United States: Drugs Made By Compounders That Operate In Violation Of The Food, Drug, And Cosmetic Act Create Recoupment Risk

Last Updated: February 16 2014
Article by Kimberly J. Kannensohn and Samuel C. Bernstein

The U.S. Department of Health and Human Services Office of Inspector General's (OIG) Work Plan for Fiscal Year 2014 indicates that the OIG will be examining Medicare Administrative Contractor (MAC) policies and procedures for reviewing and processing Medicare Part B claims for compounded drugs in light of the fact that Medicare pays only for compounded drugs that are produced in accordance with the Federal Food, Drug, and Cosmetic Act (FDCA). This initiative suggests that greater scrutiny will be applied to Medicare program payments for compounded drugs. If a compounder is not strictly complying with the FDCA or applicable exemptions thereto, it may find that its drugs are no longer reimbursed by MACs, who pay claims on behalf of the Medicare program. In addition, it is possible that MACs or the Centers for Medicare and Medicaid Services (CMS) may seek recoupment for claims previously paid for drugs compounded in violation of the FDCA.

Recent Changes to FDCA Compliance. The U.S. Food and Drug Administration (FDA) has recently changed how it regulates entities that compound drugs as a result of the Drug Quality and Security Act (DQSA), which was adopted on November 27, 2013, in response to the New England Compounding Center meningitis outbreak in October of 2012. In response to the DQSA, the FDA promulgated guidance that categorizes entities that compound drugs into one of three categories: (i) compounding pharmacies that are licensed under state law and comply with Section 503A of the FDCA; (ii) registered outsourcing facilities under the DQSA (which are permitted to compound sterile drugs without a prescription); and (iii) FDA-registered manufacturers.

Compounding Pharmacies Under Section 503A of the FDCA. Section 503A of the FDCA exempts compounding pharmacies from certain provisions of the FDCA, including good manufacturing practices, labeling with adequate directions for use, and FDA approval prior to marketing. The DQSA revised Section 503A of the FDCA to render it enforceable by removing its unconstitutional restrictions on advertising and promotion. A compounding pharmacy that desires to operate under Section 503A must, among other requirements, generally compound drugs only for an identified individual based on the receipt of a valid prescription from a prescribing practitioner and not compound drug products regularly or in inordinate amounts that are essentially copies of commercially available drug products. Additional information regarding complying with Section 503A is available here.

Outsourcing Facilities Under Section 503B of the FDCA. Under Section 503B of the FDCA, which was adopted as part of the DQSA, outsourcing facilities are eligible for exemption from the FDA's approval requirements and the requirement to label drugs with adequate directions for use. In order to qualify for such exemptions, outsourcing facilities must compound sterile drugs in compliance with good manufacturing practices and, among other requirements, must not engage in wholesaling or compound drugs that are essentially a copy of one or more approved drugs. Additional information regarding registering as an outsourcing facility is available here.

Medicare Reimbursement for Compounded Drugs. CMS' current policy regarding reimbursement for compounded drugs is that it will pay for compounded drugs that are reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member if the drugs are compounded in compliance with the FDCA. See Section 50.4.7, Chapter 15 of the Medicare Benefit Policy Manual. If the FDA has determined that a company is producing compounded drugs in violation of the FDCA (e.g., the company is not complying with either Section 503A or 503B of the FDCA and is not registered as a manufacturer with the FDA), Medicare will not pay for compounded drugs produced by that company and will not pay for any DME or prosthetic device used to administer such drugs. Id. When CMS becomes aware of such a FDA determination, it notifies the MACs to stop payment.

CMS bases this policy on Section 1862(a)(1)(A) of the Social Security Act, which requires items or services to be reasonable and necessary in order to be covered under Medicare Part A or B. CMS interprets this provision of the Social Security Act to require that compounded drugs either be approved for marketing by the FDA or exempt from such requirements under the FDCA in order to be covered under Medicare. Id. Accordingly, if a compounder does not comply with either Section 503A or 503B of the FDCA and is not registered as a manufacturer with the FDA, CMS could take the position that its drugs are not reasonable and necessary for the diagnosis or treatment of illness or injury or to improve the functioning of a malformed body member. In such a case, CMS or a MAC could adopt an aggressive enforcement posture and seek recoupment of payments previously made for such drugs on the basis that they were not covered under Medicare Part A or B because they were not reasonable and necessary. Accordingly, compounders should ensure that they are operating in compliance with the FDCA to ensure the continued reimbursement of their drugs.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.