DEPARTMENTAL GRANT APPEALS BOARD
Department of Health and Human Services
SUBJECT: Pennsylvania Department of Public Welfare
Docket No. 86-90
Audit Control No. 03-60217
Decision No. 836
DATE: February 17, 1987
DECISION
The Pennsylvania Department of Public Welfare (State) appealed
the
disallowance by the Health Care Financing Administration (HCFA)
of
$448,943 in federal financial participation (FFP) claimed under
Title
XIX (Medicaid) of the Social Security Act (Act) for costs of
certain
drugs. The disallowance was based on an audit report which
determined
that the drugs were ineligible for federal Medicaid funding
because the
drugs were either identified as ineffective drugs or were
"identical,
related, or similar" to ineffective drugs. In the course of
proceedings
before the Board, HCFA reduced the amount of the disallowance
to
$330,568.
One of the two issues in this case was whether HCFA's notification
process
had given the State fair notice and sufficient time to stop
reimbursement for
the use of drugs determined to be ineffective by the
Food and Drug
Administration. Without conceding the issue, but without
further
argument, the State essentially acknowledged that this question
had been
resolved in HCFA's favor by the Board in Illinois Department of
Public Aid,
Decision No. 667, July 2, 1985 (the reasoning of which we
incorporate
here). The further issue, present here but not in Decision
No. 667, was
whether our reasoning there should also extend to drugs
which, while not
identified as ineffective per se, were "identical,
related, or similar" to
ineffective drugs. As explained below, we find
that in the facts of
this case, the State clearly had the information
and ability to promptly
determine that the drugs in question were
"identical, related, or similar" to
ineffective drugs and therefore that
HCFA correctly denied reimbursement for
their continued use.
Accordingly, we sustain the disallowance.
Statutory and Regulatory Background
Section 1903(i)(5) of the Act prohibits FFP under Medicaid for drugs
which
are not eligible for Medicare payments under section 1862(c) of
the
Act. Section 1862(c) prohibits payment for any expenses incurred
for
--
(1) a drug product --
(A) which is described
in section 107(c)(3) of the
Drug
Amendments of 1962,
(B) which may be dispensed only upon prescription,
(C) for which the
Secretary [of DHHS] has issued a notice
of
an opportunity for a hearing . . . on a proposed order
of
the Secretary to withdraw approval of an application
for
such drug product . . . because the Secretary
has
determined that the drug is less than effective for
all
conditions of use prescribed, recommended, or suggested
in
its labeling, and
(D) for which the
Secretary has not determined there is
a
compelling justification for its medical need; and
(2) any other drug product --
(A) which is
identical, related, or similar . . . to a
drug
product described in paragraph (1), and
(B) for which the
Secretary has not determined there
is
compelling justification for its medical need . . .
Of the four characteristics of an ineligible drug under section
1862(c)(1)
of the Act, the one most important here is subsection (1)(C),
which describes
a process in which the Secretary issues a notice of an
opportunity for a
hearing on a proposed order to disapprove a drug
because the drug was
determined to be less than effective. This
notice--generally referred
to as an "NOOH"--is provided through
publication in the Federal Register by
the Food and Drug Administration
(FDA) under delegation from the
Secretary. 46 Fed. Reg. 48551 (October
1, 1981). Although FDA's NOOH is
a proposed action, under the Social
Security Act it is specifically
determinative of a drug's Medicaid and
Medicare eligibility, apparently
because the NOOH reflects an FDA
finding of ineffectiveness.
The preamble to 42 CFR 441.25, the implementing regulation for
sections
1862(c) and 1903(i)(5), focused on the states' need for time to
phase in
a determination that a drug in use was ineffective. The
preamble said
that HCFA, "in the exercise of [its] enforcement discretion,"
would
allow a one-time 90-day grace period for initial implementation of
the
regulation [implementation of the regulation was delayed until
October
1, 1982], followed by an on-going 30-day grace period
following
publication of each NOOH. 46 Fed. Reg. 48551-2 (October 1,
1981). The
preamble also said that HCFA would "notify Medicare
contractors and
Medicaid state agencies" when an NOOH was published in the
Federal
Register. Id.
Board Decision No. 667
In Illinois Department of Public Aid, Decision No. 667, July 2,
1985,
Illinois' claims for FFP for three drugs were rejected by
HCFA.
Illinois did not dispute FDA's finding that the drugs were
ineffective;
rather, Illinois argued that HCFA's notification process did not
give
states fair notice and enough time to stop use of the drugs.
Illinois
contended that HCFA was required to publish its own rule that it
was
terminating payment for a drug rather than relying on FDA's NOOH.
HCFA
responded that under the regulations FFP had to be terminated as of
the
date of the NOOH plus the applicable grace period.
Based on examination of sections 1862(c) and 1903(i)(5) of the Act and
the
implementing regulations, the Board held that it was clear that
publication
of the NOOH by itself triggered a drug's ineligibility for
reimbursement
under the Medicaid program. As for the period of time a
state had to
stop reimbursement for costs associated with drugs listed
in the NOOH, the
Board found that under HCFA's own regulatory scheme,
there was an initial,
one-time 90-day grace period following the
effective date of the first NOOH,
and that drugs appearing in subsequent
NOOHs would have a grace period of 30
days.
The issue not covered in Decision No. 667 concerned drugs which
are
"identical, related, or similar" (IRS) to drugs specified in a
NOOH.
