Department of Health and Human Services
 
OFFICE OF 

 
INSPECTOR GENERAL 

 
 
 
 
 
 
 
 
TRACKIN  G BENEFICIARIES  TRUE 

 
O - -P C
UT OF OCKET  OSTS FOR THE 

 
 
P D P D
ART    RESCRIPTION  RUG 

 
  B  
ENEFIT 

 
 
 
 
 
Daniel R. Levinson 
  
Inspector General 

 
December 2007 
 
OEI-03-06-00360 
   
Office of Inspector General 

 
http://oig.hhs.gov 
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452,  
as amended, is to  protect the integrity of  the Department of Health and Human Services 
(HHS)  programs, as well as the health and welfare of beneficiaries  served by those 
programs.  This statutory mission  is  carried  out through  a nationwide network  of  audits, 
investigations, and inspections conducted by the  following operating components:  
Office of Audit Services 
The Office of Audit Services (OAS) provides all auditing services  for HHS, either by  
conducting audits with its  own audit resources or by overseeing audit work done by others.   
Audits examine the performance of HHS programs and/or its grantees and  contractors  
in carrying out  their respective responsibilities and are intended  to provide independent  
assessments of  HHS programs and operations.  These assessments help reduce waste, 
abuse, and mismanagement  and  promote economy and  efficiency throughout HHS. 
Office of Evaluation and Inspections  
The Office  of  Evaluation and Inspections (OEI)  conducts national evaluations to  provide 
HHS, Congress, and the public with timely, useful, and reliable information on 
significant issues.  Specifically, these evaluations focus on preventing fraud,  waste,  or  
abuse and promoting  economy, efficiency, and effectiveness  in departmental programs.  
To promote impact, the reports also present practical recommendations for improving 
program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative  
investigations  of  allegations of wrongdoing  in HHS  programs or to HHS  beneficiaries  
and of unjust enrichment by  providers.  The investigative  efforts  of OI lead to  criminal  
convictions, administrative sanctions,  or  civil monetary penalties.  
Office of Counsel to the Inspector General 
The  Office of Counsel to the Inspector General (OCIG)  provides  general legal services  to  
OIG, rendering  advice and opinions on HHS programs  and operations and providing all 
legal support in OIG's internal operations.   OCIG imposes program exclusions and civil 
monetary penalties  on health care providers and litigates  those actions  within HHS.   
OCIG also  represents OIG in the global settlement of  cases  arising under the Civil False 
Claims Act, develops and monitors corporate integrity agreements, develops compliance 
program guidances, renders advisory opinions on OIG sanctions to  the health care  
community,  and issues fraud alerts  and other industry  guidance.  
   
