Off-label use and Medicare

January 27, 2009

The New York Times released another salvo in the debate over off-label prescription drug use and Medicare payments today.  Its article (available here) discusses a rule change that took effect this past November, opening the so-called “compendium pipeline” for Medicare covered drugs that are used off-label to treat cancer.  The article scants on the issue of costs and focuses primarily on the hoary, ‘actual effectiveness versus patient hope’ debate of off-label use drugs.  I would like to look at the cost effect, but before I head down that rabbit-hole, a brief background may be in order.

Off-Label Use Background

Prescription drugs are approved for specific uses, dosages and combinations by the Food and Drug Administration.  The approval process can have multiple steps, independent verifications of trials, and take anywhere from a long time to a very long time depending on the nature of the drug-use seeking approval and the number of researchers providing data. Physicians and other prescribers are free to issue prescriptions for uses outside of those the FDA specifically approves, and do, mostly to very good effect for the patients involved.  Indeed, the cost and time involved prevent many legitimate uses from gaining FDA approval, so the off-label use mechanism acts as a kind of release valve for the strictures of the FDA approval process.

Medicare and private insurance companies are not always willing to pay for these off-label uses, especially if they are experimental.  Since the mid 1980s, however, CMS has authorized payment for off-label treatments so long as they exist in the compendium pipeline – – off-label uses described in collected reference guides which are put together by independent, private non-profits that compile drug research in the medical literature.  So, if an off-label use is described in one of these compendiums (all things being equal – – and there are complicating factors), Medicare will pay for it.  

Cost Analysis

What the New York Times was reporting on was a change in CMS policy that effectively increased the number of compendiums Medicare would look to for approved (i.e. paid for) off-label uses.  Because of the not-for-profit nature of the groups writing these reference guides, the number had dwindled down to only one in 2007.  The new rule increases that to (probably) five, once CMS approves the compendiums seeking inclusion.

What does this mean in terms of the cost of Medicare?  It is going to climb, and maybe drastically.  Many drugs are approved for only one or two uses.  The demand for them, therefore, is lower than drugs approved for multiple uses (or with multiple therapies).  Opening up the compendium pipeline will see more prescribing off-label for uses that are not as well-proven to work as approved uses.  

Of course, this effect will probably be ameliorated by private insurance companies following suit and agreeing to pay for the same uses that Medicare pays for (thus increasing off-label use and driving down cost), but the issue is not without controversy.  

In terms of the law, I see a potential dispute arising from CMS’s action here.  Medicare is essentially obliged to pay for an off-label use if a compendium lists it  unless one of the other guides specifically advises against it.  Medicare recipients are allowed to challenge CMS actions (including decisions to pay or not pay) through the administrative adjudication.  If an off-label use is disputed by two approved compendiums, a Medicare recipient seeking to have that use paid for has standing to bring such an adjudication.


Democratic House leadership announced this past Thursday that the proposed $850 billion economic stimulus plan includes a $90 billion shot in the arm to states by way of a temporary increase to the Federal Medical Assistance Percentage, as well as a few bundled programs, the most notable of which is $20 billion to hospitals and physicians to jump start EMR programs.  

Generally, the proposed stimulus package has come under not inconsiderable scrutiny because of a perceived lack of oversight in how the dollars will be spent.  However, many critics see this as a backlash from the complete lack of oversight when the first half of the so-called “financial system bail out” was delivered.  At any rate, the Medicaid component of the new stimulus plan is not immune to critics who wonder aloud whether the taxpayers will be getting the most bang for these billions of bucks.  

For example, McKnight’s reports that civil rights groups are particularly concerned about tying EMR adoption to these funds, without setting up a privacy assurance protocol/oversight committee.  What has not been mentioned is the connection between this money and the Deficit Reduction Act (discussed, obliquely, here) and whether the DRA programs may be a “shovel ready” protocol that could watch-dog the delivery of this money.

Tennessee state legislators introduced a bill last month seeking to limit the payout awards for negligent care lawsuits against nursing homes.  If signed into law, this bill would put an effective cap on the pain and suffering piece of the court’s judgment, either at a whole dollar amount (the Tennessee bill suggests $300,000) or a percentage of the so-called actual damages (e.g. medical bills, lost income, etc.).  The sides of the debate on these type of bills line up approximately this way:

Against Caps:

1) To limit the judgment amount in negligent care cases chills the deterrent effect of such lawsuits.  Or, simply put, nursing home owners will not try harder to deliver non-negligent care unless they are convinced to do so with serious lawsuit damages.

2) Lawsuits involving seniors at nursing homes almost inevitably have lower actual damage awards than other negligent care (i.e. medical malpractice) suits because the victims are no-longer working, their loved ones have a greater expectation of their dying(and thus, presumably suffer less at their death), and they are less likely to have a recovering spouse (the presence of a surviving spouse generally increases wrongful death/pain and suffering lawsuits).  Thus, to cap the pain and suffering awards makes such suits less effective at a) compensating the plaintiff/plaintiff’s family and b) deterring the same bad acts in the future (see point 1 above).

For Caps:

1) Analogy to Medical (i.e. hospital and physician) Malpractice: Many states (though notably not Tennessee) limit medical malpractice lawsuits in a number of interesting and creative ways.  The most common of which is to place some kind of cap on the pain and suffering awards of such suits, but another good option is to have an appointed board of specialists review every medical malpractice complaint and evaluate it for merit before the suit goes on to the court.  The rationale is that medical services are in short supply and such measures prevent physicians from leaving one state for another because of “frivolous lawsuits.”  Long Term Care is as well a necessary and limited resource.  Placing these type of caps on judgment amounts will ensure the perpetuity of LTC facilities, but at the same time strike the necessary balance of compensating plaintiffs/improving the delivery of care.  

