Part D Challenges
Wendy Krasner and Andrea Cohen
October 24, 2005
The new Medicare drug benefit, commonly referred to as “Part D,” takes effect on January 1, 2006. Perspectives on Part D seem to be Rorschach tests on how commentators view our healthcare system. The program has been described as everything from a major improvement necessary to bring Medicare into the modern age by covering prescription drugs, to a huge unfunded increase in domestic government spending, to a boondoggle for drug manufacturers and insurance companies, to the most important life saver for low income seniors without other drug coverage, to a disastrously complicated social experiment. The government and private sector effort to implement Part D may be one of the most significant domestic initiatives undertaken in the last two decades.
While it is frequently stated that Part D was the best prescription drug benefit Congress could have developed in 2003 given budget, political, legal, practical, and policy constraints, virtually all Part D commentators agree that effective implementation remains a daunting undertaking. This article reviews just a sampling of the thorniest legal and policy challenges that still face the Part D program on the eve of its launch.i
Rulemaking
After Part D was enacted on December 8, 2003 (as part of the nicknamed “Medicare Modernization Act,” or MMA), the Centers for Medicare and Medicaid Services (CMS) was diligent in issuing proposed and final rules on the temporary prescription drug discount card program, and then proposed and final rules on both Titles I (Part D) and II (Part C, now called Medicare Advantage).ii Issuing thousands of pages of regulations and analysis on a timely basis took a massive effort, and CMS deserves significant credit for that accomplishment. However, the nearly unprecedented complexity of Part D made it impossible for CMS to address all of the issues and questions raised by stakeholder groups during the implementation period. As a result, and in a welcome effort to respond to public concerns, CMS has promulgated a significant amount of “informal” regulatory guidance over the last two years. This effort has taken the form of a variety of initiatives from “questions of the day,” policies and procedures, guidelines, frequently asked questions (FAQs), weekly (or more frequent) conference calls with stakeholder groups to address issues, and ongoing, non-stop issuance of information, press releases, kits, timelines, etc. This kind of informal guidance addresses some of Part D’s most contentious issues, from the comprehensiveness of required formularies for Part D plans to the process for transitioning the so-called “dual eligibles” from Medicaid drug coverage into Part D. Occasionally, CMS has released these materials in “draft” for public comment,iii but more often CMS has issued the materials as final guidance. Sometimes CMS has had to reissue guidance when it subsequently received comments pointing out inconsistencies or problems.iv And even now, some important guidance that CMS has promised to provide has not yet as of this writing been made available.v
Most observers do not question that, in order to assure timely implementation of the drug benefit, CMS had to undertake this type of effort. However, the practical circumstances facing CMS and the seriousness of the issues addressed through informal issuances do nothing to cloak “FAQs” posted on the CMS website with the same legal force as duly promulgated regulations subject to notice and comment or issued as emergency “interim final” issuances. It appears that CMS has left itself vulnerable on an ongoing basis to charges by those dissatisfied with the implementation of the Part D benefit that it did not follow required administrative procedures in implementing the program, or that the “guidance” it issued is not enforceable.