  E X E C U T I V E   S U M M A R Y
OBJECTIVE 
1. 	  To review the processes that Part D plans and the Coordination of 
Benefits Contractor (COBC) use  to help ensure the accurate  
tracking of beneficiaries true  out-of-pocket (TrOOP) costs. 
2. 	  To determine the extent to which the Centers for Medicare & 
Medicaid Services (CMS) conducts oversight of Part D plans to 
ensure the accurate tracking of TrOOP costs.   
BACKGROUND 
The Medicare prescription drug program, known as Medicare Part D,  
provides an optional prescription drug benefit for all Medicare  
beneficiaries. Part D plans are responsible for tracking beneficiaries 
TrOOP costs.  TrOOP costs are the prescription drug expenditures that 
count toward the annual out-of-pocket threshold that beneficiaries must 
reach before catastrophic drug coverage begins.   Medicare beneficiaries 
enrolled in Part D plans may have  additional prescription  drug 
coverage.  Tracking TrOOP costs involves coordination and 
communication between CMS, contractors such as COBC, Part D plans, 
and other payers of prescription drug benefits.  The amount of  
beneficiaries TrOOP costs impacts their cost sharing as well as CMS 
payments to Part D plans. 
To review the processes for and CMSs oversight of the accurate 
tracking of beneficiaries TrOOP costs, we interviewed staff from CMS 
and its contractors and analyzed survey information from a sample of 
138 Part D plans regarding activities, policies, and procedures related to 
TrOOP costs.  We gathered and analyzed relevant documentation from 
respondents. We collected data from October 2006 through March 2007. 
FINDINGS 
Information on enrollees additional drug coverage, essential for the 
accurate tracking of TrOOP  costs, was not consistently  submitted to  
COBC in 2006.  To track TrOOP costs accurately, Part D plans must have 
information on any prescription drug coverage that enrollees have in 
addition to Part D coverage.  Twenty-nine percent of Part D plans did not 
submit their enrollees additional drug coverage information to COBC in 
2006.  Most  of these  plans indicated that they  did not have processes or  
systems in place to transmit this information.  In addition, 36 percent of  
other payers that had active data-sharing agreements with COBC did  not 
  OEI-03-06-00360   TRACKING  BENEFICIARIES  TRUE  OUT-OF-POCKET COSTS    i   
EEE XXX EEE CCC UUU TTT III VVV EEE     SSS UUU MMM MMM AAA RRR YYY     
submit their enrollees additional drug  coverage information for at least 
one of those agreements in 2006. 
Thirty-four percent of  Part D plans did not submit prescription drug  
event data in  accordance with CMS requirements in 2006.  CMS cannot 
verify that plans have calculated beneficiaries TrOOP costs correctly if it 
does not have plans prescription drug event (PDE) data. The PDE data 
include prescription drug cost and payment data that enable CMS to make  
payments to the plans and otherwise administer the Part D benefit.   
Thirty-four percent of plans, covering 49 percent  of Part D  beneficiaries,  
did not submit PDE data at the end of  the first quarter or in one or more 
months after the first quarter of 2006. These plans were not able to meet 
CMSs timeframes or had technical difficulties submitting PDE files. 
Sixty-three percent of Part D plans cited problems with transferring  
TrOOP balances when enrollees change plans.  Nearly two-thirds  of  
Part D plans reported having issues or problems with transferring TrOOP  
balances when enrollees change plans during the coverage year. At the 
time of our review, the transfer of TrOOP balances between plans relied 
heavily on labor- and resource-intensive  processes, such as faxing transfer 
records or creating hundreds of compact disks with  transfer information for 
enrollees new plans. In addition, plans indicated that enrollees transfer 
records may contain incorrect, questionable, or inconsistent data. 
CMS has conducted limited oversight of  Part D plans tracking of  
TrOOP costs.  CMS has conducted limited oversight of Part D plans 
tracking of beneficiaries TrOOP costs. The oversight CMS has conducted  
thus far relied on plans self-reported data. As of  April 2007, other 
oversight activities were either in the  planning stages or in the process of 
being implemented.  
RECOMMENDATIONS 
Tracking Part D enrollees TrOOP costs is a complex process involving 
coordination of many entities and data systems, as well as compliance 
with Part D instructions and requirements. Our findings indicate that 
a number of these requirements were not carried out consistently in 
2006. Therefore, we recommend that CMS: 
Ensure that Part D plans collect, process, and submit all data required to 
track enrollees TrOOP costs in a timely manner. CMS requires that 
Part D plans collect and submit enrollees additional prescription drug 
coverage information to COBC, process prescription drug claims and 
submit PDE records to CMS, and work with other Part D plans to 
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E X E C U T I V E   S U M M A R Y   
transfer enrollees TrOOP balances.  We recently learned that CMS is 
working with the National Council for Prescription Drug Programs to  
establish a standardized electronic system for transferring enrollees 
TrOOP balance information from one plan to another in real time.  CMS 
should continue to establish or improve automated systems to enable 
Part D plans to meet all data requirements related to tracking TrOOP 
costs. 
Consider options for increasing the number of coordination of benefits 
agreements with other payers and ensuring that data are submitted under  
those agreements.  Accurate tracking of TrOOP costs is dependent 
largely on successful coordination and sharing of prescription drug 
coverage information among payers and CMS contractors.  CMS should 
ensure that all options for increasing the number of data-sharing 
agreements have been considered.    
Because entities that provide additional drug coverage for Part D 
enrollees are not required by law to  report such information, CMS may 
want to consider seeking to expand its authority to enforce agreements  
once they are in place. The Presidents 2008 Budget includes a proposal 
to establish a data clearinghouse that would work to determine whether 
private insurance or Medicare should pay for a beneficiarys  health 
benefits. If implemented, such a clearinghouse could provide CMS with 
access to more comprehensive drug coverage information. 
Begin or complete implementation of planned oversight activities related 
to the tracking of TrOOP costs.  The implementation of the Part D 
benefit was a large undertaking for  CMS, its contractors, and Part D 
plans. Now that the program has been in place for almost 2 years, CMS 
should place more emphasis on conducting oversight activities.  
Examining Part D plans efforts to track TrOOP costs should be a 
priority given that these costs determine when beneficiaries reach each 
phase of the Part D benefit. OIG intends to focus future work on 
whether Part D plans have calculated beneficiaries TrOOP costs 
correctly.  
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS agreed that OIGs report identified potential issues regarding the 
accurate tracking of TrOOP costs and that additional work is needed to 
ensure that Part D plans are calculating TrOOP costs correctly.  CMS 
did not indicate whether it concurred with OIGs three 
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E X E C U T I V E   S U M M A R Y   
recommendations in its comments.  However, CMS did note that it has 
taken or will take steps in response  to each of OIGs recommendations, 
such as continuing the Part D plans self-attestation process, enforcing  
compliance with data-sharing agreements, and supporting legislation to  
mandate insurer reporting of private insurance coverage.  CMS also had 
questions concerning OIGs findings and suggested changes.  We 
addressed CMSs questions and suggestions in the body  of the report.   
We ask that CMS indicate in its final management decision  whether it 
concurs with our recommendations.  
 
 
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  T A B L E   O F   C O N T E N T S  
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
  
 
 
I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1 
  
 
 
F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8 
  
  Additional drug coverage information not submitted . . . . . . . . . . .  8 
  
  Prescription drug event data not submitted  . . . . . . . . . . . . . . . . .  10 
  
  Problems with transferring TrOOP balances  . . . . . . . . . . . . . . . .  11 
  
  Limited oversight activities conducted. . . . . . . . . . . . . . . . . . . . . .  12 
  
   
R E C O MMEN D A T ION S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15 
  
  Agency Comments and Office of Inspector General Response . . .  16 

   
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18 
  
  A:  Estimates and Confidence Intervals. . . . . . . . . . . . . . . . . . . . .  18 
  
  B:  Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  19 
  
 
 
