Medicare: Contingency Plans to Address Potential Problems with	 
the Transition of Dual-Eligible Beneficiaries from Medicaid to	 
Medicare Drug Coverage (16-DEC-05, GAO-06-278R).		 
                                                                 
The Medicare Prescription Drug, Improvement, and Modernization	 
Act of 2003 (MMA) established a voluntary outpatient prescription
drug benefit, known as Medicare Part D. The Centers for Medicare 
& Medicaid Services (CMS) is responsible for implementing this	 
benefit. This new drug coverage will be provided through	 
competing private Part D plans sponsored by health care 	 
organizations, which may charge premiums, deductibles, or	 
copayments for drugs. As a result of MMA, on January 1, 2006,	 
drug coverage for dual-eligible beneficiaries will transition	 
from Medicaid to Medicare Part D. This transition will occur for 
approximately 6 million full-benefit dual-eligible		 
beneficiaries--Medicare beneficiaries who receive full Medicaid  
benefits for services not covered by Medicare. CMS is in the	 
process of implementing this transition. During May and June	 
2005, CMS mailed notices to these beneficiaries informing them of
the transition in coverage and that they will receive a subsidy  
to cover their entire deductible and help cover any prescription 
drug plan (PDP) premiums. During October and November 2005, CMS  
automatically assigned dual-eligible beneficiaries to PDPs and	 
mailed notices to these beneficiaries informing them of the	 
assignment and also that they may select a different PDP if they 
wish. If they do not switch from their assigned PDP by December  
31, 2005, CMS will automatically enroll them in that drug plan	 
with coverage effective January 1, 2006. MMA provides that, after
that date, dual-eligible beneficiaries may switch PDPs at any	 
time. Dual-eligible beneficiaries are poorer and tend to have far
more extensive health care needs than other Medicare		 
beneficiaries. They are also more likely to be disabled, at least
85 years old, or to have cognitive impairments. Congress raised  
concerns that the single-day transition from one type of drug	 
coverage to another could create difficulties in ensuring that	 
prescriptions for this vulnerable population are filled. Congress
asked us to review (1) the potential problems that may arise	 
during the transition and (2) the contingency plans that CMS,	 
PDPs, and states have developed to respond to potential problems 
with the transition.						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-278R					        
    ACCNO:   A43437						        
  TITLE:     Medicare: Contingency Plans to Address Potential Problems
with the Transition of Dual-Eligible Beneficiaries from Medicaid 
to Medicare Drug Coverage					 
     DATE:   12/16/2005 
  SUBJECT:   Beneficiaries					 
	     Contingency plans					 
	     Drugs						 
	     Health insurance					 
	     Medicaid						 
	     Medicare						 
	     Eligibility criteria				 
	     Prescription drugs 				 

******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO Product.                                                 **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
******************************************************************
GAO-06-278R

December 16, 2005

The Honorable Max Baucus

Ranking Minority Member

Committee on Finance

United States Senate

Subject: Medicare: Contingency Plans to Address Potential Problems with
the Transition of Dual-Eligible Beneficiaries from Medicaid to Medicare
Drug Coverage

Dear Senator Baucus:

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA) established a voluntary outpatient prescription drug benefit, known
as Medicare Part D.1 The Centers for Medicare & Medicaid Services (CMS) is
responsible for implementing this benefit. This new drug coverage will be
provided through competing private Part D plans sponsored by health care
organizations, which may charge premiums, deductibles, or copayments for
drugs.2 As a result of MMA, on January 1, 2006, drug coverage for
dual-eligible beneficiaries will transition from Medicaid to Medicare Part
D. This transition will occur for approximately 6 million full-benefit
dual-eligible beneficiaries-Medicare beneficiaries who receive full
Medicaid benefits for services not covered by Medicare.3

CMS is in the process of implementing this transition. During May and June
2005, CMS mailed notices to these beneficiaries informing them of the
transition in coverage and that they will receive a subsidy to cover their
entire deductible and help cover any prescription drug plan (PDP)
premiums. During October and November 2005, CMS automatically assigned
dual-eligible beneficiaries to PDPs and mailed notices to these
beneficiaries informing them of the assignment and also that they may
select a different PDP if they wish.4 If they do not switch from their
assigned PDP by December 31, 2005, CMS will automatically enroll them in
that drug plan with coverage effective January 1, 2006. MMA provides that,
after that date, dual-eligible beneficiaries may switch PDPs at any time.5

1Pub. L. No. 108-173, S: 101, 117 Stat. 2066, 2071-2152.

2MMA and CMS regulations require that each Part D plan meet standards as
to the categories of drugs it must cover, or include on its formulary, and
the extent of its pharmacy networks. Within these standards, the specific
formulary and pharmacy network of each plan may vary. However, CMS
required all plans to cover all or substantially all drugs in six
categories, including antidepressants, antipsychotics, anticonvulsants,
anticancer drugs, immunosuppressants, and  human immunodeficiency virus
and  acquired immunodeficiency syndrome drugs.

3Of these 6 million beneficiaries, approximately 0.6 million are enrolled
in managed care organizations and other plans and will not be addressed in
this report. There are also approximately 1 million other dual-eligible
beneficiaries, known as partial-benefit dual-eligible beneficiaries, who
do not receive Medicaid drug coverage, and thus, are not involved in this
transition.

Dual-eligible beneficiaries are poorer and tend to have far more extensive
health care needs than other Medicare beneficiaries.6 They are also more
likely to be disabled, at least 85 years old, or to have cognitive
impairments.7 You raised concerns that the single-day transition from one
type of drug coverage to another could create difficulties in ensuring
that prescriptions for this vulnerable population are filled. You asked us
to review (1) the potential problems that may arise during the transition
and (2) the contingency plans that CMS, PDPs, and states have developed to
respond to potential problems with the transition. Enclosure I contains
information we provided during our November 14, 2005 briefing to your
staff. You also expressed concerns that dual-eligible beneficiaries in the
areas affected by Hurricane Katrina may not be able to obtain necessary
drugs on and after January 1, 2006.8 Enclosure II contains information we
provided during our briefing to your staff on contingency plans related to
this concern.

To address these objectives, we interviewed officials from CMS and from
Medicaid agencies in California, Montana, and Texas-states with large
urban or rural populations. We interviewed representatives from three
organizations offering Medicare PDPs, eleven drug-store chains, and the
CMS contractor responsible for implementing the Eligibility Transaction-a
contingency plan designed to identify the PDP in which a beneficiary is
enrolled. In addition, we reviewed CMS's plan for managing the transition
and the transition plans of three organizations offering PDPs, which
outline their plans to assist beneficiaries who are transitioning to
Medicare drug coverage. We spoke with officials from the American
Association of Homes and Services for the Aging, the Center for Medicare
Advocacy, the Commonwealth Fund, the Kaiser Family Foundation, the Long
Term Care Pharmacy Alliance, the Medicare Rights Center, the National
Association of Chain Drug Stores, and the National Community Pharmacists
Association. We also spoke with two independent researchers. We conducted
our work from September 2005 through December 2005 in accordance with
generally accepted government auditing standards.

4According to CMS, as of November 2005, the agency had identified
approximately 6.1 million dual-eligible beneficiaries. Of these,
approximately 5.5 million individuals have been automatically assigned to
a PDP. Most of the remaining 0.6 million beneficiaries are enrolled in and
will receive drug coverage through managed care organizations or other
plans.

5According to CMS, beneficiaries' choices will only be effective the first
day of the month following the month in which their new PDP receives their
completed application.

6Medicare Payment Advisory Commission, Report to the Congress: New
Approaches in Medicare (Washington, D.C.: June 2004). Includes all
dual-eligible beneficiaries, both full- and partial-benefit.

7Medicare Payment Advisory Commission, Report to the Congress. Includes
all dual-eligible beneficiaries, both full- and partial-benefit.

8On August 29, 2005, Hurricane Katrina made landfall on the U.S. Gulf
Coast, causing widespread devastation, particularly in Alabama, Louisiana,
and Mississippi.

Results in Brief

We identified three potential problems that may leave some dual-eligible
beneficiaries facing difficulties immediately obtaining necessary drugs
beginning January 1, 2006. The likelihood and magnitude of these potential
problems is not known. First, some individuals may not be identified for
automatic enrollment in a PDP due to potential inaccuracies in state or
federal data. Second, not all beneficiaries who become dually eligible in
late 2005 and beyond may be identified and automatically enrolled by the
date they become dually eligible. Third, given that MMA and implementing
regulations require that dual-eligible beneficiaries be randomly enrolled
in PDPs using two criteria-the region in which the beneficiary resides and
the amount of the PDP premium-beneficiaries' prescription drugs may not be
on their PDP formulary or their customary pharmacy may not be in their PDP
pharmacy network.

CMS, PDP, and state contingency plans address potential problems with the
transition. Although each of these contingency plans is useful in
mitigating risks for dual-eligible beneficiaries, their effectiveness is
uncertain.

           o  For dual-eligible beneficiaries who do not have Medicare drug
           coverage because they were either not identified and enrolled on
           January 1, 2006 or are newly qualified dual-eligible
           beneficiaries, CMS has developed a point-of-sale enrollment
           mechanism designed to enable pharmacies to assist these
           beneficiaries in obtaining immediate Part D coverage. The agency
           signed a contract with a designated PDP on November 22, 2005 to
           implement this mechanism. Because these arrangements were
           completed less than 6 weeks before the transition is to occur,
           limited time remains to educate all pharmacies about its
           availability and details of its operation.

           o  For beneficiaries who were enrolled in a PDP but do not have
           their PDP information, CMS has facilitated a new
           information-technology process, known as the Eligibility
           Transaction, that will allow pharmacies to identify a
           beneficiary's PDP and provide the beneficiary with the PDP's
           contact information. As with the point-of-sale enrollment
           mechanism, it is unclear to what extent pharmacies are informed
           about the Eligibility Transaction and will use it. Despite CMS
           efforts to publicize this tool to industry organizations, a
           pharmacy industry association representative stated that it is
           unclear how many independent drug stores, which dispense the
           majority of the nation's retail prescription drugs, plan to use
           the Eligibility Transaction.

           o  To assist dual-eligible beneficiaries with prescriptions for
           drugs not on their PDP's formulary, according to CMS, all PDPs
           will offer dual-eligible beneficiaries at network pharmacies first
           fills of prescriptions for drugs not covered by formularies. First
           fills will give beneficiaries time to work with a physician to
           switch to a formulary drug, file an appeal for a formulary
           exception with their PDP, or switch PDPs. However, in order to
           obtain a first fill without paying out-of-pocket, beneficiaries
           must be at a network pharmacy.9 CMS officials stated that PDP
           formularies are robust and access to PDP pharmacy networks is
           broad. However, they noted that PDP formularies typically include
           upwards of 80 percent of the 100 most commonly used drugs. We did
           not evaluate the extensiveness of PDP formularies or pharmacy
           networks.

           o  To provide beneficiaries with time to resolve problems they may
           encounter and thereby minimize disruptions in treatment, state
           Medicaid agencies have the option to offer early or extended drug
           refills to dual-eligible beneficiaries prior to January 1, 2006.
           However, because of financial disincentives associated with the
           transition, state officials indicated that not all states are
           expected to provide such refills.

Agency Comments and Our Response

CMS reviewed a draft of this report and provided written comments, which
appear in enclosure III.

In its comments, CMS objected to any implication that it has not taken all
steps to keep potential problems to a minimum. Furthermore, the agency
asserted that its contingency plans fully address the problems we describe
and that they will ensure that dual-eligible beneficiaries will have
immediate access to needed drugs. While we credit CMS for taking steps to
mitigate potential risk for dual-eligible beneficiaries, we believe that
the agency's complete confidence in contingency plans that have yet to be
fully tested, publicized, or implemented may be premature. Our report
provides valid reasons why the effectiveness of these plans is uncertain
at this time.

CMS also suggested that we restructure the report. It proposed that (1)
the discussion of potential problems be provided as set-up or background
information, (2) the finding on potential problems focus on the efforts
CMS has taken that ensure continuity of coverage for dual-eligible
beneficiaries, and (3) the "Results in Brief" section be expanded to more
fully describe CMS contingency plans. We organized this report to address
the two objectives set forth by our requester-to review potential problems
associated with the transition and to review contingency plans developed
to address them. In this way, the reader is first given information on
anticipated problems that may arise from MMA transition provisions as
context for understanding the strengths and weaknesses of various
contingency plans. Our "Results in Brief" provides a balanced description
of what each contingency plan is designed to do and its potential
effectiveness.

In addition, CMS contended that we did not adequately take into account
new information provided to us on November 18, 2005. The agency referred
specifically to our discussion of its point-of-sale enrollment mechanism
to guarantee immediate access to needed drugs for any dual-eligible
beneficiary not already enrolled in a PDP. At our meeting on November 18,
agency officials reported that negotiations for the point-of-sale
enrollment mechanism had not been finalized and details about the
prospective contract could not be discussed. Our draft described the
design and prospective nature of this contingency plan. While the draft
report was at CMS for review, the agency signed and publicly announced the
contract with its designated point-of-sale PDP. We have revised our report
to reflect this new information.

9At out-of-network pharmacies, beneficiaries may pay the retail price
out-of-pocket for their drugs and submit a claim for reimbursement to
their PDP. However, CMS acknowledged that it is unlikely that
dual-eligible beneficiaries will be able to pay the retail price
out-of-pocket.

CMS provided technical comments which we incorporated as appropriate.
Also, the agency asked us to publish several informational documents
attached to its comments. We reviewed these documents and determined that
they did not address our findings and conclusions.

                                   - - - - -

We are sending a copy of this report to the Administrator of CMS and
appropriate congressional committees. We will also make copies available
to others on request. In addition, the report is available at no charge on
GAO's Web site at http://www.gao.gov.

If you or your staff have any questions, please contact me at (202)
512-7119 or [email protected]. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of the report.
GAO staff who made major contributions to this report are listed in
enclosure IV.

Sincerely yours,

Kathleen M. King

Director, Health Care

Enclosures-4

       Potential Problems and Contingency Plans Related to the Transition

          of Dual-Eligible Beneficiaries Affected By Hurricane Katrina

On August 29, 2005, Hurricane Katrina made landfall on the U.S. Gulf
Coast, causing widespread devastation, particularly in Alabama, Louisiana,
and Mississippi. Concerns have been raised related to dual-eligible
beneficiaries in the areas affected by the hurricane and whether they will
be able to obtain necessary drugs through Medicare Part D on or after
January 1, 2006.1 Specifically, these beneficiaries may have evacuated and
may no longer live in the region in which they were assigned to a
prescription drug plan (PDP). Alternatively, certain dual-eligible
beneficiaries may still reside in the region in which they were assigned
to a PDP, but the extent to which pharmacies in the hurricane-affected
areas will be available to fill prescriptions is not known.

To address problems dual-eligible beneficiaries affected by Hurricane
Katrina may have in obtaining drugs, the Centers for Medicare & Medicaid
Services (CMS) has created a system that allows beneficiaries assigned to
PDPs in Alabama, Louisiana, or Mississippi to immediately obtain drugs
from any pharmacy they visit. Under this plan, pharmacies will
electronically submit a bill for the drugs to the beneficiary's PDP.2 If
the PDP's network does not include that pharmacy, the PDP will reject the
bill. In addition, if the PDP serves the hurricane-affected areas of
Alabama, Louisiana, or Mississippi, it will notify the pharmacy that the
beneficiary may be a hurricane evacuee and advise the pharmacy to contact
the PDP.

The pharmacy will contact the beneficiary's PDP and work with it to submit
an out-of-network bill. Submitting an out-of-network bill may take up to
24 hours, but the pharmacy will immediately collect the beneficiary's
copayment and immediately dispense their drugs. To compensate the
out-of-network pharmacies for the additional effort they must make in
these cases, PDPs will reimburse them the retail price for the drug, with
Medicare contributing the difference between the retail price and the
PDP's negotiated price for network pharmacies.

CMS has directed PDPs to follow up with beneficiaries it identifies
through this process. The agency reported that if the original PDP
determines that the beneficiary has permanently relocated, that PDP will
assist them in switching to another PDP that serves their region. If the
original PDP determines that the beneficiary may return to their home in
Alabama, Louisiana, or Mississippi, or never left but cannot access a
network pharmacy, it will attempt to incorporate the pharmacy that the
beneficiary accessed into its network.

1Major hurricanes also made landfall in other areas of the United States
in 2005. However, contingency plans related to the transition are in place
only with respect to Alabama, Louisiana, and Mississippi.

2If necessary, pharmacies will first use the Eligibility Transaction to
determine the PDP to which the beneficiary belongs.

One PDP representative we spoke with stated that this plan was quite
feasible. Another stated that it was cumbersome, but useful. Two pharmacy
industry organizations we spoke with did not express concern about this
plan, and one stated that it was useful and workable.

           Comments from the Centers for Medicare & Medicaid Services

                     GAO Contact and Staff Acknowledgments

GAO Contact

Kathleen M. King, (202) 512-7119 or [email protected].

Acknowledgments

In addition to the contact named above, Rosamond Katz, Assistant Director;
Joanna L. Hiatt; and Grace A. Materon made key contributions to this
report.

(290493)

GAO's Mission

The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting its
constitutional responsibilities and to help improve the performance and
accountability of the federal government for the American people. GAO
examines the use of public funds; evaluates federal programs and policies;
and provides analyses, recommendations, and other assistance to help
Congress make informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.

Obtaining Copies of GAO Reports and Testimony

The fastest and easiest way to obtain copies of GAO documents at no cost
is through GAO's Web site (www.gao.gov). Each weekday, GAO posts newly
released reports, testimony, and correspondence on its Web site. To have
GAO e-mail you a list of newly posted products every afternoon, go to
www.gao.gov and select "Subscribe to Updates."

Order by Mail or Phone

The first copy of each printed report is free. Additional copies are $2
each. A check or money order should be made out to the Superintendent of
Documents. GAO also accepts VISA and Mastercard. Orders for 100 or more
copies mailed to a single address are discounted 25 percent. Orders should
be sent to:

U.S. Government Accountability Office 441 G Street NW, Room LM Washington,
D.C. 20548

To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061

To Report Fraud, Waste, and Abuse in Federal Programs

Contact:

Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: [email protected]
Automated answering system: (800) 424-5454 or (202) 512-7470

Congressional Relations

Gloria Jarmon, Managing Director, [email protected] (202) 512-4400 U.S.
Government Accountability Office, 441 G Street NW, Room 7125 Washington,
D.C. 20548

Public Affairs

Paul Anderson, Managing Director, [email protected] (202) 512-4800 U.S.
Government Accountability Office, 441 G Street NW, Room 7149 Washington,
D.C. 20548

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.
*** End of document. ***