[Senate Hearing 109-36]
[From the U.S. Government Publishing Office]



                                                         S. Hrg. 109-36

                     IMPLEMENTATION OF THE MEDICARE
   MODERNIZATION ACT: DELIVERING PRESCRIPTION DRUGS TO DUAL ELIGIBLES

=======================================================================

                                HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             WASHINGTON, DC

                               __________

                             MARCH 3, 2005

                               __________

                            Serial No. 109-3

         Printed for the use of the Special Committee on Aging


                    U.S. GOVERNMENT PRINTING OFFICE
21-036                      WASHINGTON : 2005
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                       SPECIAL COMMITTEE ON AGING

                     GORDON SMITH, Oregon, Chairman
RICHARD SHELBY, Alabama              HERB KOHL, Wisconsin
SUSAN COLLINS, Maine                 JAMES M. JEFFORDS, Vermont
JAMES M. TALENT, Missouri            RUSSELL D. FEINGOLD, Wisconsin
ELIZABETH DOLE, North Carolina       RON WYDEN, Oregon
MEL MARTINEZ, Florida                BLANCHE L. LINCOLN, Arkansas
LARRY E. CRAIG, Idaho                EVAN BAYH, Indiana
RICK SANTORUM, Pennsylvania          THOMAS R. CARPER, Delaware
CONRAD BURNS, Montana                BILL NELSON, Florida
LAMAR ALEXANDER, Tennessee           HILLARY RODHAM CLINTON, New York
JIM DEMINT, South Carolina
                    Catherine Finley, Staff Director
               Julie Cohen, Ranking Member Staff Director

                                  (ii)

  


                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening Statement of Senator Gordon Smith........................     1
Opening Statement of Senator Herb Kohl...........................     3

                                Panel I

Mark McClellan, M.D., Ph.D., administrator, Centers for Medicare 
  and Medicaid Services, Washington, DC..........................     4

                                Panel II

Tina C. Kitchin, M.D., medical director, Oregon Department of 
  Human Services, Salem, OR......................................    32
Carl Clark, M.D., chief executive officer, Mental Health Center 
  of Denver, Denver, Co..........................................    45
Wendy Gerlach, director of Pharmacy Operations, Roeschen's 
  Omnicare Pharmacy, Milwaukee, WI; on behalf of the Long Term 
  Care Pharmacy Alliance.........................................    57

                                APPENDIX

Prepared Statement of Senator Jay Rockefeller....................    73
Questions from Senator Kohl for Mark McClellan...................    74
Statement for the Record from Robert Hayes, president, The 
  Medicare Rights Center.........................................    75

                                 (iii)

  

 
     IMPLEMENTATION OF THE MEDICARE MODERNIZATION ACT: DELIVERING 
                  PRESCRIPTION DRUGS TO DUAL ELIGIBLES

                              ----------                              --



                        THURSDAY, MARCH 3, 2005

                                       U.S. Senate,
                                Special Committee on Aging,
                                                    Washington, DC.
    The committee convened, pursuant to notice, at 2:48 p.m., 
in room 628, Dirksen Senate Office Building, Hon. Gordon H. 
Smith (chairman of the committee) presiding.
    Present: Senators Smith and Kohl.

      OPENING STATEMENT OF SENATOR GORDON SMITH, CHAIRMAN

    The Chairman. Ladies and gentlemen, we welcome you. We 
apologize to you for the Senate voting schedule that has 
delayed our arrival. Hopefully, between my colleague and I, we 
can proceed with this hearing. If another vote is called, we 
will sort of ``Mutt and Jeff'' it between us.
    This is an important hearing. I believe it will prove to be 
quite informative. We are going to hear from a variety of 
witnesses, all of whom have an expertise that can inform our 
decisions about the implementation of Medicare modernization, 
and more specifically, the transition of the so-called dual 
eligibles from the Medicaid program to the new Medicare drug 
benefit that is slated to begin on January 1, 2006.
    I strongly believe that our ability to successfully 
transition the 6.3 million Americans who are the poorest and 
most vulnerable citizens into Medicare drug benefits ultimately 
will prove the overall success or failure of this new program. 
That is why I have called this hearing on this day, March 3, 
and by looking at this program today and evaluating the 
regulations that have been developed by the Centers for 
Medicare and Medicaid Services, known as CMS, we have ample 
time to act, if necessary, to make administrative improvements.
    Now, before we get started, I would like to commend the CMS 
staff for their dedication and outstanding work to develop 
these policies. I have heard from many constituents, and I 
believe we will hear from many of our witnesses today, they 
have done an outstanding job. They have labored for the past 
year in their effort to meet with a wide array of stakeholders, 
provide opportunities for public comment, and incorporate many 
of the comments received into the final product, which was 
released on January 21.
    However, as I have learned throughout my many years as a 
legislator, no bill or other legislative product is ever 
perfect. I have yet to vote on a perfect bill. Given time and 
opportunity, improvements can be made, and that is the focus of 
today's hearing, to determine if improvements are critical to 
the successful implementation of the Medicare drug benefit, 
whether adequate safeguards have been built into the system to 
protect the poorest and most vulnerable, in fact, to be able to 
protect these dual eligibles.
    I look forward to learning more detail about the process 
that CMS used to develop its regulations and to come to 
understand more fully the rationale behind their final 
decisions.
    I also eagerly await the testimony of our second panel, who 
will offer their insight based on their expertise in serving 
this population in how best to organize the program. As many 
people know, this population is very diverse. It includes young 
disabled children, middle-aged persons with significant medical 
challenges, and, of course, the elderly poor.
    At present, Federal and State combined spending on 
prescription drugs for dual eligibles totals almost $15 
billion. However, to truly get an accurate picture of this 
population, let us look at who are the dual eligibles. Seventy-
seven percent have annual incomes below $10,000, and nearly 25 
percent are in nursing homes. Over 50 percent are classified as 
being in fair to poor health. Most have multiple chronic 
conditions, and 33 percent have significant limitations on 
activities of daily living, such as self-care, cooking, and 
even cleaning.
    Therefore, as we begin to shape the Medicare prescription 
drug program to ensure it is properly serving this high-need 
population, it is clear to me that additional safeguards will 
be necessary. The question that I will look to Dr. McClellan 
and our other witnesses to answer today is whether the 
regulations, as drafted, get the job done, or whether 
improvements can and should be made. I also will look to our 
witnesses to assess the benefit added by each of their 
recommendations, because while improvements can be made, we 
also must be reasonable in our expectations.
    On January 1, 2006, millions of Americans who previously 
had nothing will begin receiving prescription drug coverage. In 
Oregon alone, that means 129,000 people will be helped. While 
many have differing views of the benefit, there is no question 
that the relief that will be felt by America's poorest and most 
needy seniors will certainly be there.
    I believe it is time to come together and to get the job 
done properly and I hope my colleagues feel the same. I look 
forward to working together with them on this and other 
components of implementation, and I am confident we will 
continue to have a constructive dialog within the Aging 
Committee.
    I now turn to my colleague, Senator Kohl of Wisconsin, the 
ranking member of this committee, for his comments.

             OPENING STATEMENT OF SENATOR HERB KOHL

    Senator Kohl. I thank you, Mr. Chairman, and we welcome all 
our witnesses who will be testifying here today.
    The new Medicare drug benefit will be a big change for the 
6.3 million beneficiaries nationwide, including 110,000 in 
Wisconsin who are known as dual eligibles. These are seniors 
and people with disabilities who qualify for both Medicare and 
Medicaid. They typically have incomes below $10,000 and are 
considered to be the most vulnerable beneficiaries.
    Today, their drugs are paid for )by Medicaid, but as of 
January 1, 2006, Medicaid will no longer cover them and they 
must all switch to a new Medicare private drug plan. Now, I did 
not support the Medicare drug bill for many reasons. While I 
support adding a real drug benefit to Medicare, the new law, in 
my judgment, fails to take common sense steps to lower drug 
prices by allowing Medicare to negotiate for the best prices 
and allowing less expensive imports to appear in our market. I 
also felt that instead of setting up a straightforward drug 
benefit in Medicare, the new law sets up a confusing and 
inconsistent patchwork of private drug plans.
    I believe Congress should still act to fix these problems, 
but as long as the law is going forward in its current form, 
then it is critical that when these low-income seniors and 
people with disabilities are switched to Medicare that we get 
it right. If we do not, they face disruptions in drug coverage 
that could result in serious harm to their health.
    I appreciate the steps CMS has taken to ensure a smooth 
transition from Medicaid to Medicare for these people, but 
several concerns remain and we must address them quickly as the 
Medicare drug benefit takes effect in only ten short months.
    Most dual eligibles do not understand their Medicaid 
coverage will end and they need to select a private Medicare 
plan. While CMS plans to automatically enroll them in a plan 
and give them time to switch plans, many may end up in plans 
that do not cover medicines that they had under Medicaid and 
many will be unaware of or confused by their new choices.
    In addition, private Medicare drug plans will be able to 
limit the drugs covered by having closed formularies, and this 
will cause confusion and could result in elderly and disabled 
patients not getting the drugs prescribed by their physician.
    Also, with one in four dual eligibles living in a nursing 
home, we must be careful with the transition of these 
vulnerable patients. They require specialized services through 
long-term care pharmacies that provide 24-hour service, custom 
drug packaging, and specialized monitoring. The move from 
Medicaid to Medicare is going to present many challenges for 
them, and I am looking forward to hearing from Wendy Gerlach 
from Milwaukee to help educate us on this issue.
    As these vulnerable individuals transition from the 
Medicaid program they know to the uncertainties of the Medicare 
drug plans, we run the risk of serious glitches that could 
disrupt their care. So I am glad we are having this hearing so 
that we can identify the challenges and solutions now and 
minimize disruptions in drug coverage for these very vulnerable 
people.
    Again, I thank you, Mr. Chairman, for this hearing and I 
look forward to hearing from our witnesses.
    The Chairman. Thank you, Senator Kohl.
    Our first panel consists of the administrator for the 
Centers for Medicare and Medicaid Services, Dr. Mark McClellan. 
Thank you, Mark. It is great to have you here and we look 
forward to your testimony.

