CMS Paid $112M for Potentially Harmful Drugs, OIG Says

The Office of Inspector General is investigating the Centers for Medicare & Medicaid Services for paying $112 million in 2006 and 2007 for thousands of drugs. An audit of CMS revealed that the drugs were terminated or expired under Medicare Part D.

"Terminated drugs are discontinued drugs that have passed their shelf life or drugs that have been pulled from the market for health or safety reasons," the OIG said in its report.

"Such medications could be weak, ineffective, or detrimental to beneficiaries' health. However, federal regulations do not specifically prohibit coverage of terminated drugs under the Medicare Part D program," the OIG report said.

The $112 million in gross drug costs was linked to the purchase of 2,967 types of terminated drugs. Additionally, the OIG report said, federal regulations in the Medicare Prescription Drug Benefit Manual, "states that a pharmacy's act of dispensing expired drugs constitutes fraud, waste, or abuse."

The report recommends that CMS issue regulations to prohibit Medicare Part D from covering drugs that have been terminated, and in the interim, to publish a list of these drugs on its website.

But CMS does not agree. In a letter sent to Inspector General Daniel Levinson, CMS's then-acting administrator Marilyn Tavenner said, "we strongly agree that we do not want Medicare beneficiaries receiving expired or outdated drugs," and added, "we rarely see evidence to indicate that pharmacies are dispensing outdated drugs to Medicare beneficiaries."

She said the data source used in the report methodology "is likely flawed and cannot be relied upon as a proxy for identifying the dispensing of outdated products."

Rather, Tavenner wrote, the problem is most likely "imprecise pharmacy billing practices based on lack of timely access to updated coding data."

She added that "real-time electronic pharmacy billing with 11-digit NDC (National Drug Code) does not always precisely correlate with the actual product being dispensed. For example, it is not uncommon for a pharmacy to bill using an NDC for the correct drug product but the incorrect package size."

That said, Tavenner said the agency recognizes "that pharmacies should be billing with the correct NDCs and believe that transparent data on outdated NDCs could assist with eliminating the use of outdated NDCs on pharmacy claims transactions, and any potential risk of payment for actual outdated drugs." 

She added that the U.S. Food and Drug Administration should provide this information, so all databases will have the same access to the same information.

The OIG rejected Tavenner's arguments saying that OIG used "the same dates that CMS provided to states for use in determining whether drugs were eligible for reimbursement under the Medicaid drug rebate program."

States must, the OIG said, "assure that claims submitted by pharmacists are not for drugs dispensed after the termination date. These should be rejected as invalid since these drugs cannot be dispensed after this date."

"We acknowledge that a pharmacy could potentially bill for an NDC that does not precisely correlate with the product dispensed. However, when a pharmacy bills for a terminated drug, CM should reject the PEDE data, as well as the sponsor's payment, for that drug... CMS is responsible for ensuring that drugs dispensed to Part D beneficiaries are safe and effective."

The OIG report emphasizes that CMS has issued guidance to states prohibiting payment for terminated drugs under Medicaid, but has not issued any such guidance or regulation for Medicare Part D.

Each drug is required by regulation to have an expiration date to ensure the drug meets certain standards, including strength and quality, at the time of its use, so these expiration dates in effect establish a shelf life for each drug.

The OIG audit was based on approximately $115 billion in gross drugs purchased for calendar years 2006 and 2007.