OIG Releases Report on Medicare Part B Drug Price Data

A recent report by the Office of Inspector General examines the accuracy of average sales price data reporting.

In 2003, Congress passed the Medicare Modernization Act (MMA), a set of sweeping changes to the Medicare program that established the Medicare prescription drug benefit program known as Part D, created the Medicare Advantage program, and created a host of other provisions improving and modernizing both Medicare Part A and Part B and the government’s ability to combat fraud, waste, and abuse.

Within the MMA was a wholesale revision to the manner in which Medicare paid for drugs administered by physicians in their offices. These drugs are typically infused or injected under the supervision of a physician, and prior to MMA were paid under Medicare Part B at either 95% or 85% of their average wholesale price (AWP). AWP is often criticized as not accurately reflecting the true cost of these prescription drugs to physicians and has been the subject of numerous lawsuits.

The MMA established a market-based rate-setting methodology, the average sales price (ASP), to replace the AWP methodology. ASP collects data on the sales of prescription drugs covered by Part B from each manufacturer and calculates an average rate at which all physicians who administer the drugs are paid. ASP is intended to be a reflection of the average rate at which a physician can purchase the drug and includes a 6% add-on to account for other costs that may not be included in the ASP.

As with any market-based payment system, accurate rate setting is predicated on accurate data submission. In order to ensure accurate data submission, Congress defined which manufacturers were legally obligated to submit data to the Centers for Medicare & Medicaid Services (CMS). The definition is imperfect, and not all manufacturers are required to report their ASP to CMS. Only those manufacturers with Medicaid rebate agreements pursuant to section 1927(b)(3) of the Social Security Act are legally obligated to report their sales data. Manufacturers of certain products approved as devices by the FDA but treated as if they were Part B drugs by Medicare, such as hyaluronans and certain skin substitutes, do not have Medicaid rebate agreements and therefore are not legally obligated to submit sales price data to CMS.

Congress gave CMS and the US Department of Health and Human Services Office of Inspector General (OIG) the authority to impose significant civil monetary penalties (CMP) on manufacturers that submit false ASP data or fail to report data within the required timeframe. Penalties of up to $10,000 for each “misrepresented” price per day were authorized. These penalties, which have the potential to grow rapidly, present a substantial deterrent to manufacturers.

New Report

On July 22, 2014, the OIG released a report equally critical of manufacturers’ ASP data reporting accuracy and the CMS’s ability to effectively collect such data and calculate national payment limits.

The OIG found that a number of manufacturers failed to properly submit ASP data despite having Medicaid rebate agreements and being required to do so. Because failure to report ASP data results in an incomplete data set upon which CMS bases its pricing decisions, the OIG found that failure to report data can result in inaccurate national ASP-based payment limits and inaccurate payments to providers.

The OIG sampled 87 high-cost health care common procedure coding system codes to determine the extent to which manufacturers are accurately reporting ASP data. While the results of the OIG analysis do not apply to the entirety of the Medicare Part B drug pricing process, the OIG did find several weaknesses.

The OIG report asserts that in the third quarter of 2012, 35% (74 out of 207) of manufacturers in its sample were operating under a Medicaid rebate agreement, yet failed to report ASP data for 1 or more National Drug Codes (NDCs). In addition, the OIG found that 10% (21 out of 207) of the manufacturers in its sample should have reported ASP data for NDCs but had never reported this information to CMS. The OIG also found a number of manufacturers that are not obligated to report but do so anyway. Because ASP is meant to be a market-based payment model, the OIG is concerned that these reporting issues could affect CMS’s ability to gauge sales throughout the entire drug marketplace.

Data Collection and Submission

The OIG also criticized CMS for its continued reliance on manual review and validation of manufacturer-submitted data. For a number of years, the OIG has recommended that CMS develop an online data portal that would automate data submission, validation, and calculations. Such a portal would minimize the number of errors that occur from manual input.

The findings show that a combination of incomplete reporting and data collection errors could have had an effect, albeit a small one, on payment rates for a number of codes. Despite the relatively small size of the OIG’s findings, the OIG recommended that CMS take steps to ensure complete and accurate reporting by continuing to identify and penalize inaccurate reporting, requiring all manufacturers of Part B drugs to report ASP data, and improving the accuracy of data collection and review by implementing the automated data collection system.

The accuracy of Medicare ASP payment limits is directly related to the accuracy and completeness of data submitted by manufacturers. To the extent that CMS can improve the completeness and accuracy of its payment rates, manufacturers should expect increased scrutiny of submissions and a heightened awareness of reporting requirements. Therefore, they should be diligent in reviewing their data submissions for accuracy and completeness. SPT

About the Author

John Warren is the senior director for health policy at McDermottPlus Consulting, a wholly owned subsidiary of McDermott, Will & Emery. McDermottPlus Consulting assists clients throughout the health care spectrum with Medicare related lobbying, data analytics and modeling, and policy advice. Before joining McDermott, Warren spent 22 years with the Centers for Medicare & Medicaid Services and directed the operation of the average sales price program from 2005 to 2012.