Posted and filed under OIG Files.

In 2012, the National Council on Prescription Drug Programs (NCPDP) made a change to the manner in which a compounded medication should be submitted to a Pharmacy Benefit Manager (PBM) for reimbursement.  Previously, the requirement was to only list the most expensive ingredient, with reimbursement being made based on that line item.  With the change, compounded medications were to be listed with all of the ingredients, and payment would be based on each individual ingredient.  Without engaging in a deep discussion on compounding, Food and Drug Administration (FDA) approvals, etc., it is worth discussing the fact that the explosion of compounded medications, and the extensive fraud associated with them, in our estimation, is correlated to this change.

In schemes involving compound fraud, it is in the interest of the unscrupulous provider, and all those associated with the fraud scheme, to ensure that the drug formulations are for the highest reimbursable ingredients.  In cases that our agents have worked, they described the scheme as follows: 

The telemarketing sales representatives drive the prescription.  These individuals receive the “lion’s share” of the reimbursement, through extremely high commissions.  The formulations for the compounds are provided to the co-conspirator pharmacy, who adjudicates a “test claim,” which provides an indication as to what will and will not be paid by the PBM.  Based upon that information, the formulation remains, or can be adjusted to only include those ingredients that are paid for by the PBM.  As such, it is the sales and marketing company that drives the ingredients, and not the prescribing provider. 

The prescribing provider is paid, on a per prescription basis for their signature; selling their soul for $20-$30 in some cases, and clicking for their signature until they have carpel tunnel from all the mouse clicks.  The prescriptions are diverted to pharmacies that pay the highest commissions (a pharmacy one of our resources investigated paid as much as %70 in commissions for each prescription).  The compounds are dispensed from buckets of the medication that are made in bulk (typically using a kitchen mixer, spoons and bulk powders of the ingredients).  The sales and marketing company has direct access to the pharmacy database, accessing HIPAA protected information, so as to track the progress of a prescription and await the large commissions that are paid. 

Many PBMs have taken affirmative steps to curb these exorbitant spends, by offering a variety of services to plan sponsors, many of which can see large reductions in that spend.  As with most fraud schemes, this roadmap has transgressed to genetic testing, durable medical equipment, and even COVID-19, with the promise of a vaccine that did not exist.  It is interesting to see how a single change in the manner in which an item, service or procedure is billed can have a tectonic shift for an entire industry.