HHS OIG Report on Medicare COI Finds Potential for Conflict But No Actual Conflict

Federal law and regulations require Medicare Part D Pharmacy and Therapeutics (P&T) committees to make prescription drug coverage decisions based on scientific evidence and standards of practice.  Formulary decisions affect beneficiaries’ access to specific prescription drugs and the cost of drugs to beneficiaries and the Federal Government.   

To comply with the law, sponsors’ P&T committees must prevent conflicts of interest (COI) from influencing members to give preference to certain drugs.  In addition, sponsors’ P&T committees must comply with Federal law and regulations that specifically address conflicts on P&T committees by requiring that at least one physician and at least one pharmacist on each committee be independent and free of conflict relative to the sponsor and pharmaceutical manufacturers.  However, such laws, regulations and guidance from the Centers for Medicare & Medicaid Services (CMS) “provide limited direction on how P&T committees should handle” COIs or how to define what constitutes a conflict with sponsors, Part D plans, and pharmaceutical manufacturers. 

Consequently, a recent report by the Office of the Inspector General (OIG) for the U.S. Department of Health and Human Services (HHS), revealed that of sponsors’ P&T committees, conducted “have limited oversight of committee members’ conflicts of interest, compromising sponsors’ ability to prevent financial interests from influencing coverage decisions.”  OIG found that “the majority of sponsors’ P&T committees have limited definitions of conflicts of interest, which could prevent them from identifying conflicts.”   

According to an article on the report by the New York Times, “A separate study by university researchers found similar problems in many state Medicaid programs.  The study, published in the journal JAMA Internal Medicine, described “inadequate management of conflicts of interest” among the panels that recommend drugs for coverage under Medicaid.” 

Interestingly, OIG acknowledged in a podcast released with the report, that OIG focused on the oversight mechanisms being used to protect Medicare.  OIG did not “attempt to uncover actual conflicts of interest.  In fact, it would be proved difficult to detect actual conflicts without some insider information.”  The podcast also recognized that “Limited oversight does not necessarily indicate that financial interests are influencing coverage decisions. But, it sure does expose the program to that possibility.” 

Given the recent finalization of the Physician Payment Sunshine Act, it is only a matter of time before OIG reveals that the problem with COIs on P&T committees is likely much larger, as institutions are probably unable to accurately keep track of all COIs for P&T members—something the CMS Sunshine Act database is supposed to offer to the public.  In fact, in its comments to the report, “CMS indicated that the Physician Payment Sunshine Act will result in information that may help sponsors determine conflicts of interest.”  However, OIG noted that “reported data will not contain information about pharmaceutical manufacturer payments to pharmacists and, therefore, will not help sponsors meet the requirement that at least one pharmacist on each P&T committee be free of conflict.” 

OIG also found that many sponsors’ P&T committees allow their members to determine and manage their own conflicts.  Additionally, “CMS does not adequately oversee sponsors’ compliance with the requirement that at least two members on each P&T committee be independent and free of conflict relative to the sponsor and pharmaceutical manufacturers,” OIG found.  As a result of these findings, OIG recommended that CMS: 

1. Define pharmacy benefit managers as entities that could benefit from coverage decisions,
2. Direct sponsors to ensure that safeguards are in place to mitigate improprieties related to employment by the entity managing the P&T committee,
3. Direct sponsors to ensure that an objective process is used to determine COIs,
4. Direct sponsors to ensure that an objective process is used to manage COIs, and
5. Oversee sponsors’ compliance with the requirement that at least two committee members be independent and free of conflict.  

CMS did not concur with the first or second recommendations; concurred with part of the third and fourth, and concurred with OIG’s fifth recommendation.   

In sighting their concern for influence or COIs, OIG noted that “research has shown that financial interests between the pharma industry and health professionals are common,” and that “there is evidence of pervasive conflicts of interest among pharmaceutical manufacturers and health care practitioners, researchers, and educators.”   

OIG cited several studies from Eric Cambell to suggest that financial relationships with industry “may improperly influence medical decision making.”  However, as we have previously written, financial COIs or FCOIs for members on FDA’s Advisory Committees had no impact on their voting.  Specifically, an outside contractor for FDA found no statistically significant relationship between conflict rates and voting outcomes (α=0.05) when considering financial ties. 

Background  

Medicare Part D provides optional drug benefits to Medicare beneficiaries.  CMS contracts with private insurance companies, called sponsors, to provide Part D prescription drug coverage to beneficiaries who choose to enroll.  Sponsors offer drug coverage to beneficiaries through Part D prescription drug plans.  As of March 2012, approximately 31 million beneficiaries were enrolled in Part D plans. 

