Office of Inspector General 
 
U.S. Department of Health and Human Services 
 Issue Brief, OEI-02-15-00440 
 March 2020 
 
Key Medicare Tools To Safeguard Against Pharmacy Fraud 
and Inappropriate Billing Do Not Apply to Part D
 
Why This Issue Is Important  Key Takeaways 
Medicare Part D paid $168 billion for drugs for 46.8 million 
 Part D does not have three key tools 
Medicare beneficiaries in 2018.  Despite its size, Part D does not 
to protect against pharmacy fraud 
have the same protections against pharmacy fraud that other parts 
that are available in other parts of 
of Medicare have.  The Office of Inspector General (OIG) has 
Medicare: pharmacy enrollment, 
longstanding concerns about pharmacy-related fraud and 
revocation, and preclusion.  
inappropriate billing in Part D.  This issue brief is another step in 
 Pharmacies must enroll in Medicare 
OIGs larger strategy to fight this fraud and protect beneficiaries.  
to bill Part B, but they are not 
It focuses on the lack of three key tools to safeguard Part D: 
required to enroll to bill Part D.  
enrollment, revocation, and preclusion (see Key Takeaways box).  
 Pharmacies that have their 
The Issue and Its Impact  enrollment revoked for failing to 
To safeguard Medicare against fraud and inappropriate billing, it is  meet Medicare requirements are still 
crucial to keep out providersincluding pharmaciesthat pose  allowed to bill Part D. 
risks to the program.  However, CMSs three key tools for doing   Preclusiona new tool that CMS 
soenrollment, revocation, and preclusionapply to pharmacies  uses to prevent problematic 
only when they bill Parts B or C, not when they bill Part D.    pharmacies from billing Part Cis 
not used to address problematic 
Key Tools To Protect Medicare From Pharmacy Fraud 
pharmacies in Part D. 
  Enrollment  Revocation  Preclusion 
 CMS should apply the key oversight 
Part B        tools of enrollment, revocation, and 
Part C        preclusion to pharmacies billing 
Part D  Part D. 
     
 
Pharmacies must enroll in Medicare to bill Part B, but they are not required to enroll to bill Part D.  
Pharmacies that have their enrollment revoked for failing to meet Medicare requirements are still allowed 
to bill Part D.  CMS adds certain pharmacies that pose risks to Medicare to a Preclusion List.  CMS uses 
preclusion to prevent Part C from paying these pharmacies, but not to prevent Part D from paying them.   
How To Fix This Issue 
If the powerful oversight tools of enrollment, revocation, and preclusion were available to Part D, CMS could 
take direct action against pharmacies that pose risks to the Medicare program or beneficiaries.  OIG views 
enrollment, with its screening process, as an extremely effective way to protect the Medicare program, 
including Part D.  We continue to recommend that CMS require pharmacies that bill Part D to enroll in the 
Medicare program.  This was an integral part of a previous recommendation that CMS has yet to implement.  
We also recommend that CMS allow revocation of Medicare enrollment for inappropriate billing of Medicare 
Part D and include on the Preclusion List pharmacies that inappropriately bill Part D.  Lastly, we recommend 
that CMS apply the Preclusion List payment prohibition to pharmacies and other providers that dispense 
Part D drugs.  CMS concurred with all three of our new recommendations.  Primer on Key Program Safeguards and Pharmacy Billing  
 
Key Safeguards Against Providers That Pose Risks 
  Enrollment:  The Medicare enrollment process helps ensure that unqualified and potentially 
fraudulent providers do not bill Medicare.  Broadly, the enrollment process entails the 
providers completing an application and demonstrating that it meets enrollment 
requirements.  The provider is screened, and its application is then approved, rejected, or 
denied.  If its application is approved, the provider must revalidate its enrollment application 
every 3 or 5 years. 
 
  Revocation:  CMS may revoke a providers Medicare enrollment for a number of reasons, such 
as the providers misusing its billing number or abusing its billing privileges (e.g., allowing 
someone else to use its billing number or submitting claims for deceased beneficiaries).  
Depending on the reason for revocation, a provider may be subject to a reenrollment bar, 
which generally prohibits it from re-enrolling in Medicare for up to 10 years.1 
 
  Preclusion:  Since 2019, CMS has been able to preclude providers from billing Medicare Part C 
under certain circumstances by placing them on its Preclusion List.2  Providers may be placed 
on the list if they are currently revoked from Medicare, are under an active re-enrollment bar, 
and CMS has determined that the underlying conduct that led to the revocation is detrimental 
to the best interests of the Medicare program. 
 
