DEPARTMENT OF HEALTH & HUMAN SERVICES 	 Office of Inspector General 

Washington, D.C. 20201 

OCT 222010 


TO: 	 Donald M. Berwick, M.D. 

Administrator 

Centers for Medicare & Medicaid Services 

FROM: Stuart Wright 

Deputy Inspector General 

for Evaluation and Inspections 

SUBJECT: 	 Memorandum Report: Paymentfor Drugs Under the Hospital Outpatient 

Prospective Payment System, OEI-03-09-00420 

This memorandum report presents the results ofour review comparing Medicare payment 

amounts for 32 selected separately payable drugs covered under the hospital Outpatient 

Prospective Payment System (OPPS) to hospital acquisition costs. Certain stakeholders! have 

expressed concerns about the OPPS payments for separately payable drugs, including that 

(1) Medicare payment amounts may substantially exceed acquisition costs for 340B hospitals, 

and (2) Medicare payment amounts may be lower than acquisition costs for non-340B 

hospitals. 

We found that, in the aggregate, Medicare payments were 31 percent higher than acquisition 

costs among responding 340B hospitals and 1 percent higher than acquisition costs among 

responding non-340B hospitals for the selected separately payable drugs. For the individual 

drugs, the Medicare payment amounts for more than half exceeded non-340B hospital 

acquisition costs. The Medicare payment amounts for the remaining drugs purchased by 

non-340B hospitals were below average acquisition costs, albeit by a small amount (between 

0.6 percent and 11 percent). 

BACKGROUND 

Medicare Part B Coverage of Prescription Drugs 

Although Medicare Part D covers most outpatient prescription drugs, the Centers for 

Medicare and Medicaid Services (eMS) continues to cover a limited number of outpatient 

prescription drugs under its Part B benefit. Part B-covered drugs generally fall into the 

I Examples of stakeholders expressing concern are: the American Hospital Association, the Alliance of 

Dedicated Cancer Centers, the New Jersey Hospital Association, and the Plasma Protein Therapeutics 

Association. 

OEI-03-09-00420 Payment for Drugs Under the OPPS 
Page 2 – Donald M. Berwick, M.D. 

following 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).2

 Medicare beneficiaries can receive 

Part B-covered drugs in several settings, including physician offices and hospital outpatient 

departments. 

OPPS

Prior to 2000, Medicare largely based payments for hospital outpatient services on reasonable 

costs. Congress replaced the reasonable cost-based payment method with a prospective 

payment system in which Medicare pays a predetermined, fixed amount.3, 4

 In 2000, CMS 

implemented OPPS to pay hospitals for Part B outpatient services including, but not limited 

to, certain Part B-covered drugs. 

OPPS Payment for Drugs 

The OPPS payment for drugs is generally divided into two categories: separately payable 

drugs and packaged drugs. 

Separately payable drugs. CMS makes a discrete payment for Part B-covered drugs when 

estimated per-drug, per-day costs are greater than $60 (for 2009).5

 CMS also makes separate 

payments for drugs with pass-through status, regardless of whether they exceed the packaging 

threshold of $60 per day per drug.6, 7

 Prior to 2010, CMS made separate payments for 

several antiemetic drugs (antinausea drugs typically administered to cancer patients) 

regardle 8 ss of cost. 

For the purposes of this review, separately payable drugs generally refer to any drugs that 

Medicare made a separate payment for under the OPPS in 2009; i.e., drugs that have per-day 

costs above the $60 threshold, pass-through drugs, and certain antiemetics. Medicare and its 

beneficiaries paid approximately $3 billion for separately payable drugs provided in hospital 

outpatient departments in 2007.9 

Packaged drugs. With certain exceptions, packaged drugs are inexpensive Part B-covered 

drugs that do not exceed the OPPS packaging threshold ($60 per day per drug in 2009) and 

 

2

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

3

 Section 1833(t) of the Social Security Act (the Act), 42 U.S.C. § 1395l(t); 42 CFR Part 419. 4

 Section 1833(t) of the Act, as added by the Balanced Budget Act of 1997, authorized OPPS. The CMS final 

rule implementing OPPS is at 65 Fed. Reg. 18434 (Apr. 7, 2000). 

5

 See 73 Fed. Reg. 68502, 68642 (Nov. 18, 2008) for CMS’s methodology for setting the packaging threshold. 6

 Section 1833(t)(6) of the Act provides for temporary additional payments or “transitional pass-through 

payments” for certain new drugs. 

