Authorized in 1965 under Title XIX of the Social Security Act, Medicaid is a federally aided, state-run medical assistance program. Over 35 million people received an estimated $152 billion in Medicaid services during fiscal year 1995. At the federal level, HCFA is responsible for administering the Medicaid program, establishing policies, developing operating guidelines, and ensuring states' compliance with Medicaid regulations. Federal regulations require states to provide certain basic medical services, such as inpatient hospital and physician care, under their Medicaid programs. Federal regulations also authorize states to provide optional services, such as optometrist services, eyeglasses, and prescription drugs. During fiscal year 1995, all states provided prescription drugs as part of their Medicaid programs; the reported cost of these drugs during that year was about $8.3 billion. Because of growing concern over the increased use and cost of prescription drugs, in 1990 the Congress amended the Social Security Act to require states to implement DUR programs by January 1, 1993. The legislation mandated that these reviews include prospective screening for potential drug problems due to therapeutic duplication, drug-disease contraindication, drug-drug interaction, incorrect drug dosage, incorrect duration of treatment, drug-allergy interactions, and clinical abuse or misuse. (A glossary of drug utilization review terms appears at the end of this report.) HCFA was instructed to issue guidelines to the states on prospective DUR cost and benefit reporting. While not requiring that states use automated systems for prospective screening, the law encouraged their use, and required HCFA to initiate at least 10 statewide automated PRODUR demonstration projects. HCFA was required to report to the Congress by January 1, 1994. In addition to promoting patient safety, DUR programs must also be designed to educate physicians and pharmacists to better identify patterns of fraud, abuse (including overuse), or other inappropriate or medically unnecessary care. Physicians and pharmacists can also use these systems to increase their knowledge about patterns of use associated with specific drugs or groups of drugs. When a Medicaid patient submits a prescription to be filled, the pharmacist transmits recipient identification and prescription information to a statewide database via the PRODUR system. In an on-line, real-time environment, after verifying the recipient's eligibility, the system screens the prescription against the recipient's known Medicaid medical and prescription history. The system then sends the pharmacy a message indicating whether the claim is "payable" (valid), and whether any potential drug therapy problem, such as a drug-drug interaction, exists. If a potential drug therapy problem does exist, the pharmacist consults with the recipient and/or the recipient's physician, depending upon the seriousness of the problem. After such consultation and according to the pharmacist's judgment, the pharmacist may fill the prescription, resubmit the claim for a different drug prescribed by the physician, or submit a reversal to cancel the claim. Pharmacies in states that do not use automated, statewide PRODUR systems are generally limited to comparing the prescription presented with the patient's medical history and prescription data maintained at that specific pharmacy or chain of pharmacies. Such a local system would not have the benefit of the patient's complete Medicaid history; moreover, a local system would lack on-line eligibility verification. To determine if states' PRODUR systems have improved patient safety, we obtained contractor-prepared reports and other data for five of the eight states that had been operating automated PRODUR systems for 12 months or longer at the time we began our review in May 1995: Maryland, Missouri, New Mexico, Oregon, and Pennsylvania. These reports showed the number and types of drug therapy "alerts" transmitted by each state's PRODUR system, along with the number of claims pharmacies reversed as a result of such alerts. We selected these five states because (1) a single contractor serviced three of the states (Maryland, New Mexico, and Oregon) and agreed to perform the needed analyses, and (2) two states (Missouri and Pennsylvania) agreed to provide us with 12 months' worth of their Medicaid prescription drug data for our own analysis. To determine the extent to which states' PRODUR systems have provided measurable savings, we and contractors analyzed the five states' PRODUR data for all conditions screened for. To determine actual savings realized from the denial of overutilization claims (often called "early refills"), we analyzed all such transactions denied between July 1, 1994, and March 31, 1995, identifying whether they were subsequently refilled within 90 days--including the period April 1995 through June 1995. State PRODUR and HCFA officials agreed with our assumption that if the prescriptions were not refilled