On the Doorsteps of Drugstores, Fraud Investigations Reach Into Pharmacies

Corner drugstores: the latest prize in the war on fraud. Identified as particularly vulnerable to billion-dollar fraud schemes, a recent Office of Inspector General (OIG)  investigation has lifted the veil and found a new focus for fraud investigations. According to the OIG, drugstores are vulnerable because Medicare does not require the private insurers that deliver prescription benefits to seniors to report suspicious billing patterns. In the 6 years since Part D began, the OIG has issued several reports that found that Part D had limited safeguards in place. And it has now revealed just how much fraud might actually be transpiring.

In its latest report, OIG based its study on an analysis of prescription drug event records. It analyzed all of the records for prescriptions billed by retail pharmacies in 2009. According to the report, retail pharmacies each billed Part D an average of nearly $1 million for prescriptions in 2009. Over 2,600 of these pharmacies had questionable billing.

“While some pharmacies may be billing extremely high amounts for legitimate reasons, all warrant further scrutiny,” said the OIG. Many of the pharmacies billed for extremely high dollar amounts or numbers of prescriptions per beneficiary or per prescriber. They also billed for extremely high amounts of Schedule II or III controlled substances, brand-name drugs, or refills, causing Medicare to pay $5.6 billion to the very drugstores whose billings are being questioned.

Marilyn Tavenner, acting administrator at CMS, said the agency mostly agrees with the OIG’s report. She did comment, however, that requiring private insurers to monitor and report suspicious activity could place a burden on the companies and may flood government officials with leads that turn out to be useless. Further, Medicare also has anti-fraud contractors that are already keeping close tabs on the program.

Tavenner noted that the OIG’s report identified what appeared to be questionable billing based on its own data analysis but did not determine any actual fraud committed by the pharmacies.

“What we are seeing in the data is extremely concerning,” said Jodi Nudelman, a regional inspector general in New York who directed the OIG’s research. Through the research, OIG was able to identify 2,637 pharmacies with questionable billing practices. They are “extreme billers, when you look at their peers and compare them,” added Nudelman. Although this only accounts for approximately 4.4 percent of pharmacies, some areas of the country had a significantly higher share, such as Miami,Los Angeles and New York, already known as hot spots for health care fraud. The pharmacies in question will be turned in for further investigation.

The OIG identified eight major indicators of potential fraud. Many fraud schemes include inappropriate billing practices, such as billing for nonexistent prescriptions, billing for brand-name drugs when, generics were dispensed, and billing for prescriptions that were never picked up. Other schemes include drug diversion and kickbacks. Drug diversion occurs when a pharmacy dispenses a prescription drug for inappropriate or illegal purposes.

This isn’t the first time the OIG has indicated there might be a problem with fraud in drugstores. There has always been a lack of much-needed supervision. However, before the new analysis, there were apparently no comprehensive data about pharmacies’ typical billing patterns, or types of questionable billings.

“The program has limited safeguards in place and is vulnerable to fraud, waste and abuse,” the report said. “Because (insurers) are on the front lines of detecting fraud, waste and abuse … a significant vulnerability exists when (they) are not required to report this information,” the report found. While some pharmacies may be billing extremely high amounts for legitimate reasons, all warrant further scrutiny.