Department of Health and Human Services
 
OFFICE OF 

  
INSPECTOR GENERAL 

 
 
 
 
 
 
 
 
A M
VAIL  ABILITY OF  EDICARE 

 
P D D  
ART    RUGS TO 

 
 
D -E N H
UAL LIGIBLE  URSING  OME 

 
  R
ESIDENTS 

 
 
 
 
 
Daniel R. Levinson 
  
Inspector General 

 
June 2008 

OEI-02-06-00190 
   
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 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.  These evaluations focus on preventing fraud,  waste, or abuse  and promoting  
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving  program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations  
of  fraud and misconduct  related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI  utilizes its resources 
by actively  coordinating with the Department  of Justice  and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to  criminal 
convictions, administrative sanctions,  and/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 for OIGs  internal operations.  OCIG represents  OIG in all civil and 
administrative fraud and  abuse cases involving HHS programs, including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In  connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program  guidance, publishes fraud alerts, and provides other  
guidance  to  the health care industry concerning the anti-kickback statute and other  OIG  
enforcement authorities.    
  E X E C U T I V E   S U M M A R Y  
OBJECTIVE 
To assess the availability of Medicare Part D drugs to dual-eligible 
nursing home residents. 
BACKGROUND 
The Medicare Prescription Drug, Improvement, and Modernization Act 
of 2003 (MMA) established the Medicare Prescription Drug Program, 
known as Medicare Part D.  The Centers for Medicare & Medicaid 
Services (CMS) contracts with private health insurance companies that 
sponsor Part D plans.  Each Part D plan develops its own list of covered 
drugs, known as a formulary, and may also use utilization management 
tools, such as prior authorization, to  control drug costs and dosages.  
Nursing homes typically have contracts with long-term care pharmacies 
to ensure safety and convenient access to drugs for residents. Under 
Part D, CMS requires that each plan offer a contract to any long-term  
care pharmacy that is willing to participate in its network. 
Dual-eligible beneficiaries are eligible to receive both Medicare and 
Medicaid coverage.   Prior to Medicare Part D,  Medicaid paid for most of  
the prescription drugs for dual-eligible nursing home residents.  Under 
Part D, these residents now receive  drug coverage through Medicare, and 
are eligible to have their premiums, deductibles, and copayments fully 
subsidized. 
This study focuses on ongoing implementation issues, as opposed to the 
issues related to the transition from Medicaid to Medicare that arose in  
the early stages of the benefit.  It is based on structured interviews with a  
sample of nursing home administrators, medical directors, and directors of 
operations for long-term care pharmacies (referred to as pharmacy 
directors) conducted between September 2006 and March 2007.   
Estimates derived from administrators responses are projected to the 
population of administrators of nursing homes with dual-eligible residents.  
However, estimates derived from medical directors and pharmacy 
directors responses are limited to the sample respondents due to a low 
response rate and low usable sample size, respectively. 
 
 
 
 
       OEI-02-06-00190     AVAILABILITY OF MEDICARE PART  D  DRUGS TO  DUAL-ELIGIBLE  NURSING HOME  RESIDENTS                    i 
   
   
EE XX EE CC UU TT II VV EE    SS UU MM MM AA RR YY
    
FINDINGS 
Most respondents reported that  dual-eligible nursing  home 
residents are receiving all necessary Part D drugs. Ninety-three 
percent of nursing home administrators reported that dual-eligible 
residents in their nursing homes are receiving all necessary  Part D drugs. 
About 4 percent of administrators reported that at least one dual-eligible 
resident in each of their nursing homes is not receiving needed drugs 
from their Part D plans or any other sources. They explained that some 
of these residents changed their Part D plans or were transferred to 
hospitals to receive the drugs they needed; others went without the drugs 
entirely. The majority of medical directors  and pharmacy directors  whom 
we interviewed also reported that dual-eligible nursing home residents 
are receiving all necessary Part D drugs.     
Nursing homes and long-term care pharmacies sometimes pay for 
Part D drugs that are not covered  by plans. Forty-five percent of 
administrators reported that their nursing homes paid for at least one 
Part D drug for dual-eligible residents.  As several administrators 
explained, nursing homes may pay for these Part  D drugs to comply 
with Federal regulations and Conditions of Participation that require 
nursing homes to  ensure that residents receive needed drugs in a timely 
manner. Additionally, 77 percent (61 of 79) of the pharmacy directors  
whom we interviewed reported that their pharmacies paid for at least 
one Part D drug for dual-eligible residents in the sampled nursing 
homes. Administrators and pharmacy directors explained that the 
drugs they most commonly pay for either are not on the residents plans 
formularies or require prior authorization. Several pharmacy directors 
explained that not all plans cover the cost of a short-term supply of 
drugs during the prior authorization process.   
Respondents express  concerns that formularies, the prior 
authorization process,  and copayments may  pose problems for 
dual-eligible nursing home residents. About one-fifth of nursing home 
administrators and a similar proportion of the medical directors and  
pharmacy directors whom we interviewed are concerned that plan 
formularies  may not meet all of the needs of some dual-eligible nursing 
home residents. For instance, several medical directors noted that the 
therapeutically equivalent drugs on the formulary are not always 
appropriate for residents because they may cause adverse side effects or 
may not be in the proper form. Additionally, about one-fifth of 
administrators and a similar proportion of the medical directors and  
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E X E C U T I V E   S U M M A R Y   
pharmacy directors expressed concerns that the  prior authorization 
process can be burdensome.  The majority of pharmacy directors also 
reported that some dual-eligible residents are being incorrectly 
identified as required to pay copayments.   
Concerns also exist that long-term care pharmacies generally  do not 
disclose  to physicians the rebates that they receive  from drug  
manufacturers.   According to our interviews, long-term care pharmacies 
have continued to receive rebates from drug manufacturers under Part  D 
and they generally do not disclose these rebates to physicians.  More than 
half of the pharmacy directors whom  we interviewed reported that their 
pharmacies receive rebates from drug manufacturers, but only three of 
these pharmacy directors reported that their pharmacies provide any 
information to nursing homes or to physicians about the rebates that they 
receive.  Pharmacists employed by these long-term care pharmacies can 
influence the drugs that are prescribed  to residents in nursing homes both 
when drugs are initially ordered and during monthly drug regimen 
reviews.   Taken together, these issues raise concerns that rebates may 
create incentives for pharmacists and consultant pharmacists to 
recommend certain drugs over others based on financial considerations as 
opposed to  clinical considerations and that physicians may not be aware of 
these incentives when deciding whether to take  pharmacists 
recommendations. 
RECOMMENDATIONS 
Based on these findings, we plan to  do additional work on long-term 
care pharmacy rebates.  In addition, we recommend that CMS take the  
following actions: 
Work with plans to ensure that formularies meet the needs of   
dual-eligible nursing home residents.  During its formulary review 
process, CMS should put additional emphasis on ensuring that plans 
include the drugs and alternative dosages and forms that meet the 
needs of dual-eligible nursing home residents.   
Continue to work with plans to improve the prior authorization 
process.  CMS should clarify existing guidance to ensure that plans pay 
for a supply of drugs for current enrollees during routine prior 
authorization requests.  Further, CMS should specify under what 
circumstances a supply of drugs would qualify as being an emergency  
supply. CMS should also work with plans to ensure that plan staff are 
     OEI-02-06-00190                AVAILABILITY OF  MEDICARE PART D  DRUGS TO  DUAL-ELIGIBLE NURSING HOME  RESIDENTS              iii    
   
