Reasonable Assumptions in Manufacturer Reporting of AMPs and Best Prices

WHY WE DID THIS STUDY

Ensuring the accuracy of manufacturer-reported average manufacturer prices (AMPs) and best prices (BPs) is vital given that these prices are the primary benchmarks that the Federal Government uses to calculate the rebates and discounts available to Medicaid and certain safety-net providers. In the absence of guidance to the contrary, CMS allows manufacturers to make "reasonable assumptions" that are consistent with statute and regulation when they calculate the AMPs and BPs for Medicaid-covered drugs. Previous OIG work has shown that manufacturers have made different assumptions when including or excluding certain sales in their price calculations, potentially leading to significantly lower or higher AMPs and BPs. AMPs and BPs are used to calculate the amount of rebates that manufacturers must pay to Medicaid. A lower AMP for example, could reduce the rebate amount that a manufacturer must pay, thus increasing net costs for Medicaid. In addition, AMPs and BPs are also used to establish the prices paid by health care entities eligible for the 340B Drug Discount Program. In September 2016, Congress asked OIG to examine CMS's oversight of the Medicaid Drug Rebate Program. This report is the last of three OIG evaluations related to this request.

HOW WE DID THIS STUDY

OIG surveyed a sample of drug manufacturers participating in the Medicaid Drug Rebate Program to identify the primary areas in which they make assumptions when calculating AMP and BP. OIG also asked manufacturers to identify the areas in which they would like greater guidance or instruction from CMS on calculating AMP or BP. We also interviewed and surveyed CMS officials regarding their processes for collecting and reviewing the assumptions that manufacturers make.

WHAT WE FOUND

Our findings show that the use of reasonable assumptions is common practice among responding manufacturers, and that nearly two-thirds reported wanting additional guidance from CMS on assumptions-related issues. In our analysis of manufacturer responses, four areas stood out as warranting attention from CMS: oral specialty drugs; value based purchasing arrangements; bona fide service fees; and rebates to pharmacy benefits managers.

Historically, CMS has provided little formalized oversight of the reasonable assumptions process, specifically instructing manufacturers not to submit their reasonable assumptions to CMS. The agency has stated that it has limited authority to assess manufacturers' assumptions, and that it does so only on a case-by-case basis to support formal oversight inquiries, manufacturer recalculations, and requests for technical assistance. To that end, CMS has recently developed a process for specific manufacturer inquiries regarding calculations of AMP and BP.

WHAT WE CONCLUDE AND RECOMMEND

Manufacturers and OIG recognize that with hundreds of manufacturers, thousands of drugs, and a myriad of complex practices for pricing and sales, CMS is not in a position to review all assumptions on a regular basis. However, given the far-reaching importance of AMPs and BPs, OIG believes that-with the goal of ensuring compliance and consistency in the industry-CMS could take additional steps to improve oversight in the area.

We recommend that CMS (1) issue guidance related to specific areas identified in this report-specifically, value based purchasing agreements; (2) assess the costs and benefits of implementing a targeted process to review certain assumptions; and (3) implement a system to share responses to manufacturer inquiries for technical assistance. CMS concurred with all three recommendations.