7

 Section 1833(t)(6)(A) of the Act and 73 Fed. Reg. 68502, 68632 (Nov. 18, 2008). 

8

 CMS removed this exemption from the packaging threshold in its rulemaking for 2010. 74 Fed. Reg. 60316, 

60487 (Nov. 20, 2009). 

9

 Medicare Payment Advisory Commission. A Data Book: Healthcare Spending and the Medicare Program. 

June 2009. 

OEI-03-09-00420 Payment for Drugs Under the OPPS 
Page 3 – Donald M. Berwick, M.D. 

 

are not antiemetic or pass-through drugs. CMS does not make separate payment for packaged 

drugs; it includes (i.e., packages) payment for these drugs as part of the payment for the 

treatment during which the drug is administered. 

OPPS Payment Methodology 

Since 2006, CMS has based the OPPS payment rate for separately payable drugs on average 

sales price (ASP).10 The ASP is 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 quarter. 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.11 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.

12

For drugs administered in a physician’s office, the Medicare payment amount is set by the Act 

at 106 percent of the ASP.13 Although the OPPS also bases payment for separately payable 

drugs on ASP, the Act does not define a set payment methodology. Rather, CMS annually 

updates the payment methodology (i.e., the percentage added to or subtracted from the ASP) 

for separately payable drugs that are not pass-through drugs through the rulemaking process. 

After examining Medicare claims data to gauge hospital acquisition costs for the drugs and 

overhead costs, CMS set the 2009 Medicare payment amount for non-pass-through separately 

payable drugs at 104 percent of the ASP (see Table 1).14 The payment amount for 

pass-through drugs paid under the OPPS is equal to the payment amount for drugs in the 

physician office setting (i.e., 106 percent of the ASP), according to CMS.15 The Medicare 

payment amount for the OPPS is meant to cover both acquisition costs for the drugs and 

related overhead costs.16 

In previous rulemakings, CMS proposed various approaches for gathering information on 

how overhead costs are allocated and accounted for among particular drugs in hospital 

10 70 Fed. Reg. 68516, 68640 (Nov. 10, 2005); section 1833(t)(14)(A)(iii)(II) of the Act. 

11 Section 1847A(c) of the Act. 

12 See section 1847A(c)(2) of the Act. 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. 

13 Section 1847A(b)(1) of the Act. 

14 The method used to calculate Medicare payment amounts for separately payable drugs under OPPS did not 

change for 2010. See 73 Fed. Reg. 68502, 68651–68659 (Nov. 18, 2008) for an explanation of how CMS 

determined payment rates for 2009. 

15 The payment methodology is updated annually. However, Medicare payment amounts under OPPS are 

updated quarterly based on changes to the manufacturer-reported ASPs. 

16 73 Fed. Reg. 68502, 68656 (Nov. 18, 2008). 

OEI-03-09-00420 Payment for Drugs Under the OPPS 
Page 4 – Donald M. Berwick, M.D. 

outpatient pharmacies.17 Hospitals claimed that all of these approaches would be 

administratively burdensome, and CMS did not implement any of them. Additionally, CMS 

does not specifically define what constitutes overhead costs. 

 

 Table 1: Medicare Payment Amounts for Drugs Under OPPS in 2009 

Drug Type OPPS Payment Amount for 2009 

Separately payable drugs (drugs that 

exceed the $60 threshold and some 

antiemetics in 2009) 

104 percent of ASP 

Separately payable drugs (pass-through 

drugs) 106 percent of ASP 

Packaged drugs Not applicable; payment included in related service 

Source: Office of Inspector General (OIG) analysis of Medicare payment under OPPS and 

73 Fed. Reg. 68502 (Nov. 18, 2008). 

340B Program 

The Medicare payment amounts for drugs under the OPPS are the same for all types of 

hospital outpatient departments. However, hospital acquisition costs vary widely and certain 

hospitals are able to purchase drugs at reduced prices. 

The 340B Drug Pricing Program (340B Program), overseen by the Health Resources and 

Services Administration (HRSA), was created to assist entities that provide services to 

disproportionately low-income, uninsured, and underinsured populations and allow them to 

purchase drugs at reduced prices. Under the 340B Program, pharmaceutical manufacturers 

agree to charge at or below statutorily defined prices, known as the 340B ceiling prices, for 

certain sales to certain covered entities.18 Therefore, eligible entities that participate in the 

340B Program should have lower acquisition costs for many drugs. Eligible 340B entities 

include disproportionate share hospitals, Ryan White grantees, State-operated AIDS drug 

assistance programs, and black lung clinics, among others. As of March 2010, approximately 

14,500 entities were enrolled in the 340B Program.19, 20 

 

17 See 74 Fed. Reg. 60316, 60499–60501 (Nov. 20, 2009) for a discussion of CMS’s proposals for accurately 

paying overhead costs. 

