Medicare: CMS's Implementation and Oversight of the Medicare
Prescription Drug Discount Card and Transitional Assistance
Program (31-OCT-05, GAO-06-78R).
The Medicare Prescription Drug, Improvement and Modernization Act
of 2003 (MMA) added a prescription drug benefit to the Medicare
program, to become effective January 1, 2006. To assist Medicare
beneficiaries with their prescription drug costs until the new
benefit becomes available, the MMA also required the
establishment of a temporary program, the Medicare Prescription
Drug Discount Card and Transitional Assistance Program, which
began in June 2004. The drug card program is designed to offer
Medicare beneficiaries access to discounts off the retail price
of prescription drugs. All Medicare beneficiaries, except those
receiving Medicaid drug coverage, are eligible to enroll in the
drug card program. Certain low-income beneficiaries without other
drug coverage qualify for an additional benefit, a transitional
assistance (TA) subsidy, that can be applied toward the cost of
drugs covered under the drug card program. The Centers for
Medicare & Medicaid Services (CMS)--the agency within the
Department of Health and Human Services that administers the
Medicare and Medicaid programs--administers and oversees the drug
card program. The drug cards themselves are offered and managed
by private organizations, known as drug card sponsors. There are
different types of drug cards. General drug cards are available
to all eligible beneficiaries living in a card's service area;
there are both national and regional general cards. Exclusive and
special endorsement drug cards are available to specific
beneficiary groups. Some drug card sponsors offer more than one
drug card. Congress asked us to examine CMS's implementation and
oversight of the temporary drug card program. Specifically, we
reviewed (1) the processes that CMS used to solicit, evaluate,
and approve drug card sponsors; and (2) the processes that CMS
uses to oversee drug card sponsors and the problems identified as
a result of CMS oversight.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-78R
ACCNO: A40682
TITLE: Medicare: CMS's Implementation and Oversight of the
Medicare Prescription Drug Discount Card and Transitional
Assistance Program
DATE: 10/31/2005
SUBJECT: Beneficiaries
Drugs
Health care programs
Medicare
Monitoring
Program evaluation
Solicitations
Prescription drugs
Medicare Prescription Drug Discount Card
and Transitional Assistance Program
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GAO-06-78R
* PDF6-Ordering Information.pdf
* Order by Mail or Phone
United States Government Accountability Office Washington, DC 20548
October 28, 2005
The Honorable Henry A. Waxman Ranking Minority Member Committee on
Government Reform House of Representatives
Subject: Medicare: CMS's Implementation and Oversight of the Medicare
Prescription Drug Discount Card and Transitional Assistance Program
Dear Mr. Waxman:
The Medicare Prescription Drug, Improvement and Modernization Act of 2003
(MMA) added a prescription drug benefit to the Medicare program, to become
effective January 1, 2006. 1 To assist Medicare beneficiaries with their
prescription drug costs until the new benefit becomes available, the MMA
also required the establishment of a temporary program, the Medicare
Prescription Drug Discount Card and Transitional Assistance Program, which
began in June 2004. 2 The drug card program is designed to offer Medicare
beneficiaries access to discounts off the retail price of prescription
drugs. All Medicare beneficiaries, except those receiving Medicaid drug
coverage, are eligible to enroll in the drug card program. Certain
low-income beneficiaries without other drug coverage qualify for an
additional benefit, a transitional assistance (TA) subsidy, 3 that can be
applied toward the cost of drugs covered under the drug card program.
The Centers for Medicare & Medicaid Services (CMS)-the agency within the
Department of Health and Human Services that administers the Medicare and
Medicaid programs- administers and oversees the drug card program. The
drug cards themselves are offered and managed by private organizations,
known as drug card sponsors. There are different types of drug cards.
General drug cards are available to all eligible beneficiaries living in a
card's
1
Pub. L. No. 108-173, S:101, 117 Stat. 2066, 2071, 2072.
2
Pub. L. No. 108-173, S:101, 117 Stat. 2066, 2071, 2131. Throughout this
report, we refer to the Medicare Drug Discount Card and Transitional
Assistance Program as the drug card program. Beneficiaries can enroll in
the drug card program through December 2005. Beneficiaries can use their
drug cards until the effective date of their enrollment in a Medicare
prescription drug plan or until May 15, 2006, whichever comes first.
3
For beneficiaries who qualify for TA, the program offers a subsidy of up
to $600 per year toward the cost of covered drugs. To qualify for TA, a
beneficiary must have (1) an income at or below 135 percent of the federal
poverty level and (2) with certain exceptions, not have other prescription
drug coverage through Medicaid, an employer-sponsored group health
insurance program, an individual health insurance policy, TRICARE (the
Department of Defense health care program for active-duty personnel,
retirees, and their dependents), or the Federal Employees Health Benefits
Program. TA funds available to beneficiaries in 2004 and 2005 can be used
until the effective date of their enrollment in a Medicare prescription
drug plan or until May 15, 2006, whichever comes first.
GAO-06-78R Medicare Prescription Drug Card Program
service area; there are both national and regional general cards. 4
Exclusive and special endorsement drug cards are available to specific
beneficiary groups. 5 Some drug card sponsors offer more than one drug
card.
You asked us to examine CMS's implementation and oversight of the
temporary drug card program. Specifically, we reviewed (1) the processes
that CMS used to solicit, evaluate, and approve drug card sponsors; and
(2) the processes that CMS uses to oversee drug card sponsors and the
problems identified as a result of CMS oversight. 6
To address these objectives, we focused our work on general drug cards;
our work did not include exclusive or special endorsement cards. We
interviewed CMS officials, staff from 6 CMS contractors that assist with
key program oversight activities, and staff from 8 of 32 general drug card
sponsors. 7 The drug card sponsors we interviewed represented a mix of
national and regional cards; varied in terms of total enrollment size, TA
enrollment size, and number of beneficiary complaints received by CMS;
reflected different organization types (for example, pharmacy benefit
managers, 8 managed care organizations, and health insurers); and included
drug card sponsors whose applications were approved by CMS and those whose
applications to offer drug cards were initially denied, but later
approved. We also reviewed relevant CMS, CMS contractor, and drug card
sponsor documents, such as CMS guidance, CMS contractor reports, and drug
card sponsor applications. We targeted CMS's oversight of elements of five
key program areas for more focused review-drug prices, sponsors' pharmacy
networks, sponsor-provided beneficiary information, TA, and beneficiary
complaints and grievances. We selected these areas based on their
likelihood to influence beneficiaries' enrollment decisions and access to
drugs, as well as their potential to pose problems or weaknesses for the
program. When feasible, we validated the information CMS officials told us
by reviewing program documents and interviewing officials from CMS
contractors and drug card sponsors. We conducted our work from April 2005
through October 2005 in accordance with generally accepted government
auditing standards.
We briefed your staff on the information contained in this report on
September 23, 2005. As discussed with your staff at that time, we agreed
to issue this report, which officially transmits the briefing slides (see
enc. I) and expands on the information provided at the briefing.
4
National cards provide beneficiaries access to discounts at pharmacies
nationwide, while regional cards offer discounts at pharmacies within a
smaller geographic area-an entire state at a minimum.
5
Exclusive cards are cards that Medicare managed care plans offer only to
their plan enrollees. (Some managed care plans offer general cards open to
all eligible beneficiaries, not just those enrolled in their plan.)
Special endorsement cards serve residents of long-term care facilities
such as skilled nursing facilities; U.S. territory residents; and American
Indians and Alaskan Natives who use Indian Health Service, Indian Tribe
and Tribal Organization, and Urban Indian Organization pharmacies.
6
We are conducting other work related to this topic. See Medicare: CMS's
Beneficiary Education and Outreach Efforts for the Medicare Prescription
Drug Discount Card and Transitional Assistance Program, GAO-06-139R
(Washington, D.C.: forthcoming). We also plan to issue a report in 2005 on
sponsors' processes related to the drug card program.
7
Included in the 32 sponsoring organizations are affiliated organizations,
such as 11 individual Blue Cross and Blue Shield entities that are counted
as one organization.
8
Pharmacy benefit managers manage prescription drug benefits for
third-party payers, such as employer-sponsored health plans and other
health insurers.
GAO-06-78R Medicare Prescription Drug Card Program
Background
CMS implemented the drug card program within a 6-month time frame. The MMA
was enacted on December 8, 2003. The following week, CMS published an
interim final rule that outlined the drug card program, including the
requirements that organizations had to meet to become drug card sponsors.
9 Interested organizations had to submit applications to CMS by January
30, 2004. Organizations that CMS approved as drug card sponsors could
begin enrolling beneficiaries on May 3, 2004. The drug card program took
effect on June 1, 2004.
Organizations had to meet certain requirements in order to be approved by
CMS as drug card sponsors. For example, a drug card sponsor had to be a
nongovernmental organization doing business in the United States, be
financially stable and reputable, have at least 3 years of private-sector
experience in pharmacy benefit management, and serve at least 1 million
covered lives under a similar pharmacy benefit program. Drug card sponsors
also had to agree to manage the enrollment and TA processes for their
cards, offer customer service and beneficiary grievance programs, provide
program information to beneficiaries, operate a tollfree customer call
center, and report data about their drug cards-such as drug price and
utilization data-to CMS.
Drug card sponsors also had to demonstrate their ability to meet
requirements regarding drug prices and beneficiaries' access to
pharmacies. One requirement of the program is that drug card sponsors must
offer a negotiated price 10 for at least one drug in each of over 200 drug
classes that CMS identified as being commonly used by Medicare
beneficiaries. 11 According to CMS, nearly all prescription drugs that can
be purchased at retail pharmacies are eligible to be covered by sponsors'
drug cards. 12 The MMA refers to 9 classes of drugs that drug card
sponsors are not allowed to cover through their drug cards; the excluded
classes include barbiturates and benzodiazepines, among others. While drug
card sponsors may change the prices charged to beneficiaries, they must
report all price increases to CMS and explain the rationale for price
increases not attributable to published sources of information such as the
Average Wholesale Price (AWP) of the drug. 13 They must also contract with
a sufficient
9
Medicare Program; Medicare Prescription Drug Discount Card; Interim Rule
and Notice, 68 Fed. Reg. 69840 (2003).
10
The MMA specified that drug card sponsors shall provide access to
"negotiated prices" on the drugs they cover. CMS regulations define
negotiated price as the discounted price that takes into account
negotiated price concessions such as discounts, rebates, and direct or
indirect subsidies or remunerations. Drug card sponsors are required to
obtain rebates, discounts, or other price concessions from drug
manufacturers and to pass on a share of these concessions to card
enrollees; neither the MMA nor CMS's regulations specify any minimum
amount that must be passed on to enrollees.
11
Drugs that possess similar chemical structures and similar therapeutic
effects are grouped into classes. Most drugs within a class produce
similar benefits, side effects, adverse reactions, and interactions with
other drugs and substances.
12
Covered drugs include prescription drugs, certain vaccines, insulin, and
some medical supplies associated with the injection of insulin.
13
AWP is a list price that a manufacturer suggests wholesalers charge
pharmacies.
GAO-06-78R Medicare Prescription Drug Card Program
number of pharmacies to ensure that their pharmacy networks meet the
program's network access requirements. 14
After reviewing applications from interested organizations, CMS approved
all but 1 general drug card. 15 Two potential drug card sponsors withdrew
their applications to offer a general drug card. The 71 approved general
drug cards included 39 national drug cards and 32 regional drug cards.
Because 5 approved national drug cards were never marketed, 66 general
drug cards enrolled beneficiaries. These 66 active general drug cards are
sponsored by 32 different organizations. Many general drug cards are
sponsored by pharmacy benefit managers, managed care organizations, or
health insurers. As of August 2005, there were nearly 3.8 million general
drug card enrollees; about 44 percent were enrolled in both a drug card
and TA, while about 56 percent were enrolled in a drug card only. About 87
percent of general drug card enrollees were enrolled in national drug
cards, and about 13 percent were enrolled in regional drug cards. 16
CMS has provided guidance to drug card sponsors through several means. The
agency has conducted periodic conference calls available to all sponsors
and has shared guidance through e-mail bulletins and "Questions and
Answers" posted on the CMS Web site. It also has provided written guidance
on topics such as sponsors' outreach activities and the drug card data
that sponsors must report to CMS. In addition, CMS assigned staff to serve
as the point of contact for each drug card sponsor to provide individual
guidance and assistance.
Results in Brief
The processes CMS used to solicit, evaluate, and approve general drug card
applications were geared to the 6-month time frame between the enactment
of the MMA and the mandated start date for the drug card program. This
included the type of solicitation CMS used, the design of the application,
and the application evaluation and approval process.
o CMS used a noncompetitive solicitation process in which all qualified
organizations could participate in the program. CMS officials told us
they took this approach to encourage participation in the program,
facilitate communication with and among potential drug card sponsors,
and avoid the need to develop weighted criteria to evaluate the
applications-which CMS officials said would have been required if a
competitive solicitation was used.
o CMS developed the application for drug card sponsors before all of the
program's operational guidelines had been completed. As a result, CMS
officials said that openended questions were used to learn more about
and evaluate potential sponsors' capabilities and for other reasons.
14
By regulation, in urban areas, at least 90 percent of a card's enrollees
must live within 2 miles of a contracted network pharmacy; in suburban
areas, at least 90 percent must live within 5 miles of a contracted
network pharmacy; and in rural areas, at least 70 percent must live within
15 miles of a contracted network pharmacy. These access standards are
based on those used in the TRICARE Retail Pharmacy program, which provides
prescription services for Department of Defense beneficiaries through a
network of retail pharmacies.
15
CMS denied one applicant due to what it considered a failure to respond
substantively to the application requirements.
16
As of August 2005, CMS reported 6.4 million enrollees across all types of
drug cards.
GAO-06-78R Medicare Prescription Drug Card Program
o Based on its initial review of applicants, CMS approved only those that
provided all of the information requested in the application. Initially
denied applicants whose applications were missing minor information were
allowed to provide the missing information through a redetermination
process; those whose applications were missing significant information
were allowed to appeal the denial through a reconsideration process. CMS
announced its initial list of approved general drug card sponsors on March
25, 2004; that list did not include sponsors that had not completed the
redetermination and reconsideration processes. The last sponsor was
approved on May 7, 2004.
CMS's oversight of drug card sponsors has identified and corrected some
problems, but has had some limitations with respect to the timeliness of
oversight activities and the guidance provided to sponsors. CMS uses
multiple methods to monitor drug card sponsors. CMS investigates the
complaints it receives directly from 1-800-MEDICARE 17 and other sources,
and collects information about the complaints reported to sponsors, known
as "grievances." CMS has collected other data from drug card sponsors
regularly, including drug price and pharmacy information that it published
on its Price Compare Web site, 18 as well as information on manufacturer
and pharmacy price concessions. CMS also uses contractors to assist with
oversight activities, including conducting financial audits of drug card
sponsors and analyzing sponsor-reported price data. With respect to CMS's
oversight, we reviewed five key program areas: drug prices, sponsors'
pharmacy networks, sponsor-provided beneficiary information, TA, and
beneficiary complaints and grievances.
Drug Prices
o Early in the program, CMS identified problems such as inconsistencies
in sponsors' reported unit prices for non-pill prescriptions-such as
creams, powders, and sprays-and delays in drug card sponsors'
reporting of data. CMS officials told us that, as a result, they
worked with sponsors to standardize the reporting of non-pill prices,
did not post some sponsors' data on the Price Compare Web site, and
took compliance actions against sponsors with reporting delays.
o Work to determine if non-TA enrollees have been inappropriately
charged more than the maximum drug price reported on the Price Compare
Web site began in June 2005; results are expected in November 2005.
o CMS finalized guidance on how drug card sponsors should report data on
price concessions from manufacturers and pharmacies in November 2004,
about 5 months after the program began. According to CMS, as of August
2005, the overall quality of that data remained questionable, with
problems such as outliers and missing data.
17
1-800-MEDICARE is a CMS-administered nationwide toll-free telephone help
line that beneficiaries, their families, and other members of the public
can call to ask questions about program eligibility, enrollment, and
benefits.
18
This Web site, with information for beneficiaries on available drug cards,
was part of the "Prescription Drug and Other Assistance Programs" tool
located at www.medicare.gov-a tool to help beneficiaries determine their
eligibility for the drug card program, decide whether to enroll in the
program, and select a drug card. CMS deactivated the component of the Web
site with information about drug prices on September 30, 2005.
GAO-06-78R Medicare Prescription Drug Card Program
Sponsors' Pharmacy Networks
o CMS officials told us that they have followed up on complaints
received from beneficiaries and pharmacists about the accuracy of the
pharmacy participation information displayed on the Price Compare Web
site. In reviewing reported problems, CMS found that most of the
problems were due to pharmacies being unaware that they were
participating in a drug card sponsor's network; sometimes pharmacies
were not actually participating in a sponsor's network even though
they were listed on the Price Compare Web site. CMS officials told us
that they worked with drug card sponsors to improve pharmacy awareness
about program participation. When warranted, CMS corrected the
pharmacy participation information on the Price Compare Web site.
* A CMS contractor also surveyed a sample of pharmacies in February
2005 to determine if they were participating in sponsors'
pharmacy networks, in accordance with what was shown on the Price
Compare Web site. According to CMS officials, preliminary survey
results as of August 2005 showed some disagreement between
pharmacies' responses and the Price Compare Web site information,
with the rate of disagreement higher for some drug card sponsors
and in three states (North Dakota, Iowa, and Missouri). Although
this survey did not assess the reason for the disagreement, in
its comments on a draft of this report, CMS stated that the
disagreement was likely due to problems with pharmacies'
knowledge about program participation, rather than errors on the
Web site. CMS officials said they began following up with
sponsors identified as problematic in summer 2005. In its
comments, CMS reported that it had conducted compliance
conference calls with those sponsors and had encouraged them to
re-educate their network pharmacies.
* Sponsor-provided Beneficiary Information
o A CMS contractor conducted a limited retrospective review of drug card
sponsors' marketing materials in March 2005. Two pre-enrollment
packets were requested by phone from each of six general drug card
sponsors. All the packets were noncompliant with program requirements.
Most packets were missing materials required by CMS and some materials
had not been previously approved for distribution by the CMS
contractor. The contractor never received several requested packets.
CMS officials said that they worked with the drug card sponsors
reviewed to resolve these problems.
o CMS's primary method for monitoring information provided by drug card
sponsor call centers was a contractor-conducted study in which callers
posing as beneficiary caregivers used different scenarios to test
customer service representatives' responses to questions. CMS
officials told us about several problems, including the unavailability
of representatives for non-English speaking callers, the
unavailability of representatives able to respond to callers using
telecommunications for the deaf, inappropriate handling of beneficiary
complaints about pharmacies (in which callers were told to contact the
pharmacies themselves rather than file a grievance with the sponsor),
and customer service representatives' confusion about enrollment fees
if their call centers were handling calls about multiple drug cards.
Most of the contractors' calls were conducted from June through
December 2004. CMS officials said that sponsors were contacted during
this period if there were problems such as a wrong call center
telephone number or a call center that was closed during the hours
GAO-06-78R Medicare Prescription Drug Card Program
it claimed to be open. CMS officials told us that their follow-up with
sponsors for the other identified call center issues began in summer 2005.
Transitional Assistance
o Financial audits of sponsors conducted by a CMS contractor revealed
that $1.3 million in TA funds were inappropriately used by drug card
sponsors to pay for excluded drugs, which sponsors are required to
repay. While CMS had provided general guidance on excluded drug
classes on several previous occasions, it did not issue a
comprehensive list of excluded drugs until November 2004.
* Financial audits also revealed that several sponsors had allowed
beneficiaries to receive subsidies that exceeded the subsidy of
up to $600 per year. CMS officials attributed this to issues such
as problems when beneficiaries transferred among cards. Drug card
sponsors are required to repay excess payments.
* Beneficiary Complaints and Grievances
o Most complaints reported to CMS and grievances reported to sponsors
related to enrollment and disenrollment issues. For example, some
beneficiaries complained to CMS about delays in receiving drug cards
from drug card sponsors. CMS staff told us they worked with
beneficiaries and drug card sponsors to resolve complaints.
As a result of its oversight efforts, as of August 2005, CMS had taken 23
compliance actions against 15 drug card sponsors, most often in the form
of warning letters or corrective action plans.
Agency Comments
We provided a draft of this report for comment to the Administrator of
CMS, and we received written comments. (See enc. II.)
CMS commented that the draft report did not paint a full picture of the
depth and breadth of the agency's monitoring and oversight activities
conducted relative to the Medicare drug card program. As our draft report
discussed, we examined CMS's oversight of elements of five key program
areas: drug prices, sponsors' pharmacy networks, drug card
sponsor-provided beneficiary information, TA, and beneficiary complaints
and grievances. We targeted these specific program areas based on their
likelihood to influence beneficiaries' enrollment decisions and access to
drugs. Furthermore, because these targeted areas represented fundamental
components of the drug card program, any problems or weaknesses posed a
threat to the overall integrity of the program.
In commenting on our finding that there was a lack of reliable data on
price concessions, CMS agreed that there were significant data quality
issues relative to the information submitted by drug card sponsors. CMS
noted, however, that despite these concerns, the initial data, as well as
information from other sources, including some external to CMS, suggested
that drug card sponsors are passing through to beneficiaries a substantial
portion of their negotiated rebates, discounts, and other price
concessions. CMS also stated that it has worked to resolve the data
quality issues and that most price concession data submissions are now
accurate. Our work focused on CMS's oversight of the price concession data
reported by sponsors, not on the magnitude of price concessions passed on
to beneficiaries. As noted in the draft report, the overall quality of
that data as of August 2005
GAO-06-78R Medicare Prescription Drug Card Program
was questionable; we have not assessed or verified changes in the data's
quality since that time. However, both CMS's comments and our findings in
this area highlight the importance of CMS oversight of sponsor-reported
data.
In response to our finding that CMS's oversight of drug card sponsors has
had some limitations with respect to the timeliness of oversight
activities and the guidance provided to sponsors, CMS noted that it
implemented the drug card program and instituted a wide range of oversight
activities for the program, which is temporary, within a short period of
time. In the draft report, we acknowledged the limited time between the
December 2003 enactment of the MMA (which established the drug card
program) and the June 2004 implementation of the program, as well as the
temporary nature of the program. We also acknowledged various oversight
activities that CMS noted were conducted. However, as discussed in the
draft report, we identified some limitations of CMS's oversight of
sponsors. For example, we noted that in February 2005, a CMS contractor
surveyed a sample of pharmacies to determine if they were participating in
sponsors' pharmacy networks in accordance with what was shown on the Price
Compare Web site. For some sponsors, there were high levels of
disagreement between pharmacies and the Web site. As noted in the draft
report, CMS officials said they began working with those sponsors in
summer 2005. In commenting specifically on our findings about the pharmacy
network issue, CMS provided further detail about the oversight activities
that it has conducted.
In response to our finding that TA funds were used to pay for excluded
drugs on some occasions and that some beneficiaries received subsidies
that exceeded the subsidy of up to $600 per year, CMS commented that the
inappropriate payments were small in relation to the total services
delivered over the duration of the program. CMS further stated that it was
the responsibility of drug card sponsors to identify the drugs in the
excluded classes and to ensure that these drugs were not covered under the
program. CMS added that in July 2004 it had provided sponsors with a list
of drugs for two of the excluded drug classes. As noted in the draft
report, financial audits conducted by a CMS contractor for 15 drug cards
revealed that the sponsors of all 15 cards had incorrectly used TA funds
to cover excluded drugs. It was not until November 2004 that a
comprehensive list of drugs covering all of the excluded classes was
provided by CMS. CMS is responsible for ensuring that no program monies
are inappropriately spent.
With regard to our statements about problems related to information
provided by drug card sponsors' call centers, in its comments, CMS
provided some additional details on related oversight activities that it
has conducted. CMS noted, for example, that the CMS contractorconducted
study using test calls to call centers found that for Spanish language
callers, there were problems obtaining information in Spanish 20 percent
of the time; 80 percent of the time, information was provided in Spanish.
The findings from CMS's oversight of sponsors' call centers highlight the
need for monitoring of sponsor-provided beneficiary information and, when
needed, corrective action.
In its comments, CMS also noted that the agency has learned many valuable
lessons as a result of its experience with the drug card program, and that
those lessons will inform its future efforts as it moves forward with the
implementation of the Medicare prescription drug benefit that is to become
effective in 2006.
CMS also provided technical comments, which we incorporated as
appropriate.
GAO-06-78R Medicare Prescription Drug Card Program
As agreed with your office, unless you publicly announce the contents of
this report earlier, we plan no further distribution of it until 30 days
from the date of this report. At that time, we will send copies to the
Administrator of CMS and interested congressional committees. The report
will also be available on GAO's home page at http://www.gao.gov.
If you or your staff have any questions or need additional information,
please contact me at (202) 512-7114 or [email protected]. Contact points for
our Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors are listed in enclosure
III.
Sincerely yours,
Marjorie Kanof Managing Director, Health Care
Enclosures - 3
GAO-06-78R Medicare Prescription Drug Card Program
GAO Briefing
CMS's Implementation and Oversight of the Medicare Prescription Drug Discount
Card and Transitional Assistance Program
Briefing for the Staff of The Honorable Henry A. Waxman Ranking Minority Member
House Committee on Government Reform
(Updated)
The Medicare Prescription Drug, Improvement and Modernization Act of 2003
(MMA) established:
o A temporary program, the Medicare Prescription Drug Discount Card and
Transitional Assistance (TA) Program, which began in June 2004.a
o A Medicare prescription drug benefit, known as Medicare Part D, which
begins in January 2006.
* The Centers for Medicare & Medicaid Services (CMS) administers
and oversees the drug card program.
o All Medicare beneficiaries, except those receiving Medicaid
drug coverage, are eligible to enroll in the drug card
program, which provides access to discounts off the retail
price of prescription drugs.
o TA offers eligible low-income beneficiaries without other
drug coverage up to $600 per year for prescription drugs
covered under the drug card program.
o Drug cards are offered and managed by private organizations, known as
drug card sponsors. Drug card sponsors also manage TA for eligible
beneficiaries.
a Throughout these slides, we refer to this program as the drug card
program.
es CMS used to solicit, evaluate, and approve
drug card sponsors.
ing CMS with
key program oversight activities.
o Interviews with staff from eight drug card sponsors.
o Reviews of relevant documents.
o Reviews of selected program areas.
o We performed our work in accordance with generally accepted government
auditing standards from April 2005 through October 2005.
* Drug card sponsors had to demonstrate to CMS their ability to
meet program requirements, including, for example:
o Relevant organizational experience, including financial
stability and at least 3 years of private-sector experience
in pharmacy benefit management.
o Beneficiary access to pharmacies.
o Beneficiary access to discounts for covered drugs.
o Drug card sponsors are allowed to offer multiple drug cards, which are
differentiated by factors such as the geographic locations in which
they are offered and the level of discounts provided.
* CMS approved 71 general drug cards, including:
o 39 national cards.
o 32 regional cards.
o Five approved national cards were never marketed; there are 66 active
general drug cards offered by 32 sponsoring organizations.a
aIncluded in the 32 sponsoring organizations are affiliated organizations,
such as individual Blue Cross and Blue Shield entities that are counted as
one organization.
* CMS issued guidance to drug card sponsors using a number of
mechanisms, including:
o Periodic conference calls open to all sponsors.
o Bulletins distributed via e-mail.
o Electronic posting of "Questions and Answers."
o Other written guidance, such as information and outreach
guidelines.
o CMS assigned staff to serve as a point of contact for each drug card
sponsor to provide individual guidance and assistance.
o The processes CMS used to solicit, evaluate, and approve drug card
sponsors were influenced by the 6-month implementation time frame.
o CMS's oversight of sponsors has identified and corrected some program
problems, but has had some limitations with respect to the timeliness
of oversight activities and the guidance provided to sponsors.
Objective 1
The Processes CMS Used to Solicit, Evaluate,
and Approve Drug Card Sponsors Were Influenced by the 6-Month Implementation
Time Frame
The 6-month implementation time frame influenced the:
o Solicitation type.
o Application design.
o Application evaluation and approval process.
CMS used a noncompetitive solicitation process in which all organizations
meeting qualification requirements could participate in the program. CMS
officials told us they took this approach to:
o Meet the 6-month implementation time frame.
o Encourage participation, given the uncertainty of industry interest in
the program.
o Facilitate communication among and between drug card sponsor
applicants and CMS.
o Avoid the need to develop weighted criteria to evaluate applications.
o CMS used open-ended questions in the application it used to evaluate
potential sponsors.
o CMS officials said that they took this approach because the short
implementation time frame required that the application be designed
before some of the program's operational guidelines had been
developed.
Drug Card Sponsor Selection
Open-Ended Questions (cont.)
o CMS officials told us that the open-ended questions allowed them to
learn about and evaluate applicants' capabilities by requiring
detailed and descriptive responses.
* CMS officials said this would not have been possible using
closed-ended questions that would have prompted, for example, a
"yes" or "no" response. Each applicant was asked to describe, for
example, how:
o Its administrative infrastructure would interact with CMS.
o It would manage the TA benefit.
* CMS officials told us that they did not use all of the
information provided in the application to evaluate potential
sponsors; they used some of this information to gain a better
understanding of the industry. For example, they solicited
information to better understand:
o The frequency of price increases for drugs most commonly
used by Medicare beneficiaries.
o Educational efforts used by the industry pertaining to
generic substitution.
CMS officials said that some of the application questions were problematic
for applicants to answer due to:
o Short time frame-For example, sponsors' contractual relationships with
drug manufacturers and pharmacies had not all been finalized, so
reporting expected price concessions for beneficiaries was problematic
for some sponsors.
o Lack of clarity about information to be provided-For example,
applicants were asked to provide information on a few classes of
drugs, such as antacids, for which only over-the-counter medications
were available. Over-the-counter medications are not covered under the
drug card program.
* CMS officials told us, and our review of the application
confirmed, that they often relied on applicants' attestations
about their abilities to meet certain program requirements. For
example:
o Applicants were required to attest that they had contracts
in place with drug manufacturers and pharmacies, but copies
of executed contracts were not required to be submitted to
CMS.
o Applicants were required to attest that they would be ready
to enroll beneficiaries and provide discounts and TA by May
3, 2004.
o Based on its initial evaluation of applicants, CMS approved only those
that provided all of the information requested in the application.
* For applicants that CMS initially denied:
o Those with applications missing minor information were
allowed to provide the missing information through a
redetermination process.
o Those with applications missing significant information
could appeal the denial through a reconsideration process.
Application Redetermination and Reconsideration
o Twelve potential sponsors (representing 18 general drug cards)
supplied new information through the redetermination process.
o Four potential sponsors (representing 11 general drug cards) with
applications denied due to missing significant information all
notified CMS of the intent to appeal and requested a hearing through
the reconsideration process outlined in the interim final rule for the
drug card program.
o At the first hearing, the CMS hearing officer ruled that new
information submitted by an applicant must be considered. This
prompted CMS to allow other potential sponsors missing significant
information to submit that information without going through a formal
hearing.
Drug Card Sponsor Selection
Drug Card Sponsor Approval
o CMS announced its initial list of approved general drug card sponsors
on March 25, 2004.
o The initial list did not include sponsors that had not completed the
redetermination and reconsideration processes.
o The final sponsor's application was approved on May 7, 2004.
Objective 2
CMS's Oversight of Sponsors Has Identified and Corrected Some Program Problems,
but Has Had Some Limitations with Respect to the Timeliness of Oversight
Activities and the Guidance Provided to Sponsors
Methods CMS uses to monitor sponsors include:
o Reviews of complaints and grievances.
o Analyses of sponsor-reported data.
o Use of contractors to help perform oversight.
CMS's Oversight Approach
Complaints and Grievances
* CMS's regional offices investigate beneficiary complaints. CMS uses
a Web-based tool to track and manage complaints it receives
through:
o 1-800-MEDICARE.
o www.medicare.gov.
o Written correspondence from beneficiaries.
o Congressional correspondence.
o CMS requires sponsors to collect, track, resolve, and report
beneficiary concerns reported to sponsors, known as "grievances."
CMS's Oversight Approach
Data Sponsors Report to CMS
Frequency of reporting Examples of type of information
Weekly o Drug prices and participating pharmacy information for CMS's Price
Compare Web sitea
Monthly o Number of grievances reported to sponsors
o Prescription utilization
Quarterly o Price concessions from manufacturers and pharmacies, amount
of concessions passed on to beneficiaries
o Number of dispensed prescriptions
As-needed o Material modifications to a sponsor's drug card
Source: GAO summary of CMS information.
aThis Web site, located at www.medicare.gov, includes information for
beneficiaries on available drug cards. CMS deactivated the component of
the Web site with information about drug prices on September 30, 2005.
CMS's Oversight Approach
Contractor-Conducted Oversight Activities
Contractor Key oversight activities
BearingPoint Reviews of sponsors' beneficiary outreach materials; test
calls to sponsor call centers; pharmacy participation survey
Booz Allen Analysis of sponsor self-reported data; development of metrics
to Hamilton measure sponsor performance and identify potential problems;
development of sponsor report cards
IntegriGuard Analysis of drug price data; audits of sponsor policies and
procedures; referrals of potential fraud cases
Navigant Identification of errors in price data; analysis of price changes
Consulting, Inc.
MAXIMUS Management of beneficiary requests for reconsideration of TA and
eligibility decisions
DestinationRx Collection, review, and posting of information for CMS's
Price Compare Web site
Source: GAO summary of CMS and CMS contractor information.
We focused on CMS oversight of elements of the following key program
areas:
o Drug prices.
o Sponsors' pharmacy networks.
o Beneficiary information (sponsor-provided).
o Transitional assistance.
o Complaints and grievances.
CMS's oversight has resulted in various formal compliance actions against
sponsors.
o Sponsors' weekly price files are reviewed for outliers and other data
concerns.
* CMS officials told us that early-reported data were sometimes
problematic due to:
o Incorrectly placed decimal points.
o Inconsistent unit pricing of non-pill prescriptions (e.g.,
creams, sprays).
o Delays in sponsors' reporting.
* CMS officials said that they took steps in response:
o Some sponsors' data were not posted on the Price Compare Web
site.
o Warning letters were issued, which improved reporting.
o In June 2005, a CMS contractor began work to see if non-TA enrollees
had been inappropriately charged more than the maximum price posted on
the Web site. Results are expected in November 2005.
o The MMA required sponsors to pass price concessions from manufacturers
to beneficiaries, and CMS requires sponsors to report price
concessions from both manufacturers and pharmacies to CMS.
o CMS guidance about sponsors' reporting requirements, including the
reporting of price concessions, was finalized in November 2004.
o Some sponsors said the guidance lacked clarity.
o According to CMS, as of August 2005, the overall quality of price
concession data was questionable, with problems such as outliers and
missing data. CMS officials said they were working with sponsors to
resolve the problems.
* According to CMS, some beneficiaries complained that pharmacies
listed on the Price Compare Web site were not accepting their
cards; some pharmacies complained that they were incorrectly
listed as participating in a sponsor's network.
o CMS found that most of the problems were due to pharmacies
being unaware that they were participating in a sponsor's
network.
o CMS found that sometimes pharmacies were not actually
participating in a sponsor's network.
o CMS worked with sponsors to improve pharmacies' awareness
about their participation in the program; when warranted,
Web site information was corrected.
o Some participating pharmacies complained they were not listed on the
Price Compare Web site. CMS officials told us that they worked to
improve the accuracy of information in the national pharmacy database
they used for the Web site.
In February 2005, a CMS contractor began a survey of a sample of 2,055
pharmacies listed on the Price Compare Web site to determine whether they
were participating in sponsors' pharmacy networks, as shown on the Price
Compare Web site.
o Surveys were sent to sampled pharmacies listed as participating in at
least one general drug card.
o Pharmacy staff were asked which drug cards they accepted.
o Their responses were compared to information on the Price Compare Web
site, to determine if there was agreement between pharmacies and the
Web site about pharmacies' participation in sponsors' networks.
