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Testimony: 

Before the Subcommittee on Health, Committee on Ways and Means, House 
of Representatives: 

United States Government Accountability Office: 

GAO: 

For Release on Delivery Expected at 2:00 p.m. EDT: 

Thursday, June 21, 2007: 

Medicare Part D: 

CMS's Process and Policy for Enrolling New Dual-Eligible Beneficiaries: 

Statement of Kathleen M. King: 
Director, Health Care: 

GAO-07-1022T: 

GAO Highlights: 

Highlights of GAO-07-1022T, a testimony before the Subcommittee on 
Health, Committee on Ways and Means, House of Representatives 

Why GAO Did This Study: 

Under the Medicare Prescription Drug, Improvement, and Modernization 
Act of 2003 (MMA), dual-eligible beneficiaries—individuals with both 
Medicare and Medicaid coverage—have their drug costs covered under 
Medicare Part D rather than under state Medicaid programs. The MMA 
requires the Centers for Medicare & Medicaid Services (CMS) to enroll 
these beneficiaries in a Medicare prescription drug plan (PDP) if they 
do not select a plan on their own. CMS enrolled about 5.5 million dual-
eligible beneficiaries in late 2005 and about 634,000 who became dually 
eligible during 2006. 

GAO was asked to testify on 
(1) CMS’s process for enrolling new dual-eligible beneficiaries into 
PDPs and its effect on access to drugs and (2) how CMS set the 
effective coverage date for certain dual-eligible beneficiaries and its 
implementation of this policy. This testimony is based on the 
GAO report, Medicare Part D: Challenges in Enrolling New Dual-Eligible 
Beneficiaries 
(GAO-07-272). 

What GAO Found: 

CMS’s process for enrolling new dual-eligible beneficiaries who have 
not yet signed up for a PDP involves many parties, information systems, 
and administrative steps, and takes a minimum of 5 weeks to complete. 
For about two-thirds of these individuals—generally Medicare 
beneficiaries who subsequently qualify for Medicaid—pharmacies may not 
have up-to-date PDP enrollment information needed to bill PDPs 
appropriately until the beneficiaries’ data are completely processed. 
As a result, these beneficiaries may have difficulty obtaining their 
Part D-covered prescription drugs during this interval. CMS has created 
contingency measures to help individuals obtain their new Medicare 
benefit, but these measures have not always worked effectively. For the 
other one-third of new dual-eligible beneficiaries—Medicaid enrollees 
who become Medicare-eligible because of age or disability—CMS 
eliminated the impact of processing time by enrolling them in PDPs just 
prior to their attaining Medicare eligibility. This prospective 
enrollment, implemented in late 2006, offers these dual-eligible 
beneficiaries a seamless transition to Medicare Part D coverage. 

CMS set the effective Part D coverage date for Medicare eligible 
beneficiaries who subsequently become eligible for Medicaid to coincide 
with the date their Medicaid coverage becomes effective. Under this 
policy, which was designed to provide drug coverage for dual-eligible 
beneficiaries as soon as they attain dual-eligible status, the start of 
the Part D coverage can extend retroactively for several months before 
the date beneficiaries are notified of their PDP enrollment. GAO found 
that CMS did not fully implement or monitor the impact of this policy. 
Although beneficiaries are entitled to reimbursement for covered drug 
costs incurred during this retroactive period, CMS did not begin 
informing them of this right until March 2007. Given their 
vulnerability, it is unlikely that these beneficiaries would have 
sought reimbursement or retained proof of their drug purchases if they 
were not informed for their right to do so. Also, CMS made monthly 
payments to PDPs for providing drug coverage during retroactive 
periods, but did not monitor PDPs’ reimbursements to beneficiaries 
during that period. GAO estimated that in 2006, Medicare paid PDPs 
millions of dollars for coverage during periods for which dual-eligible 
beneficiaries may not have sought reimbursement for their drugs. 

What GAO Recommends: 

GAO’s report contains several recommendations, including that CMS 
require PDPs to modify beneficiary notices and that CMS monitor the 
implementation of its payment policy. CMS did not agree with all of the 
recommendations, but it has taken steps to implement some. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-1022T]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Kathleen M. King at (202) 
512-7114 or kingk@gao.gov. 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today as you discuss the Medicare Part D 
prescription drug benefit. Implementation of this new drug benefit has 
raised particular concerns for individuals eligible for both Medicare 
and full Medicaid benefits--known as dual-eligible 
beneficiaries.[Footnote 1] These individuals account for about 15 
percent of all Medicare beneficiaries and 15 percent of all Medicaid 
enrollees. As a group, they are generally poorer and tend to have more 
extensive health care needs than other Medicare beneficiaries. Under 
the Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 (MMA),[Footnote 2] dual-eligible beneficiaries--who previously 
received drug benefits under Medicaid--have had their prescription drug 
costs paid under Medicare Part D since January 1, 2006. In addition, 
the MMA requires the Centers for Medicare & Medicaid Services 
(CMS)[Footnote 3] to assist dual-eligible beneficiaries by enrolling 
them in a private Medicare prescription drug plan (PDP) if they do not 
select a plan on their own. CMS enrolled about 5.5 million dual- 
eligible beneficiaries in late 2005 for the initial implementation of 
Part D and about 634,000 beneficiaries who became dual-eligible during 
2006. 

My testimony today will summarize selected findings from the previously 
released GAO report, Medicare Part D: Challenges in Enrolling New Dual- 
Eligible Beneficiaries.[Footnote 4] Specifically, my remarks today will 
focus on (1) CMS's process for enrolling new dual-eligible 
beneficiaries into PDPs and its effect on beneficiary access to drugs 
and (2) how CMS set the effective Part D coverage date for certain dual-
eligible beneficiaries and its implementation of this policy. 

To address these issues, we conducted site visits in six states-- 
California, Maine, Maryland, Michigan, New Jersey, and Texas--to learn 
about dual-eligible beneficiaries' enrollment in Part D from the 
perspective of state Medicaid agencies, pharmacies, and long-term care 
providers. We also interviewed officials from CMS and representatives 
of PDPs about issues that pertain to dual-eligible beneficiaries. We 
conducted the work for our report from March 2006 through April 2007 in 
accordance with generally accepted government auditing standards. 

In summary, we found that CMS's process for enrolling new dual-eligible 
beneficiaries involves many parties, information systems, and 
administrative steps, and takes a minimum of 5 weeks to complete. For 
the majority of these individuals--generally Medicare beneficiaries not 
yet enrolled in Part D who subsequently qualify for Medicaid--this 
processing interval can create difficulties in obtaining Part D-covered 
drugs at their pharmacies. For other new dual-eligible beneficiaries-- 
Medicaid enrollees who become Medicare eligible because of age or 
disability--CMS took steps to eliminate the impact of the processing 
interval by enrolling them in PDPs just prior to their attaining 
Medicare eligibility. In addition, for the Medicare first, Medicaid 
second group of new dual-eligible beneficiaries, CMS set the effective 
date of Part D coverage to coincide with the first date of their 
Medicaid eligibility. Under this policy, which was designed to provide 
drug coverage for dual-eligible beneficiaries as soon as they attain 
dual-eligible status, the start of their Part D coverage can be 
retroactively set to several months before the date of their actual PDP 
enrollment. We found that CMS did not fully implement or monitor the 
impact of this coverage date policy. Although beneficiaries are 
entitled to reimbursement for covered drug costs incurred during this 
retroactive period, CMS and PDPs did not begin informing them of this 
right until March 2007. Also, CMS did not track Medicare payments made 
to PDPs to provide retroactive coverage or monitor PDPs' reimbursements 
to beneficiaries for that period. We estimate that in 2006, Medicare 
paid PDPs about $100 million for coverage during periods for which dual-
eligible beneficiaries may not have sought reimbursement for their drug 
costs. In the report, we recommend that CMS require PDPs to notify 
beneficiaries about their right to reimbursement, monitor 
implementation of its retroactive payment policy, and take other steps 
to improve the operational efficiency of the program. 

