Medicare Part D Prescription Drug Coverage
Federal Oversight of Reported Price Concessions Data
Gao ID: GAO-08-1074R September 30, 2008
To help Medicare beneficiaries manage the rising cost of prescription drugs, Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), which established the outpatient prescription drug benefit known as Medicare Part D. The benefit was first available in January 2006, and that year it provided federally subsidized prescription drug coverage for nearly 28 million beneficiaries at a cost of $47.4 billion--almost 12 percent of total Medicare spending. The Centers for Medicare & Medicaid Services (CMS), part of the Department of Health and Human Services (HHS), manages and oversees the Part D program. Part D sponsors--entities that enter into contracts with Medicare--administer the benefit and compete for beneficiary enrollment. To provide coverage, the sponsors often enter into contractual relationships with pharmacy benefit managers (PBM), drug manufacturers, and retail pharmacies, among others. The Part D program relies on sponsors to generate prescription drug savings, in part through their ability to negotiate price concessions, such as rebates and discounts, with these entities. Sponsors must report the price concession amounts to CMS and pass price concessions on to the program. CMS uses the reported data to calculate final plan payments, so accurate data are necessary to ensure accurate payments. CMS is responsible for ensuring that the reported price concessions data are reliable.
CMS conducted checks of the reported price concessions data prior to reconciling the 2006 payments to identify certain potential problems, and has initiated about half of its planned financial audits to examine the data in more detail. According to CMS officials, they conducted data checks prior to payment reconciliation to identify potential problems such as outliers and questionable data. Where officials identified problems with the data, they contacted sponsors and resolved most problems before payment reconciliation. CMS officials said they do not expect the data checks to identify all possible problems, but they rely on them as a vital step to ensure a certain level of confidence in the data in the absence of sufficient time to fully review or audit them before payment reconciliation. The officials said that the financial audits, which occur after payment reconciliation, allow them to more fully evaluate the accuracy and validity of the data. CMS intends to complete 169 financial audits of Part D contracts for program year 2006. Officials expect to complete about half of the planned audits by October 2008--within CMS's targeted timeline for conducting all of the audits of 2006 data. According to CMS officials, the remaining audits were delayed due to financial constraints and CMS, therefore, funded the audits from two program year budgets. The officials expected to complete the delayed audits by October 2009 and did not expect that audits of program year 2007 data would be similarly delayed. In addition, officials noted that variation in defining and reporting price concessions data, such as variation in how sponsors allocate manufacturer rebates between their Part D plans and other business, would likely create oversight challenges. We received written comments on a draft of this report from HHS. HHS stated that the draft correctly characterized the financial audit program, but did not adequately emphasize the robustness of CMS's other oversight activities. We revised the draft to reference further detail about CMS's data checks and clarified our characterization of their purpose.
GAO-08-1074R, Medicare Part D Prescription Drug Coverage: Federal Oversight of Reported Price Concessions Data
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September 30, 2008:
The Honorable Henry A. Waxman:
Chairman:
Committee on Oversight and Government Reform: House of Representatives:
Subject: Medicare Part D Prescription Drug Coverage: Federal Oversight
of Reported Price Concessions Data:
Dear Mr. Chairman:
To help Medicare beneficiaries manage the rising cost of prescription
drugs, Congress passed the Medicare Prescription Drug, Improvement, and
Modernization Act of 2003 (MMA), which established the outpatient
prescription drug benefit known as Medicare Part D.[Footnote 1] The
benefit was first available in January 2006, and that year it provided
federally subsidized prescription drug coverage for nearly 28 million
beneficiaries at a cost of $47.4 billion--almost 12 percent of total
Medicare spending. The Centers for Medicare & Medicaid Services (CMS),
part of the Department of Health and Human Services (HHS), manages and
oversees the Part D program.
Part D sponsors--entities that enter into contracts with
Medicare[Footnote 2]--administer the benefit and compete for
beneficiary enrollment. To provide coverage, the sponsors often enter
into contractual relationships with pharmacy benefit managers
(PBM),[Footnote 3] drug manufacturers, and retail pharmacies, among
others. The Part D program relies on sponsors to generate prescription
drug savings, in part through their ability to negotiate price
concessions, such as rebates and discounts, with these entities.
Sponsors must report the price concession amounts to CMS and pass price
concessions on to the program.[Footnote 4] CMS uses the reported data
to calculate final plan payments, so accurate data are necessary to
ensure accurate payments. CMS is responsible for ensuring that the
reported price concessions data are reliable.
