Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

 

MEDICARE PAYMENTS 

FOR NEWLY AVAILABLE 

GENERIC DRUGS 

 

Daniel R. Levinson 

Inspector General 

January 2011 

OEI-03-09-00510 
 

 EXECUTIVE SUMMARY 

OBJECTIVES

1. To estimate the financial impact of the two-quarter reimbursement 

lag on Medicare payments for Part B-covered drugs with newly 

available generic versions. 

2. To estimate when high-expenditure brand-only Part B-covered 

drugs will likely have first-generic versions reach the market. 

BACKGROUND 

Although Medicare Part D covers most prescription drugs, Part B 

continues to cover a limited number of outpatient prescription drugs. 

Payment for most Part B-covered drugs is equal to 106 percent of the 

average sales price (ASP) for all versions of a drug. Manufacturers are 

required to submit ASP data to the Centers for Medicare & Medicaid 

Services (CMS) within 30 days after the close of each quarter, and the 

data are used to calculate the payment amount for the following 

quarter. As a result, there is a two-quarter lag between when sales 

occur and when the payment amount reflects those sales. This 

reimbursement lag is especially problematic when newly available 

generic drugs enter the market, as their ASPs are often substantially 

lower than their brand counterparts, but payment amounts remain at 

the higher brand level for two quarters or more. 

A previous Office of Inspector General (OIG) report highlighted the 

vulnerabilities of the two-quarter lag by estimating the amount that 

Medicare would have saved if reimbursement had been based on actual 

market sales prices for one high-expenditure Part B-covered drug. OIG 

recommended that CMS explore options to ensure that payment 

amounts reflect actual market prices in a more timely manner. CMS 

concurred with our recommendation; however, as of May 2010, CMS has 

yet to make any changes to its reimbursement process. 

For this study, we examined the Medicare payment amounts for 16 Part 

B-covered drugs that we identified as having first-generic versions 

reach the market in 2007, 2008, or the first two quarters of 2009. For 

each of the drugs, we determined how much Part B spending would 

have decreased had there been no two-quarter lag during the initial 

period of generic availability (i.e., the first three quarters in which 

generics were available). We then totaled these figures to determine the 

net financial impact of the two-quarter lag on Part B and its 

beneficiaries. To provide context for the future impact of the 

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EXECUTIVE SUMMARY 

two-quarter lag, we also requested from the Food and Drug 

Administration (FDA) the estimated date of generic approval for the top 

dollar-volume brand drugs covered under Part B. 

FINDINGS 

Medicare could have saved an estimated $111 million had payment 

amounts immediately reflected generic sales prices for 16 drugs. 

The financial impact of the two-quarter reimbursement lag in the period 

of initial generic availability for 16 newly available generic drugs 

totaled approximately $111 million. These potential savings accounted 

for 25 percent of total expenditures for these drugs during the same 

period. It is not just the program itself, but also Medicare beneficiaries 

who feel the financial effect of the reimbursement lag (because of cost 

sharing). 

Furthermore, it may take years for Medicare to realize the full savings 

of generic versions. The average payment amounts for the drugs under 

review continued to decline beyond the period of initial generic 

availability, ending with an average payment amount 2 years after the 

introduction of generics that was nearly 60 percent less than that of the 

original brand-only payment amount. Additionally, brand drugs were 

initially 3 times more expensive than their generic versions, on average. 

According to FDA, numerous high-expenditure drugs could have 

first-generic versions approved in the next several years. According 

to FDA, 26 of the 48 top dollar-volume brand drugs covered under 

Part B either already have or could have generic versions approved for 

the first time in the next several years. These 26 drugs had combined 

Part B expenditures of over $2.8 billion in 2009. The remaining 

22 drugs are biologics, which comprise nearly half of all current 

high-dollar brand-only Part B drugs, and (because of recent legislation) 

may have generic versions approved in the future. Part B spending on 

the top 22 biologics totaled over $5.3 billion in 2009. 

Significant obstacles remain in proactively identifying newly 

available generic drugs. Although FDA publishes the date of approval 

for first generics, this date is often not an accurate indicator of the entry 

of generic versions into the market because issues such as patent 

litigation and marketing agreements may affect the date of generic 

availability. Our analysis identified a number of drugs with 

FDA-estimated dates of generic approval that did not coincide with the 

generic market entry dates, including two drugs FDA identified as 

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EXECUTIVE SUMMARY

having first-generic versions but appear to have never reached the 

market. For another group of drugs, generic manufacturers failed to 

report ASPs in a timely manner, increasing the difficulty in setting 

payment amounts that accurately reflect sales of newly available 

generic drugs. 

RECOMMENDATION 

This is the second OIG report to identify systemic vulnerabilities in 

Part B as a result of the two-quarter lag in payments for newly 

available generic drugs. We found that Medicare payment amounts 

were significantly higher than market prices for an extended period for 

the newly available generic drugs under review. In other words, generic 

versions of these drugs were being administered or dispensed to 

beneficiaries, but Medicare was still paying brand prices. Although 

other government and privately sponsored prescription drug programs 

are designed to take advantage of lower-priced generic drugs, our 

findings demonstrate that the Part B reimbursement system fails to 

capture these potential savings for at least two quarters. 

With more than half of the top dollar-volume brand drugs covered under 

Part B potentially gaining approval in generic form over the next 

4 years, and the creation under the Patient Protection and Affordable 

Care Act of a new approval pathway for generic biologics, this 

vulnerability will likely continue to grow if CMS does not make changes 

to its Part B payment system. We therefore recommend that: 

CMS work with Congress to require manufacturers of first generics 

to submit monthly ASP data during the period of initial generic 

availability. By requiring manufacturers of first generics to report ASPs 

on a monthly basis when the generics first become available, CMS could 

substantially reduce the two-quarter lag and make Medicare payment 

amounts more reflective of actual market prices. If CMS finds this to be 

an effective means for alleviating the financial impact of the 

two-quarter lag, the agency may wish to consider requiring monthly 

ASP submissions for all Part B-covered drugs. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS did not concur with our recommendation, citing potential problems 

with manufacturer price submissions and increased administrative 

burdens under a proposed monthly ASP reporting requirement. CMS 

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EXECUTIVE SUMMARY 

also stated that it believes the two-quarter lag protects Medicare and its 

beneficiaries from unchecked price increases and is an incentive for 

faster generic utilization. 

Because of the two-quarter lag, Part B and its beneficiaries are denied 

significant potential savings when generic versions first become 

available. Therefore, we believe that the savings from a reduced 

reimbursement lag may outweigh any difficulties with implementing a 

monthly ASP reporting system. Furthermore, we note that the 

ASP-based reimbursement system (in which all versions of a drug 

assigned to one payment code are paid at the same amount) is a natural 

incentive for manufacturers to limit rapid price increases, as well as for 

providers to utilize generic versions. 
 TABLE OF CONTENTS 

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

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

FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 

 Medicare could have saved an estimated $111 million had 

payment amounts immediately reflected generic sales prices for 

16 drugs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 

 According to FDA, numerous high-expenditure drugs could have 

first-generic versions approved in the next several years . . . . . . . 15 

 Significant obstacles remain in proactively identifying newly 

available generic drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 

RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 

Agency Comments and Office of Inspector General Response . . . 20 

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 

 A: Detailed Methodology for Identifying First-Generic Drugs 

and Their Dates of Market Entry. . . . . . . . . . . . . . . . . . . . . . . 23 

 B: First-Generic Drugs Included in Our Analysis. . . . . . . . . . . . . 25 

 C: Medicare Payment Amounts for 16 Newly Available Generic 

Drugs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 

 D: Estimated Generic Approval Timeline for the Top 

26 Dollar-Volume Brand-Only Part B Drugs (Biologics 

Excluded), According to FDA . . . . . . . . . . . . . . . . . . . . . . . . . . 28 

 E: Top 22 Dollar-Volume Biologics Under Part B. . . . . . . . . . . . . 29 

 F: Comparison of FDA’s ANDA Approval Dates and Actual 

 Generic Entry Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 

 G: Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
 

 INTRODUCTION 

OBJECTIVES 

1. To estimate the financial impact of the two-quarter reimbursement 

lag on Medicare payments for Part B-covered drugs with newly 

available generic versions. 

2. To estimate when high-expenditure brand-only Part B-covered 

drugs will likely have first-generic versions reach the market. 

BACKGROUND 

In 2009, Medicare spent approximately $11 billion on Part B-covered 

drugs.1 Medicare pays for most prescription drugs covered under Part 

B based on manufacturer-reported average sales prices (ASP). Becaus

payment amounts are determined using ASP data from two quarters 

earlier, it may take 6 months or more for Medicare reimbursement to 

reflect any price changes in the marketplace. 

e 

A previous Office of Inspector General (OIG) report2 found that this 

two-quarter reimbursement lag had negative financial consequences for 

the Medicare program and its beneficiaries (through higher 

coinsurance) when lower-priced generic versions of the cancer drug 

irinotecan first reached the market. In its comments to that report, the 

Centers for Medicare & Medicaid Services (CMS) concurred with our 

recommendation that the agency explore options that would allow 

payment amounts to more accurately reflect new generic prices. CMS 

stated that it is interested in any suggestions OIG may have to improve 

the methods used to collect and array data under the ASP system.3 

However, CMS has yet to make any changes that would allow Medicare 

to take advantage of the lower prices of newly available generic drugs in 

a more timely manner. To that end, this study expands on previous 

work by examining the impact of the two-quarter lag on a broader scale. 

