Department of Health and Human Services 
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
 
MAC C U
S  ONTINUE TO  SE 
 
D M
IFFERENT  ETHODS TO 
D D C  
ETERMINE  RUG  OVERAGE
 
 
Suzanne Murrin 
Deputy Inspector General 
For Evaluation and Inspections 
 
 August 2016 
OEI-03-13-00450   
   
EXECUTIVE SUMMARY:  MACS CONTINUE TO USE DIFFERENT METHODS TO 
DETERMINE DRUG COVERAGE  
OEI-03-13-00450 
WHY WE DID THIS STUDY 
Medicare Administrative Contractors (MACs) are responsible for reviewing Part B outpatient 
drug claims to ensure that Medicare pays for drugs that meet the criteria for coverage.  Each 
MAC determines whether a particular use for a given drug, such as a use not approved by the 
Food and Drug Administration, is medically accepted and therefore, covered in its 
jurisdiction.  If MACs do not have appropriate methods to determine drug coverage, Medicare 
and its beneficiaries may pay for drug uses that are not medically accepted.  Further, 
beneficiaries access to drugs may vary based on the coverage criteria set in their jurisdictions.  
This study reviewed the methods MACs used to make coverage determinations for Part B drugs, 
as well as their methods for ensuring that claims were paid according to these coverage 
determinations. 
HOW WE DID THIS STUDY 
We sent surveys to the Part B MACs operating in 13 jurisdictions (as of December 2012) to obtain 
information about their policies and procedures for determining appropriate coverage of Part B 
drugs in 2012.  We asked MACs to describe the methods and sources they used to remain 
up-to-date about covered uses, and how often they updated their coverage determinations.  We 
also asked MACs to describe any challenges they encountered in determining coverage for Part B 
drugs.  Finally, we asked MACs to provide information about any payment controls they 
implemented to help ensure that drug claims met the coverage requirements in their jurisdictions.   
WHAT WE FOUND 
In keeping with the flexibility MACs have to make coverage decisions, MACs reported using a 
variety of information sources on drug uses to assist in making coverage determinations.  MACs 
also used different methods to obtain notifications when these sources were updated.  These 
differences may contribute to inconsistencies in drug coverage across States.  Further, most 
MACs reported challenges in determining coverage for Part B drugs, including difficulties 
interpreting CMS policy manuals and remaining up-to-date with sources for covered uses.  To 
help ensure that drug claims were paid in accordance with their coverage policies, MACs 
implemented payment controls, but to varying degrees.  However, some MACs were unable to 
provide us with the results of their payment control efforts.  Without tracking these results, it is 
difficult to accurately evaluate the effectiveness of these payment controls.   
WHAT WE RECOMMEND 
We recommend that CMS (1) assign a single entity to assist MACs with making coverage 
determinations, and (2) evaluate the cost-effectiveness of edits and medical reviews that are 
designed to ensure appropriate payments for covered uses on Part B drug claims.  CMS 
concurred with our second recommendation but did not concur with our first recommendation. 
 
 
   
   
TABLE OF CONTENTS 
 
Objectives .................................................................................................... 1 
Background .................................................................................................. 1 
Methodology ................................................................................................ 5 
Findings ....................................................................................................... 8 
MACs used a number of drug information sources to assist in  
making coverage determinations ..................................................... 8 
Most MACs reported challenges in determining coverage for  
Part B drugs ..................................................................................... 9 
All MACs reported using edits to implement coverage  
determinations, but to varying degrees .......................................... 10 
MACs in half of the jurisdictions conducted medical reviews  
of drug claims, but most could not provide the savings associated  
with these reviews ......................................................................... 11 
Conclusion and Recommendations ........................................................... 12 
Agency Comments and Office of Inspector General Response .... 14 
Appendix ................................................................................................... 15 
Agency Comments ........................................................................ 15 
Acknowledgments ..................................................................................... 17
 
   
   
