Increased Spending in Compounded Drugs Could Involve Fraud


Federal spending for compounded drugs has exploded recently and there are concerns some portion of the increase is due to fraud or overbilling, according to recent media reports. Last year, we wrote a post about the increase in Tricare fraud among compounding pharmacies. Recent data reports suggests other programs, including Medicare Part D and federal workers’ compensation, have now been afflicted. Part D has increased its spending for this medicine by more than 600 percent over the last ten years to $508 million, according to a report released by the OIG.

Ten Breakthrough Drugs to Cost US $50 Billion in Ten Years

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The Government Healthcare Programs, including Medicare and Medicaid, will have to pay more than $50 billion over the next ten years on ten “breakthrough” medications developed by the pharmaceutical industry.

We’ve already highlighted the enormous amount that the United States has been spending on hepatitis C drugs over the past year. This analysis goes farther to include future projections for Keytruda, a cancer treatment developed by Merck; Eylea, an eye drug from Regeneron and Bayer; Kalydeco, a Vertex Pharmaceuticals cystic fibrosis treatment, and other drugs.

Over the next ten years, these ten drugs are estimated to cost Medicare more than $30 billion and Medicaid (state and federal portions) more than $15 billion. Spending by the Veterans Administration and the Department of Defense weren’t included in the analysis.

The FDA was authorized by Congress in the Food and Drug Administration Safety and Innovation Act of 2012 to use the breakthrough therapy status to speed the development and review of drugs to allow them to reach patients with serious conditions sooner. Sovaldi, a hepatitis c treatment which received market approval in eight months, is the most well-known breakthrough therapy to date.

The report, put together by Avalere and funded by the trade group America’s Health Insurance Plans, is troubling. It is research like this that makes it more important than ever that the government’s Medicare Part D program be given the authority to negotiate prices for high-cost drugs with the pharmaceutical industry. Medicaid and the Department of Veteran Affairs can already negotiate their drug prices. Medicare should have that power as well.


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Medicare Releases 2013 Part D Drug Spending Data

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Prescription drug spending from Medicare Part D is now available as the U.S. Government released data for claims in 2013. The government spent nearly $104 million on drugs under the program which covers approximately 36 million elderly and disabled individuals.

The data details spending on nearly 3,500 drugs during the year. The government spent $2.53 billion on Nexium, a heartburn treatment, in the top drug expenditure. Advair Diskus was in second place in total cost, with government spending of $2.26 billion.

The data is available on the Medicare website here.

After a brief glimpse at the data, it looks like the government’s release of information could eventually put a damper on Defendant’s use of Rule 9(b) in Rule 12(b)(6) motions to dismiss in False Claims Act litigation. Rule 9(b) requires plaintiffs to plead fraud with particularity. Courts have held that it applies to litigation under the False Claims Act, although the level of specificity required varies in different appellate courts. Following the release of this information, a relator may still not have individual patient level data but they do now have proof of Part D spending on prescriptions written by certain doctors. The question is whether that would be sufficient for the whistleblower to overcome the objection in their particular case.

The prescription drug data released is a substantial improvement over the information previously available, but still limited in some respects. The Part D data released covers about 78% of total costs and 87% of total drug claims in Part D, excluding from the information physicians with 10 or fewer drug claims. The information release also doesn’t give a complete picture of all money spent by Medicare on prescription drugs. It fails to account for medicines received in a hospital or doctor’s office as these are not billed to the Part D program.

This isn’t the only news coverage that the government’s drug spending has received this week. An OIG report recommended Congress and Centers for Medicare & Medicaid Services pursue additional rebates from companies for prescription drugs. The report found that Medicaid received rebates of 47% of their expenditures while Medicare received a rebate of only 15% of their spending. The cost after rebates on 110 brand name drugs for Medicaid was less than half of that paid by Medicare Part D.

Following the report, Senator Bill Nelson introduced the Medicare Drug Savings Act of 2015 into the U.S. Senate. The bill would require pharmaceutical manufacturers to offer the same rebates in Medicare as they do to Medicaid.

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Medicare Spent $4.7 Billion on Hepatitis C Drugs Last Year.

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Medicare paid $3 billion last year for Gilead Sciences’ hepatitis C drug Sovaldi and another $670 million for its new drug, Harvoni, which started on the market in October. Olysio, Johnson & Johnson’s drug which is frequently used at the same time as Sovaldi, resulted in an additional $821 million in Medicare spending.

We spend a lot of time in the office dealing with cases of the fraudulent overbilling of Medicare and Medicaid. It’s central to the False Claims Act. But the amount of money that is being authorized by the government on these drugs is astronomical.

In 2013, Medicare spent $286 million on hep-C drugs. The number is now 15-fold higher. If you add in the amount of money that was spent on older drugs, the total spending reaches $4.7 billion.

The amount of money spent on these drugs now exceeds the amount that is recovered from Medicare fraud under the False Claims Act every year. The Department of Justice publishes an annual report of the money spent due to health care fraud that it recovers. Last fiscal year, it recovered $2.3 billion.

The astronomical cost of these drugs has raised questions among politicians in the United States. Sovaldi is priced at roughly a $1,000 a pill, making the cost of a full course of treatment roughly $84,000.

Competitors are starting to spring up in countries where Gilead does not have patent protection. The cost of a full course of treatment of these drugs is less than the cost of one pill in the United States. Generic manufacturer Incepta launched its version of the drug in Bangladesh and priced it at $900 for a full course of treatment. The price of one pill is 1/100th of the cost of the Gilead drug it copies in the US.

Of course, some doctors have justified the cost by noting that the drugs work and that they prevent other serious and expensive complications in patients. They have a cure rate of 90 percent or higher and fewer harmful side effects are known.

An Annals of Internal Medicine Study analyzed the potential economic benefits of the higher cure rates of these drugs. It concludes that the new drugs would cost an additional $65 billion in the next 5 years with estimated cost offsets of only $16 billion.

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