WASHINGTON--The method CMS uses to determine payments for Part B drugs is flawed and cost Medicare $110 million last year, according to a report released Thursday by the Department of Health and Human Services Office of the Inspector General.

Last year, CMS changed the payment method for Part B drugs and biologics from an average wholesale price (AWP) formula to one based on 106 percent of the Average Sales Price (ASP). The change was mandated by the Medicare Modernization Act in an effort to stop overpaying for Part B drugs. But in the report, called "Calculation of Volume-Weighted Average Sales Price for Medicare Part B Prescription Drugs," the OIG said that billing units are not used consistently in CMS' equation. While manufacturers submit ASP information through national drug codes, the report said, CMS instead uses the Healthcare Common Procedure Coding System (HCPCS).

The OIG said it found 46 percent of HCPCS codes had a prescription drug reimbursement amount that was too high, resulting in an overpayment by Medicare of $115 million in 2005. For 13 percent of the codes, reimbursement was lower than it should have been, leading to a $5 million underpayment by Medicare. The payment for the other 41 percent of codes was correct.

The OIG recommended that CMS change its method for calculating volume-weighted ASPs, using billing units consistently to produce an ASP that is mathematically correct and consistent with the MMA.

In response to the report, CMS said that it is working on refining its payment methodology. "As we gain more experience with the ASP data and other sources of information become available, we may consider altering the methodology or establishing suggestions as suggested in some of the public comments," CMS Administrator Mark McClellan wrote in a letter to Inspector General Daniel R. Levinson.

To view the report, click here.

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