Gaps in Oversight of Conflicts of Interest in Medicare Prescription Drug Decisions

Office of Inspector General
Department of Health and Human Services, March 2013


1. To assess sponsors’ Pharmacy and Therapeutics (P&T) committees’ conflict-of interest-definitions.
2. To determine whether sponsors’ P&T committees established objective processes to determine and manage committee members’ conflicts of interest.
3. To determine whether the Centers for Medicare & Medicaid Services (CMS) oversee sponsors’ P&T committee compliance with conflict-of-interest requirements.


Most sponsors’ P&T committees had limited definitions of conflicts of interest, which could prevent them from identifying conflicts
* Half of P&T committees’ definitions did not address conflicts prohibited by Federal regulations
* P&T committees’ definitions did not always address relationships with other entities that could benefit from formulary decisions
* More than two-thirds of P&T committees’ definitions did not address employment

Many sponsors’ P&T committees allowed members to determine and manage their own conflicts of interest
* Nearly two-thirds of P&T committees relied on members to determine whether financial interests constituted conflicts
* More than three-quarters of P&T committees relied on members to recuse themselves from discussions and votes

CMS does not adequately oversee sponsors’ P&T committee compliance with Federal conflict-of-interest requirements
* CMS does not review P&T committee conflict-of-interest information
* Data discrepancies would prevent CMS from identifying with certainty the members of each P&T committee

Conclusion and Recommendations

Our findings reveal that both sponsors and CMS conduct limited oversight of P&T committee conflicts of interest, compromising their ability to ensure that financial interests do not influence formulary decisions. Specifically, we found that without direction and oversight from CMS, many sponsors’ P&T committees have limited oversight of members’ conflicts of interest. Additionally, we found that CMS does not adequately oversee compliance with the Federal requirement that at least one physician and at least one pharmacist on each committee be free of conflict.

To address limitations in how P&T committee members’ conflicts are defined, determined, and managed, we recommend that CMS:

* Define PBMs as Entities That Could Benefit From Formulary Decisions

* Establish Minimum Standards Requiring Sponsors To Ensure That Safeguards Are Established To Prevent Improprieties Related to Employment by the Entity That Maintains the P&T Committee

* Establish Minimum Standards Requiring Sponsors To Ensure That an Objective Process Is Used To Determine Whether Disclosed Financial Interests Are Conflicts

* Establish Minimum Standards Requiring Sponsors To Ensure That an Objective Process Is Used To Manage Recusals Because of Conflicts of Interest

* Oversee Compliance With Federal P&T Committee Conflict-of-Interest Requirements and Guidance

Agency Comments and Office of Inspector General Response

CMS did not concur with our first and second recommendations, concurred with part of our third and fourth recommendations, and concurred with our fifth recommendation.

CMS maintained that it is not necessary to conduct additional P&T committee conflict-of-interest oversight because current formulary reviews and P&T committee audits appropriately protect beneficiaries from any adverse effects of potential conflicts of interest.

If conflicts of interest among P&T committee members are not addressed, beneficiaries may receive inferior therapies when safer or more effective therapies are available, limited Medicare dollars may be wasted to pay for inappropriate treatment, and public confidence in the Federal Government may be undermined. In contrast, CMS asserts that conflicts of interest would not disadvantage beneficiaries or the Federal Government because it believes that formulary decisions influenced by conflicts would result in higher premiums and the plan would be priced out of the marketplace.

When the conservatives enacted the Part D drug program for Medicare, they designed it as a private sector solution, using private insurer sponsors and private pharmacy benefit managers (PBMs), while specifically prohibiting any competing public drug plan.

An important function of these intermediaries is to select the drugs to be covered through their formularies, balancing the adequacy of drug selection with the opportunity for profit not only for the insurer sponsors and the PBMs, but also for the pharmaceutical firms supplying the drugs. This function is carried out by the sponsors’ own Pharmacy and Therapeutic (P&T) committees, and not by the government.

The potential for conflict of interest within these P&T committees is enormous. This is why this report from the Office of the Inspector General (OIG) is so important. The committee members are in a position to advocate for the interests of the insurer sponsors, or the PBMs, or the pharmaceutical firms. Decisions which benefit any or all of these would likely be detrimental to the patients who pay premiums and a portion of the Part D drug costs, and to the taxpayers who help fund the Part D program of Medicare.

But don’t worry. This program was set up to allow the free market to work its magic. Apparently this is not only the agenda of the conservatives who established this program, this laissez-faire approach is also being followed by the current “liberal” administration.

In her letter in response to the OIG report, acting CMS administrator Marilyn Tavenner wrote, “… if a P&T committee were to create a formulary while operating under a potential conflict of interest, because a discriminatory formulary would not be approved, the only potential impact would be that the bid could be more expensive and, therefore, less competitive. Beneficiaries could easily evaluate these higher premiums in the marketplace and choose a more efficient plan to meet their needs. As a result, we could expect that any authentic conflicts of interest, given our level of formulary review, would disadvantage the sponsor and not the beneficiary or Medicare program.” Note that this is the exact opposite of what is stated above.

Have you tried to shop for Part D plans? Though the premium might be the first feature you see, the complexity of the various benefits, and especially the differences in the formularies are very difficult to make sense of. How can you look up medications that may be prescribed for you next year when you don’t even know what those medications are? And are you really going to carry a formulary with you each time you see the doctor?

How nonsensical this dependency on the power of the market is can be understood by comparing the prices we get through the privatized version of the government Medicare Part D program, with the prices we get through the government purchases of drugs for the VA system. The VA pays about 40 percent less for drugs than paid under Medicare Part D (Austin Frakt). It seems that the only magic in the marketplace is the increased revenues that these intermediaries can glom off of us pathetic saps.

With HHS Secretary Kathleen Sebelius pushing private Medicare Advantage plans (yesterday’s message), and soon-to-be-confirmed CMS Administrator Marilyn Tavenner pushing private Medicare Part D drug benefits, we have the private sector pretty well covered. One more step to the defined contribution premium support proposal and the private sector will have it locked up.

Our love of the marketplace brings to mind Puck’s comment to Oberon, “Lord, what fools these mortals be!”