   STATEMENT OF MARK McCLELLAN, M.D., PH.D., ADMINISTRATOR, 
   CENTERS FOR MEDICARE AND MEDICAID SERVICES, WASHINGTON, DC

    Dr. McClellan. Thank you, Mr. Chairman and Senator Kohl. I 
really appreciate this opportunity to discuss how we can use 
the new Medicare prescription drug benefit to provide the best 
possible assistance for our dual-eligible beneficiaries, and I 
want to acknowledge the hard work of my staff at CMS and the 
constructive input that we have received from so many health 
professionals, advocates, and other experts on providing care 
to these most vulnerable beneficiaries in support of our 
effective implementation of this law.
    This is important. The new Medicare drug benefit will 
provide vital new help with drug costs for all Medicare 
beneficiaries, however they get their Medicare. But it is 
especially important for almost a third of our beneficiaries 
with low incomes, beneficiaries who are living on their Social 
Security check and who, until the Medicare Modernization Act 
was passed, were too often having to choose between drugs and 
other basic necessities. Under the Medicare law, these 
beneficiaries will have a comprehensive drug benefit that will 
pay for 95 percent or more of their prescription drug costs. 
This includes all dual-eligible Medicare beneficiaries, many of 
whom have faced limits on their coverage as States have 
struggled to maintain their Medicaid coverage.
    Mr. Chairman, the over six million full-benefit dual 
eligibles will qualify automatically for the comprehensive low-
income subsidies in the new Medicare benefit, as you mentioned. 
Under Medicare, these beneficiaries will have no premiums or 
deductibles, and copayments of just a few dollars, and those 
residing in institutions will have no cost sharing at all.
    We are working hard to make sure that low-income seniors, 
including all the dual eligibles, get the comprehensive help 
that the Medicare benefit is intended to provide. We have been 
working hard with States, the Social Security Administration, 
other Federal agencies, and many other partners to meet the 
challenge of moving the dual eligibles to the new comprehensive 
Medicare benefit. We are implementing protections to make sure 
that no dual eligible beneficiaries have any gaps in their drug 
coverage as they move from Medicaid to Medicare.
    We are taking new steps to make sure that the drug benefit 
works well for beneficiaries, pharmacists, and the health care 
providers who work with them through an ongoing dialog. 
Throughout this year, we are going to continue to listen and to 
collaborate to implement this new benefit effectively, and I 
appreciate the opportunity to continue that dialog and to 
identify further steps and issues that we need to address 
through your hearing here today.
    As an example of the work that we are doing now, since the 
regulations were issued, I am pleased to announce that today, 
CMS is issuing a request for proposals for a contract to assist 
us in coordinating benefits and facilitating an accurate 
accounting of a beneficiary's true out-of-pocket spending in 
near to real time. This system, which we will be implementing 
on schedule with the full drug benefit, will enable pharmacies 
and plans to process a beneficiary's prescription smoothly, 
even for a beneficiary who shows up at a pharmacy in January 
2006 and doesn't have the plan card or doesn't even remember 
the plan's name.
    The system will enable plans to inform beneficiaries when 
they have reached coverage limits or when they can expect even 
greater financial relief for catastrophic coverage or from 
other wrap-around assistance. It will tell them how much they 
can save by switching to a generic version of their medicine. 
They will have their claims processed correctly without the 
need for bringing in receipts or submitting other documentation 
if they have wrap-around coverage, and they won't even need 
their drug benefit card.
    Mr. Chairman, the transition to the Medicare drug benefit 
has already started. We are getting data from the States to 
identify dual eligible beneficiaries and we will begin personal 
outreach to them through mailings and other contacts this 
summer and will provide follow-up details in the fall. Early in 
the fall, about three months before the drug benefit begins, we 
will let them know what drug plan they have been assigned to if 
they don't select one themselves by the end of December. We 
will also notify the plan so that the plan can assist in 
ensuring a smooth transition.
    We will be conducting a major education and outreach 
effort. Beneficiaries will get help through our 1-800-MEDICARE 
24/7 bilingual support line and through local outreach 
activities involving our regional offices and partners in State 
health insurance assistance programs, Area Associations on 
Aging, and many other public and private partners.
    I am especially pleased to be working closely with the 
Access to Benefits Coalition, a coalition of almost 100 
beneficiary and patient support organizations who have had very 
different political views, very different views about the 
Medicare law itself, but who all have one thing in common. They 
want to make sure that we are implementing this benefit, this 
crucial new benefit for low-income seniors, as effectively as 
possible.
    We are also working with pharmacists, physicians, and other 
health professionals on simple steps they can take to help make 
sure their patients get the most out of the new drug benefit.
    Of course, we deeply appreciate the assistance and support 
of Members of Congress in reaching your constituents. We have 
already prepared some basic materials on Medicare's new 
benefits and they can be used in town hall meetings or in staff 
interactions with Medicare beneficiaries back home.
    Of course, our support for dual-eligible beneficiaries 
doesn't end with getting them transitioned to a Medicare drug 
plan on January 1. We are paying close attention to make sure 
the new drug formularies provide access to medically necessary 
treatments at the best possible price. The Medicare drug 
benefit will cover virtually all types of FDA-approved drugs 
and biologics. It is important to note that CMS is going to 
ensure that when plans develop their formularies, they 
recognize the special needs of many of our beneficiaries, such 
as patients with mental illnesses, those with HIV or AIDS, 
people with disabilities, those living in nursing homes, and 
other beneficiaries who have been stabilized on certain, very 
specific and sensitive drug regimens.
    CMS regulations also require each plan to submit a 
transition plan for moving enrollees currently taking a drug 
that is not on the formulary to a medication that is on the 
list. This process must address the clinical situations where a 
beneficiary seeks to fill a prescription that is not on the 
formulary but isn't aware of what is covered by the plan or 
isn't aware of the exceptions process. We are going to review 
these plans as part of our approval process and we are not 
going to approve any drug plan unless its transition plan is 
adequate to protect Medicare beneficiaries, all of our 
beneficiaries.
    Under our published guidance on prescription drug plan 
oversight, we will be looking to see if the transition plans 
are consistent with widely used best practices, retiree drug 
coverage, and Medicaid plans today.
    CMS has also tightened and streamlined the process for 
exceptions and appeals for the formularies, and beneficiaries 
can get help from their doctor or a designated representative 
in this quicker process.
    There also are some special protections in place for 
beneficiaries who live in long-term care facilities. These 
beneficiaries as you mentioned, are a large part of our dual 
eligible population. Every plan must provide coverage to all 
its enrollees who live in any nursing home in its region, and 
we will have specific performance and service criteria that 
pharmacies will need to meet in order to serve nursing home 
beneficiaries. These criteria will address delivery and 
packaging and urgent access and those other critical needs that 
you all have mentioned to guarantee there will be no change in 
drug safety and no change in drug availability for this fragile 
population.
    In addition to all this, if a dual-eligible beneficiary 
finds that their plan is not the best fit for them, they may 
change plans at any time.
    On all of these transition issues for dual-eligible 
beneficiaries, we are working with the States to anticipate 
possible problems and will work together to deal with the 
transition challenges as they arise. We have already issued a 
set of guidance documents. We have specific State-by-State 
contacts, and we have an active work group that focuses on 
addressing all of the State issues. This involves 
representation from the States, CMS, and the Social Security 
Administration. This group has listed out the issues that the 
States need to address in handling the transition and it has 
worked to develop a checklist for the steps that States can 
take with assistance from CMS to execute the transition 
effectively. We will keep working together until we get the job 
done.
    Thank you for the opportunity to talk about the transition 
to this important new benefit, which is going to greatly 
enhance the quality of life for our beneficiaries in greatest 
need. I am looking forward to working with you as we continue 
to reach out to review and to examine the best ways to provide 
this critical new help to our most vulnerable beneficiaries on 
time on January 1, 2006. I am happy to answer any questions 
that you all may have. Thank you.
    The Chairman. Thank you very much, Doctor.
    [The prepared statement of Dr. McClellan follows:]

