Other general comments: 
 
 
 
 
 
U.S. Department of Health and Human Services 
Office of Inspector General 
 
Some Medicare 
Part D Beneficiaries 
Face Avoidable 
Extra Steps That 
Can Delay or 
Prevent Access to 
Prescribed Drugs 
OEI-09-16-00411   
September 2019 
Suzanne Murrin 
 
Deputy Inspector General 
oig.hhs.gov 
for Evaluation and Inspections 
  Report in Brief  U.S. Department of Health and Human Services 
September 2019 
Office  of Inspector General 
OEI-09-16-00411 
 
 
Some Medicare Part D Beneficiaries Face  Why OIG Did This Review 
This evaluation examines data 
Avoidable Extra Steps That Can Delay or 
and oversight related to Part D 
Prevent Access to Prescribed Drugs  pharmacy rejections and 
coverage denials that, when 
What OIG Found  issued for avoidable or 
Ideally, a Medicare beneficiary would be  Key Takeaway  inappropriate reasons, can lead 
prescribed only medically necessary drugs, and  Some Medicare Part D  to delays in beneficiary access to 
would obtain any required preapprovals or  beneficiaries faced extra steps  needed drugs.  Part D is an 
exceptions before visiting a pharmacy so that  to obtain drugs because their  optional benefit that helps 
prescriptions could be filled without extra steps.   plans rejected prescriptions  beneficiaries pay for medically 
However, in 2017, Part D insurance companies  presented at pharmaciesor  necessary prescription drugs.  
(sponsors) rejected millions of prescriptions  denied drug coverage  However, Part Ds shared-risk 
presented at pharmacies, and overturned a  requestsfor avoidable or  payment model can create an 
large number of drug-coverage denials when  inappropriate reasons.  incentive for sponsors to deny 
beneficiaries appealed.  This pattern indicates    requests for prescription drugs 
that the ideal scenario does not always occur.  in an attempt to increase profits.   
In 2017, sponsors automated systems rejected millions of prescriptions that 
Because Part D covers more than 
beneficiaries tried to fill at pharmacies.  Some of these rejections could have 
45 million beneficiaries, even low 
been avoided if the prescribed drugs were on the approved drug lists, met 
rates of denied or delayed 
requirements, or received any required preapprovals.  Although sponsors should 
medically necessary drugs or 
reject prescriptions that do not meet requirements, the affected beneficiaries 
reimbursement could contribute 
may still have needed medications and may have filed coverage requests, paid 
to physical or financial harm for 
out of pocket, or contacted their providers to request different drugs.  These 
many Medicare beneficiaries.  
extra steps can delay beneficiaries access to needed drugs, or deter them from 
getting them if they are unable or unwilling to navigate the process.  How OIG Did This Review 
For each Part D contract, we 
After receiving rejections at pharmacies, beneficiaries can file coverage requests, 
collected 2017 data on 
and if those are denied, they can appeal.  Among coverage denials that 
pharmacy rejections related to 
beneficiaries appealed in 2017, sponsors fully overturned or partially overturned 
formulary and utilization 
73 percent.  These overturned denials could have been avoided if sponsors had 
management requirements and 
received, and correctly processed, all relevant information at the first request.   
on coverage denials, appeals, 
Through its oversight efforts, the Centers for Medicare & Medicaid Services  and appeal outcomes.  We 
(CMS) has determined that sponsors sometimes inappropriately rejected or  calculated applicable volumes 
denied pharmacy and drug coverage requests.  These errors led to inappropriate  and rates.  We also analyzed 
denials or delays of beneficiary access to prescribed drugs.  data from the independent 
entities that review the higher 
What OIG Recommends and How the Agency Responded 
levels of Part D appeals.   
We recommend that CMS (1) take additional steps to improve electronic 
communication between Part D sponsors and prescribers to reduce avoidable 
To examine CMS audit findings, 
pharmacy rejections and coverage denials; (2) take action to reduce 
we analyzed the 2017 results for 
inappropriate pharmacy rejections; (3) take action to reduce inappropriate 
the Part D program audits and 
coverage denials; and (4) provide beneficiaries with clear, easily accessible 
the related enforcement actions, 
information about sponsor performance problems, including those related to 
and 2017 data from the 
inappropriate pharmacy rejections and coverage denials.  CMS concurred with 
formulary administration 
all four recommendations.     
analysis.  We also examined CMS 
websites to determine the 
location of information about 
Full report can be found at oig.hhs.gov/oei/reports/oei-09-16-00411.asp  sponsor performance.    
TABLE OF CONTENTS 
BACKGROUND  1 
Methodology  7 
   
FINDINGS   
Many Part D beneficiaries experienced avoidable or inappropriate rejections of prescriptions  10 
at pharmacies 
High overturn rates when beneficiaries appealed, and sponsor violations detected in audits,  13 
indicate that some Part D coverage denials were avoidable or inappropriate 
Information about Part D sponsor performance problems related to pharmacy rejections  16 
and coverage denials is not easily accessible 
   
CONCLUSION AND RECOMMENDATIONS   
Take additional steps to improve electronic communication between Part D sponsors and  18 
prescribers to reduce avoidable pharmacy rejections and coverage denials  
Take action to reduce inappropriate pharmacy rejections  19 
Take action to reduce inappropriate coverage denials  20 
Provide beneficiaries with clear, easily accessible information about sponsor performance  20 
problems, including those related to inappropriate pharmacy rejections and coverage 
denials 
   
CMS COMMENTS AND OIG RESPONSE  22 
 
APPENDICES     
A: Medicare Part D Appeals Process  23 
B: Detailed Methodology  24 
C: Volumes and Rates of Part D Pharmacy Rejections, Coverage Determinations, and Appeal   28 
     Outcomes, 2017  
 
D: Volumes and Rates of Part D Denials Overturned by Independent Reviewers, 2017  29  
E: CMS Comments  30 
 
ACKNOWLEDGMENTS  33 
   
BACKGROUND 
Objectives 
1.  To examine pharmacy rejections, and drug coverage denials, 
appeals, and overturns in Medicare Part D during 2017. 
2.  To examine CMS oversight findings related to pharmacy 
rejections and coverage denials during 2017.  
3.  To assess the public availability of information about Part D 
sponsor performance problems related to pharmacy rejections 
and coverage denials. 
Structural factors in the Medicare Part D prescription drug program may 
in some cases lead to beneficiaries being denied or delayed access to 
prescription drugs they need.  In Part D, private insurerscalled Part D 
sponsorsshare insurance risk with the Medicare program for beneficiary 
drug spending.1  Competition among sponsors encourages them to offer 
benefits that are attractive to beneficiaries, and to manage spending so 
that beneficiaries premiums and cost-sharing remain affordable.  
However, because sponsors bear the risk for a portion of payments, they 
risk losing money if a beneficiarys drug spending is higher than they 
expect.  This can create an incentive for sponsors to deny requests for 
prescription drug coverage in an attempt to increase their profits.   
Complex Part D program rules, and short timeframes for processing 
requests, can also contribute to denial or delay of needed drugs.  
Sponsors are permitted to change the drugs that they cover every year, 
and the coverage rules for drugs are often complex.  This can lead to 
confusion among prescribers and beneficiaries about which drugs are 
covered and how to meet coverage requirements, and may delay access 
while they navigate the process.  When beneficiaries do file coverage 
requests, the short timeframes required for processing requests (intended 
to promote timely access to needed drugs) may lead to denials if 
sponsors are not able to obtain supporting information within the allotted 
timeframe.  Sponsors receive millions of coverage requests each year and 
must issue a determination within 24-72 hours.  Because Medicare Part D 
covers many beneficiaries (more than 45 million in 2019), even low rates 
of denied or delayed medically necessary drugs or reimbursement could 
contribute to physical or financial harm for many Medicare beneficiaries. 
 
