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PBM Compliance with Medicare Part D


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Learn about the role and reporting requirements of PBMs participating in Medicare Part D plans, as well as how to ensure full compliance and survive federal scrutiny.

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PBM Compliance with Medicare Part D

  1. 1. • Cognizant 20-20 InsightsPBM Compliance with Medicare Part D Executive Summary for purchase in the United States and drugs for which payments would be available under Parts A This white paper lays out the role and reporting or B of Medicare. requirements of the PBMs participating in Medicare Part D plans. It also discusses regulatory In 2011, the standard benefit requires payment of mandates and audits, while presenting an action a $310 deductible, then 25% coinsurance drug plan to ensure full compliance and survive federal costs up to an initial coverage limit of $2,830. scrutiny. Once this initial coverage limit is reached, the ben- eficiary is given a 50% discount on the total cost Medicare prescription drug coverage is insurance of brand-name drugs while in the “coverage gap,” that is provided by an insurance company or until the total out-of-pocket cost reaches $4,550. other private company approved by Medicare. Medicare will phase in additional discounts on The Medicare Part D prescription drug program the cost of both brand-name and generic drugs. is overseen by the Centers for Medicare and By 2020, these changes will effectively close the Medicaid Services (CMS). Part D was enacted as coverage gap and the beneficiary’s responsibil- part of the Medicare Prescription Drug, Improve- ity will be 25% of the costs. Once the beneficiary ment and Modernization Act of 2003 (MMA) and reaches catastrophic coverage in a given year, went into effect on January 1, 2006. he or she pays the greater of 5% coinsurance or Individuals are eligible for prescription drug $2.50 for generic drugs and $6.30 for brand-name coverage under a Part D plan if they are entitled drugs. to benefits under Medicare Part A and/or enrolled The average (weighted) monthly premium for in Part B. Beneficiaries can obtain the Part D PDPs was $37.25 in 2010. Beneficiaries with drug benefit through two types of private plans: income below 150% poverty are eligible for the They can join a Prescription Drug Plan (PDP) for low-income subsidy, which helps pay for all or drug coverage only, or they can join a Medicare part of the monthly premium, annual deductible Advantage plan (MA) that covers both medical and drug co-payments. services and prescription drugs (MA-PD). CMS reports that there are over 1,400 different Part D plans must offer a standard benefit, which prescription drug plans in 2011. However, this is defined in terms of the benefit structure. Part includes every different benefit structure and D plans may establish their own formularies, every state or service area as a separate plan. The within statutory guidelines. Part D drug coverage actual number of plan sponsors is 70. Moreover, excludes drugs not approved by the Food and some of these sponsors are affiliates or subsidiar- Drug Administration, those prescribed for ies of others, so the true number of independent off-label use, drugs not available by prescription participating companies is about 50. cognizant 20-20 insights | september 2011
  2. 2. Medicare Prescription Drug Benefits Overview Catastrophic Coverage: over Beneficiary Plan Pays 15% Medicare pays 80% $6,440 in total drug costs pays 5% Coverage Gap (“Donut Hole”): Employee pays 100%, but receives 50% discount on brand name drug up to $6,440 total drug costs (discounts increase to 2020, when gap is eliminated) ($4,550 out of pocket) Rebate: when beneficiary Medicare pays beneficiary a $250 rebate reaches $2,830 total drug costs Standard Coverage: up to Beneficiary Plan pays 75% $2,830 in total drug costs pays 25% ($940 out of pocket) Deductible: < $310 total costs Beneficiary pays 100%Figure 1The PBM’s Role in Part D Common compliance problems for Part D plans include:PBMs may serve as Prescription Drug Plans them-selves, or they may contract with health insurers • Timely TrOOP provide PBM services. If a PBM serves as a PDP,it must comply with Medicare regulations regard- • Mid-year plan changes by enrollment, benefits and premiums, and it • Post-adjudication adjustments to the financialmust implement a mandatory compliance plan. responsibilities.If a PBM only contracts with health insurers, the • Billed claims adjustments.insurers are required to bear those complianceresponsibilities. However, insurers are required to Financial Information Reporting (FIR) is a processexercise “proper monitoring, oversight and audit- in which point-in-time financial information ising to ensure Medicare program compliance.”1 moved from one PBM to another PBM when a beneficiary switches plans during a plan year.Part D clients typically rely on their PBM to submit This information is necessary for the new PBMprescription drug event (PDE) files to CMS. These to accurately process claims and attribute planfiles are the basis for all federal Part D subsidies. balances and status for reporting to the planSubstantial discrepancies may exist between sponsor. Some plans have encountered problemsthese files and the claim expenses charged by the in the timely processing of FIR data and havePBM to the Part D