A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23 
    
  I N T R O D U C T I O N
OBJECTIVE 
1. 	  To review the processes that Part D plans and the Coordination of 
Benefits Contractor (COBC) use  to help ensure the accurate  
tracking of beneficiaries true  out-of-pocket (TrOOP) costs. 
2. 	  To determine the extent to which the Centers for Medicare & 
Medicaid Services (CMS) conducts oversight of Part D plans to 
ensure the accurate tracking of TrOOP costs.   
BACKGROUND 
The Medicare prescription drug program, known as Medicare Part D,  
provides an optional prescription drug benefit for all Medicare  
beneficiaries.  Part D program expenditures totaled more than           
$47 billion in 2006.1   As of April 2007, over 25 million Medicare 
beneficiaries were enrolled in Part D prescription drug plans.  Part D 
plans are responsible for tracking beneficiaries TrOOP costs.  TrOOP 
costs are the prescription drug expenditures that count toward the 
annual out-of-pocket threshold that  beneficiaries must reach before 
catastrophic drug coverage begins.   Tracking TrOOP costs involves the 
coordination of many entities and data systems.  The amount of 
beneficiaries TrOOP costs impacts their cost sharing as well as CMS 
payments to Part D plans.  The Office of Inspector General (OIG) 
conducted this initial implementation review to identify potential issues 
with ensuring the accurate tracking  of TrOOP costs. OIG intends to 
focus future  work on whether Part D plans have calculated 
beneficiaries TrOOP costs correctly. 
Medicare Prescription Drug Program                                                         
CMS contracts with companies to provide prescription drug coverage for 
Medicare beneficiaries.   These companies sponsor plans that include 
stand-alone  prescription drug plans (PDP) as well as Medicare  
Advantage-prescription drug plans (MA-PD) that offer integrated  
coverage for both prescription drugs and other health care.  Each 
contract between CMS and these sponsors may include many plan 
 
1 2007 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and 
Federal Supplementary Medical Insurance Trust Funds,  p. 5.  Available online at 
http://www.cms.hhs.gov/ReportsTrustFunds/downloads/tr2007.pdf. Accessed April 26, 
2007. 
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I N T R O D U C T I O N   
benefit packages. Throughout this document, we refer to PDP and   
MA-PD contracts as Part D plans.   
Standard Prescription Drug Coverage 
Part D plans are required by the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 (MMA) to offer a standard 
prescription drug benefit or an alternative benefit that is actuarially 
equivalent to the standard benefit.  Part D plans may also offer 
enhanced plan benefit packages.  Most beneficiaries are responsible for 
certain costs, which may include a monthly premium, an annual 
deductible, and coinsurance.   However, beneficiaries with limited 
income are eligible to receive assistance to pay for some or all of these 
costs in the form of a low-income subsidy.   
The standard drug benefit requires beneficiaries  to pay a maximum 
deductible of $265 in 2007.  In the initial phase of the Part D benefit, 
after this deductible is paid, beneficiaries contribute 25 percent 
coinsurance toward their drug costs and the plan pays the remaining  
75 percent until combined beneficiary and plan payments reach a total 
of $2,400. After the $2,400 limit is reached, beneficiaries enter the 
coverage gap phase of the benefit in which they are responsible for     
100 percent of their drug costs.  The catastrophic coverage phase begins 
when a beneficiarys TrOOP costs reach $3,850.2   This amount includes 
the beneficiarys deductible and coinsurance payments.  Once 
beneficiaries reach $3,850 in TrOOP costs, they contribute 
approximately 5 percent coinsurance toward their drug costs.  Of the 
remaining 95 percent, the Part D plans are responsible for 
approximately 15 percent of drug costs and CMS pays the plans           
80 percent. This 80-percent reimbursement to the plans is called a 
reinsurance subsidy.  
Calculating TrOOP Costs 
Some Medicare beneficiaries with Part D coverage have additional 
prescription drug coverage through other entities, such as State 
Pharmaceutical Assistance Programs, group health plans, Medicaid 
programs, the Federal Employee Health Benefits Program,  or 
 
2 In 2006, the deductible was $250 and the TrOOP costs threshold was $3,600.  Available 
online at  http://www.rds.cms.hhs.gov/downloads/Final2007PartDParameterUpdate.pdf. 
Accessed May 4, 2007. 
 
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TRICARE. However, only certain drug payments are eligible to be 
counted toward the TrOOP costs threshold.   
Drug payments that count toward TrOOP costs include: 
  payments made by a beneficiary or another person on behalf of a 
beneficiary, such as a family member;  
  low-income cost sharing subsidies;  
  payments by a qualified charity; and 
  payments made by a State Pharmaceutical Assistance Program.   
Drug payments that do not count toward TrOOP costs include:  
  premiums paid by the beneficiary; 
  payments made by a group health plan (e.g., employer  or  retiree 
plan); 
  payments made by Government programs (e.g., Veterans Affairs or  
TRICARE);  
  payments covered by an automobile insurer; and  
  payments made by Part D plans as part of an enhanced plan benefit 
package.   
Coordination of Prescription Drug Benefits  
Part D plans are required by law to coordinate benefits with other 
entities that provide prescription drug coverage (42 U.S.C.  1395w-133  
and 134).  Coordination of benefits enables each payer to determine its 
payment responsibility.3  Coordination of benefits plays a pivotal role in  
the context  of calculating beneficiaries TrOOP costs because, as 
discussed above, prescription drug payments by some payers count  
toward TrOOP costs while others do not.   
CMS amended the existing contract with COBC in February 2005 to 
include collecting information on Part D beneficiaries additional drug 
coverage.  COBC collects this information from other payers through  
Voluntary Data-Sharing Agreements, Coordination of Benefits 
 
