DEPARTMENT OF HEALTH &. HUMAN SERVICES 	 Office of Inspector General 
Washington, D.C.  20201 
NOV 142011 
TO: 	 Donald M. Berwick, M.D. 
Administrator 
Centers for Medicare & Medicaid Services 
FROM:  Stuart Wright 
Deputy Inspector General 
for Evaluation and Inspections 
SUBJECT: 	 Memorandum Report:  Ensuring That Medicare Part D Reimbursement Is Limited 
to Drugs Providedfor Medically Accepted Indications, OEI-07-08-00152 
This memorandum report provides information about selected Prescription Drug Plan (PDP) 
sponsors' ability to ensure that Medicare reimbursement for Part D drugs is limited to drugs that 
are provided for medically accepted indications. 
SUMMARY 
For drugs to qualify for Medicare Part D reimbursement, the Medicare Benefit Policy Manual 
and the Prescription Drug Benefit Manual require that they be provided for medically accepted 
indications.  Medically accepted indications include both the uses approved by the Food and 
Drug Administration (FDA) and off-label! uses supported by one or more of three compendia 
specified in section 1927(g)(I)(B)(i) of the Social Security Act.  The Centers for Medicare 
& Medicaid Services (CMS) charges PDP sponsors with ensuring that Medicare reimbursement 
for Part D drugs is limited to drugs provided for medically accepted indications. 
We found that selected PDP sponsors are unable to systematically ensure that Medicare 
reimbursement for Part D drugs, including reimbursement for antipsychotic drugs, is limited to 
drugs provided for medically accepted indications.  The issues addressed in this memorandum 
report arose during the course of an earlier evaluation, entitled Medicare Atypical Antipsychotic 
Drug Claims for Elderly Nursing Home Residents, OEI-07-08-00150.  In that evaluation, we 
found that 50 percent of Medicare atypical antipsychotic drug claims (amounting to 
$116 million) for elderly nursing home residents were erroneous because the claimed drugs were 
not provided for medically accepted indications as supported by the compendia.  This 
memorandum report provides possible explanations for the high error rate in that evaluation and 
I Off-label uses are not approved by FDA and do not appear on drug labels. 
OEJ-07-08-00152  Medically Accepted Indications for Part D Drugs   
Page 2  Donald M. Berwick, M.D. 
 
 
provides further support for a prior recommendation that CMS facilitate PDP sponsors access to 
information necessary to ensure appropriate reimbursement of Part D claims. 
 
BACKGROUND 
 
Since January 1, 2006, most outpatient prescription drugs for Medicare beneficiaries and dually 
eligible beneficiaries (beneficiaries eligible for both Medicare and Medicaid) have been covered 
by the Medicare Part D program.  For outpatient drug claims to qualify for Medicare Part D 
reimbursement, the drugs must be provided for medically accepted indications.  Medically 
accepted indications include both uses approved by FDA and uses supported by one or more of 
three compendia specified in section 1927(g)(1)(B)(i) of the Social Security Act.  The three 
compendia, hereinafter referred to collectively as the compendia, are the (1) American Hospital 
Formulary Service Drug Information (AHFS-DI), (2) United States Pharmacopeia-Drug 
Information (or its successor publications) (USP-DI), and (3) DrugDEX Information System 
(DrugDEX). 
 
CMS Requirements for PDP sponsors 
PDP sponsors must establish a comprehensive fraud and abuse plan to detect, correct, and 
prevent fraud and abuse as part of a compliance plan.2  Payments for Part D drugs that are not for 
medically accepted indications are considered potential fraud or abuse.  PDP sponsors may use 
various strategies to ensure that Part D drug payments are limited to drugs provided for 
medically accepted indications.  The Prescription Drug Benefit Manual does not provide any 
examples of such strategies.  PDP sponsors may rely on strategies such as prepayment edits, 
prior authorization, and postpayment reviews.  However, many of these strategies depend on 
information that is not required for Part D claims;3 therefore, PDP sponsors would need to 
collect information currently not included on claims. 
 