E X E C U T I V E   S U M M A R Y   
responsive and knowledgeable about Part D formulary and coverage issues 
that are specific to dual-eligible nursing home residents.    
Ensure that copayments for dual-eligible nursing home residents  
are fully  subsidized, as appropriate. CMS should continue its efforts  
to ensure that residents are properly identified as dually eligible and as 
residing in nursing homes.  CMS should also work with plans to ensure 
they are using best available data when they have knowledge that a 
beneficiary is being inappropriately charged copayments. CMS should 
also consider educating long-term care pharmacies and nursing homes 
about what best available data they can provide to plans.  
Consider methods to encourage long-term care pharmacies to 
disclose  to physicians information  about rebates that  they receive 
from drug  manufacturers.  We recognize that CMS does not have the 
authority under Part D  to require long-term care pharmacies to disclose  
the rebates that they receive from drug manufacturers. However, CMS 
can consider methods to encourage long-term care pharmacies to 
disclose to physicians information about their rebates.  Because  
long-term care pharmacists can influence the drugs that are prescribed 
to residents in nursing homes, it is important that physicians be aware 
of any potential financial incentives that pharmacists may have to 
recommend  one drug over another.    
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
CMS concurred with two of our recommendations and the intent of the 
third recommendation; it did not concur with our last recommendation.  
CMS stated that it will work with plans to ensure that formularies meet  
the needs of  dual-eligible nursing home residents and continue to work 
with plans to improve the prior authorization process.  CMS concurred  
with the intent of our third recommendation to ensure that copayments 
for dual-eligible residents are fully subsidized, as appropriate.  CMS did 
not concur  with our fourth recommendation to consider methods to 
encourage long-term care pharmacies to disclose  to physicians 
information about rebates that they receive from drug manufacturers.  
CMS stated  that it does not have authority under Part D to require 
long-term care pharmacies to disclose their rebates to physicians.  We  
recognize that CMS does not have the authority to require pharmacies 
to disclose rebate information to physicians.  However, we continue to  
recommend  that CMS consider additional ways to encourage 
pharmacies to disclose this information to physicians so that they are 
     OEI-02-06-00190                AVAILABILITY OF  MEDICARE PART D  DRUGS TO  DUAL-ELIGIBLE NURSING HOME  RESIDENTS              iv    
   
E X E C U T I V E   S U M M A R Y   
aware of any potential financial incentives that pharmacists may have 
to recommend one drug  over another. 
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  T A B L E   O F   C O N T E N T S  
 
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
  
  
 
 
 
I N T RO DUC T IO N  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1 
  
 
 
F I N D IN G S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  9 
  
  Dual-eligible residents are receiving necessary Part D drugs. . . . .  9 
  
  Nursing homes and pharmacies sometimes pay for drugs  . . . . . .  10 
  
Concerns exist that formularies, the prior authorization process,  

and copayments may pose problems  . . . . . . . . . . . . . . . . . . . . . . .  11 
  
Concerns also exist that long-term pharmacies generally do not 

disclose to physicians the rebates that they receive from drug 

manufacturers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   14 
  
 
 
R E C O MMEN D A T ION S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16 
  
  Agency Comments and Office of Inspector General Response . . .  17 

 
 
APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20 
  
  A:  Confidence Intervals for Selected Estimates . . . . . . . . . . . . . .  20 
  
  B:  Common Process for Obtaining Drugs . . . . . . . . . . . . . . . . . . .  21 
  
  C:  Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22 
  
 
A C K NO WL E D G M E N T S  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28 
  
   
   
  I N T R O D U C T I O N  
OBJECTIVE 
To assess the availability of Medicare Part D drugs to dual-eligible 
nursing home residents. 
BACKGROUND 
The Medicare Prescription Drug, Improvement, and Modernization 
Act of 2003 (MMA) established the Medicare Prescription Drug 
Program, known as Medicare Part D.1  The Part D benefit provides 
prescription drug coverage for Medicare beneficiaries, including  
dual-eligible beneficiaries who are eligible to receive both Medicare 
and Medicaid coverage.   Approximately one in four dual-eligible 
beneficiaries resides in a long-term care facility such as a nursing 
home.2  This benefit is particularly important for nursing home 
residents, who frequently have multiple chronic diseases and take an 
average of 8 to 10 medications a day.3    
The implementation of  Part D significantly changed prescription 
drug coverage for dual-eligible nursing home residents.  Prior to 
Medicare Part D, Medicaid paid for most of  the prescription drugs for 
dual-eligible nursing home residents.   Under Part D, these residents 
now receive drug coverage through Medicare and must enroll in 
private Part D prescription drug plans.   
This study focuses on ongoing implementation issues, as opposed 
to the issues related to the transition from Medicaid to Medicare 
that arose in the early stages of the benefit.  It provides 
information on the extent to which dual-eligible residents are 
receiving needed drugs under Part  D and identifies issues specific 
to this population.    
The Medicare Prescription Drug Benefit 
The Centers for Medicare & Medicaid Services (CMS) contracts 
with private health insurance companies, known as sponsors, to 
 
1 MMA, P.L. No. 108-173, title I,  101 et seq. (codified at  

42 U.S.C.  1395w-101 et seq. and 42 U.S.C.  1396u-5). 

2 Government Accountability Office, Medicare Part D  Challenges in Enrolling 

New Dual-Eligible Beneficiaries, May 2007, p. 11. 

