Bulk drug substances—usually raw powders—are generally  not approved by FDA for marketing in the United States. Medicare, Medicaid, and Private Health Insurers Have Varying Payment Practices for Compounded Drugs, and Medicare Part B Payment Policy Is Unclear

		For Compounded Drugs Dispensed in Pharmacy Settings, Medicare, Medicaid, and Private Health Insurers Have Varying Payment Practices

Medicare, Medicaid, and private health insurer payment practices for  compounded drugs dispensed in pharmacy settings allow for the payment  of FDA-approved products but vary in whether they allow payment for  bulk drug substances in these compounds. Officials from four  of the five state Medicaid programs and two insurers that offer  Medicaid managed care plans we spoke with told us that they  generally do not pay for bulk drug substances used to make  compounded drugs under the prescription drug benefit. As a result, most of these public programs and private  health insurers pay for compounded drugs, including both the FDA- approved products and bulk drug substances that comprise these drugs,  because they may be unable to identify whether compounded drugs were  administered and what individual ingredients were used to make the  compounded drugs. Public programs and private health insurers  may conduct further reviews of outpatient claims to determine whether  the drug billed under a nonspecific HCPCS code is a compounded drug  and to identify its ingredients in order to make payment decisions. In addition, while CMS has a national policy for payment of  compounded drugs under Medicare Part B, the agency does not have  any policies regarding federal Medicaid payments for compounded drugs  administered in outpatient settings and likely provides some federal  matching dollars to states to pay for compounded drugs, including those  that contain bulk drug substances.develop their own payment policies for these drugs. CMS, the five state Medicaid programs, and four of the five insurers  provided us with information on whether they review outpatient claims,  including requesting and reviewing additional documentation, with drugs  billed under the nonspecific code. The policy also indicates that  payment is available for compounded drugs; however, it does not  stipulate whether payment is available for ingredients in compounded  drugs that are FDA-approved products only or whether it is also available  for those ingredients that are bulk drug substances that have not been   As noted above, most of the Part B contractors do  approved by FDA.not require providers to submit NDCs for compounded drug ingredients to  determine whether these ingredients are FDA-approved products or bulk  drug substances and, therefore, may be paying for ingredients that are  not FDA-approved. Payment Practices, among Other Factors, May Affect the Use of Compounded Drugs

Officials from the public programs and private health insurers we spoke  with generally agreed that payment practices for compounded drugs may  affect the use of these drugs. Officials from CMS, one state Medicaid  program, three of the five insurers, the two Part D-only sponsors, and the  three PBMs with whom we spoke stated that payment practices for  compounded drugs did affect their use, specifically when public programs  and private health insurers excluded payments for bulk drug substances  in retail pharmacy settings. The  experiences of the Part D sponsor and the two insurers suggest that   Part D payment practices may affect the use of compounded drugs. Further, officials from one of the three insurers that pay for ingredients  that are FDA-approved products only and do not pay for bulk drug  substances in their private health plans in the commercial market told us  that these practices have resulted in a decrease in compounded drug  claims and payments. Recommendation for Executive Action

To help ensure that Medicare Part B is able to appropriately apply its  payment policy for compounded drugs, we recommend that the Secretary  of Health and Human Services direct the Administrator of the Centers for  Medicare & Medicaid Services to clarify the Medicare Part B payment  policy for compounded drugs and, as necessary, align payment practices  with the policy. For example, CMS should consider updating the Medicare  Part B payment policy to either explicitly allow or restrict payment for  compounded drugs containing bulk drug substances and, as appropriate,  develop a mechanism to indicate on Medicare Part B claims both whether  a beneficiary received a compounded drug and the drug’s individual  ingredients in order to properly apply this policy and determine payment. We also note that neither bulk drug substances nor  compounded drugs, regardless of their ingredients, are generally  approved by FDA.
Why GAO Did This Study

Drug compounding is a process whereby a pharmacist mixes or alters ingredients to create a drug tailored to the medical needs of an individual patient. Compounded drugs make up 1 to 3 percent of the $300 billion domestic prescription drug market. Compounded drugs and some of their ingredients are not approved by FDA. Members of Congress have questioned whether federal health care programs' payment practices create incentives for providers to prescribe these drugs.
GAO was asked to examine public programs' and private health insurers' payment practices for compounded drugs. GAO examined (1) Medicare's, Medicaid's, and private health insurers' payment practices for compounded drugs and (2) the extent to which these payment practices for compounded drugs affect their use. GAO reviewed the payment policies of CMS, the five largest state Medicaid programs, five of the largest insurers that offer both Medicare and Medicaid managed care plans as well as private plans, and the two largest Medicare Part D-only sponsors. GAO also interviewed officials from these entities and from provider associations.

What GAO Found

Medicare, Medicaid, and private health insurers have varying payment practices for compounded drugs, depending upon whether compounded drugs and their ingredients can be identified on health insurance claims, and Medicare's Part B payment policy for these drugs is unclear.
For drugs dispensed in pharmacy settings, claims contain sufficient information for public programs and private insurers to identify compounded drugs and their ingredients. These programs and plans use claims information to determine whether compounded drug ingredients are products approved by the Food and Drug Administration (FDA) or are bulk drug substances—usually raw powders—that are generally not approved by FDA. Two of the five insurers and one of the two Medicare Part D-only sponsors we spoke with generally do not pay for these substances in their Medicare Part D plans. Four of the five state Medicaid programs and three of the five insurers offering private health plans we spoke with generally do not pay for ingredients that are bulk drug substances in their respective plans.
For drugs administered in outpatient physician office settings, claims lack information to identify compounded drugs because there are no specific billing codes for most of these drugs. Therefore, Medicare, most state Medicaid programs, and most private health insurers pay for these compounded drugs. Some public programs and private health insurers conduct further claims reviews for compounded drugs billed under nonspecific codes, including obtaining information that can be used to determine FDA-approval status of compounded drug ingredients, and make payment decisions based on this information.
Additionally, the Centers for Medicare & Medicaid Services (CMS)—the agency within the Department of Health and Human Services (HHS) responsible for administering the Medicare program—has a national payment policy for compounded drugs under Medicare Part B, but this policy is unclear. The policy generally states that drugs must be FDA-approved to be paid for under Medicare. Payment may be available for compounded drugs, but the policy does not stipulate whether payment is available for ingredients that are bulk drug substances, which are generally not FDA-approved. CMS contractors who process Part B claims do not collect information on the FDA-approval status of drug ingredients and, therefore, may be paying for ingredients that are not FDA-approved products. Thus, it is uncertain whether Medicare payments are inconsistent with Part B policy.
Payment practices of public programs and private health insurers may affect the use of compounded drugs when specific payment exclusions exist, such as those for bulk drug substances; however, other factors also affect the use of compounded drugs. For example, insurers that restrict payment for compounded drugs dispensed in pharmacy settings in their private health plans to only ingredients that are FDA-approved products saw significant decreases in both the number of claims and the amount of payments for these drugs after they implemented these restrictions. Individual patient need, such as the need for custom dosages, and drug shortages also affect the use of compounded drugs.

What GAO Recommends

GAO recommends that CMS clarify its Medicare Part B payment policy to either allow or restrict payment for compounded drugs containing bulk drug substances and align payment practices with this policy. HHS disagreed with this recommendation, stating that the Part B payment policy does not depend on drug ingredients. GAO maintains that the policy needs clarification.