Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
MEDICARE HMO PRESCRIPTION 
DRUG BENEFITS 
Information Available to Beneficiaries on 
Dollar Limits 
JANET REHNQUIST 
INSPECTOR GENERAL 
MAY 2002 
OEI-03-00-00430  O I G
FFICE OF  NSPECTOR  ENERAL

http://www.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 OIG's 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 in 
order to reduce waste, abuse, and mismanagement and to promote economy and efficiency throughout the 
Department. 
Office of Evaluation and Inspections 
The OIG's Office of Evaluation and Inspections (OEI) conducts short-term management and program 
evaluations (called inspections) that focus on issues of concern to the Department, the Congress, and the 
public.  The findings and recommendations contained in the inspections reports generate rapid, accurate, 
and up-to-date information on the efficiency, vulnerability, and effectiveness of departmental programs. 
Office of Investigations 
The OIG's 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.  The OI also oversees State Medicaid fraud control units which investigate and 
prosecute fraud and patient abuse in the Medicaid program. 
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 OIGs internal 
operations.  The OCIG imposes program exclusions and civil monetary penalties on health care providers 
and litigates those actions within the Department.  The OCIG also represents OIG in the global settlement 
of cases arising under the Civil False Claims Act, develops and monitors corporate integrity agreements, 
develops model compliance plans, 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  
PURPOSE 
This report describes (1) elements that can help Medicare beneficiaries assess the value of a 
health maintenance organizations (HMOs) prescription drug benefit, and (2) how HMOs 
convey information about dollar limits on drug benefits to beneficiaries. 
BACKGROUND 
The 1997 Balanced Budget Act established the Medicare+Choice program. Under this

program, the Centers for Medicare & Medicaid Services (CMS) contracts with a greater

variety of health plans, which increases health plan options for Medicare beneficiaries. This

report focuses on HMO plans under contract with CMS.  In addition to providing benefits

covered by the Medicare fee-for-service program, the HMO plans may provide extra benefits

such as a drug benefit that covers outpatient prescription drugs. The HMO plans can limit their

drug benefit in various ways. One way is to limit coverage to a certain dollar amount. Of the

HMO plans that offered an extra drug benefit in 2001,  87 percent limited the dollar amount

of coverage.  Plans can also limit the drug benefit by charging beneficiaries coinsurance or

copayments, by only covering certain types of drugs (i.e., brand name or generic drugs), or

only covering drugs on a formulary.

Beneficiaries can receive information about plans drug benefits from a number of sources. 

One tool a beneficiary can use to compare drug benefits is the Summary of Benefits. The

CMS, which administers the Medicare+Choice program, mandates that each plan have a

Summary of Benefits so that beneficiaries can use them to make informed choices.  In addition

to reading the Summary of Benefits, beneficiaries can phone the HMO plans and speak to

customer service representatives to get information about the drug benefit.  Beneficiaries with

Internet access can also gather plan information by using the Medicare Compare database

located on the Medicare website (www.medicare.gov).

Beginning in 2000, HMO plans submitted information about their benefits to the new CMS

database called the Plan Benefit Package database, which is a part of CMS Health Plan

Management System. For this report, we analyzed information provided by plans to the Plan

Benefit Package database.  We also called customer service representatives and reviewed

Summaries of Benefits for a sample of HMO plans that limit drug benefits.