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    The Chairman. On the last recess from which we just 
returned, I spent a lot of time with different provider groups 
on this very issue and one of them was the assisted living 
folks. As you probably know, in the State of Oregon, the State 
regulates assisted living, to a standard similar to nursing 
homes; however they are being treated differently than nursing 
homes in the new drug benefit. I just wonder if you can speak 
to that. Would you include them if there were certain standards 
met that would ensure safety and continuity of care for the 
patients?
    Dr. McClellan. Yes. Assisted living facilities are now 
providing an important part of long-term care assistance on 
this now very broad spectrum of long-term care assistance that 
we have. It is a very effective way of delivering long-term 
care services, medical services and other support that 
beneficiaries need to stay in the community. We absolutely 
envision beneficiaries in these settings being fully supported 
in meeting their prescription drug needs.
    The Chairman. But aren't dual-eligible beneficiaries 
currently living in assisted living facilities excluded under 
the regulations from receiving the same level of coverage as 
these in nursing homes.
    Dr. McClellan. Well, they are not treated as nursing homes 
under the regulations, but our regulations focus on beneficiary 
needs. If there is a plan that discriminates against any class 
of beneficiaries, including those living in assisted living 
facilities, we would not approve that plan.
    So as with these other aspects of care, what we have tried 
to do in our regulations is lay out the conditions, the best 
practices that we think need to be met to serve all of our 
beneficiaries regardless of setting. If there are any specific 
concerns about assisted living facilities that you have that 
you think we haven't fully addressed, we would be delighted to 
hear from your staff about it. We want to make sure that 
beneficiaries, regardless of setting, have access to the drugs 
that they need, and we think we have a good set of guidances in 
place to do that, but we are going to keep working on this to 
make sure we get it right.
    The Chairman. It does seem to me that often, the people 
that are obviously writing the regulations, they are at work 
and they are healthy and they probably take one or two 
prescriptions at the most, but the people who are likely to 
receive these may take a lot more than that. Can you explain 
the methodology that was used in terms of formulating what 
would be available to them?
    Dr. McClellan. Well, there have been a comprehensive set of 
steps and approaches that we have used to make sure that we are 
using all of our authorities effectively to provide access to 
medically necessary treatments at the lowest possible cost. 
This includes everything from how we set up the price 
negotiation under this drug program, and according to our 
actuaries and independent Congressional Budget Office the 
projections are that we are going to get the lowest possible 
prices for the drugs. An add-on government negotiation wouldn't 
save any more. To ensure how we are actually overseeing the 
formularies, to how we are overseeing implementation of 
exceptions and appeals processes.
    So there has been a comprehensive process. As we issued the 
regulations, we also held a whole series of open-door forums 
for public participation on particular topics, provided 
opportunities for written comment--we got over 7,000 
substantive comments on our drug benefit regulation--and held 
many other meetings with key stakeholder groups. Those 
activities are still ongoing. We have issued the final 
regulations, but those activities are still ongoing.
    I also want to emphasize that in addition to the 
regulations, we have tried to be as clear as possible about the 
standards that we are going to use to oversee the drug benefit, 
that including standards for the formulary. It includes 
standards for the so-called P&T committee that helps make sure 
that the formularies are covering all medically necessary 
treatments. It includes standards for the use of prescription 
drug management techniques, like prior authorization.
    In all these areas, we are looking for the adoption of best 
practices. There are good benefits being provided today to 
these very vulnerable populations and we want to bring in the 
best practices used in retiree plans or Medicaid plans to the 
Medicare population that will be served under the new 
comprehensive benefit. This process is ongoing, but we have 
taken a lot of steps already to make sure we are doing it 
effectively.
    The Chairman. Let us say you have got someone currently on 
Medicaid and they have a full panoply of drugs to choose from, 
but in transitioning to this Medicare drug benefit program, 
they have got real complex health needs and let us say the 
plans that are out there don't cover all of their drugs. Would 
it be advisable to have a phase-in period, a transition period 
of six months or so? I think some of our witnesses on the 
second panel may testify to that effect.
    Dr. McClellan. We have heard some of these ideas about 
transition periods. Let me start out by just making clear that 
we intend to implement this law so that the beneficiaries can 
get access to medically necessary treatments from the start 
under this new program, and we view that as including effective 
transition plans for managing their medications.
    While it is true that some Medicaid plans provide 
comprehensive access to a broad range of drugs today, many 
plans do impose limits already, and, in fact, there are good 
models out there from Medicaid plans that use preferred drug 
lists as to how transitions can be managed effectively.
    We would require our plans to have effective transition 
plans in place for managing the benefits. This is going to be 
particularly important at the start of this program, when many 
beneficiaries may be on particular drugs, that are not covered 
on the formularies. For that period in particular, we will have 
some extra efforts and we are going to be paying extra 
attention to make sure there is a smooth transition.
    There have been ideas about whether the State programs 
could continue during this period. One option that we have been 
discussing with a lot of States would involve filling a 90-day 
prescription in December to allow the beneficiary to continue 
to have access to their current drugs through the first part of 
2006. Now, we have some limits on what we can do. Our authority 
to pay Federal matching funds for Medicaid drugs that are 
covered under the Medicare drug benefit ends on December 31. 
But this is another step, in addition to the transition plans 
and the effective use of proven approaches to managing 
medications, which we will be pursuing as we implement the new 
drug benefit.
    The Chairman. Thank you, Doctor.
    Senator Kohl.
    Senator Kohl. Thank you very much, Mr. Chairman.
    Dr. McClellan, as you know, for many people, if treatment 
is interrupted for even just a few days, it could result in 
hospitalization, disease progression, drug resistance, or even 
death. So we need to make sure that nobody falls through the 
cracks during this transition.
    Let us assume a senior or a person with a disability walks 
into their local pharmacy on January 1, 2006, tries to fill a 
prescription for the drug that they have been taking for years, 
and they find that it is not covered. How will they know how to 
proceed, and how long will it take for their case to be 
resolved, and is there any guarantee that they will be able to 
get the drug that has worked for them for years?
    Dr. McClellan. Senator, we absolutely want to make sure 
that they can continue to get access to the drugs that they 
need. In fact, that is why this drug benefit implementation is 
so important. I saw in my own medical practice before coming 
into this job a lot of my patients who didn't have access to 
drug coverage in Medicare having more complications, more 
visits to the doctor and more visits to the hospital. So 
preventing that is what we absolutely want to do with this 
transition to prevent any gap in coverage for beneficiaries who 
have coverage now.
    There are a number of steps that are going to help make 
sure that we don't run into that problem of a gap in coverage 
for full benefit dual-eligible beneficiaries on January 1. 
First of all, as I mentioned, beneficiaries will find out about 
the plan they have been assigned to, if they don't choose one 
on their own in early October, three months before the start 
date. We will also notify the plan of that assignment so that 
there can be steps during that period to make sure the 
beneficiary knows specifically what is coming, what drugs are 
going to be covered and whether there is any transition needed. 
There may or may not be, many of these plans will continue to 
cover drugs that have been proven to be medically effective to 
make sure there are no problems with coverage.
    In addition, as I announced earlier, we are implementing a 
new program, one that I just announced today, that will make 
sure that if a beneficiary shows up at a pharmacy on January 1, 
even if they don't have a drug card, even if they don't know 
which drug plan they are assigned to, if they know their name, 
date of birth, just some basic identifying information, we will 
be able to find them and the pharmacist will be able to tell 
them in real time what their coverage is and what they have to 
pay. They will be able to fill that prescription without a gap.
    Finally, our drug plans are going to have to have 
transition plans in place so that if a beneficiary comes in on 
January 1 needing a medication refill, an effective mechanism 
is in place to deal with that. We are basing our approach on 
what has been proven to work already for managing medication 
transitions, and a usual approach is to provide a one-month 
supply or some supply of that current medication while the plan 
sorts out the appropriate management of that patient with the 
patient's physician over the next month.
    In many cases, there may be a need for a medical exception 
so that the patient can continue that current medication 
longer. That is built into our program, too. We absolutely do 
not want there to be any gap in coverage for our dual-eligible 
beneficiaries.
    Senator Kohl. So you are saying that if an individual shows 
up at a pharmacy needing a particular specific drug, in no case 
will they be turned away, that they will be able to get that 
drug?
    Dr. McClellan. What I am saying, Senator, is that we are 
going to make sure that our beneficiaries have access to all 
the medical treatments they need, all the drug treatments they 
need without a gap. If there is a good reason for a 
transition--remember that having the formularies and the price 
negotiation that comes from that is going to help us keep the 
cost of the drug benefit down and it is also going to help save 
the beneficiaries some money, too--the plan must have an 
effective, proven approach in place to make sure that any 
transition is managed effectively, that the patient gets the 
drug that they need.
    One approach to doing that would be to let the patient know 
months ahead of time, in October or November, after they know 
that this person is going to be assigned to the plan, that 
certain drugs are not on the formulary and to work out a 
transition ahead of time. If that doesn't happen before January 
1 and the patient just shows up in the pharmacy, as you said, 
the plan has to have an effective, proven approach in place to 
make sure that patient can be managed effectively. Often, that 
will include filling the prescription there for some period of 
time while the coverage issues are sorted out and it is 
determined whether that patient needs to continue on a specific 
medication or could do fine with the alternative treatment that 
is covered on the formulary.
    There may be other approaches, too. There are approaches 
that have been proven to handle these situations effectively in 
Medicaid plans, in many retiree plans and FEHB plans; Those are 
the kinds of approaches that we are going to require in the 
Medicare drug benefit.
    Senator Kohl. As you know, Doctor, States will initially 
save money, since they will no longer have to cover drugs for 
Medicaid. States are then required to pay back most of those 
savings to the Federal Government and this claw-back provision, 
as you know, is based on how much each State spent on 
prescription drugs in 2003 and is increased by the annual 
growth of drug spending.
    Let us look at a State like Wisconsin. After facing high 
drug costs through 2003, Wisconsin Medicaid began aggressive 
cost containment and then saved money. However, their claw-back 
payment will be based on the higher drug costs that they face 
in 2003 and it will increase every year as drug spending 
increases. Conceivably, Wisconsin could owe the Federal 
Government more in claw-back payments than they would save by 
no longer having to provide a Medicaid drug benefit.
    So what can be done to change this? Shouldn't there be 
flexibility to make a more accurate determination of a State's 
payment back to the Federal Government?
    Dr. McClellan. Senator, we absolutely want to make sure 
that States are saving money, as was intended under the 
Medicare Modernization Act. There are several reasons that I 
think even the State of Wisconsin is going to come out ahead. 
By the way, it has been a real pleasure to work with your State 
on expanding its Medicaid coverage of prescription drugs. As 
you know, we approved a Pharmacy Plus program that allowed 
Medicaid coverage to expand in 2002 and we implemented the 
steps to make it possible under Medicaid for the State to 
negotiate those better prices for drugs. It has been a pleasure 
to work with the States that do that and we are going to keep 
working with the State of Wisconsin to make sure that the State 
does get savings as we make this transition in Medicaid.
    As you mentioned, there is a pay-back provision for a 
portion of the cost projected forward from 2003. That fraction 
starts out at 90 percent and it goes down over time to 75 
percent. So there is some room there, even if the State did get 
some additional savings since 2003, to make sure they still 
come out ahead.
    We have asked every State to make sure we have the most up-
to-date data from their own experience to use as we calculate 
their payments under this program and we will be going over the 
numbers with each State, including Wisconsin, to make sure that 
there are benefits for the States.
    Our independent actuaries have looked at this again in the 
context of our final rules and we are projecting a total of 
over $8 billion in savings for the States over the next 10 
years. It is going to come from the savings they will get on a 
per capita basis for their beneficiaries. It is also going to 
come from the savings that they will get from Medicare picking 
up more of the costs for what has been covered under Pharmacy 
Plus in Wisconsin. It is also going to come from the Federal 
Government picking up the costs of all the State of Wisconsin's 
retirees. You have some very good retirement benefits for your 
State workers in Wisconsin and we are going to be providing 
subsidies worth about $1,000 per retiree.
    If you add all that up, I am confident the State is going 
to come out ahead, but we want to work closely with the State 
of Wisconsin and any other State, going over their numbers to 
make sure we get it right.
    Senator Kohl. Thank you, Doctor.
    Thank you, Mr. Chairman.
    The Chairman. Thanks, Senator Kohl. I have been advised the 
next vote is in about five minutes, so we will figure out how 
to proceed.
    But Doctor, a couple follow-ups. Would CMS consider having 
drug plans cover the current drugs during the transition 
period, also requiring coverage through the appeals process, 
for example, in addition, where these plans will not cover the 
non-formulary drugs?
    Dr. McClellan. We will require the plans to have an 
appropriate transition program, and again, this is not 
something that we have to invent anew here. There are programs 
that have been adopted in State Medicaid plans where they have 
preferred drug lists and managed transitions and retiree plans 
and the like. Depending on the medication, it may be 
appropriate for providing some continuation of coverage.
    As you know, we have tightened up our appeals timeframe so 
that for an urgent medical need, an exception to termination 
must be done within 24 hours. We want to make sure that there 
is no gap in access to medically necessary treatments.
    We will keep considering other ideas about how to implement 
this effectively, but again, I think if we base our approach on 
proven effective approaches from the private sector and from 
effective Medicaid drug benefit plans, that is the best way to 
go, to use the experiences that are already out there to manage 
transitions effectively and to deal with appeals and exceptions 
in a timely way.
    The Chairman. Very good. In a Finance Committee hearing, I 
asked you when we were discussing the USP standards about 
specifically covering antidepressants, a class of drugs that 
treat mental illnesses. Can you give us an update on this issue 
and explain how this class of drugs is going to be provided to 
people with mental illnesses?
    Dr. McClellan. Well, mental illnesses is one of the groups 
of beneficiaries that we are going to be looking at especially 
closely as we review formularies and the whole structure of the 
drug benefit to make sure it doesn't discriminate against some 
of the people who can most benefit from prescription drug 
coverage.
    In addition to the USP process, which had a number of 
categories for antidepressants in their final guidance--that is 
one factor that may go into our reviews for the plans that want 
to use the USP approach--we are also going to be looking at 
whether a plan is providing coverage for antidepressants in 
ways that are similar to effective plans that exist today. We 
will be using comparisons to some of the most popular FEHB 
plans, which provide access to a broad range of 
antidepressants. We will also look at comparisons to existing 
Medicaid plans with their preferred drug lists for their access 
provisions. And again, for tiering approaches, for the use of 
other tools, we will be looking at comparisons to best 
practices in successful plans today.
    We will keep in close touch with you. I know this 
particular area is of great interest to you.
    The Chairman. It is.
    Dr. McClellan. We absolutely intend for the Medicare 
benefit to be effective for coverage of antidepressants. This 
is a very common condition, an undertreated condition in our 
senior population, and it is one that contributes to a lot of 
reduced quality of life and premature deaths in Medicare 
beneficiaries and I really want to take that on as we implement 
the new drug benefit.
    The Chairman. Dr. McClellan, thank you for being our first 
witness and thanks to you and your staff for the way you take 
on a very Herculean job. We will turn now to our second panel 
with our appreciation to you.
    Dr. McClellan. Thank you for your support and we look 
forward to continuing to work closely with both of you and the 
committee. Thank you very much.
    The Chairman. Thank you.
    The Chairman. We will now call up our second panel, Dr. 
Tina Kitchin, medical director of the Oregon Department of 
Human Services in Salem, OR; Dr. Carl Clark, CEO, Mental Health 
Center in Denver, CO; and Wendy Gerlach, the director of 
Pharmacy Operations from Milwaukee, WI. We welcome you all. We 
thank you for your time with us and we again apologize to you 
for the delay in this hearing. Hopefully, it won't be much 
interrupted with any delay.
    Why don't we start with Dr. Kitchin.

