The OIG has released two reports analyzing Medicaid payments for prescription drugs. The first report, ”Comparison of Medicaid Federal Upper Limit Amounts to Acquisition Costs, Medicare Payment Amounts, and Retail Prices,” concludes that the current method for setting federal upper limit (FUL) amounts results in “substantially inflated Medicaid payments for many drugs” compared to other prices in the marketplace, potentially costing the Medicaid program hundreds of millions of dollars per year. While the Deficit Reduction Act of 2005 (DRA) required that FULs be based on average manufacturer price (AMP), implementation of this policy was blocked by a federal injunction. Based on the OIG’s calculations, AMP-based FULs calculated under the DRA would significantly lessen the gap between FUL amounts and other prices. While the OIG notes that CMS’s options are limited by the injunction and legislative policy, the OIG nevertheless recommends that CMS continue to work with Congress to identify strategies that would lower “inflated” Medicaid payments for multiple-source drugs. A second OIG report, “Outlier Average Manufacturer Prices in the Federal Upper Limit Program,” reviews CMS’s FUL outlier policy, under which CMS generally will exclude the lowest AMP from the FUL calculation if it is more than 60% below the second-lowest AMP. T he OIG examined 242 FUL drugs with AMPs that would have met CMS’s outlier criterion if the changes enacted by the DRA had been in effect for January 2008. The OIG identified potential problems with some of these outlier AMPs, including discrepancies in the unit of AMP submission, inaccuracies in reporting, and the inclusion of discontinued drug products. The report includes several recommendations for improving the accuracy of the outlier policy in future FUL calculations.