Life Science Compliance Update

June 24, 2015

OIG Continues Fight Against Medicare Part D Fraud and Abuse With Two New Reports


Last week, the Department of Health and Human Services announced the largest ever Medicare Fraud Strike Force sweep, with charges brought against 243 individuals for approximately $712 million in billings. More than 44 of the defendants arrested were charged with fraud related to the Medicare prescription drug benefit program known as Part D. The HHS Office of Inspector General has now released two reports that similarly target Part D fraud. “OIG has seen an increase in Part D fraud complaints,” the agency states. “As such, OIG has made Part D fraud a top priority.”

Their first report, Ensuring the Integrity of Medicare Part D, summarizes OIG’s body of work in the Part D arena and provides an update on the Center of Medicare and Medicaid Services’ efforts to address the weaknesses in Part D program integrity that OIG has identified. Second, Questionable Billing and Geographic Hotspots Point to Potential Fraud and Abuse in Medicare Part D looks at the spike in spending on commonly abused opioids over the last decade, targets pharmacy related fraud schemes related to opioids, and identifies “geographic hotspots” for certain noncontrolled drugs.

Ensuring the Integrity of Medicare Part D

The first report provides a useful summary of numerous OIG investigation, audits, evaluations, and guidances related to Medicare Part D. OIG notes that around 39 million beneficiaries receive Part D benefits through more than 2,000 plans sponsored by private companies. Payments for Part D drugs are approximately $121 billion per year. OIG also outlines the “key players” in protecting Part D: “Part D plan sponsors are responsible for monitoring and paying Part D drug claims,” they state. “CMS is responsible for overseeing the program, and has contracted with the MEDIC [the Medicare Drug Integrity Contractor) to perform program integrity functions.” The MEDIC is required to investigate potential fraud and abuse referred to it through external sources, such as complaints, as well as identify potential fraud and abuse through proactive methods, such as data analysis.

OIG Examples of Part D Fraud(source: OIG: "Ensuring the Integrity of Medicare Part D," June 18, 2015)

“Over the last 9 years, plan sponsors, the MEDIC, and CMS have taken steps to address OIG recommendations in these areas, and progress has been made,” states OIG. However, OIG notes that Part D remains vulnerable to fraud. Particularly, OIG finds that the program’s underlying vulnerabilities “cluster around two issues involving all three levels of program oversight (plan sponsors, the MEDIC, and CMS).” First, is the need to more effectively collect and analyze program data to proactively identify and resolve program vulnerabilities and prevent fraud, waste, and abuse before it occurs; and second, is the need to more fully implement robust oversight designed to ensure proper payments, prevent fraud, and protect beneficiaries.

"To fully protect Part D from fraud, waste, and abuse, CMS should take further action and implement OIG's unimplemented recommendations," OIG advised.

Specifically, CMS should:

  • (1) require plan sponsors to report all potential fraud and abuse to CMS and/or the MEDIC;
  • (2) require plan sponsors to report data on the inquiries and corrective actions they take in response to fraud and abuse;
  • (3) expand drug utilization review programs to include additional drugs susceptible to fraud, waste, and abuse;
  • (4) implement an edit to reject prescriptions written by excluded providers;
  • (5) exclude Schedule II drug refills when calculating final payments to plan sponsors at the end of each year;
  • (6) seek authority to restrict certain beneficiaries to a limited number of pharmacies or prescribers;
  • (7) develop and implement a mechanism to recover payments from plan sponsors when law enforcement agencies do not accept case referrals;
  • (8) determine the effectiveness of plan sponsors' fraud and abuse detection programs; and
  • (9) ensure that plan sponsors' compliance plans address all regulatory requirements and CMS guidance.  

Download the complete report.

Questionable Billing and Geographic Hotspots Point to Potential Fraud and Abuse in Medicare Part D

OIG's second report focuses on what the agency deems "questionable billing" related to frequently abused opioids (including OxyContin, hydrocodone-acetaminophen, fentanyl, and morphine sulfate). "Since 2006, Medicare spending for commonly abused opioids has grown faster than spending for all Part D drugs," OIG states. 

"OIG investigations have identified pharmacy-related fraud schemes in Part D," the report states. "These schemes include drug diversion, billing for drugs that are not dispensed, and kickbacks." While pharmacy-related fraud schemes often involve commonly abused opioids, they can also involve noncontrolled drugs. OIG found that more than 1,400 pharmacies had questionable billing for Part D drugs in 2014, as indicated in the following table. Notably, OIG indicated somewhat ominously: "[a]lthough some of this billing may be legitimate, all of these pharmacies warrant further scrutiny. To followup on these pharmacies, OIG will conduct investigations and audits. As appropriate, we will also refer pharmacies to other law enforcement agencies and to CMS."

Pharmacies with Questionable Billing

OIG's report also identifies "geographic hotspots for certain noncontrolled drugs," which they describe as metropolitan areas where average Medicare payments per beneficiary for certain drugs are significantly higher than the average payments nationwide. "Although medical necessity and prescribing patterns may vary across different areas of the country, these patterns raise questions about whether these drugs were medically necessary or were provided to beneficiaries," OIG states. "The diversion of noncontrolled substances is becoming more common, and fraud related to these drugs can present a significant financial loss to Medicare."

