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Audit of Medicare Part D Over-The-Counter Drugs

Announced on  | Last Modified on  | Project Number: OAS-24-02-004
Status
Completed
Agency
Centers for Medicare and Medicaid Services

OBJECTIVE

Over-the-counter (OTC) drugs may be purchased without a prescription. Medicare Part D does not cover OTC drugs under their basic prescription drug benefit or as a supplemental benefit under enhanced alternative coverage. Subject to approval by the Food and Drug Administration (FDA), companies may convert a brand-name prescription-only (Rx-only) drug to an OTC drug. After FDA approves a brand-name drug’s conversion to OTC status, which includes requiring changes to its labeling, the drug is no longer considered an Rx-only drug. Because the labeling of brand-name drugs and generic equivalents must be identical, makers of the generic equivalents must make corresponding revisions to their labeling or cease marketing their generic equivalents. We will conduct a nationwide audit of Medicare Part D prescription drug event data to identify payments for OTC drugs sold under obsolete Rx-only labeling. We will determine whether CMS oversight of Medicare Part D sponsors ensured compliance with Federal requirements for preventing payments for OTC drugs.

TIMELINE

REPORT PUBLISHED

CMS Oversight Did Not Prevent Medicare Part D Sponsors From Making $587.7 Million in Ineligible Payments to Pharmacies for Drugs Available Over the Counter but Labeled as Prescription-Only (OAS-24-02-004)

CMS oversight of Medicare Part D sponsors did not prevent payments to pharmacies for some OTC drugs sold under obsolete Rx-only labeling.

  • Part D sponsors made payments for five drugs associated with obsolete Rx-only labeling more than 1 year after the brand-name drugs were switched to OTC use. For calendar years (CYs) 2021 through 2023, Part D sponsors made $587.7 million in ineligible payments associated with the five drugs.
  • The ineligible payments occurred because CMS: (1) updated its Part D Formulary Reference File using obsolete FDA data on Rx-only drugs and (2) did not set a timeframe for Part D sponsors to reject payments for OTC drugs sold under obsolete Rx-only labeling.
  • Before we issued our draft report, FDA issued a policy in December 2025 requiring generic drug manufacturers to update their labeling “at the earliest time possible and within 6 months” after FDA approves an associated brand-name drug’s switch from Rx-only to OTC use.

26-A-02-096.01 to CMS - Open Unimplemented
Update expected on 02/27/2027
We recommend that CMS issue guidance on timeframes for Part D sponsors to reject payments for OTC drugs sold under obsolete Rx-only labeling after an Rx-to-OTC switch. This step could have helped to prevent $587.7 million in ineligible payments to pharmacies for CYs 2021 through 2023.

View in Recommendation Tracker
Work Plan Type
Office of Audit Services
HHS Agencies
Centers for Medicare and Medicaid Services
Issue Areas
Prescription Drug Managed Care Financial Stewardship
Target Groups
-
Financial Groups
Medicare D