Payment for Medicare Part B-Covered Drugs 

Although Medicare Part D covers most outpatient prescription drugs, 

CMS continues to cover a limited number of outpatient prescription 

drugs and biologicals (hereinafter referred to as drugs) under its Part B 

benefit. Part B-covered drugs generally fall into the following 

1 Part B Analytics Reporting (PBAR) (98 percent of claims reported). Accessed on 

March 29, 2010. 

2 OIG, Medicare Payment for Irinotecan, OEI-03-08-00310, August 2008. 

3 Ibid. 

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INTRODUCTION 

categories: drugs furnished incident to a physician’s service 

(e.g., injectable drugs used in connection with the treatment of cancer), 

drugs explicitly covered by statute (e.g., some vaccines and oral 

anticancer drugs), and drugs used in conjunction with durable medical 

equipment (e.g., inhalation drugs).4 

To obtain Medicare payment for Part B-covered drugs, physicians and 

suppliers submit claims, using the Healthcare Common Procedure 

Coding System (HCPCS) codes, to claims-processing contractors. The 

HCPCS codes provide a standardized system for describing specific 

items and services provided in the delivery of health care. In the case of 

prescription drugs, each HCPCS code defines the drug ingredient name 

and billing unit size but does not specify the manufacturer or package 

size. As a result, HCPCS codes for single-source drugs (i.e., drugs with 

no available generic versions) typically include products from only one 

manufacturer, and HCPCS codes for multiple-source drugs (i.e., drugs 

with generic versions) include products from multiple manufacturers. 

CMS pays for most Part B-covered drugs based on their ASPs.5 The 

ASP is defined as a manufacturer’s sales of a drug to all purchasers in 

the United States in a calendar quarter divided by the total number of 

units of the drug sold by the manufacturer in that same quarter.6 The 

ASP is net of any price concessions, such as volume discounts, 

prompt-pay discounts, cash discounts, free goods contingent on 

purchase requirements, chargebacks, and rebates other than those 

obtained through the Medicaid drug rebate program.7 Sales that are 

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

excluded from the determination of “best price” in the Medicaid drug 

rebate program.8, 9 

Medicare payment amounts for most Part B-covered prescription drugs 

are equal to 106 percent of the volume-weighted ASPs for the HCPCS 

4 68 Fed. Reg. 50428, 50429 (Aug. 20, 2003). 

5 Several Part B drugs, including certain vaccines and blood products, are not paid under 

the ASP methodology. 

6 Section 1847A(c) of the Social Security Act (the Act), as added by the Medicare 

Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), P.L. 108-173. 

7 Section 1847A(c)(3) of the Act. 

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

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

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

States, with certain exceptions. 

9 Section 1847A(c)(2) of the Act. 

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INTRODUCTION 

codes. Medicare beneficiaries are responsible for 20 percent of this 

amount in the form of coinsurance. 

Manufacturer Reporting Requirements 

ASP data. Manufacturers with Medicaid drug rebate agreements in 

effect must, among other things, provide CMS with pricing information, 

including the ASP for each of their Part B-covered drugs and the 

average manufacturer price (AMP) for each of their Medicaid-covered 

drugs.10, 11 Manufacturers report ASPs for Part B-covered drugs by 

national drug codes (NDC), which are 11-digit numeric codes divided 

into three segments identifying (1) the firm that manufactures, 

distributes, or repackages12 the drug product (i.e., the labeler code); 

(2) the specific strength, dosage form, and formulation of the product; 

and (3) the product’s package size. Manufacturers are required to 

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

30 days of the end of each quarter.13 Because Medicare payment for 

Part B-covered drugs is based on HCPCS codes rather than NDCs and 

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

code, CMS has developed a file that “crosswalks” manufacturers’ NDCs 

to HCPCS codes. 

Manufacturers may face civil money penalties or suspension of their 

rebate agreements if they knowingly provide false information about 

their ASPs, fail to report ASP data in the required timeframe, or make 

misrepresentations in reporting ASPs.14 The penalties associated with 

late submissions may be increased by up to $10,000 for each day ASP 

data are not provided.15

The Two-Quarter Lag in Reimbursement for Part B-Covered Drugs 

CMS’s ASP payment methodology has an inherent lag between the time 

when sales occur and when the sales become the basis for payment 

amounts. Manufacturers must provide CMS with the required ASP 

10 For Federal payment to be available for covered outpatient drugs provided under 

Medicaid, sections 1927(a)(1) and (b)(1) of the Act mandate that drug manufacturers enter 

into rebate agreements with the Secretary of Health & Human Services and pay quarterly 

rebates to State Medicaid agencies. 

11 Medicaid rebates are based on AMPs. ASPs are not used in the calculation of 

Medicaid rebates. 

12 A repackager purchases drugs from manufacturers and typically repackages them into 

smaller quantities. 

13 Section 1927(b)(3) of the Act and 42 CFR § 414.804(a)(5). 

14 Sections 1927(b)(3)(C)(i) and (ii) of the Act and § 1847A(d)(4) of the Act. 

15 Section 1927(b)(3)(C)(i) of the Act. 

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INTRODUCTION 

data for each NDC within 30 days after the close of each quarter. CMS 

then calculates a volume-weighted ASP for each HCPCS code. This 

ASP becomes the basis for the payment amount for the following 

quarter. For example, third-quarter 2009 ASP data from 

manufacturers were due to CMS 30 days after the end of the third 

quarter (i.e., October 30, 2009), which CMS used as the basis for 

first-quarter 2010 Medicare payment amounts. See Table 1 for a 

description of the reimbursement timeline. 

 Table 1: ASP-Based Reimbursement Timeline 

Manufacturer Sales Period ASP Data Due to CMS 

Quarter in Which 

ASP-Based Payment 

Amount Applied 

First-Quarter 2009 Apr. 30, 2009 Third-Quarter 2009 

Second-Quarter 2009 July 30, 2009 Fourth-Quarter 2009 

Third-Quarter 2009 Oct. 30, 2009 First-Quarter 2010 

Fourth-Quarter 2009 Jan. 30, 2010 Second-Quarter 2010 

 Source: OIG analysis of ASP-based reimbursement, 2009. 

The two-quarter lag causes Medicare and its beneficiaries to miss out on 

immediate savings anytime a drug’s ASP declines, as the payment 

amount to providers (e.g., physicians and pharmacies) remains at the 

previous (higher) level for two quarters or more—even though these 

providers are acquiring the drug at the recently reduced price. This is 

especially relevant when generic versions of a drug first become 

available. Typically, when the first-generic16 version of a drug enters 

the market, its sales prices are substantially lower than those of the 

drug’s brand equivalent. Additionally, generic versions often quickly 

account for the majority of utilization for that drug, overtaking the more 

expensive brand form. However, because of the two-quarter lag in the 

ASP calculation, the lower prices and increased utilization of generic 

versions are not immediately factored into calculations of the Medicare 

payment amount for the corresponding HCPCS code. Therefore, 

provider acquisition costs for these drugs will most likely decrease 

substantially in the first quarter of generic availability, although 

Medicare payment amounts will take at least two quarters to reflect the 

change. 

16 Hereinafter, the term “first generic” will refer to the initial generic version(s) of a drug 

approved under an Abbreviated New Drug Application (ANDA) as listed by the Food and 

Drug Administration (FDA) on the First-Time Generic Drug Approvals list. FDA, ANDA 

(Generic) Drug Approvals. Accessed at http://www.fda.gov on April 27, 2010. 

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INTRODUCTION 

FDA’s Generic Approval Process 

Brand drugs are given patent protection by the U.S. Patent and 

Trademark Office for a certain period (generally 20 years from the date 

of filing).17 Upon approval by FDA, manufacturers are also granted 

market exclusivity for the drug, which may or may not run concurrently 

with the patent protection.18 With certain exceptions, generic drugs 

cannot be marketed before the brand drug’s patent and market 

exclusivity expire.19, 20 Before marketing a generic version of a brand 

drug, a pharmaceutical company must obtain FDA approval by 

submitting an ANDA.21 Generally, a generic drug must be the same as 

a brand drug with respect to conditions of use (with certain exceptions), 

active ingredient(s), route of administration, dosage form, strength, and 

labeling.22 In addition, with certain exceptions, the generic drug must 

be bioequivalent to (i.e., perform in the same manner as) the brand 

drug. 

Each month, FDA publishes a list of new first-time generic drug 

approvals (note: the approval of a drug does not mean that it reaches 

the market).23 Furthermore, the FDA Approved Drug Products 

directory (“Drugs@FDA”) provides each drug’s approval history, 

including whether it was approved under an ANDA, thereby indicating 

a generic drug. Drugs@FDA is searchable by application number, 

proprietary drug name, and active ingredient.24 

Previous OIG Work 

A 2008 OIG report identified vulnerabilities in the Part B payment 

system when the first-generic versions of a prescription drug enter the 

market.25 In that report, we estimated that providers paid $51.59 per 

20 milligrams of irinotecan (a cancer drug that was available in generic 

17 U.S. Patent and Trademark Office. General Information Concerning Patents: Nature 

of Patent and Patent Rights. Accessed at http://www.uspto.gov on June 7, 2010. 