We and others have reported challenges to the oversight of federal
prescription drug programs that rely on privately reported data, noting
significant financial consequences for the federal government resulting
from inaccurate reporting.[Footnote 5] You asked us to provide
information on the price concessions data CMS collects. Specifically,
we examined how CMS ensured the reliability of the 2006 price
concessions data, the most recent complete year of data for which CMS
had conducted oversight activities.
To examine CMS's oversight of the reported price concessions data, we
reviewed laws, regulations, and guidance related to Part D reporting
requirements and CMS's oversight of price concessions data, including
audit guidelines and methodologies. We also interviewed CMS officials
responsible for collecting and overseeing the data to learn about its
purpose and use, oversight activities, and any challenges to the
oversight. We interviewed CMS officials from the Center for Drug and
Health Plan Choice, who manage Part D data collection efforts and plan
payment activities, and from the Office of Financial Management, who
manage Medicare's financial audits. Our review focused primarily on the
price concessions data contained in the 2006 Direct and Indirect
Remuneration (DIR) reports, which were used to determine the final
program payment reconciliation. We also examined the management of
quarterly reported price concessions data. We conducted this work from
April 2008 through September 2008 in accordance with generally accepted
government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide
a reasonable basis for our findings and conclusions based on our audit
objectives. We believe that the evidence obtained provides a reasonable
basis for our findings and conclusions based on our audit objectives.
Background:
For each Part D program year, CMS requires Part D sponsors to submit
two types of reports that reflect price concessions data--an annual DIR
report and quarterly reports of drug manufacturer rebates, discounts,
and other price concessions data. Many sponsors have multiple contracts
with CMS, with each contract offering one or more distinct Part D
plans.[Footnote 6] Sponsors report the annual DIR data by plan and
report the quarterly data by sponsor or contract.
Part D Program Year:
The Part D program year runs from January 1 through December 31. Part D
sponsors submit separate annual bids for each plan in June preceding
the program year--therefore bids for program year 2006 were submitted
in June 2005. CMS pays sponsors prospectively based on those bids,
which include estimated program costs and estimated price concessions
the:
sponsors will receive during the program year. After the close of a
program year, CMS reconciles payment disbursements based on actual
costs incurred. Actual costs must reflect actual plan enrollment and
utilization, and must be net of price concessions reported in the DIR
data. The 2006 DIR data were reported to CMS in July 2007 and the
reconciliation payments were calculated in September 2007.
Annual DIR Reports for Payment Reconciliation:
The DIR reports include aggregate values of the types of price
concessions each plan received from any source, such as those received
from pharmacies or rebates received from drug manufacturers. Because
the DIR reports are used to calculate payments, they are subject to
audit and sponsors must attest to their accuracy. CMS is required to
conduct financial audits of payment data, including DIR data, for at
least one-third of the Part D sponsors each program year.[Footnote 7]
It contracts with external auditors to conduct the audits.
DIR reporting guidance states that any transactions that effectively
lower the cost to the plan for purchasing drugs should be reported as
price concessions. For example, Part D sponsors typically pay PBMs for
the cost of drugs provided to their plan enrollees. PBMs also receive
payments from drug manufacturers based on contractual agreements for
managing and distributing drug rebates to the sponsors--referred to as
rebate administration fees. According to the guidance, any amount of
the rebate administration fees that exceeds the fair market value of
the service should be reported as price concessions. The guidance does
not specifically define the fair market value of these or other types
of fees specified in sponsors' or PBMs' contracts. When reporting DIR
data, sponsors may also have to consider how to allocate price
concessions that apply to both their Part D and other business. DIR
reporting guidance does not specify how sponsors should allocate price
concessions, but it requires that the sponsors use a reasonable
allocation method and maintain documentation to explain and support
their allocation methods.[Footnote 8]
Quarterly Pharmaceutical Manufacturer Rebates, Discounts, and Other
Price Concessions Reports:
The quarterly price concessions reports include some of the information
captured in the DIR reports; however, there are some key differences.
The quarterly reports include price concessions received only from drug
manufacturers, while the annual DIR reports include price concessions
from any source, such as pharmacies. In addition, the quarterly reports
include price concessions by drug rather than in aggregate, detailing
any manufacturer rebates by drug. They also include detailed
descriptions, values, and justifications for nonrebate discounts and
other price concessions from drug manufacturers, such as coupons. The
quarterly reported data are not used to determine program payments and
CMS does not subject these data to financial audit.
