Should Fraud Prevention Expenditures Be Counted as Incurred Costs in the Medical Loss Ratio?

On June 20, 2013, the HHS Office of Inspector General (OIG) issued a report entitled “Prescribers With Questionable Patterns in Medicare Part D.” The report concluded that over 700 general-care physicians had questionable prescribing patterns. According to OIG, many of these physicians prescribed extremely high numbers of prescriptions per beneficiary, which may indicate that these prescriptions are medically unnecessary. Moreover, more than half of the 736 general-care physicians with questionable prescribing patterns ordered extremely high percentages of Schedule II or III drugs, which have potential for addiction and abuse.

On June 24, 2013, the OIG issued another report entitled “Medicare Inappropriately Paid for Drugs Ordered by Individuals Without Prescribing Authority.” In that report, the OIG found that, nationwide, Part D inappropriately paid for drugs ordered by individuals who clearly did not have the authority to prescribe, such as massage therapists, athletic trainers, home contractors, interpreters, and transportation companies. The OIG further found that in 10 States, Part D also inappropriately paid for drugs ordered by other individuals without the authority to prescribe, such as counselors, social workers, and chiropractors.

In both of these reports the OIG recommended that Medicare Drug Integrity Contractors and Part D sponsors should do a better job monitoring prescriptions and prescriber authority. The Centers for Medicare & Medicaid Services (CMS) concurred with these recommendations. Of course, there are costs associated with this increased monitoring.

On June 24, the Senate Homeland Security and Government Affairs Committee held a hearing on Medicare prescription drug abuse. At that hearing, Alanna Lavelle, Investigations Director for Wellpoint, Inc., a Medicare Administrative Contractor, suggested to the committee that the cost of fraud and abuse detection should be counted as an incurred cost for improvement of quality of care in the medical loss ratio (MLR).  The MLR regulations for Medicare Advantage (MA) (42 C.F.R. 422.2430) and the Medicare prescription drug program (42 C.F.R. 423.2430), issued on May 23, 2013 and effective July 22, 2013, both specifically exclude fraud prevention costs from activities that improve quality of care for purposes of fulfilling the MLR requirements. The entire Senate committee panel of witnesses, including Gary Cantrell, Deputy Investigator General for Investigations at HHS; Jonathan Blum, Acting Principal Deputy Administrator of CMS; Stuart E. Wright, Deputy Inspector General for Evaluation and Inspections HHS; and Joseph Rannazzisi, Deputy Assistant Administrator in the Office of Diversion Control at the Drug Enforcement Agency concurred with Lavelle’s suggestion.

To expect Part D sponsors to expand prescriber monitoring and other enforcement activities without being allowed to count the cost of these fraud prevention activities as incurred expenditures for purposes of fulfilling their MLR requirements seems counter-productive, according to Lavelle.

The witnesses testified that they believe that Congressional authorization would likely be needed to amend the CMS regulations to include fraud prevention costs in the definition of quality of care activities or to otherwise allow these costs to be counted as an expenditure in the MLR.

At the hearing, Senator Tom Colburn (R-Okla.), ranking member, indicated that every year the Senate gets these reports of prescription drug fraud from the OIG and a year later nothing has been done by CMS.  CMS can be prodded by Sen. Colburn and other committee member to take action year in and year out, but Congressional action allowing fraud expenditures to be included as incurred costs for purposes of fulfilling the MLR requirements would give Medicare Part D sponsors a clear incentive to raise their monitoring of prescriptions and prescribers.