Pharmacy Billing in Different Parts of the Medicare Program 
  Part D (Prescription Drug Coverage):  Part D helps cover the cost of prescription drugs.  CMS 
contracts with private insurance companiescalled Part D sponsorsto provide drug coverage 
under Part D.  These sponsors develop pharmacy networks by contracting with different types 
of pharmacies, such as retail and long-term care pharmacies.  In order to bill for prescription 
drugs under Part D, a pharmacy contracts with a Part D sponsor.  Note that some Part D plans 
are offered by Medicare Advantage plans.  These plans are known as Medicare Advantage-
prescription drug (MA-PD) plans. 
 
  Part B (Medical Insurance):  Part B helps cover the cost of services from doctors and other 
health care providers, outpatient care, home health care, durable medical equipment, and 
many preventive services (e.g., flu shots).  To bill for items and services under Part B, a 
pharmacy must enroll in Medicare.  For example, to bill Part B, a pharmacy may enroll as 
a supplier of durable medical equipment. 
 
  Part C (Medicare Advantage):  Part C provides an alternative way for beneficiaries to get 
Medicare coverage.  Medicare Advantage Planswhich are offered by private companies
cover Medicare Part A services (e.g., hospital and nursing home services) as well as Part B items 
and services.  To bill for items and services under Part C, a pharmacy contracts with a Medicare 
Advantage plan.  The pharmacy is not required to enroll in Medicare to bill Part C.   
   
RESULTS 
 
 
To safeguard Medicare against fraud and inappropriate billing, it is crucial to keep out 
providersincluding pharmaciesthat pose risks to the program.  CMS has three key 
tools to prevent or stop providers from participating in Medicare: enrollment, 
revocation, and preclusion.  However, these tools apply to pharmacies when they bill 
Parts B and C, but not when they bill Part D.  Specifically, enrollment in Medicare is 
required of all pharmacies that bill Part B, and CMS can revoke this enrollment if a 
pharmacy bills Part B inappropriately.  CMS can add a pharmacy to the Preclusion List if 
it finds that a pharmacys conduct is detrimental to the Medicare program.  This 
safeguards Part C, as CMS prohibits Part C plans from paying pharmacies that are on 
the Preclusion List.  Enrollment, revocation, and preclusion do not apply to pharmacies 
when they bill for Part D drugs.  Despite the size of Part D, CMS does not have these 
three key oversight tools to safeguard it from pharmacy fraud and inappropriate billing.  
In 2018, total spending for Part D drugs was $168 billion.3  
Pharmacies must enroll in Medicare to bill Part B, but 
they are not required to enroll to bill Part D 
Pharmacies must enroll in Medicare to bill Part B.  In contrast, pharmacies are not 
required to enroll in Medicare to bill Part D.  As a result, pharmacies can bill Part D 
without being screened by CMS or going through the Medicare enrollment application 
process.4     
Most pharmacies that bill Part D (76 percent) also bill Part B and therefore are screened 
by CMS because of their Part B billing.  However, their enrollment gives CMS no 
authority to take action against the pharmacies if there are concerns about their Part D 
billing.  Thus, even if these pharmacies are screened by CMS as part of their enrollment, 
CMS cannot directly address inappropriate Part D billing by these pharmacies if it 
occurs.   
Pharmacies must enroll in Part B to bill for durable medical equipment and the drugs 
used with this equipment, such as nebulizers and nebulizer medications, respectively.  
They must also enroll to bill Part B for some outpatient drugs, such as certain oral 
cancer and immunosuppressant drugs, as well as to bill for certain immunizations, such 
as the influenza vaccine.5  
 
 
 