 STATEMENT OF TINA C. KITCHIN, M.D., MEDICAL DIRECTOR, OREGON 
            DEPARTMENT OF HUMAN SERVICES, SALEM, OR

    Dr. Kitchin. Chairman Smith, members of the committee, I 
would like to first thank you for giving me this opportunity to 
testify on this very important matter. I would also like to 
thank the Congressional members who helped pass this momentous 
legislation that guarantees access to medications for a very 
needy population.
    I also would like to emphasize that I do believe that CMS 
has done an incredible job in some very tight timeframes, has 
done a wonderful, professional job of reaching out to numerous 
people and has attempted to make this the best possible 
situation that they can.
    However, Oregon continues to have some significant concerns 
about what this will mean for dual eligibles. The initial 
choice counseling period, or what people have been calling the 
transition, I think, is a special concern to us. If you think 
about this, it is going to be a very complicated process 
requiring beneficiaries to compare their current medications to 
brand new formularies, their current pharmacies to networks of 
pharmacies, potential for enhanced benefits, potential for 
changes in premiums, et cetera, and it is going to be a very 
complicated choice process.
    However, within the duals, we are dealing with people with 
dementia, developmental disabilities, significant mental 
illness, some that are homeless, et cetera. The bottom line is 
that this population is not going to successfully navigate the 
Internet and the 1-800 numbers. They are going to require the 
assistance of others and in a lot of situations, that means 
that Oregon, as the State Unit on Aging, the State Medicaid 
Office, and the State Mental Health Authority, is going to have 
to assist people in some of those very difficult choices.
    When you look at the timeframes, I don't know how we are 
going to do it within the current timeframes. I appreciate the 
fact that people are going to be auto-enrolled as soon as the 
plans are available and will be notified of that auto-
enrollment. Unfortunately, a random process maximizes their 
chance that they will be in a plan that won't meet their needs 
and they will still require being walked through that very 
complicated process to get to a place where this drug benefit 
is of assistance to them.
    I don't know how Oregon will be able to successfully do 
that within this timeframe. I think that there are some 
mechanisms under both regulation and potentially statute that 
could assist with this. I also remain concerned about the fact 
that under the current regulations, States are required to set 
up a parallel low-income subsidy determination system for a 
newly eligible group, parallel to Social Security. That is 
going to divert our attention from a very important process of 
assisting people to be transitioned into these plans.
    The Chairman. Doctor, did you hear anything from Dr. 
McClellan that gave you any comfort, or do--the fears you just 
described, remain just as real?
    Dr. Kitchin. Chairman Smith, I know that they really want 
to make this as beneficial as possible and as smooth as 
possible. When we moved the Medicaid eligibles into managed 
care, mandatory managed care, I know that it took Oregon well 
over a year of planning plus then a year to roll out the 
process, and at the same time, it was a very intensive workload 
and it was very difficult to do. I think those choices are 
small compared to the choices that beneficiaries are going to 
be faced with this year.
    I also think that the part of the regulations that 
currently require the plans to have adequate transition plans 
doesn't give many details or specifics upon what that is going 
to look like, and I know that working with managed care plans 
in Oregon, we have plans that go above and beyond what is 
required of them, but we also have plans where it is a struggle 
to get them to do the minimal. I am afraid that some of these 
plans will do the minimal or less, and without the detail in 
those regulations, that concerns me.
    I am also concerned a bit about access to long-term care 
pharmacy services, including those that are in our home and 
community-based system. You mentioned the adult foster homes 
and the group homes. Long-term care pharmacies provide very 
needed services and these regulations don't protect that access 
for beneficiaries.
    I think my red light is on.
    The Chairman. OK. Thank you very much, Dr. Kitchin.
    [The prepared statement of Dr. Kitchin follows:]

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    The Chairman. I think there is a vote starting. Would you 
like to go and vote, and I will--I want you to be here for your 
constituent.
    Senator Kohl. I will be right back.
    The Chairman. OK. Carl Clark, please proceed.

