Medicare Spent Hundreds of Millions on Drugs It Shouldn't Have Covered

The Department of Health and Human Services Office of Inspector General (HHS OIG), the federal watchdog that audits Medicare and Medicaid spending, reported that Medicare paid hundreds of millions of dollars for drugs that were not eligible for coverage, according to Healthcare Dive, which reported on the audit September 2, 2026. The audit points to insufficient oversight by the Centers for Medicare and Medicaid Services (CMS), the federal agency that administers Medicare, as the underlying cause of the improper spending. CMS reportedly concurred with the OIG's findings.

The Healthcare Dive report and audit summary do not spell out an exact dollar figure, the specific years reviewed, or which Medicare drug channel (standalone Part D plans, Medicare Advantage plans with drug coverage, or both) was examined. What is clear from the reporting: the OIG concluded that CMS's claims oversight processes let ineligible drug claims, including over-the-counter (OTC) medications, get paid when they should have been denied or flagged.

This is analysis based on the available reporting, not independent verification of the audit's underlying data or CMS's internal claims systems. Readers who want the full scope of dollar amounts, time period, and audit methodology should review the OIG's original audit report and the Healthcare Dive article directly.

Key Takeaway

Medicare Part D is generally prohibited by federal law from covering certain drug categories, including most over-the-counter medications, cosmetic drugs, and a handful of other excluded classes. When CMS's oversight lets those claims slip through, it does not directly change what an individual beneficiary owes at the pharmacy counter, but it does reflect a gap in the systems meant to keep the overall Medicare drug benefit accurate and financially sound.

Why Part D Excludes Certain Drugs in the First Place

Under Section 1860D-2(e)(2) of the Social Security Act, Medicare Part D plans cannot use federal subsidy dollars to pay for a defined list of excluded drugs, a category that includes most OTC products, drugs for weight loss or gain, fertility drugs, and cosmetic or hair growth medications, among others. Plans may choose to offer some of these as a supplemental benefit outside the standard Part D structure, but they are not supposed to bill them as covered Part D claims. When an audit finds that ineligible claims were paid anyway, it typically points to a breakdown in the claims-edit systems that plan sponsors and CMS rely on to catch these exclusions automatically at the point of sale.

What CMS's Concurrence Signals

According to Healthcare Dive's reporting, CMS concurred with the OIG's findings, which generally means the agency agreed with the recommendations and is expected to take corrective action, such as tightening claims-edit rules, improving plan sponsor guidance, or increasing post-payment audits. Concurrence is not the same as an admission of wrongdoing by any individual Medicare Advantage or Part D plan; the audit's focus, as described, is on CMS's oversight function rather than allegations against specific insurers. Readers should not assume a particular carrier acted improperly based on this reporting alone.

Does This Affect What Beneficiaries Pay Today?

Not directly, and not immediately. Audit findings about improper federal payments typically drive changes to CMS's internal claims-processing rules and plan sponsor compliance requirements over time, rather than triggering an instant change to premiums, copays, or drug lists for people currently enrolled. However, corrective action from CMS could eventually tighten how plans administer OTC and other supplemental drug benefits, which is worth watching if your plan currently offers an OTC allowance or catalog as part of its supplemental benefits package.

What Medicare Beneficiaries Should Watch For

If you are enrolled in a Medicare Advantage plan with an OTC allowance, a supplemental benefit that lets members purchase approved over-the-counter items using a plan-issued card or catalog, this audit is a reminder to understand exactly which OTC items your plan classifies as a covered supplemental benefit versus a standard Part D drug claim. These are typically two different systems, and confusion between them is part of what oversight audits like this one are meant to catch and fix.

For anyone comparing Medicare Advantage, Medicare Supplement, or Part D plans during this year's enrollment window, a few practical steps can help you avoid surprises tied to drug coverage rules generally:

Check your plan's formulary directly. Confirm which drugs, including any OTC products, are actually covered before assuming an item qualifies.
Ask how OTC benefits are administered. If your plan offers an OTC allowance, find out whether it's a separate supplemental card program or billed through your Part D drug benefit.
Keep pharmacy receipts and plan statements. If a claim is later found to be ineligible, documentation makes it easier to resolve billing questions with your plan or CMS.
Talk to a licensed agent or your plan directly if you're unsure whether a specific medication or OTC product is covered under your current plan, rather than assuming based on past purchases.

This audit does not change enrollment deadlines or require any action from current Medicare beneficiaries right now. It is a systemic finding about CMS's payment oversight, not a notice to individual plan members. As always, if CMS or your plan sponsor announces specific changes to OTC or Part D coverage rules as a result of this audit, Medicare Plan Path will cover those updates as they're confirmed.