3 The Lewin  Group, CMS Review of Current Standards of Practice for Long-Term
  
Care Pharmacy  Services:  Long-Term Care Pharmacy Primer, 
 
December 30, 2004, p. 1.   

     OEI-02-06-00190                AVAILABILITY OF  MEDICARE PART D  DRUGS TO  DUAL-ELIGIBLE NURSING HOME  RESIDENTS              1    
   
I N T R O D U C T I O N   
provide the  Medicare Part D benefit.  These sponsors may offer a 
stand-alone  prescription drug plan (PDP) or they can offer 
prescription drug coverage as a part of a managed care plan 
known as a Medicare Advantage Prescription Drug Plan (MA-PD).  
Throughout this report, we will refer to PDPs and MA-PDs as  
Part D plans. 
On January 1, 2006, dual-eligible nursing home residents were 
automatically enrolled in randomly assigned eligible Part D plans 
if they had  not already selected one.4   Unlike other Medicare 
beneficiaries, dual-eligible beneficiaries may change their plans at 
any time.5  Further, dual-eligible nursing home residents are 
eligible to have any premiums, deductibles, or copayments fully 
subsidized for prescription drugs covered under Medicare Part D.6    
Formularies and Utilization Management Tools 
Each Part D plan develops its own list of covered drugs, known as 
a formulary, which must meet certain standards.  Each plans 
formulary must contain at least two drugs within each therapeutic 
category and pharmacologic class.7  It must also cover all or 
substantially all of the drugs in six categories:  
immunosuppressant, antidepressant, antipsychotic, 
anticonvulsant, antiretroviral, and antineoplastic classes.8  CMS 
reviews each plans formulary to ensure that it provides access to  
appropriate treatments for all diseases and is not designed to  
discourage enrollment by any particular group.   
Certain classes of drugs  are excluded from coverage by Part D.  
These include benzodiazepines, barbiturates, weight management 
drugs, and over-the-counter drugs.9  Furthermore, Part D 
generally excludes from coverage any drug that is covered under 
Part A or Part B.10  Several factors must be considered to  
determine whether a drug is covered under Part  A, B, or D, such 
as setting, characteristics of the patient, medical use of the drug 
 
4 42 U.S.C.  1395w-101(b)(1)(C); see also 42 CFR  423.34. 

5 42 CFR  423.38(c)(4). 

6 42 U.S.C  1395w-114; see also 42 CFR  423.780 and 423.782.
  
7 42 CFR  423.120(b)(2)(i).  

8 CMS, Prescription Drug Benefit Manual, Chapter 6Part D  Drugs and 

Formulary Requirements,  30.2.5. 
 9 42 U.S.C.  1395w-102(e)(2)(A) and 42 U.S.C.  1396r-8(d). 
10 42 U.S.C.  1395w-102(e)(2)(B).  
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I N T R O D U C T I O N   
and its form, and the method of administration.11 CMS issued 
guidance in its Prescription Drug Benefit Manual which details 
the circumstances under which Parts A, B, and D cover drugs.  
Plans may use utilization management tools to control drug costs 
and dosages.12  These tools include prior authorization, step  
therapy, or quantity limitations.  As is generally known, prior 
authorization requires a beneficiary to seek prior approval from 
the plan to receive a drug on the formulary.  Step therapy requires 
the beneficiary to try a less-expensive alternative drug before the 
plan will cover a specific drug.  Quantity limitations restrict  the 
amount of the drug that can be prescribed or the number of refills 
per prescription.   
Plans must have an exceptions process whereby beneficiaries may 
request that the plan cover a drug that is not on the formulary.13   
Additionally, beneficiaries may appeal adverse coverage  
determinations through an appeals process.14  In 2006, CMS 
collaborated with the American Medical Association and Americas  
Health Insurance Plans to develop a standardized form for the 
exceptions and prior authorization processes.  Although plans are 
allowed to have their own forms, they are required to accept this 
form.15    
In addition, CMS provided guidance to plans about covering  
nonformulary drugs under certain circumstances.  For 2006, CMS 
required plans to have a transition policy and recommended that 
they provide nursing home residents who are new enrollees  with 
temporary supplies of nonformulary drugs for 90 to 180 days.  
CMS also encouraged plans to cover one-time supplies of drugs for 
current enrollees during the exceptions process and for 
 
11  CMS, Prescription Drug Benefit Manual, Chapter 6Part D  Drugs and 

Formulary Requirements, Appendix C-1 and C-2.  Available online at: 

http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PDBMChap6For 

mularyReqrmts_03.09.07.pdf. Accessed on November 7, 2007. 

12 42 CFR  423.153. 

13 42 CFR  423.578. 

14 42 U.S.C.  1395w-104(h). 

15 CMS, Frequently Asked Questions:  Coverage Determination Request Forms, 

Physician Supporting Statements & Processing Timeframes for Exceptions and 
 
Prior Authorizations.  Available online at 

http://www.rxassist.org/providers/documents/CMSAppealsExceptionsFAQs_000.pdf.
   
Accessed on October 31, 2007. 

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I N T R O D U C T I O N   
beneficiaries who were transitioning into new care settings, such 
as nursing homes.16  For 2007, CMS required plans to cover a  
90-day supply of nonformulary drugs and drugs requiring prior 
authorization or step therapy for new enrollees who are nursing 
home residents.17  Further, CMS required plans to provide up  to a 
31-day emergency supply of nonformulary Part D drugs and drugs 
requiring prior authorization or step therapy for  current nursing 
home residents while an exception is being processed.   
Long-Term Care Pharmacies 
Nursing homes typically have contracts with long-term care 
pharmacies to ensure safety and convenient access to drugs for 
residents.18   Given the resident populations needs, these 
pharmacies provide specialized services, such as a comprehensive 
inventory of drugs commonly used in long-term care settings,  
specialized packaging, intravenous  therapy medications,  
7-day-a-week delivery, pharmacy on-call services, and emergency 
medications.19  Under Part D, CMS requires that each plan offer a 
contract to any long-term care pharmacy that is willing to 
participate in its network and is capable of meeting minimum 
performance and service criteria.20  
Long-term care pharmacies have historically received rebates from  
drug manufacturers.  According to  CMS, these rebates are 
intended to prefer, protect, or maintain that manufacturers  
product selection by the pharmacy or to increase  the volume  of  
 
16 CMS, Information for Part D Sponsors on Requirements for a Transition
  
Process, March 2005. Available online at 

http://www.ascp.com/medicarerx/upload/transition_process.pdf. Accessed on 

October 31, 2007. 

