July 22, 2015

OIG Report Raises Serious Medicare Part D Fraud, Waste and Abuse Concerns

Holland & Knight Alert
Melissa A. Wong


  • The OIG raises several concerns about the ability of Medicare Part D sponsors – as well as CMS and its Medicare Drug Integrity Contractor (MEDIC) – to detect and prevent fraud, waste and abuse in Medicare Part D.
  • While acknowledging that certain efforts have strengthened Part D program integrity, the OIG recommends additional safeguards that would help sponsors, CMS and MEDIC better identify potential fraud, waste and abuse.
  • Medicare Part D sponsors and their first-tier and downstream contractors should expect greater scrutiny in specific high-risk areas identified by the OIG.

Last month, the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services released a comprehensive report and data brief detailing its concerns about the ability of Medicare Part D sponsors – as well as the Centers for Medicare & Medicaid Services (CMS) and its Medicare Drug Integrity Contractor (MEDIC) – to detect and prevent fraud, waste and abuse in Medicare Part D.1 The OIG identified two key areas for improvement, specifically: (1) the need to more effectively collect and analyze program data to identify and resolve potential fraud, waste and abuse before it occurs; and (2) the need for more robust oversight to ensure proper utilization and payment within the Part D program.

The OIG also raised additional concerns about questionable billing practices and the abuse and diversion of both controlled and non-controlled substances in Medicare Part D.

Lack of Proactive Data Analysis to Detect Fraud, Waste and Abuse

In their annual Medicare Part D reporting, sponsors may voluntarily disclose the number of specific instances of potential fraud, waste and abuse identified in the past contract year. However, only 35 percent of Part D sponsors chose to disclose this information in 2012. As a result, the data available on potential fraud, waste and abuse in the Part D program is spotty and inconsistent, hampering efforts to assess the effectiveness of overall program integrity efforts. Even when such data is made available to CMS or the MEDIC, only a small percentage of investigations and case referrals initiated by the MEDIC is based on the proactive analysis of this fraud, waste and abuse data. Instead, the MEDIC relies primarily on external sources, such as beneficiary complaints made to the MEDIC toll-free hotline, to determine which potential cases of fraud and abuse to investigate.

Questionable Billing Practices Can Indicate Part D Drug Abuse and Diversion

Since the start of the Part D program in 2006, spending on the most commonly abused Schedule II and III opioids – including oxycodone, hydrocodone-acetaminophen, fentanyl and morphine sulfate – increased 156 percent, outpacing both the growth in spending for all Part D drugs (which grew at 136 percent) and the growth in the number of Part D beneficiaries (which grew at 68 percent). The increase in spending for commonly abused opioids appears to be driven by an increase in both the number of beneficiaries receiving prescriptions for these opioids and the average number of prescriptions per beneficiary. For example, while the average number of prescriptions for Part D drugs grew by only 3 percent, the average number of prescriptions for commonly abused opioids grew by 20 percent.

The OIG also identified 1,432 retail pharmacies with questionable billing practices that indicate potentially fraudulent activity. The OIG analyzed certain measures, including the number and types of prescriptions billed, the number of prescribers associated with each beneficiary and the percentage of beneficiaries with an excessive supply of a drug. These suspect pharmacies were more likely to be independently owned and located in the New York, Miami, Los Angeles and Detroit metropolitan areas.

Finally, the OIG named several geographic hot spots where the average Medicare payment per beneficiary for certain drugs was significantly higher than the average payment nationwide. These billing practices raise questions, not only as to whether the drugs were medically necessary or were actually provided to beneficiaries, but also whether the drugs were dispensed in generic form or over the counter while being billed as the higher-priced brand drug. As just one example, the average Medicare payment per beneficiary for Solaraze, a topical ointment used to treat lesions formed as a result of sun damage, was almost nine times higher in New York than the national average – even though a generic version of the drug is available. New York alone accounted for half of all the Medicare Part D payments for Solaraze nationwide.