3 CMS outlined coordination of benefits requirements, including  requirements related to 
tracking TrOOP costs, in its Part D Coordination of Benefits Guidance issued in July  
2005. This document served as the basis for the Medicare Prescription Drug Benefit 
Manual chapter on coordination of benefits issued in December 2006.  Available online at 
http://www.cms.hhs.gov/PrescriptionDrugCovContra/dowloads/PDMChapt14COB.pdf. 
Accessed December 16, 2006.  
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Agreements, and other processes and submits the information to CMSs 
Medicare Beneficiary Database (MBD).  Beneficiaries additional drug 
coverage information is sent from the MBD to the Medicare Advantage-
Prescription Drug system, which then shares a coordination of benefits 
data file with all Part D plans. 
The MMA specifies that Part D plans have the authority to require 
Medicare beneficiaries to report information about additional  
prescription drug coverage they have (42 U.S.C.  1395w-
102(b)(4)(D)(ii)).  Plans must survey their enrollees regarding additional 
coverage and submit this information to COBC.  Part D plans transmit 
files containing enrollees additional prescription drug coverage data to  
COBC through the Electronic Correspondence Referral System (ECRS).  
COBC validates the additional drug coverage data and submits it to the 
MBD. 
CMS contracted with a TrOOP Facilitator to assist Part D plans in 
coordinating beneficiaries prescription drug benefits at the point of 
sale. The TrOOP Facilitator is responsible for tasks such as receiving 
and maintaining Part D beneficiaries eligibility information, 
responding to eligibility queries from pharmacies, identifying payments 
for prescription drugs made by other payers, and forwarding this 
information to Part D plans. 
Prescription Drug Event Data and Reconciliation 
For every prescription filled, the Part D plan must submit an electronic  
summary record, called the prescription drug event (PDE) record, to  
CMS. The PDE record contains prescription drug cost and payment 
data that enable CMS to make payments to the plans and otherwise 
administer the Part D benefit.  The Part D plans were required to 
submit their first batch of PDE records to CMS by March 31, 2006.  
Thereafter,  plans were required to  submit PDE records to CMS at least 
once a month.4   Plans must submit all PDE data, including retroactive 
changes, 5  months after the end of the coverage year.   
The PDE information will be used in the reconciliation process, which 
will compare prospective payments made to Part D plans during the 
coverage year to actual costs as represented by the PDE data.  Accurate 
TrOOP costs are essential to the calculation of actual costs and any               
 
4 CMS issued instructions to Part D plans regarding the PDE data in January 2006.  The 
instructions were updated in April 2006. 
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I  N T R O D U C T I O N   
necessary adjustments to payments to Part D plans.  Part D plans 
cannot appeal reconciliation results based on failure to submit data in a 
timely manner.5   
METHODOLOGY 
Part D Plan Sample 
When we selected the sample in August 2006, CMS had 91 PDP contracts 
and 474 MA-PD contracts with Part D sponsors.  We excluded from the 
sampling frame 12 PDP plans because they were direct contracts between 
CMS and employers or  contracts with insurers that offer plans on behalf of 
employers.  We excluded 77 MA-PD plans because they were cost plans, 
Program of  All-Inclusive Care for the Elderly plans, or demonstration 
plans.6  We also excluded 1 PDP and 18 MA-PDs that had fewer than  
20 enrollees each as of June 7, 2006. 
As shown in the table below, we divided the remaining 457 plans into four 
strata based on the type  of plan and number of enrollees in each plan.  The 
plans in stratum 2 and stratum 4 represent the top five PDP and MA-PD  
plans, respectively, by enrollment.  We selected a stratified simple random 
sample of 142 Part D plans. The sample was designed to produce 
statistical estimates with an expected precision of +/-10 percent at the  
95-percent confidence level.  After selecting the sample, we learned that 
one MA-PD was an employer-based contract that should have been 
excluded from the sampling frame.   We removed this contract from the 
sample, for a total sample of 141 Part D plans. 
Table - Sample of Part D Plans 
 
Number of Part D Plans in   Number of Part D Plans in  
Stratum Definition 
Sampling Frame                     Final Sample  
1. PDPs with fewer than 537,486 enrollees  73  45 
2. PDPs with 852,712 to 3.3 million enrollees  5  5 
3. MA-PDs with fewer than 121,056 enrollees  374  86 
4. MA-PDs with 179,805 to 637,664 enrollees  5  5 
Total  457  141 
 
