Comparison of Third-Quarter 2010 Average Sales Prices and Average Manufacturer Prices: Impact on Medicare Reimbursement for First Quarter 2011

We identified 24 Healthcare Common Procedure Coding System (HCPCS) codes with average sales prices (ASP) that exceeded average manufacturer prices (AMP) by at least 5 percent in the third quarter of 2010. Of these 24 HCPCS codes, 14 had complete AMP data (i.e., AMP data for every drug product that CMS used to establish reimbursement amounts). If reimbursement amounts for all 14 codes with complete AMP data had been based on 103 percent of the AMPs during the first quarter of 2011, we estimate that Medicare expenditures would have been reduced by $10.3 million in that quarter alone.

By law, OIG must notify the Secretary of Health & Human Services (the Secretary) if the ASP for a particular drug exceeds the drug's 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 20th report comparing ASPs to AMPs. Although OIG has consistently recommended that CMS develop a price substitution policy and subsequently lower reimbursement for drugs that meet the 5-percent threshold, no price substitutions have been made to date. In July 2010, CMS published a proposed rule that, among other things, specified the circumstances under which AMP-based price substitutions would occur. However, the agency has opted not to finalize the price substitution policy from the proposed rule.

The remaining 10 of 24 HCPCS codes also met the 5-percent threshold in the third quarter of 2010 but did not have AMP data for every drug product that CMS used when calculating reimbursement. For 2 of the 10 codes, price reductions may be legitimately warranted because missing AMPs likely had little influence on the pricing comparison results for these codes. We could not compare ASPs and AMPs for an additional 48 HCPCS codes because AMP data were not submitted for any of the drug products that CMS used to calculate reimbursement. Manufacturers for 7 percent of those drug products had Medicaid drug rebate agreements and were therefore generally required to submit AMPs. OIG will continue to work with CMS to evaluate and pursue appropriate actions against manufacturers that fail to submit required pricing data.

Dallas L Alford IV, CPA is a licensed Certified Public Accountant in the state of North Carolina and owner of Atlantic Financial Consulting, a consulting firm that provides comprehensive medical billing services, practice management consulting, coding audits, Medicare compliance, Medicare RAC support and other general medical practice consulting services.
To learn more about Atlantic Financial Consulting you may visit their website at http://atlanticfinancial.us or contact Dallas L Alford IV, CPA directly at 1 888-428-2555, Ext. 200.