Medicare’s Drug Substitution Policy Saved $13 Million From 2013-2014, OIG Says

The Centers for Medicare & Medicaid Services’ drug price substitution policy saved Medicare and its beneficiaries an estimated $13 million from the fourth quarter of 2013 through the third quarter of 2014, according to a report from the Department of Health and Human Services Office of Inspector General released Feb. 27.

The drug substitution policy is part of a final rule on physician payments the CMS issued in November 2012.

The report, “Comparing Average Sales Prices and Average Manufacturer Prices for Medicare Part B Drugs: An Overview of 2013” (OEI-03-14-00520), said 15 drug codes were subject to reimbursement reductions under the substitution policy on the basis of data from 2013, which resulted in the $13 million in savings.

The report also said that expanding the price substitution policy to include additional drug codes could have generated almost $6 million in additional Medicare savings.

Price Substitution Policy

When Congress established average sales prices (ASPs) as the primary basis for Medicare Part B drug reimbursement, it also mandated that the OIG compare ASPs with average manufacturer prices (AMPs) and directed the CMS to substitute payment amounts for drugs with ASPs that exceed AMPs by a threshold of 5 percent, the report said.

As defined by law, ASP is the manufacturer’s sales of a drug to all purchasers in the U.S. in a calendar quarter divided by the total number of units
of the drug sold by the manufacturer in the same quarter. AMP is defined as the average price paid to the manufacturer for the drug in the U.S. by:

• wholesalers for drugs distributed to retail community pharmacies; and
• retail community pharmacies that purchase drugs directly from the manufacturer.

In April 2013, the CMS began substituting payment amounts in accordance with its published price substitution policy, which currently applies only to certain drug codes with complete AMP data that exceed the 5 percent threshold in two consecutive quarters or three of the previous four quarters, the OIG said.


The report said that the CMS “has maintained a cautious approach to price substitutions and has expressed concern that expanding the criteria for price substitution may impede physician and beneficiary access to drugs.”

“OIG agrees that CMS should always be mindful of access to prescription drugs; however, we continue 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 with ASPs that exceed the AMPs by the threshold percentage,” the report said.

The OIG said it recommends that the CMS consider pursuing rulemaking to expand the price substitution policy to include at least some additional drug codes.

In a response to the report, the CMS said that more experience with the price substitution policy is needed before the policy is expanded.

See the original article on the Bloomberg BNA website.