within 90 days after being initially presented, they probably would not be refilled, and that the value of these prescriptions could reasonably be viewed as measurable savings. To evaluate the extent to which on-line eligibility-verification screening provided tangible savings, we identified the number of prescriptions denied (and the dollar value of the drugs) because recipients were not eligible for Medicaid benefits on the day they submitted their prescriptions. Eligibility screening is performed by a system separate from but often utilized with PRODUR systems. In addition, our estimates of cost savings derived from avoided hospitalization are based on FDA data. To discern the degree to which PRODUR systems can assist in identifying potential fraud, waste, and abuse, we reviewed alerts for overutilization (early refill) and therapeutic duplication; in such cases, individuals may be trying to obtain for resale a greater quantity of medication than that prescribed. We performed our review from May 1995 through April 1996, in accordance with generally accepted government auditing standards except that, as agreed with the requesters, we did not independently verify the accuracy of state- and contractor-provided prescription-transaction data. This was due to the excessive amount of time that would have been required to (1) obtain specific prescription information (such as physician and pharmacy names) and (2) trace these data back to the original prescription documents. Accordingly, we cannot verify the accuracy of the information provided. Our conclusions regarding patient safety and program savings are based on these data. HHS provided written comments on a draft copy of this report; they are reprinted as appendix I. Data from PRODUR systems operated by five geographically diverse states--Maryland, Missouri, New Mexico, Oregon, and Pennsylvania--show inappropriate drug therapy to be an ongoing and serious problem in the Medicaid program. These systems reported screening over 31.7 million prescription drug claims during 12-month periods between January 1994 and June 1995, and sent pharmacists alerts of potentially inappropriate drug therapy for about 6.3 million (20 percent) of these claims. Over 650,000 of these claims (2 percent of the total) were reported canceled because of serious risks posed by such conditions as potential drug-drug interaction, drug-disease conflict, and pregnancy conflict. Table 1 shows the potential for adverse medical reactions, as evidenced by the fact that alerts for drug-drug interaction, overutilization, and therapeutic duplication occur in great numbers. (Appendix II contains detailed data on PRODUR operations for each of the five states reviewed.) Along with increasing patient safety, the PRODUR systems in the states we reviewed reduced Medicaid program costs by millions of dollars annually through the cancellation of potentially wasteful prescriptions and the denial of prescriptions to ineligible recipients. Experiences in the five states reviewed show that program savings can more than offset the cost of these relatively inexpensive systems. Further, however, to the extent that these systems also help prevent unnecessary hospitalization due to adverse medical reactions from prescribed drugs, actual annual cost savings (according to a 1995 FDA review) may be appreciable. The cancellation of prescriptions due to the overutilization (early refill) alert has provided the five states in our review with substantial recurring savings. While a legitimate need for an early refill may exist in some situations, early refills can also indicate drug overutilization, which can threaten patient safety, or increase the potential for fraud or abuse. Our analyses showed that most canceled early refill prescriptions are subsequently filled, but savings from those not filled within 3 months, and thus presumed to represent program savings, have been substantial. As table 2 shows, states realized savings of about $5 million from canceled prescriptions not filled, with individual state savings ranging from about $153,000 to about $2.3 million. The five states also realized substantial savings from PRODUR systems with companion on-line screening capabilities to ensure that recipients are eligible for Medicaid benefits at the time a prescription is presented. Without on-line eligibility verification, Medicaid recipients can continue to obtain benefits for up to a full month, even if they lose eligibility during the middle of the month. The annual savings from this function, reported at over $25 million for the five states, more than offset--by a considerable margin--each state's one-time system installation costs, which ranged from a reported $165,000 to $675,000. For example, as shown in table 2, Pennsylvania's PRODUR system denied about $16.6 million in prescriptions because of ineligibility, from July 1994 through June 1995; in contrast, its one-time installation cost was $675,000. On the basis of its review of studies related to