STATEMENT OF CARL CLARK, M.D., CHIEF EXECUTIVE OFFICER, MENTAL 
              HEALTH CENTER OF DENVER, DENVER, CO

    Dr. Clark. Thank you, Chairman Smith. I am Dr. Carl Clark. 
I am the CEO of the Mental Health Center of Denver. I have been 
practicing psychiatry for over 20 years and I am an assistant 
professor at the University of Colorado School of Medicine.
    The mental health center that I administer serves thousands 
of uninsured and indigent people every year, most of which have 
serious mental illnesses, like schizophrenia and bipolar 
disorder.
    My testimony today reflects the consensus views of the 
National Council for Community Behavioral Health Care, the 
American Psychiatric Association, the National Alliance for the 
Mentally Ill, the National Mental Health Association, the 
Treatment Effectiveness Now Project, the American Association 
for Geriatric Psychiatry, and the National Association for 
State Mental Health Program Directors. Although each of these 
organizations is strongly committed to the successful 
implementation of MMA, we are concerned about the required 
transition of dual eligibles to the new Part D drug benefit and 
here is why.
    MedPAC recently estimated almost 40 percent of the 6.5 
million dual eligibles have cognitive impairments and mental 
illnesses. Dual eligibles are twice as likely as others to have 
Alzheimer's disease, and thus, many of these people may lack 
the capacity to manage the automatic enrollment process and 
ensure that they get the medications that they need.
    At MHCD, I am personally responsible for the mental health 
care of a man who is dually eligible. Because of 
confidentiality, I will call him Peter. He is in his 50's, late 
50's. He was homeless for many years, wandering the streets 
because of untreated schizophrenia. Through a combination of 
intensive services and the latest psychotropic medications, we 
got him off the streets. He is living independently in the 
community. He has gone back to school and connected with his 
family. He also has diabetes and coronary artery disease. Mr. 
Chairman, I can tell you that he has a complicated medication 
regimen.
    Because of the special health care needs of dual eligibles, 
CMS included the provision in the final MMA rule requiring this 
population to be automatically enrolled in Part D plans, and 
the mental health community applauds Dr. McClellan for taking 
this critically important step. However, even with this, we 
have concerns.
    CMS has stated that dual eligibles randomly assigned to 
plans that don't reflect their current medications can re-
enroll into PDPs that do. Based on my clinical experience, I 
have serious doubts about this approach.
    Let us go back to Peter. Even though he is doing well with 
his schizophrenia, he still has trouble with his memory and 
speech and information process and decisionmaking. He is going 
to need a lot of help to negotiate these plans from our case 
manager and his mom, who is in her 80's and actually doesn't 
even live in Colorado. Coverage gaps for particular medications 
are going to happen, and what we want to do is really minimize 
that.
    So specifically, this is what we propose. People that are 
clinically stabilized on antipsychotic medications or other 
psychotropic medications should maintain access to those same 
medications regardless of the PDP they are enrolled in. This 
exception to the plan's formulary or utilization process would 
be automatically granted without prospective review by the PDP 
when the attending physician provided written certification 
that the patient is clinically stable, the medication is 
medically necessary to maintain the functioning, and the 
physician would also be required to certify that mandatory 
switching to an alternative drug formulary would be medically 
contradicted. Plans should defer to the physicians' medical 
determination.
    The Chairman. Carl, did you hear Dr. McClellan speak to 
this sufficiently? Did it allay your fears? You are making the 
point I was trying to make----
    Dr. Clark. Yes. My fears are not allayed because, like 
Peter as the example, he has three chronic conditions that need 
to be treated. If he does not get all the medicines for each 
one of those conditions, he is at risk for hospitalization, 
emergency room care, and those sorts of things.
    The Chairman. Are you seeing any of the plans out there 
that would accommodate someone like Peter?
    Dr. Clark. I say that there are lots of people like Peter 
that are going to be faced with which plan will cover all my 
medications.
    The Chairman. Just for the record, your point is there 
needs to be an override of the plan for people like this----
    Dr. Clark. Exactly.
    The Chairman [continuing]. So that their unusual 
circumstances can be accommodated.
    Dr. Clark. Exactly. Since this final MMA rule requires 
plans to have an appropriate transition process for dual 
eligibles during the initial enrollment period, CMS should 
employ its review authority to ensure that these key continuity 
of care principles are followed. Let me note that the agency in 
its own strategy on formulary reviews noted that formularies 
should contain the majority of antidepressant and antipsychotic 
medications, and further stated, when medically necessary, 
beneficiaries should be permitted to continue utilizing a drug 
that is providing beneficial outcomes.
    So the regulatory approach that we are proposing should 
combine a robust outreach and an education program designated 
to educate consumers while helping State agencies, patient and 
family organizations, and community mental health providers 
furnish one-to-one counseling that clearly will be required.
    What is at stake here is that if CMS fails to adopt a 
common sense approach, like we have outlined, the clinical 
consequences are serious. A very large percentage of folks will 
fail on switched medications and this will result in 
decompensation, hospitalizations, ER visits, and, of course, 
always the threat of suicide.
    For States, the consequences are tough, also. If people 
don't successfully navigate the transition to Part D, they can 
wind up destitute, homeless, State prison, State hospitals. So, 
Chairman, it is my goal for my staff and myself, who have 
worked really hard to get Peter off the streets, that we keep 
it that way.
    [The prepared statement of Dr. Clark follows:]