i 
Medicare HMO Prescription Drug Benefits  OEI-03-00-00430  FINDINGS 
Comparing the dollar limits on drug benefits can be a daunting task 
There are a number of elements that beneficiaries should review when comparing and assessing 
plans limits on drug benefits. Medicare beneficiaries enrolled in HMO plans with dollar limits 
on drug benefits received drug coverage ranging from $200 to $12,000 in the year 2001. 
While the amount of the dollar limit on a plans drug benefit is an important element when 
comparing plans, other elements can significantly affect the value of a plans drug benefit. 
These elements include the time period of the dollar limit, whether the plan allows beneficiaries 
to carry forward unused dollars, the types of drugs covered under the limit, whether drug 
formularies are used, the pricing method the HMO uses to determine the dollar amount applied 
to the limit for each prescription, and whether the HMO deducts copayments before applying 
the prescriptions dollar amount to the limit. 
The information that HMOs provide to beneficiaries about certain elements of the 
drug benefit is inconsistent, incomplete, and confusing 
Medicare beneficiaries can obtain a variety of information about HMO drug benefits. 
However, we found that many HMO plans did not provide beneficiaries with the specific 
method being used to calculate the dollar amount applied to the limit for each prescription. 
When we telephoned plan representatives to ask them how they generally determined the 
amount applied to the dollar limit for prescription drugs, fewer than half provided the answer. 
Furthermore, when we asked them for specific prices for four commonly used drugs, 90 
percent said they could not or would not provide the information. Even when information 
regarding the pricing method was provided in the CMS Plan Benefit Package database, 
Summary of Benefits, or by the plans customer service representative, the information in one 
source was not always consistent with what a plan reported in another source. Dollar amounts 
and time periods reported by some plans were also not always consistent across sources. In 
addition, few HMOs provided information to beneficiaries about whether copayments are 
deducted from the prescription prices applied to the dollar limit. 
Incomplete, inconsistent, and confusing information about a drug benefits dollar limit makes it 
difficult for beneficiaries to know exactly what the drug benefit includes. It also may make it 
difficult to compare the value of drug benefits provided by different plans, thereby preventing a 
beneficiary from making an informed choice. 
RECOMMENDATIONS 
Our prior studies have shown that prescription drug coverage is one of the main factors that 
attracts beneficiaries to enroll in a managed care option under Medicare. Thus, every 
ii 
Medicare HMO Prescription Drug Benefits  OEI-03-00-00430  practical effort should be made to help beneficiaries compare drug benefits among various 
plans. In order for beneficiaries to make informed choices regarding the value of a plans 
prescription drug limit, they need accurate, comprehensive, and comparable information about 
the plans drug benefit. To this end, CMS has taken numerous steps to ensure that beneficiaries 
receive information about drug plans in both the Summary of Benefits and the Medicare 
Compare database available on the Internet. We recommend that CMS also consider the 
following: 
<	 Enhance and validate the drug limit information that is collected from plans for the Plan 
Benefit Package database. 
<	 Enhance current educational efforts to ensure the plans drug benefits are clearly 
explained. 
AGENCY COMMENTS 
The CMS reviewed our draft report.  They agreed with our draft recommendations: (1) to 
enhance and validate the drug limit information currently collected in the Plan Benefit Package 
database, and (2) to provide beneficiaries with education regarding drug benefits. However, 
they felt our suggestions for how to provide such education were inappropriate.  They also 
commented that we did not adequately acknowledge the drug benefit information that is already 
being provided to beneficiaries. 
We acknowledge CMS concerns, and have substantially revised our recommendations to 
respond to their comments. We have also modified our introduction and finding sections to 
reflect CMS comments concerning the types of drug benefit information already being 
provided to beneficiaries and the inherent complexity of this information. 
However, we continue to believe that pricing information is a key element when comparing 
plans drug benefits. We understand that drug benefit offerings in the pharmaceutical industry 
are complex and it is difficult for anyone (i.e., not only Medicare beneficiaries) to understand . . 
. . It is precisely for that reason that we continue to believe that beneficiaries need to 
understand and know pricing information to make an informed decision. The CMS suggested 
that beneficiaries would better understand a drug benefit and be able to compare it across plans 
if they could see what it would cost to obtain a prescription for one or two popular drugs. We 
agree that providing plans actual prices for drugs would assist beneficiaries in making informed 
choices about the value of a plan to them. We encourage CMS to work toward making actual 
prices available to Medicare beneficiaries. 
iii 
Medicare HMO Prescription Drug Benefits  OEI-03-00-00430  T A B L E   O F   C O N T E N T S  
PAGE

EXECUTIVE SUMMARY ...................................................... i

INTRODUCTION .............................................................1

FINDINGS

Assessing the Value of HMO Drug Benefits With Dollar Limits  ......................5