OBJECTIVES  
(1) To determine the methods and sources that Part B contractors used to 
make and update drug coverage determinations in each jurisdiction in 
2012; 
(2) To evaluate any challenges Part B contractors encountered in 
determining Part B drug coverage; and 
(3) To determine the extent to which Part B contractors implemented 
payment controls designed to ensure that payments were made for 
covered drug uses in 2012. 
BACKGROUND 
The Centers for Medicare & Medicaid Services (CMS) contracts with 
private companies, known as Medicare Administrative Contractors 
(MACs), to process and pay Medicare Part B claims for defined 
geographic areas called jurisdictions.  In some cases, MACs have the 
flexibility to determine whether a specific Part B drug treatment is covered 
in their jurisdictions.1  MACs may use a number of sources to make 
coverage determinations, including prescription drug labels, 
recommendations of major drug compendia, authoritative medical 
literature, and/or accepted standards of medical practice. 
A 2014 Office of Inspector General (OIG) report analyzed Part B-covered 
items and services, including drugs, to determine the extent to which 
coverage varied among States.2  This report found that coverage for some 
proceduresoften those using new technologywas limited in certain 
States but not others.  OIG recommended that CMS consider requiring 
MACs to jointly develop a single set of coverage policies to simplify 
Medicare coverage, and to prevent beneficiaries access to items and 
services from being tied to where they live.  CMS concurred with this 
recommendation but noted obstacles, including administrative challenges, 
implications for beneficiary appeal rights, and States scope of practice 
laws.  As of March 2016, MACs continue to implement their own local 
coverage policies, which can create inconsistencies in beneficiaries access 
to Medicare coverage for certain drug uses. 
MACs may implement payment controls, e.g., prepayment edits and 
medical reviews, to help ensurebased on the diagnosis information on 
                        ____________________________________________________________ 
1 CMS, Medicare Benefit Policy Manual, Pub. No. 100-02 (Rev. 221, 03-11-16), ch. 15. 
 50.4.2; Medicare Program Integrity Manual, Pub. No. 100-08 (Rev. 608, 08-14-15), 
ch. 13  13.1.3.   
2 OIG, Local Coverage Determinations Create Inconsistency in Medicare Coverage, 
OEI-01-11-00500, January 2014. 
MACs Use Different Methods to Determine Drug Coverage (OEI-03-13-00450)        1   
   
claimsthat Medicare provides reimbursement for covered drug uses.  
Without effective controls to review Part B drug claims, Medicare may be 
vulnerable to making improper payments for drug uses that are not 
medically necessary. 
Medicare Part B Drugs 
Medicare Part B covers certain outpatient drugs, including drugs furnished 
incident to a physicians service, drugs explicitly covered by statute, and 
drugs used in conjunction with durable medical equipment (DME).  These 
drugs may be used to treat certain cancers, arthritis, and anemia, among 
other conditions.  Generally, Medicare will pay 80 percent of the cost for a 
Part B drug; the beneficiary is responsible for the remaining 20 percent in 
the form of coinsurance.  Medicare and its beneficiaries spent almost 
$13.5 billion for Part B drugs in 2013.3 
To obtain payment for covered outpatient prescription drugs, physicians 
and suppliers submit claims to MACs.  These claims contain information 
including the beneficiarys Medicare number, the physician or prescriber 
identification code, the Healthcare Common Procedure Coding 
System (HCPCS) code that identifies the prescribed drug, and the code(s) 
that indicates a patients diagnosis.   
Covered Uses of Part B Drugs 
Generally, Medicare Part B will pay for drugs that are approved by the 
Food and Drug Administration (FDA) when they are used for indications 
specified on the drugs label.  Physicians also may prescribe a drug for 
uses that have not been FDA-approved.  This practice, which is not 
uncommon, often is referred to as off-label use.4   
FDA-approved drugs utilized for off-label uses may be covered under 
Part B if the MAC determines that the use is medically accepted, taking 
into consideration (1) recommendations of major drug compendia, 
(2) authoritative medical literature, and/or (3) accepted standards of 
                        ____________________________________________________________ 
3 This dollar amount is derived from CMSs Part B Analytics Report for 2013.  
4 When a drug is used in a way that differs from the use on the FDA-approved drug label, 
it is said to be an off-label use.  This can mean that a drug is used for a different disease 
or medical condition, given through a different route of administration, or given in a 
different dose than specified on the drug label.  FDA, Understanding Investigational 
Drugs and Off Label Use of Approved Drugs.  Accessed at www.fda.gov on 
April 24, 2016.  
MACs Use Different Methods to Determine Drug Coverage (OEI-03-13-00450)        2   
   
medical practice.5  Each MAC has the authority to establish off-label drug 
coverage criteria in its jurisdiction based on these three sources.  As a 
result, one jurisdiction may cover a specific use for a drug that is not 
covered in other jurisdictions.  See Table 1 for a description of sources 
MACs can use to make off-label coverage determinations for Part B drugs. 
 
