 

48 

4 

4 

47 

8 

6 

0 

0 

5 

0 

6 

0 

0 

Source: OIG analysis of State Medicaid utilization data, 2007. 

Drugs with unit of measure inconsistencies involving the unit type 

“each” are continually added to the program. Of the 193 drugs that we 

identified involving the unit type “each,” 87 drugs entered the market 

between 2000 and 2006, with 25 of these new drugs in 2005 and 2006. 

NCPDP and CMS have different guidance regarding the use of the unit type 

“each” 

According to NCPDP guidance, there are three unit types: each, 

milliliter, and gram.17 The unit type “each” is used for products that are 

not measured by volume or weight. Examples of products that must be 

defined as “each” according to NCPDP guidance include tablets, 

capsules, suppositories, transdermal patches, antihemophilic products, 

kits, powder-filled vials, and powdered packets. Additionally, packages 

with a quantity of less than one milliliter or gram should have the unit 

type “each.” Further, according to NCPDP guidance, liquid-filled vials, 

ampules, and syringes are not considered an “each” but rather use 

milliliters. 

According to CMS guidance, there are eight unit types including each, 

milliliter, gram, transdermal patch, suppository, tablet, capsule, and 

antihemophilic factor.18 Although CMS has five additional unit types, 

all five would have the NCPDP unit type “each.” CMS has not issued 

detailed guidance regarding specific use of the additional unit types. 

17 References to NCPDP guidance cite the NCPDP “Billing Unit Standard Implementation 

Guide” version 2.0, released in 2004. 

18 “Medicaid Drug Rebate Program Quarterly Pricing Data Definitions,” Medicaid Drug
 

Rebate Operational Guide, page F7e. 

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F I NDING S 

According to CMS, the unit type “each” refers to drugs not identifiable 

by any other unit type.19 In March 2006, CMS issued Manufacturer 

Release No. 73, which provided further guidance on use of the unit type 

“each.”20 Within the release, CMS stated that the only product types for 

which manufacturers should use the unit type “each” include 

powder-filled vials, ampules, syringes, packets, and kits. 

Even with the additional guidance in Manufacturer Release No. 73, 

differences between NCPDP and CMS guidance on the unit type “each” 

remain. For some product types, CMS guidance is not as specific as 

NCPDP guidance. For example, NCPDP guidance provides specific 

instructions for products supplied as liquid-filled vials (milliliter), while 

CMS guidance does not. Also, NCPDP guidance provides specific 

instructions regarding products supplied as a suppository (e.g., each 

suppository is a unit, not the package, which can contain more than one 

suppository), while CMS guidance does not provide any clarifying 

instructions. For other product types, CMS and NCPDP guidance are in 

conflict. For instance, products described as ampules or syringes have 

the unit type milliliter according to NCPDP guidance and the unit type 

“each” according to CMS guidance.21 

Differences between NCPDP and CMS guidance are the result of 

different intended uses. NCPDP uses its unit of measure standards for 

calculating pricing data used in the retail pharmacy industry (i.e., AWP 

and WAC). These data are provided for each drug by unique package 

size. On the other hand, CMS uses its unit of measure standards for the 

calculation of the AMP and the URA for the Medicaid drug rebate 

program. The AMP and the URA must be weighted to account for all 

sales regardless of the package size. Thus, CMS calculates the AMP 

and the URA for each drug unit regardless of package size. 

As a result of the required weighting for the AMP and the URA across 

package sizes, CMS staff advises manufacturers to give careful thought 

to the use of the unit type “each.”22 CMS further advises manufacturers 

not to use the unit type “each” if a manufacturer has multiple package 

19 Ibid. 

20 “Medicaid Drug Rebate Program Bulletin for Participating Drug Manufacturers,” Release 

Number 73. Available online at 

http://www.cms.hhs.gov/MedicaidDrugRebateProgram/03_DrugMfrReleases.asp. Accessed on 

August 2, 2007.
 