HMO Information About Dollar Limits .........................................8

RECOMMENDATIONS ...................................................... 11

APPENDICES

A. Pricing Methods Used by HMO Plans with Dollar Limits in 2001 ..................13

B. Centers for Medicare & Medicaid Services Comments .........................14

ACKNOWLEDGMENTS ..................................................... 17

iv 
Medicare HMO Prescription Drug Benefits  OEI-03-00-00430  I N T R O D U C T I O N  
PURPOSE 
This report describes (1) elements that can help Medicare beneficiaries assess the value of a 
health maintenance organizations (HMOs) prescription drug benefit, and (2) how HMOs 
convey information about dollar limits on drug benefits to beneficiaries. 
BACKGROUND 
Health Plan Options for Medicare Beneficiaries 
The 1997 Balanced Budget Act established the Medicare+Choice program. Under this 
program, the Centers for Medicare & Medicaid Services (CMS) contracts with a greater 
variety of health plans.  Beneficiaries are now able to choose between the traditional  fee-for-
service Medicare program, private fee-for-service plans, and managed care plans. Managed 
care plans include those offered by HMOs, preferred provider organizations, and provider-
sponsored organizations. This report focuses on HMO plans under contract with CMS. 
Medicare HMO Drug Benefit 
In addition to providing benefits covered by the Medicare fee-for-service program, HMO plans 
may provide extra benefits such as outpatient prescription drugs. According to a February 
2000 report by the Office of Inspector General (OIG) entitled Medicare+Choice HMO Extra 
Benefits: Beneficiary Perspectives (OEI-02-99-00030), receiving extra benefits is a major 
incentive for beneficiaries to join HMO plans.  When the OIG asked enrollees which of the 
plans extra benefits were most important to them, 87 percent said prescription drugs. 
Moreover, one-third of HMO enrollees indicated that the drug benefit was the single most 
important reason they chose their HMO. 
Currently, HMO plans limit their drug benefit in various ways. One way is to limit coverage to 
a certain dollar amount. Of the HMO plans that offered an extra drug benefit in 2001, 87 
percent limited the dollar amount of coverage.  Plans can also limit the drug benefit by charging 
beneficiaries coinsurance or copayments, by only covering certain types of drugs (i.e., brand 
name or generic drugs), or only covering drugs on a formulary. A formulary, as defined by the 
National Pharmaceutical Council, is a listing of prescription medications which are preferred 
for use by a health plan and which may be dispensed through participating pharmacies to 
covered persons. This list is subject to periodic review and modification by the health plan. 
1 
Medicare HMO Prescription Drug Benefits  OEI-03-00-00430  Sources of Information on HMOs Drug Benefit 
Beneficiaries can receive information about plans drug benefits from a number of sources. 
One tool a beneficiary can use to compare drug benefits is the Summary of Benefits. This 
document describes a plans benefits in a standardized format that makes it possible for a 
reader to compare benefits across different plans, and also to compare a plans benefits to 
Medicares traditional fee-for-service program.  The CMS mandates each plan have a 
Summary of Benefits that can be provided to beneficiaries to assist them in making informed 
choices.  The CMS currently requires that the Summary of Benefits state clearly whether there 
are limits to the drug coverage, and if so, state the dollar limits and the time period of the limits. 
In addition, plans must state whether unused dollars in one time period cannot be carried 
forward to the next period.  Plans must also state the dollar amounts of any copayments, and 
whether the benefits are restricted to a formulary. 
In addition to reading the Summary of Benefits, beneficiaries can phone HMO plans and 
speak to customer service representatives to get information about the drug benefit. 
Beneficiaries with Internet access can also use the Medicare Compare database located on the 
Medicare website (www.medicare.gov). This database contains descriptions of plan benefits 
according to service area.  Like the Summary of Benefits, Medicare Compare explains 
benefits in a standardized format that allows beneficiaries to compare benefits across plans. 
Information required of the plans in the Summary of Benefits can also be found in Medicare 
Compare. 
The HMOs are required to submit all the details of their contracted plan benefit packages to 
CMS for review and approval. Beginning in 2000, plans submitted information about their 
benefits to the new CMS database called the Plan Benefit Package database, which is a part of 
CMS Health Plan Management System.  The Plan Benefit Package database provides a 
standard structure for the description of all plan benefits. The Summary of Benefits is 
automatically generated from this database, and Medicare Compare is updated from this 
database. This database collects more detailed information about plans drug benefits than 
HMOs have provided to CMS in the past. 
METHODOLOGY 
Plan Benefit Package Information 
We obtained a copy of CMS Plan Benefit Package database for contract year 2001. Using 
this database, we identified 484 managed care plans with a prescription drug benefit.  Of these 
484 plans, 410 had a dollar limit on drug coverage.  From plans with dollar limits, we selected 
organizations that had a contract with CMS to provide benefits either through HMO plans only 
or through a combination of both HMO and HMO Point of Service (HMOPOS) plans. There 
