U.S. Department of Health and Human Services Office of Inspector General Data Snapshot August 2020, OEI-03-20-00130 Medicare Part B Drug Payments: Impact of Price Substitutions Based on 2018 Average Sales Prices What OIG Did When Congress established average sales prices (ASPs) as the basis for reimbursement for Key Takeaway 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 Medicare and its that are injected or infused in physicians' offices or hospital outpatient settings. The Social beneficiaries saved Security Act (the Act) mandates that the Office of Inspector General (OIG) compare ASPs with average manufacturer prices (AMPs). If OIG finds that the ASP for a drug exceeds the $4.4 million over AMP by a certain percentage (currently 5 percent), the Act directs the Secretary of Health 1 year based and Human Services to substitute the ASP-based payment amount with a lower calculated on CMS’s rate. Through regulation, the Centers for Medicare & Medicaid Services (CMS) stated that it price-substitution would make this substitution only if the ASP for a drug exceeds the AMP by 5 percent in the policy that limits two previous consecutive quarters or three of the previous four quarters. excessive payments This data snapshot quantifies the savings to Medicare and its beneficiaries that are a direct for drugs in Medicare result of CMS’s price-substitution policy based on ASPs from 2018. To determine these Part B. savings, we calculated the difference between ASP-based payment and AMP-based payment for each drug with a price substitution. We then applied this difference to the Medicare utilization for each of these drugs when the substitution occurred—the fourth quarter of 2018 through the third quarter of 2019—to calculate the savings based on 2018 ASP data. Results CMS’s price-substitution policy saved Medicare and its Exhibit 1: Results of the Medicare Part B beneficiaries $4.4 million over 1 year Price-Substitution Policy • CMS initiated price substitutions for 16 drugs based on 2018 data. • Price substitutions for these drugs saved Medicare and its beneficiaries $4.4 million over 1 year, as shown in Exhibit 1. • Since CMS instituted its price-substitution policy in 2013, Medicare and its beneficiaries have saved $67 million, including the $4.4 million amount in 2018. Expanding the price-substitution policy could have generated additional savings for Medicare and its beneficiaries If CMS expanded its price-substitution criteria to include drugs that exceeded the 5-percent threshold in a single quarter, Medicare and its beneficiaries could have saved up to an additional $1.7 million over 1 year for another 17 drugs. These 17 drugs exceeded the 5-percent threshold in at least Source: OIG analysis of ASP and AMP data from 2018. one quarter, but they were not eligible for price substitution 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.1 Data Snapshot: Impact of Price Substitutions Based on 2018 Average Sales Prices 1 Why This Matters Medicare Part B annually spends billions to cover a limited number of outpatient prescription drugs. To safeguard Medicare and its beneficiaries 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. Since CMS implemented the policy in 2013, OIG has produced annual reports quantifying the valuable savings to Medicare and its beneficiaries that are a direct result of CMS’s price-substitution policy. These reports document millions in actual annual savings and continue to demonstrate that price substitution is an important and effective mechanism for ensuring reasonable payments for drugs in Medicare Part B. What OIG Concludes Since the inception of CMS’s price-substitution policy, Medicare and its beneficiaries have saved $66.9 million. However, CMS could have achieved even greater savings for Medicare and its beneficiaries by expanding its criteria for AMP-based price substitutions. Specifically, Medicare and its beneficiaries could have saved up to an additional $30.8 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 did not concur with expanding the price-substitution policy and expressed concern that expanding price-substitution criteria may impede physician and beneficiary access to drugs. OIG agrees that access to prescription drugs should always be considered when contemplating pricing policies, and OIG supports current safeguards to prevent 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 beneficiaries 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. To more effectively limit excessive payment amounts based on ASPs and to generate greater savings for Medicare and its beneficiaries, we continue to believe that CMS should expand its price-substitution criteria to include some additional drugs. For example, a more expansive policy might include all drugs (with complete AMP data) that exceed the 5-percent threshold in a single quarter. However, CMS also could consider other approaches to expanding the price-substitution policy that are designed to capture more drugs that repeatedly exceed the threshold. Agency Comments and OIG Response CMS responded that it continues to not concur with our recommendation. CMS stated that as additional data becomes available and as it continues to gain experience with the price-substitution policy, it will consider further changes as necessary. CMS believes the current policy safeguards—which identify drugs that exceed the 5-percent threshold for two