HHS: Medicare Buys Drugs for Dead People

Published December 3, 2014

A report from the Health and Human Services Office of Inspector General recently found Medicare has reimbursed the cost of drugs for beneficiaries who were already dead, pointing to fraudulent diversion of expensive medicines into the black market.

Explaining the problem succinctly, the Office of Inspector General report stated, “Drugs dispensed after death cannot be used for medically indicated purposes and therefore are not covered by [Medicare] Part D.”

“Pharmacy fraud schemes are always changing and getting new life,” said Mark Merritt, president and CEO of the Pharmaceutical Care Management Association. “That is why payers need the tools to stop it at the drugstore counter.” He called on Congress to pass legislation addressing the issue.

Billing Policy Faulted

According to the October Office of Inspector General (OIG) report, 158 deceased Medicare beneficiaries filled 348 prescriptions for HIV drugs at a cost to Medicare of $292,381. OIG examined only a very small sample of Medicare beneficiaries—those using HIV drugs in 2012—representing only about one-quarter of one percent of all Medicare drugs dispensed. The agency says its findings apply to other classes of drugs and the problem extends far beyond these 348 prescriptions. 

The problem appears to stem from a Medicare regulation allowing pharmacies to bill Medicare for beneficiaries’ drugs up to 32 days after their death. The policy allows institutional pharmacies—such as those serving nursing homes—to bill Medicare less frequently. Many long-term care pharmacies bill Medicare only once a month.

But the OIG data found 85 percent of the pharmacies that billed for drugs dispensed to deceased beneficiaries were actually filled at retail neighborhood pharmacies. Less than 10 percent of claims were from long-term care pharmacies.

OIG concludes the medicines were dispensed to persons using the deceased beneficiaries’ identity, which were then likely resold on the black market due to their high resale value. Another possibility raised is that unscrupulous and possibly fake pharmacies stole Medicare enrollees’ identities and billed Medicare for drugs never dispensed. 

Fraud-Fighting Tools Needed

OIG recommended eliminating or shortening the 32-day window allowing pharmacies to bill for drugs dispensed to beneficiaries after their death, stating this would result in cost savings and reduce inappropriate payments.

In an official response to the OIG report, Medicare Administrator Marilyn Tavenner agreed with the OIG findings.  “After reviewing this report, CMS has had preliminary discussions with the industry to revisit the need for a 32-day window,” Tavenner said.

OIG stated Medicare drug plans need more legal remedies to block fraud. In an August report based on the same analysis, the watchdog agency recommended Medicare grant its private drug plans additional tools to fight fraud and abuse, including the right to restrict enrollees found to be abusing or reselling drugs to a specific provider for those drugs.  

Legislation Introduced

Legislation giving Medicare additional tools to fight prescription drug fraud was introduced in Congress by Rep. Kevin Brady (R-CA) and Rep. Jim McDermott (D-CA) in early December. Brady serves as chairman of the House Ways and Means Health Subcommittee, and McDermott is the ranking member.

The bill, known as the “Protecting the Integrity of Medicare Act of 2014,” would prohibit putting Social Security numbers on Medicare cards, establish an outreach program to Medicare providers educating them on frequent billing errors, encourage seniors to report Medicare fraud, and crack down on improper payments made in connection with incarcerated and deceased patients as well as illegal aliens.

“Medicare fraud is far too prevalent in too many communities across America,” said Brady in a statement when the bill was introduced. “It is stealing precious dollars from our seniors, in schemes large and small.  The Protecting the Integrity of Medicare Act takes Medicare fraud, waste, and abuse head-on.”

The legislation was introduced on December 2, but had not been assigned a bill number at press time.

Devon M. Herrick, PhD ([email protected]) is a health economist and senior fellow at the National Center for Policy Analysis. He is the author of a report on protecting Medicare drug plans against fraud.