Table 1:  Sources of Information for Determining Covered Uses for Part B Drugs 
Source of  FDA-Approved Drug  Authoritative Medical  Accepted Standards of 
Drug Compendia 
Information   Labels  Literature  Medical Practice 
Literature, such as journal 
Comprehensive listings of 
Description of a drug  articles, that: 
FDA-approved drugs that  MACs individual 
product that includes 
information on:  provide:   may appear in  determinations that rely 
scientific, medical, and  on: 
Description of   tdhreu gc oisn udsiteiodn (tos) t rtheea t;   idnrfuogrms apthioanr mabaocuolto gic  pharmaceutical   local medical societies; 
publications; and 
Source   who should take the  cdhoasraagcetse raisntidc ss,t rseuncght hass;    must have been   am ceodnicsael nospuins ioonf ;e xpert 
drug; 
and  critically reviewed for   consultations with 
 paonsds ible side effects;   recommended or  svacileidnittyif,ic a ancdc ruerlaiacbyi,l ity,  medical staff; and 
 other safety information.  espnedcoirfsice dd isuesaesse isn.   by unbiased,   other relevant sources. 
independent experts. 
Source: CMS, Medicare Benefit Policy Manual, Pub. No. 100-02 (Rev. 221, 03-11-16), ch. 15.  50.4.1, 50.4.2, 50.4.5 and Medicare Claims 
Processing Manual, Pub. No. 100-04 (Rev. 3187, 02-06-15), ch. 30.  40.1.3. 
Coverage Determinations 
CMS can publish National Coverage Determinations (NCDs) that describe 
the circumstances under which a particular item or service, e.g., a drug, is 
covered nationally under Medicare.6  NCDs apply to all MACs 
nationwide.  If an NCD does not exist or needs to be defined further, 
MACs may issue a Local Coverage Determination (LCD).  An LCD is a 
coverage policy that represents the MACs decision to cover or exclude a 
particular item or service on a jurisdiction-wide basis and is applicable 
only within that jurisdiction.  For example, MACs may develop an LCD 
when they encounter a problem that demonstrates a significant risk to the 
Medicare trust fund.7  
MACs have discretion to develop LCDs and to determine how to 
implement their coverage decisions.  The Medicare Prescription Drug, 
                        ____________________________________________________________ 
5 CMS has established more detailed guidelines for off-label coverage of drugs prescribed 
in anti-cancer chemotherapeutic regimens.  Specifically, CMS may cover off-label, 
medically accepted uses of a Part B drug used in an anti-cancer chemotherapeutic 
regimen if that use is supported in either (1) one or more of the drug compendia or (2) in 
peer-reviewed medical literature in a publication specified by CMS.  The use of the drug 
must also be reasonable and necessary in order to be covered.  CMS, Medicare Benefit 
Policy Manual, Pub. No. 100-02 (Rev. 221, 03-11-16), ch. 15.  50.4.1, 50.4.2 and 
50.4.5.   
6 68 Fed. Reg. 55634, 55635 (Sept. 26, 2003). 
7 CMS, Medicare Program Integrity Manual, Pub. No. 100-08 (Rev. 608, 08-14-15), 
ch. 13.  13.4. 
MACs Use Different Methods to Determine Drug Coverage (OEI-03-13-00450)        3   
   
Improvement, and Modernization Act of 2003 (MMA) included language 
to promote consistency among coverage determinations.  Specifically, the 
MMA states that the Secretary of Health and Human Services should 
develop a plan to evaluate new LCDs to determine which should be 
adopted nationally, and to determine the extent to which greater 
consistency can be achieved among LCDs across MACs.8  To comply with 
these requirements, CMS reported that it convenes face-to-face meetings 
with the contractor medical directors multiple times a year to (1) learn 
about effective approaches to coverage, (2) address at least one coverage 
decision topic in a unified manner at each meeting, and (3) develop 
standardized processes and criteria for coverage decisions.  However, 
since the enactment of the MMA, studies have shown that there continue 
to be considerable inconsistencies in LCDs and differences in 
implementation of coverage determinations among States and regional 
jurisdictions.9 
MACs Payment Controls 
MACs have the authority to review Part B claims and implement payment 
controls to ensure that claims are paid in accordance with coverage 
determinations.  CMS acknowledges that the volume of Medicare claims 
does not allow for the review of every claim, and instructs MACs to target 
their efforts to items and services that pose the greatest financial risk to the 
Medicare program.10  However, if MACs do not implement effective 
payment controls, Medicare may be vulnerable to improperly paying for 
non-covered drug uses.   
Edits.  MACs may implement prepayment edits to prevent payment for 
non-covered, incorrectly coded, or inappropriately billed items or 
services.11  A prepayment edit can automatically deny all or part of a claim 
that does not meet the edits criteria.  Prepayment edits also can suspend a 
claim for manual review by the MAC to make coverage and payment 
determinations.   
In addition to edits that MACs implement to ensure appropriate coverage, 
CMS implements Medically Unlikely Edits (MUEs).  An MUE will 
                        ____________________________________________________________ 
8 This provision was included in  731(a) of the MMA and codified at 42 U.S.C. 
 1395y(l). 
9 See, for example, OIG, Local Coverage Determinations Create Inconsistency in 
Medicare Coverage, OEI-01-11-00500, January 2014; Government Accountability 
Office (GAO), Greater Prepayment Control Efforts Could Increase Savings and Better 
Ensure Proper Payment, GAO-13-102, November 2012.  
10 CMS, Medicare Program Integrity Manual, Pub. No. 100-08 (Rev. 634, 01-22-16), 
ch. 3.  3.2.1. 
11 CMS, Medicare Program Integrity Manual, Pub. No. 100-08 (Rev. 634, 01-22-16), 
ch. 3.  3.4.1.5. 
MACs Use Different Methods to Determine Drug Coverage (OEI-03-13-00450)        4   
   