18 The Veterans Health Care Act of 1992, P.L. No. 102-585, § 602, which is codified as section 340B of the 

Public Health Service (PHS) Act, established the 340B Program. See 42 U.S.C. § 256b. 

19 HRSA, Covered Entity Database. Accessed at http://www.hrsa.gov on April 29, 2010. 20 Because the 340B Program requires each location to be registered individually in HRSA’s Covered Entity 

database, and a 340B entity may have several satellite sites, the database includes multiple entity listings 

associated with the same organization. 

OEI-03-09-00420 Payment for Drugs Under the OPPS 
Page 5 – Donald M. Berwick, M.D. 

Drugs purchased under the 340B Program by disproportionate share hospitals (hereinafter 

referred to as 340B hospitals) are paid for under the OPPS when administered to Medicare 

beneficiaries in an outpatient setting.21 A 340B hospital is defined as: 

 being owned or operated by a unit of State or local government, a public or private 

nonprofit corporation which is formally granted governmental powers by a unit of State or 

local government, or a private nonprofit hospital which has a contract with a State or local 

government to provide services to low-income individuals; 

 having a disproportionate share adjustment percentage22 greater than 11.75 percent or 

being described in section 1886(d)(5)(F)(i)(II) of the Act; and 

 not obtaining covered outpatient drugs through a group purchasing arrangement.23 

Sales to covered entities through the 340B Program are not included in the calculation of the 

ASP.24 If 340B sales were included, the ASPs would be lower because of 340B entities’ 

eligibility for substantially lower drug prices. Medicare claims data from 340B hospitals are 

included when CMS determines the Medicare payment amount for separately payable 

non-pass-through drugs under the OPPS each year. 

METHODOLOGY 

Scope 

We compared first-quarter 2009 Medicare payment amounts to first-quarter 2009 hospital 

acquisition costs for 33 separately payable drugs from 2 separate random samples of hospitals 

in the United States that participate in Medicare: 1 sample of 99 340B hospitals and another 

sample of 110 non-340B hospitals. This study includes only separately payable drugs; i.e., 

we excluded packaged drugs from our analysis because CMS does not calculate a separate 

Medicare payment amount. See Appendix A for a list of the drugs under review. 

Data Sources and Collection 

Drugs and Medicare payment amounts. Separately payable drugs are identified and billed 

using Healthcare Common Procedure Coding System (HCPCS) codes. Each HCPCS code 

defines the drug name and the dosage amount represented by the HCPCS code but does not 

specify manufacturer or package size information. We obtained a list of the top 30 separately 

 

21 Section 7101 of the Affordable Care Act extended participation in the 340B program to certain children’s 

hospitals, cancer hospitals, critical access and sole community hospitals, and rural referral centers. However, 

these changes took effect after the time period covered by this review. 22 See section 1886(d)(5)(F) of the Act for the definition and calculation of the disproportionate share adjustment 

percentage. 

23 HRSA, Introduction to 340B Drug Pricing Program. Accessed at http://www.hrsa.gov on March 16, 2010. 

42 U.S.C. § 256b(a)(4)(L). 

24 Sections 1847A(c)(2)(A) and 1927(c)(1)(C)(i)(I) of the Act. 

OEI-03-09-00420 Payment for Drugs Under the OPPS 
Page 6 – Donald M. Berwick, M.D. 

payable HCPCS codes by Medicare expenditures in 2008 from CMS. We included 

3 additional HCPCS codes at CMS’s request for a total of 33 drugs.25 We obtained 

first-quarter 2009 Medicare payment amounts under the OPPS for the selected drugs from 

CMS’s Web site. 

Hospital acquisition costs. We selected two random samples: one for 340B hospitals and one 

for non-340B hospitals. We obtained a list of 340B hospitals from HRSA’s Covered Entity 

database in July 2009. This database contains the name and contact information for all 340B 

hospitals. From this list we selected a random sample of 100 340B hospitals.26 We removed 

1 of the selected hospitals because of an ongoing OIG investigation for a sample size of 99. 