17 CMS, Transition Process Requirements for Part D Sponsors, April 2006. 

Available online at 

http://www.ascp.com/medicarerx/upload/CY07TransitionGuidance.pdf. Accessed 

on October 12, 2007. 

18 70 Fed. Reg. 4194, 4250 (Jan. 28, 2005). 

19 CMS, Long-Term Care Guidance, March 16, 2005. Available online at 

http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/LTCGuidance.pdf. 

Accessed on July 31, 2007. 

20 70 Fed. Reg. 4251; see also ibid.  

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I N T R O D U C T I O N   
that manufacturers products that are dispensed by the pharmacy 
under its formulary (referred to as moving market share).21   
Beginning in 2007, long-term care pharmacies are required to 
report to the Part D plans with which they contract the rebates 
that they receive.22  
Federal Requirements for Nursing Homes   
Federal law requires nursing homes to ensure that residents are 
provided with all drugs needed to fulfill the residents plans of 
care.23  Specifically, as a condition of participation in the Medicare 
or Medicaid programs, nursing homes must provide or arrange for  
the provision of pharmaceutical services (including procedures 
that assure the accurate acquiring, receiving, dispensing, and 
administering of all drugs and biologicals) to meet the needs of 
each resident.24  If a nursing home enters into a contract with a 
pharmacy to provide pharmaceuticals, the nursing home is  
responsible for the quality and timeliness of pharmaceutical care 
and services.25  CMS guidance also instructs nursing homes to  
provide these drugs in a timely manner and as ordered by the 
prescriber.26    
Federal regulations also require nursing homes to arrange for a 
pharmacist to review each residents drug regimen at least 
monthly. 27  Most nursing  homes contract with licensed 
pharmacists, commonly known as consultant pharmacists, to  
conduct these drug regimen reviews.  Consultant pharmacists 
must report any irregularities they find during these reviews to 
 
21 CMS, Medicare Part D Reporting Requirements, Contract Year 2007. 
Available online at 
http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PartDReportin  
gRequirements_CurrentYear.pdf. Accessed on October 5, 2007.  
22 Ibid. 

23  A plan of care describes the medical, nursing, and psychosocial needs of the 

resident and how such needs will be met; see 42 U.S.C.  1396r(b)(2)(A). 
 
24 42 U.S.C.  1396r (b)(4)(A)(iii); see also 42 CFR  483.60. 
25 42 CFR  483.75(h). 
26 Noncompliance can result in a citation during the routine survey process.   

42 CFR  483.75(h); see also CMS, State Operations Manual, Appendix PP

Guidance to Surveyors for Long-Term Care Facilities, Rev. 26, 8-17-07, pp. 430 

and 442.  

27 42 CFR  483.60(c). 

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I N T R O D U C T I O N   
 
the attending physician and the director of nursing and these 
reports must be acted upon.28     
Related Work 
The Medicare Payment Advisory Commission (MedPAC) recently 
issued a report entitled  Medicare Part D, Nursing Homes, and  
Long-Term Care Pharmacies.29  The  report found that many 
stakeholders described Part D as a better fit for beneficiaries in 
the community than for beneficiaries in institutions such as 
nursing homes.  Stakeholders noted that although formulary 
coverage appears adequate for many medications used by nursing  
home residents, they had concerns about obtaining certain drugs 
and about utilization management tools being burdensome for 
clinical and pharmacy staff. 
METHODOLOGY 
Scope 
We based this study on our analysis of structured interviews with a 
sample of nursing home administrators, medical directors, and 
directors of operations for long-term care pharmacies who have 
firsthand knowledge about Part D for dual-eligible nursing home 
residents.  We conducted these interviews between September 2006 
and March 2007. 
Sample 
We selected a simple random sample of 150 nursing homes from 
CMSs Online Survey and Certification Reporting database. We 
limited our sample to all nursing homes that had at least  
10 Medicaid-certified or dually certified (both Medicare- and 
Medicaid-certified) beds.  We  excluded 6 of the 150 sampled  
nursing homes from our review because they informed us that 
they did not have any dual-eligible residents in 2006.  Our sample 
included the remaining 144 nursing homes.   
 
 
28 Ibid. 
29 MedPAC, Medicare Part D,  Nursing Homes, and Long-Term Care    
Pharmacies, June 2007.  Available online at 
http://www.medpac.gov/documents/Jun07_Part_D_Contractor.pdf.  Accessed on  
October 5, 2007.  
 
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Nursing Home  Administrators  
We conducted structured telephone interviews with each of the 
administrators at the nursing homes in our sample.  We also 
requested that the director of nursing participate in the interview, 
if possible.  
We asked each administrator about his or her experiences with 
Medicare Part D for dual-eligible residents.  We focused our  
questions on whether dual-eligible residents are receiving all 
necessary Part D drugs, i.e., drugs that are eligible for coverage 
under Part  D.30  We also asked what happens when a resident 
needs a drug that is not on his or her plans formulary or needs a 
drug that is on the formulary but has utilization management 
requirements, such as prior authorization.  Further, we asked 
what, if any, concerns they had about Part D for dual-eligible  
residents. 
We interviewed a total of 128 administrators from the 144 sample 
nursing homes, resulting in an 89-percent response rate.  
According to the administrators, approximately 7,800 dual-eligible 
residents lived at these nursing homes at the time of our review.  
Appendix A  provides confidence intervals for selected estimates. 
Nursing Home Medical Directors 
We conducted structured telephone interviews with each of the 
medical directors for the nursing homes in our sample.  The 
medical director is responsible for the implementation of 
resident care policies and the coordination of medical care at the 
facility.31  The director may also serve as the attending 
physician for residents in the nursing home.   
We asked each medical director questions similar to those that  
we asked the administrators.  We interviewed a total of  
95 medical directors from the 144 sampled nursing homes, 
resulting in a 66-percent response  rate.   
Directors of Operations for Long-Term Care Pharmacies 
We conducted structured telephone interviews with each of the 
directors of operations of the long-term care pharmacies for the 
 