Results in Brief:
CMS conducted checks of the reported price concessions data prior to
reconciling the 2006 payments to identify certain potential problems,
and has initiated about half of its planned financial audits to examine
the data in more detail. According to CMS officials, they conducted
data checks prior to payment reconciliation to identify potential
problems such as outliers and questionable data. Where officials
identified problems with the data, they contacted sponsors and resolved
most problems before payment reconciliation. CMS officials said they do
not expect the data checks to identify all possible problems, but they
rely on them as a vital step to ensure a certain level of confidence in
the data in the absence of sufficient time to fully review or audit
them before payment reconciliation. The officials said that the
financial audits, which occur after payment reconciliation, allow them
to more fully evaluate the accuracy and validity of the data. CMS
intends to complete 169 financial audits of Part D contracts for
program year 2006. Officials expect to complete about half of the
planned audits by October 2008--within CMS's targeted timeline for
conducting all of the audits of 2006 data. According to CMS officials,
the remaining audits were delayed due to financial constraints and CMS,
therefore, funded the audits from two program year budgets. The
officials expected to complete the delayed audits by October 2009 and
did not expect that audits of program year 2007 data would be similarly
delayed. In addition, officials noted that variation in defining and
reporting price concessions data, such as variation in how sponsors
allocate manufacturer rebates between their Part D plans and other
business, would likely create oversight challenges. We received written
comments on a draft of this report from HHS. HHS stated that the draft
correctly characterized the financial audit program, but did not
adequately emphasize the robustness of CMS's other oversight
activities. We revised the draft to reference further detail about
CMS's data checks and clarified our characterization of their purpose.
CMS Conducted Data Checks to Identify Certain Potential Problems,
Initiated About Half of the Required Audits, and Acknowledged Certain
Oversight Challenges:
CMS conducted checks of the reported price concessions data prior to
reconciling the 2006 payments and will rely on the financial audits
begun after the reconciliation to more fully evaluate the accuracy and
reliability of the data. Officials acknowledged certain problems
inherent in defining and reporting price concessions data that may
present challenges for oversight.
Data Checks Conducted Prior to Payment Reconciliation Are Intended to
Identify Outliers and Questionable Data:
CMS officials stated that they conducted 10 data checks to identify
certain potential problems in the 2006 DIR, such as outliers and
questionable data, before using the data for payment reconciliation and
audit.[Footnote 9] Officials acknowledged that the checks provided a
high-level review, and were not expected to identify all possible
problems with reported data. However, CMS officials said they used the
data checks because they lacked the time to conduct audits or more
detailed analyses before the data were used for payment
reconciliation.[Footnote 10] They believed the checks were vital to
ensure a certain level of confidence in the quality of data. The 10
data checks included three types of analyses:
* Comparisons of the 2006 DIR data with the estimated price concessions
data reported in each plan's program year 2008 bids, which were
submitted in June of 2007. CMS officials expected plans' 2006 DIR data
to mirror their 2008 bid data because plans were generally required to
use their 2006 experience to project costs for 2008.[Footnote 11]
* Comparisons of the 2006 DIR data with an annual sum of the data from
the quarterly reports of manufacturer price concessions. Because the
DIR data include price concessions from more sources than the quarterly
data, they sought to ensure that the value of the DIR data was the
greater of the two.
* Checks for outliers. For example, among plans with similar
characteristics, officials compared plans' reported DIR data in
relation to their total drug spending to determine whether any reported
DIR seemed particularly high or low.