21 Ibid. 

22 Ibid. 

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F I NDING S 

sizes or may launch a future package size of the drug.23 In addition, 

manufacturers are encouraged to contact CMS in instances in which the 

unit type “each” may seem appropriate even though the drug does not 

fall into any of the product types CMS has designated as “each.” 

Despite this advice, CMS states in Manufacturer Release No. 73 that 

manufacturers continue to inaccurately report drugs as unit type 

“each.” 

On average, States convert less than half 

of their utilization data for drugs with unit 

of measure inconsistencies 

To deal with unit of measure 

inconsistencies, States must convert 

utilization data from NCPDP units 

to CMS units. We estimate that, on 

average, States converted utilization data for 45 percent of drugs with 

unit of measure inconsistencies. 

States that reimburse for a greater number of drugs overall do not 

convert utilization data for drugs with unit of measure inconsistencies 

at a higher rate. There is no relationship between the number of drugs 

reimbursed and the percentage of utilization data converted to CMS 

units by States. 

The rates at which States converted their utilization data for drugs that 

lead to overclaiming and underclaiming were similar. On average, 

States converted 43 percent of drugs with unit of measure 

inconsistencies that would have led to overclaiming. States converted 

46 percent, on average, of drugs with unit of measure inconsistencies 

that would have led to underclaiming. 

States convert a greater percentage of utilization data for drugs with larger 

dollar value discrepancies between rebate claims 

The larger the dollar value between rebate claims based on NCPDP 

units and rebate claims based on CMS units, the more often States 

convert utilization data for that drug. On average, States convert 

18 percentage points more of the utilization data when the discrepancy 

is greater than $100 per drug compared to when the discrepancy is less 

than $10. 

23 Ibid. 

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F I NDING S 

Table 2 provides the percentage of utilization data converted by the 

dollar value of the discrepancy. 

Table 2. Percentage of Utilization Data Conversions by 

the Dollar Value of the Discrepancy 

Dollar Value of the 

Discrepancy 

Number of 

Drugs 

Average Percentage of 

Utilization Data Converted 

to CMS Units 

Less than $10 121 39% 

$10 - $50 29 53% 

$50 - $100 21 50% 

Over $100 42 57% 

Total 213 45% 

Source: OIG analysis of State Medicaid utilization data, 2007. 

States may convert a greater percentage of utilization data for drugs 

with larger dollar value discrepancies because the unit of measure 

inconsistencies are easier to identify for more expensive drugs. 

According to the four State Medicaid drug rebate program directors we 

interviewed, one method for detecting unit of measure inconsistencies is 

to compare reimbursement amounts to rebate amounts. If a State 

claimed a rebate amount greater than total reimbursements or if the 

rebate amount is particularly small compared to total reimbursements, 

a State may suspect a unit of measure inconsistency. Because these 

comparisons are in the aggregate, identifying a unit of measure 

inconsistency is more difficult when the dollar difference would be 

relatively small. 

CMS package size data are States cannot efficiently detect or correct for 

necessary to efficiently identify unit of measure inconsistencies 

drugs with unit of measure 

inconsistencies and to appropriately convert utilization data to CMS 

units. However, States have not received complete guidance regarding 

how to efficiently use CMS package size data to identify and convert 

unit of measure inconsistencies. Further, not all manufacturers 

correctly report the CMS package size to CMS. 

The State Medicaid drug rebate program directors we interviewed 

suggested that because of problems with package size data, they must 

manually identify and correct for drugs with unit of measure 

inconsistencies. This requires them to engage in conversations with 

manufacturers and review product prescribing information. Manually 

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F I NDING S 

identifying drugs with unit of measure inconsistencies is an inefficient 

method given that, on average, States reimburse pharmacists for over 

10,000 different drugs per quarter. 

