Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

 

MIDYEAR FORMULARY CHANGES 

IN MEDICARE PRESCRIPTION 

DRUG PLANS 

 

Daniel R. Levinson 

Inspector General 

December 2009 

OEI-01-08-00540 
Office of Inspector General 

http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452,

as amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components: 

Office of Audit Services 

The Office of Audit Services (OAS) provides all auditing services for HHS, either by

conducting audits with its own audit resources or by overseeing audit work done by others. 

Audits examine the performance of HHS programs and/or its grantees and contractors 

in carrying out their respective responsibilities and are intended to provide independent 

assessments of HHS programs and operations. These assessments help reduce waste, 

abuse, and mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 

HHS, Congress, and the public with timely, useful, and reliable information on 

significant issues. Specifically, these evaluations focus on preventing fraud, waste, or 

abuse and promoting economy, efficiency, and effectiveness in departmental programs. 

To promote impact, the reports also present practical recommendations for improving 

program operations. 

Office of Investigations 

The Office of Investigations (OI) conducts criminal, civil, and administrative 

investigations of allegations of wrongdoing in HHS programs or to HHS beneficiaries 

and of unjust enrichment by providers. The investigative efforts of OI lead to criminal 

convictions, administrative sanctions, or civil monetary penalties. 

Office of Counsel to the Inspector General 

The Office of Counsel to the Inspector General (OCIG) provides general legal services to 

OIG, rendering advice and opinions on HHS programs and operations and providing all 

legal support in OIG's internal operations. OCIG imposes program exclusions and civil 

monetary penalties on health care providers and litigates those actions within HHS. 

OCIG also represents OIG in the global settlement of cases arising under the Civil False 

Claims Act, develops and monitors corporate integrity agreements, develops compliance 

program guidances, renders advisory opinions on OIG sanctions to the health care 

community, and issues fraud alerts and other industry guidance. 
 EXECUTIVE SUMMARY 

OBJECTIVES 

1. To describe the extent and nature of midyear formulary changes 

that Part D sponsors made in 2008. 

2. To determine the extent to which sponsors adhered to the 

Centers for Medicare & Medicaid Services’ (CMS) beneficiary 

notification requirements for negative midyear formulary 

changes in 2008. 

3. To determine the extent to which CMS monitored Part D 

sponsors’ midyear formulary changes in 2008. 

BACKGROUND 

The Medicare Prescription Drug, Improvement, and Modernization Act 

of 2003 established Medicare Part D to provide voluntary prescription 

drug coverage to beneficiaries. CMS contracts with private companies, 

called sponsors, to operate Part D prescription drug plans. Sponsors 

identify the complete list of drugs they cover in their formularies. 

CMS sets guidelines for when and how sponsors may make changes to 

their formularies, referred to as positive and negative changes. Positive 

changes require no CMS approval and enhance the formulary by adding 

new drugs, reducing cost sharing, or removing utilization controls. 

Negative changes, which require CMS approval, restrict the formulary 

by removing drugs, increasing cost sharing, or adding utilization 

controls. Sponsors must provide written notice to beneficiaries 

currently taking affected drugs before implementing negative changes. 

CMS also requires sponsors to post updated formularies on their Web 

sites at least monthly and to list formulary changes 60 days before they 

take effect. 

To conduct this study, we analyzed CMS data on formulary changes and 

interviewed CMS staff. We also drew a sample of 120 formularies for 

analysis, reviewed sponsors’ notification letters, and reviewed 

20 formularies posted on sponsors’ Web sites. 

FINDINGS 

In 2008, all Part D sponsors made formulary changes. The majority 

of changes (64 percent) were positive. Thirty-six percent were negative, 

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EXECUTIVE SUMMARY 

and 62 percent of negative changes involved generic substitution. Other 

negative changes removed drugs without providing lower cost 

alternatives, added utilization controls without providing alternatives, 

or increased cost sharing. 