Insufficient Oversight by CMS and Part D Sponsors

Medicare Part D program integrity depends on several layers of oversight, where the Part D sponsor serves as the first line of defense against fraud, waste and abuse, while CMS provides oversight of plan sponsors to prevent improper payments. The OIG highlights several areas where it found insufficient oversight and monitoring on the part of both Part D sponsors and CMS. These areas include:

  • Invalid prescriber identifiers. Procedures to identify claims with invalid prescriber identifiers were inadequate and resulted in payments for drugs ordered by massage therapists, athletic trainers and other individuals who clearly did not have the ability to prescribe.
  • Drugs prescribed by excluded providers. Program controls failed to prevent payment for drugs prescribed by excluded providers.
  • Payments for Schedule II refills. Sponsors lacked sufficient controls to prevent Schedule II drug refills, which are prohibited by federal law.
  • Payments after death of beneficiary. Even though CMS implemented an automated process to prevent Part D payments after the death of a beneficiary in 2011, CMS still allowed Part D payments on behalf of 5,101 deceased beneficiaries.
  • Oversight mechanisms. When sponsors voluntarily reported instances of potential fraud and abuse, CMS did not follow up with sponsors about their monitoring and oversight capabilities. In instances where law enforcement agencies declined to take action on cases referred by the MEDIC, CMS did not have a mechanism to recover inappropriate payments on its own. Finally, despite sponsor audits and self-assessments, CMS failed to detect weaknesses in Part D sponsors' compliance plans.

OIG Recommendations for Part D Program Integrity and What to Expect

Although the OIG acknowledges several measures already implemented by CMS and Part D sponsors to help enhance program integrity within Medicare Part D, the OIG cites several recommendations that remain unimplemented. Medicare Part D sponsors and their first-tier and downstream contractors may expect further action from CMS in the following areas:

  • Mandatory reporting of potential fraud and abuse. The OIG suggests mandatory reporting of all instances of potential fraud and abuse, as well as the corrective actions sponsors take in response to these incidents. However, it is worth noting that CMS' Part D Reporting Requirements for 2015 suspends even the voluntary reporting of potential fraud and misconduct for this most recent plan year. Continued monitoring for future guidance from CMS on the reporting of potential fraud, waste and abuse and corrective actions is suggested.
  • Expansion of drug utilization review. Drug utilization reviews may be expanded to include additional drugs that are highly susceptible to fraud, waste and abuse.
  • Controls to prevent payment for Schedule II refills and prescriptions written by excluded providers. The OIG recommends a claims processing edit to automatically reject prescriptions written by excluded providers, as well as a method to exclude claims associated within improper Schedule II refills from end-of-year payment reconciliation.
  • "Lock-In" restrictions for certain beneficiaries. Similar to current practices in some state Medicaid programs, the OIG suggests restricting certain beneficiaries to a limited number of pharmacies or prescribers when warranted by excessive or questionable billing practices.
  • Payment recovery mechanisms. CMS may establish a mechanism to recover inappropriate payments on its own when law enforcement agencies decline to accept a case referral from the MEDIC.
  • Increased OIG investigation and audit activity. The OIG intends to conduct audits and investigations for at least the 1,400-plus pharmacies with questionable billing practices, and will refer those pharmacies to CMS and law enforcement agencies as appropriate.  
  • Closer evaluation of sponsor compliance programs. We may expect greater scrutiny by CMS of sponsor's compliance plans to ensure that all regulatory requirements and CMS guidance are sufficiently addressed, and that the compliance program is implemented in a way that helps sponsors protect Part D program integrity.

We will continue to monitor OIG and CMS guidance on the detection and prevention of fraud, waste and abuse in Medicare Part D. 


1 OIG Portfolio Report, "Ensuring the Integrity of Medicare Part D," OEI-03-15-00180 (June 2015), and OIG Data Brief, "Questionable Billing and Geographic Hotspots Point to Potential Fraud and Abuse in Medicare Part D," OEI-02-15-00190 (June 2015).

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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