18 FDA, Frequently Asked Questions on Patents and Exclusivity. Accessed at 

www.fda.gov on July 28, 2010. 

19 Ibid. 

20 U.S. Patent and Trademark Office, loc. cit. 

21 21 CFR § 314.105(d). 

22 21 U.S.C. § 355(j)(2) (§ 505(j)(2) of the Federal Food, Drug, and Cosmetic Act); 

21 CFR §§ 314.92 and 314.105(c). 

23 FDA, ANDA (Generic) Drug Approvals. Accessed at http://www.fda.gov on 

April 27, 2010. 

24 Accessed at http://www.fda.gov on March 26, 2010. 

25 OIG, Medicare Payment for Irinotecan, OEI-03-08-00310, August 2008. 

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INTRODUCTION 

form beginning in February 2008) in the first quarter of 2008. The 

Medicare payment amount in the same quarter was more than double 

that amount ($126.31). We found that Medicare expenditures could 

have been reduced by an estimated $26 million had Medicare 

reimbursement immediately reflected actual market prices between 

March and June 2008 (the period in which payment amounts were still 

fully based on the brand prices). 

We recommended that CMS explore options (including a possible 

legislative change) that would allow payment amounts to more 

accurately reflect new generic prices. CMS concurred with our 

recommendation and expressed its commitment to ensuring accurate 

payments for drug products under the ASP methodology, including 

working with OIG to improve the methods CMS uses to collect data. 

However, as of May 2010, CMS has not taken any actions to address 

potential overreimbursement for first generics. 

METHODOLOGY 

Data Sources 

The following data sources were used in our analysis to identify newly 

available generic drugs, calculate the financial impact of the 

two-quarter lag, and estimate when high-expenditure brand-only 

Part B-covered drugs will likely have first-generic versions reach the 

market.

FDA’s monthly list of first-generic drug approvals. Each month, FDA 

publishes on its Web site a list of first-time generic drug approvals.26 

This list contains the drug name, form, strength, and manufacturer of 

each first-generic drug approved in that month. It does not list the 

NDCs or HCPCS codes for the newly approved drugs. 

FDA’s Approved Drug Products directory (“Drugs@FDA”). This FDA 

directory contains the approval history of all drugs, including approved 

labels and whether a drug was approved under a New Drug Application 

or ANDA.27 It does not list any of this information by NDC or HCPCS 

code. 

26 FDA, ANDA (Generic) Drug Approvals. Accessed at http://www.fda.gov on 

April 27, 2010. 

27 FDA, FDA Approved Drug Products. Accessed at http://www.fda.gov on 

March 26, 2010. 

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INTRODUCTION 

FDA staff. We requested information from staff at FDA relating to the 

generic approval status of certain high-expenditure brand-only drugs 

covered under Part B. 

CMS’s quarterly crosswalk file. Each quarter, CMS publishes a file that 

lists all NDCs that correspond to each HCPCS code for drugs paid under 

Part B.28

CMS’s quarterly Part B payment-limit file. Each quarter, CMS posts a file 

containing the payment amount by HCPCS code for drugs paid under 

Part B.29

CMS’s quarterly ASP background file. CMS provides OIG with the ASP 

background file each quarter. This file contains ASP data (including the 

ASP itself and the number of units sold in the quarter) for all NDCs 

(grouped by their corresponding HCPCS codes) that were reported in 

that quarter. The data in this file are used to calculate the payment 

amount for each HCPCS code as listed in the quarterly Part B 

payment-limit file.

CMS’s monthly AMP file. CMS provides OIG with a file containing 

manufacturer-reported AMP data each month. AMP data30 are used in 

the determination of rebates under the Medicaid drug rebate program 

and are reported by the NDC. 

CMS’s labeler file. CMS publishes a file that lists each manufacturer 

with a Medicaid drug rebate agreement, the agreement’s effective date, 

and the manufacturer’s labeler code (i.e., the first five digits of the 

NDC).31

CMS’s Part B quarterly utilization data. Quarterly Part B utilization data 

for prescription drugs are available through CMS’s Part B Extract and 

Summary System (BESS) and PBAR system. These data provide the 

28 CMS, ASP NDC-HCPCS Crosswalk. Accessed at http://www.cms.gov on May 28, 2010. 

29 CMS, ASP Pricing File. Accessed at http://www.cms.gov on May 28, 2010. 

30 Section 6001(b)(1)(A) of the Deficit Reduction Act of 2005 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 each period. As generally 

defined in section 1927(k)(1) of the Act, as amended by section 2503(a)(2) of the Patient 

Protection and Affordable Care Act (ACA), P.L. 111-148, the AMP is the average price paid 

to manufacturers for drugs in the United States by wholesalers for drugs distributed to 

retail community pharmacies and by retail community pharmacies that purchase drugs 

directly from manufacturers. 

31 CMS, Participating Drug Companies. Accessed at http://www.cms.hhs.gov on 

April 28, 2010. 

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INTRODUCTION 

total units and total amount reimbursed for each HCPCS code during a 

given quarter or year. 

Micromedex’s quarterly Red Book file. The Red Book file is an 

industry-produced compendium containing drug product information 

and pricing data at the NDC level. OIG receives updated Red Book data 

each quarter.

Manufacturer online press releases. Through manufacturer Web sites and 

online trade publications, manufacturers periodically announce the 

launch of recently approved generic drugs. 

Identification of Newly Available Generic Drugs 

We consulted FDA’s monthly list of first-generic drug approvals to 

identify all drugs that had first-generic versions potentially become 

available in 2007, 2008, or the first two quarters of 2009.32 We 

compared this list of drugs to CMS’s Part B crosswalk files to determine 

which of these first-generic drugs were covered under Part B and 

reimbursed based on the ASP payment methodology. 

Because issues such as patent infringement litigation prevent some 

FDA-approved first generics from becoming available or available 

immediately after approval, we performed the following additional 

checks to determine whether Part B drugs on FDA’s list actually 

reached the market in 2007, 2008, or the first two quarters of 2009: 

1. We first used CMS’s quarterly ASP background files to determine the 

number of manufacturers that reported sales of potential 

first-generic drugs covered under Part B and the drugs’ 

corresponding NDCs. Because manufacturers are required to submit 

quarterly ASP data to CMS, the background files enabled us to 

identify the number of manufacturers that sold each drug in each 

quarter, thereby confirming whether FDA’s first-generic approval 

date coincided with the market entry of new manufacturers for each 

drug. However, because previous OIG work33 found that 

manufacturers do not always report ASPs in a timely manner, we 

32 Because there is often a gap between the time when a drug receives FDA approval and 

when it becomes available on the marketplace, we also included drugs from FDA’s list of 

generic drugs approved in November and December 2006 if data sources indicated they did 

not become available until 2007. 

33 OIG, Average Sales Prices: Manufacturer Reporting and CMS Oversight, 

OEI-03-08-00480, February 2010. 

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INTRODUCTION 

also took additional steps to identify whether and when a product 

reached the market. 

2. We performed similar checks using CMS’s monthly AMP files and 

Micromedex’s Red Book file to further confirm the date of the first 

reported sales of each generic drug. By matching the NDCs reported 

by each generic manufacturer in the ASP background files to the 

NDCs listed in the AMP files, we were able to determine the first 

month that generic sales were reported to CMS. The same NDCs 

were also used to determine the first quarter that generic 

manufacturers reported product information to Red Book, which 

served as an additional confirmation of the date of generic market 

entry. 

3. As a final check, we reviewed generic manufacturer online press 

releases announcing the availability of generic drugs to confirm the 

date of market entrance. 

This process produced a final list of 16 Part B drugs that had 

first-generic versions appear on the market in 2007, 2008, or the first 

two quarters of 2009.34, 35

For some drugs, not all of these data sources mentioned above provided 

the same date of generic entry. With most discrepancies, we chose the 

consensus date among most of these data sources. When there was no 

clear consensus (3 of the 16 drugs), we deferred to the first full month of 

generic sales listed among all data sources. 

In some instances, these date discrepancies indicated a failure of 

manufacturers to report ASPs, as required. For example, comparing 

NDCs in the quarterly ASP background files to those listed in the 

34 Our analysis initially identified 18 first-generic drugs. Two drugs (levalbuterol 

inhalation solution unit dose and levalbuterol inhalation solution concentrate) reached the 

market, but coding and payment issues created difficulties with any analysis. In general, 

for much of the review period, Medicare payment amounts for levalbuterol were not based 

solely on its own ASPs, but also on the ASPs for a different drug (albuterol) as well. The 

removal of these 2 drugs brought the final number of first generics under review to 16. See 

the OIG report entitled Beneficiary Utilization of Albuterol and Levalbuterol Under 

Medicare Part B, OEI-03-07-00440, August 2009, for a full description of the numerous 

coding and payment changes for levalbuterol since 2003. 

35 We use the term “drug” here to describe a unique HCPCS code: the final list included 

16 unique HCPCS codes, representing 14 drug ingredients (granisetron hydrochloride had 

separate HCPCS codes for injection and tablet forms, and dronabinol oral had separate 

HCPCS codes for 2.5 mg and 5 mg), but because each HCPCS code has its own Part B 

payment amount, we considered the total list of first generics to include 16 drugs. 

