Department of Health and Human Services


OFFICE OF 

INSPECTOR GENERAL 

EXAMINING FLUCTUATIONS IN 

AVERAGE MANUFACTURER 

PRICES

Daniel R. Levinson


Inspector General 


May 2007


OEI-03-06-00350

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 

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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 SUMMAR Y 

OBJECTIVE 

To determine the extent to which average manufacturer prices (AMP) 

fluctuated between the second quarter of 2005 and the second quarter of 

2006. 

BACKGROUND 

Pursuant to provisions of the Deficit Reduction Act of 2005 (DRA), the 

Centers for Medicare & Medicaid Services (CMS) was required to make 

AMP data available to States as of July 1, 2006. States will have the 

option of using these AMP data to set drug reimbursement amounts in 

their Medicaid programs. As of January 1, 2007, AMPs are also to be 

used to establish Medicaid Federal upper limit amounts. In response to 

these changes, industry representatives have expressed concerns that 

(1) the AMP is too volatile to serve as the basis for Medicaid payment, 

and (2) the 2-month lag between when AMPs are reported to the States 

and when reimbursement amounts are established may cause 

pharmacies to absorb price increases in the interim. 

At the time of this review, Federal law defined the AMP as the average 

price paid to the manufacturer for a drug in the United States by 

wholesalers for drugs distributed to the retail pharmacy class of trade 

after deducting customary prompt pay discounts. As a result of 

provisions in the DRA, beginning January 1, 2007, manufacturers are 

no longer to include customary prompt pay discounts when reporting 

AMPs. Through 2006, manufacturers reported AMPs for their covered 

outpatient drugs to CMS by the national drug codes (NDC) each 

quarter. However, effective January 1, 2007, the DRA requires 

manufacturers to report AMPs to CMS on both a monthly and a 

quarterly basis. Because the monthly AMP data submitted to CMS by 

manufacturers will reflect sales from up to 60 days prior, there will be 

at least a 2-month lag between the sales period for which AMPs are 

reported and the effective date of the Medicaid reimbursement amounts. 

For this inspection, we calculated the percentage difference among all 

quarterly AMPs between the second quarter of 2005 and the second 

quarter of 2006. These results were then broken down by drug category 

(single-source, innovator multiple-source, or noninnovator multiplesource) and for the top 50 NDCs ranked by total Medicaid 

reimbursement within each category. In general, single-source drugs 

are brand name products for which there are no available generics, 

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EXE CUTIVE S U MMAR Y

innovator multiple-source drugs are brand name products for which 

there are available generics, and noninnovator multiple-source drugs 

are generic products. Manufacturers provide CMS with the drug type 

for each of their NDCs in conjunction with AMP data. 

FINDINGS 

Overall, 39 percent of average manufacturer prices stayed the same 

between quarters, and an additional 16 percent changed by less than 

2 percent. During the period under review, an average of 39 percent of 

AMPs did not change between quarters, and another 16 percent of 

AMPs changed by less than 2 percent. Twenty-four percent of AMPs 

fluctuated by more than 10 percent from quarter to quarter. Of this 

number, half increased and half decreased. 

Average manufacturer prices for single-source drugs changed more 

frequently than those for other drug types, but most changes were 

relatively small. An average of 78 percent of AMPs for single-source 

NDCs changed from quarter to quarter during the period under review. 

However, of those that changed, slightly more than half fluctuated by 

2 percent or less. Only 7 percent of single-source NDCs, on average, 

had AMPs that changed by more than 10 percent between quarters. 

In comparison, the AMPs for 67 percent of innovator multiple-source 

and 58 percent of noninnovator multiple-source NDCs changed between 

quarters. However, the size of these changes tended to be larger than 

the changes for single-source NDCs. 

Average manufacturer prices for high-expenditure drugs changed 

more frequently than those for other drugs, with single-source drugs 

being especially prone to price increases. AMPs for the top 50 NDCs 

by total Medicaid reimbursement in each category (single-source, 

innovator multiple-source, and noninnovator multiple-source) 

experienced more fluctuation between quarters than all AMPs as a 

whole. On average, AMPs for 3 percent to 5 percent of the top 50 NDCs 

in each category stayed the same from quarter to quarter, compared to 

22 percent to 42 percent among all NDCs in each category. 

AMPs for the top 50 noninnovator multiple-source NDCs showed the 

most variability, with more than half changing by at least 10 percent 

between quarters. At the same time, virtually all (99 percent) of the top 

50 single-source NDCs changed by less than 10 percent between 

quarters. AMPs for the top 50 innovator multiple-source NDCs changed 

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EXE CUTIVE S U MMAR Y

at rates that fell between noninnovator multiple-source and singlesource NDCs. 

Overall, 42 percent of AMPs for the top 50 noninnovator multiple-source 

NDCs increased and 54 percent decreased between each quarter during 

the period under review. In contrast, AMPs associated with the top 

50 single-source NDCs increased more than they decreased. An average 

of 79 percent of AMPs for the top 50 single-source NDCs increased 

between each quarter, with 41 percent increasing by at least 2 percent. 

CONCLUSION 

In this review, we found that the majority of AMPs did not fluctuate 

substantially from quarter to quarter and that roughly equal numbers 

of AMPs decreased as increased. However, when compared to AMPs for 

other drug types, AMPs for single-source drugs, especially those with 

high Medicaid expenditures, were more prone to increases between 

quarters. Although these increases tended to be relatively small, States 

may want to take the potential effects of AMP increases during the lag 

period into account when developing any AMP-based reimbursement 

formulas. 