CMS officials said they followed up with sponsors whose data checks
identified problems with the program year 2006 DIR data. Where they
found inconsistencies, officials contacted the sponsors to determine
whether the inconsistencies could be reasonably explained. In addition,
CMS sent warning letters to 22 sponsors that had not submitted DIR
reports by the reporting deadline of July 9, 2007, indicating that they
should submit their data by July 25, 2007, or they may be subject to
potential enforcement actions.[Footnote 12] Officials told us that most
problems were resolved before payment reconciliation through
conversations with sponsor representatives. One sponsor that did not
submit data by July 25 was reported to CMS auditors for their use in
determining the sponsors to target for future audit.[Footnote 13]
CMS officials stated that the newness of the program and other factors
affected the usefulness of the data checks, and they expected that some
challenges would diminish as they gain program experience. For example,
they stated that the value of the comparison between the 2006 DIR data
and the estimated price concessions data from the 2008 bids was limited
because the bids were based on only 1 year of actual experience with
Part D enrollment and utilization. Officials believed that as sponsors
gained Part D program experience, the accuracy of bids and the
usefulness of these comparisons could improve. In addition, while the
officials said that comparisons of DIR data across like plans may have
identified outliers, they noted that differences in reported DIR data
may not always indicate problems because they may be attributable to
differences in plan design or enrollees' characteristics and drug
utilization. Officials believed that as they gained experience
reviewing DIR data across multiple plans, their ability to identify
possible problems through the data checks would improve. However, CMS
officials acknowledged that the data checks would always be limited to
identifying certain potential problems or inconsistencies in reported
data. For example, CMS officials told us that the comparison of the DIR
data with the quarterly manufacturer price concessions data provided
only a high-level check for reporting consistency because the two sets
of data did not capture the same information.
Audits Are Intended to Evaluate the Reliability of the Price
Concessions Data, and About Half of the 2006 Audits Were Delayed:
CMS officials stated that they intend to use the financial audits
conducted after payment reconciliation to evaluate the accuracy and
reliability of the DIR data. According to the 2006 audit plan,
financial audits should include reviews of each plan's DIR calculations
and price concessions allocation methods, as well as DIR calculations
provided to the sponsors by their PBMs. The audit plan specifies that
auditors should attempt to determine if PBMs retained any rebates not
reported in the DIR data.[Footnote 14] Auditors must also evaluate a
sample of payment and revenue reports and supporting documentation to
identify and test any unreported DIR. The audit plan requires auditors
to document methodologies and any findings and conclusions for each
audit. CMS officials stated that if financial audits identify problems
with a sponsor's DIR reports or CMS's payment reconciliation, CMS will
recalculate payment reconciliation for that sponsor and target them for
future audit. The 2006 audits targeted contracts based on total
enrollment and spending, not on suspected problems in reporting
financial data, such as the DIR data. Officials told us that future
audits would likely target sponsors based on reporting or compliance
problems identified in the data checks and previous financial audits.
Officials stated that about half of the 2006 audits were delayed. To
fulfill statutory requirements, CMS planned to contract for 169
financial audits of Part D contracts representing plans managed by 97
different sponsors. CMS's target timeline for receiving final results
of the financial audits is within 22 months of the end of the program
year--which would be October 2008 for the 2006 program year.[Footnote
15] CMS contracted for 81 of the audits to be completed by October
2008--within the target timeline. According to CMS officials, the
remaining audits were delayed due to financial constraints and CMS,
therefore, funded the audits from two program year budgets. Officials
said they expect to begin the remaining 88 audits of program year 2006
data in October 2008, and expect completed results for those audits by
October 2009.[Footnote 16] (See fig. 1.) CMS officials did not expect
that audits of program year 2007 data would be similarly delayed.
According to officials, as of July 11, 2008, they had received final
results from one program year 2006 audit which found no problems
related to the DIR data.
Figure 1: Financial Audit and Other DIR Data Oversight Timeline,
Program Years 2006 and 2007:
[See PDF for image]
Source: GAO analysis of CMS information.
[End of figure]
Variation in Defining and Reporting of Price Concessions Data May
Present Oversight Challenges:
CMS officials acknowledged that certain problems inherent in defining
and reporting price concessions data may present challenges for
oversight. For example, they told us that developing accurate
assessments of the fair market values of administrative fees for
services provided by sponsors and their PBMs presented a challenge
because of differences in how these services are defined in sponsors'
and PBMs' contracts with other entities.[Footnote 17] Officials
expected that as they gather information from completed audits, their
understanding of the fair market value of administrative fees might
improve; however, the complexity of and variation in contractual
relationships will continue to make accurate assessments a challenge.
Similarly, because of variation in contractual relationships, plan
designs, and enrollee characteristics across plans, it may not be
possible to establish guidance on how sponsors should allocate rebates
between their Part D and other businesses that cover every
circumstance. For example, certain drug rebates are awarded based on a
plan's formulary.[Footnote 18] Sponsors that use the same formulary for
their Part D and other plans may choose to allocate rebates equally
among them, whereas sponsors that use different formularies across
various plans may choose an allocation method that accounts for the
differences.
