Department of Health and Human Services
OFFICE OF 
 
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
M F C
IDYEAR  ORMULARY  HANGES 
 
M   P
IN  EDICARE  RESCRIPTION 
 
D P  
  RUG  LANS
 
 
 
 
 
 
 
 
Daniel R. Levinson  
Inspector General 
 
December 2009 
OEI-01-08-00540  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  
OBJECTIVES 
1.  To describe the extent and nature of midyear formulary changes 
that Part D sponsors made in 2008. 
2.  To determine the extent to which sponsors adhered to the 
Centers for Medicare & Medicaid Services (CMS) beneficiary 
notification requirements for negative midyear formulary 
changes in 2008. 
3.  To determine the extent to which CMS monitored Part D 
sponsors midyear formulary changes in 2008. 
BACKGROUND 
The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 established Medicare Part D to provide voluntary prescription 
drug coverage to beneficiaries.  CMS contracts with private companies, 
called sponsors, to operate Part D prescription drug plans.  Sponsors 
identify the complete list of drugs they cover in their formularies.   
CMS sets guidelines for when and how sponsors may make changes to 
their formularies, referred to as positive and negative changes.  Positive 
changes require no CMS approval and enhance the formulary by adding 
new drugs, reducing cost sharing, or removing utilization controls.  
Negative changes, which require CMS approval, restrict the formulary 
by removing drugs, increasing cost sharing, or adding utilization 
controls.  Sponsors must provide written notice to beneficiaries 
currently taking affected drugs before implementing negative changes.  
CMS also requires sponsors to post updated formularies on their Web 
sites at least monthly and to list formulary changes 60 days before they 
take effect.    
To conduct this study, we analyzed CMS data on formulary changes and 
interviewed CMS staff.  We also drew a sample of 120 formularies for 
analysis, reviewed sponsors notification letters, and reviewed                     
20 formularies posted on sponsors Web sites. 
FINDINGS 
In 2008, all Part D sponsors made formulary changes.  The majority 
of changes (64 percent) were positive.  Thirty-six percent were negative, 
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  E X E C U T I V E   S U M M A R Y  
and 62 percent of negative changes involved generic substitution.  Other 
negative changes removed drugs without providing lower cost 
alternatives, added utilization controls without providing alternatives, 
or increased cost sharing. 
With few exceptions, sponsors met beneficiary notification 
requirements for formulary changes.  The notification letters we 
reviewed gave beneficiaries more advance notice than required, with a 
median of 74 days.  Overall, 88 percent of the notification letters 
contained all six required elementsdrug name, change type, reason for 
the change, alternative drugs, new cost sharing, and exceptionswhile 
12 percent of the letters contained five or fewer elements.  In addition, 
we could not readily identify 60 percent of approved midyear changes on 
sponsors Web sites.   
CMS reviewed nearly all formulary changes listed in notification 
letters.  CMS uses systematic checks to monitor formulary change 
requests and limits changes that restrict access to drugs without 
offering cost-saving alternatives or promoting drug safety.  Even though 
these checks were in place, we detected some noncompliance whereby 
sponsors failed to seek approval for midyear changes.  Only 1 percent of 
changes listed in notification letters required CMS approval but were 
not in the original change request file.  Nearly all of these unapproved 
changes involved substituting or adding generic drugs.   
CONCLUSION   
This study found that sponsors and CMS are managing midyear 
formulary changes in compliance with Part D program requirements.  
Part D regulations require sponsors to promote cost-effective use of 
prescription drugs where medically appropriate, and it appears that 
sponsors adhered to these rules.  CMS provides sponsors with various 
forms of guidance on formulary change requests and beneficiary 
notification.  Although some sponsors may need more specific guidance 
on notification practices, we found that most complied with CMS 
regulations and provided even more advance notice than the 60-day 
standard requires.  In addition, we found that sponsors Web sites did 
not reflect all the changes approved by CMS.  Further analysis may be 
warranted to determine the full extent of consistency between approved 
changes to sponsors formularies and the changes that appear on their 
Web sites and to determine whether additional guidance is needed to 
address any inconsistencies. 
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ii E X E C U T I V E   S U M M A R Y  
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE   
CMS generally agreed with our findings.  CMS requested that we 
specify that beneficiaries currently taking medications not subject to 
generic substitution are protected from disruptions in therapy.  CMS 
also stated that it is working with a contractor to assess consistency 
between sponsors Web versions of formularies and CMSs approved 
files.  Based on the agencys comments, we made appropriate revisions 
to the report. 
 
 
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iii  
 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  
In 2008, all Part D sponsors made formulary changes . . . . . . . . . . 8 
With few exceptions, sponsors met beneficiary notification 
requirements for formulary changes . . . . . . . . . . . . . . . . . . . . . . . 11 
CMS reviewed nearly all formulary changes listed in notification 
letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 
 
 
CONC LUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 
Agency Comments and Office of Inspector General Response . . . 15 
 
 
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 
A:  Maintenance and Nonmaintenance Changes in the Negative 
Change Request File. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 
B:  Detailed Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 
  C:  Data Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 
  D:  Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 
A C K NO WL E D G M E N T S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 
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   I N T R O D U C T I O N  
OBJECTIVES 
1.  To describe the extent and nature of midyear formulary changes 
that Part D sponsors made in 2008. 
2.  To determine the extent to which sponsors adhered to the 
Centers for Medicare & Medicaid Services (CMS) beneficiary 
notification requirements for negative midyear formulary 
changes in 2008. 
3.  To determine the extent to which CMS monitored Part D 
sponsors midyear formulary changes in 2008. 
BACKGROUND 
Medicare Part D 
Effective January 1, 2006, the Medicare Prescription Drug, 
Improvement, and Modernization Act of 2003 established Medicare  
Part D to provide voluntary prescription drug coverage to beneficiaries.1  
CMS contracts with private companies, called sponsors, which operate 
Part D prescription drug plans.  As of January 2008, over 25 million 
beneficiaries were enrolled in prescription drug plans.   
A formulary is a complete list of the drugs that a drug plan covers, and 
it may change during the year.2  However, the extent to which Part D 
sponsors alter their formularies during the year has been unknown.  
Midyear formulary changes can be advantageous for beneficiaries if 
they introduce new medications or promote cost savings.  However, 
midyear changes can also adversely affect beneficiaries by restricting 
access to prescription drugs or increasing drug costs.  Furthermore, 
CMS compliance audits of Part D sponsors suggest that sponsors did not 
fully comply with regulations regarding beneficiary notification for 
midyear formulary changes.  Beginning in 2007, CMS audited sponsors 
formulary change notification practices and found that 28 percent of 
sponsors had not notified beneficiaries of midyear formulary changes 
according to regulations.3   
 
 
 
1 P.L. No. 108-173. 
2 42 CFR  423.4. 
3 Office of Inspector General (OIG) analysis of CMS 20072008 compliance audit data.  
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Part D Formularies 
Sponsors organize formularies into broad therapeutic categories 
(hereinafter, categories) and then into subsets called pharmacologic 
classes (hereinafter, classes).  Formularies must include categories and 
classes that cover all disease states.4    
In 2008, USP, a standard-setting authority for prescription drugs, 
defined 50 categories and 119 classes.5  For example, USP defines blood 
glucose regulators as a category, with antidiabetic agents as a class 
within that category.  Formularies must include at least two chemically 
distinct drugs in each category or class of drugs.6  
CMS designates a subset of six classes (hereinafter, protected classes) 
for which substantially all available drugs must be covered in every 
formulary:  anticonvulsants, antidepressants, antineoplastics, 
antipsychotics, antiretrovirals, and immunosuppressants.7   
Formulary Management 
Sponsors may use various tools to control costs and ensure patient 
safety.8  In addition to controlling the drugs they cover, sponsors may 
manage formularies by applying utilization controls and by setting    
cost sharing in a way that encourages beneficiaries to use lower cost 
drugs.  Examples of utilization controls include:  
  prior authorization, whereby a beneficiary must obtain explicit 
approval from the plan before it will cover a drug;   
  step therapy, whereby a beneficiary must first try the most    
cost-effective and safest drugs, moving on to more expensive or 
risky drugs only if medically necessary; and  
  quantity limits, whereby a beneficiary may obtain only a limited 
quantity of a prescription at one time, usually to ensure patient 
safety or encourage cost-effective use of the drug.  
 