1 Section 1860D-15(e) of the Social Security Act. 
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OEI-09-16-00410   
Medicare Part D  
Medicare Part D is an optional prescription drug benefit available to 
Medicare beneficiaries.  Beneficiaries can choose to enroll in Part D to 
supplement their traditional Medicare benefits or their Medicare Part C 
(Medicare Advantage) benefits.  Of all Medicare beneficiaries, 
approximately three-quarters are enrolled in Part D.2  In 2019, Medicare 
spending for Part D benefits is estimated to be $99 billion.3 
Sponsors administer the Part D benefit through one or more contracts 
with CMS to offer prescription drug plans.4  Part D sponsors can offer 
multiple plans that vary by prescription drugs covered, cost-sharing with 
beneficiaries, and in-network pharmacies.  Each sponsor maintains a list of 
covered drugs, called a formulary, which is organized into tiers of 
cost-sharing between the plan and beneficiary.  There are many Medicare 
requirements that govern how sponsors create and manage their 
formularies.  At a minimum, sponsors must cover commonly needed 
drugs, and generally must offer at least two different drugs in each drug 
class and category.5   
Part D sponsors contract with pharmacies to dispense prescription drugs 
to beneficiaries enrolled in their plans.  When a beneficiary tries to fill a 
prescription at a pharmacy, the request is typically routed electronically 
from the pharmacy to the sponsor and any other applicable payers (such 
as secondary insurance).  The sponsors processing system then sends 
coverage and payment information back to the pharmacy.  Point-of-sale 
processing occurs in real time and involves several steps to coordinate 
payment for a single claim.   
Utilization Management and Pharmacy Rejections  
Part D sponsors can omit certain drugs from prescription coverage and 
are allowed to impose utilization management requirements on drugs 
within certain parameters.6  Utilization management is an important tool 
to control costs and to ensure the safe use of drugs in Part D.  Utilization 
management requirements include, for example, limiting the quantity that 
can be covered for certain drugs, or requiring that a beneficiary try a safer 
drug therapy before a more risky drug is covered.  Sponsors are required 
to post their formularies and utilization management requirements on 
 
2 Kaiser Family Foundation, Medicare Part D in 2018: The Latest on Enrollment, Premiums, 
and Cost Sharing, May 17, 2018.  
3 Congressional Budget Office, MedicareCBOs April 2018 Baseline, April 2018. 
4 For the purpose of this report, we use the term prescription drug plan to refer to both 
stand-alone Medicare prescription drug plans and Medicare Advantage (Part C) 
prescription drug plans.   
5 42 CFR  423.120(b)(2). 
6 42 CFR  423.153(b). 
 
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OEI-09-16-00410   
their websites so that beneficiaries and prescribers can review them when 
deciding on the appropriate drug for the beneficiarys condition.7   
To enforce utilization management requirements, sponsors can use 
automated rules that prevent a prescription from being billed to the 
sponsor when the beneficiary visits a pharmacy.  When a beneficiary tries 
to fill a prescription for a drug that is not on the plans formulary, or that 
does not meet a utilization management requirement (including any 
required preapprovals), the sponsors processing system will automatically 
send a rejection notice back to the pharmacy.  This type of automatic 
rejection at the pharmacy level is known as a pharmacy rejection.  CMS 
does not consider such rejections to be official Part D denials because 
the sponsor has not had the opportunity to review all relevant 
information.  After an in-network pharmacy receives a rejection 
notification from the sponsors system, the pharmacy must provide the 
beneficiary with a standardized notice that explains the beneficiarys right 
to request a coverage determination for the rejected prescription and 
how to contact the sponsor.     
Part D Coverage Determination and Appeals Process 
When needed, beneficiaries or their healthcare providers can request a 
coverage determination for approval to receive a drug and bill the 
sponsor for it, or for reimbursement for a drug already dispensed.8, 9  
Coverage determinations include decisions about whether a beneficiary 
has fulfilled a utilization management requirement (e.g., whether a 
beneficiary needs a riskier drug after a safer drug therapy did not work), 
or whether to approve an exception to the sponsors formulary or 
utilization management requirements (e.g., whether a beneficiary needs a 
dosage that is larger than the quantity limit for the drug).  Beneficiaries 
can request coverage determinations before a drug is prescribed or after 
a prescription is rejected at the pharmacy.  Sponsors review coverage 
requests, along with any supporting documentation, and approve, 
 
7 42 CFR  423.128(b)(4) and (d)(2). 
8 Beneficiaries have the option to pay for a rejected drug at the pharmacy and then file a 
request for reimbursement.  The Medicare and You handbook and plan coverage 
guidelines explain how to request reimbursement from plans.  CMS, Medicare & You, p. 91, 
2019. 
9 Some Part D sponsors delegate claims-processing responsibilities to other entities, such 
as pharmacy benefit managers.  However, the sponsor is ultimately responsible for all 
coverage determinations, appeals, and grievances, even if the day-to-day responsibility is 
delegated to another entity. 
 
Some Medicare Part D Beneficiaries Face Avoidable Extra Steps that Can Delay or Prevent Access to Prescribed Drugs   3 
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partially approve, or deny the request.10  When beneficiaries receive a 
coverage denial, they have the right to file an appeal to try to get the 
denial overturned (see Exhibit 1).   
The Medicare Part D appeals process includes four levels of administrative 
review by several entities.  At the first level, the Part D sponsor that issued 
the denial must revisit its original denial decision.  When appeals continue 
to the higher levels, they are decided by independent reviewers within the 
Some Medicare Part D Beneficiaries Face Avoidable Extra Steps that Can Delay or Prevent Access to Prescribed Drugs   4 
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Department of Health and Human Services.  At each level of review, the 
denial can be overturned, partially overturned, or upheld.  If the denial is 
overturned, then the sponsor must authorize or pay for the prescription 
drug.  If the denial is not fully overturnedif it is either upheld or partially 
overturnedthe beneficiary can appeal the decision to the next higher 
level of review.  See Appendix A for a detailed description of the Part D 
appeals process.   
CMS Oversight of Medicare Part D  
CMS uses several tools to oversee the provision of prescription drugs in 
Medicare Part D and to incentivize sponsors to improve their 
performance.  These tools include formulary reviews; formulary 
administration analysis; program audits; and compliance and enforcement 
actions.  CMS also provides guidance and model documents to clarify 
requirements for sponsors.  For example, CMS provides model language 
for denial letters and requires sponsors to include clear instructions for 
beneficiaries on how to appeal denials.  
Formulary reviews.  CMS annually reviews Part D formularies to ensure 
that they include a range of drugs in a broad distribution of therapeutic 
categories or classes.  As part of its formulary reviews, CMS assesses 
Part D sponsors utilization management requirements to ensure 
consistency with current industry standards and with standards that are 
widely used with drugs for the elderly and people with disabilities.   
Formulary administration analysis.  Until 2019, each year, as part of the 
formulary administration analysis monitoring program, CMS reviewed a 
sample of pharmacy rejections to analyze how sponsors administer their 
formularies.11  CMS selected a purposive sample of rejections for each 
contract that the sponsors administer.  CMS then determined whether the 
rejections were consistent with program requirements, with the sponsors 
approved formulary, and with the sponsors approved utilization 
management requirements.  CMS categorized rejections that do not meet 
these requirements as pharmacy rejection failures and calculates an 
overall failure rate for each contract.  Pharmacy rejection failures included, 
for example, rejecting a prescription for a drug as being off-formulary 
 
10 When a sponsor receives a request for benefits, it must notify the beneficiary of its 
determination within 72 hours or, for expedited requests, within 24 hours.  Sponsors must 
notify beneficiaries of decisions related to reimbursement within 14 days.  If a sponsor fails 
to make a decision within the required timeframe, it must forward the case to the 
Independent Review Entity for review, and notify the beneficiary that the case was 
forwarded.  42 CFR  423 subpart M. 
11 As part of this monitoring program, CMS reviews a sample of pharmacy rejections for 
every Part D sponsor that is not being audited that year.  The samples include pharmacy 
rejections relating to nonformulary status, prior authorization, step therapy, and quantity 
limits.   
 