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INTRODUCTION 

monthly AMP files enabled us to determine whether generic 

manufacturers were late to report ASPs. In such cases, we used the 

CMS labeler files to determine whether those manufacturers had a 

Medicaid drug rebate agreement (and thus were required to submit 

ASPs). See Appendix A for a detailed description of our methodology for 

identifying first generics. 

Financial Impact of the Two-Quarter Lag During Initial Generic Availability 

To determine the financial impact of the reimbursement lag for the 

16 newly available generic drugs, we first calculated the effect the lag 

had on payment amounts in each quarter. We did this by comparing 

the Part B payment amount from CMS’s payment-limit file in the 

quarter under review to the payment amount from two quarters later. 

Because the payment amount from two quarters later was based on 

sales that occurred during the quarter under review, it served as an 

estimate of what the payment amount would have been had there been 

no lag. To determine the amount spending would have decreased had 

this payment amount been in effect, we (1) calculated the percentage 

difference between the payment amount during the quarter under 

review and the payment amount from two quarters later and 

(2) multiplied the percentage difference by the total amount reimbursed 

in that quarter.36

We performed this analysis during the initial generic availability period 

of each drug; i.e., the quarter in which generics were first available in 

the market, as well as the subsequent two quarters—yielding three 

quarters of analysis for each drug.37 Although payment amounts are 

always based on ASPs from two quarters previous, the initial effects of 

the lag often extend into the third quarter of generic availability. For 

example, if a first generic did not become available until the middle of a 

quarter (e.g., February 15, 2008), the volume-weighted ASP for that 

quarter (first-quarter 2008) will not reflect a full period of sales of 

generic versions—and consequently, the drug’s Medicare payment 

amount in third-quarter 2008 will only reflect partial generic sales. As 

a result, the effects of the reimbursement lag will still be felt in the 

third quarter of 2008 (i.e., the third quarter of generic availability). By 

36 We obtained utilization data from BESS and PBAR for each quarter and drug under 

review. 

37 For the purpose of this analysis, a two-quarter reimbursement lag is assumed for all 

newly available generic drugs. 

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INTRODUCTION 

including the third quarter of generic availability in our financial 

impact analysis, we were able to account for these extended effects. 

In instances in which a first generic was approved after the first month 

of a quarter (and therefore was available for only a portion of the 

quarter), we used proportional utilization data to reflect the amount of 

time the generics were available in that quarter.38 

Once we estimated the financial impact for each drug, we totaled these 

figures to determine the net financial impact of the two-quarter 

reimbursement lag on Part B and its beneficiaries for the 16 drugs over 

their initial periods of generic availability. We compared the total 

potential savings to the total amount reimbursed for all drugs over the 

same period and determined the proportion of potentially excessive 

expenditures resulting from the two-quarter lag. 

Comparison of generic and brand ASPs. The volume-weighted ASP for a 

HCPCS code is calculated using the individual ASPs for all 

corresponding NDCs. Within each HCPCS code, the ASPs for the brand 

and any generic NDCs often vary considerably (even though the 

Medicare payment amount is the same for all NDCs under a HCPCS 

code). To highlight the difference between generic-only and brand-only 

ASPs when a generic version first becomes available, we used CMS’s 

background files to separately calculate the volume-weighted ASP of 

generic and brand versions of each drug in the first quarter in which the 

generics were available.39

Analysis of payment levels beyond the period of initial generic availability. 

Even after generics become fully accounted for in the Medicare payment 

amount (i.e., after the period of initial generic availability), the 

two-quarter lag may still have a negative effect if market prices 

continue to fall. Therefore, in addition to quantifying the financial 

impact of the two-quarter lag during the period of initial generic 

availability, we also tracked Medicare payment amounts for the 

16 drugs for up to 2 years40 after their first-generic versions became 

available. To do so, we compared the Medicare payment amounts 

during the quarter before generics became available to the payment 

38 CMS’s AMP files allowed us to determine the first month of generic availability. 

39 Data were unavailable for two drugs. 

40 Because three drugs did not reach the market until first- or second-quarter 2009, 

payment amounts for these drugs were not available for the full 2 years. 

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INTRODUCTION 

amounts 2 years later.41 By comparing the Medicare payment amounts 

before and after generic sales were reflected in the volume-weighted 

ASPs, we were able to illustrate the long-term effect of generics on 

Medicare payment amounts as well as how the two-quarter lag may 

continue to affect payment after the period of initial generic availability. 

Identification of Future First-Generic Drugs 

We provided FDA with a list of the top 48 brand-only drugs (by 

Medicare expenditure) covered under Part B and requested an estimate 

of when each drug was likely to have first-generic versions receive 

approval.42 To compile the list, we researched the top dollar-volume 

drugs covered under Part B in 2008 to determine which drugs were 

available only in brand form.43 FDA provided the estimated date of 

generic approval for each brand drug based on when an ANDA could 

first be approved. 

Limitations 

Our analysis was based on data provided by FDA and CMS, and we did 

not verify the data’s accuracy or completeness. Additionally, FDA’s 

generic approval timeline for brand drugs was based only on the 

estimated date of possible ANDA approval and did not take into account 

other factors (e.g., patent litigation) that may affect the date of actual 

market entry. 

Standards 

This study was conducted in accordance with the Quality Standards for 

Inspections approved by the Council of the Inspectors General on 

Integrity and Efficiency. 

41 The 2 years varied for each drug, but our analysis did not extend beyond 

second-quarter 2010. 

42 Originally, we provided FDA with a list of 50 brand-only drugs. We removed two 

drugs from this list after we determined that first-generic versions had been approved by 

FDA. In the case of mycophenolate mofetil, our data sources contained no evidence at the 

time we originally contacted FDA that generics had reached the market (although they 

subsequently did during the period covered by our review). In the case of budesonide, 

first-generic versions had been approved and had briefly reached the market; however, as 

the result of patent litigation, no generic versions remained on the market during the period 

covered by our analysis. This brought the final list to 48 brand-only drugs. 

43 We used CMS’s background files, manufacturer Web sites, and FDA’s list of generic 

drug approvals to determine whether a drug was brand-only or available in generic form. 

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 FINDINGS 

Had there been no two-quarter 

reimbursement lag during the 

period of initial generic 

availability44 for 16 drugs, we 

estimate that Medicare and its 

beneficiaries could have saved $111 million.45, 46 The potential savings 

accounted for 25 percent of Part B expenditures for these drugs in their 

period of initial generic availability. Three drugs47 each had an 

estimated $20 million or more in total potential savings over the course 

of the three quarters under review. See Appendix B for a list of each 

drug’s potential savings. 

Medicare could have saved an estimated 

$111 million had payment amounts immediately 

reflected generic sales prices for 16 drugs 

Because of cost-sharing obligations, Medicare beneficiaries also 

experience the financial effect of the reimbursement lag. For example, 

when the oral version of the antiemetic drug granisetron first became 

available in generic form in first-quarter 2008, providers who purchased 

the generic version paid, on average, $12.89 per milligram (mg).48 The 

Medicare payment amount that quarter ($50.22 per mg), however, was 

based only on brand versions. As a result, the 20-percent beneficiary 

coinsurance at this time ($10.04 per mg) was only slightly less than the 

entire acquisition cost of the generic drug. 

Because of the reimbursement lag, it may take years for Medicare to 

realize the full savings of generic versions 

The negative effects of the reimbursement lag are not necessarily 

limited to the first three quarters of generic availability. Medicare 

payment amounts will exceed actual market prices anytime ASPs 

decline. Therefore, when ASPs for a drug with new generic versions 

44 The period of initial generic availability is defined as the first three quarters generic 

versions were available. 

45 Savings estimates for each drug were based on three quarters of analysis (i.e., the 

period of initial generic availability), but because the 16 drugs became available in generic 

form at different times, the three quarters under review varied from drug to drug. 

46 Because generic manufacturers for two of the drugs in our analysis did not report any 

ASPs, we could not calculate the financial impact of new generic versions of these two 

drugs. 

47 These drugs were mycophenolate mofetil oral, albuterol sulfate/ipratropium bromide 

inhalation solution, and irinotecan injection. Irinotecan may be atypical in that numerous 

generic manufacturers, rather than one generic manufacturer, reported sales in the period 

of initial generic availability. 

48 The volume-weighted ASP for all versions in the HCPCS code was actually $16.20 per 

mg, because some providers at that point were still dispensing the brand version of the 

drug. 

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FINDINGS 

continue to fall (possibly because of increasing utilization of generic 

versions or more generic versions reaching the market), the two-quarter 

lag has an extended impact because the Medicare payment amount is 

always slow to reflect the continuously decreasing ASP. 

For example, Figure 1 shows the Medicare payment amounts for the 

antiemetic drug ondansetron hydrochloride over a 2-year period 

beginning in the first quarter of 2007. During the period of initial 

generic availability (i.e., first-quarter 2007 through third-quarter 2007), 

the Medicare payment amount for ondansetron hydrochloride declined 

by 32 percent. The payment amount continued to decrease each 

subsequent quarter through the third quarter of 2008, when it was 

91 percent less than the payment amount in the first quarter generics 

were available. 

