CMS says the two-quarter lag in average sales price data for new generic drugs used for reimbursement under Medicare Part B encourages the transition from brand to generic products.

The agency made its comments in response to HHS Office of Inspector General findings that CMS could have saved an estimated $111 million if payment amounts reflected generic sales prices for 16 drugs examined as part of the investigation. Part B drugs are administered in a physician’s office and reimbursed at the statutorily defined ASP+6% or in the hospital outpatient setting and reimbursed at a rate set annually in the outpatient prospective payment system – ASP+5% for 2011 (Also see "Part B Hospital Drug Reimbursement Set At ASP Plus 5 Percent In Final Rule" - Pink Sheet, 4 November, 2010.).

“It may take years for Medicare to realize the full savings of generic versions,” OIG said in its report, “Medicare Payments For Newly Available Generic Drugs.” The report states that “the average payment amounts for the drugs under review continued to decline beyond the period of initial generic availability, ending with an average payment amount two years after the introduction that was nearly 60 percent less than that of the original brand-only payment amount.”

The report, issued Jan. 11, 2011, arrives as many top brand-name drugs face generic competition in the coming years. “According to FDA, 26 of the 48 top-dollar brand drugs covered under Part B either already have or could have generic versions approved for the first time in the next several years,” the report states. “These 26 drugs had combined Part B expenditures of over $2.8 billion in 2009.” OIG adds that the remaining 22 products are biologics, for which Part B spending was more than $5.3 billion.

OIG recommends in the report that “CMS work with Congress to require manufacturers of first generics to submit monthly ASP data during the period of initial generic availability,” which the HHS watchdog says will make “Medicare payment amounts more reflective of actual market prices.” The report goes on to add that if CMS finds this to be an effective means for alleviating the financial impact of the two-quarter lag, “the agency may wish to consider requiring monthly ASP submissions for all Part B-covered drugs.”

In its response to OIG prior to the report’s public availability, CMS did not agree with OIG’s findings.

During the first two quarters of a new generic drug’s availability, it is reimbursed at the rate for the brand equivalent. CMS argues that the lag “serves as an incentive for generic uptake. A time-limited incentive for physicians to quickly adopt the use of generic drugs such as the ‘two-quarter lag’ also provides a level of encouragement for generic manufacturers to market new generic drugs as quickly as possible.”

CMS also notes that quarterly updates are set by statute and new legislation would be required to make any changes to reporting requirements. “Congress struck a balance between updating more frequently than the annual update for all other payment systems with a practical and administratively feasible approach for quarterly updating of payment rates for Part B drugs,” the agency noted in its comments.

The agency also noted that nearly $105 million of the $111 million in savings was derived from three drugs examined as part of the study – mycophenolate mofetil (generic CellCept), albuterol sulfate/ipratropium bromide (generic DuoNeb) and irinotecan (generic Camptosar). “We do not believe that extrapolating savings projections that are based on such a small subset of drugs to all generic drugs correctly represents Part B drug price changes due to the introduction of generic drugs.”

CMS Considered Shorter Lag Times

The agency also noted it considered trying to shorten the lag by requiring manufacturers to report ASPs on the last day of the quarter in which the sales occurred rather than the statutorily set 30 days after the end of the quarter, but ultimately decided that it would not be technically feasible nor would it result in more accurate data on sales.

CMS added that requiring monthly ASP data also would be challenging, noting such an approach “could lead to more inaccurate and unstable payment rates. The more frequently that manufacturers submit data, the more opportunity there will be for errors.” Since average manufacturer prices are reported monthly, the agency cited the low number of ASP restatements and the high number of AMP restatements by the same companies as evidence “of the administrative burden of monthly reporting on manufacturers.” CMS said a monthly reporting requirement could also increase reporting failure rates.

OIG did not agree with CMS’ analysis. “Because of the two-quarter lag, Part B and its beneficiaries are denied significant potential savings when generic versions first become available,” the report states. “Therefore, we believe that the savings from a reduced reimbursement lag may outweigh any difficulties with implementing a monthly ASP reporting system. Furthermore, we note that the ASP-based reimbursement system (in which all versions of a drug assigned to one payment code are paid at the same amount) is a natural incentive for manufacturers to limit rapid price increases, as well as for providers to utilize generic versions.”

This report does not represent the first time OIG has criticized CMS for not doing more to shorten the lag time between a generic introduction and the reporting of the generic’s ASP. In August 2008, OIG issued a report focusing on a single drug and called upon the agency to adjust ASPs more quickly (Also see "New Generics Need To Influence Medicare Rates More Quickly – OIG" - Pink Sheet, 1 September, 2008.).

By Gregory Twachtman

ASP Data Lag On New Generic Drugs Encourages Generic Utilization – CMS

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