OIG hotspots

"The billing patterns in hotspots raise questions about whether these drugs were medically necessary or were actually provided to beneficiaries," OIG concludes. "Also, because some of these drugs are available as generics or over the counter, there are questions about whether pharmacies are billing for the higher priced brand-name drug but providing a less expensive drug."


As OIG explicitly states, Medicare Part D fraud is a top priority for the agency. The two reports, along with the extensive Part D-related enforcement actions last week, shows that the government has already put a lot of time into analyzing Part D prescription trends and what they deem to be abnormalities. OIG's latest recommendations to CMS to step up its oversight could foretell even greater enforcement. 

June 23, 2015

Safe For Blind People, Not Safe For Others? Public Citizen Criticizes FDA's Approval of Sleep Drug


Consumer watchdog group Public Citizen is criticizing the U.S. Food and Drug Administration’s decision to expand the approved use of Vanda Pharmaceutical’s sleep disorder drug Hetlioz (tasimelteon), a melatonin receptor agonist, to treat non-24-hour sleep-wake disorder. The group argues the FDA decision to approve its use beyond the medication’s original indication is in part because they believe blind people will have different side effects than people who have vision.


Hetiloz (tasimelteon) was approved under FDA’s orphan drug pathway. Non-24-hour sleep-wake disorder is estimated to affect 100,000 people who are blind. The disorder is a chronic circadian rhythm disorder that causes problems with the timing of sleep. Non-24 occurs almost exclusively in persons who are completely blind. Light does not enter their eyes and they cannot synchronize their body clock to the 24-hour light-dark cycle. Hetiloz was the first FDA approval of a treatment for the disorder.

The drug was also reviewed in 2013 by the FDA's Peripheral and Central Nervous System Drugs Advisory Committee. The committee agreed, almost unanimously, that the drug had been proven to be effective and safe for patients with non-24-hour sleep-wake disorder.

As we previously noted, Congress passed the Orphan Drug Act in 1983, recognizing that drug companies would incur a financial loss when developing important drugs for rare conditions. The Act offers incentives to induce companies to develop drugs and other medical products for the small markets of individuals with rare disorders, defined as diseases affecting fewer than 200,000 people in the U.S.

In its petition, Public Citizen’s asks FDA to (1) Require revision of the indication in the “Indications and Usage” section of the product labeling; (2) Require revision of the “Carcinogenesis,” “Mutagenesis,” and “Pregnancy” sections of the product labeling to include additional risk information from FDA’s pharmacology review; (3) Require distribution of a medication guide with each prescription of tasimelteon, informing patients of the newly narrowed indication of the drug’s risks; (4) Ask the sponsor to send a “Dear Doctor” letter notifying physicians and other health care providers of the corrected, narrower indication; (5) Mandate that the sponsor conduct a large, adequately powered postmarking clinical trial.


Public Citizen reviewed FDA’s approval letters for the medication. It notes FDA’s press release on the second approval of tasimelteon stated its use in treatment for non-24-hour sleep-wake disorder in totally blind individuals. However, in the second approval letter, FDA expanded tasimelteon’s indication to include non blind individuals.

The petition considers this a “post-hoc rationale,” explained in an FDA letter published by Public Citizen, which includes three observations: (1) The sponsor had conducted trials in sighted individuals with jet lag disorder as well as in other models of circadian rhythm disruption; (2) There have been a few case reports of patients with severe brain damage in whom non-24-hour sleep-wake disorder seemingly resulted from interruption of circadian pathways while conscious visual pathways remained relatively intact, and treatment with melatonin was reported to be effective in at least some of these patients; and (3) There have been some reports that sighted individuals with non-24-hour sleep-wake disorder as a result of a lack of exposure to sunlight had been successfully treated with melatonin.

Public Citizen calls these observations “limited” and “insufficient” to support the expansion of the indication for tasimelteon beyond totally blind individuals as proposed in the NDA. Arguing that side effects would be different for blind patients in comparison to nonblind patients, the petition argues the FDA’s observations cannot offer “substantial evidence” that the drug is effective for the treatment of individuals with non-24-hour sleep-wake disorder who are not totally blind.

Public Citizen continues: “Viewed in their entirety, the FDA review documents cited … clearly indicate that the actual mistake by the agency was not in the wording of the indication in the first FDA approval letter for tasimelteon. Rather, the mistake was in the wording of the ‘Indications and Usage’ section of the product labeling initially approved by the agency that omitted the reference to blind individuals. The FDA compounded this mistake by issuing a second approval letter that changed this indication.” Public Citizen concludes FDA “should have required that the sponsor revise the label to include the correct indication, not issue a second approval letter asserting that the initial approval letter was in error.”


Public Citizen’s petition attempts to draw a distinction between blind and non-blind patients, arguing that lack of eyesight would significantly change a medication’s adverse effects. This is, as noted by Public Citizen’s own petition, in direct conflict with FDA’s conclusion that the medication would be beneficial to those who are not blind.

This is an example of the ludicrous level of scrutiny that organizations such as Public Citizen will draw against manufacturers and may be faced by orphan drug manufacturers in the future.  It is hard to imagine how a drug that works on blind people for sleep disorder would not benefit non blind individuals.   The FDA was correct in their assessment and these types of nuisance complaints highlight that you just can't please some people.


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