were a total of 377 plans offered by contracted organizations with either all HMOs or a mix of 
HMO and HMOPOS plans. In this report, we will refer to these 377 plans as HMO plans. 
2 
Medicare HMO Prescription Drug Benefits  OEI-03-00-00430  We analyzed the database information to identify how HMO plans establish the drug benefits 
dollar limit. Of the 377 plans with a dollar limit, 3 plans did not answer most database 
questions about the limit. Therefore, much of our analysis is based on 374 plans. The variables 
we analyzed included: (1) dollar amount of the limit; (2) time period of the limit; (3) whether a 
beneficiarys unused coverage dollars could be carried forward from one time period to the 
next; (4) drug types included in the limit; (5) coverage of formulary and non-formulary drugs; 
(6) the pricing method (i.e., the method used by the HMO to determine the dollar amount 
applied toward the limit for a beneficiarys drugs); and (7) whether copayments are deducted 
from the drugs prescription price before that dollar amount is applied toward the beneficiarys 
limit. 
We found inconsistencies within some HMO plans responses to certain database questions. In 
order to analyze the data, we re-coded these responses based on other information provided 
by the plan in the database. Also, a majority of plans did not select one of the nine categories 
the database specified for pricing method. Instead these plans chose the response, Other. 
For these plans, we used narrative explanations in the note fields to either re-code responses or 
create additional categories for pricing method.  We did not contact HMOs to verify the Plan 
Benefit Package data they provided to CMS. 
Customer Service Information 
The 377 plans that we identified for analysis in the Plan Benefit Package database represented 
118 contracts between CMS and HMOs. A single contract can be for one or more health 
plans.  We phoned customer service staff at one plan representing each of the 118 contracts. 
When a contract had more than one plan, we selected one plan at random. 
In our phone calls, we presented ourselves as consumers and asked questions about the dollar 
limit. The purpose of these calls was to determine how HMO plans explain the dollar limit to 
those who ask about it on the phone.  We also attempted to find out what specific dollar 
amounts would be applied to the limit for four drugs commonly used by elderly Americans. 
Of the 118 plans we attempted to contact, we were able to ask questions of 99 plans. We 
were not able to ask questions of the remaining 19 plans for the following reasons:  6 plans 
would not answer questions because they were not enrolling new members at the time of our 
call; 5 plans would not answer questions without personal information such as name, address, 
phone number, or ZIP code; 4 plans could not be reached with the phone numbers available; 2 
plans said the person who could answer our questions would not be able to call us back 
because it was a long distance call; 1 plan was out of business; and 1 plan did not return our 
calls after multiple attempts to reach them. 
Summary of Benefits Information 
In addition to questions relating to the drug benefits dollar limit, we asked each customer 
service representative to send us the plans Summary of Benefits. Of the 93 plans whose 
3 
Medicare HMO Prescription Drug Benefits  OEI-03-00-00430  customer service representatives said they would send us a Summary of Benefits, we received 
this document from 58 plans.  We reviewed the Summaries of Benefits to determine how 
HMO plans explain the dollar limit to beneficiaries in writing. 
Comparison of Information that HMOs Provided to CMS and Consumers 
In order to determine whether HMO plans provide CMS and beneficiaries the same 
information about the dollar limit, we compared information we collected from the three 
sources:  the CMS Plan Benefit Package database, the phone calls to plans customer service 
representatives, and the plans Summaries of Benefits. When information from the Summary 
of Benefits was not available, we compared information plans provided to CMS with 
information plans provided to consumers on the phone. We determined whether information 
regarding five issues matched in the different sources. The five issues included (1) the existence 
of a prescription drug benefit, (2) the existence of a dollar limit on drug coverage, (3) the 
amount of the dollar limit, (4) the time period of the dollar limit, and (5) the pricing method for 
determining the amount applied toward the limit for a beneficiarys drugs. 
____________ 
This study was conducted in accordance with the Quality Standards for Inspections issued by 
the Presidents Council on Integrity and Efficiency. 
4 
Medicare HMO Prescription Drug Benefits  OEI-03-00-00430  F I N D I N G S  
Comparing the dollar limits on drug benefits can be a daunting 
task 
There are a number of elements that beneficiaries should review when comparing and assessing 
plans limits on drug benefits. While the amount of the dollar limit on an HMO plans drug benefit 
is an important element when comparing plans, it is not the only factor that Medicare beneficiaries 
should consider when determining the value of a plan. Considering only the dollar amount, a 
beneficiary would assume that a plan with a limit of $1,000 would have double the value of a plan 
with a $500 drug limit.  However, this is not necessarily true.  Depending on the needs of the 
beneficiary, there are other elements that can significantly affect the value of a plans drug benefit. 
These elements include the time period of the dollar limit, whether the plan allows beneficiaries to 