 
Issue Brief: Key Medicare Tools to Safeguard Against Pharmacy Fraud and Inappropriate Billing Do Not Apply to Part D 
OEI-02-15-00440    3   
As part of the enrollment process, CMS 
screens each pharmacy to ensure that it  Exhibit 1:  Key Enrollment 
meets certain requirements.  See Exhibit 1.   Requirements for Pharmacies 
CMS then monitors enrolled pharmacies  To Bill Part B 
on an ongoing basis.  If an enrolled 
The pharmacy must:  
pharmacy bills Part B inappropriately or is 
the subject of other concerns about fraud,    provide proof of a National 
Provider Identifier (NPI) and 
waste, or abuse in Part B, CMS has the 
practice location;  
authority to take direct action against it.  
  provide documentation of all 
Unlike in Part B, a pharmacy does not  applicable Federal and State 
need to enroll in Medicare to bill Part D.   licenses and certifications; and  
To bill Part D, a pharmacy contracts with a 
  be operational and able to furnish 
Part D sponsor.6  A Part D sponsor is 
Medicare covered items or services. 
required to contract with any willing 
pharmacy that meets the sponsors 
standard terms and conditions.   
Almost a quarter of all pharmacies (16,721 of 69,922 pharmacies) that bill Part D are not 
enrolled in Medicare.  Among these are pharmacies that CMS has identified as being 
high risk for the program.  Specifically, 42 percent of high-risk pharmacies that bill 
Part D are not enrolled in Medicare.7  High-risk pharmacies have aberrant Part D billing 
patterns that warrant additional scrutiny.  CMS designates certain retail pharmacies as 
high risk based on its proactive data analysis.   
There is no requirement that high-risk pharmacies be screened by CMS or enrolled in 
Medicare before they bill Part D in the way that all pharmacies that bill Part B are 
screened and enrolled.  
High-risk pharmacies are more likely than retail 
pharmacies in general not to be enrolled in       42 percent 
Medicare.  As noted earlier, 42 percent of high-
of high-risk pharmacies that 
risk pharmacies are not enrolled, compared to 
bill Part D are not enrolled 
22 percent of all retail pharmacies that bill 
in Medicare 
Part D.8  In 2017, Part D paid nearly $1.4 billion to 
high-risk pharmacies that were not enrolled.  
There are other types of pharmacies that are also more likely to not be enrolled in 
Medicare.  Almost half of all long-term care pharmacies (48 percent) and mail-order 
pharmacies (45 percent) that bill Part D are not enrolled in Medicare.  Also, 
independent pharmacies are much more likely than chain pharmacies to not be 
enrolled.  Fifty-two percent of independent pharmacies are not enrolled, compared to 
just 4 percent of chain pharmacies.   
Issue Brief: Key Medicare Tools to Safeguard Against Pharmacy Fraud and Inappropriate Billing Do Not Apply to Part D 
OEI-02-15-00440    4  Pharmacies that have their enrollment revoked for 
failing to meet Medicare requirements are still allowed 
to bill Part D 
If CMS determines that a pharmacy no longer meets program requirements, it may 
revoke the pharmacys enrollment in Medicare.9  The pharmacy then is prohibited from 
billing Part B.  However, the pharmacy is not prohibited from billing Part D, as the 
revocation has no effect on Part D billing. 
In 2017, a total of 462 pharmacies that billed Part D had their Medicare enrollment 
revoked.  Almost all of these pharmacies441 of the 462continued to bill Part D 
after their revocation.  In total, they billed Part D $655 million in 2017 after their 
enrollment in Medicare was revoked. 
The reasons that these pharmacies were revoked ranged from pharmacies not meeting 
certain program standards to pharmacies not being operational.  Other reasons 
included pharmacies misusing their Medicare billing numbers or abusing their billing 
privileges.    
The following are examples of pharmacies that continued to bill Part D in 2017 after 
their enrollment was revoked:  
  A California pharmacys Medicare enrollment was revoked because CMS 
determined that the pharmacy was no longer operational.  This pharmacy was also 
under a re-enrollment bar in 2017 and could not reapply for enrollment for 
2 years.10  Part D paid this pharmacy $2.7 million in 2017 after its enrollment was 
revoked. 
  A New Jersey pharmacy had its enrollment revoked for misusing its Medicare 
billing number.  (Examples of misusing a billing number are knowingly selling the 
number or allowing another entity to use it.)  Part D paid this pharmacy almost 
$2 million in 2017 after its enrollment was revoked.     
  A Florida pharmacy had its enrollment revoked for abusing its Medicare Part B 
billing privileges.  (An example of an abuse of billing privileges is submitting claims 
for Medicare services that could not have occurred, such as a claim for an office 
visit with a deceased beneficiary.)  Part D paid this pharmacy about $940,000 after 
the revocation.   
Medicare regulations list specific reasons why CMS may revoke a providers 
enrollment.11  CMS does not consider inappropriate Part D billing as a reason to revoke 
and does not revoke Medicare enrollment for inappropriate Part D billing.  Therefore, a 
pharmacy that inappropriately bills Part D is still allowed to bill Part B. 
   