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    The Chairman. Maybe you don't have a percentage, but there 
is also a public safety component to this. For some of these in 
this category of people, if they don't have continuity of care, 
is there a percentage of them that become dangerous?
    Dr. Clark. Well, I will just give an example.
    The Chairman. To themselves, as well?
    Dr. Clark. Yes. At our center, we take care of about 4,500 
people----
    The Chairman. Forty-five hundred?
    Dr. Clark. Forty-five hundred, and most of those folks are 
in voluntary treatment. But we do have 350 people who are in 
involuntary treatment because they don't have the insight that 
they have an illness and they actually do become dangerous to 
the community. So there is a public safety issue here, also.
    The Chairman. What incidents of suicide might there be if 
they don't have access, if they fall through the cracks, if 
there isn't continuity of care? I mean, a lot of these people 
will become unusually depressed, I suspect, may become a danger 
to themselves. Do you see that in your practice?
    Dr. Clark. Yes, we do. For folks with major depression, 
bipolar disorder, schizophrenia, the lifetime incidence of 
suicide is around 15 percent, and that risk goes up when people 
are not in treatment or if they are not adherent with their 
treatment.
    Just to make a different kind of point, it sounds like 
drugs are interchangeable, and it is certainly true that some 
drugs may have similar efficacy, but for the individual person, 
that may not be true. For the individual person, side effects, 
which can be severe, can be very bad on one drug and not 
another, and that often leads to people saying, ``I am not 
taking this medicine anymore.''
    The Chairman. Wendy, I am not ignoring you. I am just 
waiting for Senator Kohl. [Laughter.]
    I would love to hear your testimony, too, because I know 
you are going to say many of the same things. Don't do your 
testimony, but if you would like to chime in on any of what the 
other two witnesses have had and save your testimony for 
Senator Kohl, if you have a comment to make on that.
    Ms. Gerlach. Thank you. I will.
    The Chairman. Tina, you mentioned that in the last 
transition that you went through, it took a year. Is that what 
I understood you to say?
    Dr. Kitchin. Chairman Smith, yes. It took a year of working 
with the population to help them understand their choices and 
move into care. It took a good year before that of the planning 
with everybody around the table.
    The Chairman. I think what I heard Dr. McClellan say is 
that they are contemplating a 3-month transition period. I was 
suggesting in my discussion with him a 6-month transition 
period. That isn't a year, but with a running start that we 
have before January 1, 2006, can you envision being up to 
speed?
    Dr. Kitchin. Senator Smith, given the three months before 
plus an additional six months, I feel--I will sleep at night. I 
am not sure that without that additional six months, it will go 
smoothly.
    The Chairman. Can you speak to the authorizations given to 
nursing homes but not necessarily assisted living facilities?
    Dr. Kitchin. Senator Smith, I would be glad to. As you 
know, as you are well aware, Oregon uses a very extensive 
community-based system. CMS in the current regulations has 
really focused on nursing facilities and their access to long-
term care pharmacies, the services, and prevention of those 
institutionalized people from having to pay copays. However, 
when you have an extensive community-based system, such as 
assisted living facilities or Developmental Disability group 
homes, they also need the access to long-term care pharmacies 
and they need--it is going to be very difficult for the people 
who are already paying into their cost of their service to come 
up with the additional amount of money to pay copays. So they 
need those additional benefits.
    The Chairman. Is there something that CMS should do to get 
assisted living facilities some standards so that they can 
qualify like nursing homes to provide for prescription drugs 
onsite?
    Dr. Kitchin. Senator Smith, I think that CMS has looked at 
it from a regulatory point of view, and if instead they looked 
at it from a beneficiary point of view, I think that their 
regulations could require that the new drug plans allow access 
to those services and allow the long-term care pharmacies to 
actually deliver those services in those varied settings.
    The Chairman. To assisted living facilities?
    Dr. Kitchin. To assisted living facilities and the rest----
    The Chairman. Mark is not here anymore, but I want to, 
through the record, encourage him to do that. I think that that 
is very important.
    Wendy, do you have any comment on any of this so far?
    Ms. Gerlach. I do. In the past, the skilled facilities that 
we see now are becoming very acute settings. The assisted 
livings are taking over where the skilled has left off. These 
people have multiple diseases--diabetes, asthma, high blood 
pressure. They need to have the specialized services that a 
long-term care pharmacy can provide to them--specialized 
packaging which cuts down on medication errors, 24-hour-a-day 
pharmacy services, a pharmacist who is always available for 
these assisted livings to call with any questions, emergency 
deliveries. So I think it is very important that we are able to 
provide these services as long-term care pharmacies to assisted 
living.
    The Chairman. Any other comment, Carl?
    Dr. Clark. Oh, I could make a lot of comments. [Laughter.]
    The Chairman. Go ahead. We have got time.
    Dr. Clark. OK. Great. I mean, one of the things about the 
consequences if somebody is on a medicine that works for them, 
and I can say right now that in psychiatry in particular, we 
have some medicines that work better than we have ever had in 
the past and it is so gratifying to see people actually have a 
life again and be in the community. Like Peter the example, 
when he reconnected with his mother after being on the streets 
for 10 years, that is a tremendous thing to see happen.
    The Chairman. What are those drugs? What are the names of 
them?
    Dr. Clark. His particular drugs? Well, I am sure some of 
the drug companies would really enjoy my saying the names---- 
[Laughter.]
    But he is on Zyprexa. He is also on lithium, which is a 
medicine that has been around for a long time. Then he is on a 
variety of medicines for his diabetes and his coronary artery 
disease.
    But the point is that if somebody has a disruption in care 
after they have found something that works, that is difficult 
and the cost can be enormous. In Colorado--I don't know what 
the cost is in other States, but our State hospital costs about 
$95,000 a year for a person. So if we have an influx of people 
that are hospitalized into the system, there are these kinds of 
costs that are going to occur.
    For me, one of the issues is that PDPs are managing a 
pharmacy budget, but they are not managing the risk for the 
other types of care that are going to be provided.
    The Chairman. You are shaking your head, Tina. Do you want 
to say anything about that?
    Dr. Kitchin. Senator Smith, I agree. One of the ways that 
managed care works the best is that the plan is at risk if they 
deny a cheaper service and somebody goes into more expensive 
service, whereas these new drug plans are only at risk for the 
cost of the medications.
    The Chairman. Let me just tell you publicly, I mean, we are 
talking here about a Part D corrections bill, things that we 
could do legislatively, but I will be honest with you. That is 
a tall order before this is implemented, because I think the 
Bush administration and perhaps a majority in Congress, and I 
think many in the leadership of Congress, want to see what the 
problems are before we start promoting fixes. So part of the 
reason for this hearing is to get CMS to do as much as they 
feel they have latitude to transition this smoothly.
    But if they don't, can you already envision things that you 
would like to see in a Medicare Part D corrections bill? Is 
there something legislative you think that is really missing at 
this point?
    Dr. Kitchin. Senator Smith, if I could start, it would 
depend upon the timeframe of it. Obviously, if this could occur 
before we start rolling out this new drug benefit, a 
lengthening of the time that States were eligible for Federal 
participation, so although at one time never are both Medicaid 
and Medicare at risk for the drug cost, but that we could slow 
the phase-in process down.
    The second of which is that I think having the minimum of 
two drugs per class works for several different types of drugs, 
but there are exceptional drugs, or exceptional conditions 
where really they need to offer the entire gamut of drugs. 
Those that are treating AIDS, antipsychotics, antidepressants 
are one of the classes that really come to mind.
    In addition, I think that there should be an ability to 
grandfather in certain people with certain conditions. It is 
very dangerous to transition somebody with a significant 
seizure disorder off of their current medications and the 
attempt to do that can actually cause a seizure that will end 
somebody's life, although most seizures don't.
    In addition, I think that the current framework is based 
upon assuming that these Medicare beneficiaries can work 
through an appeals and a grievance process and I have serious 
concerns about the people that I know being able to respond and 
say, ``No, this drug is not covered but I have these rights and 
I can appeal and I need to get my doctor to do this and I need 
to go through this process.'' I think that that is beyond a lot 
of people's ability that I know in this system.
    The Chairman. OK. I am going to go vote and I am going to 
turn this hearing over to my colleague. But Carl, I would like 
to just tell you, I have a particular personal reason to make 
sure that the mental health component of this is done right, 
and so if it isn't being done right, I want you to yell at me 
to make sure we use our influence to get it right, because I 
think the focus of your practice is truly life and death.
    Dr. Clark. Thank you, Senator Smith. It is also quite 
personal for me, too.
    The Chairman. Thank you.
    Ms. Gerlach. Senator Smith, may I address that question?
    The Chairman. Yes. Sure.
    Ms. Gerlach. One of the biggest concerns that I have, if 
there could be a fix, if there are excluded drugs, such as 
over-the-counter drugs, benzodiazepines, barbiturates, and 
drugs for weight management. Those we see as a big concern in 
the long-term care setting. Benzodiazepines can be given for 
anxiety, and I will throw this example out.
    Somebody in the last days of their life are anxious about 
what is happening to them. One of the drugs that is given to 
them is called Atavan or Lorazapan, which is a benzodiazepine. 
Who wants to be sitting in that room and be denied 
benzodiazepines or the Lorazapan that can give comfort to your 
loved one while you are watching them pass away?
    The Chairman. Yes. I understand.
    Senator Kohl [presiding]. I thank you, Senator Smith.
    I am going to introduce Wendy Gerlach right now for her 
testimony. She is director of Pharmacy Operations in Wisconsin 
for Roeschen's Omnicare in Milwaukee. For the last eight years, 
she has worked at Wisconsin's largest long-term care pharmacy, 
serving nursing homes, assisted living facilities, and 
correctional care. We are very fortunate to have you here today 
to describe the unique challenges long-term care pharmacists 
will face with this new Medicare drug law. We look forward to 
your testimony.

 STATEMENT OF WENDY GERLACH, DIRECTOR OF PHARMACY OPERATIONS, 
 ROESCHEN'S OMNICARE PHARMACY, MILWAUKEE, WI; ON BEHALF OF THE 
                LONG TERM CARE PHARMACY ALLIANCE

