Summary

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.