With few exceptions, sponsors met beneficiary notification 

requirements for formulary changes. The notification letters we 

reviewed gave beneficiaries more advance notice than required, with a 

median of 74 days. Overall, 88 percent of the notification letters 

contained all six required elements—drug name, change type, reason for 

the change, alternative drugs, new cost sharing, and exceptions—while 

12 percent of the letters contained five or fewer elements. In addition, 

we could not readily identify 60 percent of approved midyear changes on 

sponsors’ Web sites. 

CMS reviewed nearly all formulary changes listed in notification 

letters. CMS uses systematic checks to monitor formulary change 

requests and limits changes that restrict access to drugs without 

offering cost-saving alternatives or promoting drug safety. Even though 

these checks were in place, we detected some noncompliance whereby 

sponsors failed to seek approval for midyear changes. Only 1 percent of 

changes listed in notification letters required CMS approval but were 

not in the original change request file. Nearly all of these unapproved 

changes involved substituting or adding generic drugs. 

CONCLUSION 

This study found that sponsors and CMS are managing midyear 

formulary changes in compliance with Part D program requirements. 

Part D regulations require sponsors to promote cost-effective use of 

prescription drugs where medically appropriate, and it appears that 

sponsors adhered to these rules. CMS provides sponsors with various 

forms of guidance on formulary change requests and beneficiary 

notification. Although some sponsors may need more specific guidance 

on notification practices, we found that most complied with CMS 

regulations and provided even more advance notice than the 60-day 

standard requires. In addition, we found that sponsors’ Web sites did 

not reflect all the changes approved by CMS. Further analysis may be 

warranted to determine the full extent of consistency between approved 

changes to sponsors’ formularies and the changes that appear on their 

Web sites and to determine whether additional guidance is needed to 

address any inconsistencies. 

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EXECUTIVE SUMMARY 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS generally agreed with our findings. CMS requested that we 

specify that beneficiaries currently taking medications not subject to 

generic substitution are protected from disruptions in therapy. CMS 

also stated that it is working with a contractor to assess consistency 

between sponsors’ Web versions of formularies and CMS’s approved 

files. Based on the agency’s comments, we made appropriate revisions 

to the report. 

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 TABLE OF CONTENTS 

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

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

FINDINGS ................................................. 8 

In 2008, all Part D sponsors made formulary changes . . . . . . . . . . 8 

With few exceptions, sponsors met beneficiary notification 

requirements for formulary changes . . . . . . . . . . . . . . . . . . . . . . . 11 

CMS reviewed nearly all formulary changes listed in notification 

letters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 

Agency Comments and Office of Inspector General Response . . . 15 

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 

A: Maintenance and Nonmaintenance Changes in the Negative 

Change Request File. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 

B: Detailed Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 

 C: Data Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 

 D: Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 
 INTRODUCTION 

OBJECTIVES 

1. To describe the extent and nature of midyear formulary changes 

that Part D sponsors made in 2008. 

2. To determine the extent to which sponsors adhered to the 

Centers for Medicare & Medicaid Services’ (CMS) beneficiary 

notification requirements for negative midyear formulary 

changes in 2008. 

3. To determine the extent to which CMS monitored Part D 

sponsors’ midyear formulary changes in 2008. 

BACKGROUND 

Medicare Part D 

Effective January 1, 2006, the Medicare Prescription Drug, 

Improvement, and Modernization Act of 2003 established Medicare 

Part D to provide voluntary prescription drug coverage to beneficiaries.1 

CMS contracts with private companies, called sponsors, which operate 

Part D prescription drug plans. As of January 2008, over 25 million 

beneficiaries were enrolled in prescription drug plans. 

A formulary is a complete list of the drugs that a drug plan covers, and 

it may change during the year.2 However, the extent to which Part D 

sponsors alter their formularies during the year has been unknown. 

Midyear formulary changes can be advantageous for beneficiaries if 

they introduce new medications or promote cost savings. However, 

midyear changes can also adversely affect beneficiaries by restricting 

access to prescription drugs or increasing drug costs. Furthermore, 

CMS compliance audits of Part D sponsors suggest that sponsors did not 

fully comply with regulations regarding beneficiary notification for 

midyear formulary changes. Beginning in 2007, CMS audited sponsors’ 

formulary change notification practices and found that 28 percent of 

sponsors had not notified beneficiaries of midyear formulary changes 

according to regulations.3 

1 P.L. No. 108-173. 

2 42 CFR § 423.4. 

