Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

GAPS IN OVERSIGHT OF 

CONFLICTS OF INTEREST IN 

MEDICARE PRESCRIPTION
 

DRUG DECISIONS
 

Daniel R. Levinson 
 

Inspector General
 

March 2013
 

OEI-05-10-00450 
EXECUTIVE SUMMARY: GAPS IN OVERSIGHT OF CONFLICTS OF 

INTEREST IN MEDICARE PRESCRIPTION DRUG DECISIONS

OEI-05-10-00450

WHY WE DID THIS STUDY

Federal law and regulations require Medicare Part D Pharmacy and Therapeutics (P&T) 

committees to make prescription drug coverage decisions based on scientific evidence 

and standards of practice. Formulary decisions affect beneficiaries’ access to specific 

prescription drugs and the cost of drugs to beneficiaries and the Federal Government. To

comply with the law, sponsors’ P&T committees must prevent conflicts of interest from 

influencing members to give preference to certain drugs. In addition, sponsors’ 

P&T committees must comply with Federal law and regulations that specifically address

conflicts on P&T committees by requiring that at least one physician and at least one 

pharmacist on each committee be independent and free of conflict relative to the sponsor 

and pharmaceutical manufacturers.

HOW WE DID THIS STUDY

We conducted a document review and analyzed survey responses from P&T committees 

to determine the extent to which they defined, determined, and managed conflicts of 

interest. We also conducted structured interviews with staff at the Centers for Medicare 

& Medicaid Services (CMS) to determine the extent to which CMS oversees Medicare 

Part D P&T committees’ compliance with the requirement that at least two members be

independent and free of conflict and whether CMS oversees members’ recusals.

WHAT WE FOUND

Sponsors’ P&T committees have limited oversight of committee members’ conflicts of 

interest, compromising sponsors’ ability to prevent financial interests from influencing 

coverage decisions. Most sponsors’ P&T committees have limited definitions of 

conflicts of interest, which could prevent them from identifying conflicts. Also, many

sponsors’ P&T committees allow their members to determine and manage their own

conflicts. Additionally, CMS does not adequately oversee sponsors’ compliance with the 

requirement that at least two members on each P&T committee be independent and free 

of conflict relative to the sponsor and pharmaceutical manufacturers.

WHAT WE RECOMMEND

We recommend that CMS: (1) define pharmacy benefit managers as entities that could 

benefit from coverage decisions, (2) direct sponsors to ensure that safeguards are in place 

to mitigate improprieties related to employment by the entity managing the 

P&T committee, (3) direct sponsors to ensure that an objective process is used to 

determine conflicts, (4) direct sponsors to ensure that an objective process is used to 

manage conflicts, and (5) oversee sponsors’ compliance with the requirement that at least 

two committee members be independent and free of conflict. CMS did not concur with 

our first and second recommendations, concurred with part of our third and fourth 

recommendations, and concurred with our fifth recommendation.
TABLE OF CONTENTS

Objectives ....................................................................................................1

Background..................................................................................................1

Methodology..............................................................................................10

Findings......................................................................................................13

Most sponsors’ P&T committees had limited definitions of 

conflicts of interest, which could prevent them from identifying

conflicts..........................................................................................13

Many sponsors’ P&T committees allowed members to determine 

and manage their own conflicts of interest ....................................15

CMS does not adequately oversee sponsors’ P&T committee 

compliance with Federal conflict-of-interest requirements...........16

Conclusion and Recommendations............................................................18

Agency Comments and Office of Inspector General Response.....22

Appendixes ................................................................................................25

A: Potential Sponsor and Pharmacy and Therapeutics Committee 

Relationships..................................................................................25

B: Pharmacy and Therapeutics Committee Member Disclosure 

Form...............................................................................................26

C: Agency Comments...................................................................27

Acknowledgments......................................................................................32
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 1

OBJECTIVES

1. To assess sponsors’ Pharmacy and Therapeutics (P&T) committees’

conflict-of interest-definitions.

2. To determine whether sponsors’ P&T committees established

objective processes to determine and manage committee members’

conflicts of interest.

3. To determine whether the Centers for Medicare & Medicaid Services

(CMS) oversee sponsors’ P&T committee compliance with conflictof-interest requirements.

BACKGROUND

Federal law and regulations require Medicare Part D P&T committees to 

make prescription drug coverage decisions based on scientific evidence 

and standards of practice. Coverage decisions affect beneficiaries’ access 

to specific prescription drugs and the cost of drugs to beneficiaries and the 

Federal Government. To ensure that coverage decisions are appropriate, 

sponsors’ P&T committees must prevent members from giving preference 

to certain drugs based on their personal financial interests. In addition, 

sponsors’ P&T committees must comply with Federal law and regulations 

that specifically address conflicts on P&T committees by requiring that at 

least one physician and at least one pharmacist on each committee be 

independent and free of conflict relative to the sponsor and pharmaceutical 

manufacturers.

Research has shown that financial interests between the pharmaceutical 

industry and health care professionals are common. There is evidence of 

pervasive conflicts of interest among pharmaceutical manufacturers and 

health care practitioners, researchers, and educators.

1, 2 For example, a 

national survey in 2009 found that 84 percent of practicing physicians 

reported some type of financial interest in the pharmaceutical industry.3

Evidence suggests that financial relationships may improperly influence 

medical decisionmaking. For example, physicians who accepted money 

1 Bernard Lo and Marilyn J. Fields (eds.), Conflict of Interest in Medical Research, 

Education, and Practice, Institute of Medicine of the National Academies, 2009. 2 “Medical Research and Education: Higher Learning or Higher Earning?”: Hearing 

Before the U.S. Senate Special Committee on Aging, 111th Congress 2009, Statement of 

Eric G. Campbell, Associate Professor and Director of Research, Institute for Health 

Policy, Massachusetts General Hospital and Harvard Medical School.

3 Eric G. Campbell et al., “Physician Professionalism and Changes in Physician-Industry 

Relationships From 2004–2009,” Archives of Internal Medicine, vol. 170, no. 20, 

November 8, 2010, pp. 1820–1826.
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 2

from pharmaceutical manufacturers were much more likely than others to 

have requested that drugs manufactured by those companies be added to 

hospital formularies.4

Medicare Part D

Medicare’s prescription drug program, known as Part D, provides optional 

drug benefits to Medicare beneficiaries.5 CMS contracts with private 

insurance companies, called sponsors, to provide Part D prescription drug 

coverage to beneficiaries who choose to enroll. Sponsors offer drug 

coverage to beneficiaries through Part D prescription drug plans. As of 

March 2012, approximately 31 million beneficiaries were enrolled in 

Part D plans.

6

Part D Formularies

Sponsors can use a variety of methods to control the cost of providing 

prescription drug coverage through the Part D program. Sponsors can 

establish formularies, or lists of covered drugs, to give preference to 

certain drugs over others that treat the same condition. Formularies are 

generally organized into tiers, which have different copayments to drive 

utilization toward less-expensive drugs. Drugs in lower tiers are typically 

the least expensive and have the lowest beneficiary copayment. Drugs in 

ascending tiers are, in general, more expensive and have increasing 

beneficiary copayments. For example, a low-cost generic drug on Tier 1 

may require a $5 copayment, a preferred brand-name drug on Tier 2 may 

require a $40 copayment, a nonpreferred brand-name drug on Tier 3 may 

require a $90 copayment, and specialty drugs on Tier 4 may require 

coinsurance for 30 percent of the drugs’ cost.

