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December 14, 2012

Comparison shows that alternate payment scheme and price substitution policy would lower Medicare Part B drug costs

By Suzanne Szymonik, JD

In its latest comparison of the average sales prices (ASP) and average manufacturer prices (AMP) of Medicare Part B drugs, the HHS Office of Inspector General (OIG) reported that if reimbursement amounts for all 22 drug payment codes it studied had been based on 103 percent of the AMPs instead of on 106 percent of the ASPs in the third quarter of 2012, Medicare would have saved an estimated $739,000 (OIG Report, OEI-03-12-00730, December 12, 2012). The OIG also found that if CMS had already implemented its own recent price substitution policy, which will go into effect in 2013, reimbursement amounts for 15 of the 22 drugs would have been reduced, saving an estimated $606,000 in the quarter.

The OIG stated that it has issued these reports 26 times since 2005, as mandated by Congress, but that CMS has not yet lowered reimbursement in response to the OIG's findings and recommendations.

Background. Medicare Part B covers only a limited number of outpatient prescription drugs, most of which are not self-administered by patients. Under the ASP pricing methodology, Medicare pays 106 percent of the ASP for most Part B drugs. The OIG is required by law to identify Medicare Part B prescription drugs with ASPs that exceed AMPs by at least five percent and also to review the financial impact of lowering reimbursement amounts for the drugs meeting this threshold to 103 percent of the AMPs.

In this report, the OIG also examined the potential effect of the November 16, 2012 Final rule (77 FR 68892) that specifies the circumstances under which Medicare will make AMP-based price substitutions next year, finding that price substitutions will result in substantial savings. The OIG believes that, in the long term, savings achieved through price substitution could reduce waste and conserve taxpayer funds. The OIG recommended price substitution measures in previous reports.

CMS response. CMS responded to the report, expressing its concern that that the OIG's use of partial AMP data may not adequately reflect market trends. CMS, therefore, will not apply its price substitution policy to drugs with partial AMP data. CMS also stated that the price substitution policy will generate only minor savings for the Medicare program.

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