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Department of Health and Human Services

Office of Inspector General -- AUDIT

"Determining Average Manufacturers Prices for Prescription Drugs Under the Deficit Reduction Act of 2005," (A-06-06-00063)

May 30, 2006

Complete Text of Report is available in PDF format (2.87 mb). Copies can also be obtained by contacting the Office of Public Affairs at 202-619-1343.


Our objective was to review the requirements for, and manner in which, manufacturers determine (average manufacturer prices) AMPs under section 1927 of Social Security  Act.  Existing requirements for determining certain aspects of AMPs are not clear and comprehensive, and manufacturers’ methods of calculating AMPs are inconsistent.  Our discussions with industry groups confirmed the need to clarify requirements and raised additional issues related to the implementation of DRA provisions.

We recommended that the Secretary direct CMS, in promulgating the AMP regulation, to: (1) clarify requirements in regard to the definition of retail class of trade and the treatment of pharmacy benefit manager rebates and Medicaid sales; and, (2) consider addressing issues raised by industry groups, such as: (a) administrative and service fees, (b) lagged price concessions and returned goods, (c) the frequency of AMP reporting, (d) AMP restatements, and (e) baseline AMP.  We also recommend that the Secretary direct CMS to: (1) issue guidance in the near future that specifically addresses the implementation of the AMP-related reimbursement provisions of the DRA and (2) encourage States to analyze the relationship between AMP and pharmacy acquisition cost before using AMP for their reimbursement methodology.