 Figure 1: Medicare Payment Amounts and ASPs for Ondansetron 

 Hydrochloride (Oral, 8-mg Version) 

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

1Q07 (First Generics)

2Q07

3Q07*

4Q07

1Q08

2Q08

3Q08

4Q08

Payment amount

ASP + 6 percent

 

 

 

 

 

 Source: CMS’s posted Part B payment limits. 

 * Represents the first quarter in which generic sales were reflected in the payment amount.

Overall, Medicare payment amounts steadily decreased throughout the 

first 2 years of generic availability for the drugs under review. On 

average, after 2 years, the payment amounts were nearly 60 percent 

less than the original brand-only payment amounts.49 Because our 

49 Two full years of data were available for 13 drugs only; 2 of these 13 drugs were 

removed from the savings analysis because generic manufacturers did not report any ASPs. 

 

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FINDINGS 

savings analysis included only the first three quarters of each drug’s 

generic availability, but the decline in payment amounts continued for 

up to 2 years, the potential savings of $111 million underestimate the 

total potential savings that would result if the two-quarter lag were 

eliminated. See Appendix C for a full list of payment amounts for each 

drug over a 2-year period. 

On average, brand drugs were initially 3 times more expensive than their 

generic versions 

During the first quarter of generic availability for each drug, the brand 

versions’ ASPs were, on average, 2.85 times that of their generic 

equivalents.50 For 1 drug, the brand ASP was over 10 times that of the 

generic equivalent in the same quarter. 

For three drugs in our analysis, brand versions were priced lower than 

their generic equivalents in the first quarter of generic availability. 

However, the payment amounts for all three drugs still showed gradual 

declines, resulting in potential savings for each. For example, in the 

first quarter of generic availability, the volume-weighted ASP for brand 

sumatriptan was over 17 percent lower than that of the generic 

versions. By two quarters later, however, the generic ASP had dropped 

59 percent and the brand ASP had dropped 23 percent, resulting in a 

decrease in overall volume-weighted ASP of 47 percent. This reflected 

an overall trend in our analysis, as the entry of first-generic versions 

resulted in a decline in prices over time, whether because of the 

emergence of lower-priced generics or the lowering of brand prices. 

According to FDA, numerous high-expenditure 

drugs could have first-generic versions 

approved in the next several years 

According to FDA, 26 of the 

48 brand-only drugs with the 

highest Part B expenditures have 

had or may have generic versions 

approved for the first time in the next several years. Generic versions of 

these 26 drugs are expected to gain approval in gradually increasing 

numbers through 2014.51 These 26 brand drugs had combined Part B 

expenditures of over $2.8 billion and accounted for 25 percent of Part B 

50 Data were available for 12 drugs only. 

51 Specifically, 4 of the 26 drugs have become generic since our review began; 4 drugs are 

currently eligible for generic approval; an additional 3 drugs may become generic beginning 

in 2011; 13 drugs may become generic beginning in 2012; 1 drug may become generic 

beginning in 2013; and 1 drug may become generic beginning in 2014. 

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FINDINGS 

drug payments in 2009. If and when these 26 drugs become available in 

generic form, their payment amounts will be subject to the same twoquarter lag that exists under the ASP-based system. 

FDA could not provide exact dates for the expected generic approval of 

these drugs. Instead, it gave an estimate of the earliest possible date of 

ANDA approval. The date of actual market entry may differ from this 

estimate, as external factors, such as patent litigation, may prolong the 

introduction of generic versions beyond the date of ANDA approval. See 

Appendix D for a list of these 26 brand-only Part B-covered drugs and 

their FDA-estimated generic approval times. 

Nearly half of the current high-dollar brand-only Part B drugs are biologics; 

the ACA recently created a pathway for generic approval of biological 

products 

The remaining 22 of the top 48 brand-only Part B-covered drugs are 

biologics, including the 7 Part B drugs with the highest Medicare 

expenditures in 2009. Prior to the passage of the ACA, no pathway 

existed for the approval of generic versions of biologics; however, section 

7002 of the ACA provides for approval of biosimilars (i.e., generic 

biologics). As a result, generic forms of these 22 drugs may gain 

approval in the future.52 In 2009, these 22 biologics accounted for over 

$5.3 billion in Part B spending. See Appendix E for a list of the top 22 

biologics under Part B. 

Significant obstacles remain in proactively 

identifying newly available generic drugs

Because of issues such as patent 

litigation and marketing 

agreements, the date of FDA’s 

approval of generic versions often does not coincide with the date of 

actual generic market entry. In fact, 3 of the 16 generic drugs in our 

analysis did not reach the market until at least 6 months after FDA’s 

date of generic approval. See Appendix F for a comparison of the dates 

of ANDA approvals and the dates of actual generic entry. 

Two additional drugs not included in our analysis (gemcitabine and 

torsemide) were listed by FDA as having had first-generic versions 

approved during our timeframe (i.e., between first-quarter 2007 and 

52 Because of barriers to market entry, the complexities of manufacturing these products, 

and a slightly different payment methodology, biologics may not show the same degree of 

decline in payment amounts when generic versions reach the market, compared to the 

drugs identified in this report. 

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FINDINGS 

second-quarter 2009), but no generic versions appeared to have reached 

the market as of the fourth quarter of 2009.53 In the case of another 

drug (budesonide), generic versions were approved by FDA and reached 

the market for a few days, but as a result of patent litigation, generic 

versions ceased being marketed during the period under review.54 

These issues highlight the complications in predicting when generic 

versions are likely to become available, making it difficult to anticipate 

changes in ASPs.

For a number of drugs, generic manufacturers were late to report ASPs or 

did not report ASPs at all 

The first-generic ASPs for two drugs (albuterol sulfate/ipratropium 

bromide inhalation solution and fomepizole injection) were reported one 

quarter after the actual generic entry date (see Table 2).55 Generic 

manufacturers for two other drugs never reported ASPs to CMS, despite 

the drugs’ becoming available in generic form.56

All four drugs with late or unreported generic ASPs were sold by generic 

manufacturers that had Medicaid drug rebate agreements with CMS at 

the time of their market entry and were required to report ASPs in the 

first quarter in which sales occurred. In instances in which ASPs are 

reported a quarter late or not at all, the Medicare payment amounts 

take even longer to reflect sales of generics. Had the manufacturers of 

these newly available generic drugs reported ASPs in a timely fashion, 

the potential savings to Part B identified in our analysis could have 

been even greater. 

53 Research into CMS’s background files and manufacturer press releases yielded no 

evidence of generic versions. 

54 In 2009, Medicare and its beneficiaries paid $265 million for budesonide. According to 

the settlement agreement with a generic manufacturer, generic budesonide was allowed to 

be marketed again starting on December 15, 2009. Accessed at http://www.tevapharm.com

on July 1, 2010. 

55 The manufacturer-reported ASPs for these drugs were determined to have been 

submitted late based on the fact that generic manufacturers reported NDCs in the monthly 

AMP files in the quarter before ASPs were reported in the background files for those same 

NDCs. 

56 No generic ASPs were reported as of the fourth quarter of 2009. We will refer the 

manufacturers of these two drugs to CMS and work with the agency to undertake 

appropriate action. 

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FINDINGS 

 Table 2: First Generics With ASP Reporting Issues 

HCPCS Drug FDA Generic 

Approval Date 

Estimated Actual 

Generic Entry Date 

Period Covered 

by First Reported 

Generic ASP1 

J7620 

Albuterol sulfate/

ipratropium bromide inh. soln. Dec. 21, 2006 July–Sept. 2007 4Q 2007 

J1451 Fomepizole inj. Dec. 14, 2007 Jan. 2008 2Q 2008 

Q01672 Dronabinol oral, 2.5 mg June 27, 2008 July 2008 (none listed)3 

Q01682 Dronabinol oral, 5 mg June 27, 2008 July 2008 (none listed)3

 Source: FDA's ANDA (Generic) Drug Approvals and OIG analysis. 1 Based on the first appearance of generic manufacturer NDC(s) in the ASP background file. See Appendix A for a 

 description of this analysis. 

 2

 These drugs were not included in our potential savings analysis. 

 3

 No generic ASPs were reported as of fourth-quarter 2009. 

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RECOMMENDATIONS RECOMMENDATION 

This is the second OIG report to identify systemic vulnerabilities in 

Part B payments for prescription drugs as a result of the two-quarter 

lag in reimbursement. We found that payment amounts were 

significantly higher than market prices for an extended period for the 

newly available generic drugs under review. In other words, during the 

period of initial generic availability, generic versions of these drugs 

were being administered or dispensed to beneficiaries, but Medicare 

was still paying the brand prices. 

Although other government and privately sponsored prescription drug 

programs are designed to take advantage of lower priced generic drugs 

(e.g., mandatory generic substitution policies), our findings demonstrate 

that the Part B reimbursement system fails to capture these potential 

savings for at least two quarters. CMS has expressed interest in 

exploring options to improve its reimbursement process, but it has yet 

to make specific changes. With more than half of the top dollar-volume 

brand drugs covered under Part B potentially gaining approval in 

generic form over the next 4 years, and the creation under the ACA of a 

new approval pathway for generic biologics, this vulnerability will likely 

continue to grow if CMS does not make changes to its Part B payment 

system. 