4 Part D sponsors may use several classification systems to organize formularies, 
including the United States Pharmacopeia (USP) and the American Hospital Formulary 
Service.  CMS must approve a sponsors proposed classification system to ensure the 
formulary provides access to an acceptable range of Part D drug choices.  CMS, Medicare 
Prescription Drug Benefit Manual, ch. 6,  30.2.1, July 18, 2008. 
5 USP, Model Guidelines and Formulary Key Drug Types, Version 3.0.  Available online 
at http://www.usp.org/pdf/EN/mmg/modelGuidelinesV3.0WithFKDTs.pdf.  Accessed on 
October 1, 2008. 
6 CMS, Medicare Prescription Drug Benefit Manual, ch. 6,  30.2.1. 
7 CMS, Medicare Prescription Drug Benefit Manual, ch. 6,  30.2.5. 
8 CMS, Medicare Prescription Drug Benefit Manual, ch. 6,  30.1.5. 
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Sponsors typically establish differential cost sharing by dividing drugs 
into tiers that correspond to the amount the beneficiary will pay.  Drugs 
in lower priced tiers are considered preferred drugs and those in 
higher priced tiers are considered nonpreferred.  For example, a Tier 1 
drug is typically a low-cost generic drug for which a beneficiary might 
make a $5 or $10 copayment, while Tier 2 or Tier 3 drugs are likely to 
be more expensive brand-name drugs for which a beneficiary might 
make a $20 or $30 copayment.9   
The ways in which sponsors manage their formularies can affect some 
beneficiaries access to drugs.  For example, beneficiaries who use multiple 
high-cost drugs may find that utilization controls create layers of 
administrative burden for both themselves and prescribers and, therefore, 
could make it difficult to obtain necessary drugs.10  In addition, sponsors 
may increase the cost sharing on brand-name drugs during the year if a 
lower cost or generic drug is available.  Beneficiaries who take these 
brand-name drugs could face unexpected increases in cost sharing. 
Midyear Formulary Changes 
Sponsors hold a 1-year contract with CMS for each plan they offer.11  
The contract year begins January 1 and ends December 31.  CMS sets 
guidelines for when sponsors may make certain types of midyear 
formulary changes.   
CMS refers to midyear formulary changes as either positive or negative 
changes.12  Positive changes enhance the formulary by adding new 
drugs, reducing cost sharing, or removing utilization controls.13  
Sponsors may make positive formulary changes at any time during the 
contract year without CMS approval.14  
Negative changes, which require CMS approval, restrict the formulary 
by removing drugs, increasing cost sharing, or adding utilization 
 
9 Copayments may vary substantially across plans and may be set as a fixed dollar 
amount or a percentage of the drugs negotiated price.  Percentage copayments may 
fluctuate during the year if the drug manufacturer changes the drugs price.  CMS does not 
require approval for these types of changes. 
10 Kaiser Family Foundation, Medicare Part D 2008 Spotlight:  Utilization Management.  
Available online at http://kff.org/medicare/upload/7735.pdf.  Accessed on October 1, 2008. 
11 42 CFR  423.506.  
12 CMS, Memorandum, Calendar Year (CY) 2006 and CY 2007 Formulary Changes
New October Submission Window and Policy on Enhancements Added Between the October 
and February Submissions, October 5, 2006.  
13 CMS also refers to positive changes as enhancements.  
14 CMS, Medicare Prescription Drug Benefit Manual, ch. 6,  30.3.3.1. 
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3 I N T R O D U C T I O N  
 
controls.  Negative changes that remove drugs may simultaneously add 
replacement drugs.  However, these are still considered negative 
changes.  CMS categorizes negative changes according to their 
purposes.  Sponsors may make routine negative changes that remove 
drugs or change utilization controls if the purpose is to promote cost 
savings or drug safety.  For example, sponsors may remove a costly 
brand-name drug from the formulary when a lower cost generic version 
becomes available.  In other cases, sponsors may place quantity limits 
on drugs because of new safety warnings.  Other types of negative 
changes may remove drugs from the formulary or increase utilization 
controls without providing alternatives.  For example, a sponsor may 
increase the cost sharing on an expensive brand-name drug but not offer 
a less expensive alternative drug in its place.   
Sponsor Request and CMS Approval of Negative Midyear Formulary 
Changes  
Sponsors must obtain CMS approval 60 days before they implement 
negative changes.15  Only in cases in which the Food and Drug 
Administration has deemed a drug unsafe or manufacturers have 
withdrawn drugs from the market may sponsors remove drugs without 
CMS approval.  Although sponsors may not make any negative changes 
during the first 60 days of the contract year, they may seek approval for 
them beginning in January.  Sponsors may then implement negative 
changes between March 1 and July 31.16 17 
CMS generally approves routine negative changes and limits other 
negative changes.18  Therefore, CMS guidance states that sponsors may 
assume CMS has approved routine change requests involving            
cost savings or drug safety if they do not hear from CMS within            
30 days.19   
Sponsors must wait for CMS approval before making other negative 
changes.  For example, CMS may disapprove a change if it substantially 
discourages enrollment by certain beneficiary groups or means that the 
formulary would no longer include two drugs per category or class.20 
 
15 Ibid.,  30.3.3.1 and 30.3.4.1. 
16 Ibid.,  30.3.2. 
17 CMS, Memorandum, Updating 2007 and CY 2008 Formularies, June 20, 2007. 
18 For more information on negative changes, see Appendix A. 
19 CMS, Medicare Prescription Drug Benefit Manual, ch. 6,  30.3.3.2. 
20 CMS, Medicare Prescription Drug Benefit Manual, ch. 6,  30.3.3.3. 
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Sponsor Notification to Beneficiaries  
With few exceptions, sponsors must provide 60 days written notice to 
beneficiaries currently taking affected drugs before implementing 
negative formulary changes.21  Sponsors also have the option to provide 
written notice to all enrolled beneficiaries to meet the 60-day 
notification requirement.22  CMS does not require sponsors to send 
notifications for positive formulary changes.23  A written notification of 
a formulary change must include:  
  the name of the drug, 
  the type of change made to the formulary,  
  the reason for the change, 
  alternative drugs in the same class, 
  expected cost sharing for alternative drugs, and 
  information on obtaining a coverage determination or an exception 
for coverage of the affected drug.24  
CMS requires sponsors to post updated formularies on their Web sites 
at least monthly and to list formulary changes 60 days before they take 
effect.25  Sponsors may post formularies as PDF files, but may use other 
formats as well.  In addition, online formularies must be accessible by a 
drug name search, and sponsors must include notice of any midyear 
changes on their Web sites.26    
METHODOLOGY 
Scope  
This study analyzed the extent and nature of midyear formulary 
changes made by Medicare prescription drug sponsors in 2008 and 
CMSs monitoring of these changes.  It also analyzed the extent to 
which sponsors complied with CMS notification requirements.  It did 
not review year-to-year formulary changes or analyze specific types of 
drugs that sponsors included in their formularies.   
 
