Department of Health and Human Services
  
OFFICE OF 

 
INSPECTOR GENERAL 

 
 
 
 
 
 
 
G O
APS IN  VERSIGHT OF 

 
C   I
ONFLICTS OF  NTEREST IN 

 
M  P  
EDICARE  RESCRIPTION
 
 
D D
RUG  ECISIONS
 
 
Daniel R. Levinson 
  
Inspector General
  
 
March 2013
  
OEI-05-10-00450 
  
     
EXECUTIVE SUMMARY:  GAPS IN OVERSIGHT OF CONFLICTS OF 
INTEREST IN MEDICARE PRESCRIPTION DRUG DECISIONS 
OEI-05-10-00450 
 
WHY WE DID THIS STUDY 
Federal law and regulations require Medicare Part D Pharmacy and Therapeutics (P&T) 
committees to make prescription drug coverage decisions based on scientific evidence 
and standards of practice.  Formulary decisions affect beneficiaries access to specific 
prescription drugs and the cost of drugs to beneficiaries and the Federal Government.  To 
comply with the law, sponsors P&T committees must prevent conflicts of interest from 
influencing members to give preference to certain drugs.  In addition, sponsors 
P&T committees must comply with Federal law and regulations that specifically address 
conflicts on P&T committees by requiring that at least one physician and at least one 
pharmacist on each committee be independent and free of conflict relative to the sponsor 
and pharmaceutical manufacturers. 
 
HOW WE DID THIS STUDY 
We conducted a document review and analyzed survey responses from P&T committees 
to determine the extent to which they defined, determined, and managed conflicts of 
interest.  We also conducted structured interviews with staff at the Centers for Medicare 
& Medicaid Services (CMS) to determine the extent to which CMS oversees Medicare 
Part D P&T committees compliance with the requirement that at least two members be 
independent and free of conflict and whether CMS oversees members recusals. 
 
WHAT WE FOUND 
Sponsors P&T committees have limited oversight of committee members conflicts of 
interest, compromising sponsors ability to prevent financial interests from influencing 
coverage decisions.  Most sponsors P&T committees have limited definitions of 
conflicts of interest, which could prevent them from identifying conflicts.  Also, many 
sponsors P&T committees allow their members to determine and manage their own 
conflicts.  Additionally, CMS does not adequately oversee sponsors compliance with the 
requirement that at least two members on each P&T committee be independent and free 
of conflict relative to the sponsor and pharmaceutical manufacturers. 
 
WHAT WE RECOMMEND 
We recommend that CMS:  (1) define pharmacy benefit managers as entities that could 
benefit from coverage decisions, (2) direct sponsors to ensure that safeguards are in place 
to mitigate improprieties related to employment by the entity managing the 
P&T committee, (3) direct sponsors to ensure that an objective process is used to 
determine conflicts, (4) direct sponsors to ensure that an objective process is used to 
manage conflicts, and (5) oversee sponsors compliance with the requirement that at least 
two committee members be independent and free of conflict.  CMS did not concur with 
our first and second recommendations, concurred with part of our third and fourth 
recommendations, and concurred with our fifth recommendation. 
 
 
   
     
TABLE OF CONTENTS 
 
Objectives ....................................................................................................1 
Background ..................................................................................................1 
Methodology ..............................................................................................10 
Findings......................................................................................................13 
Most sponsors P&T committees had limited definitions of 
conflicts of interest, which could prevent them from identifying 
conflicts ..........................................................................................13 
Many sponsors P&T committees allowed members to determine 
and manage their own conflicts of interest ....................................15 
CMS does not adequately oversee sponsors P&T committee 
compliance with Federal conflict-of-interest requirements ...........16 
Conclusion and Recommendations ............................................................18 
Agency Comments and Office of Inspector General Response .....22 
Appendixes ................................................................................................25 
A:  Potential Sponsor and Pharmacy and Therapeutics Committee 
Relationships ..................................................................................25 
B:  Pharmacy and Therapeutics Committee Member Disclosure 
Form ...............................................................................................26 
C:  Agency Comments ...................................................................27 
Acknowledgments......................................................................................32 
 
 
 
 
 
 
 
 
   
     
OBJECTIVES 
1.    To assess sponsors Pharmacy and Therapeutics (P&T) committees 
conflict-of interest-definitions. 
2.    To determine whether sponsors P&T committees established 
objective processes to determine and manage committee members 
conflicts of interest. 
3.    To determine whether the Centers for Medicare & Medicaid Services 
(CMS) oversee sponsors P&T committee compliance with conflict-
of-interest requirements. 
BACKGROUND 
Federal law and regulations require Medicare Part D P&T committees to 
make prescription drug coverage decisions based on scientific evidence 
and standards of practice.  Coverage decisions affect beneficiaries access 
to specific prescription drugs and the cost of drugs to beneficiaries and the 
Federal Government.  To ensure that coverage decisions are appropriate, 
sponsors P&T committees must prevent members from giving preference 
to certain drugs based on their personal financial interests.  In addition, 
sponsors P&T committees must comply with Federal law and regulations 
that specifically address conflicts on P&T committees by requiring that at 
least one physician and at least one pharmacist on each committee be 
independent and free of conflict relative to the sponsor and pharmaceutical 
manufacturers. 
Research has shown that financial interests between the pharmaceutical 
industry and health care professionals are common.  There is evidence of 
pervasive conflicts of interest among pharmaceutical manufacturers and 
health care practitioners, researchers, and educators.1, 2  For example, a 
national survey in 2009 found that 84 percent of practicing physicians 
reported some type of financial interest in the pharmaceutical industry.3 
Evidence suggests that financial relationships may improperly influence 
medical decisionmaking.  For example, physicians who accepted money 
 
1 Bernard Lo and Marilyn J. Fields (eds.), Conflict of Interest in Medical Research, 
Education, and Practice, Institute of Medicine of the National Academies, 2009. 
2 Medical Research and Education:  Higher Learning or Higher Earning?:  Hearing 
Before the U.S. Senate Special Committee on Aging, 111th Congress 2009, Statement of 
Eric G. Campbell, Associate Professor and Director of Research, Institute for Health 
Policy, Massachusetts General Hospital and Harvard Medical School. 
3 Eric G. Campbell et al., Physician Professionalism and Changes in Physician-Industry 
Relationships From 20042009, Archives of Internal Medicine, vol. 170, no. 20, 
November 8, 2010, pp. 18201826. 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  1 
   
     
from pharmaceutical manufacturers were much more likely than others to 
have requested that drugs manufactured by those companies be added to 
hospital formularies.4 
Medicare Part D 
Medicares prescription drug program, known as Part D, provides optional 
drug benefits to Medicare beneficiaries.5  CMS contracts with private 
insurance companies, called sponsors, to provide Part D prescription drug 
coverage to beneficiaries who choose to enroll.  Sponsors offer drug 
coverage to beneficiaries through Part D prescription drug plans.  As of 
March 2012, approximately 31 million beneficiaries were enrolled in 
Part D plans.6 
Part D Formularies 
Sponsors can use a variety of methods to control the cost of providing 
prescription drug coverage through the Part D program.  Sponsors can 
establish formularies, or lists of covered drugs, to give preference to 
certain drugs over others that treat the same condition.  Formularies are 
generally organized into tiers, which have different copayments to drive 
utilization toward less-expensive drugs.  Drugs in lower tiers are typically 
the least expensive and have the lowest beneficiary copayment.  Drugs in 
ascending tiers are, in general, more expensive and have increasing 
beneficiary copayments.  For example, a low-cost generic drug on Tier 1 
may require a $5 copayment, a preferred brand-name drug on Tier 2 may 
require a $40 copayment, a nonpreferred brand-name drug on Tier 3 may 
require a $90 copayment, and specialty drugs on Tier 4 may require 
coinsurance for 30 percent of the drugs cost. 
Sponsors can employ utilization management practices, such as prior 
authorization, quantity limits, and generic substitution, to restrict the use 
of certain drugs on their formularies.  For example, sponsors may require a 
beneficiary to try a less-expensive alternative drug before progressing to a 
costlier drug.  Sponsors also can negotiate price concessions with 
pharmaceutical manufacturers to reduce the cost of prescription drugs for 
sponsors and beneficiaries. 
Sponsors may contract with one or more pharmacy benefit managers 
(PBM) to help them manage their formularies and other aspects of their 
 