Different interpretations of package size hinder States’ ability to identify unit 

of measure inconsistencies 

Because NCPDP and CMS package sizes are not always comparable, 

States cannot efficiently use package size comparisons to identify unit of 

measure inconsistencies. Typically, unit of measure inconsistencies can 

be identified by comparing NCPDP and CMS unit type and NCPDP and 

CMS package size. However, identifying unit of measure 

inconsistencies by comparing NCPDP and CMS package sizes is difficult 

because NCPDP and CMS define package size differently. NCPDP 

package size data are defined as the number of units in the drug’s 

package.24 CMS package size data are defined as the number of units 

within the smallest dispensable amount.25 

Because of different NCPDP and CMS interpretations of package size, 

we identified 2,231 drugs for which a package size comparison could not 

determine whether there was a unit of measure inconsistency. For 

these drugs, determining whether there is a unit of measure 

inconsistency is a labor intensive process requiring an indepth look into 

how each drug is packaged and dispensed. 

Incomplete guidance hinders States’ ability to convert unit of measure 

inconsistencies 

CMS guidance on how to convert utilization data from NCPDP units to 

CMS units once a unit of measure inconsistency is detected does not 

account for all conversions. CMS guidance instructs States to claim 

rebates using the CMS unit of measure, reminding States to multiply 

the number of scripts by the CMS package size to determine total 

utilization.26 However, this simple multiplication does not work in all 

circumstances. There are instances in which simple multiplication will 

result in an incorrect conversion. See Appendix C for detailed examples 

in which simple multiplication would result in incorrect conversions. In 

OEI-05-07-00050 

24 Definition of package size, National Drug Data File, First Bank. 

25 “Medicaid Drug Rebate Program Quarterly Pricing Data Definitions,” Medicaid Drug 

Rebate Operational Guide, page F7e. 

26 “Medicaid Drug Rebate Program Letter to State Medicaid Directors,” Release 

Number 61. Available online at 

http://www.cms.hhs.gov/MedicaidDrugRebateProgram/02_StateReleases.asp. Accessed on August 2, 

2007. 

UNIT OF MEASURE I NCONSISTENCIES IN THE MEDICAID P RESCRIPTION DRUG P ROGRAM 15 
 

 

 

F I NDING S 

these cases, States would need to divide or use a conversion factor 

rather than multiplying. 

Inaccurate reporting of the CMS package size by manufacturers may result 

in States incorrectly converting for unit of measure inconsistencies 

When package size is reported incorrectly, it can result in an apparent 

discrepancy between NCPDP and CMS package sizes when no actual 

discrepancy exits. Converting utilization data when there is not a real 

unit of measure inconsistency may cause incorrect Medicaid rebate 

claims and can delay rebate payments. Conversely, States may not 

convert utilization data for drugs that do have unit of measure 

inconsistencies because package sizes are reported as the same but are 

in fact different. 

For example, the package size for one drug supplied as a powder to be 

reconstituted for injection was inaccurately reported to CMS. The drug 

is supplied as 20 milligrams in a single dose vial and is then 

reconstituted to 1 milliliter. The manufacturer reported the CMS unit 

type as milliliter but incorrectly reported package size as 20 to CMS. 

The correct CMS package size would be 1, for the 1 milliliter. In this 

case, the manufacturer reported the number of milligrams in the vial, 

not the number of milliliters. 

We identified 332 drugs for which we were unable to determine whether 

there was a unit of measure inconsistency because of possible errors in 

the CMS package size reported by manufacturers. 

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RECOMMENDATIONS 

 

 

Δ RECOMMENDATIONS 

We found that during the first two quarters of 2006, States 

inappropriately overclaimed an estimated $8.1 million and 

underclaimed an estimated $3.7 million in Medicaid rebates, for a total 

of $11.8 million inappropriately claimed rebates. 

Inappropriately claimed Medicaid rebates can lead to incorrect rebate 

payments or disputes with manufacturers. In addition, unit of measure 

inconsistencies have implications for future Medicaid reimbursement. 

With DRA’s changes, CMS is using the AMP to calculate Federal upper 

limits and States may begin using the AMP to set pharmacy 

reimbursement in the future. Unit of measure inconsistencies may lead 

to errors in calculating reimbursement amounts based on the AMP. 