Sponsors can employ utilization management practices, such as prior 

authorization, quantity limits, and generic substitution, to restrict the use 

of certain drugs on their formularies. For example, sponsors may require a 

beneficiary to try a less-expensive alternative drug before progressing to a 

costlier drug. Sponsors also can negotiate price concessions with

pharmaceutical manufacturers to reduce the cost of prescription drugs for 

sponsors and beneficiaries.

Sponsors may contract with one or more pharmacy benefit managers 

(PBM) to help them manage their formularies and other aspects of their 

4 Mary-Margaret Chren and C. Seth Landefeld, “Physicians’ Behavior and Their 

Interactions With Drug Companies,” Journal of the American Medical Association 

(JAMA), vol. 271, no. 9, March 1994, pp. 684–689. 5 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003,

P.L. 108-173 § 101; Social Security Act, § 1860D-1; U.S.C. § 1395w-101. 6 CMS, Medicare Advantage, Cost, PACE, Demo, and Prescription Drug Plan Contract 

Report - Monthly Summary Report (Data as of March 2012). Accessed at 

http://www.cms.gov on April 10, 2012.
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 3

prescription drug benefit. PBMs offer a wide variety of services including

managing formularies, processing prescription drug claims, contracting 

with pharmacies, and negotiating price concessions with pharmaceutical 

manufacturers for particular drugs.

7

 PBMs can be compensated for these 

services in a number of ways, one of which is retaining a percentage of 

price concessions that they negotiate on behalf of sponsors.

8

Sponsors are responsible for complying with Federal requirements and all 

terms and conditions of their Part D contracts with CMS, even if the 

sponsor has delegated responsibilities for managing the formulary to a 

PBM.9, 10 Sponsors must have contracts with their Part D contractors, 

including PBMs, to ensure that the contractors comply with all applicable 

Federal laws and regulations and with CMS instructions.11

P&T Committees

Sponsors that use formularies for their Part D plans are required by 

Federal law to maintain P&T committees.12 Sponsors either manage their 

own formularies and, therefore, maintain the P&T committee; or contract 

out these functions to a PBM. Maintaining P&T committees could 

involve, among other functions, selecting members, appointing an 

individual to chair the committee, and creating the policies and 

administrative procedures that govern the committee.

P&T committees’ role is to make clinical decisions about which drugs are 

on Part D plan formularies; many of these decisions are binding on the 

Part D plan. Per Federal regulations, sponsors are required to follow the 

decisions that P&T committees make regarding which drugs to include on 

the formulary.

13, 14 However, sponsors can decide which formulary tier to 

place these drugs on, based on the recommendation of their 

P&T committees.

15 Sponsors also must adhere to the P&T committees’

decisions regarding prescription drug utilization management practices.16

7 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 9, § 10.1. 8 Office of Inspector General (OIG), Concerns With Rebates in the Medicare Part D 

Program, OEI-02-08-00050, March 2011. 9 42 CFR § 423.505(i).

10 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 6, § 30.1.3. 11 42 CFR § 423.505(i)(4)(iv). 12 Section 1860D-4(b)(3)(A) of the Act; some plan types, such as the Program of

All-Inclusive Care for the Elderly (PACE) plans, do not routinely use formularies to 

manage prescription drug utilization and therefore do not have P&T committees. 13 42 CFR 423.120(b)(1). 14 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 6, § 30.1.5. 15 42 CFR § 423.120(b)(1). 16 42 CFR § 423.120(b)(1)(ix).
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 4

When determining whether to include a drug on a formulary, Federal law 

requires P&T committees to base clinical decisions on the strength of 

scientific evidence and standards of practice.17 For example, when voting 

to include a drug, P&T committees must consider whether the addition of 

that drug has therapeutic advantages in terms of safety and efficacy.18 

Cost considerations should be secondary to the determination of clinical 

efficacy and appropriateness of drugs.19

P&T committees typically make formulary decisions for multiple Part D 

plans. In general, we found that one P&T committee makes decisions for 

all the Part D plans managed by a sponsor or a PBM. See Appendix A for 

an illustration of how one P&T committee can provide services to multiple 

Part D sponsors and plans.

P&T committees vary in size. Our analysis showed that in 2010, 

P&T committees ranged from 3 to 62 members, with an average of 16.

Sponsors and PBMs may compensate their P&T committee members for 

serving on the committee and for standard expenses incurred while 

attending committee meetings. P&T committee members who were not 

employees of the sponsor or the PBM managing the P&T committee were 

paid, on average, $2,404 in 2010 for serving on the committee.

P&T Committee Conflicts of Interest

Federal law, regulations, and CMS guidance provide limited direction on 

how P&T committees should handle conflicts of interest. Federal law and 

regulations restrict some P&T committee members from having conflicts 

of interest with certain entities. They do not explicitly stipulate what 

constitutes a conflict. Beyond that, CMS guidance provides some general 

expectations for the disclosure of conflicts and recusal of P&T committee 

members with conflicts.

As the entities that contract with CMS to provide prescription drug 

coverage to Medicare beneficiaries, sponsors are responsible for ensuring 

that all Federal laws and regulations pertaining to P&T committee 

members’ conflicts are followed. Although sponsors are ultimately 

responsible, entities that maintain the P&T committees establish the 

policies and procedures governing the definition, disclosure, 

determination, and management of P&T committee conflicts. These 

policies and procedures are unique to each P&T committee, not to each

sponsor.

17 42 U.S.C. 1395w-104(b)(3)(B). 18 Ibid.

19 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 9, § 50.2.1.2.
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 5

Definition. Federal law and regulations address conflicts of interest with 

respect to P&T committees by defining members of the committees who 

must be free of conflict and the entities with which they must be free of 

conflict. The law stipulates that at least one physician and at least one 

pharmacist on each P&T committee be free of conflict relative to the 

sponsor and Part D plan.20 Therefore, a minimum of two members on 

each P&T committee must be independent from the sponsor and Part D 

plan. However, CMS explained in the preamble to the 2005 Final Rule 

that this requirement should be viewed “as a floor which we encourage 

them to exceed.”21 Regulations expand the law by including

pharmaceutical manufacturers as entities from which at least two members 

must be independent.

22, 23

Federal law and regulations and CMS guidance do not explicitly define 

what constitutes a conflict with sponsors, Part D plans, and pharmaceutical 

manufacturers. However, CMS provides limited direction on what may be 

considered a conflict with pharmaceutical manufacturers. In the Medicare 

Prescription Drug Benefit Manual, CMS states that certain relationships 

with pharmaceutical manufacturers may still be considered independent 

and free of conflict. Specifically, P&T committee members who have

nonemployee relationships with pharmaceutical manufacturers that do not 

constitute “significant sources of income” may still be considered 

independent. Such nonemployee relationships with pharmaceutical 

manufacturers could be advisory or involve consulting or research.24

The law, regulations, and guidance do not address P&T committee 

members’ financial interests with any other entities involved in 

implementing the Part D program, such as PBMs. While CMS suggests in 

the preamble to the Final Rule that a conflict of interest is “any direct or 

indirect financial interest in any entity ... that would benefit from 

decisions regarding plan formularies,” the regulations specify only 

sponsors and pharmaceutical manufacturers; they do not specifically list 

PBMs.

