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Better Understand the Criminal Risk of Using Copay Coupons in Medicare

Health and Human Services officials provide a layman’s view of how anti-kick-back law impacts senior citizens, Medicare and taxpayers

senior couple purchasing drugs at pharmacySept. 24, 2014 – The news yesterday that senior citizens run the risk of criminal prosecution for using copay coupons to purchase brand name prescription drugs in the Medicare Part D drug program is a unique occurrence that caused concern among seniors, who most often are the least likely U.S. citizens to break the law. A better understanding of this situation and the reason for this kick-back law has been provided by the Office of Inspector General of Department of Health and Human Services and its Office of Evaluation and Inspections.

Why we did this study

Pharmaceutical manufacturers offer copayment coupons to reduce or eliminate the cost of patients' out of pocket copayments for specific brand name drugs. The anti kickback statute prohibits the knowing and willful offer or payment of remuneration to a person to induce the purchase of any item or service for which payment may be made by a Federal health care program.

Manufacturers may be liable under the anti kickback statute if they offer coupons to induce the purchase of drugs paid for by Federal health care programs, including Medicare Part D.

The anti kickback statute applies to all Federal health care programs, but this study focused on Part D. The use of coupons by Medicare beneficiaries could impose significant costs on the Part D program because many coupons encourage beneficiaries to choose more expensive brand name drugs over less expensive alternative drugs.

In two surveys by outside groups, approximately 6 percent to 7 percent of seniors surveyed reported using coupons to purchase prescription drugs.


Related Archive Stories

Senior Citizens May Break Federal Law Using Drug Copay Coupons in Medicare

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Sept. 22, 2014

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How we did this study

To identify the safeguards pharmaceutical manufacturers employ to prevent their copayment coupons from being used for drugs paid for by Part D and to identify vulnerabilities in those safeguards, we surveyed 30 manufacturers of the top 100 Part D brand name drugs with coupons and with the highest Medicare expenditures.

We also reviewed selected safeguards offered for a purposive sample of those drugs. In addition, we interviewed staff at various organizations involved in pharmacy claims transactions to understand other vulnerabilities associated with coupon use in Part D.

What we found

Pharmaceutical manufacturers' current safeguards may not prevent all copayment coupons from being used for drugs paid for by Part D. All surveyed manufacturers provide notices directed to beneficiaries and pharmacists that coupons may not be used in Federal health care programs.

Most surveyed manufacturers use pharmacy claims edits to prevent coupons from being processed for drugs covered by Part D. Most of these edits may not prevent all coupons from being processed for Part D covered drugs.

Finally, Part D plans and other entities cannot identify coupons within pharmacy claims.

What we recommend

OIG's concurrent Special Advisory Bulletin affirms that pharmaceutical manufacturers are at risk of sanctions if they fail to take appropriate steps to ensure that their copayment coupons do not induce the purchase of Federal health care programs items or services, including but not limited to, drugs paid for by Medicare Part D.

For this reason, manufacturers may engage industry stakeholders and CMS in an effort to identify a solution to ensure that coupons are not used for drugs paid for by Part D. CMS should cooperate with industry stakeholder efforts to improve the reliability of pharmacy claims edits and make coupons transparent. CMS concurred with our recommendation.

Manufacturer Safeguards May Not Prevent Copayment Coupon Use for Part D Drugs

Two of the government officials involved in the study and follow-up actions by Health and Human Services discuss these actions and provide a better layman’s view of the situation

Laura Kordish: I'm Laura Kordish, Deputy Regional Inspector General in Chicago for the Office of Evaluation and Inspections. I'm speaking with Melissa Baker, a team leader from Chicago. We're talking today about your recently released report about pharmaceutical manufacturers' copayment coupons. First, what are copayment coupons?

Melissa Baker: Drug manufacturers offer copayment, or copay, coupons to reduce the patient's immediate out of pocket cost for brand-name, prescription drugs.

Laura Kordish: Ok, so coupons sound like a good way to save money for seniors who are on a tight budget.

Melissa Baker: They can provide immediate savings. But over the long term these coupons can cost beneficiaries, Medicare, and, ultimately, taxpayers more money.

Laura Kordish: How can coupons cost more money in the long term?

Melissa Baker: Coupons may be offered on brand drugs that have lower-cost generic equivalents. While the coupon lowers the beneficiary's copayment for the brand drug, it does not reduce the higher cost of the drug, which is paid for by the beneficiary's insurance company. Paying for more expensive brand drugs, instead of less expensive alternatives, means that Medicare, and beneficiaries, could end up paying more for prescription drug coverage.