review the number of units billed on a claim, and deny the claim if the 
units of a drug exceed the maximum number that a provider would 
reasonably administer to a beneficiary on a single date of service.12   
MACs are required to evaluate their edits regularly to assess whether the 
edits are effective in preventing inappropriate payments.13  However, CMS 
does not require MACs to report the number or dollars that were denied 
based on each individual edit.   
Medical reviews.  MACs may also ensure that drug claims meet coverage 
criteria by conducting medical reviews.  For these reviews, medical 
professionals evaluate patient records to ensure that payment is made only 
for items or services that meet Medicare coverage, coding, and medical 
necessity requirements.14  In some cases, Part B drug claims do not include 
enough information on patient diagnoses to determine whether a drug was 
prescribed for a covered use.  In these situations, a medical review may be 
the only way to determine if the drug use is covered under Part B. 
METHODOLOGY 
Data Sources and Data Collection 
In August 2013, we sent surveys to the 9 Part B MACs operating in 
13 jurisdictions.15, 16  We asked the MACs how they made and updated 
coverage determinations for Part B drugs, and how they reviewed claims 
to ensure that Part B drug claims met their coverage criteria in 2012.  
Specifically, we asked MACs to provide information about: 
  the methods and sources they used to make coverage 
determinations in their jurisdictions; 
                        ____________________________________________________________ 
12 Previously issued OIG reports found that MACs overpaid providers for selected Part B 
drugs.  One of these reports found that MUEs could have prevented almost $24 million 
(66 percent) of overpayments if the MUEs had been in effect during OIGs entire audit 
period.  OIG, Medicare Part B Overpaid Millions for Selected Outpatient Drugs 
(A-09-14-02024), July 2015. 
13 CMS, Medicare Program Integrity Manual, Pub. No. 100-08 (Rev. 634, 01-22-16), 
ch. 3.  3.7.3.1. 
14 CMS, Medicare Program Integrity Manual, Pub. No. 100-08 (Rev. 634, 01-22-16), 
ch. 3.  3.3.1.1; CMS, Medical Review and Education.  Accessed at www.cms.gov on 
July 20, 2015. 
15 We did not include DME MACs in our survey.  DME MACs are responsible for 
processing Part B claims for Medicare Durable Medical Equipment, Orthotics, and 
Prosthetics. 
16 The surveyed Part B MACs are:  Cahaba Government Benefit Administrators, LLC; 
CGS Administrators, LLC; First Coast Service Options, Inc.; NHIC, Corp; NGS; 
Noridian Healthcare Solutions, LLC; Novitas Solutions, Inc.; Palmetto GBA; and 
Wisconsin Physician Service Insurance Corporation.  
MACs Use Different Methods to Determine Drug Coverage (OEI-03-13-00450)        5   
   
