Medicare Prescription Drug Benefit: An Overview of Implementation for Dual Eligibles

CRS Report for Congress
Medicare Prescription Drug Benefit: An Overview
of Implementation for Dual Eligibles
February 6, 2006
Jennifer O’Sullivan
Specialist in Social Legislation
Domestic Social Policy Division
Karen Tritz
Analyst in Social Legislation
Domestic Social Policy Division

Congressional Research Service ˜ The Library of Congress

Medicare Prescription Drug Benefit: An Overview of
Implementation for Dual Eligibles
Summary
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA) established a new voluntary prescription drug benefit under a new Medicare
Part D. The new benefit was effective January 1, 2006. Prescription drug coverage
is provided through private prescription drug plans (PDPs) or Medicare Advantage
prescription drug (MA-PD) plans. This new benefit changes the coverage of
prescription drugs for the approximately 6 million individuals who are dually eligible
for both Medicare and full Medicaid benefits. In the past, these individuals had their
drug costs paid by Medicaid. Effective January 1, 2006, their prescription drug costs
are covered by the new Part D benefit instead of Medicaid.
In transitioning to the new Medicare benefit, the Centers for Medicare and
Medicaid Services (CMS) established an auto-enrollment process for dual eligibles
that was intended to assure there was no gap in coverage. The auto-enrollment
process was random among Part D plans with premiums at or below the low-income
benchmark premium (which is a weighted average of premiums in the area).
CMS made considerable efforts to have a smooth implementation of the new
Part D benefit. It established a backup process for any dual eligible arriving at a
pharmacy without necessary documentation. The process included establishing
several contractual relationships for the following activities: 1) establishing a new
electronic eligibility inquiry (E1) system for pharmacists; 2) providing a point-of-sale
(POS) contractor to pay claims for dual eligibles who were not immediately
identified as enrolled in a PDP; and 3) hiring an enrollment contractor to work with
drug plans and pharmacists to follow up on dual eligibles who were not enrolled in
a plan, and to ensure that claims were billed to the appropriate parties. CMS also
required Part D plans to develop and implement transition policies for individuals
whose previously covered drugs were not on the plan’s formulary.
Despite CMS’ efforts, the program experienced a number of problems during
the initial days of operation — particularly related to the transition of dual eligibles.
There have been a number of reports about individuals who were unable to fill
prescriptions because eligibility could not be verified or the drug plan’s transition
policies were not applied. Pharmacists have also reported difficulty in getting timely
and accurate information from the Medicare toll-free line, the PDP customer service
representatives, and the newly established E1 system.
Since January 1, 2006, CMS has released additional guidance for drug plans and
pharmacists, and has dedicated additional resources to try and resolve these issues.
In addition, as of January 24, 2006, 25 states and the District of Columbia had
decided to step in temporarily and pay for drugs for dual eligibles who would
otherwise have a gap in coverage due to transition policy problems. The federal
government will reimburse states for these costs. This report will be updated.

Contents
Overview ........................................................1
Part D Enrollment.................................................1
General Rules.................................................2
Special Rules for Low-Income Persons.............................2
Dual Eligibles.............................................2
Other Persons Qualifying for Extra Help........................3
Enrollment Data...............................................4
Early Days of Program Implementation.................................4
CMS Actions to Address Enrollment Issues.............................5
Auto-Enrollment ..............................................5
Facilitated Enrollment; Point of Sale (POS) for Dual Eligibles..........5
Overview of Process.......................................5
E1 Eligibility Verification System.................................6
Overview ................................................6
Operational Issues with System Performance....................8
Issues with Beneficiary Data.................................8
Transition Policies: First-Fill of Prescriptions...........................8
State and Federal Transition Funding.................................12
Appendix A. Pharmacy Implementation of Medicare Part D
at Point-of-Sale..............................................14
List of Figures
Figure 1. E1 Eligibility Verification Process............................7
List of Tables
Table 1. Based on Initial CMS Guidance, the Number
of Organizations Sponsoring Stand-Alone Part D Plans
by Type of Transition Policy for First-Fill Prescriptions,
and Type of Enrollee (as of November 13, 2005) ....................10