Compliance/Fraud and Abuse
Standard Medicare and Medicaid fraud and abuse and compliance provisions are applicable to Part D contractors and their subcontractors. As with any program involving a significant new infusion of federal funds, policymakers and stakeholders have legitimate concern that unscrupulous elements will follow the money and seek to exploit a new opportunity. CMS has actively sought to inform program participants about its plans to monitor Part D compliance and to deter and prosecute fraud and abuse. Its activities have included hosting a compliance conference in late September; issuing a Medicare fact sheet detailing how HHS is expanding its efforts to fight fraud; issuing guidance on the plans’ responsibilities; and issuing materials geared to consumer describing how they can participate in the efforts to fight fraud.vi
Despite the issuance of various kinds of guidance, there are troubling open issues as to what is expected of Part D contractors in this arena. A new component is the fraud waste and abuse (FWA) program for Part D plans that is required either in addition to, or as part of, their compliance programs. In June, CMS issued an eight page document entitled “ Review of Sponsors’ Fraud Waste and Abuse Responsibilities Summary Document.”vii The document included a disclaimer that it is merely a draft and that it is not to be considered final or complete guidance. CMS will publish future guidance and reserves the right to change, add to or modify these guidelines. CMS is currently planning to release guidance sometime in November, in a much lengthier document. It is unclear if there will be an opportunity for public comment on this forthcoming release, and it could hold many surprises. In the interim, CMS advises Part D participants to use their “ best efforts” in implementing the FWA components of their compliance program. CMS has also stated that it will in the future announce the date by which plans must be in compliance with the forthcoming FWA guidance. Part D contractors face a major operational challenge, knowing that significant new FWA guidance is forthcoming, possibly only weeks before the Part D benefit begins.
Another area of uncertainty is the role of the newly created Medicare Drug Integrity Contractors (MEDICs), with whom CMS is contracting to support CMS’ anti-fraud and abuse efforts related to Part D and the Medicare Advantage program. It is not yet clear how – or whether – the MEDICs will coordinate with other program integrity activities, including audits and reviews. For example, CMS has advised Part D plans to have enrollees call the MEDICs hotline when they are aware of any instance of possible fraud, waste or abuse. It is not clear if this is meant to cover possible violations by the plans, or providers, or both, or if enrollees should also call their plans; nor is it clear how the MEDIC response will coordinate with the plans’ response to enrollees’ reports.
Finally, the Part D contractors must work in the context of an environment in which some enforcement officials believe that the health industry is bent on scheming up new ways to defraud government payors. Indeed, James Sheehan’s speech at the recent AHLA compliance conference seemed to call into question some of the fundamental underpinnings of the MMA (e.g., he labeled as “fraud” the employer subsidy, the government reinsurance payments, and the calculation of TrOOP ( true out of pocket costs used to determine what can fill in the coverage gap in the donot hole)).viii It is not clear how Part D sponsors should react to these sweeping statements as to what constitutes fraud under Part D.
Marketing
Marketing the Part D benefit and helping beneficiaries become informed consumers is viewed as a key to making this highly complicated program work. Most marketing and educational activity targeted to current Medicare beneficiaries will occur between now and May 2006, after which a late enrollment penalty kicks in. CMS issued detailed marketing guidelines – which are currently being revised as new issues arise — and then plans to update the guidelines quarterly on an ongoing basis.ix While many Part D marketing issues are similar to those that arose under Medicare Part C (e.g., plans are prohibited from cherry picking or providing inducements to enroll), there are new marketing issues unique to Part D. For example, several Part D plans have established relationships with a wide range of insurance broker/agents with limited, if any, Medicare experience. Thus plans, which are ultimately responsible for ensuring compliance with marketing rules, may have a more difficult time with oversight of all of the activities of their subcontractors.
Another unique feature of Part D marketing is the extent to which CMS itself is promoting the new program, and its expanded efforts to promote enrollment in Medicare Advantage plans. CMS has issued beneficiary outreach, website, various finder tools (e.g. formulary finders that allow individuals to ascertain which plans cover specific drugs) and other materials. Some consumer groups have also complained that CMS’ interest in marketing the program has resulted in biased presentations cloaked as “objective” information for consumers. Already there have been incidents where the CMS-issued materials have been found to provide erroneous information. With the far reaching scope of both government and plan outreach, this increases the likelihood of beneficiary misunderstanding, and outright marketing abuses.
One area where there has been a key policy change for Part D from Part C marketing restrictions is with respect to provider promotional activity. While initially CMS intended to allow this activity on a very limited basis, due to the high volume of questions from patients being raised with doctors, pharmacists, hospitals and other providers, CMS decided to revise its guidelines to reflect the realities facing providers. While providers can not accept enrollment applications, they may print out and share information from CMS website and distribute plan marketing materials. Yet stand-alone Part D plans do not contract with these providers, so it is not clear how enforcement will work or who will be held accountable if providers exceed the scope of marketing activity outlined by CMS in an effort to advise confused patients.