Through a variety of actions, such as issuing written guidance for 

States, State Medicaid director letters, letters to manufacturers, and its 

Dispute Resolution Program, CMS has made important strides in 

improving the accuracy of rebate claims and reducing the number of 

disputes. However, unit of measure inconsistencies continue to affect 

the Medicaid prescription drug program. To reduce the potential for 

inappropriately claimed Medicaid rebates because of unit of measure 

inconsistencies, we recommend the following: 

CMS should provide more specific guidance to manufacturers regarding the 

unit type “each” 

Because most unit of measure inconsistencies involve the unit type 

“each,” CMS should provide more specific guidance to manufacturers 

regarding the use of the unit type “each.” Specifically, CMS could: 

•	 Provide more detailed guidance for unit types where its 

standards are not as specific as NCPDP standards. For 

example, CMS could provide more detailed guidance for 

products described as a suppository. 

•	 Provide further clarification for unit types where its 

standards are in conflict with NCPDP standards. For 

example, CMS could provide more detailed guidance for 

products described as ampules or syringes. 

•	 Provide manufacturers with a detailed framework or 

analytic process to help them determine whether a drug 

should be an “each” or a different unit type. Because 

manufacturers are in the unique position to identify or 

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R ECOMMENDATIONS 

prevent unit of measure inconsistencies before they occur, 

manufacturers should carefully consider when a drug should 

have the unit type “each.” 

As CMS staff advise, it is important that manufacturers choose the 

appropriate unit type from the beginning. As the number of drugs with 

complex drug packaging and marketing increases, CMS should continue 

to work with manufacturers to prevent future unit of measure 

inconsistencies. 

CMS should improve its guidance to States regarding detecting and 

converting for unit of measure inconsistencies 

With States converting the utilization data for less than half of drugs 

with unit of measure inconsistencies, CMS should improve its guidance 

to States regarding unit of measure inconsistencies. More specifically, 

CMS could: 

•	 Advise States about how to appropriately use CMS package 

size data to identify drugs with unit of measure 

inconsistencies. 

•	 Advise States how to correctly convert utilization data. In 

particular, CMS could advise States about how to convert 

utilization data when they must be divided by the NCPDP 

package size or when a conversion factor must be used. 

•	 Encourage States to make systems enhancements to better 

detect and correct for unit of measure inconsistencies. 

•	 Maintain a list of drugs with unit of measure inconsistencies 

on its Dispute Resolution Program Web site. Updated 

periodically, the list could contain drugs identified by States, 

manufacturers, and CMS. Further, the list could contain the 

correct conversion factor to assist States when making 

conversions to utilization data. Beyond assisting States in 

claiming the correct rebates, the list could facilitate the use 

of the appropriate unit of measure with AMP data for 

reimbursement. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS disagreed with both recommendations. CMS does not believe 

(1) that unit of measure inconsistencies account for significant improper 

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RECOMMENDATIONS 

Medicaid rebate payments and (2) that the issue warrants further 

action beyond its current approach. 

We recognize that inappropriate Medicaid rebate claims caused by unit 

of measure inconsistencies represent less than 1 percent of total rebate 

claims. However, as our analysis of NCPDP and CMS data shows, unit 

of measure inconsistencies remain a problem within the Medicaid 

prescription drug program with an estimated $11.8 million in 

inappropriately claimed Medicaid rebates during a 6-month period. 

Further, the effects of unit of measure inconsistencies may grow as 

AMP data are increasingly used for Medicaid reimbursement. 

We support the efforts already undertaken by CMS to prevent and 

correct for unit of measure inconsistencies. CMS has issued guidance to 

manufacturers and States regarding the issue. However, we maintain 

that CMS should implement the recommendations to assist 

manufacturers and States in resolving remaining unit of measure 

inconsistencies. 

A detailed discussion of CMS’s specific comments is presented below. 

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

Detailed Discussion of CMS’s Comments 

Guidance to manufacturers. CMS disagreed with the recommendation 

that it should provide more specific guidance to manufacturers 

regarding the unit type “each.” CMS stated that it has already provided 

guidance regarding the unit type “each” in Manufacturer Release 

No. 73, issued March 2006, and that changes resulting from this 

guidance were implemented subsequent to the time period we reviewed. 