Prepayment strategies.  Prepayment strategies, such as prepayment edits and prior authorization, 
allow PDP sponsors to prevent inappropriate payments for drugs.  Prepayment edits could 
prevent payments for drugs that are not provided for medically accepted indications.  The 
Prescription Drug Benefit Manual does not provide any specific examples of how PDP sponsors 
could use prepayment edits.  However, one approach could be to require diagnosis information 
that would match the beneficiarys diagnosis against the medically accepted indications listed in 
the compendia prior to distribution at the point of sale. 
 
PDP sponsors may also use prior authorization as a prepayment strategy.  Prior authorization 
requires additional information from a prescriber before a PDP sponsor approves payment for a 
particular drug.  Prior authorization helps to ensure that particular drugs are used correctly and 
                                                                                                                                                 
2 Chapter 9 of the Prescription Drug Benefit Manual provides interpretive rules and guidance for PDP sponsors on 
how to implement the regulatory requirements under 42 CFR  423.504(b)(4)(vi)(H) to establish a comprehensive 
fraud and abuse plan.  For this memorandum report, we did not review PDP sponsors comprehensive fraud and 
abuse plans.  CMS, Prescription Drug Benefit Manual (Internet-Only Manual), Pub. No. 100-18, ch. 9. 
3 CMS, Instructions: Requirements for Submitting Prescription Drug Event Data, April 26, 2006.  Diagnosis codes 
are not required data elements of prescription drug event data. 
OEI-07-08-00152    Medically Accepted Indications for Part D Drugs 
   
Page 3  Donald M. Berwick, M.D. 
 
 
only when necessary.4  However, in most instances the use of prior authorization is prohibited 
for six protected classes of drugs, including antipsychotic drugs.5, 6 
 
Postpayment strategies.  Rather than preventing payments for drugs not provided for medically 
accepted indications, postpayment review allows PDP sponsors to detect these payments after 
they occur.  The Prescription Drug Benefit Manual does not provide any specific examples of 
how PDP sponsors could use postpayment reviews.  PDP sponsors could collect diagnosis 
information and/or medical records from the prescribing physician to retrospectively compare 
beneficiary diagnosis to medically accepted indications.  This would enable PDP sponsors to 
recoup payment for drugs that are not provided for medically accepted indications. 
 
Compendia 
Each of the three compendia identified in the Social Security Act is a comprehensive source for 
medically accepted indications of drugs.  However, the off-label uses supported by each 
compendium can differ.  For example, DrugDEX supports more off-label uses for atypical 
antipsychotic drugs than AHFS-DI and USP-DI.  Only one compendium needs to support an 
off-label use for that use to meet the medically accepted indications requirement for Medicare 
Part D reimbursement. 
 
The compendia are updated at different intervals and in different formats.  AHFS-DI and 
USP-DI are published annually in hardcopy formats.  DrugDEX is updated quarterly in an 
electronic format.  The quarterly updates replace older versions.7  Subscribers to DrugDEX have 
access to only the most recent quarterly version, meaning that claims for drugs would need to be 
submitted and payment reviews would need to occur in the same quarter as the drugs were 
provided to ensure payments are appropriate.8 
 
                                                                                                                                                 
4 CMS, Physician Part D Resource Fact Sheet.  Accessed at 
https://www.cms.gov/MLNProducts/downloads/transitional_toolkit_revised.pdf on July 18, 2011. 
5 74 Fed. Reg. 2882 (Jan. 16, 2009). 
6 These drug classes are protected to ensure that Medicare beneficiaries are not discouraged from enrolling in certain 
Part D plans, and to minimize the risks and complications associated with an interruption in drug therapy.  PDP 
sponsors may use prior authorization for drugs in the six protected classes only when a beneficiary is being 
prescribed such a drug for the first time.  PDP sponsors are prohibited from using prior authorization for those 
beneficiaries already enrolled in the plan and currently taking a drug in any protected class.  Further, PDP sponsors 
may not implement prior authorization if it is intended to steer beneficiaries who are currently taking a drug within 
the protected classes to preferred alternative drugs.  CMS, Prescription Drug Benefit Manual (Internet-Only 
Manual), Pub. No. 100-18, ch. 6,  30.2.5. 
7 For any drug, medically accepted indications can be added or removed from DrugDEX during a quarterly update 
as peer-reviewed research supports new uses for drugs and/or refutes previously accepted uses.  The frequency with 
which medically accepted indications for drugs were either added or removed from DrugDEX from one quarter to 
the next was outside the scope of this memorandum report. 
8 Subscribers can create a hardcopy of the most recent quarterly version by printing the compendium or save it to a 
file for future use.  However, subscribers would need to diligently print or save each new quarterly version to ensure 
that the accurate version of DrugDEX was used. 
OEI-07-08-00152    Medically Accepted Indications for Part D Drugs 
   
