Skip Navigation
  • Text Size: A A A
  • Print
  • Email
  • Facebook
  • Tweet
  • Share
  • Print
  • Email
  • Facebook
  • Tweet
  • Share


Statement by
Leslie V. Norwalk
Acting Administrator
Centers for Medicare & Medicaid Services

The Medicare Prescription Drug Benefit: Beneficiary Protections and Plan Oversight 

Committee on Ways and Means
Subcommittee on Health
U.S. House of Representatives

Thursday June 21, 2007

Good afternoon Chairman Stark, Representative Camp and distinguished members of the Subcommittee.  I am pleased to be here today to discuss the Medicare prescription drug benefit (Part D) and in particular, beneficiary protections and plan oversight.  Following the enactment of Part D with the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA), CMS undertook an unprecedented outreach campaign, resulting in approximately 90 percent of eligible beneficiaries having creditable coverage for prescription drugs through Part D or other sources by the end of the initial enrollment period (May 15, 2006).  CMS has worked equally hard to ensure that once enrolled, people with Medicare are able to take advantage of their prescription drug coverage without difficulty.  

Part D in 2007:  Lower Costs and Improved Satisfaction

In many respects, Part D is the single most important benefit addition in the history of the Medicare program.  Nearly 24 million beneficiaries are enrolled in a Part D Prescription Drug Plan (PDP) or Medicare Advantage Prescription Drug Plan (MA-PD).  More importantly, according to recent surveys, overall satisfaction with Part D continues to be high among enrollees in the Medicare drug benefit.   In September of 2006, a survey conducted for the Medicare Rx Education Network reported that over 80 percent of Medicare beneficiaries are satisfied with their current coverage and drug plans, including beneficiaries eligible for both Medicare and Medicaid (dual eligibles), who receive the low income subsidy (LIS).[1]  According to the follow-up survey conducted by the Network in early January 2007, overwhelming majorities of enrollees give Part D high ratings along a number of dimensions:  91 percent said the plan is convenient to use; 89 percent said they understand how the plan works; 86 percent said the plan has good customer service; 81 percent said the co-pays are affordable; 79 percent said the monthly premium is affordable; and 77 percent said the plan covers all medicines.  Part D is working especially well for those who need assistance most urgently.   The Medicare Rx Education Network reports that almost 9 out of 10 dual-eligible enrollees are satisfied with their coverage.    

In addition to beneficiary participation and satisfaction, the program also has resulted in significant savings for beneficiaries and lower-than-projected costs for taxpayers.  Beneficiaries are saving an average of $1,200 a year, with estimated average premiums in 2007 now at $22 a month, down from an average of $23 a month in 2006 and 42 percent lower than the original estimate of $37 a month.    

The latest cost projections for Part D through 2015, released on April 23 with the 2007 Medicare Trustees Report, are 13 percent lower than estimated in the 2006 Trustees Report (and substantially lower than the original estimates from 2003).  Plan bids for 2007 were 10 percent lower than in 2006, as a result of intense competition among plans to attract and retain enrollees and plans’ expectations to further increase use of inexpensive generic drugs, rather than more costly brand-name equivalents.  In addition, overall prescription drug costs have increased much more slowly during 2004-2006 than in prior years.  Together with additional factors, these developments have reduced projected Part D costs significantly compared to the estimates in the 2006 Trustees Report. 

What a Difference a Year Makes: Lessons Learned

When CMS last appeared before this Subcommittee to testify regarding the Part D prescription drug benefit, we reported on our efforts to resolve a number of systems and process issues that impacted some Part D enrollees’ ability to access covered drugs.  CMS worked hard to find and fix the problems, and took significant steps early to avoid similar issues in 2007.  We worked with plans, pharmacists and States to improve data systems impacting beneficiary access.  For example, we facilitated better communication between plans and pharmacies, which resulted in upgrades to pharmacy software systems that will improve messaging between pharmacies and plans for better customer service.  Also, throughout the year, CMS made a series of systems and process changes and enhancements to improve our file and data exchanges with plans, SSA and the States to improve performance and accuracy in beneficiary enrollment and benefits processing. 