  the number of updates they made to their coverage determinations 
because of changes to these sources; 
  challenges they encountered when determining Part B drug 
coverage, as well as how they overcame these challenges; and  
  the payment controls they implemented to enforce their coverage 
determinations.17 
In addition to their survey responses, we asked MACs to provide any 
policies and procedures (internal or external) related to Part B drug 
coverage determinations in each jurisdiction. 
Data Analysis 
Coverage updates.  Using MACs survey responses, we identified the 
sources that MACs used to make coverage determinations.  We also 
calculated the number of times that MACs updated their coverage 
determinations based on changes to FDA-approved drug labels and drug 
compendia in 2012.  In addition, we reviewed the MACs survey 
responses to determine the frequency with which MACs updated their 
LCDs, and whether their LCDs for drugs listed covered diagnosis codes.  
Challenges.  We reviewed the MACs responses regarding challenges and 
difficulties they encountered in determining Part B drug coverage, as well 
as efforts MACs made to overcome these challenges in their 
jurisdiction(s). 
Payment controls.  We assessed the payment controls that MACs used to 
ensure that they made payments in accordance with their coverage 
determinations.  Specifically, we determined whether MACs used edits to 
ensure that drug claims included diagnosis codes for covered uses 
(hereinafter referred to as coverage edits) in 2012, and if so, the extent to 
which edits reviewed drug claims.  We also determined whether MACs 
conducted medical reviews to ensure that the diagnosis codes on Part B 
claims represented covered uses.  If MACs stated that they conducted 
these medical reviews, we asked how they identified claims requiring a 
medical review, and the processes used to conduct these reviews.  In 
addition, we used data provided by the MACs to determine the number 
and dollar amounts of claims reviewed and denied through edits and 
medical reviews in each jurisdiction. 
Limitations 
The data in this review include responses from Part B MACs only; we did 
not survey the DME MACs.  We did not validate the accuracy or 
completeness of the survey responses provided by the Part B MACs.  We 
                        ____________________________________________________________ 
17 We considered payment controls to include any type of claim review the MAC 
performed, such as edits or medical record reviews. 
MACs Use Different Methods to Determine Drug Coverage (OEI-03-13-00450)        6   
   
did not survey MACs regarding their coverage determinations for 
non-FDA-approved drug uses based on accepted standards of medical 
practice because these can differ by locality.   
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. 
   
MACs Use Different Methods to Determine Drug Coverage (OEI-03-13-00450)        7   
   
FINDINGS 
CMS provides MACs with the flexibility to make coverage determinations 
for Part B drugs based on certain information sources.  We found that 
MACs used a variety of these sources to make drug coverage 
determinations.  MACs used different methods to identify when sources for 
information on drug uses had been updated, and MACs differed on how 
often they changed their coverage criteria based on updates to these sources.  
These differences may contribute to inconsistencies in drug coverage across 
States.  MACs also implemented various payment controls (including 
prepayment edits and medical reviews) to ensure that they paid drug claims 
in accordance with their coverage criteria.  These controls are important 
because they reduce Medicares vulnerability to making improper 
payments.  However, some MACs were unable to provide us with the 
results of their edits and medical reviews.  Without tracking these results, it 
would be difficult to evaluate the effectiveness of these payment controls.   
MACs used a number of drug information sources to 
assist in making coverage determinations  
FDA-approved drug labels, drug compendia, and medical literature
three common sources for information about drug therapiesare 
continuously updated with new information about drug uses.  MACs used 
a variety of methods to identify when these sources had been updated.  
However, in most jurisdictions, MACs obtained information about these 
changes from the provider community, pharmaceutical representatives or 
drug manufacturers.  See Table 2 for a description of how MACs were 
notified of changes to information sources they used to make coverage 
determinations in each jurisdiction.   
Table 2:  Methods of Receiving Updates Relevant to Coverage Determinations 
in 2012 
FDA-Approved 
Notification Method  Drug Labels  Drug Compendia  Medical Literature 
Provider Community  8 Jurisdictions  7 Jurisdictions  12 Jurisdictions 
Pharmaceutical 
Representatives/  8 Jurisdictions  3 Jurisdictions  4 Jurisdictions 
Drug Manufacturers 
Automatic Alerts  7 Jurisdictions  3 Jurisdictions  0 Jurisdictions 
Contractor-initiated Reviews  4 Jurisdictions  6 Jurisdictions  9 Jurisdictions 
Other Contractors  3 Jurisdictions  2 Jurisdictions  2 Jurisdictions 
Source: OIG analysis of MACs survey responses, 2012. 
Note:  MACs covering these jurisdictions may have been notified of updates through more than one method. 
MACs Use Different Methods to Determine Drug Coverage (OEI-03-13-00450)        8   
   
