Medicare Part D: Plan Sponsors' Processing and CMS Monitoring of 
Drug Coverage Requests Could Be Improved (22-JAN-08, GAO-08-47). 
                                                                 
Under the Medicare Part D program, prescription drug coverage is 
provided through plans sponsored by private companies.		 
Beneficiaries, their appointed representatives, or physicians can
ask sponsors to cover prescriptions restricted under their	 
plan--a process known as a coverage determination--and can appeal
denials to the sponsor and the independent review entity (IRE).  
GAO was asked to review (1) the processes for sponsors' coverage 
determination decisions and the approval rates, (2) the processes
for appealing coverage denials and the approval rates at the	 
sponsor and IRE levels, and (3) the Centers for Medicare &	 
Medicaid Services' (CMS) efforts to inform the public about	 
sponsors' performance and oversee sponsors' processes. GAO	 
visited seven sponsors that account for over half of Part D	 
enrollment. GAO also interviewed and obtained data from CMS and  
IRE officials.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-47						        
    ACCNO:   A79970						        
  TITLE:     Medicare Part D: Plan Sponsors' Processing and CMS       
Monitoring of Drug Coverage Requests Could Be Improved		 
     DATE:   01/22/2008 
  SUBJECT:   Data integrity					 
	     Health care programs				 
	     Health insurance					 
	     Health policy					 
	     Insurance claims					 
	     Medicare						 
	     Noncompliance					 
	     Performance management				 
	     Prescription drugs 				 
	     Program evaluation 				 
	     Program management 				 
	     Reporting requirements				 
	     Policies and procedures				 
	     Medicare Part D					 

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GAO-08-47

   

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
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may contain copyrighted images or other material, permission from the 
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material separately. 

Report to Congressional Requesters: 

United States Government Accountability Office: 
GAO: 

January 2008: 

Medicare Part D: 

Plan Sponsors' Processing and CMS Monitoring of Drug Coverage Requests 
Could Be Improved: 

GAO-08-47: 

GAO Highlights: 

Highlights of GAO-08-47, a report to congressional requesters. 

Why GAO Did This Study: 

Under the Medicare Part D program, prescription drug coverage is 
provided through plans sponsored by private companies. Beneficiaries, 
their appointed representatives, or physicians can ask sponsors to 
cover prescriptions restricted under their planâa process known as a 
coverage determinationâand can appeal denials to the sponsor and the 
independent review entity (IRE). GAO was asked to review (1) the 
processes for sponsorsâ coverage determination decisions and the 
approval rates, (2) the processes for appealing coverage denials and 
the approval rates at the sponsor and IRE levels, and (3) the Centers 
for Medicare & Medicaid Servicesâ (CMS) efforts to inform the public 
about sponsorsâ performance and oversee sponsorsâ processes. GAO 
visited seven sponsors that account for over half of Part D enrollment. 
GAO also interviewed and obtained data from CMS and IRE officials. 

What GAO Found: 

Sponsors in our study address coverage requests for drugs with 
restrictions using processes that allow for prompt decisions, apply a 
range of criteria, and have resulted in approvals of most cases. To 
minimize the amount of time needed to make a determination, study 
sponsors use automated systems to compare the patient information they 
receive from prescribing physicians against preset coverage criteria. 
The coverage criteria for specific drugs incorporate Medicare 
requirementsâsuch as whether the drug use is excluded from coverage 
under Medicare Part Dâand discretionary componentsâsuch as whether a 
less expensive alternative drug has been tried and failed. Some study 
sponsors indicated they feel pressure to make decisions within the CMS-
required time frames even when all pertinent patient information from 
physicians is not at hand. In reviewing a sample of 421 case files, GAO 
found that overall, study sponsors approved about 67 percent of the 
coverage determination requests, ranging from 57 percent to 76 percent. 

The process for conducting appeals allows staff not involved in the 
previous case review to make better-informed decisions by considering 
additional supporting evidence. At the first level of appeal, sponsor 
staff evaluate any corrected or augmented evidence to see if coverage 
criteria have been met. At the second level of appeal, IRE staff 
consider the information the sponsor reviewed, along with any 
additional support that may be available. In many cases, appeals result 
in new interpretations of whether the requested drug should be covered. 
CMS appeals data show that, from July 2006 through December 2006, the 
median approval rate across all Part D sponsors was 40 percent; from 
July 2006 through June 2007, appeals to the IRE received full or 
partial approval in 28 percent of cases. For some standard appeals, 
missing appointment of representative (AOR) documentation contributed 
to delays in sponsor-level appeals decisions and dismissals of IRE 
appeals cases. Some study sponsors have developed âworkaroundsâ to 
eliminate the need for the completed AOR form. 

CMS has improved its efforts to inform beneficiaries about sponsorsâ 
performance, but its oversight of sponsors is hindered by poorly 
defined reporting requirements. CMS developed two performance metrics 
on sponsorsâ timeliness and the outcomes of their coverage decisions. 
The agency improved the way it displays this information on the 
Medicare Web site in late 2007. In addition, CMS requires that sponsors 
report data on various measures of coverage requests and approvals. 
However, the agency has provided minimal guidance on the types of cases 
to be included in each coverage determination measure. As a result, our 
study sponsors reported data differently to CMS, hindering the agencyâs 
ability to adequately monitor sponsorsâ activities. Finally, CMS has 
conducted several audits and found that sponsors were noncompliant with 
a number of specific requirements. Areas of sponsor noncompliance 
ranged from incomplete written policies and procedures to delays in 
authorizing drug coverage after the IRE approved an urgent request. 

What GAO Recommends: 

GAO recommends that CMS (1) reduce the need for an AOR form by 
requiring that sponsors and the IRE, upon receipt of standard appeal 
requests submitted by prescribing physicians without AOR forms, 
telephone beneficiaries to see if they wish to initiate the appeal, and 
(2) provide specific definitions for data that sponsors must report to 
CMS. The agency supports the intent of our first recommendation and is 
considering it in light of current legal requirements. CMS has taken 
steps to implement the second recommendation. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.GAO-08-47]. For more information, contact 
Kathleen M. King at (202) 512-7114 or [email protected]. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Coverage Determination Processes Allow for Prompt Decisions, Apply a 
Range of Criteria, and Have Resulted in Approvals for the Majority of 
Requests: 

Appeals Processes Allow for Better Informed Decisions, Have Often 
Resulted in Coverage Approvals, and Are Impeded by AOR Requirement: 

CMS Efforts to Inform Beneficiaries about Sponsors' Performance Have 
Improved; Oversight Hindered by Poorly Defined Reporting Requirements: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Steps and Time Frames for Part D Coverage Determination and 
Appeals: 

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

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Requests Addressed in Coverage Determinations and Appeals: 

Table 2: CMS's Revised Metric on IRE Appeals Decisions, as of November 
2007: 

Table 3: Audit Elements Found Deficient at Four or More Sponsors in 
CMS's Audits of Five PDP Sponsors, as Reported in October 2007: 

Figures: 

Figure 1: IRE Disposition of Part D Appeals, July 2006 through June 
2007: 

Figure 2: IRE Decisions by Issue Addressed in the Request, July 2006 
through June 2007: 

Abbreviations: 

AOR: appointment of representative: 

CMS: Centers for Medicare & Medicaid Services: 

FDA: Food and Drug Administration: 

IRE: independent review entity: 

MA-PD: Medicare Advantage prescription drug: 

MMA: Medicare Prescription Drug, Improvement, and Modernization Act of 
2003: 

PDP: prescription drug plan: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

January 22, 2008: 

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 drug benefit, known as 
Medicare Part D, that provides prescription drug coverage for nearly 25 
million beneficiaries--seniors and individuals with disabilities-- 
enrolled in the program.[Footnote 1] Beneficiaries may obtain the drug 
benefit, which began on January 1, 2006, by enrolling in plans offered 
by Part D sponsors--private companies, such as health insurance 
companies and pharmacy benefit managers.[Footnote 2] The Centers for 
Medicare & Medicaid Services (CMS)--the agency that administers the 
Medicare program--is responsible for contracting with and overseeing 
the sponsors that provide the drug benefit. Among its many functions, 
the agency is responsible for monitoring sponsor compliance with 
program rules and publicly reporting information on certain aspects of 
sponsor performance. 

The MMA and CMS's implementing regulations established specific 
requirements for Part D sponsors. Sponsors' formularies--lists of plan- 
covered drugs--must include "all or substantially all" drugs within six 
designated drug categories: antidepressants, antipsychotics, 
anticonvulsants, anticancer drugs, immunosuppressants, and HIV/AIDS 
drugs. For each of the other therapeutic drug categories and classes, 
sponsors' formularies generally must include at least two Part D 
drugs.[Footnote 3] However, formularies generally cannot include drugs 
or their uses that the MMA excluded from Medicare Part D 
coverage.[Footnote 4] In addition, MMA promotes the use of generic 
drugs, which are generally cheaper than most brand-name drugs. The MMA 
states that a Part D sponsor must require a pharmacy to inform a 
beneficiary of any differential between the price of a drug and the 
price of its lowest-priced generic version.[Footnote 5] 

Beyond the minimum formulary requirements, the MMA gives sponsors 
discretion in designing their formularies to keep costs low. Because 
Part D plan sponsors share financial risk with the Medicare program, 
they have an incentive to control beneficiaries' drug 
spending.[Footnote 6] To do so, sponsors negotiate discounted prices 
with drug manufacturers and design their formularies to encourage the 
use of cost-saving prescription drugs. As long as they meet the minimum 
formulary requirements, sponsors may exclude particular drugs from 
their formularies. For drugs included on the formulary, sponsors may 
assign drugs to tiers that correspond to different levels of cost 
sharing. In general, they encourage the use of generic medications by 
putting them on a cost-sharing tier that requires the lowest out-of- 
pocket costs for beneficiaries and discourage the use of expensive 
drugs by putting them on tiers that require higher out-of-pocket 
spending by beneficiaries. A national survey of noninstitutionalized 
seniors conducted in the fall of 2006 found that 25.7 percent of 
beneficiaries reported switching to a cheaper medication after they 
enrolled in a Part D plan.[Footnote 7] 

Sponsors can also lower drug spending by applying various utilization 
management restrictions to drugs on their formularies.[Footnote 8] 
Utilization management restrictions typically include (a) prior 
authorization, which requires the beneficiary to obtain the sponsor's 
approval before a drug is covered for that individual; (b) quantity 
limits, which restrict the dosage or number of units of a drug provided 
within a certain period of time; and (c) step therapy, which requires 
that a beneficiary try lower-cost drugs before a sponsor will cover a 
more costly drug. 