Page 4  Donald M. Berwick, M.D. 
 
 
Previous OIG Work 
In our previous evaluation, entitled Medicare Atypical Antipsychotic Drug Claims for Elderly 
Nursing Home Residents (OEI-07-08-00150), we found that half of Medicare Part D claims for 
atypical antipsychotic drugs received by elderly nursing home residents from January 1 through 
June 30, 2007, were erroneous because the claimed drugs were not provided for medically 
accepted indications as supported by the compendia published closest to the review period.  For 
that evaluation, we obtained the 2007 versions of AHFS-DI and USP-DI.  We also sought the 
first two quarters of DrugDEX for 2007, but CMS was unable to provide them.  We attempted to 
locate this compendium information through other sources, including FDA, the National 
Institutes of Health, and the Library of Congress, but were unsuccessful.  Therefore, we used a 
printed version of the first-quarter 2008 DrugDEX we had created at the start of our study.  We 
checked the compendia to determine whether atypical antipsychotic drug claims complied with 
Medicare reimbursement criteria regarding medically accepted indications. 
 
METHODOLOGY 
 
Because we found that half of Medicare Part D claims for atypical antipsychotic drugs received 
by elderly nursing home residents in the first 6 months of 2007 were erroneous, we were 
interested in identifying strategies that PDP sponsors use to ensure that Part D payments for 
drugs are limited to those that are provided for medically accepted indications.  Because we were 
unable to obtain the first two quarters of DrugDEX for 2007, we were also interested in 
determining to what extent PDP sponsors had access to all compendia.  
 
Scope 
We interviewed three PDP sponsors representing more than 30 percent of the beneficiaries 
enrolled in Part D plans for 2011.  We did not assess the completeness or accuracy of these 
sponsors compliance plans or comprehensive fraud and abuse plans. 
 
Because CMS has charged PDP sponsors with ensuring that Medicare reimbursement for Part D 
drugs is limited to drugs provided for medically accepted indications, we focused our data 
collection on PDP sponsors reported strategies for ensuring that drugs are provided 
appropriately.  Therefore, we did not determine whether CMS conducts oversight of PDP 
sponsors compliance plans or has its own processes for conducting payment reviews of Part D 
claims, or the frequency of any such reviews. 
 
Sample Selection 
We identified three large PDP sponsors with at least 900,000 enrollees for 2011 using publicly 
available Part D enrollment data. 
 
Drug Plan Sponsor Interviews 
We interviewed the three large PDP sponsors to identify the strategies they use to ensure that 
Medicare reimbursement for Part D drugs is limited to drugs provided for medically accepted 
indications.  Specifically, we asked the PDP sponsors whether they collect diagnosis information 
for drug claims; whether they use prepayment edits, prior authorization, and/or postpayment 
review to identify noncompendium payments; whether they have additional safeguards in their 
OEI-07-08-00152    Medically Accepted Indications for Part D Drugs 
   
Page 5  Donald M. Berwick, M.D. 
 
 
fraud and abuse plans to ensure that drugs are provided only for medically accepted indications; 
and whether they have access to historical DrugDEX information for conducting postpayment 
review. 
 
Limitations 
The PDP sponsors we interviewed are not representative of all PDP sponsors; however, they 
represent more than 30 percent of the beneficiaries enrolled in Part D plans. 
 
Standards 
This study was conducted in accordance with the Quality Standards for Inspection and 
Evaluation approved by the Council of the Inspectors General on Integrity and Efficiency. 
 