To select the sample of non-340B hospitals, we obtained the Online Survey, Certification, and 

Reporting database. This database contains the names and contact information of hospitals 

participating in Medicare nationwide. We first removed 340B hospitals (as identified in the 

HRSA database) from this list and selected a random sample of 110 non-340B hospitals from 

the remaining facilities.27 

In September 2009, we sent written surveys to the hospitals in our two samples. For each of 

the 33 drugs under review, we asked the hospitals to provide their first-quarter 2009 

acquisition costs, any discounts or rebates for these purchases, the number of units purchased, 

and whether the purchases were made through the 340B Program. In addition, we asked 

hospitals to indicate whether the drugs were for outpatient use. We sent up to two written 

followup surveys to nonresponding hospitals in our samples between October and 

November 2009. Additionally, we conducted multiple followup phone calls with 

nonresponding hospitals to elicit a higher response rate. See Appendix B for a detailed 

methodology. 

Between October and December 2009, 94 340B and 110 non-340B hospitals responded to our 

survey and 90 340B and 77 non-340B hospitals provided some acquisition cost data. Not all 

hospitals in the sample purchased all of the drugs under review. Therefore, the number of 

hospitals with acquisition cost data for each drug varied widely. For example, less than 

10 hospitals in each sample reported any purchases for 6 of the drugs. See Appendix C for 

the number of hospitals providing data per drug. 

We also asked hospitals to provide data on their pharmacy overhead costs. Per CMS’s 

recommendation, we did not include a specific definition of overhead costs in our survey. 

Based on public comment, CMS believed that if OIG were to provide examples of overhead 

costs in its survey, responding hospitals might interpret the examples as legal definitions of 

overhead costs. Given that CMS itself has not explicitly defined these costs for individual 

 

25 Two of the thirty-three drugs had pass-through status in the first quarter of 2009. See Appendix A. 

26 As of July 2009, there were 2,541 340B hospitals listed in HRSA’s Covered Entity Database. We identified 

and linked related entities into units we refer to as “purchasing agents” because we wanted our sampling units to 

be entities that purchase drugs either for themselves or on behalf of affiliated entities. This sample was drawn 

from a universe of 851 hospital purchasing agents. 

27 This sample was drawn from a universe of 5,305 hospitals. 

OEI-03-09-00420 Payment for Drugs Under the OPPS 
Page 7 – Donald M. Berwick, M.D. 

 

drugs, we did not want to establish a definition that could be the source of future conflict 

between the agency and hospitals. Therefore, hospitals had minimal guidance in providing 

these data. Absent a consistent definition of overhead costs, we were not able to determine 

how these self-reported figures relate to any additional costs that are meant to be reimbursed 

under the payment amount for each individual drug. 

Data Analysis 

From the list of hospitals that provided acquisition cost data, we removed 1 340B hospital and 

29 non-340B hospitals that did not participate in the OPPS.28 Our subsequent analysis was 

based on these data reported by the remaining 89 340B hospitals and 48 non-340B hospitals. 

We excluded 1 drug (Q4101) from our analysis because of low reported utilization 

(one 340B and one non-340B hospitals reported purchasing Q4101), resulting in a total of 

32 separately payable drugs under review. 

For both hospital types (i.e., 340B and non-340B), we aggregated the hospitals’ acquisition 

costs data by the appropriate HCPCS code. We then calculated volume-weighted average 

acquisition costs (hereinafter referred to as average acquisition costs) by totaling the 

acquisition costs, net of any discounts and rebates, for each drug and dividing them by the 

total units purchased among all facilities for each drug. We determined the percentage 

difference between CMS’s first-quarter 2009 ASP-based Medicare payment amount for each 

drug and the average acquisition costs for both hospital types. To determine the aggregate 

difference between CMS’s first-quarter 2009 ASP-based Medicare payment amounts and total 

acquisition costs among all 32 drugs for both 340B and non-340B hospitals, we: 

 determined the total acquisition costs for the 32 drugs among each hospital type by 

summing the data reported by all respondents; 

 multiplied the total units purchased for each drug, as reported by hospitals, by the drug’s 

Medicare payment amount to calculate the total amount that hospitals would have paid for 

all selected drugs if their acquisition costs equaled Medicare payment amounts; and 

 calculated the percentage difference between the total amount that would have been paid 

had the acquisition cost equaled Medicare payment amounts and the total amount paid for 

the 32 drugs, as reported by 340B and non-340B hospitals. 