Agency Comments and Our Evaluation:
We received written comments on a draft of this report from HHS (see
encl. I). HHS stated that the draft correctly characterized the
financial audit program, but did not adequately emphasize the
robustness of CMS's other oversight activities or the budget challenges
that CMS faced in conducting its oversight. Specifically, HHS expressed
concern that we did not adequately characterize CMS's data checks
conducted prior to payment reconciliation, including their thoroughness
and complexity. While we summarized the types of data checks CMS
conducted, we did not include extensive detail, in part, because a
document CMS provided that described the data checks was marked
"confidential." However, in light of HHS's comments, we revised the
report to reference the updated document describing the data checks
that HHS provided along with its comments. We also revised the report
to reflect that CMS believes the data checks will identify more than
obvious problems and considers the data checks vital to ensuring
confidence in the data prior to payment reconciliation. Although CMS
conducts these data checks prior to payment reconciliation, we agree
with HHS that the financial audits conducted after reconciliation
provide the most complete review of the DIR data for accuracy.
Regarding the budget challenges, HHS expressed concern that we did not
adequately address the funding challenges CMS faced in carrying out its
statutory audit requirements. Our report acknowledges that a portion of
the financial audits of 2006 data were delayed due to financial
constraints; however, a full analysis of the adequacy of CMS's budget
was beyond the scope of this report. HHS also provided certain
additional comments, including technical comments, which we
incorporated as appropriate.
As arranged with your offices, unless you publicly announce the
contents of this report earlier, we plan no further distribution until
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to the Secretary of HHS, the Acting Administrator of CMS, and
interested parties upon request. The report will also be available at
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or your staff have any questions regarding this report, please call me
at 202-512- 7114. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. Randy DiRosa, Assistant Director; Rebecca Abela; Gerardine
Brennan; Timothy Walker; and Margaret Weber were major contributors to
this report.
Sincerely yours,
John E. Dicken Director, Health Care:
Enclosure:
Comments from the Department of Health and Human Services:
Department Of Health & Human Services:
Office Of The Secretary:
Assistant Secretary for Legislation:
Washington, DC 20201:
September 19, 2008:
John Dicken:
Director, Health Care:
Government Accountability Office:
441 G Street NW:
Washington, DC 20548:
Dear Mr. Dicken:
Enclosed are the Department's comments on the U.S. Government
Accountability Office's (GAO) draft report entitled: "Medicare Part D
Prescription Drug Coverage: Federal Oversight of Reported Price
Concessions Data" (GAO-08-1074).
The Department appreciates the opportunity to review and comment on
this report before its publication.
Sincerely,
Signed by:
Jennifer R. Luong:
for:
Vincent J. Ventimiglia:
Assistant Secretary for Legislation:
Attachment:
Department Of Health & Human Services:
Centers for Medicare & Medicaid Services 200 Independence Avenue SW
Washington, DC 20201:
Date: September 16, 2008:
TO: Vincent J. Ventimiglia, Jr.:
Assistant Secretary for Legislation:
Department of Health and Human Service:
From: Kerry Weems:
Acting Administrator:
Subject: Government Accountability Office (GAO) Draft Correspondence:
Medicare Part D Prescription Drug Coverage: Federal Oversight of
Reported Price Concessions Data" (GAO-08-1074R):
Thank you for the opportunity to comment on the draft correspondence
entitled, "Medicare Part D Prescription Drug Coverage: Federal
Oversight of Reported Price Concessions Data (GAO- 08-1074R): As
described in detail below. we believe we have a robust process for
ensuring the accuracy of plan reported price concession data. Moreover,
we have continued to enhance our pre-reconciliation and audit review
procedures as we continue to gain experience with the program. While we
feel that the Centers for Medicare & Medicaid Services (CMS) and GAO
staffs have worked collaboratively on this correspondence we want to
share the following comments and concerns related to the depiction of
CMS' oversight of the price concessions data.
While you have correctly characterized the financial audit program.
your correspondence fails to represent the funding challenges CMS faced
in carrying out the statutory one third financial audit requirements.
We believe it is important to note that CMS made a request for funds.
as part of a proposal to fund program integrity and oversight
activities through an adjustment to discretionary spending totals. in
fiscal year (FY) 2007 ($118 million) and FY 2008 ($183 million) and
that in each year Congress failed to enact our budget request. This
request would allow us to fully fund the required audits. Nevertheless
CMS has taken measures to achieve timelier audit results with the
funding levels available. We are revising the audit protocols for the
remaining FY 2006 audits to perform them in the most efficient manner.