It is important to note that this analysis focused on quarterly AMP 

data, because CMS had yet to begin collecting AMPs on a monthly basis 

at the time of our review. Once AMP data are reported on a monthly 

basis, we expect the size and the number of fluctuations between 

reporting periods to be reduced. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS believes this report shows that AMPs can be used appropriately to 

set Medicaid payment to pharmacies. However, CMS notes that the 

new definition of AMP (as established by the DRA) excludes customary 

prompt pay discounts and includes sales of authorized generics. 

Therefore, CMS states that the Office of Inspector General’s (OIG) 

findings may not be comparable to actual experience once the final 

regulation implementing these changes is issued and the new AMP 

definition takes effect. 

CMS also notes that more than half of AMPs for noninnovator multiplesource drugs varied by 10 percent or more. Although this is a high 

percentage change, noninnovator multiple-source drugs are usually 

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EXE CUTIVE S U MMAR Y

priced far lower than the other categories of drugs, making the absolute 

change modest. In future work, CMS would like OIG to add an 

additional analysis of absolute price changes in this area of work. 

OIG agrees that AMPs will likely change as a result of CMS’s final rule 

implementing the DRA-related definitional changes. However, the 

analysis presented in this report can serve as the baseline for future 

studies that address how DRA provisions impact AMP. Finally, OIG 

will consider including analyses of absolute price changes in future 

work in this area. 

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Δ T ABLE OF CONTENTS 

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

INTR O D U C T I ON ........................................... 1

FINDI NGS ............................. ... ... ... . ... ... .. 7

Each quarter, 39 percent of AMPs did not change ............ . 7

AMPs for single-source drugs had more fluctuation ............ 8

AMPs for high-expenditure drugs had more fluctuation......... 9

CON C L U SION ............................................ 11

Agency Comments and Office of Inspector General Response . . . 11

APPENDIXES ............................................. 13

A. Quarterly, Yearly, and Average Percent Changes in AMPs 

 for All NDCs ....................................... 13

B. Quarterly Percent Changes in AMPs by Drug Category ..... 14

C. Quarterly Percent Changes in AMPs for Top 50 NDCs by 

 by Drug Category ................................... 17

D. Agency Comments .................................. 20

ACKN O W LEDGMENTS .................................... 22

OE I-03-06-00 350 E X AM I N I NG F LUC T U ATION S I N AVERA G E MANU FACT URE R P R I C E S v 
Δ INTRODU C TION 

OBJECTIVE 

To determine the extent to which average manufacturer prices (AMP) 

fluctuated between the second quarter of 2005 and the second quarter of 

2006. 

BACKGROUND 

Pursuant to provisions of the Deficit Reduction Act of 2005 (DRA), 

Public Law 109-171, the Centers for Medicare & Medicaid Services 

(CMS) was required to make AMP data available to States as of 

July 1, 2006.

1 States will have the option of using these AMP data to 

set drug reimbursement amounts in their Medicaid programs. In 

response to these changes, industry representatives have expressed 

concerns that (1) the AMP is too volatile to serve as the basis for 

Medicaid’s payment methodology, and (2) the 2-month lag between 

when AMPs are reported to the States and when reimbursement 

amounts are established may cause pharmacies to absorb price 

increases in the interim (particularly increases in prices for brand name 

drugs).2 This study assesses these concerns by examining historical 

changes in AMPs over time. 

Medicaid Coverage of Prescription Drugs 

All 50 States and the District of Columbia offer prescription drug 

coverage as part of their Medicaid programs. Individual States 

establish eligibility requirements, benefits packages, and payment rates 

under broad Federal standards administered by CMS. In 2005, 

Medicaid payments for prescription drugs totaled over $41 billion.3 

Medicaid Drug Reimbursement Methodology 

Typically, Medicaid beneficiaries obtain drugs through pharmacies. To 

receive reimbursement for these drugs, pharmacies submit claims to 

State Medicaid agencies using the national drug codes (NDC), which are 

11-digit identifiers indicating the manufacturer of the drug, the product 

dosage form, and the package size. 

1 Deficit Reduction Act of 2005, section 6001(b). 

2 “Medicaid Prescription Drugs: Examining Options for Payment Reform.” National 

Association of Chain Drug Stores’ statement to the House Energy and Commerce 

Committee, Subcommittee on Health, June 22, 2005, page 10. 

3 This amount includes both the Federal and State shares of payments. Rebates collected 

under the Medicaid Drug Rebate program (section 1927 of the Social Security Act) were 

not subtracted from this figure. 

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INTROD UCT ION 

Pursuant to section 1902(a)(54) of the Social Security Act (the Act), each 

State is required to submit a Medicaid State plan to CMS describing its 

payment methodology for covered outpatient drugs. Federal regulations 

require, with certain exceptions, that each State’s Medicaid 

reimbursement for a drug not exceed (in the aggregate) the lower of its 

estimated acquisition cost plus a reasonable dispensing fee or the 

provider’s usual and customary charge to the public.4 CMS allows 

States flexibility when defining estimated acquisition cost. Currently, 

most States base their calculations of estimated acquisition cost on a 

drug’s average wholesale price discounted by a certain percentage. For 

certain multiple-source drugs, States also use the Federal upper limit 

and/or State maximum allowable cost programs in determining 

reimbursement amounts.