drug-induced illnesses, FDA estimates that 6.4 percent of all hospital admissions nationally are caused by inappropriate drug therapy--5 percent due to patient noncompliance with drug regimens, such as overutilization, and an additional 1.4 percent due to adverse drug reactions. Numerous other studies have been conducted worldwide to determine the extent to which inappropriate drug therapy results in hospitalization, with estimates ranging from 3 percent for the general population to as high as 28 percent for the elderly. Considering that Medicaid's fiscal year 1995 inpatient hospitalizations totaled about $42 billion, even limited implementation of PRODUR systems could have a significant impact on reducing overall Medicaid program costs. As we have pointed out in past reports, potential fraud and abuse in the Medicaid prescription drug program is a serious problem, with dollar losses widely estimated to be as high as 10 percent of total program costs. In 1992 we reported how 10 states had used retrospective drug monitoring programs to detect and deter the theft of controlled substances within the Medicaid program. However, our analysis of the five states' systems shows that automated PRODUR systems offer a much more cost-effective alternative to a "pay-and-chase" approach--in which only retrospective reviews are undertaken--by detecting potential fraud and abuse at the time a recipient submits a prescription, and by denying a potentially invalid claim before the drugs are dispensed. The PRODUR systems' alerts for early refills and therapeutic duplication provide states with the tools needed to detect potential fraud and abuse and prevent them before they occur. These alerts can be a clue to detecting potential fraud or abuse because an individual may be obtaining a greater quantity of medication than medically necessary, with intentions of selling the drugs--often at inflated street prices. For example, our analysis of one of the five states' data identified over 2,200 recipients who, during a 15-month period, each obtained a 20-months' supply or greater of controlled substances, such as Darvon and Valium, in the same therapeutic drug class. Further analysis of the 2,200 recipients showed that 180 of them went to 10 or more different physicians to obtain their prescriptions; 1 went to 108; 252 of the recipients obtained a 3-years' supply or greater of controlled substances; 6 of them obtained a 10-years' supply or greater; and 219 of the recipients obtained controlled drugs costing the Medicaid program $1,500 or more; 8 of the recipients obtained drugs costing $10,000 or more. The states in our review have all implemented their automated PRODUR systems differently, in large part because no overall source of information or guidance for implementing PRODUR systems exists. Some states issue alerts for a greater number and variety of conditions relating to patient age, duration of prescription, and other medical conditions (see appendix III). Each state has its own DUR board, which independently sets screening criteria and policies. Although all of the systems in the states we reviewed screen for drug-drug interaction, overutilization, and therapeutic duplication, we found significant differences in the types of drug therapy problems the states' PRODUR systems screen for. One state's system did not screen for pregnancy conflict, and two of the states' systems did not screen for underutilization (an indication of noncompliance with a prescribed drug regimen)--both problems that could have dramatic effects on patient safety. Underutilization data we obtained from three states show that patient noncompliance with drug-therapy instructions could be a significant problem in the Medicaid program. In Maryland alone, for example, between July 1994 and June 1995, over 300,000 underutilization alerts were sent. State data also indicate that how alerts regarding early refill and therapeutic duplication claims are administered can affect savings, and the identification and prevention of potential fraud, waste, and abuse. As table 3 shows, one state--which does not automatically deny early refill claims but that requires the pharmacist to initiate such denials--had a total 9-month claims volume of about 5.8 million and about 6,100 early refill claims that were not later refilled, resulting in savings of about $153,000. In contrast, another state--which does automatically deny early refill claims--had a lesser total 9-month claims volume (about 3.2 million) but had about 30,000 early refill claims not later refilled, resulting in significantly more savings--about $1.2 million. Thus, it appears that automatic denial can offer a better chance at detecting prescriptions that could be dangerous, potentially fraudulent, or both. Three of the states' systems automatically deny early refills; none automatically deny claims for therapeutic duplication. A fourth state, Maryland, is, however, considering changing its system to automatically deny claims for therapeutic duplication. As