The Blessing and the Curses of Compounded Drugs: Insurer Pulls Coverage Following Meningitis Outbreak

By John Stahl, Esq.

The FDA website defines “pharmacy compounding” as “a practice in which a licensed pharmacist combines, mixes, or alters ingredients in response to a prescription to create a medication tailored to the medical needs of an individual patient.” A simpler way of understanding this procedure is that a medical care provider determines that someone would benefit more from a customized medication than an “off-the-rack” drug, and the compounding pharmacy fills the prescription for that “made-to-fit” product.

The portion of the FDA’s description that states that “pharmacy compounding, if done properly, can serve an important public health need if a patient cannot be treated with an FDA-approved medication” illustrates the blessing and the curses regarding these hybrid medications.

The blessing is that a compounded drug is “tailored to the medical needs of an individual patient.” This has particular importance to workers’ compensation because the myriad of factors, such as long-term exposure to toxic substances and a simultaneous combination of physical injuries, often hinders determining the optimal “drug cocktail” for a claimant.

The curses include that compounded drugs have not undergone the FDA approval process and that they are not always “done properly.” Additionally, the pharmacies where the compounding occurs overall are subject to less stringent regulation than the manufacturing of the individual compounded drugs, which require the aforementioned FDA approval, that pharmacists combine to make the custom concoctions.

Another portion of the FDA website concisely summarizes more general concerns regarding compounded drugs. Serious risks associated with that practice include:

• · Improperly compounded drugs lacking appropriate potency;
  · Patients using a properly prepared but ineffective compounded drug rather than an effective FDA-approved medication;
  · Pharmacists who are not properly trained to compound drugs combining drugs that should not be compounded; and
  · Compound pharmacies that lack appropriate levels of quality control.

This “compounded” curse received national attention in September 2012 when the subsequently shut-down New England Compounding Center (NECC) distributed a tainted batch of the compounded steroid known as methylprednisolone that caused a fatal fungal meningitis outbreak, which was reported to have caused 58 deaths and more than 700 illnesses.

Governmental Responses

Regulatory responses to the NECC incident have included several state legislatures acting to increase the regulation of compounding pharmacies and other groups pressuring the FDA to step-up its oversight of those facilities.

A recent article on the legal news website Law360.com (subscription required) indicated that the FDA has heeded the call for more federal scrutiny of compounding pharmacies. That post reported that that agency has filed a federal lawsuit against New Jersey compounding pharmacy Med Prep Consulting, Inc. The article stated that the FDA asserted in the lawsuit that Med Prep had distributed recalled mold-infected intravenous medications and that it did not obtain required approval for every medication that it sold. The requested relief included shutting down Med Prep until that company instituted the requested reforms.

Law360.com stated as well that the FDA has issued more than 40 reports of potential safety violations at compounding pharmacies in the first six months of 2013, compared to issuing a total of 24 such reports between 2008 and 2012.

Additional Outbreak Fallout

The consequences of the outbreak from the tainted steroid that NECC produced included Harvard Pilgrim Healthcare (HPH) (one of the “big three” healthcare insurance companies in the Boston area) recently announcing that it was going to stop covering claims for compounded drugs as of August 7, 2013, for reasons that included safety concerns related to the September 2012 incident.

A June 13, 2013 article in The Boston Globe reported that HPH’s new policy included a provision for a physician to request an exception to that restriction on a patient’s behalf.  The article added that that appeal must include:

• · An ingredients list and other information regarding the compounded drug for which the physician was seeking the exception; and
  · Information regarding other medications that were used to treat the symptoms for which the compounded drug was requested.

HPH cited the high cost of compounded drugs as a secondary reason for its decision. The Boston Globe article reported specifically that HPH’s chief medical officer determined that the number of claims for compounded drugs that the company received increased 171 percent from 2011 to 2012 and that the cost of those drugs tripled in that period.

Research for this current article on insurers not covering compound drugs did not reveal any other insurers who were following HPH’s lead in denying that coverage based on safety concerns. That homework did reveal that many insurers were denying coverage based on compound drugs lacking an FDA-assigned National Drug Code (NDC) number.

Overview of Insurance Issues Related to Compounding Pharmacies

The website of Apothecary Options, which is a compounding pharmacy, provides an easily understood overview of how the compounding process relates to challenges regarding insurance coverage for those prescriptions. This portion of the website stresses that the active ingredients that Apothecary Options compounds to create its custom products are all FDA-approved and are directly bought from FDA-licensed companies.

Apothecary Options then explains that the electronic insurance forms that are submitted for traditional prescriptions only provide for listing one NDC number for each claim. The company states that this limitation precludes submitting an electronic claim that accurately reflects the ingredients, and the associated costs, of a compounded prescription. The suggested solution is that the patient submits a paper claim form that lists the NDC numbers for all the active ingredients in a compounded drug.

This information regarding paper claim forms acknowledges that that method requires having a real-live person review the claim but does not address the required additional burden and associated delay regarding that alternative. That inconvenience alone provides insurance companies motive to adopt a policy against covering compounded drugs.

Apothecary Options further acknowledges that the participation agreement that pharmacies that do not sell compounded drugs enter with insurers provides for the pharmacy accepting the reimbursement that the insurer will pay for the customary services that the pharmacy provides patients. The asserted caveat to this statement is that most participation agreements that an insurer enters with a pharmacy that provides compounding services does not allow the insurer to cover traditional prescriptions and require that the patient pay the out-of-pocket price for compounded drugs.

Wrap Up

The discovered inappropriate practices regarding the Massachusetts and New Jersey compounding pharmacies and the possibility that those incidents may be the tip of the iceberg, as well as the administrative burdens and delays associated with insurance claims for compounded drugs, indicate that instituting meaningful reform is in the best interest of the compounding drug industry. These “curses” are only going to increase federal and state scrutiny of that industry and motivate other insurers to follow HPH’s lead in not covering compounded drugs.

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