5 

Average Manufacturer Prices Prior to January 1, 2007 

For Federal payments to be available for covered outpatient drugs 

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

require drug manufacturers to enter into rebate agreements with the 

Secretary of the Department of Health and Human Services (the 

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 

covered outpatient drugs by the NDC. At the time of this review, the 

AMP was defined by section 1927(k)(1) of the Act as the average price 

paid to the manufacturer for the drug in the United States by 

wholesalers for drugs distributed to the retail pharmacy class of trade 

after deducting customary prompt pay discounts.6 

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

manufacturer’s package sizes of a covered outpatient drug sold during a 

given time period and is reported for the lowest identifiable quantity of 

the drug (e.g., 1 milligram, 1 milliliter, 1 tablet, or 1 capsule). Through 

2006, manufacturers submitted AMP data on a quarterly basis, with 

submissions due 30 days after the close of the quarter. 

 OE I-03-06-00 350 

4 42 CFR § 447.331(b). 

5 The Federal upper limit and State maximum allowable cost programs serve to control 

spending for multiple-source drugs. CMS has currently established Federal upper limit 

amounts for more than 500 drugs. In addition, numerous States have implemented 

maximum allowable cost programs to limit reimbursement amounts for certain drugs. 

6 Pursuant to section 6001(c)(1) of the DRA, as of January 1, 2007, the AMP will be 

determined without regard to customary prompt pay discounts extended to wholesalers. 

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INTROD UCT ION 

For purposes of the Medicaid drug rebate program, drugs are classified 

as one of three types: single-source, innovator multiple-source, or 

noninnovator multiple-source. Pursuant to section 1927(k)(7)(A) of the 

Act, these three categories are defined as follows: 

• Single-source drug: a covered outpatient drug produced or 

distributed under an original new drug application approved by 

the Food and Drug Administration (FDA), including a drug 

product marketed by any cross-licensed producers or distributors 

operating under the new drug application. 

• Innovator multiple-source drug: a multiple-source drug that was 

originally marketed under an original new drug application 

approved by the FDA. 

• Noninnovator multiple-source drug: a multiple-source drug that 

is not an innovator multiple-source drug. 

In general, single-source drugs are brand name products for which there 

are no available generics, innovator multiple-source drugs are brand 

name products for which there are available generics, and noninnovator 

multiple-source drugs are generic products. Manufacturers provide 

CMS with the drug type for each of their NDCs in conjunction with 

AMP data. 

Medicaid Prescription Drug Reform 

In an effort to reduce Medicaid prescription drug expenditures, 

Congress recently enacted changes that affect payments for Medicaid 

prescription drugs. Prior to the enactment of the DRA, section 

1927(b)(3)(D) of the Act prohibited the disclosure of AMP data, except in 

certain narrow circumstances. During that time, AMP data were used 

primarily by CMS for purposes of the Medicaid drug rebate program. 

However, section 6001(b)(1)(B) of the DRA requires that AMPs be made 

available to State Medicaid programs beginning July 1, 2006. States 

will have the option to use these AMP data to help set reimbursement 

rates. In addition, as of January 1, 2007, pursuant to section 6001(a) of 

the DRA, Federal upper limit amounts for certain multiple-souce drugs 

are to be based on 250 percent of the lowest reported AMP for each drug 

rather than 150 percent of the lowest price published in national 

compendia. 

Section 6001(b)(1)(A) of the DRA requires manufacturers, beginning 

January 1, 2007, to report AMPs to CMS on both a monthly and a 

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

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INTROD UCT ION 

the month. Because the monthly AMP data submitted to CMS by the 

manufacturers will reflect sales from up to 60 days prior, there would be 

at least a 2-month lag between the sales period for which AMPs are 

reported and the effective date of the Medicaid reimbursement amounts. 

In addition, pursuant to section 6001(c)(1) of the DRA, as of 

January 1, 2007, the AMP will be determined without regard to 

customary prompt pay discounts extended to wholesalers, and such 

discounts will be reported separately to CMS. In December 2006, CMS 

issued a proposed regulation addressing the new AMP provisions of the 

DRA. 

Additional Office of Inpector General Work Regarding Average 

Manufacturer Prices 

The Office of Inspector General (OIG) is currently in the process of 

completing two companion reports addressing DRA-related AMP 

provisions. “States’ Use of New Drug Pricing Data in the Medicaid 

Program” (OEI-03-06-00490) examines the manner in which States are 

planning to use the newly available AMP data. “Deficit Reduction Act 

of 2005: Impact on the Medicaid Federal Upper Limit Program” (OEI03-06-00400) assesses the potential changes in Federal upper limit 

amounts under the new AMP-based calculation method. 

In a June 2006 study, “Determining Average Manufacturer Prices for 

Prescription Drugs Under the Deficit Reduction Act of 2005” 

(A-06-06-00063), we found that existing requirements for determining 

certain aspects of AMPs are not clear and comprehensive, and 

manufacturers’ methods of calculating AMPs are inconsistent. Our 

discussions with industry groups confirmed the need to clarify 

requirements and raised additional issues related to the 

implementation of DRA provisions. We recommended that the 

Secretary direct CMS, in promulgating the AMP regulation, to: 

(1) clarify requirements in regard to the definition of retail class of trade 

and the treatment of pharmacy benefit manager rebates and Medicaid 

sales and (2) consider addressing issues raised by industry groups. We 

also recommended that the Secretary direct CMS to: (1) issue guidance 

in the near future that specifically addresses the implementation of the 

AMP-related reimbursement provisions of the DRA and (2) encourage 

States to analyze the relationship between the AMP and pharmacy 

acquisition cost before using the AMP for their reimbursement 

methodology. 

