Management Issue 1: Oversight of Medicare Part DTopics on this page:
Background
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) (Public Law 108-173) established a Medicare outpatient prescription drug benefit, known as Medicare Part D, which took effect on January 1, 2006. This voluntary benefit is available to all 43 million Medicare beneficiaries. According to the “2007 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,” during 2006, the first year of the benefit, expenditures totaled more than $47 billion. According to the Centers for Medicare & Medicaid Services (CMS), as of January 2007, nearly 24 million beneficiaries were enrolled in Part D and an additional 7 million beneficiaries were enrolled in retiree drug coverage plans that receive the Retiree Drug Subsidy (RDS). The magnitude of expenditures and impact of this benefit on beneficiaries, from both health and financial perspectives, make it critical that Medicare Part D operates efficiently and effectively and is protected from fraud and abuse.
The structure and operation of the Part D benefit contain features that present significant management challenges. Part D coverage is provided by private entities, known as drug plan sponsors, that contract with CMS to provide Part D drug plans. Qualified employer-sponsored plans may also receive a subsidy, the RDS, to maintain drug coverage for the Medicare beneficiaries. Within the Department, CMS bears primary responsibility for implementing and administering Part D. However, administration of Medicare Part D depends upon extensive coordination and information sharing among Federal and State Government agencies, drug plan sponsors, contractors, health care providers, and third party payers.
Payments to drug plan sponsors based on bids, risk adjustments, and reconciliations add to the complexities and challenges of the benefit. Medicare pays plans prospectively based on sponsors’ bids, which are submitted and approved prior to the plan year. Subsequently, Medicare reconciles payments to plans through a multi-stage process that begins 6 months after the conclusion of the plan year.
Analysis of Issues
Based on our analysis of preliminary reconciliation amounts, OIG estimated that Part D sponsors owe Medicare a net total of $4.4 billion for 2006. Eighty percent of sponsors owe money to Medicare, whereas 20 percent of sponsors will receive money from Medicare. The majority of the funds’ that sponsors owe are profits that they must repay to Medicare as a result of risk-sharing requirements. CMS does not currently have mechanisms in place to collect these funds or to adjust prospective payments prior to reconciliation. As a result, sponsors have had the use of over $4 billion owed to Medicare for a significant length of time. Additionally, sponsors’ overestimates of their costs also resulted in higher beneficiary premiums; however, beneficiaries do not directly recoup any money paid in higher premiums.
During the coverage year, the relative financial responsibilities of Medicare, drug plan sponsors, and beneficiaries vary through four distinct phases (deductible, initial coverage period, coverage gap, and catastrophic coverage), depending on the beneficiaries’ total drug costs and true out-of-pocket (TrOOP) spending at a given time. Drug plan sponsors are responsible for tracking enrollees’ TrOOP, the out-of-pocket costs that count toward the catastrophic coverage threshold. Accurate tracking of TrOOP is essential to ensuring that each party pays the appropriate share of drug costs.
Responsibilities
CMS and drug plan sponsors share responsibility for protecting the Part D program from fraud, waste, and abuse. CMS is responsible for oversight and implementation of safeguards to protect the integrity of the Part D benefit. In an initial review, OIG found that as of October 2006, CMS’s safeguard activities needed further development and application. For example, neither CMS nor the one Medicare Drug Integrity Contractor (MEDIC) that was operating as of October 2006 had conducted any significant data analysis for fraud detection purposes. CMS relied largely on complaints to identify fraud and abuse, but OIG found that not all complaints were investigated timely. OIG also identified impediments to CMS’s effective oversight of drug plan sponsors’ financial reporting, Part D marketing, and utilization management.
Sponsor Compliance Plans
Part D plan sponsors are required to implement compliance plans that include comprehensive plans to detect, correct,and prevent fraud, waste, and abuse. OIG found that as of January 2006, all prescription drug plan sponsors had compliance plans in place but that few sponsors met all of CMS’s requirements for compliance plans. Further, most sponsors’ compliance plans did not address all of CMS’s recommendations regarding fraud detection, correction,and prevention. In addition, sponsors’ compliance plans contained only the broad outlines of a fraud and abuse plan and did not include details or describe specific processes. OIG is conducting follow-up work focused on sponsors’ detection and reporting of fraud and abuse.
Current OIG Reviews
Several additional OIG reviews of Part D are under way. Some examples include reviews of plan bids and CMS’s bid review process, point-of-sale drug prices, potential duplicate payments for drugs, States’ contributions to the costs for coverage of dual eligibles, RDS payments for employer-sponsored coverage, tracking beneficiaries’ TrOOP costs, and drug plan marketing materials. OIG is also involved in a number of investigations related to Medicare Part D. These cases involve potential wrongdoing committed by a variety of actors, including marketing agents, drug plan sponsors, and pharmacists.
CMS has demonstrated progress in protecting Medicare Part D from fraud and abuse, but further implementation of safeguards is needed. OIG identified six major types of Part D safeguard activities that CMS is planning or implementing, including
(1) the complaint process,
(2) data monitoring,
(3) financial audits,
(4) monitoring compliance of drug plan sponsors,
(5) oversight of drug plan sponsors’ efforts to reduce fraud and abuse, and
(6) education and guidance.
CMS is in various stages of implementation with respect to each of these safeguards. For example, the complaint process has been in place since November 2005, but the first financial audits are not expected to begin until January 2008. Data-monitoring efforts have been slow to materialize, but CMS has taken some promising steps. For example, CMS has entered into a contract to develop a centralized data repository, known as One Program Integrity System Integrator (One PI). This database is intended to warehouse Medicare prescription drug data as well as data on inpatient care, physician services, and other services provided under Medicare Parts A and B and Medicaid. When developed, One PI is expected to offer powerful data analysis and fraud detection tools.
In its comments on OIG’s report on CMS’s implementation of safeguards during FY 2006, CMS reported several advances since the beginning of 2007. These include continued progress towards commencing the financial audits by the end of CY 2007, commencement of routine PDP compliance audits in February 2007, improvement in processing complaints timely, and release of four new chapters of the Prescription Drug Benefit Manual.
Although many of the Part D safeguard activities are to be conducted by MEDICs, for most of 2006, CMS had contracted with only one functioning MEDIC. In September 2006, three regional MEDICs and a data-focused MEDIC were awarded contracts, with operations scheduled to begin December 2006. The MEDICs have had challenges in obtaining complete Part D claims data to carry out these integrity activities. CMS reported to OIG that its top priority is to increase the MEDICs’ access to Part D data and that additional funding will support the MEDICs’ access to data and allow the MEDICs to provide additional analysis and thus sustain fraud, waste, and abuse prevention activities.
In response to OIG’s report on reconciliation amounts owed, CMS stated that it believes that the variance between prospective and reconciled payments will markedly decrease over time as actual program data becomes available to CMS and drug plan sponsors. CMS also concurred with OIG’s recommendation that the data collected from the 2006 and subsequent plan years be used in the review of future bid submissions.
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