4 Mary-Margaret Chren and C. Seth Landefeld, Physicians Behavior and Their 
Interactions With Drug Companies, Journal of the American Medical Association 
(JAMA), vol. 271, no. 9, March 1994, pp. 684689. 
5 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 
P.L. 108-173  101; Social Security Act,  1860D-1; U.S.C.  1395w-101. 
6 CMS, Medicare Advantage, Cost, PACE, Demo, and Prescription Drug Plan Contract 
Report - Monthly Summary Report (Data as of March 2012).  Accessed at 
http://www.cms.gov on April 10, 2012. 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  2 
   
     
prescription drug benefit.  PBMs offer a wide variety of services including 
managing formularies, processing prescription drug claims, contracting 
with pharmacies, and negotiating price concessions with pharmaceutical 
manufacturers for particular drugs.7  PBMs can be compensated for these 
services in a number of ways, one of which is retaining a percentage of 
price concessions that they negotiate on behalf of sponsors.8 
Sponsors are responsible for complying with Federal requirements and all 
terms and conditions of their Part D contracts with CMS, even if the 
sponsor has delegated responsibilities for managing the formulary to a 
PBM.9, 10  Sponsors must have contracts with their Part D contractors, 
including PBMs, to ensure that the contractors comply with all applicable 
Federal laws and regulations and with CMS instructions.11 
P&T Committees 
Sponsors that use formularies for their Part D plans are required by 
Federal law to maintain P&T committees.12  Sponsors either manage their 
own formularies and, therefore, maintain the P&T committee; or contract 
out these functions to a PBM.  Maintaining P&T committees could 
involve, among other functions, selecting members, appointing an 
individual to chair the committee, and creating the policies and 
administrative procedures that govern the committee. 
P&T committees role is to make clinical decisions about which drugs are 
on Part D plan formularies; many of these decisions are binding on the 
Part D plan.  Per Federal regulations, sponsors are required to follow the 
decisions that P&T committees make regarding which drugs to include on 
the formulary.13, 14  However, sponsors can decide which formulary tier to 
place these drugs on, based on the recommendation of their 
P&T committees.15  Sponsors also must adhere to the P&T committees 
decisions regarding prescription drug utilization management practices.16 
 
7 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 9,  10.1. 
8 Office of Inspector General (OIG), Concerns With Rebates in the Medicare Part D 
Program, OEI-02-08-00050, March 2011. 
9 42 CFR  423.505(i). 
10 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 6,  30.1.3. 
11 42 CFR  423.505(i)(4)(iv). 
12 Section 1860D-4(b)(3)(A) of the Act; some plan types, such as the Program of 
All-Inclusive Care for the Elderly (PACE) plans, do not routinely use formularies to 
manage prescription drug utilization and therefore do not have P&T committees. 
13 42 CFR 423.120(b)(1). 
14 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 6,  30.1.5. 
15 42 CFR  423.120(b)(1). 
16 42 CFR  423.120(b)(1)(ix). 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  3 
   
     
When determining whether to include a drug on a formulary, Federal law 
requires P&T committees to base clinical decisions on the strength of 
scientific evidence and standards of practice.17  For example, when voting 
to include a drug, P&T committees must consider whether the addition of 
that drug has therapeutic advantages in terms of safety and efficacy.18  
Cost considerations should be secondary to the determination of clinical 
efficacy and appropriateness of drugs.19 
P&T committees typically make formulary decisions for multiple Part D 
plans.  In general, we found that one P&T committee makes decisions for 
all the Part D plans managed by a sponsor or a PBM.  See Appendix A for 
an illustration of how one P&T committee can provide services to multiple 
Part D sponsors and plans. 
P&T committees vary in size.  Our analysis showed that in 2010, 
P&T committees ranged from 3 to 62 members, with an average of 16. 
Sponsors and PBMs may compensate their P&T committee members for 
serving on the committee and for standard expenses incurred while 
attending committee meetings.  P&T committee members who were not 
employees of the sponsor or the PBM managing the P&T committee were 
paid, on average, $2,404 in 2010 for serving on the committee. 
P&T Committee Conflicts of Interest 
Federal law, regulations, and CMS guidance provide limited direction on 
how P&T committees should handle conflicts of interest.  Federal law and 
regulations restrict some P&T committee members from having conflicts 
of interest with certain entities.  They do not explicitly stipulate what 
constitutes a conflict.  Beyond that, CMS guidance provides some general 
expectations for the disclosure of conflicts and recusal of P&T committee 
members with conflicts. 
As the entities that contract with CMS to provide prescription drug 
coverage to Medicare beneficiaries, sponsors are responsible for ensuring 
that all Federal laws and regulations pertaining to P&T committee 
members conflicts are followed.  Although sponsors are ultimately 
responsible, entities that maintain the P&T committees establish the 
policies and procedures governing the definition, disclosure, 
determination, and management of P&T committee conflicts.  These 
policies and procedures are unique to each P&T committee, not to each 
sponsor. 
 
17 42 U.S.C. 1395w-104(b)(3)(B). 
18 Ibid. 
19 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 9,  50.2.1.2. 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  4 
   
     
Definition.  Federal law and regulations address conflicts of interest with 
respect to P&T committees by defining members of the committees who 
must be free of conflict and the entities with which they must be free of 
conflict.  The law stipulates that at least one physician and at least one 
pharmacist on each P&T committee be free of conflict relative to the 
sponsor and Part D plan.20  Therefore, a minimum of two members on 
each P&T committee must be independent from the sponsor and Part D 
plan.  However, CMS explained in the preamble to the 2005 Final Rule 
that this requirement should be viewed as a floor which we encourage 
them to exceed.21  Regulations expand the law by including 
pharmaceutical manufacturers as entities from which at least two members 
must be independent.22, 23 
Federal law and regulations and CMS guidance do not explicitly define 
what constitutes a conflict with sponsors, Part D plans, and pharmaceutical 
manufacturers.  However, CMS provides limited direction on what may be 
considered a conflict with pharmaceutical manufacturers.  In the Medicare 
Prescription Drug Benefit Manual, CMS states that certain relationships 
with pharmaceutical manufacturers may still be considered independent 
and free of conflict.  Specifically, P&T committee members who have 
nonemployee relationships with pharmaceutical manufacturers that do not 
constitute significant sources of income may still be considered 
independent.  Such nonemployee relationships with pharmaceutical 
manufacturers could be advisory or involve consulting or research.24 
The law, regulations, and guidance do not address P&T committee 
members financial interests with any other entities involved in 
implementing the Part D program, such as PBMs.  While CMS suggests in 
the preamble to the Final Rule that a conflict of interest is any direct or 
indirect financial interest in any entity ... that would benefit from 
decisions regarding plan formularies, the regulations specify only 
sponsors and pharmaceutical manufacturers; they do not specifically list 
PBMs.25, 26 
Disclosure and Determination.  CMS recommends that P&T committee 
members disclose financial interests by signing and continually updating 
 