30 We gave all respondents explicit instructions related to excluded drugs and 
reminded them  throughout the interview not to consider excluded drugs  when  
answering the questions. 
31 42 CFR  483.75(i)(2)(i)-(ii).   
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 I N T R O D U C T I O N   
 
nursing homes in our sample.  The nursing homes contracted with 
a total of 139 long-term care pharmacies. We excluded 55 of these 
pharmacies from our study because they were under investigation 
by the Office of Inspector General (OIG) at the time of our review.  
We conducted interviews with a total of 79 directors of operations 
from the remaining 84 long-term care pharmacies. 
We asked each director of operations questions similar to those 
that we asked the other respondents.  In addition, we asked  them 
about the nature and extent of any rebates that they receive from  
drug manufacturers.  We included these questions because of 
concerns that CMS officials raised.  For the purposes of our  report,  
we refer to these respondents as pharmacy directors.    
Limitations 
The information from our interviews with the administrators, 
medical directors, and pharmacy directors is self-reported; we did 
not independently verify their responses.  Estimates derived from 
administrators responses are projected to the population of 
administrators of nursing homes with dual-eligible residents.  
However, estimates derived from medical directors and pharmacy 
directors responses are limited to the sample respondents.  We did  
not project these estimates to  the population due to the low  
response rate and low useable sample size, respectively.   
Further, we  did not collect information about individual residents, 
such as their length of stay at a nursing home. In addition, we did 
not interview consultant pharmacists. 
Standards 
Our review was  conducted in accordance with the Quality 
Standards for Inspections issued by the Presidents Council on 
Integrity and Efficiency and the Executive Council on Integrity 
and Efficiency. 
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FF II NN DD II NN GG SS   
  FF II NN DD II NN GG SS   
Ninety-three percent of nursing 
Most respondents reported that  
home administrators reported 
dual-eligible nursing home residents are  
that dual-eligible residents in 
receiving all necessary  Part D drugs  their nursing homes are receiving 
all necessary Part D drugs.32   
(See Table 1.)  Administrators explained that physicians typically order 
drugs that are on the formularies of the residents plans.  When a drug  
is not on the formulary or requires prior authorization, generally the 
Table 1: Nursing home administrators responses about residents  physician changes the 
receipt of  Part D drugs  prescription to a drug that is on  
the plans formulary or 
  Administrators  
complies with the utilization 
Dual-eligible residents are receiving all Part D drugs  93%  management requirements.  
See Appendix B for a 
Dual-eligible residents are not receiving all Part D drugs  4% 
description of how  
Dont know   3% 
dual-eligible nursing home 
residents commonly obtain  
Source:  OIG  analysis of  interview  data, 2007.                                                                                    
Part D drugs.   
About 4 percent of administrators reported that at least one  
dual-eligible resident in each of their nursing homes is not receiving  
needed Part D drugs from their Part D plans or any other sources.   
Administrators estimated that a total of 23 residents, or an average of  
4 residents in each of these nursing homes, had  not received all 
necessary Part D drugs since the implementation of Part D. They  
explained that some of  
Table 2: Medical directors and pharmacy directors responses about 
these residents changed  
residents receipt of Part D drugs   
their Part D plans or were 
  Medical  Pharmacy   transferred to hospitals to 
Directors  Directors  receive the drugs they 
needed; others went 
Dual-eligible residents are receiving all Part D drugs  73%  84% 
without the drugs entirely. 
Dual-eligible residents are not receiving all  Part D 
As shown in Table 2, the 
drugs  5%  4% 
majority of medical 
Dont know   21%  13%  directors and pharmacy 
*Note:   The responses of the  medical directors and pharmacy directors are  not projectable to the  directors whom we  
population.  Additionally, totals may  not equal 100% because of rounding.  
interviewed also reported 
Source:  OIG analysis of interview data, 2007. 
 
32 For the purposes of this study,  Part D drugs include all drugs that are eligible for 
coverage under Part D. 
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F I N D I N G S  
that dual-eligible nursing home residents are receiving all necessary  
Part D drugs. Specifically, 73 percent (69 of 95) of medical directors and  
84 percent (66 of 79) of pharmacy directors reported that dual-eligible 
residents in the sampled nursing homes are receiving all necessary  
Part D drugs.  However, 5 percent (5 of 95) of medical directors and  
4 percent (3 of 79) of pharmacy directors reported that at least one 
resident went without necessary Part D drugs.  
Nursing home administrators 
Nursing homes and  
and pharmacy directors 
long-term care pharmacies sometimes pay for  
reported that they sometimes 
Part D drugs that are not covered by plans 
pay for Part D drugs that are 
not covered by plans.  In total, 
45 percent of administrators reported that their nursing homes paid for 
at least one Part D drug for dual-eligible residents.  As several 
administrators explained, nursing homes may pay for these Part D 
drugs to comply with Federal regulations and Conditions of 
Participation that require nursing homes to ensure that residents 
receive needed drugs in a timely manner.33  Additionally, 77 percent  
(61 of 79) of the pharmacy directors whom we interviewed reported that 
their pharmacies paid for at least one Part D drug for dual-eligible 
residents in the sampled nursing homes.   
According to interviews with administrators and pharmacy directors,  
the drugs that they most commonly pay for either are not on the 
residents plans formularies or require prior authorization.  For 
example, they may pay for a drug if the residents physician determines  
that there is no alternative drug on the formulary appropriate for the  
resident.34  They may also pay for a short-term supply of drugs during 
the prior authorization process.  Several pharmacy directors explained 
that not all plans cover the cost of a short-term supply of drugs during 
the prior authorization process and,  as a result, the nursing  home or 
pharmacy may pay for these drugs during this time.     
Several respondents noted that paying for Part D drugs is causing a 
financial strain on their nursing homes.  For example, one 
 
33 42 CFR  483.60; 42 CFR Part 483; see also CMS, State Operations Manual, Appendix 
 
PPGuidance to Surveyors for Long-Term Care Facilities, p. 442. 

34  Medicare beneficiaries can request exceptions when their physicians prescribe drugs 

that are not on their plans formularies.  However, only a few administrators specifically 

noted that residents had requested exceptions.  
 
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F I N D I N G S  

 
administrator stated that her nursing home budgets $10,000 per month 
for nonreimbursed drug costs.  According to one medical director, the 
cost of these drugs may affect nursing home admissions practices 
because the nursing home may not  admit patients if it cannot afford 
their medication. 
Respondents express concerns that  Nursing home administrators as 
formularies, the prior authorization process,  well as the medical directors and 
pharmacy directors whom we 
and copayments may pose problems for  
interviewed expressed several 
dual-eligible nursing home residents  
concerns about Part D that are 
specific to dual-eligible nursing 
home residents. In general, they have concerns about plan formularies, 
prior authorization, and residents being incorrectly identified as 
required to  pay copayments.   
Respondents are concerned that formularies can be problematic for  
dual-eligible residents in nursing homes  
About one-fifth of nursing home administrators are concerned that plan 
formularies  may not meet all of the needs of some dual-eligible nursing 
home residents.  A similar proportion of  medical directors and 
pharmacy directors whom we interviewed also reported concerns about 
plan formularies.  Several medical directors specifically noted that the 
therapeutically equivalent drugs on the formulary are not always 
appropriate for residents because they may cause adverse side effects or 
may not be in the proper form.  As one pharmacy director noted, the  
therapeutically equivalent drugs on one plans formulary cannot be  
administered via a feeding tube.   
Administrators and pharmacy directors further noted that plans do not 
always cover injectable anemia drugs, oral cancer drugs, and drugs 
administered by nebulizers. In general, these drugs can be covered by 
either Part D or Part B  depending on the circumstances.   For example,  
Part D covers drugs administered by nebulizers for beneficiaries in 
nursing homes, whereas Medicare Part B covers these drugs for 
beneficiaries who are at home.35  One pharmacy director noted that 
 
35 Medicare Part D only covers drugs that are not covered by Medicare Part B.                 
See 42 U.S.C.  1395w-102(e)(2)(B); see also CMS, Prescription Drug Benefit Manual: 
Chapter 6Part D Drugs and Formulary Requirements, Appendix C-1 and C-2.  
Available online at 
http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PDBMChap6Formulary 
Reqrmts_03.09.07.pdf. Accessed on November 7, 2007. 
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F I N D I N G
  S  
some plans will not cover injectable drugs because the plans are not 
aware that the drugs are eligible for coverage under Part D for nursing 
home residents. One administrator explained that some plans are 
confused about whether these drugs should be covered under Part B  or  
Part D.   
A number of medical directors were also concerned about how formulary  
restrictions may affect residents quality of care.  As one medical 
director explained, although a resident may receive a drug, it may not 
always be the most effective drug.  Others expressed concerns that 
switching drugs may increase medical errors or cause more negative 
health effects in the future, such as heart attacks and strokes.   
Respondents are concerned that the prior authorization process can be 
particularly  burdensome in the nursing home setting  
About one-fifth of nursing home administrators expressed concerns that 
the prior authorization process can be burdensome.  A similar 
proportion  of the medical directors and pharmacy directors whom we  
interviewed also reported such concerns.  Respondents commonly 
pointed out the amount of time they  spend handling prior 
authorizations. Several explained that prior authorization forms and 
procedures vary across plans, which is particularly difficult because 
nursing homes have residents enrolled in many different plans.  
According to administrators, a typical nursing home works with an 
average of 10 different plans. 
Several pharmacy directors further  noted that the prior authorization 
process may be lengthy  because of problems with plans.  They reported  
experiencing long wait times before being able to speak with plan staff.  
They also noted that plan staff sometimes lack sufficient knowledge of 
formulary and coverage issues specific to nursing home residents.   
A number of medical directors also stated that the burdensome nature 
of the process can affect patient care.  For example, as one noted, the  
time nursing home staff and physicians spend on the prior 
authorization process reduces the time they can spend providing patient 
care.  Additionally, as another medical director stated, to avoid dealing 
with the prior authorization process, some physicians may just switch to 
any drug in the category.  Another medical director pointed out that the 
process can be too lengthy and patients may suffer because of delays in 
receiving drugs. 
 
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F I N D I N G S  
Dual-eligible nursing home residents are being incorrectly identified as  
required to pay copayments 
Dual-eligible beneficiaries residing in nursing homes are eligible to have  
their premiums, deductibles, and copayments fully subsidized for 
prescription drugs covered under  Part D.36  CMS issued a memorandum 
in May 2006 clarifying that dual-eligible residents should not be 
charged copayments if they reside in nursing homes for at least 30 days  
and are under a covered Medicaid stay.37  The memorandum also 
outlined steps to address the issue, including instructing plans to use 
best available data when they have knowledge that a beneficiarys 
cost-sharing level is not  correct.38  It further directed plans to repay 
long-term care pharmacies for these copayments rather than 
beneficiaries because it is unlikely that the long-term care pharmacies 
have billed the beneficiaries for their copayments.39   
Despite the issuance of this memorandum, dual-eligible residents 
continue to be incorrectly identified as required to pay copayments.  In 
fact, 80 percent (63 of 79) of the pharmacy directors whom we  
interviewed reported that dual-eligible nursing home residents were 
incorrectly identified by their plan as required to pay copayments in the  
last 3 months of 2006.  Additionally, several pharmacy directors 
reported having large amounts of uncollected copayments.  For example,  
one pharmacy director had approximately $300,000 in uncollected 
copayments. Another pharmacy director reported having over $75,000 
in uncollected copayments in the past year.   
Pharmacy directors explained that for a plan to assess zero copayments 
for these beneficiaries, it must recognize that these individuals are dual 
eligible and that they reside in nursing homes.  About half of the 
pharmacy directors who offered an explanation reported that residents 
are not being properly identified as dual eligible.  The other half of 
pharmacy directors reported that residents are not being properly 
identified as residing in nursing homes. 
 
36 42 CFR  423.782.  According to CMS, [a]n individual is considered institutionalized 

and qualifies for a zero co-payment when he or she is a full benefit dual-eligible, a 

resident of a long-term care facility for a full calendar month, and under a covered 

Medicaid stay.
  
37 CMS, Incorrect Cost Sharing Charges to Dual-Eligible Beneficiaries (May 5, 2006).   

38 For example, if  a plan  has knowledge from the nursing  home that the beneficiarys 

nursing home stay is covered by  Medicaid, the plan should  revise the copayment level.  

See ibid. 