Formularies
The MMA prohibits the Secretary of HHS from requiring Part D plans to use a particular formulary.x The theory is that the Part D benefit should look more like the current commercial health insurance market, where formularies vary based on clinical decisions of pharmacy and therapeutics committees as well as on business arrangements negotiated with manufacturers. As CMS developed informal but detailed formulary guidance, it directed that, for six classes of particular drugs, plans were required to cover a “majority of” the drugs in those classes.xi CMS subsequently issued a FAQ that required coverage of “all or substantially all of these drugs.”xii In issuing this guidance, CMS invoked its responsibility to assure that formularies are not discriminatory, particularly against the most vulnerable populations who tend to take drugs in the six classes. However, whether CMS’ informal formulary guidance will be challenged as impermissible “establishment of a particular formulary,” or simply ignored by plans in implementation, remains unclear. CMS has already indicated that it will be issuing new formulary policies early in 2006 that will be effective for 2007.
Medicare Part B versus Part D Coverage Issues
Another major area challenge in implementing the new benefit is accurately identifying drugs that are “excluded” from Part D coverage, which includes drugs that should be covered under Medicare Part B and drugs that are listed in the Medicaid statute as subject to state restrictions. Identifying these drugs is critically important not only to Part D plans, but to all payors who may be providing primary or secondary coverage under Part D, like group health plans and state pharmacy assistance programs. CMS issued “draft” guidance “for discussion purposes only” about distinguishing drugs that should be covered by Part D or Part B; the guidance has been revised several times.xiii This guidance includes a chart which groups the various categories of Part B covered drugs according to the extent to which they present “some ambiguity” for billing entities and/or Part D plans with regard to whether coverage should be under Part B or Part D. One section of the chart is entitled “Completely Unambiguous Situations,” and significantly, it lists only two items: (1) unique drugs never dispensed by a pharmacy, and (2) drugs that would not be covered under Part D because of Part B coverage (blood clotting factors, antigens, and pneumonia and flu vaccines).xiv Implicitly, CMS is recognizing that all other scenarios are “ambiguous.” Indeed, CMS has acknowledged the need for further clarification, and it can be expected that overlap of coverage will lead to significant administrative, operational and legal difficulties. CMS has already stated that Part D plans may NOT cover a drug under Part D just because it costs less to cover the drug than the administrative expenses involved in determining whether it is covered under Part B or D. Unfortunately, the burden of parsing through unclear guidance will likely fall on pharmacies, pharmacists, and perhaps physicians but this will be fraught with uncertainty and compounded by the fraud and abuse/false claims liability potentially associated with erroneous decisions.
Medication Therapy Management Program (MTMP)
A key aspect of the Part D program is the incorporation of utilization management and quality assurance tools. One of these tools is the MTMP, under which plans are required to offer MTMP to targeted patients with high drug costs and/or multiple chronic conditions with the goal of optimizing therapeutic outcomes. Yet even this is potentially fraught with controversy. In developing final regulations, CMS was not yet in a position to define the underlying terms of the MTMP concept, so instead it required plans to develop their own protocols for CMS to review. Accordingly, fundamental issues around MTMP are unresolved, including the breadth of the population required to be covered (what constitutes “multiple chronic conditions”?), whether plans can provide MTMP themselves, or whether they must use pharmacies or outside entities to provide MTMP services; what MTMP services include; and what kind of payment is appropriate. CMS has also not addressed a central issue regarding use of MTMP, which is that stand alone Part D plans do not have access to Part A and Part B Medicare claims so it is not clear how they can perform meaningful clinical management functions. Moreover, even if they had access, these plans do not have much incentive to manage care since they do not receive any financial benefit from the presumably lower Part A and B costs that would result from a well-managed Part D benefit.