Some Medicare Part D Beneficiaries Face Avoidable Extra Steps that Can Delay or Prevent Access to Prescribed Drugs   5 
OEI-09-16-00410   
when it is in fact on the plans formulary, or rejecting a prescription 
because of a quantity limit restriction that CMS had not approved.  
Sponsors that had failure rates higher than 20 percent for one or more of 
their contracts received a notice of noncompliance, at a minimum, along 
with a report containing the details of each rejection failure.  In 2019, CMS 
ended the formulary administration analysis program (see page 11 for 
more information).12     
Program audits.  Each year, CMS audits a limited number of Part D 
sponsors.13  During the audits, CMS evaluates sponsors compliance with 
requirements related to formulary administration, coverage 
determinations, and other beneficiary protections that Medicare requires.  
CMS requires sponsors to develop and implement corrective action plans 
to address any violations detected in audits and to demonstrate that they 
have corrected deficiencies before CMS officially closes the audit. 
Compliance and enforcement actions.  When CMS identifies 
noncompliance related to a Part D sponsors delivery of prescription drug 
benefits, it may take compliance or enforcement actions against the 
sponsor.14  Such actions include issuing notices of noncompliance, issuing 
warning letters, imposing civil money penalties, imposing intermediate 
sanctions (i.e., suspension of marketing, enrollment, or payment), or 
terminating a contract. 
 
Related Work  In a companion study, OIG examined national trends and CMS oversight 
of denied services and payment in Medicare Advantage during 
20142016.15  We found that beneficiaries and providers appealed only 
1 percent of preauthorization and payment denials, but among the 
denials that were appealed, Medicare Advantage organizations 
overturned 75 percent of their own denials.  We also examined CMS audit 
results, which highlighted widespread and persistent performance 
problems related to denials of care and payment in Medicare Advantage.  
We recommended that CMS enhance its oversight of Medicare Advantage 
contracts; address persistent problems identified in its audits; and provide 
beneficiaries with clear, easily accessible information about serious 
violations detected in audits.  CMS concurred with all three 
 
12 CMS, Announcement of Calendar Year (CY) 2020 Medicare Advantage Capitation Rates 
and Medicare Advantage and Part D Payment Policies and Final Call Letter, pp. 146-148, 
April 2019. 
13 CMS selects the sponsors based on several factors, including the quality ratings, past 
performance data, significant changes in enrollment, and whether the sponsor has been 
audited recently. 
14 42 CFR  423.752. 
15 OIG, Medicare Advantage Appeal Outcomes and Audit Findings Raise Concerns About 
Service and Payment Denials (OEI-09-16-00410), September 2018. 
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OEI-09-16-00410   
recommendations.  Many insurance companies administer contracts that 
offer both Medicare Advantage benefits and Part D benefits, and so are 
included in both that report and this one. 
 
Methodology   To meet the objectives of this study, we analyzed data and 
documentation from CMS, the Office of Medicare Hearings and Appeals, 
and the Departmental Appeals Board.  To ensure our understanding of 
the submitted data and documentation, we followed up in writing with 
officials knowledgeable about the program.  This section provides a brief 
overview of the methodology.  See Appendix B for a detailed 
methodology.  
Examining Pharmacy Rejections, Denials, Appeals, and 
Overturned Denials 
We analyzed 2017 performance data for each Part D contract to 
determine the volumes and calculate the rates of pharmacy rejections, 
coverage denials, appeals, and denials overturned upon appeal at the 
sponsor level.  We were unable to include in our analysis contracts that 
did not meet CMSs data validation standards in any one of the fields that 
we used in our calculations.16   
We used the 2017 annual performance data for contracts with validated 
data to examine pharmacy claims that were rejected at the point of sale 
(pharmacy rejections).  The reported data include five reasons a pharmacy 
transaction may be rejected: nonformulary status, prior authorization 
requirements, step therapy requirements, quantity limit requirements, or 
high-cost edits for noncompounded drugs.17, 18  However, we (and CMS) 
cannot determine exactly how many pharmacy rejections occurred 
because the pharmacy rejection data may in some cases contain 
duplicatesi.e., may have counted an individual prescription rejection 
more than once.19  Therefore, using the pharmacy rejection data, we 
calculated the maximum possible number of pharmacy rejections by 
summing the number of rejections reported in each rejection category for 
 
16 Of the 535 contracts that reported performance data in 2017, 36 contracts could not be 
included in our analysis because they did not meet CMSs data validation standards.  
17 An edit is an automated system process thatin some casesrejects coverage at the 
point of sale.   
18 Pharmacy rejections can occur for other reasons not included in our data, such as 
administrative errors, safety edits (i.e., automated system processes that reject approval for 
certain drugs or combinations of drugs for safety reasons), and early refill attempts 
(i.e., beneficiary attempts to refill a prescription earlier than the sponsor allows). 
19 According to CMS, individual prescription rejections may be counted more than once 
for several reasons.  For example, a prescriber may write more than one prescription to 
test a beneficiarys coverage limits, or a pharmacy may submit a prescription to the 
sponsor multiple times while waiting for coverage approval to be entered into the 
sponsors system. 
Some Medicare Part D Beneficiaries Face Avoidable Extra Steps that Can Delay or Prevent Access to Prescribed Drugs   7 
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all contracts, which is likely an overestimation of the true number of 
rejected prescriptions and we note that throughout the report.  We also 
divided the maximum number of pharmacy rejections by the total number 
of pharmacy transactions to calculate the rejection rate that corresponds 
to the maximum number of possible rejections.  
We used the 2017 annual performance data for contracts with validated 
data to examine coverage denials and appeals.  To determine the 
coverage denial rate, we divided the number of denied requests plus 
partially denied requests by the total number of requests (the sum of 
approved requests, denied requests, and partially denied requests).  To 
calculate the appeal rate, we divided the number of appeal decisions 
issued by the number of denials issued.   
From the same data, we determined the total number of appealed denials 
that Part D sponsors overturned.  To calculate the overturn rate, we 
divided the total number of appealed denials that were fully overturned 
plus appealed denials that were partially overturned by the total number 
of appeal decisions that were issued (the sum of appealed denials that 
were overturned, appealed denials that were partially overturned, and 
appealed denials that were upheld).  We also calculated the overturn rates 
for each Part D contract. 
To determine the volumes and calculate the rates of denials that 
independent reviewers overturned on appeal during 2017, we analyzed 
appeals data from the Independent Review Entity, the Office of Medicare 
Hearings and Appeals, and the Departmental Appeals Board.   
Examining CMSs Oversight Findings Related to Pharmacy 
Rejections and Coverage Denials  
We analyzed the final audit reports that CMS issued to sponsors that were 
audited for the elements Part D Coverage Determinations, Appeals, and 
Grievances and Formulary Administration during 2017.  We reviewed 
the reports for the 36 audited Part D sponsorswhich collectively 
administered 135 contractsand determined the number of contracts 
that CMS cited for each type of violation. 
To assess CMSs 2017 formulary administration analysis, we reviewed the 
2019 Part D Display Measure Data.  These data reflect the results of CMSs 
formulary administration analysis for the 412 contracts that CMS reviewed 
in 2017.  We reviewed the data and identified the number of contracts for 
which CMS identified at least one pharmacy rejection failure in their 
sample and calculated the range of failure rates. 
To examine the availability of information about sponsor performance 
problems related to pharmacy rejections and coverage denials, we 
reviewed the Medicare Plan Finder Website and other CMS websites.    
 
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Limitations  For this study, we examined aggregate Part D contract data on pharmacy 
rejections and on coverage denials, appeals, and appealed denials that 
were overturned.  We did not independently determine whether 
prescriptions were medically necessary for beneficiaries according to 
medical standards or Medicare coverage standards, nor did we 
independently determine whether sponsors correctly reported their data 
to CMS.  The pharmacy rejection data that we used in this report may in 
some cases contain duplicate rejection numbers for a single prescription.  
Therefore, we were unable to identify the exact number of prescription 
rejections that beneficiaries experienced at pharmacies, and instead we 
report the maximum possible number and indicate it as such.  Our 
analysis focused on pharmacy rejections for nonformulary status and for 
not meeting utilization management requirements.  Rejections for other 
reasons, such as safety edits or early refill attempts,20 are not included in 
this report.  
Additionally, because not all Part D contracts data met CMSs standards 
for data validation, we were unable to include some contracts in our 
analysis.  Thus, the absolute numbers that this report provides, such as the 
number of coverage denials overturned upon appeal, likely 
underrepresent the actual number in the Medicare Part D program.  The 
percentages that this report provides could overrepresent or 
underrepresent the actual percentages in the Medicare Part D program. 
 
Standards  We conducted this study in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors General 
on Integrity and Efficiency. 
 
