Medicare Part D sponsors paid pharmacies $587.7 million for some over-the-counter drugs with obsolete prescription-only labels, despite CMS oversight.
Medicare Part D does not cover OTC drugs. According to an Aug. 31 HHS Office of Inspector General report, Part D sponsors made “ineligible” payments for five drugs — more than one year after the brand-name equivalents of those drugs switched from prescription-only to OTC status. The $587.7 million in payments took place from 2021 through 2023.
The payments stemmed from CMS updating its Part D Formulary Reference File based on obsolete FDA data, as well as CMS not establishing a timeline for Part D sponsors to reject these payments for drugs that ended up being OTC.
CMS agreed with OIG’s recommendation to set guidance on timeframes for Part D sponsors to decline payments for OTC drugs improperly sold under prescription-only labeling after a switch.
The FDA released a policy in December 2025 calling on generic drug manufacturers to revise their labeling as soon as possible and within six months following FDA approval to switch a brand-name drug to OTC use.