Nursing Home Residents and Dual Eligibles
Thorny legal and policy issues remain around the transition of dual eligible individuals (those eligible for both Medicare and Medicaid) and nursing home residents into the new Part D benefit. Despite improved plans by CMS to automatically enroll dual eligibles into Part D plans on January 1, 2006, commentators and state officials have identified risks that some dual eligible individuals will fall through the cracks of a complicated transition and not have any drug coverage in the early days of the new benefit. xv To date, CMS has not announced comprehensive contingency plans for dual eligibles or indicated who will be responsible for coverage for those who are unintentionally not enrolled in Part D plans when Medicaid coverage terminates.
Providers and beneficiary advocates have also expressed concern about whether nursing home patients will be able to enroll in appropriate Part D plans that will provide access to the prescriptions and special long-term care pharmacy services that they need. Two thirds of nursing home patients are dual eligibles and will be assigned at random to Part D plans if they do not choose one themselves. Plans must provide “convenient access” to long-term care pharmacies but it is unclear if this will guarantee each resident that his or her plan includes a pharmacy that works with his or her facility. Moreover, if a resident wants to change plans, it is unclear that they will be able to do so. Many nursing home residents have cognitively impairments and are unable to select or enroll in a plan themselves. CMS has, to date, said that state law standards for “authorized representatives” apply, and it has indicated that nursing homes are subject to marketing guideline limitations on assisting patients in selecting plans. There is concern, however, that there may be a significant number of nursing home residents who are incapable of selecting a Part D plan but who do not have a representative authorized under state law to make the decision for them. Furthermore, nursing homes may face very challenging operational considerations if their residents are enrolled in a large number of different Part D plans, with different long-term care pharmacy arrangements and different formularies.
Other Issues
Unfortunately there are numerous other issues that are likely to raise comparably thorny dilemmas, including federal and state pre-emption, the retiree drug subsidy, appeal rights, electronic prescription requirements, the transparency of rebate and other price concessions received by plans and employers, and the calculation of the “True out of pocket” (“TrOOP) amounts, to name just a few. In any event, these various examples are merely illustrative of the potential pitfalls and the daunting complexity posed as the Part D benefit is implemented.
To some extent, the wide scope of potential problems is not surprising because they are endemic to what many would call our country's dysfunctional health system. However, several structural elements of the Part D program exacerbate the difficulties, including the sheer size and complexity of the program; the initial success of the program in attracting unexpectedly high levels of private sector participation (meaning that consumers now have what many believe to be too much choice); the fact that many of the program beneficiaries are the frail elderly, poor and people with disabilities; the increased ability of various program participants to collect useful healthcare data along with significant barriers to meaningful sharing of the data; and the fundamental underpinnings of Part D which requires meshing a federal benefit with private sector plans.
In addition to the policy and legal challenges that Part D faces are the high political stakes implicated by the success or failure of the program. The Bush Administration views the new drug benefit as one of the cornerstones of its domestic achievements, while many Democrats hope that the shortcomings of the benefit will influence the outcome of the next elections.
As lawyers, our challenge is to help the wide spectrum of stakeholders wend their way through the many legal, regulatory and policy minefields to facilitate to the extent possible the underlying goal of Part D, which is to help seniors and the disabled get access to the drugs they need through a cost-effective delivery system. Unfortunately, in light of the wide scope of potential pitfalls, there is limited cause for optimism that this goal will be achieved in the near future.
The authors both have significant experience with Part D. Wendy Krasner, a partner in the Washington, D.C. office of Manatt, was Deputy Vice President at PhRMA handling government programs during the negotiation and implementation of MMA. Andrea Cohen, Counsel in the New York office of Manatt, was Health and Oversight Counsel to the Senate Finance Committee during the negotiation and drafting of MMA. She also served as Senior Policy Counsel to the Medicare Rights Center from 2004-2005, where she focused on Part D implementation issues of particular concern to beneficiaries. |