25, 26

Disclosure and Determination. CMS recommends that P&T committee 

members disclose financial interests by signing and continually updating

20 42 U.S.C. 1395w-104(b)(3)(A)(ii). 21 70 Fed. Reg. 4255, 4256 (Jan. 28, 2005). 22 42 CFR § 423.120(b)(1)(ii). 23 In the subsequent Health Plan Management System Basic Contract Management 

Technical User’s Manual, CMS defines sponsor to include both the sponsor and the 

Part D plan.

24 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 6, § 30.1.1. 25 70 Fed. Reg. 4255, 4256 (Jan. 28, 2005). 26 42 CFR § 423.120(b)(1)(ii).
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 6

conflict-of-interest statements to reveal financial or other relationships 

with entities affected by drug coverage decisions.27, 28 CMS explains in the 

preamble to the Final Rule that it expects P&T committee members to sign 

conflict-of-interest statements that are consistent with industry standards 

for conflict-of-interest disclosures.29 However, CMS does not specify

which industry standards to follow.

CMS does not provide any guidance on how disclosed financial interests 

are to be reviewed to determine whether they constitute conflicts of 

interest.

Recusal. While at least two members on each P&T committee must be 

free of conflict with sponsors and pharmaceutical manufacturers, the 

remaining members can have conflicts of interest. In the preamble to the 

Final Rule, CMS explains that it expects procedures to be established that 

are consistent with standard industry practice for recusing P&T committee 

members from discussions or votes if a particular drug presents a conflict 

of interest.30 However, CMS does not specify which industry standards to 

follow. CMS does explain that implementing recusal procedures is 

necessary to ensure that formulary decisions are based on scientific 

evidence and standards of practice.31

CMS Oversight of P&T Committee Conflicts of Interest

CMS requires sponsors to attest on their initial Part D applications that the 

membership of their P&T committees will include at least one practicing 

physician and at least one practicing pharmacist, both of whom are free of 

conflict with the sponsor and pharmaceutical manufacturers.32

Additionally, sponsors must report membership information for their

P&T committees on their initial Part D applications or ensure that their 

PBM reports this information on their behalf.

33, 34 This information 

includes the names of all P&T committee members and the start and end 

dates of their service on the committee. It also includes whether each 

committee member is free of any conflict of interest with the organization

27 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 6, § 30.1.2. 28 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 9, § 50.2.1.2.

29 70 Fed. Reg. 4255, 4257 (Jan. 28, 2005). 30 70 Fed. Reg. 4255, 4256 (Jan. 28, 2005). 31 Ibid. 32 CMS, Medicare Prescription Drug Benefit: Solicitation for Applications for New 

Prescription Drug Plans (PDP) Sponsors, 2011 Contract Year. 33 Ibid. 34 CMS, Health Plan Management System Basic Contract Management Technical User’s 

Manual, Plan Version 1.0, January 5, 2010.
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 7

or pharmaceutical manufacturer.35, 36 (See Appendix B for an example of 

the membership information reported.)

To report conflict-of-interest information to CMS, sponsors or their 

contracted PBMs obtain information about P&T committee members’ 

financial interests using conflict-of-interest statements. These statements 

are not required to be submitted to CMS.

CMS also requires sponsors to report whether they maintain the 

P&T committee or contract with a PBM to do so. If sponsors contract 

with a PBM, they also must report the name of the contracted PBM and 

whether the P&T committee operates under a confidentiality 

agreement.

37, 38

When sponsors and PBMs enter into confidentiality agreements, PBMs

report their P&T committee members’ names, service dates, and

conflict-of-interest information directly to CMS.39 They do not disclose

this information to the sponsors.

40

CMS requires sponsors or their contracted PBMs to report updates relating 

to their P&T committees at least annually.

41 Updates can include changes 

to P&T committee membership, confidentiality agreement status, or the

entity that maintains the P&T committee. If a new P&T committee 

member is added, all of the member’s information that would have been 

initially reported is included in this update.

35 Federal regulation states that at least one practicing physician and at least one 

practicing pharmacist must be independent and free of conflict relative to the sponsor and 

pharmaceutical manufacturers. However, the Member Disclosure Form in the Part D 

application requests sponsors to provide information on whether these P&T committee 

members are free of conflict relative to the “organization” and pharmaceutical 

manufacturers. The CMS Health Plan Management System Basic Contract Management 

Technical User’s Manual indicates that “organization” refers to the sponsor. 36 CMS, Medicare Prescription Drug Benefit: Solicitation for Applications for New 

Prescription Drug Plans (PDP) Sponsors, 2011 Contract Year. 37 CMS, Medicare Part D Reporting Requirements, January 1, 2010. Accessed at 

http://www.cms.gov on August 16, 2010. 38 CMS, Medicare Part D Reporting Requirements: Technical Specifications Document 

Contract Year 2010, January 1, 2010. Accessed at http://www.cms.gov on September 10, 

2010.

39 CMS, Medicare Prescription Drug Benefit: Solicitation for Applications for New 

Prescription Drug Plans (PDP) Sponsors, 2011 Contract Year. 40 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 6, § 30.1.3. 41 CMS, Medicare Part D Reporting Requirements, January 1, 2010. Accessed at 

http://www.cms.gov on August 16, 2010.
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 8

CMS states that it may apply new or adjust existing quality assurance 

checks on the P&T committee information reported by sponsors.

42 These 

checks are used by CMS to identify outliers or data that are potentially 

erroneous.

43

CMS Oversight of Formularies

CMS reviews and approves the formularies designed by P&T committees. 

CMS’s review focuses on ensuring that formularies provide access to a 

range of Part D drug choices.

44 CMS checks the formularies to make sure 

they meet accepted pharmaceutical standards and include drugs from 

different therapeutic categories.45 CMS generally does not review 

formularies for individual drugs. However, it does review individual 

drugs identified to treat some specific diseases and drugs in classes of 

clinical concern.

46

CMS’s formulary review also is designed to ensure that it does not 

substantially discourage any group of beneficiaries from enrolling in the 

Part D plan.47 For example, if formularies place certain types of drugs 

only on tiers that require expensive beneficiary copayments, some 

beneficiaries might be discouraged from enrolling in the Part D plan. 

CMS generally reviews the formulary to make sure that low-cost drugs are 

available on low formulary tiers, which typically have the lowest

copayments. CMS also checks that only high-cost drugs (over $600) are 

placed on the specialty tier, which typically has the highest copayments.

CMS also conducts targeted audits of sponsors to verify that approved 

formularies are being administered appropriately and that drug coverage 

decisions are based on scientific evidence.48 During targeted audits, CMS 

reviews the development of a Part D plan’s formulary by reviewing

documents that would show the P&T committee’s decisions regarding

which drugs to cover and the scientific evidence used to support those 

42 CMS, Medicare Part D Reporting Requirements: Technical Specifications Document 

Contract Year 2010, January 1, 2010. Accessed at http://www.cms.gov on September 10, 

2010.

43 Ibid. 44 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 6, § 30.2. 45 Ibid. 46 CMS is required by the Patient Protection and Affordable Care Act to identify 

categories and classes of drugs that are of clinical concern. Until CMS determines these 

categories and classes, all, or substantially all, drugs from the following six protected 

classes as specified by the Medicare Improvements for Patients and Providers Act must 

be included on Part D formularies: immunosuppressant for the treatment of transplant 

rejection, antidepressant, antipsychotic, anticonvulsant, antiretroviral, and antineoplastic.