21 CMS, Medicare Prescription Drug Benefit Manual, ch. 6,  30.3.3.2 and 30.3.4.1. 
22 CMS, Medicare Prescription Drug Benefit Manual, ch. 6,  30.3.4.4. 
23 CMS, Memorandum, Formulary Changes During the Plan Year:  Operational 
Frequently Asked Questions, May 5, 2006. 
24 CMS, Medicare Prescription Drug Benefit Manual, ch. 6,  30.3.4.1. 
25 CMS, Medicare Prescription Drug Benefit Manual, ch. 2, pp. 62 and 64, July 25, 2006. 
26 Ibid. 
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5 I N T R O D U C T I O N  
 
Data Sources 
We used files from CMSs Health Plan Management System (HPMS) to 
create the universe of formularies that sponsors used in 2008.  The 
universe contained 329 formularies and 204 sponsors.   
We divided the list of 329 formularies into two strata:  (1) those for 
which the sponsors did not request approval for negative changes and            
(2) those for which the sponsors requested approval for negative 
changes.  Stratum 1 contained 94 formularies and stratum 2 contained 
235 formularies.  We then drew 50 formularies from stratum 1 and       
70 formularies from stratum 2 for a total of 120 formularies.  The 
formularies in our sample corresponded to 87 sponsors. 
We used the following data sources to analyze changes to the sampled 
formularies in 2008: 
1.  Negative Change Request (NCR) file and Formulary Change 
Notification Report (FCR):  We used the NCR and FCR files in 
HPMS to analyze positive changes and approved negative changes 
to the 120 sampled formularies.  We used these files to analyze the 
extent and nature of formulary changes and to account for the 
changes listed in sponsors notification letters.  The 120 formularies 
in our stratified random sample had 4,333 negative change requests; 
CMS approved 3,425 of these requests.  The FCR had 7,886 positive 
changes.   
2.  Sponsors formulary change notification letters:  We contacted      
150 compliance officers from sponsors that used the sampled 
formularies to obtain notification letters for their formulary 
changes.  We received a 100-percent response.  However,                 
10 compliance officers referred us to another officer already in our 
sample.  Therefore, we received final responses from 140 compliance 
officers.  We later followed up with these compliance officers to 
collect more information on sponsors notification policies.   
The responses included 853 notification letters covering              
2,197 changes.  Among negative changes listed in the letters,        
484 had not been approved by CMS or did not require CMS 
approval.  The 3,425 approved changes from the NCR file plus the 
516 unapproved changes equaled all negative changes (3,941).  We 
summed all negative (3,941) and positive (7,886) changes to get the 
total number of formulary changes (11,827). 
3.  Formularies from sponsors Web sites:  We selected a sample of      
20 formularies based on convenience and availability from our 
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6 I N T R O D U C T I O N  
 
4.  Interviews with CMS staff:  We interviewed CMS staff responsible 
for reviewing and approving midyear formulary changes.  We asked 
them about CMS processes to approve and track midyear changes. 
Appendix B contains a full description of our methods.  
Limitations 
We could not assess whether sponsors sent a notification letter to every 
enrollee who should have received one.  CMS requires sponsors to notify 
only those enrollees who are affected by negative formulary changes.  
However, we could not determine which enrollees were affected by each 
change and whether they received letters.  Rather, we examined the 
content of the notification letters to see whether CMS had approved the 
negative changes listed in the letters. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspections approved by the Council of the Inspectors General on 
Integrity and Efficiency. 
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7  F I N D I N G S  
F I N D I N G S  
In 2008, all Part D sponsors made      All sponsors that offered Part D 
formulary changes  plans in 2008 made some type of 
positive or negative change to their 
formularies.  Seventy-six percent of sponsors requested at least one 
negative change from CMS in 2008.  Sponsors must request approval for 
negative changes from CMS, but need not seek approval for positive 
changes.  CMS approved 79 percent of the 4,333 negative change 
requests by sponsors in our sample.   
Sixty-four percent of all formulary changes were positive  
Positive formulary changes enhanced formularies by adding drugs, 
decreasing cost sharing, or deleting utilization controls.  Among the 
7,886 positive changes in our sample, 60 percent decreased cost sharing 
or removed utilization controls, such as step therapy, prior 
authorization, or quantity limits.   
The remaining 40 percent of positive changes added drugs to the 
formulary.  On average, positive formulary changes added twice as 
many drugs as negative changes removed (the average number of drugs 
added to each formulary was 46; the average number of drugs removed 
was 22). 
Thirty-six percent of all formulary changes were negative, and most 
negative changes involved generic substitution     
Negative changes involved removing drugs, moving drugs to higher 
cost-sharing tiers, or adding utilization controls.  However, as Table 1 
shows, 62 percent of negative changes involved substituting or adding 
generic drugs.  Because generic drugs cost less than brand-name drugs, 
CMS considers sponsors efforts to reduce beneficiaries drug costs to be 
a part of routine formulary management. 
Table 1:  Formulary Changes, 2008 
 
Percentage  Percentage That Added 
Type of Change  
  (n=11,827)  or Substituted Generics 
 
Positive changes   64%  N/A 
 Negative changes                               36%  62% 
   Total changes  100%   
 
Sample includes positive and negative changes.  
S ource:  Office of Inspector General (OIG) analysis of Medicare Part D 2008 midyear formulary changes.   
Eighty-seven percent of changes that removed brand-name drugs from 
the formularies replaced them with generic versions.  Among changes 
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8 F I N D I N G S  
that increased cost sharing for brand-name drugs, 78 percent added 
generic drugs to the formularies at the lowest cost-sharing tiers.   
Medicare regulations require sponsors to promote cost savings by 
managing drug utilization in a medically appropriate manner.27  
Replacing brand-name drugs with less expensive generic drugs and 
placing generic drugs in the lowest cost-sharing tiers are two methods 
sponsors can use to meet this requirement.  Thus, the focus on generic 
drugs in midyear changes reflects expectations in Medicare regulations. 
Table 2 shows that removing drugs and moving drugs to higher        
cost-sharing tiers were the most common negative changes and that 
these changes also had the highest rates of generic drug substitution.  
Changes that added utilization controls, such as prior authorization, 
step therapy, and quantity limits, had lower rates of generic drug 
substitution.  Rather, sponsors used these changes to adhere to new 
clinical guidelines or drug safety warnings.   
Table 2:  Negative Changes That Promoted Generic Drug 
Substitution, 2008 
  Type of Change as a  Percentage of This  
Percentage of Negative  Change That Promoted 
  Type of Change   Changes  Generic Substitution 
(n=3,941) 
 
Remove drugs  56%  87% 
 
Move drugs to higher cost-sharing 
17%  78% 
 tiers 
Add step therapy   7%  1%* 
 
Add prior authorization  5%  1%* 
 
Add quantity limit  4%  N/A 
 Other changes  11%  N/A 
   Total negative changes  100%   
 
* We were unable to project these estimates to the population of negative changes. See Appendix C,         
Table C-9.   
 
 Other changes include removing or discontinuing drugs or adding utilization controls to promote drug safety 
or to determine Part B vs. Part D reimbursement. Quantity limits and other changes generally do not involve 
g eneric substitution; therefore, we have no estimates on generic substitution for these changes. 
Source:  OIG analysis of Medicare Part D 2008 negative midyear formulary changes.  
 
Forty-six percent of negative changes affected drugs most commonly 
prescribed to Medicare beneficiaries, as defined by CMS.28  Sixty-nine 
 
27 42 CFR  423.153(b). 
28 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, Appendix D. 
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9 F I N D I N G S  
percent of these changes involved substituting generic drugs for      
brand-name drugs or altering cost sharing or utilization controls to 
encourage generic drug use.  For example, Fosamax (alendronate 
sodium), a drug that treats osteoporosis, became available in generic 
form in 2008.  Not surprisingly, because Fosamax was the second most 
commonly prescribed drug among Medicare beneficiaries in 2008,        
53 percent of sponsors requested changes that added the generic version 
of Fosamax to their formularies or added utilization controls to 
encourage use of the generic form.29 
Negative formulary changes that involved generic drugs also affected 
the six protected classes that sponsors must include in their 
formularies.30  Thirty-nine percent of negative changes affected drugs in 
protected classes.  Among these negative changes, 69 percent 
substituted generic drugs for brand-name drugs or altered cost sharing 
or utilization controls to encourage generic drug use.   
Although most negative changes promoted generic substitution, more than 
a third did not 
Thirty-eight percent of negative changes increased cost sharing, 
removed drugs without providing a lower cost alternative, or added 
utilization controls.31  Forty-six percent of changes that did not involve 
generic substitution removed drugs from the formulary, and 17 percent 
added step therapy.  Overall, these changes accounted for only               
14 percent of all midyear formulary changes.  Table 3 shows the types of 
changes that did not involve generic substitution. 
 
