Medicare Drug Program Faces Worsening Spending Outlook as Audit Finds $587.7 Million in Improper Payments

Medicare's prescription drug program is running into two separate problems at once, and both point to the same conclusion: spending is harder to control than the people who designed the program promised.

Congressional Medicare advisers reported last week that more than 1 in 5 Part D enrollees hit the program's $2,000 out-of-pocket cost cap in 2025, according to Axios. Once seniors hit that cap, they pay nothing more for the rest of the year, and the remaining cost shifts to the government, insurers running standalone drug plans, and drug manufacturers. Drug plans have almost no tools left to control spending once a patient blows through the cap and faces zero cost-sharing, Axios reported, citing policy experts.

That cap is a direct product of the Inflation Reduction Act, which capped what seniors pay for outpatient drugs and moved the rest of the bill onto taxpayers, insurers, and manufacturers. The idea was straightforward: protect seniors from bankrupting drug costs. The tradeoff, now showing up in the data, is that Medicare absorbs a bigger share of the bill every year, and predicting how big that share gets has always been difficult given an aging population and shifting demand, according to Axios.

Congress already knows some of the IRA's cost protections are set to expire, which will push costs back onto seniors regardless of what lawmakers do next. Options on the table, per Axios, include charging enrollees copays on certain high-priced drugs after they exceed the cap, or changing how the cap itself is calculated. None of those fixes solve the underlying math problem. Medicare will still need to decide, as a basic policy question, how much it's willing to spend on drugs for seniors.

A separate, unrelated hole in the bucket

While policymakers argue over the IRA's cap, a September 3 audit from the HHS Office of Inspector General found Medicare Part D made $587.7 million in improper payments between 2021 and 2023 for five drugs that had already been approved by the FDA for over-the-counter sale but were still being billed as prescription-only, according to Healthcare Dive and Fierce Healthcare.

The bulk of that money, $562.1 million, went to generic equivalents of Voltaren, a topical arthritis pain drug, which were prescribed 15.8 million times during the audit period, Healthcare Dive reported. The rest covered generics for Pataday and Lastacaft (allergy eye drops), Astepro (a nasal allergy spray), and Sklice (a head-lice treatment).

OIG's finding wasn't that drug companies or pharmacies committed fraud. The audit blames CMS's own recordkeeping: the agency was relying on outdated FDA data to decide which drugs plans could still bill as prescription-only, and it never set a deadline for plans to stop paying claims for drugs that had already switched to OTC status, according to both Healthcare Dive and Fierce Healthcare.

CMS concurred with OIG's recommendation and said it would issue guidance telling Part D sponsors to reject those claims, consistent with an FDA policy issued in December that gives generic manufacturers six months to update labeling after an OTC switch. CMS did not respond to Healthcare Dive's questions about when that guidance will actually be published.

This isn't the first time this exact issue has cost Medicare money. Healthcare Dive noted that generics manufacturer Akorn Operating Company agreed to pay nearly $8 million in 2022 over claims submitted under obsolete prescription-only labeling for drugs that had already gone OTC. That case prompted OIG to launch this broader audit in the first place.

The fair pushback

Defenders of the IRA's $2,000 cap would argue the MedPAC numbers aren't a scandal, they're the program working as designed. A senior who used to face thousands of dollars in exposure for a single specialty drug now pays a capped amount and nothing more. Advocates for the cap can fairly say that shifting the remaining cost onto taxpayers, insurers, and manufacturers was the whole point of the law, not an unintended side effect, and that treating rising government spending as proof of failure ignores what the policy was built to do for patients.

The OIG audit's finding has nothing to do with the IRA's design and everything to do with CMS running its formulary oversight on stale data. Medicare's hospital trust fund is projected to run dry in 2033, a date that moved up after tax provisions in last year's reconciliation law reduced revenue flowing into Medicare, according to Healthcare Dive. A program facing that kind of shortfall has no room to keep paying for drugs seniors could buy off a pharmacy shelf without a prescription.

CMS has not said when it will issue the promised guidance to Part D plans. Until it does, OIG's audit shows no evidence the $184 million to $209 million a year in improper OTC payments has actually stopped.