Medicare Part B Drug Payments: Impact of Price Substitutions Based on 2021 Average Sales Prices

KEY TAKEAWAYS

Since 2013, Medicare and its enrollees have saved $73.4 million as a result of the Centers for Medicare & Medicaid Services' (CMS's) price-substitution policy for Part B-covered drugs. On the basis of 2021 data, CMS lowered Medicare payment amounts for 13 drugs, resulting in $273 thousand in savings. Medicare and its enrollees could realize an additional $889 thousand in Medicare savings if CMS expanded the price-substitution criteria.

WHY THIS MATTERS

Medicare Part B annually spends billions of dollars to cover a limited number of outpatient prescription drugs. To safeguard Medicare and its enrollees from excessive payment amounts, Congress established a mechanism for monitoring market prices, and CMS implemented a price substitution policy that results in lower costs for important, lifesaving drugs covered by Medicare Part B.

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. Generally, Part B-covered drugs are those that are injected or infused in physicians' offices or outpatient settings. The Social Security Act (the Act) mandates that our office compare ASPs with average manufacturer prices (AMPs). If the Office of Inspector General (OIG) finds that the ASP for a drug exceeds the AMP by 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 stated that it would make this substitution 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 issue brief 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.

WHAT OIG DID

This issue brief quantifies the savings to Medicare and its enrollees that are a direct result of CMS's price-substitution policy based on ASPs from 2021. 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 2021 ASP data, we then multiplied the difference by the Medicare utilization for each of these drugs for the time period when the price substitutions occurred—the fourth quarter of 2021 through the third quarter of 2022. We also determined the potential savings that could result from an expansion of the price-substitution criteria.

WHAT WE FOUND

Since CMS instituted its price-substitution policy in 2013, CMS has implemented price substitutions for 68 drugs based on analysis performed by OIG. These price substitutions have saved Medicare and its enrollees $73.4 million over the past 10 years.

CMS initiated price substitutions for 13 drugs based on 2021 data, lowering the Medicare payment amounts for these drugs and saving Medicare and its enrollees $273 thousand over 1 year.

If CMS had expanded its criteria for AMP-based price substitutions to include drugs that exceeded the 5-percent threshold in a single quarter, Medicare and its enrollees could have saved up to an additional $889 thousand in 2021 for another 19 drugs. These 19 drugs exceeded the 5 percent threshold in at least one quarter, but they were not eligible for price substitutions because they did not meet CMS's requirement that prices exceed the threshold in the two previous consecutive quarters or three of the previous four quarters. Medicare and its enrollees could have saved up to an additional $48 million since 2013 if CMS had expanded its criteria for price substitutions.

WHAT WE CONCLUDE

Since the inception of CMS's price-substitution policy, Medicare and its enrollees have saved $73.4 million. CMS could have achieved even greater savings for Medicare and its enrollees by expanding its criteria for AMP-based price substitutions. Specifically, Medicare and its enrollees could have saved up to an additional $48 million since 2013 if CMS had expanded its criteria for price substitutions. OIG has previously recommended that CMS expand the price-substitution criteria. However, CMS has not concurred with expanding the price-substitution policy and has expressed concern that expanding price-substitution criteria may impede physician and enrollee access to needed prescriptions. OIG agrees that access to prescription drugs should always be considered in contemplating pricing policies, and OIG supports current safeguards to prevent price 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 enrollees do not overpay for drugs. To provide greater flexibility and achieve this continued balance, any future expansion of the payment-substitution policy could contain a provision that would prevent a price substitution when there are indications that the substitution amount would be below provider acquisition costs.