We found that even with the additional release, differences between 

NCPDP and CMS guidance remain. We examined the unit types listed 

on CMS’s Web site for the second quarter of 2007 for the drugs 

identified with unit of measure inconsistencies to determine whether 

the inconsistencies were resolved with the issuance of Manufacturer 

Release No. 73. Of the 163 drugs for which we could compare unit 

types, 158 had the same unit type in the second quarter of 2007 as used 

in the analysis presented in this report. We conclude that the unit of 

measure inconsistencies we identified in this report remain. 

CMS also stated that it did not believe that broad guidance could 

resolve unit of measure issues that differ on a case-by-case basis. We 

agree that broad guidance may not be as useful as more specific 

guidance, similar to that provided in Manufacturer Release No. 73. As 

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RECOMMENDATIONS 

such, we continue to recommend that CMS provide manufacturers more 

specific guidance regarding the unit type “each.” 

CMS also stated that because packaging differs from one drug to the 

next, it is virtually impossible for CMS to develop a framework or 

process that would effectively apply to all products. We appreciate the 

complexity involved with selecting a CMS unit type. However, a 

framework could be useful to ensure that manufacturers ask themselves 

the correct questions before choosing a unit type appropriate for the 

Medicaid rebate program. The framework could be a modified version of 

the decision tree used by industry when selecting an NCPDP unit type. 

In addition, for unique products, the decision tree could lead 

manufacturers to request more case-specific guidance from CMS. 

Guidance to States. CMS disagreed with the recommendation that 

CMS advise States about how they could appropriately use CMS 

package size data to identify drugs with unit of measure inconsistencies 

and how to correctly convert these data. Additionally, CMS stated that 

it has issued guidance to States on an individual basis and on specific 

drugs that have widespread and significant financial impact on States. 

We support CMS’s past efforts to provide States with guidance on unit 

of measure inconsistencies. However, as noted in the report, drugs with 

unit of measure inconsistencies resulting in smaller financial 

differences in rebates are less likely to be converted by States. As such, 

issuing guidance only for drugs that have significant financial impact on 

States could leave other unit of measure inconsistencies unresolved. In 

addition, we encourage CMS to be proactive in its guidance to alleviate 

problems before they cause a significant impact. 

CMS also disagreed with the suggestion that it could maintain a master 

list of drugs with unit of measure inconsistencies on the Dispute 

Resolution Program Web site. CMS indicated that it alone cannot 

identify the drugs that have such issues and cannot offer a conversion 

solution that would apply to all States. We agree that CMS could not 

alone identify the drugs that have unit of measure issues. Instead, the 

drugs could be identified by manufacturers and States. 

The master list could be a formal process by which manufacturers 

communicate with States regarding unit of measure inconsistencies. 

This would provide all States with information about unit of measure 

inconsistencies identified by other States, manufacturers, or CMS. In 

the report, we noted how difficult it is to use CMS data to identify and 

correct for drugs with unit of measure inconsistencies. Further, the list 

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RECOMMENDATIONS 

would also be a resource for States opting to use the AMP as part of 

their reimbursement formulas, enabling them to avoid unit of measure 

inconsistencies that would lead to inappropriate pharmacy 

reimbursement. 

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APPENDIX ~ A RECOMMENDATIONS 

 

 

Δ APPENDIX~A 

DETAILED METHODOLOGY 

Data Analysis 

Determining Drugs With Unit of Measure Inconsistencies. From the 

list of 28,091 drugs reimbursed by Medicaid during the first two 

quarters of 2006, we eliminated 1,766 drugs that did not have the 

National Council of Prescription Drug Program (NCPDP) and/or the 

Centers for Medicare & Medicaid Services (CMS) unit type. 

Additionally, we eliminated drugs with a CMS unit type of 

antihemophilic factor (AHF), tablet (TAB), or capsule (CAP). Because 

AHF products are made from human plasma and each vial contains a 

unique amount of product, AHF products are unlikely to have unit of 

measure inconsistencies. We eliminated TAB and CAP drugs because 

they did not have unit of measure inconsistencies according to our 

analysis. Additionally, our interviews with State Medicaid directors 

indicated that TAB and CAP drugs do not typically have unit of 

measure inconsistencies. We excluded 17 drugs with a CMS unit type of 

AHF and 15,397 drugs with a CMS unit type of TAB or CAP. 