Issue Brief: Key Medicare Tools to Safeguard Against Pharmacy Fraud and Inappropriate Billing Do Not Apply to Part D 
OEI-02-15-00440    5  CMS can use preclusion to prevent Part C from paying 
pharmacies but not to prevent Part D from paying 
pharmacies 
Preclusion is a new tool that CMS began using in 2019.  CMS maintains a listthe 
Preclusion Listof providers that pose an elevated risk to beneficiaries and the 
Medicare program.  This includes pharmacies.  
CMS prohibits Part C plans from paying pharmacies on the Preclusion List.12  However, 
the Preclusion List does not apply to pharmacies billing of Part D; CMS does not 
prohibit Part D sponsors from paying pharmacies on the Preclusion List. 13  Even Part D 
plans that are part of Part C plans (i.e., MA-PD 
plans) are not prohibited from paying pharmacies 
Exhibit 2:  Preclusion List 
on the Preclusion List for Part D drugs.   
CMS can place a pharmacy on 
Instead, CMS has stated that it expects Part D 
the Preclusion List if the 
sponsors to terminate their contracts with 
pharmacy:  
precluded pharmacies, but CMS has been clear 
that this is not a requirement.14  As a result,   is currently revoked from 
pharmacies that pose a known risk to beneficiaries  Medicare, is under an active 
and the program are allowed to bill Part D.  re-enrollment bar, and  
In addition, CMS does not place pharmacies on   CMS has determined that the 
the Preclusion List for billing Part D  underlying conduct that led to 
the revocation is detrimental 
inappropriately.  CMS may place a pharmacy on 
to the Medicare program. 
the Preclusion List when CMS revokes a 
pharmacys enrollment and determines the 
pharmacy has engaged in behavior that is 
detrimental to Medicare.15  See Exhibit 2.  However, as noted earlier, CMS does not 
consider inappropriate Part D billing as a reason to revoke a providers enrollment.  In a 
few limited circumstances, CMS also may place a pharmacy on the Preclusion List when 
the pharmacy is not enrolled but poses a risk to the program.16  However, these 
circumstances do not include inappropriately billing Part D.  
Instead, CMS relies on plan sponsors to identify Part D program integrity issues and to 
take action as needed against pharmacies in their respective plans.  Sponsors are not 
currently required to inform CMS or other sponsors about most actions they have taken 
or about concerns they have about specific pharmacies.17  As a result, a pharmacy that 
has been identified by one sponsor as 
detrimental to the Part D program may 
 
Pharmacies can be precluded 
continue to bill Part D in other sponsors 
plans.  The pharmacy also can continue to bill  from Part C and still be billing 
Parts B and C, as CMS has no authority to  Part D 
revoke the pharmacys enrollment or put the 
pharmacy on the Preclusion List if it 
inappropriately bills Part D.   
Issue Brief: Key Medicare Tools to Safeguard Against Pharmacy Fraud and Inappropriate Billing Do Not Apply to Part D 
OEI-02-15-00440    6   
CONCLUSION AND RECOMMENDATIONS 
 