We therefore recommend that: 

CMS work with Congress to require manufacturers of first generics to 

submit monthly ASP data during the period of initial generic availability 

If generic manufacturers were required to submit ASP data by the end 

of each month during the period of initial generic availability, CMS 

could develop a more appropriate drug payment amount that reflects 

those generic sales, and set that payment amount for the following 

quarter. This would substantially reduce the two-quarter lag and would 

make payment amounts more reflective of actual market prices for 

newly available generic drugs, thereby taking advantage of their lower 

prices. CMS could also apply the requirement to manufacturers of 

generic biologics, once these products begin to be approved. 

Our findings also demonstrate that the vulnerability posed by the 

two-quarter lag is not limited to periods of initial generic availability, as 

Medicare payment amounts will exceed actual market sales any time 

ASPs decline. Therefore, if CMS finds that the implementation of a 

monthly ASP reporting requirement for first generics helps alleviate the 

financial impact of the two-quarter lag, the agency may wish to consider 

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RECOMMENDATION 

transitioning to a monthly ASP reporting system for all Part B-covered 

drugs.

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS did not concur with our recommendation. CMS stated that 

requiring manufacturers to submit monthly ASP data would not be 

feasible for either manufacturers or CMS, and the agency cited the high 

rates of manufacturer price restatements for monthly AMPs (in contrast 

to quarterly ASPs) as evidence of the administrative burden of monthly 

reporting on manufacturers. CMS noted that OIG had identified a 

number of manufacturers that failed to submit quarterly ASP data, as 

required, and that this problem could be exacerbated by monthly 

reporting requirements. The agency recommended that OIG contact 

these manufacturers to determine why ASPs were not reported and 

whether any penalties are warranted. CMS went on to state that it is 

developing a process to identify manufacturers that do not submit 

quarterly ASPs in a timely manner, and then refer these manufacturers 

to OIG when appropriate. 

CMS also supported the two-quarter lag from a policy perspective, 

stating that (1) the lag protects Medicare and its beneficiaries from 

unchecked price increases, as manufacturers may limit raising prices 

based on their awareness of potential provider reimbursement issues, 

and (2) the lag leads to the more rapid utilization of generics, as 

providers have an incentive to quickly switch to lower-priced versions 

during the limited period when the payment spread is at its highest. 

CMS also described methods that the agency had considered to lessen 

the two-quarter lag, and it contended that any policy implementing 

these approaches would be technically infeasible or lead to more 

inaccurate and unstable payment rates. 

Although the administrative feasibility and compliance burden of any 

new reporting requirements should be taken into account, OIG believes 

that the cost savings for Medicare and its beneficiaries that would be 

achieved by reducing the current reimbursement lag may outweigh any 

potential issues for CMS and manufacturers. Regarding the latter, OIG 

is working closely with CMS to improve compliance with price-reporting 

requirements and recently issued an advisory bulletin notifying 

manufacturers of a new OIG enforcement initiative that addresses late 

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RECOMMENDATION 

and missing data. As part of this initiative, OIG will consider pursuing 

penalties for manufacturers that fail to report ASPs. 

Furthermore, we do not believe the best protection against price 

inflation should be a reimbursement system that is slow to reflect 

market trends, or that the best encouragement for generic substitution 

is one that causes Medicare and its beneficiaries to pay substantially 

more than provider costs. Rather, the nature of the volume-weighted 

ASP-based reimbursement system itself (in which all NDCs assigned to 

one HCPCS code are paid at the same amount) is an incentive for 

manufacturers to limit rapid price increases, as well as for providers to 

utilize generic versions. Yet, because of the two-quarter lag, Part B and 

its beneficiaries are denied significant potential savings when these 

generic versions first become available. Although we appreciate CMS’s 

consideration of alternative price reporting timelines, we note that the 

methods outlined by CMS in its comments are not the only possible 

approaches. Therefore, the agency’s conclusions about feasibility and 

price stability may not apply to other methods that could be used to 

reduce the reimbursement lag. 

CMS also expressed concerns with our savings estimate. The agency 

stated that: 

 it is not clear from the report that the potential savings of 

$111 million are not annualized savings; 

 almost 95 percent of our estimated savings are attributable to three 

drugs, and therefore not representative of Part B pricing trends 

overall; 

 the savings estimate of $111 million assumes that the lag would be 

completely eliminated, which is administratively impossible; and 

 OIG’s finding regarding the future availability of generic biologics 

implies significant potential savings; however, it is uncertain that 

the two-quarter lag would cause payment gaps for these particular 

products. 

As we state in both the methodology and findings sections of the report, 

our overall savings estimate is not intended to be an annualized figure; 

rather the $111 million represents the estimated savings had there been 

no two-quarter lag during the period of initial generic availability 

(i.e., up to three quarters) for 16 drugs. Because our findings show that 

the ASPs for these drugs continued to drop beyond the three quarters of 

analysis, our estimated savings likely would have been significantly 

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RECOMMENDATION 

greater had we calculated the total cost of the two-quarter lag for the 

entire period from January 2007 to June 2009. 

In addition, CMS is correct that three drugs account for the vast 

majority of the $111 million in potential savings. However, we disagree 

that this means that our results are not representative. In 2009, 

64 HCPCS codes accounted for 90 percent of the $11 billion in 

expenditures for Part B drugs, with only 13 of these codes representing 

the majority (52 percent) of spending. Therefore, it follows that our 

estimates would be largely driven by the savings attributable to the few 

high-dollar drugs that had new generic versions become available 

during the period under review. Our findings also illustrate that this 

trend is likely to continue, as 26 brand drugs representing over 

$2.8 billion and 25 percent of Part B spending may become generic in 

the next several years. 

Furthermore, we realize that it may be impossible to completely 

eliminate the reimbursement lag, and that our savings estimate 

presents a best-case scenario. However, given the high cost and 

substantial expenditures for many Part B drugs, any reduction in the 

two-quarter lag would lead to significant savings to the program and to 

Medicare beneficiaries in the form of reduced coinsurance. 

Finally, even though the two-quarter lag may or may not affect generic 

biologics in the same manner as other Part B drugs, the fact that 

Medicare and its beneficiaries spent $5.3 billion on just 22 biologic 

products in 2009 means that any delay in taking advantage of even 

slightly less expensive generic versions would have a profound impact 

on the program and its beneficiaries. 

For the full text of CMS’s comments, see Appendix G. 

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 APPENDIX~A 

Detailed Methodology for Identifying First-Generic Drugs and 

Their Dates of Market Entry 

1. The Food and Drug Administration’s (FDA) monthly list of first-generic drug 

approvals. We first compiled a list of all drugs listed under FDA’s 

first-generic drug approvals for all months between January 2007 

and June 2009. Because we were interested in identifying drugs 

which became available within our timeframe, we also included 

drugs in this analysis that were approved within 2 months before our 

timeframe (i.e., November 2006) in case any of those drugs actually 

hit the market starting in January 2007. The FDA list provided the 

drug name, form, strength, and manufacturer but did not list the 

Healthcare Common Procedure Coding System (HCPCS) code of each 

drug. Therefore, we had to search the Centers for Medicare & 

Medicaid Services’ (CMS) crosswalk files by drug name to identify 

the drug’s HCPCS code and to determine whether the FDA-listed 

drug was covered under Part B. If a drug name listed by FDA did 

not clearly match that in the crosswalk file, we did not include it in 

the analysis. 

2. CMS’s quarterly background files. Once we had determined each drug’s 

HCPCS code, we searched the background files by HCPCS code to 

identify all manufacturers that reported average sales prices (ASP) 

for each drug in all quarters in our analysis. Because the first five 

digits of a national drug code (NDC) denote the manufacturer, we 

were able to use the NDCs listed in the background files to identify 

the number of unique manufacturers per drug. We then ran this list 

of NDCs against the Red Book to exclude any NDCs that the Red 

Book identified as repackagers. We also excluded any NDCs that 

CMS had flagged in the background file as being problematic or 

excluded from the ASP calculation in that quarter. Once we repeated 

this process in each quarter, we were able to see when a drug went 

from one manufacturer to multiple manufacturers, thereby 

indicating the entry of generic versions. The background file also 

lists a variable to denote whether the drug is a brand or generic 

version, and this was used as an additional check to confirm that the 

new manufacturer was marketing a generic version rather than a 

competing brand version. 

3. CMS’s monthly average manufacturer price (AMP) files. We used the 

monthly AMP files to confirm the date of first-generic entry. Because 

the AMP files list only NDCs and not HCPCS codes, we had to rely 

 O E I - 0 3 - 0 9 - 0 0 5 1 0 MEDICARE PAYMENTS FOR NEWLY AVAILABLE GENERIC DRUGS 23
 

APPENDIX ~ A 

on the NDCs listed in the background files to identify NDCs in the 

AMP files. 

4. Red Book. We repeated the same process used in the AMP analysis 

to identify the earliest appearance of an NDC in the Red Book. 

5. Manufacturer press releases. We researched manufacturer press 

releases and Web sites to confirm generic drug NDCs and dates of 

market entry. 