Beneficiaries who attempt to fill a prescription for a nonformulary 
drug or a restricted formulary drug will have coverage withheld unless 
the beneficiary receives special permission from the plan sponsor. In a 
2006 national survey of seniors, 11.3 percent of respondents reported 
needing special permission to get a prescription filled.[Footnote 9] 
When coverage is withheld, CMS regulations require that pharmacies 
inform beneficiaries of their right to make a formal request to their 
plan for coverage--a process known as a coverage determination. 
Beneficiaries, their appointed representatives,[Footnote 10] or 
prescribing physicians can use the coverage determination process to 
demonstrate that the sponsor's coverage criteria have been met or that 
an exception to the formulary,[Footnote 11] cost-sharing requirements, 
or utilization restrictions should be granted based on the medical 
needs of the beneficiary. Beneficiaries who receive an unfavorable 
coverage determination may appeal the decision, first to the sponsor-- 
a process known as a redetermination--and then to an independent review 
entity (IRE)[Footnote 12]--a process known as a reconsideration. 
[Footnote 13] 

As a beneficiary protection, MMA and CMS regulations require that 
sponsors have procedures in place to make coverage determination and 
appeal decisions in a timely manner. CMS established priority levels 
for coverage determinations and appeal requests as either standard or 
expedited (for requests thought to be urgent, based on the 
beneficiary's or physician's judgment).[Footnote 14] Prescribing 
physicians may initiate coverage determinations and expedited 
redeterminations on behalf of a beneficiary without permission from the 
beneficiary, but to initiate a standard appeal on a beneficiary's 
behalf, they must have a completed appointment of representative (AOR) 
form.[Footnote 15] Sponsors must make standard coverage determination 
decisions within 72 hours and expedited coverage determination 
decisions within 24 hours. Decisions at the redetermination level must 
be made within 7 days for a standard request and within 72 hours for an 
expedited request. If the sponsor fails to notify the beneficiary of 
its decision within the established time frames, the decision is deemed 
an automatic denial, at which point the sponsor must forward the case 
to the IRE. At the reconsideration level--the second level of appeal-- 
the IRE has 7 days to decide a standard request and 72 hours for an 
expedited request. (See app. I for an illustration of the coverage 
determination and appeals levels and time frames.) 

Questions have been raised about how coverage determination and appeals 
processes work to safeguard beneficiaries' access to the Part D-covered 
drugs they need. Little is known about how decisions are made, the 
outcomes of coverage requests, and how CMS oversees sponsors' coverage 
determination and appeals processes. You asked us to review Part D 
coverage determination and appeals processes at the sponsor and IRE 
levels. This report provides information on (1) the processes for 
sponsors' coverage determination decisions and the approval rates, (2) 
the processes for appealing coverage denials and the coverage approval 
rates at the sponsor and IRE levels, and (3) CMS's efforts to inform 
beneficiaries about sponsors' performance and to oversee sponsors' 
coverage determination and appeals processes. 

To review the processes for sponsors' coverage determination decisions 
and approval rates, we conducted site visits to seven sponsors offering 
Part D plans in 2006, and interviewed officials about how coverage 
determinations are made. The seven sponsors were chosen because they 
varied on a number of measures, including size of enrollment and their 
market presence across the country. As of September 1, 2006, the seven 
sponsors we interviewed enrolled about 13 million beneficiaries, about 
54 percent of all Part D enrollees. In addition, at each sponsor we 
reviewed a randomly selected sample of coverage determination case 
files from October 2006 to verify the information sponsor officials 
told us.[Footnote 16] In total, we reviewed 421 coverage determination 
case files--at least 34 from each sponsor. Information from these 
sponsors is illustrative and cannot be generalized to the entire 
sponsor community. We also reviewed relevant documents, including the 
MMA and Part D implementing regulations, to understand sponsor 
requirements. Also, we obtained the views of beneficiary advocates and 
physician association representatives about the Part D coverage 
determination process. Physician association representatives included 
both general and specialty practitioners. 

To examine appeals processes, we interviewed management staff from the 
seven selected sponsors and the IRE about their policies and 
procedures. We reviewed randomly selected samples of October 2006 
appeals case files at each sponsor and the IRE to verify information 
obtained from our interviews. In total, we reviewed 458 redetermination 
case files--at least 43 from each sponsor--and 100 reconsideration case 
files. To learn about coverage approval decisions at the 
redetermination level, we analyzed data reported by sponsors to CMS on 
the number of redeterminations made from July 2006 through December 
2006. To assess the reliability of these sponsor-reported data, we 
interviewed CMS officials responsible for the collection and analysis 
of the data, and we reviewed the CMS data reporting requirements for 
redeterminations. We determined that the data were sufficiently 
reliable for purposes of this report. To learn about coverage approval 
decisions at the reconsideration level, we analyzed IRE workload data 
reported to CMS, including data on the results of IRE decision making. 
To assess the reliability of the IRE data, we conducted interviews with 
IRE staff to learn about how the data are compiled. We determined the 
data were sufficiently reliable for the purposes of this report. 

To determine how CMS informs beneficiaries about sponsors' performance, 
we examined information posted on the Medicare Prescription Drug Plan 
Finder tool and discussed planned changes to the Web site with CMS 
officials. To determine how CMS oversees the coverage determination and 
appeals processes, we interviewed agency officials responsible for 
policy development and oversight of the Part D program. We also 
examined data CMS collected to monitor sponsors' activities and 
compared the reporting practices of our study sponsors. Finally, we 
reviewed CMS's compliance audit reports. 

In conducting our work, we did not examine how beneficiaries are 
informed about their rights to request a coverage determination, or the 
appropriateness of sponsors' coverage criteria or coverage decisions. 
In addition, we did not examine the extent to which beneficiaries use 
the coverage determination process because the CMS data needed to do so 
were inadequate. Although beneficiaries may pursue appeals beyond the 
reconsideration level, reviewing these additional levels is beyond the 
scope of this report. We performed our work from July 2006 through 
January 2008 in accordance with generally accepted government auditing 
standards. 

Results in Brief: 

The sponsors we studied address coverage requests for drugs with 
restrictions using processes that allow for prompt decisions, apply a 
range of criteria, and have resulted in approvals of most cases. To 
minimize the amount of time needed to make a determination, sponsors we 
visited obtain patient information needed to make their decisions using 
drug-specific coverage determination request forms. Information on the 
forms is entered into a computer for analysis of whether coverage 
criteria--the conditions that need to be met for the requested drug to 
be covered--have been met. These drug-specific coverage criteria 
incorporate Medicare requirements--such as whether the drug use is 
excluded from coverage under Medicare Part D--and sponsor-developed 
components--such as whether a less expensive alternative drug has been 
tried and failed. When a request cannot be approved by technical staff, 
sponsors' clinical staffs make the final determination. However, the 
pressure to make a coverage determination within the CMS-mandated time 
frames increases the likelihood that sponsors may deny requests when 
complete information is not at hand or cannot be obtained quickly. In 
reviewing a sample of 421 case files, we found that study sponsors 
approved about 67 percent of the coverage determination requests. 
Overall, the approval rate for standard requests in our sample was 67 
percent, compared to 53 percent for expedited requests. 

Appeals decisions at the study sponsors and the IRE typically involve 
the review of more information than was available at the previous level 
and different decision makers. For redeterminations--the first level of 
appeal--we found that, generally, sponsor staff often consider 
additional supporting patient information provided by prescribing 
physicians that was not available for the coverage determination. The 
redetermination staff evaluate the corrected or augmented evidence to 
see whether coverage criteria have been met. In conducting 
reconsiderations--the second level of appeal--IRE officials review the 
information the sponsor reviewed, along with any additional support 
that may be available or that they solicit from the prescribing 
physician. In many cases, new interpretations of the evidence resulted 
in approval for coverage of the requested drug. CMS appeals data show 
that, from July 2006 through December 2006, the median approval rate 
for all Part D sponsors was 40 percent. For the period from July 2006 
through June 2007, the IRE either fully or partially approved coverage 
of the drug in 28 percent of reconsideration cases. We found that, for 
some standard appeals, missing AOR documentation contributed to delays 
in study sponsor redeterminations and dismissals of IRE 
reconsiderations. Most sponsors in our study, as well as IRE officials, 
reported that the AOR requirement--that prescribing physicians be 
appointed beneficiary representatives with a signed AOR form in order 
to initiate standard appeals--impedes the process. Some study sponsors 
have developed "workarounds" to eliminate the need for the completed 
AOR form. 

CMS has improved its efforts to inform beneficiaries about sponsors' 
performance, but its oversight of sponsors is hindered by poorly 
defined reporting requirements. CMS has developed two sponsor 
performance metrics in the area of coverage determinations and appeals: 
the rate at which sponsors met required time frames for decision making 
and the rate at which the IRE concurs with sponsors' redetermination 
decisions. As of November 2007, the agency changed the manner in which 
it calculates and displays these performance metrics on its Medicare 
Web site to improve the information available to beneficiaries. In its 
efforts to monitor sponsors' coverage determinations and appeals 
activities, we found that CMS is hindered by inconsistent data. The 
agency requires that sponsors report data quarterly on various measures 
of coverage requests and approvals. However, CMS has provided minimal 
guidance on the types of cases to be included in each coverage 
determination measure. As a result, for 2006, our study sponsors 
reported measures differently--for instance, some sponsors double 
counted cases in separate measures while other sponsors omitted certain 
types of cases from any of the measures. In addition, CMS audited 
several prescription drug plan (PDP) sponsors for their adherence to 
coverage determination and appeals requirements and found that each 
audited sponsor was noncompliant for a number of specific requirements. 
Areas of sponsor noncompliance ranged from incomplete written policies 
and procedures to delays in authorizing drug coverage after the IRE 
approved an expedited request. CMS required these sponsors to submit 
corrective action plans to address the identified deficiencies. 

To improve the Medicare Part D coverage determination and appeals 
processes, we are making two recommendations. First, we recommend that 
CMS require sponsors and the IRE, upon receipt of standard appeal 
requests submitted by prescribing physicians without completed AOR 
forms, to telephone beneficiaries to determine whether they wish to 
initiate the appeal. Second, we recommend that CMS provide specific 
definitions for data sponsors report to CMS that the agency uses for 
monitoring coverage determination and appeals activities. In commenting 
on a draft of this report, the agency wrote that it is considering the 
first recommendation in light of current legal requirements. CMS also 
stated that it is in the process of implementing the report's second 
recommendation and has already modified its Part D reporting 
requirements guidance. 

Background: 

The Medicare Part D Program: 

The Medicare Part D benefit is provided through private organizations 
that offer one or more drug plans with different levels of premiums, 
deductibles, and cost sharing. Plan sponsors must offer the standard 
Part D benefit established under MMA or an actuarially equivalent 
benefit. The standard benefit includes an annual deductible, coverage 
up to a level of spending, a coverage gap--the period when 
beneficiaries pay all of the costs of their drugs--and catastrophic 
coverage above a specified out-of-pocket limit. Sponsors may also offer 
enhanced benefit plans that provide a lower deductible and coverage in 
the coverage gap in exchange for higher premiums. Certain low-income 
beneficiaries are eligible for subsidies to defray most of their out- 
of-pocket costs. 

Part D sponsors offer drug coverage either through stand-alone PDPs for 
those in traditional fee-for-service Medicare, or through Medicare 
Advantage prescription drug (MA-PD) plans for beneficiaries enrolled in 
Medicare's managed care program. As of September 2007, CMS had 
contracts with 101 PDPs and 461 MA-PDs.[Footnote 17] The majority of 
Part D enrollees, about 71 percent, are in PDPs. PDP enrollment across 
contracts varies widely, ranging from fewer than 20 enrollees to more 
than 3.3 million enrollees, and is highly concentrated--the four 
largest contracts account for about 53 percent of total PDP enrollment 
in September 2007. 

Sponsors' Use of Formularies and Utilization Management Restrictions: 

For the drugs included on their formularies, Part D sponsors decide 
which drugs will have utilization management restrictions and which 
type of restriction they will apply.[Footnote 18] Utilization 
management restrictions may include prior authorization, quantity 
limits, and step therapy requirements. Sponsors may apply utilization 
management restrictions to prevent the overuse of expensive medications 
by requiring lower-tier drugs be tried first.[Footnote 19] The 
restrictions may also serve to ensure that proper dosages are 
dispensed, to protect against adverse drug interactions, and to control 
the use of medications with potential for abuse. Each sponsor has 
discretion to decide under which circumstances it will apply 
utilization restrictions. 