47 CMS, Medicare Prescription Drug Benefit Manual, Pub. No. 100-18, ch. 6, § 30.2. 48 CMS, Medicare Part C & Part D Universal Audit Guide, Version 1, Appendix H.3: 

Audit Methodology Formulary Administration, October 28, 2009.
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 9

decisions.

49 CMS also may conduct an interview with the sponsor, asking 

questions related to whether the P&T committee appropriately developed 

the formulary.50 CMS also may review P&T committee meeting minutes 

to determine whether the P&T committee reviewed utilization

management practices for clinical appropriateness.

51 In 2010, CMS did 

not review P&T committee conflicts of interest as part of its targeted 

audits. However, for 2012, CMS added an optional conflict-of-interest 

review to its audit protocols. If CMS’s targeted audit findings relate to the 

role of the P&T committee, then CMS reviews a list of P&T committee 

members to determine whether at least one practicing physician and at 

least one practicing pharmacist are independent and free of conflict with 

the sponsor and pharmaceutical manufacturers.

Related Work

OIG has issued numerous reports examining the oversight of conflicts of 

interest in the Department of Health and Human Services (HHS)

52 and 

several HHS agencies, including the National Institutes of Health,53, 54 the 

Centers for Disease Control and Prevention (CDC),

55 and the Food and 

Drug Administration.56 We made recommendations to all of these 

agencies to strengthen their oversight of conflicts of interest.

49 CMS, Medicare Part C & Part D Universal Audit Guide, Version 1, Appendix H.3: 

Audit Methodology Formulary Administration, October 28, 2009.

50 CMS, Medicare Part C & Part D Universal Audit Guide, Version 1, Appendix L.3: 

Interview Guide, Part D Formulary Administration, October 28, 2009. 51 CMS, Medicare Part C & Part D Universal Audit Guide, Version 1, Appendix H.3: 

Audit Methodology Formulary Administration, October 28, 2009.

52 OIG, Conflict-of-Interest Waivers Granted to HHS Employees in 2009, OEI-04-10-

0010, August 2011.

53 OIG, National Institutes of Health: Conflicts of Interest in Extramural Research, 

OEI-03-06-00460, January 2008. 54 OIG, How Grantees Manage Financial Conflicts of Interest in Research Funded by the 

National Institutes of Health, OEI-03-07-00700, November 2009. 55 OIG, CDC’s Ethics Program for Special Government Employees on Federal Advisory 

Committees, OEI-04-07-00260, December 2009. 56 OIG, The Food and Drug Administration’s Oversight of Clinical Investigators’ 

Financial Information, OEI-05-07-00730, January 2009.
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 10

METHODOLOGY

Scope

This study focuses on sponsor and CMS oversight in 2010 intended to 

ensure that formulary decisions are not biased by conflicts of interest. 

With respect to sponsor oversight, this evaluation reviewed 

P&T committee procedures for defining and determining conflicts of 

interest, and for managing members’ conflicts of interest through recusal. 

With respect to CMS oversight, this evaluation examined how CMS 

oversees sponsors’ compliance with the Federal requirement that at least 

two members on each P&T committee be free of conflict.

In addition to reviewing oversight, we originally planned to verify that at 

least two members on each P&T committee were free of conflict. We 

collected the P&T committee data from CMS to determine whether 

sponsors complied with Federal regulations. Had these data been 

accurate, we could have used them to determine compliance. However, 

our review of the P&T committee data revealed numerous discrepancies 

and made us question their accuracy. Ultimately, we decided the 

information was unreliable.

This study focused on Part D plans to which Federal P&T committee 

conflict-of-interest requirements uniformly applied. As such, we did not 

review PACE plans because they do not routinely use formularies and 

therefore do not routinely have P&T committees.

Data Sources and Collection

We collected information on sponsor oversight through a survey of 

P&T committees and a review of their policies. We collected information 

on CMS oversight through structured interviews.

We collected information by P&T committee, rather than by sponsor, 

because the policies and procedures governing P&T committee conflicts 

of interest are generally unique to each P&T committee and not 

necessarily unique to the sponsor. In fact, one sponsor may deal with 

several different P&T committees, each governed by its own set of 

policies and procedures related to conflicts of interest. This may occur 

when a sponsor contracts with a PBM to maintain the P&T committee for 

some, but not all, of its Part D plans. See Appendix A for an illustration of 

how sponsors may have multiple P&T committees. A single 

P&T committee maintained by a PBM also may serve multiple Part D 

plans, either for one sponsor or multiple sponsors.

CMS Data. We obtained Part D information from CMS’s Health Plan 

Management System (HPMS) for all 682 contracts with sponsors in 2010. 

We removed two contracts because CMS terminated them midway 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 11

through 2010. This resulted in a population of 680 contracts with 

sponsors that were associated with 117 P&T committees.

Survey and Document Request. In January 2011, we conducted an online 

survey of the 117 P&T committees to determine their procedures for 

defining, determining, and managing conflicts by recusing members with 

conflicts.

To direct our survey to the correct entity, we first identified which entity—

sponsor or PBM—maintained the plan’s P&T committee. Because CMS’s 

data were unreliable, we contacted each entity listed in HPMS as 

maintaining a P&T committee to verify that it did so. If the entity 

indicated that the information was incorrect, we asked it to identify the 

correct entity that maintained the P&T committee. We contacted the 

second entity to confirm that it was correctly identified. We also 

confirmed this information by sending a letter to all entities listed as 

maintaining a P&T committee.

As part of the survey, we asked P&T committees to report the size of their 

membership and whether members included employees of sponsors and 

PBMs. We made one followup attempt by telephone. We received

113 complete surveys—a 97-percent response rate.

We requested supporting documents for key survey questions to confirm 

how sponsors determine and manage P&T committee conflicts of interest. 

This documentation included conflict-of-interest statements, conflict-ofinterest policies, and recusal policies. Two P&T committees did not 

submit documentation; therefore, we removed them from our analysis of 

survey questions that required survey documentation.

Structured Interviews. We conducted structured interviews with CMS 

staff regarding its oversight of sponsor compliance with P&T committee 

conflict-of-interest requirements and its oversight of sponsors’

formularies. We conducted these interviews between September 2010 and 

September 2011.

Analysis

We analyzed the information we collected to determine the extent to which 

conflicts of interest were defined, determined, and managed. We analyzed

the survey responses and extensively reviewed the submitted documents to 

develop our findings. When making our determinations, we relied 

primarily on the documentation, even when it conflicted with the survey 

responses.

When analyzing conflict-of-interest definitions, we compared them to the 

broader restriction in the Federal regulations. As previously stated, the 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 12

regulations refer to conflicts of interest with sponsors and pharmaceutical 

manufacturers. Federal law references only sponsors and plans.

We analyzed the P&T committee information reported to CMS and 

ascertained that this information was unreliable. We determined the data 

were unreliable by identifying internal inconsistencies in the data as well 

as discrepancies with other data sources. We then analyzed the data to 

determine the extent of the inaccuracies. We analyzed the number of 

P&T committee members reported to CMS for each Part D plan to 

determine the extent of discrepancies. We analyzed the information that 

lists which entity maintained the P&T committee to determine the extent 

of its accuracy.

