Comparison of First-Quarter 2012 Average Sales Prices and Average Manufacturer Prices: Impact on Medicare Reimbursement for Third Quarter 2012

WHY WE DID THIS STUDY

By law, OIG must notify the Secretary of Health and Human Services (Secretary) 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 27th 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 2012 specifying the circumstances under which AMP-based price substitutions will occur beginning in 2013.

HOW WE DID THIS STUDY

We identified drug codes that exceeded the 5-percent threshold in the first quarter of 2012 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.

WHAT WE FOUND

In the first quarter of 2012, ASPs for 28 drug codes exceeded AMPs by at least 5 percent. Of these, 22 had complete AMP data. If reimbursement amounts for all 22 codes had been based on 103 percent of the AMPs in the third quarter of 2012, Medicare would have saved an estimated $739,000 in that quarter. Under CMS's price substitution policy, reimbursement amounts for 15 of the 22 drugs would have been reduced, saving an estimated $606,000 in that quarter. The remaining 6 of 28 drug codes also exceeded the 5-percent threshold in the first quarter of 2012; however, these 6 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 two of the six codes because missing AMPs likely had little influence on the pricing comparison results. We could not compare ASPs and AMPs for another 52 drug codes because AMP data were not submitted for any of the drug products that CMS used to calculate reimbursement.

This report does not contain recommendations.