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Drug Spending

Updated: 12-16-2024

For over 25 years, the HHS Office of Inspector General has conducted work to assess drug spending in HHS programs. This work covers three domains: reimbursement, program compliance, and incentive alignment. This page is a compilation of completed reports, unimplemented recommendations, enforcement actions, and industry guidance.

Managed Care Organization (MCO) reimbursement was higher than Fee-For-Service (FFS)

According to data from the Centers for Medicare & Medicaid Services (CMS), U.S. prescription drug expenditures totaled $370 billion in 2019. Spending through Department of Health and Human Services (HHS) programs accounted for 41 percent ($151 billion) of this total. These HHS programs include Medicaid, Medicare Part B (largely for physician-administered drugs), and Medicare Part D (for most outpatient drugs). HHS also administers the 340B Drug Pricing Program (340B program), which enables safety net health care providers to purchase outpatient drugs at discounted prices.

OIG has a long history of successes in improving payment policy for prescription drugs, including a prominent role in highlighting vulnerabilities in the prior reimbursement methodologies in Medicare Part B and Medicaid. OIG's reports and enforcement work helped pave the way for legislative and programmatic changes that better aligned reimbursement amounts with provider acquisition costs, thereby saving the programs and their beneficiaries billions of dollars.

Today, OIG continues its commitment to promoting efficiency in HHS drug programs. OIG's portfolio on drug spending focuses on the following areas: reimbursement, program compliance, and incentive alignment.

Reimbursement

Evolving drug reimbursement and rebate policies have a tremendous financial impact on Federal drug spending. OIG identifies circumstances where Medicare and Medicaid reimbursement rates for prescription drugs do not appropriately reflect provider acquisition costs, resulting in programs and beneficiaries paying too much. OIG work includes reviews of potential savings from various pricing and rebates methodologies and prescribing schemes in HHS programs; examining the effect of "bundling" payments on costs for drugs to treat end-stage renal disease (ESRD); and comparing the impact of different payment methodologies across the Medicare, Medicaid, and 340B programs. OIG plays a role in examining reimbursement rates for Part B drugs by reporting quarterly on Average Sale Prices (ASPs) and Average Manufacturer Prices (AMPs), at the request of Congress.

Program Compliance

Drug manufacturers, State Medicaid agencies, and other entities must comply with statutory and program requirements. OIG has a body of work on program compliance, which include reviews of the effectiveness of Medicaid's rebate-collection efforts and whether all parties are adhering to 340B program requirements.

Incentive Alignment

In certain situations, entities involved with HHS programs may have incentives not aligned with HHS program goals that adversely affect those programs and their beneficiaries out of pocket drug spending. OIG work includes examinations of Medicare Part D plan sponsors' insights into the services and information provided by pharmacy benefit managers (PBMs) and of conflicts of interest on pharmacy and therapeutics (P&T) committees.

Reports and Recommendations

OIG makes recommendations to HHS that promote efficiency and effectiveness in the administration of HHS programs and operations. These recommendations generally stem from OIG's audits and evaluations. For a list of unimplemented recommendations across HHS programs, see the Top Unimplemented Recommendations.

Below is a list of the unimplemented recommendations in the drug spending area that would most positively affect HHS programs in terms of saving money and/or improving quality and should therefore be prioritized for implementation.

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Enforcement

OIG has the authority to seek civil monetary penalties (CMP), assessments, and exclusion against an individual or entity on the basis of a wide variety of prohibited conduct, including that related to the Medicaid Drug Rebate Program. This program requires drug manufacturers to submit pricing information to HHS and to pay a rebate to State Medicaid programs for each unit of the covered drug that State Medicaid programs reimburse. Manufacturers with Medicaid drug rebate agreements are also required to report price information that is used to set average sales price (ASP), the reimbursement metric for most drugs covered by Medicare Part B.

Given the importance of timely and accurate submission of pricing information, OIG may seek a CMP against a drug manufacturer that fails to report in a timely manner the required information or that knowingly submits false information. In September 2010, OIG issued a Special Advisory Bulletin, "Average Manufacturer Price and Average Sales Price Reporting Requirements," that notified drug manufacturers that OIG intended to pursue enforcement actions against manufacturers that failed to submit timely and accurate data necessary for the effective operation of the Medicaid Drug Rebate Program, the 340B program, the Federal Upper Limit Program, and the Medicare Part B outpatient prescription drug benefit. See below for recent cases.

Industry Guidance

The Federal anti-kickback statute (1) makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive any remuneration to induce or reward referrals of items or services reimbursable by a Federal health care program. Where remuneration is paid purposefully to induce or reward referrals of items or services payable by a Federal health care program, the anti-kickback statute is violated. In addition, the civil monetary penalty provision prohibiting inducements to beneficiaries (the CMP) (2) against any person who gives something of value to a beneficiary of Medicare or a State health care program (including Medicaid) that the benefactor knows or should know is likely to influence the beneficiary's selection of a particular provider, practitioner, or supplier of any item or service for which payment may be made, in whole or in part, by Medicare or a State health care program (including Medicaid).

The resources below provide guidance on OIG's interpretation and enforcement of these statutes in the context of drug pricing and reimbursement.

Additional Resources

Footnotes

1 See section 1128B(b) of the Social Security Act.

2 See section 1128A(a)(5) of the Social Security Act.