 
OIGs body of work has highlighted the continuing problems of pharmacy fraud and 
inappropriate billing, particularly in relation to the opioid crisis.18  This issue brief 
demonstrates that, despite its size, Part D does not have the same protections against 
pharmacy fraud that other parts of Medicare have.  These toolsenrollment, 
revocation, and preclusionwould be critical in safeguarding Part D against pharmacy 
fraud and inappropriate billing.   
CMS currently can use these powerful oversight tools to prevent or stop pharmacies 
from participating in Parts B and C, but not in Part D.  Pharmacies must enroll in 
Medicare to bill Part B, but they are not required to enroll to bill in Part D.  Pharmacies 
that have their enrollment revoked for failing to meet Medicare requirements are still 
allowed to bill Part D.  Further, CMS can use preclusion to prevent Part C from paying 
pharmacies but not to prevent Part D from paying pharmacies. 
As enrollment, revocation, and preclusion are not applicable to pharmacies when they 
bill Part D, they do not protect it from pharmacy fraud or inappropriate billing.  If these 
tools were available to Part D, CMS could take direct action against pharmacies when 
needed and stop Medicare payments to pharmacies that are detrimental to the 
program.   
OIG views enrollment, with its screening process, as an extremely effective way to 
protect the Medicare program, including Part D.  In a 2018 report, OIG recommended 
that CMS require all Part C and Part D providers and pharmacies to enroll in Medicare.19  
While we continue to recommend that CMS require all Part C and D providers and 
pharmacies to enroll, we reiterate an integral part of that unimplemented 
recommendationnamely, that CMS should: 
Require pharmacies that bill Part D to enroll in the Medicare program  
Having no enrollment requirement for pharmacies that bill Part D creates a 
vulnerability to Medicare.  Without this requirement, CMS cannot use the 
enrollment screening process or its revocation authority to safeguard the Part D 
program from pharmacy fraud and inappropriate billing.  This requirement would 
help ensure that CMS could screen all pharmacies before they provide drugs to 
Part D beneficiaries.  Given the opioid crisis, these safeguards are critical to 
protecting the program and beneficiaries.   
 
Beyond requiring pharmacy enrollment, there are additional steps CMS should take to 
safeguard Part D.  These steps would help ensure that Part D and other parts of the 
Medicare program are protected from pharmacies that have engaged in fraud and 
inappropriate billing.  CMS should: 
 
 
Issue Brief: Key Medicare Tools to Safeguard Against Pharmacy Fraud and Inappropriate Billing Do Not Apply to Part D 
OEI-02-15-00440    7  Allow revocation of Medicare enrollment for inappropriate billing of Part D 
CMS does not currently revoke Medicare enrollment for inappropriate billing of 
Part D.  CMS should make the changes necessary to ensure that when a pharmacy 
inappropriately bills Part D, CMS has the authority to revoke the pharmacys 
enrollment.  This would promote compliance in Part D and better safeguard other 
parts of the Medicare program.   
To do this, CMS should assess whether it can use its existing authority to revoke 
Medicare enrollment for abuse of billing privileges or if it needs to expand the 
reasons it may revoke Medicare enrollment to specifically include inappropriate 
billing of Part D.  Once CMS establishes its authority, CMS should revoke the 
enrollment of pharmacies that have billed Part D inappropriately.   
Include on the Preclusion List pharmacies that inappropriately bill Part D  
Under current law, CMS may place a pharmacy on the Preclusion List if the 
pharmacys enrollment is revoked and its conduct is detrimental to Medicare.  
However, CMS cannot place a pharmacy on the Preclusion List because the 
pharmacy has billed Part D inappropriately.  CMS should expand the reasons for 
which it may add a pharmacy to the Preclusion List to include inappropriately 
billing Part D or other Part D-related conduct that CMS determines is detrimental 
to the program.  This would provide protections for Part D and other parts of the 
Medicare program.  
Apply the Preclusion List payment prohibitions to pharmacies and other 
providers that dispense Part D drugs 
The Preclusion List includes pharmacies with conduct that is detrimental to the 
program.  To better protect the Part D program from fraud, waste, and abuse, 
CMS should prohibit all Part D sponsors from paying precluded pharmacies and 
other providers that dispense Part D drugs.   
Under the current rules, Part D sponsors are not prohibited from paying precluded 
pharmacies and other providers.  Instead, CMS expectsbut does not require
sponsors to remove precluded pharmacies from their networks.  Without a 
requirement that prevents payment, precluded pharmacies can continue to bill and 
be paid by Part D even after these pharmacies are proven to be detrimental to the 
program.   
   
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OEI-02-15-00440    8   
AGENCY COMMENTS AND OIG RESPONSE 
 
