Medicare
Sponsors' Management of the Prescription Drug Discount Card and Transitional Assistance Benefit Gao ID: GAO-06-299R January 13, 2006The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) added a prescription drug benefit to the Medicare program, which became effective January 1, 2006. To assist Medicare beneficiaries with their prescription drug costs until the new benefit became available, the MMA also required the establishment of a temporary program, the Medicare Prescription Drug Discount Card and Transitional Assistance Program, which began in June 2004. The drug card program offers Medicare beneficiaries access to discounts off the retail price of prescription drugs at the point of sale. All Medicare beneficiaries, except those receiving Medicaid drug coverage, were eligible to enroll in the drug card program. Certain low-income beneficiaries without other drug coverage qualified for an additional benefit, a transitional assistance (TA) subsidy that can be applied toward the cost of drugs covered under the drug card program. Drug cards were offered and are managed by private organizations, known as drug card sponsors. General drug cards were available to all eligible beneficiaries living in a card's service area; there are both national and regional general cards. Exclusive and special endorsement drug cards were available to specific beneficiary groups. Some drug card sponsors offered more than one drug card. The Centers for Medicare & Medicaid Services (CMS)--the agency within the Department of Health and Human Services (HHS) that manages the Medicare and Medicaid programs--administers and oversees the drug card program. In response to a Congressional request, we examined drug card sponsors' management of the drug card and TA benefit and any challenges that sponsors experienced in meeting program requirements. Specifically, we (1) identified how drug card sponsors provided beneficiaries access to discounted drugs and the discounts obtained through these arrangements; (2) reviewed how drug card sponsors managed the TA benefit, including the enrollment of low-income beneficiaries and management of the TA subsidies; and (3) identified any benefits other than discounts on prescription drugs that drug card sponsors provided to beneficiaries.
Drug card sponsors generally built on existing arrangements that they, or their partner PBMs, had with drug manufacturers and pharmacies to provide beneficiaries access to discounted drugs. Drug card sponsors we interviewed generally reported little difficulty obtaining discounts for beneficiaries and meeting CMS's requirements to provide pharmacy access for beneficiaries. Analyses conducted by CMS found that beneficiaries enrolled in the drug card program could obtain prices that were 12 to 25 percent less than the average retail prices of brand-name drugs. Analyses by other research organizations found similar results. Some program requirements, however, were new and challenging for some drug card sponsors, or their partner PBMs, to implement. These included providing drug manufacturer discounts to beneficiaries at the point of sale and meeting CMS's requirements for reporting detailed data on discounts obtained from drug manufacturers and pharmacies. To manage the TA benefit, drug card sponsors generally relied on their prior experience in administering insurance coverage. Drug card sponsors that we interviewed reported some challenges with beneficiary enrollment for TA, reconciling TA subsidy balances with CMS, or both. Drug card sponsors' records of TA enrollment did not always agree with enrollment data from CMS's eligibility files, and some sponsors had difficulty maintaining accurate TA account balances. All of the drug card sponsors we interviewed told us they provided beneficiaries with at least one additional benefit beyond discounts on covered drugs, such as mail-order dispensing to lower drug costs and drug interaction monitoring programs to promote quality and safety. However, little is known about the extent to which drug card sponsors overall provided these additional benefits because sponsors were not required to report to CMS on the extent to which they provided these added benefits.
GAO-06-299R, Medicare: Sponsors' Management of the Prescription Drug Discount Card and Transitional Assistance Benefit
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January 13, 2006:
The Honorable Henry A. Waxman:
Ranking Minority Member:
Committee on Government Reform:
House of Representatives:
Subject: Medicare: Sponsors' Management of the Prescription Drug
Discount Card and Transitional Assistance Benefit:
Dear Mr. Waxman:
The Medicare Prescription Drug, Improvement, and Modernization Act of
2003 (MMA) added a prescription drug benefit to the Medicare program,
which became effective January 1, 2006.[Footnote 1] To assist Medicare
beneficiaries with their prescription drug costs until the new benefit
became available, the MMA also required the establishment of a
temporary program, the Medicare Prescription Drug Discount Card and
Transitional Assistance Program, which began in June 2004.[Footnote 2]
The drug card program offers Medicare beneficiaries access to discounts
off the retail price of prescription drugs at the point of sale. All
Medicare beneficiaries, except those receiving Medicaid drug coverage,
were eligible to enroll in the drug card program.[Footnote 3] Certain
low-income beneficiaries without other drug coverage qualified for an
additional benefit, a transitional assistance (TA) subsidy that can be
applied toward the cost of drugs covered under the drug card
program.[Footnote 4]
Drug cards were offered and are managed by private organizations, known
as drug card sponsors. General drug cards were available to all
eligible beneficiaries living in a card's service area; there are both
national and regional general cards.[Footnote 5] Exclusive and special
endorsement drug cards were available to specific beneficiary
groups.[Footnote 6] Some drug card sponsors offered more than one drug
card. The Centers for Medicare & Medicaid Services (CMS)--the agency
within the Department of Health and Human Services (HHS) that manages
the Medicare and Medicaid programs--administers and oversees the drug
card program.
In response to your request, we examined drug card sponsors' management
of the drug card and TA benefit and any challenges that sponsors
experienced in meeting program requirements. Specifically, we (1)
identified how drug card sponsors provided beneficiaries access to
discounted drugs and the discounts obtained through these arrangements;
(2) reviewed how drug card sponsors managed the TA benefit, including
the enrollment of low-income beneficiaries and management of the TA
subsidies; and (3) identified any benefits other than discounts on
prescription drugs that drug card sponsors provided to
beneficiaries.[Footnote 7]
To address these objectives, we focused our work on general drug cards;
our work did not include exclusive or special endorsement cards. We
interviewed staff from 7 of 32 general drug card sponsors.[Footnote 8]
We judgmentally selected the drug card sponsors we interviewed. They
represented a mix of national and regional cards; varied in terms of
total enrollment, TA enrollment, and number of beneficiary complaints
received by CMS; and reflected different organization types (for
example, pharmacy benefit managers (PBM),[Footnote 9] health insurers,
and managed care organizations). We also interviewed CMS officials,
staff from six CMS contractors that have assisted with key program
oversight activities, officials from HHS's Office of Inspector General
(OIG), and staff from selected pharmacy and pharmacist
associations.[Footnote 10] Additionally, we reviewed relevant documents
from drug card sponsors, CMS, and CMS contractors, such as drug card
sponsor applications, CMS guidance, and CMS contractor reports. Data
from CMS and CMS contractors reflected the most recent available as of
November 2005. We conducted our work from April 2005 through January
2006 in accordance with generally accepted government auditing
standards.