Sponsors can use a variety of methods to control the cost of providing prescription drug coverage through the Part D program.  Sponsors can establish formularies, or lists of covered drugs, to give preference to certain drugs over others that treat the same condition.  Formularies are generally organized into tiers, which have different copayments to drive utilization toward less-expensive drugs.  Drugs in lower tiers are typically the least expensive and have the lowest beneficiary copayment.  Drugs in ascending tiers are more expensive and have increasing beneficiary copayments. 

Sponsors can employ utilization management practices, such as prior authorization, quantity limits, and generic substitution, to restrict the use of certain drugs on their formularies.  For example, sponsors may require a beneficiary to try a less-expensive alternative drug before progressing to a costlier drug.  Sponsors also can negotiate price concessions with pharmaceutical manufacturers to reduce the cost of prescription drugs for sponsors and beneficiaries. 

Sponsors may contract with one or more pharmacy benefit managers (PBM) to help them manage their formularies and other aspects of their prescription drug benefit.  PBMs offer a wide variety of services including managing formularies, processing prescription drug claims, contracting with pharmacies, and negotiating price concessions with pharmaceutical manufacturers for particular drugs.  PBMs can be compensated for these services in a number of ways, one of which is retaining a percentage of price concessions that they negotiate on behalf of sponsors. 

P&T Committees  

Sponsors that use formularies for their Part D plans are required by Federal law to maintain P&T committees.  Sponsors either manage their own formularies and, therefore, maintain the P&T committee; or contract out these functions to a PBM.  Maintaining P&T committees could involve, among other functions, selecting members, appointing an individual to chair the committee, and creating the policies and administrative procedures that govern the committee.  P&T committees vary in size.  In 2010, P&T committees ranged from 3 to 62 members, with an average of 16. 

P&T committees’ role is to make clinical decisions about which drugs are on Part D plan formularies; many of these decisions are binding on the Part D plan. Per Federal regulations, sponsors are required to follow the decisions that P&T committees make regarding which drugs to include on the formulary.  However, sponsors can decide which formulary tier to place these drugs on, based on the recommendation of their P&T committees.  Sponsors also must adhere to the P&T committees’ decisions regarding prescription drug utilization management practices. 

When determining whether to include a drug on a formulary, Federal law requires P&T committees to base clinical decisions on the strength of scientific evidence and standards of practice.  For example, when voting to include a drug, P&T committees must consider whether the addition of that drug has therapeutic advantages in terms of safety and efficacy.  Cost considerations should be secondary to the determination of clinical efficacy and appropriateness of drugs. 

Sponsors and PBMs may compensate their P&T committee members for serving on the committee and for standard expenses incurred while attending committee meetings.  P&T committee members who were not employees of the sponsor or the PBM managing the P&T committee were paid, on average, $2,404 in 2010 for serving on the committee. 

P&T Committee Conflicts of Interest  

Federal law and regulations restrict some P&T committee members from having conflicts of interest with certain entities.  However, they do not explicitly stipulate what constitutes a conflict.  Beyond that, CMS guidance provides some general expectations for the disclosure of conflicts and recusal of P&T committee members with conflicts.  

As the entities that contract with CMS to provide prescription drug coverage to Medicare beneficiaries, sponsors are responsible for ensuring that all Federal laws and regulations pertaining to P&T committee members’ conflicts are followed.  Although sponsors are ultimately responsible, entities that maintain the P&T committees establish the policies and procedures governing the definition, disclosure, determination, and management of P&T committee conflicts.  These policies and procedures are unique to each P&T committee, not to each sponsor. 

While the minimum is two conflict free members of the P&T committee, CMS explained in the preamble to the 2005 Final Rule that this requirement should be viewed “as a floor which we encourage them to exceed.  Regulations expand the law by including pharmaceutical manufacturers as entities from which at least two members must be independent.   

Despite having no clear definition of what constitutes a conflict, in the Medicare Prescription Drug Benefit Manual, CMS states that certain relationships with pharmaceutical manufacturers may still be considered independent and free of conflict.  Specifically, P&T committee members who have nonemployee relationships with pharmaceutical manufacturers that do not constitute “significant sources of income” may still be considered independent.  Such nonemployee relationships with pharmaceutical manufacturers could be advisory or involve consulting or research. 