We analyzed CMS interview responses to determine the extent to which 

CMS: (1) reviewed reported P&T committee conflict-of-interest 

information and (2) used any other means to oversee P&T committee 

members’ conflicts.

Data Limitations

The document review we conducted accounted only for written policies. 

It did not account for unwritten practices. For survey questions that did 

not require supporting documentation, this report relies on self-reported 

data.

Standards

This study was conducted in accordance with the Quality Standards for 

Inspection and Evaluation issued by the Council of the Inspectors General 

on Integrity and Efficiency.
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 13

FINDINGS

Most sponsors’ P&T committees had limited 

definitions of conflicts of interest, which could prevent 

them from identifying conflicts

To comply with Federal law and regulations, P&T committees must make 

prescription drug formulary decisions based on scientific evidence and 

standards of practice. One way that the regulations attempt to ensure that 

this happens is to require that at least two P&T committee members be 

free of conflict with sponsors and pharmaceutical manufacturers. In 

addition, CMS suggests that financial interests in any entity that would 

benefit from formulary decisions could constitute a conflict. Therefore, to 

capture all possible conflicts, P&T committees’ understanding of what 

constitutes a conflict of interest should include financial interests in

sponsors and pharmaceutical manufacturers and with other entities that 

could benefit from formulary decisions. If P&T committee definitions do

not include these factors, committees may not be able to identify potential

conflicts that could compromise the independence of a P&T committee’s 

formulary decisions.

Half of P&T committees’ definitions did not address conflicts 

prohibited by Federal regulations

Fifty-three percent of P&T committees reported their definitions did not 

include any financial interests with either sponsors or pharmaceutical 

manufacturers as conflicts of interest. These committees’ conflict-ofinterest definitions failed to include at least one of the entities specified by 

Federal regulation. Six percent of P&T committees reported their 

definitions did not include any financial interests with both sponsors and 

pharmaceutical manufacturers as conflicts, as specified by Federal 

regulations.

Most P&T committees (52 percent) reported that their definitions did not 

consider any members’ financial interests in sponsors to be conflicts of

interest. Sponsors are defined in both Federal law and regulations as 

potential sources of conflict.

A much smaller percentage (7 percent) of P&T committees’ definitions

failed to consider any financial interests in pharmaceutical manufacturers 

to be conflicts of interest.
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 14

P&T committees’ definitions did not always address 

relationships with other entities that could benefit from 

formulary decisions

P&T committees did not always include relationships with PBMs—which

could benefit from formulary decisions—in their definitions of conflicts of 

interest. Thirty-three percent of P&T committees reported that they did 

not define any financial interests in PBMs as conflicts. P&T committees 

did not always include relationships with PBMs, even when PBMs were 

performing Part D functions. Of the 22 P&T committees maintained by 

PBMs, more than two-thirds reported that they did not define any financial 

interests in PBMs as conflicts.

Although regulations do not reference financial interests in PBMs as 

possible conflicts of interest, in the preamble to the Final Rule, CMS states

that a conflict is any direct or indirect financial interest in any entity that 

would benefit from formulary decisions. Because PBMs perform Part D 

functions on behalf of sponsors, they can benefit from formulary decisions 

in the same way that sponsors can benefit from formulary decisions. For 

example, financial interests in the PBM that maintains the P&T committee 

and negotiates price concessions on behalf of the sponsors could influence 

a committee member to favor drugs made by pharmaceutical 

manufacturers with which the PBM has negotiated an arrangement 

advantageous to the PBM.

More than two-thirds of P&T committees’ definitions did not 

address employment

Sixty-eight percent of P&T committees did not view employment by the

entity that maintains the committee as a potential source of conflict or

bias. Overall, 88 percent of P&T committees had such employees serving 

as members. The percentage of employees serving on P&T committees 

ranged from 4 to 97 percent, with a median of 38 percent.

Although regulations do not specify employment as a conflict, 

P&T committees that do not address employment could be overlooking 

potential conflicts among their P&T committee members. These 

committees could be at risk of not having at least two members who are 

independent and free of conflict, as required by law. They also could be at 

risk of not appropriately managing conflicts of interest among employees. 

For example, depending on their positions, certain employees serving on 

P&T committees could be privy to information about drug selections that 

are in the best interest of their employer. This could bias their committee 

discussions and influence the way they vote on formulary decisions. 

While employees may not introduce this bias intentionally to promote 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 15

their own financial interests, they might do so to serve the best interests of 

their employers.

Many sponsors’ P&T committees allowed members to 

determine and manage their own conflicts of interest

Fifty-nine percent of sponsors’ P&T committees allowed committee 

members to determine their own conflicts and manage them through 

recusal. By relying on members to determine and manage their own 

conflicts, sponsors’ P&T committees may not be able to ensure that 

formulary decisions are based on scientific evidence and are not biased by 

financial interests. Regulations do not require sponsors’ P&T committees 

to have policies and procedures to ensure that committee member conflicts 

are determined and managed objectively. However, relying on

P&T committee members to determine and manage their own conflicts

makes intentional misreporting easier and allows for unintentional

misreporting because of a misunderstanding or misapplication of 

sponsors’ P&T committee policies.

Nearly two-thirds of P&T committees relied on members to 

determine whether financial interests constituted conflicts

Overall, 65 percent of P&T committees relied on committee members to 

determine whether their financial interests constituted conflicts of interest. 

Eight percent of P&T committees had a conflict determination process that

designated members as the parties responsible for determining whether 

their own financial interests should be considered conflicts. Another 

57 percent, or 63 committees, did not have a process for reviewing 

financial interests disclosed on conflict-of-interest statements and

determining whether they constitute conflicts of interest. Without an 

explicit determination process, P&T committees effectively defaulted to 

their members to determine whether they have conflicts.

Some P&T committees may not have established processes to determine 

whether financial interests were conflicts because they did not require

members to disclose financial interests. Twenty-four percent of the 

63 P&T committees that did not have a process for determining conflicts 

did not collect any financial interest information from members. These 

P&T committees’ disclosure forms did not require members to disclose 

any financial interest information. The members were required only to 

sign a form stating whether they had financial interests or conflicts of 

interest. Members on these P&T committees were not asked to describe 

the nature or value of their financial interests or to submit any supporting 

information. P&T committees would need this information to make an

objective determination of whether financial interests constituted conflicts.
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 16

More than three-quarters of P&T committees relied on members 

to recuse themselves from discussions and votes

Seventy-nine percent of P&T committees relied on members to recuse

themselves from discussions or votes when they had a conflict of interest 

related to a particular drug. CMS advises recusal from discussions and 

votes if P&T committee members have a conflict. Specifically, 56 percent 

of P&T committees had recusal policies that designated members as 

responsible for recusing themselves from discussions or votes. 

Additionally, 23 percent of P&T committees did not have recusal policies. 

These P&T committees did not have a process to ensure that members 

with conflicts did not discuss or vote on a particular drug that presented a 

conflict. Essentially, these P&T committees defaulted to the conflicted 

members to recuse themselves.