MACs stated that in addition to receiving notifications from providers, 
pharmaceutical representatives or drug manufacturers, they identified 
changes to FDA-approved drug labels through contractor-initiated reviews 
of these drug labels, automatic alerts from FDA, CMS, or other 
organizations, and/or other contractors.  MACs obtained information about 
compendia changes through contractor-initiated reviews of drug 
compendia, automatic alerts from compendia, and/or conversations with 
other contractors.  Almost all MACs used information from medical 
literature to make coverage determinations.  These MACs obtained 
medical literature from journal subscriptions, libraries, online resources, or 
other contractors.   
Coverage determinations, and the frequency of updates to 
these determinations, differed among MACs 
MACs in all jurisdictions specifically listed covered diagnosis codes in 
their LCDs for drugs.  However, the diagnosis codes that were listed in 
LCDs differed across jurisdictions.  For example, an LCD for 
pegfilgrastim injectionwhich can be used to decrease the incidence of 
infection in beneficiaries being treated for certain cancersincluded over 
600 covered diagnosis codes in one jurisdiction, while an LCD in another 
jurisdiction listed only 11 covered diagnosis codes for this drug.18   
The number of updates to LCDs based on an addition or removal of a 
covered diagnosis code also varied across jurisdictions.  Almost all MACs 
reported updating LCDs when the MAC identified a change to a covered 
use.  However, MACs in three jurisdictions did not make any coverage 
updates as a result of changes to FDA-approved or compendia-supported 
uses in 2012.  MACs in the remaining jurisdictions reported at least 
one update based on changes to FDA-approved or compendia-supported 
uses during the year. 
Most MACs reported challenges in determining 
coverage for Part B drugs 
MACs covering 11 of the 13 jurisdictions stated that they had encountered 
challenges in determining coverage for Part B drugs in 2012.  MACs 
covering two jurisdictions stated that rapidly evolving science or 
ongoing updates to medical literature made it difficult to keep track of 
covered uses.  MACs in two jurisdictions reported that it was difficult or 
cost-prohibitive to have access to all of the compendia.  Some MACs 
reported that the instructions in CMS manuals are ambiguous.   
                        ____________________________________________________________ 
18 Although LCDs may include lists of covered diagnosis codes, this does not guarantee 
coverage of a service for that jurisdiction.  The MAC determines whether services are 
reasonable and necessary in each specific case.  
MACs Use Different Methods to Determine Drug Coverage (OEI-03-13-00450)        9   
   
MACs reported taking a number of steps to overcome challenges in 
making coverage determinations.  For example, MACs sought expertise 
from specialty providers, specialty societies, and advisory committee 
members; communicated with MACs in other jurisdictions or with CMS 
policy staff; and/or participated in LCD workgroups.   
Some MACs also suggested ways CMS could assist with coverage 
determinations.  Specifically, MACs in four jurisdictions suggested that 
CMS should provide more national coverage criteria for consistency, or 
that CMS should have a national contractor to monitor changes in medical 
literature.  A MAC in one of these jurisdictions also stated that CMS 
should clarify instructions in its manuals.  MACs also stated that they 
would like CMS to provide additional guidance regarding pricing and 
development of HCPCS codes, applying the self-administered drug policy, 
and adding modifiers to indicate whether a drug is a primary or secondary 
treatment. 
All MACs reported using edits to implement coverage 
determinations, but to varying degrees 
Although MACs in all 13 jurisdictions reported implementing edits to help 
ensure that drug claims were paid according to coverage determinations, 
the number of drugs undergoing this type of review varied significantly 
among jurisdictions.  While Part B covered nearly 600 drug codes in 2012, 
MACs implemented coverage edits for a range of 8 to 494 drug codes in 
the 8 jurisdictions that provided information on claims reviewed by edits.    
In some jurisdictions, MACs coverage edits reviewed all claims 
submitted for a particular drug; in others, the edits reviewed only a sample 
of such claims.  MACs reported that they may decide to implement a 
coverage edit based on the risk of improper payment, drug cost, potential 
for abuse, or whether a drug is new to the market.  
Coverage edits denied 25 percent of reviewed claim dollars in 
the 7 MAC jurisdictions that provided financial results  
Part B MACs in 5 of the 13 jurisdictions did not provide the total number 
of Part B drug claims that underwent coverage edit reviews in 2012.  In 
the 8 MAC jurisdictions that provided the number of claims reviewed, 
coverage edits checked whether 1.6 million drug claims met coverage 
criteria, and MACs denied 261,790 of these claims in 2012.  MACs in the 
7 jurisdictions that provided dollar results reported that coverage edits 
reviewed $1.2 billion in submitted claims; of which $300 million 
(25 percent) were denied.  The percentage of drug claims undergoing 
coverage edit reviews differed among the MACs, from a low of less than 
1 percent to a high of 43 percent in 2012.  However, in 5 jurisdictions, less 
MACs Use Different Methods to Determine Drug Coverage (OEI-03-13-00450)        10   
   
