Health & Medicine

Fraud concerns grow as spending on handmade ‘compounded’ drugs soars

Government spending has skyrocketed on “compounded” drugs that retail pharmacists custom make, drawing federal investigators’ attention for potential fraud and overbilling.

Spending on these medications in Medicare’s Part D program rose 56 percent last year, with topical creams and gels, among the costliest products, now priced at hundreds or thousands of dollars per tube. And over just four years, the federal workers’ compensation program saw its spending on compounded medications spike from $2.35 million to $214 million.

The increases, along with a sharp jump in the number of patients getting compounded drugs, “may indicate an emerging fraud trend,” said Miriam Anderson, who helped oversee a June report on Medicare spending by the inspector general at the Health and Human Services Department.

Some prescriptions may not have been medically necessary and others not even dispensed, according to the report.

The practice of compounding, which is done by mixing drugs in pharmacies or special compounding centers, is as old as the pharmacy profession itself. The specifically tailored medications are aimed at patients who cannot take commercially prepared treatments. Patients who cannot swallow pills can get liquid formulations, for example, or those allergic to certain dyes can get products made without them.

But use among Medicare beneficiaries and federal employees in workers’ comp insurance plans has recently soared, according to Anderson’s report and a separate Postal Service inspector general’s study released in March. Similar run-ups in use and spending also have been noted by private-sector benefit managers.

In the Part D drug program, the number of beneficiaries getting compounded drugs has grown 281 percent since 2006 to nearly 280,000 in 2015. Spending on such drugs reached $509 million — up 625 percent since 2006, the inspector general’s report noted, although that amount remained a tiny fraction of the Part D’s total drug spending.

Topical creams and gels, which are often used for pain, are among the fastest-growing category of compounded drugs. Part D spending on those rose 3,466 percent over the decade; the average cost per prescription hit $331, up from $40 in 2006.

New rules from the Labor Department went into effect July 1, aimed at slowing spending increases for the federal workers’ comp program. Among other changes, the agency will limit initial prescriptions to 90 days.

While legitimately prescribed compounded drugs “can dramatically improve a patient’s quality of life,” it is important to have “proper controls around billing,” John Voliva, executive vice president of the International Academy of Compounding Pharmacists, said Monday in a statement. The inspector general’s report demonstrated that such controls “are not in place,” he said.

The scrutiny itself has been increasing since a 2012 meningitis outbreak linked to a Massachusetts compounding pharmacy that sold tainted injectable medications. Sixty-four people died.

In the wake of that case, some states tightened their oversight of the industry, particularly of pharmacies making products that must be sterile. Those drugs are not considered approved by the Food and Drug Administration, although the agency does get involved when it is concerned that a site might not be making medications properly or has started to mass-produce treatments rather than preparing them for individual patients.

At times, compounded drugs can be more cost-effective. When Turing Pharmaceuticals last year raised the price of a drug used for patients with compromised immune systems from $13.50 a pill to $750, Express Scripts, one of the nation’s largest pharmacy benefit managers, partnered with a compounding pharmacy to produce its own version for $1 a pill.

Nationally since 2012, pharmacies have been required to report all ingredients they use to make a compounded drug. The idea was to provide insurers with more information about what they were being billed for and ensure there were no hidden elements.

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