Results in Brief:
Drug card sponsors generally built on existing arrangements that they,
or their partner PBMs, had with drug manufacturers and pharmacies to
provide beneficiaries access to discounted drugs. Drug card sponsors we
interviewed generally reported little difficulty obtaining discounts
for beneficiaries and meeting CMS's requirements to provide pharmacy
access for beneficiaries. Analyses conducted by CMS found that
beneficiaries enrolled in the drug card program could obtain prices
that were 12 to 25 percent less than the average retail prices of brand-
name drugs.[Footnote 11] Analyses by other research organizations found
similar results. Some program requirements, however, were new and
challenging for some drug card sponsors, or their partner PBMs, to
implement. These included providing drug manufacturer discounts to
beneficiaries at the point of sale and meeting CMS's requirements for
reporting detailed data on discounts obtained from drug manufacturers
and pharmacies. To manage the TA benefit, drug card sponsors generally
relied on their prior experience in administering insurance coverage.
Drug card sponsors that we interviewed reported some challenges with
beneficiary enrollment for TA, reconciling TA subsidy balances with
CMS, or both. Drug card sponsors' records of TA enrollment did not
always agree with enrollment data from CMS's eligibility files, and
some sponsors had difficulty maintaining accurate TA account balances.
All of the drug card sponsors we interviewed told us they provided
beneficiaries with at least one additional benefit beyond discounts on
covered drugs, such as mail-order dispensing to lower drug costs and
drug interaction monitoring programs to promote quality and safety.
However, little is known about the extent to which drug card sponsors
overall provided these additional benefits because sponsors were not
required to report to CMS on the extent to which they provided these
added benefits.
We received comments on a draft of this report from CMS. CMS commented
that despite the short implementation period, the drug card program was
successfully implemented. CMS stated that the concern we raised in the
draft report that the agency's use of multiple data systems created
challenges for some drug card sponsors in maintaining accurate TA
balances was unclear. We revised the draft report to clarify that
sponsors' concerns related to a specific CMS data system. We identified
that system and provided examples of the concerns.
Background:
The MMA was enacted on December 8, 2003, and shortly thereafter, by
January 30, 2004, interested organizations were required to submit
their completed applications to become drug card sponsors to CMS.
Organizations that CMS approved as drug card sponsors could begin
enrolling beneficiaries as of May 3, 2004, and the drug card program
took effect on June 1, 2004. As of November 2005, there were 66 active
general drug cards sponsored by 32 different sponsoring organizations.
(See table 1.) Many general drug cards are sponsored by PBMs, health
insurers, or managed care organizations.
Table 1: Active General Drug Cards by Type of Sponsoring Organization,
November 2005:
[See PDF for image]
Source: GAO analysis of CMS data and drug card sponsor information.
[A] Table does not reflect five approved national cards that were never
marketed.
[B] Other includes an information technology company, a medical
products company, and a claims processor, among others.
[End of table]
There were nearly 3.8 million Medicare beneficiaries enrolled in
general drug cards as of October 2005;[Footnote 12] about 44 percent
were enrolled in both a drug card and TA, while about 56 percent were
enrolled in a drug card only. (See table 2.) About 87 percent of
general drug card enrollees were enrolled in national drug cards, and
about 13 percent were enrolled in regional drug cards.
Table 2: General Drug Card and TA Enrollment, October 2005:
[See PDF for image]
Source: GAO analysis of CMS data.
[End of table]
Organizations had to meet certain requirements to be approved by CMS as
drug card sponsors. For example, a drug card sponsor had to be a
nongovernmental organization doing business in the United States, be
financially stable and reputable, have at least 3 years of private-
sector experience in pharmacy benefit management, and have served at
least 1 million covered lives in a similar pharmacy benefit program.
Drug card sponsors that did not have sufficient experience with
pharmacy benefit management were allowed to partner with PBMs to meet
the drug card program requirements.
Access to Negotiated Discounts and Pharmacies:
Drug card sponsors had to demonstrate their ability to meet various
program requirements such as providing Medicare beneficiaries access to
discounted drugs and a network of pharmacies, and must continue to show
they are meeting these requirements. One requirement of the program is
that drug card sponsors must offer a negotiated price[Footnote 13] for
at least one drug in each of more than 200 drug classes that CMS
identified as being commonly used by Medicare beneficiaries.[Footnote
14] According to CMS, nearly all prescription drugs that can be
purchased at retail pharmacies are eligible to be covered by sponsors'
drug cards.[Footnote 15] The MMA specifies 9 classes of drugs that
sponsors are not allowed to cover through their drug cards; the
excluded classes include barbiturates and benzodiazepines, among
others. Drug card sponsors must also contract with a sufficient number
of pharmacies to ensure that their pharmacy networks meet the program's
network access requirements.[Footnote 16] On a weekly basis, drug card
sponsors are required to report to CMS drug prices available at
participating pharmacies.[Footnote 17] They also are required by CMS to
report price concession information (which could include discounts,
rebates, and other price concessions) from both drug manufacturers and
pharmacies to CMS on a quarterly basis.[Footnote 18]
Management of TA Benefit:
Participating drug card sponsors are required by CMS to manage the TA
benefit, including obtaining funds (TA subsidies) from CMS to reimburse
pharmacies for covered drugs dispensed to TA beneficiaries. Sponsors
must establish and use appropriate accounting procedures and controls
to track TA spending for each enrollee and protect against misuse of TA
funds, including the inappropriate use of these funds to pay for
excluded drugs. In addition, drug card sponsors are required to manage
the enrollment of TA beneficiaries, submit monthly TA expenditure
reconciliation reports to CMS, and update CMS's enrollment database
with beneficiary-level enrollment, utilization, and expenditure data.