Laura Kordish: Can you explain that a bit more?

Melissa Baker: Sure. Here's an example. Let's say brand drug X costs the beneficiary's Medicare Part D plan $1,000 dollars. The generic alternative costs the Part D plan $100 dollars. When the beneficiary selects brand drug X, instead of the generic, it costs the Part D plan $900 dollars more.

Laura Kordish: So when Medicare beneficiaries buy expensive brand drugs with coupons, instead of less-expensive alternative drugs, it costs the Part D plan more money.

Melissa Baker: Right. Part D plans design copayments to encourage beneficiaries to select less expensive, equally effective drugs, such as generics. When more beneficiaries select the expensive brand drug, it costs more for the Part D plans and, ultimately, the Federal government, and the taxpayer.

Laura Kordish: Is that why you did this evaluation?

Melissa Baker: That's one reason, but we also wanted to know if manufacturers have safeguards in place to prevent coupons from being used for drugs paid for by Medicare Part D.

Laura Kordish: Why would they have safeguards to prevent that?

Melissa Baker: Under the Federal Anti-kickback Statute, it is illegal to knowingly and willfully offer or receive anything of value as a reward for referrals of Federal health care program business.

Laura Kordish: Ok - how does that tie into copay coupons?

Melissa Baker: Manufacturers may be liable under the anti kickback statute if they offer coupons to encourage beneficiaries to buy certain drugs covered by Medicare or other Federal health care programs. For this study, we looked at the safeguards that manufacturers have in place to prevent coupons from being used for Medicare covered drugs.

Laura Kordish: So, what did you find, Melissa?

Melissa Baker: Manufacturers' primary safeguard is notices to beneficiaries. Notices are usually found on coupons or on coupon materials and state that coupons may not be used in Federal health care programs. In addition, most of the manufacturers use prepay edits within the pharmacy computer system that stop a coupon from being processed.

Laura Kordish: And what are prepay edits?

Melissa Baker: In this case, prepay edits are pre-programmed checks in the pharmacy computer system that detect when a coupon should not be used. These manufacturer edits try to determine if the person using the coupon is a Medicare beneficiary. If they're on Medicare, they can't use the coupon.

Laura Kordish: So are manufacturers taking appropriate steps?

Melissa Baker: Well, although manufacturers have some safeguards in place, they may not stop all coupons from being used for drugs covered by Medicare's prescription drug program. Manufacturer notices can't necessarily stop coupons from being processed. And manufacturers that use prepay edits cannot tell for sure if a patient is on Medicare because they can't see the patient's Medicare insurance status.

Laura Kordish: So the safeguards manufacturers currently have in place can't stop all coupons from being used for Medicare covered drugs?

Melissa Baker: Right. The manufacturers that use prepay edits rely on other information, like a patient's age, to conclude that a patient is on Medicare.

Laura Kordish: What else did you find?

Melissa Baker: We also found that Medicare currently cannot identify coupons because pharmacy claims for drugs are typically processed before coupons claims are processed. This means that Medicare does not know if a coupon is about to be used with a Medicare covered drug. So it's almost impossible for Medicare or insurance companies to ensure the proper use of coupons.

Laura Kordish: So, what can be done to solve this problem?

Melissa Baker: We think the manufacturers will need to find a technical solution. OIG is also issuing a Special Advisory Bulletin to manufacturers that offer copay coupons. The bulletin states that manufacturers must take appropriate steps to ensure that patients are NOT using their coupons for drugs paid for by Medicare - or those manufacturers could face sanctions.

Laura Kordish: Is it only up to the manufacturers to solve this problem?

Melissa Baker: In our report, we recommended that the Centers for Medicare and Medicaid Services, or CMS, cooperate with industry efforts to create reliable safeguards.

Laura Kordish: And how did CMS respond to your recommendation?

Melissa Baker: CMS agreed, and said it will work with the industry to improve the reliability of safeguards. CMS specifically agreed to work with the industry to facilitate confirmation of Medicare insurance status and explore how to make coupons identifiable in pharmacy claims.

Laura Kordish: Thank you, Melissa, for sharing this important work

Melissa Baker: Thank you, Laura.

Related Information

Special Advisory Bulletin: Pharmaceutical Manufacturer Copayment Coupons

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