The law, regulations, and guidance do not address P&T committee members’ financial interests with any other entities involved in implementing the Part D program, such as PBMs.  While CMS suggests in the preamble to the Final Rule that a conflict of interest is “any direct or indirect financial interest in any entity … that would benefit from decisions regarding plan formularies,” the regulations specify only sponsors and pharmaceutical manufacturers; they do not specifically list PBMs. 

Disclosure and Determination: CMS recommends that P&T committee members disclose financial interests by signing and continually updating COI statements to reveal financial or other relationships with entities affected by drug coverage decisions.  CMS explains in the preamble to the Final Rule that it expects P&T committee members to sign COI statements that are consistent with industry standards for conflict-of-interest disclosures.  However, CMS does not specify which industry standards to follow.  CMS also does not provide any guidance on how disclosed financial interests are to be reviewed to determine whether they constitute conflicts of interest. 

Recusal: While at least two members on each P&T committee must be free of conflict with sponsors and pharmaceutical manufacturers, the remaining members can have COI.  In the preamble to the Final Rule, CMS explains that it expects procedures to be established that are consistent with standard industry practice for recusing P&T committee members from discussions or votes if a particular drug presents a conflict of interest.  However, CMS does not specify which industry standards to follow.  CMS does explain that implementing recusal procedures is necessary to ensure that formulary decisions are based on scientific evidence and standards of practice. 

CMS Oversight of P&T Committee Conflicts of Interest  

CMS requires sponsors to attest on their initial Part D applications that the membership of their P&T committees will include at least one practicing physician and at least one practicing pharmacist, both of whom are free of conflict with the sponsor and pharmaceutical manufacturers.  Additionally, sponsors must report membership information for their P&T committees on their initial Part D applications or ensure that their PBM reports this information on their behalf.  This information includes the names of all P&T committee members and the start and end dates of their service on the committee.  It also includes whether each committee member is free of any conflict of interest with the organization or pharmaceutical manufacturer. 

To report conflict-of-interest information to CMS, sponsors or their contracted PBMs obtain information about P&T committee members’ financial interests using conflict-of-interest statements. These statements are not required to be submitted to CMS.  CMS also requires sponsors to report whether they maintain the P&T committee or contract with a PBM to do so. If sponsors contract with a PBM, they also must report the name of the contracted PBM and whether the P&T committee operates under a confidentiality agreement. 

When sponsors and PBMs enter into confidentiality agreements, PBMs report their P&T committee members’ names, service dates, and conflict-of-interest information directly to CMS.  They do not disclose this information to the sponsors.  CMS requires sponsors or their contracted PBMs to report updates relating to their P&T committees at least annually.  Updates can include changes to P&T committee membership, confidentiality agreement status, or the entity that maintains the P&T committee. If a new P&T committee member is added, all of the member’s information that would have been initially reported is included in this update. 

CMS Oversight of Formularies  

CMS reviews and approves the formularies designed by P&T committees.  CMS’s review focuses on ensuring that formularies provide access to a range of Part D drug choices.  CMS checks the formularies to make sure they meet accepted pharmaceutical standards and include drugs from different therapeutic categories.  CMS generally does not review formularies for individual drugs. However, it does review individual drugs identified to treat some specific diseases and drugs in classes of clinical concern (immunosuppressant for transplant rejection; antidepressants; antipsychotic; anticonvulsant; antiretroviral, and antineoplastic). 

CMS’s formulary review also is designed to ensure that it does not substantially discourage any group of beneficiaries from enrolling in the Part D plan.  For example, if formularies place certain types of drugs only on tiers that require expensive beneficiary copayments, some beneficiaries might be discouraged from enrolling in the Part D plan.  CMS generally reviews the formulary to make sure that low-cost drugs are available on low formulary tiers, which typically have the lowest copayments. CMS also checks that only high-cost drugs (over $600) are placed on the specialty tier, which typically has the highest copayments.  

CMS also conducts targeted audits of sponsors to verify that approved formularies are being administered appropriately and that drug coverage decisions are based on scientific evidence.48 During targeted audits, CMS reviews the development of a Part D plan’s formulary by reviewing documents that would show the P&T committee’s decisions regarding which drugs to cover and the scientific evidence used to support those decisions.  CMS also may conduct an interview with the sponsor, asking questions related to whether the P&T committee appropriately developed the formulary.  

