OIG Says Medicare Overpaid for Generic Drugs

The Medicare payment amount for irinotecan hydrochloride—an injectable drug used to treat patients with colorectal cancer—exceeded the average manufacturer price (AMP) by 145 percent in March 2008, according to an August 2008 report from the HHS Office of Inspector General (OIG). The OIG estimates that this price disparity cost Medicare in excess of $6.5 million in just that one month.
In March, the average sales price (ASP) for brand name irinotecan (HCPCS Level II code J9206 Irinotecan injection, 20 mg) was $126.31, and the OIG-calculated AMP was $51.59.
The Food and Drug Administration (FDA) approved the first generic version of irinotecan on Feb. 20, and generic irinotecan went on the market in March. That same month, generic irinotecan accounted for 86 percent of sales. The AMP for generic irinotecan was $40.66—nearly a third of the brand-name product’s average price. Anyone who purchased generic irinotecan in March received a Medicare payment approximately $85 more than the AMP, according to the OIG report.
The OIG contributes the disparity among ASPs and AMPs for drugs on the standard two-quarter lag time between when sales occur and when sales become the basis for Medicare payment amounts.
When the ASP exceeds market price by 5 percent, Section 1847(d)(3) of the Social Security Act (the Act) states that the secretary of HHS may disregard the ASP for the drug when setting reimbursement and substitute payment amounts for the drug with the lesser of the widely available market price, or 103 percent of AMP.
Instead of using this authority, the OIG recommends in the report that CMS explore options to expedite the process of setting the Medicare payment amount to ensure the ASP of drugs with newly available generic versions accurately reflect market prices.
CMS concurred with the OIG, but also reported that in third-quarter the Medicare payment amount for brand name irinotecan was $74.75—a 40 percent decrease—thus “demonstrating that the ASP methodology reflects market-based prices over time.”