Research conducted for The Kaiser Family Foundation has shown that 
sponsors' use of formularies and utilization management restrictions 
varies significantly.[Footnote 20] The study reported that the 2007 
formularies of the 10 largest PDPs differed in their coverage of a 
sample of commonly used drugs and their use of utilization management 
restrictions on those drugs.[Footnote 21] Four PDPs included on their 
formulary all of the 152 sampled drugs commonly used by Medicare 
beneficiaries. Among the remaining 6 PDPs, 1 covered between 90 and 100 
percent, and 5 covered between 70 and 80 percent of the sampled drugs. 
The authors also found that the 10 PDPs placed prior authorization 
requirements on between 3 and 14 of the 152 sampled drugs. While 3 of 
the 10 PDPs did not have a step therapy requirement on any of the 152 
drugs, 2 PDPs had the requirement on 8 of the drugs. The number of the 
152 sampled drugs with quantity limits ranged from 3 to 62. 

Types of Coverage Determinations and Appeals: 

Beneficiaries can use the coverage determination and appeals processes 
to challenge a utilization management restriction on a drug on the 
sponsor's formulary or to request coverage for a Part D drug that is 
not on the sponsor's formulary. Table 1 describes types of requests. 

Table 1: Requests Addressed in Coverage Determinations and Appeals: 

If the drug is on the plan formulary: 
Prior authorization request: The beneficiary attempts to gain the 
sponsor's approval of coverage for a drug with a prior authorization 
requirement by either meeting the sponsor's coverage criteria or 
showing that the drug is medically necessary. 

If the drug is on the plan formulary: 
Step therapy request: The beneficiary attempts to prove to the sponsor 
either that they have taken the lower-cost drugs required before a 
higher-cost drug or taking the higher-cost drug without first trying 
the lower-cost drugs is medically necessary. 

If the drug is on the plan formulary: 
Quantity or dosage limit exception request: The beneficiary attempts to 
obtain approval from the sponsor to take a drug at higher strength than 
approved by the sponsor or take more units of a drug than the sponsor 
will approve per month.[A] 

If the drug is on the plan formulary: 
Tiering exception request: The beneficiary attempts to obtain approval 
to pay the cost-sharing associated with a lower cost-sharing tier than 
the tier to which the drug is assigned. 

If the drug is not on the plan formulary: 
Formulary exception request: The beneficiary attempts to obtain 
coverage of Part D drugs that are not included on a sponsor's formulary 
for reasons of medically necessity. 

Source: GAO analysis of CMS information. 

[A] Quantity or dosage limits may be based on FDA labeling. 

[End of table] 

Coverage Determination Processes Allow for Prompt Decisions, Apply a 
Range of Criteria, and Have Resulted in Approvals for the Majority of 
Requests: 

Study sponsors have designed their coverage determination processes to 
allow for prompt decision making within CMS-required time frames. They 
obtain patient information needed to make their decisions using drug- 
specific coverage determination request forms and enter this 
information into a computer for analysis of whether coverage criteria 
have been met. When coverage requests cannot be approved by technical 
staff, they are decided by clinical staff. Sponsors apply drug-specific 
coverage criteria that incorporate the requirements established by MMA 
and CMS as well as factors that they have discretion to apply, such as 
evidence of trial and failure of lower-cost drugs. In the sample of 
coverage determination case files we reviewed at the seven study 
sponsors, coverage of the requested drug was approved in approximately 
two-thirds of the cases. 

Streamlined Processes Make Expeditious Coverage Determination Decisions 
Possible: 

The sponsors we studied developed coverage determination processes 
designed to produce decisions within the CMS-required time frames--72 
hours for standard requests and 24 hours for expedited requests. To 
collect the patient information needed to make coverage determination 
decisions, study sponsors generally rely on drug-specific request 
forms. These forms typically ask a series of questions based on the 
sponsor's established coverage criteria for a given drug. Prescribing 
physicians are asked to use these forms to submit clinical information 
about a beneficiary that generally includes the diagnosis associated 
with the requested drug, and may include the beneficiary's other 
medical conditions and drug history. For instance, to process a 
coverage determination request for the osteoporosis drug Forteo, a 
sponsor may ask whether the beneficiary has a diagnosis of 
osteoporosis, has multiple risk factors for fractures, and has tried 
and failed other specific osteoporosis therapies. Some study sponsors 
had dozens of different forms for drugs in different classes, with a 
varying number of questions. For example, one sponsor asked 5 questions 
for the sleep medications Ambien and Lunesta and 23 questions for the 
injectible drug Pegasys, used to treat hepatitis. If a physician makes 
a coverage determination request over the phone, sponsor staff have on- 
line access to the drug-specific questions they need to ask. 

With the information submitted by the prescribing physician, study 
sponsors used computer algorithms--a series of questions with yes/no 
answers--in order to make expeditious, consistent decisions. Technical 
staff, such as pharmacy technicians or call center representatives, 
enter the patient information into the computer system. The algorithms 
are used to assess the information to determine whether the beneficiary 
meets the sponsor's coverage criteria for the specific drug in 
question. This process generates rapid, consistent decisions if 
sponsors receive sufficient information from prescribing physicians. 
When the technical staff cannot approve the drug, coverage 
determination requests are forwarded for a decision by clinical staff 
with more expertise, such as staff pharmacists. One sponsor reported 
that, on average, a standard coverage determination involving prior 
authorization takes about 40 minutes after the prescribing physician 
provides the needed information. 

However, the pressure to make a coverage determination within the CMS- 
mandated time frames increased the likelihood that sponsors may deny 
requests when complete information is not at hand or can not be 
obtained quickly.[Footnote 22] Two study sponsors told us that if they 
were not successful in getting information they requested, they made 
decisions based on the information they had at the time. For example, 
if physicians are asked to provide a patient's medical records as part 
of their request but do not provide that information quickly, the 
sponsor may deny the request in order to meet the required time frame. 
Among the coverage determination case files we reviewed at the study 
sponsors, the sponsor requested additional information from the 
physician in about 13 percent of the cases and about 30 percent of the 
denials were for lack of requested medical information. One sponsor 
noted that there would probably be fewer denials at the coverage 
determination stage if sponsors had more time to acquire needed 
information. 

Sponsors Apply a Range of Coverage Criteria in Making Coverage 
Decisions: 

Sponsors apply a range of coverage criteria to evaluate requests for 
drugs with restrictions. Their criteria are used, in part, to determine 
whether a requested drug can be covered under Part D program rules set 
by MMA or CMS. Sponsors consider a number of factors in reviewing a 
request, including the following: 

* Should the drug be covered under another part of the Medicare 
program? There are an estimated 6,000 unique drug products[Footnote 23] 
that potentially could be covered under either Part B or Part D of the 
Medicare program.[Footnote 24] Which part of the Medicare program is 
the appropriate payer depends on factors such as the patient's 
diagnosis, when the beneficiary is taking the drug, or the setting in 
which the drug is being administered. For instance, immunosuppressive 
drugs suppress the body's immune response and are used to treat 
autoimmune diseases--diseases in which the body attacks its own 
tissues--and to prevent rejection of a transplanted organ. 
Immunosuppressives are covered by Part B when the physician prescribes 
them after a Medicare-covered organ transplant and by Part D for all 
other outpatient uses. 

* Is the requested drug in a Part D-excluded drug class? Although 
sponsors generally can not cover drugs in 1 of 10 statutorily excluded 
drug categories, beneficiaries or prescribing physicians may request a 
coverage determination for a drug that is in an excluded drug category. 
For such coverage determinations, the physician must show that the drug 
is prescribed for a purpose that is not excluded under the law or that 
it has been mistakenly classified by the sponsor as excluded. For 
instance, medications for coughs and colds are generally excluded from 
Part D. However, CMS has issued guidance to plan sponsors that cough 
and cold medications are eligible to meet the definition of a Part D 
drug in clinically relevant situations. For example, if a physician 
prescribes a cough suppressant to a beneficiary because the beneficiary 
has osteoporosis and may break a bone if the cough is not controlled, 
then the cough suppressant would be considered a Part D-covered drug. 

* Is the requested drug medically necessary? Part D sponsors must 
approve coverage when the requested drug at the requested dosage is 
medically necessary.[Footnote 25] In order to show medical necessity, 
the prescribing physician must provide a statement that the requested 
drug is medically necessary because (1) all of the covered Part D drugs 
on the sponsor's formulary for treatment of the same condition would 
not be as effective for the beneficiary, would have adverse effects for 
the beneficiary, or both; (2) the prescription drug alternatives on the 
formulary have been ineffective in the past, are likely to be 
ineffective, or are likely to cause an adverse reaction for the 
beneficiary; or (3) the number of doses available under a quantity 
limit for a requested drug has been ineffective or is likely to be 
ineffective. In addition, sponsors are required to approve a tiering 
exception if they agree with the prescribing physician's statement that 
treatment of the beneficiary's condition using the preferred 
alternative drug would not be as effective for the beneficiary as the 
requested drug, would have adverse effects for the beneficiary, or 
both. 

* Is the requested drug being prescribed for a medically accepted 
indication? Under Medicare Part D, a drug is considered to be 
prescribed for a medically accepted indication if the drug is FDA- 
approved for that use. Any off-label use[Footnote 26]--one not approved 
by FDA--is considered medically accepted only if it is supported by a 
citation in one of the three designated drug reference guides.[Footnote 
27] Beneficiary advocates have argued that the coverage restrictions on 
those off-label drug uses not listed in the designated drug reference 
guides cause beneficiaries to be denied coverage for needed drugs, some 
of which beneficiaries had been previously taking successfully. For 
instance, a beneficiary without cancer may have a condition which 
causes severe pain. After trying several medications, the beneficiary 
may have less pain with the use of Actiq, a medication approved only 
for breakthrough pain in cancer patients. Under Part D, the beneficiary 
would be denied coverage for the drug, even if the beneficiary's 
physician stated that the medication was medically necessary, because 
the drug was not prescribed for a medically accepted indication, and 
this use is not listed in one of the three drug reference guides. 

Beyond ensuring compliance with MMA and CMS coverage rules, sponsors 
have discretion to develop their own drug-specific coverage criteria. 
Sponsors in our study also considered the following factors. 

* Has the beneficiary tried and failed on a generic or preferred 
alternative drug? To reduce costs, sponsors may require beneficiaries 
to try and fail on generic or preferred alternative drugs before 
approving coverage for higher-cost drugs. Sponsors told us, and CMS has 
affirmed, that beneficiaries generally can switch to a therapeutically 
equivalent drug without disruption to their care.[Footnote 28] 
Therefore, although a beneficiary has been stable on a particular drug 
for a period of time, sponsors may require the beneficiary to switch to 
a generic or preferred alternative drug. 

* Has the physician conducted specific tests to confirm the 
beneficiary's diagnosis or condition? Study sponsors sometimes also ask 
for information from specified tests or studies that document a 
patient's diagnosis or condition. For instance, one sponsor told us 
that it requires genotype tests for hepatitis drugs because the length 
of time a patient should be on the drug is determined by the 
genotype.[Footnote 29] 

* Is the beneficiary already stable on the requested drug? Sponsors may 
consider whether the beneficiary is stable on the requested drug when 
deciding whether to approve or reapprove coverage. 

* Does the beneficiary have other medical conditions or take other 
medications that may contraindicate the use of the requested drug? For 
instance, one sponsor's criteria for the drug Actiq--used to treat 
breakthrough cancer pain--stipulated that the enrollee must not have 
severe asthma or chronic obstructive pulmonary disease, which are 
contraindications to Actiq. This same sponsor's criteria for the 
antidepressant Ensam noted that the medication should not be approved 
if the enrollee is taking other types of antidepressants, such as 
monoamine oxidose inhibitors or tricyclic antidepressants. 