than 3 percent of Part B drug claims underwent coverage edit reviews in 
2012. 
MACs in half of the jurisdictions conducted medical 
reviews of drug claims, but most could not provide 
the savings associated with these reviews 
In some cases, Part B MACs may not be able to determine if a drug was 
prescribed for a covered use by reviewing only the diagnosis codes on a 
claim.  For example, a drug use may be covered only after administration 
of another treatment; however, this detailed information typically is not 
included on Part B drug claims.  MACs may request that providers submit 
additional documentation for a medical review by the MACs clinical 
staff.  In 2012, MACs covering 7 of the 13 jurisdictions reported that they 
utilized medical reviews to determine whether a drug use was covered.  
Among the seven MAC jurisdictions that utilized these medical reviews, 
four used data analysis to select claims that posed a financial risk, and then 
referred those claims for a medical review.  MACs in the other 
three jurisdictions said they used edits that could trigger a medical review 
for high-dollar claims. 
Of the jurisdictions where MACs conducted these medical reviews, only 
one MAC, covering two jurisdictions, reported the number and dollars 
associated with claims denied as a result of medical reviews.19  This MAC 
reported that it denied 46 percent of the nearly 8,000 claims it reviewed, 
resulting in $1.4 million in denials for these 2 jurisdictions in 2012.  If 
MACs in all jurisdictions had conducted these medical reviews, savings to 
the Medicare program could have been greater. 
   
                        ____________________________________________________________ 
19 A MAC in one jurisdiction provided the number of claims that underwent a medical 
review, but it did not provide the dollar amounts and denial rates for these claims. 
MACs Use Different Methods to Determine Drug Coverage (OEI-03-13-00450)        11   
   
CONCLUSION AND RECOMMENDATIONS  
CMS provides MACs with flexibility to make coverage determinations in 
their jurisdictions.  We found that accordingly, MACs used a variety of 
sources and notification methods to establish and update their coverage 
criteria.  As a result, a beneficiary in one jurisdiction may have different 
drug uses covered than a beneficiary in another jurisdiction.  OIG 
recognizes the importance of MACs having the flexibility to set priorities 
and allocate their resources based on areas of concern within their 
jurisdictions.  However, CMS should ensure that beneficiaries do not have 
limited access to certain drugs because of the MACs coverage policies.   
MACs also are responsible for determining whether claims for Part B 
drugs meet coverage criteria.  We found that all MACs implemented 
payment controls, such as edits and medical reviews, which are designed 
to ensure that claims meet coverage criteria and are paid appropriately.  
However, the extent to which MACs implemented these payment controls 
varied across jurisdictions.  The limited use of payment controls in some 
jurisdictions could leave Part B vulnerable to improper drug payments.   
Finally, MACs in many jurisdictions could not provide us with the results 
of their edits or medical reviews.  Without information about the number 
of claims and dollars reviewed and denied, it may be difficult to evaluate 
the MACs effectiveness in preventing inappropriate payments for Part B 
drugs, including payments for drug uses that are not medically acceptable 
or necessary.   
Therefore, we recommend that CMS: 
Assign a single entity to assist MACs with making coverage 
determinations  
MACs differed in the methods and sources used to make coverage 
determinations across jurisdictions.  MACs also reported that subscribing 
to and reviewing drug compendia and medical journals can be costly and 
time intensive, and MACs often relied on other sources, such as providers 
and drug manufacturers or their representatives, to notify them of updates 
relevant to drug coverage determinations.   
Therefore, we recommend that CMS assign a single entity (this could be a 
new contract, a current contract, a point-of-contact in CMS, or other 
CMS-assigned entity) to act as a resource for MACs in determining which 
drug uses should be covered under Part B.  Having a single reference 
entity to assist with making coverage determinations may also be more 
efficient and effective than having multiple contractors make these 
determinations.  In addition, this entity could remain up-to-date on sources 
of information on drug uses and distribute the information necessary for 
MACs to make coverage determinations.  The entity also could provide 
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MACs with clarification and guidance related to CMSs manuals and 
assist MACs in processing and paying claims appropriately.  With the 
additional support, MACs may have more time and resources to devote to 
reviewing claims and preventing improper payments.  While it is 
important to allow for local standards of medical practice and flexibility 
among jurisdictions, assigning a single entity may help ensure that Part B 
drug coverage determinations are objective, based on the most current 
information, and more consistent across jurisdictions.   
Evaluate the cost-effectiveness of edits and medical reviews 
that are designed to ensure appropriate payments for covered 
uses on Part B drug claims 
MACs reported that their coverage edits did not review claims for all 
drugs in their jurisdictions, and not all MACs reported utilizing medical 
reviews as a way to enforce coverage determinations and ensure proper 
payments in 2012.  This suggests that MACs may not be using payment 
controls to the fullest extent possible.  When MACs do not review claims, 
Medicare may be vulnerable to making payments for non-covered uses 
and potentially paying for drug uses that have not been studied 
sufficiently.  To address these vulnerabilities, it is important that Part B 
MACs implement effective mechanisms that ensure appropriate coverage 
and payment for drug claims.  Currently, MACs are required to evaluate 
their edits regularly to assess whether they are effective in preventing 
inappropriate payments.   However, not all MACs were able to provide us 
with the number and dollars of drug claims evaluated through their 
coverage reviews.   
We recommend that CMS conduct a study to evaluate the 
cost-effectiveness of implementing edits and conducting medical reviews 
to check the coverage of diagnosis codes on drug claims.  If CMS finds 
that these reviews are effective in preventing improper payments, it should 
advise MACs in all jurisdictions to better utilize these reviews to ensure 
appropriate payments.   
MACs Use Different Methods to Determine Drug Coverage (OEI-03-13-00450)        13   
   