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INTROD UCT ION 

In our June 2005 report, “Comparison of Medicaid Federal Upper Limit 

Amounts to Average Manufacturer Prices” (OEI-03-05-00110), we found 

that Federal upper limit amounts were five times higher than average 

AMPs (a figure that we used as an estimate of pharmacy acquisition 

costs) in the third quarter of 2004. At that time, we recommended that 

CMS work with Congress to set Federal upper limit amounts that more 

closely resemble pharmacy acquisition costs. 

METHODOLOGY 

Data Sources and Scope 

We obtained AMP data for the second quarter of calendar year 2005 

through the second quarter of calendar year 2006 from CMS. Drug 

category data (single-source, innovator multiple-source, or noninnovator 

multiple-source) were included on the AMP files provided by CMS. A 

total of 51,936 unique NDCs (5,403 single-source, 4,697 innovator 

multiple-source, and 41,836 noninnovator multiple-source) had an AMP 

value in at least one of the quarters under review. 

Data Analysis 

For each NDC, we calculated the percentage difference between 

quarterly AMP values and for the 1-year span between the first and last 

quarters. NDCs that did not have AMP values for any particular 

quarter were excluded from the percentage difference calculations 

involving that quarter.7 

We grouped NDCs into ranges according to the percentage that the 

AMP had increased or decreased for a given time period. To determine 

the average amount that AMPs fluctuated on a quarterly basis, we 

calculated the average percentage of NDCs that fell into each range over 

the four-quarter period. Frequency counts of AMP fluctuations based 

on drug categories were also performed. 

Using 2005 Medicaid drug utilization data downloaded from CMS’s 

Web site, we identified the top 50 NDCs by total Medicaid 

reimbursement for each of the three categories. We then examined 

AMP fluctuations for the top 50 NDCs among each of the three drug 

7 The number of NDCs included in each quarterly percentage difference calculation ranged 

from 38,123 to 45,937. 

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INTROD UCT ION 

categories.8 We repeated the analysis described above to determine 

variation in AMPs for the top 50 NDCs as compared to NDCs for all 

drugs in each category. 

Limitations 

AMPs used in this study reflect the customary prompt pay discounts 

paid by manufacturers, because this is how AMPs were reported at 

the time of our analysis. As a result of provisions in the DRA, 

beginning January 1, 2007, manufacturers are no longer to include 

customary prompt pay discounts when reporting AMPs. 

Furthermore, as of that same date, manufacturers are required to 

report AMPs to CMS on both a monthly and a quarterly basis. 

Standards 

This study was conducted in accordance with the “Quality Standards 

for Inspections” issued by the President’s Council of Integrity and 

Efficiency and the Executive Council on Integrity and Efficiency. 

8 Not all 50 NDCs within each category had AMP values for each quarter under review. As 

a result, one single-source NDC was removed in the analysis of fluctuations between the 

first and second quarters of 2006. In addition, one innovator multiple-source NDC and 

one noninnovator multiple-source NDC were removed in the analysis of fluctuations 

between the second and third quarters of 2005. 

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ΔF I NDING FINDINGS S 

Overall, 39 percent of average manufacturer 

prices stayed the same between quarters, 

and an additional 16 percent changed by 

less than 2 percent 

During the period under review, 

an average of 39 percent of AMPs 

did not change between quarters, 

and an additional 16 percent of 

AMPs changed by less than 

2 percent. Twenty-four percent of AMPs fluctuated by more than 

10 percent, on average, from quarter to quarter. Of this number, half 

increased and half decreased. 

Graph 1 presents the average percentage change in AMPs between 

quarters from the second quarter of 2005 through the second quarter of 

2006. The AMP fluctuations from quarter to quarter varied only 

slightly from the overall averages displayed in the graph. Fluctuations 

between each of the quarters under review, as well as the entire year as 

a whole, are presented in Appendix A.

 Graph 1: Average Percent Change in AMPs Between Quarters 

1.0 1. 5 

3. 5 

5. 6 

8.4 7. 4 

39 .2 

8. 8 

12 .4 

5. 6 

2. 8 1. 2 2. 7 

0 

10 

20 

30 

40 

over -75% 

-50.01 to -75% 

-25.01 to -50% -10.01 to -25% 

-2.01 to -10% 

-0.01 to -2% 

no change 

0.01 to 2% 

2.01 to 10% 

10.01 to 25% 

25.01 to 50% 

50.01 to 75% 

over 75% 

Average Percent Change 

P

erc

e

ntage of A

M

Ps 

Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006. 

*Totals do not add up to 100% due to rounding. 

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 F I NDING S 

Average manufacturer prices for single-source 

drugs changed more frequently than those for 

other drug types, but most changes were 

relatively small 

AMPs for single-source NDCs 

tended to change more frequently 

than did AMPs for multiple-source 

NDCs. During the period under 

review, an average of 78 percent of 

AMPs for single-source NDCs changed from quarter to quarter. In 

comparison, AMPs for 67 percent of innovator multiple-source and 

58 percent of noninnovator multiple-source NDCs changed in the same 

timeframe. 