stated earlier, the Social Security Act, as amended by the Omnibus Budget Reconciliation Act of 1990, encourages states to use automated systems for prospective DUR, and requires HCFA to conduct demonstration projects of PRODUR systems and report project results to the Congress. HCFA is currently conducting a PRODUR demonstration project in cooperation with the state of Iowa and has provided project status reports to the Congress. No other demonstration projects are planned at this time. Since the inception of the Iowa demonstration project in 1994, HCFA has provided annual reports for 1994 and 1995 to the Congress presenting the project goals and objectives, evaluation design, plans for collecting and analyzing data and reporting project results, and baseline data on Iowa's past Medicaid program expenditures and prescription volumes. The 1995 report, transmitted to the Congress on March 1, 1996, stated that data are not yet available with which to evaluate the potential benefits of the Iowa PRODUR system. Reports planned for 1996 and 1997 are to begin to provide analyses of claims and eligibility data from Iowa, and a final evaluation report is to be prepared in 1998 after the project's scheduled conclusion in March of that year. As a result, the Iowa demonstration project will provide little information to the states and the District of Columbia as they implement their PRODUR systems. Among the 43 states plus the District of Columbia that plan to implement systems, 38 are scheduled to have theirs in place by the end of 1996. In addition to HCFA's statutory responsibilities, in our 1994 report we urged HCFA to gather information on the costs and benefits of automated review systems, develop guidance on features and capabilities, and make such information available to all states. HCFA has only partially responded to these recommendations. In August 1994 HCFA issued guidelines to assist the states in estimating and reporting the costs and benefits of both retrospective and prospective drug utilization review. However, according to HCFA officials, while they have gathered information on PRODUR programs from required annual reports submitted by the states, they have not developed "best practices" or disseminated what information they do have, due to a lack of resources. Further, HCFA officials state that they have no plans at this time to increase their role, since efforts to reform health care being discussed in the Congress may affect the ways in which the Medicaid program operates. With automated PRODUR systems, most states are recognizing an opportunity to use low-cost technology to help both physicians and pharmacists safeguard Medicaid recipients from inappropriate drug therapy and its potential adverse medical reactions. While the primary emphasis of such systems--appropriately--has been safety, both safety benefits and dollar savings accrue from their use. Since results vary on the basis of how such systems are administered, it is important that states share their experiences. Absent any analysis of data from the Iowa demonstration project or any concerted effort by HCFA to collect and share other states' experiences, states have had only limited access to both safety and cost data--information that is critical to informed decisionmaking and to maximizing PRODUR system effectiveness and efficiency. Given the substantial safety benefits that can accrue to Medicaid recipients and the strong potential for immediate savings to the Medicaid program through the effective use of automated PRODUR systems, we recommend that the Secretary of Health and Human Services direct the Administrator, Health Care Financing Administration, to actively facilitate state sharing of information on the most efficient use of PRODUR systems. One way would be to quickly help establish a working group or other such forum for coordinating the collecting and sharing of information on best practices for automated prospective drug utilization review programs, on a nationwide basis. In commenting on a draft of our report, the Department of Health and Human Services generally agreed with our recommendation and the facts presented. It stated that automated prospective drug utilization review systems are extremely beneficial in ensuring that prescriptions are medically necessary and unlikely to cause adverse drug reactions, and concurred with our recommendation that HCFA facilitate state information sharing on best practices for automated PRODUR programs. It noted several prior and ongoing initiatives related to this objective, including (1) the Office of Inspector General's May 1995 report focusing on states' progress in implementing statutory DUR requirements, (2) participation in a project funded by the American Pharmaceutical Association to analyze PRODUR best practices, (3) continuing participation in the annual American Drug Utilization Review Symposium, and (4) the gathering of information on states' best practices that HCFA plans to publish in its Drug Utilization Review