Duration of the approval period depends upon the drug requested and on 
plan policies. In general, sponsors told us they approve coverage of a 
requested drug for either the duration of the year or a 12-month 
period. Some sponsors also approve requests for as long as the 
beneficiary remains enrolled in the plan in cases where the drug treats 
an illness that can last for the duration of a person's life (such as 
multiple sclerosis). All sponsors said that certain drugs, such as 
those with a specified length of treatment for safety reasons, may be 
approved for shorter time periods. For example, some injectible drugs 
are approved for 24 weeks. If coverage criteria are not met, study 
sponsors' denial letters generally included the reason for the 
decision. For instance, denial notices may state that the requested 
drug was not covered because the preferred alternative drug must be 
tried first. Some, but not all, sponsors that we visited sent 
notification letters to prescribing physicians that identified which 
preferred drug should be tried. The IRE told us that some sponsor 
denials are vague. For instance, sponsors may not do a good job of 
explaining which specific requirements have not been met. 

Study Sponsors Approved Two-Thirds of Coverage Determination Requests 
in Sample Month: 

Study sponsors approved about 67 percent of the coverage determination 
requests among the October 2006 requests that we reviewed. Approval 
rates varied among sponsors, ranging from 57 percent to 76 percent. We 
also found that coverage determinations in MA-PD plans were more likely 
to be approved than coverage determinations in PDPs; the approval rate 
for MA-PD plans was 72 percent, compared to 63 percent for PDPs. 
Sponsors in our study approved standard requests more often than 
expedited requests. The approval rates for standard and expedited 
requests were 67 percent and 53 percent, respectively. 

We found that nearly all requests for coverage determinations were made 
by physicians on behalf of their patients. Approximately 94 percent of 
the coverage determinations in our case file review were requested by a 
physician or a physician's office staff. At the coverage determination 
stage, we also found that only a small proportion of requests were 
expedited. Of the coverage determination case files we reviewed, just 4 
percent of the requests were expedited. 

We found that the most commonly requested drug class and category 
combinations were, in order of decreasing frequency, (1) blood modifier 
agent/hematopoietic, (2) endocrine-metabolic agent/antidiabetic, (3) 
central nervous system agent/analgesic, (4) dermatological agent/ 
antifungal, (5) gastrointestinal agent/antiulcer, (6) anti-infective 
agent/antifungal, and (7) musculoskeletal agent/antirheumatic. These 
seven drug class and category combinations accounted for about half of 
the requested drugs in the 421 cases we reviewed. At the individual 
drug level, the five most requested drugs--collectively accounting for 
about one-quarter of our sampled coverage determination requests--were 
Procrit, Lamisil, Byetta, Celebrex, and Omeprazole. 

Appeals Processes Allow for Better Informed Decisions, Have Often 
Resulted in Coverage Approvals, and Are Impeded by AOR Requirement: 

The appeals process allows for individuals not involved in the previous 
case review to make better-informed decisions by considering additional 
supporting evidence. In making redeterminations--the first level of 
appeal--sponsor staff evaluate any corrected or augmented evidence to 
see if coverage criteria have been met. In conducting reconsiderations-
-the second level of appeal--IRE officials consider the information the 
sponsor reviewed, along with any additional support that may be 
available. In many cases, appeals result in new interpretations of 
whether the requested drug should be covered. CMS appeals data show 
that, from July 2006 through December 2006, the median approval rate 
across all Part D sponsors was 40 percent; from July 2006 through June 
2007, appeals to the IRE received full or partial approval in 28 
percent of cases. We found that, for some standard appeals, missing AOR 
documentation contributed to delays in study sponsor redetermination 
decisions and dismissals of IRE reconsideration cases. Some study 
sponsors have developed "workarounds" to eliminate the need for a 
completed AOR form. 

Appeals Processes Involve Clinical Evidence and Patient Information Not 
Previously Available: 

Appeals processes at both the study sponsors' level and the IRE 
typically involve (1) reviewing more information than was available for 
the previous decision level and (2) different decision makers. 

First-Level Appeals to Sponsors: 

In conducting redeterminations--the first level of appeal--sponsors 
typically receive corrected or augmented patient information that was 
not submitted within the allotted time frame for the coverage 
determination. For example, prescribing physicians may not have 
identified the beneficiary's conditions with sufficient specificity or 
included a complete drug use history when making the coverage 
determination request; for redeterminations, physicians often provide 
new information on the reason for the requested drug and a list of 
drugs the beneficiary had previously tried but were found to be 
ineffective or not well tolerated. Physicians may forward laboratory 
test results or chart notes that sponsors had requested previously. In 
addition, our reviews of sponsors' redetermination case files showed 
that physicians revise the statements they had provided originally to 
address issues raised in the sponsors' coverage denial letters. 

To determine whether the sponsor's drug-specific coverage criteria have 
been met, study sponsor staff reassess the submitted information, along 
with any additional support not previously considered. For 
redeterminations that involve requests for off-label uses of drugs, 
study sponsors said they make an effort to look for citations in one of 
the three Part D-designated drug reference guides to see if one of them 
supports use of the drug for the indication for which it was 
prescribed.[Footnote 30] In reviewing requests for dosage limit 
exceptions, in addition to considering a beneficiary's medical record, 
study sponsors may also examine medical research literature for 
evidence not included in the reference guides. In addition, sponsors 
may discuss a case directly with the prescribing physician. We found 
that study sponsors contacted prescribing physicians to obtain 
additional information in 31 percent of the redetermination case files 
we reviewed. 

CMS requires that redetermination decisions be made by individuals not 
previously involved in reviewing the drug request. Study sponsors' 
redetermination decision staff making clinical decisions consist 
largely of pharmacists or staff medical directors. If the staff 
pharmacist does not approve a decision, a medical director makes the 
final decision. CMS additionally requires that decisions concerning the 
medical necessity of the requested drug be made by a physician with 
expertise in the field of medicine appropriate to the condition being 
treated. Some of the study sponsors contract with external physicians 
or utilization review companies for this function.[Footnote 31] 

Second-Level Appeals to the IRE: 

Along with the information in the sponsor case file, IRE staff review 
any new supporting information they receive or solicit from the 
prescribing physician as well as relevant medical literature.[Footnote 
32] In making a reconsideration decision--the second level of appeal-- 
the IRE is likely to have more information than did the sponsor at the 
first level of appeal. It not only has information from the sponsor's 
case file, but also information in the physician's letter or 
beneficiary correspondence that may be submitted with the 
reconsideration request. In addition, IRE staff told us that they 
contact the physician or beneficiary to obtain specific details about 
the beneficiary's health or to clarify the information submitted, such 
as adverse effects the beneficiary has experienced or contraindications 
to the preferred formulary drugs. During its review, the IRE may also 
perform additional research in the drug reference guides on the reason 
the physician is prescribing a particular drug or dosage. For instance, 
IRE staff may be successful in researching the Part D-designated drug 
reference guides for a specific off-label drug use that a sponsor had 
not identified. 

As Medicare's independent external appeals contractor, the IRE employs 
medical professionals subject to conflict-of-interest prohibitions, 
which bar them from having certain relationships with any health 
insurance utilization review company, provider network, or drug supply 
company. The IRE staff conducting most reconsiderations are 
predominantly physicians credentialed in various medical specialties. 
For example, according to IRE officials, appeals cases involving 
opioids are handled by pain management specialists because these cases 
need a specialty review. IRE officials also said that, when necessary, 
the IRE contracts with external specialists to review cases. 

First-Level and Second-Level Appeals Approved Drug Coverage in 40 
Percent and 28 Percent of Cases, Respectively: 

Consideration of new evidence during the appeals process often leads to 
decisions that reverse the sponsors' decisions. At the first level of 
appeal, CMS appeals data show that, from July 2006 through December 
2006, the median approval rate across all Part D sponsors was 40 
percent. Across Part D sponsors, approval rates ranged from 0 percent 
to 100 percent for all appeals during that period. PDP sponsors were 
somewhat more likely to approve coverage; the median rate of approvals 
for PDPs was about 45 percent, compared to about 38 percent for MA-PDs. 

At the second level of appeal, IRE appeals data show full or partial 
coverage approvals of the requested drug in about a quarter of the 
11,679 reconsideration cases decided from July 2006 through June 2007. 
IRE data for this period show that the IRE either fully or partially 
approved[Footnote 33] coverage in 28 percent of appeals and denied 
coverage in 36 percent of appeals. A significant proportion of IRE 
cases, 34 percent, were dismissed for various reasons, such as the lack 
of AOR documentation. (See fig. 1.) 

Figure 1: IRE Disposition of Part D Appeals, July 2006 through June 
2007: 

[See PDF for image] 

This figure is a pie-chart, depicting the following data: 

Disposition of Part D Appeals, July 2006 through June 2007: 
Denied coverage: 36%; 
Dismissed: 34%; 
Fully or partially approved coverage: 28%; 
Other: 2%. 

Source: GAO analysis of IRE data. 

Note: Fully approved cases: the IRE totally disagrees with the 
sponsor's redetermination and decides in favor of the appealing party. 
Partially approved cases: the IRE disagrees with one part of the 
sponsor's decision but agrees with another part. Denied cases: the IRE 
agrees with the sponsor's decision against the appealing party. 
Dismissed cases: those with missing AOR documentation or other 
deficiencies. "Other" refers to the remaining cases, such as those that 
were withdrawn. 

[End of figure] 

The 11,679 cases reviewed by the IRE addressed a variety of issues. 
From July 2006 through June 2007, about one-third of IRE cases 
concerned a drug utilization restriction, such as a prior authorization 
requirement or quantity limit. Another 33 percent of IRE cases were 
requests for a drug not covered under Part D, such as a drug in one of 
the 10 Part D-excluded categories. Twenty-eight percent of cases were 
requests for Part D drugs not on the sponsor's formulary. The remaining 
5 percent of IRE cases involved issues such as requests to pay a lower 
cost-sharing level and reimbursement for drugs provided outside of the 
sponsor's pharmacy network. 

IRE approval rates for Part D appeals were highest for disputes 
involving drug utilization restrictions and lowest for cases involving 
Part D-excluded drugs. The IRE fully or partially approved coverage in 
39 percent of the appeals concerning a drug utilization restriction, 30 
percent of appeals involving nonformulary drugs, and 18 percent of 
appeals for coverage of a drug that sponsors denied as an excluded drug 
under Part D. (See fig. 2.) 

Figure 2: IRE Decisions by Issue Addressed in the Request, July 2006 
through June 2007: 

[See PDF for image] 

This figure is a series of pie-charts. The main chart is depicted, as 
well as smaller charts that further explain each portion of the main 
chart. The following data is depicted: 

IRE Decisions by Issue Addressed in the Request, July 2006 through June 
2007: 

* Disposition of drug utilization restriction appeals: 34%; 
Of that 34%: 
- Fully or partially approved: 39%; 
- Denied coverage: 26%; 
- Dismissed: 33%; 
- Other: 2%. 

* Disposition of nonformulary drug appeals: 28%; 
Of that 28%: 
- Fully or partially approved: 30%; 
- Denied coverage: 33%; 
- Dismissed: 35%; 
- Other: 2%. 

* Disposition of Part D-excluded drug appeals: 33%; 
Of that 33%: 
- Fully or partially approved: 18%; 
- Denied coverage: 48%; 
- Dismissed: 33%; 
- Other: 1%. 