Under section 1862(c)(2) of the Act, these IRS drugs are subject to
the
same policy as drugs specified in the NOOH. Obviously, there might
be
an issue concerning how apparent the relatedness is, and how it
is
determined.
Factual Background
The DHHS Office of the Inspector General audited the State's
Drug
Reference File for the period October 1, 1982 through May 26, 1984
to
determine if the State identified and ceased Medicaid payments in
a
timely manner for drugs determined by FDA to be ineffective.
The
auditors determined that the State had improperly claimed FFP
of
$464,144 in the following categories:
-- $280,645 for payments for ineffective drugs
specified in a NOOH
in the
Federal Register. The audit found that the
State's
procedures were not
geared toward acting upon
notifications
included in
the Federal Register. Rather, the State used
as
its sources for updating
its list of ineffective
drugs
transmittals issued by
HCFA revising the list in the
State
Medicaid Manual. The
audit found that these procedures
resulted
in time lags of up
to nine months, from initial publication
of
the NOOH, before the
State terminated Medicaid payments
for
these ineffective
drugs.
-- $183,499 for payments for IRS drugs.
The audit compared the
State's identification of IRS drugs with those identified
by
the states of Maryland
and Virginia. The audit found 207
drug
codes that had not been
identified by the State. The
audit
found improper
payments were made for 59,410 drug
claims
involving 160 of
these less- than-effective drug codes.
HCFA adopted the audit's findings and, after reviewing the State's
claim
that a number of drugs had been incorrectly identified as
ineffective
drugs in the audit, issued a disallowance in the reduced amount
of
$448,943.
In the course of the appeal before the Board, HCFA recalculated the
amount
of the disallowance to reflect the grace period discussed in
Board Decision
No. 667. HCFA further reduced the amount of the
disallowance to
$330,568.
Discussion
As stated, this appeal widens the scope of the Board's
previous
examination of HCFA's notification process of ineffective drugs
and
Medicaid reimbursement. Decision No. 667 dealt solely
with
less-than-effective drugs named in a NOOH under section 1862(c)(1)
of
the Act. This appeal, while involving NOOH drugs, also concerns the
new
question of notice requirements for the IRS drugs under
section
1862(c)(2). The primary focus of this appeal has been on the
IRS drugs.
1/
The State requested a hearing before the Board to examine the
specific
issue of the cut-off date for reimbursement of IRS drugs. In
its brief
the State argued that, while the cut-off date for reimbursement
for
ineffective drugs might be the date of the NOOH, the cut-off date
for
IRS drugs should be the applicable grace period after the date that
the
State identifies what drugs are, in fact, IRS drugs. The
State
initially maintained that the process for identifying IRS drugs
is
considerably more complicated than merely looking at an NOOH in
the
Federal Register. The State declared that the FDA does not list
anywhere
what drugs are considered IRS drugs. Rather, according to the
State,
its pharmacists must determine the FDA's basis for determining a drug
to
be ineffective and then must examine the hundreds of thousands of
drugs
on the market to determine what drugs are identical, related or
similar
to the ineffective drug in the NOOH. The State stressed the
difficulty
involved in the process of determining an IRS drug and
HCFA's
unreasonableness in using the same cut-off date for IRS drugs as for
the
underlying drug reported in the NOOH.
The Board held a hearing to explore this subject. The sole person
to
testify at the hearing for the State was a pharmacist responsible
for
the maintenance of the State's Reference Drug File. In testifying
as to
the process by which IRS drugs are identified, the State
pharmacist
explained that after receiving a NOOH he would consult such
publications
as the National Drug Code Directory and "Facts and
Comparisons,"
published by J. P. Lipincott, to determine IRS drugs.
Upon questioning
from the Board, however, the pharmacist admitted that he had
been using
the process stated above only since the DHHS audit was
issued. Prior to
that time, the pharmacist stated that his office did
not monitor the
Federal Register for NOOHs, but rather waited for
notifications from
HCFA in the State Medicaid Manual. The pharmacist
then further admitted
that, upon receiving a NOOH, it takes only a relatively
short time, at
most a matter of days, after consulting the publications
above, to
determine what is an IRS drug.
Based upon this testimony, we conclude that, at least in the
particular
circumstances of this case, there would have been no
meaningful
difficulty in determining an IRS drug in a short period of time,
if the
identification process had begun with the appearance of the NOOH in
the
Federal Register. If the State had observed the NOOH promptly it
could
have readily identified the IRS drugs and notified the
Medicaid
providers within the grace period. Since we held in Decision
No. 667
that states are bound by the NOOH publication dates, we have no
basis
for concluding here that HCFA was unreasonable in also holding the
State
to the NOOH dates for IRS drugs.
Conclusion
For the reasons stated above, we sustain the disallowance in the
reduced
amount of $330,568.
__________________________________ Judith
A.
Ballard
__________________________________ Donald
F.
Garrett
___________________________________ Norval
D.
(John) Settle Presiding Board Member
1. The State argued that the cut-off date for payment
of
less-than-effective drugs specified in a NOOH should be the date
the
drugs are identified in the State Medicaid Manual, plus the
applicable
grace period, rather than the date of the NOOH. This
argument had been
made, as the State acknowledged, by Illinois in Decision
No. 667, and
was rejected by the Board. Therefore, as for the drugs in
this case
specified in a NOOH, we uphold the disallowance on the basis of
our
reasoning in Decision No. 667, which we incorporate
here.