20 42 U.S.C. 1395w-104(b)(3)(A)(ii). 
21 70 Fed. Reg. 4255, 4256 (Jan. 28, 2005). 
22 42 CFR  423.120(b)(1)(ii). 
23 In the subsequent Health Plan Management System Basic Contract Management 
Technical Users Manual, CMS defines sponsor to include both the sponsor and the    
Part D plan. 
24 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 6,  30.1.1. 
25 70 Fed. Reg. 4255, 4256 (Jan. 28, 2005). 
26 42 CFR  423.120(b)(1)(ii). 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  5 
   
     
conflict-of-interest statements to reveal financial or other relationships 
with entities affected by drug coverage decisions.27, 28  CMS explains in the 
preamble to the Final Rule that it expects P&T committee members to sign 
conflict-of-interest statements that are consistent with industry standards 
for conflict-of-interest disclosures.29  However, CMS does not specify 
which industry standards to follow. 
CMS does not provide any guidance on how disclosed financial interests 
are to be reviewed to determine whether they constitute conflicts of 
interest. 
Recusal.  While at least two members on each P&T committee must be 
free of conflict with sponsors and pharmaceutical manufacturers, the 
remaining members can have conflicts of interest.  In the preamble to the 
Final Rule, CMS explains that it expects procedures to be established that 
are consistent with standard industry practice for recusing P&T committee 
members from discussions or votes if a particular drug presents a conflict 
of interest.30  However, CMS does not specify which industry standards to 
follow.  CMS does explain that implementing recusal procedures is 
necessary to ensure that formulary decisions are based on scientific 
evidence and standards of practice.31 
CMS Oversight of P&T Committee Conflicts of Interest 
CMS requires sponsors to attest on their initial Part D applications that the 
membership of their P&T committees will include at least one practicing 
physician and at least one practicing pharmacist, both of whom are free of 
conflict with the sponsor and pharmaceutical manufacturers.32 
Additionally, sponsors must report membership information for their 
P&T committees on their initial Part D applications or ensure that their 
PBM reports this information on their behalf.33, 34  This information 
includes the names of all P&T committee members and the start and end 
dates of their service on the committee.  It also includes whether each 
committee member is free of any conflict of interest with the organization 
 
27 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 6,  30.1.2. 
28 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 9,  50.2.1.2. 
29 70 Fed. Reg. 4255, 4257 (Jan. 28, 2005). 
30 70 Fed. Reg. 4255, 4256 (Jan. 28, 2005). 
31 Ibid. 
32 CMS, Medicare Prescription Drug Benefit:  Solicitation for Applications for New 
Prescription Drug Plans (PDP) Sponsors, 2011 Contract Year. 
33 Ibid. 
34 CMS, Health Plan Management System Basic Contract Management Technical Users 
Manual, Plan Version 1.0, January 5, 2010. 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  6 
   
     
or pharmaceutical manufacturer.35, 36  (See Appendix B for an example of 
the membership information reported.) 
To report conflict-of-interest information to CMS, sponsors or their 
contracted PBMs obtain information about P&T committee members 
financial interests using conflict-of-interest statements.  These statements 
are not required to be submitted to CMS. 
CMS also requires sponsors to report whether they maintain the 
P&T committee or contract with a PBM to do so.  If sponsors contract 
with a PBM, they also must report the name of the contracted PBM and 
whether the P&T committee operates under a confidentiality 
agreement.37, 38 
When sponsors and PBMs enter into confidentiality agreements, PBMs 
report their P&T committee members names, service dates, and 
conflict-of-interest information directly to CMS.39  They do not disclose 
this information to the sponsors.40 
CMS requires sponsors or their contracted PBMs to report updates relating 
to their P&T committees at least annually.41  Updates can include changes 
to P&T committee membership, confidentiality agreement status, or the 
entity that maintains the P&T committee.  If a new P&T committee 
member is added, all of the members information that would have been 
initially reported is included in this update. 
 
35 Federal regulation states that at least one practicing physician and at least one 
practicing pharmacist must be independent and free of conflict relative to the sponsor and 
pharmaceutical manufacturers.  However, the Member Disclosure Form in the Part D 
application requests sponsors to provide information on whether these P&T committee 
members are free of conflict relative to the organization and pharmaceutical 
manufacturers.  The CMS Health Plan Management System Basic Contract Management 
Technical Users Manual indicates that organization refers to the sponsor. 
36 CMS, Medicare Prescription Drug Benefit:  Solicitation for Applications for New 
Prescription Drug Plans (PDP) Sponsors, 2011 Contract Year. 
37 CMS, Medicare Part D Reporting Requirements, January 1, 2010.  Accessed at 
http://www.cms.gov on August 16, 2010. 
38 CMS, Medicare Part D Reporting Requirements:  Technical Specifications Document 
Contract Year 2010, January 1, 2010.  Accessed at http://www.cms.gov on September 10, 
2010. 
39 CMS, Medicare Prescription Drug Benefit:  Solicitation for Applications for New 
Prescription Drug Plans (PDP) Sponsors, 2011 Contract Year. 
40 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 6,  30.1.3. 
41 CMS, Medicare Part D Reporting Requirements, January 1, 2010.  Accessed at 
http://www.cms.gov on August 16, 2010. 
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CMS states that it may apply new or adjust existing quality assurance 
checks on the P&T committee information reported by sponsors.42  These 
checks are used by CMS to identify outliers or data that are potentially 
erroneous.43 
CMS Oversight of Formularies 
CMS reviews and approves the formularies designed by P&T committees.  
CMSs review focuses on ensuring that formularies provide access to a 
range of Part D drug choices.44  CMS checks the formularies to make sure 
they meet accepted pharmaceutical standards and include drugs from 
different therapeutic categories.45  CMS generally does not review 
formularies for individual drugs.  However, it does review individual 
drugs identified to treat some specific diseases and drugs in classes of 
clinical concern.46 
CMSs formulary review also is designed to ensure that it does not 
substantially discourage any group of beneficiaries from enrolling in the 
Part D plan.47  For example, if formularies place certain types of drugs 
only on tiers that require expensive beneficiary copayments, some 
beneficiaries might be discouraged from enrolling in the Part D plan.  
CMS generally reviews the formulary to make sure that low-cost drugs are 
available on low formulary tiers, which typically have the lowest 
copayments.  CMS also checks that only high-cost drugs (over $600) are 
placed on the specialty tier, which typically has the highest copayments. 
CMS also conducts targeted audits of sponsors to verify that approved 
formularies are being administered appropriately and that drug coverage 
decisions are based on scientific evidence.48  During targeted audits, CMS 
reviews the development of a Part D plans formulary by reviewing 
documents that would show the P&T committees decisions regarding 
which drugs to cover and the scientific evidence used to support those 
 