Drug Card Sponsors Generally Built on Existing Arrangements to Provide
Beneficiaries Access to Discounted Drugs:
Drug card sponsors generally built on arrangements that they, or their
partner PBMs, had for existing business to provide Medicare
beneficiaries access to discounted drugs. Some drug card sponsors
incorporated drug manufacturer assistance programs for low-income
individuals into the drug card program as a way to provide additional
discounts to beneficiaries beyond those required by the MMA. While
sponsors generally reported little difficulty obtaining discounts for
beneficiaries and meeting pharmacy access requirements, providing drug
manufacturer discounts to beneficiaries at the point of sale and
reporting detailed data to CMS on the discounts obtained were new and
challenging for some sponsors.
Drug card sponsors that we interviewed, or their partner PBMs,
generally relied on their existing business relationships for the drug
card program. They did not provide detailed information to CMS about
their arrangements with drug manufacturers and pharmacies because the
agency did not require sponsors to disclose proprietary information
about these relationships. According to the drug card sponsors that we
interviewed, they sometimes sought arrangements with additional drug
manufacturers to include a broader array of drugs, and one drug card
sponsor also reported seeking agreements with additional pharmacies to
meet program access requirements.
Some drug card sponsors also built on existing drug manufacturer
assistance programs for low-income individuals to provide additional
discounts to beneficiaries beyond those required by the MMA. According
to CMS data, eight drug manufacturers have agreements with sponsors of
some drug cards to provide additional discounts to TA beneficiaries who
have exhausted their TA benefit, referred to as wrap-around
coverage.[Footnote 19] (See table 3.) Four of these drug manufacturers
also have agreements to provide additional discounts to low-income
beneficiaries above the TA income limit.[Footnote 20]
Table 3: Drug Manufacturers with Wrap-around Coverage for TA
Beneficiaries, September 2005:
[See PDF for image]
Source: GAO analysis of CMS data from
www.cms.hhs.gov/medicarereform/drugcard/mfagreements.asp (accessed on
Sept. 22, 2005).
[A] Wrap-around coverage is for TA beneficiaries who have exhausted
their TA benefit.
[B] Number of drugs covered may include multiple formulations of a
single drug.
[C] The drug manufacturer offered discounts to low-income beneficiaries
above the TA income limit, but only to enrollees of United HealthCare
Insurance Company's U Share Prescription Drug Discount Card.
[D] The drug manufacturer offered discounts to low-income beneficiaries
above the TA income limit for any drug card willing to participate.
[End of table]
While drug card sponsors that we interviewed told us that they
generally experienced little difficulty obtaining discounts for
beneficiaries and meeting pharmacy access requirements, there were some
challenges. For example, drug card sponsors said that they, or their
partner PBMs, often had to develop new processes to pass drug
manufacturer discounts to Medicare beneficiaries at the point of sale.
Some drug card sponsors volunteered that drug discount card programs
managed by PBMs prior to the drug card program did not typically
include drug manufacturer discounts, relying instead on discounts
negotiated with pharmacies. In the drug card program, the price paid by
beneficiaries at the point of sale reflects both drug manufacturer and
pharmacy discounts.[Footnote 21] Providing drug manufacturer discounts
to beneficiaries at the point of sale was a new process for many drug
card sponsors and PBMs because these discounts are typically processed
after the point of sale for their existing lines of business such as
commercial insurance.[Footnote 22]
Several drug card sponsors we interviewed also told us of additional
challenges they faced. For example, some drug card sponsors said their
use of open rather than more restrictive formularies in the drug card
program limited their ability to negotiate larger discounts with drug
manufacturers because they were unable to increase the market share of
manufacturers' products sold to beneficiaries.[Footnote 23] In
addition, some drug card sponsors that we interviewed indicated that
pharmacies sometimes declined to participate in the drug card program
because they considered the level of discounts to be too high or
because the pharmacy was sponsoring its own card. Further, pharmacies
that did not have separate executed contractual agreements with PBMs
specifically for the drug cards may have been unaware that they were
participating in the drug card program, which created problems for
beneficiaries when they tried to purchase drugs at those pharmacies.
Finally, one drug card sponsor told us that some independent pharmacies
that used Pharmacy Service Administrative Organizations (PSAO) to
contract with PBMs did not always know they were participating with a
particular drug card. This occurred because the individual pharmacies
did not always recognize that the PSAO had contracted with a drug card
sponsor on their behalf.[Footnote 24]
As of November 2005, the overall quality of the quarterly price
concession data submitted to CMS by drug card sponsors was poor, with
problems such as outliers and missing data.[Footnote 25] This precluded
CMS from compiling a detailed accounting of the amount and source of
discounts and other price concessions for the drug card program. Some
drug card sponsors that we interviewed told us that CMS's guidance for
reporting price concession data was unclear and not timely, and that
reporting the data in the form required by CMS was complex. CMS
officials reported that as of November 2005 they were continuing to
work with drug card sponsors to resolve the problems.[Footnote 26]
Although drug card sponsors' reporting of quarterly price concession
data has been problematic, CMS and other research organizations have
conducted analyses of drug prices using data reported weekly to CMS for
posting on the Price Compare Web site, which identified discounts
available to drug card beneficiaries.[Footnote 27] A CMS analysis found
that beneficiaries enrolled in drug cards could obtain prices as of
September 2004 that were approximately 12 to 21 percent less than the
national average retail price for selected brand-name drugs. This
analysis also found that low-income beneficiaries who used the TA
benefit had the potential to save between 44 and 92 percent compared to
national average retail prices. A second analysis conducted by CMS
found that beneficiaries enrolled in the drug cards could obtain prices
as of February 2005 that were approximately 14 to 25 percent less than
the national average retail price for cash-paying customers. Other
analyses conducted by research organizations such as the Lewin Group
and the Henry J. Kaiser Family Foundation found similar
results.[Footnote 28]
Drug Card Sponsors Generally Used Prior Experience Administering
Insurance Coverage to Manage the TA Benefit:
Drug card sponsors, or their partner PBMs, generally relied on their
prior experience administering insurance coverage to manage the TA
benefit. Some of the drug card sponsors we interviewed reported
challenges with managing the enrollment of low-income beneficiaries,
reconciling TA subsidy balances with CMS, or both. Audits conducted by
a CMS contractor, IntegriGuard, found that drug card sponsors' TA
reports of enrollment did not always agree with enrollment data from
CMS's eligibility files, and some sponsors did not properly document
changes they made to TA applications after they were signed by the
Medicare beneficiary and submitted to the sponsor.[Footnote 29]
Additionally, some drug card sponsors had difficulty maintaining
accurate TA subsidy balances, particularly when beneficiaries
transferred between drug cards or disenrolled from a drug card.