CMS does not adequately oversee sponsors’ 

P&T committee compliance with Federal 

conflict-of-interest requirements

CMS does not monitor conflicts of interest on P&T committees or review 

the P&T committee conflict-of-interest information that is required to be 

reported. Had CMS tried to review the information, it would have found 

the data unusable because of discrepancies. Also, during 2010, CMS did 

not perform onsite audits to assess compliance with Federal 

P&T committee conflict-of-interest requirements.

CMS does not review P&T committee conflict-of-interest 

information

CMS staff reported that they do not look at the information that sponsors 

and PBMs report about whether each P&T committee member is free of 

conflict. Without reviewing this information, CMS cannot know whether 

a minimum of two members on each P&T committee are free of conflict 

with sponsors and pharmaceutical manufacturers, as required.

Additionally, during 2010, CMS did not have audit protocols to 

specifically audit P&T committee member conflicts of interest. Similarly,

CMS did not have audit protocols to assess compliance with 

P&T committee conflict-of-interest requirements as part of its sponsor 

audits. In 2012, CMS added an optional review of P&T committee 

documentation to determine compliance with Federal conflict-of-interest 

requirements. As of August 2012, CMS reported that less than 10 percent 

of its audits included these elements.

CMS does have audit protocols to review formulary management 

activities to confirm they are being administered consistent with the 

formulary as CMS approved it. During these audits, CMS reviews 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 17

P&T committee meeting minutes and interviews sponsors, focusing on 

formulary management activities, such as decisions about clinical 

appropriateness and drug utilization. However, CMS does not make use 

of these audit opportunities to review P&T committee member 

conflict-of-interest statements. In addition, CMS staff reported that they 

do not review meeting minutes to determine whether members are recused 

from discussions or votes. CMS also reported that it does not ask 

questions related to conflicts or recusal during interviews with sponsors.

Data discrepancies would prevent CMS from identifying with 

certainty the members of each P&T committee

Had CMS attempted to review the reported P&T committee information, it 

would have had problems using the information to assess whether 

conflicts existed because of data discrepancies. Using these data, CMS 

could not have identified members of P&T committees. Without 

identifying the members on each P&T committee, CMS cannot tell 

whether a minimum of two members are free of conflict.

Our review of the data uncovered discrepancies that would prevent CMS 

from identifying with certainty the members of each P&T committee. We 

found discrepancies such as duplicate names, similar names, different 

suffixes or prefixes, and names listed in different order (e.g., first 

name/last name and last name/first name). These discrepancies may have 

been data entry errors, but it is impossible to know definitively. We also 

found multiple data submissions for the same P&T committee. When 

comparing these submissions, we found these same problems existed 

across the committee membership information. In fact, 58 percent of 

P&T committees with multiple submissions had discrepancies that would 

make it difficult to ascertain committee membership.

Further, it would be difficult for CMS to determine whether it received all 

of the conflict-of-interest information for all P&T committee members. 

Using the reported data, CMS cannot always identify which entity should 

be reporting P&T committee conflict-of-interest information. According 

to our discussions with sponsors and PBMs to verify the data reported to 

CMS, 9 percent of the 680 contracts with sponsors had incorrect entities

listed as maintaining the P&T committee. In addition, we found other 

problems with the data. For example, even when the PBM listed as 

maintaining the P&T committee was correct, the name of the PBM and 

contact information were often outdated because of mergers and other 

changes in the marketplace.
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 18

CONCLUSION AND RECOMMENDATIONS

Federal law and regulations require Medicare Part D P&T committees to 

make prescription drug formulary decisions based on scientific evidence 

and standards of practice. Our findings reveal that both sponsors and 

CMS conduct limited oversight of P&T committee conflicts of interest, 

compromising their ability to ensure that financial interests do not 

influence formulary decisions. Specifically, we found that without 

direction and oversight from CMS, many sponsors’ P&T committees have 

limited oversight of members’ conflicts of interest. Additionally, we found 

that CMS does not adequately oversee compliance with the Federal 

requirement that at least one physician and at least one pharmacist on each 

committee be free of conflict.

Limited sponsor oversight does not necessarily indicate that financial 

interests are influencing formulary decisions. However, it does expose 

sponsors to that possibility. In health care, financial interests in the 

pharmaceutical industry are common. In fact, there is widespread 

evidence that financial interests and conflicts of interest exist between

pharmaceutical manufacturers and health care providers, and that these 

relationships influence behavior.

Conflicts of interest jeopardize the integrity of professional judgment, 

compromise the quality of patient care, and erode the public’s trust in 

Federal health care. If conflicts of interest in the Part D program are 

undetected or not managed, beneficiaries may receive inferior therapies 

when safer or more effective therapies are available, limited Medicare 

dollars may be wasted to pay for inappropriate treatment, and public 

confidence in the Federal Government may be compromised.

To minimize the possibility that conflicts of interest influence formulary 

decisions, we recommend that CMS improve its oversight of 

P&T committee conflicts and set minimum standards for sponsor

oversight of committee conflicts of interest.

To address limitations in how P&T committee members’ conflicts are 

defined, determined, and managed, we recommend that CMS:

Define PBMs as Entities That Could Benefit From Formulary

Decisions

P&T committee members may have conflicts of interest relative to PBMs, 

but current regulation does not address this vulnerability. CMS suggests

in the preamble to the Final Rule that P&T committee members are not 

free of conflict if they have any direct or indirect financial interest in any 

entity that would benefit from decisions regarding plan formularies. 

However, in regulation, CMS specifies only sponsors and pharmaceutical 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 19

manufacturers and does not mention PBMs. Sponsors can delegate 

formulary management responsibilities to PBMs; therefore, PBMs also 

can benefit financially from plan formulary decisions because they can

retain a percentage of price concessions negotiated with pharmaceutical 

manufacturers on behalf of sponsors.

CMS should define PBMs as entities that could be affected by drug 

coverage decisions. CMS should require the P&T committee members,

who must be free of conflict with sponsors and pharmaceutical 

manufacturers, to also be free of conflict with any PBM that manages a 

sponsor’s prescription drug benefit. To implement this, CMS could seek 

regulatory change or use existing regulatory provisions that address 

contractual arrangements between sponsors and their contracted entities.

Establish Minimum Standards Requiring Sponsors To Ensure 

That Safeguards Are Established To Prevent Improprieties 

Related to Employment by the Entity That Maintains the 

P&T Committee

Current CMS guidance does not address employment. CMS should 

amend current guidance to stipulate that sponsors establish safeguards to 

prevent any improprieties associated with being employed by the entity 

that maintains the P&T committee from influencing committee decisions. 

CMS could set minimum standards by publishing guidance or amending 

the Medicare Prescription Drug Benefit Manual.

While CMS may not want to specify exactly what safeguards sponsors 

should establish, it should require sponsors to ensure that these safeguards 

specify how employee relationships will be managed. This would allow 

sponsors the independence and flexibility granted to them by law. Entities

that maintain a P&T committee could address these safeguards in their

codes of conduct or ethics policies. When a sponsor contracts with a PBM 

to maintain its P&T committees, the sponsor should expect the PBM to 

have similar safeguards in place and should monitor the PBM to ensure 

that it meets the minimum standards.