20 See footnote 18 for more information about safety edits and early refill attempts. 
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FINDINGS  
 
Many Part D  Ideally, a Medicare beneficiary would be prescribed only medically 
necessary drugs, and would obtain any required preapprovals or 
beneficiaries 
exceptions before visiting a pharmacy so that prescriptions could be filled 
experienced 
without further steps.  However, the millions of pharmacy rejections that 
avoidable or  occurred in 2017 demonstrates that this does not always happen.  
To control costs and ensure the safe use of prescription drugs, Part D 
inappropriate 
sponsors are expected to reject prescriptions for drugs that do not meet 
rejections of 
plan requirements.  This includes rejecting prescriptions for drugs that are 
prescriptions at  not on the plan formulary or that do not meet utilization management 
pharmacies  requirements (e.g., dosages that exceed quantity limits).  However, 
pharmacy rejections can in some cases create extra burden on Medicare 
beneficiaries to obtain needed medications, or may deter them from 
obtaining treatment.  Pharmacy rejections can be avoided before the 
beneficiary arrives at the pharmacy if (1) prescribers have information 
about the plan formularies and utilization management requirements that 
apply to their patients; (2) prescribers use that information to prescribe 
covered drugs or to obtain any needed preapprovals or exceptions; and 
(3) sponsors appropriately process the claim.     
A pharmacyrejectionmeans a beneficiary 
tried to fill a prescription at a pharmacy, but 
the sponsors system automatically rejected it 
(e.g., because the drug is not on formulary, 
or the dosage exceeds a quantity limit).
Sponsors rejected millions of prescriptions that beneficiaries 
tried to fill at pharmacies, potentially creating extra steps for 
beneficiaries that could have been avoided 
In 2017, Part D beneficiaries experienced up to 84 million rejections when 
they tried to fill prescriptions at pharmacies.  The sponsors we included in 
our analysis collectively reported processing 2.4 billion pharmacy 
transactions in 2017, so 84 million rejections would represent 
a 3.5-percent rejection rate.  However, we (and CMS) cannot determine 
exactly how many pharmacy rejections occurred, because the pharmacy 
rejection data may in some cases contain duplicate counts for individual 
Some Medicare Part D Beneficiaries Face Avoidable Extra Steps that Can Delay or Prevent Access to Prescribed Drugs   10 
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prescription rejections.21   See Exhibit 2 for the data on pharmacy 
rejections for not meeting formulary or utilization management 
requirements.22, 23  
Exhibit 2: In 2017, sponsors rejected millions of prescriptions for not 
meeting plan formulary and/or utilization management requirements.
Requirements Rejections*
Formularieslist the drugs that plans cover.  Any 
43.0M
exceptions must be approved by sponsors.
Prior authorization requires sponsor approval before 
23.8M
drugs can be dispensed at the pharmacy.
Quantity limit restricts the amount of a drug that 
14.5M
can be dispensed for a given period of time.
Step therapy requires starting with more cost-
effective or safer drugs before trying more costly or  2.4M
risky drugs.
*Note: The number of pharmacy rejections reported may contain duplicates within or across categories.
Sources: OIG analysis of 2017 Part D annual performance data for contracts that reported validated 
data, 2019.  OIG analysis of Federal regulations and CMS guidance, 2019.
CMS does not collect data on what beneficiaries do when they receive a 
pharmacy rejection.  In some cases, the beneficiary or pharmacist may be 
able to resolve the issue before the beneficiary leaves the pharmacy.  In 
other cases, the beneficiary may take extra steps, such as contacting the 
prescriber to request a different drug, filing a coverage request with the 
sponsor, or paying for the drug out of pocket.  These extra steps may 
delay beneficiary access to needed drugs, or deter them from getting the 
drugs if they are unable or unwilling to spend time navigating the 
approval process.     
 
21 According to CMS, individual prescription rejections may be counted more than once 
for several reasons.  For example, a prescriber may write more than one prescription to 
test a beneficiarys coverage limits, or a pharmacy may submit a prescription to the 
sponsor multiple times while waiting for coverage approval to be entered into the 
sponsors system. 
22 The data we analyzed does not include pharmacy rejections for reasons other than 
formulary or utilization management requirements, such as administrative errors, safety 
edits, or early refill attempts. 
23 The numbers in this paragraph and Exhibit 2 are rounded.  See Appendix C for the exact 
number of pharmacy transactions and rejections reported by the sponsors included in our 
analysis. 
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Although mechanisms exist to help avoid Medicare beneficiaries having 
prescriptions rejected at their pharmacies, the large number of pharmacy 
rejections suggests that the mechanisms were not always used or 
effective.  Part D sponsors are required to post their formularies and 
utilization management requirements on their websites so that health 
care providers and beneficiaries can review them when deciding which 
treatment is right for the beneficiary.  If the provider determines that 
an off-formulary drug is needed, the provider (or the beneficiary) can 
request an exception to the sponsors formulary in advance.  Similarly, if 
the provider determines that the appropriate drug for the beneficiary 
needs preapproval, the provider can file a coverage request with the 
sponsor.  However, the large number of pharmacy rejections related to 
off-formulary and utilization management requirements may indicate that 
providers did not check plan formularies or requirements before 
prescribing drugs, or that they were unable to find, understand, or follow 
the requirements.   
Sponsors sometimes inappropriately rejected prescriptions that 
beneficiaries tried to fill at pharmacies 
Two CMS oversight efforts demonstrate that in some cases Part D 
sponsors inappropriately rejected prescriptions that should have been 
One sponsor was cited  approved.  In 2017, as part of its Part D program audits, CMS cited 119 of 
for calculating allowed 
the 135 audited contracts (88 percent) for at least one violation that 
quantities incorrectly, 
resulted in inappropriate pharmacy rejections.  Although some of these 
leading to inappropriate 
violations affected only a few beneficiaries, others affected thousands.  
pharmacy rejections for 
3,324 beneficiaries. The most common violation that resulted in inappropriate rejections was 
plans imposing utilization management requirements that CMS had not 
approved.  For example, CMS cited Part D sponsors for imposing quantity 
limits on drugs without CMSs approval, or using more restrictive quantity 
limits than CMS had approved.  Unapproved utilization management 
requirements were among the most frequent violations detected in audits 
of Part D sponsors in every year from 2011 through 2017, except for 2015. 
Also in 2017, CMS determined through its formulary administration 
analysis that 72 of the 412 contracts (17 percent) it reviewed had issued 
inappropriate pharmacy rejections.  Through this analysis, CMS reviewed a 
purposive sample of pharmacy rejections (up to 30 cases) for every 
contract that it did not audit that year.  Among the 72 contracts, failure 
rates ranged from 3 to 67 percent of the rejections that CMS examined.  
For the four contracts that had failure rates greater than 20 percent, CMS 
issued notices of noncompliance to three of them, and issued a warning 
letter to the fourth.24  CMS found similar causes of inappropriate 
pharmacy rejections in its formulary administration analysis as in its 
 
24 A notice of noncompliance is the first level of notice that CMS issues, most often in 
response to the first or minor instances of noncompliance.  A warning letter is the next 
level of notice, issued to address either repeat instances or more substantial first instances.   
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program audits, such as unapproved or incorrectly applied utilization 
management requirements.  For example, CMS found that one Part D 
plan rejected a prescription for being above the quantity limit for the 
medication, but no quantity limit existed for that drug.  
In 2019, CMS ended two Part D oversight efforts related to pharmacy rejections. 
Recent changes in CMSs oversight of Part D will eliminate two of the data sources that we used in this report 
to examine Part D pharmacy rejections.  Beginning in 2019, CMS stopped requiring Part D sponsors to report 
annual data on pharmacy rejections, and CMS discontinued its formulary administration analysis program.  As 
a result of this change, CMS no longer annually collects any pharmacy rejection data from sponsors, except 
when a sponsor is under audit.   
CMS stated that it ended these oversight efforts because they were no longer needed and were burdensome 
for Part D sponsors.  In explaining its decision, CMS stated that in 2013, 27 percent of contracts included in the 
formulary administration analysis exceeded CMSs failure rate threshold, but in 2017 only 1 percent of 
contracts did.  However, OIG notes that CMSs failure rate threshold was 20 percent, meaning that more than 
one in five pharmacy rejections would need to be inappropriate for a contract to exceed the threshold.  As our 
analysis found, 72 contracts (17 percent) had at least one inappropriate rejection in their formulary 
administration analysis results in 2017, although only 4 contracts (1 percent) exceeded the 20-percent 
threshold.  Additionally, CMS audits continue to find problems related to inappropriate pharmacy rejections.  
 