 
CMS concurred with all three of our new recommendations. 
With regard to the first recommendationto allow revocation of Medicare enrollment 
for inappropriate billing of Part DCMS concurred and stated that it will explore the 
feasibility of allowing revocation for this reason.   
With regard to the second recommendationto include on the Preclusion List 
pharmacies that inappropriately bill Part DCMS concurred and stated that it will 
explore the feasibility of including these pharmacies on the Preclusion List.  CMS noted 
that currently, only provider types that are eligible to enroll in Medicare can be placed 
on the Preclusion List.  
With regard to the third recommendationto apply the Preclusion List payment 
prohibitions to pharmacies and other providers that dispense Part D drugsCMS 
concurred and stated that, effective April 1, 2019, Medicare Advantage plans are 
required to deny payment for an item or service furnished by a pharmacy on the 
Preclusion List.  CMS stated that it will explore the feasibility of prohibiting Part D 
sponsors from paying for Part D drugs dispensed by a pharmacy on the Preclusion List.   
OIG appreciates CMSs program integrity efforts to protect Part D and urges CMS not 
only to determine the feasibility of our recommendations, but also to take appropriate 
action to implement them.  In addition, we reiterate that OIG views enrollmentwith its 
screening processas an extremely effective way to protect the Medicare program, 
including Part D, and that OIG continues to recommend that CMS require all Part C and 
Part D providers and pharmacies to enroll in Medicare.   
For the full text of CMSs response, see the Appendix.  
 
 
 
   
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OEI-02-15-00440    9   
METHODOLOGY 
 
 
We based this issue brief primarily on three key data sources:  a document review of 
CMSs policies; an analysis of prescription drug event (PDE) records and records from 
the Provider Enrollment, Chain and Ownership System (PECOS); and structured 
interviews with CMS staff. 
Document Review  
We reviewed documentationincluding regulations and guidanceabout CMS 
policies relevant to enrollment, revocation, and the Preclusion List. 
Analysis of PDE Records and PECOS Data 
We analyzed PDE records and PECOS data to determine the extent to which 
pharmacies that billed Part D were enrolled in Medicare in 2017.  PDE records contain 
information about the drugs that each pharmacy bills to Part D.  PECOS records contain 
information about providers enrolled in Medicare.   
We based our review on all PDE records for 2017.  A Part D sponsor submits a PDE 
record to CMS each time a drug is dispensed to a beneficiary enrolled in its plan.  Each 
PDE record contains information about the drug and beneficiary, as well as the 
identification numbers for the pharmacy and the prescriber.  Using PDE records, we 
identified all National Provider Identifiers (NPIs) that billed for Part D drugs.  To ensure 
that all of these NPIs were pharmacies, we compared these NPIs to the National 
Council of Prescription Drug Programs (NCPDP) database, the National Plan and 
Provider Enumeration System (NPPES), and PECOS.  We included all types of 
pharmacies, such as retail pharmacies, long-term-care pharmacies, and mail-order 
pharmacies.  In total, we identified 69,922 pharmacies.20  Next, we matched these 
pharmacies NPIs with PECOS records to identify the number and the proportion of 
Part D pharmacies that were enrolled in Medicare in 2017.21    
We then determined whether pharmacies with certain characteristics were less likely to 
be enrolled.  We calculated the proportion of pharmacies that were independently 
owned (vs. chain pharmacies).  We also determined whether pharmacies identified as 
being high-risk were less likely to be enrolled.  We used the High-Risk Pharmacy 
Assessment Tool reports to identify pharmacies that were high-risk in 2017.22  CMS 
develops these reports to identify high-risk retail pharmacies that have aberrant Part D 
billing patterns. 
Next, we determined the number of Part D pharmacies that had their Medicare 
enrollment revoked at any point in 2017.  To do this, we identified pharmacies in the 
PECOS data that had an enrollment status of revoked.   We then identified the 
number of pharmacies that billed Part D for drugs after their enrollments had been 
revoked.  To do this, we compared the dates of revocation to the dates of service on 
the pharmacies PDE records.  For these pharmacies, we calculated the total amount 
Issue Brief: Key Medicare Tools to Safeguard Against Pharmacy Fraud and Inappropriate Billing Do Not Apply to Part D 
OEI-02-15-00440    10  that Part D paid them for drugs dispensed in 2017 after their enrollments had been 
revoked.23 
Structured Interviews With CMS Staff 
We conducted structured interviews with CMS staff to gain a better understanding of 
enrollment, revocation, and the Preclusion List.  Our questions focused on the 
enrollment process, the reasons CMS may revoke a pharmacys enrollment, and how 
revocation applies to Part D.  We also asked about how the Preclusion List applies to 
pharmacies. 
Standards 
We conducted this study in accordance with the Quality Standards for Inspection and 
Evaluation issued by the Council of the Inspectors General on Integrity and Efficiency. 
 