Medicare Prescription Drug Benefit:
Overview of Implementation
for Dual Eligibles
Overview
The Medicare Prescription Drug, Improvement, and Modernization Act of 2003
(MMA, P.L. 108-173) establishes a new voluntary prescription drug benefit under a
new Part D, effective January 1, 2006. Medicare beneficiaries will be able to
purchase drug coverage through private plans offered by prescription drug plan
(PDP) sponsors or managed care organizations offering Medicare Advantage
prescription drug (MA-PD) plans. These private plans will bear some of the financial
risk for drug costs. Federal subsidies covering the bulk of the risk will be provided
to encourage participation.
As a result of MMA, Medicaid no longer covers prescription drug costs for
persons eligible for both Medicare and Medicaid (i.e., the “full benefit dual eligible”
population) for the categories of drugs that are covered under Part D. Effective
January 1, 2006, drug coverage for full benefit dual eligible individuals transitioned
from Medicaid to Medicare.
This report provides background information on the early stages of the
implementation of the Medicare Part D outpatient prescription drug program.
Because of recent challenges, the main focus of this report is the operational
procedures and issues relating to the transition of full benefit dual eligibles from
Medicaid to Medicare. This report describes certain policies and implementation
issues related to those who are not dually eligible; however, a full discussion is
outside the focus of this report.
Part D Enrollment
Under the new Part D benefit, prescription drug coverage provided through a
PDP or MA-PD, at a minimum, must be “standard coverage” or alternative coverage
with actuarially equivalent benefits. Beneficiaries are required to enroll in one of
these private plans in order to obtain coverage.

General Rules
Persons first eligible for Medicare on or before January 31, 2006, have an initial
enrollment period beginning November 15, 2005, and ending May 15, 2006.¹ If they
enrolled by December 31, 2005, their coverage began January 1, 2006. If they enroll
later in the initial enrollment period, their coverage will begin on the first day of the
first month following the month of enrollment.
In general, an individual who does not enroll during his or her initial enrollment
period will only be able to enroll during the annual open enrollment period, which
will run from November 15 to December 31 each year. Coverage will begin the
following January 1. Thus, individuals first eligible for Medicare on or before
January 31, 2006, who fail to enroll by May 15, 2006, will not be able to enroll until
the open enrollment period beginning November 15, 2006. If these individuals enroll
at that time, their coverage will begin January 1, 2007.
Medicare beneficiaries who do not enroll in a plan during their initial enrollment
period will have a delayed enrollment penalty if they enroll at a later date. However,
they will not be subject to a penalty if they have maintained “creditable” drug
coverage through another source. One source of possible creditable coverage is
retiree health coverage offered by a former employer or union.
Special Rules for Low-Income Persons
Special enrollment rules apply to low-income persons. Generally, there is a
two-step process for low-income enrollees. First, a determination must be made that
they qualify for the assistance; and, second, they must enroll in a specific Part D plan.
Special procedures have been established to make the process easier. The procedures
are different for different categories of low-income enrollees.
Dual Eligibles. Dual eligibles are persons who are dually eligible for
Medicare and full Medicaid benefits. In the past, they had their drug costs paid by
Medicaid. Effective January 1, 2006, they have their prescription drug costs paid
under the new Part D. Medicaid will no longer pay for drugs that could be covered
under Part D.²
There were more than 6 million dual eligibles who needed to be enrolled in a
Part D plan. CMS established an auto-enrollment process, which was intended to
assure there was no gap in coverage. The auto-enrollment process was random
among plans with premiums at or below the low-income benchmark premium (which
is a weighted average of premiums in the area). (See the discussion below, on the
implementation of the auto-enrollment process.)

¹ For further information, see CRS Report RL33136, Medicare: Enrollment in Medicare
Drug Plans, by Jennifer O’Sullivan.
² See CRS Report RS21837, Implications of the Medicare Prescription Drug Benefit for
Dual Eligibles and State Medicaid Programs, by Karen Tritz.