Establish Minimum Standards Requiring Sponsors To Ensure 

That an Objective Process Is Used To Determine Whether 

Disclosed Financial Interests Are Conflicts

In practice, many sponsors rely on members to determine their own 

conflicts. CMS should require sponsors to use an objective process to 

determine whether a disclosed financial interest constitutes a conflict of 

interest. Current guidance only generally addresses disclosure of financial 

interests and does not address conflict-of-interest determination. CMS 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 20

could set minimum standards by publishing guidance or amending the 

Medicare Prescription Drug Benefit Manual.

Sponsors could determine what type of objective process best suits their 

business models. For example, a sponsor could direct a compliance 

officer to identify whether financial interests are conflicts and then alert 

the P&T committee chair that recusal is necessary. Establishing an 

objective determination process would help ensure that P&T committee 

members’ financial interests do not bias committee discussions or votes. 

When a sponsor contracts with a PBM to maintain its P&T committees, it

should expect the PBM to have similar objective processes in place and 

should monitor the PBM to ensure that it meets the requirement.

Regardless of the objective process established by sponsors, CMS should 

direct them to require P&T committee members to disclose financial 

interests on their conflict-of-interest statements. To facilitate an objective 

determination of conflicts of interest, sponsors need financial interest 

information from P&T committee members. Disclosed financial interests 

should include all direct and indirect financial interests with any entity that 

would benefit from decisions regarding plan formularies. P&T committee 

members could disclose specific information about their financial 

interests, such as the nature of the relationship and the value of the 

financial interest.

Establish Minimum Standards Requiring Sponsors To Ensure 

That an Objective Process Is Used To Manage Recusals 

Because of Conflicts of Interest

CMS should require sponsors to use an objective process to manage

P&T committee members’ allowable conflicts. Current guidance only 

generally addresses recusals. CMS could set minimum standards by 

publishing guidance or amending the Medicare Prescription Drug Benefit 

Manual.

As with establishing an objective process to determine conflicts, sponsors 

could determine the type of objective process that best suits their business 

model. However, CMS could tell sponsors that, at a minimum, they need 

to designate an objective party, such as a compliance officer, to flag and 

enforce the necessary recusals. By doing so, sponsors would ensure that 

members with conflicts are recused from discussions or votes associated

with a particular drug and that they are not managing their own recusals. 

When a sponsor contracts with a PBM to maintain its P&T committees, it

should expect the PBM to have similar objective processes in place and 

should monitor the PBM to ensure that it meets the requirement.
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 21

In addition, to address the lack of oversight of sponsors’ compliance with 

Federal law and regulations regarding P&T committee conflicts of 

interest, we recommend that CMS:

Oversee Compliance With Federal P&T Committee 

Conflict-of-Interest Requirements and Guidance

CMS should oversee sponsors’ P&T committee conflict-of-interest

procedures to ensure that formulary decisions are based only on scientific 

evidence and standards of practice. First, CMS should review reported 

P&T committee conflict-of-interest information to ensure that all 

committees have at least one practicing physician and at least one 

practicing pharmacist who are free of conflicts with entities that would 

benefit from formulary decisions. By reviewing the reported 

P&T committee information, CMS also would be able to identify any 

discrepancies in the data and ensure that they are usable and reliable. 

CMS also should consider obtaining additional information to help it 

oversee compliance. For example, CMS could collect conflict-of-interest 

statements for each P&T committee member. This information could 

enable CMS to ensure that sponsors are requesting this information from 

their P&T committee members. Additionally, collecting basic details 

about the nature of financial interests could enable CMS to question 

whether certain financial interests could affect drug formulary decisions. 

Second, CMS should broaden its audit protocols to include a review of 

sponsors’ P&T committee conflict-of-interest determination and 

management policies. CMS also could review meeting minutes or ask 

questions related to recusal during audit interviews to determine whether 

members are being recused. In 2012, CMS added to its audit protocol an 

optional review of P&T committee membership lists to determine whether 

a sponsor’s committee has met the Federal conflict-of-interest

requirements. This change helps to ensure that minimum standards are 

met and that at least two members on each committee are free of conflict. 

However, by reviewing other documents, CMS could assess whether 

sponsors have policies and procedures in place to ensure that members 

with conflicts are being recused.
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 22

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE

CMS did not concur with our first and second recommendations, 

concurred with part of our third and fourth recommendations, and 

concurred with our fifth recommendation.

CMS maintained that it is not necessary to conduct additional 

P&T committee conflict-of-interest oversight because current formulary 

reviews and P&T committee audits appropriately protect beneficiaries 

from any adverse effects of potential conflicts of interest. Specifically, 

CMS noted that its formulary review process protects beneficiaries’ access 

to prescription drugs and its audits review P&T committee documentation 

related to identified formulary administration problems.

We assert that CMS should improve its P&T committee oversight and set 

broad, minimum standards for sponsor oversight in guidance for several 

reasons. We continue to note that CMS does not adequately oversee 

compliance with P&T committee conflict-of-interest requirements. CMS 

states that it can conduct P&T audits. However, as of August 2012, CMS 

reviewed P&T committee information for less than 10 percent of audits. 

Further, given the information collected in these audits, it seems unlikely 

that CMS would detect situations in which a conflict of interest led a 

committee to prefer one drug over another that treated the same condition. 

In addition, based on current data, CMS cannot tell whether sponsors’ 

P&T committees have two members on each committee who are free of 

conflict, as required by law. CMS oversight is especially important given 

that we found that sponsor oversight of committee member conflicts is 

limited.

If conflicts of interest among P&T committee members are not addressed, 

beneficiaries may receive inferior therapies when safer or more effective 

therapies are available, limited Medicare dollars may be wasted to pay for 

inappropriate treatment, and public confidence in the Federal Government 

may be undermined. In contrast, CMS asserts that conflicts of interest 

would not disadvantage beneficiaries or the Federal Government because 

it believes that formulary decisions influenced by conflicts would result in 

higher premiums and the plan would be priced out of the marketplace. 

This position assumes that beneficiaries select health insurance based only 

on cost. This does not consider beneficiaries’ concerns about remaining 

with their current health care team, access issues, or the opportunity cost 

of having to select a new health insurance plan.

CMS noted that OIG did not identify any conflicts through our study. Our 

study was not designed to identify conflicts and, as such, we did not find 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 23

any. However, that does not mean conflicts do not exist. There is 

widespread evidence that conflicts of interest are pervasive among the 

pharmaceutical industry and health care practitioners and that financial 

relationships may influence practitioners’ behavior.

In its comments, CMS indicated that the Physician Payment Sunshine Act 

will result in information that may help sponsors determine conflicts of 

interest. However, reported data will not contain information about 

pharmaceutical manufacturer payments to pharmacists and, therefore, will 

not help sponsors meet the requirement that at least one pharmacist on 

each P&T committee be free of conflict.

CMS did not concur with our first recommendation, that it define PBMs as 

entities that could benefit from formulary decisions. CMS asserted that its 

formulary review process provides the appropriate protections from any 

adverse effects of conflicts of interest. CMS noted that PBMs do have an 

interest in formulary decisions because they negotiate price concessions 

on behalf of sponsors as their subcontractors. However, CMS suggested 

that, by virtue of this contractual relationship, PBMs will be constrained 

by the same desire to be competitive as sponsors, forcing them to balance 

both quality and costs in developing formularies.

It is precisely because PBMs have an interest in formulary decisions that 

we continue to recommend that CMS include PBMs in the definition of 

entities that could benefit from formulary decisions. The delegated 

responsibility to negotiate price concessions means that PBMs have 

financial interests in formulary development, yet those financial interests

may not be aligned with those of the sponsors that contracted with them. 