    Ms. Gerlach. Thank you, Senator. Chairman Smith, Ranking 
Member Kohl, and members of the committee it is a privilege to 
appear before you today and especially before my own Senator. 
My name is Wendy Gerlach and I am the director of Pharmacy 
Operations in Wisconsin for Omnicare Pharmacy. Omnicare's 
experienced staff of pharmacists, nurses, and technicians serve 
approximately one million patients in 47 States. I am grateful 
for the opportunity to testify today on behalf of the Long Term 
Care Pharmacy Alliance, whose members provide pharmacy services 
to more than 60 percent of the 1.6 million nursing home beds in 
the United States.
    The average resident is approximately 84 years of age, 
suffers from eight distinct diseases, and consumes nine or more 
different medications concurrently. The instance of cognitive 
impairment among these individuals is nearly 75 percent. 
Nationwide, Medicaid currently provides prescription drug 
coverage for approximately 70 percent of the nursing home 
residents. It is important to recognize that these residents 
are not your typical cash-and-carry customers and the 
specialized pharmacy services they receive are different from 
retail pharmacy services.
    As I noted, they are typically frail elderly and often 
cognitively impaired. Their pharmacy needs are quite different 
from those of the average ambulatory Medicare beneficiary who 
does not reside in an institutional care setting.
    As long-term care pharmacies, we provide a large range of 
specialized services. These services represent the standards of 
practice developed to assure patient safety and quality care 
for nursing home residents.
    The primary payer for pharmacy services for nursing home 
residents is Medicaid, which establishes consistent rules for 
coverage. While States may impose access restrictions, such as 
preferred drug lists and prior authorization, Medicaid 
beneficiaries are entitled to access to all medically necessary 
drugs.
    Given the different structures of current Medicaid and 
future Medicare drug coverage, we remain concerned about the 
operational impact of multiple plans in each region competing 
for Medicare beneficiaries. An average-sized nursing facility 
of 150 beds could conceivably have residents of two or more 
plans, all operating under different formularies and exception 
processes. The resulting confusion could increase the risk of 
medication errors.
    In addition, we are very concerned that the MMA 
specifically disallows coverage of certain drug classes. The 
excluded classes include over-the-counter drugs, 
benzodiazepine, barbiturates, and drugs for weight management. 
Although State Medicaid programs have the option of continuing 
coverage of these drugs, it is unclear whether they will. 
Impeding access to these products will almost certainly result 
in increased hospitalization and higher cost to the program.
    Therefore, we believe dual eligibles must be assured access 
to these excluded drugs. We recommend that Congress strike the 
MMA's prohibition on coverage of these drug classes or ensure 
the States remain obligated to cover the excluded drugs for 
this population.
    While we applaud CMS's commitment to enrollment, the 
nursing facility staff and the long-term care pharmacy must be 
involved for enrollment to be successful. The nursing facility 
can ensure that its residents know which plans include the 
long-term care pharmacy in their network of providers. In 
addition, nursing facilities and long-term care pharmacies must 
be notified of the plan in which the resident is enrolled so 
that caregivers understand which plan will be responsible for 
each resident.
    Further, moving medically complex patients from a list of 
well-tolerated and effective drugs to alternatives required by 
a plan formulary would pose serious challenges. Imagine a 
common scenario in which a nursing home resident is on eight 
different drugs covered by Medicaid and three of those are 
switched at once and there is an adverse event. It would be 
difficult, if not impossible, to determine which drug caused 
the adverse event. We strongly encourage CMS to issue very 
specific guidelines that plans must follow in this regard.
    The preferred option is to require a robust formulary for 
residents of long-term care facilities consistent with the 
current Medicaid benefit. In addition, an exception process 
must exist to allow a pharmacist to override formulary 
restrictions, subject to retrospective review. This option 
assures that the patient, at least initially, gets the 
prescribed drug without delay. A pharmacist would dispense a 
drug and be assured payment from the plan until the 
retrospective review could be conducted.
    To summarize, we make the following recommendations to CMS 
and to Congress. First, ensure continued access to medically 
necessary drugs, either by striking the MMA provision excluding 
coverage of certain drug classes or by requiring States to 
maintain current coverage.
    Second, facilitate enrollment of nursing home residents by 
notifying beneficiaries, nursing facilities, and long-term care 
pharmacies of the plan in which the beneficiaries are enrolled.
    Third, create a clear standard for plans that will assure 
access to medically necessary drugs for nursing home residents 
and will mitigate the risk of switching multiple medications at 
once.
    We believe CMS is diligently working to ensure that 
beneficiaries are not jeopardized during the transition to Part 
D and look forward to working closely with CMS, the Congress, 
and this committee to identify and work through potential areas 
of concern.
    Again, thank you for the opportunity to provide testimony 
for this very important hearing.
    [The prepared statement of Ms. Gerlach follows:]

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    Senator Kohl. Ms. Gerlach, there has been some discussion 
about creating a transition period where nursing home residents 
could slowly transition from Medicaid plans which cover their 
current drugs to the new private Medicare drug plans which may 
or may not cover all their drugs. In your opinion, how long of 
a period would you recommend, and what other factors should be 
considered and included in this transition period?
    Ms. Gerlach. Sir, I think that the transition period should 
be six months to one year. This would allow us to move people 
slowly to the preferred drug. Maybe we could go by categories 
so that it is easier for the facilities, the pharmacies, the 
physicians, so that they know which medications we are supposed 
to be working on. I just think that we need at least six months 
to a year to make a smooth transition, to make sure those 
people that are in those nursing home beds aren't prone to 
medication errors or go without their medication.
    Senator Kohl. So I would take it from your answer and your 
testimony that you are very, very concerned if this whole 
process is supposed to commence, period, on the first of 
January with no transition, that regardless of whatever 
preparation they think they are making, there will be problems 
that become insurmountable if this is supposed to occur on the 
first of January without a transition?
    Ms. Gerlach. Yes, sir. We have thousands of residents that 
we currently serve in Wisconsin and I am very concerned about 
the transition on January 1, if it is immediate. How hard is it 
if you have a 150-bed facility and you have 100 people that are 
dual eligibles now and on January 1, you have all these 
different medications. Are the nurses going to remember to pull 
the card? Is a new order going to be written in the chart? It 
is not only a concern on the pharmacy part, but also the 
nursing part and the facilities. They are very busy. They are 
understaffed. We don't want to overwhelm the facility nursing 
staff, either, which could lead to medication errors on their 
part.
    Senator Kohl. Mr. Clark, do you have an opinion about 
January 1 and whether or not that should be just the beginning 
of a transition period?
    Dr. Clark. I think it should just be the beginning. I mean, 
switching is not an automatic process. It is--when you were out 
of the room, I talked a little bit about how drugs are not 
necessarily interchangeable. There is a time period for 
adjustment. There may be side effects that the person 
experiences with one drug that they didn't with another and all 
those things need to be addressed. It is a very short time line 
to accomplish all this.
    My center takes care of 4,400 people. We have 1,400 people 
that this is going to be an issue for. It is going to be a big 
burden for case managers and the staff to help people with the 
transition, select plans, and a variety of things like that. In 
our group, we have some folks that definitely have cognitive 
impairments and need help with executive decisions and making 
decisions.
    Senator Kohl. Dr. Kitchin.
    Dr. Kitchin. Senator Kohl, I also would concur that a 6- to 
12-month period would be the best. I think that 6 months would 
be a minimum in which this would happen safely.
    Senator Kohl. Do you have any indication that Dr. McClellan 
understands what you are saying and is coming from the same 
direction, or are you concerned that they are not interested in 
this six-month transition? Wendy? Or don't you have a sense of 
it at this point?
    Ms. Gerlach. Sir, I don't have a sense regarding that, but 
what I would like to say is that we want to work with CMS to 
make sure that this benefit works smoothly and that the people 
that we are serving are not in danger. All we want to do, as 
long as we know the rules, we can work within those rules. But 
we need to work with the people making the rules to make sure 
that they benefit the beneficiaries.
    Senator Kohl. Mr. Clark, any sense of what CMS is thinking 
at this moment?
    Dr. Clark. I thought there was one disconnect for me, which 
is when you asked the question about somebody going to the 
pharmacy and now their medicine is no longer on the formulary 
for their plan, what would happen, and the response was that 
these PDPs needed to be able to have a plan in place to assure 
a transition. Well, the reality is that the pharmacy plans 
aren't doing the transition. The providers are doing the 
transition. So there is a disconnect there for me about how 
that is actually going to occur.
    When CMS says that there are good practices out there about 
transitioning people from one drug to another, I am glad there 
are. I think most providers don't know what those are.
    Ms. Gerlach. Can I make a brief----
    Senator Kohl. Yes, Wendy?
    Ms. Gerlach. In the nursing home, it is a three-way 
communication. It is not just between the physician and the 
pharmacy. It is between the physician, the nurse at the nursing 
home, and the pharmacy. So the physician will write an order, 
he will communicate that to the nursing staff, the nursing 
staff will communicate it to us. Then if the drug is not 
covered, we have to backtrack, go back to the nurse so that she 
will know this is not covered so that she can contact the 
physician and get it covered so that it will get switched to 
the correct medication.
    It is an administrative nightmare for everyone, and who is 
going to do the work for the prior authorizations? Who is going 
to take all the work that is required to submit all that 
information to the PDPs? That is not answered. There is no 
clear-cut plan that has been told to us, these are the steps 
you are going to follow.
    Senator Kohl. OK. Dr. Kitchin?
    Dr. Kitchin. Senator Kohl, I think that CMS has been 
working within very, very tight timeframes. I think they have 
done a heroic effort to reach out and get input from lots of 
people. However, I don't think that they have had some of the 
day-to-day experience of doing these transitions and understand 
some of the implications.
    Senator Kohl. All right. Does anybody else want to make 
comments about anything that you feel needs to be brought to 
the table and put under the lights, any issues at all? Wendy, 
do you want to speak first?
    Ms. Gerlach. Yes, I will. There is another concern that we 
have. What happens to the residents that are switching over 
from Medicare Part A or coming directly from the hospital and 
they have been stabilized on their medications and then they 
transition into Medicare Part D? Is there going to be a 
transition period for those residents, also, three months, six 
months, so that we can switch those people over appropriately 
and not take them off their medications as soon as they leave 
the hospital?
    Senator Kohl. All right. That is a good question.
    Tina, do you have anything else you would like to bring to 
the table?
    Dr. Kitchin. Senator Kohl, yes, I would like to make a 
couple more comments that I don't feel I had time to do, one of 
which is I think that the appeals and the grievance process is 
still--it has been tightened tremendously, but it is still 
cumbersome for a lot of people in this population and I think 
that CMS needs to require that the drug plans cover the 
medications during the time that the person is going through 
their appeals or grievance.
    I am also concerned about the coordination of benefits 
requirement. Right now, CMS has said that it doesn't believe 
that CMS has the authority to share detailed drug information 
with the States if the State is not also at cost risk for that 
medication, and yet we will still be providing a significant 
number of medical services to those dual eligibles and we need 
to have access to that information without states paying the 
drug plans for it.
    Senator Kohl. All right. What we will do, if you would 
like, in the absence of Dr. McClellan--I wish he were here 
right now. I think it would be great to give you a chance to 
ask him some of these questions and get the answers from him. 
But if you want us--and we will, I would like very much to 
present your questions directly to him and get an answer from 
him so we can get back to you with some of these comments and 
thoughts that you have had.
    Carl, do you want to make any comments yet?
    Dr. Clark. Well, the only comment I would say at the end 
here is that what is the real cost for failure? I mean, there 
is certainly the cost to the individual person about getting 
ill again or having difficulties in that way, but there is a 
ripple effect. It is not just that person. It is also the 
families, the providers, everyone is affected by things when 
they go awry, and I think that is what people are most 
concerned about, is how do we assure that people who are 
already doing well on their current medicines have something in 
place where they continue to do well?
    Senator Kohl. No question. It is crucial. We certainly do 
not want a catastrophe on January 1. That would be a terrible, 
terrible thing. In fact, there is no sense of a deadline on 
January 1. As you are pointing out, that should be the 
beginning of a process. It is not the end, it is the beginning, 
and there is no need for us to feel that this thing has to be 
fully in place and operational on January 1. I would like to 
hope that Dr. McClellan feels that way, but we will find out.
    Anything else, guys? Wendy?
    Ms. Gerlach. No, sir.
    Senator Kohl. No?
    Dr. Kitchin. I would just like to thank you for this 
opportunity. It has been very good to have this occasion to 
express our concerns.
    Senator Kohl. Thank you. It has been a good hearing and I 
think it gives us the warnings and tells us that we need to be 
careful and cautious in how we proceed, so your coming here and 
testifying has been really important. Thank you so much.
    Dr. Clark. Thank you.
    Dr. Kitchin. Thank you, sir.
    Senator Kohl. The committee is adjourned.
    [Whereupon, at 4:08 p.m., the committee was adjourned.]


