Medicare Part B generally covers both synthetic drugs and biologicals administered under a physician’s direct supervision, including those administered in physician offices and in hospital outpatient departments that are not usually self-administered. These include injectable drugs (such influenza, pneumococcal, and hepatitis B vaccines); drugs inhaled through durable medical equipment (such as certain asthma medications); and oral cancer drugs if the same drug is available in injectable form. As with all drugs, Part B drugs can be either single-source or multi- source. Single-source drugs have only one manufacturer. Multi-source drugs have at least two, and often several, versions produced by different manufacturers. While each of these versions will have its own NDC, Medicare pays a single rate for any NDC associated with a given HCPCS code. Part B drugs administered to Medicare beneficiaries are generally purchased by physicians or hospitals. In 2014, Medicare spent approximately $24 billion on these drugs. The majority of these expenditures—approximately $21 billion, or 87 percent—were for drugs paid based on ASP. The remaining 13 percent of expenditures were for drugs paid based on different methodologies. For example, several Part B drugs, including certain vaccines and drugs provided through DME, are paid for on the basis of average wholesale prices (AWP) or reasonable cost and not on the basis of ASPs. Part B ASP drugs accounted for a somewhat smaller percentage of administrations than expenditures of all Part B drugs in 2014—63 percent—as drugs paid based on AWP or reasonable cost, primarily flu, pneumonia, and hepatitis B vaccines, accounted for 26 percent of all administrations of Part B drugs. (See fig. 1.) Over 9 million Medicare beneficiaries received at least one Part B ASP drug during 2014, which accounted for approximately 43 percent of all beneficiaries who received a Part B drug that year. These 9 million beneficiaries were responsible for 20 percent of Medicare’s payment for these drugs via cost-sharing requirements, or about $4 billion in 2014. According to statute, drug manufacturers that participate in the Medicaid Drug Rebate Program are required to submit data to CMS on sales of Part B drugs to most U.S. purchasers, including physicians, hospitals, and wholesale distributors within 30 days of the end of every calendar quarter. Sales must be reported net of rebates, discounts, and other price concessions. CMS officials have stated that most manufacturers participate in the Medicaid Drug Rebate Program. Other manufacturers may voluntarily submit sales price data to CMS. CMS reviews these data, which are typically reported at the NDC level, and calculates payment rates at the HCPCS level. According to CMS officials, the agency then publicly releases the revised quarterly payment rates so that stakeholders can comment on the new rates before they take effect. These officials noted that due to the time it takes for manufacturers to submit the data to CMS, CMS to review the data and then update the payment rates, and the public to review and comment on the revised rates, there is a two- quarter (6-month) lag between the sale and when the payment rate takes effect. CMS produces a web page titled “Medicare Part B Drug Average Sales Price” that provides guidance for drug manufacturers on submitting ASP data. Manufacturers submit two forms to CMS: the ASP Data Collection Form—an Excel document in which manufacturers insert all relevant sales data—and the ASP Certification Form signed by the manufacturer’s CEO or CFO to affirm the accuracy of the submitted data. Where there is no specific guidance in federal statute or regulations regarding how to calculate ASP, CMS has indicated that it allows manufacturers to make reasonable assumptions in their calculations of ASP and to submit these assumptions with the required data. CMS’s web page also includes a common e-mail address for manufacturers to send ASP-related questions to the agency. The OIG has conducted two studies related to manufacturer reporting and CMS oversight of ASP data. The first report, published in 2010, found that CMS lacks complete ASP data for certain drugs because not all manufacturers of Part B drugs are required to report ASPs. OIG recommended that CMS consider seeking a legislative change to require all manufacturers of Part B drugs to submit ASPs. CMS did not concur with this recommendation, stating that the President’s budget for the upcoming fiscal year did not include any proposals to require manufacturers of Part B drugs to submit ASPs. The second report, published in 2014, further explored this policy and found that at least one- third of the more than 200 manufacturers of Part B drugs included in the study did not submit ASPs for some of their products in the third quarter of 2012, despite being required to do so. An additional 45 manufacturers of Part B drugs were not required to report ASPs that quarter. OIG again recommended that CMS seek a legislative change to directly require all manufacturers of Part B drugs to submit ASPs. CMS again did not concur with this recommendation, stating that the President’s budget for the upcoming fiscal year did not include any proposals to require manufacturers of Part B drugs to submit ASPs. However, the agency said it would take the recommendation into consideration in the future. These reports also recommended that CMS develop or implement an automated system for the submission