Limitations 

The analysis and results in this report are based only on self-reported data received from 

responding hospitals in our sample. We were unable to make projections to the universe of 

hospitals because of the limited number of hospitals that purchased certain drugs as well as 

the large number of hospitals removed from our analysis. 

28 Examples of non-340B hospitals that are not paid under OPPS include critical access hospitals and hospitals in 

Maryland. 42 CFR § 419.20(b). 

OEI-03-09-00420 Payment for Drugs Under the OPPS 
Page 8 – Donald M. Berwick, M.D. 

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. 

RESULTS 

Medicare Payments to Responding 340B Hospitals for Separately Payable Drugs Were 

31 Percent Higher Than Their Aggregate Acquisition Costs 

In the first quarter of 2009, the aggregate Medicare payment amount was 31 percent higher 

than drug acquisition costs for 340B hospitals providing data. Despite stakeholder concerns, 

this is an expected result given the purpose of the 340B Program. In fact, for the 32 drugs 

under review, the Medicare payment amount exceeded acquisition costs for 89 percent of the 

drug purchases (by dollars) made by responding 340B hospitals. Medicare payment amounts 

for 28 drugs were between 1 percent and 222 percent higher than average acquisition costs. 

For the remaining four drugs, Medicare payment amounts were between 0.5 percent and 

8 percent below acquisition costs. Chart 1 illustrates the range of differences between average 

acquisition costs and Medicare payment amounts for 340B hospitals. See Table D-1 in 

Appendix D for a comparison of Medicare payment amounts to average acquisition costs 

among 340B hospitals for each of the 32 drugs. 

Chart 1. Comparison of Medicare Payment Amounts to Average Acquisition Costs 

for 340B Hospitals 

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

150%

160%

170%

180%

190%

200%

210%

220%

230%

240%

J1566

J1572

J1568

J1459

J1561

J1569

J9055

J1745

J9035

J2778

J2357

J1785

J9263

J3487

J3488

J9264

J9305

J2505

J0885

J0881

J9355

J9170

J9041

J9310

J9217

J9001

J2323

J0152

J0256

J2353

J9201

J9206

Percentage Difference

Average Acquisition Cost 

Medicare payment amounts for 28 of 32 drugs were greater 

than average acquisition costs 

Source: OIG analysis of 340B hospital acquisition cost data and first-quarter 2009 Medicare payment amounts. 2010. 

OEI-03-09-00420 Payment for Drugs Under the OPPS 
Page 9 – Donald M. Berwick, M.D. 

 

A substantial majority of the drugs under review29 have Medicare payment amounts that are 

higher than average acquisition costs because the 340B Program enables eligible entities 

(e.g., 340B hospitals) to purchase drugs at reduced prices based on the fact that the 

populations served by these entities are disproportionately low-income, uninsured, and 

underinsured. Furthermore, the lower sales prices to 340B entities are not included when 

manufacturers calculate ASPs (i.e., the basis of hospital payment for separately payable drugs 

is not reduced by the inclusion of 340B prices). 

Medicare Payments to Responding Non-340B Hospitals for Separately Payable Drugs 

Were 1 Percent Higher Than Their Aggregate Acquisition Costs 

In the first quarter of 2009, the aggregate Medicare payment amount was 1 percent higher 

than drug acquisition costs for non-340B hospitals providing data. For the 32 drugs under 

review, the Medicare payment amount exceeded acquisition costs for slightly more than half 

of the drug purchases (by dollars) by responding non-340B hospitals (54 percent). 

The Medicare payment amount for more than half of the selected drugs (18 of 32) exceeded 

hospitals’ acquisition costs by between 0.3 percent and 130 percent. The Medicare payment 

amounts for the remaining drugs (14 of 32) were below average acquisition costs, albeit by a 

small amount (between 0.6 percent and 11 percent). For non-340B hospitals, the difference 

between Medicare payment amounts and average acquisition costs was less than 5 percent for 

22 of the 32 drugs under review. The lack of substantial differences is an expected result 

given that these hospitals do not have access to the reduced prices of the 340B program. 

Chart 2 illustrates the range of differences between average acquisition costs and Medicare 

payment amounts for non-340B hospitals. See Table D-2 in Appendix D for a comparison of 

Medicare payment amounts to average acquisition costs for non-340B hospitals for each of 

the 32 drugs. 