There were often discrepancies in the dates of generic entry given by the 

above data sources. In most instances of discrepancies, we chose the 

consensus when most of these data sources were in agreement on the 

date of market entry. When the background file was the only data 

source to report a different date, we took this to mean that the 

manufacturer was late to report ASPs in the background file. In 

instances in which there was no clear consensus (3 of the 16 drugs), we 

deferred to the earliest listed generic market entry date among all data 

sources. For example, if a drug was listed in the background files 

starting in first-quarter 2008 but was not listed in the AMP files until 

May 2008, we assumed the date of generic market entry was the first 

quarter of 2008. If it was not clear whether a drug had first-generic 

versions become available within our timeframe, it was not included in 

the analysis. We also excluded from our savings analysis drugs from 

manufacturers that failed to report any generic NDCs in the 

background files. 

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 APPENDIX~B 

 Table B-1: First-Generic Drugs Included in Our Analysis 

HCPCS 

Code Drug Name Brand Name 

First Generic 

Entry Date1

Part B Expenditures During 

the Three Quarters of Initial 

Generic Availability2

Potential Savings During 

the Three Quarters of 

Initial Generic Availability 

J0207 

Amifostine, inj., 

500 milligrams (mg) Ethyol May 2008 $8,479,381 $1,364,634 

J0692 

Cefepime inj., 

500 mg Maxipime Jan.–Mar. 2008 $567,286 $48,719 

J1325 

Epoprostenol inj., 

0.5 mg Flolan May 2008 $19,576,492 $66,109 

J1451 

Fomepizole inj., 

15 mg Antizol Jan. 2008 $23 -$2 

J1626 

Granisetron inj., 

 0.1 mg Kytril Jan. 2008 $13,040,208 $1,816,964 

J3030 

Sumatriptan 

Succinate inj., 6 mg Imitrex Feb. 2009 $957 $75 

J7517 

Mycophenolate 

Mofetil oral, 

250 mg Cellcept May 2009 $132,035,240 $28,958,160 

J7620 

Albuterol Sulfate/ 

Ipratropium 

Bromide inh. soln., 

2.5 mg/0.5 mg Duoneb July–Sept. 2007 $165,624,799 $32,073,194 

J9206 

Irinotecan inj., 

20 mg Camptosar Mar. 2008 $90,705,689 $44,131,109 

J9245 

Melphalan inj., 

50 mg Alkeran June 2009 $277,347 $9,909 

J9268 

Pentostatin inj., 

10 mg Nipent Aug. 2007 $3,915,369 $273,111 

Q0166 

Granisetron oral, 

1 mg Kytril Jan. 2008 $649,379 $375,497 

Q0179 

Ondansetron oral, 

8 mg Zofran Jan.–Mar. 2007 $4,296,612 $1,859,387 

Q2009 

Fosphenytoin inj., 

50 mg Cerebyx Aug. 2007 $61 $48 

Q01673

Dronabinol oral, 

2.5 mg Marinol July 2008 (n/a) (n/a) 

Q01683

Dronabinol oral, 

5 mg Marinol July 2008 (n/a) (n/a) 

 Total $439,168,842 $110,976,913 

 Source: Office of Inspector General analysis of newly available generic drugs, 2009. 

 1

 For some drugs, we could not determine from the available data the specific month in which generics first became available. For these drugs, we 

 provided the first quarter of generic availability (e.g., January–March 2008). 

 2

 Part B Analytics Reporting (98 percent of claims reported). Accessed on March 25, 2010. 

 3

 Generic manufacturers for these two drugs did not report any average sales prices and were therefore not included in our savings analysis. 

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 APPENDIX~C 

 Table C-1: Medicare Payment Amounts for 16 Newly Available Generic Drugs 

Quarter J0207 

(2Q 2008)1

J0692 

(1Q 2008) 

J1325 

(2Q 2008) 

J1451 

(1Q 2008) 

J1626 

(1Q 2008) 

J3030 

(1Q 2009) 

J7517 

(2Q 2009) 

J7620 

(3Q 2007) 

Q0 

(Brand Only) 

Payment 

Amount $496.281 $8.026 $14.526 $12.924 $5.792 $72.575 $3.190 $1.148

Q1 

(First Generic 

Reaches Market) 

Payment 

Amount $511.217 $5.718 $14.362 $13.731 $4.721 $74.704 $3.436 $1.105

Q2 Payment 

Amount $511.316 $6.749 $14.368 $14.115 $6.046 $84.495 $3.441 $1.079

Q3 Payment 

Amount2 $424.029 $5.711 $14.332 $14.804 $5.341 $82.659 $2.494 $0.805

Q4 Payment 

Amount3 $386.293 $5.721 $14.355 $11.850 $4.329 $56.559 $2.600 $0.830

Q5 Payment 

Amount $373.298 $5.249 $14.218 $11.412 $4.053 $43.545 $1.884 $0.581 

Q6 Payment 

Amount $367.756 $4.589 $14.101 $10.100 $3.292 $46.678

(data 

unavailable) $0.307

Q7 Payment 

Amount $356.806 $4.417 $14.023 $8.753 $2.344

(data 

unavailable)

(data 

unavailable) $0.273

Q8 Payment 

Amount $340.108 $3.781 $14.032 $8.146 $2.004

(data 

unavailable)

(data 

unavailable) $0.243

 1 Quarter and year in parenthesis denote the first quarter in which generics were available. (continued on next page) 

 2

 Q3 refers to the quarter in which the Medicare payment amount begins to reflect sales of the first generic(s). 

 3

 Q4 refers to the quarter in which the Medicare payment amount fully reflects sales of the first generic(s).

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APPENDIX ~ C 

 Table C-1: Medicare Payment Amounts for 16 Newly Available Generic Drugs (Continued)

Quarter J9206 

(1Q 2008)1

J9245 

(2Q 2009) 

J9268 

(3Q 2007) 

Q0166 

(1Q 2008) 

Q0179 

(1Q 2007) 

Q2009 

(3Q 2007) 

Q01672 

(3Q 2008) 

Q01682 

(3Q 2008) 

Q0 

(Brand Only) 

Payment 

Amount $125.800 $1,624.598 $1,934.913 $50.436 $36.064 $5.555 $5.415 $10.835 

Q1 

(First Generic 

Reaches Market) 

Payment 

Amount $126.309 $1,624.598 $1,977.801 $50.224 $36.829 $5.795 $5.387 $11.711 

Q2 Payment 

Amount $126.235 $1,624.598 $2,071.219 $46.955 $36.550 $5.813 $5.876 $11.838 

Q3 Payment 

Amount3 $74.753 $1,654.023 $1,858.684 $17.173 $25.029 $3.595 $5.822 $11.508 

Q4 Payment 

Amount4 $36.997 $1,549.472 $1,828.915 $17.877 $18.543 $0.817 $5.824 $11.676 

Q5 Payment 

Amount $21.715 $1,500.321 $1,741.579 $16.583 $9.169 $1.217 $6.799 $13.515 

Q6 Payment 

Amount $18.296 

(data 

unavailable) $1,622.651 $9.244 $4.604 $0.728 $6.795 $13.567 

Q7 Payment 

Amount $14.955 

(data 

unavailable) $1,601.255 $5.261 $3.160 $0.607 $6.809 $13.604 

Q8 Payment 

Amount $13.433 

(data 

unavailable) $1,447.688 $7.082 $3.938 $0.617 $7.169 $14.165 Source: Centers for Medicare & Medicaid Services’ posted Part B payment limits. 1 Quarter and year in parenthesis denote the first quarter in which generics were available. 

 2

 Not included in our savings analysis. 

 3

 Q3 refers to the quarter in which the Medicare payment amount begins to reflect sales of the first generic(s). 

 4

 Q4 refers to the quarter in which the Medicare payment amount fully reflects sales of the first generic(s).

 

 

 

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 APPENDIX~D 

Table D-1: Estimated Generic Approval Timeline for the Top 26 Dollar-Volume Brand-Only Part B 

Drugs (Biologics Excluded), According to FDA

Drug Name Brand Name FDA-Estimated Generic 

Approval Timeline1

2009 Part B

Expenditures2

2009 Part B 

Rank3

Oxaliplatin Eloxatin Approved in generic form4 $307,305,870 8 

Docetaxel Taxotere After February 10, 2012 $273,059,887 9 

Zoledronic acid Zometa After April 30, 2012 $228,200,463 12 

Pemetrexed Alimta Currently eligible for approval $224,725,011 13 

Gemcitabine hydrochloride Gemzar Approved in generic form $214,841,468 14 

Bortezomib Velcade After August 31, 2011 $157,915,565 19 

Leuprolide acetate Lupron Approved in generic form $148,807,207 20 

Palonosetron hydrochloride Aloxi After April 30, 2012 $141,432,119 22 

Treprostinil sodium Remodulin After April 30, 2012 $112,277,602 26 

Octreotide acetate Sandostatin Lar Depot After April 30, 2012 $107,672,719 28 

Azacitidine Vidaza After May 19, 2011 $101,648,346 29 

Zoledronic acid Reclast After May 18, 2011 $100,768,293 30 

Arformoterol tartrate Brovana After March 30, 2012 $77,081,333 32 

Paclitaxel protein-bound Abraxane After April 30, 2012 $72,033,094 36 

Adenosine Adenoscan 

Currently eligible for approval 

(legal disputes remain) $69,316,718 39 

Triptorelin pamoate Trelstar After April 30, 2012 $67,684,223 40 

Decitabine Dacogen After May 2, 2013 $62,196,704 42 

Doxorubicin hydrochloride liposome Doxil After May 17, 2014 $49,619,144 47 

Iloprost Ventavis Currently eligible for approval $48,970,602 48 

Mycophenolate acid Myfortic After January 17, 2012 $46,469,720 51 

Sirolimus Rapamune After April 30, 2012 $45,449,381 52 

Topotecan hydrochloride Hycamtin Approved in generic form $43,430,255 54 

Fulvestrant Faslodex After March 30, 2012 $40,709,396 57 

Ibandronate sodium Boniva Currently eligible for approval $25,710,811 66 

Imiglucerase Cerezyme After April 30, 2012 $24,355,150 70 

Verteporfin Visudyne After April 30, 2012 $17,308,914 80 

 Total $2,808,989,996 

Source: Food and Drug Administration (FDA) analysis of Part B drugs, 2009. 

