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As federal regulators try to crack down on compounding pharmacies over safety concerns, a new report finds that spending by the Medicare Part D program for these medicines rose more than 600 percent over the past decade. And federal auditors say the trend raises questions about whether the drugs, which are customized for specific patient needs, were medically necessary or dispensed appropriately.

Between 2006 and 2015, Medicare Part D spending for compounded drugs went from $70 million to $508 million, a 625 percent increase, according to the report released Wednesday by the Office of the Inspector General at the US Health & Human Services. By comparison, spending for all prescription drugs covered by the program rose 167 percent during the same period.

Last year, though, spending increased for compounded drugs by 56 percent, to $182 million, which was a much higher rate than in previous years. The OIG also found that the number of beneficiaries who received compounded drugs climbed by 154 percent, which outpaced the 76 percent growth in the number of beneficiaries receiving all drugs covered by the program.


The findings come amid ongoing scrutiny of compounding pharmacies in the wake of a scandal in 2012. In that instance, injectable steroids made at the New England Compounding Center were linked to 64 deaths and more than 750 cases of fungal meningitis around the country. The episode was called the worst public health crisis in the United States in decades and cast a harsh spotlight on compounders and the US Food and Drug Administration.

But the OIG report clearly indicates that safety concerns have not slowed prescribing.


In particular, spending for topical treatments really stood out. Medicare Part D spending for topical drugs rose 3,466 percent since 2006, when these medicines accounted for 9 percent of all spending on compounded drugs. By last year, they were closer to half. Part D spending for compounded topical drugs reached $224.3 million in 2015, or 44 percent of total spending for compounded drugs for the year.

The OIG is not the first to notice this trend, by the way. Two years ago, Express Scripts, which is the nation’s largest pharmacy benefits manager, complained that the number and cost of prescriptions for compounded medicines used for treating scars, wrinkles, and pain had risen dramatically. And so the benefits manager began blocking coverage for hundreds of ointments, creams and powders.

The OIG, meanwhile, declared that the spending pattern is a problem, and pointed to several cases in which physicians received kickbacks for writing prescriptions for compounded drugs. The agency, in fact, noted it is involved in a “growing number” of cases that include civil and criminal actions taken against pharmacies since last July 2015 that represent over $20 million in expected recoveries for wrongdoing.

In one case, a pharmacist who owned a New Jersey pharmacy admitted to arranging for a middleman to pay tens of thousands of dollars in bribes to doctors to write prescriptions. The drugs were billed to Medicare Part D and other public and private insurers. The OIG said he was sentenced to 20 months in prison and ordered to pay more than $3 million in restitution and tax penalties.

“The extremely high rate of growth raises questions as to whether all of the drugs were medically necessary or even dispensed to the beneficiary,” the report concluded. “These concerns are buttressed by a growing number of fraud cases. Together, the spending trends and cases involving compounded drugs signal the need for action.”

The OIG did not specify, however, what action should be taken.

A spokesman for the Center for Medicare and Medicaid Services wrote that the agency “will review the data brief OIG released as it continues to monitor drug spending and trends in Part D. CMS takes seriously its responsibility to ensure that beneficiaries have access to the drugs they need, while being good stewards of taxpayer dollars.

“CMS is actively working to enroll prescribers of Part D drugs into Medicare, subjecting them to screening requirements… Beginning February 2017, CMS will enforce requirements that Part D plans not pay for most filling and paying for prescriptions from unenrolled providers,” he wrote.

Also, CMS uses the Medicare Drug Integrity Contractor, or MEDIC, to identify and investigate potential fraud and abuse, he continued, adding that the agency “provides high risk pharmacy and prescriber assessments to Part D plan sponsors. These reports are generated by a sophisticated analysis that identifies a list of high-risk pharmacies and prescribers.”

Meanwhile, John Voliva, executive vice president at the International Academy of Compounding Pharmacists, later sent us a statement saying the organization “does not condone marketing or billing practices involving fraud, waste or abuse… Clearly, proper controls around the billing of compounded medications are needed to ensure patients can still access these important medications. It is apparent from the OIG report those proper controls are not in place.”

This story was updated a day after initial publication to reflect comments from the Centers for Medicare & Medicaid Services, and the International Academy of Compounding Pharmacists.

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