From the remaining drugs with unit type data for comparison, we 

divided drugs into two groups: drugs for which the CMS and NCPDP 

unit type match and drugs for which the CMS and NCPDP unit type do 

not match. 

From the list of drugs for which the CMS and NCPDP unit type match, 

we eliminated 7,361 drugs for which the package sizes were also the 

same. In these cases in which the unit type and package size are 

identical, there are no unit of measure inconsistencies. In addition, we 

eliminated 2,231 drugs for which the CMS and NCPDP package sizes 

could not be compared because of different NCPDP and CMS definitions 

of package size. 

From the list of drugs for which the CMS and NCPDP unit types did not 

match, we eliminated 207 drugs for which the CMS and NCPDP 

package sizes were the same because these inconsistencies would not 

have a financial impact on the Medicaid prescription drug program. 

Unit of measure inconsistencies have a financial impact on the Medicaid 

drug rebate program if the unit of measure inconsistency leads to 

inappropriate Medicaid rebate claims. If the NCPDP and CMS package 

sizes are the same, then regardless of which unit of measure is used, the 

number of units claimed would be the same. 

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A P P E N D I X ~ A 

Figure 3 below, illustrates the process used to identify drugs with unit 

of measure inconsistencies. 

Drugs with 

First DataBank 

data for 

comparison 

Excluded drugs if no 

NCPDP and/or 

CMS unit type data 

Excluded drugs with 

CMS unit type AHF, 

TAB, or CAP 

Drugs with potential 

unit of measure 

inconsistencies 

because of different 

interpretations of the 

same unit type 

Drugs with 

potential unit of 

measure 

inconsistencies 

because of 

different unit 

types 

Drugs reimbursed 

by Medicaid 

Excluded 

drugs when 

CMS and 

NCPDP 

package sizes 

matched 

Excluded drugs 

when the CMS 

and NCPDP 

package sizes 

matched 

Figure 3. Comparison of NCPDP and CMS Unit Types 

CMS unit type 

does not match 

the NCPDP unit 

Excluded 

“breakable” 

packages 

with CMS 

package 

size ‘1’ 

CMS unit type 

matches the 

NCPDP unit type 

Source: Office of Inspector General, 2007 

Determining State Conversion of Utilization Data. To determine 

whether States used the correct unit of measure for rebates, we 

compared the actual per unit reimbursement to an estimated per unit 

cost in CMS units and an estimated per unit cost in NCPDP units. 

When calculating actual per unit reimbursement, we subtracted 

dispensing fees paid from the dollars reimbursed reported in the 

Medicaid utilization data. We obtained State Medicaid prescription 

drug dispensing fees from CMS’s Web site. 

To estimate the per unit cost in CMS units, we divided the average 

wholesale price (AWP) per drug package by the CMS package size. To 

estimate the per unit cost in NCPDP units, we used the per unit AWP 

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APPENDIX ~ A 

from First DataBank. Because the per unit AWP is used in retail 

transactions, it is based on NCPDP standards. 

Additionally, to make the actual per unit cost and the estimated per 

unit costs comparable, we subtracted each State’s reimbursement 

formula discount from the estimated per unit costs. The total 

reimbursement figures reported in the utilization data reflect the 

discounts associated with each State’s estimated acquisition formula. 

Therefore, the actual per unit reimbursement also reflects this discount. 

For example, if a State reimburses pharmacies at the AWP minus 

15 percent, then the State’s actual per unit cost would be approximately 

15 percent below the AWP. In this example, we would have subtracted 

15 percent from the estimated per unit costs for this State to make the 

items comparable. We obtained each State’s reimbursement formula 

from CMS’s Web site. 

