CCH® BENEFITS — 10/8/08

The Medicare Retiree Drug Subsidy Faces Increased Scrutiny

From Spencer's Benefits Reports: The retiree drug subsidy (RDS) is facing greater scrutiny and audits as required by the Centers for Medicare and Medicaid Services (CMS), Susan Hayes, principal at Pharmacy Outcome Specialists in Lake Zurich, Ill., told attendees of the recent Second Annual Pharmacy Benefit Academy sponsored by the Midwest Business Group on Health (MBGH) and Pharmacy Outcome Specialists in Chicago. The CMS plans to perform financial audits on one-third of all of the 450 prescription drug plans (PDPs) and Medicare Advantage prescription drug plans each year over the next three years, with an eye toward identifying and stemming fraud, waste, and abuse, Ms. Hayes said.

Among the key issues that the CMS will be reviewing are correct accounting for direct and indirect reimbursements, including drug rebates or free goods and services, grants, and risk-sharing provided to the plans by drug makers and drug wholesalers; as well as assuring that related policies and procedures are in place. “Plans still are not getting it right,” Ms. Hayes commented. Plans must report and clearly define direct and indirect reimbursements and costs for administration separately from the actual price that the plan paid for a prescription drug (ingredient cost) and from reimbursements. Other factors to be audited are the plans’ coordination of benefits and third-party liability policies.

The pharmacy benefit management (PBM) industry’s difficulty implementing real-time and online drug benefit administration makes it difficult to correctly and promptly determine when the Medicare Part D “true out-of-pocket” cost has been reached and to obtain accurate benefit administration, Ms. Hayes noted. Furthermore, pharmacies traditionally have not tracked diagnoses on prescriptions, nor are diagnoses identified in prescriptions, which makes it difficult, if not impossible, to determine whether the prescribed drug is covered under Medicare Part B (medical) or Part D.

For 2009, PBM contracts must provide to the CMS or to the plan access to all contracts and records related to drug rebates and any other discounts or extra goods or services provided at no charge or reduced charge, Ms. Hayes explained. Any reimbursements must be identified separately by plan sponsor and by pharmacy benefit plan, and drug pricing must be defined in a detailed manner.  Furthermore, all staff, including pharmacists, must be trained on fraud, waste, and abuse policies, and the PBMs must audit themselves and report the results of the audits. The pharmacy audit requirement presents an inherent conflict between a PBM that wants to maintain a robust network and the PBM’s ability to audit pharmacies in the network, Ms. Hayes observed. Beginning in 2011, prescribers will be required to send prescriptions electronically to pharmacies.

For 2009, drug prices must be updated at least weekly, and the CMS will address issues of whether a drug is covered under Medicare Part B or Part D. In 2010, PBMs will be required to pay pharmacies promptly, within 14 days for an electronic claim or 30 days for a paper claim, or the PBMs will be required to pay interest on late payments. Furthermore, the PBM’s drug formularies must be evaluated through a “transparent” process.

These changes also affect retiree drug subsidy (RDS) reporting, Ms. Hayes warned, and employers must be aware of these issues and start related conversations with their PBMs.

RDS Compliance Hurdles

When the Medicare Part D program was implemented beginning on Jan. 1, 2006, employers and unions sponsoring retiree medical plans were encouraged to maintain these plans’ prescription drug benefits with a financial incentive based on the amount that the employers spent for their retirees’ drugs. This incentive, the RDS, was one of several options available to retiree drug plan sponsors to respond to Medicare Part D, explained Joanne M. Sica, pharmacy practice leader at PricewatershouseCoopers. The RDS continues to be the most popular of the options, although that could change in response to annual adjustments that the CMS makes to subsidy amounts and compliance requirements to qualify for the RDS, Ms. Sica explained.

For the first time this year, RDS applicants reconciled their retiree eligibility data and their prescription drug claims. As a result, plan sponsors are finding that they are “leaving money on the table” due to undercounting the number of qualifying retirees. This year, for the first time, the CMS is auditing the reconciliation files, Ms. Sica said.

Most retiree plan sponsors are not electing to become an employer group waiver plan, where the group contracts directly with the CMS to provide plan benefits. Many regulatory and compliance requirements involving employer group waiver plans make the option tricky for plan sponsors, Ms. Sica said. However, for sponsors with a large Medicare population, the group waiver plan option might be more financially rewarding than the RDS, although a group waiver plan actually can cost the employer money for administrative and other fees that it pays to a third-party Part D plan sponsor, she added.

Unlike the RDS and group waiver plan options, in which Medicare retirees continue to be covered under the employer’s or union’s retiree drug plan and do not enroll in Part D, with the “wraparound” option, retirees enroll in Medicare Part D and the employer- or union-sponsored retiree drug plan supplements Part D coverage. Although the wraparound option has the fewest compliance requirements, it is difficult to administer because “we don’t have the systems in place yet to determine when the member reaches the deductible,” or when Part D excludes certain drugs, which the wraparound plan would cover, Ms. Sica explained.

Further complicating retiree drug plan sponsors’ compliance with the Part D requirements is that “the CMS rules and regulations are not as clear as we would like them to be,” Ms. Sica concluded.

To help its members with Medicare Part D compliance issues, the MBGH holds a telephone conference with the CMS from noon to 1:00 p.m. on the second Thursday of each month, Larry Boress, MBGH president, told the group. For further information, contact the MBGH at http://www.mbgh.org.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

This report has been provided by Spencer’s Benefits Reports.