39 CMS, Incorrect Cost Sharing Charges to Dual-Eligible Beneficiaries (May 5, 2006).   

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F I N D I N G S  

According to our interviews,  
Concerns also exist that long-term care 
long-term care pharmacies have 
pharmacies generally do not disclose to 
continued to receive rebates from  
physicians the rebates they receive from  
drug manufacturers under Part D  
drug manufacturers 
and they generally do not disclose 
these rebates to physicians.  In total, 
54 percent (43 of 79) of the pharmacy directors whom we interviewed 
reported that their pharmacy receives rebates from drug manufacturers 
either directly or through group purchasing organizations.40   These 
directors explained that rebates are often based  on market share or 
volume.  For example, one pharmacist, who receives rebates based on 
market share, explained that his rebates are based on the percentage he  
dispenses of a particular drug, compared to the percentage  he dispenses of 
the competitors drug.  Another pharmacy director explained that if  
90 percent or more of the insulin she sells is from a certain manufacturer,  
she receives a 1-percent rebate.   
Physicians may not be  aware that pharmacies receive these rebates. Only 
three of the pharmacy directors we interviewed reported that their 
pharmacies provided information to nursing homes or to physicians about 
the rebates that they receive.41  
Rebates are a concern because pharmacists employed by these long-term  
care pharmacies can influence the drugs that are prescribed to residents 
when drugs are initially ordered.  According to the nursing home  
administrators, when a physician orders a drug that is not on the 
formulary, the pharmacist commonly suggests one or two alternative 
drugs from a longer list of drugs on the formulary.  The physicians 
typically follow the suggestions of the pharmacists.  Specifically, the 
medical directors whom we interviewed reported that they make the 
pharmacists recommended changes  about 78 percent of the time.   
In addition, pharmacists can influence the drugs that are prescribed 
during the drug regimen reviews.  As described earlier, nursing homes are 
 
40 A group purchasing organization is an entity that uses collective buying  power to  
obtain discounts from vendors. 
41  Long-term care pharmacies are required to report the rebates that they receive to  
plans; however, they are not required to provide this information to nursing homes or 
physicians.   See  Medicare Part D Reporting Requirements Contract Year 2008.   
Available online at 
http://www.cms.hhs.gov/PrescriptionDrugCovContra/Downloads/PartDReportingRequire 
ments_NextYear.pdf. Accessed on August 10, 2007.  
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F I N D I N G S  
required to  have a consultant pharmacist review the drug regimens of all 
residents at least monthly.  About 80 percent of the nursing home 
administrators reported that the consultant pharmacists who perform 
their drug regimen reviews are employees of the long-term care pharmacy 
that provide Part D drugs to their residents.  During these reviews,  
consultant pharmacists can make recommendations to change residents 
drugs.  The medical directors whom  we interviewed reported that when 
consultant pharmacists recommend changing one drug for a different, 
therapeutically equivalent drug, they make these changes about  
74 percent of the time.   
Taken together, these issues raise concerns that rebates may create 
incentives for pharmacists and consultant pharmacists to recommend 
certain drugs over  others based on financial considerations as opposed to 
clinical considerations and that physicians may not be aware of these 
incentives when deciding whether to take pharmacists recommendations. 
 
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  R E C O M M E N D A T I O N S  
 