plan. therefore charged incorrect co-pays. Similarly, adjustments to financial responsibilities andPart D Reporting Requirements billed claims may change a beneficiary’s TrOOPCMS requires Part D Plans to report to CMS a expenditures and thus move the beneficiary fromlarge volume of data on access to care, benefits one benefit tier to another.and payments. The table on page 3 summarizesthese requirements. High-level Compliance Overview The risks of noncompliance with Medicare regula-In addition, Part D Plans must report to each tions are great, because fraudulent claims can beother electronically on the beneficiary’s true out- prosecuted under the False Claims Act. This lawof-pocket (TrOOP) expenditures, which determine rewards whistleblowers and can result in treblethe level of benefits and thus the beneficiary’s damages plus huge The TrOOP facilitator, a federalcontractor, reports the patient’s TrOOP expen- CMS requires each participating Part D Planditures to the Part D Plan. The Part D Plan is to implement and conduct a compliance planresponsible for updating the patient aggregate according to standards described in the Pre-tables, which support the calculation of patient scription Drug Benefit Manual. CMS conductedresponsibility at the point of service. compliance plan audits of 33 plan sponsors in cognizant 20-20 insights 2
  3. 3. Part D Plan Compliance Frequency of Report Type Types of Data Required Reporting Enrollment Numbers enrolled, denied and incomplete applications Quarterly Retail, Home Infusion Percent of beneficiaries by distance from retail pharmacies, number of Annual and Long-Term Care contracted retail pharmacies and number of prescriptions filled at retail Pharmacy Access pharmacies owned or contracted by the plan. Access to Extended Day For plans with mail order pharmacy benefits, number of retail pharmacies in the Annual Supplies at Retail Pharmacies state or service area that are contracted to provide comparable 90-day supplies. Number of beneficiaries eligible for MTMP, number who opted out or Annual Medication Therapy dis-enrolled, prescription cost on a per MTMP beneficiary per month basis, Management Programs number of prescriptions for these beneficiaries, including patient-level identification data. Prompt Payment by Number of paper and electronic claims paid timely and not paid timely. Twice per year Part D Sponsors Pharmacy Support of Number of pharmacies (retail, long-term care and infusion) that are enabled to Annual Electronic Prescribing receive electronic prescriptions according to Medicare requirements. Number of beneficiary grievances, sorted by type of beneficiary Quarterly Grievances (low-income or other) and type of grievance, along with percentage of grievances handled timely. Pharmacy & Therapeutics Changes in P&T committee membership and organization and changes in other Annual (P&T) Committees’ Provision organizations that perform certain Part D functions. of Part D Functions Total number of pharmacy transactions, number rejected due to formulary Quarterly Coverage Determinations requirements or other utilization management requirements, number of prior and Exceptions authorizations received, number of prior authorizations approved, number of exceptions requested, number of exceptions approved. Number of re-determinations following an adverse coverage determination by Quarterly Appeals the plan, including full and partial reversals of the original determination. Pharmaceutical Manufacturer Rebates and discounts received from each manufacturer for each rebated drug, Annual Rebates, Discounts, and Other including non-cash gifts such as disease management programs. Price Concessions For each LTC pharmacy in the service area, the number of formulary Annual Long-Term Care (LTC) prescriptions and non-formulary prescriptions, with costs of formulary Utilization and non-formulary prescriptions. Licensure and Solvency, Detailed data on licensing, revenue and expenses, assets and liabilities Quarterly Business Transactions and and cash flow. Financial Requirements Number of potential fraud and abuse incidents reported, broken down by Annual Fraud, Waste and Abuse type of incident, source of report (internal vs. external) and follow-up actions Compliance Programs including inquiries and reports to CMS and other authorities. Enrollment data for any participating employers, unions and other groups. Annual Employer/Union-Sponsored Group Health Plan Sponsors Number of agents who recruit members, number of agents investigated based Annual Plan Oversight of Agents on complaints, follow-up actions including reports to authorities and number of agent-assisted enrollments.Figure 2 cognizant 20-20 insights 3
  4. 4. 2010 and is conducting additional audits in 2011. • Prescription drug coverage determinations,Compliance plan requirements include: appeals, grievances.• Implementing written policies and procedures. • Premium billing.• Designating a compliance officer and • Enrollment/disenrollment. compliance committee. • Compliance plan (always audited along with• Conducting effective training and education. other programmatic areas).• Developing effective lines of communication. These audits resulted in five sanctions and one• Conducting internal monitoring and auditing. plan being terminated from Medicare. Several plans were required to stop marketing and• Enforcing standards through well-publicized enrolling new members, resulting in an unknown disciplinary guidelines. loss of revenue. Financial penalties have been as• Responding promptly to detected problems high as $586,800, though most have been in the and undertaking corrective action. range of $10,000 to $50,000. The most frequent issue was “Failure to Issue Accurate AnnualThe Office of the Inspector General (OIG) states Notices of Change and Evidence of Coverage.”that “a good faith effort by the company to comply One plan was terminated and cited for:with applicable statutes and regulations as well asfederal healthcare program requirements, dem- • Denial of access to drugs in six classes ofonstrated by an effective compliance program, clinical concern.significantly reduces the risk of unlawful conductand any penalties that result from such behavior.” • Imminent and serious risk to health and safety.Under federal sentencing guidelines, companieswith effective compliance plans may receive • Transition fill failures.reduced sentences in case of a conviction. • Improper prior authorization and step therapy.CMS Targeted Compliance IssuesCMS is now targeting several areas related to • No compliance plan or structure.PBM compliance: • No internal monitoring and auditing.• Pharmaceutical manufacturer grants to PBMs, CMS describes its approach as not just a “paper particularly if tied to purchases. exercise,” but a real validation of compliance• Any remuneration from a manufacturer or activities including data, personnel and docu- its agents directly or indirectly to a person mentation. In particular, CMS emphasizes that in a position to influence formulary decisions the compliance officer should report to the Board related to the manufacturer’s products. or CEO, and that senior management must be directly involved in the compliance program. CMS• Payments and rebates from manufacturers published the following list of “Indicators that you to PBMs, unless authorized in advance by the do NOT have an effective program”: PBM’s customer and the actual amounts are disclosed in writing at least annually to the • Compliance officer does not report to the customer. Board/chief executive.• Lump-sum payments for inclusion in a formu- • No compliance committee. lary or for exclusive or restricted formulary • No confidential and anonymous reporting. status. • Employees afraid to report up.• Arrangements with PBMs that assume risk. • Ignores monitoring; no or infrequent audits.• Manufacturer funding for purchasers’ or PBMs’ formulary support activities, especially com- • Responds to incident but no systemic fix. munications with physicians and patients. • No or negative recognition for compliance reports and complaints.In 2010, CMS expanded its audit program forMedicare Part D plans, adding 33 on-site audits. • Discipline inadequate or inconsistent.CMS targeted five areas for attention: • Allegations not effectively investigated.• Formulary administration (e.g., transition, utili- • No systematic efforts to build a strong ethical zation management, protected class drugs). culture. cognizant 20-20 insights 4
  5. 5. How to Protect Your PBM from Board’s active involvement in approving theCMS Audit compliance plan, monitoring ongoing perfor- mance and taking action when necessary. InternalCMS plans to audit every Part D Plan sponsor. Web sites and other employee information shouldEvery PBM should conduct its own internal discuss compliance as an important componentcompliance audit in advance of CMS’s audit, of organizational success. Incentive systemsfocusing on the areas that CMS is targeting. Your should include rewards for improving compliance,PBM must implement a compliance program that not just penalties for failure.meets CMS requirements, but a compliance plan“on the shelf” is not enough. In our experience, CMS handles good-faith compliance efforts reasonably. For example, weYour likelihood of passing the audit without served as an intermediary between a companypenalty is enhanced if you can show CMS that that had discovered a compliance problem andyou have made good-faith efforts to strengthen CMS. We assisted the company in negotiat-your compliance performance and not just tried ing anonymously with CMS and in developing ato meet the minimum requirements. Your CEO voluntary disclosure letter that described theand other top executives should meet regularly company’s proposed remedy. CMS respondedto discuss compliance improvement initiatives favorably and the company was able to resolveand should document their actions. Minutes the issue without penalty.and other documents should demonstrate yourFootnotes1 “Mandatory Compliance Plans,” presentation by Brenda Tranchida, Director, Program Compliance and Oversight Group, Center For Medicare, February 7, 2011.About the AuthorDavid Ricks is a Manager with Cognizant Business Consulting. He has over 20 years of experience inhealthcare management and consulting, focused primarily on pharmacy benefit managers, healthcarepayers, and government-sponsored healthcare programs. David earned his MBA at Harvard BusinessSchool and his BA at Columbia University. He can be reached at CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 118,000 employees as of June 30, 2011, Cognizant is a member of theNASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing andfastest growing companies in the world. Visit us online at or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: Email: Email:© Copyright 2011, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.