29 The four drugs with Medicare payment amounts below average acquisition costs are intravenous immune 

globulin products. According to hospital responses, a substantial majority of the purchases for these drugs were 

not made through the 340B Program. 

OEI-03-09-00420 Payment for Drugs Under the OPPS 
Page 10 – Donald M. Berwick, M.D. 

Chart 2. Comparison of Medicare Payment Amounts to Average Acquisition Costs 

for Non-340B Hospitals 

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

130%

140%

J2505

J1569

J1785

J9170

J1566

J1745

J1568

J1572

J2357

J2323

J1459

J0152

J1561

J9041

J0256

J9263

J9305

J9201

J9264

J9001

J9055

J3487

J2778

J9355

J9310

J2353

J9035

J3488

J0885

J9217

J0881

J9206

Percentage Difference

Average Acquisition Cost 

Medicare payment amounts for 22 of 32 drugs were within 

5 percent of average acquisition costs 

Source: OIG analysis of non-340B hospital acquisition cost data and first-quarter 2009 Medicare payment amounts, 2010. 

CONCLUSION 

In this report, we compared Medicare payment amounts under the OPPS to hospital 

acquisition costs. We found that, in the aggregate, Medicare payment amounts were 

(1) substantially higher than acquisition costs for 340B hospitals and (2) similar to acquisition 

costs for non-340B hospitals. This is an expected result given the purpose of the 340B 

Program. 

The Medicare payment amount for separately payable drugs under the OPPS is based on 

manufacturer-reported ASPs. Because ASPs do not reflect 340B prices (which are generally 

lower than other sales prices), a substantial majority of the drugs purchased by 340B hospitals 

have Medicare payment amounts that are higher than average acquisition costs. Similarly, 

because non-340B hospitals do not have access to reduced prices, the ASP-based Medicare 

payment amounts are closer to their acquisition costs. Although for some individual drugs the 

Medicare payment amount was slightly below average acquisition costs at non-340B 

hospitals, the fact that overall payment levels exceeded costs leads us to conclude that 

stakeholder concerns about underpayment were unfounded. 

This report is being issued directly in final form because it contains no recommendations. If 

you have comments or questions about this report, please provide them within 60 days. 

Please refer to report number OEI-03-09-00420 in all correspondence. 

OEI-03-09-00420 Payment for Drugs Under the OPPS 
Page 11 – Donald M. Berwick, M.D. 

APPENDIX A 

Table A-1. Drugs Under Review 

HCPCS Code1 Short Description HCPCS Code Dosage 

J0152 Adenosine injection 30 mg2

J0256 Alpha 1 proteinase inhibitor 10 mg 

J0881 Darbepoetin alfa, non-ESRD3 1 mcg2

J0885 Epoetin alfa, non-ESRD 1000 units 

J14594, 5 Privigen injection 500 mg 

J1561 Gamunex injection 500 mg 

J1566 Immune globulin, powder 500 mg 

J15684 Octagam injection 500 mg 

J1569 Gammagard liquid injection 500 mg 

J1572 Flebogamma injection 500 mg 

J1745 Infliximab injection 10 mg 

J1785 Injection Imiglucerase /unit 1 unit 

J2323 Natalizumab injection 1 mg 

J2353 Octreotide injection, depot 1 mg 

J2357 Omalizumab injection 5 mg 

J2505 Injection, pegfilgrastim 6 mg 

J2778 Ranibizumab injection 0.1 mg 

J3487 Zoledronic acid 1 mg 

J34885 Reclast injection 1 mg 

J9001 

Doxorubicin HCl liposome 

injection 10 mg 

J9035 Bevacizumab injection 10 mg 

J9041 Bortezomib injection 0.1 mg 

J9055 Cetuximab injection 10 mg 

J9170 Docetaxel 20 mg 

J9201 Gemcitabine HCl 200 mg 

J9206 Irinotecan injection 20 mg 

J9217 Leuprolide Acetate suspension 7.5 mg 

J9263 Oxaliplatin 0.5 mg 

J9264 Paclitaxel protein bound 1 mg 

J9305 Pemetrexed injection 10 mg 

J9310 Rituximab injection 100 mg 

J9355 Trastuzumab 10 mg 

Q41014, 6 Apligraf skin sub 1 sq cm2

Source: Centers for Medicare & Medicaid Services (CMS) first-quarter 2009 Addendum B pricing file. 

1

 Healthcare Common Procedure Coding System. 

2

 mg=milligram; mcg=microgram; cm=centimeter. 