29 OIG analysis of CMS Prescription Drug Event Data, October 2008.  
30 The six protected classes are anticonvulsants, antidepressants, antineoplastics, 
antipsychotics, antiretrovirals, and immunosuppressants. 
31 CMS refers to these changes as nonmaintenance changes.  Beneficiaries who are 
taking drugs affected by these changes are exempt from the changes for the remainder of 
the plan year.  See Appendix A for further details. 
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10 F I N D I N G S  
 
Table 3:  Formulary Changes That Did Not Promote Generic 
Substitution, 2008 
 
Percentage of Nongeneric Changes  
  Type of Change  
(n=1,572)
 
Remove drugs  46% 
 Add step therapy  17% 
Add prior authorization   13% 
 
Add quantity limit   11% 
 
Move drugs to higher cost-sharing tiers  10% 
 Other changes*  3% 
   Total   100% 
 
* Other changes include unapproved changes or those that did not require CMS approval.  
S ource:  OIG analysis of Medicare Part D 2008 negative midyear formulary changes.   
 
With few exceptions, sponsors met      Generally, sponsors used a 
beneficiary notification requirements      combination of methods to notify 
beneficiaries of midyear changes.  
for formulary changes  
Sponsors used either form letters 
or explanation of benefits forms (EOBs) as written notice of formulary 
changes and also included formulary changes on their Web sites.  CMS 
provides guidelines for notification letters and EOBs as forms of written 
notice.   
Over half (59 percent) of the sponsors we spoke with have policies of 
sending written notices only to beneficiaries who are affected by 
changes, per CMS rules.32  If no beneficiaries are taking the affected 
drugs, sponsors do not generate notification letters.   
Notification letters largely met both timing and content requirements 
CMS requires sponsors to provide 60 days notice to beneficiaries for any 
negative changes.  The notification letters we reviewed gave 
beneficiaries more advance notice than required, with a median of       
74 days.  This means that half of the changes in the letters gave more 
than 74 days advance notice.  Overall, 89 percent of the changes had 
notification times of 60 days or more.  However, 9 percent of changes 
had between 30 and 59 days, and 2 percent had less than 30 days.     
 
32 42 CFR  423.120(b)(5)(A). 
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11 F I N D I N G S  
In addition to meeting timing requirements, notification letters must 
include six elements that describe upcoming formulary changes.     
Table 4 indicates the percentage of letters that contained each element.  
Overall, 88 percent of the notification letters contained all the required 
elements.  However, 12 percent of the letters contained five or fewer 
elements.   
Although notification letters contained the required elements nearly all 
of the time, information on cost sharing was missing in 5 percent of 
letters.  Three sponsors submitted letters that did not contain 
information on the changes in cost sharing, but instead included 
statements directing enrollees to call the plans customer service 
departments to find out the new cost.   
Table 4:  Percentage of Notification Letters Containing 
Required Elements, 2008 
Percentage of Letters 
Element 
Containing Element
Name of the affected drug  100%* 
Type of change   100%* 
Reason for the change  100%* 
Alternative drugs in the same class  100%* 
Information on obtaining a coverage determination or 
100%* 
exception for coverage of the affected drug 
New expected cost sharing  95% 
* We were unable to produce confidence intervals for these elements because all sample letters contained the 
element. Therefore we cannot produce a measure of variability.  We concluded that compliance with these 
requirements is very high.  
Source:  OIG analysis of Medicare Part D 2008 midyear formulary changes. 
 
Among other issues with notification letters, two sponsors reported 
difficulties with subcontractors that produced their letters.  Sponsors 
may contract with pharmacy benefit managers to send notification 
letters to beneficiaries on their behalf.  However, one sponsor told us 
that its pharmacy benefit manager failed to send letters between 
August and October 2008 because of a data error; another sponsors 
subcontracted mailing service went out of business, making it 
impossible for the sponsor to retrieve the letters for our request.  Part D 
regulations state that sponsors are ultimately responsible for 
OEI-01-08-00540    MIDYEAR FORMULARY CHANGES IN MEDICARE PRESCRIPTION DRUG PLANS 
12 F I N D I N G S  
downstream contractors, such as pharmacy benefit managers and their 
failure to send or retain notification letters.33 
In a few instances, sponsors misinterpreted CMS guidance on which 
types of changes require approval.  Two sponsors responses suggested 
that they did not consider changes involving generic substitution or 
other routine negative changes to require CMS approval.  However, in 
2006, CMS issued guidance clarifying that these types of negative 
changes require approval.34 
Web sites we reviewed did not consistently reflect midyear changes 
We reviewed formularies posted on 20 sponsors Web sites to identify 
midyear changes approved by CMS.  None of the formularies reflected 
every change, and all online formularies varied in the extent to which 
they reflected changes.  Overall, we could not readily identify 630 of 
1,046 approved changes (60 percent) from the NCR file in the online 
formularies.  For example, online formularies were available in PDF as 
suggested in CMSs guidelines, but they were not easily searchable or 
they listed drugs by generic rather than brand names that beneficiaries 
might recognize.  CMSs guidelines for Part D marketing materials state 
that sponsors must update their online formularies at least monthly 
and that their Web sites must reflect midyear changes.     
Although we found that midyear changes were not readily accessible on 
sponsors Web sites, CMS lists formulary information on the Medicare 
Prescription Drug Plan Finder (hereinafter, Plan Finder) Web site.  
When sponsors update their formularies each month, CMS posts the 
formulary and pricing files to the Plan Finder.  However, OIG has also 
raised concerns about the accuracy of pricing information on the Plan 
Finder.35 
As stated previously, CMS 
CMS reviewed nearly all formulary     
approved 79 percent of sponsors 
changes listed in notification letters 
negative change requests.  
Sponsors withdrew 18 percent of change requests because they 
contained errors.  CMS denied 3 percent of negative change requests.  
 
