Medicare Part B Drug Payments: Impact of Price Substitutions Based on 2020 Average Sales Prices

WHY WE DID THIS STUDY

Medicare Part B annually spends billions to cover a limited number of outpatient prescription drugs. Generally, Part B-covered drugs are those that are injected or infused in physicians' offices or outpatient settings.

When Congress established average sales prices (ASPs) as the basis for reimbursement for Medicare Part B drugs, it also provided a mechanism for monitoring market prices and limiting potentially excessive payment amounts for these drugs. The Social Security Act mandates that OIG compare ASPs with average manufacturer prices (AMPs). If OIG finds that the ASP for a drug exceeds the AMP by 5 percent, the Social Security Act directs the Secretary of Health and Human Services to substitute the ASP-based payment amount with a lower calculated rate. Through regulation, CMS stated that it would make this reduction only if the ASP for a drug exceeds the AMP by 5 percent in the two previous consecutive quarters or three of the previous four quarters.

This data snapshot is one in a series of annual reports-produced since CMS implemented the price-substitution policy in 2013-that quantifies the savings to Medicare and its beneficiaries that result from CMS's price-substitution policy.

HOW WE DID THIS STUDY

This data snapshot quantifies the actual and lost savings to Medicare and its beneficiaries that resulted from the price-substitution policy based on ASPs from 2020. To determine these savings, we calculated the difference between ASP-based payment and AMP-based payment for each drug with a price substitution. To calculate the savings based on 2020 ASP data, we multiplied this difference by the Medicare utilization for each drug during the time period in which the price reduction occurred-the fourth quarter of 2020 through the third quarter of 2021. We also determined the potential savings that could result from an expansion of the price substitution criteria.

WHAT WE FOUND

Because CMS did not implement all eligible drug price reductions, savings that should have totaled $2.8 million over 1 year amounted to only $8,158. There were 11 drugs eligible for price reductions based on 2020 ASPs. However, CMS did not correctly implement price reductions for seven of these eligible drugs. Consequently, the price reductions made by CMS based on 2020 ASP data amounted to only $8,158 in actual savings-a loss of $2.8 million in savings to Medicare and its beneficiaries. CMS confirmed that it input incorrect second-quarter 2021 payment amounts for these drugs in its pricing files. In March 2022, CMS corrected the second quarter 2021 payment amounts for the seven drugs.

Medicare and its beneficiaries could realize millions in additional savings if CMS expanded its price-substitution criteria. If CMS had expanded its price-substitution criteria to include drugs that exceeded the 5-percent threshold in just a single quarter, Medicare and its beneficiaries could have saved an additional $5.4 million over 1 year for another 14 drugs.

Since 2013, Medicare and its beneficiaries have saved millions as a result of reductions in Part B drug prices. From 2013 through 2020, Medicare and its beneficiaries saved $73.1 million as a result of CMS's price-substitution policy for Part B-covered drugs.

WHAT WE CONCLUDE

Our findings indicate that CMS could have achieved even greater savings for Medicare and its beneficiaries by accurately implementing price reductions and expanding the price-substitution policy. Price reductions play an important role in lowering drug costs. Therefore, CMS's error in not accurately implementing all price reductions demonstrates a gap in oversight that prevented the program and its beneficiaries from realizing millions in savings. We identified an additional $5.4 million in savings that could have been realized if CMS had expanded the price substitution criteria. OIG has previously recommended that CMS expand the price substitution criteria.

OIG is conducting further work to examine CMS's oversight of ASP data and will continue to work with CMS to ensure that CMS maximizes the savings available to Medicare and its beneficiaries.