2) Long Term Care is so heavily regulated, that it is unjust to allow so-called free-judgment lawsuits against LTC facilities.  The state has taken it upon itself to regulate nursing homes, and fine them, sometimes heavily, for violations of those regulations.  Plaintiffs should not be allowed to seek extravagant compensation on top of this statutory punishment when negligent care occurs.  A judgment cap is exactly the right maneuver to seek a just balance between compensating plaintiffs and preserving a highly regulated industry.  


Tough one.  There are more (and more subtle arguments) out there on this debate.  But, it is interesting to think through.  On some bottom level it comes down to how nursing homes are going to be considered in the future.  Are LTC facilities businesses like retailers and dealerships, delivering care for cash, preserving the bottom line for shareholders?  Are they a public trust, something to be preserved as a community resource above most every other consideration?  Should they be considered something all-together different?  Some combining balance?  

It is a good discussion.

The Congressional Budget Office released a Budget Options Report for Health Care in December.  (available in PDF here).  Chapter 10 surveys long term care possibilities.  These reports give a snapshot of the budget picture for particular programs.  They are neither very detailed, nor particular helpful except inasmuch as the report can be used as a kind of cheat-sheet for government budgeting options.  In this regard, the scope of the Budget Options report is far-reaching and complete.  

One of the interesting arguments presented in the report (page 182) is that states may not have the infrastructure to support many of the proposed increases in home- and community-based services.  The legislatively directed shift away from providing care in nursing homes and to care delivery in the patient’s home may be a financial and logistical impossibility. 

The report goes on to examine the option of increasing the Federal Matching Rate for home and community based services (and paying for it with a decrease in the Federal Matching Rate for Nursing Home Services).  It concludes with a convincing argument that changes in the Federal Medical Assistance Percentage (FMAP) could actually have an adverse effect on care delivery, because it would incentivize states to transfer or divert residents to the Home/Community Based Service based solely on economic reasons — and not make that decision based on clinical necessity.  

I know many Administrators see the recent push to fund the “continuum of care” from Home/Community Based Services to Nurshing Home Services as a threat to their livlihoods.  And it may very well be, but that is a debate for a longer post than this.  But, it is encouraging to see the Congressional Budget Office take such a serious look at the logistics of proposed legislative solutions to long term care delivery problems.

For the past six months the Department of Justice, one of the key regulator of the Americans with Disabilities Act, has been holding public hearings as part of a major overhaul of the A.D.A. designed to improve access and protection for the disabled.  As mentioned in a recent New York Times Magazine article (available here), some of these proposed changes have to do with the classification and public treatment of “Service Animals.”  The debates over which way the revisions will draw are currently ongoing, but I thought it would be instructive to offer a basic primer on the ADA with respect to service animals and the right to have them in skilled nursing facilities.  

Service Animals

Service animals are animals that are 1) individually trained, 2) to perform tasks, 3) for people with disabilities.  Service animals are working animals, not pets.  Though there is no formal licensing or regulatory body, service animals must be trained to accomplish specific tasks, not merely for comfort.  Such tasks can include alerting people who are deaf, pulling wheelchairs, guiding people who are blind and alerting and protecting a person who is having a seizure.  

Scope of Access

Under the Americans with Disabilities Act, businesses and organizations that serve the public must allow people with disabilities to bring their service animals into all areas of the facility where customers are normally allowed to go.  Not only does this include stores and restaurants, but also hospitals, medical offices and nursing homes.  The intend here is to ensure that the broadest feasible access be provided to service animals in public accommodations.  

However, the scope of this access is not without some limits.  Upon a showing that 1) the nature of the goods or services provided would be fundamentally altered; or 2) the safe operaiton of the public accomodation would be jeopardized, a service animal need not be allowed to enter.  

Limiting Access

Businesses must be very careful when attempting such a showing, however.  Only an assessment by appropriate medical personnel (case law suggests doctors, pharmacists and nurses) that an animal would pose a significant health risk may be used as a basis for excluding a service animal.  Yet, this cannot be a blanket ban.  Instead, facilities must assess whether an animal would pose a significant health risk to the particular area wished to be entered by the owner of the animal and whether that particular service animal poses a risk.  Essentially, whether a service animal can be let in the doors and where it can be excluded from must be a case-by-case determination.  

Specific Advice for Nursing Home Administrators

Nursing homes must follow the same guidelines w/r/t service animal access as book shops.  This goes both for visitors as well as residents of a nursing home.  Bascially, all must be allowed unless there is a showing of a significant health risk.  Further, regulators have given specific guidance that the potential for animal allergy or fear of specific types of animals (e.g. dogs) is not enough to fundamentally alter the services a nursing home provides so as to justify exclusion of the animal from the facility.  Neither can potential residents not be admitted because they use a service animal.  However, a facility is under no obligation to feed, groom, exercise, or in other ways care for a service animal of one of its residents.  


The proposed ADA revisions will likely make it easier for people with disabilities to find and have a service animal.  It may also systematize the process of licensing and training service animals.  This means that, everything else being equal, there will likely be more service animals assisting people with disabilities.  So, the likelihood that Administrators will have residents who use service animals is going to increase.  Ultimately, the ADA is an exceptionally good law, and is beneficial not only to people with disabilities, but to the society as a whole.  Administrators must be careful to accept service animals into their homes when appropriate, in protection of the civil rights of people with disabilities.