In September of 2006, CMS published a “Readiness Checklist” for all prescription drug plans, reminding them of their obligations, key dates, and vital tasks to ensure a smooth annual enrollment season and transition to the 2007 benefit year.  The Readiness Checklist included elements related to call center requirements, complaint resolution, systems testing and connectivity, data submission and file processing, enrollment procedures, beneficiary marketing and communication strategies, beneficiary and pharmacy customer service, and timely payment to pharmacies.

In early November 2006, CMS asked all plans to report on their successes and any problems encountered in accomplishing the tasks on the Readiness Checklist.  The results from this exercise served two important functions: First, it reassured CMS that the vast majority of plans were fully prepared for annual enrollment and the new benefit year, and that they had successfully implemented our guidance and requirements. Second, it identified areas where some plans indeed were having problems – for example, some plans reported that they were not able to issue the Annual Notices of Change (ANOCs) within the timeframe specified by CMS.  Using this information from the Readiness Checklist, CMS was able to quickly implement a strategy to ensure that beneficiaries who did not receive an ANOC in a timely manner would be granted a special election period to extend the period of time they had to make a decision about their 2007 plan choice.  CMS intends to repeat the Readiness Checklist exercise again this fall, in preparation for the 2008 plan year.

In the case of dual eligibles, CMS worked vigorously to address and fix the problems that caused the transition issues in 2006 in order to ensure a smoother transition in 2007.   In the fall of 2006, CMS identified a handful of plans that either would be receiving auto-enrollees and facilitated enrollees for the first time or would receive a significantly higher volume of auto-enrollees and facilitated enrollees in 2007 compared to 2006.  To ensure that these beneficiaries would experience a smooth transition to receiving their prescription benefits through a Part D plan, CMS conducted auto-enrollment and facilitated enrollment readiness audits.  These audits were very thorough and examined all of the systems and other processes plans needed to have in place to successfully process the enrollment records, communicate with beneficiaries, and provide service.  Any plan that was not fully prepared to undertake this important task was excluded from receiving auto-enrollments and facilitated enrollments.  CMS plans to administer readiness audits again in 2007, in preparation for the 2008 benefit year.

To ensure a smooth transition for the existing LIS population specifically, CMS worked with States and SSA to identify dual eligibles and other limited-income beneficiaries (QMB, SLMB, Q-1 and SSI) beneficiaries who would again automatically qualify for LIS in 2007.  Such beneficiaries were “re-deemed” for the low income subsidy for all of 2007.   CMS also identified those who would not be automatically eligible in 2007, and worked with SSA to contact these individuals by mail in September of 2006.  The notification explained the loss of deemed status, encouraged the beneficiary to apply for LIS, and provided an application for LIS with a postage paid envelope.  It was CMS’s goal to ensure that each of these beneficiaries was aware of their change in status and able to take action accordingly. 

Additionally, CMS provided guidance and information to State Medicaid Directors, including a list of the affected beneficiaries (at the zip code level), and sent information to plans about their affected members in early October so that they could conduct  outreach (by phone or mail).  Over the past several months, almost 50 percent of those who had lost their deemed status regained such status or applied for the subsidy and qualified for LIS with SSA.  CMS has already provided guidance to States about our process for 2008, and we have been working with SSA to identify ways to reach out to those who lose deemed status to ensure that they apply with SSA as early as possible.

CMS also anticipated transition issues related to the requirement that plan sponsors must qualify annually for automatic assignment of dual eligible beneficiaries.  Due to the nature of the annual bidding process and the requirement that dual eligible beneficiaries be assigned only to plans that submit bids below the regional low-income benchmark (LIS benchmark), a strong potential existed that many plans qualified to accept auto-assignment of dual eligible beneficiaries in 2006 might not qualify in 2007 resulting in a large-scale shift of this population in the new benefit year. 

To address this issue, as well as to promote effective competition that builds on the savings achieved through beneficiaries’ plan choices in 2006, CMS is conducting a demonstration for 2007 that implements a transitional approach to determining the federal contribution to the drug benefit for low-income Medicare beneficiaries in 2007.  This demonstration resulted in greater stability in zero-premium plan options for LIS beneficiaries, thus minimizing the need for beneficiaries to be reassigned for 2007.  In addition, as another key aspect of CMS’ efforts to minimize dual eligible beneficiary movement among plans, CMS is conducting a demonstration for 2007 that permits plans with premium increases of less than $2 above the LIS benchmark to qualify to retain their current LIS beneficiaries.  Where the plan’s premium increased by more than that amount, the beneficiary was reassigned to another plan offered by the same sponsor with a premium below the benchmark, where possible, to minimize transition issues.  If a beneficiary had independently chosen that plan for 2006, CMS honored the decision for 2007, allowing the beneficiary to remain in their 2006 plan.  In these cases, plans notified individuals of their prospective premium increase in 2007 and of their right to change plans.

Thanks to these efforts, fewer than 250,000 individuals needed to be re-assigned randomly to different prescription drug plan sponsors.  These individuals received a letter on color-coded (blue) paper in November indicating that their 2006 plan’s premiums were increasing for 2007 and that they would be reassigned to a new plan.

Finally, CMS has made important strides to promote a seamless transition for Medicaid-eligible individuals who are about to attain Medicare eligibility.  In July of 2006, we asked States to begin submitting information to us concerning these individuals in advance of their Medicare eligibility so that CMS can deem them eligible for the LIS and assign them to a Medicare Part D plan before the start of their Part D eligibility.  This prospective identification and enrollment process has resulted in the seamless transition of more than 10,000 new dual eligible individuals per month into Medicare Part D coverage.

Beneficiary Protections and CMS Oversight of Part D Plans

Medicare Part D includes beneficiary rights and protections similar to those in other parts of Medicare.  These rights and protections are intended to ensure beneficiaries have access to covered Part D drugs, and prevent discrimination against certain classes of beneficiaries (e.g., those with high drug costs).  For example, Part D plans are required to submit formularies for CMS review and approval, and to provide a wide range of information to beneficiaries on such matters as plan formularies and benefits.  Plans also must have grievance, coverage determinations, and appeals processes that are consistent with CMS regulatory requirements.  In addition to these protections, which are highlighted in greater detail below, all Part D plans must contract with a broad network of retail pharmacies throughout their service area; must conform to detailed marketing guidelines; must operate toll-free customer service lines with convenient hours; and must participate in consumer satisfaction surveys (among many other things).

Formulary Requirements

The MMA requires CMS to review Part D formularies to ensure that beneficiaries have access to a broad range of medically appropriate prescription drugs to treat all disease states.  CMS relies on stringent formulary requirements, overseen through a comprehensive, multi-step review process, to help ensure beneficiaries have access to covered Part D drugs.  Formularies and formulary management practices vary across plans, subject to CMS-published guidelines reflecting two overarching policy objectives.  First, Part D plan sponsors must have robust formularies developed and approved in accordance with CMS guidance that do not substantially discourage enrollment by or discriminate against particular types of beneficiaries.   Second, plan sponsors are expected to use approaches to drug benefit management that are proven and in widespread use in prescription drug benefit management outside of Medicare. 

As a condition of participation in Part D, sponsors must submit their plan formularies for CMS review and approval.  CMS considers covered drugs as well as utilization management techniques in reviewing plan formularies.  If CMS reviewers find that a plan’s formulary could substantially discourage enrollment by certain types of beneficiaries or otherwise violates Part D program requirements, that formulary will not be accepted and if unchanged, the plan is not eligible for a Part D contract.

