US · guidance
CMS Pub. 100-04, ch. 17, § 20.5.6
Inherent Reasonableness for Drugs and Biologicals
Section 4316 of the Balanced Budget Act of 1997 permits A/B MACs (B) to establish realistic and
equitable payment amounts for drugs when the existing payment amounts are inherently unreasonable
because they are either grossly excessive or deficient. Refer to chapter 23, for a complete description
of Inherent Reasonableness rules.
Examples of the factors that may result in grossly deficient or excessive payment amounts include, but
are not limited to the following:
1. Payment amounts for drugs or biologicals are grossly higher or lower than acquisition or
production costs for the category of items or services.
2. There have been increases in payment amounts that cannot be explained by inflation or
technology.
In some instances, the calculation of the AWP may lead to a payment limit that is not reasonable for the
purpose of paying for drugs and biologicals. A/B MACs (B) can apply the principal of inherent
reasonableness in selecting the drugs to be included in the calculation. For instance in situations where
there are some drugs in a HCPCS grouping that are significantly more expensive due to having
preservatives added, there is no effect on the quality of the drug whether or not there are preservatives.
Therefore, leave the drugs with preservatives out of the calculation.
While A/B MACs (A) and (B) may determine under their inherent reasonableness authority that a
greater than 15 percent increase or decrease in payment amounts is warranted, they may not increase or
decrease the payment amounts for any item by greater than 15 percent in any given year. However, a
contractor may determine that a 25 percent reduction is warranted, and accomplish the adjustment over
2 years, e.g., 15 percent applied the first year, and 10 percent applied the following year.
In addition, a contractor must inform CMS of any inherent reasonableness determinations. The CMS
will then acknowledge receipt of the notification. The payment adjustment may not take effect until the
contractor has notified CMS and received CMS’s acknowledgment of the notification.
History
(Rev. 11140, Issued: 12-02-21, Effective :01-04-22, Implementation: 01-04-22)
Provenance
- Source
- cms.gov
- Retrieved
- 2026-08-25
- Edition
- iom-2026-08-25
- Content hash
72b8ddfbfc045fe08d0b8115161fe7c8155b0974b3d99d944e0616bc89bc6f22
The link goes to the issuing authority’s own document — the one we read to produce this record. Where a source publishes whole titles rather than sections, your browser may need a moment to jump to the provision.
Unofficial copy of government-published law, reproduced from official sources with full provenance. Not an official publication; verify against official sources before relying on it in a filing. Records in the 'guidance' corpus, and only that corpus, are sub-regulatory (interpretive guidelines, survey procedures) and are not binding law. Validity bounds follow each jurisdiction's declared temporalBasis.