RESULT 
 
All Three Selected PDP Sponsors Lack Access to Information Necessary for Appropriate 
Reimbursement of Part D Drugs 
PDP sponsors are unable to systematically ensure that payments for Part D drugs are limited to 
drugs provided for medically accepted indications. 
 
Prepayment strategies are limited.  The three PDP sponsors we interviewed reported that they do 
not routinely collect diagnosis information because CMS does not require diagnoses as a data 
element for Part D claims.  PDP sponsors do not collect related diagnoses for Part D claims from 
pharmacies because it is not standard practice for prescribers to provide the diagnoses.  Unless 
diagnosis information is required and included on a Part D claim, determining whether a drug 
was provided for a medically accepted indication, and therefore was reimbursable by Medicare, 
is not possible using claims data alone. 
 
All three PDP sponsors reported that they do not routinely collect diagnosis information, except 
when using prior authorization.  The PDP sponsors indicated that prior authorization is the best 
tool they currently have to compare the diagnosis provided by the prescriber to the medically 
accepted indications contained in the compendia.  One PDP sponsor stated that it has had great 
success at preventing payments for drugs not provided for medically accepted indications by 
using prior authorization when permitted. 
 
However, according to the selected PDP sponsors, CMSs prior authorization policy limits PDP 
sponsors use of prior authorization for antipsychotic drugs.  Because antipsychotics are one of 
the six protected drug classes, the PDP sponsors indicated that they use prior authorization for 
antipsychotics only in limited circumstances.  Specifically, PDP sponsors reported that they use 
prior authorization only the first time a beneficiary is prescribed an antipsychotic drug.  PDP 
sponsors reported that they do not use prior authorization when beneficiaries enroll who are 
already using antipsychotic drugs or if the beneficiary receives subsequent prescriptions for the 
antipsychotic drug. 
 
Postpayment reviews do not focus on medically accepted indications.  All three PDP sponsors 
reported using postpayment review as a general safeguard to prevent fraud and abuse.  However, 
OEI-07-08-00152    Medically Accepted Indications for Part D Drugs 
   
Page 6  Donald M. Berwick, M.D. 
 
 
all three PDP sponsors indicated that these reviews do not commonly focus on medically 
accepted indications.  The three PDP sponsors reported that they have real-time access to all 
compendia, but do not have historical access to DrugDEX.  Because DrugDEX is updated and 
published quarterly, it is possible that information about a particular drug may be updated 
between the time a drug is provided and the time payment review is conducted.  To ensure that 
the correct DrugDEX information was used, claims for Part D drugs would need to be submitted 
and payment review conducted in the same quarter as the drugs were provided. 
 
CONCLUSION 
 
In our previous evaluation, we found that 50 percent of Medicare Part D claims for atypical 
antipsychotic drugs received by elderly nursing home residents from January 1 through 
June 30, 2007, were erroneous because the claimed drugs were not provided for medically 
accepted indications as supported by the compendia.  This memorandum report provides possible 
explanations for that high error rate.  PDP sponsors lack the diagnosis information necessary to 
systematically ensure that payments for Part D drugs, including antipsychotic drugs, are limited 
to those provided for medically accepted indications.  PDP sponsors reported that they use prior 
authorization only in certain circumstances for certain drug classes to ensure that reimbursement 
for Part D drugs is limited to drugs provided for medically accepted indications.  Further, PDP 
sponsors postpayment reviews do not focus on ensuring that payments for drugs are limited to 
those provided for medically accepted indications.  Finally, PDP sponsors lack access to 
historical compendia information necessary to determine whether drugs were provided for 
medically accepted indications during their reviews. 
 
In our previous evaluation, we recommended that CMS facilitate PDP sponsors access to 
information necessary to ensure accurate reimbursement of Part D claims.  CMS did not concur 
with this recommendation.  This memorandum report provides further evidence to support the 
prior recommendation.  We continue to encourage CMS to work with PDP sponsors to improve 
the appropriateness of Part D reimbursement.  We will continue to monitor the accuracy of 
Part D payments, as it affects not only atypical antipsychotic drugs, but all Part D drugs. 
 
