Ensuring That Medicare Part D Reimbursement Is Limited to Drugs Provided for Medically Accepted Indications

We found that selected Prescription Drug Plan (PDP) sponsors lack access to information necessary for appropriate reimbursement of Part D drugs.

For outpatient drug claims to qualify for Medicare Part D reimbursement, the drugs must be provided for medically accepted indications. Medically accepted indications include both uses approved by Food and Drug Administration and uses supported by one or more of three compendia specified in the Social Security Act. CMS charges PDP sponsors with ensuring that Medicare reimbursement for Part D drugs is limited to drugs provided for medically accepted indications. In an earlier report, entitled Medicare Atypical Antipsychotic Drug Claims for Elderly Nursing Home Residents (OEI 07 08 00150), we found that half of Medicare Part D claims for atypical antipsychotic drugs received by elderly nursing home residents from January 1 through June 30, 2007, were erroneous because the claimed drugs were not provided for medically accepted indications. This finding prompted us to examine the strategies that PDP sponsors use to ensure that Part D payments for drugs are limited to those that are provided for medically accepted indications.

We found that selected PDP sponsors are unable to systematically ensure that payments for Part D drugs are limited to drugs provided for medically accepted indications because prepayment strategies are limited and postpayment reviews do not focus on medically accepted indications. We also found that the PDP sponsors do not routinely collect diagnosis information, except when using prior authorization. The PDP sponsors indicated that prior authorization is the best tool they currently have to compare the diagnosis provided by the prescriber to the medically accepted indications contained in the compendia. However, according to the selected PDP sponsors, CMS's prior authorization policy limits PDP sponsors' use of prior authorization for antipsychotic drugs. All three PDP sponsors reported using postpayment review as a general safeguard to prevent fraud and abuse. However, all three PDP sponsors indicated that these reviews do not commonly focus on medically accepted indications.

This memorandum report provides possible explanations for the 50-percent error rate for Part D payments for atypical antipsychotic drugs that we identified previously. This report also provides further support for a prior recommendation that CMS facilitate PDP sponsors' access to information necessary to ensure appropriate reimbursement of Part D claims.

We provided CMS an opportunity to review and provide comments on this memorandum report. In its written comments, CMS indicated that it does not have the statutory authority to require physicians to include diagnosis information on prescriptions, which are generally governed by State law. Further, absent diagnosis information on the prescription, pharmacies would be unable to comply with a requirement to include diagnoses on claims submitted to PDP sponsors. Moreover, CMS indicated that it is not convinced that the solution to inappropriate drug use lies with the PDP sponsors' utilization management tools, including prior authorization. CMS stated that prior authorization can be costly and burdensome. CMS further stated that the current approach, which permits PDP sponsors to use prior authorization to target drugs that are at high risk for being prescribed without a medically accepted indication, is the appropriate balance to control PDP sponsors' costs and additional burdens that excessive use of prior authorization would place on pharmacies, prescribers, and beneficiaries of Part D drugs.