carry forward unused dollars, the types of drugs covered under the limit, the pricing method the 
HMO uses to determine the dollar amount applied to the limit for each prescription, and whether 
the HMO deducts copayments before applying the prescriptions dollar amount to the limit. 
Dollar Limit and Time Period 
In 2001, 374 Medicare HMO plans reported dollar limit amounts in the CMS Plan Benefit 
Package database.  Beneficiaries enrolled in these plans would receive drug coverage ranging 
from $200 to $12,000 in the year 2001. Most of the plans (67 percent, 249 of 374) had limits 
that would result in $1,000 or less in drug coverage for 2001.  Only 10 plans provided coverage 
totaling $3,000 or more for the entire year. 
Table 1 shows the range of dollar limits and associated time periods for the 374 plans with dollar 
limits.  Higher dollar limits are not always associated with longer time periods.  For example, 
there are plans with dollar limits of $200 per year, and plans with limits of $1,000 per month. 
The drug benefits value, therefore, depends on the time period as well as the amount of the 
dollar limit. 
Table 1.  Variation in the Time Period and Dollar Limit of Drug Benefit 
Time  Number of  Percentage of  Range of  Median 
Period  Plans  Plans  Dollar Limits  Limit 
Annual  189  51%  $200-$3,500  $1,000 
Semi-annual  24  6%  $250 - $1,500  $500 
Quarterly  139  37%  $62 - $1,000  $175 
Monthly  22  6%  $45 - $1,000  $50 
Source: 2001 Plan Benefit Package database in CMS Health Plan Management System 
5 
Medicare HMO Prescription Drug Benefits  OEI-03-00-00430 The drug benefits value is also affected by whether the plan allows unused dollars to be carried 
from one time period to the next. In 2001, only 12 percent of plans (46 of 377) allowed 
beneficiaries to carry forward unused dollars.  This is a component of the dollar limit that 
beneficiaries should consider when comparing plans.  If a beneficiary were in a plan that limited 
coverage to $250 per quarter and the beneficiary used only $50 in one quarter, the remaining 
$200 would be lost. Beneficiaries who use little or none of their drug benefit in one time period 
but have extensive prescription drug needs in another time period might find themselves without 
enough coverage if their plan does not allow unused dollars to be carried forward. 
Type of Drugs Included in Limit 
Not all HMO plans cover all types of drugs under the drug benefit.  For the plans reviewed, 90 
percent (336 of 374) reported using some type of drug formulary. However, approximately half 
of these plans (58 percent, 195 of 336) also allowed beneficiaries to obtain non-formulary drugs. 
While some plans include all covered drugs under the dollar limit, some plans only include specific 
drug types. The types of drugs included in the dollar limit play a significant role in determining the 
value of the drug benefit to an individual beneficiary. One-third of the plans reviewed (33 
percent, 122 of 374) included only brand drugs in their dollar limit.  The remaining two-thirds of 
plans (252 of 374) included generic drugs or a combination of generic and brand drugs in their 
dollar limit. 
When comparing HMO plans, beneficiaries need to consider the types of drugs they use and 
whether the plans they are considering include these drugs in the dollar limit. For example, a 
beneficiary who uses only generic drugs may compare two plans  both with annual limits of 
$1,000  and believe the two plans offer the same value. However, if one plan includes only 
brand-name drugs in the annual limit, and the other plan limits both brand and generic drugs, the 
value to the beneficiary is considerably different.  For a beneficiary who uses only generic drugs, 
the plan that does not include generic drugs in the annual limit would provide better value since 
the cost of those drugs would not be deducted from the limit.  If this beneficiary chose the other 
plan, each prescription would be deducted until the annual limit was reached.  Upon reaching the 
limit, the beneficiary would be faced with out-of-pocket costs. 
Pricing Method Applied to Limit 
The pricing method determines the amount that will be deducted from the beneficiarys dollar limit 
each time a prescription is filled. The amount applied to the limit for the same exact drug can 
differ substantially among HMO plans that use different pricing methods. According to the Plan 
Benefit Package database, plans used at least 15 different pricing methods in 2001. Most plans 
(81 percent) used one of six different methods. As shown in Table 2, the most frequently used 
pricing method was discounted average wholesale price (AWP), either with or without a 
dispensing fee. Information on all the pricing methods is available in Appendix A. 
6 
Medicare HMO Prescription Drug Benefits  OEI-03-00-00430   Table 2. Top Six Pricing Methods Used by HMO Plans with Dollar Limits on Drug Benefit 
Pricing Method  # of Plans  % of Plans 
Discount % of Published AWP  72  19% 
Discount % Published AWP Plus Dispensing Fee  70  19% 
Medicare+Choice Organization Acquisition Cost Plus ($__)  56  15% 
Published National AWP  40  11% 
Medicare+Choice Organization Acquisition Cost Plus Dispensing Fee  36  10% 
Published AWP Plus Dispensing Fee  28  7% 
TOTAL  302  81% 
Source: 2001 Plan Benefit Package database in CMS Health Plan Management System 
Even within one specific pricing method there can be a number of variations.  Plans that used a 
discount percentage of AWP reported discounts ranging from 10 to 85 percent.  Most of the 
discounts, however, were between 10 and 20 percent.  For plans that included dispensing fees in 