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Δ APPENDIX~B 

DETAILED EXAMPLES REGARDING UTILIZATION DATA 

CONVERSION 

CMS guidance does not advise States how to convert utilization data 

from NCPDP units into CMS units. CMS guidance only instructs States 

to multiply the number of packages dispensed by CMS package size. 27 

In some cases, this simple multiplication does not apply. 

Example 1: The NCPDP package size equals the number of milliliters or 

grams and the CMS package size equals “1” 

The process of converting utilization data to CMS units may not be 

straightforward when the NCPDP package size equals the number of 

milliliters or grams and the CMS package size equals “1,” representing 

an “each.” In this situation, to correctly convert utilization data to CMS 

units, States must divide their utilization data by the NCPDP package 

size. We identified 53 drugs with unit of measure inconsistencies for 

which States would have to divide utilization data by the NCPDP 

package size to correctly convert utilization data to CMS units. Figure 

4 provides a theoretical example of this type of conversion. 

Figure 4. Conversion Requiring Division 

Reimbursement Rebates 

NCPDP unit of measure standard = milliliter 

NCPDP package size = 5 milliliters (1 syringe) 

CMS unit of measure standard = each 

CMS package size = 1 each (1 syringe) 

State correctly claims 

three rebates (e.g. one 

rebate for each syringe) 

State Converts Utilization Data 

Pharmacy dispenses 

three syringes, each 

with 5 milliliters, for a 

total of 15 milliliters 

PHARMACY STATE MEDICAID AGENCY MANUFACTURER 

State 

reimburses 

pharmacy for 

15 milliliters 

 15 milliliters ÷ 5 milliliters 

Source: Office of Inspector General, 2007. 

27 “Medicaid Drug Rebate Program Letter to State Medicaid Directors,” Release Number 

61. Available online at http://www.cms.hhs.gov/MedicaidDrugRebateProgram/02_StateReleases.asp. 

Accessed on August 2, 2007. 

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APPENDIX ~ B 

Example 2: NCPDP and CMS package sizes equal the number of units but 

use different units of measure 

Converting utilization data by simply multiplying the number of 

NCPDP units by the CMS package size would be inappropriate when 

both the CMS and NCPDP package size represent the number of units 

but use a different standard. To appropriately convert utilization data 

to CMS units for these drugs, States must create a conversion factor by 

dividing the CMS package size by the NCPDP package size. Utilization 

data must be multiplied by the conversion factor to correctly convert 

NCPDP units into CMS units. We identified 35 drugs with unit of 

measure inconsistencies for which States would have to use a 

conversion factor to appropriately convert utilization data to CMS units. 

Figure 5 provides a theoretical example of utilization data conversions 

when States must develop a conversion factor to appropriately convert 

utilization data. 

Figure 5. Conversion Requiring Developing a Conversion Factor 

Reimbursement Rebates 

NCPDP unit of measure standard = grams CMS unit of measure standard = milliliters 

NCPDP package size = 3 grams (1 tube) CMS package size = 5 milliliters (1 tube) 

State State correctly
 

Pharmacy dispenses reimburses claims 15 rebates 

three 5 milliliter tubes pharmacy for (e.g. one rebate for
 

of lotion containing
 9 grams each milliliter) 

3 grams of product for 

a total of 15 milliliters STATE MEDICAID AGENCY MANUFACTURER PHARMACY or 9 grams 

State Converts Utilization Data 

Conversion Factor = 5 milliliters ÷ 3 grams = 1.67 

9 grams * 1.67 = 15 

Source: Office of Inspector General, 2007. 

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Agency Comments 

Δ APPENDIX~C 
 

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APPENDIX ~ C 
 

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APPENDIX ~ C 
 

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APPENDIX ~ B 

This report was prepared under the direction of Ann Maxwell, Regional 

Inspector General for Evaluation and Inspections in the Chicago 

regional office, and Thomas Komaniecki, Deputy Regional Inspector 

General. 

This study was led by Suzanne Bailey. Other principal Office of 

Evaluation and Inspections staff from the Chicago regional office who 

contributed include Melissa Hafner and Mollie Hertel; central office 

staff who contributed include Cynthia Thomas and David Graf. 

Δ ACKNOWLEDGMENTS