Over the last several years, the federal government has sought to move from a reactive to a proactive approach to Medicare fraud enforcement. In other words, the hope is to stop fraud before it occurs rather than pay claims and then chase payments that are subsequently determined to be improper. Through efforts such as consolidation of data bases and enhanced claims data mining, the federal government aspires to target high-risk areas and to institutionalize controls to prevent payment of fraudulent claims in the first instance. The goal is especially important in the Medicare Part D context, given recent OIG and GAO reports on suspect utilization and costs. State Medicaid agencies already have demonstrated that institutional pre-payment controls can in fact cut costs and reduce fraud in Medicaid prescription drug costs.

Earlier this year, CMS solicited comments from Medicare Part D Prescription Drug Plan (PDP) sponsors and other stakeholders on how the Medicare Part D program can more effectively prevent suspect overutilization and fraud. Through the comment process, CMS recognized that certain federal regulations, including the obligation to promptly pay "clean claims," made it difficult for Medicare Part D and Medicare Advantage PDP Sponsors to implement pre-payment anti-fraud initiatives. In response, CMS recently issued a "clarification," which stated that existing regulations "do not prevent" Sponsors from establishing drug utilization management programs and quality assurance policies to address suspected drug overutilization because such initiatives may detect potentially fraudulent claims. Sponsors thus may require compliance with certain additional steps before payment of those claims, including prior authorization and requests for additional supporting documentation, because they would not meet the definition of "clean claims" if additional review is deemed necessary.

Sponsors should nevertheless be aware that CMS's clarification may not give them the authority to ignore other regulatory limits on processing claims for prescription drugs. Multiple existing requirements still apply, despite the new "clarification," including:

  • the requirement in 42 C.F.R. § 423.520(c) that Sponsors must notify submitting pharmacies of claims determined not to be "clean" within 10 days of the submission of electronic claims and within 15 days for non-electronic claims;
  • the obligation to ensure that prior authorization requirements are consistent with FDA labeling requirements and to submit such requirements to CMS for approval as a formulary component;
  • the prohibition on implementation of prior authorization for protected class drugs; and
  • the obligation set forth in the Chapter 9 of the Prescription Drug Benefit Manual to report suspected fraud or abuse.

States, strapped for cash, have proposed and instituted a variety of prepayment limits on Medicaid payment for prescriptions drugs, and they include requiring all beneficiaries to designate 1 or 2 specific pharmacies to fill their prescriptions; mandating that prescriptions be tied to covered diagnosis codes included on the prescription; and imposing limits on coverage for certain suspected over-utilized drugs. But the Medicaid Programs have timely state-specific data, can react quickly to analyze risk areas and provider/beneficiary activity, and can institute state administrative changes in relatively short order.

The federal government cannot act as nimbly as the states. For example, harnessing Medicare data and making it available to contractors and Sponsors in a timely way remains an elusive goal. Unless CMS take steps to remove the regulatory controls that force Sponsors to process and pay claims, regardless of inherent identified risks, Sponsors may find it difficult, if not impossible, to effectively institute pre-payment review mechanisms for prescription drugs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.