We are eagerly awaiting our audit results. We fully expect that this
information will prove helpful and will form the basis for future
revisions to the financial audit protocol process.
We have several concerns regarding the characterization of our process
for ensuring the reliability of the price concessions data used to
determine Part D payments. In light of the challenges in ensuring the
accuracy of payments that are dependent upon self-reported data. we
have created and implemented a rigorous and comprehensive process for
reviewing and validating these data. The first step of this two-step
process involves in-depth review and analysis of the Direct and
Indirect Remuneration (DIR) data submitted by Part D sponsors prior to
the Part D payment reconciliation. These reviews are effective in
identifying and resolving potential errors in the DIR data and also
hold Part D sponsors accountable for potential omissions or
inaccuracies in their DIR data. This first step is vital to ensure that
we have a certain level of confidence in the quality of the DIR data
before using it in the determination of Part D payments. In recognition
of the challenges other federal programs have faced in relying on
similar types of data, we are also conducting audits in the second step
of our process to perform the most rigorous and detailed review of
these data possible. While this step is currently conducted after the
Part D payment reconciliation, the results of the audits will allow CMS
to adjust Part D payments and seek corrective action by Part D sponsors
as appropriate.
Our process of conducting an initial review prior to payment followed
by comprehensive post- payment audits mirrors the processes implemented
under other federal programs faced with the similar data challenge of
ensuring accurate and timely payments when payment is based upon self
reported data. For example. in the Fee-for-Service program, CMS
performs data checks on the claims received, pays these claims as
appropriate within the required timeframe, and then performs audits
after the claims are paid to identify potential fraud and enable the
agency to take corrective action as appropriate. While we acknowledge
that our process will improve over time as the Part I) program matures
and we learn more about the DIR data, we are confident that this
process will ensure accurate and timely payments.
In addition, the correspondence suggests that the purpose of the data
reviews, which CMS conducts on the DIR data prior to Part D Payment
Reconciliation, is to identify obvious problems. This description fails
to adequately convey the complexity and thoroughness of the reviews and
is not entirely accurate. While we admit that these reviews are limited
by the data available to CMS prior to payment reconciliation, these
data reviews are quite thorough. These reviews are designed to identify
potential inaccuracies as well as omissions in the DIR data submitted
to CMS. While audits are required to conduct the most complete review
of the DIR data for accuracy. the discrepancies identified and
addressed in these data reviews are by no means limited to obvious
problems. Accordingly, we recommend the draft correspondence be revised
to include a more in-depth explanation of the reviews conducted prior
to payment reconciliation to better illustrate the purpose and scope of
these reviews. A listing of these reviews is provided below. We note
that as we gain experience with the data and reviews, we will reline
and add reviews to better screen for potential errors and omissions in
the DER data. For example, during the review of the 2007 DIR data, we
added three additional data reviews. A full list of these reviews is
included as Attachment A.
Furthermore, we recommend that the correspondence be revised to include
additional discussion of the resolution of problems identified in DIR
data after payment reconciliation. We note that if any problems are
identified in the DIR data after payment reconciliation, whether by CMS
during the financial audits or by plan sponsors during their own
internal audits and reviews. CMS has the option to re-open the Part D
sponsor's payment reconciliation and recalculate its Part D payments
based on the corrected DIR data.
Finally, the correspondence indicates that the DIR reporting guidance
does not specify how sponsors should allocate price concessions.
However. the correspondence does not take into account the actions that
we have taken to address the allocation of price concessions. In our
guidance, we require Part D sponsors to apply a reasonable allocation
methodology when allocating their DIR to the plan level. In addition,
Part D sponsors are instructed to maintain documentation of the
allocation methodologies used. While CMS has not currently provided
guidance regarding appropriate or reasonable methodologies for
allocating price concession on the DIR Report for Payment
Reconciliation, we expect to provide guidance on this issue in the
future. We are actively gathering information regarding the allocation
methodologies used by Part D sponsors through the DIR data and our
audits of these data. Specifically, beginning with the 2007 DIR Report
for Payment Reconciliation, we have required Part D sponsors to provide
a description of the methodologies used for allocating their DIR data.
As we review this information and the results of the audits, we expect
to he able to develop additional guidance for Part D sponsors regarding
reasonable allocation methodologies for the DIR data reported to CMS.