of ASP data to potentially limit the possibility of data entry errors, reduce the amount of time it takes to calculate ASP- based payment amounts and adjust ASP payment limits, and enable CMS to track ASPs with greater ease. CMS concurred with these recommendations. Medicare expenditures were concentrated in a small number of the 551 Part B drugs that were paid based on ASP in 2014. (See fig. 2.) In particular, 6 drugs each had expenditures of over $1 billion and collectively accounted for 36 percent of all expenditures on Part B ASP drugs that year. (See table 1 and, for a list of characteristics associated with the highest expenditure drugs in 2014, see table 6 in app. I.) Beyond the 6 highest expenditure drugs, an additional 43 drugs each had between $100 million and $1 billion in expenditures and collectively accounted for an additional 48 percent of expenditures on Part B ASP drugs. In contrast, 306 drugs (56 percent of all Part B ASP drugs) each had less than $1 million in expenditures and collectively accounted for less than 1 percent of all expenditures on Part B ASP drugs. (For a list of the 50 Part B ASP drugs with the highest expenditures in 2014, see table 7 in app. I.) Administrations of Part B ASP drugs were also concentrated in a small number of drugs in 2014. (See fig. 3.) In particular, 10 drugs were each administered over 1 million times and collectively accounted for 37 percent of all administrations of Part B ASP drugs that year. (See table 2 and, for a list of characteristics associated with the highest administration drugs in 2014, see table 8 in app. I.) Beyond the 10 drugs with the highest number of administrations, an additional 75 drugs were each administered between 100,000 and 1 million times, and collectively accounted for an additional 51 percent of all administrations of Part B drugs paid based on ASP. In contrast, 187 drugs (34 percent of all Part B ASP drugs) were each administered fewer than 1,000 times and collectively accounted for less than 1 percent of all administrations of Part B ASP drugs. (For a list of the 50 Part B ASP drugs with the highest number of administrations in 2014, see table 9 in app. I.) Few Part B ASP drugs were among both the highest expenditure and the highest administration drugs in 2014. For example, no Part B ASP drug had over $1 billion in expenditures and over 1 million administrations that year. Additionally, of the 102 Part B ASP drugs with either $100 million or more in expenditures or 100,000 or more administrations, only 32 were in both categories. These 32 drugs included all 6 drugs with expenditures over $1 billion, but none of the 10 drugs with over 1 million administrations. The characteristics of drugs associated with the majority of expenditures on Part B ASP drugs tended to differ from the characteristics of drugs associated with the majority of administrations. For example, the majority of Medicare expenditures for Part B ASP drugs in 2014 were for biologics, brand name drugs, drugs made by a single manufacturer, and drugs that came onto the market since 2000. In contrast, the majority of administrations of Part B ASP drugs were for synthetics, generics, drugs made by multiple manufacturers, and drugs that came onto the market prior to 2000. Additionally, the therapeutic categories associated with the largest percentage of expenditures tended to differ from the categories associated with the largest percentage of administrations. However, injections accounted for the majority of both expenditures and administrations (See table 3.) The majority of expenditures were for drugs with average expenditures per beneficiary over $10,000 and for drugs received by fewer than 100,000 beneficiaries. The majority of administrations were for drugs with average expenditures per beneficiary under $100 and for drugs received by over 100,000 beneficiaries. (See table 4.) Expenditures on and administrations of Part B ASP drugs were generally associated with the same provider characteristics in 2014. In particular, the majority of expenditures and administrations occurred in physicians’ offices (rather than hospital outpatient departments or other settings) and in urban areas (rather than suburban or rural areas). Additionally, the highest percentage of both expenditures and administrations generally were for Part B ASP drugs that were prescribed by the same provider specialty: hematology oncology. (See table 5.) CMS takes three main steps to validate that the sales price data reported by drug manufacturers are complete and accurate. First, CMS requires that, before a manufacturer submits a report containing data to CMS, the CEO, CFO, or authorized official of each drug manufacturer attests to the accuracy of the information provided in that report by signing the ASP Certification Form. Second, according to CMS officials, once CMS receives the sales data from the manufacturer, it performs a series of electronic data checks to assess the completeness of the submitted data. CMS’s data checks include checking for missing data or duplicate entries, checking for incorrect product information, and comparing submissions to those of previous quarters. In cases where CMS identifies discrepancies through its data checks, agency officials stated that they attempt to resolve the issue directly with the manufacturer. If CMS is unable to resolve the issue directly with the manufacturer, the agency refers the case to OIG and OIG determines appropriate enforcement, if