OIG: CMS should extend its price substitution policy for Part B drugs

CMS could have saved its beneficiaries an additional $2.9 million in 2017 had it implemented a more expansive price substitution policy for Part B drugs, according to an Office of Inspector General (OIG) report. 

With some exceptions, CMS’ current reimbursement methodology for Part B drugs administered in physician offices and hospital outpatient departments is the drug's average sales price (ASP) plus 6%. The Social Security Act mandates that the OIG compare the ASPs with average manufacturer prices (AMP).

When the ASP for a drug exceeds the AMP by 5%, the OIG directs the secretary of Health and Human Services to substitute the ASP-based payment amount with a lower calculated rate. In its price substitution policy, CMS stipulates that it will make this substitution only if the ASP for a drug exceeds the AMP by 5% in the two previous quarters or three of the previous four quarters.

To determine the effect of CMS’ price substitution policy on Part B drug prices, the OIG analyzed Part B drug reimbursement data for the fourth quarter of 2017 through the third quarter of 2018, accounting for the three-quarter lag between reporting of pricing data and the application of price substitution. Specifically, the OIG calculated the difference between ASP- and AMP-based payment for each Part B drug with a price substitution, then applied this difference to the Medicare utilization for each of these drugs.

The OIG found that CMS’ policy saved Medicare and its beneficiaries approximately $7 million in 2017 by lowering reimbursement rates for 14 Part B drugs. However, the OIG found that CMS could have saved an additional $2.9 million by extending its price substitution policy to Part B drugs that exceeded the 5% threshold within a single quarter, according to the OIG. This would have extended the policy to 18 additional Part B drugs.

Based on its findings, the OIG recommended that CMS expand its duration rules to include Part B drugs that exceed the 5% threshold in a single quarter. CMS did not agree with the OIG’s recommendation; the agency stated that it will consider further changes when additional data becomes available and as it continues to gain experience with the price substitution policy.