§414.904. Average sales price as the basis for payment.

(a)

Method of payment. Payment for a drug furnished on or after January 1, 2005 is based on the lesser of—

(1)

The actual charge on the claim for program benefits; or

(2)

106 percent of the average sales price, subject to the applicable limitations specified in paragraph (d) of this section or subject to the exceptions described in paragraph (e) of this section.

(3)

For purposes of this paragraph—

(i)

CMS calculates an average sales price payment limit based on the amount of product included in a vial or other container as reflected on the FDA-approved label.

(ii)

Additional product contained in the vial or other container does not represent a cost to providers and is not incorporated into the ASP payment limit.

(iii)

No payment is made for amounts of product in excess of that reflected on the FDA-approved label.

(b)

Multiple source drugs—

(1)

Average sales prices. The average sales price for all drug products included within the same multiple source drug billing and payment code is the volume-weighted average of the manufacturers' average sales prices for those drug products.

(2)

Calculation of the average sales price.

(i)

For dates of service before April 1, 2008, the average sales price is determined by—

(A)

Computing the sum of the products (for each National Drug Code assigned to the drug products) of the manufacturer's average sales price and the total number of units sold; and

(B)

Dividing that sum by the sum of the total number of units sold for all NDCs assigned to the drug products.

(ii)

For dates of service on or after April 1, 2008, the average sales price is determined by—

(A)

Computing the sum of the products (for each National Drug Code assigned to such drug products) of the manufacturer's average sales price, determined by the Secretary without dividing such price by the total number of billing units for the National Drug Code for the billing and payment code and the total number of units sold; and

(B)

Dividing the sum determined under clause (A) by the sum of the products (for each National Drug Code assigned to such drug products) of the total number of units sold and the total number of billing units for the National Drug Code for the billing and payment code.

(iii)

For purposes of this subsection and subsection (c), the term billing unit means the identifiable quantity associated with a billing and payment code, as established by CMS.

(c)

Single source drugs—

(1)

Average sales price. The average sales price is the volume-weighted average of the manufacturers' average sales prices for all National Drug Codes assigned to the drug or biological product.

(2)

Calculation of the average sales price.

(i)

For dates of service before April 1, 2008, the average sales price is determined by—

(A)

Computing the sum of the products (for each National Drug Code assigned to the drug product) of the manufacturer's average sales price and the total number of units sold; and

(B)

Dividing that sum by the sum of the total number of units sold for all NDCs assigned to the drug product.

(ii)

For dates of service on or after April 1, 2008, the average sales price is determined by—

(A)

Computing the sum of the products (for each National Drug Code assigned to such drug products) of the manufacturer's average sales price, determined by the Secretary without dividing such price by the total number of billing units for the National Drug Code for the billing and payment code and the total number of units sold; and

(B)

Dividing the sum determined under clause (A) by the sum of the products (for each National Drug Code assigned to such drug products) of the total number of units sold and the total number of billing units for the National Drug Code for the billing and payment code.

(d)

Limitations on the average sales price—

(1)

Wholesale acquisition cost for a single source drug. The payment limit for a single source drug product is the lesser of 106 percent of the average sales price for the product or 106 percent of the wholesale acquisition cost for the product.

(2)

Payment limit for a drug furnished to an end-stage renal disease patient.

(i)

Effective for drugs and biologicals furnished in 2005, the payment for such drugs and biologicals, including erythropoietin, furnished to an end-stage renal disease patient that is separately billed by an end-stage renal disease facility and not paid on a cost basis is acquisition cost as determined by the Inspector General report as required by section 623(c) of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 inflated by the percentage increase in the Producer Price Index.

(ii)

Except as provided in paragraph (a) of this section, the payment for drugs and biologicals, furnished to an end-stage renal disease patient that is separately billed by an end-stage renal disease facility, is based on 106 percent of the average sales price.