Newsletter in June 1996. In connection with these activities, the Department noted that while resources are limited, it plans to continue and improve its role as a clearinghouse dedicated to collecting information and promoting the exchange of information among states on the operation of effective automated PRODUR systems. We had reviewed the documents the Department referred to and agree that these efforts have provided some information to the states on the operation of effective automated PRODUR systems. The Department's future such efforts will need to provide an ongoing and continuous exchange of information as most states move rapidly toward operational PRODUR systems by the end of 1996. Information in the Inspector General's report and in the report resulting from the project funded by the American Pharmaceutical Association cited by the Department in its response is based on the states' early experiences with automated PRODUR systems--primarily 1993 data. And HCFA's stated plans to issue a DUR newsletter in June 1996 will be only the second newsletter since the states were required to implement DUR programs in January 1993. While agreeing that PRODUR systems are often capable of deterring potentially fraudulent activity, the Department said the primary emphasis of these systems is on patient safety and quality of care. It stated that PRODUR systems are not specifically designed to detect Medicaid fraud and abuse and that retrospective DUR systems may be more capable of detecting potentially fraudulent activity and referring this activity to states' Medicaid Surveillance Utilization Review units for follow-up. While we acknowledge the safety and quality-of-care orientation, it is being clearly established in states with automated PRODUR systems that tremendous benefits accrue for program integrity--detecting and preventing potentially fraudulent or abusive activity before drugs are dispensed. Relying on retrospective systems alone is needlessly restrictive and expensive, resulting in a "pay-and-chase" approach in which recipients have already received the drugs and the states' Medicaid Surveillance Utilization Review units must use their resources to conduct investigations and seek whatever recovery they can attain--usually minimal. Finally, the Department recommended caution in attributing the $30 million in cost savings cited in our report to denials due to early refills and ineligibility, and noted that additional methodological issues should be considered. We discussed these issues with HCFA program managers responsible for DUR program implementation. They said that our methodology could overstate savings because our early refill analysis searched for 90 days after an initial denial to see whether a prescription was subsequently filled, while states can allow recipients to get up to a 100-days' supply of drugs. HCFA stated that with 100-day-supply prescriptions, situations could arise in which more than 90 days would elapse between an initial denial and a subsequent refill, thus eroding program savings identified under our methodology. While such situations could occur, they appear unlikely because of the series of events that would be involved, that is, a recipient's seeking to refill a 100-day-supply prescription several days after initially filling it, being denied, then waiting over 90 days before attempting a refill. Moreover, further analysis of the data obtained for two of the states in our review showed that only about 1 percent of their total prescription drug claims were for prescriptions with over a 90-days' supply. In reference to cost savings attributed to ineligibility, HCFA described a specific example in which recipients under states' medically needy programs may not become eligible for Medicaid benefits until certain portions of their incomes are spent on medical expenses. Thus, some ineligible recipients denied prescriptions may subsequently obtain these prescriptions after they become eligible. Our methodology did not consider ineligible recipients' later becoming eligible and obtaining previously denied prescriptions. However, this possibility assumes that ineligible recipients would postpone filling denied prescriptions until after they become eligible for Medicaid benefits. Further, HCFA's example involves those receiving benefits under states' "medically needy" programs--recipients that accounted for only about 11 percent of the total Medicaid population during fiscal year 1994--the latest data available. We are sending copies of this report to the Secretary of Health and Human Services; the Administrator, Health Care Financing Administration; the Director, Office of Management and Budget; and other interested parties. Copies will also be made available to others upon request. We plan no further distribution of this report until 15 days after the date of this letter, unless you publicly announce its contents earlier. At that time, we will release copies to interested parties. Please contact me at (202) 512-5539 if