1

 Approximate date of April 30, 2012, is used by FDA to estimate how long it would take to approve an abbreviated new drug application if it is 

 submitted before November 10, 2009, with a Paragraph IV Patent Certification. 

2

 Part B Analytics Reporting (98 percent of claims reported). Accessed on March 29, 2010. Figures do not add to total because of rounding. 3

 Rankings include single-source drugs, multiple-source drugs, and biologics. 4

 Generic versions of this drug were initially approved and marketed, but litigation brought by the brand manufacturer against the generic 

 manufacturers resulted in the discontinuation of generic sales. 

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 APPENDIX~E 

 

 Table E-1: Top 22 Dollar-Volume Biologics Under Part B

 Source: Food and Drug Administration analysis of Part B drugs, 2009. 1 Part B Analytics Reporting (98 percent of claims reported). Accessed on March 29, 2010. 2 Rankings include single-source drugs, multiple-source drugs, and biologics. 

 

Drug Name Brand Name 2009 Part B 

Expenditures1 

2009 Part B 

Rank2 

Ranibizumab Lucentis $814,869,580 1 

Rituximab Rituxan $807,136,671 2 

Bevacizumab Avastin $723,336,581 3 

Infliximab Remicade $605,603,464 4 

Pegfilgrastim Neulasta $493,788,366 5 

Darbepoetin alfa Aranesp $426,599,502 6 

Epoetin alfa Epogen/Procrit $332,792,303 7 

Trastuzumab Herceptin $211,603,637 15 

Cetuximab Erbitux $165,132,074 18 

Abatacept Orencia $145,050,591 21 

Antihemophilic factor VIII 

(Recombinant) (All brands) $125,289,250 24 

Botulinum toxin type A Botox $88,997,730 31 

Coagulation factor VIIa Novoseven $74,330,848 33 

Filgrastim Neupogen $69,897,511 38 

Natalizumab Tysabri $54,497,650 46 

Omalizumab Xolair $43,285,268 55 

Immune globulin Vivaglobin $42,709,895 56 

Immune globulin Gammagard Liquid $30,226,662 61 

Panitumumab Vectibix $27,170,683 63 

Coagulation factor IX 

Recombinant Benefix $25,176,467 67 

Antihemophilic factor VIII:C 

Human (All brands) $24,453,801 69 

Immune globulin, powder (All brands) $21,200,286 74 

 Total $5,353,148,820 

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 APPENDIX~F 

 Table F-1: Comparison of FDA’s ANDA Approval Dates and Actual Generic 

 Entry Dates 

HCPCS 

Code Drug Name FDA Generic Approval Date 

Estimated Actual 

Generic Entry Date 

First Generics With Comparable Entry Dates 

J0207 Amifostine, inj. Mar. 14, 2008 May 2008 

J1325 Epoprostenol inj. Apr. 23, 2008 May 2008 

J1451 Fomepizole inj. Dec. 14, 2007 Jan. 2008 

J1626 Granisetron inj. Dec. 31, 2007 Jan. 2008 

J3030 Sumatriptan succinate inj. Feb. 6, 2009 Feb. 2009 

J9206 Irinotecan inj. Feb. 20, 2008 Mar. 2008 

J9245 Melphalan inj. June 9, 2009 June 2009 

J9268 Pentostatin inj. Aug. 7, 2007 Aug. 2007 

Q0166 Granisetron oral Dec. 31, 2007 Jan. 2008 

Q0179 Ondansetron oral Dec. 26, 2006 Jan.–Mar. 2007 

Q2009 Fosphenytoin inj. Aug. 6, 2007 Aug. 2007 

Q01671 Dronabinol oral, 2.5 mg June 27, 2008 July 2008 

Q01681 Dronabinol oral, 5 mg June 27, 2008 July 2008 

First Generics With Conflicting Entry Dates

J0692 Cefepime inj. June 18, 2007 Jan.–Mar. 2008 

J7517 Mycophenolate mofetil oral July 29, 2008 May 2009 

J7620 

Albuterol sulfate/

ipratropium bromide inh. soln. Dec. 21, 2006 July–Sept. 2007 

FDA-Identified First Generics Which Did Not Come to Market2

J92011 Gemcitabine inj. Dec. 18, 2008 

(Generics did not 

come to market) 

J32651 Torsemide inj. June 10, 2008 

(Generics did not 

come to market) 

FDA-Identified First Generics Which Temporarily Came to Market

J76261 Budesonide inh. soln. Nov. 18, 2008 

(Products were launched in 

Nov. 2008 and ceased being 

distributed for sale by the generic 

manufacturer later that month) 

 Source: Food and Drug Administration's (FDA) Abbreviated New Drug Application (ANDA) Generic Drug Approvals and 

 Office of Inspector General analysis. 1 These drugs were not included in our savings analysis.

 2 No generics available as of fourth-quarter 2009. 

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A P PEN 0 x G 


Agency Comments 

/-... 

( DEPARTMENT OF HEALTH & HUMAN SERVICES Cenlers for MedIcare & Medicaid Services 

,~ AdministrAtor 

Washington, DC 20201 

OCT 0 7 2010 DATE: 

TO: 	 Daniel R. Levinson 


Inspector General 


FROM: 	 Donald Berwick, M.D. 


Administrator 


SUBJECT: 	 Office of Inspector General (OIG) Draft Report: Medicare Payments for Newly 

Available Generic Drugs (OEI"03-09-0051 0) 

The Centers for Medicare & Medicaid Services (CMS) appreciates the opportunity to review and 

respond to the OIG Draft Report entitled, "Medicare Payments for Newly Available Generic 

Drugs" (OEI-03-09-0051 0). We appreciate the OIG's continuing efforts to examine payment 

made under the average sales price (ASP) methodology. 

The OIG report presents findings from a comparison ofMedicare payment amounts to market 

prices for certain newly available generic drugs. The report finds differences between the 

Medicare payment limits and the market prices for the generic drugs and attributes these 

differences primarily to the "two-quarter lag" inherent in the Medicare payment limit calculation 

process. The OIG claims that Medicare could have saved $111 million ifMedicare payment 

limits had reflected sales prices during the period of initial generic availability of 16 different 

drugs, and, therefore, urges that the two quarter lag be eliminated. 

However, this estimate is based on the premise that no time lag would exist between the 

introduction and inclusion of generics in the ASP. Such potential savings could not be achieved 

because any calculation of payment that relies on manufacturer reporting would require a lag 

time to allow manufacturers to calculate and submit their pricing data. Moreover, the 01G's 

estimate also assumes that providers would immediately switch from branded to generic products 

without factoring the lag time associated with the introduction of any new product in the market. 

In addition, it is not clear from the report that the $111 million is not an annualized savings 

amount, but instead a sum of potential savings over the course of several years. 

CMS notes that almost 95 percent of the OIG's reported savings are attributed to three drugs and, 

therefore, the 0I0's savings projections may not be accurate. Nearly $105 million of the $111 

million in projected savings is attributed to three products, mycophenolate mofetil (generic 

CeIlCept), albuterol sulfateiipratropium Bromide (generic DuoNeb) and irinotecan (generic 

Camptostar). We do not believe that extrapolating savings projections that are based on such a 

small subset of drugs to all generic drugs correctly represents Part B drug price changes due to 

the introduction ofgeneric drugs. 

OEI·03·09·00510 MEDICARE PAYMENTS FOR NEWLY AVAILABLE GENERIC DRUGS 31 
 

APPENDIX ~ G 

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APPENDIX ~ G 

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APPENDIX ~ G 

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APPENDIX ~ G 

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 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. 

Kevin McAloon served as lead analyst for this study. Central office staff 

who contributed include Natasha Franklin, Kevin Manley, and Scott 

Manley. 
Office of Inspector General 

http://oig.hhs.gov 

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

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

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: 

Office of Audit Services 

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

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

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

out their respective responsibilities and are intended to provide independent assessments of 

HHS programs and operations. These assessments help reduce waste, abuse, and 

mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

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

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

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and effectiveness of departmental programs. To promote impact, OEI 

reports also present practical recommendations for improving program operations. 

Office of Investigations 

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

of fraud and misconduct related to HHS programs, operations, and beneficiaries. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

law enforcement authorities. The investigative efforts of OI often lead to criminal 

convictions, administrative sanctions, and/or civil monetary penalties. 

Office of Counsel to the Inspector General 

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

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities.