Medicare Part D: Challenges in Enrolling New Dual-Eligible Beneficiaries

Medicare Part D: Challenges in Enrolling New Dual-Eligible
Beneficiaries (04-MAY-07, GAO-07-272).

Since January 1, 2006, all dual-eligible
beneficiaries--individuals with both Medicare and Medicaid
coverage--must receive their drug benefit through Medicare's new
Part D prescription drug plans (PDP) rather than from state
Medicaid programs. GAO analyzed (1) current challenges in
identifying and enrolling new dual-eligible beneficiaries in
PDPs, (2) the Centers for Medicare & Medicaid Services' (CMS)
efforts to address challenges, and (3) federal and state
approaches to assigning dual-eligible beneficiaries to PDPs. GAO
reviewed federal law, CMS regulations and guidance and
interviewed CMS and PDP officials, among others. GAO also made
site visits to six states to learn about the enrollment of
dual-eligible beneficiaries from the state perspective.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-272
ACCNO: A69105
TITLE: Medicare Part D: Challenges in Enrolling New
Dual-Eligible Beneficiaries
DATE: 05/04/2007
SUBJECT: Beneficiaries
Claims processing
Eligibility determinations
Health care programs
Internal controls
Medicaid
Medicare
Monitoring
Pharmaceutical industry
Prescription drugs
Prospective payments
Reimbursements
Medicare Part D

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GAO-07-272

* [1]Results in Brief
* [2]Background

* [3]The Medicare Part D Program
* [4]Dual-Eligible Beneficiaries
* [5]Systems and Steps Involved in the Identification and Enrollm
* [6]Implementation of Part D Information Systems

* [7]Enrollment Processes and Coverage Policy Generate Challenges

* [8]CMS's Enrollment Processes Can Create Difficulties for Some
* [9]Tools Designed to Help Pharmacies Have Not Worked Well
* [10]Medicare Pays PDPs to Provide Retroactive Coverage but Benef

* [11]CMS Has Taken Actions to Address Challenges Faced by New Dua

* [12]CMS Instituted Prospective Enrollment to Help Ease Challenge
* [13]CMS Working to Improve Utility of Eligibility Query and Bill
* [14]CMS Is Attempting to Address Information Systems Issues, but

* [15]CMS Randomly Assigns Dual-Eligible Beneficiaries to PDPs; So

* [16]When Enrolling Dual-Eligible Beneficiaries, CMS Considers PD
* [17]Some States Have Assigned Individuals to PDPs Using a More T

* [18]Using Additional Criteria, Maine Switched PDP
Assignments to
* [19]New Jersey's SPAP Used Drug Utilization Data to Identify
Opt

* [20]Stakeholders' Reactions to States' Use of Intelligent Random

* [21]PDP Transition Process Compliance Improved but Beneficiary C

* [22]CMS Guidance on Transition Drug Coverage Improved PDP Perfor
* [23]Dual-Eligible Beneficiaries Often Confused about Implication
* [24]For 2007, CMS Added Specific Transition Process Requirements

* [25]Conclusions
* [26]Recommendations for Executive Action
* [27]Agency Comments and Our Evaluation
* [28]Appendix I: Steps Involved in the Identification and Enrollm
* [29]Appendix II: Comments from the Centers for Medicare & Medica
* [30]Appendix III: GAO Contacts And Staff Acknowledgments

* [31]GAO Contacts
* [32]Acknowledgments

* [33]Order by Mail or Phone

Report to Congressional Requesters

United States Government Accountability Office

GAO

May 2007

MEDICARE PART D

Challenges in Enrolling New Dual-Eligible Beneficiaries

GAO-07-272

Contents

Letter 1

Results in Brief 5
Background 8
Enrollment Processes and Coverage Policy Generate Challenges for
Dual-Eligible Beneficiaries, Pharmacies, and the Medicare Program 17
CMS Has Taken Actions to Address Challenges Faced by New Dual-Eligible
Beneficiaries and Pharmacies 31
CMS Randomly Assigns Dual-Eligible Beneficiaries to PDPs; Some States
Assigned Individuals Using a More Tailored Approach 35
PDP Transition Process Compliance Improved but Beneficiary Confusion
Remains; 2007 Contracts More Specific 44
Conclusions 49
Recommendations for Executive Action 50
Agency Comments and Our Evaluation 51
Appendix I Steps Involved in the Identification and Enrollment of
Dual-Eligible Beneficiaries into Medicare Part D 56
Appendix II Comments from the Centers for Medicare & Medicaid Services 59
Appendix III GAO Contacts And Staff Acknowledgments 66

Tables

Table 1: Maine Analysis of the Match Rate between Dual-Eligible
Beneficiaries' Drugs and Their CMS-Assigned PDP Formularies, 2005 39
Table 2: Match Rates by PDP before and after Intelligent Random Assignment
for Those Reassigned Dual-Eligible Beneficiaries 40

Figures

Figure 1: Overview of the Major Systems and Steps Used to Enroll
Dual-Eligible Beneficiaries in PDPs 14
Figure 2: Mr. Smith, a Hypothetical Example of the Enrollment Process for
a Newly Identified Dual-Eligible Beneficiary Who Was Medicare-Eligible but
without Previous Part D Coverage 18
Figure 3: Mrs. Jones, a Hypothetical Example of the Enrollment Process for
a Newly Identified Dual-Eligible Beneficiary Who Was Medicare-Eligible and
Had Previous Part D Coverage 21
Figure 4: Steps Pharmacies Take When a Dual-Eligible Beneficiary Lacks
Evidence of PDP Membership 24

Abbreviations

CMS Centers for Medicare & Medicaid Services
DI Disability Insurance
IRA Intelligent Random Assignment
IT information technology
MA Medicare Advantage
MMA Medicare Prescription Drug, Improvement and Modernization
Act of 2003
NASMD National Association of State Medicaid Directors
OIG Office of Inspector General
PAAD Pharmaceutical Assistance to the Aged and Disabled
PDP prescription drug plan
SPAP state pharmaceutical assistance program
SSA Social Security Administration
SSI Supplemental Security Income
TRR Transaction Reply Report

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United States Government Accountability Office
Washington, DC 20548

May 4, 2007

The Honorable Max Baucus
Chairman
The Honorable Charles E. Grassley
Ranking Member
Committee on Finance
United States Senate

The Honorable John D. Rockefeller IV
Chairman
The Honorable Orrin G. Hatch
Ranking Member
Subcommittee on Health Care
Committee on Finance
United States Senate

The Medicare Prescription Drug, Improvement and Modernization Act of 2003
(MMA) established a voluntary outpatient prescription drug benefit for
Medicare--the federal health insurance program for elderly and certain
disabled individuals--known as Medicare Part D.^1 This benefit is provided
through prescription drug plans (PDP) sponsored by contracted private
companies.^2 These private companies, termed sponsors, offer one or more
benefit packages, through individual PDPs that charge monthly premiums
that cover different drugs and have different beneficiary cost-sharing
arrangements (such as copayments and deductibles). Medicaid is a jointly
funded federal-state health care program that covers certain low-income
families and low-income individuals who are aged or disabled. Medicaid
beneficiaries receive their prescription drugs at no or low cost as part
of their Medicaid benefits.^3 About 6 million people were eligible for
both full Medicare and Medicaid benefits in December 2005 and more become
eligible each month. For those who are dually eligible for both Medicare
and Medicaid, known as full-benefit dual-eligible beneficiaries,^4 the MMA
required that drug coverage transition from Medicaid drug coverage to
Medicare Part D drug coverage on January 1, 2006.^5 Dual-eligible
beneficiaries are generally poorer, are more likely to have extensive
health care needs, and use more medications than other Medicare
beneficiaries. To help dual-eligible beneficiaries and other low-income
Medicare beneficiaries with the costs of prescription drug coverage, the
MMA provided these individuals with a low-income subsidy that covers most
of their out-of-pocket costs for Part D prescription drugs.^6

1MMA, Pub. L. No. 108-173, tit. I, S101, et seq., 117 stat. 2066,
2071-2152 (2003) (adding new sections 1860D-1, et seq. and 1935 to the
Social Security Act, to be codified at 42 U.S.C. S1395w-101, et seq. and
42 U.S.C. S1396u-5). For the remainder of the report, we will refer only
to provisions of the Social Security Act when referencing MMA
requirements.

^2Drug coverage may also be provided through Medicare Advantage (MA)
prescription drug plans. MA plans are Medicare's private health plan
option, providing coverage of benefits beyond prescription drugs.

The Centers for Medicare & Medicaid Services (CMS)--the agency that
administers the Medicare program--has responsibility for assisting in the
transition of dual-eligible beneficiaries' drug coverage from Medicaid to
Medicare. In October and December 2005, CMS assigned each dual-eligible
beneficiary who had not already signed up for a Part D plan to a PDP and
notified these beneficiaries of their assignment. Part D prescription drug
coverage for these beneficiaries was effective January 1, 2006. CMS also
provided state pharmaceutical assistance programs (SPAP) with the ability
to enroll or reassign their members to PDPs using additional criteria,
with prior approval from CMS.^7

The agency also developed contingency measures to help with administrative
difficulties that could arise with the change in coverage. It established
an enrollment contingency option to ensure that dual-eligible
beneficiaries not yet enrolled in a PDP could get their prescriptions and
that pharmacies would be reimbursed for those prescriptions. Also, CMS
required PDPs to provide beneficiaries with a short-term supply of needed
drugs, known as a transition supply, if they were prescribed a drug that
was not on their PDP's list of covered drugs, or formulary.

^3While drug coverage is an optional Medicaid benefit, all state Medicaid
programs cover prescription drugs as part of their benefit package. In
2004, 40 state Medicaid programs and the District of Columbia had
copayments for prescription drugs and 17 states had limits on the number
of prescriptions that could be filled by the beneficiary.

^4In this report, the term dual-eligible beneficiaries refers to
full-benefit dual-eligible beneficiaries unless otherwise noted.

^5Social Security Act SS 1860D-1(a)(2), 1935(d).

^6Social Security Act S 1860D-14.

^7SPAPs are state-funded programs that provide financial assistance for
prescription drugs to low-income elderly and disabled individuals.

Shortly after the start of the program, the media reported that some
dual-eligible beneficiaries encountered difficulties that limited their
access to needed drugs. These included reports of dual-eligible
beneficiaries not enrolled in a PDP, enrolled in more than one PDP, not
correctly identified as a low-income beneficiary, charged incorrect
copayments at the pharmacy, and unable to obtain drugs because of
inadequate transition coverage. In February 2006, the Secretary of Health
and Human Services reported that these problems potentially affected
several hundred thousand dual-eligible beneficiaries.^8 Some of these
problems were the result of data transmission difficulties among the
states, CMS, and PDP sponsors. Responding to a February 2006 survey by The
Kaiser Family Foundation, 31 state Medicaid directors reported widespread
problems affecting a significant number of dual-eligible beneficiaries.^9
In response to the problems, 29 state Medicaid agencies and the District
of Columbia's Medicaid agency interceded and provided temporary coverage
to ensure dual-eligible beneficiaries had access to prescription drugs.

Each month CMS randomly assigns and enrolls new dual-eligible
beneficiaries who are not already in a Part D plan.^10 Of the 633,614 new
dual-eligible beneficiaries that CMS automatically enrolled in 2006, most
were Medicare beneficiaries who subsequently qualified for Medicaid,
generally due to a loss of income and resources.^11 Others were Medicaid
beneficiaries who subsequently qualified for Medicare, typically due to
age or disability. In addition to new dual-eligible beneficiaries, some
previously assigned dual-eligible beneficiaries may be reassigned each
benefit year. In fall 2006, CMS reassigned about 193,000 dual-eligible
beneficiaries to new PDPs for the 2007 benefit year. Consequently, the
challenges of ensuring prompt and accurate Part D enrollment are ongoing.

^8See Mike Leavitt, Secretary's One Month Progress Report on the Medicare
Prescription Drug Benefit (Washington, D.C.: Department of Health and
Human Services, Feb. 1, 2006).

^9See Vernon Smith, Kathleen Gifford, Sandy Kramer, and Linda Elam, The
Transition of Dual Eligibles to Medicare Part D Prescription Drug
Coverage: State Actions During Implementation (Washington, D.C.: The Henry
J. Kaiser Family Foundation, Feb. 2006).

^10In addition to assigning and enrolling new dual-eligible beneficiaries
on a monthly basis, CMS assigns and enrolls existing dual-eligible
beneficiaries who have disenrolled from a Part D plan without re-enrolling
in another one.

^11The 633,614 excludes those Medicare beneficiaries who were previously
enrolled by CMS prior to becoming full-benefit dual-eligible
beneficiaries. In 2006, CMS chose to enroll about 1.5 million of these
Medicare beneficiaries in PDPs under CMS's facilitated enrollment process,
which is outside the scope of this report.

Given the reported problems that occurred during the early months of the
Part D program, you raised questions about whether difficulty obtaining
prescription drugs could continue to be a problem for many newly
identified dual-eligible beneficiaries. In this report, we examine (1)
current challenges in identifying and enrolling new dual-eligible
beneficiaries in PDPs, (2) CMS's efforts to address challenges in
enrolling dual-eligible beneficiaries, (3) federal and state approaches to
assigning dual-eligible beneficiaries to PDPs, and (4) CMS's actions to
ensure that PDPs implement effective transitional drug coverage following
enrollment.

To address these issues, we reviewed relevant federal laws and regulations
and guidance provided by CMS to state Medicaid agencies, PDPs, and
pharmacies on their respective roles in the Medicare Part D benefit, CMS
documents on the interaction of key information systems, and the model
contract between CMS and PDP sponsors.^12 We also interviewed CMS
officials, including those responsible for information systems, CMS
contractors responsible for maintaining key information systems, Social
Security Administration (SSA) officials,^13 state Medicaid officials, and
representatives of pharmacy associations and long-term care provider
associations.^14 We also interviewed representatives from five PDP
sponsors that represented about 54 percent of dual-eligible PDP enrollment
as of June 3, 2006.^15 Each of these sponsors offered a PDP that was
eligible to receive assignments of dual-eligible beneficiaries in 2006. To
learn about alternative methods of assigning Medicare beneficiaries to
PDPs, we also interviewed representatives of SPAPs.

^12See also GAO, Medicare: Contingency Plans to Address Potential Problems
with the Transition of Dual-Eligible Beneficiaries from Medicaid to
Medicare Drug Coverage, [34]GAO-06-278R (Washington, D.C.: Dec. 16, 2005).

^13The SSA pays retirement, disability, and survivors' benefits to workers
and their families.

^14For purposes of this report, we use the term pharmacy associations to
include both associations that represent pharmacies and those that
represent pharmacists.

^15Although dual-eligible beneficiaries may obtain drug coverage through
either PDPs or MA plans, we focused on stand-alone PDPs. More than 90
percent of dual-eligible beneficiaries are enrolled in PDPs, rather than
MA plans. In addition, CMS only enrolls dual-eligible beneficiaries into
stand-alone PDPs, unless the individual was previously enrolled in a MA
plan.

We also conducted site visits in six states--California, Maine, Maryland,
Michigan, New Jersey, and Texas--to learn about the transition of
dual-eligible beneficiaries from the perspective of state Medicaid
agencies, pharmacies, and long-term care providers. Together, these states
accounted for 28 percent of all dual-eligible beneficiaries enrolled in a
PDP in May 2006. In selecting the states, we chose states that represented
a range in the number of dual-eligible beneficiaries, the number of PDPs
to which CMS assigned dual-eligible beneficiaries, state involvement with
PDP assignment, and state size.^16 Information from the six states cannot
be generalized to every state's experience with the Part D program because
each state Medicaid program is different. To assess the reliability of
Maine's data on the reassignment of dual-eligible beneficiaries--the only
state in our sample to have such information--we talked with Maine
Medicaid agency officials and state contractors about how the analyses
were conducted and reviewed documentation of the methodology. We
determined that the data were sufficiently reliable for the purposes of
this report. We conducted our work from March 2006 through April 2007 in
accordance with generally accepted government auditing standards.

Results in Brief

CMS's enrollment procedures and implementation of its Part D coverage
policy generate challenges for some dual-eligible beneficiaries,
pharmacies, and the Medicare program. A majority of new dual-eligible
beneficiaries enrolled by CMS--generally those on Medicare who have not
yet signed up for a PDP and who become eligible for Medicaid--may be
unable to smoothly access their drug benefit for at least 5 weeks given
the timing of the steps to enroll dual-eligible beneficiaries in PDPs and
communicate information to beneficiaries and pharmacies. Pharmacies also
may be affected adversely when key information about a beneficiary's dual
eligibility is not yet processed in the appropriate eligibility and
enrollment systems. When dispensing drugs to dual-eligible beneficiaries
during this interval, pharmacies may have difficulty submitting claims to
PDPs and accurately charging beneficiaries for copayments. In addition,
under CMS policy, Medicare pays PDPs to provide these dual-eligible
beneficiaries with retroactive coverage that extends for several months.
However at the time of our review, CMS did not inform beneficiaries of
their right to be reimbursed for drug expenses incurred during retroactive
coverage periods. After reviewing a draft of this report, CMS revised the
enrollment notification letters informing dual-eligible beneficiaries of
their eligibility for reimbursement. Also, CMS does not monitor its
payments to PDPs for providing retroactive coverage or the amounts PDPs
have reimbursed dual-eligible beneficiaries. GAO found that Medicare paid
PDPs millions of dollars in 2006 for coverage during periods for which
dual-eligible beneficiaries may not have sought reimbursement for their
drug costs.

^16We also considered the degree of difficulty with the January 2006
transition as reported in a survey of state Medicaid agencies conducted
for The Henry J. Kaiser Family Foundation. See Vernon Smith, Kathleen
Gifford, Sandy Kramer, and Linda Elam, The Transition of Dual Eligibles to
Medicare Part D Prescription Drug Coverage: State Actions During
Implementation (Washington, D.C.: The Henry J. Kaiser Family Foundation,
Feb. 2006).

CMS has recently taken steps to address identified problems associated
with enrolling dual-eligible beneficiaries. The agency has implemented a
change in policy that should prevent a gap in drug coverage for those new
dual-eligible beneficiaries whose Part D eligibility can be predicted.
This group--about one-third of new dual-eligible beneficiaries enrolled by
CMS in a PDP--consists of Medicaid beneficiaries whose drug coverage ends
under Medicaid when they also become Medicare eligible. In August 2006,
CMS began operating a prospective enrollment process that allows the
agency and its Part D partners the time needed to complete the enrollment
processes and notify this group of beneficiaries before PDP enrollment
becomes effective. CMS has also taken steps to improve the information
available to pharmacies when serving dual-eligible beneficiaries who do
not have evidence of PDP enrollment. In addition, CMS is redesigning and
integrating key information systems to reduce redundancies, synchronize
data, and increase the efficiency of the systems involved in the
enrollment process. While the agency is performing certain types of
systems testing to ensure that these changes are effectively implemented,
it is not planning to test the interactions of key information systems
collectively and their interfaces (commonly referred to as end-to-end
testing).

As required under the MMA and implementing regulations, when a
dual-eligible beneficiary has not chosen a Part D plan, CMS randomly
assigns and enrolls dual-eligible beneficiaries to a PDP. The only
criteria CMS may use in assigning these dual-eligible beneficiaries are
the PDP's monthly premium and the geographic location of the PDP. This is
designed to ensure that PDP sponsors enroll an approximately equal number
of beneficiaries. In a small number of cases, beneficiaries were enrolled
in a PDP that did not serve their geographic location because CMS used an
address from SSA that did not accurately reflect where they lived. In
response to a draft of this report, CMS made changes to correct this
problem. In late 2005, with approval from CMS, officials in Maine
reassigned nearly half of the state's dual-eligible beneficiaries for the
initial transition to Medicare Part D using additional criteria they
believed to be more appropriate for beneficiaries' individual needs. A
2005 state analysis showed that CMS's random assignment resulted in about
one in five dual-eligible beneficiaries having formulary match rates--the
percentage of a beneficiary's medications that appeared on the PDP
formulary--of less than 20 percent. After reassigning beneficiaries to
eligible PDPs using drug utilization and pharmacy preference information,
these beneficiaries' match rates approached 100 percent. Maine officials
noted that, to conduct yearly reassignments for the dual-eligible
population, they needed up-to-date beneficiary drug utilization and
formulary information from PDP sponsors. CMS and PDP sponsors informed us,
however, that reassigning dual-eligible beneficiaries to PDPs using
additional criteria is not necessary because beneficiaries may switch to
medications of equivalent therapeutic value or change plans at any time
during the year.

CMS actions to address problems associated with PDP implementation of
pharmacy transition processes led to a more uniform application of
transition processes; however, some dual-eligible beneficiaries remain
confused. Under PDP transition processes, beneficiaries should be provided
temporary coverage of existing prescriptions, regardless of whether the
drug is on the PDP's formulary, to allow them time to contact their
physician about switching to a medication on their PDP's formulary or
obtaining a formulary exception from their PDP. In early 2006, CMS
officials learned that the way in which some PDP sponsors implemented
their transition policies adversely affected beneficiaries' ability to
obtain transition drug supplies. CMS responded by issuing a series of
memoranda to PDP sponsors to clarify its expectations. Representatives of
pharmacy and long-term care associations, state Medicaid agencies, and PDP
sponsors told us that the problem of uneven availability of transition
drug coverage has largely been resolved. They noted, however, that
dual-eligible beneficiaries remain unaware of the implications of the
transition supply and are not using the transition period to address
formulary issues. As a result, after receiving a transition supply, these
beneficiaries often return to the pharmacy the following month and may
encounter problems refilling these same prescriptions. For 2007, CMS has
added specific requirements to its contract with PDP sponsors with respect
to providing transition drug coverage to new enrollees and for notifying
beneficiaries and pharmacists about transitional coverage.

We recommend that, to improve the process of enrolling dual-eligible
beneficiaries in PDPs, the CMS Administrator take actions to inform
dual-eligible beneficiaries of their right to reimbursement, track the
number of new dual-eligible beneficiaries receiving retroactive coverage,
determine the magnitude of payments to PDPs for retroactive coverage
periods and monitor PDP reimbursements to dual-eligible beneficiaries,
mitigate the risks associated with implementing changes to Part D
information systems by conducting additional testing, ensure dual-eligible
beneficiaries are enrolled in a PDP that serves the geographic area where
they live, and facilitate data sharing between PDPs and authorized states
that choose to reassign their dual-eligible beneficiaries using
alternative methods.

In comments on a draft of this report, CMS objected to what it perceived
as the overwhelmingly negative tone of our findings and stated that our
discussion of retroactive coverage was overly simplified. Nevertheless,
the agency stated that it was implementing three of our six
recommendations to improve existing procedures; it disagreed with the
remaining recommendations. We believe that our findings are balanced and
accurate and our recommendations are appropriate. To clarify our message
and to reflect information obtained through agency comments, we have
modified portions of the first finding concerning the intervals associated
with processing dual-eligible beneficiaries' enrollments and the fact that
Medicare pays plans during periods when dual-eligible beneficiaries may be
unlikely to seek reimbursement for drug costs.

Background

The Medicare Part D Program

Medicare Part D coverage is provided through private plans sponsored by
dozens of health care organizations that may charge premiums, deductibles,
and copayments for the drug benefit.^17 All Part D plans must meet federal
requirements with respect to the categories of drugs they
must cover and the extent of their pharmacy networks.^18,19 They must
offer the standard Medicare Part D benefit, or an actuarially equivalent
benefit.^20 Beyond these requirements however, the specific formulary and
pharmacy network of each PDP can vary.

^17The number of health care organizations sponsoring private plans was 79
in 2006 and more than 90 for 2007.

Under the MMA, drug coverage for all dual-eligible beneficiaries
transitioned from Medicaid to Medicare Part D, on January 1, 2006.^21 The
MMA requires CMS to assign dual-eligible beneficiaries to a PDP if they
have not enrolled in a Part D plan on their own.^22 CMS may only assign
dual-eligible beneficiaries to PDPs serving their area with premiums at or
below the low-income benchmark amount and must randomly assign individuals
if there is more than one eligible PDP.^23 During October and December
2005, CMS randomly assigned to PDPs dual-eligible beneficiaries who had
not already enrolled in a Part D plan. The agency mailed notices to these
beneficiaries informing them of their assignment and also that they could
select a different PDP if they wished. If they did not switch from their
assigned PDP by December 31, 2005, their assignment took effect, with
coverage beginning January 1, 2006. CMS enrolled 5,498,604 dual-eligible
beneficiaries during this first round of assignments and continues to
assign new dual-eligible beneficiaries into PDPs on a monthly basis, when
these beneficiaries do not independently enroll in a Part D plan.

^18Under the MMA, PDPs must cover drugs within each therapeutic category
and class of Part D drugs. PDPs may not cover the following nine
categories of drugs as the MMA excluded these categories from Medicare
Part D coverage: (1) agents used for anorexia, weight loss, or weight
gain; (2) agents used to promote fertility; (3) agents used for cosmetic
purposes or hair growth; (4) agents used for the symptomatic relief of
coughs or colds; (5) prescription vitamins and minerals, except prenatal
vitamins and fluoride preparations; (6) nonprescription drugs; (7)
outpatient drugs for which the manufacturer seeks to require associated
tests or monitoring be purchased from the manufacturer or their designee
as a condition of sale; (8) barbiturates; and (9) benzodiazepines. State
Medicaid agencies may provide coverage of drugs in these excluded drug
categories to their dual-eligible beneficiaries under the Medicaid
program. Social Security Act SS1860D-2(e), 1860D-4(b)(3)(C), 1935(d)(2).

^19All PDPs must have a contracted pharmacy in their network that is
within 2 miles of 90 percent of urban beneficiaries, 5 miles of 90 percent
of suburban beneficiaries, and 15 miles of 70 percent of rural
beneficiaries. Social Security Act S1860D-4(b)(1)(C); 42 C.F.R. S423.120.

^20The Part D standard benefit for 2007 includes a $265 annual deductible,
25 percent coinsurance for total covered drug costs between $265 and
$2,400, and 100 percent coinsurance for drug spending between $2,401 and
$5,451.25. After a beneficiary incurs $3,850 in covered out-of-pocket
costs, catastrophic coverage begins and the beneficiary is responsible for
modest cost-sharing. Each year the standard benefit is adjusted to account
for the increase in average total drug expenses of Medicare beneficiaries.
Actuarially equivalent coverage is coverage that is at least the same in
value as the standard benefit, but may be structured differently, as
approved by CMS.

^21Social Security Act S1860D-1(a)(2).

^22Social Security Act S1860D-1(b)(1)(C). The formal name for this process
is automatic enrollment.

^23Social Security Act S1860D-1(b)(1)(C); see also 42 C.F.R. S 423.34. The
low-income benchmark is the average monthly beneficiary premium for all
PDPs in a region, weighted by each plan's enrollment.

For some dual-eligible beneficiaries, some drugs that were previously
covered under Medicaid might not be covered by their Medicare PDP's
formulary. Subject to certain parameters,^24 PDPs have the flexibility to
set their own formularies and, as a result, PDPs vary in their inclusion
of the drugs most commonly used by dual-eligible beneficiaries. According
to a 2006 report by the Department of Health and Human Services, Office of
Inspector General (OIG), one-fifth of dual-eligible beneficiaries were
assigned to PDPs that provide coverage of all of the most commonly used
drugs and one-third were assigned to PDPs that provide coverage of less
than 85 percent of these drugs.^25 However, dual-eligible beneficiaries
are allowed to switch to a different PDP at any time with coverage under a
new PDP effective the following month.

In addition, to help ensure a smooth transition to Part D, CMS requires
PDP sponsors to provide for a transition process for new enrollees whose
current medications may not be included in their PDP's formulary.^26 For
2006, CMS recommended that PDP sponsors should fill a one-time transition
supply of nonformulary drugs in order to accommodate the immediate need of
the beneficiary. In particular, CMS suggested that PDPs provide at least a
30-day transition supply to all beneficiaries and a 90- to 180-day
transition supply for residents in long-term care facilities.

^24PDP formularies generally must cover at least two Part D drugs in each
therapeutic category and class, except when there is only one drug in the
category and class or when CMS has allowed the plan to cover only one drug
in that category or class. 42 C.F.R. S423.120(b)(2). CMS may require
coverage of more than two drugs in each category or class when the drugs
provide therapeutic advantages or absence from a formulary may discourage
enrollment in a plan. For example, CMS has designated six categories of
drugs (antidepressant, antipsychotic, anticonvulsant, anticancer,
immunosuppressant, and HIV/AIDS drugs) for which PDPs must cover "all or
substantially all" of the drugs. See Centers for Medicare & Medicaid
Services, Medicare Modernization Act 2007 Final Guidelines - Formularies,
posted at
http://www.cms.hhs.gov/PrescriptionDrugCovContra/03_RxContracting_FormularyGuidance.asp#TopOfPage
, accessed January 19, 2007.

^25In its comments on the OIG report, CMS stated that the methodology OIG
used was flawed because it was based on a list of 178 drugs commonly used
by dual-eligible beneficiaries rather than an examination of actual use of
drugs at the individual beneficiary level. CMS also stated that because
all formularies cover multiple drugs in each therapeutic class, all
beneficiaries have access to drugs that are very similar to their current
medications. See Department of Health and Human Services, Office of
Inspector General, Dual Eligibles' Transition: Part D Formularies'
Inclusion of Commonly Used Drugs, OEI-05-06-00090 (Washington, D.C.: Jan.
2006).

Dual-Eligible Beneficiaries

Dual-eligible beneficiaries are a particularly vulnerable population.
Totaling roughly 6.2 million in January 2006, they account for about 15
percent of all Medicaid beneficiaries and 15 percent of all Medicare
beneficiaries. In general, these individuals are poorer, tend to have far
more extensive health care needs, have higher rates of cognitive
impairments, and are more likely to be disabled than other Medicare
beneficiaries. A majority of dual-eligible beneficiaries live in the
community and typically obtain drugs through retail pharmacies. Nearly one
in four dual-eligible beneficiaries reside in a long-term care facility
and obtain their drugs through pharmacies that specifically serve
long-term care facilities.

While most Medicare beneficiaries enrolled in a PDP pay monthly premiums,
deductibles, and other cost-sharing as part of their benefit package, the
Medicare Part D program pays a substantial proportion of dual-eligible
beneficiaries' cost-sharing obligations through its low-income subsidy
program.^27 For dual-eligible beneficiaries, Medicare pays the full amount
of the monthly premium that nonsubsidy eligible beneficiaries normally
pay, up to the level of the low-income benchmark premium. Medicare Part D
also covers most or all of the prescription copayments: dual-eligible
beneficiaries pay from $1 to $5.35 copayments per prescription filled in
2007, with the exception of those in long-term care facilities who have no
copayments. In addition, dual-eligible beneficiaries are not subject to a
deductible or the so-called "donut hole."^28

In addition to dual-eligible beneficiaries, the Part D low-income subsidy
is available to other low-income Medicare beneficiaries. Some of these
other Medicare beneficiaries must apply for the subsidy through the SSA or
a state Medicaid agency. The subsidy is available on a sliding scale,
according to income and resources. Dual-eligible beneficiaries are
automatically entitled to the full subsidy amount and do not need to apply
independently for the subsidy.

^2642 C.F.R. S 423.120(b)(3).

^27See Social Security Act S1860D-14.

^28This refers to the fact that the standard Part D benefit provided no
coverage for total covered drug expenditures between $2,251 and $5,100 for
2006, shifting to between $2,401 and $5,451.25 in 2007.

An individual can become a dual-eligible beneficiary in two main ways.
First, Medicare beneficiaries can subsequently qualify for Medicaid. This
occurs when their income and resources decline below certain thresholds,
and they enroll in the Supplemental Security Income (SSI) program,^29 or
they incur medical costs that reduce their income below certain
thresholds. CMS data indicate that roughly two-thirds of the 633,614
dual-eligible beneficiaries the agency enrolled in 2006 were Medicare
beneficiaries who subsequently qualified for Medicaid, and had not already
signed up for a PDP on their own.^30 According to CMS officials, it is not
possible to predict the timing of dual-eligibility for these individuals
because determining Medicaid eligibility is a state function.

Second, Medicaid beneficiaries can subsequently become eligible for
Medicare by either turning 65-years-old or by completing their 24-month
disability waiting period.^31 This group represents approximately
one-third of the new dual-eligible beneficiaries enrolled by CMS in PDPs.
State Medicaid agencies can generally predict when this group of
individuals will become dually eligible.

^29In most states, beneficiaries who qualify for cash assistance from
SSI--a cash assistance program for aged, blind, and disabled individuals
with limited income and resources--automatically qualify for full Medicaid
benefits. In 39 states and the District of Columbia, SSI eligibility
assures an individual's eligibility for Medicaid benefits. Eleven state
Medicaid agencies either (1) use more restrictive income or asset
requirements than SSI for Medicaid eligibility or (2) require a separate
Medicaid application/determination than the SSI application/determination.

^30Beneficiaries already enrolled in a PDP are allowed to stay in the same
PDP after they become dually eligible. They are not included in the
two-thirds number because CMS did not enroll them when they became dually
eligible for Medicare and Medicaid.

^31Under Social Security Disability Insurance (DI), which assists people
who worked but became disabled before their retirement age, individuals
are eligible for Medicare coverage after they have received DI cash
benefits for 24 months.

Systems and Steps Involved in the Identification and Enrollment of Dual-Eligible
Beneficiaries

Multiple parties and multiple information systems are involved in the
process of identifying and enrolling dual-eligible beneficiaries in PDPs.
In addition to CMS, the SSA, state Medicaid agencies, and PDP sponsors
play key roles in providing information needed to ensure that
beneficiaries are identified accurately and enrolled. SSA maintains
information on Medicare eligibility that is used by CMS and some states.
State Medicaid agencies are responsible for forwarding to CMS lists of
beneficiaries who the state believes to be eligible for both Medicare and
Medicaid. PDP sponsors maintain information systems that are responsible
for exchanging enrollment and billing information with CMS.

For the most part, CMS adapted existing information systems used in the
administration of other parts of the Medicare program to perform specific
functions required under Part D. In addition, CMS worked with the pharmacy
industry to develop a tool specifically to aid pharmacies in obtaining
billing information needed to process claims for dual-eligible
beneficiaries without enrollment information. The principal systems
supporting the Part D program are as follows:

o The Medicare eligibility database.^32 This system serves as a
repository for Medicare beneficiary entitlement, eligibility, and
demographic data. In the enrollment process for dual-eligible
beneficiaries, the database is used by CMS to provide up-to-date
information to verify the status of dual-eligible beneficiaries,
as well as to determine subsidy status and make assignments to
PDPs. It also provides data to other CMS systems, SSA, state
Medicaid agencies, PDPs, and pharmacies.

o The enrollment transaction system.^33 This system is used to
enroll beneficiaries in PDPs. In addition, it informs PDPs about a
beneficiary's subsidy status and copayment information, calculates
Medicare payments to PDPs for each covered enrollee, and processes
changes in PDP enrollment, including those elected by the
beneficiary.

o The eligibility query.^34 This tool is used by pharmacies to
obtain Part D billing information from the Medicare eligibility
database. When filling a prescription for a beneficiary who does
not have proof of Part D enrollment or eligibility, a pharmacy
submits a request for billing information using the eligibility
query. In response, the pharmacy receives information on the
beneficiary's PDP enrollment, including the data necessary to bill
the beneficiary's PDP for the drugs dispensed.

The process of enrolling dual-eligible beneficiaries requires
several steps; it begins when the state Medicaid agency identifies
new dual-eligible beneficiaries and ends when PDPs make billing
information available to pharmacies. (For more detailed
information on the steps involved in identifying and enrolling
dual-eligible beneficiaries, see app. I.) The key information
systems (see fig. 1) and steps in identifying and enrolling
dual-eligible beneficiaries are the following.

Figure 1: Overview of the Major Systems and Steps Used to Enroll
Dual-Eligible Beneficiaries in PDPs

Implementation of Part D Information Systems

Under tight time frames, CMS and its partners integrated
information systems to support the Part D program. To support the
Part D program, CMS pieced together existing information systems
that had related Medicare functions.^36 In addition, information
systems belonging to state Medicaid agencies and PDPs had to
integrate with CMS information systems and CMS did not establish
formal agreements with these partners until the time of
implementation. Final regulations for the program were not issued
until January 28, 2005, and business requirements for the program
were not finalized until March 2005. Thus, there was little time
for testing given that requirements and agreements were so late in
being solidified.

A number of information systems problems surfaced in the early
months of the program. These problems included logic errors in the
enrollment process which generated cancellations to PDPs instead
of enrollments, the eligibility query being overwhelmed by the
number of pharmacy inquiries, and CMS difficulties matching data
submitted by the state Medicaid agencies to information in the
Medicare eligibility database. These problems can be attributed,
in part, to poor systems testing. Because of tight time frames
associated with implementing Part D, robust system-level and
end-to-end testing did not occur.^37

In January 2006, CMS contracted with EDS, an information
technology consulting company, to identify opportunities for
improvement in the information systems and services for Medicare
Part D. EDS's report findings and observations addressed many
overarching challenges in the information systems infrastructure
supporting the program, including the observation that the
aggressive time frame for implementation did not allow sufficient
time for end-to-end testing.^38 CMS is redesigning key information
systems involved in the enrollment process in order to improve the
efficiency of these systems.

Enrollment Processes and Coverage Policy Generate Challenges for
Dual-Eligible Beneficiaries, Pharmacies, and the Medicare Program

CMS's enrollment processes and implementation of its Part D
coverage policy generate challenges for some dual-eligible
beneficiaries, pharmacies, and the Medicare program. Because the
interval between notification of Medicaid eligibility and
completion of the Part D enrollment process can extend at least 5
weeks, some dual-eligible beneficiaries--those previously on
Medicare who subsequently become eligible for Medicaid--may be
unable to smoothly access their Part D benefits during this
interval. At the same time, pharmacies that are unable to obtain
up-to-date information about a dual-eligible beneficiary's
enrollment are likely to experience difficulties billing PDPs. In
addition, CMS has tied dual-eligible beneficiaries' effective date
of Part D eligibility to the date of Medicaid eligibility,
providing for several months of retroactive Medicare benefits.
Although the Medicare program pays PDP sponsors for the period of
retroactive coverage, beneficiaries were not informed of their
right to reimbursement for drug costs incurred during this period.
GAO found that Medicare paid PDPs an estimated $100 million in
2006 for coverage during periods for which dual-eligible
beneficiaries may not have sought reimbursement for their drug
costs.

CMS�s Enrollment Processes Can Create Difficulties for Some
Dual-Eligible Beneficiaries

The timing of steps to enroll dual-eligible beneficiaries in Part
D and to make billing information available to pharmacies
generates a gap between the date beneficiaries are notified of
their dual eligibility status and the date they receive their
enrollment information. As a result, some new dual-eligible
beneficiaries may have difficulty obtaining their drugs at the
pharmacy counter or may pay higher than required out-of-pocket
costs. Among Medicare beneficiaries who subsequently become
eligible for Medicaid, Medicare-only beneficiaries not previously
enrolled in a PDP are likely to experience more difficulties
compared with those who had enrolled in a PDP prior to becoming
eligible for Medicaid. Because the information systems used are
not real-time processing systems, the enrollment process takes
place over a period of about 2 months.

Given the time involved in processing beneficiary data under
current procedures, pharmacies may not have up-to-date PDP
enrollment information on new dual-eligible individuals. This may
result in beneficiaries having difficulty obtaining medications at
the pharmacy. To illustrate why this occurs, we present the
hypothetical example of Mr. Smith, who, as a Medicare beneficiary
did not sign up for the Part D drug benefit and, therefore, upon
becoming Medicaid-eligible, must be enrolled in a PDP. (Fig. 2
shows the steps in Mr. Smith's enrollment process.)

1. State Medicaid agencies obtain Medicare
eligibility information from SSA or request data from
CMS's Medicare eligibility database and match that
information against their own Medicaid eligibility
files. The state Medicaid agencies compile
comprehensive files identifying all dual-eligible
beneficiaries, known as the dual-eligible files.^35
CMS receives Medicare eligibility information from
SSA daily.
2. State Medicaid agencies send CMS the dual-eligible
files and CMS matches the files against data in its
Medicare eligibility database to verify each
individual's dual eligibility. The agency sends a
response file back to each state that includes the
results of the matching process for each submitted
individual.
3. Those dual-eligible beneficiaries who were matched
are considered eligible for the full low-income
subsidy and the Medicare eligibility database sets
the copayment information accordingly. This process
is referred to as deeming. The Medicare eligibility
database also assigns beneficiaries not already
enrolled in a Part D plan to PDPs that operate in
regions that match the beneficiary's official SSA
address of record. Both the deeming and assignment
information are sent to the enrollment transaction
system to be processed.
4. The enrollment transaction system processes the
deeming and assignment information in order to
complete the enrollment and notifies the PDPs of
those dual-eligible beneficiaries who have been
enrolled in their PDP and their copayment amounts.
5. PDPs process the resulting enrollment, assign the
standard billing information, and send this
information to the Medicare eligibility database. In
addition, the PDPs mail out ID cards and PDP
information to the enrolled beneficiary.
6. The Medicare eligibility database transmits the
PDP's billing information to the eligibility query
system.
7. Using the eligibility query, pharmacies can access
the billing information needed to fill prescriptions
and bill them to the assigned PDP if beneficiaries
lack their enrollment information.

^32This system's official name is the Medicare Beneficiary Database.

^33This system's official name is the Medicare Advantage Prescription Drug
system.

^34This tool's official name is the E-1 query.

^35Dual-eligible files contain both newly identified dual-eligible
beneficiaries and those who were previously identified.

Implementation of Part D Information Systems

^36According to CMS, an effort to design, test, and implement a system
specifically designed to support a program of the magnitude of Part D
would take years.

^37End-to-end testing is performed to verify that a defined set of
interrelated systems that collectively support an organizational core
business function interoperate as intended in an operational environment.
The interrelated systems include not only those owned and managed by the
organization, but also the external systems with which they interface.

^38See Claude H. Snow, Jr., Opportunities for Improving Enrollment and
Eligibility Processes and Systems in the Medicare Part D Prescription Drug
Program: An Assessment (prepared by EDS for the Centers for Medicare &
Medicaid Services, Mar. 2006).

Figure 2: Mr. Smith, a Hypothetical Example of the Enrollment Process for
a Newly Identified Dual-Eligible Beneficiary Who Was Medicare-Eligible but
without Previous Part D Coverage

NOTE: The dates presented in this example of enrollment for Mr. Smith
generally represent the best-case scenario. The range of dates represent
the minimum and maximum length of elapsed time allowed for processing and
notification, based on information provided by CMS. GAO makes no
assurances that the events described would occur on the dates provided for
any specific dual-eligible beneficiary.

aThe scenario presented reflects an application to Medicaid based on a
reason other than disability. State Medicaid agencies have 45 days to make
eligibility determinations not based on disability and 90 days for
eligibility determinations based on disability, subject to extensions in
certain circumstances.

bIf the state Medicaid agency did not determine that Mr. Smith was
eligible for Medicaid before it submitted its September dual-eligible
file, his information could not be submitted until October. This scenario
is not presented in this figure.

From the time Mr. Smith applies for his state's Medicaid program on August
11, it takes about 1 month for him to receive notification from the state
that he is eligible for Medicaid. It takes until October 15 before the PDP
notifies Mr. Smith of his enrollment and until October 16 before all the
necessary information is available to his pharmacy. If Mr. Smith had
sought to obtain prescription drugs prior to October 16, the pharmacy
would have had difficulty getting the PDP billing information needed to
process claims on his behalf.^39

The reason this gap occurs is that some of the enrollment and PDP
assignment processing steps are done at scheduled intervals, such as once
a month or once a week. According to CMS, because of the challenges some
state Medicaid agencies have in compiling the dual-eligible file, CMS
requires the file be submitted just once a month. CMS waits until it
receives the monthly dual-eligible files from all state Medicaid agencies
before determining each individual beneficiary's subsidy level and making
the PDP assignment for these beneficiaries. State Medicaid agencies that
submit their dual-eligible file to CMS early in the monthly cycle do not
have their beneficiaries' subsidy levels determined or the assignments to
a PDP made any sooner than the last state to submit its file. Deeming and
PDP assignment can take up to 10 days. Similarly, CMS's system of
notifying the PDP of a beneficiary assignment is on a weekly cycle,
beginning on Saturday. Thus, regardless of what day in the week CMS's
enrollment transaction system receives a beneficiary's PDP assignment and
processes that enrollment, the information is not communicated to the PDP
until the following Saturday. It takes up to another week before the
beneficiary receives a membership card or other membership documentation
from the PDP or the pharmacy has computerized access to the Part D
information needed to properly process a claim if an eligibility query is
used to obtain billing information. Thus, the time elapsed from the date
the state notified Mr. Smith of his eligibility for Medicaid to the date
Mr. Smith was notified by his assigned PDP of his Part D enrollment was at
least 35 days.

^39The pharmacy would be able to fill Mr. Smith's prescription and bill a
PDP serving as a contingency option if Mr. Smith produced evidence of
entitlement to both Medicare and Medicaid at the pharmacy.

Other new dual-eligible beneficiaries may incur out-of-pocket costs at the
pharmacy that are too high for their dually eligible status because of the
time it takes information on the beneficiary's new status to reach their
PDP. To illustrate this case, we present the hypothetical example of Mrs.
Jones, a Medicare beneficiary who becomes eligible for Medicaid but had
already enrolled in a PDP. (See fig. 3.) When Mrs. Jones, who also applied
for Medicaid on August 11, goes to the pharmacy on September 12, the
pharmacy charges Mrs. Jones the same copayments that she was charged as a
Medicare-only Part D beneficiary instead of the reduced amount for
dual-eligible beneficiaries. This occurs because the PDP, and consequently
the pharmacy, does not have up-to-date information on Mrs. Jones's status
as a dual-eligible beneficiary; this information must go through
processing steps similar to those for Mr. Smith. That is, the state
Medicaid agency must first submit Mrs. Jones's name to CMS on its
dual-eligible file, which is done monthly. Subsequently, CMS must
determine Mrs. Jones's level of subsidy according to the agency's schedule
for the deeming process. Mrs. Jones's PDP will change her copayment
information only after it receives CMS's weekly notification of enrollment
transactions on October 7.

Figure 3: Mrs. Jones, a Hypothetical Example of the Enrollment Process for
a Newly Identified Dual-Eligible Beneficiary Who Was Medicare-Eligible and
Had Previous Part D Coverage

Note: The dates presented in this example of enrollment for Mrs. Jones
generally represent the best-case scenario. The range of dates represents
the minimum and maximum length of elapsed time allowed for processing and
notification, based on information provided by CMS. GAO makes no
assurances that the events described would occur on the dates provided for
any specific dual-eligible beneficiary.

bIf the state Medicaid agency did not determine that Mrs. Jones was
eligible for Medicaid before it submitted its September dual-eligible
file, her information could not be submitted until October. This scenario
is not presented in this figure.

Any dual-eligible beneficiary who has a change in subsidy status, such as
dual-eligible beneficiaries who enter a nursing home, may temporarily face
higher than required out-of-pocket costs for drugs due to processing
delays. Residents of nursing homes who are dual-eligible beneficiaries are
not required to pay any copayments, but they could be charged until the
PDP updates its own data based on information provided by CMS. Recognizing
the time lags that pharmacies encounter in receiving complete Part D
information on dual-eligible beneficiaries, CMS issued a memorandum in May
2006 requiring PDP sponsors to use the best available data to adjust a
beneficiary's copayment, meaning that PDPs need not wait for CMS to notify
them of a status change but can make adjustments based on notification
received from a nursing facility or state agency. However, according to
some we spoke with, PDPs vary in terms of their willingness to act on
information provided by a party other than CMS.^40

The time intervals associated with the Part D enrollment process for new
dual-eligible beneficiaries can lengthen when data entry errors occur or
when a dual-eligible beneficiary is identified by the state after the
state has submitted its monthly dual-eligible file. For example, if CMS
cannot match information from its Medicare eligibility database with a
beneficiary's information listed in the state's dual-eligible file, the
state must find the source of the problem and resubmit the beneficiary's
information in the following month's dual-eligible file. State Medicaid
agency officials told us that generally mismatches occurred in 2006
because of errors in a birth date or Social Security number. CMS reported
that for the month of June 2006, about 17,000 to 18,000 names in state
Medicaid agencies' dual-eligible files could not be matched against
information in the Medicare eligibility database. This number of
mismatches is down from 26,000 mismatches earlier in the program.

Tools Designed to Help Pharmacies Have Not Worked Well

CMS has provided pharmacies with certain tools to help process a claim
when a beneficiary does not present adequate billing information or has
not been enrolled in a PDP. The eligibility query was designed to provide
billing information to pharmacies when dual-eligible beneficiaries do not
have their PDP information, but pharmacies report problems using the tool.
The enrollment contingency option was designed to ensure that
dual-eligible beneficiaries who were not yet enrolled in a PDP could get
their medications, while also providing assurance that the pharmacy would
be reimbursed for those medications. Problems with reimbursements have led
some pharmacies to stop using the enrollment contingency option.

^40In commenting on a draft of this report, CMS officials noted that they
updated this guidance to PDPs in December 2006.

The eligibility query was developed by CMS to help pharmacies determine
which plan to bill when a dual-eligible beneficiary lacks proof of
enrollment, but about half of the time the query system returns a response
indicating a match was not found (see fig. 4). To obtain billing
information on individuals without a PDP membership card or other proof of
Part D enrollment, pharmacies have modified their existing computer
systems to allow them to query CMS's Medicare eligibility database. Using
the Part D eligibility query, pharmacies can enter certain data
elements--such as an individual's Social Security number, Medicare ID
number, name, and date of birth--to verify whether the individual is a
dual-eligible beneficiary and whether the individual has been assigned to
a PDP. Ideally, when a match occurs, the pharmacy receives an automated
response within seconds showing codes that contain the standard billing
information necessary to file a claim--such as the identity of the PDP
sponsor and the member ID number. According to CMS, of all the eligibility
queries pharmacies initiated in September 2006, about 55 percent enabled
them to match data identification elements with an individual in the
Medicare eligibility database. In comments on a draft of this report, the
agency explained that pharmacies had used the eligibility query for
nonenrolled individuals whose data would not otherwise be in the system.

Figure 4: Steps Pharmacies Take When a Dual-Eligible Beneficiary Lacks
Evidence of PDP Membership

In cases where the PDP has not yet submitted standard billing information
to CMS, the pharmacy must spend additional time contacting the PDP. In
cases where the dual-eligible beneficiary has been assigned to a PDP, but
the PDP has yet to submit the standard billing information, the
eligibility query response contains only a 1-800 phone number for the
assigned PDP. In these cases, pharmacies must spend additional time
contacting the 1-800 number to obtain needed billing information. In April
2006, about 13 percent of the eligibility query responses that matched a
beneficiary did not contain the standard billing information.

Pharmacy association representatives and individual pharmacists we met
with told us that improvements to the eligibility query were needed. They
said the eligibility query would be more useful if the responses
pharmacies receive contained such information as the name of the PDP in
which the beneficiary is enrolled, the effective date of the beneficiary's
enrollment in the PDP, and the beneficiary's low-income subsidy status,
rather than just a 1-800 number or the standard billing information that
is now provided. They also noted that the frequency with which the
eligibility query responds without the standard billing information is
also problematic; without adequate billing information the pharmacy has to
make a telephone call to obtain the appropriate billing information.

In cases where the eligibility query does not produce a match but the
pharmacy has other evidence that the individual is dually eligible for
Medicare and Medicaid, such as ID cards or a letter from the state, CMS
has provided pharmacies with an enrollment contingency option. That is,
the pharmacies can submit their claims to a nationwide PDP
sponsor--WellPoint--which CMS has contracted with to provide pharmacies
with a source of payment for prescriptions filled for dual-eligible
beneficiaries who have yet to be enrolled in a PDP. The WellPoint
enrollment contingency option was intended for use in cases where the
pharmacy can confirm that an individual is dually eligible for Medicare
and Medicaid but cannot determine the beneficiary's assigned PDP through
the eligibility query. In such cases, claims are screened for eligibility,
and if the beneficiary is indeed dually eligible, but has not yet been
enrolled in a PDP, the beneficiary gets enrolled in a PDP offered by
WellPoint.

The WellPoint enrollment contingency option has often not functioned as
intended. For example, WellPoint was billed for a number of claims where
the beneficiary was enrolled in another PDP. As of November 26, 2006, 46.0
percent of the 351,538 Medicare ID numbers with claims that were billed to
WellPoint had already been assigned to a PDP. CMS and WellPoint officials
told us WellPoint reconciles payment for these claims directly with the
beneficiary's assigned PDP. However, pharmacy association representatives
told us that, in some cases, WellPoint required the pharmacies to refund
payments for these claims to WellPoint and then submit the claim to the
appropriate PDP.^41 In other cases, pharmacies bill WellPoint without
supplying the necessary beneficiary data elements. For instance, rather
than entering the individual's actual Medicare ID number, the pharmacy may
enter dummy information into the Medicare ID field. As of November 26,
2006, CMS reported that, roughly 35 percent of the Medicare ID numbers
submitted to WellPoint were invalid, requiring pharmacies to refund their
outlays on claims using these numbers. In addition, about 4 percent of the
Medicare ID numbers were valid but the individual was either not eligible
for Medicaid or was not eligible for Part D enrollment (for instance due
to incarceration). WellPoint required pharmacies to refund money for these
claims as well. According to one state pharmacy association
representative, some pharmacies in the state have discontinued using the
WellPoint contingency option because of the reimbursement difficulties.
Only about 15 percent of Medicare ID numbers with claims filed through the
WellPoint option were associated with individuals eligible for enrollment
in the WellPoint PDP.

Pharmacy association representatives noted that some pharmacies dispense
medications to individuals without proof of Part D enrollment, hoping to
get needed billing information at a later date that will allow them to
properly submit a claim. One state pharmacy association representative
noted that pharmacies serving only long-term care facilities dispense
medication without assurance of reimbursement because they are required to
do so under the contractual arrangements they have with the long-term care
facilities.

Pharmacy association representatives told us that after-the-fact
reimbursement of drug claims is problematic. According to the pharmacy
association representatives, it can be burdensome for staff to determine
where to appropriately resubmit the claim. They also noted that PDPs will
sometimes reject retroactive claims that are submitted after a certain
period of time has elapsed.

^41In commenting on a draft of this report, CMS indicated that once it
implemented plan-to-plan reconciliation in early 2006, WellPoint
reconciled claims for beneficiaries already enrolled in another PDP with
the appropriate PDP.

Medicare Pays PDPs to Provide Retroactive Coverage but Beneficiaries Have Not
Been Informed of Their Right to Reimbursement

With the current combination of policies and requirements under which CMS
operates, Medicare pays PDPs to provide retroactive coverage to Medicare
beneficiaries newly eligible for Medicaid. However, until March 2007, CMS
did not inform these beneficiaries of their right to seek reimbursement
for costs incurred during the retroactive period that can last several
months. Given the vulnerability of the dual-eligible beneficiary
population, it seems unlikely that the majority of these beneficiaries
would have contacted their PDP for reimbursement if they were not notified
of their right to do so. GAO found that Medicare paid PDPs millions of
dollars in 2006 for coverage during periods for which dual-eligible
beneficiaries may not have sought reimbursement for their drug costs.

Retroactive coverage for dual-eligible beneficiaries stems from both CMS's
Part D policy and from Medicaid requirements. Under the MMA, once an
individual who is not enrolled in a plan qualifies as a dual-eligible
beneficiary, CMS is required to enroll the individual in a PDP.^42
However, the MMA does not precisely define when Part D coverage for these
beneficiaries must become effective.^43 As initially written, when
enrolling a Medicare beneficiary without Part D coverage who became
eligible for Medicaid, CMS's policy set the effective coverage date
prospectively as the first day of the second month after CMS identified
the individual as both Medicare and Medicaid eligible.^44 In March 2006,
CMS changed this policy, making coverage retroactive to the first day of
the month of Medicaid eligibility. In making this change, CMS cited
concerns about enrollees experiencing a gap in coverage under its prior
enrollment policy. Federal Medicaid law requires that a Medicaid
beneficiary's eligibility be set retroactively up to 3 months prior to the
date of the individual's application if the individual met the program
requirements during that time.^45 Therefore, for this group of
dual-eligible beneficiaries, Part D coverage may extend retroactively for
several months prior to the actual date of PDP enrollment by CMS.

^42Social Security Act S 1860D-1(b)(1)(C).

^43Federal regulations also do not clearly define the effective date of
coverage for dual-eligible beneficiaries and instead only require
individuals who are Part D eligible and subsequently become eligible for
Medicaid to be enrolled in a PDP by CMS as soon as practicable in a
process to be determined by CMS. See 42 C.F.R. S 423.34(f)(3).

^44However, in response to a draft of this report, CMS officials notified
us that, beginning with those dual-eligible beneficiaries identified by
states in February 2006, coverage for dual-eligible beneficiaries was
effective January 1, 2006, or the effective date of Medicaid coverage,
whichever was later.

The mechanics and time frames for Part D retroactive coverage can be
illustrated by the hypothetical case of Mr. Smith, a Medicare beneficiary
who was not enrolled in a PDP when he applied for Medicaid. On September
11, Mr. Smith's state Medicaid agency made him eligible for Medicaid
benefits as of May 11, 3 months prior to his August 11 program
application, as he met Medicaid eligibility requirements during that
retroactive period. In October, CMS notified Mr. Smith of his enrollment
in a PDP and indicated that his Part D coverage was effective
retroactively as of May 1, the first day of the month in which he became
eligible for Medicaid.

Medicare's payment to Mr. Smith's PDP, beginning with his retroactive
coverage period, consists of three major components, two of which are
fixed and a third that varies with Mr. Smith's cost-sharing obligations.

o The first component is a monthly direct subsidy payment CMS
makes to Mr. Smith's PDP toward the cost of providing the drug
benefit.

o The second component is the monthly payment CMS makes to Mr.
Smith's PDP to cover his low-income benchmark premium.

o The third component covers nearly all of Mr. Smith's
cost-sharing responsibilities, such as any deductibles or
copayments that he would pay if he were not a dual-eligible
beneficiary. CMS makes these cost-sharing payments to his PDP
based on the PDP's estimate of the typical monthly cost-sharing
paid by beneficiaries. CMS later reconciles Mr. Smith's
cost-sharing payments with the PDP based on his actual drug
utilization as reported by the PDP to CMS.^46

Under CMS's retroactive coverage policy, Mr. Smith's PDP receives
all three components of payments for the months of May, June,
July, August, and September, although Mr. Smith was not enrolled
in the PDP until October. Medicare pays Mr. Smith's PDP sponsor
about $60 a month for the direct subsidy and another monthly
payment for the low-income premium up to the low-income benchmark,
which ranges from $23 to $36 depending on Mr. Smith's location.^47
We estimate that for all dual-eligible beneficiaries enrolled by
CMS with retroactive coverage, Medicare paid PDPs about $100
million in 2006 for these two monthly payment components for the
retroactive period.^48 Unlike the cost-sharing component of
Medicare's payments, the two monthly payment components are not
subject to a reconciliation process tied to utilization of the
benefit.^49 This means that if Mr. Smith's PDP did not reimburse
Mr. Smith for any prescription drugs purchased during the
retroactive coverage period, the PDP would have to refund Medicare
the cost-sharing payment, but would keep the direct subsidy
payments and the low-income premium payments.^50

Medicare makes the direct subsidy and low-income premium payments
for the retroactive coverage period because CMS requires PDP
sponsors to reimburse beneficiaries for covered drug costs
incurred during this period. However, we found that CMS did not
inform dual-eligible beneficiaries about their right to seek
reimbursement or instruct PDP sponsors on what procedures to use
for reimbursing beneficiaries or others that paid on the
beneficiary's behalf for drugs purchased during retroactive
periods. The model letters that CMS and PDPs used until March 2007
to notify dual-eligible beneficiaries of their PDP enrollment did
not include any language concerning reimbursement of out-of-pocket
costs incurred during retroactive coverage periods.^51 After
reviewing a draft of this report and our recommendations, CMS
modified the model letters that the agency and PDPs use to notify
dual-eligible beneficiaries about their PDP enrollment. The
revised letters let beneficiaries know that they may be eligible
for reimbursement of some prescription costs incurred during
retroactive coverage periods.

Given the vulnerability of the dual-eligible beneficiary
population, it seems unlikely that the majority of these
beneficiaries would have contacted their PDP for reimbursement if
they were not notified of their right to do so nor would they
likely have retained proof of their drug expenditures.^52 In the
case of Mr. Smith, for example, he would need receipts for any
drug purchases made during the retroactive period--about 5 months
preceding the date he was notified of his PDP enrollment--at a
time when he could not foresee the need for doing so. Finally, Mr.
Smith or someone helping him would have to find out how and where
to claim reimbursement from his PDP. Under CMS's 2006 policy, even
if Mr. Smith had submitted proof of his drug purchases, he would
not be eligible for reimbursement if CMS had enrolled him in a PDP
that did not cover his prescriptions or did not have Mr. Smith's
pharmacy in its network.^53 Nevertheless, Mr. Smith's PDP would
have received monthly direct subsidy and low-income premium
payments for Mr. Smith for the retroactive coverage period.

For 2006, CMS did not calculate aggregate payments made to PDP
sponsors for retroactive coverage. Further, the agency did not
monitor reimbursements to dual-eligible beneficiaries for drug
purchases made during the retroactive period. Agency officials
told us that they have data to determine the PDP payments and
beneficiary reimbursements. As a result of not tracking this
information, CMS does not know how much of the roughly $100
million in direct subsidy and low-income premium payments for
retroactive coverage in 2006 was used by PDPs to pay for drug
expenses claimed by dual-eligible beneficiaries for drugs
purchased during retroactive coverage periods.

CMS Has Taken Actions to Address Challenges Faced by New
Dual-Eligible Beneficiaries and Pharmacies

Given the experience of early 2006, CMS has taken several actions
to improve the transition of dual-eligible beneficiaries to Part
D. First, the agency has taken steps to facilitate the change in
drug coverage for Medicaid beneficiaries whose date of Medicare
eligibility can be predicted--about one-third of new dual-eligible
beneficiaries enrolled by CMS. In August 2006, CMS implemented a
new prospective enrollment process that state Medicaid agencies
may use to eliminate breaks in prescription drug coverage for
these beneficiaries. Second, CMS is taking steps to improve tools
pharmacies use when dual-eligible beneficiaries seek to fill a
prescription, but do not have their PDP enrollment information.
Third, CMS has plans to integrate the agency's information systems
to increase the efficiency of the systems involved in the
enrollment process.

CMS Instituted Prospective Enrollment to Help Ease Challenges of
Certain New Dual-Eligible Beneficiaries

CMS implemented a new prospective enrollment process in August
2006 to help Medicaid beneficiaries who become Medicare eligible
transition to Part D without a break in coverage. Under the
prospective enrollment process, state Medicaid agencies
voluntarily can include on the monthly state dual-eligible file
those Medicaid beneficiaries predicted to become Medicare
eligible, for instance Medicaid beneficiaries who are nearing
their 65th birthday. Two months prior to the date the beneficiary
will become Medicare eligible, CMS assigns the beneficiary to a
PDP. By completing the assignment process prior to when these
beneficiaries become Medicare eligible, CMS officials told us that
these beneficiaries should have all their PDP enrollment
information when their Medicare Part D coverage begins.

Prior to the prospective enrollment process, Medicaid
beneficiaries who became Medicare eligible experienced a gap of up
to 2 months during which they were no longer eligible for Medicaid
prescription drug coverage but had yet to receive information on
their Medicare Part D drug coverage. This is because state
Medicaid agencies were allowed to include in the monthly state
dual-eligible file only those dual-eligible beneficiaries who were
known to be eligible for Medicaid and Medicare at the time the
file was sent. State Medicaid agencies were required to end
Medicaid coverage for prescription drugs when the beneficiary
became Part D eligible.

Because prospective enrollment was in its very early stages during
our audit work, we cannot evaluate how effectively the new process
is working to mitigate the gaps in coverage some new dual-eligible
beneficiaries faced. In the first month of implementation, 38
state Medicaid agencies submitted records identifying at least
some prospective dual-eligible beneficiaries. CMS officials
attributed the lack of submission of the names of prospective
dual-eligible beneficiaries by some state Medicaid agencies in
August 2006 to the short time frame state Medicaid agencies were
given to change how they compiled the dual-eligible file. As of
November 2006, the state Medicaid agencies for all 50 states and
the District of Columbia have included prospective dual-eligible
beneficiaries in their monthly file. While it is too early to
gauge the impact of the process on beneficiaries, we believe that
prospective enrollment has the potential to provide continuous
coverage for those beneficiaries who can be predicted to become
dually eligible. State Medicaid officials also told us that
prospective enrollment is a beneficial change to the process of
identifying and enrolling new dual-eligible beneficiaries.

CMS Working to Improve Utility of Eligibility Query and Billing
Contingency Option

CMS is taking steps to improve the eligibility query and the
billing contingency option. CMS worked with the pharmacy industry
to change the format of the eligibility query to include more
complete information. Also, CMS officials said they planned to
make changes to the enrollment contingency contract to institute a
preliminary screen of Medicare eligibility and Part D plan
enrollment before a claim goes through the system.

In response to requests from pharmacies that more information be
provided through the eligibility query, CMS officials told us that
agency staff worked with the National Council for Prescription
Drug Programs, Inc.--a nonprofit organization that develops
standard formats for data transfers to and from pharmacies--to
change the format of the eligibility query and increase the amount
of information pharmacies could get from the responses. As part of
the planned improvements, eligibility query responses for
beneficiaries identified in the database will include--in addition
to the data elements previously included--the beneficiary's name
and birth date, the PDP's identification number, and the
beneficiary's low-income subsidy status. The new specifications
for the eligibility query were released December 1, 2006.
Pharmacies have to work with their own software vendors to
implement the changes to their own systems.

CMS is also taking steps to improve the availability of the
information pharmacies access through the eligibility query. CMS
officials told us that, after being notified of a confirmed
enrollment by CMS via a weekly enrollment update, PDPs should
submit standard billing information to CMS within 72 hours.
However, sometimes PDPs hold the information for longer than 72
hours. According to CMS, the time it takes PDPs to submit billing
information to the agency has improved since the beginning of the
Part D program. While CMS does not monitor the amount of time it
takes for PDPs to submit billing information, the agency has begun
monitoring Medicare's eligibility database to identify PDPs that
have a large number of enrollees for whom billing information is
missing. As part of this effort, CMS sends a file monthly to each
PDP that lists enrollees without billing information. CMS guidance
to PDPs states that each PDP should successfully submit standard
billing information for 95 percent of the PDP's enrollees each
month. According to CMS data, as of October 1, 2006, about 27
percent of PDPs with CMS-assigned, dual-eligible beneficiaries had
billing information for less than 95 percent of their
CMS-assigned, dual-eligible beneficiaries. Of those that did not
meet the 95 percent threshold, most had fewer than 20
CMS-assigned, dual-eligible beneficiaries.

CMS has implemented certain changes for 2007 to address the large
number of problematic claims going through the WellPoint
enrollment contingency option. It has directed WellPoint to check
an individual's Medicare eligibility and Part D enrollment before
the claim is approved, using a new daily update report from
Medicare's eligibility database. This is expected to allow
WellPoint to deny claims at the point-of-sale that should not be
paid through this option, thereby reducing the number of claims
that must be reconciled at a later date.

CMS Is Attempting to Address Information Systems Issues, but \
without Adequate Testing, Problems May Continue

CMS is now making changes to improve the efficiency of key
information systems involved in the enrollment process. It is
redesigning and integrating these information systems to reduce
redundancies and to synchronize data currently stored in different
systems, which should lead to a more efficient enrollment process.
While CMS is performing unit, system, and integration testing on
these changes, it has no definitive plans to perform end-to-end
testing on the changes to the overall information systems
infrastructure.^54 CMS is pursuing contractual help to determine
the extent of testing that it can perform in the future.

CMS is currently integrating information from the Medicare
eligibility database with information from the enrollment
transaction system because duplicative demographic and other data
are stored in both systems. According to CMS information
technology (IT) officials, because these data are not stored in
one place and a huge amount of enrollment traffic is moving back
and forth between these two systems, it has been a very large
burden for the agency to synchronize and maintain a single set of
data. CMS IT officials told us that they spent the first 6 months
of Part D implementation stabilizing the supporting information
systems and have only now begun to look at efficiencies that can
be achieved through integration and mergers that can reduce
maintenance and processing times. In the long term, the agency
hopes to integrate all beneficiary, entitlement, and enrollment
information into one database.

CMS IT officials contend that true end-to-end testing of these
current changes may not be feasible given the agency's limited
time and resources and the number of scenarios that would have to
be tested in the more than 600 different PDPs. In addition, true
end-to-end testing would involve thorough interface testing with
SSA, and state Medicaid agency and PDP systems, which are not
standardized and vary widely. While we agree that end-to-end
testing will be difficult given the multiple partners involved and
the complexity of the program's systems infrastructure, it is
crucial to mitigate the risks inherent in CMS's planned changes.
End-to-end testing is a highly recognized systems development best
practice and is considered essential to ensure that a defined set
of interrelated systems, which collectively support an
organizational core business area or function, interoperate as
intended in an operational environment. These interrelated systems
include not only those owned and managed by the organization, but
also the external systems with which they interface. Because
end-to-end testing can involve multiple systems and numerous
partner interfaces, it is typically approached in a prioritized
fashion taking into consideration resources, test environments,
and the willingness of external parties to participate. CMS IT
officials acknowledge that there are risks associated with
implementing these changes but still do not plan to conduct
end-to-end testing even on a limited basis.

CMS Randomly Assigns Dual-Eligible Beneficiaries to PDPs; Some
States Assigned Individuals Using a More Tailored Approach

As required under the MMA and implementing regulations, for
dual-eligible beneficiaries who have not enrolled in a Part D
plan, CMS makes random assignments to PDPs based only on the
premium amount and the geographic location of the PDP. This method
ensures that PDP sponsors enroll an approximately equal number of
beneficiaries. However, state Medicaid officials and others assert
that dual-eligible beneficiaries assigned to PDPs by CMS are often
enrolled in PDPs that do not meet their drug needs. For the
initial PDP assignments for January 2006, some SPAPs used
additional criteria--including drugs used by beneficiaries--to
enroll or reassign beneficiaries to PDPs that were more
appropriate to their individual circumstances. SPAP officials
reported that these alternative methods produced beneficial
results. However, CMS and PDP sponsors pointed out that random
assignment works to enroll beneficiaries into PDPs, and that there
is no need to use additional criteria.

When Enrolling Dual-Eligible Beneficiaries, CMS Considers PDP
Premiums and Geographic Location

CMS assists in the enrollment of dual-eligible beneficiaries who
have not enrolled in a Part D plan on their own by randomly
assigning them in approximately equal numbers among eligible PDP
sponsors in each region. Under the MMA, the agency may only
consider the premiums of the PDPs in the region when making these
assignments.^55 CMS first distributes beneficiaries randomly among
those PDP sponsors that offer one or more PDPs at or below the
low-income benchmark--the average premium in a region--if there is
more than one eligible PDP serving the beneficiary's geographic
location. It then assigns the beneficiaries randomly among all
eligible PDPs offered by each PDP sponsor. Following the first
round of enrollments, CMS has assigned new dual-eligible
beneficiaries to PDPs monthly.

Dual-eligible beneficiaries may change PDPs at any time during the
enrollment year.^56 When dual-eligible beneficiaries change PDPs,
coverage under the new PDP becomes effective the following month.
As of November 2006, 29.8 percent--1,703,018--of dual-eligible
beneficiaries initially enrolled by CMS subsequently made a PDP
election of their own choosing.

During the original assignments for 2006, CMS assigned some
dual-eligible beneficiaries to PDPs that did not serve the area
where they lived. This occurred for about 107,000 dual-eligible
beneficiaries, 1.9 percent of the population randomly assigned to
PDPs at that time. In these cases, CMS made inappropriate
assignments because it used address information from SSA that was
out-of-date or that corresponded to the individual's
representative payee--the individual or organization who manages
the beneficiary's money on the beneficiary's behalf--rather than
to the beneficiary.^57 For example, if a beneficiary resides in
Arizona and their representative payee resides in Virginia, CMS
would have assigned that beneficiary to a PDP serving Virginia.
CMS officials pointed out that this problem was relatively minor
because most of these dual-eligible beneficiaries (about 98.1
percent of those affected) were either enrolled in a PDP offered
by a PDP sponsor that offered coverage in the beneficiary's actual
region or that had a national pharmacy network. CMS officials told
us that PDP sponsors serving the remainder of these beneficiaries
were instructed to provide benefits to this group in accordance
with their out-of-network benefits.^58 CMS officials also told us
that the fact that dual-eligible beneficiaries can switch PDPs at
any time addresses the issue. PDP sponsors were still required to
notify all affected beneficiaries of the out-of-area assignment.
CMS instructed PDPs to notify those dual-eligible beneficiaries
living in an area not served by the PDP sponsor that they would be
disenrolled at some future point and must contact Medicare to
enroll in an appropriate PDP.

Some States Have Assigned Individuals to PDPs Using a More
Tailored Approach

Under the MMA, SPAPs may enroll Part D beneficiaries into PDPs as
their authorized representatives.^59 Although CMS encouraged SPAPs
to follow the same enrollment process CMS uses for dual-eligible
beneficiaries, CMS has allowed certain SPAPs to use additional
assignment criteria. Qualified SPAPs may use alternative
assignment methods--often referred to as intelligent random
assignment (IRA)--to identify PDP choices for their members that
meet their individual drug needs. IRA methods consider
beneficiary-specific information, such as drug utilization,
customary pharmacy, and other objective criteria to narrow the
number of PDP options to which a member could be assigned. With
CMS approval, SPAPs may enroll members randomly among PDPs that
meet these given criteria. However, SPAPs may not discriminate
among PDPs by enrolling members into a specific or preferred
PDP--a practice referred to as steering.^60

Using Additional Criteria, Maine Switched PDP Assignments to
Accommodate Drugs Used by Dual-Eligible Beneficiaries

The SPAP in Maine is one example of an organization that took
steps to reassign noninstitutionalized, dual-eligible
beneficiaries, with CMS approval, by aligning their drug needs
with PDP formularies, ultimately reassigning nearly half of its
dual-eligible population to PDPs other than those assigned by CMS.
In June 2005, state legislation was enacted that authorized the
inclusion of all dual-eligible beneficiaries in Maine's existing
SPAP membership.^61 Maine officials sought to pass this
legislation in response to concerns that this population could
experience coverage disruptions during the transition to Medicare
Part D as implemented by CMS. They reported that, although these
individuals may switch PDPs at any time, it could take months for
beneficiaries to transfer to a more appropriate PDP. Thus, after
CMS had randomly assigned dual-eligible beneficiaries to PDPs,
Maine reassigned certain noninstitutionalized, dual-eligible
beneficiaries to different PDPs prior to January 1, 2006.

The state found support for its decision to reassign dual-eligible
beneficiaries in a state analysis, which indicated that CMS
assignments resulted in a poor fit for many dual-eligible
beneficiaries in Maine. (See table 1.) According to the analysis,
CMS had assigned roughly one-third of dual-eligible beneficiaries
to PDPs that covered all of their recently used drugs. However,
nearly half of dual-eligible beneficiaries in the state had a
match rate--the percentage of a beneficiary's medications that
appeared on the CMS-assigned PDP formulary--lower than 80 percent.
The analysis also showed that about one in five dual-eligible
beneficiaries had match rates below 20 percent.

Table 1: Maine Analysis of the Match Rate between Dual-Eligible
Beneficiaries' Drugs and Their CMS-Assigned PDP Formularies, 2005

Match rate Number of dual-eligible Percentage of full dual-eligible
(percentage) beneficiaries beneficiaries
100 10,778 34.0
80 to 99.99 6,393 20.1
60 to 79.99 5,103 16.1
40 to 59.99 2,211 7.0
20 to 39.99 860 2.7
Less than 20 6,384 20.1
Total 31,729 100.0

Source: Maine Department of Health and Human Services.

Notes: Maine officials calculated match rates for each
dual-eligible beneficiary by comparing each beneficiaryis recent
drug use with the formulary of the CMS-assigned plan. These match
rates were generated by a computer program that used a system that
scored two points if a drug was covered without prior
authorization, one point if a drug was covered but required prior
authorization, and no points for drugs not covered. To calculate
the match rate, the program divided the total score by the
potential beneficiary maximum score.

As an alternative to random assignment based on PDP premiums and
location, Maine officials developed an IRA method that considered
a beneficiary's drug utilization and customary pharmacy to make
new PDP assignments. Officials developed a computer program that
generated scores used to rank PDPs in order of best fit for each
beneficiary. The program included the 10 PDPs in the state with
premiums at or below the low-income benchmark that provided their
formularies to the state. It compared the drugs on these PDPs'
formularies to the beneficiary's drug utilization history compiled
from Medicaid claims for the 3 months prior to the date of
assignment (September, October, and November 2005) and assigned an
aggregate score to each PDP. The scoring system differentiated
between instances where a drug was on the formulary with and
without prior authorization requirements.^62 For PDPs with
identical scores, the program assessed pharmacy location. If more
than one PDP had the beneficiary's customary pharmacy in their
network, the program randomly assigned the beneficiary among those
PDPs with the highest scores. Although Maine officials conducted
this analysis for all of its 2005 dual-eligible beneficiaries,
after they conferred with CMS officials they reassigned only those
dual-eligible beneficiaries who had lower than an 80 percent
formulary match, accounting for 14,558 individuals, about 46
percent of the state's dual-eligible population.

Maine officials reported that IRA resulted in a marked improvement
in match rates for beneficiaries compared to CMS's PDP
assignments. For each PDP, officials calculated the match rate
before and after IRA for reassigned beneficiaries. (See table 2.)
This analysis showed that before the use of IRA, the weighted
average match rate for all participating PDPs was 34.14 percent,
and ranged from 20.59 percent to 38.64 percent across PDPs.
Following the application of IRA, the weighted average match rate
rose to 99.86 percent, with little variation across PDPs.

Table 2: Match Rates by PDP before and after Intelligent Random
Assignment for Those Reassigned Dual-Eligible Beneficiaries

Average formulary match rate for
reassigned dual-eligible beneficiaries
(percentage)
Number of dual-eligible
beneficiaries reassigned
PDP using IRA Before reassignment After reassignment
A 233 20.59 98.71
B 3,125 33.18 99.90
C 473 29.65 99.79
D 946 29.17 99.58
E 740 29.18 99.86
F 5,306 38.64 100.00
G 426 25.99 99.53
H 64 28.67 98.44
I 2,706 34.79 100.00
J 539 24.67 99.07
All PDPs 14,558 34.14 99.86

Source: Maine Department of Health and Human Services, GAO.

Note: To calculate the average match rate before reassignment for
each PDP, Maine officials averaged the individual match rates
based on the CMS-assigned PDP formulary for all dual-eligible
beneficiaries the state subsequently reassigned to that PDP. To
calculate the average match rate after reassignment for each PDP,
Maine officials averaged the individual match rates based on the
reassigned PDP formulary for all dual-eligible beneficiaries the
state reassigned to that PDP. To calculate an average match rate
for all plans before and after reassignment, we took a weighted
average of the average match rates calculated for each plan before
and after reassignment.

Maine officials noted that their continued use of IRA for
dual-eligible beneficiaries is contingent on their access to key
data. To make the initial assignments for dual-eligible
beneficiaries effective January 1, 2006, the state had drug
utilization information from its own Medicaid claims system.
However, if the state chooses to reassign individuals again, it
must obtain up-to-date utilization information. To help ensure
that it would have the data needed to perform another round of IRA
in the future, Maine's SPAP included in its contract with PDP
sponsors a requirement to exchange with the SPAP information on
pharmacy networks, formularies, and drug utilization on an ongoing
basis.^63 For 2007, Maine reassigned 10,200, about 22 percent of
dual-eligible beneficiaries, to a new PDP.

New Jersey�s SPAP Used Drug Utilization Data to Identify Optimal
PDP Assignments Prior to CMS Enrollment

The state of New Jersey's SPAP--known as the Pharmaceutical
Assistance to the Aged and Disabled (PAAD) Program--developed and
implemented an IRA method, with CMS approval, that allowed it to
enroll its members in PDPs that best served their drug needs.^64
PAAD officials designed their IRA to simulate the decision process
that would occur if beneficiaries had received assistance from a
State Health Insurance Assistance Program^65 counselor or had used
CMS's Web-based formulary finder on their own.^66

PAAD officials engaged a contractor to develop a computer program
that would identify PDPs that cover each individual's prescription
drug needs. The program matched information on members'
maintenance drugs with formulary and pharmacy network information
for all PDPs offered in New Jersey at or below the low-income
benchmark.^67 The program treated married couples as one member in
the assignment process to ensure that they would be enrolled in
the same PDP. In all, PAAD matched 210,000 beneficiaries among six
PDPs.^68

Following the application of IRA and prior to enrolling
individuals, PAAD sent one of two letters to beneficiaries that
explained the results of the IRA method. PAAD sent a letter to
some beneficiaries indicating that one PDP best met their needs in
terms of its formulary match and inclusion of their customary
pharmacy. Other beneficiaries were sent letters informing them
that their needs would be equally met by multiple PDPs and
identified those PDPs. To satisfy CMS's requirement that the state
not steer beneficiaries to a particular PDP, New Jersey included a
full list of all eligible PDPs in the state on the back of the
letter.

PAAD staff sent these letters in October 2005 and offered to
enroll these beneficiaries if they did not receive a response by
November 2005. Individuals were asked to notify PAAD of the PDP
that they wanted to join and PAAD moved to enroll them in that
PDP. For beneficiaries who did not respond to their letters, PAAD
enrolled them into the PDP identified as the best fit by the IRA,
or randomly among PDPs that equally met their needs. Of the
roughly 210,000 letters sent to SPAP members, PAAD received about
130,000 letters requesting enrollment in the suggested PDP within
the first month or two after PAAD sent the letters. In total, PAAD
enrolled 165,207 beneficiaries, about 78.7 percent of those sent
letters, into PDPs identified as the best fit by the IRA.

Stakeholders� Reactions to States� Use of Intelligent Random
Assignment Protocols Are Mixed

While CMS has allowed certain SPAPs to use IRA methods to assign
or reassign their members, CMS does not support the use of IRA
methods to assist dual-eligible beneficiaries with Part D
enrollment. CMS officials told us that any proposal to add drug
utilization as a criterion for PDP assignments assumes that a
beneficiary should remain on the same drugs. They contend that
beneficiaries can change prescriptions to a similar drug that is
on their CMS-assigned PDP's formulary and receive equivalent
therapeutic value. Moreover, the officials pointed out the ability
of dual-eligible beneficiaries to switch PDPs. Overall, CMS
officials maintained the position that its PDP assignment method
for dual-eligible beneficiaries used in fall 2005 worked well.

In contrast, state Medicaid officials we met with generally
support the use of IRA methods to assist beneficiaries in choosing
a PDP that meets their individual circumstances. State Medicaid
officials we met with maintained that overall, dual-eligible
beneficiaries would have been in a better position during the
initial transition to Medicare Part D if drug utilization
information were considered in the PDP assignment process. A
representative of the National Association of State Medicaid
Directors (NASMD)^69 asserted that while CMS's assignment process
was fair to PDP sponsors, it did not ensure that beneficiaries
were enrolled in appropriate PDPs. The representative reported
that CMS referred individuals who wanted to take their drug usage
into account in selecting a PDP to the Medicare.gov Web site,
which most dual-eligible beneficiaries are not able to use.

Some state Medicaid agencies indicated their support for IRA in
the months prior to Part D implementation. At that time, 15 state
Medicaid agencies made commitments to a software vendor to use a
free software package designed to match beneficiaries' drug
utilization history with PDP formularies as an educational tool to
help them choose the PDP best aligned to their individual drug
needs. However, litigation over use of the IRA software led to
delays, at the end of which CMS had already assigned dual-eligible
beneficiaries to PDPs. State Medicaid agencies reported that they
then did not have the time to match beneficiaries, send out
scorecards, and allow beneficiaries to switch PDPs before the
January 1, 2006, implementation date.

Executives of PDP sponsors we spoke with stated that CMS's
assignment method generally worked well; however, some executives
raised concerns about IRA methodology. Two PDP sponsors raised
concerns that IRA methods misinterpret formulary information.
Executives from one PDP sponsor contended that there is not a need
to look at drug utilization information because of the
requirements for broad formularies. These executives also told us
that using this method could increase the program's costs by
making PDPs cover more drugs.

PDP Transition Process Compliance Improved but Beneficiary
Confusion Remains; 2007 Contracts More Specific

CMS actions to address problems associated with PDP implementation
of pharmacy transition processes led to a more uniform application
of transition processes. Pharmacy transition processes allow new
PDP enrollees to obtain drugs not normally covered by their new
PDP while they contact their physician about switching to a
covered drug. In response to Part D sponsors' inconsistent
implementation of transition drug coverage processes in early
2006, CMS issued a series of memoranda that clarified its
expectations. PDP sponsors, pharmacy groups, and beneficiary
advocates told us that since then, beneficiaries' ability to
obtain transition drug coverage has substantially improved.
However, they also report that dual-eligible beneficiaries remain
unaware or confused about the significance of receiving a
transition drug supply at the pharmacy and are not using the
transition period to address formulary issues. CMS made the
transition process requirements in its 2007 contracts with PDP
sponsors more specific.

CMS Guidance on Transition Drug Coverage Improved PDP Performance

After receiving complaints that Part D enrollees experienced
difficulties obtaining their medications, CMS took steps to
address issues related to the availability of transition drug
supplies. Federal regulations require PDP sponsors to provide for
a transitional process for new enrollees who have been prescribed
Part D-covered drugs not on the PDP's formulary.^70 CMS instructed
PDP sponsors to submit a transition process, which would be
subject to the agency's review, as part of the application to
participate in Part D.

Although CMS specified its expectations for a transition process
in March 2005 guidelines for Part D sponsors, the sponsors had
discretion in devising their processes. The March 2005 guidelines
specified that Part D sponsors should consider filling a one-time
transition supply of nonformulary drugs to accommodate the
immediate need of the beneficiary. The agency suggested that a
temporary 30-day supply would be reasonable to enable the relevant
parties to work out an appropriate therapeutic substitution or
obtain a formulary exception, but it allowed Part D sponsors to
decide the appropriate length of this one-time transitional
supply. For residents in long-term care facilities, CMS guidance
indicated that a transition period of 90 to 180 days would be
appropriate for individuals who require some changes to their
medication in order to accommodate PDP formularies.

During the early weeks of the program, CMS received reports that
the way in which some PDP sponsors implemented their transition
processes adversely affected beneficiaries' ability to obtain
transition supplies. Sponsors differed in the time period set for
providing transition coverage; some PDPs provided the suggested
30-day supply, while other PDPs provided beneficiaries with as few
as a 15-day initial supply. Some PDP sponsors did not apply their
transition coverage processes to instances where a formulary drug
was subject to utilization restrictions. For example, CMS received
complaints that individuals were not given a transition supply
when their medications had prior authorization, step therapy, or
quantity limit restrictions.^71 Additionally, PDP sponsors'
customer service representatives and pharmacies were generally
unaware of the transition processes and how to implement them.
Pharmacy association representatives also told us of problems
overriding the usual pharmacy billing system in order to process a
claim when dispensing a transition supply.

CMS responded to the reported problems concerning the uneven
application of transition processes by issuing a series of
memoranda to PDP sponsors to clarify its expectations.

o On January 6, 2006, CMS issued a memorandum to PDP sponsors
highlighting the need for beneficiaries to receive transition
supplies at the pharmacy. The memorandum emphasized that PDP
sponsors should (1) train customer service representatives to
respond to questions about the PDP's transition process, (2)
provide pharmacies with appropriate instructions for billing a
transition supply, and (3) ensure that enrollees have access to a
temporary supply of drugs with prior authorization and step
therapy requirements until such requirements can be met.

o On January 13, 2006, CMS issued guidance stating that PDP
sponsors should establish an expedited process for pharmacists to
obtain authorization or override instructions, and authorize PDP
customer service representatives to make or obtain quick decisions
on the application of transition processes.

o In a January 18, 2006, memorandum, CMS reiterated its policy
that PDP sponsors should provide at least an initial 30-day supply
of drugs and that PDPs should extend that coverage even further in
situations where a longer transition period may be required for
medical reasons. In addition, CMS asked PDP sponsors to consider
contacting beneficiaries receiving transition supplies of drugs to
inform them that (1) the supply is temporary, (2) they should
contact the PDP or physician to identify a drug substitution, and
(3) they have a right to request an exception to the formulary and
the procedures for requesting such an exception.

o When many beneficiaries continued to return to the pharmacy for
refills without having successfully resolved their formulary
issues, CMS issued a memorandum on February 2, 2006, calling for
an extension of the Part D transition period to March 31, 2006.^72
The agency asserted that the extension was needed to give
beneficiaries sufficient time to work with their provider to
either change prescriptions or request an exception.

o In another memorandum to PDP sponsors on March 17, 2006, CMS
reemphasized the objectives of the transition process and
highlighted the need to inform beneficiaries of what actions to
take to resolve formulary issues following the receipt of a
transition supply.

Since CMS clarified its transition process guidance to PDP
sponsors, many of the issues surrounding transition processes have
been resolved. Some of the pharmacy and long-term care
associations, and Medicaid officials we spoke with, told us that
problems with providing transition drug coverage have largely been
addressed. They noted that the issues surrounding the
implementation of the transition processes have significantly
improved.

To oversee PDP compliance with transition coverage processes, CMS
tracks complaints and monitors the time it takes Part D sponsors
to resolve complaints. CMS officials said that they rely on
beneficiary and pharmacy complaints for information about problems
with transition coverage. The agency also assigns case workers to
ensure that PDPs resolve these issues. Although CMS can issue
monetary penalties, limit marketing, and limit enrollment for
PDPs, officials reported that no such punitive actions have been
taken against any PDP regarding transition process compliance.

Dual-Eligible Beneficiaries Often Confused about Implications of
Receiving Transition Fills

Despite PDP sponsors' efforts to communicate with beneficiaries
receiving transition supplies, beneficiaries do not always take
needed action during the transition period. Consequently, some
dual-eligible beneficiaries return to the pharmacy without having
worked with their physician to apply to get their drugs covered or
find a substitute drug.

While three PDP sponsors told us how they conveyed information
about the transition period, two of these PDP sponsors
acknowledged that dual-eligible beneficiaries often do not use the
transition period as intended. For example, one PDP executive told
us that beneficiaries often do not realize that a transition
supply has been provided and that they have to apply to the PDP to
continue receiving coverage for that particular drug.