CMS also may review P&T committee meeting minutes to determine whether the P&T committe reviewed utilization management practices for clinical appropriateness.  In 2010, CMS did not review P&T committee conflicts of interest as part of its targeted audits.  However, for 2012, CMS added an optional conflict-of-interest review to its audit protocols.  If CMS’s targeted audit findings relate to the role of the P&T committee, then CMS reviews a list of P&T committee members to determine whether at least one practicing physician and at least one practicing pharmacist are independent and free of conflict with the sponsor and pharmaceutical manufacturers. 

Findings 

Most sponsors’ P&T committees had limited definitions of conflicts of interest, which could prevent them from identifying conflicts:  Without an understanding of what constitutes a COI, committees may not be able to identify potential conflicts that could compromise the independence of a P&T committee’s formulary decisions. 

Half of P&T committees’ definitions did not address conflicts prohibited by Federal regulations: 

• 53% of P&T committees reported their definitions did not include any financial interests with either sponsors or pharmaceutical manufacturers as COI. These committees’ COI definitions failed to include at least one of the entities specified by Federal regulation.
• 6% reported their definitions did not include any financial interests with both sponsors and pharma as conflicts, as specified by Federal regulations
• 52% reported that their definitions did not consider any members’ financial interests in sponsors to be conflicts of interest.  Sponsors are defined in both Federal law and regulations as potential sources of conflict.
• 7% of P&T committees’ definitions failed to consider any financial interests in pharmaceutical manufacturers to be conflicts of interest. 

P&T committees’ definitions did not always address relationships with other entities that could benefit from formulary decisions: P&T committees did not always include relationships with PBMs—which could benefit from formulary decisions—in their definitions of conflicts of interest. 

• 33% of P&T committees reported that they did not define any financial interests in PBMs as conflicts
• Of the 22 P&T committees maintained by PBMs, more than two-thirds reported that they did not define any financial interests in PBMs as conflicts. 

More than two-thirds of P&T committees’ definitions did not address employment 

• 68% of P&T committees did not view employment by the entity that maintains the committee as a potential source of conflict or bias.
• 88% of P&T committees had such employees serving as members.
• Percentage of employees serving on P&T committees ranged from 4 to 97%, with a median of 38%. 

Many sponsors’ P&T committees allowed members to determine and manage their own conflicts of interest 

• 59% of sponsors’ P&T committees allowed committee members to determine their own conflicts and manage them through recusal. 

Nearly two-thirds of P&T committees relied on members to determine whether financial interests constituted conflicts 

• 65% of P&T committees relied on committee members to determine whether their financial interests constituted conflicts of interest.
• 8% of P&T committees had a conflict determination process that designated members as the parties responsible for determining whether their own financial interests should be considered conflicts.
• 57%, or 63 committees, did not have a process for reviewing financial interests disclosed on COI statements and determining whether they constitute COI
• 24% of the 63 P&T committees that did not have a process for determining conflicts did not collect any financial interest information from members.  These P&T committees’ disclosure forms did not require members to disclose any financial interest information.  The members were required only to sign a form stating whether they had financial interests or conflicts of interest.  Members on these P&T committees were not asked to describe the nature or value of their financial interests or to submit any supporting information. 

More than three-quarters of P&T committees relied on members to recuse themselves from discussions and votes 

• 79% of P&T committees relied on members to recuse themselves from discussions or votes when they had a COI related to a particular drug.  CMS advises recusal from discussions and votes if P&T members have a COI.
• 56% of P&T committees had recusal policies that designated members as responsible for recusing themselves from discussions or votes.
• 23% of P&T committees did not have recusal policies.  These P&T committees did not have a process to ensure that members with conflicts did not discuss or vote on a particular drug that presented a conflict. 

CMS does not review P&T committee conflict-of-interest information: During 2010, CMS did not have audit protocols to specifically audit P&T committee member conflicts of interest.  Similarly, CMS did not have audit protocols to assess compliance with P&T committee conflict-of-interest requirements as part of its sponsor audits.  In 2012, CMS added an optional review of P&T committee documentation to determine compliance with Federal conflict-of-interest requirements.  As of August 2012, CMS reported that less than 10 percent of its audits included these elements. 

Data discrepancies would prevent CMS from identifying with certainty the members of each P&T committee: OIG’s review of data showed that CMS could not have identified members of P&T committees.  Without identifying the members on each P&T committee, CMS cannot tell whether a minimum of two members are free of conflict.  OIG found discrepancies such as duplicate names, similar names, different suffixes or prefixes, and names listed in different order (e.g., first name/last name and last name/first name).  OIG also found multiple data submissions for the same P&T committee.  In fact, 58 percent of P&T committees with multiple submissions had discrepancies that would make it difficult to ascertain committee membership.