 
According to most respondents, dual-eligible nursing home residents are 
receiving all necessary Part D drugs.  This is due, in part, to  nursing 
homes and long-term care pharmacies paying for some drugs that plans 
do not cover.  In addition, respondents raised several concerns about 
Part D that are specific to dual-eligible nursing home residents 
including concerns about plan formularies, the prior authorization 
process, and copayments.  We are also concerned that long-term care  
pharmacies receive rebates from drug manufacturers which create 
financial incentives to recommend certain drugs and that they do not 
generally disclose these incentives to physicians.  Based on these 
findings, we plan to do additional work on long-term care pharmacy 
rebates.  In addition, we recommend that CMS take the following 
actions:  
Work With Plans To Ensure That Formularies Meet the Needs of   
Dual-Eligible Nursing Home Residents 
CMS should work with plans to ensure that the drug needs of   
dual-eligible nursing home residents are taken into consideration.  CMS 
reviews each plans formulary to ensure that it provides access to  
appropriate treatments for all diseases and is not designed to  
discourage enrollment by any particular group.  During this review 
process, CMS should put additional emphasis on ensuring that plans 
include the drugs and alternative dosages and forms that meet the 
needs of dual-eligible nursing home residents.  In addition, we recognize 
that CMS has issued guidance explaining when drugs should be covered 
by Part B or Part D.  CMS should work with plans to ensure that  
dual-eligible residents do not have difficulty obtaining drugs under  
Part D that may be covered by Part B in other circumstances or patient 
settings. 
Continue To  Work With Plans To Improve the Prior  Authorization Process 
We recognize that CMS issued new transition guidance for 2007 
requiring plans to provide up to a 90-day supply of nonformulary drugs 
and drugs requiring prior authorization or step  therapy prescribed for  
newly enrolled nursing home residents and up to a 31-day supply of 
such drugs for current enrollees while an exception is being processed.  
CMS should clarify existing guidance to ensure that plans pay for a 
supply of drugs for current enrollees during routine prior authorization 
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R E C O M M E N D A T I O N S  
requests.  Further, CMS should specify under what circumstances a 
supply of drugs would qualify as being an emergency supply.  In 
addition, CMS should work with plans to ensure that plan staff are 
responsive and knowledgeable about Part D formulary and coverage 
issues that are specific to dual-eligible nursing home residents.  
Further, CMS should consider working with partners, such  as the 
American Medical Association, to educate physicians about using the 
standardized form and about the transition policy. 
Ensure That Copayments for Dual-Eligible Nursing Homes Residents Are 
Fully Subsidized, as Appropriate 
CMS should continue its efforts to  ensure that residents are properly 
identified as dually eligible and as residing in a nursing home.  CMS 
should also work with plans to ensure they are using best available 
data when they have knowledge that a beneficiary is being 
inappropriately charged copayments.  CMS should also consider 
educating long-term care pharmacies and nursing homes about what 
best available data they can provide to plans.  
Consider Methods To Encourage Long-Term Care Pharmacies To Disclose 
to Physicians Information About Rebates That They Receive From Drug 
Manufacturers  
We recognize that CMS does not have the authority under Part D to 
require long-term care pharmacies to disclose to physicians the rebates 
that they receive from drug manufacturers.  However, CMS can 
consider methods to encourage long-term care pharmacies to disclose to  
physicians information  about their rebates.  Because long-term care 
pharmacists can influence the drugs that are prescribed to  residents in 
nursing homes, it is important that physicians be aware of any potential 
financial incentives that pharmacists may have to recommend one drug  
over another. 
AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL  
RESPONSE 
In its comments on the draft report, CMS agreed that our review 
identifies potential issues with ensuring that dual-eligible nursing home 
residents are receiving all necessary Part D drugs and that further work 
is needed in  the areas highlighted by the report.  In addition, CMS 
concurred with our first two recommendations and the intent of the  
third recommendation; it did not concur with the last recommendation.   
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R E C O M M E N D A T I O N S  
CMS concurred with our first recommendation that it work  with plans 
to ensure that formularies meet the needs of dual-eligible nursing home  
residents. CMS stated that it believes it substantially does this but will 
look for opportunities to improve.  It will continue to work with its 
partners and monitor complaints regarding formularies and will adjust  
the formulary review process as necessary.  It will also consider our 
recommendations as it constructs  the formulary review checks for 
calendar year 2009 formularies. 
CMS concurred with our second recommendation to continue to work 
with plans to improve the prior authorization process.  CMS noted that 
it issued a memorandum to Part D sponsors directing them to make 
plan prior authorization criteria available upon request of the 
beneficiary or physicians.  CMS also stated that it would update its 
guidance in the next revision of Chapter 6 of the Part D Manual and 
ensure that long-term care beneficiaries have access to an emergency 
supply of drugs anytime during the plan year.  Further, as CMS 
continues to work with long-term care partners and providers, it will 
emphasize protections available to long-term care beneficiaries, 
including the model coverage determination form, Part D plans 
transition processes, and emergency supplies.   
Although CMS concurred with the intent of our  third recommendation 
to ensure that copayments for dual-eligible nursing home residents are 
fully subsidized, as appropriate, it expressed concern over the use of the 
term waive in the report. CMS requested that OIG not use waive in 
the context  of Part D payments because, among other reasons, it may 
confuse the public because CMS describes payment and nonpayment of  
cost-sharing liability under Part D in a specific manner and also 
because waiving copayments would be a violation of Federal law.  In 
response to CMSs concerns over the potential for confusion, we 
modified the language of the report.  We note, however, that Federal 
laws are not automatically violated if copayments are waived; rather, 
Federal laws may be implicated when providers,  practitioners, and  
suppliers waive copayments for services or products and could  
ultimately result in criminal, civil, or administrative liability. 
In addition, in response  to our third  recommendation, CMS explained  
that currently it reports beneficiary copayment levels to Part D sponsors  
on a weekly basis, while States submit information to CMS on 
beneficiary dual eligibility and institutional status on a monthly basis.  
CMS stated that it is working to increase the frequency of State 
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R E C O M M E N D A T I O N S  
reporting and its processing of these data.  In addition, CMS stated that 
it has already taken a number of steps relative to  its best available 
evidence policy.  It posted a document to the CMS Pharmacy Listserv on  
the topic and established a separate complaint-tracking category for 
best available evidence issues.  It also plans to release two  tip sheets. 
CMS did not concur with our fourth recommendation to consider 
methods to  encourage long-term care pharmacies to disclose  to 
physicians information about rebates that they receive from drug 
manufacturers. CMS stated that it does not have authority under  
Part D to require long-term care pharmacies to  disclose their rebates to 
physicians. CMS noted that to ensure that the rebates received by  
long-term care pharmacies do not create incentives that are contrary to  
a Part D plans formulary, it currently requires Part D sponsors to 
collect and review information regarding rebates received by their 
network long-term care pharmacies.  We recognize that CMS does not 
have the authority to require pharmacies to disclose their rebates to  
physicians. However, we continue to recommend that CMS consider  
additional ways to encourage pharmacies to disclose this information to  
physicians so that they are aware of any potential financial incentives 
that pharmacists may have to recommend one drug over another.   
CMS also commented on the findings.  In response to our first finding, 
CMS requested that we recalculate the data to exclude respondents who 
reported that they did not know whether residents received needed  
drugs. We included these responses in our analysis to ensure we  
present the data in a complete and unbiased manner. In response to 
our second finding, CMS agreed to  issue clarified guidance.  CMS noted 
that although the intent of the existing guidance was to cover  
nonformulary drugs during transition periods, it could issue clarified 
guidance. 
CMS made several comments related to our methodology.  Specifically, 
CMS stated that it believes it is a serious omission that we did not 
interview consultant pharmacists because they operate independently of   
long-term care pharmacy directors in influencing drugs.  As we noted in 
the report, about 80 percent of the nursing home administrators 
reported that the consultant pharmacists who perform their  drug 
regimen reviews are employees of the long-term  care pharmacy that 
provides Part D drugs to their residents.    
We made several technical changes based on CMSs comments.  The full  
text of CMSs comments is included in Appendix C.   
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  A P P E N D I X ~ A
 
 
Confidence Intervals for Selected Estimates for Nursing Home Administrators 
(Sample Size = 128) 
 
 
              95-Percent 
Estimate Description  Point Estimate  Confidence Interval 
Percentage of nursing home administrators who reported that  
dual-eligible residents in their nursing home are receiving all                         92.9%                     88.5%97.3% 
necessary Part D drugs 
Percentage of nursing home administrators who reported that  
                        3.9%                         0.5%7.3% 
dual-eligible residents are not receiving all necessary Part D drugs 
Percentage of nursing home administrators who reported that they  
do not know whether dual-eligible residents are receiving all                          3.1%                         0.1%6.1% 
necessary Part D drugs         
Percentage of nursing home administrators who reported that their 
nursing homes paid for at least one Part D drug for dual-eligible                          44.5%                     35.9%53.1% 
residents 
Percentage of nursing home administrators who are concerned 
about plan formularies may not meet all of the needs of some                          20.0%                     13.1%26.9% 
dual-eligible nursing home residents   
Percentage of nursing home administrators who expressed   
                       18.0%                     11.3%24.7% 
concerns that the prior authorization process can be burdensome   
 
 
 
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  A P P E N D I X ~ B
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  A P P E N D I X   ~   C
Agency Comments 
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A P P E N D I X   ~   C  

 
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A P P E N D I X   ~   C  

 
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A P P E N D I X   ~   C  

 
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  A C K N O W L E D G M E N T S
 
This report was prepared under the direction of Jodi Nudelman, 
Regional Inspector General for Evaluation and Inspections in the New  
York regional office, and Meridith Seife, Deputy Regional Inspector  
General. 
Miriam Anderson served as the team leader for this study.  Other 
principal Office of Evaluation and Inspections staff from the  New York 
regional office who contributed to this report include Taryn Eckstein 
and David Rudich. Other regional and central office staff who 
contributed include Kevin Farber, Vincent Greiber, Jennifer Jones, 
Sandy Khoury, Christine Moundas, and Michelle McInnis. 
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