their pricing method, the reported dispensing fees ranged from $1.00 to $7.50. 
The variation in pricing methods among HMO plans can have a major impact on how quickly a 
beneficiary reaches the drug benefit limit. Studies of prescription drug reimbursements indicate 
that the use of some pricing methods result in better prices.  For example, prices based on the 
acquisition costs of managed care organizations are generally lower than prices based on AWP. 
Furthermore, prices based on a discounted AWP will be lower than prices based on a non-
discounted AWP. Therefore, it is important that a beneficiary have information about plans 
pricing methods when choosing between plans.  The beneficiary can then differentiate if one of the 
pricing methods is likely to result in fewer dollars being deducted from the limit.  The plans with 
pricing methods that result in lower prices would provide a better value to the beneficiary, since it 
is likely that more prescriptions could be filled before reaching the dollar limit. 
Copayment Deducted from Drug Amount 
The value of the drug benefit is also affected by whether the HMO plan deducts the copayment 
from the dollar amount applied to the limit for each prescription.  Eighty-five percent of plans that 
reported requiring copayments for drugs (307 of 360) also reported that the copayment was 
deducted from the drug amount applied to the limit.  The remaining 15 percent of plans (53 of 
360) reported that the copayment was not deducted from the drug amount. 
All other things being equal, a plan that deducts the copayment from the drug amount offers a 
more valuable pharmacy benefit than a plan that does not deduct the copayment. To 
7 
Medicare HMO Prescription Drug Benefits  OEI-03-00-00430  illustrate, Plans A and B both charge a $10 copayment for a drug that costs $50. However, Plan 
A deducts the copayment for the amount applied toward the limit and Plan B does not. In this 
example, Plan A would apply $40 toward the limit ($50 - $10 = $40), while Plan B would apply 
$50 toward the limit. Consequently, after this prescription, a beneficiary at Plan A would have 
more dollars left in coverage than the beneficiary in 
Plan B. 
The information that HMOs provide to beneficiaries about 
certain elements of the drug benefit is inconsistent, 
incomplete, and confusing 
Inconsistent, incomplete, and confusing information about a drug benefits dollar limit makes it 
difficult for beneficiaries to know exactly what the HMO plans drug benefit includes. It also may 
make it difficult to compare drug benefits provided by different plans, thereby preventing a 
beneficiary from making an informed choice. Having information about the dollar limit can help a 
beneficiary see more clearly how the value of the benefit differs among plans. 
We reviewed several sources that may be used by beneficiaries to acquire information about a 
plans drug benefit.  We reviewed two sources provided directly from the HMO plan to the 
beneficiary: the Summary of Benefits, and information collected by phone from the plans 
customer service representative. We also reviewed the information that HMO plans provided to 
CMS Plan Benefit Package database. Some of this data is used to update plan information that 
beneficiaries can view on the Medicare Compare website. 
Many HMOs did not provide beneficiaries with specific pricing methods, and when 
they did, the information in one source was not consistent with what they reported 
in another source 
The majority of Summaries of Benefits (32 of 58) instructed the beneficiary to call the plan to 
find out how a drugs dollar amount is determined before it is applied to the dollar limit. 
However, when we phoned HMO plans and asked how the plan determined the amount applied 
to the dollar limit, less than half the plans (40 of 91) mentioned a specific pricing method. Most of 
the other plans said, the price of the drug or the cost of the drug is what is applied toward the 
limit. Such vague explanations do not provide beneficiaries with actual pricing methods that can 
be used to compare the value of plans. In addition, when we asked plan representatives to 
provide the specific dollar amounts that would be applied to the limit for four drugs, 90 percent 
said they could not or would not provide this information for any of the drugs. Therefore, 
beneficiaries are left to make decisions about the value of a plans drug benefit based only on 
vague and undefined pricing method information. 
8 
Medicare HMO Prescription Drug Benefits  OEI-03-00-00430  Even when HMO plans furnished some type of information about how they determine the drug 
dollar amount applied to the dollar limit, the details provided were not always consistent across 
information sources.  Nearly 90 percent of plans (79 of 91) provided different information about 
pricing methods among the sources reviewed.  There were even cases wherein the information 
provided by a plan to all three sources (Plan Benefit Package database, Summary of Benefits, 
consumers calling plans customer service number) differed. 
Figure 1 illustrates differences in the information about pricing methods among the sources we 
reviewed. As the example shows, the data reported to CMS provides specific details about what 
pricing method this plan uses to determine the drug amount applied to the limit.  The Summary of 
Benefits tells the beneficiary to call the plan and ask how drug costs are determined.  However, 
when a beneficiary calls the plan, the customer service representative uses a non-specific term 
like cost of drug that provides no real pricing method detail. Furthermore, information provided 