42 CMS, Medicare Part D Reporting Requirements:  Technical Specifications Document 
Contract Year 2010, January 1, 2010.  Accessed at http://www.cms.gov on September 10, 
2010. 
43 Ibid. 
44 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 6,  30.2. 
45 Ibid. 
46 CMS is required by the Patient Protection and Affordable Care Act to identify 
categories and classes of drugs that are of clinical concern.  Until CMS determines these 
categories and classes, all, or substantially all, drugs from the following six protected 
classes as specified by the Medicare Improvements for Patients and Providers Act must 
be included on Part D formularies:  immunosuppressant for the treatment of transplant 
rejection, antidepressant, antipsychotic, anticonvulsant, antiretroviral, and antineoplastic. 
47 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 6,  30.2. 
48 CMS, Medicare Part C & Part D Universal Audit Guide, Version 1, Appendix H.3:  
Audit Methodology Formulary Administration, October 28, 2009. 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  8 
   
     
decisions.49  CMS also may conduct an interview with the sponsor, asking 
questions related to whether the P&T committee appropriately developed 
the formulary.50  CMS also may review P&T committee meeting minutes 
to determine whether the P&T committee reviewed utilization 
management practices for clinical appropriateness.51  In 2010, CMS did 
not review P&T committee conflicts of interest as part of its targeted 
audits.  However, for 2012, CMS added an optional conflict-of-interest 
review to its audit protocols.  If CMSs targeted audit findings relate to the 
role of the P&T committee, then CMS reviews a list of P&T committee 
members to determine whether at least one practicing physician and at 
least one practicing pharmacist are independent and free of conflict with 
the sponsor and pharmaceutical manufacturers. 
Related Work 
OIG has issued numerous reports examining the oversight of conflicts of 
interest in the Department of Health and Human Services (HHS)52 and 
several HHS agencies, including the National Institutes of Health,53, 54 the 
Centers for Disease Control and Prevention (CDC),55 and the Food and 
Drug Administration.56  We made recommendations to all of these 
agencies to strengthen their oversight of conflicts of interest. 
 
49 CMS, Medicare Part C & Part D Universal Audit Guide, Version 1, Appendix H.3:  
Audit Methodology Formulary Administration, October 28, 2009. 
50 CMS, Medicare Part C & Part D Universal Audit Guide, Version 1, Appendix L.3:  
Interview Guide, Part D Formulary Administration, October 28, 2009. 
51 CMS, Medicare Part C & Part D Universal Audit Guide, Version 1, Appendix H.3:  
Audit Methodology Formulary Administration, October 28, 2009. 
52 OIG, Conflict-of-Interest Waivers Granted to HHS Employees in 2009, OEI-04-10-
0010, August 2011. 
53 OIG, National Institutes of Health:  Conflicts of Interest in Extramural Research,   
OEI-03-06-00460, January 2008. 
54 OIG, How Grantees Manage Financial Conflicts of Interest in Research Funded by the 
National Institutes of Health, OEI-03-07-00700, November 2009. 
55 OIG, CDCs Ethics Program for Special Government Employees on Federal Advisory 
Committees, OEI-04-07-00260, December 2009. 
56 OIG, The Food and Drug Administrations Oversight of Clinical Investigators 
Financial Information, OEI-05-07-00730, January 2009. 
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METHODOLOGY 
Scope 
This study focuses on sponsor and CMS oversight in 2010 intended to 
ensure that formulary decisions are not biased by conflicts of interest.  
With respect to sponsor oversight, this evaluation reviewed 
P&T committee procedures for defining and determining conflicts of 
interest, and for managing members conflicts of interest through recusal.  
With respect to CMS oversight, this evaluation examined how CMS 
oversees sponsors compliance with the Federal requirement that at least 
two members on each P&T committee be free of conflict. 
In addition to reviewing oversight, we originally planned to verify that at 
least two members on each P&T committee were free of conflict.  We 
collected the P&T committee data from CMS to determine whether 
sponsors complied with Federal regulations.  Had these data been 
accurate, we could have used them to determine compliance.  However, 
our review of the P&T committee data revealed numerous discrepancies 
and made us question their accuracy.  Ultimately, we decided the 
information was unreliable. 
This study focused on Part D plans to which Federal P&T committee 
conflict-of-interest requirements uniformly applied.  As such, we did not 
review PACE plans because they do not routinely use formularies and 
therefore do not routinely have P&T committees. 
Data Sources and Collection 
We collected information on sponsor oversight through a survey of 
P&T committees and a review of their policies.  We collected information 
on CMS oversight through structured interviews. 
We collected information by P&T committee, rather than by sponsor, 
because the policies and procedures governing P&T committee conflicts 
of interest are generally unique to each P&T committee and not 
necessarily unique to the sponsor.  In fact, one sponsor may deal with 
several different P&T committees, each governed by its own set of 
policies and procedures related to conflicts of interest.  This may occur 
when a sponsor contracts with a PBM to maintain the P&T committee for 
some, but not all, of its Part D plans.  See Appendix A for an illustration of 
how sponsors may have multiple P&T committees.  A single 
P&T committee maintained by a PBM also may serve multiple Part D 
plans, either for one sponsor or multiple sponsors. 
CMS Data.  We obtained Part D information from CMSs Health Plan 
Management System (HPMS) for all 682 contracts with sponsors in 2010.  
We removed two contracts because CMS terminated them midway 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  10 
   
     
through 2010.  This resulted in a population of 680 contracts with 
sponsors that were associated with 117 P&T committees. 
Survey and Document Request.  In January 2011, we conducted an online 
survey of the 117 P&T committees to determine their procedures for 
defining, determining, and managing conflicts by recusing members with 
conflicts. 
To direct our survey to the correct entity, we first identified which entity
sponsor or PBMmaintained the plans P&T committee.  Because CMSs 
data were unreliable, we contacted each entity listed in HPMS as 
maintaining a P&T committee to verify that it did so.  If the entity 
indicated that the information was incorrect, we asked it to identify the 
correct entity that maintained the P&T committee.  We contacted the 
second entity to confirm that it was correctly identified.  We also 
confirmed this information by sending a letter to all entities listed as 
maintaining a P&T committee. 
As part of the survey, we asked P&T committees to report the size of their 
membership and whether members included employees of sponsors and 
PBMs.  We made one followup attempt by telephone.  We received 
113 complete surveysa 97-percent response rate. 
We requested supporting documents for key survey questions to confirm 
how sponsors determine and manage P&T committee conflicts of interest.  
This documentation included conflict-of-interest statements, conflict-of-
interest policies, and recusal policies.  Two P&T committees did not 
submit documentation; therefore, we removed them from our analysis of 
survey questions that required survey documentation. 
Structured Interviews.  We conducted structured interviews with CMS 
staff regarding its oversight of sponsor compliance with P&T committee 
conflict-of-interest requirements and its oversight of sponsors 
formularies.  We conducted these interviews between September 2010 and 
September 2011. 
Analysis 
We analyzed the information we collected to determine the extent to which 
conflicts of interest were defined, determined, and managed.  We analyzed 
the survey responses and extensively reviewed the submitted documents to 
develop our findings.  When making our determinations, we relied 
primarily on the documentation, even when it conflicted with the survey 
responses. 
When analyzing conflict-of-interest definitions, we compared them to the 
broader restriction in the Federal regulations.  As previously stated, the 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  11 
   
     
regulations refer to conflicts of interest with sponsors and pharmaceutical 
manufacturers.  Federal law references only sponsors and plans. 
We analyzed the P&T committee information reported to CMS and 
ascertained that this information was unreliable.  We determined the data 
were unreliable by identifying internal inconsistencies in the data as well 
as discrepancies with other data sources.  We then analyzed the data to 
determine the extent of the inaccuracies.  We analyzed the number of 
P&T committee members reported to CMS for each Part D plan to 
determine the extent of discrepancies.  We analyzed the information that 
lists which entity maintained the P&T committee to determine the extent 
of its accuracy. 
We analyzed CMS interview responses to determine the extent to which 
CMS:  (1) reviewed reported P&T committee conflict-of-interest 
information and (2) used any other means to oversee P&T committee 
members conflicts. 
Data Limitations 
The document review we conducted accounted only for written policies.  
It did not account for unwritten practices.  For survey questions that did 
not require supporting documentation, this report relies on self-reported 
data. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency. 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  12 
   