33 42 CFR  423.505(i)(4)(ii-iii). 
34 CMS, Memorandum, CY 2006 and CY 2007 Formulary ChangesNew October 
Submission Window and Policy on Enhancements Added Between the October and 
February Submissions, October 5, 2006. 
35 OIG, Accuracy of Part D Plans Drug Prices Provided on the Medicare Prescription 
Drug Plan Finder, OEI-03-07-00600, July 2009. 
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In addition, CMS canceled less than 1 percent of change requests 
because they were incomplete or approval was not required.  
CMS uses systematic checks to monitor sponsors formulary change 
requests and monthly updates to formulary files.  For example, CMSs 
Web-based file systems do not allow sponsors to obtain approval for new 
formulary files if those files contain unapproved negative changes.  CMS 
staff also review all negative change requests by hand and deny changes 
that lack sufficient clinical justification.  In addition, CMS uses its own 
threshold to limit changes that restrict access to certain drugs without 
offering cost-saving alternatives or promoting drug safety.  If plans 
exceed this threshold, CMS denies the change requests and follows up 
with the plan.   
Even though these checks were in place, we detected some 
noncompliance whereby sponsors failed to seek approval for midyear 
changes.  Overall, only 1 percent of changes listed in the notification 
letters required CMS approval but were not in the original change 
request file.  Nearly all (94 percent) of these unapproved changes 
involved substituting or adding generic drugs.  The remaining 6 percent 
of unapproved changes involved moving drugs to higher cost-sharing 
tiers, adding utilization controls, or removing drugs from the formulary.   
OEI-01-08-00540    MIDYEAR FORMULARY CHANGES IN MEDICARE PRESCRIPTION DRUG PLANS 
14    C O N C L U S I O N  
This study found that sponsors and CMS are managing midyear 
formulary changes in compliance with Part D program requirements.  
The data in this report show that 36 percent of 2008 midyear formulary 
changes restricted the formularies, but the majority of these changes 
also promoted cost savings through generic substitution.  Part D 
regulations require sponsors to promote cost-effective use of prescription 
drugs where medically appropriate, and it appears that sponsors 
adhered to these rules.   
CMS provides sponsors with various forms of guidance on formulary 
change requests and beneficiary notification.  Although some sponsors 
may need more specific guidance on notification practices, we found that 
most sponsors complied with CMS regulations and provided even more 
advance notice than the 60-day standard requires.  CMS could provide 
additional guidance to sponsors regarding cost sharing in notification 
letters and on managing subcontractors that provide notification 
services.   
We reviewed a limited number of sponsors Web sites to identify 
midyear changes and found that these Web sites did not reflect all the 
changes approved by CMS.  These discrepancies are of concern because 
they deny beneficiaries accurate coverage information.  CMSs guidance 
states that online formularies must reflect midyear changes.  
Beneficiaries should be able to rely on the formulary on a sponsors Web 
site to reflect the drugs actually covered and the cost-sharing amount 
owed.  Further analysis may be warranted to determine the full extent 
of consistency between approved changes to sponsors formularies and 
the changes that appear on their Web sites and to determine whether 
additional guidance is needed to address any inconsistencies. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 
RESPONSE   
CMS generally agreed with our findings.  It noted that it is working 
with a contractor to review sponsors online formularies to assess 
consistency between their Web versions and CMSs approved formulary 
files.  Also regarding sponsors Web sites, CMS asked whether it is 
possible that sponsors failure to implement negative changes could 
explain why we did not find those changes on the Web sites.  We did not 
determine whether, in fact, sponsors implemented the changes that we 
could not find on their Web sites or whether sponsors sent notification 
letters for these specific changes.     
OEI-01-08-00540    MIDYEAR FORMULARY CHANGES IN MEDICARE PRESCRIPTION DRUG PLANS 
15 C O N C L U S I O N  
We made two changes in response to CMSs comments.  First, we 
clarified that beneficiaries taking medications subject to changes 
unrelated to generic substitution are protected from disruptions in 
therapy.  We also corrected the text to show how we defined our sample 
strata. 
Finally, we will provide to CMS, under separate cover, the names of 
sponsors we identified that either misinterpreted or appeared not to 
comply with formulary change notification requirements so that CMS 
can provide additional guidance to these sponsors.   
The complete text of CMSs comments appears in Appendix D. 
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16    A P P E N D I X ~ A  
 
Maintenance and Nonmaintenance Changes in the Negative Change 
Request File 
The Centers for Medicare & Medicaid Services (CMS) divides negative 
formulary changes into maintenance changes and nonmaintenance 
changes.36  Sponsors notify CMS and request approval for these changes 
by uploading them into CMSs online Health Plan Management System 
(HPMS).  CMS uses HPMS to review the proposed changes and 
communicate its approval or disapproval.   
Maintenance changes.  Sponsors make maintenance changes to 
encourage use of new, lower cost drugs or to restrict access to a drug 
because of safety concerns.  Generally, maintenance changes provide 
alternatives for drugs that are removed or restricted.  In cases in which  
maintenance changes do not provide alternatives or beneficiaries cannot 
take alternative drugs, sponsors must provide a process whereby 
beneficiaries may request coverage of the original drugs.37  Examples of 
maintenance changes include:  
  removal or placement in a less preferred tier of a brand-name drug 
because of the addition of a generic or brand-name equivalent at a 
lower tier or cost to the beneficiary; 
  addition of utilization controls when the Food and Drug 
Administration issues a safety warning for the drug; and 
  addition of utilization controls when necessary to effect other 
approved formulary changes (e.g., prior authorization for a      
brand-name drug when a generic becomes available on a formulary 
at a lower cost).38 
Nonmaintenance changes.  Nonmaintenance changes remove or restrict 
access to drugs without providing new alternatives.  Sponsors make 
such changes to remove drugs from formularies, add utilization controls, 
or change cost-sharing tiers.  CMS allows sponsors to make these 
changes only if beneficiaries currently taking the affected drugs are 
exempt from the changes for the remainder of the contract year.  
Nonmaintenance changes include, but are not limited to: 
 
36 CMS, Medicare Prescription Drug Benefit Manual, ch. 6,  30.3.3.2 and 30.3.3.3, July 
18, 2008. 
37 CMS, Medicare Prescription Drug Benefit Manual, ch. 6,  30.3.4.1. 
38 CMS, Medicare Prescription Drug Benefit Manual, ch. 6,  30.3.3.2. 
OEI-01-08-00540    MIDYEAR FORMULARY CHANGES IN MEDICARE PRESCRIPTION DRUG PLANS 
17 A P P E N D I X ~ A  
  changing preferred or nonpreferred formulary drugs, adding 
utilization controls, or increasing cost sharing on preferred drugs 
without the addition of a lower cost or generic drug; and 
  removing dosage forms (e.g., removing the liquid form of a drug but 
keeping the tablet form).39 
Because CMS generally approves maintenance changes, sponsors may 
send the 60-day notification to beneficiaries without waiting for CMSs 
explicit approval.40  For nonmaintenance changes, sponsors must wait 
for explicit approval before sending the notification.41 
 
39 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, 30.3.4.2. 
40 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, 30.3.3.2. 
41 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, 30.3.3.3. 
OEI-01-08-00540    MIDYEAR FORMULARY CHANGES IN MEDICARE PRESCRIPTION DRUG PLANS 
18    A P P E N D I X ~ B  
Detailed Methodology 
Scope  
This study analyzed the extent and nature of midyear formulary 
changes made by Medicare prescription drug sponsors in 2008 and the 
Centers for Medicare & Medicaid Services (CMS) monitoring of these 
changes.  It also analyzed the extent to which sponsors of prescription 
drug plans complied with CMS notification requirements.  This study 
did not review year-to-year formulary changes or analyze specific types 
of drugs that sponsors included in their formularies.   
Data Sources 
We used a stratified random sample of 120 formularies to identify and 
analyze all midyear formulary changes (both positive and approved 
negative changes) and to identify sponsors that sent notification letters 
for negative changes to beneficiaries.  From the sample of                   
120 formularies, we also drew a convenience sample of 20 formularies 
that we downloaded from sponsors Web sites. 
We used the Negative Change Request (NCR) file in CMSs Health Plan 
Management System (HPMS) to identify changes that sponsors 
requested.  We also used the Formulary Change Notification Report in 
HPMS to identify positive formulary changes.  In addition, we used the 
Approved Formulary file for 2008 to identify unique drug codes for 
drugs most commonly prescribed to Medicare beneficiaries as well as 
drugs in protected classes. 
Methodology for Drawing a Stratified Random Sample of Formularies 
Before drawing a stratified random sample of formularies, we created a 
file containing the universe of all Part D formularies in 2008 using the 
following files from HPMS: 
  2008 Approved Contracts:  This file contains approved 2008 
contract numbers and sponsor information.   
  2008 Approved Plan Information:  This file contains plan-level 
data for each approved 2008 contract, including a formulary 
identification number for plans that offer prescription drug 
coverage.   
  2008 Plan Enrollment Information:  This file contains enrollment 
data for plans offered under each 2008 Part D contract.   
Calculating the Total Number of Sponsors and Formularies in 2008.         
We used information from two CMS data files to create a complete list 
of all Part D formularies.  Because these files serve different purposes 
OEI-01-08-00540    MIDYEAR FORMULARY CHANGES IN MEDICARE PRESCRIPTION DRUG PLANS 
19 A P P E N D I X ~ B  
and because CMS updates them during different periods, the number of 
observations in each file did not always match.   
The Plan Enrollment file had 6,010 unique plans and 821 unique 
contracts.  The file was current as of October 2008.  We removed union-
only plans, plans with no enrollment, and plans that did not offer     
Part D benefits.  This left 723 contracts and 4,986 plans with total 
enrollment of 25,886,069.  
The Approved Plan Information file contained 6,874 plans and            
809 unique contracts.  The file was current as of October 2008.  Once 
again, we removed inactive contracts, union-only contracts, and those 
that did not offer Part D benefits.  This left 5,609 plans, 769 contracts, 
and 342 formularies.  
We merged the Plan Enrollment file with the Approved Plan 
Information file by unique plan identifiers.  This produced our 
population file of 329 eligible formularies from which we selected our 
random sample.  This file has 329 unique formularies associated with           
4,906 unique plans, 671 unique contracts, and 204 unique sponsors.  
The number of unique formularies dropped from 342 on the Plan 
Enrollment file to 329 because approved plans associated with              
13 formularies had no enrollment.  The number of unique plans 
decreased from 4,986 to 4,906 because 2 plans with a total enrollment of 
3 people were not on the Approved Contracts file and 78 plans had no 
formulary identification information available.  Together these 80 plans 
consisted of less than 0.05 percent of total enrollment. 
These 329 formularies are associated with plans having total 
enrollment of 25,874,153, which is over 99.95 percent of total 
enrollment.  
Drawing a Stratified Random Sample of Formularies.  We used SAS to 
merge the list of sponsors with the NCR file to determine which 
sponsors had submitted negative changes in 2008.42  To select our 
sample, we used a simple one-stage cluster sampling plan with changes 
clustered within formularies.  
We used the list of 329 formularies eligible for the study and then 
divided these formularies into two strata:  those that did not appear in 
the NCR file and those that did.  Stratum 1 contained 94 formularies 
 
42 Copyright, SAS Institute Inc.  SAS and all other SAS Institute Inc. product or service 
names are registered trademarks or trademarks of SAS Institute Inc., Cary, NC, USA. 
OEI-01-08-00540    MIDYEAR FORMULARY CHANGES IN MEDICARE PRESCRIPTION DRUG PLANS 
20 A P P E N D I X ~ B  
and stratum 2 contained 235 formularies. We then drew 50 formularies 
from stratum 1 and 70 formularies from stratum 2. 
We chose this sampling design to enable us to make ratio estimates of 
the number of changes with certain characteristics over the number of 
all changes for key areas of interest with expected absolute precision of     
+/-10 percent at the 95-percent confidence level when expressing the 
ratios as percentages. 
Methodology for Analysis of Negative Formulary Changes 
We used SAS to analyze the NCR file, which contains changes that 
sponsors requested between January 1 and July 31, 2008.  The NCR 
system allows sponsors to choose from 25 types of changes.  We 
categorized these types of changes according to whether they added or 
substituted generic drugs, added utilization management to encourage 
generic drug use, and other types.  The entire NCR file contained   
14,991 negative change requests.  The 120 formularies in our stratified 
random sample had 4,333 negative change requests, 3,425 of which 
CMS approved.  We identified an additional 516 negative changes from 
sponsors letters that CMS did not approve or that did not require CMS 
approval, as explained below.  Together, approved NCR changes and 
unapproved changes from the letters accounted for all negative changes 
(3,941). 
To identify drugs in protected classes, we used the 2008 Approved 
Formulary file.  We created a list of the unique drug codes for drugs that 
fell into the classes that covered anticonvulsants, antidepressants, 
antineoplastics, antipsychotics, antiretrovirals, and immunosuppressants.  
We compared this list to the NCR file to identify requested changes that 
involved protected drugs. 
Similarly, we identified drugs most commonly prescribed for Medicare 
beneficiaries using the list of classes from the Medicare Prescription Drug 
Benefit Manual, chapter 6, Appendix D.  We used the 2008 Approved 
Formulary file to create a list of the unique drug codes for drugs that fell 
into these classes.  We then compared this list to the NCR file to identify 
requested changes that involved drugs most commonly prescribed to 
Medicare beneficiaries.   
Methodology for Analysis of Positive Formulary Changes 
To analyze positive changes to formularies in 2008, we used data from 
the Formulary Change Notification Report (hereinafter, the report) in 
HPMS.  Sponsors may submit new versions of their formularies each 
month, and HPMS assigns a new version number to the formulary each 
OEI-01-08-00540    MIDYEAR FORMULARY CHANGES IN MEDICARE PRESCRIPTION DRUG PLANS 
21 A P P E N D I X ~ B  
time sponsors resubmit it.  For each formulary in our sample, we used 
the report to compare drugs included in the first approved formulary 
version in or around the end of October 2007 with drugs in the last 
approved version in 2008.  CMS aims to approve all formularies by this 
time each year so sponsors may post them on their Web sites prior to 
the Annual Election Period, which begins November 15.  CMS first 
approved the majority of formularies in our sample on or around 
October 29, 2007.  The 120 formularies in our sample had 7,886 positive 
changes.   
We also used the report to identify changes that added new drugs to the 
formulary, reduced cost sharing, or removed utilization controls.   Because 
that report does not assign a type to each change, we looked at the 
differences between the formulary versions and assigned positive change 
types, as shown in Table B-1.  We added positive changes to the file of 
negative changes to create a file of all formulary changes.   
Table B-1:  Types of Positive Changes 
 
Type of Change  Description 
 
The sponsor decreased the number of days before 
  Decrease quantity limit day 
a beneficiary may obtain a refill on the drug 
  The sponsor decreased the number of drugs that 
Decrease step group  must be tried in step therapy before the beneficiary  
  can obtain this drug 
The sponsor placed the drug in a tier with a lower 
  Move drug to lower cost-sharing tier 
copayment 
  The sponsor removed prior authorization  
Delete prior authorization 
for the drug 
 
Delete quantity limit  The sponsor removed the quantity limit on the drug 
  Delete step therapy  The sponsor removed step therapy for the drug 
The sponsor increased the quantity of drugs that 
  Increase quantity limit 
may be dispensed at one time 
S ource:  Office of Inspector General analysis of Medicare Part D 2008 midyear formulary changes. 
 