Also, we have provided additional technical comments (see Attachment
B).
Attachments:
Attachment A-DIR Data Reviews:
Attachment B-Technical Comments:
Attachment A-DIR Data Reviews:
1. No DIR report submitted: The CMS identifies active Part D plans with
actual enrollment which did not submit a DIR Report for Payment
Reconciliation.
2. DIR reported less than or equal to total rebates on quarterly
reporting: The CMS compares the rebate amounts reported on the DIR
report for each parent organization to the rebates reported on the
quarterly rebate reports for the corresponding contract year. Parent
Organizations with rebate amounts on the DIR report which are less than
or equal to the rebate amounts reported on the quarterly rebate reports
are identified as outliers.
3. Total DIR Reported = $0: The CMS reviews the DIR data to identify
those Part D plans with $0 Total DIR reported on the DIR Report for
Payment Reconciliation. Part D sponsors are asked to provide an
explanation of why the plan had $0 DIR to report.
4. DIR as a percent of total drug costs (High): CMS compares the total
DIR amount reported to the total gross covered drug cost reported on
their Prescription Drug Event (PDE) records and their total enrollment
for the contract year. Using these data, CMS identifies as outliers,
Part D plans with unusually high total DIR as a percentage of total
gross covered drug cost or per member per month.
5. DIR as a percent of total drug costs (Low): The CMS compares the
total DIR amount reported by the Part I) sponsor to the total gross
covered drug cost reported on its Prescription Drug Event (PDE) records
and its total enrollment for the contract year. Using these data, CMS
identifies as outliers, Part D plans with unusually low total DIR as a
percentage of total gross covered drug cost or per member per month.
6. Negative Total DIR: The CMS reviews the DIR data to identify those
Part D plans with a total DIR value less than $0 reported on the DIR
Report for Payment Reconciliation.
7. Comments in All Other DIR text description: On the DIR Report for
Payment Reconciliation. Part D sponsors are permitted to report any
applicable DIR that is not captured on the rest of the DIR report in
the column DIR 7- "All Other DIR". However, Part D sponsors are
required to provide a description of the price concession along with
the associated dollar amount in the column "Other Text Description" for
any DIR amount reported in the "All Other DIR" column. CMS reviews the
descriptions provided in the "Other Text Description" column of the DIR
Report to determine if the appropriate price concessions were included
and to ensure that claim amounts for rejected PDE were not included on
the report.
8. All Other DIR as a percent of Total DIR (High): The CMS compares the
DIR reported in the `"All Other DIR" column of the DIR Report for
Payment Reconciliation to the total DIR amount reported. Those Part D
plans with DIR data reported in the "All Other DIR" column which is
unusually high as a percent total DIR reported are identified as
outliers.
9. DIR reported relative to rebates reported and projected in 2008
bids: The CMS compares both the rebate amounts reported in the bids for
baseline experience and the rebate amounts projected for the following
contract year to the total DIR amount reported on the DIR Report for
Payment Reconciliation. Contracts where either the 2006 base period
experience rebate percentage or the projected 2008 base period rebate
percentage differs significantly from the total DIR percentage are
identified as outliers.
10. Comparison to Prior Year's DIR Data (Beginning with 2007 DIR Data):
The CMS compares the total DIR for the prior contract year to the total
DIR reported for the current contract year reported. To conduct this
analysis, CMS determines a Part D plan's DIR relative to its total drug
cost for both contract years. In addition, CMS compares each plan's
average per member per month DIR for both contract years using the
plan's enrollment data. Plans with significant changes in DIR from the
previous contract year are identified as outliers.
11. DIR Values Repeated Across Plans or Contracts (Beginning in 2007):
The CMS reviews the total DIR reported for the Part D plans offered
under each contract to identify Part D contracts where the same non-
zero DIR value is reported for all of the Part D plans under the
contract. In addition, CMS reviews the DIR reported to identify Part D
plans where the same DIR value was repeated across DIR categories.
12. Top Ten Analysis (Beginning in 2007): The CMS conducts additional
reviews on the DIR data submitted by the 10 Parent Organizations with
the greatest total Part D enrollment. Conference calls are conducted
with the Part D sponsors to address any potential data discrepancies
identified.
[End of section]
Footnotes:
[1] Pub. L. No. 108-173, § 101, 117 Stat. 2066, 2071-2152 (inserting a
new Part D into title XVIII of the Social Security Act (SSA)).