3 Office of Inspector General (OIG) analysis of CMS 2007–2008 compliance audit data. 

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INTRODUCTION

Part D Formularies 

Sponsors organize formularies into broad therapeutic categories 

(hereinafter, categories) and then into subsets called pharmacologic 

classes (hereinafter, classes). Formularies must include categories and 

classes that cover all disease states.4 

In 2008, USP, a standard-setting authority for prescription drugs, 

defined 50 categories and 119 classes.5 For example, USP defines blood 

glucose regulators as a category, with antidiabetic agents as a class 

within that category. Formularies must include at least two chemically 

distinct drugs in each category or class of drugs.6 

CMS designates a subset of six classes (hereinafter, protected classes) 

for which substantially all available drugs must be covered in every 

formulary: anticonvulsants, antidepressants, antineoplastics, 

antipsychotics, antiretrovirals, and immunosuppressants.7 

Formulary Management 

Sponsors may use various tools to control costs and ensure patient 

safety.8 In addition to controlling the drugs they cover, sponsors may 

manage formularies by applying utilization controls and by setting 

cost sharing in a way that encourages beneficiaries to use lower cost 

drugs. Examples of utilization controls include: 

 prior authorization, whereby a beneficiary must obtain explicit 

approval from the plan before it will cover a drug; 

 step therapy, whereby a beneficiary must first try the most 

cost-effective and safest drugs, moving on to more expensive or 

risky drugs only if medically necessary; and 

 quantity limits, whereby a beneficiary may obtain only a limited 

quantity of a prescription at one time, usually to ensure patient 

safety or encourage cost-effective use of the drug. 

4 Part D sponsors may use several classification systems to organize formularies, 

including the United States Pharmacopeia (USP) and the American Hospital Formulary 

Service. CMS must approve a sponsor’s proposed classification system to ensure the 

formulary provides access to an acceptable range of Part D drug choices. CMS, Medicare 

Prescription Drug Benefit Manual, ch. 6, § 30.2.1, July 18, 2008. 

5 USP, Model Guidelines and Formulary Key Drug Types, Version 3.0. Available online 

at http://www.usp.org/pdf/EN/mmg/modelGuidelinesV3.0WithFKDTs.pdf. Accessed on 

October 1, 2008. 

6 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, § 30.2.1. 

7 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, § 30.2.5. 

8 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, § 30.1.5. 

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INTRODUCTION 

Sponsors typically establish differential cost sharing by dividing drugs 

into tiers that correspond to the amount the beneficiary will pay. Drugs 

in lower priced tiers are considered “preferred” drugs and those in 

higher priced tiers are considered “nonpreferred.” For example, a Tier 1 

drug is typically a low-cost generic drug for which a beneficiary might 

make a $5 or $10 copayment, while Tier 2 or Tier 3 drugs are likely to 

be more expensive brand-name drugs for which a beneficiary might 

make a $20 or $30 copayment.9 

The ways in which sponsors manage their formularies can affect some 

beneficiaries’ access to drugs. For example, beneficiaries who use multiple 

high-cost drugs may find that utilization controls create layers of 

administrative burden for both themselves and prescribers and, therefore, 

could make it difficult to obtain necessary drugs.10 In addition, sponsors 

may increase the cost sharing on brand-name drugs during the year if a 

lower cost or generic drug is available. Beneficiaries who take these 

brand-name drugs could face unexpected increases in cost sharing. 

Midyear Formulary Changes 

Sponsors hold a 1-year contract with CMS for each plan they offer.11 

The contract year begins January 1 and ends December 31. CMS sets 

guidelines for when sponsors may make certain types of midyear 

formulary changes. 