There are a number of differences among available plans. Key differences are
drugs included in plan formularies and pharmacies participating in the plan as
network pharmacies. Some dual eligibles may find that they have been auto-enrolled
in a plan which may not best meet their needs. For this reason, they are able to
change enrollment at any time with coverage under the new plan effective the
following month. This is the only population group that has this option. It should
be noted that if an enrollee selects a plan with a premium above the low-income
benchmark, he or she is required to pay the difference.
Other Persons Qualifying for Extra Help. Other low-income persons in
a second group automatically qualify for assistance in meeting Part D Medicare
premium and cost-sharing requirements. These are individuals who do not meet the
criteria for full benefit dual eligibles but who are currently enrolled in Medicare
Savings programs [i.e., the Qualified Medicare Beneficiary (QMB) program, the
Specified Low-Income Medicare Beneficiary (SLMB) program, and the Qualified
Individual (QI-1) program],³ or the Supplemental Security Income program. In the
spring of 2005, CMS mailed letters to these persons informing them that they would
automatically qualify for low-income subsidies.
Other low-income persons may qualify, but they will need to submit an
application. In 2005, the Social Security Administration (SSA) sent application
forms to low-income persons who the agency identified as possibly qualifying for
extra help. SSA makes eligibility determinations for those who fill out the
applications.⁴
Federal efforts are not expected to identify all persons potentially entitled to
low-income assistance. Persons who think they might qualify need to file an
application with SSA or their state Medicaid office.
CMS will facilitate enrollment in Part D plans for persons identified as
qualifying for extra help (exclusive of dual eligibles). Low-income individuals who
have not selected a plan by the close of the initial enrollment period (May 15, 2006)
will be randomly enrolled in a plan with coverage effective June 1, 2006. The
facilitated enrollment process will be similar to that for auto-enrollment for dual
eligibles. Namely, persons will be randomly enrolled in plans with premiums at or
below the low-income benchmark. However, they will only be able to switch plans
once during 2006, with the new coverage effective the following month.
Subsequently, they will only be able to change during the annual open enrollment
period, with the coverage effective the following January.

³ The QMB program pays Medicare Parts A and B cost-sharing charges and Medicare Part
B premiums for persons at or below 100% of the federal poverty level. The SLMB program
pays Medicare Part B premiums for persons with incomes over the QMB limit up to 120%
of poverty. The QI-1 program pays the Part B premiums for persons above the SLMB limit
up to 135% of poverty.
⁴ The Social Security Administration has reported significant challenges in meeting the
additional workload requirements of the Medicare drug benefit. For additional information,
see Los Angeles Times article, R. Alonso-Zaldivar, Drug-Plan Woes Spread Past Medicare,
Feb. 4, 2006.

Low-income persons who have not been identified as qualifying for low-income
assistance will not have facilitated enrollment. They will be subject to a late
enrollment penalty if they delay enrollment after their initial enrollment period.
Enrollment Data
On January 17, 2006, the Department of Health and Human Services (HHS)
issued a press release on drug coverage.⁵ It estimated that nearly 24 million persons
had drug coverage as of that date. The statistics include both those covered under
Part D as well as those persons who continued to have drug coverage through retiree
plans. The following are the numbers as reported by HHS:
^!3.6 million newly enrolled in stand-alone PDPs (including 2.6
million who have signed up since December 13, 2005);
^!6.2 million dual eligibles (including 600,000 enrolled in MA plans);
^!4.5 million in MA plans (plus 600,000 dual eligibles);
^!6.4 million persons in retiree plans receiving a subsidy (with about
1 million retirees in employer coverage that incorporates or
supplements Medicare’s coverage and another 500,000 continuing
in plans with coverage at least as good as Medicare’s); and
^!3.1 million in TRICARE and the Federal Employees Health Benefits
program (FEHB).
Early Days of Program Implementation
Despite considerable efforts by CMS to establish a smooth implementation to
the new Part D benefit, the program experienced a number of problems during the
initial days of operation. The major problems appeared to be related to the transfer
of the dual eligibles from Medicaid to Medicare drug coverage on January 1, 2006.
The following highlights some of the problems that have been reported in the press
and elsewhere:
^!Many dual eligibles were leaving pharmacies without needed
medications because their eligibility could not be verified or
transition policies were not applied.
^!Low-income persons had difficulty getting information on Medicare
toll-free lines or had difficulty getting information targeted to dual
eligibles or other low-income persons.
^!Pharmacists had long waits on phone lines when trying to verify
information.
^!Pharmacists were unable to make eligibility determinations with the
E-1 query (see the discussion of this query system, below).
^!CMS and state eligibility data did not always match, with the result
that not all dual eligibles were identified.

⁵ HHS, Nearly 24 Million Medicare Beneficiaries Now Have Prescription Drug Coverage,
press release, at [http://www.hhs.gov/news/press/2006pres/20060117.html].

