Regulatory Focus™ > News Articles > OIG Report on Part B Pricing Shows Widespread Violations, Notes Payment Methodology Changes

OIG Report on Part B Pricing Shows Widespread Violations, Notes Payment Methodology Changes

Posted 06 January 2012 | By Alexander Gaffney, RAC 

The Department of Health and Human Services' (DHHS) Office of the Inspector General (OIG) released a report on 3 January that highlights widespread violations in the reimbursement of pharmaceutical products purchased by the Medicare Part B program.

The audit revealed widespread failure to submit complete-or sometimes any-data for approximately 24% of all product codes and 34% of all products.

Medicare Part B is a program that administers medical insurance to US citizens over the age of 65, and helps cover physician services and outpatient care.

The program purchases a much narrower range of products than Medicare Part D, which covers most prescriptions drugs. The Part B program covers only a limited scope of outpatient prescription drugs, and spent $12 billion on outpatient prescription products in 2010.

The price of the products Medicare Part B pays for is determined by first calculating two numbers:

  • the Average Manufacturers Price (AMP), which is the average price paid to the manufacturer for the drug in the US by either wholesalers who distribute the drug to retail community pharmacies or retail community pharmacies that purchase directly from the manufacturer; and
  • the Average Sale Price (ASP), which is defined as a manufacturer's sales of a drug to all purchasers in the US in a calendar quarter divided by the total number of units of the drug sold by the manufacturer in that same quarter. This number excludes products sold to Medicaid via its drug rebate program.

The Medicare Part B program requires that manufacturers submit data on their AMP and ASP every quarter, within 30 days of the end of the quarter. OIG is able to impose civil money penalties on companies that fail to comply with this requirement, and companies may also be kicked out of the program for particularly egregious offenses.

Of the 484 condensed product codes in the Medicare Part B drug program, 117 (24%) had either partial or missing AMP data 30 days after the end of the second quarter of 2011. Broken down into individual products, 858 out of 2521 had missing or incomplete data-a whopping 34%. This implies that certain classes of products were particularly bad at submitting data.

OIG also looked at the extent to which the ASP of products exceeded the AMP.  This is one way of determining the value that Medicare Part B is getting in relation to other programs. 

Starting in January of 2012, the Center for Medicare and Medicaid Services (CMS) will require companies to have an ASP that is no more than 5% above the AMP.  Failure to adhere to this requirement two quarters in a row will trigger a price substitution of 3% above AMP, which would remain in effect for one quarter unless the ASP for that quarter would have been below the substituted amount.

OIG calculated that, had this policy been in effect during 2011, CMS would have saved at least $15.8 million in Q4 2011 alone.  OIG further noted that the actual savings is likely much higher based on the amount of incomplete data that they had available to the agency. Three of these drug categories-tacrolimus, albuterol and ipratropium bromide, and docetaxel-accounted for $5.1 million, $5 million, and $4.9 million of this total, respectively.

The lack of pricing data might also mean that US taxpayers are being bilked out of millions of dollars thanks to excessive pricing on the part of manufacturers.

While OIG stopped short of making any formal recommendations, officials noted that they continued to stand behind the assertions of previous reports, and advocated for their continued involvement in the quarterly auditing of the program, which CMS has recommended be discontinued.

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