CMS refers to midyear formulary changes as either positive or negative 

changes.12 Positive changes enhance the formulary by adding new 

drugs, reducing cost sharing, or removing utilization controls.13 

Sponsors may make positive formulary changes at any time during the 

contract year without CMS approval.14 

Negative changes, which require CMS approval, restrict the formulary 

by removing drugs, increasing cost sharing, or adding utilization 

9 Copayments may vary substantially across plans and may be set as a fixed dollar 

amount or a percentage of the drug’s negotiated price. Percentage copayments may 

fluctuate during the year if the drug manufacturer changes the drug’s price. CMS does not 

require approval for these types of changes. 

10 Kaiser Family Foundation, Medicare Part D 2008 Spotlight: Utilization Management. 

Available online at http://kff.org/medicare/upload/7735.pdf. Accessed on October 1, 2008. 

11 42 CFR § 423.506. 

12 CMS, Memorandum, “Calendar Year (CY) 2006 and CY 2007 Formulary Changes—

New October Submission Window and Policy on Enhancements Added Between the October 

and February Submissions,” October 5, 2006. 

13 CMS also refers to positive changes as “enhancements.” 

14 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, § 30.3.3.1. 

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INTRODUCTION 

controls. Negative changes that remove drugs may simultaneously add 

replacement drugs. However, these are still considered negative 

changes. CMS categorizes negative changes according to their 

purposes. Sponsors may make routine negative changes that remove 

drugs or change utilization controls if the purpose is to promote cost 

savings or drug safety. For example, sponsors may remove a costly 

brand-name drug from the formulary when a lower cost generic version 

becomes available. In other cases, sponsors may place quantity limits 

on drugs because of new safety warnings. Other types of negative 

changes may remove drugs from the formulary or increase utilization 

controls without providing alternatives. For example, a sponsor may 

increase the cost sharing on an expensive brand-name drug but not offer 

a less expensive alternative drug in its place. 

Sponsor Request and CMS Approval of Negative Midyear Formulary 

Changes 

Sponsors must obtain CMS approval 60 days before they implement 

negative changes.15 Only in cases in which the Food and Drug 

Administration has deemed a drug unsafe or manufacturers have 

withdrawn drugs from the market may sponsors remove drugs without 

CMS approval. Although sponsors may not make any negative changes 

during the first 60 days of the contract year, they may seek approval for 

them beginning in January. Sponsors may then implement negative 

changes between March 1 and July 31.16 17

CMS generally approves routine negative changes and limits other 

negative changes.18 Therefore, CMS guidance states that sponsors may 

assume CMS has approved routine change requests involving 

cost savings or drug safety if they do not hear from CMS within 

30 days.19 

Sponsors must wait for CMS approval before making other negative 

changes. For example, CMS may disapprove a change if it substantially 

discourages enrollment by certain beneficiary groups or means that the 

formulary would no longer include two drugs per category or class.20

15 Ibid., §§ 30.3.3.1 and 30.3.4.1. 

16 Ibid., § 30.3.2. 

17 CMS, Memorandum, “Updating 2007 and CY 2008 Formularies,” June 20, 2007. 

18 For more information on negative changes, see Appendix A. 

19 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, § 30.3.3.2. 

20 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, § 30.3.3.3. 

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4
INTRODUCTION

Sponsor Notification to Beneficiaries 

With few exceptions, sponsors must provide 60 days’ written notice to 

beneficiaries currently taking affected drugs before implementing 

negative formulary changes.21 Sponsors also have the option to provide 

written notice to all enrolled beneficiaries to meet the 60-day 

notification requirement.22 CMS does not require sponsors to send 

notifications for positive formulary changes.23 A written notification of 

a formulary change must include: 

 the name of the drug, 

 the type of change made to the formulary, 

 the reason for the change, 

 alternative drugs in the same class, 

 expected cost sharing for alternative drugs, and 

 information on obtaining a coverage determination or an exception 

for coverage of the affected drug.24

CMS requires sponsors to post updated formularies on their Web sites 

at least monthly and to list formulary changes 60 days before they take 

effect.25 Sponsors may post formularies as PDF files, but may use other 

formats as well. In addition, online formularies must be accessible by a 

drug name search, and sponsors must include notice of any midyear 

changes on their Web sites.26 

METHODOLOGY 

Scope 

This study analyzed the extent and nature of midyear formulary 

changes made by Medicare prescription drug sponsors in 2008 and 

CMS’s monitoring of these changes. It also analyzed the extent to 

which sponsors complied with CMS notification requirements. It did 

not review year-to-year formulary changes or analyze specific types of 

drugs that sponsors included in their formularies. 