Because their financial interests may not be aligned, PBMs may not be

constrained by the same competitive market forces as sponsors.

CMS did not concur with our second recommendation, that it establish 

minimum standards requiring sponsors to prevent improprieties associated 

with employment from influencing P&T committee decisions. CMS 

stated that it is not directed in statute to address employment standards. 

CMS further noted that as corporations, private drug plans maintain a 

competitive edge by managing their employees, who should act in their 

employers’ best interest.

We agree that employees of private health plans would likely act in the 

best interest of their employers—interests that may not align with the 

interests of the Part D program—which is why we continue to recommend 

that CMS establish minimum standards requiring sponsors to address 

employment. Minimum standards established by CMS allow sponsors 

independence and flexibility to develop safeguards that best suit their 

business models. As we noted, CMS could stipulate these minimum 
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 24

standards in guidance or in the Medicare Prescription Drug Benefit 

Manual.

For our third and fourth recommendations, CMS concurred that sponsors 

should ensure that an objective process is used to determine whether 

disclosed financial interests are conflicts and manage recusals. However, 

CMS did not concur that it should be responsible for establishing 

minimum standards. CMS noted that it will carefully consider this 

recommendation and evaluate the sufficiency of current evidence when 

considering future rulemaking.

We believe that, to ensure prescription drug coverage decisions are not 

based on financial interests, CMS should establish minimum standards 

requiring sponsors to have objective processes to determine conflicts of 

interest and manage recusals. Minimum standards from CMS allow 

sponsors flexibility to determine what type of process best suits their 

business models. CMS already has established minimum requirements for 

sponsors regarding Part D formularies and P&T committee membership. 

This recommendation continues this precedent. We also note that these

additional minimum standards can be established in guidance or in the 

Medicare Prescription Drug Benefit Manual.

CMS concurred with our fifth recommendation, that it oversee compliance 

with Federal P&T committee conflict-of-interest requirements. CMS 

indicated that its P&T committee audit will be conducted when issues 

identified during the formulary administration audit warrant additional 

P&T committee audits. CMS also noted that it will consider updating its 

annual “readiness checklist” to ensure that sponsors or their contracted 

PBMs update P&T committee membership data in the Health Plan 

Management System. Finally, CMS indicated that it will explore other 

approaches for assessing compliance with P&T committee

conflict-of-interest requirements.

We made minor changes to the report based on CMS’s comments. For the 

full text of CMS’s comments, see Appendix C.
Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 25

APPENDIX A

Potential Sponsor and Pharmacy and Therapeutics Committee

Relationships

Sponsors A, B, and C contract with a pharmacy benefit manager (PBM)

for Pharmacy & Therapeutics (P&T) committee functions for some or all 

of their Part D plans.

P&T Committee B

(maintained by 

PBM)

Sponsor A’s

Part D Plan 3

Sponsor A’s

Part D Plan 4

Sponsor B’s

Part D Plan 1

Sponsor B’s

Part D Plan 2

Sponsor C’s

Part D Plan 1

Sponsor A Sponsor B Sponsor C

Sponsor A’s

Part D Plan 1

Sponsor A’s

Part D Plan 2

P&T Committee A

(maintained by 

Sponsor A)
 

Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 26

APPENDIX B

Pharmacy and Therapeutics Committee Member Disclosure 

Form57

Sponsors or pharmacy benefit managers must 

Provide the names of the members of your organization’s Pharmacy 

& Therapeutics committee. Indicate which members are practicing 

physicians or practicing pharmacists. Further, indicate which 

members are experts in the care of the elderly or disabled, and free 

of any conflict of interest with your organization and pharmaceutical 

manufacturers.

57 CMS, Medicare Prescriptions Drug Benefit: Solicitation for Applications for New 

Prescription Drug Plans (PDP) Sponsors, 2011 Contract Year.
APPENDIXC 

Agency Comments 

#!PVJCr.v.tl 

( DEPARTMENT OF HEALTH & HUMAN SERVICES Centers for Medicare & Medicaid Services 

~,~,... Office of the Administrator 

Washington , DC 20201 

DATE: FEB 0 7 2fi13 

TO: 	 Daniel R. Levinson 

Inspector General 

FROM: 	 M~n-Tav.e.n.net 

Acting Aam\nist.rator 

SUBJECT: 	 Office of Inspector General (OIG) Draft Report: "Gaps in Oversight of Conflicts 

oflnterest in Medicare Prescription Drug Decisions" (OEI-05-1 0-00450) 

Thank you for the opportunity to review and comment on the OIG draft report " Gaps in 

Oversight of Conflicts oflnterest in Medicare Prescription Drug Decisions." As part of this 

review, OIG conducted an evaluation ofPart D Plan Sponsors' Pharmacy and Therapeutic (P&T) 

committee ' s conflicts of interest processes and the Centers for Medicare & Medicaid Services's 

(CMS ' s) oversight ofP&T committees. OIG did not identify any actual conflicts of interest 

during the course of this review. 

The CMS believes the agency's current Part D formulary review provides appropriate 

protections to beneficiaries from any adverse effects resulting from potential conflicts of interest. 

The agency thoroughly reviews Part D formularies to prevent discrimination against Medicare 

beneficiaries based on age, disease, or setting in which they receive care. The review process 

ensures inclusion of a broad distribution of therapeutic categories and classes by using 

reasonable benchmarks to ensure drug lists are robust. Further, CMS ensures that cost-sharing 

levels and utilization management strategies are appropriate and non-discriminatory. CMS 

identifies potential outliers at each review step for further investigation and requires reasonable 

clinical justification when outliers appear to create beneficiary access problems. 

The CMS devotes extensive resources to plan formulary oversight-and reserves the right to 

reject them-to ensure compliance with industry best practices for development and 

management and to ensure beneficiaries' access to clinically appropriate therapies. Therefore, if 

a P&T committee were to create a formulary while operating under a potential conflict of 

interest, because a discriminatory formulary would not be approved, the only potential impact 

would be that the bid could be more expensive and, therefore, less competitive. Beneficiaries 

could easily evaluate these higher premiums in the marketplace and choose a more efficient plan 

to meet their needs. As a result, we could expect that any authentic conflicts of interest, given 

our level of formulary review, would disadvantage the sponsor and not the beneficiary or 

Medicare program. 

Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-1 0-00450) 27 
 

Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 28
 

Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 29
 

Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 30
 

Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 31
 

ACKNOWLEDGMENTS 

This report was prepared under the direction of Ann Maxwell, Regional 

Inspector General for Evaluation and Inspections in the Chicago regional 

office; Thomas F. Komaniecki, Deputy Regional Inspector General; and 

Laura Kordish, Deputy Regional Inspector General. 

Meghan Kearns served as the team leader for this study, and Melissa 

Baker served as lead analyst. Other principal Office of Evaluation and 

Inspections staff from the Chicago regional office who contributed to the 

report include Hilary Slover; central office staff who contributed include 

Debra Roush and Rita Wurm. 

Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions (OEI-05-10-00450) 32 
Office of Inspector General

http://oig.hhs.gov

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, 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 beneficiaries 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. 

Office of Investigations

The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 

of fraud and misconduct related to HHS programs, operations, and beneficiaries. 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 OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities.