This is the accessible text file for GAO report number GAO-06-278R 
entitled 'Medicare: Contingency Plans to Address Potential Problems 
with the Transition of Dual-Eligible Beneficiaries from Medicaid to 
Medicare Drug Coverage' which was released on December 16, 2005. 

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December 16, 2005: 

The Honorable Max Baucus: 
Ranking Minority Member: 
Committee on Finance: 
United States Senate: 

Subject: Medicare: Contingency Plans to Address Potential Problems with 
the Transition of Dual-Eligible Beneficiaries from Medicaid to Medicare 
Drug Coverage: 

Dear Senator Baucus: 

The Medicare Prescription Drug, Improvement, and Modernization Act of 
2003 (MMA) established a voluntary outpatient prescription drug 
benefit, known as Medicare Part D.[Footnote 1] The Centers for Medicare 
& Medicaid Services (CMS) is responsible for implementing this benefit. 
This new drug coverage will be provided through competing private Part 
D plans sponsored by health care organizations, which may charge 
premiums, deductibles, or copayments for drugs.[Footnote 2] As a result 
of MMA, on January 1, 2006, drug coverage for dual-eligible 
beneficiaries will transition from Medicaid to Medicare Part D. This 
transition will occur for approximately 6 million full-benefit dual- 
eligible beneficiaries--Medicare beneficiaries who receive full 
Medicaid benefits for services not covered by Medicare.[Footnote 3] 

CMS is in the process of implementing this transition. During May and 
June 2005, CMS mailed notices to these beneficiaries informing them of 
the transition in coverage and that they will receive a subsidy to 
cover their entire deductible and help cover any prescription drug plan 
(PDP) premiums. During October and November 2005, CMS automatically 
assigned dual-eligible beneficiaries to PDPs and mailed notices to 
these beneficiaries informing them of the assignment and also that they 
may select a different PDP if they wish.[Footnote 4] If they do not 
switch from their assigned PDP by December 31, 2005, CMS will 
automatically enroll them in that drug plan with coverage effective 
January 1, 2006. MMA provides that, after that date, dual-eligible 
beneficiaries may switch PDPs at any time.[Footnote 5] 

Dual-eligible beneficiaries are poorer and tend to have far more 
extensive health care needs than other Medicare beneficiaries.[Footnote 
6] They are also more likely to be disabled, at least 85 years old, or 
to have cognitive impairments.[Footnote 7] You raised concerns that the 
single-day transition from one type of drug coverage to another could 
create difficulties in ensuring that prescriptions for this vulnerable 
population are filled. You asked us to review (1) the potential 
problems that may arise during the transition and (2) the contingency 
plans that CMS, PDPs, and states have developed to respond to potential 
problems with the transition. Enclosure I contains information we 
provided during our November 14, 2005 briefing to your staff. You also 
expressed concerns that dual-eligible beneficiaries in the areas 
affected by Hurricane Katrina may not be able to obtain necessary drugs 
on and after January 1, 2006.[Footnote 8] Enclosure II contains 
information we provided during our briefing to your staff on 
contingency plans related to this concern. 

To address these objectives, we interviewed officials from CMS and from 
Medicaid agencies in California, Montana, and Texas--states with large 
urban or rural populations. We interviewed representatives from three 
organizations offering Medicare PDPs, eleven drug-store chains, and the 
CMS contractor responsible for implementing the Eligibility 
Transaction--a contingency plan designed to identify the PDP in which a 
beneficiary is enrolled. In addition, we reviewed CMS's plan for 
managing the transition and the transition plans of three organizations 
offering PDPs, which outline their plans to assist beneficiaries who 
are transitioning to Medicare drug coverage. We spoke with officials 
from the American Association of Homes and Services for the Aging, the 
Center for Medicare Advocacy, the Commonwealth Fund, the Kaiser Family 
Foundation, the Long Term Care Pharmacy Alliance, the Medicare Rights 
Center, the National Association of Chain Drug Stores, and the National 
Community Pharmacists Association. We also spoke with two independent 
researchers. We conducted our work from September 2005 through December 
2005 in accordance with generally accepted government auditing 
standards. 

Results in Brief: 

We identified three potential problems that may leave some dual- 
eligible beneficiaries facing difficulties immediately obtaining 
necessary drugs beginning January 1, 2006. The likelihood and magnitude 
of these potential problems is not known. First, some individuals may 
not be identified for automatic enrollment in a PDP due to potential 
inaccuracies in state or federal data. Second, not all beneficiaries 
who become dually eligible in late 2005 and beyond may be identified 
and automatically enrolled by the date they become dually eligible. 
Third, given that MMA and implementing regulations require that dual- 
eligible beneficiaries be randomly enrolled in PDPs using two criteria-
-the region in which the beneficiary resides and the amount of the PDP 
premium--beneficiaries' prescription drugs may not be on their PDP 
formulary or their customary pharmacy may not be in their PDP pharmacy 
network. 

CMS, PDP, and state contingency plans address potential problems with 
the transition. Although each of these contingency plans is useful in 
mitigating risks for dual-eligible beneficiaries, their effectiveness 
is uncertain. 

For dual-eligible beneficiaries who do not have Medicare drug coverage 
because they were either not identified and enrolled on January 1, 2006 
or are newly qualified dual-eligible beneficiaries, CMS has developed a 
point-of-sale enrollment mechanism designed to enable pharmacies to 
assist these beneficiaries in obtaining immediate Part D coverage. The 
agency signed a contract with a designated PDP on November 22, 2005 to 
implement this mechanism. Because these arrangements were completed 
less than 6 weeks before the transition is to occur, limited time 
remains to educate all pharmacies about its availability and details of 
its operation. 

For beneficiaries who were enrolled in a PDP but do not have their PDP 
information, CMS has facilitated a new information-technology process, 
known as the Eligibility Transaction, that will allow pharmacies to 
identify a beneficiary's PDP and provide the beneficiary with the PDP's 
contact information. As with the point-of-sale enrollment mechanism, it 
is unclear to what extent pharmacies are informed about the Eligibility 
Transaction and will use it. Despite CMS efforts to publicize this tool 
to industry organizations, a pharmacy industry association 
representative stated that it is unclear how many independent drug 
stores, which dispense the majority of the nation's retail prescription 
drugs, plan to use the Eligibility Transaction. 

To assist dual-eligible beneficiaries with prescriptions for drugs not 
on their PDP's formulary, according to CMS, all PDPs will offer dual- 
eligible beneficiaries at network pharmacies first fills of 
prescriptions for drugs not covered by formularies. First fills will 
give beneficiaries time to work with a physician to switch to a 
formulary drug, file an appeal for a formulary exception with their 
PDP, or switch PDPs. However, in order to obtain a first fill without 
paying out-of-pocket, beneficiaries must be at a network 
pharmacy.[Footnote 9] CMS officials stated that PDP formularies are 
robust and access to PDP pharmacy networks is broad. However, they 
noted that PDP formularies typically include upwards of 80 percent of 
the 100 most commonly used drugs. We did not evaluate the extensiveness 
of PDP formularies or pharmacy networks. 

To provide beneficiaries with time to resolve problems they may 
encounter and thereby minimize disruptions in treatment, state Medicaid 
agencies have the option to offer early or extended drug refills to 
dual-eligible beneficiaries prior to January 1, 2006. However, because 
of financial disincentives associated with the transition, state 
officials indicated that not all states are expected to provide such 
refills. 

Agency Comments and Our Response: 

CMS reviewed a draft of this report and provided written comments, 
which appear in enclosure III. 

In its comments, CMS objected to any implication that it has not taken 
all steps to keep potential problems to a minimum. Furthermore, the 
agency asserted that its contingency plans fully address the problems 
we describe and that they will ensure that dual-eligible beneficiaries 
will have immediate access to needed drugs. While we credit CMS for 
taking steps to mitigate potential risk for dual-eligible 
beneficiaries, we believe that the agency's complete confidence in 
contingency plans that have yet to be fully tested, publicized, or 
implemented may be premature. Our report provides valid reasons why the 
effectiveness of these plans is uncertain at this time. 

CMS also suggested that we restructure the report. It proposed that (1) 
the discussion of potential problems be provided as set-up or 
background information, (2) the finding on potential problems focus on 
the efforts CMS has taken that ensure continuity of coverage for dual- 
eligible beneficiaries, and (3) the "Results in Brief" section be 
expanded to more fully describe CMS contingency plans. We organized 
this report to address the two objectives set forth by our requester-- 
to review potential problems associated with the transition and to 
review contingency plans developed to address them. In this way, the 
reader is first given information on anticipated problems that may 
arise from MMA transition provisions as context for understanding the 
strengths and weaknesses of various contingency plans. Our "Results in 
Brief" provides a balanced description of what each contingency plan is 
designed to do and its potential effectiveness. 

In addition, CMS contended that we did not adequately take into account 
new information provided to us on November 18, 2005. The agency 
referred specifically to our discussion of its point-of-sale enrollment 
mechanism to guarantee immediate access to needed drugs for any dual- 
eligible beneficiary not already enrolled in a PDP. At our meeting on 
November 18, agency officials reported that negotiations for the point- 
of-sale enrollment mechanism had not been finalized and details about 
the prospective contract could not be discussed. Our draft described 
the design and prospective nature of this contingency plan. While the 
draft report was at CMS for review, the agency signed and publicly 
announced the contract with its designated point-of-sale PDP. We have 
revised our report to reflect this new information. 

CMS provided technical comments which we incorporated as appropriate. 
Also, the agency asked us to publish several informational documents 
attached to its comments. We reviewed these documents and determined 
that they did not address our findings and conclusions. 

We are sending a copy of this report to the Administrator of CMS and 
appropriate congressional committees. We will also make copies 
available to others on request. In addition, the report is available at 
no charge on GAO's Web site at http://www.gao.gov. 

If you or your staff have any questions, please contact me at (202) 512-
7119 or kingk@gao.gov. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of the 
report. GAO staff who made major contributions to this report are 
listed in enclosure IV. 

Sincerely yours, 

Signed by: 

Kathleen M. King: 

Director, Health Care: 

Enclosures--4: 

Enclosure I: 

[See PDF for images] 

[End of slide presentation] 

[End of section] 

Enclosure II: Potential Problems and Contingency Plans Related to the 
Transition of Dual-Eligible Beneficiaries Affected By Hurricane 
Katrina: 

On August 29, 2005, Hurricane Katrina made landfall on the U.S. Gulf 
Coast, causing widespread devastation, particularly in Alabama, 
Louisiana, and Mississippi. Concerns have been raised related to dual- 
eligible beneficiaries in the areas affected by the hurricane and 
whether they will be able to obtain necessary drugs through Medicare 
Part D on or after January 1, 2006.[Footnote 10] Specifically, these 
beneficiaries may have evacuated and may no longer live in the region 
in which they were assigned to a prescription drug plan (PDP). 
Alternatively, certain dual-eligible beneficiaries may still reside in 
the region in which they were assigned to a PDP, but the extent to 
which pharmacies in the hurricane-affected areas will be available to 
fill prescriptions is not known. 

To address problems dual-eligible beneficiaries affected by Hurricane 
Katrina may have in obtaining drugs, the Centers for Medicare & 
Medicaid Services (CMS) has created a system that allows beneficiaries 
assigned to PDPs in Alabama, Louisiana, or Mississippi to immediately 
obtain drugs from any pharmacy they visit. Under this plan, pharmacies 
will electronically submit a bill for the drugs to the beneficiary's 
PDP.[Footnote 11] If the PDP's network does not include that pharmacy, 
the PDP will reject the bill. In addition, if the PDP serves the 
hurricane-affected areas of Alabama, Louisiana, or Mississippi, it will 
notify the pharmacy that the beneficiary may be a hurricane evacuee and 
advise the pharmacy to contact the PDP. 

The pharmacy will contact the beneficiary's PDP and work with it to 
submit an out-of-network bill. Submitting an out-of-network bill may 
take up to 24 hours, but the pharmacy will immediately collect the 
beneficiary's copayment and immediately dispense their drugs. To 
compensate the out-of-network pharmacies for the additional effort they 
must make in these cases, PDPs will reimburse them the retail price for 
the drug, with Medicare contributing the difference between the retail 
price and the PDP's negotiated price for network pharmacies. 

CMS has directed PDPs to follow up with beneficiaries it identifies 
through this process. The agency reported that if the original PDP 
determines that the beneficiary has permanently relocated, that PDP 
will assist them in switching to another PDP that serves their region. 
If the original PDP determines that the beneficiary may return to their 
home in Alabama, Louisiana, or Mississippi, or never left but cannot 
access a network pharmacy, it will attempt to incorporate the pharmacy 
that the beneficiary accessed into its network. 

One PDP representative we spoke with stated that this plan was quite 
feasible. Another stated that it was cumbersome, but useful. Two 
pharmacy industry organizations we spoke with did not express concern 
about this plan, and one stated that it was useful and workable. 

[End of section] 

Enclosure III: Comments from the Centers for Medicare & Medicaid 
Services: 

DEPARTMENT OF HEALTH & HUMAN SERVICES: 
Centers for Medicare & Medicaid Services: 
Administrator: 
Washington, DC 20201: 

DEC 1 2005: 

TO: Kathleen M. King: 
Director, Health Care: 
Government Accountability Office: 

FROM: Mark B. McClellan, M.D., Ph.D.: 
Administrator: 
Centers for Medicare & Medicaid Services: 

SUBJECT: GAO Draft Correspondence: MEDICARE: Contingency Plans to 
Address Potential Problems with the Transition of Dual-Eligible 
Beneficiaries from Medicaid to Medicare Drug Coverage (GAO-06-278R): 

Thank you for the opportunity to review and comment on the GAO draft 
correspondence entitled, MEDICARE: Contingency Plans to Address 
Potential Problems with the Transition of Dual-Eligible Beneficiaries 
from Medicaid to Medicare Drug Coverage. 

The Centers for Medicare & Medicaid Services (CMS) has significant 
concerns about the GAO findings. CMS has been working diligently on the 
transition from Medicaid to Medicare drug coverage for full-benefit 
dual eligible beneficiaries, and as a result, these individuals will 
get effective, comprehensive prescription drug coverage when the new 
Medicare prescription drug benefit begins on January 1, 2006. 
Establishing a standard of absolute perfection for this transition, 
when dealing with over 6 million dual eligible individuals, is clearly 
untenable-and certainly State Medicaid programs do not meet such a 
standard with access to drugs today. Yet even in GAO's own analysis, 
GAO notes in slide 24 that CMS contingency plans will allow a dual 
eligible beneficiary to "immediately" obtain needed drugs. 
Consequently, we object to any implication that we have not taken all 
steps to keep potential problems to a minimum, including establishing a 
point-of-sale safety net for any dual eligible individual that somehow 
are not identified and assigned to a plan in advance of January 1, 
2006. Thus, we believe that the CMS contingency plans have fully 
addressed the problems that GAO was asked to investigate, and that they 
will produce prescription drug coverage for the dual eligible 
population that is at least as accessible and comprehensive as the 
coverage they have had in the past. 

As discussed in detail below, CMS has provided a great deal of 
information to answer the two key questions raised by the Senate 
Finance Committee's Ranking Minority Member. Thus, we believe that both 
the letter to Senator Baucus and the report's major findings should be 
revised to reflect the fact that CMS has developed appropriate 
contingency plans to address potential problems, and that these 
contingency plans will ensure that dual eligible beneficiaries will 
have immediate access to needed drugs. 

Moreover, CMS remains concerned with the inappropriate and premature 
distribution of the preliminary GAO findings, which prompted inaccurate 
press coverage of the correspondence in the November 18, 2005 
Washington Post concerning the GAO's alleged findings. 

General Comments: 

CMS has made an intensive effort to identify and auto-enroll dual 
eligible individuals prior to the effective date of their Medicare Part 
D eligibility. However, it is possible that some individuals may go to 
pharmacies before they have been auto-enrolled in a Part D plan. For 
this reason CMS has developed a process for a point-of-sale interaction 
to ensure full-benefit dual eligible beneficiaries experience no 
coverage gap. Beneficiaries who present at a pharmacy with evidence of 
both Medicaid and Medicare eligibility, but without current enrollment 
in a Part D plan, can have the claim for their medication submitted to 
a single account for payment. The beneficiary can leave the pharmacy 
with a filled prescription, and a CMS contractor will immediately 
follow up to validate eligibility and facilitate enrollment of the full-
benefit dual eligible into a Part D plan. We described this process to 
the GAO at our exit conference on November 18, 2005 (a detailed 
description of this process is attached). Therefore, as we stated at 
the time, CMS believes the first formal finding of the report should 
reflect the fact that CMS has established effective contingency plans 
to ensure that dual-eligible beneficiaries will be able to obtain 
comprehensive coverage and obtain necessary drugs beginning January 1, 
2006. 

Similarly, we recommend that the second finding of the report should be 
revised substantially. Currently, the "Results in Brief" section of the 
cover letter to the report includes only one sentence noting that CMS 
contingency plans "address potential problems with the transition but 
have limitations." This statement is preceded by a full paragraph 
laying out the potential problems under investigation and then another 
paragraph describing the alleged limitations. Instead, we believe that 
this key section of the letter should (1) clarify that the potential 
problems identified in the first paragraph were the intended subject of 
the report-not the findings; and (2) prominently describe the CMS 
contingency plans. 

Thus, despite extensive discussions at the November 18, 2005, GAO exit 
conference, we do not believe GAO has adequately taken into account the 
new information provided by CMS. Most notably, although additional 
technical information was incorporated into both the GAO letter to 
Senator Baucus and the GAO report itself, these documents continue to 
assert that (1) some dual-eligible beneficiaries will encounter 
difficulties immediately obtaining necessary drugs, and (2) some dual- 
eligible beneficiaries will face 1-2 month coverage gaps. Neither of 
these assertions is accurate and the GAO's own slide presentation 
recognizes this. For example, slide 24 of the report states that, "The 
pharmacy will submit a bill to a designated PDP, which will provide 
interim coverage to allow the beneficiary to immediately obtain drugs 
while a CMS contractor officially verifies their eligibility." 
(Emphasis added.) CMS' point of sale enrollment system guarantees 
immediate access to needed drugs for any dual eligible beneficiary not 
already enrolled in a prescription drug plan. 

[End of section] 

Enclosure IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Kathleen M. King, (202) 512-7119 or kingk@gao.gov. 

Acknowledgments: 

In addition to the contact named above, Rosamond Katz, Assistant 
Director; Joanna L. Hiatt; and Grace A. Materon made key contributions 
to this report. 

(290493): 

FOOTNOTES 

[1] Pub. L. No. 108-173,  101, 117 Stat. 2066, 2071-2152. 

[2] MMA and CMS regulations require that each Part D plan meet 
standards as to the categories of drugs it must cover, or include on 
its formulary, and the extent of its pharmacy networks. Within these 
standards, the specific formulary and pharmacy network of each plan may 
vary. However, CMS required all plans to cover all or substantially all 
drugs in six categories, including antidepressants, antipsychotics, 
anticonvulsants, anticancer drugs, immunosuppressants, and human 
immunodeficiency virus and acquired immunodeficiency syndrome drugs. 

[3] Of these 6 million beneficiaries, approximately 0.6 million are 
enrolled in managed care organizations and other plans and will not be 
addressed in this report. There are also approximately 1 million other 
dual-eligible beneficiaries, known as partial-benefit dual-eligible 
beneficiaries, who do not receive Medicaid drug coverage, and thus, are 
not involved in this transition. 

[4] According to CMS, as of November 2005, the agency had identified 
approximately 6.1 million dual-eligible beneficiaries. Of these, 
approximately 5.5 million individuals have been automatically assigned 
to a PDP. Most of the remaining 0.6 million beneficiaries are enrolled 
in and will receive drug coverage through managed care organizations or 
other plans. 

[5] According to CMS, beneficiaries' choices will only be effective the 
first day of the month following the month in which their new PDP 
receives their completed application. 

[6] Medicare Payment Advisory Commission, Report to the Congress: New 
Approaches in Medicare (Washington, D.C.: June 2004). Includes all dual-
eligible beneficiaries, both full-and partial-benefit. 

[7] Medicare Payment Advisory Commission, Report to the Congress. 
Includes all dual-eligible beneficiaries, both full-and partial- 
benefit. 

[8] On August 29, 2005, Hurricane Katrina made landfall on the U.S. 
Gulf Coast, causing widespread devastation, particularly in Alabama, 
Louisiana, and Mississippi. 

[9] At out-of-network pharmacies, beneficiaries may pay the retail 
price out-of-pocket for their drugs and submit a claim for 
reimbursement to their PDP. However, CMS acknowledged that it is 
unlikely that dual-eligible beneficiaries will be able to pay the 
retail price out-of-pocket. 

[10] Major hurricanes also made landfall in other areas of the United 
States in 2005. However, contingency plans related to the transition 
are in place only with respect to Alabama, Louisiana, and Mississippi. 

[11] If necessary, pharmacies will first use the Eligibility 
Transaction to determine the PDP to which the beneficiary belongs.