consecutive quarters or three of four quarters—identify drugs that consistently exceed the threshold. CMS’s full comments are included in the Appendix. OIG continues to believe that expanding the policy can achieve a balance between safeguarding access to drugs and ensuring that Medicare and its beneficiaries do not overpay for drugs. Our examination of 2018 data shows that if the policy had been expanded to include the 17 drugs that exceeded the 5-percent threshold in a single quarter, beneficiaries and the program could have saved up to an additional $1.7 million. To help ensure that CMS has sufficient information for its consideration regarding the price-substitution policy, OIG will continue to provide CMS with the results from our quarterly pricing comparisons, along with annual reports on the impact of the price-substitution policy. Data Snapshot: Impact of Price Substitutions Based on 2018 Average Sales Prices 2 Data: Results of the Medicare Part B Price-Substitution Policy Exhibit 2: Price substitutions saved Medicare and its beneficiaries $4.4 million Quarter(s) in Which Price Substitution Occurred Fourth First Second Third Quarter Quarter Quarter Quarter Drug Description 2018 2019 2019 2019 Savings J0287 Amphotericin b lipid complex  $4,730 J0289 Amphotericin b liposome injection  $38,927 J0670 Mepivacaine HCl injection     $2,588 J0878 Daptomycin injection  $1,009,005 J1335 Ertapenem injection  $6,303 J1570 Ganciclovir sodium injection    $25,951 J1580 Garamycin gentamicin injection  $3,914 J1670 Tetanus immune globulin injection  $35,057 J1740 Ibandronate sodium injection  $13,070 J1955 Levocarnitine injection  $1,367 J2501 Paricalcitol     $355 J2720 Protamine sulfate injection    $400 J3486 Ziprasidone mesylate     $30 J7520 Sirolimus oral     $3,304,957 J9100 Cytarabine HCl injection     $3,037 Q0167 Dronabinol oral  $241 Total $4,449,932 Source: OIG analysis of ASP and AMP data from 2018. Data Snapshot: Impact of Price Substitutions Based on 2018 Average Sales Prices 3 Methodology Data Collection. We obtained National Drug Code-level ASP data and AMP data for Part B drugs from CMS for 2018. We also obtained ASP-based reimbursement amounts and Part B drug utilization for the quarters in which price substitutions occurred—i.e., the fourth quarter of 2018 through the third quarter of 2019. In addition, we obtained the drugs that had price substitutions based on data from 2018. Data Analysis. For each quarter of 2018, we calculated the volume-weighted AMP for drugs consistent with CMS’s methodology for calculating volume-weighted ASPs. We then compared the volume-weighted ASPs and AMPs and identified all drugs with ASPs that exceeded the AMPs by at least 5 percent. We also identified drugs that exceeded the 5-percent threshold but did not meet CMS’s duration criteria for price substitution—i.e., they did not exceed the threshold in the two previous consecutive quarters or three of the previous four quarters. To calculate the savings associated with price substitutions or potential price substitutions that could be made by expanding the policy, we first reduced AMP-based and ASP-based reimbursement amounts (103 percent of the volume-weighted AMP and 106 percent of the volume-weighted ASP, respectively) by the 2-percent reduction required by sequestration legislation. We then subtracted the AMP-based reimbursement amount from the ASP-based reimbursement amount for the quarter in which the price substitution occurred and multiplied the difference by the Part B utilization for each drug in the respective quarter that the price substitution occurred. Limitations. We did not verify the accuracy of manufacturer-reported ASP and AMP data, nor did we verify the underlying methodology that manufacturers used to calculate ASPs and AMPs. We also did not verify the accuracy of CMS’s calculations of reimbursement amounts for Part B drugs. Manufacturers are required to submit their quarterly ASP and AMP data to CMS within 30 days of the close of the quarter. We did not determine whether manufacturers provided any updated data to CMS at a later date. Standards We conducted this study in accordance with the Quality Standards for Inspection and Evaluation issued by the Council of the Inspectors General on Integrity and Efficiency. Acknowledgments Conswelia McCourt served as team leader for this study. Office of Evaluation and Inspections staff who provided support include Althea Hosein, Christine Moritz, and Michael Novello. This report was prepared under the direction of Linda Ragone, Regional Inspector General for Evaluation and Inspections in the Philadelphia regional office, and Edward Burley, Deputy Regional Inspector General. To obtain additional information concerning this report or to obtain copies, contact the Office of Public Affairs at Public.Affairs@oig.hhs.gov. Endnote 1 These 17 drugs had complete AMP data, were not identified by the Food and Drug Administration as being in short supply, and did not have AMP-based substitution amounts that were greater than the ASP-based reimbursement amounts in the quarters during which the substitutions would have occurred. Data Snapshot: Some Drug Manufacturers Report Inaccurate Drug Product Data to CMS 4 Appendix: Agency Comments Data Snapshot: Some Drug Manufacturers Report Inaccurate Drug Product Data to CMS 5 Data Snapshot: Some Drug Manufacturers Report Inaccurate Drug Product Data to CMS 6