needed. Third, officials from CMS stated the agency holds a 7 to 10 day public comment period where manufacturers and providers have an opportunity to comment on the payment amounts before they are published. CMS officials believe that the steps the agency takes to validate manufacturer-reported sales price data are sufficient, but CMS does not verify that the reported data reflect actual sales prices. Federal standards for internal control call for management to use quality information to achieve its objectives. According to GAO’s guidance for assessing the reliability of computer-processed data, completeness and accuracy are the two key components of quality data. CMS officials noted that, since 2009, only one drug manufacturer has incurred civil monetary penalties as a result of OIG’s review of manufacturer reporting discrepancies. CMS officials told us that there have been few other issues with drug manufacturers’ ASP submissions over the past couple of years and that any issues that did arise were minor. These officials also noted that during the public comment period, they receive few comments from stakeholders. Additionally, CMS’s electronic data checks described earlier are consistent with recommendations in GAO’s guidance related to verifying the completeness of data. Specifically, examples of GAO’s guidance include testing electronic data for missing or duplicate data, looking for values outside of a desired range, and testing relationships between data elements. However, CMS does not take sufficient steps to verify the accuracy of the data. Officials from CMS told us that they do not routinely verify the underlying data from manufacturers either by tracing the data to and from source documents, such as sales invoices, or through CMS’s referrals to OIG. The Social Security Act authorizes CMS to survey manufacturers that have Medicaid drug rebate agreements when necessary to verify ASP. However, CMS officials told us that this authority does not allow them to conduct blanket surveys to routinely collect information regarding manufacturers’ ASP data beyond what is on the ASP data collection form. CMS officials indicated they may also request that OIG use its authority to audit ASP data submitted by manufacturers. However, CMS has limited such referrals to situations where the agency has identified potential consistent or repeated problems with calculating and reporting ASP data. In situations where CMS requires additional information about the data submission, the agency officials stated that the requests are typically for information that could be considered public. Officials from CMS indicated the agency is developing an automated ASP submission system to use with drug manufacturers; however, the new system will not help to ensure the accuracy of the underlying sales price data. According to OIG, this automated system could limit the possibility of data entry errors, reduce the amount of time it takes to calculate and adjust ASP payments, and enable CMS to track ASPs with greater ease and efficiency. CMS began working on an automated system following a 2010 OIG recommendation. CMS officials told us that the agency is still testing the system and hopes to begin implementation at the end of 2016. Four of the six drug manufacturers we spoke with stated that implementation of an automated submission system would improve the ASP submission process. The two manufacturers that did not believe an automated submission system would improve the ASP submission process already submit their data exclusively via e-mail instead of by mail. CMS officials stated that due to the time it takes for manufacturers to calculate and submit ASP data and for CMS to review the data and update the payment rates, the automated system may not reduce the two-quarter lag between when drugs are sold and CMS receives all data and updates the payment rates. CMS is unable to assess the accuracy of all drug manufacturers’ sales price data because not all drug manufacturers submit these data to CMS. As stated previously, only drug manufacturers with Medicaid drug rebate agreements are required to submit ASP data on a quarterly basis. However, not all manufacturers of Medicare Part B drugs have these agreements; therefore, not all manufacturers are required to submit ASP data to CMS. Further, CMS officials said that the agency lacks the authority to require manufacturers not participating in the Medicaid Drug Rebate Program to submit ASP data. CMS officials also said that most manufacturers of Part B drugs do submit sales price data because they have Medicaid drug rebate agreements or submit the data voluntarily, but not all do. Without complete data from manufacturers that have been assessed for accuracy by CMS, the agency risks setting payment rates based on inaccurate information. This is inconsistent with federal standards for internal control, which call for management to use quality information to achieve objectives. Drugs manufactured by multiple sources are more likely to have inaccurate payment rates than are drugs manufactured by a single source because, according to CMS officials, the payment system provides an incentive for single-source manufacturers to report their data. CMS officials told us that single-source drug manufacturers have an incentive to report ASP data so that health care providers will know Medicare’s payment rate for their drug. These officials stated that providers prefer to use drugs with published