Background: 

Dual-eligible beneficiaries are a particularly vulnerable population. 
These individuals are typically poorer, tend to have far more extensive 
health care needs, have higher rates of cognitive impairments, and are 
more likely to be disabled than other Medicare beneficiaries. About 
three out of four dual-eligible beneficiaries live in the community and 
typically obtain drugs through retail pharmacies. Other dual-eligible 
beneficiaries reside in long-term care facilities and obtain drugs 
through pharmacies that specifically serve these facilities. 

In general, individuals become dual-eligible beneficiaries in two ways. 
One way is when Medicare-eligible individuals subsequently become 
Medicaid eligible. This typically occurs when income and resources of 
beneficiaries fall below certain levels and they enroll in the 
Supplemental Security Income (SSI) program,[Footnote 5] or they incur 
medical costs that reduce their income below Medicaid eligibility 
thresholds. If these Medicare beneficiaries did not sign up for a Part 
D plan on their own, they have no drug coverage until they are enrolled 
in a PDP by CMS. CMS data show that this group represented about two- 
thirds of new dual-eligible beneficiaries the agency enrolled in PDPs 
in 2006. According to CMS, it is not possible for it to predict which 
Medicare beneficiaries will become Medicaid eligible in any given month 
because Medicaid eligibility determinations are a state function. 

Another way individuals become dually eligible is when Medicaid 
beneficiaries subsequently become eligible for Medicare by reaching 65 
years of age or by completing the 24-month disability waiting 
period.[Footnote 6] Once they become dual-eligible beneficiaries, they 
can no longer receive coverage from state Medicaid agencies for their 
Part D-covered prescription drugs. In 2006, this group represented 
approximately one-third of the new dual-eligible beneficiaries enrolled 
in PDPs by CMS. CMS can generally learn from states when these 
individuals will become dually eligible. 

For dual-eligible beneficiaries, Medicare provides a low-income subsidy 
that covers most of their out-of-pocket costs for Part D drug coverage. 
This subsidy covers the full amount of the monthly premium that non- 
subsidy-eligible beneficiaries normally pay, up to the low-income 
benchmark premium.[Footnote 7] The subsidy also covers most or all of a 
dual-eligible beneficiary's prescription copayments. In 2007, these 
beneficiaries are responsible for copayments that range from $1 to 
$5.35 per prescription, depending on their income and asset levels, 
with the exception of those in long-term care facilities, who pay no 
copayments. 

CMS's Enrollment Process Takes Time and Can Create Difficulties for 
Some Dual-Eligible Beneficiaries: 

Given the number of entities, information systems, and administrative 
steps involved, it takes a minimum of 5 weeks for CMS to identify and 
enroll a new dual-eligible beneficiary in a PDP. As a result, two out 
of three new dual-eligible beneficiaries--generally those who are 
Medicare eligible and then become Medicaid eligible--may experience 
difficulties obtaining their prescription drugs under Part D during 
this interval. For other new dual-eligible beneficiaries--those 
switching from Medicaid to Medicare drug coverage--CMS instituted a 
prospective enrollment process in late 2006 that enrolls these 
individuals before their date of Medicare eligibility and offers a 
seamless transition to Part D coverage. 

Multiple parties and information systems are involved in identifying 
and enrolling dual-eligible beneficiaries in PDPs. As shown in figure 
1, CMS, the Social Security Administration (SSA), state Medicaid 
agencies, and PDP sponsors play key roles in providing information 
needed to ensure that new dual-eligible beneficiaries are identified 
and enrolled properly. SSA maintains information on Medicare 
eligibility that is used by CMS and some states. State Medicaid 
agencies are responsible for forwarding to CMS lists of beneficiaries 
whom the state believes to be eligible for both Medicare and Medicaid. 
CMS is then responsible for making plan assignments and processing 
enrollments. PDP sponsors maintain information systems that are 
responsible for exchanging enrollment and billing information with CMS. 

Figure 1: Overview of the Major Systems and Steps Used to Enroll Dual- 
Eligible Beneficiaries in PDPs: 

[See PDF for image] 

Source: GAO. 

Notes: CMS adapted existing information systems used in the 
administration of other parts of the Medicare program to perform 
specific functions required under Part D. The Medicare eligibility 
database serves as a repository for Medicare beneficiary entitlement, 
eligibility, and demographic data. The database is used by CMS to 
provide up-to-date information to verify the status of dual-eligible 
beneficiaries, as well as determine subsidy status and make assignments 
to PDPs. The enrollment transaction system is used to enroll 
beneficiaries in PDPs. The eligibility query is used by pharmacies to 
obtain Part D enrollment information from the Medicare eligibility 
database. 

[End of figure] 

The process of enrolling dual-eligible beneficiaries requires several 
steps. It begins when state Medicaid agencies identify new dual- 
eligible beneficiaries and ends when PDPs make billing information 
available to pharmacies and send enrollment information to dual- 
eligible beneficiaries. We estimate that it takes at least 5 weeks to 
complete the process under current procedures. During this interval, 
pharmacies may not have up-to-date PDP enrollment information on new 
dual-eligible individuals. This may result in beneficiaries having 
difficulty obtaining Part D-covered drugs at their pharmacies. To 
illustrate why this occurs, we present the hypothetical example of Mr. 
Smith, who as a Medicare beneficiary did not sign up for the Part D 
drug benefit and, therefore, upon becoming Medicaid eligible, was 
enrolled in a PDP by CMS. (Fig. 2 shows the steps in Mr. Smith's 
enrollment process.) 

Figure 2: Mr. Smith, a Hypothetical Example of the Enrollment Process 
for a Newly Identified Dual-Eligible Beneficiary Who Was Medicare 
Eligible but without Previous Part D Coverage: 

[See PDF for image] 

Source: GAO. 

Notes: The dates presented in this example of enrollment for Mr. Smith 
generally represent the best-case scenario. The range of dates 
represent the minimum and maximum length of elapsed time allowed for 
processing and notification, based on information provided by CMS. GAO 
makes no assurances that the events described would occur on the dates 
provided for any specific dual-eligible beneficiary. 

[A] The scenario presented reflects an application to Medicaid based on 
a reason other than disability. State Medicaid agencies have 45 days to 
make eligibility determinations not based on disability and 90 days for 
eligibility determinations based on disability, subject to extensions 
in certain circumstances. 

[B] If the state Medicaid agency did not determine that Mr. Smith was 
eligible for Medicaid before it submitted its September dual-eligible 
file, his information could not be submitted until October. This 
scenario is not presented in this figure. 

[End of figure] 

From the time Mr. Smith applies for his state's Medicaid program on 
August 11, it takes about 1 month for him to receive notification from 
the state that he is eligible for Medicaid, thus beginning the 
enrollment process. From there, Mr. Smith's new status is submitted by 
his state to CMS in a monthly file transmittal. Once CMS receives the 
lists of dual-eligible beneficiaries from all of the states, it 
verifies eligibility for Medicare and sets each beneficiary's cost- 
sharing level. Then, around October 8, CMS assigns Mr. Smith to a PDP 
randomly, based on the premium level and the geographic area served by 
the PDP.[Footnote 8] CMS next notifies the PDP sponsor, which then has 
to enroll him in its plan and assign the necessary billing information. 
This billing information, such as a member identification number, is 
necessary for pharmacies to correctly bill the PDP for Mr. Smith's 
prescriptions. The PDP also has to inform Mr. Smith of his enrollment 
information. By the time this process is completed, it is the middle of 
October. 

CMS has developed some contingency measures to help individuals like 
Mr. Smith during the processing interval. However, we found that these 
measures have not always worked effectively. For instance, CMS designed 
an enrollment contingency option to ensure that dual-eligible 
beneficiaries who were not yet enrolled in a PDP could get their 
medications covered under Part D, while also providing assurance that 
the pharmacy would be reimbursed for those medications. However, 
representatives of pharmacy associations we spoke with reported 
problems with reimbursements after using this option, which has led 
some pharmacies to stop using it. 

To avoid a gap in coverage for beneficiaries transitioning from 
Medicaid to Medicare prescription drug coverage, CMS has implemented a 
prospective enrollment process. Because states can predict and notify 
CMS which Medicaid beneficiaries will become new dual-eligible 
beneficiaries and when, CMS begins the enrollment process for these 
individuals 2 months before the their anticipated dual-eligible status 
is attained. By conducting the processing steps early, the prospective 
enrollment used for this group of new dual-eligible beneficiaries 
should ensure a seamless transition from Medicaid drug coverage to 
Medicare Part D coverage. Fully implemented in November 2006, 
prospective enrollment applies to about one-third of the new dual- 
eligible beneficiaries enrolled in PDPs by CMS. 

CMS Made Drug Coverage Retroactive, but Did Not Inform Beneficiaries of 
Their Right to Reimbursement: 

For the majority of new dual-eligible beneficiaries, CMS requires PDPs 
to provide drug coverage retroactively, typically by several months. 
During 2006, Medicare paid PDPs millions of dollars to provide coverage 
to dual-eligible beneficiaries for drug costs that may have been 
incurred during the retroactive coverage period. However, we found that 
CMS did not fully implement or monitor the impact of this policy. 

CMS made the effective date of Part D drug coverage for Medicare 
beneficiaries who become Medicaid eligible coincide with the effective 
date of their Medicaid eligibility. Under this policy, Part D coverage 
for these beneficiaries is effective the first day of the month that 
Medicaid eligibility is effective, which generally occurs 3 months 
prior to the date an individual's Medicaid application was submitted to 
the state, if the individual was eligible for Medicaid during this 
time. Thus, the Part D coverage period can extend retroactively back 
several months from when the actual PDP enrollment takes place. 

Medicare makes payments to the PDPs for providing drug coverage 
retroactively. Specifically, PDPs are paid approximately $90 per month 
for the retroactive coverage period.[Footnote 9] PDPs, in turn, are 
responsible for reimbursing their members (or another payer) for Part D 
drug costs incurred during the retroactive months. For instance, in the 
case of Mr. Smith, while he applied for Medicaid in August and learned 
of his PDP assignment for Part D in October, his coverage was effective 
May 1. If Mr. Smith incurred any costs for Part D-covered prescription 
drugs from May--when he became eligible for Medicaid--through October, 
he could submit his receipts to his assigned PDP and be reimbursed by 
the PDP, less the copayments he would pay as a dual-eligible 
beneficiary. 

We found that CMS's implementation of this policy in 2006 was 
incomplete. While dual-eligible beneficiaries were entitled to 
reimbursement by their PDPs in 2006, neither CMS nor PDPs notified dual-
eligible beneficiaries of this right. The model letters used until 
March 2007 to inform dual-eligible beneficiaries of their PDP 
enrollment did not include any language concerning reimbursement of out-
of-pocket costs incurred during retroactive coverage periods. In 
response to a recommendation in our report, CMS modified the model 
letters that the agency and PDPs use to notify dual-eligible 
beneficiaries about their PDP enrollment. The revised letters let 
beneficiaries know that they may be eligible for reimbursement of some 
prescription costs incurred during retroactive coverage periods. 

Given the vulnerability of this population, it seems unlikely that many 
dual-eligible beneficiaries would have contacted their PDPs for 
reimbursement if they were not clearly informed of their right to do so 
and given information about how to file for reimbursement, neither 
would they likely have retained proof of their drug expenditures. Mr. 
Smith, for example, would need receipts for drug purchases made during 
a 5-month period preceding the date he was notified of his PDP 
enrollment--at a time when he could not foresee the need for doing so. 

Further, CMS did not monitor how many months of retroactive coverage 
PDPs provided, nor did it monitor PDP reimbursements to beneficiaries 
for costs incurred during retroactive coverage periods. Based on data 
provided by CMS, we estimate that Medicare paid about $100 million to 
PDP sponsors in 2006 for retroactive coverage. CMS does not know what 
portion of this $100 million PDPs paid to dual-eligible beneficiaries 
to reimburse them for drug costs. If Mr. Smith's PDP did not reimburse 
Mr. Smith for any prescription drugs purchased during the retroactive 
coverage period, the PDP retained Medicare's payments for that period. 

Conclusions: 

Given the time it takes to complete the enrollment process, CMS has 
taken action to ensure ready access to Part D for some new dual- 
eligible beneficiaries, but difficulties remain for others. For the one-
third of new dual-eligible beneficiaries whose eligibility can be 
predicted, CMS's decision to implement prospective enrollment should 
eliminate the coverage gap in transitioning from Medicaid to Medicare 
drug coverage. However, because of inherent processing lags, most new 
dual-eligible beneficiaries may continue to experience difficulties 
obtaining their drugs for at least 5 weeks after being notified of 
their dual-eligible status. In addition, CMS's incomplete 
implementation of its retroactive coverage policy in 2006 means that 
CMS paid PDPs millions of dollars for coverage during periods for which 
dual-eligible beneficiaries may not have sought reimbursement for their 
drug costs. Without routine monitoring of this policy, the agency 
remains unaware of what portion of these funds was subsequently 
reimbursed to beneficiaries and, therefore, cannot ensure the efficient 
use of program funds. 

Our report contains several recommendations. We recommend that CMS 
require PDPs to notify beneficiaries of their right to reimbursement 
and monitor implementation of its retroactive payment policy. We also 
recommend that CMS take other steps to improve the operational 
efficiency of the program. Although the agency did not agree with all 
of them, it has already taken steps to implement some of our 
recommendations. As of March 2007, CMS has modified its letters to dual-
eligible beneficiaries to include language informing them of their 
right to reimbursement for drug costs incurred during retroactive 
coverage periods and required PDP sponsors to do the same. In addition, 
CMS officials told us that they plan to analyze data to determine the 
magnitude of payments made to PDPs for retroactive coverage and the 
amounts PDPs have paid to beneficiaries. We hope that CMS will use this 
information to evaluate the effectiveness of its retroactive coverage 
policy. If, after conducting the analysis, CMS determines that it is 
paying PDPs substantial amounts of money and dual-eligible 
beneficiaries are not requesting reimbursements, the agency may want to 
rethink its policy in light of pursuing the most efficient use of 
Medicare funds. 

Mr. Chairman, this concludes my prepared remarks. I would be pleased to 
respond to any questions that you or other members of the subcommittee 
may have at this time. 

Contacts and Acknowledgments: 

For further information regarding this testimony, please contact 
Kathleen King at (202) 512-7114 or kingk@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this statement. Contributors to this testimony 
include Rosamond Katz, Assistant Director; Lori Achman; and Samantha 
Poppe. 

FOOTNOTES 

[1] We use the term dual-eligible beneficiaries to refer to individuals 
who qualify for a state's full package of Medicaid benefits. 

[2] MMA, Pub. L. No. 108-173, tit. I, § 101, et seq., 117 stat. 2066, 
2071-2152 (2003) (to be codified at 42 U.S.C. § 1395w-101, et seq. and 
42 U.S.C. § 1396u-5). 

[3] CMS is the agency that administers the Medicare program on behalf 
of the Secretary of Health and Human Services. 

[4] GAO, Medicare Part D: Challenges in Enrolling New Dual-Eligible 
Beneficiaries, GAO-07-272 (Washington, D.C.: May 4, 2007). 

[5] In most states, beneficiaries who qualify for cash assistance from 
SSI--a cash assistance program for aged, blind, and disabled 
individuals with limited income and resources--automatically qualify 
for full Medicaid benefits. 

[6] Under Social Security Disability Insurance (DI), which assists 
people who worked but became disabled before their retirement age, 
individuals are eligible for Medicare coverage after they have received 
DI cash benefits for 24 months. 

[7] The low-income benchmark is the average monthly beneficiary premium 
for all PDPs in a region, weighted by each plan's enrollment. 

[8] Some states have assisted dual-eligible beneficiaries by using 
other methods to select a PDP for enrollment, including methods that 
also consider drug utilization information. For example, the State of 
Maine used beneficiary-specific data to reassign nearly half of the 
state's dual-eligible beneficiaries to PDPs that covered more of their 
prescriptions. After reassignment, the number of beneficiaries whose 
PDP covered nearly all of their prescription drugs increased 
significantly. 

[9] The $90 per month includes the direct subsidy Medicare pays PDPs 
for providing the Medicare drug benefit to any Medicare beneficiary and 
the low-income premium subsidy CMS pays PDPs to cover the cost of 
premiums dual-eligible beneficiaries would pay if they were not 
receiving the low-income subsidy.

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