High overturn rates  Beneficiaries sometimes need drugs that require sponsor review and 
approval before the pharmacy can fill the prescription.  In those cases, 
when beneficiaries 
beneficiaries or their prescribers should request a coverage determination 
appealed, and 
(i.e., a drug coverage request) from the Part D sponsor.  As Exhibit 3 on 
sponsor violations  page 14 shows, beneficiaries filed 8.1 million coverage requests with 
Part D sponsors in 2017.  Of these coverage requests, sponsors fully 
detected in audits, 
denied or partially denied 2.8 million, about 35 percent.  After receiving 
indicate that some 
denials, beneficiaries took the extra step of appealing about one-quarter 
Part D coverage  (744,987) of these denials.  See Appendix C for the 2017 volumes and 
denials were  rates of Part D coverage determination and appeal outcomes.  
avoidable or 
inappropriate 
 
A coverage denial means the sponsor denied 
a request to fulfill, or be exempted from, plan 
requirements (e.g., utilization management 
restrictions or the plans formulary).
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Exhibit 3:  In 2017, sponsors denied more than 
one-third of drug coverage requests.
All Part D drug coverage requests:  
8.1 million (M)
Sponsors denied 2.8M (35%) of 
drug coverage requests
Beneficiaries 
appealed 0.7M 
(26%) of denials
Source:  OIG analysis of 2017 Part D annual performance data, 2019. 
Note:  The numbers in this exhibit are rounded.
Sponsors overturned 73 percent of drug coverage denials that were 
appealed, indicating that some denials could have been avoided 
When beneficiaries appealed coverage denials to their sponsors at the 
first level of appeal, they were usually successful in getting the denials 
overturned.  Of the 744,987 appeals that beneficiaries filed in 2017, they 
73% were fully or partially successful in getting 543,590 denials overturned 
(73 percent).  When sponsors upheld denials and beneficiaries chose to 
continue their appeals, independent reviewers at the higher levels of 
of appealed coverage 
denials were  appeal fully or partially overturned an additional 6,902 Part D denials in 
overturned favor of beneficiaries.25  See Appendix D for the volumes and rates of 
denials that were overturned by each of the independent review entities.   
A sponsor may overturn its initial denial upon appeal for several reasons.  
In some cases, the sponsor may determine that its original decision was 
incorrect, and therefore overturn the denial.  In other cases, the sponsor 
may determine that the initial decision to deny coverage was correct 
based on the information available at the time, but find that the provider 
or beneficiary added new information in an appeal that demonstrates the 
denial should be overturned.   
Although overturned denials do not necessarily mean that sponsors initial 
denials were inappropriate, each overturned denial represents a case in 
which a beneficiary had to file an appeal to receive a medication that 
ideally would have been covered when initially requested.  The extra step 
 
25 Independent reviewers overturned between approximately 19 and 31 percent of the 
appealed denials that they reviewed. 
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of appeal represents friction in the program, and may create an 
administrative burden for beneficiaries, prescribers, and Part D sponsors.   
One contributing factor to the high number of denials in Part D may be 
the timeline requirements for processing coverage requests.  In an effort 
to ensure the beneficiaries can get needed medications in a timely 
manner, Federal regulations require Part D sponsors to issue 
a determination within 24-72 hours of receiving a drug coverage 
request.26  Therefore, when a sponsor is not able to obtain supporting 
information from the prescriber within the allotted timeframe, the sponsor 
may issue a denial and then process any subsequent information that it 
receives as part of an appeal of that denial.  Thus, when coverage denials 
are overturned upon appeal, it suggests that at least some of the original 
denials could have been avoided if all of the information included in the 
appeal had been provided at the time of the first request. 
Variations in rates at which Part D contracts overturned denials may 
indicate differences in sponsor behavior or performance.  In 2017, 
overturn rates by contract ranged from approximately 21 to 98 percent, 
with a median of 69 percent.27  On the high end, 55 Part D contracts 
overturned more than 85 percent of their own denials upon appeal (see 
Exhibit 4).  
Exhibit 4: Part D contracts' overturn rates varied widely in 2017.
Fifty-five contracts overturned more than 85% of denials uponappeal.
Overturn rate
>85% 55 contracts
76%-85% 64
66%-75% 82
56%-65% 70
55% or lower 62
Source: OIG analysis of 2017 Part D annual performance data for contracts that received at 
least 50 appeals, 2019.
 
 
26 Sponsors must notify the beneficiary of drug coverage determinations within 24 hours 
for expedited requests and within 72 hours for standard requests.  They must notify 
beneficiaries of reimbursement determinations within 14 days.  42 CFR  423.568 and 
423.572. 
27 We calculated the range and median of contract-specific denial overturn rates for the 
333 Part D contracts that received at least 50 appeals and reported validated data in 2017. 
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Sponsors sometimes processed drug coverage requests 
incorrectly, leading to inappropriate denials or delays 
In 2017, CMS cited 76 of the 135 Part D contracts that it audited 
(56 percent) for at least one coverage determination process violation that 
Several sponsors were  led to beneficiaries not receiving drugs, or led to delays in beneficiary 
cited for inappropriately  access to drugs or reimbursement.  Although some of these violations 
instructing beneficiaries 
affected only a few beneficiaries, others affected thousands.   
to go back to their 
prescribers to request 
The most common violation that led to inappropriate denials or delays 
drug coverage
was misclassifying beneficiary coverage requests as grievances or 
misclassifying hundreds 
of beneficiary coverage  customer service inquiries.  Such misclassification denies the beneficiary 
requests as inquiries. an opportunity to appeal because the plan does not formally deny the 
coverage request.  Further, the beneficiary either may not get the 
medication or may have to pay for it out-of-pocket.  CMS has identified 
this misclassification violation as a persistent problem; it was one of the 
most common violations detected in audits of Part D sponsors each year 
during 2011-2017.  CMS attributed these violations to Part D sponsors 
having inappropriate procedures, insufficiently training their staff, or 
lacking adequate oversight of this aspect of operations. 
 
Information about  Information about problems that CMS identifies with Part D sponsor 
performance (e.g., violations detected in audits) or corrective actions that 
Part D sponsor 
CMS imposes (e.g., civil money penalties) can be difficult to locate 
performance 
because some information is not publicly available, and other information 
problems related to  is spread across multiple CMS websites.  As a result, beneficiaries may not 
be aware of some sponsor performance problems when making decisions 
pharmacy rejections 
about which Part D plan to enroll in.  The Medicare Plan Finder is a 
and coverage 
Federal government website managed by CMS that beneficiaries can use 
denials is not easily  to compare and select a Part D plan.  Although the website provides a 
accessible  composite quality rating (known as a Star Rating) for each Part D contract, 
and signals if a sponsor is under sanction, it does not provide detailed 
  information about the results of CMS audits, violations cited by CMS, or 
civil money penalties that CMS imposes on sponsors.  Rather, 
beneficiaries would need to navigate to other CMS websites that were not 
designed to be as user-friendly as Medicares Plan Finder (see steps in 
Exhibit 5 on page 17).   
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Exhibit 5:  Medicare beneficiaries would have to take several steps to find certain 
performance data for Part D sponsors. 
Steps to find a sponsors complete audit results (including violations and corrective actions): 
  X  Not publicly available. 
Steps to find a sponsors pharmacy rejection failure rate: 
1.  Navigate to the Part C and D Performance Data page on CMSs website. 
2.  Download the compressed folder with the Star Ratings and Display Measures data for the desired year. 
3.  Find the data file in the compressed folder that contains the display measures. 
4.  Identify column DMD15 for the formulary administration analysis measure. 
5.  Find the cell that contains the failure rate for the desired Part D contract. 
Steps to find a sponsors civil money penalties: 
1.  Navigate to the Part C and D Enforcement Actions page on CMSs website. 
2.  Search by sponsor name to find any Civil Money Penalty Notices. 
3.  Download the notice, review to identify the sponsor performance problems that led to the penalty. 
Source:  OIG analysis of CMS websites, 2019. 
 