Further, some drug card sponsors we interviewed reported confusion
about which drugs were to be excluded from coverage. Audits conducted
by IntegriGuard found that drug card sponsors had made approximately
$1.9 million in incorrect TA payments for excluded drugs.
Drug card sponsors were required to obtain completed TA enrollment
applications from Medicare beneficiaries and perform an initial
eligibility screen before submitting the applications to CMS for
eligibility verification. Following CMS's eligibility verification,
drug card sponsors were required to notify beneficiaries of their
eligibility status and right to appeal, as well as to determine the
beneficiary's required coinsurance amount.[Footnote 30] See figure 1
for an overview of the TA enrollment process.
Figure 1: Medicare Beneficiary Enrollment Process for TA:
[See PDF for image]
Notes: CMS contracted with MAXIMUS, an organization with experience in
enrollment and eligibility issues for state Medicaid programs, to
manage beneficiary appeals of TA eligibility denials. Enrollment of new
beneficiaries ended December 31, 2005.
[End of section]
CMS established a process for Medicare beneficiaries who were initially
denied eligibility for the TA subsidy to appeal the decision. As of
August 2005, approximately 76,000 TA eligibility denials were appealed
and adjudicated;[Footnote 31] 58 percent of these were reversed during
reconsideration.[Footnote 32] Reasons for the initial denials varied,
but most often it was because the beneficiary appeared to fail the TA
income requirements (41 percent), be enrolled in another Medicare drug
card (25 percent), or have other prescription drug coverage (22
percent).
Several drug card sponsors we interviewed told us they experienced
problems with the TA enrollment process, including reconciling
enrollment and eligibility data with CMS. For example, one drug card
sponsor told us that when coverage changes in one state's Medicaid
program led to the loss of Medicaid prescription drug coverage for some
low-income Medicare beneficiaries in the state, there were delays in
enrolling these individuals in the drug card program. The delays
resulted because the CMS eligibility verification system continued to
reflect these individuals as having Medicaid drug coverage, which would
have made them ineligible for enrollment in a drug card. In addition, 8
of 23 audits conducted by IntegriGuard found that TA enrollment data as
reported on drug card sponsors' monthly TA reports did not always agree
with CMS's eligibility data files for the same period of time. Further,
10 of the 23 IntegriGuard audits found that drug card sponsors did not
always properly document changes they made to TA applications after
they were signed by beneficiaries and initially submitted to the
sponsor. For example, when drug card sponsors followed up with
beneficiaries about missing or incorrect information on applications,
they did not always document why or on what date they made changes to
the applications.
Drug card sponsors generally managed TA funds as they, or their partner
PBMs, managed insurance benefits for their existing lines of business.
This included operating a real-time claims adjudication system that
facilitates the reimbursement of pharmacies for drugs purchased by TA
beneficiaries and applies the correct beneficiary coinsurance at the
point of sale. As shown in figure 2, once the TA beneficiary pays the 5
or 10 percent coinsurance and receives drugs at the pharmacy, the
pharmacy files a claim, which is paid by the PBM. The PBM, if it is not
the sponsoring organization, then sends an invoice for TA claims to the
drug card sponsor. The drug card sponsor, in turn, draws down TA funds
from its CMS account for claims paid to the PBM. To account for the TA
funds expended, drug card sponsors are required to enter beneficiary-
level expenditure data into CMS's enrollment database and provide a
monthly report to CMS reconciling their paid pharmacy claims to TA
funds drawn from the sponsor's CMS account.
Figure 2: Flow of Funds and Reporting for TA:
[See PDF for image]
Note: Step 3 in the figure would not apply if the sponsoring
organization is a PBM itself.
[End of figure]
According to audits conducted by IntegriGuard and discussed by some
drug card sponsors we interviewed, some sponsors had difficulty
maintaining accurate TA subsidy balances for beneficiaries who
transferred between cards or disenrolled from the program. IntegriGuard
audits of 23 drug cards found that sponsors of 11 of these cards had
allowed some beneficiaries to receive subsidies that exceeded their TA
limit. CMS officials largely attributed the problem to beneficiaries
transferring between cards. Some drug card sponsors told us that CMS's
Enrollment and Eligibility Verification Systems (EEVS) contributed to
these difficulties, pointing to problems they experienced when they
attempted to reconcile their enrollment data with CMS. For example, one
drug card sponsor told us that it did not have the ability to check
enrollment information in EEVS in real time. Another drug card sponsor
reported that its TA claims payment system operated in real-time, but
that it relied on TA eligibility data updates from CMS that were
provided in periodic batch files.
Several drug card sponsors we interviewed also reported confusion about
drugs that were to be excluded from coverage through the drug cards,
citing inadequate guidance from CMS. While CMS provided general
guidance on classes of excluded drugs on previous occasions beginning
in June 2004, it did not issue a comprehensive list of excluded drugs
until November 2004. IntegriGuard audits of 23 drug cards found that
for each, the sponsor had incorrectly used TA funds to pay for at least
some excluded drugs. This resulted in approximately $1.9 million of
incorrect TA payments as of November 2005, which drug card sponsors are
required to repay to CMS.[Footnote 33]
Drug Card Sponsors Provided Beneficiaries with Some Additional Benefits
Beyond Discounts on Covered Drugs:
All seven drug card sponsors we interviewed said that they provided at
least one benefit to Medicare beneficiaries in addition to the
discounts on covered drugs. They extended existing PBM programs
designed to lower costs and promote quality and safety to
beneficiaries. These programs included mail-order options, efforts to
increase the use of lower-cost generic drugs, and programs to detect
potential problems such as allergy risks and adverse drug interactions.
CMS guidance to drug card sponsors permitted them to provide additional
products or services to beneficiaries, such as discounts on over-the-
counter drugs at no additional cost to beneficiaries. However, there is
little information available on the extent that these additional
services or discounts are offered by drug card sponsors overall because
they are not required by the drug card program, and sponsors are not
required to report this information.
