Life Science Compliance Update

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January 09, 2018

HHS OIG Releases Report on Potential Drug Misclassifications


A report recently released by the Department of Health and Human Services (HHS) Office of Inspector General (OIG) found that manufacturers may have misclassified as many as 885 drugs in the Medicaid rebate program in 2016. In September 2016, Congress asked OIG to evaluate the accuracy of manufacturer-reported drug classification data in the Medicaid rebate program, and the extent to which CMS oversees drug classification data submitted by manufacturers. In response to the congressional request, this study evaluates drug classification data submitted to the Medicaid rebate program and CMS’s policies and procedures to ensure appropriate oversight of this data. This report is the result of that request.

Although this number of misclassifications only accounts for three percent of the approximately 30,000 drugs within the program, ten misclassified drugs could have resulted in up to $1.3 billion lost in base and inflation-adjusted rebates for Medicaid over the last four years. The highest total reimbursement came in 2016 from these drugs. Congress had originally asked the OIG to look into drug misclassifications within the Medicaid rebate program due to outcry over rising EpiPen prices and the way Mylan had classified the drug and device as a generic under the program since 1997.

The Centers for Medicare & Medicaid Services (CMS) does not have the legal authority to require manufacturers to change their classification, and therefore must ask manufacturers to change their own data when they determine it may be incorrect, though CMS does work with the manufacturers to assist them in correcting the errors. Additionally, CMS does not track or maintain a central database of potential errors or their resolutions and investigators had no way to determine which drugs CMS had identified as potentially-misclassified or what steps were taken to address the potential errors in data. By classifying their drug as a generic, manufacturers are able to obtain a lower base rebate and are not subject to penalties if their drug’s price increases faster than inflation.

CMS routinely seeks to identify potential misclassifications and takes action when they are identified. To identify potential misclassifications, CMS compares Medicaid drug classifications reported by manufacturers to FDA data on a quarterly basis. If CMS identifies any errors in manufacturer-reported data, CMS stated that it typically contacts the manufacturer to request that the manufacturer correct the reported information. CMS may terminate a manufacturer from participation in the Medicaid rebate program for good cause. 8 If a manufacturer does not correct errors in reported data, CMS could potentially determine that the manufacturer is subject to termination for good cause.

A majority of the identified misclassifications were labeled as Generics under Medicaid, yet classified as brand-name drugs by the United States Food and Drug Administration (FDA). The report found that fifty-four manufacturers may have potential misclassifications, but it was four companies alone that were responsible for more than 50% of the errors in classification.

In conclusion, the report recommended that CMS (1) follow up with manufacturers associated with potentially-misclassified drugs identified in this report to determine whether current classifications are correct, (2) improve its Drug Data Reporting for Medicaid System to minimize inconsistent data submissions and track potential classification errors for follow up, and (3) pursue a means to compel manufacturers to correct inaccurate classification data reported to the Medicaid rebate program. CMS concurred with all three recommendations.

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