[2] Part D sponsors are typically private health plans or insurers. In
addition to their Medicare business, Part D sponsors typically offer
drug coverage in the private insurance market.
[3] Health insurers may contract with PBMs to help manage their
prescription drug benefits. PBMs often negotiate drug prices with
pharmacies and drug manufacturers on behalf of health plans and, in
addition to other administrative, clinical, and cost containment
services, process drug claims for the health plans.
[4] See SSA sections 1860D-2(d)(2), -15(b)(2) and -15(e)(1)(B) (as
added by the MMA) (codified at 42 U.S.C. §§ 1395w-102(d)(2), -
115(b)(2), and
-115(e)(1)(B)).
[5] See GAO, Prescription Drugs: Oversight of Drug Pricing in Federal
Programs, GAO-07-481T (Washington, D.C.: Feb. 9, 2007). In addition,
the HHS Office of Inspector General (HHS-OIG)--responsible for
protecting HHS programs against fraud, waste, and abuse--identified
oversight of Medicare Part D as its top management and performance
challenge for fiscal year (FY) 2007 due to the complex structure and
the cost of the program. See HHS FY 07 Agency Financial Report.: FY
2007 Top Management and Performance Challenges Identified by the Office
of the Inspector General (Washington, D.C.: Nov. 15, 2007). In this
report the HHS-OIG also estimated that Part D sponsors would owe
Medicare a net total of $4.4 billion after the 2006 final plan payment
adjustments.
[6] Plans offered under the same contract may differ in their benefit
design, such as the specific drugs the plans covered and the premiums
they charged.
[7] SSA section 1860D-12(b)(3)(C) (as added by the MMA) (codified at 42
U.S.C. § 1395w-112(b)(3)(C)); 42 C.F.R. § 423.504(d) (2007).
[8] In addition to CMS's financial audits, the HHS-OIG is examining the
documentation used to support DIR and other reported price concessions
data. For example, it is initiating audits of reported DIR data and a
review of a sponsor's support for its estimates of price concessions
included in its bids.
[9] In commenting on a draft of this report, HHS provided an updated
list that included 12 data checks that CMS intends to use in its review
of the 2007 DIR reports (see encl. I, attachment A).
[10] The 2006 DIR data were submitted in July 2007. CMS calculated 2006
payment reconciliation in early September 2007 and sent reports to
sponsors in early October 2007 informing them of their adjusted
payment.
[11] Bids for a given program year are due to CMS by June of the
previous year. When CMS reviewed the 2006 DIR data, the bids for
program year 2008 were the most recently available.
[12] The letters pertained to 40 contracts and 175 plans offered by the
22 sponsors.
[13] Although CMS expects to audit at least one-third of the Part D
sponsors each program year--auditing all sponsors over a 3-year cycle-
-it may audit certain sponsors more than once every 3 years if, for
example, there are questions about prior data submissions.
[14] For program year 2006, plans were not required to report certain
DIR retained by PBMs. However, auditors were instructed to inform plans
that beginning with program year 2007 all DIR, even if kept by a PBM,
should be reported as DIR to CMS.
[15] The statutory requirements relating to the Medicare Part D audits
do not specify a time frame for completing the audits. SSA section
1860D-12(b)(3)(C) (as added by the MMA) (codified at 42 U.S.C. § 1395w-
112(b)(3)(C)); 42 C.F.R. § 423.504(d) (2007). CMS's target timeline is
consistent with the timeline CMS established for Medicare Advantage
plans. In commenting on a previous GAO report, CMS indicated that
audits of Medicare Advantage organizations should be completed within 3
years from the time bids were accepted--about 22 months after the end
of the program year. See GAO, Medicare Advantage: Required Audits of
Limited Value, GAO-07-945 (Washington, D.C.: July 30, 2007).
[16] According to CMS officials, CMS spent $4.5 million to complete the
first 81 of 169 program year 2006 financial audits and expects to spend
$4.8 million to complete the remaining 88.
[17] By statute, CMS may not interfere in the negotiation of sponsors'
contracts with PBMs and other entities, and therefore cannot dictate
terms. SSA § 1860D-11(i) (as added by the MMA) (codified at 42 U.S.C. §
1395w-111(i)).
[18] A formulary is a list of drugs covered by the plan, which often
gives preference to certain drugs over other drugs that treat the same
condition.
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