Medicare beneficiaries could achieve additional savings over discounted
retail prices if they used a drug card sponsor's mail-order option or
substituted lower-cost generics for brand-name drugs when offered. For
example, one drug card sponsor we interviewed estimated that
beneficiaries could achieve an additional 5 percent savings on mail-
order purchases of brand-name drugs. According to the sponsor, however,
savings from the use of the mail-order option may be limited to
beneficiaries who could afford to purchase a 3-month supply of drugs at
one time, a typical requirement for purchases made through mail-order
pharmacies. This drug card sponsor also reported having a program that
automatically substituted generic drugs where allowed. Another drug
card sponsor reported providing educational materials to beneficiaries
on the savings associated with using generics.
Drug card sponsors that we interviewed also said that they, or their
partner PBMs, often had a variety of quality and safety programs, which
they sometimes extended to drug card beneficiaries. For example, six of
the seven drug card sponsors we interviewed had drug safety edits that
allowed pharmacists to identify potential adverse drug interactions or
drug allergies at the point of sale. Further, four of the drug card
sponsors said that they conducted some form of drug utilization review,
and one offered a program of medication therapy management.[Footnote
34]
Agency Comments:
We provided a draft of this report for comment to the Administrator of
CMS, and we received written comments. (See enc. I.)
In responding to our draft report, CMS had several general comments.
First, CMS reiterated our finding that drug card sponsors largely built
off of existing industry practices to manage the drug card and TA
benefit. CMS stated that the drug card program's short implementation
period was possible because of sponsors' reliance on existing
practices. Second, CMS stated that the provision of both pharmacy and
manufacturer discounts at the point of sale, which we discussed in our
draft report, distinguished the drug card program from other discount
cards on the market. CMS added that a September 2004 analysis conducted
by the agency, which we also described in our draft report, found that
beneficiaries enrolled in approved drug cards could obtain discounts of
approximately 12 to 21 percent off the national average retail price of
common brand-name drugs at the point of sale, with the potential for
even higher discounts for low-income beneficiaries who used their TA
benefit. Third, CMS commented that a recent evaluation conducted of the
drug card program found that most drug card enrollees who were surveyed
expressed overall satisfaction with their cards, especially with the
breadth of the pharmacy networks, the enrollment process, and savings
achieved. Fourth, CMS highlighted the value of the structure it
established for the drug card program to communicate with sponsors and
stated that it planned to operate a similar communication structure for
the new Medicare prescription drug benefit that became effective on
January 1, 2006. Finally, CMS noted that the agency and its contractors
learned a tremendous amount about providing drug coverage through the
drug card program, and that these lessons were helpful in preparing for
the implementation of the Medicare prescription drug benefit that is
currently underway.
In addition to these general comments, CMS provided several more
specific comments. With respect to our finding that the overall quality
of the price concession data reported to CMS by drug card sponsors was
poor, CMS stated that it has worked to resolve significant quality
issues. CMS said that most submissions are now accurate. As noted in
the draft report, the overall quality of that data as of November 2005
was poor, and we have not assessed or verified any changes in the
data's quality since that time. Our finding, however, highlights the
importance of CMS oversight of sponsor-reported data.
In our draft report, we stated that CMS's multiple data systems created
problems for some drug card sponsors in managing the TA subsidies. CMS
said it was unable to interpret this concern because we did not
indicate the specific systems in question or the actual nature of the
problem. Further, CMS stated that it appeared that we simply repeated a
concern raised by a sponsor. In response, we revised our report to
clarify that sponsors' concerns related to CMS's EEVS system.
Additionally, as more than one drug card sponsor raised concerns, we
provided specific examples.
Regarding our finding that some drug card sponsors reported confusion
about which drugs were to be excluded from coverage, CMS stated that
the categories of excluded drugs are defined by statute and are
repeated in the drug card regulation and solicitation. CMS added that
it was the responsibility of drug card sponsors to identify the
specific drugs in the excluded classes and ensure that these drugs were
not covered. As we noted in our draft report, audits of 23 drug cards
conducted for CMS by IntegriGuard found that the sponsors of all 23
cards had incorrectly used TA funds to cover excluded drugs totaling
$1.9 million. CMS noted in its comments that it provided guidance on
excluded drug classes on several occasions, but acknowledged that it
did not provide sponsors with a list of specific drugs that were to be
excluded from coverage until November 2004, 5 months after the program
began. However, CMS stated that it has continued to remind sponsors of
their obligation. In its comments, CMS stated that on August 30, 2005,
for example, it issued a memo to all drug card sponsors directing each
sponsor to conduct an internal review of its drug card data, books, and
records to identify all excluded drugs that were paid for with TA
funds. CMS required drug card sponsors to repay TA funds that were
identified through the internal reviews as having been improperly paid.
While drug card sponsors are responsible for the correct use of TA
funds, CMS is ultimately accountable for ensuring that no program
monies are inappropriately spent.
With respect to our report of delays in beneficiary enrollment caused
by changes in a state's Medicaid program, CMS acknowledged that it was
possible for delays in state reporting to have led to delays in drug
card enrollment. It added that the reconsideration process, which we
discussed in our draft report, was established to consider different
evidence regarding program eligibility and enroll beneficiaries
affected by such concerns.
In response to our discussion of data discrepancies between sponsors'
monthly TA reports and CMS's eligibility data files for the same time
period, CMS stated that this occurred in a small number of instances.
As we discussed in our draft report, however, discrepancies were
identified in 8 of 23 audits conducted for CMS by IntegriGuard. CMS
said that it has worked with drug card sponsors to identify and correct
these deficiencies.
Finally, CMS also provided technical comments, which we have addressed
as appropriate.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution of it until 30
days from the date of this report. At that time, we will send copies to
the Administrator of CMS and interested congressional committees. We
will also provide copies to others upon request. The report will also
be available on GAO's home page at http://www.gao.gov.
If you or your staff have any questions about this report, please
contact me at (202) 512-7119 or kingk@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors are listed in enclosure
II.
Sincerely yours,
Signed by:
Kathleen King:
Director, Health Care:
Enclosures--2:
Comments from the Centers for Medicare & Medicaid Services:
DEPARTMENT OF HEALTH & HUMAN SERVICES:
Centers for Medicare & Medicaid Services:
200 Independence Avenue SW:
Washington, DC 20201:
DATE: JAN 6 2006:
TO: Kathleen M. King:
Director, Health Care:
FROM: Mark B. McClellan, M.D.,Ph.D.