* Other: 5%. 

Source: GAO analysis of IRE data. 

Note: Fully approved cases: the IRE totally disagrees with the 
sponsor's redetermination and decides in favor of the appealing party. 
Partially approved cases: the IRE disagrees with one part of the 
sponsor's decision but agrees with another part. Denied cases: the IRE 
agrees with the sponsor's decision against the appealing party. 
Dismissed cases: those with missing AOR documentation or other 
deficiencies. "Other" refers to the remaining cases, such as those that 
were withdrawn. 

[End of figure] 

As part of the decision process, the IRE determines whether the sponsor 
has met its obligation for coverage under the Part D rules.[Footnote 
34] IRE staff told us that during the first year of the program, some 
sponsors denied requests because they did not fully consider the 
beneficiary's overriding medical need for the requested drug, as CMS 
requires. In contrast, at the IRE, the beneficiary's medical condition 
is the determining factor when the sponsor's coverage criteria cannot 
be met. For example, in one case, a sponsor denied a physician's 
request for the drug Celebrex--a drug used to treat arthritis and other 
conditions--because the physician did not provide documentation of the 
beneficiary's trial and failure of the sponsor's formulary medications-
-Naproxen, Ibuprofen, or Ketoprofen. In this case, the sponsor did not 
cover the requested drug because its step therapy requirement had not 
been met. However, in reviewing the case, the IRE applied medical 
necessity criteria because the prescribing physician stated that use of 
the sponsor's preferred formulary alternatives were contraindicated for 
treatment of his patient's condition. As a result, the IRE overturned 
the sponsor's decision, stating that an exception to the sponsor's step 
therapy requirement was warranted and that the sponsor should provide 
coverage of the drug until the end of the plan year. 

Missing AOR Forms at Study Sponsors and the IRE Cause Appeals to Be 
Delayed or Dismissed: 

At our study sponsors and at the IRE, we found evidence that decisions 
on standard appeals submitted by prescribing physicians-- 
redeterminations and reconsiderations--had been delayed and sometimes 
dismissed due to missing AOR forms. Without written authorization from 
the beneficiary, sponsors and the IRE may begin collecting relevant 
documentation to support a physician-submitted standard request, but 
they cannot complete their review. Also, the time frame for making the 
decision does not begin until the completed AOR form is received. 
According to most study sponsors and the IRE, if they do not receive 
the signed AOR form within a reasonable amount of time--which ranges 
from about a week to about a month after receiving the request--they 
deny or dismiss the request. Of the cases we reviewed at the study 
sponsors, missing AOR forms generated processing delays in 7 percent of 
cases. These delays were typically about 14 days, but could stretch to 
67 days. At the IRE, missing AOR forms caused dismissals of about 9 
percent of appeals, which is about one in every five reconsideration 
cases that were dismissed.[Footnote 35] 

Data on the prevalence of delays in processing redetermination requests 
attributable to missing AOR forms mask the fact that some sponsors in 
our study have developed "workarounds" to eliminate the need for a 
completed AOR form. For example, one sponsor told us it treats all 
physician appeals as expedited, regardless of the priority level 
indicated by the physician. Our review of a sample of sponsors' case 
files showed that 26 percent of redetermination requests were 
classified as expedited compared to 4 percent of the coverage 
determination case files we reviewed. Although expediting requests 
precludes the need for an AOR form, one sponsor stated that because 
these requests may not be truly urgent, it may not be in the 
beneficiary's best interest for the appeal to be rushed. Expedited 
appeals allow less time--72 hours versus 7 days--for reviewers to 
consider the evidence at hand or to request additional information, 
which might affect the outcome of the appeal. For the case files we 
reviewed, the denial rate for expedited redeterminations was 73 percent 
compared with a denial rate of 67 percent for standard 
redeterminations. 

In another workaround, sponsors obviate the need to obtain two 
signatures--the beneficiary's to appoint the physician to act as a 
representative and the physician's to accept the appointment--by 
arranging for the redetermination request to be made by the 
beneficiary. For example, one sponsor reported contacting beneficiaries 
to ask whether they want to initiate the redetermination instead of 
their physicians, who had contacted the sponsor first. Our case file 
reviews showed that beneficiaries made requests in about 36 percent of 
redetermination cases compared to 2 percent of coverage determination 
cases. This approach was designed to identify those beneficiaries who 
wish to initiate an appeal rather than having their physician appeal on 
their behalf, thus reducing the need for the AOR paperwork. 

Most sponsors in our study and IRE officials reported that the 
requirement that prescribing physicians be formally appointed 
beneficiary representatives with a signed AOR form in order to initiate 
standard appeals is an administrative impediment. The only actions 
prescribing physicians without explicit authorization cannot take are 
initiating the appeal, opening discussions with a sponsor or the IRE 
about an ongoing appeal requested by the beneficiary, or receiving 
notices of adverse standard redeterminations or reconsiderations. In 
practical terms, prescribing physicians' involvement in a standard 
appeal does not differ significantly whether they are appointed 
representatives or not. 

CMS Efforts to Inform Beneficiaries about Sponsors' Performance Have 
Improved; Oversight Hindered by Poorly Defined Reporting Requirements: 

CMS has improved its efforts to inform beneficiaries about sponsors' 
performance, but its oversight of sponsors is hindered by poorly 
defined reporting requirements. CMS publicly reports information on two 
performance metrics: the rate at which sponsors met required time 
frames for decision making and the rate at which the IRE concurs with 
sponsors' redetermination decisions. In November 2007, for one of these 
metrics, CMS modified the way it informs beneficiaries by grading 
sponsors' performance against absolute benchmarks, rather than relative 
rankings as it had done previously. To oversee sponsors' processes, CMS 
requires that sponsors report data on several coverage determinations 
and appeals measures; however, the agency provided minimal guidance on 
the information to be included in each coverage determination measure. 
As a result, our study sponsors have reported data differently to CMS, 
hindering the agency's ability to monitor sponsors' activities 
adequately. In its audits of PDP sponsors, CMS found that most of the 
sponsors it audited were noncompliant with many of the coverage 
determination and appeals requirements. 

CMS Improved Its Use of Performance Metrics to Inform Beneficiaries: 

Using quarterly IRE data, CMS has developed two performance metrics to 
gauge how well sponsors' coverage determination and appeals processes 
are operating. CMS calculates metrics on (1) the rate at which sponsors 
met required time frames for coverage determinations and 
redeterminations, as measured by the number of cases, per 10,000 
beneficiaries, automatically forwarded to the IRE because of delays in 
sponsors' decision making; and (2) the rate at which the IRE concurs 
with sponsors' redetermination decisions, as measured by the percentage 
of cases in which the IRE upheld, or agreed with, sponsors' coverage 
denials.[Footnote 36] CMS officials told us that the agency selected 
these two performance metrics, in part, because beneficiaries could 
interpret their meaning easily. CMS includes the two metrics in 
information made available to the public on the Medicare Prescription 
Drug Plan Finder--a Web site designed to help beneficiaries compare 
drug plans.[Footnote 37] 

CMS account managers--staff responsible for overseeing sponsors' 
performance--review sponsors' scores on these performance metrics to 
monitor how well their coverage determination and appeals processes are 
operating.[Footnote 38] Sponsors with the highest rates of cases 
forwarded automatically to the IRE and the lowest percentages of cases 
in which the IRE agreed with their decisions are viewed as problematic. 
When a sponsor is identified as an outlier, the assigned account 
manager contacts the sponsor to discuss its coverage determination and 
appeal procedures and works with the sponsor to identify ways to 
improve its performance, such as conducting additional training 
sessions. 

Both the IRE and the sponsors in our study noted certain limitations in 
the data underlying each of these metrics. The number of automatically 
forwarded cases used for the timeliness metric may understate sponsors' 
timeliness.[Footnote 39] According to IRE officials, some sponsors have 
forwarded cases to the IRE believing they had exceeded the required 
decision time frames when they had not. According to the officials, 
these sponsors automatically forwarded cases when they had not yet 
received a signed AOR form or a physician statement to support a 
coverage request. In such cases, the required time frames have not yet 
expired and the IRE returns the case to the sponsor for processing. 
Because these sponsors automatically forwarded cases to the IRE 
inappropriately, their rates of missed time frames are higher than they 
should be. 

Another limitation is that the performance metric on the IRE's 
concurrence with sponsors' decisions can be misleading. In discussing 
this measure with the sponsors in our study, one sponsor commented that 
a low rate of IRE agreement with their decisions implies, unfairly, 
that the sponsor's decisions were flawed. They contend that the IRE 
often receives additional supporting evidence that results in an 
overturn, as we found by interviewing IRE officials. They state that 
had they received the same information within their time frame for 
processing the case, they may have approved the request. In their view, 
a low percentage of cases in which the IRE agrees with the sponsor's 
decisions does not necessarily mean that the sponsor was not performing 
well. However, a CMS official asserted that sponsors are responsible 
for collecting all the information needed to adjudicate a request in 
the time allotted and are accountable if they do not obtain the same 
information available to the IRE. 

CMS uses these performance metrics to inform beneficiaries of sponsors' 
performance and to encourage poor performing sponsors to do better. In 
an effort to improve the information shared with beneficiaries for the 
2008 open enrollment period, the agency changed the manner in which it 
calculates and displays these metrics--using a star designation system. 
[Footnote 40] For the 2007 open enrollment period, CMS used 2006 data 
from the IRE to rank order sponsors' rates, classify sponsors into 
groups based on sponsors' relative performance, and assign a star 
designation to each group.[Footnote 41] For example, CMS chose to 
assign three stars, indicating very good performance, to 90 percent of 
sponsors for each metric. The next 5 percent of sponsors were assigned 
two stars, indicating acceptable performance, while the remaining 
sponsors were given one star, indicating poor performance. 

By setting the star designations using relative comparisons rather than 
defined benchmarks for different levels of performance, CMS implied 
that those sponsors receiving the most stars had superior performance 
while those with fewer stars were not meeting a CMS-set standard. The 
clustering of 90 percent of sponsors in the three-star designation 
could have been misinterpreted by beneficiaries as identifying those 
sponsors with superior performance when, in fact, by definition, 90 
percent of sponsors received three stars. Moreover, the performance of 
sponsors in the top category varied significantly. For example, among 
the 26 PDP sponsors receiving three stars, the percentage of cases 
where the IRE concurred with sponsors' redetermination decisions ranged 
from 39 to 75 percent. At the same time, the remaining categories were 
quite compressed. A relatively small difference in rates could have 
placed a sponsor in the lowest category rather than the highest 
category. CMS designated an IRE concurrence rate of 39 percent to be 
very good performance, but a 36 percent rate as acceptable performance, 
and 34 percent as poor performance. 

Recognizing the value of comparing sponsor performance against absolute 
standards (benchmarks), CMS changed its star designation system in time 
for the 2008 open enrollment period. For the performance metric on IRE 
concurrence, the agency now assigns sponsors to one of five star 
categories using fixed benchmarks rather than a percentile ranking. 
Table 2 shows how sponsors are assigned to different performance 
categories for the metric on IRE concurrence. For example, under the 
new designation system, only those sponsors with IRE concurrence rates 
better than 95 percent receive five stars, indicating excellent 
performance. Also, stars are only displayed for sponsors that have at 
least five appeals cases reviewed by the IRE. 

Table 2: CMS's Revised Metric on IRE Appeals Decisions, as of November 
2007: 

CMS star designation: 5 stars (Excellent); 
IRE appeals uphold rate: greater than 95 percent. 

