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Comparison of Fourth-Quarter 2010 Average Sales Prices and Average Manufacturer Prices: Impact on Medicare Reimbursement for Second Quarter 2011

We identified 30 Healthcare Common Procedure Coding System (HCPCS) codes with average sales prices (ASP) that exceeded average manufacturer prices (AMP) by at least 5 percent in the fourth quarter of 2010. Of these 30 HCPCS codes, 15 had complete AMP data (i.e., AMP data for every drug product that CMS used to establish reimbursement amounts). If reimbursement amounts for all 15 codes with complete AMP data had been based on 103 percent of the AMPs during the second quarter of 2011, we estimate that Medicare expenditures would have been reduced by $1.3 million in that quarter alone.

By law, OIG must notify the Secretary of Health & Human Services if the ASP for a particular drug exceeds the drug's AMP by a threshold of 5 percent. If that threshold is met, the Secretary may disregard the ASP for the drug when setting reimbursement and shall substitute the payment amount with the lesser of either the widely available market price or 103 percent of the AMP.

This is OIG's 22nd report comparing ASPs to AMPs. OIG has consistently recommended that CMS develop a price substitution policy and subsequently lower reimbursement for drugs that exceed the 5-percent threshold. Although CMS has yet to make any changes to Part B drug reimbursement as a result of these studies, the agency published a proposed rule in July 2011 that, among other things, specifies the circumstances under which AMP-based price substitutions would occur. CMS plans to implement its price substitution policy beginning in the first quarter of 2012.

If CMS's proposed price substitution policy had been in effect, reimbursement amounts for 5 of the 15 drugs would have been reduced, saving an estimated $554,000. The remaining 15 of 30 HCPCS codes also met the 5-percent threshold in the fourth quarter of 2010 but did not have AMP data for every drug product that CMS used when calculating reimbursement. Although CMS's proposed price substitution policy would not apply to codes with partial AMP data, price reductions for 5 of the 15 HCPCS codes may be legitimately warranted because missing AMPs likely had little influence on the pricing comparison results for these codes. We could not compare ASPs and AMPs for an additional 61 HCPCS codes because AMP data were not submitted for any of the drug products that CMS used to calculate reimbursement. Manufacturers for 17 percent of those drug products had Medicaid drug rebate agreements and were therefore generally required to submit AMPs.