Administrator:
SUBJECT: Government Accountability Office's (GAO) Draft Report:
Medicare. Sponsors' Management of the Prescription Drug Discount Card
and Transitional Assistance Benefit (GAO-06-299R):
We appreciate having the opportunity to review and comment on the GAO
draft report entitled, Medicare. Sponsors' Management of the
Prescription Drug Discount Card and Transitional Assistance Benefit. We
note that the report did not offer any specified findings,
recommendations, or implications for the Centers for Medicare &
Medicaid Services' (CMS) consideration for the Medicare Prescription
Drug Benefit starting January 1, 2006. Sponsor management of the
Prescription Drug Discount Card and Transitional Assistance (TA) worked
as intended, building off of existing industry practices, and providing
significant discounts and savings. The exceptionally short
implementation period (only 6 months) was possible because of the
reliance on existing practices. The primary difference from those
industry practices was providing discounts at the point of sale, as
noted in the report.
The provision of both pharmacy and manufacturer discounts at the point
of sale was groundbreaking, and the distinction that set the Medicare-
Approved Prescription Drug Discount Card Program apart from other
discount cards on the market. While this aspect of the program may have
represented a new approach for sponsors, the results of the program
strongly indicate the overwhelming success of the initiative and
sponsor management of the program. CMS found, that as of September
2004, beneficiaries enrolled in approved drug cards could obtain prices
that were approximately 12 to 21 percent less than the national average
prices paid by Americans for commonly used brand-name drugs at retail
pharmacies. The same analysis also found that low-income beneficiaries
who used the TA benefit had the potential to save between 44 and 92
percent, compared to national average retail prices. Studies by
independent organizations confirmed these findings.
Another indication of the successful management of the program is
beneficiary satisfaction levels. An October 2005 evaluation of the Drug
Card Program commissioned by CMS and conducted by an independent
research firm, ABT Associates, found that card enrollees participating
in focus groups reported no difficulties with enrollment, and non-
enrollees did not report perceived difficulty of enrollment as a reason
for not enrolling. Most survey respondents expressed overall
satisfaction with their cards, especially with the breadth of the
pharmacy networks, the enrollment process, and savings achieved with
their cards. Finally, transitional assistance survey respondents and
those with higher prescription drug utilization were especially
satisfied, both overall and, more specifically, with their savings.
It is also worth mentioning that as part of that process of managing
the Drug Discount Card and TA benefit, each sponsor has personalized
access to CMS via a card manager, for both troubleshooting help and for
larger policy issues. CMS has been working with these new partners on a
consistent basis, via conferences, regular teleconferences, and daily
card manager contact. We have implemented similar communication
structure for organizations offering the Medicare Drug Benefit, for
example, the recent Compliance Conference CMS held. CMS and our
contractors have learned a tremendous amount about providing drug
coverage through this program, and these lessons have helped us with
all of the up front work to prepare for 2006, as well as the
implementation underway currently.
While GAO did not offer specified findings or recommendations in the
report, we have compiled several comments and technical points we wish
to convey. These comments are attached.
Attachment:
Centers for Medicare & Medicaid Services' (CMS) Comments to the
Government Accountability Office's (GAO) Draft Report: Medicare:
Sponsors' Management oftbe Prescription Drug Discount Card and
Transitional Assistance Benefit (GAO-06-299R):
I. GAO Comment: The overall quality of the quarterly price concession
data submitted to CMS by drug card sponsors was poor.
Card sponsors regularly report data to CMS on rebates, discounts, and
other price concessions obtained from drug manufacturers and
pharmacies, and the percentage passed through to beneficiaries.
There were significant data quality issues (including incomplete
submissions and many obvious reporting errors), which CMS has worked to
resolve. Most submissions are now accurate, although a few remain
outstanding.
Despite these concerns, CMS is pleased that the initial data suggest
that general card sponsors have been passing through a substantial
portion of their negotiated rebates, discounts, and other price
concessions to beneficiaries. These "pass-throughs" appear to be due to
both negotiated manufacturer contracts and negotiated pharmacy
contracts.
The CMS has done its own analysis of prices submitted by sponsors. An
analysis of prices posted on the Price Compare Web site shows
beneficiaries can obtain discounted prices that are about 12 to 21
percent less than the national average prices actually paid by
Americans for commonly used brand-name drugs at retail pharmacies.
Additionally, The Lewin Group, American Enterprise Institute, and
Kaiser Family Foundation have conducted independent studies confirming
savings in the same range.
II. GAO Comment: CMS' use of multiple data systems .. created problems
for some drug card sponsors in maintaining accurate TA subsidy
balances, particularly when beneficiaries transferred between drug
cards or disenrolled from a drug card.
In multiple instances throughout the report (for instance, see pages 4,
11, and 14), the GAO noted that CMS' use of multiple data systems
created challenges. We are unable to interpret this concern because the
GAO specifies neither 1) the specific systems it is referring to, nor
2) the actual nature of the problem. Rather, the GAO simply repeats the
statement that CMS' use of multiple data systems created problems for
sponsors regarding their ability to maintain accurate Transitional
Assistance (TA) subsidy balances. It would appear that the GAO repeated
verbatim a statement raised by a sponsor, without clarifying or
confirming the issue.
In fact, one single system at CMS housed TA subsidy balances - the
Enrollment and Eligibility Verification System (EEVS). Moreover, this
is the only CMS system with which sponsors interact for the entire drug
discount card program. Therefore, we are particularly puzzled by this
comment.
With regard to transferring TA balances when a beneficiary switched
from one drug card sponsor to another, CMS reported to the gaining
sponsor, through EEVS, the transferring transitional assistance balance
as well as any updates to that amount. To mitigate balance transfer
problems, we instituted constraints on the period of a time the former
sponsor was able to claim utilization past the beneficiary's
disenrollment date.
III. GAO Comment: Some drug card sponsors reported confusion about
which drugs were to be excluded from coverage.
Categories of excluded drugs are defined by statute and repeated in the
drug card regulation and solicitation. From the very beginning of the
program, CMS made it abundantly clear to sponsors that sponsors
themselves - not CMS - were to identify drugs falling into excluded
categories and ensure that they wouldn't be covered under the program.