5 CMS 2005 Prescription Drug  Event Training  Participant Guide, p.12-2.  Accessed 
online May 6, 2006.  This version of the guide is no longer available online. 
6 These types of plans were excluded  from the sampling  frame because they may have  
had Part D requirements that differed from those of PDP and MA-PD  plans. 
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Data Collection 
To identify the processes that Part D plans use to ensure the accurate 
tracking of  TrOOP costs, we conducted an online survey and collected  
documentation from our sample of Part D plans between January and 
March 2007. We requested that the plans provide documentation 
outlining their policies and/or processes for tracking TrOOP costs. We 
received survey responses for 138 Part D plans. Three Part D plans did 
not respond to our survey after multiple e-mail and telephone follow-up 
efforts to obtain their responses.  We received responses from 48 of   
50 PDPs and 90 of 91 MA-PDs. These plans covered 79 percent of  
Medicare beneficiaries enrolled in Part D plans as of June 2006. 
We conducted an onsite interview with CMS staff in October 2006 to 
determine what oversight processes CMS has in place to ensure the 
accurate tracking of TrOOP costs and to learn the results of these 
processes.  The interview focused on CMSs oversight of the Part D 
plans. We also collected relevant documentation from CMS, such as 
policies and analysis spreadsheets. 
To determine the processes that COBC uses to help ensure the accurate 
tracking of  TrOOP costs, we conducted an onsite interview with COBC 
staff in October 2006 and obtained relevant documentation. To gain a 
better understanding of the functions of the TrOOP Facilitator, we 
conducted an onsite interview with a representative of the TrOOP 
Facilitator in October 2006 and obtained related documents. 
Data Analysis 
We aggregated quantitative Part D plan survey results to analyze plans 
procedures related to tracking enrollees TrOOP costs, including 
communicating with enrollees to obtain additional drug coverage  
information, processing changes to enrollees TrOOP balances, 
transferring TrOOP balances when  enrollees change plans, and 
submitting required data to COBC and CMS. Based on plan survey  
results, we  calculated weighted estimates of the percentage of enrollees 
affected by particular plan characteristics. All statistical estimates 
reflect the stratified simple random sample design and are provided in 
Appendix A.   
We reviewed and analyzed quantitative data files provided to OIG by 
CMS and COBC in connection with our interviews. We analyzed 
narrative responses to open-ended questions that Part D plans recorded  
in the online survey. Finally, we analyzed narrative responses that 
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I N T R O D U C T I O N   
CMS, COBC, and TrOOP Facilitator staff provided during onsite 
interviews. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections issued by the Presidents Council on Integrity and 
Efficiency and the Executive Council on Integrity and Efficiency. 
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F I N D I N G S  
  F I N D I N G S  
Information on enrollees additional drug  To track TrOOP costs accurately,  
coverage, essential for the accurate tracking of  Part D plans must have 
information on any prescription 
TrOOP costs, was not consistently      
drug coverage that enrollees have 
submitted to COBC in 2006 
in addition to Part D coverage.  
The COBC has processes in place to  collect information on  Medicare 
beneficiaries additional drug coverage.  One process requires that    
Part D plans submit enrollee survey  data and another involves the 
establishment and implementation of data-sharing agreements with 
other payers of prescription drug benefits. 
Twenty-nine percent of Part D plans did not submit enrollees additional 
drug coverage data to the Coordination of Benefits Contractor in 2006 
CMS requires Part D plans to survey their enrollees within 30 days of 
enrollment  and annually thereafter  and submit to COBC information  
regarding any prescription drug coverage enrollees have in addition to 
Part D coverage. Our January 2007 survey of Part D plans indicates 
that 93 percent of plans had conducted an initial enrollee survey.  
However, 29 percent of plans reported that they  did not submit their 
enrollees additional drug coverage information to COBC in 2006.  These 
plans covered 25 percent of Part D enrollees.  Most of these plans 
indicated that they had neither a manual process nor an electronic  
system for submitting the required information or they had problems 
connecting to the ECRS. 
Part D plans need information concerning enrollees additional 
prescription drug coverage to track  TrOOP costs accurately.  For 
example, an enrollee may have additional prescription drug coverage  
through a group health plan that makes drug payments on the 
enrollees behalf that do not count towards TrOOP costs. If an enrollees 
Part D plan is not aware of this additional drug coverage, the enrollees  
TrOOP costs will accumulate more quickly because payments made by 
the other plan would not be removed from the enrollees TrOOP balance.  
As a result,  the enrollee may not be in the correct phase of the Part D  
benefit. 
Part D plans records containing enrollees additional drug coverage 
information were often rejected by the ECRS.  COBC provided data to  
OIG indicating that, as of October 2006, many of the records plans 
submitted containing enrollees additional drug coverage data had been  
rejected by the ECRS.  In some  cases, over 85 percent of a plans records 
submitted to the ECRS were rejected.  COBC explained that records 
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F I N D I N G
  S  
submitted to the ECRS were rejected because plans submitted incorrect 
data. For example, a plan may have  sent an internal enrollee policy 
number instead of the Health Insurance Claim Number that the ECRS 
requires to identify a Medicare beneficiary.  As a result, information on 
beneficiaries additional drug coverage cannot be incorporated into the 
MBD. In October 2006, COBC indicated that it had conducted a 
number of training sessions for Part D plans on submitting enrollees 
additional drug coverage data to the ECRS.  However, COBC also  
reported that plans were just beginning to focus on submitting these 
data, having spent the earlier part of 2006 focusing on other aspects of 
implementing the Part D benefit. 
Thirty-six percent of entities that had data-sharing agreements  with the 
Coordination of Benefits Contractor did not submit their enrollees              
additional drug coverage information for at least one of those agreements  
To facilitate the exchange of coverage information, COBC establishes 
data-sharing agreements with other payers.  These voluntary  
agreements are called  Coordination of Benefits Agreements (COBA)  and 
Voluntary Data-Sharing Agreements (VDSA).  Entities may have more  
than one COBA with COBC.  According to data provided by COBC,      
36 percent (57 of 160) of entities that had active data-sharing 
agreements did not provide enrollees additional drug coverage 
information to COBC for at least one of those agreements in 2006.  In 
particular, 55 percent (42 of 76) of entities with active COBAs did not 
provide enrollees additional drug coverage information to COBC for at 
least one of those agreements in 2006. Eighteen percent (15 of 84) of 
entities with VDSAs had not provided enrollees additional drug 
coverage information to COBC as of October 2006.  As stated above, 
information on enrollees additional prescription  drug coverage is 
essential for successful coordination of benefits and accurate tracking of  
TrOOP costs.   
There are time- and money-saving incentives for non-Medicare payers 
to establish data-sharing agreements and provide drug coverage data to  
COBC.7  However, other payers of drug benefits are not required to 
provide coverage information to COBC.  As a result, even though payers  
have established data-sharing agreements to provide additional drug 
 
7 One incentive is that employers with VDSAs can obtain Medicare entitlement data 
monthly or quarterly rather than spending up to 2 years to obtain such information through 
other methods. 
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coverage data, COBC can only encourage these payers to fulfill their 
obligations under those agreements. COBC also indicated that the 
data-sharing process requires a great deal of technological and other 
resources. For example, establishing a telecommunication line for 
electronic transmission of data alone can take up to 60 days and cost 
$5,000 a month to maintain. In addition, setting up the data-sharing 
files and testing the process can take a considerable amount of time.  
Therefore, data-sharing agreements  may be in place for some time 
before the data-sharing process is successfully implemented.  
 
According to CMSs 
Thirty-four percent of Part D plans did not submit 
Updated Instructions: 
prescription drug event data in accordance     
Requirements for 
with CMS requirements in 2006 
Submitting Prescription 
Drug Event Data, Part D plans were required to submit PDE data at 
the end of the first quarter of 2006 and at least once per month 
thereafter.  Without plans PDE data, CMS cannot verify that plans 
have calculated beneficiaries TrOOP costs correctly. Thirty-four 
percent of plans did not submit PDE data at the end of the first quarter 
or in one or more months after the first quarter of 2006. These plans 
covered 49 percent of Medicare beneficiaries enrolled in Part D plans. 
The plans indicated that they submitted PDE data outside CMSs 
required timeframes, had technical difficulties submitting PDE data 
files, or had problems or delays obtaining Part D prescription drug data 
from their pharmacy benefit managers. Of the plans that did not 
submit PDE data in accordance with CMS requirements, three-quarters 
failed to submit data in one or more  months after the first quarter of 
2006. 
CMS provided OIG with information indicating that CMS had taken 
steps to follow up with Part D plans that were not complying with PDE 
data certification and submission requirements in 2006. CMS sent 
warning letters in June 2006 to Part D plans that had not submitted 
test PDE data files and were not yet certified to submit PDE data to 
CMS. CMS issued corrective action  plans in August 2006 to Part D 
plans that remained noncompliant with CMSs PDE data testing and 
certification requirements.  
 
 
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When a beneficiary changes 
Sixty-three percent of Part D plans cited problems 
from one Part D plan to 
with transferring TrOOP balances when enrollees 
another, CMS requires the 
change plans  disenrolling plan to transmit a 
Transfer Explanation of 
Benefits (EOB) to the beneficiarys new plan of record within 7 days of 
disenrollment. This record must contain the beneficiarys TrOOP 
balance and the total payments the plan has made to pharmacies on the  
beneficiarys behalf. If this information is not received by the new plan 
or is not accurate, the beneficiary may not be in the correct phase of the 
benefit (i.e., initial coverage, coverage gap, or catastrophic coverage). 
Overall, 63 percent of Part D plans, covering 78 percent of Part D 
enrollees, reported having issues or  problems with transferring TrOOP  
balances when enrollees  change plans during the coverage year. These 
problems included manual processes for transferring TrOOP balance 
records and  the receipt of incorrect, questionable, or inconsistent TrOOP 
balance data. 
Two-fifths of Part D plans had issues or problems with the resource-
intensive nature of the TrOOP balance transfer process 
Forty percent of plans indicated that the labor-and resource-intensive 
nature of the process was an issue or a problem.   Plans indicated that 
the transfer of TrOOP balances relied heavily on manual processes, 
such as faxing paper copies of Transfer EOB records to the new Part D  
plan or creating hundreds of compact disks containing enrollee TrOOP 
balance information for new plans.   According to the Medicare 
Prescription Drug Benefit Manual, CMS is considering options for 
automating this process  in the future.   
About one-quarter of Part D plans reported that Transfer Explanation of 
Benefits records contained incorrect or questionable information 
Twenty-eight percent of plans indicated that they received Transfer 
EOB records containing incorrect or questionable TrOOP balances. For 
example, the EOB record might contain the amount of the most recent 
change in the enrollees TrOOP balance rather than the total TrOOP 
balance. Nine plans reported receiving EOB records with TrOOP 
balances that were greater than the total payments made to 
pharmacies, calling into question the validity of the information. 
One-quarter of plans indicated that the information in the effective date 
field on the  Transfer EOB record  was incorrect.  According to the 
Medicare Prescription  Drug Benefit Manual, the effective date on the  
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F I N D I N G
  S  
Transfer EOB record should be the date that the reported TrOOP 
balance and total payments made to pharmacies were calculated.  
However, plans indicated that this field might include the date that the 
EOB record was created or the enrollees eligibility effective date.  
Without correct information concerning the date an enrollees TrOOP 
balance was last calculated by a previous plan, the new Part D plan 
cannot determine what subsequent TrOOP cost accumulations should 
be applied to the enrollees current TrOOP balance. 
Multiple Transfer Explanation of Benefits records per enrollee made 
accurate calculation of TrOOP costs difficult for some Part D plans 
After a beneficiary changes Part D plans and the Transfer EOB is sent 
to the new plan, it is still possible that the beneficiarys previous plan 
may revise  his or her TrOOP balances based on  new or updated 
information it receives from pharmacies or other  payers.  In such cases,  
CMS requires the previous plan to provide the new plan with an 
updated EOB record reflecting the new TrOOP balance.  Twelve of the 
plans that cited issues  or problems with the TrOOP balance transfer 
process indicated that they had received multiple EOB records for one 
enrollee.  Plans indicated that they received EOB records that were 
exact duplicates or had duplicate information but different TrOOP 
balances. Some plans received multiple EOBs for enrollees who had 
more than one plan benefit package during the coverage year.  In all of 
these circumstances, plans indicated that it was difficult to determine 
which reported TrOOP cost amount to apply to the enrollees new 
TrOOP balance. 
CMS ha s conducted limited oversight of      CMS has conducted limited 
Part D plans tracking of TrOOP costs  oversight of Part D plans 
tracking of beneficiaries 
TrOOP costs.  The oversight CMS has conducted thus far relied on 
plans self-reported data.  These data indicated that most plans were not 
in full compliance with coordination of benefits and TrOOP tracking 
requirements in at least the first half of 2006.  
CMSs oversight of plans compliance  with requirements related to tracking  
TrOOP costs relied on self-reported data from Part  D plans  in 2006 
As described previously, CMS asked Part D plans to attest to their 
compliance with all of the requirements outlined in CMSs 2006 
Coordination of Benefits Guidance.  CMS provided OIG with the results 
of this effort. Based on plans attestations, 405 of 501 plans (81 percent) 
were not in compliance with one or more  of all requirements.  A total of 
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  SS  
261 of these plans were not in compliance with one or more of four 
requirements specifically related to  calculating TrOOP costs. These 
requirements included tracking TrOOP costs in real time, adjusting 
TrOOP balances based on claims received in other than real time, and 
transferring a beneficiarys TrOOP balance to another Part D plan when 
the beneficiary disenrolls during the coverage year. Plans that scored 
below a certain number of points based on their attestations were  
required to complete a business plan for achieving compliance with all 
coordination of benefits requirements, including those related to 
tracking TrOOP costs. According to CMS, 21 percent of plans (106 of 
501) were required to submit either  business plans specifying actions 
they would take to become compliant or attestations indicating that 
actions had already been taken to achieve compliance with all 
requirements. 
As of April 2007, other CMS oversight activities regarding Part D plans  
tracking of TrOOP costs were either in the planning stages or in the process 
of being implemented 
CMS finalized protocols for conducting routine audits of Part D plans 
processes and procedures in April 2006. These guides include elements 
related to the coordination of benefits and TrOOP costs, such as 
ensuring that plans have systems in place to collect information on  
enrollees additional drug coverage and to track expenditures  made by 
other payers to determine if enrollees have reached the TrOOP 
threshold. As of April 2007, no audits had been conducted. Our survey 
of Part D plans confirmed that CMS has not conducted any individual 
performance reviews regarding plans tracking of TrOOP costs. 
Part D regulations require that CMS conduct financial audits of at least 
one-third of  Part D plans each year (42 CFR  423.504(d)). According to 
CMS staff, these financial audits will include elements related to plans 
tracking of  TrOOP costs. However, CMS had not finalized the financial 
audit program and audit guide.  CMS had not yet obtained contractors 
to conduct the financial audits. According to CMS staff, financial audits  
for contract year 2006 are not scheduled to begin before January 2008. 
CMS staff indicated in October 2006 that its contractor was analyzing a 
sample of PDE data that Part D plans submitted to CMS. The purpose 
of the analysis was to determine whether Part D plan PDE data 
confirmed that plans administered the Part D benefit in a manner 
consistent with both CMS requirements and plan benefit packages 
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F I N D I N G S  
structures.  As of April 2007, CMS indicated that no formal findings 
from the PDE data analysis have been issued. 
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E  X RE EC CU OT IM VME E  NS UD MA MT IA OR NY  S   
 