AGENCY COMMENTS AND OIG RESPONSE 
 
CMS stated that it does not have statutory authority to require physicians to include diagnosis 
information on prescriptions, which are generally governed by State law.  Absent diagnosis 
information, pharmacies would be unable to comply with a requirement to include diagnoses on 
claims submitted to PDP sponsors.  Moreover, CMS indicated that it is not convinced that the 
solution to inappropriate drug use lies with the PDP sponsors utilization management tools, 
including prior authorization.  CMS stated that prior authorization can be costly and burdensome.  
CMS further stated that the current approach, which permits PDP sponsors to use prior 
authorization to target drugs that are at high risk for being prescribed without a medically 
accepted indication, is the appropriate balance to control PDP sponsors costs and additional 
burdens that excessive use of prior authorization would place on pharmacies, prescribers, and 
beneficiaries of Part D drugs. 
 
OEI-07-08-00152    Medically Accepted Indications for Part D Drugs 
   
Page 7  Donald M. Berwick, M.D. 
 
 
We did not make any changes to the report based on CMSs comments.  For the full text of 
CMSs comments, please see the Attachment. 
 
This evaluation is being issued directly in final form because it contains no recommendations.  If 
you have any questions or additional comments about the report, please provide them within 
60 days.  To facilitate identification, please refer to memorandum report number 
OEI-07-08-00152 in all correspondence. 
 
 
Attachment: 
CMS comments regarding the memorandum report 
OEI-07-08-00152    Medically Accepted Indications for Part D Drugs 
  Page 8 - Donald M. Berwick, M.D. 
I  ,.,.,.....'... 	 ..... 
~
. (.  DEPARrMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
,S~ 
Administrator 
Washington. DC 20201 
'OCT  ~ 7 2011
DATE: 
TO: 	 Daniel R. Levinson 

Inspector General 

FROM: 	 Donald M. Berwick, M.D. 

Administrator 

SUBJECT:  Office ofInspector General's (010) Memorandum Report: "Ensuring that 
Medicare Part D Reimbursement Is Limited to Drugs Provided for Medically 
Accepted Indications" (OEI-07-08-00152) 
Thank you for the opportunity to review and comment on the subject memorandum report titled: 
Ensuring that Medicare Part D Reimbursement is Limited to Drugs Provided/or Medically 
Accepted Indications (OEI-07-08-00152). In this memorandum report, the oro concludes that 
Prescription Drug Plan (PDP) sponsors lack the diagnosis information necessary to determine 
whether the drug has been prescribed for a medically accepted indication and for systematically 
ensuring that payments for Part D drugs, including antipsychotic drugs, are permissible. 
The OIG indicates that the three PDP sponsors interviewed reported that they do not routinely 
collect diagnosis information because the Center for Medicare & Medicaid Services (CMS) does 
not require diagnoses for Part D claims from pharmacies because it is not standard practice for 
prescribers to provide the diagnoses.  OIG concludes that without the diagnosis, sponsors have 
difficulty preventing payments for drugs not provided for medically accepted indications on the 
oro 
basis ofclaims data alone.  also notes that prior authorization is not permitted for all 
prescriptions in the six protected classes in most instances, that the interviewed sponsors do not 
focus post-payment reviews for medically-accepted indications, and that sponsors do not have 
historical access to the DrugDEX compendia . 
. As the 010 stated in this report, the current industry standard for point-of-sale claims 
adjudication does not require diagnosis information be provided as part ofthe claim. 
Additionally, diagnosis information isn't readily available on the prescription written by the 
prescriber. CMS does not have the statutory authority to require physicians to include diagnosis 
information on prescriptions, which are generally governed by state law. Absent diagnosis 
information on the prescription, pharmacies would have no ability to comply with a requirement 
to include diagnoses on the claims submitted to Part D sponsors. Furthermore, even ifdiagnosis 
information were available on both the prescription and the claim, sponsors may not be able to 
ascertain that the prescribed drug was used for a medically accepted indication using current 
coding standards .. For example, the drug Zelboraf (vemurafenib) is only on-label, on-compendia 
OEI-07-08-001S2  Medically Accepted Indications for Part D Drugs   
Page 9  Donald M. Berwick, M.D. 
 
 
 
OEI-07-08-00152    Medically Accepted Indications for Part D Drugs