   
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OEI-02-15-00440    11   
APPENDIX: AGENCY COMMENTS 
   
Issue Brief: Key Medicare Tools to Safeguard Against Pharmacy Fraud and Inappropriate Billing Do Not Apply to Part D 
OEI-02-15-00440    12   
   
Issue Brief: Key Medicare Tools to Safeguard Against Pharmacy Fraud and Inappropriate Billing Do Not Apply to Part D 
OEI-02-15-00440    13   
ACKNOWLEDGMENTS 
 
 
Miriam Anderson served as the team leader for this study.  Other Office of Evaluation 
and Inspections staff from the New York regional office who conducted the study 
include Margaret Himmelright and Jason Kwong.  Office of Evaluation and Inspections 
staff who provided support include Adam Freeman and Christine Moritz.   
This report was prepared under the direction of Jodi Nudelman, Regional Inspector 
General for Evaluation and Inspections in the New York regional office, and 
Nancy Harrison and Meridith Seife, Deputy Regional Inspectors General.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
To obtain additional information concerning this report or to obtain copies, contact the 
Office of Public Affairs at Public.Affairs@oig.hhs.gov.   
Issue Brief: Key Medicare Tools to Safeguard Against Pharmacy Fraud and Inappropriate Billing Do Not Apply to Part D 
OEI-02-15-00440    14   
ENDNOTES 
 
 
 
1 Prior to November 2019, the re-enrollment bar was 1 to 3 years.  It was extended to 10 years in November 2019.   
2 CMS may also preclude providers from prescribing Part D drugs; however, it may not preclude pharmacies from 
dispensing  Part D drugs.  
3 This represents the price paid to the pharmacy at the point of sale.  It includes the amount paid by Part D sponsors; 
by the Government; and by, or on behalf of, beneficiaries.  It is not adjusted for rebates; coverage gap discounts; or 
other direct or indirect remuneration. 
4 CMS relies on Part D sponsors to oversee pharmacies that enroll in their networks.  
5 CMS has a separate enrollment process for pharmacies that bill for durable medical equipment, prosthetics, 
orthotics, and supplies (DMEPOS) and pharmacies that bill for Part B drugs, such as oral cancer drugs, 
immunosuppressant drugs, and the influenza vaccine.  For more information about the enrollment process, see CMS, 
Medicare Program Integrity Manual, ch. 15, Medicare Enrollment, 15.4.2.4, February 2, 2019.  Accessed at 
https://www.cms.gov/Regulations-and-Guidance/Guidance/Manuals/Downloads/pim83c15.pdf on June 5, 2019.  For 
more information about Part B coverage, see CMS, Medicare Benefit Policy Manual, ch. 15, Covered Medical and 
Other Health Services, July 12, 2019.  Accessed at https://www.cms.gov/Regulations-and-
Guidance/Guidance/Manuals/downloads/bp102c15.pdf on September 20, 2019. 
6 42 CFR  423.505(b)(18).  In addition, Medicare Part D covers drugs from out-of-network pharmacies under certain 
circumstances.  In these cases, the beneficiary, rather than the pharmacy, typically submits these claims to the 
sponsor for reimbursement.  For more information about network and out-of-network pharmacies, see CMS, 
Medicare Prescription Drug Manual, ch. 5, Benefits and Beneficiary Protections, September 2011, sections 10.2, 50, 
and 60. 
7 In total, CMS identified 563 pharmacies as high risk in its Quarterly High-Risk Pharmacy Report for 2017.  Of these 
563 high-risk pharmacies, 234 are not enrolled. 
8 In total, 14,314 of the 64,812 retail pharmacies are not enrolled.  
9 42 CFR  424.535.  In some cases, CMS may revoke a pharmacys enrollment only with regard to certain parts of the 
Medicare program.  For example, CMS may revoke a pharmacys enrollment so that it may not bill for DMEPOS or for 
Part B drugs.  
10 Depending on the reason a pharmacys enrollment is revoked, it may be prohibited from re-enrolling in Medicare 
for 1 to 10 years.  If the pharmacys enrollment is revoked for a second time, CMS may impose a reenrollment bar of 
up to 20 years.  See 42 CFR  424.535(c).  
11 See 42 CFR  424.535(a). 
12 Part C plans are prohibited from paying pharmacies that are on the Preclusion List.  Part C plans are not prohibited 
from paying pharmacies that are revoked but are not included on the Preclusion List. 
13 Part D plans are allowed to pay for Part D covered drugs dispensed by precluded pharmacies.  Part D plans are not 
allowed to pay for drugs prescribed by precluded prescribers.  42 CFR  423.120(c)(6), 84 Fed. Reg. 15680, 15791 
(Apr. 16, 2019).   
14 See CMS, memorandum (addressed to all Medicare Advantage organizations, Part D plan sponsors, 1876 cost 
plans, and Programs of All-Inclusive Care for the Elderly (PACE)), Preclusion List Requirements, November 2, 2018.  
Accessed at https://www.cms.gov/Medicare/Provider-Enrollment-and-
Certification/MedicareProviderSupEnroll/Downloads/Sample_Beneficiary_Letter.pdf on June 5, 2019. 
 