                            A P P E N D I X

                              ----------                              


             Prepared Statement of Senator Jay Rockefeller

    I am very pleased that Senators Smith and Kohl are holding 
this important hearing today. The transition of 6.4 million 
dual eligibles from Medicaid prescription drug coverage to 
Medicare Part D represents the largest transition of 
beneficiaries from one insurance program to another, public or 
private. It is essential that we in Congress work to ensure as 
smooth a transition as possible so that no senior or disabled 
individual experiences a gap in prescription drug coverage.
    Medicare beneficiaries who also qualify for full Medicaid 
are among our nation's most vulnerable citizens. They are 
disproportionately women and minorities and live alone or in 
nursing homes. Over half are limited in activities of daily 
living and, in comparison to other Medicare beneficiaries, they 
are much likely to have heart disease, pulmonary disease, 
diabetes, or Alzheimer's. Therefore, it is crucial that we get 
this transition right the first time.
    The Medicare Modernization Act of 2003 (P.L. 108-173) 
rightfully included Medicare prescription drug coverage for 
dual eligibles. Medicare's universality is something I fought 
hard for during the Medicare debate. I strongly believe that 
low-income seniors and disabled individuals should not be 
excluded from Medicare benefits because of their income levels. 
While the Medicare law seems to support the principle of 
universality, it simultaneously undermines it by treating dual 
eligibles differently from other Medicare beneficiaries.
    The law provides Medicare beneficiaries who are not dually 
eligible for Medicaid six months to transition to Medicare Part 
D. Yet, the law only requires a six-week transition period for 
dual eligibles, from November 15, 2005, to January 1, 2006. 
Moving a large number of seniors and people with disabilities 
to an entirely new system for prescription drug coverage is a 
major undertaking. In its June 2004 report to Congress, the 
Medicare Payment Advisory Commission (MedPAC) suggested that 
even large, private employers need at least six months to 
transition their employees' drug coverage from one pharmacy 
benefit manager to another. The two large employers that MedPAC 
studied had 25,000 and 75,000 employees, respectively. The 
states and the federal government are taking on a far more 
complex task with 6.4 million dual eligibles.
    Dual eligibles require adequate outreach, education, and 
timing in order to adjust to major changes in our health care 
delivery system. The Centers for Medicare and Medicaid Services 
(CMS) has taken several steps to improve the transition of the 
dual eligibles from Medicaid to Medicare. However, I fear these 
steps do not go far enough. Automatic enrollment does not 
guarantee that beneficiaries will know that they have been 
enrolled in a new Medicare drug plan or know how to access 
necessary prescription drugs using that drug plan. Once 
beneficiaries are enrolled, they are likely to experience 
ongoing confusion about covered drugs, authorized pharmacies, 
and the Medicare appeals process.
    In order to achieve the best possible outcomes for dual 
eligibles transitioning to Medicare, we should extend the 
transition period to at least six months. An extended timeframe 
would give states enough time to carry out comprehensive 
education and outreach initiatives. It would also give seniors 
and individuals with disabilities time to explore their options 
and gradually transition to Medicare Part D.
    I have drafted legislation--the Medicare Dual Eligible 
Coverage Act--which would achieve all of the objectives 
mentioned above. I plan to introduce this legislation next 
week, and I urge the Members of this Committee to support it. I 
thank the distinguished Chairman and Ranking Member for 
allowing me to submit a statement on this critical issue.

                                ------                                

             Questions from Senator Kohl for Mark McClellan

    Question. Today we discussed the challenges with the 
implementation of the Medicare Part D program for dual 
eligibles. Dual eligibles are also a significant part of 
nursing home populations and the President's budget includes a 
$1.5 billion reduction in Medicare payments to nursing homes. 
As a result, in real terms the payment would be lower per day 
than it was in 1998 if the President's budget is enacted.
    When rates dropped in 1998, 15 percent of nursing homes in 
the country went into Chapter 11, and 7 out of the 12 publicly 
traded companies filed Chapter 11. As a result, Congress 
increased the rates and stabilized the industry.
    In December, you and then Secretary Tommy Thompson held a 
press conference in which you congratulated the industry for 
its efforts on improving quality. Can you assure the Committee 
that as a result of the implementation of the President's 
budget there will not be a loss of the quality improvements 
made, a reduction in the nursing home workforce or a disruption 
in the delivery of nursing home services to either Medicare 
recipients or dual eligibles?
    Answer. We realize that the elimination of the $1.5 billion 
temporary add-on to the skilled nursing facility (SNF) 
prospective payment system raises concerns about how the change 
will impact the quality of care in our nursing homes. First, I 
want to assure you that quality improvements in nursing home 
care have been a priority for this Administration and we plan 
to continue our efforts in this direction.
    Second, I want to point out that, while it is true that a 
number of nursing homes filed for bankruptcy shortly after the 
introduction of the SNF prospective payment system, the 
financial problems these companies experienced were not 
necessarily related to the SNF prospective payment system. In 
fact, a Government Accountability Office review (``Skilled 
Nursing Facilities: Medicare Payment Changes Require Provider 
Adjustments but Maintain Access,'' GAO/HEHS-00-23, December 
1999) of two of the largest publicly held chains (Vencor and 
Sun Healthcare Group) found that the financial position of both 
firms suffered from high capital-related costs; substantial, 
non-recurring expenses and write-offs; and reduced demand for 
ancillary services related to several other provisions in the 
Balanced Budget Act of 1997. Vencor's SNF operations remained 
profitable after the implementation of the SNF prospective 
payment system. In addition, there were a number of media 
reports that cited rapid expansion into other lines of 
business, high capital costs, and inadequate cost controls as 
other factors influencing the financial status of the SNF 
industry.
    The Department of Health and Human Services' Office of 
Inspector General (OIG) conducted two studies on beneficiary 
access under the SNF prospective payment system (``Early 
Effects of the Prospective Payment System on Access to Skilled 
Nursing Facilities,'' OEI-02-99-00400, August 1999; and, 
``Early Effects of the Prospective Payment System on Access to 
Skilled Nursing Facilities: Nursing Home Administrators 
Perspective,'' OEI-02-99-00401, October 1999). These studies, 
which surveyed nursing home administrators and hospital 
discharge planners, found no widespread access problems in 
placing Medicare beneficiaries in SNFs. The OIG confirmed these 
preliminary findings in a follow-up study, ``Medicare 
Beneficiary Access to Skilled Nursing Facilities: 2000,'' OEI-
02-00-00330, September 2000, which indicated that almost all 
discharge planners reported being able to place Medicare 
beneficiaries in SNFs. Further, Medicare data show a decrease 
in the average length of hospital stays for beneficiaries prior 
to a SNF admission, suggesting that the hospital stays are not 
being prolonged by a delay in SNF placement.
    While Congress enacted four add-on payments to the SNF 
prospective payment system rates, the intent was to establish 
the adjustments as temporary measures only. In fact, two of the 
temporary add-on adjustments expired, according to statute, in 
2002. At that time, there were also concerns about the negative 
impact the payment reduction would have on quality. These 
concerns were not realized, as evidenced by the positive profit 
margins reported for the SNF industry. In its March 2005 
report, the Medicare Payment Advisory Commission estimated that 
the estimated aggregate 2005 Medicare margin for freestanding 
SNFs (the majority of SNF providers) is 13 percent.
    The remaining two add-on payments (a 20 percent increase 
for 12 complex medical payment groups plus a 6.7 percent 
increase for 14 therapy groups, and an across the board 128 
percent increase for beneficiaries with AIDS) are scheduled to 
expire when the Centers for Medicare and Medicaid Services 
implements refinements to the case-mix classification system. 
The President's FY 2006 budget request assumes the 
implementation of case-mix refinements in the coming fiscal 
year. Any such proposal would be introduced through the rule-
making process and would be open for public comment.

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