CMS star designation: 4 stars (Very good); 
IRE appeals uphold rate: greater than 90 percent and less than or equal 
to 95 percent. 

CMS star designation: 3 stars (Good); 
IRE appeals uphold rate: greater than 75 percent and less than or equal 
to 90 percent. 

CMS star designation: 2 stars (Fair); 
IRE appeals uphold rate: greater than 50 percent and less than or equal 
to 75 percent. 

CMS star designation: 1 star (Poor); 
IRE appeals uphold rate: less than or equal to50 percent. 

CMS star designation: Insufficient data; 
IRE appeals uphold rate: 1 to 4 cases reviewed by the IRE. 

CMS star designation: No appeals required review; 
IRE appeals uphold rate: 0 cases reviewed by the IRE. 

Source: CMS. 

[End of table] 

For the 2008 open enrollment period, CMS expanded its star designation 
system for the timeliness metric from three stars to five stars. 
Although it retained the relative ranking approach, CMS more evenly 
distributed the sponsors across the star categories. For example, 
whereas previously CMS assigned the top 90 percent of sponsors--those 
with the lowest rates of cases forwarded to the IRE because of missed 
time frames--the highest rating, the agency now assigns the highest 
rating to the top 15 percent of sponsors. Previously, CMS assigned 5 
percent of sponsors the lowest rating, but now it assigns the lowest 
rating to 15 percent of the sponsors. The remaining sponsors are 
distributed more evenly across the two-, three-, and four-star 
designations. CMS continues to include among the top performing 
sponsors those with no cases forwarded to the IRE due to missed time 
frames. In our examination of 2006 publicly reported performance data, 
we found that, among the 60 PDP sponsors receiving three stars for 
making timely decisions, 21 did not forward any cases to the IRE 
because of missed time frames. 

CMS Monitoring Hampered by Lack of Specificity in Reporting 
Requirements; Audits Identified Sponsors Needing Improvement: 

CMS's oversight of sponsors' coverage determination and appeals 
processes include both monitoring and auditing. 

CMS's Monitoring Efforts: 

In monitoring the coverage determination processes, CMS reviews 
quarterly data reported by sponsors. The coverage determination 
measures selected for reporting capture information about the extent to 
which beneficiaries use the coverage determination process and the 
outcomes of that process. An agency official involved in selecting the 
measures to be reported noted that CMS sought to minimize the 
administrative burden on sponsors by selecting measures for which data 
were likely to be readily available. For 2006, the first year of the 
Part D program, CMS required sponsors to submit data on the following 
types of coverage determination cases: 

* the number of requests and the number of approvals for formulary 
drugs requiring prior authorizations; 

* the number of requests and the number of approvals for formulary 
exceptions, such as for nonformulary drugs; and: 

* the number of requests and the number of approvals for tiering 
exceptions.[Footnote 42] 

CMS used the submitted coverage determination data to calculate an 
overall request rate and an overall approval rate. In its analysis of 
the 2006 sponsor-reported data, CMS identified sponsors with relatively 
high overall rates of coverage requests and low overall rates of 
approvals. The agency wrote to these sponsors requesting that they 
confirm whether their submitted data were accurate and not the result 
of clerical errors. 

We found that our study sponsors submitted information differently to 
CMS because the agency provided limited guidance on the information to 
be included in each coverage determination measure.[Footnote 43] CMS 
defined the coverage determination measures sponsors are required to 
report too broadly, thus allowing each sponsor to use its existing data 
categorizations for each of the measures. After examining data reported 
for the third and fourth quarters of 2006, and following up with our 
study sponsors, we found substantial discrepancies in how sponsors 
reported these overall data for requests and approvals, as the 
following illustrate. 

* While four of our seven sponsors said their measure of formulary drug 
requests requiring prior authorizations included requests for quantity 
limit exceptions, three sponsors included only a portion or none of 
these types of cases. For example, one sponsor told us that it omitted 
6,032 requests for quantity limit exceptions in reporting the formulary 
drug request measure in the fourth quarter of 2006. These cases 
accounted for about 22 percent of the sponsor's total coverage 
determination requests during that period. Another sponsor did not 
include 4,608 requests involving quantity limit exceptions in reporting 
the formulary drug request measure. These cases accounted for about 25 
percent of all its coverage determination requests in the fourth 
quarter of 2006. 

* Some, but not all, study sponsors included other types of cases in 
the requests and approvals for formulary drug measures. For example, 
three of our seven study sponsors included cases disputing coverage 
under Part B or Part D in their formulary drug measures, and four study 
sponsors included requests for drugs excluded from coverage under Part 
D. 

* One of our seven study sponsors stated that, while it included all 
prior authorization requests in the formulary drug request measure, it 
included all requests for step therapy and quantity limits in the 
nonformulary drug request measure, based on a definition for 
nonformulary drugs in the Medicare Part D manual.[Footnote 44] In 
contrast, another sponsor in our study reported in the nonformulary 
drug category requests for drugs that it inadvertently did not include 
when designing its open formulary. 

* We identified two sponsors that double counted the number of 
requested and approved tiering exceptions by reporting them in two 
different measures. For example, one of our study sponsors included 
13,986 requests for tiering exceptions in its count of prior 
authorization requests for formulary drugs reported to CMS. The 
inclusion of these tiering exceptions in the number of requests for 
formulary drugs increased the requests for formulary drugs reported by 
about 43 percent. 

For the 2007 contract year, CMS made a number of modifications to its 
reporting requirements. CMS instructed sponsors to begin reporting data 
on the number of requests and approvals for quantity limit exceptions 
measures and renamed the other measures to better convey the types of 
coverage determinations to include in their reporting.[Footnote 45] CMS 
also instructed sponsors to exclude cases related to Part B versus Part 
D coverage from their data submissions.[Footnote 46] However, because 
CMS has yet to address categorization issues, such as whether the 
measures should be mutually exclusive, sponsors' data reporting may 
remain inconsistent. Until data reliability issues are addressed, CMS 
may not be in a position to use these measures to oversee sponsors' 
coverage determination process effectively. 

CMS's Auditing Efforts: 

In it 2007 compliance audits of five PDP sponsors, CMS found numerous 
violations of Part D standards.[Footnote 47] The agency used an audit 
protocol that examined 13 elements related to the coverage 
determination process and 13 elements of the appeals processes. CMS 
auditors reported that the number of violations across sponsors ranged 
from 15 to 26 specific coverage determination and appeals process 
requirements. CMS has required sponsors to fix the violations by 
adopting corrective action plans. 

Areas of sponsor noncompliance ranged from incomplete written policies 
and procedures to delays in authorizing drug coverage after the IRE 
approved an expedited request. Auditors found that some sponsors did 
not notify beneficiaries of coverage decisions within the required time 
frames. Several sponsors were cited for not using CMS-approved decision 
notices; such notices must explain the reasons for denying requests or 
inform beneficiaries of their appeal rights. Other sponsors did not 
have policies to use physicians to review appeals of coverage requests 
denied for a lack of medical necessity. Table 3 shows those audit 
elements for which CMS found at least four of the five sponsors 
noncompliant. As of October 2, 2007, each of the five sponsors had 
submitted to CMS corrective action plans to remediate the identified 
deficiencies, which CMS was in the process of reviewing. 

Table 3: Audit Elements Found Deficient at Four or More Sponsors in 
CMS's Audits of Five PDP Sponsors, as Reported in October 2007: 

Audit elements found deficient: coverage determinations[A]: Notices 
instructing enrollees to contact their plan to obtain a coverage 
determination must be posted or arranged with network pharmacies; 
Audit elements found deficient: appeals[A]: Use of a reviewer not 
involved in the initial coverage decision, or use of physicians to 
review denials based on lack of medical necessity. 

Audit elements found deficient: coverage determinations[A]: Maintain 
policies and procedures for tracking and addressing the timely 
resolution of requests, as well as for accepting or denying requests 
for expedited decisions; 
Audit elements found deficient: appeals[A]: Maintain policies and 
procedures for addressing requests for standard and expedited 
redeterminations. 

Audit elements found deficient: coverage determinations[A]: Timely 
notification of decisions for requests for drug coverage or 
reimbursement; 
Audit elements found deficient: appeals[A]: Timely notification of 
decisions, and, if applicable, authorization for: 
* standard redeterminations involving drugs; 
* redeterminations involving reimbursement, and; 
* expedited redeterminations involving drugs. 

Audit elements found deficient: coverage determinations[A]: Use of CMS- 
approved decision notices; 
Audit elements found deficient: appeals[A]: Provide for the timely 
transfer of cases to IRE. 

Audit elements found deficient: coverage determinations[A]: Establish 
and maintain procedures for processing and approving requests for 
tiering and nonformulary exceptions; 
Audit elements found deficient: appeals[A]: Provide for the timely 
authorization of drug coverage (for standard and expedited requests), 
or timely reimbursements, when coverage was approved by the IRE. 

Source: GAO analysis of CMS data. 

Note: CMS produced seven audit reports for the five audited PDP 
sponsors. For this analysis, we analyzed combined audit findings for 
the two sponsors with multiple contracts. 

[A] A deficiency on an audit element could mean the following: (1) 
actual failure of the sponsor to take the desired action, such as 
transferring cases to the IRE within required time frames; (2) failure 
to address the audit element sufficiently in policies and procedures; 
or (3) failure to provide sufficient information or data to enable CMS 
auditors to make an assessment of compliance. 

[End of table] 

A number of the audit findings indicate that the publicly reported 
performance metric on sponsor timeliness may not accurately reflect 
sponsors' adherence to the requirement to automatically forward cases 
to the IRE. In reviewing case files, for example, CMS found that 
sponsors inconsistently forwarded standard coverage determination cases 
to the IRE when they did not meet the required CMS time frame, with one 
of the sponsors providing CMS with a written statement acknowledging 
that it had not forwarded any cases to the IRE for review during the 
audit period. Another two sponsors inappropriately allowed themselves 
more time to process certain coverage determination requests by 
starting their coverage determination review only after they received a 
supporting statement from the physician. 

In a separate initiative, CMS has worked with a selected group of 
sponsors to improve their performance on coverage determinations and 
appeals. Using a collaborative approach to performance improvement, CMS 
has conducted evaluations of two sponsors with comparatively high 
reversal rates at the IRE level of appeal to identify reasons why the 
IRE often did not agree with these sponsors' prior coverage decisions. 
[Footnote 48] After examining a random sample of IRE case files for 
each sponsor in 2006, CMS identified several process-related issues 
that each sponsor could improve and provided feedback in the form of 
recommendations to each sponsor. For example, at one sponsor, CMS found 
that in about two-thirds of the reviewed cases, the sponsor should have 
done a better job of obtaining and assessing documentation of the 
evidence to support the request. The agency recommended that the 
sponsor revise certain forms in order to obtain all the information 
needed to make appropriate coverage determination decisions. CMS 
officials told us that both sponsors improved their performance by 
increasing the number of cases in which the IRE agreed with their 
decisions. As of September 2007, CMS was completing its evaluation of a 
third sponsor that did not receive a three-star designation for the 
performance metric based on the 2006 data. 

Conclusions: 

In the Part D program, beneficiaries' access to prescription drugs is a 
function not only of whether a particular drug is on a plan's formulary 
and whether it is subject to utilization management tools, but also how 
plan sponsors make individualized coverage decisions when requested. 
The Medicare drug benefit allows sponsors to operate in a regulated but 
flexible environment. Thus, sponsors in our study follow similar 
procedural steps but apply discretion in making coverage determinations 
and appeal decisions. 

Administrative barriers in the appeals process can have implications 
for beneficiaries' drug coverage. Efforts to implement the requirement 
that prescribing physicians be formally appointed beneficiary 
representatives with a signed AOR form in order to initiate standard 
appeals have been cited as an impediment to the appeals process. We 
found evidence that missing AOR forms have caused delays and some 
dismissals in cases being considered. A more streamlined approach that 
reduces AOR paperwork by quickly identifying those beneficiaries who 
wish to initiate an appeal could improve the process while maintaining 
physician involvement. 

While CMS has improved its efforts to inform beneficiaries about 
sponsors' performance, its oversight efforts remain mixed. The agency 
has begun to hold sponsors accountable for maintaining compliance with 
coverage determination and appeals requirements. Agency auditors cited 
sponsors for widespread deficiencies and have required them to revise 
procedures to better serve beneficiaries. However, CMS lacks the data 
it needs to routinely monitor coverage determination and appeals 
requests and approvals across all sponsors. The agency has not taken 
steps necessary to ensure that sponsors report data consistently. 

Recommendations for Executive Action: 

To improve the Medicare Part D coverage determination and appeals 
processes, we recommend that the Administrator of CMS: 

* reduce the need for completed AOR forms by requiring sponsors and the 
IRE, upon receipt of standard appeal requests submitted by prescribing 
physicians without completed AOR forms, to telephone beneficiaries to 
determine whether they wish to initiate the appeal, and: 

* ensure that sponsor-reported data used for monitoring coverage 
determination and appeals activities are accurate and consistent by 
providing specific data definitions for each measure. 

Agency Comments and Our Evaluation: 

In written comments on a draft of this report, CMS remarked that our 
review presents a balanced evaluation of Part D coverage determination 
and appeals procedures and the associated data reporting procedures, 
and does an excellent job of highlighting various challenges in the 
Part D appeals process. (See app. II.) The agency reported that it is 
exploring the adoption of one of the report's recommendations and is in 
the process of implementing the other. In addition to comments on each 
of our recommendations, CMS provided detailed, technical comments that 
we incorporated where appropriate. 

CMS stated that it intends to consider our recommendation that the need 

for a signed AOR form be reduced through a process where sponsors call 
beneficiaries when physicians request appeals on their patients' 
behalf. However, it noted that it was not certain whether any change to 
the current policy could be implemented without modifying the statutory 
and regulatory provisions associated with the AOR requirement. The 
agency pointed out that physician representation of beneficiaries is 
limited by law because only a Medicare Part D eligible individual can 
bring an appeal at the IRE level. Therefore, CMS said that it is 
reviewing the current legal requirements about making appeal requests 
to determine whether changes are appropriate and necessary. CMS added 
that it intends to work with physician groups to ensure that physicians 
promptly submit any needed AOR forms. 

We are pleased that CMS is considering how it can implement our 
recommendation to address the difficulties regarding the AOR 
requirement. In making this recommendation, we considered relevant 
statutory and regulatory provisions and found no limitations that would 
preclude its adoption by CMS. Our recommendation would reduce the need 
for AOR forms by requiring that sponsors and the IRE determine at the 
outset whether beneficiaries want to initiate their appeals or have 
physicians do so on their behalf. If it is determined that the 
beneficiary is requesting the appeal, an AOR form would not be needed 
and the sponsor or IRE could immediately process the request. However, 
if sponsors or IRE find that beneficiaries want their physicians to 
initiate the appeal for them, then completed AOR forms would still be 
required. We have slightly reworded our recommendation, to clarify our 
intent and eliminate any ambiguity, and included the revised language 
in the final report. 

CMS agreed with our recommendation to ensure that sponsor-reported data 
are accurate and consistent by providing specific data definitions for 
the coverage determination and appeals measures. The agency noted that 
it has taken steps to modify the Part D Plan Reporting Requirements 
guidance on data element definitions. It plans to reinforce this 
guidance during upcoming calls with Part D sponsors, as well as in 
memoranda to sponsors, Frequently Asked Questions documents, and 
conference presentations. In addition, to minimize data entry errors, 
CMS has implemented data edit rules that will, among other things, 
reject a value that exceeds an expected range. It also developed 
procedures for sponsors to correct previously submitted information. 

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 [hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact Kathleen King at (202) 512-7114 or [email protected]. Contact 
points for our Offices of Congressional Relations and Public Affairs 
may be found on the last page of this report. GAO staff who made 
contributions to this report are listed in appendix III. 

Signed by: 

Kathleen M. King: 
Director, Health Care: 

[End of section] 

Appendix I: Steps and Time Frames for Part D Coverage Determination and 
Appeals: 

[See PDF for image] 

This figure is a flowchart illustration of the Steps and Time Frames 
for Part D Coverage Determination and Appeals. The following data is 
depicted: 

Beneficiary, representative,or prescribing physician requests coverage 
determination from sponsor: 

Standard Request: 

Sponsor-level decision: 
Coverage determination decision within 72 hours: 
Approve, or; 
Deny, or; 
Sponsor misses deadline (skip ahead to independent appeal). 

Request redetermination within 60 days: 
Sponsor-level appeal: 
Redetermination within 7 days: 
Approve, or; 
Deny, or; 
Sponsor misses deadline (skip ahead to independent appeal). 

Request reconsideration within 60 days: 
Independent appeal: 
IRE reconsideration decision within 7 days. 

Expedited Request: 

Sponsor-level decision: 
Coverage determination within 24 hours: 
Approve, or; 
Deny, or; 
Sponsor misses deadline (skip ahead to independent appeal). 

Request redetermination within 60 days: 
Sponsor-level appeal: 
Redetermination within 72 hours: 
Approve, or; 
Deny, or; 
Sponsor misses deadline (skip ahead to independent appeal). 

Request reconsideration within 60 days: 
Independent appeal: 
IRE reconsideration decision within 72 hours. 

Source: GAO analysis based on CMS information. 

Notes: For coverage determinations, time frames generally begin when 
the sponsor receives a request; in some cases it begins when the 
sponsor receives the physician's supporting statement. In addition to 
the appeals levels shown, there are three other levels of appeal: 
administrative law judge hearing, a Medicare Appeals Council review, 
and federal district court review. This chart reflects situations in 
which expedited reviews have been granted. 

[End of figure] 

[End of section] 

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

Department Of Health & Human Services: 
Centers for Medicare & Medicaid Services: 
Office of the Administrator: 
Washington, DC 20201: 

Date: December 20, 2007: 

To: Kathleen M. King: 
Director, Health Care: 
Government Accountability Office: 

From: [Signed by] Kerry Weems: 
Acting Administrator: 

Subject: Government Accountability Office (GAO) Draft Report: "Medicare 
Part D: Plan Sponsors' Processing and CMS Monitoring of Drug Coverage 
Requests Could Be Improved" (GAO-08-47): 

Thank you for the opportunity to review and comment on the above GAO 
Draft Report. This study focused on the Part D Sponsors' process for 
drug coverage appeal determinations and CMS monitoring of such 
information via plan reported data. 

We appreciate the GAO's thorough review of the issues involved. as well 
as the recommendations for enhancing CMS' current procedures. Overall. 
the report presents a balanced evaluation of the Medicare Part D 
coverage determination and appeals procedures and the associated data 
reporting procedures, and does an excellent job of highlighting various 
challenges of the Part D appeals process. As the GAO report cites, CMS 
developed two new measures related to the sponsors' timeliness and 
determination outcome of coverage decisions in the Medicare Plan 
Ratings available on [hyperlink, http://www.Medicare.gov]. These two 
measures. in combination with the other Medicare plan ratings, provide 
beneficiaries with valuable information to make informed decisions 
regarding plan selection. CMS is committed to providing clear 
differentiation of the various plans to beneficiaries. as well as 
utilizing effective data for operations and plan evaluation purposes. 

CMS welcomes constructive suggestions on improving both the sponsors' 
adherence to Part D drug coverage processes. and CMS' oversight, and we 
are in the process of implementing some of the report's 
recommendations. For example. we have taken immediate steps to modify 
our Part D Plan Reporting Requirements guidance around data element 
definitions and plan to review this information during upcoming user 
calls. 

We address each of the report's recommendations below, followed by 
detailed additional comments. 

GAO Recommendation: 

Reduce the need for completed appointment of representative (AOR) forms 
by requiring sponsors and the independent review entity (IRE), upon 
receipt of standard appeal requests by prescribing physicians, to 
telephone beneficiaries to determine their intention to initiate the 
appeal. 

CMS Response: 

We support steps aimed at decreasing barriers to appeals and intend to 
consider carefully GAO's recommendation that the need for a signed AOR 
form can be reduced through a process where plans call beneficiaries 
when their physicians requests appeals on the members' behalf. However, 
we are concerned that GAO's recommendation does not fully consider the 
statutory and regulatory provisions associated with this requirement. 
The current Medicare Part D regulations place a limitation on physician 
representation of enrollees because section 1860D-4 of the Social 
Security Act provides that with respect to appeals at the IRE level and 
above, " ...only a Medicare Part D eligible individual shall be 
entitled to bring such an appeal". We are not certain that any change 
to the current policy could be implemented without either a statutory 
change or, at a minimum, changes to the Medicare Advantage and Part D 
regulations. 

Thus, we are carefully reviewing the current regulatory requirements 
about making appeal requests in light of the GAO recommendation. Based 
on this review, we intend to determine whether associated regulatory 
changes are appropriate and necessary. As CMS conducts this review and 
decides how best to proceed, CMS intends to continue working with 
physicians, through groups such as the American Medical Association and 
the American College of Physicians, to ensure that physicians promptly 
submit any needed AOR forms and medical documentation. 

GAO Recommendation: 

Ensure that sponsor reported data used for monitoring coverage 
determination and appeals activities is accurate and consistent by 
providing specific data definitions for each measure. 

CMS Response: 

CMS has extended many educational opportunities to sponsors and other 
stakeholders to reinforce the importance of providing accurate and 
consistent reporting requirements data. CMS has offered guidance via 
Medicare Part C and D User Calls, Health Plan Management System (HPMS) 
memos, Part D Plan Reporting Requirements Frequently Asked Questions 
documents, and presentations at numerous industry conferences. In 
addition, both the Part D Reporting Requirements email mailbox and the 
HPMS Help Desk provide sponsors with the opportunity to obtain 
assistance regarding technical and other policy related questions. 

The draft report lists several examples of sponsors' inconsistencies in 
reporting. CMS expects to continue providing clarification in the Part 
D Plan Reporting Requirements data elements and the Part D Plan 
Reporting Requirements Frequently Asked Questions documents to help 
increase consistency in reporting. Specific enhancements to the 
existing data descriptions are under discussion and review, and will be 
released once finalized. 

Accuracy in plan-reported data is a priority for CMS. In an effort to 
minimize data entry errors, HPMS data edit rules have been implemented. 
An example of these data edit rules include HPMS rejection of a value 
that exceeds an expected range. CMS has also developed procedures for 
plans to correct previously submitted data. 

[End of section] 

Appendix III GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Kathleen King, (202) 512-7114 or [email protected]: 

Acknowledgments: 

In addition to the contact named above, Rosamond Katz, Assistant 
Director; Lori Achman; Todd Anderson; Hazel Bailey; Krister Friday; 
Lisa Rogers; and Jennifer Whitworth made major contributions to this 
report. 

[End of section] 

Footnotes: 

[1] Pub. L. No. 108-173, Â§ 101, 117 Stat. 2066, 2071-2152 (codified at 
42 U.S.C. Â§Â§ 1395w-101--1395w-152). Part D enrollment is as of 
September 2007. 