The results of CMSs oversight provide valuable information about 
sponsor performance that can be useful to Medicare beneficiaries and 
their health care providers and advocates.  For example, ready access to 
information about civil money penalties that CMS imposes on a sponsor, 
and the violations that led to the penalties, might help beneficiaries avoid 
plans that have serious and repeated performance problems.28  However, 
as recently as April 2018, CMS expressed its concern that beneficiaries 
typically do not go to [the enforcement actions website] when evaluating 
plans for enrollment.29 
CMSs approach in Part D differs from its approach in other arenas.  For 
example, on the Nursing Home Compare website, CMS publishes the full 
results from surveys of nursing homes, including any cited violations, 
penalties, or other enforcement actions.  The Nursing Home Compare 
website encourages beneficiaries to use these results as one source of 
information when choosing a nursing home. 
 
28 As a result of the 2017 audits, CMS issued a total of $2.4 million in civil money penalties 
to 16 sponsors for Part D violations detected in audits.  This total does not include 
penalties issued to these sponsors related to the administration of Medicare Part C 
benefits. 
29 CMS, Announcement of Calendar Year (CY) 2019 Medicare Advantage Capitation Rates 
and Medicare Advantage and Part D Payment Policies and Final Call Letter, April 2018. 
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CONCLUSION AND RECOMMENDATIONS 
In 2017, Medicare Part D beneficiaries faced millions of pharmacy 
rejections and drug coverage denials when their sponsors did not initially 
approve the drugs that their health care providers prescribed.  Although 
sponsors are expected to reject any prescriptions that do not meet 
program requirements in order to control costs and ensure the safe use of 
drugs, our analysis raises concerns that in many cases these pharmacy 
rejections or drug coverage denials were avoidable, and were in some 
cases issued inappropriately.  Some of these beneficiaries may have gone 
without treatment, paid for the drug out of pocket, or had to take extra 
steps to receive approval for the prescribed drug or an alternative.  Any 
avoidable or inappropriate extra steps to receive treatment can cause 
unnecessary delays and administrative burdens for beneficiaries, 
prescribers, and sponsors.  Although CMS uses several compliance and 
enforcement tools to address sponsor performance problems related to 
pharmacy rejections and drug coverage denials, in 2019 it ended two of 
its oversight efforts related to pharmacy rejections.  More action is 
needed to reduce inappropriate and avoidable coverage denials and 
pharmacy rejections.  
Therefore, we recommend that CMS: 
Take additional steps to improve electronic communication 
between Part D sponsors and prescribers to reduce avoidable 
pharmacy rejections and coverage denials  
To reduce avoidable pharmacy rejections and coverage denials, CMS 
should take additional steps to work with sponsors to make 
beneficiary-specific drug coverage and cost information visible to 
prescribers who want to consider that information when prescribing.  
CMS has already taken some important steps toward this goal.  For 
example, its May 2019 final rule requires Part D sponsors to implement an 
electronic real-time benefit tool capable of integrating with prescribers 
e-prescribing and electronic health record systems by January 2021.30  
CMS has also proposed requiring sponsors to support a standard for 
electronic prior authorization.31  Effective use of a real-time benefit tool 
and electronic prior authorization could decrease pharmacy rejections and 
unnecessary use of the coverage determination and appeals process.   
However, the final rule requires sponsors real-time benefit tools to be 
able to integrate with only one e-prescribing or electronic health record 
system (at a minimum).  Although this is a good first step, further 
 
30 84 Fed. Reg. 23832, 23847-51 (May 23, 2019). 
31 84 Fed. Reg. 28450, 28450-28458 (June 19, 2019). 
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expansion of this effort will likely be needed to ensure that sponsors 
systems can communicate with as many prescribers systems as possible.  
In addition, CMS acknowledged that without an industry standard for 
real-time benefit tools, prescribers may be offered multiple options.  This 
may create a burden for vendors of electronic health record systems, and 
may have limited utility for prescribers if the tools do not integrate with 
their systems.   
Therefore, after January 2021, CMS should examine sponsors 
implementation of the requirement for an electronic real-time benefit 
tool.  CMSs examination should include not only whether sponsors 
implemented such a tool, but whether the tools are being used.  OIG 
recognizes that a full-scale evaluation of the effectiveness of every 
real-time benefit tool is not feasible or cost-effective.  Rather, CMS could 
have discussions with sponsors about the extent to which their chosen 
tools are able to integrate with prescribers systems, for example, and 
could consult with provider groups about the extent to which the 
sponsors tools provide reliable, useful, and beneficiary-specific 
information to prescribers.  CMS should then use the results of its efforts 
to expand, modify, or replace its requirements, as appropriate, to continue 
to improve communication between sponsors and prescribers and to 
reduce avoidable pharmacy rejections and coverage denials throughout 
the Part D program.   
We also encourage CMS to reach out to stakeholderssuch as the 
National Council for Prescription Drug Programs and the Office of the 
National Coordinator for Health Information Technologyto explore 
developing a national standard for real-time benefit tools and to explore 
incentives for integration of these tools into e-prescribing and electronic 
health record systems. 
Take action to reduce inappropriate pharmacy rejections  
In addition to the audits that it already conducts, CMS should conduct 
targeted oversight of pharmacy rejections each year to ensure that 
sponsors are not inappropriately rejecting beneficiary prescriptions at 
pharmacies.  In 2017, CMS cited 88 percent of audited contracts with at 
least one violation that resulted in inappropriate pharmacy rejections.  
Although CMS oversight efforts such as the formulary administration 
analysis indicate that Part D sponsors have made progress in improving 
compliance, the large number of pharmacy rejections issued each year 
underscores the need for ongoing oversight to protect beneficiary access 
to needed drugs.  However, during the course of this evaluation, CMS 
ended two oversight efforts related to pharmacy rejections: it stopped 
collecting annual pharmacy rejection data from sponsors, and stopped 
the formulary administration analysis program.  Given the persistent audit 
findings related to inappropriate pharmacy rejections, and that 
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beneficiaries experience tens of millions of pharmacy rejections every 
year, OIG finds the cessation of these oversight efforts concerning. 
To implement this recommendation, CMS should develop a risk-based 
approach to identify which sponsors warrant targeted oversight related to 
pharmacy rejections each year.  To achieve this, CMS could develop and 
implement a new oversight mechanism, or could reconsider ending one 
of the oversight efforts that it had in place.  Using the results of its 
targeted oversight, CMS should provide technical assistance, and issue 
compliance or enforcement actions as needed. 
Take action to reduce inappropriate coverage denials  
To reduce inappropriate coverage denials, CMS should analyze the annual 
performance data that it already collects from sponsors and identify those 
that warrant targeted oversight.  CMS should conduct contract-specific or 
sponsor-specific analysis and identify sponsors with extreme rates, such as 
extremely high denial and denial overturn rates.  CMS should engage with 
these sponsors to determine whether they are meeting program 
requirements and take corrective action as appropriate.  Engagement 
could include having account managers meet with sponsors to determine 
why they had extreme rates, conducting a small probe review of denial or 
appeal cases, or other steps to determine the root causes of the rates.  If 
through these efforts CMS determines that a sponsor is not meeting 
program requirements, it should take appropriate corrective or 
enforcement action to improve compliance.  These actions could include 
providing technical assistance, ongoing monitoring, conducting additional 
audits, or issuing civil money penalties.  
Provide beneficiaries with clear, easily accessible information 
about sponsor performance problems, including those related 
to inappropriate pharmacy rejections and coverage denials 
Details about sponsor violations detected in audits, including those that 
lead to civil money penalties and other enforcement actions, are a 
valuable source of information for beneficiaries to consider when 
choosing a Part D plan.  CMS should develop a method for informing 
beneficiaries about these serious performance problems.  The information 
should be clear, meaningful, and easily accessible to beneficiaries in 
places where beneficiaries typically access information, such as on the 
Medicare Plan Finder website.  CMS already includes information about 
the most serious performance problems (those that led to sanctions) on 
the Plan Finder website, and it could expand this effort to include 
information about all audit-detected violations and civil money penalties, 
similar to what it does on its Nursing Home Compare website.   
CMS could also revisit policy options for adjusting plans quality ratings 
(called Star Ratings) in response to audits and enforcement actions, such 
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as adding a new performance measure that takes enforcement actions 
into account, or by directly adjusting a sponsors overall and summary 
ratings in response to enforcement actions.  This would help to ensure 
that quality ratings serve as a one-stop shop on the Medicare Plan 
Finder website for beneficiaries to evaluate differences in performance 
among sponsors. 
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CMS COMMENTS AND OIG RESPONSE 
In response to the draft report, CMS stated that it is committed to 
ensuring that Medicare Part D beneficiaries have access to the drugs they 
need, and it concurred with all four of our recommendations.  
CMS concurred with our first recommendation, for it to take additional 
steps to improve electronic communication between Part D sponsors and 
prescribers to reduce avoidable pharmacy rejections and coverage 
denials.  CMS stated that after the requirement for real-time benefit tools 
goes into effect in January 2021, it will examine sponsors implementation 
of the tools. 
CMS concurred with our second recommendation, for it to reduce 
inappropriate pharmacy rejections through targeted oversight.  CMS 
stated that to address this recommendation, it will continue monitoring 
pharmacy rejections to ensure that sponsors maintain the current level of 
performance and will examine ways to reduce inappropriate rejections if 
performance decreases.  However, CMS did not indicate how it would 
identify which sponsors warrant targeted oversight of pharmacy rejections 
each year, or what that oversight may consist of, particularly in light of 
CMSs recently ending two oversight efforts related to pharmacy 
rejections. 
CMS concurred with our third recommendation, for it to take action to 
reduce inappropriate denials through targeted oversight.  CMS stated that 
it will analyze annual performance data from sponsors and determine how 
to provide additional oversight to prevent unnecessary coverage denials. 
CMS concurred with our fourth recommendation, for it to provide 
beneficiaries with clear, easily accessible information about sponsor 
performance problems, including those related to inappropriate pharmacy 
rejections and coverage denials.  CMS noted that it is currently gathering 
feedback from beneficiaries and stakeholders about what information 
consumers would like to see on the Medicare Plan Finder website, and 
said that it will consider changes after reviewing the feedback.  However, 
CMS did not indicate whether it is soliciting feedback specifically related 
to sponsor performance problems.  
For the full text of CMSs comments, see Appendix E. 
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APPENDIX A:  Medicare Part D Appeals Process   
The Medicare Part D appeals process includes four levels of administrative 
review by several entities.  At each level of review, the denial can be 
overturned, partially overturned, or upheld.  If the denial is overturned, 
then the sponsor must authorize or pay for the prescription drug.  If the 
denial is not fully overturnedeither upheld or partially overturnedthe 
beneficiary can appeal the decision to the next higher level of review.   
First-level appeals: Part D sponsor.  At the first level of appeal, the Part D 
sponsor must redetermine its decision to deny coverage or 
reimbursement for the drug.  The sponsor must review the evidence that 
led to the original decision and any additional evidence that the 
beneficiary or prescriber submits as part of the appeal.  If the sponsor 
does not process the appeal within required timeframes, it must forward 
the appeal to the Independent Review Entity for review.32  If the sponsor 
upholds its original denial, the beneficiary can appeal to the next level. 
Second-level appeals: Independent Review Entity.  The Independent Review 
Entity reviews appealed denials that sponsors upheld to determine 
whether the sponsor made the correct decision.33  The Independent 
Review Entity is a CMS contractor that employs physicians and other 
consultants to review the denials and determine whether sponsors 
complied with relevant Medicare requirements.  If the Independent 
Review Entity upholds a denial or partially overturns it, the beneficiary can 
appeal to the next level. 
Third-level appeals: Office of Medicare Hearings and Appeals.  
Administrative law judges or attorney adjudicators within the Office of 
Medicare Hearings and Appeals review appeals of Independent Review 
Entity decisions.  If the beneficiary is dissatisfied with the decision of the 
Office of Medicare Hearings and Appeals, he or she can appeal to the 
next level.  
Fourth-level appeals: Departmental Appeals Board.  The Departmental 
Appeals Boards Medicare Appeals Council reviews appeals of decisions 
made by the Office of Medicare Hearings and Appeals.  The Council 
provides the last level of review within the Department of Health and 
Human Services process for appealing decisions in Medicare Part D.  If a 
beneficiary is dissatisfied with the decision of the Council, he or she can 
appeal to Federal district court by filing a civil action.  
 
