Medicare lost millions in savings due to spotty oversight: federal watchdog

Editor’s note: This story has been corrected to reflect that CMS set Medicare payment amounts incorrectly for seven drug codes.

A federal watchdog has found that Medicare lost out on millions of potential savings due to spotty oversight of the average sales price of medications, impacting how much Medicare Part B beneficiaries pay for coverage.

The Centers for Medicare & Medicaid Services (CMS) requires drug manufacturers to submit the quarterly average sales price (ASP) for medications, which is determined by dividing the amount of sales dollars by the volume of medication sold.

This information, along with additional drug data that must be submitted, affects where Medicare Part B payments are set. If this data in incomplete, then the CMS uses the wholesale acquisition cost for the specific drug, which is the price set by the manufacturer for direct sales without rebates, discounts or other reductions in price.

An online ASP data submission system was created in 2019 to help collect accurate data. This data is then subjected to quality checks each quarter by the CMS.

The Office of Inspector General (OIG) for the Department of Health and Human Services found in two reports released Tuesday that while the CMS has an established procedure to oversee data on the average sales price of medications, the agency lacks a process to review the manual analysis. Invalid or missing ASP data resulted in the CMS being unable to determine payment amounts for 8 percent of products between 2016 and 2020.

A limited number of outpatient drugs are covered under Medicare Part B, including medications that usually require equipment such as injections and those administered through nebulizers. The payment for covered medications is determined after the CMS calculates a drug’s average price per volume, which in turn is seen in Medicare Part B payments.

Due to quarterly changes in sale prices and volume, manufacturers sometimes submit pricing data for a drug that is equal to or less than zero, which can be an error but can also be an appropriate amount in certain situations, such as when the manufacturer had no sales to report for that specific quarter.

According to the OIG, regardless of whether these valueless or negative prices are appropriate, the CMS does not include them in its calculations for Part B payments.

“CMS did not accurately implement all price reductions, which are an important tool to lower prescription drug costs. Gaps in CMS’s oversight processes prevented the program and its enrollees from realizing millions in savings,” the OIG said.

These incorrectly implemented reductions resulted in a loss of $2.8 million in savings, according to the OIG. The agency came to this conclusion after reviewing drug payment data from the first quarter of 2016 to the last quarter of 2020.

Edward Burley, the OIG’s deputy regional inspector general, told The Hill that the $2.8 million lost in savings was the result of the CMS setting Medicare payment amounts at a higher, incorrect number for seven drug codes.

Burley’s office had recommended that these prices be adjusted down, which the CMS did not do.

“By virtue of making that mistake, they lost out on $2.8 million in savings. So that was a specific issue about essentially CMS taking our recommendations and just incorrectly inputting the payment amounts and making an error on that front, which resulted in the lost savings,” said Burley.

The OIG recommended that the CMS develop a strategy of internal controls to ensure the accuracy of Medicare Part B payments.

In its response to the OIG report, the CMS said it identified “legitimate reasons” for not calculating payment amounts for certain drugs and said its current system fell within “statutory requirements.” The agency, however, said it shared in the report’s concerns regarding Part B payments.

“We are proactively looking for ways to strengthen our internal controls and are actively working on enhancements to the current ASP system and internal processes. We will take OIG’s suggestions into considerations as we continue to make enhancements in this area,” the CMS said in its response.