CMS paying for terminated drugs, OIG audit asserts

January 15, 2011

An OIG audit concluded that CMS is paying pharmacies for dispensing terminated drugs under Medicare Part D, while CMS insists it is not.

Key Points

Two branches of the federal Department of Health and Human Services, the Centers for Medicare and Medicaid Services (CMS) and the Office of the Inspector General (OIG), are at odds over Medicare prescription-drug payments. An OIG audit concluded that CMS is paying pharmacies for dispensing terminated drugs under Medicare Part D, while CMS insists it is not. The amount in question is small, $112 million out of $115 billion paid for Part D drugs in 2006 and 2007, but OIG warned that patients could be at risk.

Terminated drugs

"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," OIG stated in its Nov. 1, 2010, report. "Such medications could be weak, ineffective, or detrimental to beneficiaries' health. Although CMS has issued guidance to States prohibiting payment for terminated drugs under Medicaid, no guidance or regulation prohibits payment for terminated drugs under Medicare Part D."

Tavenner continued that the data source used in the report is probably flawed and cannot be relied upon as a proxy for identifying the dispensing of outdated drugs. The problem is more likely to result from imprecise pharmacy billing practices.

Neither OIG nor CMS responded to requests for interviews.

2006-2007 drug rebate list

OIG obtained a list of drugs and their listed termination dates from CMS for manufacturers that participated in the Medicaid drug rebate program for 2006 and 2007. OIG then pulled prescription drug event (PDE) data that Part D plan sponsors must file with CMS for every prescription filled under Part D and compared the 2. OIG then confirmed the termination dates with drug manufacturers for the 12 terminated products with the highest gross drug costs included in Part D sponsors' PDE data. These 12 drugs accounted for 52% of the total Part D drug costs associated with terminated products, according to the OIG report.

What does that mean in the pharmacy? One sponsor submitted a PDE record for losartan potassium (Cozaar, Merck) using NDC 00006-0952-58 dispensed on November 1, 2006. OIG noted that the manufacturer had reported to CMS that NDC 00006-0952-58 (100-tablet bottle) had been discontinued and the expiration date was August 31, 2006. If correct, the dispensed drug had passed its expiration date and should not have been dispensed.

A disputed definition

"We are a little uncomfortable with the definition OIG uses for terminated drugs as it seems to be more broad than what would concern patient safety," said National Community Pharmacists Association spokesman John Norton.

"For example, a package size could have been discontinued but the drug remaining in that package is perfectly fine to dispense and the pharmacy would not have been notified of a recall. Were CMS to implement regulations prohibiting payment on Part D claims for terminated drugs, payment would have to be denied at the point of dispensing, not later during an audit."

Expired products or NDCs?

CMS is also unhappy with OIG's use of "terminated drugs." In its response, CMS noted that the expiration date submitted by manufacturers to the Medicaid program is the last date that Medicaid rebates will be due, not the product expiration.

CMS added that the only authoritative source of information for product expiration at the NDC level is held by FDA, not by Medicaid. In the losartan example, the manufacturer discontinued a 100-tablet bottle and substituted a 90-tablet bottle with a new NDC. Tavenner said the most likely explanation is that pharmacies are using outdated or inaccurate NDCs. Pharmacists often bill using NDCs that do not precisely correlate with the actual product being dispensed.