(iii)

Effective for drugs and biologicals furnished in CY 2006 and subsequent calendar years, the payment for such drugs and biologicals furnished in connection with renal dialysis services and separately billed by freestanding and hospital-based renal dialysis facilities not paid on a cost basis is the amount determined under section 1847A of the Act.

(3)

Widely available market price and average manufacturer price. If the Inspector General finds that the average sales price exceeds the widely available market price or the average manufacturer price by the applicable threshold percentage specified in paragraph (d)(3)(iii) or (iv) of this section, the Inspector General is responsible for informing the Secretary (at such times as specified by the Secretary) and the payment amount for the drug or biological will be substituted subject to the following adjustments:

(i)

The payment amount substitution will be applied at the next average sales price payment amount calculation period after the Inspector General informs the Secretary (at such times specified by the Secretary) about billing codes for which the average sales price has exceeded the average manufacturer price by the applicable threshold percentage, and will remain in effect for 1 quarter after publication.

(ii)

Payment at 103 percent of the average manufacturer price for a billing code will be applied at such times when all of the following criteria are met:

(A)

The threshold for making price substitutions, as defined in paragraph (d)(3)(iii) of this section is met.

(B)

103 percent of the average manufacturer price is less than the 106 percent of the average sales price for the quarter in which the substitution would be applied.

(C)

Beginning in 2013, the drug and dosage form described by the HCPCS code is not identified by the FDA to be in short supply at the time that ASP calculations are finalized.

(iii)

The applicable percentage threshold for average manufacturer price comparisons is 5 percent and is reached when—

(A)

The average sales price for the billing code has exceeded the average manufacturer price for the billing code by 5 percent or more in 2 consecutive quarters, or 3 of the previous 4 quarters immediately preceding the quarter to which the price substitution would be applied; and

(B)

The average manufacturer price for the billing code is calculated using the same set of National Drug Codes used for the average sales price for the billing code.

(iv)

The applicable percentage threshold for widely available market price comparisons is 5 percent.

(4)

Payment adjustment for certain drugs for which there is a self-administered version—

(i)

In general— . Except as provided in paragraphs (d)(4)(ii) and (iii) of this section, if the Inspector General identifies a drug or biological product in a study described in section 1847A(g)(1) of the Act, the Secretary must apply the payment limit for the applicable billing and payment code as specified in paragraph (d)(4)(iv) of this section, beginning with the first day of the second quarter after such study is publicly available. The methodology described in this paragraph will be recalculated each quarter thereafter, except when conditions described in paragraph (d)(4)(ii) are met.

(ii)

Exception— . The adjustment described in paragraph (d)(4)(i) of this section does not apply to the payment limit for a billing and payment code for a quarter if, at the time that ASP calculations are finalized for such quarter, the drug in the dosage form described by the billing and payment code is included by the FDA on the drug shortage list in effect under section 506E of the Federal Food, Drug, and Cosmetic Act.

(iii)

Special rule for certain billing and payment codes— . Effective July 1, 2021, for a billing and payment code described under section 1847A(g)(3) of the Act, the payment limit for the applicable billing and payment code must be determined as described in paragraph (d)(4)(iv) of this section, and the exception specified at paragraph (d)(4)(ii) of this section does not apply.

(iv)

Lesser-of methodology— . For purposes of this section, the payment limit is the lesser of:

(A)

The payment limit determined under section 1847A of the Act for such billing and payment code if each National Drug Code for such product so identified under section 1847A(g)(1) of the Act were excluded from such determination; and

(B)

The payment limit otherwise determined under section 1847A of the Act for such billing and payment code without application of section 1847A(g) of the Act.

(v)

NDC changes— . For an Inspector General-identified National Drug Code, as described under section 1847A(g)(1) or (3) of the Act, for which the manufacturer has redesignated the National Drug Code (without changes to the dosage form), the application of the lesser-of methodology described in this paragraph must use manufacturer-reported ASP data associated with the redesignated National Drug Code in the same manner as the one originally identified by the Inspector General.