on the phone and the Summary of Benefits makes it clear that copayment amounts paid by the 
beneficiary are not applied to the limit, but the information reported in the Plan Benefit Package 
says that copayment amounts are applied to the limit.  In addition, the customer service 
representative talks about both brand and generic drugs when discussing the limit. However, the 
Summary of Benefits refers only to brand name drugs. 
Figure 1:  Example of One Plan's Inconsistent and Confusing Information About the Drug 
Amount Applied to the Limit 
WHAT THE PLAN PROVIDED TO CMS  PLAN BENEFIT PACKAGE DATABASE: 
AWP minus 14% including copayment amount 
WHAT THE PLAN WROTE IN THE SUMMARY OF BENEFITS: 
Limits are calculated as the sum total of all of your brand name 
prescription drug purchases minus any applicable copayment costs. 
Please ask [the plan] about how we determine drug costs that count 
toward these limits. 
WHAT THE PLANS CUSTOMER SERVICE REPRESENTATIVE SAID ON THE PHONE: 
The cost of the drug minus the copayment.  For example, if the drug cost $50, 
[you] would only pay $15 for brand drugs or $10 for generic drugs.  The 
amount deducted from cap would be $35 if it was a brand, or $40 if it was a 
generic. 
Sources: 2001 Plan Benefit Package database in CMS Health Plan Management System; Phone call to 
plans customer service representative (January/February 2001); and 2001 Summary of Benefits 
9 
Medicare HMO Prescription Drug Benefits  OEI-03-00-00430  In addition, dollar amounts and time periods reported by some HMO plans were not 
always consistent across sources 
Overall, 16 percent of reviewed HMO plans (15 of 93) provided inconsistent data on the dollar 
amount or time period of their limit across information sources. More than half of these (8 of 15) 
reported contradictory information for both dollar amount and time limit. For example, one plan 
told a consumer on the phone the dollar limit was $1,000 per year but reported to CMS and in 
the Summary of Benefits that the dollar limit was $125 every 3 months. 
Few HMOs provided information to beneficiaries about whether copayments are 
deducted from the amount applied to the dollar limit 
The CMS does not currently require HMO plans to provide information, in the Summary of 
Benefits, about whether they deduct copayments from the prescription price before applying this 
amount to the dollar limit. Only 12 percent of plans (7 of 58) provided this additional piece of 
information to beneficiaries in the Summary of Benefits. 
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Medicare HMO Prescription Drug Benefits  OEI-03-00-00430  R E C O M M E N D A T I O N S  
Our prior studies have shown that prescription drug coverage is one of the main factors that 
attracts beneficiaries to enroll in a managed care option under Medicare.  Thus, every practical 
effort should be made to help beneficiaries compare drug benefits among various plans.  In order 
for beneficiaries to make informed choices regarding the value of a plans prescription drug limit, 
they need accurate, comprehensive, and comparable information about the plans drug benefit. 
To this end, CMS has taken numerous steps to ensure that beneficiaries receive information 
about drug plans in both the Summary of Benefits and the Medicare Compare database 
available on the Internet. We recommend that CMS also consider the following: 
<	 Enhance and validate the drug limit information that is collected from plans for the Plan 
Benefit Package database. 
<	 Enhance current educational efforts to ensure the plans drug benefits are clearly 
explained. 
AGENCY COMMENTS 
The CMS reviewed our draft report.  They agreed with our draft recommendations: (1) to 
enhance and validate the drug limit information currently collected in the Plan Benefit Package 
database, and (2) to provide beneficiaries with education regarding drug benefits. However, they 
felt our suggestions for how to provide such education were inappropriate. They also commented 
that we did not adequately acknowledge the drug benefit information that is already being 
provided to beneficiaries. 
We acknowledge CMS concerns, and have substantially revised our recommendations to 
respond to their comments. We have also modified our introduction and finding sections to reflect 
CMS comments concerning the types of drug benefit information already being provided to 
beneficiaries and the inherent complexity of this information. 
However, we continue to believe that pricing information is a key element when comparing plans 
drug benefits. We understand that drug benefit offerings in the pharmaceutical industry are 
complex and it is difficult for anyone (i.e., not only Medicare beneficiaries) to understand . . . . It 
is precisely for that reason that we continue to believe that beneficiaries need to understand and 
know pricing information to make an informed decision. The CMS suggested that beneficiaries 
would better understand a drug benefit and be able to compare it across plans if they could see 
what it would cost to obtain a  prescription for one or two popular drugs.  We agree that 
providing plans actual prices for 
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Medicare HMO Prescription Drug Benefits  OEI-03-00-00430  drugs would assist beneficiaries in making informed choices about the value of a plan to them. 
We encourage CMS to work toward making actual prices available to Medicare beneficiaries. 
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Medicare HMO Prescription Drug Benefits  OEI-03-00-00430  APPENDIX  A 
Pricing Methods Used by HMO Plans with Dollar Limits in 2001

