Increased government spending on compounded drugs is drawing the attention of federal investigators according to a July 18, 2016, news article by the Kaiser Family Foundation. Medicare Part D – Medicare’s Prescription Drug Coverage – has seen spending rise 56 percent since last year; attributed, in part, by sales of topical pain creams, which are priced at hundreds of thousands of dollars per tube. Miriam Anderson, who oversaw a June report on the Medicare spending by the Department of Health and Human Services’ Office of Inspector of General, stated that sharp increases in the number of patients receiving compounded drugs “may indicate an emerging fraud trend.”

Created specifically for patients who cannot take commercially available medication, compounded drugs is the practice of mixing drugs by a pharmacy or special compounding center, in order to tailor the medication to a patient’s individual needs. Some of these prescriptions billed to the government, notes Ms. Anderson, may not have been medically necessary – or even dispensed at all.

According to the Kaiser Family Foundation, the fastest-growing category of compounded drugs are topical pain creams and gels. Since 2006, spending on those drugs has increased 3,466 percent in the Medicare program since 2006; with the average cost per prescription up from $40 to $331. This large spike in spending for compounded drugs has led the U.S. Postal Service to hold back payments for its share of federal workers’ compensation costs last year. Indeed, the federal government’s worker’s compensation program saw spending on compounded drugs grow from $2.35 million in 2011 to $214 million in 2015, according to the Department of Labor.

Increased government spending on compounded medications come amid ongoing scrutiny of the drug compounding industry, particularly the meningitis outbreak linked to a Massachusetts compounding pharmacy. Since then, pharmacies must now report all the ingredients used to make a compounded drug. Not only does this prevent any hidden ingredients, but it allows insurers to know exactly what medications are billed. A few pharmacies, however, used that opportunity to add more ingredients in order to increase the bill. For instance, a diaper cream was billed at $1,000, whereas a patient could get one over the counter for $2.50.

The Kaiser Family Foundation reports federal investigators in California uncovering a marketer for a compounding pharmacy paying doctors to write prescriptions for compounded pain creams. That pharmacy, in turn, billed California’s worker’s compensation program $3,000 per tube for creams it cost about $20 to make. Likewise, federal prosecutors in Florida indicted a doctor who was given kickbacks for sending prescriptions to a particular pharmacy and then billed Tricare.

The article notes that Express Scripts – a pharmacy billing service for Tricare – drew up a list of about 1,000 ingredients used by compounding pharmacists for which it would no longer pay. Since that limit, Express Scripts has seen its clients’ spending on pharmacy-made drugs fall sharply.

In conclusion, the article reports that Medicare’s response to the increased spending on compounded drugs is unclear. However, it notes that investigators will issue a follow up report in the future.

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