(e)

Exceptions to the average sales price—

(1)

Vaccines. The payment limits for hepatitis B vaccine furnished to individuals at high or intermediate risk of contracting hepatitis B (as defined in § 410.63(a) of this subchapter), pneumococcal vaccine, influenza vaccine, and COVID-19 vaccine are calculated using 95 percent of the average wholesale price.

(2)

Infusion drugs furnished through a covered item of durable medical equipment. The payment limit for an infusion drug furnished before January 1, 2017, through a covered item of durable medical equipment is calculated using 95 percent of the average wholesale price in effect on October 1, 2003.

(3)

Blood and blood products. In the case of blood and blood products (other than blood clotting factors), the payment limits are determined in the same manner as the payment limits were determined on October 1, 2003.

(4)

Payment amount in a case where the average sales price during the first quarter of sales is unavailable. During an initial period (not to exceed a full calendar quarter) in which data on the prices for sales of the drug are not sufficiently available from the manufacturer to compute an average sales price:

(i)

In general. Except as provided in paragraph (e)(4)(ii) of this section,

(A)

For dates of service before January 1, 2019, the payment amount for the drug is based on the wholesale acquisition cost or the Medicare Part B drug payment methodology in effect on November 1, 2003.

(B)

For dates of service on or after January 1, 2019, the payment amount for the drug is an amount not to exceed 103 percent of the wholesale acquisition cost or based on the Medicare Part B drug payment methodologies in effect on November 1, 2003.

(ii)

Limitation on payment amount for biosimilar biological products during initial period. For dates of service on or after July 1, 2024, the payment amount for a biosimilar biological product (as defined in § 414.902) during the initial period is the lesser of the following:

(A)

The payment amount for the biosimilar biological product as determined under clause (e)(4)(i)(B) of this section or

(B)

106 percent of the amount determined under section 1847A(b)(1)(B) of the Act for the reference biological product (as defined in § 414.902).

(5)

Treatment of certain drugs. Beginning with April 1, 2008, the payment amount for—

(i)

Each single source drug or biological described in section 1842(o)(1)(G) that is treated as a multiple source drug because of the application of section 1847A(c)(6)(C)(ii) is the lower of—

(A)

The payment amount that would be determined for such drug or biological applying section 1847A(c)(6)(C)(ii); or

(B)

The payment amount that would have been determined for such drug or biological if section 1847A(c)(6)(C)(ii) were not applied.

(ii)

A multiple source drug described in section 1842(o)(1)(G) (excluding a drug or biological that is treated as a multiple source drug because of the application of section 1847A(c)(6)(C)(ii)) is the lower of—

(A)

The payment amount that would be determined for such drug or biological taking into account the application of section 1847A(c)(6)(C)(ii); or

(B)

The payment amount that would have been determined for such drug or biological if section 1847A(c)(6)(C)(ii) were not applied.

(6)

Radiopharmaceuticals furnished in settings other than the hospital outpatient department. Medicare administrative contractors must determine payment limits for radiopharmaceuticals based on any methodology used to determine payment limits for radiopharmaceuticals in place on or prior to November 2003. Such methodology may include, but is not limited to, the use of invoice-based pricing.

(f)

Except as otherwise specified (see paragraph (e)(2) of this section) for infusion drugs, the payment limits are updated quarterly.

(g)

The payment limit is computed without regard to any special packaging, labeling, or identifiers on the dosage form or product or package.

(h)

The payment amount is subject to applicable deductible and coinsurance.

(i)

Manufacturer's average sales price (ASP) data not available prior to the publication deadline for quarterly payment limits. For circumstances in which manufacturer's ASP data is not available prior to the publication deadline for quarterly payment limits as described in this section, payment limit must be determined as follows:

(1)

For a multiple source drug (as defined in § 414.902)—

(i)

In circumstances in which negative or zero manufacturer's ASP data is reported for one or more, but not all, NDCs associated with a billing and payment code for that drug for a given quarter, the payment limit for the given quarter is calculated using only NDCs for that drug with positive manufacturer's ASP data, except in circumstances described in paragraph (i)(1)(iii) of this section.