Representatives from some pharmacy associations and long-term care
groups that we spoke to also agreed that, even when notified,
dual-eligible beneficiaries are unaware of the implications of the
policy. Some pharmacy representatives we spoke with noted that
when dual-eligible beneficiaries receive a transition supply, they
are often unaware that this supply is temporary and therefore
return to the pharmacy the following month in an effort to refill
the same prescription without having tried to switch to a
formulary medication or obtain permission to continue to have the
drug covered. Two other pharmacy association representatives noted
that beneficiary understanding of transition supplies is a
particular problem for dual-eligible beneficiaries in the
long-term care setting who often do not open or read the
notification letter sent from the PDP. Staff in long-term care
facilities often find unopened mail for the beneficiary sent from
their PDP.

For 2007, CMS Added Specific Transition Process Requirements to
Its Contracts with PDP Sponsors

Unlike the discretion allowed PDP sponsors under the guidance for
2006, CMS's 2007 contract incorporates specific requirements.^73
For example, the guidance for 2006 stated that, "we expect that
PDP sponsors would consider processes such as the filling of a
temporary one-time transition supply in order to accommodate the
immediate need of the beneficiary." As part of the 2007 contract,
PDP sponsors must attest that the PDP will follow certain required
components of a transition process. These components require that,
among other things, PDPs

o provide an emergency supply of nonformulary Part D drugs for
long-term care residents,^74

o apply transition policies to drugs subject to prior
authorization or step therapy,

o add a computer code to their data systems to inform a pharmacy
that the prescription being filled is a transition supply,

o ensure that network pharmacies have the computer codes necessary
to bill transition supplies, and

o notify each beneficiary by mail within 72 hours of a transition
supply of medications being filled.

To educate beneficiaries about the purpose of transition supplies,
CMS also added a requirement for PDP sponsors in its 2007
contracts to instruct beneficiaries about the implications of a
transition supply and alert pharmacies that they are supplying a
transition supply. Beginning in 2007, PDP sponsors are required to
notify each beneficiary of the steps they should take during the
transition period when they receive a transition supply of a drug.
In addition, PDP sponsors are required to add a computer code to
their systems so that after a pharmacist fills a transition
supply, a message back to the pharmacist will alert them that the
prescription was filled on a temporary basis only. The pharmacist
will then be in a better position to inform the beneficiary of the
need to take appropriate steps before the transition period ends.

^45Social Security Act S1902(a)(34) (codified, as amended, at 42 U.S.C.
S1396a(a)(34)). Under section 1115 of the Social Security Act, the
Secretary of Health and Human Services may waive this requirement for
demonstration projects that are likely to assist in promoting the
objectives of the Medicaid program. Social Security Act S1115 (codified,
as amended, at 42 U.S.C. S1315). If a state receives approval of such a
waiver, the state only needs to extend Medicaid eligibility back to the
date of application for the population covered under the demonstration.

^46For the 2006 benefit year, CMS is requiring PDP sponsors to submit all
utilization information by the end of May 2007 and will begin the
reconciliation process in August 2007.

^47In 2006, the direct subsidy payment was $60.10 (subject to adjustment
based on the beneficiary's health) and $53.08 for 2007. The low-income
benchmark is a regional amount that ranged from $23.25 to $36.39 in 2006
and ranges from $20.56 to $33.56 in 2007.

^48This total represents only Medicare payments to PDPs associated with
the retroactive coverage policy for beneficiaries enrolled by CMS after
becoming dually eligible. Based on data provided by CMS, we estimated that
roughly 256,000 dual-eligible beneficiaries enrolled by CMS from April
through December 2006 were provided retroactive coverage. We assumed that
most of these beneficiaries were provided up to 5 months of retroactive
coverage from the date they were notified of their PDP enrollment--a
period that includes both their retroactive Medicaid coverage and PDP
enrollment processing time. We estimated that, for each month, PDP
sponsors received approximately $90 per beneficiary in direct subsidy and
low-income premium payments.

^49CMS conducts a separate reconciliation for all payments made to PDPs,
termed risk sharing, in which CMS may recoup a share of Medicare payments
made to a Part D sponsor that exceed the sponsor's actual costs.
Recoupment may occur if actual costs are less than the sponsor's estimates
of revenue necessary to provide Part D benefits to all its enrollees. CMS
performs risk sharing with Part D sponsors at the end of each coverage
year.

^50As consistent with federal requirements, Medicare pays PDPs the same
monthly premium amounts for periods of retrospective coverage as for
prospective coverage, although evidence suggests that beneficiaries' drug
purchases are likely to be significantly lower during the retrospective
periods. On average, beneficiaries without drug insurance use 25 percent
fewer prescriptions and spend 40 percent less on drugs than do insured
beneficiaries. See John Poisal and George Chulis, "Medicare Beneficiaries
and Drug Coverage," Health Affairs, vol. 19, no. 2, March/April 2000, pp.
248-256.

^51In commenting on a draft of this report, CMS noted that it had educated
its partners--organizations that assist Medicare beneficiaries with
enrollment--about this policy, so that they could help dual-eligible
beneficiaries understand their right to reimbursement for retroactive drug
costs. The agency pointed to an April 2006 fact sheet for partners on how
Medicare beneficiaries, in general, should seek repayment of out-of-pocket
costs incurred while their plan enrollment was being processed. However,
the guidance did not make specific reference to the rights of
dual-eligible beneficiaries who are provided several additional months of
retroactive coverage nor did it define which drug costs are covered.

^52PDPs must also reimburse beneficiaries in cases such as Mrs. Jones--a
Medicare beneficiary previously enrolled in a PDP who subsequently became
eligible for Medicaid, and thus the low-income subsidy (see fig. 3). CMS
would make the payments for the low-income benchmark premium to the PDP
retroactive to the date Mrs. Jones had a change in subsidy status and the
PDP would reimburse Mrs. Jones for that period up to the same premium
amount. For the cost-sharing payment, the PDP has the prescription drug
claims for the retroactive period, which include the amount Mrs. Jones
paid at the pharmacy. The PDP would resolve differences between the amount
she actually paid and the amount she would have paid given the low-income
subsidy. If the PDP has automated systems to amend claims and pay
accordingly, Mrs. Jones would not have to contact the PDP to be refunded
for her costs.

^53Under CMS's 2006 policy, PDP sponsors were responsible for compensating
dual-eligible beneficiaries, or those that paid on their behalf, for
out-of-pocket costs incurred during the retroactive period for drugs
covered by the PDP. Similarly, if a pharmacy provided medications to Mr.
Smith without charge during this time period, the PDP sponsor would also
be required to reimburse the pharmacy for covered drug costs if the
pharmacy was in the PDP's network. Under CMS's 2007 policy, the agency
requires that PDP sponsors reimburse third-party payers for allowable drug
charges during a retroactive eligibility period of up to 7 months,
including charges for nonformulary drugs or formulary drugs with prior
authorization requirements.

^54In unit testing, each module is tested alone in an attempt to discover
any errors in its code. System testing is performed to discover defects
that are properties of the entire system rather than of its individual
components. Integration testing is performed to verify that multiple
applications that work together to accomplish a system function, when
combined, work correctly. Because the separate applications being
integrated have already been tested successfully, integration testing
focuses on ensuring that the interfaces work correctly and that the
integrated software meets specified requirements.

^55Social Security Act S 1860D-1(b)(1)(C).

^56Social Security Act S1860D-1(b)(3)(D); see also 42 C.F.R. S 423.38.

^57CMS only receives one address per beneficiary, which may be that of a
representative payee. A representative payee is an individual or
organization that receives Social Security or SSI payments for someone who
cannot manage or direct the management of his or her money. The file CMS
receives from SSA contains information indicating that an individual has a
representative payee.

^58PDPs are required to cover the cost of prescriptions filled at
pharmacies that are outside of the PDP's pharmacy network; however, the
beneficiary may have to pay more of the cost.

^59Qualified SPAPs must attest to CMS that they meet five criteria
established by CMS, including a prohibition on discriminating against any
PDP when enrolling beneficiaries. SPAPs must also qualify as authorized
representatives of beneficiaries under state law in order to enroll
beneficiaries in PDPs. See Social Security Act S1860D-23(b); 42 C.F.R.
S423.464(e)(1). As of May 17, 2006, SPAPs in 25 states had attested to
their qualified status.

^60Social Security Act S1860D-23(b)(2); 42 C.F.R. S 423.464(e)(1)(ii). CMS
informed us that it has coordinated enrollment processes with SPAPs, in
which SPAPs have assigned dual-eligible beneficiaries to a PDP,
eliminating the need for CMS to assign these individuals to a PDP.

^61Me. Rev. Stat. Ann. tit. 22, S 254-D (2006).

^62Prior authorization is the requirement to obtain authorization from the
PDP sponsor before the PDP will cover a drug.

^63CMS currently receives drug claims data from PDPs for the purpose of
adjusting payments made to PDP sponsors. The MMA provides that these data
may only be used by CMS for purposes of determining subsidies to PDPs.
Social Security Act S1860D-15(d). In October 2006, CMS issued a proposed
rule that would permit the agency to share claims data with other
governmental and outside entities for purposes of research and evaluation
of the Medicare Part D program. See Medicare Program; Medicare Part D
Data, 71 Fed. Reg. 61445 (Oct. 18, 2006).

^64PAAD did not include any dual-eligible beneficiaries in its assignment
process.

^65This program has counselors in every state and several territories who
offer free individualized help with a beneficiary's Medicare questions or
problems.

^66CMS developed a Web-based "Formulary Finder" that allows a user to
enter the drugs they are using to find out which PDPs in an area match
their drug list. This tool is available online at:
http://formularyfinder.medicare.gov/formularyfinder/selectstate.asp

^67Maintenance drugs are used to treat medical conditions that are
considered chronic, long term, and stable.

^68The 210,000 includes about 20,000 members of another SPAP in the state
that PAAD included in the process.

^69NASMD is a professional, nonprofit organization of representatives of
all state Medicaid agencies (including the District of Columbia and
territories).

^7042 C.F.R. S 423.120(b)(3). New enrollees include beneficiaries who (1)
transitioned to Medicare Part D on January 1, 2006, (2) transitioned to
Medicare Part D after the initial implementation, and (3) switched from
one plan to another after implementation of the Part D program.

^71Under step therapy restrictions, the PDP requires that the beneficiary
first try a less expensive drug for their condition before it will cover
the beneficiary's prescribed drug. Under quantity limit restrictions, the
PDP limits the amount of the drug it covers over a certain period of time.

^72The extension of the transition period to March 31st was limited to
those beneficiaries who were enrolled in the first few months of the
program. For those who enrolled on March 1, 2006, or after, the 30-day
transition period remained in effect.

^73In referring to 2007 contracts with PDP sponsors, we are reporting on
the attestations PDPs must provide to CMS on transition processes for
contract year 2007.

^74For long-term care residents that are beyond the 90-day transition
period afforded to these individuals, the plans must still provide a
31-day emergency supply of nonformulary Part D drugs, including Part D
drugs that are on a plan's formulary but require prior authorization or
step therapy, while approval is being sought to remain on the drug.

Conclusions

Some challenges regarding the enrollment of new dual-eligible
beneficiaries have been resolved, while others remain. In
particular, CMS's decision to implement prospective enrollment for
new dual-eligible beneficiaries who are Medicaid eligible and
subsequently become Medicare eligible should alleviate coverage
gaps this group of beneficiaries previously faced. However,
because of inherent processing lags, most dual-eligible
beneficiaries--Medicare beneficiaries new to Medicaid--may
continue to face difficulties at the pharmacy counter. In
addition, because of CMS's limited oversight of its retroactive
coverage policy, the agency has not been able to ensure efficient
use of program funds. Until March 2007, the letters used to notify
dual-eligible beneficiaries of their PDP enrollment and their
retroactive coverage did not inform them of the right to be
reimbursed and how to obtain such reimbursement. CMS monitoring of
retroactive payments to PDPs and subsequent PDP reimbursements to
beneficiaries is also lacking. We found that Medicare paid PDPs
millions of dollars --we estimate about $100 million in 2006--for
coverage during periods for which dual-eligible beneficiaries may
not have sought reimbursement for their drug costs.

After spending many months stabilizing the information systems
supporting the Part D program, CMS is now making changes to
improve the efficiency of its key information systems involved in
the enrollment process. While CMS officials are aware of the risks
involved in these changes, they are not planning to perform
end-to-end testing because of the complexity of the systems
infrastructure, the multiple partners involved, and time and
resource constraints. While we agree that end-to-end testing will
be difficult, it is important to perform this testing to mitigate
risks and avoid problems like those that occurred during initial
program implementation.

CMS's assignment of dual-eligible beneficiaries to PDPs serving
their geographic area with premiums at or below the low-income
benchmark generally succeeded in enrolling dual-eligible
beneficiaries into PDPs. The experience of SPAPs in Maine and New
Jersey, while limited, demonstrates the feasibility of using IRA
methods to better align beneficiaries' PDP assignments with their
drug utilization needs. However, continued use of these methods is
contingent on access to beneficiary drug utilization and formulary
information from PDPs. In addition, some dual-eligible
beneficiaries--those with representative payees--were assigned to
PDPs that did not serve the area where they lived. Since CMS
receives a file from SSA that includes an indicator showing that
an individual has a representative payee, the agency could use
this information to assign these beneficiaries to PDPs that serve
the area where they live.

To resolve problems associated with the uneven application of
transition policies, CMS clarified its previous guidance to plans
and added requirements to its 2007 contracts with PDP sponsors.
The 2006 experience with plans' uneven implementation of CMS's
transition policy guidance demonstrated how inconsistent
interpretations can lead to problems for beneficiaries and
pharmacies. CMS officials recognized that the agency needed to be
more directive by including specific procedures in its 2007 PDP
contracts. Even with consistent implementation of transition
policies and notification requirements, however, without
assistance, dual-eligible beneficiaries--a highly vulnerable
population--are likely to have difficulty resolving problems that
they encounter with the transition.

Recommendations for Executive Action

We make the following six recommendations.

To help ensure that dual-eligible beneficiaries are receiving Part
D benefits, the Administrator of CMS should require PDP sponsors
to notify new dual-eligible beneficiaries of their right to
reimbursement for costs incurred during retroactive coverage
periods.

To determine the magnitude of Medicare payments made to PDPs under
its retroactive coverage policy, the Administrator of CMS should
track how many of the new dual-eligible beneficiaries it enrolls
each month receive retroactive drug benefits and how many months
of retroactive coverage the agency is providing them.

To determine the impact of its retroactive coverage policy, the
Administrator of CMS should monitor PDP reimbursements to
dual-eligible beneficiaries, and those that paid on their behalf,
for costs incurred during retroactive periods through an
examination of the prescription utilization data reported by PDP
sponsors.

To mitigate the risks associated with implementing Part D
information systems changes, especially in light of initial
systems issues caused by the lack of adequate testing, the
Administrator of CMS should work with key partners to plan,
prioritize, and execute end-to-end testing.

To help ensure new dual-eligible beneficiaries are enrolled in
PDPs that serve the geographic area where they live, the
Administrator of CMS should assign dual-eligible beneficiaries
with representative payees to a PDP serving the state that submits
the individual's information on their dual-eligible file.

To support states with the relevant authority that want to use
alternative enrollment methods to reassign dual-eligible
beneficiaries to PDPs, the Administrator of CMS should facilitate
the sharing of data between PDPs and states.