In addition to maintaining robust formularies, Part D plans’ transition processes must address situations in which a beneficiary first presents at a participating pharmacy with a prescription for a drug that is not on the formulary, unaware of what drug is covered by the plan or of the plan’s exception process.  Plans must have systems capabilities that allow them to provide a one-time, temporary supply of non-formulary Part D drugs (including Part D drugs that are on a plan’s formulary but require prior authorization or step therapy under a plan’s utilization management rules) in order to accommodate the immediate needs of the beneficiary.  In general, during the first 90 days in a plan, Medicare drug plans must provide their enrollees with 30 days to transition to another drug on the plan’s formulary or to request a formulary exception.  Different rules may apply for people who reside in an institution (like a nursing home).  An effective transition process ensures that new drug plan enrollees will have timely access to the drugs they need while allowing the flexibility necessary for plans to develop a benefit design that promotes beneficiary choice and affordable access to medically necessary drugs.  CMS reviews attestations of plan sponsors’ transition processes as part of the plan benefit design review.  Plan transition processes must address such situations for new enrollees, in addition to situations where enrollees are stabilized on formulary drugs that require prior authorization or step therapy under a plan's utilization management rules.   

Outside of the transition period, if a beneficiary’s physician determines that it is medically necessary for the beneficiary to take a certain drug, and the beneficiary has already tried similar drugs on his/her plan’s formulary and they did not work, the beneficiary or the physician can contact the plan to request a formulary exception.  If the request is approved, the plan will cover the drug.       

Coverage Determinations (including Exceptions) and Appeals

CMS has incorporated substantial enrollee protections in the Part D coverage determination and appeals processes, which build on the processes used for the Medicare Advantage program and reflect additional considerations for prescription drugs.  As mentioned above, beneficiaries may request a formulary exception.  Part D plans must grant an exception, consistent with the prescribing physician’s supporting statement, when it determines that the drug is medically necessary because (1) all covered Part D drugs on any tier of a plan’s formulary would not be as effective for the enrollee as the non-formulary drug, and/or would have adverse effects; (2) the number of doses available under a dose restriction for the prescription drug has been ineffective or is likely to be ineffective or adversely affect patient compliance; or (3) the prescription drug alternative(s) listed on the formulary or required to be used in accordance with step therapy requirements has been ineffective or is likely to be ineffective or adversely affect patient compliance, or has caused or is likely to cause an adverse reaction or other harm.

Plans must issue decisions as quickly as an enrollee’s health status requires.  In addition, plans must have procedures to expedite these determinations and render decisions within 24 hours.  An enrollee, their designated representative, or the enrollee’s prescribing physician may request that a Part D plan expedite a coverage determination when the enrollee or his or her physician believes that waiting for a decision under the standard timeframe may place the enrollee’s life, health, or ability to regain maximum function in serious jeopardy. 

If an enrollee is dissatisfied with a coverage determination, he or she can appeal the decision (including a decision on an exception request).  The prescribing physician also can ask for an expedited first-level appeal (redetermination) on behalf of the enrollee.  For expedited redeterminations, a Part D plan must give the enrollee (and prescribing physician involved, as appropriate) notice of its decision as quickly as the enrollee’s health status requires, but no later than 72 hours after receiving the request.  Decisions on standard redeterminations must be communicated to the enrollee in writing no later than 7 days after receiving the request.  If a plan issues an adverse redetermination, the enrollee will receive a notice that includes information on how to request a reconsideration by the Part D independent review entity (IRE). 

Plans are required to report data to CMS related to, among other things, prior authorization, step edits, formulary exceptions, tiering exceptions, and appeals.  For example, the number of appeals forwarded by a plan to the IRE for consideration due to the plan’s inability to meet timeframes for coverage determinations and redeterminations are collected by CMS and outliers are investigated.  CMS also receives appeals information directly from the IRE, which is then compared to information submitted by the plans for further monitoring.

CMS has taken a number of steps to make the coverage determination and appeals processes more understandable and accessible.  For example, CMS has developed publications designed for beneficiaries and physicians that explain how to request a coverage determination or an appeal and model forms that can be used when requesting coverage determinations (including requests for prior authorization).  CMS also developed “best practice” standards for plan websites for the dissemination of appeals information.

Oversight of Part D Plans

Building upon lessons learned and information gathered during 2006, CMS has strengthened its oversight of Part D plans.  CMS continually collects and analyzes performance data submitted by Part D plans, internal systems, and beneficiaries.  CMS has established baseline measures for the performance data and has been tracking results over time.  Plans not meeting the baseline measures are contacted by CMS and compliance actions are initiated.  Actions range from warning letters all the way through civil monetary penalties and removal from the program, depending on the extent to which plans have violated Part D program requirements.  All violations are taken very seriously by CMS, with beneficiary protection the foremost concern.

Compliance audits are another key approach to Part D plan oversight.  CMS is working to improve its methods for identifying companies for compliance audits, making more efficient use of the resources available for ensuring compliance.  For example, we have developed a contractor risk assessment methodology that informs the audit process by identifying organizations and program areas that represent the greatest compliance risks to Medicare beneficiaries and the government.  CMS can then direct audit resources to those high risk contracts.  While receipt and analysis of data is central to this oversight strategy, regularly scheduled and focused/targeted program compliance and program integrity audits remain necessary to ensure program compliance and document the Agency’s program oversight responsibilities.   Based on enhanced knowledge of the program – what is working well and what areas need to be strengthened – CMS is revising the risk assessment methodology to better equip us to focus our oversight resources on the most problematic plans.  We anticipate the revised risk assessment tool will be ready for implementation and use in January 2008.

Currently, CMS is aware that there are significant concerns about the marketing practices of some plans.  We are extremely concerned about reports of marketing schemes designed to confuse, mislead or defraud beneficiaries, and are taking vigorous action to address violations.  CMS enforcement responses to marketing violations may range from issuing a warning letter to requesting a corrective action plan to imposing civil monetary penalties or ultimately terminating a plan sponsor’s contract.  CMS also takes steps to ensure that beneficiaries are protected.  Any beneficiary who believes he or she was enrolled in a plan without his or her consent may contact the plan, 1-800-MEDICARE, or a CMS Regional Office for assistance in disenrolling from the plan and selecting another Part D plan if desired.   CMS has caseworkers in all Regional Offices and in our Central Office available to assist beneficiaries in resolving such issues, and has recently updated its protocols to ensure that caseworkers understand how to handle these requests expeditiously.

Further, CMS is now working with a contractor to augment the internal agency resources available for Part D compliance audits.  Among other things, the contractor is conducting “secret shopping” at marketing events across the country; such information enables CMS to learn firsthand what is happening in the sales marketplace and to identify organizations for compliance intervention that are not meeting CMS marketing and enrollment requirements.

CMS also has strengthened relationships with State regulators that oversee the market conduct of health insurers.  Specifically, CMS worked cooperatively with the National Association of Insurance Commissioners (NAIC) and State Departments of Insurance to develop a model Compliance and Enforcement memorandum of Understanding (MOU). This MOU enables CMS and State Departments of Insurance to freely share compliance and enforcement information, to better oversee the operations and market conduct of companies we jointly regulate and to facilitate the sharing of specific information about marketing agent conduct.  


CMS continues to make significant progress in overseeing and promoting quality Part D prescription drug coverage.  With ongoing effort and vigilance, I am confident we will see continued high levels of plan compliance with program requirements, along with significant improvements where necessary on this critical front.  Thank you again for the opportunity to speak with you today.  I look forward to answering your questions.


[1] Results are based on a telephone survey of 802 seniors ages 65+ enrolled in Medicare, conducted September 1-7, 2006, by KRC Research for the Medicare Rx Education Network.  Of those surveyed, 82 percent are somewhat (29 percent) or very (53 percent) satisfied with their coverage.  The margin of error for the full sample is +3.5 percentage points.

Last revised: June 18, 2013