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE 
CMS concurred with our recommendation to evaluate the 
cost-effectiveness of edits and medical reviews designed to ensure 
appropriate payments for covered uses on Part B drug claims.  CMS stated 
that in calendar year 2017, it will conduct a study to determine if increased 
monitoring of Part B drug claims results in fewer improper payments.   
CMS did not concur with our recommendation to assign a single entity to 
assist MACs with making coverage determinations.  In its response, CMS 
stated that it does not believe a single entity would capture regional 
differences, which it considers to be a fundamental characteristic of local 
coverage.  CMS reported that it has taken steps to achieve more 
consistency among the MACs coverage determinations.  For example, 
CMS convenes regular meetings with MACs to discuss best practices and 
effective approaches to coverage determinations.  CMS stated that it also 
has added requirements related to LCD collaboration to the MAC Award 
Fee metric.   
We recognize the importance of the steps that CMS has taken to achieve 
consistency in coverage determinations among the MACs.  However, most 
MACs reported challenges in determining coverage for Part B drugs.  
Assigning a single entity to provide guidance on coverage decisions and 
disseminate information about changes to covered uses may help MACs 
ensure that claims are paid appropriately.  This entity, while providing 
valuable information to MACs, would not prohibit them from maintaining 
regional differences in local coverage, where appropriate.  Therefore, we 
continue to recommend that CMS assign a single entity to act as a 
resource for MACs in determining which drug uses should be covered 
under Part B.  The Appendix contains the full text of CMSs comments. 
 
 
   
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APPENDIX  
Agency Comments 
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MACs Use Different Methods to Determine Drug Coverage (OEI-03-13-00450)        16   
   
 
ACKNOWLEDGMENTS 
This report was prepared under the direction of Linda Ragone, Regional 
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office, and Edward K. Burley, Deputy Regional Inspector 
General.  
Office of Evaluation and Inspections staff from the Philadelphia regional 
office who conducted the study include Stefanie Vance, Robert A. Vito, 
and Stephanie Yeager.  Central office staff who provided support include 
Kevin Manley, Althea Hosein, and Joanne Legomsky.  
 
 
MACs Use Different Methods to Determine Drug Coverage (OEI-03-13-00450)        17   
Office of Inspector General
http://oig.hhs.gov  
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95452, as  
amended, is  to protect the integrity of the Department of  Health and Human Services  
(HHS) programs, as  well  as the health  and welfare of individuals served by those programs.  
This statutory mission is carried  out through a nationwide network of audits, investigations,  
and inspections conducted by the following operating components: 
Office of Audit Services 
The Office  of  Audit Services  (OAS) provides auditing services  for HHS, either by  conducting  
audits  with its own audit resources or by  overseeing  audit work done by others.  Audits  
examine the performance of HHS programs and/or its grantees and contractors in carrying  
out their respective responsibilities and are intended  to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and  
mismanagement and promote economy and efficiency  throughout  HHS. 
Office of Evaluation and Inspections 
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
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The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of fraud and misconduct  related to HHS programs, operations, and individuals.  With  
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/or  civil monetary  penalties.  
Office of Counsel to the Inspector General 
The Office of Counsel to the  Inspector  General (OCIG) provides general legal services to 
OIG, rendering  advice and opinions on HHS programs and operations and  providing all  
legal support for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and  abuse cases involving HHS programs, including False Claims Act, 
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enforcement authorities.