32 42 CFR  423.590(c). 
33 In Part D, some Independent Review Entities are referred to as Part D Qualified 
Independent Contractors. 
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APPENDIX B:  Detailed Methodology   
For this study, we analyzed Medicare Part D data and documentation to 
examine, for 2017: (1) pharmacy rejections, and coverage denials, appeals, 
and overturns; (2) CMS oversight findings related to pharmacy rejections 
and coverage denials; and (3) beneficiary access to information about 
performance problems related to pharmacy rejections and coverage 
denials.  To ensure our understanding of the submitted data and 
documentation, we followed up in writing with officials knowledgeable 
about the program.    
Examining Pharmacy Rejections, Denials, Appeals, and 
Overturned Denials 
We collected and analyzed annual performance data from CMS for each 
Part D contract for 2017.  CMS requires sponsors to report annual 
performance-related data for each contract that they administer.34  
Among other data, sponsors must report the number of transactions at 
the pharmacy counter and the number of pharmacy rejections.  Sponsors 
must also report the total number of coverage determinations and their 
outcomes (i.e., the number of requests for coverage of prescription drugs 
that the sponsor approved and denied), and the number of appeals and 
their outcomes.  These data go through two external reviews to verify the 
validity of the reported data.35 
The datasets that CMS provided to OIG did not include contract-specific 
data for fields that did not meet CMSs validation standards.  For example, 
some contract data passed validation standards for the number of denials 
overturned upon appeal, but not for the number of denials upheld.  This 
prevented us from calculating an overturn rate for those contracts.  
Therefore, we could not include in our analyses any contracts that had 
missing values in any fields that we used in our calculations.  Exhibit 6 on 
page 25 shows the number of contracts that were and were not included 
in our analysis, and the number of beneficiaries associated with those 
contracts.  The contracts that we included in our analysis covered 
98 percent of Part D beneficiaries. 
 
34 42 CFR  423.514(a)  
35 For more information on CMSs data validation process, see CMSs Part C and Part D 
data validation website. 
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Exhibit 6:  OIG could not analyze annual performance data for 36 contracts 
because some of the contracts 2017 data did not meet CMSs validation 
standards. 
Contracts  Beneficiaries enrolled  Contracts not included  Beneficiaries enrolled 
included in  in contracts included  because of data  in contracts not 
OIG analysis  in analysis  validation issues  included in analysis 
499  39,841,464  36  1,020,002 
Source:  OIG analysis of 2017 Part D annual performance data, 2019. 
 
Pharmacy rejections.  To calculate the volume and rate of pharmacy 
rejections, we analyzed the 2017 annual performance data for contracts 
with validated data.  CMS requires sponsors to report data on certain 
pharmacy claims that are rejected at the point of sale (i.e., pharmacy 
rejections), including rejections for nonformulary status, prior 
authorization requirements, step therapy requirements, quantity limit 
requirements, and high-cost edits for noncompounded drugs.36  
Pharmacy rejections for other reasons, such as administrative errors, 
safety edits, or early refill attempts, are not included in the data.  CMS 
notes that in some cases prescriptions may be counted twice in the 
pharmacy rejection data.  Because of this, we were unable to calculate the 
exact number of pharmacy rejections issued in 2017.  Instead, we 
calculated the maximum possible number of rejections and note that it is 
likely an overestimation of the true number of rejections that beneficiaries 
experienced.   
To determine the maximum number of rejections, we summed the 
number of pharmacy rejections that sponsors reported for each rejection 
category for all of their contracts with validated data.  To determine the 
maximum rejection rate, we summed all pharmacy rejections across all 
contracts and divided by the total number of pharmacy transactions for all 
contracts.  This analysis is consistent with analyses published by CMS.37  
See Appendix C for the maximum number and rate of pharmacy 
rejections across all contracts. 
Sponsor coverage denials, appeals, and overturns.  To examine coverage 
denials, appeals, and overturned denials at the sponsor level, we analyzed 
the 2017 annual performance data for contracts with validated data.  We 
calculated the total number of full and partial denials that sponsors issued 
in 2017.  To calculate the denial rate, we divided the total number of full 
and partial denials by the total number of coverage determinations.  
 