CMS repeatedly reminded sponsors of this obligation on sponsor
conference calls beginning in January 2004. Written examples providing
these reminders included a memo released on July 12, 2004, and other
documents provided on August 30, 2004, November 4, 2004, and most
recently on August 5, 2005, and August 30, 2005. CMS developed its own
list of specific excluded drugs (i.e., those falling into the statutory
categories) for oversight purposes, and provided this list to sponsors
in November 2004. We believe that sponsors are well aware of their
responsibility not to pay for these drugs. Therefore, we disagree that
guidance to sponsors was not provided in a timely manner.
On December 23, 2004, CMS sent out an "Overview of CMS' Drug Card
Monitoring Activities" to all sponsors, requesting each sponsor conduct
a review of payments made for barbiturates and benzodiazepines using TA
funds and repay improperly drawn funds through the payment management
system. On August 30, 2005, CMS issued a memo to all drug card sponsors
directing that sponsors conduct an internal review of their Medicare
prescription drug discount card program data, books, and records to
identify all excluded drugs at the national drug code (NDC) level that
have been paid for with Federal (TA) funds. Sponsors were directed to
send a copy of their self-audit to their card managers by September 30,
2005, and to repay improperly drawn funds through the payment
management system.
If a sponsor disagrees with a medication on the CMS-issued excluded
drug list, a CMS pharmacist will conduct a preliminary review of the
sponsor's response and IntegriGuard will provide clinical and research
support as needed. After IntegriGuard researches the issues and makes a
recommendation to CMS a committee will review IntegriGuard's
recommendation and make a recommendation to management. This committee
will be staffed by CMS and will include clinicians and compliance,
policy, and financial staff.
The CMS is requiring card sponsors to repay funds used to pay for
excluded drugs.
IV. GAO Comment: One sponsor reported delays in the enrollment of
beneficiaries when the state's Medicaid program led to the loss of
Medicaid prescription drug coverage for some low-income Medicare
beneficiaries in the state.
CMS relied on the States to report to us on a monthly basis the names
of beneficiaries enrolled in Medicaid prescription drug coverage. It is
possible that delays in State reporting occasionally led to delays in
drug card enrollment. However, our reconsideration process was
established to quickly consider different evidence regarding
eligibility for the program and enroll beneficiaries affected by such
concerns.
V. GAO Comment: Ten of 23 IntegriGuard audits found that drug card
sponsors' monthly TA reports did not always agree with CMS' eligibility
data files for the same period of time.
The EEVS system reflects the official, correct enrollment and
eligibility information for the program. In a very small number of
instances, information about certain beneficiaries listed in sponsor
systems were out of sync with EEVS. To address these discrepancies,
EEVS provides a monthly membership file with accurate enrollment and
eligibility information which sponsors use to reconcile their internal
membership lists. Card managers and the EEVS help desk work with
sponsors to identify and correct these discrepancies. The IntegriGuard
audits assisted CMS and sponsors further identify and correct
discrepancies, and to ensure that benefits are appropriately applied.
[End of section]
Enclosure: GAO Contact and Staff Acknowledgments:
GAO Contact: Kathleen King, (202) 512-7119 or kingk@gao.gov:
Acknowledgments: In addition to the contact named above, Debra Draper,
Assistant Director; Lori Achman; Eric Anderson; Jennie Apter; Robin
Burke; Ann Tynan; and Syeda Uddin made key contributions to this
report.
(290451):
FOOTNOTES
[1] Pub. L. No. 108-173, §101, 117 Stat. 2066, 2071, 2072.
[2] Pub. L. No. 108-173, §101, 117 Stat. 2066, 2071, 2131. Throughout
this report, we refer to the Medicare Prescription Drug Discount Card
and Transitional Assistance Program as the drug card program.
Beneficiaries could enroll in the drug card program through December
2005. Beneficiaries can use their drug cards until the effective date
of their enrollment in a Medicare prescription drug plan or until May
15, 2006, whichever comes first.
[3] Not all applicants were eligible to enroll in the drug card
program. CMS established an appeal process for those initially denied
eligibility.
[4] For beneficiaries who qualify for TA, the program offered a subsidy
of up to $600 per year toward the cost of covered drugs. To qualify for
TA, a beneficiary must (1) have had an income at or below 135 percent
of the federal poverty level (FPL) and (2) with certain exceptions, not
have had other prescription drug coverage through Medicaid, an employer-
sponsored group health insurance program, an individual health
insurance policy, TRICARE (the Department of Defense health care
program for active-duty personnel, retirees, and their dependents), or
the Federal Employees Health Benefits Program. TA funds available to
beneficiaries in 2004 and 2005 can be used until the effective date of
their enrollment in a Medicare prescription drug plan or until May 15,
2006, whichever comes first.
[5] National cards provide beneficiaries access to discounts at
pharmacies nationwide, while regional cards offer discounts at
pharmacies within a smaller geographic area--an entire state at a
minimum.
[6] Exclusive cards are cards that Medicare managed care plans offered
only to their plan enrollees. (Some Medicare managed care plans also
offered general cards open to all eligible beneficiaries, not just
those enrolled in their plans.) Special endorsement cards serve
residents of long-term care facilities such as skilled nursing
facilities; U.S. territory residents; and American Indians and Alaskan
Natives who use Indian Health Service, Indian Tribe and Tribal
Organization, and Urban Indian Organization pharmacies.
[7] We have conducted other work related to this topic. See GAO,
Medicare: CMS's Implementation and Oversight of the Medicare
Prescription Drug Discount Card and Transitional Assistance Program,
GAO-06-78R (Washington, D.C.: Oct. 28, 2005) and Medicare: CMS's
Beneficiary Education and Outreach Efforts for the Medicare
Prescription Drug Discount Card and Transitional Assistance Program,
GAO-06-139R (Washington, D.C.: Nov. 18, 2005).
[8] Included in the 32 sponsoring organizations are affiliated
organizations, such as 11 individual Blue Cross and Blue Shield
entities that are counted as one organization.
[9] Pharmacy benefit managers manage prescription drug benefits for
third-party payers, such as employer-sponsored health plans and other
health insurers.
[10] We interviewed staff of the National Association of Chain Drug
Stores, the National Community Pharmacists Association, and the
Arkansas Pharmacists Association.
