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

By law, OIG must notify the Secretary of Health and Human Services if the average sales price (ASP) for a particular drug exceeds the drug's average manufacturer price (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 25th 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 final rule in November 2011 that specifies the circumstances under which AMP-based price substitutions will occur, effective January 2012.

We identified drug codes that exceeded the 5-percent threshold in the second quarter of 2011 based on either complete or partial AMP data and estimated the financial impact of lowering reimbursement amounts for those drugs. We also identified drug codes that were removed from our pricing comparison because they did not have AMP data.

In the second quarter of 2011, ASPs for 40 drug codes exceeded AMPs by at least 5 percent. Of these, 26 had complete AMP data. If reimbursement amounts for all 26 codes had been based on 103 percent of the AMPs in the fourth quarter of 2011, Medicare would have saved an estimated $15.8 million in that quarter. Under CMS's price substitution policy, reimbursement amounts for 7 of the 26 drugs would have been reduced, saving an estimated $696,000 in that quarter. The remaining 14 of 40 drug codes also met the 5-percent threshold in the second quarter of 2011; however, these 14 codes did not have AMP data for every drug product that CMS used when calculating reimbursement. Although CMS's price substitution policy would not apply to codes with partial AMP data, price reductions may be legitimately warranted for half of the 14 codes because missing AMPs likely had little influence on the pricing comparison results. We could not compare ASPs and AMPs for another 49 drug codes because AMP data were not submitted for any of the drug products that CMS used to calculate reimbursement.