Medicare payment rates because they know what they will be paid. If the manufacturer of a single-source drug did not submit sales price data, ASP data for that billing code would be unavailable, and CMS would substitute ASP with another metric that might be less accurate. Other metrics include rates published in national pricing compendia such as Truven Health Analytics’ RED BOOK or First Databank’s National Drug Data File, which publish product information for drugs such as strength, package size, and package quantity. OIG has found that prices published in national pricing compendia do not accurately reflect actual market prices. In contrast, CMS officials told us if a manufacturer did not submit ASP data for a drug that is manufactured by multiple sources, the sales price would still be based on ASP data submitted by the other manufacturers of the drug. This gives multi-source drug manufacturers less incentive to report ASP data, particularly if the inclusion of their data would result in a lower Medicare payment rate for the drug. To assess the potential impact of manufacturers without rebate agreements that do not voluntarily report ASP data, in its 2014 report, OIG looked at 50 high-expenditure multi-source Part B drugs in the third quarter of 2012. These drugs included those with payment rates that used sales price data from both manufacturers that were required to report their data and manufacturers that voluntarily reported their data. If manufacturers had not voluntarily reported their data, 12 of the 50 drug payment rates would have changed. Payment rates would have increased for 5 drugs (between 3 and 40 percent) and decreased for 7 drugs (between 1 and 49 percent). Payment rates for the remaining 38 drugs would have stayed the same. In 2014, Medicare spent approximately $21 billion on Part B drugs paid based on ASP. The substantial expenditures for Part B ASP drugs underscore how important it is that CMS ensure that the data on which the agency bases Medicare’s payment rates for these drugs are accurate. Federal standards for internal control call for management to use quality information to achieve its objectives. According to GAO’s guidance for assessing the reliability of computer-processed data, completeness and accuracy are the two key components of quality data. CMS conducts certain data checks to assess the completeness of the ASP data submitted by drug manufacturers. However, CMS does not verify the accuracy of the underlying data by tracing the data to and from source documents, such as sales invoices. Because CMS does not verify the accuracy of the underlying data used to determine Medicare payment rates, the resulting payment rates may be inaccurate if drug manufacturers do not report accurate data. CMS is unable to assess the accuracy of all sales price data because the agency does not receive data from all drug manufacturers. Currently, only drug manufacturers with Medicaid drug rebate agreements are required to submit ASP data to CMS. Although agency officials told us that most drug manufacturers have rebate agreements or choose to voluntarily submit ASP data, some manufacturers do not. Federal standards for internal control call for management to use quality information to achieve its objectives. Without complete data from all manufacturers that have been assessed for accuracy by CMS, the agency risks setting payment rates based on inaccurate information. To help the Department of Health and Human Services ensure accuracy in Part B drug payment rates, Congress should consider requiring all manufacturers of Part B drugs paid at ASP, not only those with Medicaid drug rebate agreements, to submit sales price data to CMS, and ensure that CMS has authority to request source documentation to periodically validate all such data. CMS should periodically verify the sales price data submitted by a sample of drug manufacturers by requesting source documentation from manufacturers to corroborate the reported data, either directly or by working with OIG as necessary. We provided a draft of this report for review to HHS and received written comments that are summarized below and reprinted in appendix II. In its comments, HHS agreed with our recommendation. HHS stated that CMS will work with OIG as appropriate regarding collecting source documentation from drug manufacturers and that CMS will take action as it is warranted. To fulfill this recommendation, CMS will have to take additional actions relative to what it has done in the past. As we noted in the report, CMS has previously requested that OIG use its authority to audit ASP data submitted by manufacturers when it has identified potential consistent or repeated problems with calculating and reporting ASP data. HHS also noted in its comments that the OIG reviews average manufacturer price (AMP) data for Part B drugs and that CMS has the authority to adjust the ASP-based payment amount in situations where the OIG finds that ASP exceeds AMP by a certain threshold percentage. However, AMP data are also reported by manufacturers and would be inaccurate if the data do not represent actual manufacturer prices. As agreed with your office, unless you publicly announce the contents of this report earlier, we plan no further distribution until 30 days from the report date. At that time, we will send copies of this report to the Secretary of Health and Human Services and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. Appendix I: Characteristics