36 CMS, Analysis of CY2016 Medicare Part D Reporting Requirements Data p. 13, May 2018.   
37 Ibid, pp. 14 and 30.  CMS reported the number and percentage of pharmacy 
transactions rejected in 2016 by rejection reason, but did not add them up to calculate an 
overall number of rejections or rejection rate.  As of July 2019, CMS had not released its 
analysis of the 2017 data. 
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To calculate the appeal rate, we divided the number of appeal decisions 
issued by the total number of full plus partial denials.   
We calculated the total number of appealed denials that Part D sponsors 
fully and partially overturned in 2017.  To calculate the overturn rate, we 
divided the total number of fully plus partially overturned appealed 
denials by the total number of overturned, partially overturned, and 
upheld appealed denials.  See Appendix C for the volumes and rates of 
Part D appeal outcomes. 
In the annual performance data, Part D sponsors report the number of 
appeal decisions that they issued in each year, but not the dates that the 
appeals were filed, or the original denials were issued.  Therefore, some of 
the appeal decisions made early in 2017 were likely for denials issued in 
2016, which were not captured in our data.  Similarly, some of the denials 
issued at the end of 2017 were likely not appealed until 2018, and so 
those appeal decisions were also not captured in our data.  We could not 
adjust the appeal rate based on when denials were issued and appeals 
were filed, so we calculated the first-level appeal rate by dividing the total 
number of appeal decisions issued by the number of denials issued 
during the same period (calendar year 2017). 
To examine the contract-specific denial overturn rates, we analyzed the 
2017 annual performance data for the contracts that reported validated 
data.  Because contract-specific rates can be skewed by low volumes, we 
did not include low-volume contracts in this analysis.  Therefore, we 
analyzed data only for the 333 contracts that received at least 50 appeals. 
Independent Reviewer appeals and appeal outcomes.  To calculate the 
volumes and rates of overturned denials for the independent reviewers, 
we collected data on appeal decisions issued by each entity during 
2017 from CMS, the Office of Medicare Hearings and Appeals, and the 
Departmental Appeals Board.  Because independent reviewers reported 
their own appeals data, we were able to examine higher level appeals for 
all Part D contracts, including contracts that we could not examine at the 
sponsor level because of data validation issues.   
To calculate the volume of denials overturned by each reviewer during 
2017, we added the number of overturned denials to the number of 
partially overturned denials.  To calculate the denial overturn rates, we 
divided the number of overturned plus partially overturned denials by the 
number of denials that were overturned, partially overturned, or upheld 
by the reviewer.  We did not examine appeals for which the entity did not 
affirm or reverse the previous decision, such as appeals that were 
dismissed, withdrawn, or that resulted in an administrative action (e.g. 
remanding back to a lower appeal level).  See Appendix D for the volume 
and rate of overturned denials for each independent reviewer. 
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Examining CMSs Oversight Findings Related to Pharmacy 
Rejections and Coverage Denials  
To assess CMSs 2017 program audit findings and enforcement actions 
related to Part D pharmacy rejections and coverage determinations, we 
reviewed documentation from CMS.  To determine the number of 
contracts that CMS cited for each type of audit-detected violation, we 
analyzed the final audit reports that CMS issued to Part D sponsors that 
were audited for Coverage Determinations, Appeals, and Grievances and 
Formulary Administration during 2017.  We reviewed the 39 reports for 
the 36 audited Part D sponsors that collectively administered 
135 contracts.38   
To assess CMSs 2017 formulary administration analysis, we reviewed the 
2019 Part D Display Measure Data.  This data reflects the results of CMSs 
formulary administration analysis for the 412 contracts that CMS reviewed 
in 2017.  We reviewed the data and identified the number of contracts for 
which CMS identified at least one failure in their sample, and calculated 
the range of failure rates.  We also reviewed internal CMS documentation 
about the pharmacy rejection failures. 
To determine the amount of civil money penalties that CMS issued in 
response to the 2017 Part D program audit findings we reviewed internal 
CMS documentation for the 18 Part D sponsors that received a penalty.  
To examine the availability of information about audit-detected violations 
and pharmacy rejections, we reviewed the Medicare Plan Finder Website 
and CMSs website.  
 
38 The number of audit reports was more than the number of unique sponsors because 
one sponsor was audited twice, and another sponsor had three separate audits that 
covered different contracts. 
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APPENDIX C:  Volumes and Rates of Part D 
Pharmacy Rejections, Coverage Determinations, 
and Appeal Outcomes, 2017  
Part D contracts included in this analysis   499 
Pharmacy Outcomes (may contain duplicates)   
Total number of pharmacy transactions   2,426,377,880 
Maximum number of rejections   83,771,736 
Not on formulary   43,048,107 
Prior authorization not obtained   23,793,071 
Exceeds quantity limit   14,505,344 
Step therapy requirement not fulfilled   2,377,130 
Rejection due to high-cost edits for noncompounded  48,084 
drugs 
Maximum rejection rate  3.45% 
Coverage Determination Outcomes    
Total number of coverage determinations*  8,119,779 
Number of fully adverse determinations 
2,800,004 
Number of partially adverse determinations 
27,644 
Number of fully favorable determinations 
5,292,131 
Denial rate  34.82% 
First-Level Appeal Outcomes   
Total number of appeals*  744,987 
Number of denials overturned   538,969 
Number of denials partially overturned  4,621 
Number of denials upheld   201,397 
Rate of appeal to Part D sponsor  26.35% 
Rate of successful appeal (denials overturned or partially  72.97% 
overturned) 
* The number of coverage determinations and appeals presented in this report do not include requests that were dismissed or withdrawn. 
Source:  OIG analysis of 2017 Part D annual performance data for contracts that reported validated data, 2019. 
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APPENDIX D:  Volumes and Rates of Part D 
Denials Overturned by Independent Reviewers, 
2017 
   
Independent Review Entity 
Number of appeal decisions issued  34,687 
Number of denials overturned or partially overturned  6,516 
Rate of denials overturned  18.79% 
 
Office of Medicare Hearings and Appeals 
Number of appeal decisions issued  1,244 
Number of denials overturned or partially overturned  335 
Rate of denials overturned  26.93% 
 
Departmental Appeals Board 
Number of appeal decisions issued   167 
Number of denials overturned or partially overturned   51 
Rate of denials overturned   30.54% 
 
Source:  OIG analysis of 2017 Part D data from CMS, the Office of Medicare Hearings and Appeals, and the Departmental Appeals Board, 2019. 
 
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APPENDIX E: CMS Comments 
 
 
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ACKNOWLEDGMENTS 
Rosemary Rawlins served as the team leader for this study, and Ivy Ngo 
served as the lead analyst.  Office of Evaluation and Inspections staff who 
provided support include Clarence Arnold, Joe Chiarenzelli, 
Christine Moritz, and Paula Satariano.  
This report was prepared under the direction of Blaine Collins, Regional 
Inspector General for Evaluation and Inspections in the San Francisco 
regional office, and Abby Amoroso and Michael Henry, Deputy Regional 
Inspectors General.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
To obtain additional information concerning this report or to obtain 
copies, contact the Office of Public Affairs at Public.Affairs@oig.hhs.gov.  
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ABOUT THE OFFICE OF INSPECTOR GENERAL 
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  The Office of Audit Services (OAS) provides auditing services for HHS, 
either by conducting audits with its own audit resources or by overseeing 
Services 
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  The Office of Evaluation and Inspections (OEI) conducts national 
evaluations to provide HHS, Congress, and the public with timely, useful, 
and Inspections 
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  The Office of Investigations (OI) conducts criminal, civil, and 
administrative investigations of fraud and misconduct related to HHS 
Investigations 
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 Office of Counsel to the Inspector General (OCIG) provides general 
legal services to OIG, rendering advice and opinions on HHS programs 
the Inspector 
and operations and providing all legal support for OIGs internal 
General 
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 healthcare 
industry concerning the anti-kickback statute and other OIG enforcement 
authorities.