DEPARTMENT OF HEALTH &. HUMAN SERVICES 	 Office of Inspector General 

Washington, D.C. 20201 

NOV 14·2011 

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. 

OEI-07-08-00152 Medically Accepted Indications for Part D Drugs

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 beneficiary’s 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.
Page 3 – Donald M. Berwick, M.D. 

OEI-07-08-00152 Medically Accepted Indications for Part D Drugs

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.
Page 4 – Donald M. Berwick, M.D. 

OEI-07-08-00152 Medically Accepted Indications for Part D Drugs

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 
Page 5 – Donald M. Berwick, M.D. 

OEI-07-08-00152 Medically Accepted Indications for Part D Drugs

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, CMS’s 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, 
Page 6 – Donald M. Berwick, M.D. 

OEI-07-08-00152 Medically Accepted Indications for Part D Drugs

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.
Page 7 – Donald M. Berwick, M.D. 

OEI-07-08-00152 Medically Accepted Indications for Part D Drugs

We did not make any changes to the report based on CMS’s comments. For the full text of 

CMS’s 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 
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 

basis ofclaims data alone. oro 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 if diagnosis 

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