CMS officials told us that preliminary results, as of August 2005, showed
that pharmacies' responses sometimes did not agree with what was shown on
the Price Compare Web site.
o Nationally, there was about 80 percent agreement (and 20 percent
disagreement) between pharmacies and the sponsor network information
on the Price Compare Web site.
o North Dakota, Iowa, and Missouri pharmacies, which were oversampled
due to a disproportionate number of complaints, had lower levels of
agreement-between 63 and 74 percent.
o CMS identified some sponsors with particularly low levels of agreement
between pharmacies and the Price Compare Web site information, and
began following up with them during summer 2005.
o Sponsors' marketing materials were prospectively reviewed and approved
by a CMS contractor prior to distribution to beneficiaries.
o Reviewers compared materials to criteria in CMS guidance and found
common errors (such as missing forms) and incorporated their findings
into sponsor training sessions.
o CMS staff examined some of the materials reviewed by the contractor
and found that reviewers generally followed CMS guidance.
o CMS staff and several sponsors reported cases of inconsistency among
the contractor's reviewers; CMS officials said that the contractor
took steps to improve consistency.
* In March 2005, the same contractor conducted a limited
retrospective review to determine if materials sent to
beneficiaries had been approved.
* o Two pre-enrollment packets were requested by phone from each
of six general card sponsors.
* Reviewers noted whether packets had all required materials and if
all materials had been prospectively approved.
o All packets were noncompliant. Most packets were missing
required materials, and some materials lacked required
changes or had not been approved.
o The contractor never received several requested packets.
o CMS officials told us they worked with the sponsors reviewed to
resolve identified problems.
* A contractor study using test calls was CMS's primary method for
monitoring information provided by sponsor call centers.
o Most calls were conducted from June through December 2004.
o Callers posed as beneficiary caregivers.
o Different scenarios were used to test customer service
representatives' responses.
* CMS officials told us about several problems, such as:
o Unavailability of representatives for non-English speaking
callers and callers using telecommunications for the deaf.
o Inappropriate handling of complaints about pharmacies.
o Representatives' confusion about enrollment fees.
o CMS officials said they began contacting sponsors about these problems
in summer 2005.
o Results from financial audits of 15 drug cards revealed that the
sponsors of all 15 cards had incorrectly used TA funds to cover
excluded drugs,a totaling $1.3 million in incorrect TA payments.
o CMS provided guidance on excluded drugs on several occasions but did
not provide a specific list of excluded drugs for all drug classes
until November 2004, about 5 months after the program began.
o Sponsors are required to repay CMS incorrect payments identified by
CMS or through their own self-reporting.
aThe MMA refers to nine drug classes, such as barbiturates and
benzodiazepines, that sponsors were required to exclude from their drug
cards.
o Results from the 15 financial audits revealed that the sponsors of
five drug cards had allowed beneficiaries to receive subsidies that
exceeded the subsidy of up to $600 per year.
o CMS officials attributed this to issues such as problems when
beneficiaries transferred among drug cards.
o Sponsors are required to repay excess payments identified by CMS or
through their own self-reporting.
CMS's Oversight of Selected Program Areas
Formal Compliance Actions
As of August 2005, CMS had taken multiple actions against sponsors.
Number of Type of action actionsa Example reasons for action
Educational call 1 Sponsor threatened to withdraw other lines of business
from pharmacies unless they accepted its drug card
Warning letter 9 Sponsors did not report data for display on the Price
Compare Web site
Corrective action plans 10 Improper inducements to pharmacists and
beneficiaries; display of a Canadian pharmacy on a drug card Web page
Enrollment freeze 2b Improper payments to pharmacists, failure to grant audit
access
Civil monetary penalty 1c Multiple compliance failures
Contract termination 0 Not applicable (no terminations)
Total 23
Source: GAO summary of CMS information. aCMS took compliance actions
against 15 sponsors; for 5 sponsors, CMS took more than one action. bFor
one sponsor, a freeze was implemented. For the other sponsor, CMS proposed
an enrollment freeze, but
later withdrew the proposal because the sponsor corrected its compliance
problem.
cCMS proposed a civil monetary penalty for one sponsor; as of September
2005, the penalty was under appeal.
Enclosure II Enclosure II
Comments from the Centers for Medicare & Medicaid Services
GAO-06-78R Medicare Prescription Drug Card Program
Enclosure II Enclosure II
GAO-06-78R Medicare Prescription Drug Card Program
Enclosure II Enclosure II
GAO-06-78R Medicare Prescription Drug Card Program
Enclosure II Enclosure II
GAO-06-78R Medicare Prescription Drug Card Program
Enclosure II Enclosure II
GAO-06-78R Medicare Prescription Drug Card Program
Enclosure II Enclosure II
GAO-06-78R Medicare Prescription Drug Card Program
Enclosure II Enclosure II
GAO-06-78R Medicare Prescription Drug Card Program
Enclosure II Enclosure II
GAO-06-78R Medicare Prescription Drug Card Program
Enclosure III Enclosure III
GAO Contact and Staff Acknowledgments
GAO Contact Marjorie Kanof (202) 512-7114 or [email protected]
In addition to the person named above, key contributors to
Acknowledgments this report
were Debra Draper, Assistant Director; Lori Achman; Jennie
Apter;
Robin Burke; Meredith Kimball; Patricia Roy; and Syeda
Uddin.
(290449)
GAO-06-78R Medicare Prescription Drug Card Program
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