[2] Typically, pharmacy benefit managers manage prescription drug 
benefits for third-party payers. In Medicare, some pharmacy benefit 
managers have contracted directly with Medicare to offer the Part D 
benefit. 

[3] This requirement does not apply when there is only one drug in the 
category and class or when CMS has given the sponsor approval to have 
fewer than two. In general, a drug category includes drugs of different 
types used to treat similar conditions. A drug class is a subset of 
drugs within a drug category that has similar properties or mechanisms 
of action. In some instances, there are no drug classes within a drug 
category. 

[4] The 10 excluded categories of drugs are (1) agents when used for 
anorexia, weight loss, or weight gain; (2) agents when used to promote 
fertility; (3) agents when used for cosmetic purposes or hair growth; 
(4) agents when used for the symptomatic relief of coughs or colds; (5) 
prescription vitamins and minerals, except prenatal vitamins and 
fluoride preparations; (6) nonprescription drugs; (7) covered 
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; (9) benzodiazepines; 
and (10) agents when used for the treatment of sexual or erectile 
dysfunction unless used to treat another condition as approved by the 
Food and Drug Administration (FDA)--the agency responsible for 
approving drugs for sale in the United States. These are the same drug 
categories that state Medicaid programs, which provide health care 
coverage to certain low-income individuals, may restrict. 

[5] Although some drugs are protected by patents and are manufactured 
by only one company, when the patent expires, other manufacturers can 
produce its generic version. Currently, about half the drug sales in 
the United States are generics. 

[6] Medicare pays sponsors a monthly amount per enrollee independent of 
each enrollee's drug use, therefore creating an incentive to manage 
costs. Payments to prescription drug plan sponsors are adjusted 
according to each beneficiary's risk factors, including diagnoses and 
demographic factors. However, sponsors still have an incentive to 
control costs so that they are less than the adjusted payment received 
from CMS and payments received from the beneficiary. 

[7] P. Neuman et al., "Medicare Prescription Drug Benefit Progress 
Report: Findings from a 2006 National Survey of Seniors," Health 
Affairs, vol. 26, no. 5 (2007): w630-w643, [hyperlink, 
http://www.healthaffairs.org] (accessed Aug. 21, 2007). 

[8] For information on how drug utilization management tools contribute 
to cost savings, see GAO, Federal Employees' Health Benefits: Effects 
of Using Pharmacy Benefit Managers on Health Plans, Enrollees, and 
Pharmacies, GAO-03-196 (Washington, D.C.: Jan. 10, 2003). 

[9] See Neuman et al. 

[10] Within the scope of this report, we refer to "beneficiaries or 
their appointed representatives" as beneficiaries. 

[11] A request for a Part D drug that is not on the sponsor's formulary 
would be considered a request for an exception to the formulary. 

[12] To handle reconsiderations, CMS contracted with MAXIMUS Federal 
Services to serve as the IRE. MAXIMUS Federal Services also serves as 
the IRE for appeals for medical services in Medicare Advantage, 
Medicare's managed care program. 

[13] Subsequent levels of appeals are a hearing before an 
administrative law judge, a Medicare Appeals Council review, and, 
finally, a federal district court review. However, these subsequent 
levels are outside the scope of this report. 

[14] CMS requires a sponsor to expedite a request if it determines, or 
the beneficiary's prescribing physician indicates, that applying the 
standard time frame could seriously jeopardize the health of the 
beneficiary. 

[15] The AOR documentation requirement in Part D was modeled on that 
used in traditional Medicare and Medicare Advantage. In applying this 
rule to Part D, CMS guidance states that prescribing physicians can 
only act on behalf of beneficiaries in requesting standard 
redeterminations or any type of reconsiderations if they are appointed 
representatives. 

[16] Case file documentation typically includes a log indicating when 
the request was initiated and when it was completed, the request form 
or letter, supporting evidence, and copies of the decision notice. 

[17] The count of MA contracts that offered the Part D benefit includes 
local health maintenance organizations, local preferred provider 
organizations, local provider-sponsored organizations, regional 
preferred provider organizations, and private fee-for-service plans. 

[18] MMA requires that sponsors establish a drug utilization management 
program for covered Part D drugs. 

[19] For the period January 1, 2007, through March 31, 2007 (the most 
recent data available), generics accounted for nearly 62 percent of all 
drugs dispensed to beneficiaries enrolled in Part D. 

[20] J. Hoadley, E. Hargrave, K. Merrell, J. Cubanski, and T. Neuman, 
Benefit Design and Formularies of Medicare Drug Plans: A Comparison of 
2006 and 2007 Offerings, (Menlo Park, Calif.: The Henry J. Kaiser 
Family Foundation, November 2006). 

[21] These 10 PDPs had the highest enrollment in 2006. 

[22] Sponsors must start the clock on the mandated processing times 
upon receipt of the coverage request, except for requests requiring a 
physician's supporting statement. In a 2007 CMS review of PDP sponsors, 
auditors found that one sponsor allowed itself additional time for 
coverage determinations. It categorized all requests so that the 
processing time began only after receiving a completed physician's 
supporting statement. As part of a corrective action plan, CMS required 
this sponsor to submit a monthly summary report of the volume and 
outcome of its coverage determination decisions. 

[23] Unique drug products include the multiple strengths and packages 
of a particular drug in which a product could be available. 

[24] In general, Medicare Part B covers a range of medical services, 
including physician, laboratory, hospital outpatient services, and 
durable medical equipment. Medicare Part B covers selected outpatient 
drugs, typically those administered by physicians, drugs used with 
durable medical equipment, and other drugs specifically named in 
statute. 

[25] The drug must also be a Part D-covered drug. 

[26] Evidence suggests that off-label drug use is frequent. One study 
estimated that 21 percent of drugs prescribed by office-based 
physicians were for off-label uses. See D. Radley, S. Finkelstein, and 
R. Stafford, "Off-Label Prescribing Among Office-Based Physicians," 
Archives of Internal Medicine, vol. 166 (May 8, 2006). 

[27] Drug reference guides include information on drugs, such as 
dosage, safety, and FDA-approved and investigational uses. The three 
MMA-approved reference guides, or drug compendia, are the American 
Hospital Formulary Service Drug Information, US Pharmacopeia-Drug 
Information, and DRUGDEX Information System. 

[28] Therapeutically equivalent drug products can be substituted with 
the full expectation that they will produce the same clinical effect as 
the prescribed drugs. 

[29] A genotype test shows the genetic makeup of the hepatitis virus. 

[30] One sponsor told us that about 75 to 80 percent of clinical 
redetermination requests reviewed by medical staff involved off-label 
uses of drugs. Some study sponsors noted that, in determining whether a 
particular drug use is medically indicated, they have less flexibility 
in accepting evidence from peer-reviewed literature for drug coverage 
decisions under Part D than under commercial plans. 

[31] All but one of our study sponsors used clinical staff not involved 
in the decisions at the previous level to make redeterminations, as 
required. One sponsor told us that it used the same staff for both 
decision levels in 2006 and had now corrected its procedures. 

[32] Under Part D, cases reach the IRE because they are either 
requested by the beneficiary (or on behalf of the beneficiary) or 
forwarded by sponsors because required time frames were not met. This 
differs from appeals procedures under Medicare Advantage, where all 
adverse appeals decisions by health plans are automatically forwarded 
to the IRE, regardless of whether the time frame was met. 

[33] In a partial approval, the IRE may, for example, approve coverage 
of the requested drug for the appealing party but not in the quantity 
prescribed. 

[34] The IRE compares all of the beneficiary information against the 
sponsor's coverage criteria to see whether the sponsor properly applied 
the appropriate coverage criteria when making its denial. The IRE lacks 
authority to change a sponsor's coverage criteria because these have 
already been approved by CMS. 

[35] In one of the cases we reviewed, the IRE returned the case to the 
sponsor for proper processing. 

[36] This metric, measured by the percentage of cases where the IRE 
agrees with sponsors' coverage denials, excludes cases that are 
dismissed, remanded, or withdrawn. In addition, the metric excludes any 
cases that are not related to Part D. 

[37] CMS uses its Web site to publicly report sponsor performance 
information in key domains. For beneficiaries enrolling in Part D plans 
effective January 1, 2007, CMS used five key domains--customer service, 
complaints, appeals, data systems, and drug pricing. For beneficiaries 
enrolling in Part D plans effective January 1, 2008, CMS is combining 
the five key domains into three--customer service, access to 
prescription drugs, and drug pricing and utilization. The appeals 
performance metrics are two of seven metrics in the access to 
prescription drugs domain. 

[38] The account managers also act as liaisons between sponsors and CMS 
to help ensure that sponsors understand CMS regulations and guidance 
regarding Part D. 

[39] According to CMS, sponsors may not always automatically forward 
late cases to the IRE. The agency has instructed sponsors not to 
automatically forward cases where sponsors are a few hours late and are 
issuing fully favorable decisions for beneficiaries. 

[40] Each year, beneficiaries have an opportunity to change 
prescription drug plans during the annual coordinated election period 
(open enrollment). The 2008 annual coordinated election period runs 
from November 15 through December 31, 2007, with enrollment changes 
effective as of January 1, 2008. 

[41] CMS updated its Medicare Prescription Drug Plan Finder in April 
2007 using data for all of 2006. For the 2008 annual coordinated 
election period, CMS used data from January 1 through June 30, 2007. 

[42] In addition, sponsors submit data for several appeals-related 
measures, including the number of standard and expedited 
redeterminations requested, the number of redeterminations resulting in 
a reversal of the original decision, the number of coverage 
determinations and redeterminations submitted to the IRE due to 
inability to meet time frames, the number of standard and expedited 
reconsiderations resulting in a reversal of sponsors' decisions, and 
the number of standard and expedited reconsiderations resulting in an 
approval of sponsors' decisions. See CMS, Medicare Part D Reporting 
Requirements, (Baltimore, Md.: updated Jan. 25, 2006). 

[43] In 2006, CMS provided limited guidance in reporting instructions. 
It required that sponsors exclude from the formulary drugs with prior 
authorization and tiering exception measures "first pass step therapy 
edits"--referring to requests to approve higher cost drugs when there 
are previous claims in their systems showing that the available lower 
cost alternatives have been tried. CMS also instructed sponsors to 
exclude "early refills"--that is, requests for a refill of a drug 
before the minimum time allowed, given the quantity dispensed--from the 
count of formulary drugs with prior authorization, formulary exception, 
and tiering exception measures. 

[44] CMS, Medicare Part D Manual "Chapter 6--Part D Drugs and Formulary 
Requirements," Section 30.40.1, (Baltimore, Md.: Mar. 9, 2007), 24. 

[45] CMS, Medicare Part D Reporting Requirements: Contract Year 2007, 
(Baltimore, Md.: updated Mar. 21, 2007). 

[46] CMS, CY2007 Part D Reporting Requirements: Frequently Asked 
Questions, (Baltimore, Md.: revised Apr. 26, 2007). 

[47] CMS selected sponsors for audit based on enrollment and issues 
identified through monitoring. As of September 24, 2007, CMS had 
completed five PDP sponsor audits, representing seven contracts. 

[48] A collaborative partnership with sponsors is one of five 
objectives CMS established in its 2006-2009 Strategic Action Plan. See 
CMS, Achieving a Transformed and Modernized Health Care System for the 
21st Century, CMS Strategic Action Plan 2006-2009, (Baltimore, Md.: 
Oct. 16, 2006) [hyperlink, http://www.cms.hhs.gov/MissionVisionGoals] 
(accessed July 12, 2007). 

[End of section] 

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