FDA Plan to Combat Fraud by Compounders Would Boost Patient Safety

The Food and Drug Administration this summer announced steps the agency will take to curb fraud and other abuses by drug compounders, makers of specialized medicines that have not been approved by FDA. For example, the agency will now look for evidence of inappropriate practices when inspecting facilities and provide information on drugs that are part of some fraud schemes. Progress in these efforts would not only rein in costs but also boost patient safety.

Compounded drugs can be lifesavers for patients whose clinical needs cannot be met by commercially available drugs because, for example, they are allergic to inactive ingredients like dyes or flavorings. But a spate of recent legal actions demonstrates that the industry can also attract unethical practitioners who defraud insurers and other payers and put patients at risk.

FDA Commissioner Scott Gottlieb, in announcing the agency’s plan June 28, highlighted a U.S. Department of Justice announcement the same day of enforcement actions targeting multiple health care fraud schemes. Defendants allegedly billed Medicare, Medicaid, Tricare (the health care program for members of the military and their families) and private insurance companies for treatments that were medically unnecessary—and sometimes not even provided. The charging documents allege that compounding pharmacies combined certain ingredients to increase the amount they could charge for drugs that were not needed, including compounded pain and scar creams.

How compounded drugs are used in fraud schemes

Recent years have brought numerous instances of fraud involving compounded drugs. In 2014 and 2015, the U.S. Postal Service incurred $81.8 million in “excessive” workers’ compensation costs for compounded drugs, attributed in part to fraud. In 2015, the Department of Defense had to ask Congress for permission to shift money within its budget to cover a projected $2 billion shortfall in Tricare’s budget, largely due to sky-high spending on compounded drugs.

A recent case illustrates how these fraud schemes can work. Two Tennessee physicians pleaded guilty for their involvement in a scheme that defrauded Tricare out of more than $65 million. The pair wrote more than 4,000 prescriptions over six months for a group of Marines and their dependents, according to court documents. The prescriptions were sent to compounding pharmacies, which billed Tricare at what the Justice Department called “exorbitant” prices averaging over $14,500 per month per medication, and then gave kickbacks totaling $45.7 million to the prescribing physicians. Owners of pharmacies involved also have been indicted on federal charges, including conspiracy to commit health care fraud. That case is pending.

Unacceptable safety risks

All drugs carry risks, and when patients take drugs they don’t need, those risks are unwarranted and unacceptable. Compounded medications pose a higher risk than FDA-approved drugs because they have not been tested for safety and efficacy, have not gone through an approval process, and are typically not made under the same quality standards.

Research by The Pew Charitable Trusts has identified more than 70 reported compounding errors or potential errors from 2001 to 2017 linked to 1,416 adverse events—including 115 deaths. One victim was a 22-year-old Texas woman who died after using a compounded pain cream that was prescribed as part of a scheme to defraud health insurance companies, according to court papers. A medical examiner and physician expert concluded that she was killed by the toxic effects of two drugs—the anesthetic ketamine and the muscle relaxant cyclobenzaprine—in the cream. The leader of this fraud scheme was convicted.

In 2012, a California baby died after coming into contact with his mother’s compounded pain cream that contained ingredients dangerous to babies. According to a lawsuit, the cream was not properly labeled. Separately, the prescribing doctor and the owner of the pharmacy that dispensed the cream are being prosecuted for their alleged role in a $100 million workers’ compensation fraud scheme. The physician’s medical license has been suspended pending the outcome of criminal proceedings. The doctor and the pharmacy owner deny any wrongdoing. The cases are pending.

Additional illnesses and deaths linked to compounded drugs—including those that have been fraudulently prescribed—likely go unreported. A 2015 survey by Pew found that only 30 percent of states (13 of 43 that responded) require sterile compounding pharmacies to report serious adverse events to state authorities, FDA, or both.

Compounders who break the law are not representative of their industry, and fraud occurs in many fields. But these cases show that the consequences of improper prescribing of compounded medicines can be more grave than insurer losses.

The FDA plan

The agency says it will take a multipronged approach to combating drug compounding fraud. The steps include:

• Improving information available about compounded topical pain creams because “clinicians and patients may not be aware of potential safety risks, or the potential lack of effectiveness, associated with certain ingredients and combinations of ingredients” in these products.
• Seeking input from medical professionals about which ingredients should be eligible for use by facilities making stock supplies of compounded drugs.
• Inspecting compounding facilities to assess whether drugs that are essentially copies of FDA-approved medications are being compounded for patients who could instead use safer FDA-approved versions.
• Inspecting operations not registered as outsourcing facilities to confirm that they are following valid patient-specific prescriptions when distributing compounded drugs, as required by law.

Following through on these commitments would help protect patients from the harm that can be inflicted by unscrupulous compounders and health care providers who put profit ahead of patient safety.

Elizabeth Jungman directs The Pew Charitable Trusts’ work on public health.