 
To calculate TrOOP costs correctly, information  on enrollees additional 
prescription drug coverage must be submitted by Part D plans as well as by 
entities that have data-sharing agreements with COBC.  Plans must also 
transfer accurate enrollee TrOOP balance information to and from other 
plans when enrollees change plans during the coverage year.  In addition, 
CMS must have Part D plans PDE data to verify that plans have 
calculated TrOOP costs correctly.  Our findings indicate that these 
requirements were not carried out consistently in 2006.  CMS is responsible 
for the oversight of Part D plans tracking of TrOOP costs.   Therefore, we  
recommend that CMS: 
Ensure That Part D Plans Collect, Process, and Submit All Data 
Required To Track Enrollees Troop Costs in a Timely Manner 
As described in this report, CMS requires that Part D plans collect and 
submit enrollees additional prescription drug coverage information to 
COBC, process prescription drug claims and submit PDE records to CMS, 
and work with other Part D plans to transfer enrollees TrOOP balances.  
We recently learned that CMS is working with the National Council for 
Prescription Drug Programs (NCPDP) to establish a standardized 
electronic system for transferring enrollees TrOOP balance information 
from one plan to another in real time.8  CMS should continue to establish 
or improve automated systems to enable Part D plans to meet all data 
requirements related to tracking TrOOP costs. 
Consider Options for Increasing the Number of Coordination of Benefits 
Agreements With Other Payers and Ensuring That Data Are Submitted 
Under Those Agreements 
Accurate tracking of TrOOP costs  is dependent largely on successful 
coordination and sharing of prescription drug coverage information among 
payers and CMS contractors.  CMS should ensure that all options for 
increasing the number of data-sharing agreements have been considered.    
Because entities that provide additional drug coverage for Part D 
enrollees are not required by law to  report such information, CMS may 
want to consider seeking to expand its authority to enforce agreements  
 