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15 42 CFR  422.2 and 422.222. 
16 CMS can place a pharmacy that is not enrolled on the Preclusion List if it has engaged in behavior for which CMS 
could have revoked Medicare enrollment (if the pharmacy had been enrolled in Medicare) and CMS determines that 
the underlying conduct that would have led to the revocation is detrimental to the Medicare program.  For example, 
CMS can revoke a pharmacys enrollment if its owner is convicted of a felony offense that CMS determines to be 
detrimental to the Medicare program and its beneficiaries.  If a similar situation occurs with a pharmacy that is not 
enrolled, CMS can add that pharmacy to the Preclusion List. 
17 The SUPPORT for Patients and Communities Act requires Part D sponsors to report any payment suspension 
imposed on a pharmacy pending investigation of credible allegations of fraud as of January 2020.  See P.L. 
No. 115-271  2008. 
18 Notably, in April 2019, OIG participated in the largest ever law enforcement operation targeting prescription 
opioids, an operation that resulted in charges against several pharmacists.  See Department of Justice, Appalachian 
Regional Prescription Opioid (ARPO) Strike Force Takedown Results in Charges Against 60 Individuals, Including 
53 Medical Professionals (April 2019).  Accessed at https://www.justice.gov/opa/pr/appalachian-regional-prescription-
opioid-arpo-strike-force-takedown-results-charges-against on August 2, 2019.  In addition, OIG reviews have 
revealed that certain pharmacies have questionable billing for opioids and other drugs.  See OIG, Questionable Billing 
for Compounded Topical Drugs in Medicare Part D, OEI-02-16-00440, August 2018; OIG, Questionable Billing and 
Geographic Hotspots Point to Potential Fraud and Abuse in Medicare Part D, OEI-02-15-00190, June 2015; and OIG, 
Ensuring the Integrity of Medicare Part D, OEI-03-15-00180, June 2015.  For examples of additional OIG reviews on 
opioids in Part D, see OIG, Opioid Use Decreased in Medicare Part D, While Medication-Assisted Treatment Increased, 
OEI-02-19-00390, July 2019; OIG, Opioids in Medicare Part D: Concerns About Extreme Use and Questionable 
Prescribing, OEI-02-17-00250, July 2017; and OIG, Opioid Use in Medicare Part D Remains Concerning, 
OEI-02-18-00220. 
19 See OIG, The MEDIC Produced Some Positive Results but More Could be Done to Enhance its Effectiveness, 
OEI-03-17-00310, July 2018. 
20 We did not include other types of entities, such as community health centers and clinics, that dispense drugs or 
health care practitioners who provide Part D-covered drugs and vaccines.  In total, we excluded 23,238 entities that 
billed Part D that were not pharmacies.  Together, these entities billed for less than 1 percent of all Part D drugs. 
21 We included all pharmacies with an active enrollment status at any point in 2017.  
22 This analysis is based on CMSs Quarterly High-Risk Pharmacy Report, released in March 2018, which analyzed 
pharmacy billing from January 1, 2017 to December 31, 2017.  CMS shares these reports with Part D sponsors as an 
educational tool.  
23 To calculate total Part D billing, we summed four fields on each PDE record:  ingredient cost, dispensing fee, sales 
tax, and vaccine administration fee.  Together these fields represent the amount that the pharmacy was paid for the 
drug.  It includes amounts paid by the Government; by the sponsor; and by, or on behalf of, the beneficiary. 
Issue Brief: Key Medicare Tools to Safeguard Against Pharmacy Fraud and Inappropriate Billing Do Not Apply to Part D 
OEI-02-15-00440    16