(ii)

In circumstances in which negative or zero manufacturer's ASP data is reported for all NDCs associated with a billing and payment code for that drug for a given quarter, the payment limit for the given quarter is calculated by carrying over all positive manufacturer's ASP data from the most recently available previous quarter with positive manufacturer's ASP data for at least one NDC until at least one NDC for the drug has positive manufacturer's ASP data for a quarter.

(iii)

In circumstances in which manufacturer's ASP data is not available and the unavailability of the manufacturer's ASP data results in a significant change in the ASP payment limit compared to the previous quarter, the payment limit is calculated by carrying over the most recently available ASP data for the individual NDC(s), adjusted by the weighted average of the change in the manufacturer's ASP data for the NDCs that were reported for both the most recently available previous quarter and the current quarter.

(2)

For a single source drug, excluding biosimilar biological products (both as defined in § 414.902)—

(i)

In circumstances in which negative or zero manufacturer's ASP data is reported for one or more, but not all, NDCs associated with a billing and payment code for that drug for a given quarter, the payment limit for the given quarter is calculated using only NDCs for that drug with positive manufacturer's ASP data.

(ii)

In circumstances in which negative or zero manufacturer's ASP data is reported for all NDCs associated with a billing and payment code for that drug for a given quarter, the payment limit for the given quarter is the lesser of the following until at least one NDC for the drug has positive manufacturer's ASP data for a quarter:

(A)

106 percent of the volume-weighted average of the most recently available positive manufacturer's ASP data from a previous quarter in which at least one NDC for the drug has positive manufacturer's ASP data for the quarter. If the payment limit from such quarter was based on 106 percent of the wholesale acquisition cost because of the application of paragraph (d)(1) of this section, that payment limit is carried over; or

(B)

106 percent of the wholesale acquisition cost. If there is more than one WAC per billing unit for the drug, the payment limit is set using the lowest WAC per billing unit.

(3)

For a biosimilar biological product (as defined in § 414.902)—

(i)

In circumstances in which negative or zero manufacturer's ASP data is reported for one or more, but not all, NDCs for a given quarter, the payment limit for the given quarter is calculated using only NDCs with positive manufacturer's ASP data.

(ii)

In circumstances in which negative or zero manufacturer's ASP data is reported for all NDCs for a given quarter, the payment limit for the given quarter is the sum of the following until at least one NDC for the drug has positive manufacturer's ASP data for a quarter:

(A)

The volume-weighted average of the most recently available positive manufacturer's ASP data from a previous quarter; and

(B)

Either— (1) If the biosimilar is not a qualifying biosimilar (as both are defined at § 414.902), 6 percent of the amount determined under section 1847A(b)(4) of the Act for the reference biological product (as defined in § 414.902) for the given quarter; or

(2) If the biosimilar is a qualifying biosimilar (as both are defined at § 414.902), 8 percent of the amount determined under section 1847A(b)(4) of the Act for the reference biological product (as defined in § 414.902) for the given quarter.

(j)

Biosimilar biological products—

(1)

In general. Except as provided in paragraph (j)(2), effective January 1, 2016, the payment amount for a biosimilar biological product (as defined in § 414.902), for all NDCs assigned to such product, is the sum of the average sales price of all NDCs assigned to the biosimilar biological products included within the same billing and payment code as determined under section 1847A(b)(6) of the Act, and 6 percent of the amount determined under section 1847A(b)(4) of the Act for the reference biological product (as defined in § 414.902).

(2)

Temporary increase in Medicare Part B payment for qualifying biosimilar biological products. In the case of a qualifying biosimilar biological product (as defined in § 414.902) that is furnished during the applicable 5-year period (as defined in § 414.902) for such product, the payment amount for such product with respect to such period is the sum determined under as determined under section 1847A(b)(6) of the Act and 8 percent of the amount determined under section 1847A(b)(4) of the Act for the reference biological product (as defined in § 414.902).

§414.904. Average sales price as the basis for payment.

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