^!Individuals who were auto-enrolled in a plan, but changed their
enrollment were showing up as not enrolled or enrolled with two
plans.
^!Pharmacies did not know that an individual was a low-income
subsidy individual and therefore subject to reduced copayments.
^!Individuals were unable to contact PDPs on a timely basis.
CMS Actions to Address Enrollment Issues
Auto-Enrollment
Prior to implementation of Part D, the Centers for Medicare and Medicaid
Services (CMS) took a number of actions designed to assure that dual eligibles did
not face a coverage gap. In May 2005, CMS mailed a letter to all full benefit dual
eligibles informing them that they automatically qualified for the low-income subsidy
and did not need to apply. In November 2005, CMS mailed notices to dual eligibles
informing them about the upcoming transition, the enrollment process, information
on the plan they would be enrolled in if they failed to make another choice before
January 1, 2006, and how to obtain information on other plans available in the area.
CMS reported that the November letters were mailed first class so that undelivered
letters would be returned to CMS for follow-up action. Plans were also expected to
mail enrollment materials to dual eligibles assigned to their plans.
Facilitated Enrollment; Point of Sale (POS) for Dual Eligibles
Overview of Process. CMS established a back-up process for any dual
eligible arriving at a pharmacy without the necessary documentation. Three
contractors may be involved. First, an eligibility inquiry (described in greater detail⁶
below) is submitted to Per-Se Technologies (formerly NDC Health) to determine
whether the individual is enrolled in a PDP and what plan the individual is enrolled
in. If the eligibility inquiry (commonly referred to as an E1 inquiry) does not identify
a plan, Wellpoint (Anthem), a national PDP (the POS Contractor), is to provide
point-of sale access to these persons, provided they have evidence of both Medicare
and Medicaid eligibility. The POS process assures that beneficiaries do not leave the
pharmacy without their medications. The process applies only to full benefit dual
eligibles. Z-Tech (the Enrollment Contractor) is to expedite validation of dual
eligibility and return independently verified information on the individual’s eligibility
for enrollment.
CMS has outlined the POS process as follows:
^!Beneficiary presents at pharmacy with Medicaid card or recent
history of Medicaid billing in the pharmacy’s patient profile system.

⁶ CMS has also contracted with Per-Se Technologies to serve as the Part D program’s
TROOP Facilitator for plans. TROOP stands for true out-of-pocket drug costs.

^!Pharmacist obtains photo ID or other supporting documentation and
submits an eligibility inquiry (E1 query) to Per-Se Technologies (see
discussion below).
^!If E1 query returns Part D enrollment information, the pharmacist
bills the appropriate plan. Otherwise the process continues only if
the pharmacist cannot identify the appropriate plan and the
pharmacist is able to verify both Medicaid and Medicare eligibility.
^!The pharmacist enters the claim in the automated pharmacy system;
the pharmacist submits the claim to the single pre-established
service account indicated on the POS Contractor (Wellpoint) payer
sheet and the drug is provided at the $1/$3 cost-sharing level.
^!The POS Contractor (Wellpoint) processes the claim as paid.
^!The POS Contractor (Wellpoint) sends a daily file to the enrollment
contractor on the beneficiary data submitted with the claim.
^!The Enrollment Contractor (Z-Tech) uses the information to validate
dual eligibility and returns a validation of eligibility or ineligibility
to the POS contractor.
^!If the individual is dually eligible and not enrolled in a Part D plan,
the POS Contractor (Wellpoint) enrolls him/her in a POS Contractor
(Wellpoint) plan (with the individual having the option to choose
another plan).
^!If the beneficiary is already enrolled in a plan, the POS Contractor
(Wellpoint) will contact the pharmacy to reverse the claim, and the
pharmacy will bill the appropriate plan.
^!If the beneficiary is Medicaid only (and not Medicare eligible), the
POS Contractor (Wellpoint) will contact the pharmacy to reverse the
claim, and the pharmacy will bill the appropriate state agency.
^!If the person is Medicare-eligible only, the Enrollment Contractor
(Z-Tech) notifies the individual that he/she is ineligible for
facilitated enrollment, but may enroll in a Part D plan under normal
rules.
CMS reported that Wellpoint had provided details of this process on its industry
“payer sheet” — the mechanism used by the pharmacy industry to communicate
billing processes among pharmacies and payers. CMS also produced a media file
presentation on the process.
E1 Eligibility Verification System
Overview. As discussed above, the E1 Eligibility Verification system is a new
electronic inquiry system that allows pharmacies to access real-time Part D coverage
information if a beneficiary arrives at a pharmacy without an enrollment card from
a Part D plan. (The E-1 process can be used for all enrollees, not just dual eligibles).
To conduct an E1 request, the pharmacy enters basic information about an individual
(e.g., date of birth, first name, last name, Zip Code). The beneficiary information is
transmitted electronically through the pharmacy’s normal billing mechanism
(referred to as the “switch”), which is in turn sent to the CMS contractor, Per-Se
Technologies (formerly NDCHealth). Per-Se Technologies, in real-time, queries its

eligibility file (which is provided by CMS and updated nightly),⁷ and returns
information back to the pharmacy (through the switch) about a beneficiary’s Part D
coverage. The information will also show the billing order if the beneficiary has
multiple insurance coverage. (See Figure 1.)
Figure 1. Eligibility Verification Process

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In submitting an E1 request, a pharmacy does not need to enter all beneficiary
information, but including information in key fields increases the likelihood of a
match to a particular beneficiary. The E1 request will be unable to identify a
beneficiary when (1) the information provided was not accurate, (2) not enough
information was provided for Per-Se Technologies to identify a match, or (3) the
beneficiary is not included in the eligibility file that Per-Se Technologies has received
from CMS.
If an individual is not enrolled in a Part D plan, a pharmacy can also use the E1
Eligibility Verification System to determine whether an individual is eligible for
Medicare Part A and Part B, and therefore is eligible for Medicare Part D. If the
pharmacy determines that the person is also eligible for Medicaid, the pharmacy can
bill a drug plan known as the “Point of Sale Facilitator” for these claims, as described
earlier. (For additional information, see Appendix A, which provides an overview
of how the E1 Eligibility Verification System fits into the overall process used by
pharmacies.)
The E1 Eligibility Verification System became active a few months prior to the
start of the Part D benefit. Pharmacists and pharmacy system vendors were able to
access the Part D component of the system in mid-October 2005 to test its operations.
⁷ [http://medifacd.ndchealth.com/Vendors/MediFacD_Vendors_Overview_PartAB.htm]

The Medicare Part A and B eligibility component became available on December 19,

2005.

Operational Issues with System Performance. Prior to implementation
of the Part D benefit, the testing phase revealed several issues with the E1 Eligibility
Verification System. A full discussion of pre-implementation issues is outside the
scope of this report; however, Per-Se Technologies made several changes to the E1
system to correct early-identified problems.
After the implementation of the Medicare Part D drug benefit on January 1,
2006, the primary issues identified with the operations of the E1 Eligibility
Verification System were the slow response time to queries submitted by pharmacies
and/or transactions being stopped due to the length of the processing time. As of
January 18, 2006, Per-Se Technologies reports that the system has been modified,
that this issue is resolved, and that “response times are in the one to two second range
and timeouts are at zero.”⁸
Issues with Beneficiary Data. In addition to the system performance issues,
it has also been reported that the E1 query is providing incomplete or inaccurate
information about which plan an individual is enrolled in and how much an
individual is required to pay for cost-sharing. These issues are somewhat more
difficult to address because of the quality of the underlying data that feeds into the
E1 Eligibility Verification System. On February 1, 2006, HHS reported that it has
taken steps to improve the quality of data on dual eligible beneficiaries, and to
improve data transmission between Medicare, health plans, and states.⁹
Transition Policies: First-Fill of Prescriptions
For some beneficiaries, drugs that were previously covered under Medicaid are
no longer covered by the individual’s Part D plan. An analysis by the HHS Office
of Inspector General (OIG) found that 18% of dual eligibles were assigned to PDPs¹⁰
that included all of the 178 most commonly used Part D drugs by dual eligibles.
However, almost one-third of the dual eligibles are assigned to PDPs that include less¹¹
than 85% of these drugs (151 or fewer).
The federal regulations implementing Medicare Part D require each Part D plan
to establish an appropriate transition process for all new enrollees whose current drug

⁸ [http://medifacd.ndchealth.com/Stakeholder/DocsDisp/Files/CurrentlyKnownIssuesand
Status.doc]
⁹ M. Leavitt, Secretary’s One Month Progress Report on the Medicare Prescription Drug
Benefit, U.S. Department of Health and Human Services, Feb. 1, 2006.
¹⁰ The HHS OIG reports that 22 of the top 200 drugs most commonly used by dual eligibles
are excluded by law from coverage under Part D. State Medicaid programs may, at their
option, continue to cover such drugs.
¹¹ U.S. HHS Office of Inspector General, Dual Eligibles’ Transition: Part D Formularies’
Inclusion of Commonly Used Drugs, OEI-05-06-00090, Jan. 2006.

therapies may not be included in the plan’s formulary [42 CFR 423.120(b)(3)]. The
regulations also require that the transition plan meet any additional guidance or
requirements outlined by CMS. The transition plan proposed by each PDP was
reviewed by CMS as part of the formulary and benefit structure review process.
CMS guidance on the transition policy requirements for PDPs has changed.
CMS released initial guidance in March 2005. Based on that initial guidance, PDPs
developed various transition policies (described in Table 1 below) and submitted
them for CMS review. Generally, a 30-day minimum period was established.
Following the implementation of the drug benefit, in February 2006, the Secretary
of HHS extended the transition period for an additional 60 days, establishing a 90-
day transition period.
The initial guidance released on March 16, 2005 stated that plans should
“address situations where an individual first presents at a participating pharmacy with
a prescription for a drug that is not on the formulary.” In this guidance, CMS gave
plan sponsors “discretion in deciding the appropriate time frame for a one-time
transition supply”; policies could vary by drug or differ for those residing in a long-
term care facility. CMS outlined that a temporary “first fill” supply of 30 days for
individuals who were not long-term care residents seemed reasonable for new
enrollees who first present at a pharmacy with a prescription for a drug not on the
formulary. For residents of long-term care facilities, CMS recommended a transition
period of 90 to180 days. If the drug plan does not use a temporary “first fill” supply
method, CMS required the plan to have a process that ensures that new enrollees who
are stabilized on non-formulary drugs that may carry risks associated with changing
a drug regimen will continue to have access to medically necessary drugs without
adverse health consequences. Finally, CMS required the drug plan to make transition
policy information available to beneficiaries similar to information sharing about the^12,13
formulary and benefit design of a particular plan.
Based on PDP data from November 13, 2005, of the 88 organizations providing
stand-alone Part D plans, 63% offered a first fill supply of 30 days for those new
enrollees not residing in a long-term care facility, and 59% offered a first fill supply
of 90 days for enrollees who reside in long-term care facilities. With a few
exceptions, most of the 88 organizations sponsor between one and three different
plans, and may offer these plans in various regions of the country or nationwide.
Most organizations offer the same transition policies across the plans sponsored.
(See Table 1.)

¹² [http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/TransitionProcess_

031605.pdf]

¹³ K. King, Medicare: Contingency Plans to Address Potential Problems with the Transition
of Dual-Eligible Beneficiaries from Medicaid to Medicare Drug Coverage, Letter to the
Honorable Max Baucus, Government Accountability Office, GAO-06-278R, Dec. 16, 2005.

Table 1. Based on Initial CMS Guidance, the Number of
Organizations Sponsoring Stand-Alone Part D Plans by Type of
Transition Policy for First-Fill Prescriptions, and Type of
Enrollee (as of November 13, 2005)
Description of transition period for first-fillNew enrollee,not a long-termNew enrollee,long-term
prescriptionscare residentcare resident
15 days initially, may be extended up to 60 days2
Up to 30 days2
Up to 30-day supply for all Part D medications
and, for select drugs, one plan year1
30-60 days3
30 days55
30 days initially, but may be extended up to 90
days if stabilized on multiple non-formulary
medications1
30 days initially — based on exceptions process
outcome, may extend up to 90-180 days1
30-90 days2
31 days1
34 days1
30 days, then up to 90 days if situation warrants1
34 days initially, may be extended up to 60 days2
60 days74
60-180 days1
90-day supply 1
90 days1352
90-180 days13
90-180 days for all Part D medications or one
plan year coverage1
91 days1
Open benefit11
Open formulary (covers all Part D meds)11
Up to 180 days1
Up to 90 days8
180 days1
Utilization management clinical edits lifted during
the 30-day transition period1
Utilization management clinical edits lifted during
the 90-day transition period1
Total number of organizations8888
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Following implementation of Medicare Part D on January 1, 2006, CMS began
receiving reports that (1) the PDP plan’s customer service representatives were
unaware of the transition policies for their organization, (2) pharmacies within a
PDP’s network were unaware of how to implement the transition policy through an
override to the billing system, (3) individuals were being asked to go through prior
authorization or step-edit requirements before filling a prescription; and (4) there was¹⁴
“confusion over transition issues involving long term care (LTC) residents.”
On January 6, 2006, CMS issued guidance to all Part D plans to remind them of
their transition plan requirements, which emphasize that customer service
representatives and network pharmacies needed training and information on the
transition policies. The letter also stated that delays or denials in the filling of initial
prescriptions for new enrollees at the pharmacy because of prior authorization/step
edit requirements “was not consistent with the intent of CMS’ transition policy.” In
transitioning LTC residents, CMS reiterated that it was critical that the transition
process address access to medications at the filling of the first prescription for
enrollees who are LTC residents, and that plans take into account polypharmacy
(multiple-prescription) circumstances of these enrollees.¹⁵
On January 13, 2006, CMS issued additional guidance to all Part D plans
reiterating its earlier guidance from the January 6 letter, but also requiring that Part
D plans strengthen their transition policies through ensuring an expedited process to
implement the transition policies when a beneficiary first fills a prescription.
Specifically, the PDP was required to establish an expedited process for a pharmacist
to obtain authorization and to ensure that the customer service representatives had the
authority to make or obtain quick decisions on transition policies and carry out these¹⁶
decisions in real time.
On February 1, 2006, HHS Secretary Leavitt released a progress report on the
implementation of the Part D benefit. In this report, Secretary Leavitt states that
Medicare will be notifying plans that the 30-day transitional coverage period in effect
will continue for 60 additional days, establishing a 90-day transition period.¹⁷

¹⁴ [http://www.ascp.com/medicarerx/docs/TransitionPolicyReminder.pdf]
¹⁵ Ibid.
¹⁶ [http://www.ascp.com/medicarerx/docs/CMSLetterPartners.pdf].
¹⁷ [http://www.hhs.gov/medicare.pdf].

State and Federal Transition Funding
As of January 24, 2006, 25 states and the District of Columbia had decided to
step in temporarily and pay for drugs for dual eligibles who would otherwise have a
gap in coverage due to transition policy problems. Some of these states were only¹⁸
expecting to provide assistance through January. In most cases, these costs should
ultimately be recovered from the Part D plan to which the beneficiary has been
assigned or through the POS system. However, states expressed concern about their
ability to recover all of their expenditures.
On January 24, 2006, CMS announced that it was establishing a state¹⁹
reimbursement plan under the Section 402 demonstration authority. Under the
demonstration, Medicare will be able to make payments to states for amounts they
have paid for a dual eligible’s Part D covered drugs, to the extent those costs are not
otherwise recoverable under Part D. The demonstration will also provide payments
for administrative costs incurred in the coordination of the drug benefit by state
Medicaid programs. CMS stated that it would expedite review of applications of
states applying for the demonstration. CMS outlined the following key features of
the demonstration:
^!States meeting demonstration criteria will have their full drug costs
reimbursed through CMS assurance of payment reconciliation with
PDPs and Medicare payment of any net drug cost differential after
reconciliation. Further, CMS will provide funding for
administrative costs.
^!States will use payment approaches that promote pharmacists’
efforts to primarily bill the Part D plan and promote the use of POS
billing before relying on state payment. States will provide input to
CMS and plans on ways to enhance plans’ and Part D program
performance.
^!States will provide timely summary information on claims to
facilitate reconciliation and beneficiary transition to Part D plans.
States will also work with CMS to provide valid data on any
beneficiaries who may not have been included in the states’ previous
dual eligible files.
^!States will separate transition claims from claims states would
otherwise have paid through state programs.
^!The demonstration authority has an anticipated end date of February
15, 2006, with states expected to discontinue payments through their
Medicaid systems on or before that date. The Secretary could
provide a short-term extension of the program.
^!The demonstration is retroactive to the first date the state paid
claims.

¹⁸ Avalere Health LLC, communication, Jan. 24, 2006.
¹⁹ Section 402 of the Social Security Amendments of 1967 (P.L. 90-248), as amended.

On February 2, 2006, CMS provided state Medicaid directors and state
pharmacy assistance program directors with a template they could use when applying
to participate in the demonstration.

CRS-14
Appendix A. Pharmacy Implementation of Medicare Part D at Point-of-Sale

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