Although fewer AMPs for innovator and noninnovator multiple-source 

NDCs changed from quarter to quarter, any percentage changes tended 

to be larger than those for single-source drugs. An average of 

16 percent of AMPs for innovator multiple-source drugs and 27 percent 

of AMPs for noninnovator multiple-source drugs increased or decreased 

by at least 10 percent between quarters. Among single-source drugs, 

the majority fluctuated by 2 percent or less. Only 7 percent of 

single-source NDCs had AMPs that changed by more than 10 percent 

between quarters. 

Table 1 on the following page illustrates the average fluctuation 

between quarters for single-source, innovator multiple-source, and 

noninnovator multiple-source NDCs. Tables that track the AMP 

changes for NDCs in each category between each of the quarters under 

review are presented in Appendix B. 

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F I NDING S 

Table 1: Average Percent Change in AMPs Between Quarters by Category 

Range of 

Fluctuation 

Single-Source 

NDCs 

Innovator 

Multiple-Source 

NDCs 

Noninnovator 

Multiple-Source 

NDCs All Categories 

Over 75% 0.5% 1.5% 3.2% 2.7% 

50.01 to 75% 0.3% 0.8% 1.4% 1.2% 

25.01 to 50% 0.7% 2.0% 3.2% 2.8% 

10.01 to 25% 3.4% 4.5% 6.0% 5.6% 

2.01 to 10% 24.9% 18.4% 10.0% 12.4% 

0.01 to 2 % 23.1% 13.3% 6.3% 8.8% 

No Change 22.4% 32.9% 42.1% 39.2% 

-0.01 to -2% 16.1% 11.1% 5.8% 7.4% 

-2.01 to -10% 6.1% 7.9% 8.8% 8.4% 

-10.01 to -25% 1.5% 3.9% 6.4% 5.6% 

-25.01 to -50% 0.6% 2.3% 4.0% 3.5% 

-50.01 to -75% 0.2% 0.8% 1.8% 1.5% 

Over -75% 0.1% 0.6% 1.2% 1.0% 

Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006. 

*Totals do not add up to 100% due to rounding. 

Average manufacturer prices for highexpenditure drugs changed more frequently 

than those for other drugs, with single-source 

drugs being especially prone to price increases 

AMPs for the top 50 NDCs by 

total Medicaid reimbursement 

in each category (single-source, 

innovator multiple-source, and 

noninnovator multiple-source) 

experienced more fluctuation 

between quarters than all AMPs as a whole. On average, AMPs for 

3 percent to 5 percent of the top 50 NDCs in each category stayed the 

same from quarter to quarter, as compared to 22 percent to 42 percent 

among all NDCs in each category. 

AMPs for the top 50 noninnovator multiple-source NDCs showed the 

most variability, with more than half changing by at least 10 percent 

between quarters. In contrast, virtually all (99 percent) of the top 

50 single-source NDCs changed by less than 10 percent between 

quarters. AMPs for the top 50 innovator multiple-source NDCs changed 

at rates that fell between those for noninnovator multiple-source and 

single-source NDCs. 

Overall, 42 percent of AMPs for the top 50 noninnovator multiple-source 

NDCs increased and 54 percent decreased between each quarter during 

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F I NDING S 

the period under review. In contrast, AMPs associated with the top 

50 single-source NDCs increased more than they decreased. An average 

of 79 percent of AMPs for the top 50 single-source NDCs increased 

between each quarter, with 41 percent increasing by at least 2 percent. 

Table 2 below shows the average quarterly fluctuations among the top 

50 NDCs in each category. Tables that track AMP changes for the top 

50 single-source, innovator multiple-source, and noninnovator 

multiple-source NDCs between each of the quarters under review are 

presented in Appendix C. 

Table 2: Average Percent Change in AMPs Between Quarters for Top 50 NDCs by Category 

Range of 

Fluctuation Single-Source NDCs 

Innovator MultipleSource NDCs Noninnovator MultipleSource NDCs 

Over 75% - 3.5% 5.5% 

50.01 to 75% - 2.0% 2.5% 

25.01 to 50% - 3.5% 5.5% 

10.01 to 25% 0.5% 4.5% 8.0% 

2.01 to 10% 40.2% 25.1% 15.5% 

0.01 to 2 % 38.2% 27.7% 4.6% 

No Change 2.5% 4.0% 4.5% 

-0.01 to -2% 16.1% 13.0% 11.1% 

-2.01 to -10% 2.5% 6.1% 11.1% 

-10.01 to -25% - 3.0% 13.6% 

-25.01 to -50% - 2.0% 10.6% 

-50.01 to -75% - 2.0% 5.0% 

Over -75% - 3.5% 2.5% 

Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006. 

*Totals do not add up to 100% due to rounding. 

 OE I-03-06-00 350 E X AM I N I NG F LUC T U ATION S I N AVERA G E MANU FACT URE R P R I C E S 10 
Δ CONCLUSION 

CONCLUSION 

Pursuant to provisions of the DRA, CMS was required to make AMP 

data available to States as of July 1, 2006. States will have the option 

of using these AMP data to set drug reimbursement amounts in their 

Medicaid programs. In response to these changes, industry 

representatives have expressed concerns that (1) the AMP is too volatile 

to serve as the basis for Medicaid’s payment methodology, and (2) the 

2-month lag between when AMPs are reported to the States and when 

reimbursement amounts are established may cause pharmacies to 

absorb price increases in the interim. 