Number of  Percentage 
Pricing Method  Plans  of Plans 
Discount % of Published AWP  72  19.25% 
Discount % of Published AWP Plus Dispensing Fee  70  18.72% 
Medicare+Choice Organization Acquisition Cost Plus ($__)  56  14.97% 
Published National AWP  40  10.70% 
Medicare+Choice Organization Acquisition Cost Plus Dispensing Fee  36  9.63% 
Published AWP Plus Dispensing Fee  28  7.49% 
Brand - Discount % of Published AWP Plus Dispensing Fee and Generic - 13  3.48% 
Maximum Allowable Cost Plus Dispensing Fee 
Published Wholesale Price  11  2.94% 
Brand - Discount % of Published AWP Plus Dispensing Fee and Generic - 11  2.94% 
Discount of Published AWP or Maximum Allowable Cost Plus Dispensing 
Fee 
Brand - Discount % of Published AWP Plus Dispensing Fee and Generic - 9  2.41% 
Maximum Allowable Cost or Federal Upper Limit Plus 
Dispensing Fee 
Published Medicare+Choice Organization Fee/Charge Schedule  6  1.60% 
Actual Acquisition Cost x 1.25  6  1.60% 
Published Retail Price  5  1.34% 
Medicare Fee Schedule  1  0.27% 
Lesser of Usual & Customary, or, Brand - Discount % of Published AWP Plus  1  0.27% 
Dispensing Fee and Generic - Medicare+Choice Organization Acquisition 
Cost Plus Dispensing Fee 
Other (not specified)  9  2.41% 
TOTAL  374  100% 
Source: 2001 Plan Benefit Package database in CMS Health Plan Management System 
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Medicare HMO Prescription Drug Benefits  OEI-03-00-00430     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 Philadelphia. Other principal Office of Evaluation and Inspections staff who 
contributed include: 
Isabelle Buonocore, Project Leader  Linda Frisch, Program Specialist

Lauren McNulty, Program Analyst

Stacey R.Uhl, Program Analyst

Nancy J. Molyneaux, Program Analyst

Cynthia R. Hansford, Program Assistant

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