Medicare Part B Drug Payments: Impact of Price Substitutions Based on 2019 Average Sales Prices

WHY WE DID THIS STUDY

When Congress established average sales prices (ASPs) as the basis for Medicare Part B drug reimbursement, it also provided a mechanism for monitoring market prices and limiting potentially excessive payment amounts. Generally, Part B-covered drugs are those that are injected or infused in physicians' offices or hospital outpatient settings. The Social Security Act (the Act) mandates that OIG compare ASPs with average manufacturer prices (AMPs). If OIG finds that the ASP for a drug exceeds the AMP by a certain percentage (currently 5 percent), the Act directs the Secretary of Health and Human Services to substitute the ASP based payment amount with a lower calculated rate. Through regulation, CMS outlined that it would make this substitution only if the ASP for a drug exceeds the AMP by 5 percent in the two previous quarters or three of the previous four quarters.

Over the past decade, OIG has produced annual reports aggregating the results of our mandated quarterly ASP to-AMP comparisons. This latest annual report quantifies the savings to Medicare and its beneficiaries that are a direct result of CMS's price substitution policy based on 2019 average sales prices. This report also provides support for a previous OIG recommendation for achieving additional savings.

HOW WE DID THIS STUDY

To determine the effects of the price substitution policy, we determined the difference between ASP-based payment and AMP-based payment for each drug with a price substitution. We then applied this difference to the Medicare utilization for each of these drugs. To account for a three quarter lag between the reporting of pricing data and applying price substitutions, we used drug utilization data for the fourth quarter of 2019 through the third quarter of 2020 to calculate the savings based on 2019 ASP data.

WHAT WE FOUND

• CMS lowered Part B reimbursement for 18 drugs based on 2019 data.
• CMS's price-substitution policy saved Medicare and its beneficiaries $6.2 million over 1 year.
• Medicare and its beneficiaries could have saved up to an additional $11.2 million over 1 year if CMS implemented a more expansive price substitution policy that allowed substitution for drugs that exceeded the 5 percent threshold in a single quarter.

WHAT WE CONCLUDE

This data snapshot does not contain any recommendations. However, OIG has previously recommended that CMS expand the price-substitution criteria. CMS did not concur with expanding the price-substitution policy and expressed concern that expanding price-substitution criteria may impede physician and beneficiary access to drugs. OIG agrees that access to prescription drugs should always be considered when contemplating pricing policies, and OIG supports current safeguards to prevent substitutions for drugs that the Food and Drug Administration has identified as being in short supply. However, OIG continues to believe that CMS can achieve a better balance between safeguarding access to drugs and ensuring that Medicare and its beneficiaries do not overpay for drugs.