Methodology for Notification Letter Request and Analysis 
We used a file of compliance officer contacts to identify 150 compliance 
officers associated with the formularies within our sample.  The number 
of compliance officers is greater than the sample of formularies because 
some sponsors had more than one compliance officer.  We sent letters to 
the compliance officers requesting copies of letters they sent to their 
enrollees notifying them of negative midyear formulary changes in 
2008.  To avoid duplicative letters, we did not request a copy of every 
OEI-01-08-00540    MIDYEAR FORMULARY CHANGES IN MEDICARE PRESCRIPTION DRUG PLANS 
22 A P P E N D I X ~ B  
letter sent to every enrollee; rather, we asked for letters that covered all 
negative changes.  We achieved a 100-percent response.  However,       
10 compliance officers told us that they no longer oversaw the 
formularies we referenced in our request.  Therefore, we obtained all the 
required letters and information on the sampled formularies from                     
140 compliance officers.  We later followed up with these compliance 
officers to collect more information on sponsors notification policies.  
Sixty percent of respondents included notification letters, while            
40 percent said that they did not make any negative changes to their 
formularies or did not send letters because none of their enrollees was 
affected by the negative changes.   
CMS does not require sponsors to send notification letters to 
beneficiaries who are not taking the affected drugs, and sponsors do not 
send letters for changes that CMS disapproves.  Thus, sponsors could 
not send us notification letters covering every approved negative change 
they made.  The letters we received covered 55 percent of requested 
changes.   
We reviewed 853 letters covering 2,197 formulary changes.  Of these 
changes, 516 were not approved by CMS or did not require CMS 
approval.  We calculated the total number of formulary changes by 
adding unapproved changes (516) to the total positive changes (7,886) 
and total approved changes from the NCR file (3,425).  This summed to 
11,827.  
To analyze changes listed in sponsors letters, we first determined 
whether the changes were in the NCR file and then determined the 
presence or absence of each of the six required elements in the letters, 
the date the letter was sent, and the date the change became effective.  
Some letters lacked dates because sponsors redacted parts of the letters 
to protect enrollees privacy.  Therefore, we omitted these letters when 
analyzing notification time.  For letters that did not appear in the NCR 
file, we also determined whether the changes required CMS approval.   
Methodology for Analysis of Sponsors Web Sites 
We selected a convenience sample of 20 formularies from our stratified 
random sample of 120 formularies.  We identified the sponsors that 
used those formularies using our list of 2008 sponsors.  In          
December 2008, we went to each sponsors Web site and downloaded the 
PDF version of each formulary.    
Using data from the report, we identified negative changes that CMS 
had approved for the 20 formularies.  We reviewed each online 
OEI-01-08-00540    MIDYEAR FORMULARY CHANGES IN MEDICARE PRESCRIPTION DRUG PLANS 
23 A P P E N D I X ~ B  
formulary, focusing on four negative changes:  (1) added prior 
authorizations, (2) drugs moved to higher cost-sharing tiers, (3) added 
step therapy, and (4) added quantity limits.  We searched the               
20 formularies for the brand and the generic names to determine 
whether the changes were accurately reflected in the formularies.   
Methodology for Analysis of CMS Staff Interviews 
We interviewed CMS staff responsible for monitoring and approving 
midyear formulary change requests and updates.  We asked them for 
detailed information on the databases they use to track formularies, and 
we clarified technical aspects of our data collection to ensure we 
analyzed midyear changes appropriately.  We also collected descriptive 
data from members on the processes they use to review change requests 
and the criteria they used to approve or disapprove changes.   
Limitations 
We could not assess whether sponsors sent a notification letter to every 
enrollee who should have received one.  CMS requires sponsors to notify 
only those enrollees affected by negative formulary changes.  However, 
we could not determine which enrollees were affected by each change 
and whether they received letters.  Rather, we examined the content of 
the notification letters and checked to see whether CMS had approved 
negative changes for the drugs listed in the letters. 
 
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24    A P P E N D I X ~ C  
Data Tables 
Table C-1:  Population Counts of 2008 Part D Sponsors 
Population of Part D  Sponsors That Requested  Sponsors of Sampled 
Sponsors  Negative Changes  Formularies 
204  156 (76%)  87 
Source:  Office of Inspector General (OIG) analysis of Medicare Part D 2008 midyear formulary changes. 
Table C-2:  Sample Design Information, 2008 Part D Formularies 
Stratum  Population Size  Sample Size 
1  Formularies without 
94  50 
negative change requests 
2  Formularies with negative 
235  70 
change requests 
     Total  329  120 
Source:  OIG analysis of Medicare Part D 2008 midyear formulary changes. 
Table C-3:  Percentage of Requested Negative Changes by CMS* 
Approval Status, 2008 
Point Estimate 
Approval Status  95% Confidence Interval 
(n=4,333) 
Approved  79.0%  68.8%89.2% 
Denied  2.7%  1.4%4.0% 
Withdrawn  17.9%  7.3%28.5% 
     Total  100%   
*Centers for Medicare & Medicaid Services (CMS). 
Source:  OIG analysis of Medicare Part D 2008 midyear formulary changes. 
 
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25 A P P E N D I X ~ C  
Table C-4:  Percentage of Positive and Negative Formulary       
Changes, 2008 
Point Estimate 
Type of Change  95% Confidence Interval 
(n=11,827) 
Positive   63.6%  59.4%67.7% 
Negative  36.3%  32.2%40.5% 
     Total  100%   
Source:  OIG analysis of Medicare Part D 2008 midyear formulary changes. 
Table C-5:  Percentage of Positive Changes by Type, 2008 
Point Estimate 
Type of Positive Change  95% Confidence Interval 
(n=7,886) 
Decreased cost-sharing or removed 
59.9%  55.4%64.3% 
utilization management 
Added drugs to the formulary  40.0%  35.6%44.5% 
     Total  100%   
Source:  OIG analysis of Medicare Part D 2008 midyear formulary changes. 
Table C-6:  Mean Number of Drugs Added to or Removed From 
Formularies, 2008 
Type of Change  Point Estimate  95% Confidence Interval 
Added drugs to formularies  46.0  41.550.4 
Removed drugs from formularies  22.1  17.526.6 
Ratio of drugs added to drugs removed   2.1  1.82.4 
Source:  OIG analysis of Medicare Part D 2008 midyear formulary changes. 
OEI-01-08-00540    MIDYEAR FORMULARY CHANGES IN MEDICARE PRESCRIPTION DRUG PLANS 
26 A P P E N D I X ~ C  
Table C-7:  Percentage of Negative Changes by Type, 2008 
  Point Estimate 
Type of Negative Change   95% Confidence Interval
(n=3,941)
 
 Remove drugs   56.1%  47.8%64.4% 
Move drugs to higher cost-sharing tiers  17.2%  10.4%23.9% 
 
Add step therapy   6.6%  3.1%10.0% 
 
Add prior authorization  5.0%  3.4%6.6% 
 Add quantity limit  4.2%  2.5%5.8% 
Other changes*  11.1%  8.9%13.4% 
 
   Total   100%   
*  Other changes include removing discontinued drugs or adding utilization controls to promote drug safety or to 
determine Part B vs. Part D reimbursement. 
 
Source:  OIG analysis of Medicare Part D 2008 negative midyear formulary changes.  
 
Table C-8:  Percentage of Negative Changes That Promoted Generic    
Substitution, 2008 
 
Point Estimate 
Type of Negative Change   95% Confidence Interval
(n=3,941)
 
 Negative changes that promoted 
62.2%  57.4%66.9% 
generic substitution 
S ource:   OIG analysis of Medicare Part D 2008 midyear formulary changes. 
 
Table C-9:  Percentage of Negative Changes Promoting Generic 
Substitution by Negative Change Type, 2008 
 
Percentage of This  
95% Confidence 
Type of Change   Change That Promoted  Sample Size 
  Interval
Generic Substitution
 
Remove drugs/substitute 
86.7%  2,169  81.5%91.9% 
generics 
 
Move drugs to higher cost-
77.9%  668  65.8%90.0% 
  sharing tiers 
Add step therapy   0.7%*  259  N/A 
 
Add prior authorization  0.5%*  199  N/A 
 
Add quantity limit  0%*  162  N/A 
 
Other changes  11.2%  516  8.9%13.5% 
* We did not project this estimate because the confidence interval contains zero.  While we cannot quantify the error in 
t his estimate, the fairly large sample size and low incidence rate indicate that this change probably did not promote 
generic substitution very often in the population. 
 
Source:   OIG analysis of Medicare Part D 2008 midyear formulary changes. 
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27 A P P E N D I X ~ C  
Table C-10:  Negative Changes and Generic Substitution Among     
Drugs Most Commonly Prescribed to Medicare Beneficiaries, 2008 
95% Confidence 
Type of Negative Change  Point Estimate  Sample Size 
Interval 
Negative changes affecting drugs 
most commonly prescribed to  46.3%  3,941  43.0%49.7% 
Medicare beneficiaries 
Percentage of these changes that 
69.3%  1,747  63.0%75.6% 
involved generic drugs 
Source:  OIG analysis of Medicare Part D 2008 midyear formulary changes. 
Table C-11:  Negative Changes and Generic Substitution Among      
Drugs in Protected Classes, 2008 
95% Confidence 
Type of Negative Change  Point Estimate  Sample Size 
Interval 
Negative changes affecting drugs in 
39.2%  3,941  37.6%40.8% 
protected classes 
Percentage of these changes that 
69.0%  1,475  64.9%73.0% 
involved generic drugs 
Source:  OIG analysis of Medicare Part D 2008 midyear formulary changes. 
Table C-12:  Percentage of Changes Not Promoting Generic 
Substitution by Change Type, 2008 
95% Confidence 
Type of Change  Point Estimate  Sample Size 
Interval 
Negative changes that did not 
38.2%  3,941  33.5%42.9% 
promote generic substitution 
All changes that did not promote 
13.9%  11,827  12.2%15.6% 
generic substitution 
Source:  OIG analysis of Medicare Part D 2008 midyear formulary changes. 
 