[11] The national average retail price used by CMS represents the
average price paid to pharmacies by both insured and cash-paying
customers. Prices paid by insured customers are typically less than
those paid by cash-paying customers due to discounts negotiated by
insurers. Data on these prices were obtained by CMS from Verispan, a
health care information firm that collects and reports data on retail
pharmacy transactions.
[12] As of October 2005, CMS reported 6.4 million enrollees across all
drug card types, including general and exclusive cards.
[13] The MMA specified that drug card sponsors shall provide access to
"negotiated prices" on the drugs they cover. CMS regulations define
negotiated price as the discounted price that takes into account
negotiated price concessions such as discounts, rebates, and direct or
indirect subsidies or remunerations. Drug card sponsors are required to
obtain rebates, discounts, or other price concessions from drug
manufacturers and to pass on a share of these concessions to card
enrollees. Sponsors are also required to guarantee that pharmacies
provide the lower of the negotiated price or the usual and customary
price for a covered drug. Neither the MMA nor CMS's regulations specify
any minimum price concession that must be passed on to enrollees.
[14] Drugs that possess similar chemical structures and similar
therapeutic effects are grouped into classes. Most drugs within a class
produce similar benefits, side effects, adverse reactions, and
interactions with other drugs and substances.
[15] Covered drugs include prescription drugs, certain vaccines,
insulin, and some medical supplies associated with the injection of
insulin.
[16] By regulation, in urban areas, at least 90 percent of a card's
enrollees must live within 2 miles of a contracted network pharmacy; in
suburban areas, at least 90 percent must live within 5 miles of a
contracted network pharmacy; and in rural areas, at least 70 percent
must live within 15 miles of a contracted network pharmacy. These
access standards are based on those used in the TRICARE Retail Pharmacy
program, which provides prescription services for Department of Defense
beneficiaries through a network of retail pharmacies.
[17] The drug prices reported by drug card sponsors were posted on
CMS's Price Compare Web site until September 30, 2005, when CMS
deactivated this component of the Web site.
[18] The CMS reporting requirement includes the total dollar amount of
discounts obtained, the percentage of discounts passed through to
beneficiaries, and the average dollar discount per prescription.
[19] Most of these drug manufacturers provided discounted drugs to low-
income individuals prior to the Medicare drug card program.
[20] The TA income limit for 2005 was $1,077 per month for a single
individual in the 48 contiguous states. The income limit was higher in
Alaska ($1,345 per month) and Hawaii ($1,239 per month).
[21] CMS officials estimated that the majority of discounts came from
pharmacies rather than from drug manufacturers.
[22] For other programs managed by PBMs, the manufacturer discount is
typically not applied at the point of sale, but instead is often
provided in the form of a rebate to the insurer or insured group on an
established schedule after the transaction is completed. In the drug
card program, according to the sponsors we interviewed, PBMs
periodically reimburse pharmacies for the drug manufacturer portion of
the discounts from drug card sales, typically on a weekly or biweekly
basis. On a less frequent basis, generally monthly or quarterly, PBMs
receive payments from drug manufacturers for the manufacturers' portion
of the discounts on drug sales to beneficiaries.
[23] A formulary is a list of approved drugs that a plan will cover. An
open formulary contains no restrictions on what drugs are covered. The
drug card program did not require open formularies, but most drug card
sponsors offered them through their PBMs. For example, one drug card
sponsor told us that the complexity involved in using a restricted
formulary would not have been practical given the short duration of the
drug card program.
[24] PSAOs are organizations that sometimes represent independent
pharmacies in contractual negotiations with entities such as PBMs or
managed care organizations.
[25] These data include the total dollar amount of discounts obtained
by sponsors, the proportion of discounts coming from manufacturers
versus pharmacies for each sponsor, and the amount of discounts
obtained for beneficiaries with wrap-around coverage. This information
on drug card sponsors' price concession data was also discussed in a
previous report. See GAO, Medicare: CMS's Implementation and Oversight
of the Medicare Prescription Drug Discount Card and Transitional
Assistance Program, GAO-06-78R (Washington, D.C.: Oct. 28, 2005).
[26] As of October 2005, for the drug cards where CMS identified
problems, incorrect data had been removed from the system into which
drug card sponsors reported their data. However, not all of the
sponsors have provided corrected information.
[27] Early in the program, some drug card sponsors experienced problems
with reporting drug pricing data for the Price Compare Web site. CMS
identified problems such as inconsistencies in sponsors' reported unit
prices for non-pill prescriptions--such as creams and sprays--and
delays in drug card sponsors' reporting of data. CMS officials reported
that they worked with sponsors to standardize their reporting of non-
pill prices, did not post some sponsors' data on the Price Compare Web
site, and took actions to address reporting problems. CMS officials
stated that the quality of the Price Compare Web site data improved
after the first 2 to 3 months of the drug card program.
[28] See the Lewin Group, Assessment of Beneficiary Savings in the
Medicare Drug Discount Card Program (Falls Church, Va.: August 2004)
and Henry J. Kaiser Family Foundation, Medicare Drug Discount Cards: A
Work in Progress (Menlo Park, Calif.: July 2004).
[29] CMS contracted with IntegriGuard, a Medicare program integrity
contractor, to conduct audits of drug cards.
[30] The MMA established the following coinsurance amounts for TA
beneficiaries: 5 percent of the drug price for beneficiaries at or
below 100 percent of the FPL, and 10 percent for beneficiaries above
100 percent and up to and including 135 percent of the FPL.
[31] There were 1.6 million Medicare beneficiaries enrolled in general
drug cards and TA as of August 2005.
[32] Of the reversed denials, 61 percent were initially denied by CMS;
39 percent by drug card sponsors.
[33] See GAO, Medicare: CMS's Implementation and Oversight of the
Medicare Prescription Drug Discount Card and Transitional Assistance
Program, GAO-06-78R (Washington, D.C.: Oct. 28, 2005) for information
on overpayments as a result of 15 of these IntegriGuard audits that
were finalized by October 2005.
[34] Drug utilization review programs assist with preventing and
detecting inappropriate drug use such as over-or underutilization of
medications. Medication therapy management programs are designed to
ensure that drugs prescribed for persons taking medications for
multiple chronic conditions are appropriately used to optimize
therapeutic outcomes and reduce the risk of adverse events.