Agency Comments and Our Evaluation

CMS reviewed a draft of this report and provided written comments,
which appear in appendix II. In addition to comments on each of
our recommendations, CMS provided us with technical comments that
we incorporated where appropriate.

CMS remarked that we did an excellent job of outlining the complex
systems and steps involved in identifying, assigning, and
enrolling new dual-eligible beneficiaries into PDPs. However, the
agency objected to what it perceived as an overwhelmingly negative
tone in our findings and stated that our discussion of retroactive
coverage was overly simplified. CMS did note that the agency was
in the process of implementing three of our six recommendations to
improve existing procedures.

CMS's main concern regarding the draft report for comment centered
on our characterization of the interval between the effective date
of Part D eligibility and the completed enrollment process as a
"disconnect." Also, CMS officials noted that "it is not new or
unusual for individuals to pay out of pocket for their
prescription drug or other healthcare services, and then
subsequently be reimbursed." The agency explained that its policy
of tying the effective Medicare Part D enrollment date to the
first day of Medicaid eligibility is intended to ensure that
dual-eligible individuals receive Part D benefits for the period
that they were determined by their state to be eligible for this
coverage. CMS asserted that it is the retroactive eligibility
requirement under Medicaid, not CMS policy, which causes the
"space and time conundrum" over which it has no control.

Regarding this broad concern from CMS, we note that our discussion
of the time to complete the enrollment process and the period of
retroactive coverage experienced by a majority of newly enrolled
dual-eligible beneficiaries was intended to describe CMS's
implementation of the enrollment process for new dual-eligible
beneficiaries; we did not evaluate CMS's policy. Recognizing the
desirability of providing drug coverage as soon as beneficiaries
attain dual-eligible status, we do not object to CMS's policy of
linking the Part D effective coverage date to Medicaid's
retroactive eligibility date. However, our review found that CMS
had not fully implemented this policy and, as a consequence,
neither beneficiaries nor the Medicare program are well served.
Therefore, we have recommended actions that CMS should take to
better protect beneficiaries and ensure efficient use of Medicare
program funds. To clarify our message and to reflect information
obtained through agency comments, we modified portions of this
discussion and provided the revised sections to CMS for
supplemental comments.

In its supplemental comments, CMS again objected to what it
believed is our implication that retroactive coverage for
dual-eligible beneficiaries is inappropriate or that CMS has put
the Medicare program at unwarranted risk. As stated above, we do
not disagree with the policy of retroactive coverage for
dual-eligible beneficiaries; rather we are concerned with how CMS
implemented this policy in 2006. Only by monitoring the amounts
paid to PDP sponsors for retroactive coverage periods and the
amounts PDP sponsors reimbursed dual-eligible beneficiaries will
CMS be in a position to evaluate the effectiveness of its
retroactive coverage policy.

Also, CMS asserted that we incorrectly imply that CMS had the
information needed to monitor reimbursements to dual-eligible
beneficiaries when such information is not expected to be
available until after May 31, 2007. During the course of our audit
work in 2006, CMS indicated no current or planned efforts to
monitor or enforce PDP sponsor reimbursements to dual-eligible
beneficiaries. Only after receiving our draft report did CMS state
its intention to analyze the data necessary to monitor plan
compliance and evaluate agency policy. In fact, we were told that
CMS decided to conduct this analysis as a direct result of our
draft report's findings and recommendations.

CMS agreed with our recommendation to require PDP sponsors to
notify new dual-eligible beneficiaries of their eligibility for
reimbursement for costs incurred during retroactive coverage
periods. To be consistent with its retroactive coverage policy,
CMS is in the process of adding language to this effect in the
notices that the agency and PDP sponsors send to dual-eligible
beneficiaries enrolled in a PDP. The revised letters advise
beneficiaries to tell their PDP if they have filled prescriptions
since the effective coverage date because they "may be eligible
for reimbursement for some of these costs." However, contrary to
comments CMS made on our draft report--that dual-eligible
beneficiaries will be told they should submit receipts for
previous purchases of Part D drugs--the revised letters do not
explicitly tell beneficiaries of the steps they would need to take
to access their retroactive coverage. The agency also reported
that it plans to inform its partners about the changes to the
enrollment notification letters.

In response to our recommendation that CMS determine the number of
beneficiaries and the magnitude of payments made to PDP sponsors
for dual-eligible beneficiaries subject to retroactive coverage,
CMS indicated that it intends to continue to track the number of
new dual-eligible beneficiaries provided retroactive coverage.
Although this monitoring is important to managing the enrollment
process for new dual-eligible beneficiaries, it would be even more
useful if CMS tracked the number of months of retroactive coverage
provided to beneficiaries it enrolls in PDPs.

CMS disagreed with our recommendation that it monitor PDP
reimbursement of beneficiary expenses incurred during retroactive
coverage periods. We maintain that the agency should actively
monitor its retroactive coverage policy by examining data that
plan sponsors routinely submit to the agency. In their drug
utilization records, sponsors must indicate the amounts paid by
the plan and by the beneficiary for each claim. If it became
evident that dual-eligible beneficiaries were not filing claims
for retroactive reimbursements while PDPs received Medicare
payments for their coverage, CMS would be in a position to
evaluate its effective coverage date policy.

Regarding our recommendation that the agency work with key
partners to plan, prioritize, and execute end-to-end testing, CMS
disagreed and questioned whether the benefits of doing so justify
the associated costs. We find this position on end-to-end testing
to be inconsistent with systems development best practices.
Establishing end-to-end test environments and conducting such
tests is widely recognized as essential to ensure that systems
perform as intended in an operational environment. CMS was alerted
to this issue in a March 2006 CMS contractor report that
identified the lack of comprehensive end-to-end testing as a
weakness of the Part D program. We acknowledge that, given the
complexity of the program's infrastructure and the multiple
partners involved, end-to-end testing will be difficult. However,
other forms of testing, including integration and stress testing,
should be conducted in addition to, not as a replacement for,
end-to-end testing.

CMS concurred with our recommendation that it ensure all new
dual-eligible beneficiaries are enrolled in PDPs that serve the
geographic area where they live. CMS reported that it has
completed the underlying changes necessary to implement this
recommendation. Beginning in April 2007, the CMS auto-assignment
process enrolls dual-eligible beneficiaries into PDPs that operate
in the state that submits that individual in its dual-eligible
file.

CMS disagreed with our recommendation that the agency facilitate
information sharing between PDPs and states that wish to use
additional information to reassign beneficiaries yearly. The
agency asserted that, for a number of reasons, efforts to match
beneficiaries' customary drugs to PDP formularies are not
necessary or desirable. Furthermore, CMS noted that it lacks the
statutory authority and the drug utilization data needed to assign
beneficiaries to PDPs on anything other than a random basis. We
did not propose that CMS change its assignment method and we did
not take a position on the desirability of states' use of
intelligent random assignment methods. However, we maintain that
states wishing to reassign beneficiaries should have access to PDP
data once beneficiaries have been enrolled.

As agreed with your offices, 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. We will then
send copies to the Administrator of CMS, appropriate congressional
committees, and other interested parties. We will also make copies
available to others upon request. This report is also available at
no charge on GAO's Web site at http://www.gao.gov.

If you or your staffs have any questions about this report, please
contact Kathleen King at (202) 512-7119 or [email protected].
Questions concerning information systems issues and testing should
be directed to David Powner at (202) 512-9286 or [email protected].
Contact points for our

Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made contributions
to this report are listed in appendix III.

Kathleen M. King
Director, Health Care

David A. Powner
Director, Information Technology Management Issues

Appendix I: Steps Involved in the Identification and Enrollment
of Dual-Eligible Beneficiaries into Medicare Part D

The process of enrolling dual-eligible beneficiaries requires
several steps: It begins when the state Medicaid agency identifies
new dual-eligible beneficiaries and ends when PDPs make billing
information available to pharmacies.

1. States are responsible for identifying their
Medicaid enrollees who become dual-eligible
beneficiaries. They combine data obtained from SSA or
requested from CMS on individuals eligible to receive
Medicare benefits with their own information on
Medicaid enrollees to compile the dual-eligible
files. CMS receives Medicare entitlement information
daily from SSA.
2. After the 15th of the month and before midnight of
the last night of the month, states transmit their
dual-eligible files to CMS. These files contain
information on all individuals identified by the
states as dual-eligible beneficiaries, including
those newly identified and those previously
identified. Generally within 48 hours of receipt, CMS
processes state submissions. Within the Medicare
eligibility database, edits of the state files are
performed. Based on the results of the edits, the
Medicare eligibility database transmits an e-mail to
each state telling the state its file was received
and the results of the edits. Files that fail the
edits must be resubmitted. Once a file passes the
edits, the Medicare eligibility database matches the
file against the Medicare eligibility database to
determine if it is a valid (matched) beneficiary,
eligible for Medicare, and passes business rules for
inclusion as a dual eligible. The results of this
processing for each transaction on the states' file
are added to the response files, which are sent back
to the states.
3. After CMS has performed the matching process, the
Medicare eligibility database processes these files
through two additional steps:

(a) Deeming. Deeming takes the input from the
matching process and a monthly input file from SSA on
beneficiaries receiving Social Security Supplemental
Income (SSI) to determine the copayment level for the
dual-eligible beneficiaries. Deeming is performed
against these data according to the business rules.

(b) Auto-assignment. Auto-assignment takes the
results of deeming and assigns each beneficiary to a
PDP within the region that includes the beneficiary's
official address.^1 Auto-assignment takes the total
dual-eligible population and eliminates records using
18 exclusions rules resulting in the final set of
beneficiaries to be auto-assigned. Exclusions include
beneficiaries who are already enrolled in a Part D
plan, currently incarcerated, and not a U.S. resident
(residing outside the States and territories).
Auto-assignment uniformly assigns qualified
dual-eligible beneficiaries to designated PDPs across
each region.

The resulting deeming and assignment information is
sent to CMS's enrollment transaction system for
processing. In addition, a mail tape is prepared by
CMS containing beneficiary names and addresses so
that mail can be generated that informs beneficiaries
of the pending enrollment and identifies the PDP to
which they were assigned. A file also is sent to each
of the plans identifying the beneficiaries assigned
to their PDP.

4. Upon the receipt of the deeming and assignment
information from the Medicare eligibility database,
CMS's enrollment transaction system facilitates the
changes in the copayments and the enrollment of the
beneficiaries into their assigned PDP. The enrollment
transaction system informs the PDP of the enrollment
and copayment transactions via a weekly Transaction
Reply Report (TRR) that summarizes all transactions
that the enrollment transaction system has performed
for the respective PDP during the prior week,
beginning on Saturday.
5. PDPs then process the resulting assignment and
copayment changes, assign standard billing
information, and send the information to CMS's
Medicare eligibility database. The Medicare
eligibility database performs edits, such as matching
each submitted beneficiary's information with Part D
enrollment information. For each match, the standard
billing information is added to the Medicare
eligibility database and a response is generated for
the PDP, confirming that the information was
accepted. The PDPs mail out ID cards and plan
information to the enrolled beneficiary.
6. Nightly, the eligibility query receives billing
information from the Medicare eligibility database,
making the updated standard billing information
available for use in the eligibility query system.
7. Pharmacies can use their computer systems to
access billing information needed to bill the
assigned PDP for the beneficiary's prescriptions if a
beneficiary does not have their enrollment
information.

^1CMS uses the beneficiary's official address as contained in SSA data.
This address represents the beneficiary's residence or where the
beneficiary's representative payee is located.

Appendix II: Comments from the Centers for Medicare & Medicaid
Services

Appendix III: GAO Contacts And Staff Acknowledgments

GAO Contacts

Kathleen King, (202) 512-7119 or [email protected] David A.
Powner, (202) 512-9286 or [email protected]

Acknowledgments

In addition to the contacts named above, Rosamond Katz, Assistant
Director; Lori Achman; Diana Blumenfeld; Marisol Cruz; Hannah
Fein; Samantha Poppe; Karl Seifert; Jessica Smith; Hemi Tewarson;
and Marcia Washington made major contributions to this report.

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Highlights of [44]GAO-07-272 , a report to congressional requesters

May 2007

MEDICARE PART D

Challenges in Enrolling New Dual-Eligible Beneficiaries

[45]What GAO Recommends

GAO made six recommendations to CMS. CMS has taken steps to implement some
of them, including notifying beneficiaries of their right to reimbursement
and monitoring the number of individuals provided retroactive coverage.
However, CMS disagreed with GAO's other recommendations, including
monitoring PDP reimbursements to beneficiaries, mitigating the risks of
information system changes, and facilitating states' access to certain
drug-related information. GAO maintains its support for these
recommendations.

CMS's enrollment procedures and implementation of its Part D coverage
policy generate challenges for some dual-eligible beneficiaries,
pharmacies, and the Medicare program. A majority of new dual-eligible
beneficiaries--generally those on Medicare who have not yet signed up for
a PDP and who become eligible for Medicaid--may be unable to smoothly
access their drug benefit for at least 5 weeks given the time it takes to
enroll them in PDPs and communicate information to beneficiaries and
pharmacies. Pharmacies also may be affected adversely when key information
about a beneficiary's dual eligibility is not yet processed and available.
When dispensing drugs during this interval, pharmacies may have difficulty
submitting claims to PDPs and accurately charging copayments. In addition,
Medicare pays PDPs to provide these beneficiaries with several months of
retroactive coverage but, until March 2007, CMS did not inform
beneficiaries of their right to be reimbursed for drug costs incurred
during these periods. CMS does not monitor its payments to PDPs for
retroactive coverage or the amounts PDPs have reimbursed dual-eligible
beneficiaries. Medicare paid PDPs millions of dollars in 2006 for coverage
during periods for which dual-eligible beneficiaries may not have sought
reimbursement for their drug costs.

CMS has taken steps to address challenges associated with enrolling
dual-eligible beneficiaries in PDPs. CMS has implemented a policy to
prevent a gap in prescription drug coverage for those new dual-eligible
beneficiaries whose Part D eligibility is predictable--Medicaid
beneficiaries who subsequently qualify for Medicare. We estimate this
group represents about one-third of new dual-eligible beneficiaries. In
August 2006, CMS began operating a prospective enrollment process that
should allow the agency and its Part D partners time to complete the
enrollment processes and notify these beneficiaries before their effective
enrollment date. Also, CMS is making changes to improve the efficiency of
key information systems involved in the enrollment process. While the
agency is performing some information systems testing, it is not planning
to perform testing of the interactions of key information systems
collectively, which is crucial to mitigating the inherent risks of system
changes.

Under federal law, CMS is required to assign dual-eligible beneficiaries
to PDPs based on PDP premiums and geographic area. State Medicaid agency
officials and others assert that this assignment method often places
dual-eligible beneficiaries in PDPs that do not meet their drug needs.
With CMS approval, Maine officials considered beneficiary-specific data to
reassign nearly half of their dual-eligible beneficiaries to PDPs that
better met their drug needs in late 2005. After the reassignment, the
number of these dual-eligible beneficiaries whose PDP covered nearly all
of their prescription drugs increased significantly. States choosing to
make such reassignments in the future would need ready access to key
information from PDPs. CMS contends that reassignments are not needed
because beneficiaries may switch to drugs of equivalent therapeutic value
or change plans at any time.

References

Visible links
34. http://www.gao.gov/cgi-bin/getrpt?GAO-06-278R
44. http://www.gao.gov/cgi-bin/getrpt?GAO-07-272
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