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Table C-13:  Percentage and Number of Sample Sponsors by Midyear 
Formulary Changes Notification Policies, 2008 
Notification Policy 
Percentage 
Count 
(n=140) 
Notify only affected beneficiaries  58.5%  82 
Notify all beneficiaries  37.1%  52 
Do not make any negative changes  4.2%  6 
Source:  OIG analysis of Medicare Part D 2008 midyear formulary changes. 
Table C-14:  Sponsors Notification Time for Negative Formulary 
Changes, 2008 
Notice  Sample Median 
Days notice for midyear formulary changes  74 
Source:  OIG analysis of Medicare Part D 2008 midyear formulary changes. 
Table C-15:  Percentage of  Negative Formulary Change Letters by 
Timing of Notification, 2008 
Percentage 
Timing of Notification  (n=1,557) 
 
> 60 days  89.4% 
 59 days  30 days  8.7%  
< 30 days  1.9% 
Source:  OIG analysis of Medicare Part D 2008 midyear formulary changes. 
 
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29 A P P E N D I X ~ C  
Table C-16:  Percentage of Changes With Notification Letters 
Containing Required Elements, 2008 
Percentage of Changes 
 
With Letters That 
Element  95% Confidence Interval
Contained This Element 
 
(n=2,197) 
  All six required elements  87.5%  86.1%88.9% 
Five or fewer required elements  12.5%  11.1%3.8% 
 
     Total  100%   
S ource:  OIG analysis of Medicare Part D 2008 midyear formulary changes. 
 
 
 
Table C-17:  Percentage of Negative Formulary Changes That Did Not 
Promote Generic Substitution, 2008 
 
Percentage of Negative 
  Type of Change   Changes Not  Sample Size  95% Confidence 
Promoting Generic  Interval
  Substitution (n=1,572) 
Remove drugs  45.7%  741  37.7%53.8% 
 
Add step therapy  17.1%  257  8.8%25.5% 
 
Add prior authorization   13.3%  200  9.1%17.5% 
  Add quantity limit   10.9%  162  7.2%14.7% 
Move drugs to higher 
  10.1%  153  4.5%15.7% 
cost-sharing tiers 
  Other changes*  3.0%  65  2.3%4.0% 
   Total   100%    
 
* Other changes include unapproved changes or those that did not require CMS approval.  
Source:  OIG analysis of Medicare Part D 2008 negative midyear formulary changes.  
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Table C-18:  Percentage of Changes With Notification Letters 
Containing Six Required Elements, 2008 
  Percentage of Changes 
Element  With Letters That  95% Confidence Interval
  Contained This Element 
  Name of the affected drug  100.0%*  N/A 
Type of change made to the affected drug  100.0%*  N/A 
 
Reason for the change  100.0%*  N/A 
  Alternative drugs in the same class  100.0%*  N/A 
Information on obtaining a coverage 
 
determination or exception for coverage of  100.0%*  N/A 
the affected drug 
 
New expected cost-sharing  94.5%  93.9% - 95.2% 
*  We were unable to produce confidence intervals for these elements because all sample letters contained the element. 
Therefore we cannot produce a measure of variability.  We concluded that compliance with these requirements is very 
high.  
 
Source:   OIG analysis of Medicare Part D 2008 midyear formulary changes. 
 
 
Table C-19:  Unapproved Implemented Changes, 2008 
95% Confidence 
Type of Unapproved Change  Point Estimate  Sample Size 
Interval 
Changes that required a letter  0.8%  11,827  0.5% - 1.2% 
Changes that required a letter 
93.5%*  117  86.3% - 100.0% 
and involved generic substitution 
Changes that required a letter 
and involved increased cost 
5.4%**  117  N/A 
sharing or added utilization 
controls 
* The confidence interval for this estimate contains 100.  Therefore, we cannot produce a measure of variability.   
** We were unable to produce confidence intervals for these estimates because of small sample size.  
Source:  OIG analysis of Medicare Part D 2008 midyear formulary changes. 
 
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A  P  PEN  D  D 
Agency Comments 
,......""<1 .... 
~
(  DEPAKrMENT OF HEALTII & HUMAN SERVICF-'  Center. for Medicare & Medicaid Services 
S'r 
Administrator 
Washington, DC 20201 
TO:  Daniel R. Levinson 
,Inspector Genqal 
FROM:  Charlene Frizzera 
Acting Administrator 
SUBJECT:  Office of Inspector General (OIG) Draft Report: "Midyear Formulary Changes in 
Medicare Prescription Drug Plans," (OEIOI-08-00540) 
Thank you for the opportunity to comment on the OIG Draft Report: "Midyear Formulary 
Changes in Medicare Prescription Drug Plans,"OEI-Ol-08-00540. The Centers for Medicare & 
Medicaid Services (CMS) recognizes the importance ofclose oversight ofthe midyear formulary 
change process. CMS has developed a midyear formulary change policy and implemented a 
standardized process that not only enables Part D sponsors to continue to offer cost-effective 
prescription drug coverage, but also ensures that Medicare beneficiaries continue to receive their 
necessary medications without disruption in therapy or changes in coverage. 
The OIGdeveloped a sound study methodology to research the degree to which Part D 
formularies change and Part D sponsors' compliance with CMS formulary change notification 
requirements. CMS generally concurs with the OIG regarding its findings.  Please note that the 
current draft ofthe report still contains an error in the Data Sources section on page 6. The 
numbers for stratum 1 and stratum 2 are reversed.  Based on the OIG report and our own internal 
numbers, the majority of formularies made midyear changes, and we thus believe stratum' I 
contained 235 formularies and stratum 2 contained 94 formularies. 
Based on the sampling method utilized in the study, OIG found that 38 percent of midyear 
formulary changes were not related to generic substitution. Other formulary cbangesthat CMS 
also considers best practice are included in the report. The addition ofprior authorization (P A) 
based upon a new United States Food and Drug Administration boxed warning or clinical 
guidelines recognized by CMS, for example, protects the interests of Medicare beneficiaries. As 
currently written, the finding that 38 percent of changes were unrelated to generic substitution 
suggests that these types of changes are not important formulary management techniques. Thus, 
this finding appears to overstate the number of non-maintenance formulary changes. Upon 
clarification ofthis finding in the report, we also respectfully req1,lest restatement in this section 
that beneficiaries currently taking drugs that are subject to a non-maintenance change are exempt 
from that change. CMS feels that this "grandfathering" requirement protects the beneficiary 
from disruptions in therapy. 
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33  A C K N O W L E D G M E N T S  
  
This report was prepared under the direction of Joyce Greenleaf, 
Regional Inspector General for Evaluation and Inspections in the 
Boston regional office, and Russell Hereford, Deputy Regional Inspector 
General.   
Maria Maddaloni served as the team leader for this study, and Melissa 
Hafner served as the lead analyst.  Other principal Office of Evaluation 
and Inspections staff from the Boston regional office who contributed to 
this report include Tim Chettiath; central office staff who contributed 
include Kevin Farber and Kevin Manley. 
OEI-01-08-00540    MIDYEAR FORMULARY CHANGES IN MEDICARE PRESCRIPTION DRUG PLANS 
34