8 NCPDP is a not-for-profit Standards Development Organization consisting of over   
1,450 members from the pharmacy services industry. 
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R E C O M M E N D A T I O N S  
once they are in place. The Presidents 2008 Budget includes a proposal 
to establish a data clearinghouse that would work to determine whether 
private insurance or Medicare should pay for a beneficiarys  health 
benefits. If implemented, such a clearinghouse could provide CMS with 
access to more comprehensive drug coverage information. 
Begin or Complete Implementation of Planned Oversight Activities 
Related to the Tracking of Troop Costs 
The implementation of the Part D benefit was a large undertaking for 
CMS, its contractors, and Part D plans.  Now that the program has been  
in place for almost 2 years, CMS should place more emphasis on 
conducting oversight activities.  Examining Part D plans efforts to track 
TrOOP costs should be a priority given that these costs determine when  
beneficiaries reach each phase of the Part D benefit.  OIG intends to 
focus future  work on whether Part D  plans have calculated beneficiaries 
TrOOP costs correctly. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS agreed that OIGs report identified potential issues regarding the 
accurate tracking of TrOOP costs and that additional work is needed to 
ensure that Part D plans are calculating TrOOP costs correctly.  CMS did 
not indicate whether it concurred with OIGs three recommendations in 
its response.  However, CMS did note that it has taken or will take steps 
in response  to these recommendations.  For the full text of CMSs 
comments, see Appendix B.  
In response  to the recommendations, CMS stated that it intends to 
continue the process of asking Part D plans to self-attest to their 
compliance  or noncompliance with coordination of benefits requirements, 
including those specific to TrOOP, and intends to follow up with plans 
that report noncompliance.  CMS is revising the 2008 Part D Explanation 
of Benefits letter to include TrOOP balances reported by prior plans to an 
enrollees current plan.  In addition, CMS intends to use PDE data to 
monitor TrOOP accumulation after reconciliation activities for 2006 have 
been completed.  CMS reported that it is beginning to enforce  the full 
terms of its data-sharing agreements  by notifying data-sharing partners 
that their access to Medicare entitlement data will be suspended if they 
do not comply with their agreements.  CMS also stated that it continues 
to support legislative proposals for mandatory insurer reporting of private 
insurance coverage.  CMS stated again that it plans to conduct financial 
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R E C O M M E N D A T I O N S  
audits of one-third of Part D plans for contract year 2006.  According to 
CMS, one aspect of these audits will be to examine, in general, how     
Part D plans track TrOOP costs.  
CMS provided comments on two OIG findings.  CMS suggested that OIG 
had incorrectly stated that inaccurate tracking of TrOOP costs could lead 
an enrollee to reach the coverage gap  sooner.  CMS also stated that the 
number of entities with data-sharing agreements that did not submit 
enrollees other prescription drug coverage information to COBC included  
entities such as Medicaid agencies that did not provide drug coverage and,  
therefore, did not have drug coverage information to submit. CMS 
calculated different figures and suggested that OIG incorporate them in 
its report.   
We addressed the comments CMS provided about our findings.  We  
clarified that an enrollee may not be in the correct phase of the Part D  
benefit if his or her TrOOP costs are not calculated accurately.  We  
requested the source data from COBC that CMS used to develop the 
figures in its comments regarding entities with data-sharing agreements  
that did not provide required drug coverage information to COBC in 2006.  
After receiving revised data from CMS, we updated the figures in our 
report regarding entities with active  COBAs or VDSAs that did not 
provide drug coverage information to COBC in 2006 as required.  The 
figures in our final report differ from those in CMSs comments because 
the electronic data underlying CMSs comments covered a different time  
period than our report and was not reconciled against hard-copy         
data-sharing agreements.  In addition, as a technical clarification, the 
COBC confirmed in follow-up discussions that several Medicaid agencies 
had data-sharing agreements in place for which they submitted drug 
coverage information in 2006. 
We ask that CMS indicate in its final management decision  whether it 
concurs with our recommendations.  
   
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  A P P E N D I X   ~   A
 
  The table below contains estimates presented in the Findings section of this report.  
Point estimates and confidence intervals were weighted based on the stratified 
simple random sample design and are reported at the 95-percent confidence level. 
 
Estimates and Confidence Intervals     
Part D Plan Characteristic  Point Estimate  95-Percent               
Confidence Interval 
Part D plans that conducted an initial survey  of 
93.3%  89.6% - 97.1%  
enrollees 
Part D plans that did not submit enrollees 
additional drug coverage information to COBC        29.4%  22.3% - 36.4%  
in 2006 
Part D enrollees covered by plans that did not 
submit enrollees additional drug coverage   25.4%  18.8% - 32.0%  
information to COBC in 2006 
Part D plans that did not submit PDE data in  
33.8%  26.3% - 41.2%  
accordance with CMS requirements in 2006  
Part D enrollees covered by plans that did not 
submit PDE data in accordance with CMS  49.2%  42.8% - 55.6%  
requirements in 2006 
Part D plans that cited problems with transferring 
63.2%  55.6% - 70.7%  
TrOOP balances to or from other plans  
Part D enrollees covered by plans that cited 
problems with transferring TrOOP balances to        78.4%  73.6% - 83.2%  
or from other plans 
Part D plans that cited the labor- and  resource-
intensive nature of the TrOOP balance transfer  39.9%  32.1% - 47.7%  
process as an issue or problem 
Part D plans that received Transfer EOB records   
28.4%  21.1% - 35.7%  
with incorrect or questionable TrOOP balances 
Part D plans that received Transfer EOB records 
25.0%  18.0% - 32.0%  
with incorrect effective dates 
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  A P P E N D I X   ~   B
 
Agency Comments  
 
 
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A P P E N D I X   ~   B  

 
 
 
 
 
 
 
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A P P E N D I X   ~   B  

 
 
 
 
 
 
 
 
 
 
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A P P E N D I X   ~   B  

 
 
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  A C K N O W L E D G M E N T S
This report was prepared under the  direction of  Robert A. Vito, Regional 
Inspector General for Evaluation and Inspections in the Philadelphia 
regional office, and Linda M. Ragone, Deputy Regional Inspector 
General. 
Tara Bernabe and Amy Sernyak served as team leaders for this study.  
Other principal Office of Evaluation and Inspections staff from the  
Philadelphia regional office who contributed to this report include 
Cynthia Hansford and Nancy J. Molyneaux; central office staff who 
contributed include Linda Abbott, Kevin Farber, and Scott Manley. 
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