Associated with the Part B Drugs Paid Based on ASP with the Highest Expenditures and Highest Number of Administrations (2014) Methylprednisolone acetate (40mg) Number of beneficiaries (thousands) Methylprednisolone acetate injection (40mg) Albuterol and ipratropium bromide inhalation solution Methylprednisolone acetate injection (80mg) In addition to the contact named above, individuals who made key contributions to this report included Gregory Giusto, Assistant Director; Alison Binkowski; George Bogart; Alexander Cattran; Daniel Lee; Lauren Metayer; Elizabeth T. Morrison; and Aubrey Naffis. Medicare Part B: Expenditures for New Drugs Concentrated among a Few Drugs and Most Were Costly for Beneficiaries. GAO-16-12. Washington, D.C.: October 23, 2015. Medicare: Information on Highest-Expenditure Part B Drugs. GAO-13-739T. Washington, D.C.: June 28, 2013. Medicare: High-Expenditure Part B Drugs. GAO-13-46R. Washington, D.C.: October 12, 2012. Medicare Part B Drugs: CMS Data Source for Setting Payments Is Practical but Concerns Remain. GAO-06-971T. Washington, D.C.: July 13, 2006. Medicare Hospital Pharmaceuticals: Survey Shows Price Variation and Highlights Data Collection Lessons and Outpatient Rate-Setting Challenges for CMS. GAO-06-372. Washington, D.C.: April 28, 2006. Medicare: Comments on CMS Proposed 2006 Rates for Specified Covered Outpatient Drugs and Radiopharmaceuticals Used in Hospitals. GAO-06-17R. Washington, D.C.: October 31, 2005. Medicare: Radiopharmaceutical Purchase Prices for CMS Consideration in Hospital Outpatient Rate-Setting. GAO-05-733R. Washington, D.C.: July 14, 2005. Medicare: Drug Purchase Prices for CMS Consideration in Hospital Outpatient Rate-Setting. GAO-05-581R. Washington, D.C.: June 30, 2005.

Summary: Medicare Part B covers drugs typically administered by a physician. Medicare pays physicians and other providers for these drugs at an amount generally equal to the ASP of the drug plus a fixed percentage. These payment rates are calculated quarterly by CMS based on price and volume data reported by drug manufacturers. Members of Congress and others have questioned the amount that both Medicare and its beneficiaries spend on Part B drugs. GAO was asked to examine Medicare spending for and utilization of Part B drugs and the accuracy of the sales price data reported by drug manufacturers. This report (1) describes Medicare spending and utilization for Part B drugs that are paid based on ASP, including variations in spending and utilization by provider and drug characteristics, and (2) examines the steps CMS takes to ensure the accuracy of the sales price data reported by drug manufacturers. To describe Medicare spending and utilization for Part B ASP drugs, GAO analyzed 2014 Medicare claims data. To examine the accuracy of ASP data, GAO interviewed CMS, the HHS Office of Inspector General, and drug manufacturers and reviewed related documentation. In 2014, the most recent year for which data were available, the Medicare program and its beneficiaries spent about $21 billion on approximately 46 million administrations of 551 Part B drugs paid based on average sales price (ASP). Six drugs—each exceeding $1 billion in expenditures—accounted for 36 percent of all expenditures on Part B ASP drugs, while a different 10 drugs—each administered over 1 million times—accounted for 37 percent of all administrations. Biologics (drugs made from living entities), drugs without generic versions available, and drugs made by a single manufacturer were associated with the vast majority of expenditures on Part B ASP drugs. In contrast, synthetics (drugs produced from chemical ingredients), drugs with generic versions available, and drugs with multiple manufacturers were associated with the vast majority of administrations. Compared with other types of providers, hematology oncologists were associated with the highest percentage of drug expenditures and administrations. Source: GAO analysis of Centers for Medicare & Medicaid Services, Food and Drug Administration, and RED BOOK data. | GAO-16-594 The Centers for Medicare & Medicaid Services (CMS), an agency within the Department of Health and Human Services (HHS), performs several electronic data checks on the sales price data reported by drug manufacturers each quarter, including checking for missing data or incorrect product information. However, CMS does not routinely verify the underlying data, which is inconsistent with federal internal control standards that call for management to use quality information to achieve its objectives. Without additional verification of the ASP data received from manufacturers, it is possible for the data to be inaccurate, which could result in inaccurate Medicare payment rates. In addition, CMS is unable to use or assess the accuracy of all sales price data because, as directed by statute, only manufacturers with Medicaid drug rebate agreements are required to submit sales price data to CMS. Unless all manufacturers without rebate agreements choose to voluntarily submit sales price data, the payment rates for some drugs will be based on incomplete ASP data or will not be set based on ASP. Congress should consider requiring all manufacturers of drugs paid at ASP to submit sales price data to CMS. Further, CMS should periodically verify the data submitted by a sample of drug manufacturers by requesting source documentation. HHS agreed with GAO's recommendation and stated that CMS would take action as warranted.