3

 ESRD is end stage renal disease. 

4

 Denotes HCPCS codes included in the review at CMS’s request. 

5

 Denotes HCPCS codes for pass-through drugs. 

6 This code was excluded from our analysis because of the low response rate. 

OEI-03-09-00420 Payment for Drugs Under the OPPS 
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APPENDIX B – Detailed Methodology 

340B Sample Selection 

We obtained a complete list of 340B hospitals from the Health Resources and Services 

Administration’s (HRSA) Covered Entity database. Because the 340B Program requires each 

location to be registered individually in HRSA’s Covered Entity database, and a 340B entity 

may have several satellite sites, the database includes multiple entity listings associated with 

the same organization. We identified and linked related entities into units we refer to as 

“purchasing agents” because we wanted our sampling units to be entities that purchase drugs 

either for themselves or on behalf of affiliated entities. 

We used the HRSA-assigned unique 340B identification number to group affiliated entities by 

purchasing agent. This identification number consists of three segments: first, a letter prefix 

that indicates the entity type; second, numbers assigned at HRSA’s discretion; and third, if a 

site is related to another site, a terminal letter suffix. An example of the unique identification 

number would be DSH1234A. Using this number, we grouped entities together if their 

HRSA identification numbers differed only by letter suffix and counted each grouping as one 

purchasing agent. For example, to link DSH1234A to other entities, we would have grouped 

it with DSH1234B and DSH1234C. Each group of entities was counted as one purchasing 

agent. Entities with no listed affiliates were each counted as one purchasing agent. We 

selected a random sample of 100 340B purchasing agents.30, 31 For the purposes of this 

report, we refer to the purchasing agent and related satellite sites as a single 340B hospital. 

We removed 1 340B purchasing agent because of an ongoing OIG investigation for a sample 

size of 99. 

Data Collection and Analysis 

Prior to calculating and aggregating average acquisition cost figures for each of the sampled 

drugs, we examined the national drug codes (NDC), which are 11-digit drug identifiers, 

reported by the hospitals for each Healthcare Common Procedure Coding System (HCPCS) 

code to determine whether they were valid and associated with the correct code. We used the 

Centers for Medicare & Medicaid Services’ HCPCS crosswalk file (a file that links NDCs to 

their associated HCPCS codes) to make this determination. We excluded all NDCs (and the 

associated cost data) that were not associated with a HCPCS code under review. In 

calculating the average acquisition cost, we identified any outliers among the costs reported 

by hospitals and removed them from our analysis. We defined an outlier as an average 

acquisition cost reported by a facility that fell more than three standard deviations from the 

mean. 

30 As of July 2009, there were 2,541 340B hospitals listed in HRSA’s Covered Entity Database. There are a total 

of 851 purchasing agents. 

31 This sampling method for the selection of purchasing agents for 340B entities has been used previously by the 

Office of Inspector General (OIG). See Review of 340B Prices, OEI-05-02-00073, July 2006. 

OEI-03-09-00420 Payment for Drugs Under the OPPS 
Page 13 – Donald M. Berwick, M.D. 

APPENDIX C 

Table C-1. Number of Hospitals Providing Data per Drug 

HCPCS Code1 340B Hospitals Non-340B Hospitals 

J0152 37 22 

J0256 7 6 

J0881 44 20 

J0885 69 35 

J1459 8 3 

J1561 14 8 

J1566 18 10 

J1568 6 2 

J1569 25 8 

J1572 12 9 

J1745 64 28 

J1785 8 3 

J2323 25 8 

J2353 33 14 

J2357 26 6 

J2505 60 25 

J2778 3 2 

J3487 54 22 

J3488 44 24 

J9001 36 11 

J9035 54 18 

J9041 39 13 

J9055 48 12 

J9170 59 14 

J9201 56 17 

J9206 50 14 

J9217 41 11 

J9263 55 19 

J9264 28 4 

J9305 42 11 

J9310 62 22 

J9355 51 17 

Q41012 1 1 

Source: Office of Inspector General analysis of hospital responses. 

1 Healthcare Common Procedure Coding System.

2

 Denotes the HCPCS code excluded from the analysis. 

Note: Outliers and other invalid data were excluded from these figures. 

OEI-03-09-00420 Payment for Drugs Under the OPPS 
Page 14 – Donald M. Berwick, M.D. 

APPENDIX D 

Table D-1. Comparison of Medicare Payment Amounts to Average Acquisition 

Costs for 340B Hospitals 

HCPCS Code* Medicare Payment 

Amount 

Average Acquisition 

Cost Point Estimate 

Percentage Difference 

Between Medicare 

Payment Amount and 

Acquisition Cost 

J1566 $28.87 $31.21 -7.50% 

J1572 $34.92 $36.34 -3.92% 

J1568 $36.18 $36.52 -0.93% 

J1459** $34.16 $34.33 -0.49% 

J1561 $34.86 $34.42 1.28% 

J1569 $34.71 $32.75 5.97% 

J9055 $48.80 $41.04 18.91% 

J1745 $55.85 $46.95 18.95% 

J9035 $56.30 $47.10 19.53% 

J2778 $398.92 $330.09 20.85% 

J2357 $17.88 $14.62 22.29% 

J1785 $4.02 $3.25 23.57% 

J9263 $9.39 $7.59 23.75% 

J3487 $211.15 $170.62 23.75% 

J3488** $218.51 $175.01 24.86% 

J9264 $8.90 $7.12 24.98% 

J9305 $47.31 $36.97 27.95% 

J2505 $2,135.09 $1,633.68 30.69% 

J0885 $9.03 $6.86 31.54% 

J0881 $3.00 $2.23 34.78% 

J9355 $60.48 $43.79 38.12% 

J9170 $330.59 $230.16 43.63% 

J9041 $35.59 $24.63 44.52% 

J9310 $525.21 $362.08 45.06% 

J9217 $206.11 $136.96 50.49% 

J9001 $432.93 $274.37 57.79% 

J2323 $7.76 $4.90 58.32% 

J0152 $69.09 $41.93 64.77% 

J0256 $3.64 $2.06 76.41% 

J2353 $103.83 $56.72 83.06% 

J9201 $135.58 $53.06 155.52% 

J9206 $21.31 $6.62 221.76% 

Source: Office of Inspector General (OIG) analysis of first-quarter 2009 Medicare payment amounts and 340B acquisition cost data. 

* Healthcare Common Procedure Coding System. 

** Denotes HCPCS codes for pass-through drugs. 

OEI-03-09-00420 Payment for Drugs Under the OPPS 
Page 15 – Donald M. Berwick, M.D. 

OEI-03-09-00420 Payment for Drugs Under the OPPS 

Table D-2. Comparison of Medicare Payment Amounts to Average Acquisition 

Costs for Non-340B Hospitals 

HCPCS Code Medicare Payment 

Amount 

Average Acquisition 

Cost Point Estimate 

Percentage Difference 

Between Medicare 

Payment Amount and 

Acquisition Cost 

J2505 $2,135.09 $2,389.83 -10.66% 

J1569 $34.71 $38.26 -9.28% 

J1785 $4.02 $4.42 -9.13% 

J9170 $330.59 $355.19 -6.92% 

J1566 $28.87 $30.34 -4.86% 

J1745 $55.85 $58.68 -4.82% 

J1568 $36.18 $37.42 -3.32% 

J1572 $34.92 $36.04 -3.10% 

J2357 $17.88 $18.34 -2.52% 

J2323 $7.76 $7.88 -1.55% 

J1459* $34.16 $34.67 -1.48% 

J0152 $69.09 $70.00 -1.31% 

J1561 $34.86 $35.20 -0.96% 

J9041 $35.59 $35.79 -0.55% 

J0256 $3.64 $3.63 0.25% 

J9263 $9.39 $9.32 0.77% 

J9305 $47.31 $46.78 1.14% 

J9201 $135.58 $133.67 1.43% 

J9264 $8.90 $8.76 1.56% 

J9001 $432.93 $425.90 1.65% 

J9055 $48.80 $47.96 1.75% 

J3487 $211.15 $207.43 1.79% 

J2778 $398.92 $390.00 2.29% 

J9355 $60.48 $59.03 2.45% 

J9310 $525.21 $510.47 2.89% 

J2353 $103.83 $99.37 4.49% 

J9035 $56.30 $53.39 5.45% 

J3488* $218.51 $206.27 5.93% 

J0885 $9.03 $7.69 17.48% 

J9217 $206.11 $160.27 28.60% 

J0881 $3.00 $2.13 41.17% 

J9206 $21.31 $9.27 129.80% 

Source: OIG analysis of first-quarter 2009 Medicare payment amounts and non-340B acquisition cost data. 

* Denotes HCPCS codes for pass-through drugs.