In this review, we found that the majority of AMPs did not fluctuate 

substantially from quarter to quarter and that roughly equal numbers 

of AMPs decreased as increased. However, when compared to AMPs for 

other drug types, AMPs for single-source drugs, especially those with 

high Medicaid expenditures, were more prone to increases between 

quarters. Although these increases tended to be relatively small, States 

may want to take the potential effects of AMP increases during the lag 

period into account when developing any AMP-based reimbursement 

formulas. 

Finally, it is important to note that this analysis focused on quarterly 

AMP data, because CMS had yet to begin collecting AMPs on a monthly 

basis at the time of our review. Once AMP data are reported on a 

monthly basis, we expect the size and the number of fluctuations 

between reporting periods to be reduced. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS notes that the findings of this report are based on AMPs prior to 

January 2007. Pursuant to provisions in the DRA, after this date, the 

definition of AMP excludes customary prompt pay discounts and 

includes sales of authorized generics. Therefore, CMS states that OIG’s 

findings may not be comparable to actual experience once the final 

regulation implementing these changes is issued and the new AMP 

definition takes effect. 

CMS also states that making AMP data available to States for 

reimbursement purposes will be a great improvement over the current 

situation, in which States base drug reimbursement on published prices 

in commercial compendia that have little relationship to market prices. 

 OE I-03-06-00 350 E X AM I N I NG F LUC T U ATION S I N AVERA G E MANU FACT URE R P R I C E S 11 
C O NCL USIO N 

Because AMP changes reflect market price changes and OIG’s findings 

indicate that the variations occur equally in both directions, CMS 

believes this report shows AMP’s can be used appropriately to establish 

Medicaid payment to pharmacies. 

CMS also notes that more than half of AMPs for noninnovator multiplesource drugs varied by 10 percent or more. Although this is a high 

percentage change, noninnovator multiple-source drugs are usually 

priced far lower than the other categories of drugs, making the absolute 

change modest. In future work, CMS would like OIG to add an 

additional analysis of absolute price changes in this area of work. The 

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

OIG agrees that AMPs will likely change as a result of CMS’s final rule 

implementing the DRA-related definitional changes. However, the 

analysis presented in this report can serve as a baseline for future 

studies that address how the DRA provisions impact AMP. Finally, 

OIG will consider including analyses of absolute price changes in future 

work in this area. 

 OE I-03-06-00 350 E X AM I N I NG F LUC T U ATION S I N AVERA G E MANU FACT URE R P R I C E S 12 
Δ APPENDIX~A 

Table A-1: Quarterly, Yearly, and Average Percent Changes in AMPs for All NDCs 

Range of 

Fluctuation 

2nd Qtr 2005 

to 

3rd Qtr 2005 

3rd Qtr 2005 

to 

4th Qtr 2005 

4th Qtr 2005 

to 

1st Qtr 2006 

1st Qtr 2006 

to 

2nd Qtr 2006 

Average 

Change 

Between 

Quarters 

Total 

Change 

2nd Qtr 2005 

To 

2nd Qtr 2006 

Over 75% 2.2% 3.1% 2.3% 3.3% 2.7% 3.5% 

50.01 to 75% 0.8% 1.9% 0.9% 1.2% 1.2% 1.5% 

25.01 to 50% 2.7% 2.9% 2.2% 3.5% 2.8% 5.0% 

10.01 to 25% 5.4% 5.5% 4.9% 6.4% 5.6% 10.5% 

2.01 to 10% 12.2% 11.0% 12.4% 13.8% 12.4% 16.1% 

0.01 to 2 % 9.6% 8.7% 7.3% 9.5% 8.8% 5.5% 

No Change 37.5% 40.2% 41.9% 37.1% 39.2% 27.5% 

-0.01 to -2% 7.4% 8.3% 6.6% 7.1% 7.4% 4.9% 

-2.01 to -10% 9.3% 8.5% 8.0% 7.9% 8.4% 8.0% 

-10.01 to -25% 6.5% 4.8% 6.5% 4.8% 5.6% 7.6% 

-25.01 to -50% 3.9% 2.8% 4.1% 3.3% 3.5% 5.7% 

-50.01 to -75% 1.6% 1.3% 1.8% 1.5% 1.5% 2.7% 

Over -75% 1.0% 1.0% 1.3% 0.8% 1.0% 1.6% 

Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006. 

 *Totals do not add up to 100% due to rounding. 

 OE I-03-06-00 350 E X AM I N I NG F LUC T U ATION S I N AVERA G E MANU FACT URE R P R I C E S 13 
ΔAPP E N D I X ~B 

 APPENDIX~B 

Table B-1: Quarterly Percent Changes in AMPs for Single-Source NDCs 

Range of 

Fluctuation 

2nd Qtr 2005 

to 

3rd Qtr 2005 

3rd Qtr 2005 

to 

4th Qtr 2005 

4th Qtr 2005 

to 

1st Qtr 2006 

1st Qtr 2006 

to 

2nd Qtr 2006 

Average 

Change 

Between 

Quarters 

Over 75% 0.4% 0.7% 0.6% 0.5% 0.5% 

50.01 to 75% 0.2% 0.6% 0.2% 0.3% 0.3% 

25.01 to 50% 0.8% 0.6% 0.5% 0.7% 0.7% 

10.01 to 25% 3.3% 3.4% 3.5% 3.6% 3.4% 

2.01 to 10% 21.3% 17.3% 34.9% 26.0% 24.9% 

0.01 to 2 % 26.7% 24.9% 16.2% 24.8% 23.1% 

No Change 21.5% 23.4% 22.2% 22.6% 22.4% 

-0.01 to -2% 15.7% 19.9% 13.6% 15.4% 16.1% 

-2.01 to -10% 7.0% 7.7% 5.7% 4.3% 6.1% 

-10.01 to -25% 2.0% 1.1% 1.7% 1.2% 1.5% 

-25.01 to -50% 0.9% 0.3% 0.5% 0.6% 0.6% 

-50.01 to -75% 0.1% 0.1% 0.2% 0.1% 0.2% 

Over -75% 0.2% 0.1% 0.1% 0.1% 0.1% 

Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006. 

*Totals do not add up to 100% due to rounding. 

 OE I-03-06-00 350 E X AM I N I NG F LUC T U ATION S I N AVERA G E MANU FACT URE R P R I C E S 14 
APP E N D I X ~B 

Table B-2: Quarterly Percent Changes in AMPs for Innovator Multiple-Source NDCs 

Range of 

Fluctuation 

2nd Qtr 2005 

to 

3rd Qtr 2005 

3rd Qtr 2005 

to 

4th Qtr 2005 

4th Qtr 2005 

to 

1st Qtr 2006 

1st Qtr 2006 

to 

2nd Qtr 2006 

Average 

Change 

Between 

Quarters 

Over 75% 1.5% 2.1% 0.8% 1.5% 1.5% 

50.01 to 75% 0.5% 1.1% 0.8% 0.9% 0.8% 

25.01 to 50% 1.6% 2.2% 1.9% 2.4% 2.0% 

10.01 to 25% 4.0% 4.9% 4.7% 4.3% 4.5% 

2.01 to 10% 19.2% 13.1% 21.9% 19.6% 18.4% 

0.01 to 2 % 15.3% 11.7% 10.3% 16.0% 13.3% 

No Change 31.0% 33.5% 35.1% 31.9% 32.9% 

-0.01 to -2% 9.8% 15.8% 10.4% 8.4% 11.1% 

-2.01 to -10% 7.8% 9.0% 6.0% 8.6% 7.9% 

-10.01 to -25% 5.1% 3.9% 3.9% 2.9% 3.9% 

-25.01 to -50% 2.6% 1.9% 2.6% 2.0% 2.3% 

-50.01 to -75% 0.7% 0.4% 0.9% 0.9% 0.8% 

Over -75% 0.9% 0.4% 0.7% 0.4% 0.6% 

Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006. 

*Totals do not add up to 100% due to rounding. 

 OE I-03-06-00 350 E X AM I N I NG F LUC T U ATION S I N AVERA G E MANU FACT URE R P R I C E S 15 
APP E N D I X ~B 

Table B-3: Quarterly Percent Changes in AMPs for Noninnovator Multiple-Source NDCs 

Range of 

Fluctuation 

2nd Qtr 2005 

to 

3rd Qtr 2005 

3rd Qtr 2005 

to 

4th Qtr 2005 

4th Qtr 2005 

to 

1st Qtr 2006 

1st Qtr 2006 

to 

2nd Qtr 2006 

Average 

Change 

Between 

Quarters 

Over 75% 2.5% 3.49% 2.8% 3.9% 3.2% 

50.01 to 75% 1.0% 2.2% 1.0% 1.3% 1.4% 

25.01 to 50% 3.0% 3.3% 2.4% 4.0% 3.2% 

10.01 to 25% 5.8% 5.8% 5.1% 7.1% 6.0% 

2.01 to 10% 10.3% 9.9% 8.3% 11.5% 10.0% 

0.01 to 2 % 6.7% 6.2% 5.7% 6.6% 6.3% 

No Change 40.4% 43.2% 45.3% 39.6% 42.1% 

-0.01 to -2% 6.1% 6.0% 5.2% 5.8% 5.8% 

-2.01 to -10% 9.8% 8.5% 8.5% 8.3% 8.8% 

-10.01 to -25% 7.2% 5.4% 7.4% 5.5% 6.4% 

-25.01 to -50% 4.4% 3.3% 4.7% 3.8% 4.0% 

-50.01 to -75% 1.9% 1.5% 2.1% 1.7% 1.8% 

Over -75% 1.1% 1.2% 1.5% 0.9% 1.2% 

Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006. 

*Totals do not add up to 100% due to rounding. 

 OE I-03-06-00 350 E X AM I N I NG F LUC T U ATION S I N AVERA G E MANU FACT URE R P R I C E S 16 
Δ APPENDIX~C 

Table C-1: Quarterly Percent Changes in AMPs for Top 50 Single-Source NDCs 

Range of 

Fluctuation 

2nd Qtr 2005 

to 

3rd Qtr 2005 

3rd Qtr 2005 

to 

4th Qtr 2005 

4th Qtr 2005 

to 

1st Qtr 2006 

1st Qtr 2006 

to 

2nd Qtr 2006* 

Average 

Change 

Between 

Quarters 

Over 75% - - - - -

50.01 to 75% - - - - -

25.01 to 50% - - - - -

10.01 to 25% - - 2.0% - 0.5% 

2.01 to 10% 40.0% 22.0% 54.0% 44.9% 40.2% 

0.01 to 2 % 44.0% 32.0% 34.0% 42.9% 38.2% 

No Change - 4.0% 4.0% 2.0% 2.5% 

-0.01 to -2% 8.0% 40.0% 6.0% 10.2% 16.1% 

-2.01 to -10% 8.0% 2.0% - - 2.5% 

-10.01 to -25% - - - - -

-25.01 to -50% - - - - -

-50.01 to -75% - - - - -

Over -75% - - - - -

Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006. 

 *There were 49 single-source NDCs between the first and second quarters of 2006. 

 *Totals do not add up to 100% due to rounding. 

 OE I-03-06-00 350 E X AM I N I NG F LUC T U ATION S I N AVERA G E MANU FACT URE R P R I C E S 17 
APP E N D I X ~ C 

Table C-2: Quarterly Percent Changes in AMPs for Top 50 Innovator Multiple-Source NDCs 

Range of 

Fluctuation 

2nd Qtr 2005 

to 

3rd Qtr 2005* 

3rd Qtr 2005 

to 

4th Qtr 2005 

4th Qtr 2005 

to 

1st Qtr 2006 

1st Qtr 2006 

to 

2nd Qtr 2006 

Average 

Change 

Between 

Quarters 

Over 75% - 4.0% - 10.0% 3.5% 

50.01 to 75% - 2.0% 4.0% 2.0% 2.0% 

25.01 to 50% 2.0% 6.0% 2.0% 4.0% 3.5% 

10.01 to 25% 4.1% 4.0% 6.0% 4.0% 4.5% 

2.01 to 10% 24.5% 18.0% 42.0% 16.0% 25.1% 

0.01 to 2 % 30.6% 26.0% 18.0% 36.0% 27.7% 

No Change 6.1% 4.0% 4.0% 2.0% 4.0% 

-0.01 to -2% 8.2% 28.0% 4.0% 12.0% 13.0% 

-2.01 to -10% 14.3% 4.0% - 6.0% 6.1% 

-10.01 to -25% 2.0% - 8.0% 2.0% 3.0% 

-25.01 to -50% 4.1% - 2.0% 2.0% 2.0% 

-50.01 to -75% - 4.0% 2.0% 2.0% 2.0% 

Over -75% 4.1% - 8.0% 2.0% 3.5% 

Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006. 

 *There were 49 innovator multiple-source NDCs between the second and third quarters of 2005.

*Totals do not add up to 100% due to rounding. 

 OE I-03-06-00 350 E X AM I N I NG F LUC T U ATION S I N AVERA G E MANU FACT URE R P R I C E S 18 
APP E N D I X ~ C 

Table C-3: Quarterly Percent Changes in AMPs for Top 50 Noninnovator Multiple-Source 

NDCs 

Range of 

Fluctuation 

2nd Qtr 2005 

to 

3rd Qtr 2005* 

3rd Qtr 2005 

to 

4th Qtr 2005 

4th Qtr 2005 

to 

1st Qtr 2006 

1st Qtr 2006 

to 

2nd Qtr 2006 

Average 

Change 

Between 

Quarters 

Over 75% 6.1% 2.0% 8.0% 6.0% 5.5% 

50.01 to 75% 2.0% 2.0% 4.0% 2.0% 2.5% 

25.01 to 50% 4.1% - 6.0% 12.0% 5.5% 

10.01 to 25% 6.1% 6.0% 8.0% 12.0% 8.0% 

2.01 to 10% 8.2% 22.0% 16.0% 16.0% 15.5% 

0.01 to 2 % 10.2% 4.0% 2.0% 2.0% 4.6% 

No Change - 6.0% 2.0% 10.0% 4.5% 

-0.01 to -2% 12.2% 8.0% 10.0% 14.0% 11.1% 

-2.01 to -10% 16.3% 16.0% 10.0% 2.0% 11.1% 

-10.01 to -25% 14.3% 12.0% 16.0% 12.0% 13.6% 

-25.01 to -50% 18.4% 8.0% 8.0% 8.0% 10.6% 

-50.01 to -75% 2.0% 10.0% 8.0% - 5.0% 

Over -75% - 4.0% 2.0% 4.0% 2.5% 

Source: OIG analysis of second-quarter 2005 through second-quarter 2006 AMP data, October 2006. 

*There were 49 noninnovator multiple-source drugs between the second and third quarters of 2005. 

*Totals do not add up to 100% due to rounding. 

 OE I-03-06-00 350 E X AM I N I NG F LUC T U ATION S I N AVERA G E MANU FACT URE R P R I C E S 19 
Δ APPENDIX~D 

Agency Comments 

 OE I-03-06-00 350 E X AM I N I NG F LUC T U ATION S I N AVERA G E MANU FACT URE R P R I C E S 20 
APP E N D I X ~ D 

 OE I-03-06-00 350 E X AM I N I NG F LUC T U ATION S I N AVERA G E MANU FACT URE R P R I C E S 21 
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 David E. Tawes, Director of the 

Medicare and Medicaid Prescription Drug Unit. 

Other principal Office of Evaluation and Inspections staff from the 

Philadelphia regional office include Jessica Demko, Roman Strakovsky 

and Stephanie Yeager. Central office staff who contributed include 

Sarah Craren and Gina Maree. 

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