you have any questions concerning this report. Major contributors to this report are listed in appendix V. The following tables provide detailed contractor- and state-provided data on the results of automated PRODUR systems during 1994 and 1995. These data, which we did not independently verify, include (1) the number and cost of claims processed, (2) the types and numbers of drug therapy alert messages sent via the states' PRODUR systems, (3) the number of overutilization/early refill prescriptions denied and not later filled (highlighted in bold in each table), and (4) the number of claims canceled. Tables for Missouri and Pennsylvania also include data on numbers of claims canceled for each drug therapy alert condition; similar data were not available for the other three states. Total number of claims processed Total cost of claims processed Excessive daily dose/over age 65 Insufficient daily dose for age Overutilization (early refill) Total number of claims processed Total cost of claims processed Current R applies to 90-day therapy Current R exceeds 90-day therapy Current R initiates 90-day therapy Drug-disease interaction Indicated for prior drug's side effect Overutilization (early refill) Total number of claims processed Total cost of claims processed Excessive daily dose/over age 65 Insufficient daily dose for age Overutilization (early refill) Total number of claims processed Total cost of claims processed Excessive daily dose/over age 65 Insufficient daily dose for age Overutilization (early refill) Total number of claims canceled due to alerts Total number of claims processed Total cost of claims processed Overutilization (early refill) Current Rapplies to 90-day therapy Excessive daily dose/over age 65 Indicated for prior drug's side effect Insufficient daily dose for age (continued) D.C. Systems operating (29 states) Implementation planned (16 states) No planned implementation (6 states) Definitions of the following drug utilization review terms are from 42 CFR 456.702/705 and state PRODUR manuals. The potential for, or the occurrence of, an adverse medical effect as a result of the recipient's using two or more drugs together. A significant undesirable effect experienced by a patient due to the prescribed course of drug therapy. Use of a drug that is not recommended for use in the age group of the patient. This can occur when the patient is too old or too young for the given medication. The significant potential for, or the occurrence of, an allergic reaction as a result of drug therapy. The potential for, or occurrence of, an undesirable alteration of the therapeutic effect of a given prescription because of the presence of an existing disease condition--such as an ulcer drug exacerbating a patient's high blood pressure. Repetitive overutilization without therapeutic benefit. A dosage lying outside the standard daily dosage range necessary to achieve therapeutic benefit. The number of days of prescribed therapy exceeding or falling short of the standard recommendation for the condition for which it was prescribed. Use of a drug in quantities or for durations that put the recipient at risk of an adverse medical result. Use of the prescribed drug is not recommended during pregnancy. The prescribing and dispensing of two or more drugs from the same therapeutic class, such as analgesics (pain relievers), resulting in a combined daily dose that puts the recipient at risk of an adverse medical result, or that incurs additional program cost without additional therapeutic benefit. Use of a drug in insufficient quantity to achieve a desired therapeutic goal. The first copy of each GAO report and testimony is free. Additional copies are $2 each. 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Summary:
Pursuant to a congressional request, GAO reviewed states' experiences with automated prospective drug utilization review (PRODUR) systems in their Medicaid programs, focusing on: (1) how these systems can improve patient safety, control program costs, and reduce fraud, waste, and abuse; and (2) impediments to effective implementation of PRODUR systems. GAO found that: (1) between January 1994 and June 1995, PRODUR systems reviewed screened over 31.7 million prescription drug claims, and alerted pharmacists to potentially inappropriate drug treatments; (2) over 650,000 prescriptions were cancelled because of potential risks to patients; (3) PRODUR systems have reduced Medicaid costs by denying prescriptions to ineligible recipients, preventing hospitalizations due to illnesses caused by inappropriately prescribed drugs, and detecting and eliminating fraud and abuse; (4) PRODUR systems are more cost-effective than traditional review systems; (5) states implement their PRODUR systems differently because there is no guidance on PRODUR system implementation; and (6) each state has its own drug utilization review board which independently sets screening criteria and policies, but states have no systematic way to share experiences and best practices.