     
FINDINGS 
Most sponsors P&T committees had limited 
definitions of conflicts of interest, which could prevent 
them from identifying conflicts 
To comply with Federal law and regulations, P&T committees must make 
prescription drug formulary decisions based on scientific evidence and 
standards of practice.  One way that the regulations attempt to ensure that 
this happens is to require that at least two P&T committee members be 
free of conflict with sponsors and pharmaceutical manufacturers.  In 
addition, CMS suggests that financial interests in any entity that would 
benefit from formulary decisions could constitute a conflict.  Therefore, to 
capture all possible conflicts, P&T committees understanding of what 
constitutes a conflict of interest should include financial interests in 
sponsors and pharmaceutical manufacturers and with other entities that 
could benefit from formulary decisions.  If P&T committee definitions do 
not include these factors, committees may not be able to identify potential 
conflicts that could compromise the independence of a P&T committees 
formulary decisions. 
Half of P&T committees definitions did not address conflicts 
prohibited by Federal regulations 
Fifty-three percent of P&T committees reported their definitions did not 
include any financial interests with either sponsors or pharmaceutical 
manufacturers as conflicts of interest.  These committees conflict-of-
interest definitions failed to include at least one of the entities specified by 
Federal regulation.  Six percent of P&T committees reported their 
definitions did not include any financial interests with both sponsors and 
pharmaceutical manufacturers as conflicts, as specified by Federal 
regulations. 
Most P&T committees (52 percent) reported that their definitions did not 
consider any members financial interests in sponsors to be conflicts of 
interest.  Sponsors are defined in both Federal law and regulations as 
potential sources of conflict. 
A much smaller percentage (7 percent) of P&T committees definitions 
failed to consider any financial interests in pharmaceutical manufacturers 
to be conflicts of interest. 
 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  13 
   
     
P&T committees definitions did not always address 
relationships with other entities that could benefit from 
formulary decisions 
P&T committees did not always include relationships with PBMswhich 
could benefit from formulary decisionsin their definitions of conflicts of 
interest.  Thirty-three percent of P&T committees reported that they did 
not define any financial interests in PBMs as conflicts.  P&T committees 
did not always include relationships with PBMs, even when PBMs were 
performing Part D functions.  Of the 22 P&T committees maintained by 
PBMs, more than two-thirds reported that they did not define any financial 
interests in PBMs as conflicts. 
Although regulations do not reference financial interests in PBMs as 
possible conflicts of interest, in the preamble to the Final Rule, CMS states 
that a conflict is any direct or indirect financial interest in any entity that 
would benefit from formulary decisions.  Because PBMs perform Part D 
functions on behalf of sponsors, they can benefit from formulary decisions 
in the same way that sponsors can benefit from formulary decisions.  For 
example, financial interests in the PBM that maintains the P&T committee 
and negotiates price concessions on behalf of the sponsors could influence 
a committee member to favor drugs made by pharmaceutical 
manufacturers with which the PBM has negotiated an arrangement 
advantageous to the PBM. 
More than two-thirds of P&T committees definitions did not 
address employment 
Sixty-eight percent of P&T committees did not view employment by the 
entity that maintains the committee as a potential source of conflict or 
bias.  Overall, 88 percent of P&T committees had such employees serving 
as members.  The percentage of employees serving on P&T committees 
ranged from 4 to 97 percent, with a median of 38 percent. 
Although regulations do not specify employment as a conflict, 
P&T committees that do not address employment could be overlooking 
potential conflicts among their P&T committee members.  These 
committees could be at risk of not having at least two members who are 
independent and free of conflict, as required by law.  They also could be at 
risk of not appropriately managing conflicts of interest among employees.  
For example, depending on their positions, certain employees serving on 
P&T committees could be privy to information about drug selections that 
are in the best interest of their employer.  This could bias their committee 
discussions and influence the way they vote on formulary decisions.  
While employees may not introduce this bias intentionally to promote 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  14 
   
     
their own financial interests, they might do so to serve the best interests of 
their employers. 
Many sponsors P&T committees allowed members to 
determine and manage their own conflicts of interest 
Fifty-nine percent of sponsors P&T committees allowed committee 
members to determine their own conflicts and manage them through 
recusal.  By relying on members to determine and manage their own 
conflicts, sponsors P&T committees may not be able to ensure that 
formulary decisions are based on scientific evidence and are not biased by 
financial interests.  Regulations do not require sponsors P&T committees 
to have policies and procedures to ensure that committee member conflicts 
are determined and managed objectively.  However, relying on 
P&T committee members to determine and manage their own conflicts 
makes intentional misreporting easier and allows for unintentional 
misreporting because of a misunderstanding or misapplication of 
sponsors P&T committee policies. 
Nearly two-thirds of P&T committees relied on members to 
determine whether financial interests constituted conflicts 
Overall, 65 percent of P&T committees relied on committee members to 
determine whether their financial interests constituted conflicts of interest.  
Eight percent of P&T committees had a conflict determination process that 
designated members as the parties responsible for determining whether 
their own financial interests should be considered conflicts.  Another 
57 percent, or 63 committees, did not have a process for reviewing 
financial interests disclosed on conflict-of-interest statements and 
determining whether they constitute conflicts of interest.  Without an 
explicit determination process, P&T committees effectively defaulted to 
their members to determine whether they have conflicts. 
Some P&T committees may not have established processes to determine 
whether financial interests were conflicts because they did not require 
members to disclose financial interests.  Twenty-four percent of the 
63 P&T committees that did not have a process for determining conflicts 
did not collect any financial interest information from members.  These 
P&T committees disclosure forms did not require members to disclose 
any financial interest information.  The members were required only to 
sign a form stating whether they had financial interests or conflicts of 
interest.  Members on these P&T committees were not asked to describe 
the nature or value of their financial interests or to submit any supporting 
information.  P&T committees would need this information to make an 
objective determination of whether financial interests constituted conflicts. 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  15 
   
     
More than three-quarters of P&T committees relied on members 
to recuse themselves from discussions and votes 
Seventy-nine percent of P&T committees relied on members to recuse 
themselves from discussions or votes when they had a conflict of interest 
related to a particular drug.  CMS advises recusal from discussions and 
votes if P&T committee members have a conflict.  Specifically, 56 percent 
of P&T committees had recusal policies that designated members as 
responsible for recusing themselves from discussions or votes.  
Additionally, 23 percent of P&T committees did not have recusal policies.  
These P&T committees did not have a process to ensure that members 
with conflicts did not discuss or vote on a particular drug that presented a 
conflict.  Essentially, these P&T committees defaulted to the conflicted 
members to recuse themselves. 
CMS does not adequately oversee sponsors 
P&T committee compliance with Federal 
conflict-of-interest requirements 
CMS does not monitor conflicts of interest on P&T committees or review 
the P&T committee conflict-of-interest information that is required to be 
reported.  Had CMS tried to review the information, it would have found 
the data unusable because of discrepancies.  Also, during 2010, CMS did 
not perform onsite audits to assess compliance with Federal 
P&T committee conflict-of-interest requirements. 
CMS does not review P&T committee conflict-of-interest 
information 
CMS staff reported that they do not look at the information that sponsors 
and PBMs report about whether each P&T committee member is free of 
conflict.  Without reviewing this information, CMS cannot know whether 
a minimum of two members on each P&T committee are free of conflict 
with sponsors and pharmaceutical manufacturers, as required. 
Additionally, during 2010, CMS did not have audit protocols to 
specifically audit P&T committee member conflicts of interest.  Similarly, 
CMS did not have audit protocols to assess compliance with 
P&T committee conflict-of-interest requirements as part of its sponsor 
audits.  In 2012, CMS added an optional review of P&T committee 
documentation to determine compliance with Federal conflict-of-interest 
requirements.  As of August 2012, CMS reported that less than 10 percent 
of its audits included these elements. 
CMS does have audit protocols to review formulary management 
activities to confirm they are being administered consistent with the 
formulary as CMS approved it.  During these audits, CMS reviews 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  16 
   
     
P&T committee meeting minutes and interviews sponsors, focusing on 
formulary management activities, such as decisions about clinical 
appropriateness and drug utilization.  However, CMS does not make use 
of these audit opportunities to review P&T committee member 
conflict-of-interest statements.  In addition, CMS staff reported that they 
do not review meeting minutes to determine whether members are recused 
from discussions or votes.  CMS also reported that it does not ask 
questions related to conflicts or recusal during interviews with sponsors. 
Data discrepancies would prevent CMS from identifying with 
certainty the members of each P&T committee 
Had CMS attempted to review the reported P&T committee information, it 
would have had problems using the information to assess whether 
conflicts existed because of data discrepancies.  Using these data, CMS 
could not have identified members of P&T committees.  Without 
identifying the members on each P&T committee, CMS cannot tell 
whether a minimum of two members are free of conflict. 
Our review of the data uncovered discrepancies that would prevent CMS 
from identifying with certainty the members of each P&T committee.  We 
found discrepancies such as duplicate names, similar names, different 
suffixes or prefixes, and names listed in different order (e.g., first 
name/last name and last name/first name).  These discrepancies may have 
been data entry errors, but it is impossible to know definitively.  We also 
found multiple data submissions for the same P&T committee.  When 
comparing these submissions, we found these same problems existed 
across the committee membership information.  In fact, 58 percent of 
P&T committees with multiple submissions had discrepancies that would 
make it difficult to ascertain committee membership. 
Further, it would be difficult for CMS to determine whether it received all 
of the conflict-of-interest information for all P&T committee members.  
Using the reported data, CMS cannot always identify which entity should 
be reporting P&T committee conflict-of-interest information.  According 
to our discussions with sponsors and PBMs to verify the data reported to 
CMS, 9 percent of the 680 contracts with sponsors had incorrect entities 
listed as maintaining the P&T committee.  In addition, we found other 
problems with the data.  For example, even when the PBM listed as 
maintaining the P&T committee was correct, the name of the PBM and 
contact information were often outdated because of mergers and other 
changes in the marketplace. 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  17 
   
     
CONCLUSION AND RECOMMENDATIONS 
Federal law and regulations require Medicare Part D P&T committees to 
make prescription drug formulary decisions based on scientific evidence 
and standards of practice.  Our findings reveal that both sponsors and 
CMS conduct limited oversight of P&T committee conflicts of interest, 
compromising their ability to ensure that financial interests do not 
influence formulary decisions.  Specifically, we found that without 
direction and oversight from CMS, many sponsors P&T committees have 
limited oversight of members conflicts of interest.  Additionally, we found 
that CMS does not adequately oversee compliance with the Federal 
requirement that at least one physician and at least one pharmacist on each 
committee be free of conflict. 
Limited sponsor oversight does not necessarily indicate that financial 
interests are influencing formulary decisions.  However, it does expose 
sponsors to that possibility.  In health care, financial interests in the 
pharmaceutical industry are common.  In fact, there is widespread 
evidence that financial interests and conflicts of interest exist between 
pharmaceutical manufacturers and health care providers, and that these 
relationships influence behavior. 
Conflicts of interest jeopardize the integrity of professional judgment, 
compromise the quality of patient care, and erode the publics trust in 
Federal health care.  If conflicts of interest in the Part D program are 
undetected or not managed, beneficiaries may receive inferior therapies 
when safer or more effective therapies are available, limited Medicare 
dollars may be wasted to pay for inappropriate treatment, and public 
confidence in the Federal Government may be compromised. 
To minimize the possibility that conflicts of interest influence formulary 
decisions, we recommend that CMS improve its oversight of 
P&T committee conflicts and set minimum standards for sponsor 
oversight of committee conflicts of interest. 
To address limitations in how P&T committee members conflicts are 
defined, determined, and managed, we recommend that CMS: 
Define PBMs as Entities That Could Benefit From Formulary 
Decisions 
P&T committee members may have conflicts of interest relative to PBMs, 
but current regulation does not address this vulnerability.  CMS suggests 
in the preamble to the Final Rule that P&T committee members are not 
free of conflict if they have any direct or indirect financial interest in any 
entity that would benefit from decisions regarding plan formularies.  
However, in regulation, CMS specifies only sponsors and pharmaceutical 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  18 
   
     
manufacturers and does not mention PBMs.  Sponsors can delegate 
formulary management responsibilities to PBMs; therefore, PBMs also 
can benefit financially from plan formulary decisions because they can 
retain a percentage of price concessions negotiated with pharmaceutical 
manufacturers on behalf of sponsors. 
CMS should define PBMs as entities that could be affected by drug 
coverage decisions.  CMS should require the P&T committee members, 
who must be free of conflict with sponsors and pharmaceutical 
manufacturers, to also be free of conflict with any PBM that manages a 
sponsors prescription drug benefit.  To implement this, CMS could seek 
regulatory change or use existing regulatory provisions that address 
contractual arrangements between sponsors and their contracted entities. 
Establish Minimum Standards Requiring Sponsors To Ensure 
That Safeguards Are Established To Prevent Improprieties 
Related to Employment by the Entity That Maintains the 
P&T Committee 
Current CMS guidance does not address employment.  CMS should 
amend current guidance to stipulate that sponsors establish safeguards to 
prevent any improprieties associated with being employed by the entity 
that maintains the P&T committee from influencing committee decisions.  
CMS could set minimum standards by publishing guidance or amending 
the Medicare Prescription Drug Benefit Manual. 
While CMS may not want to specify exactly what safeguards sponsors 
should establish, it should require sponsors to ensure that these safeguards 
specify how employee relationships will be managed.  This would allow 
sponsors the independence and flexibility granted to them by law.  Entities 
that maintain a P&T committee could address these safeguards in their 
codes of conduct or ethics policies.  When a sponsor contracts with a PBM 
to maintain its P&T committees, the sponsor should expect the PBM to 
have similar safeguards in place and should monitor the PBM to ensure 
that it meets the minimum standards. 
Establish Minimum Standards Requiring Sponsors To Ensure 
That an Objective Process Is Used To Determine Whether 
Disclosed Financial Interests Are Conflicts 
In practice, many sponsors rely on members to determine their own 
conflicts.  CMS should require sponsors to use an objective process to 
determine whether a disclosed financial interest constitutes a conflict of 
interest.  Current guidance only generally addresses disclosure of financial 
interests and does not address conflict-of-interest determination.  CMS 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  19 
   
     
could set minimum standards by publishing guidance or amending the 
Medicare Prescription Drug Benefit Manual. 
Sponsors could determine what type of objective process best suits their 
business models.  For example, a sponsor could direct a compliance 
officer to identify whether financial interests are conflicts and then alert 
the P&T committee chair that recusal is necessary.  Establishing an 
objective determination process would help ensure that P&T committee 
members financial interests do not bias committee discussions or votes.  
When a sponsor contracts with a PBM to maintain its P&T committees, it 
should expect the PBM to have similar objective processes in place and 
should monitor the PBM to ensure that it meets the requirement. 
Regardless of the objective process established by sponsors, CMS should 
direct them to require P&T committee members to disclose financial 
interests on their conflict-of-interest statements.  To facilitate an objective 
determination of conflicts of interest, sponsors need financial interest 
information from P&T committee members.  Disclosed financial interests 
should include all direct and indirect financial interests with any entity that 
would benefit from decisions regarding plan formularies.  P&T committee 
members could disclose specific information about their financial 
interests, such as the nature of the relationship and the value of the 
financial interest. 
Establish Minimum Standards Requiring Sponsors To Ensure 
That an Objective Process Is Used To Manage Recusals 
Because of Conflicts of Interest 
CMS should require sponsors to use an objective process to manage 
P&T committee members allowable conflicts.  Current guidance only 
generally addresses recusals.  CMS could set minimum standards by 
publishing guidance or amending the Medicare Prescription Drug Benefit 
Manual. 
As with establishing an objective process to determine conflicts, sponsors 
could determine the type of objective process that best suits their business 
model.  However, CMS could tell sponsors that, at a minimum, they need 
to designate an objective party, such as a compliance officer, to flag and 
enforce the necessary recusals.  By doing so, sponsors would ensure that 
members with conflicts are recused from discussions or votes associated 
with a particular drug and that they are not managing their own recusals.  
When a sponsor contracts with a PBM to maintain its P&T committees, it 
should expect the PBM to have similar objective processes in place and 
should monitor the PBM to ensure that it meets the requirement. 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  20 
   
     
In addition, to address the lack of oversight of sponsors compliance with 
Federal law and regulations regarding P&T committee conflicts of 
interest, we recommend that CMS: 
Oversee Compliance With Federal P&T Committee 
Conflict-of-Interest Requirements and Guidance 
CMS should oversee sponsors P&T committee conflict-of-interest 
procedures to ensure that formulary decisions are based only on scientific 
evidence and standards of practice.  First, CMS should review reported 
P&T committee conflict-of-interest information to ensure that all 
committees have at least one practicing physician and at least one 
practicing pharmacist who are free of conflicts with entities that would 
benefit from formulary decisions.  By reviewing the reported 
P&T committee information, CMS also would be able to identify any 
discrepancies in the data and ensure that they are usable and reliable.  
CMS also should consider obtaining additional information to help it 
oversee compliance.  For example, CMS could collect conflict-of-interest 
statements for each P&T committee member.  This information could 
enable CMS to ensure that sponsors are requesting this information from 
their P&T committee members.  Additionally, collecting basic details 
about the nature of financial interests could enable CMS to question 
whether certain financial interests could affect drug formulary decisions.  
Second, CMS should broaden its audit protocols to include a review of 
sponsors P&T committee conflict-of-interest determination and 
management policies.  CMS also could review meeting minutes or ask 
questions related to recusal during audit interviews to determine whether 
members are being recused.  In 2012, CMS added to its audit protocol an 
optional review of P&T committee membership lists to determine whether 
a sponsors committee has met the Federal conflict-of-interest 
requirements.  This change helps to ensure that minimum standards are 
met and that at least two members on each committee are free of conflict.  
However, by reviewing other documents, CMS could assess whether 
sponsors have policies and procedures in place to ensure that members 
with conflicts are being recused. 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  21 
   
     
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS did not concur with our first and second recommendations, 
concurred with part of our third and fourth recommendations, and 
concurred with our fifth recommendation. 
CMS maintained that it is not necessary to conduct additional 
P&T committee conflict-of-interest oversight because current formulary 
reviews and P&T committee audits appropriately protect beneficiaries 
from any adverse effects of potential conflicts of interest.  Specifically, 
CMS noted that its formulary review process protects beneficiaries access 
to prescription drugs and its audits review P&T committee documentation 
related to identified formulary administration problems. 
We assert that CMS should improve its P&T committee oversight and set 
broad, minimum standards for sponsor oversight in guidance for several 
reasons.  We continue to note that CMS does not adequately oversee 
compliance with P&T committee conflict-of-interest requirements.  CMS 
states that it can conduct P&T audits.  However, as of August 2012, CMS 
reviewed P&T committee information for less than 10 percent of audits.  
Further, given the information collected in these audits, it seems unlikely 
that CMS would detect situations in which a conflict of interest led a 
committee to prefer one drug over another that treated the same condition.  
In addition, based on current data, CMS cannot tell whether sponsors 
P&T committees have two members on each committee who are free of 
conflict, as required by law.  CMS oversight is especially important given 
that we found that sponsor oversight of committee member conflicts is 
limited. 
If conflicts of interest among P&T committee members are not addressed, 
beneficiaries may receive inferior therapies when safer or more effective 
therapies are available, limited Medicare dollars may be wasted to pay for 
inappropriate treatment, and public confidence in the Federal Government 
may be undermined.  In contrast, CMS asserts that conflicts of interest 
would not disadvantage beneficiaries or the Federal Government because 
it believes that formulary decisions influenced by conflicts would result in 
higher premiums and the plan would be priced out of the marketplace.  
This position assumes that beneficiaries select health insurance based only 
on cost.  This does not consider beneficiaries concerns about remaining 
with their current health care team, access issues, or the opportunity cost 
of having to select a new health insurance plan. 
CMS noted that OIG did not identify any conflicts through our study.  Our 
study was not designed to identify conflicts and, as such, we did not find 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  22 
   
     
any.  However, that does not mean conflicts do not exist.  There is 
widespread evidence that conflicts of interest are pervasive among the 
pharmaceutical industry and health care practitioners and that financial 
relationships may influence practitioners behavior. 
In its comments, CMS indicated that the Physician Payment Sunshine Act 
will result in information that may help sponsors determine conflicts of 
interest.  However, reported data will not contain information about 
pharmaceutical manufacturer payments to pharmacists and, therefore, will 
not help sponsors meet the requirement that at least one pharmacist on 
each P&T committee be free of conflict. 
CMS did not concur with our first recommendation, that it define PBMs as 
entities that could benefit from formulary decisions.  CMS asserted that its 
formulary review process provides the appropriate protections from any 
adverse effects of conflicts of interest.  CMS noted that PBMs do have an 
interest in formulary decisions because they negotiate price concessions 
on behalf of sponsors as their subcontractors.  However, CMS suggested 
that, by virtue of this contractual relationship, PBMs will be constrained 
by the same desire to be competitive as sponsors, forcing them to balance 
both quality and costs in developing formularies. 
It is precisely because PBMs have an interest in formulary decisions that 
we continue to recommend that CMS include PBMs in the definition of 
entities that could benefit from formulary decisions.  The delegated 
responsibility to negotiate price concessions means that PBMs have 
financial interests in formulary development, yet those financial interests 
may not be aligned with those of the sponsors that contracted with them.  
Because their financial interests may not be aligned, PBMs may not be 
constrained by the same competitive market forces as sponsors. 
CMS did not concur with our second recommendation, that it establish 
minimum standards requiring sponsors to prevent improprieties associated 
with employment from influencing P&T committee decisions.  CMS 
stated that it is not directed in statute to address employment standards.   
CMS further noted that as corporations, private drug plans maintain a 
competitive edge by managing their employees, who should act in their 
employers best interest. 
We agree that employees of private health plans would likely act in the 
best interest of their employersinterests that may not align with the 
interests of the Part D programwhich is why we continue to recommend 
that CMS establish minimum standards requiring sponsors to address 
employment.  Minimum standards established by CMS allow sponsors 
independence and flexibility to develop safeguards that best suit their 
business models.  As we noted, CMS could stipulate these minimum 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  23 
   
     
standards in guidance or in the Medicare Prescription Drug Benefit 
Manual. 
For our third and fourth recommendations, CMS concurred that sponsors 
should ensure that an objective process is used to determine whether 
disclosed financial interests are conflicts and manage recusals.  However, 
CMS did not concur that it should be responsible for establishing 
minimum standards.  CMS noted that it will carefully consider this 
recommendation and evaluate the sufficiency of current evidence when 
considering future rulemaking. 
We believe that, to ensure prescription drug coverage decisions are not 
based on financial interests, CMS should establish minimum standards 
requiring sponsors to have objective processes to determine conflicts of 
interest and manage recusals.  Minimum standards from CMS allow 
sponsors flexibility to determine what type of process best suits their 
business models.  CMS already has established minimum requirements for 
sponsors regarding Part D formularies and P&T committee membership.  
This recommendation continues this precedent.  We also note that these 
additional minimum standards can be established in guidance or in the 
Medicare Prescription Drug Benefit Manual. 
CMS concurred with our fifth recommendation, that it oversee compliance 
with Federal P&T committee conflict-of-interest requirements.  CMS 
indicated that its P&T committee audit will be conducted when issues 
identified during the formulary administration audit warrant additional 
P&T committee audits.  CMS also noted that it will consider updating its 
annual readiness checklist to ensure that sponsors or their contracted 
PBMs update P&T committee membership data in the Health Plan 
Management System.  Finally, CMS indicated that it will explore other 
approaches for assessing compliance with P&T committee 
conflict-of-interest requirements. 
We made minor changes to the report based on CMSs comments.  For the 
full text of CMSs comments, see Appendix C. 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  24 
   
     
APPENDIX A 
Potential Sponsor and Pharmacy and Therapeutics Committee 
Relationships 
Sponsors A, B, and C contract with a pharmacy benefit manager (PBM) 
for Pharmacy & Therapeutics (P&T) committee functions for some or all 
of their Part D plans.
Sponsor A  Sponsor B  Sponsor C 
P&T Committee A  P&T Committee B 
(maintained by  (maintained by 
Sponsor A)  PBM) 
Sponsor As  Sponsor As  Sponsor As  Sponsor As  Sponsor Bs  Sponsor Bs  Sponsor Cs 
Part D Plan 1  Part D Plan 2  Part D Plan 3  Part D Plan 4  Part D Plan 1  Part D Plan 2  Part D Plan 1 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  25 
   
     
APPENDIX B 
Pharmacy and Therapeutics Committee Member Disclosure 
Form57 
Sponsors or pharmacy benefit managers must  
Provide the names of the members of your organizations Pharmacy 
& Therapeutics committee.  Indicate which members are practicing 
physicians or practicing pharmacists.  Further, indicate which 
members are experts in the care of the elderly or disabled, and free 
of any conflict of interest with your organization and pharmaceutical 
manufacturers.
 
57 CMS, Medicare Prescriptions Drug Benefit:  Solicitation for Applications for New 
Prescription Drug Plans (PDP) Sponsors, 2011 Contract Year. 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)  26 
  APPENDIXC 
Agency Comments 
#!PVJCr.v.tl 
~
(  DEPARTMENT OF HEALTH & HUMAN SERVICES  Centers for Medicare & Medicaid Services 
~,~,... 
Office of the Administrator 
Washington , DC 20201 
DATE:  FEB  0 7 2fi13 
TO: 	 Daniel R. Levinson 
Inspector General 
FROM: 	 M~n-Tav.e.n.net 
Acting Aam\nist.rator 
SUBJECT: 	 Office of Inspector General (OIG) Draft Report: "Gaps in Oversight of Conflicts 
oflnterest in Medicare Prescription Drug Decisions" (OEI-05-1 0-00450) 
Thank you for the opportunity to review and comment on the OIG draft report " Gaps in 
Oversight of Conflicts oflnterest in Medicare Prescription Drug Decisions." As part of this 
review, OIG conducted an evaluation ofPart D Plan Sponsors' Pharmacy and Therapeutic (P&T) 
committee ' s conflicts of interest processes and the Centers for Medicare & Medicaid Services's 
(CMS ' s) oversight ofP&T committees. OIG did not identify any actual conflicts of interest 
during the course of this review. 
The CMS believes the agency's current Part D formulary review provides appropriate 
protections to beneficiaries from any adverse effects resulting from potential conflicts of interest. 
The agency thoroughly reviews Part D formularies to prevent discrimination against Medicare 
beneficiaries based on age, disease, or setting in which they receive care. The review process 
ensures inclusion ofa broad distribution of therapeutic categories and classes by using 
reasonable benchmarks to ensure drug lists are robust. Further, CMS ensures that cost-sharing 
levels and utilization management strategies are appropriate and non-discriminatory. CMS 
identifies potential outliers at each review step for further investigation and requires reasonable 
clinical justification when outliers appear to create beneficiary access problems. 
The CMS devotes extensive resources to plan formulary oversight-and reserves the right to 
reject them-to ensure compliance with industry best practices for development and 
management and to ensure beneficiaries' access to clinically appropriate therapies.  Therefore, if 
a P&T committee were to create a formulary while operating under a potential conflict of 
interest, because a discriminatory formulary would not be approved, the only potential impact 
would be that the bid could be more expensive and, therefore, less competitive. Beneficiaries 
could easily evaluate these higher premiums in the marketplace and choose a more efficient plan 
to meet their needs. As a result, we could expect that any authentic conflicts of interest, given 
our level of formulary review, would disadvantage the sponsor and not the beneficiary or 
Medicare program. 
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ACKNOWLEDGMENTS 
This report was prepared under the direction of Ann Maxwell, Regional 
Inspector General for Evaluation and Inspections in the Chicago regional 
office; Thomas F. Komaniecki, Deputy Regional Inspector General; and 
Laura Kordish, Deputy Regional Inspector General. 
Meghan Kearns served as the team  leader for this study, and Melissa 
Baker served as lead analyst.  Other principal Office of Evaluation and 
Inspections staff from the Chicago regional office who contributed to the 
report include Hilary Slover; central office staff who contributed include 
Debra Roush and Rita Wurm. 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450)   32 
   
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