21 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, §§ 30.3.3.2 and 30.3.4.1. 

22 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, § 30.3.4.4. 

23 CMS, Memorandum, “Formulary Changes During the Plan Year: Operational 

Frequently Asked Questions,” May 5, 2006. 

24 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, § 30.3.4.1. 

25 CMS, Medicare Prescription Drug Benefit Manual, ch. 2, pp. 62 and 64, July 25, 2006. 

26 Ibid. 

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INTRODUCTION 

Data Sources 

We used files from CMS’s Health Plan Management System (HPMS) to 

create the universe of formularies that sponsors used in 2008. The 

universe contained 329 formularies and 204 sponsors. 

We divided the list of 329 formularies into two strata: (1) those for 

which the sponsors did not request approval for negative changes and 

(2) those for which the sponsors requested approval for negative 

changes. Stratum 1 contained 94 formularies and stratum 2 contained 

235 formularies. We then drew 50 formularies from stratum 1 and 

70 formularies from stratum 2 for a total of 120 formularies. The 

formularies in our sample corresponded to 87 sponsors. 

We used the following data sources to analyze changes to the sampled 

formularies in 2008: 

1. Negative Change Request (NCR) file and Formulary Change 

Notification Report (FCR): We used the NCR and FCR files in 

HPMS to analyze positive changes and approved negative changes 

to the 120 sampled formularies. We used these files to analyze the 

extent and nature of formulary changes and to account for the 

changes listed in sponsors’ notification letters. The 120 formularies 

in our stratified random sample had 4,333 negative change requests; 

CMS approved 3,425 of these requests. The FCR had 7,886 positive 

changes. 

2. Sponsors’ formulary change notification letters: We contacted 

150 compliance officers from sponsors that used the sampled 

formularies to obtain notification letters for their formulary 

changes. We received a 100-percent response. However, 

10 compliance officers referred us to another officer already in our 

sample. Therefore, we received final responses from 140 compliance 

officers. We later followed up with these compliance officers to 

collect more information on sponsors’ notification policies. 

The responses included 853 notification letters covering 

2,197 changes. Among negative changes listed in the letters, 

484 had not been approved by CMS or did not require CMS 

approval. The 3,425 approved changes from the NCR file plus the 

516 unapproved changes equaled all negative changes (3,941). We 

summed all negative (3,941) and positive (7,886) changes to get the 

total number of formulary changes (11,827). 

3. Formularies from sponsors’ Web sites: We selected a sample of 

20 formularies based on convenience and availability from our 

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INTRODUCTION 

4. Interviews with CMS staff: We interviewed CMS staff responsible 

for reviewing and approving midyear formulary changes. We asked 

them about CMS processes to approve and track midyear changes. 

Appendix B contains a full description of our methods. 

Limitations 

We could not assess whether sponsors sent a notification letter to every 

enrollee who should have received one. CMS requires sponsors to notify 

only those enrollees who are affected by negative formulary changes. 

However, we could not determine which enrollees were affected by each 

change and whether they received letters. Rather, we examined the 

content of the notification letters to see whether CMS had approved the 

negative changes listed in the letters. 

Standards 

This study was conducted in accordance with the “Quality Standards for 

Inspections” approved by the Council of the Inspectors General on 

Integrity and Efficiency. 

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FINDINGS 

 

 FINDINGS 

In 2008, all Part D sponsors made 

formulary changes 

All sponsors that offered Part D 

plans in 2008 made some type of 

positive or negative change to their 

formularies. Seventy-six percent of sponsors requested at least one 

negative change from CMS in 2008. Sponsors must request approval for 

negative changes from CMS, but need not seek approval for positive 

changes. CMS approved 79 percent of the 4,333 negative change 

requests by sponsors in our sample. 

Sixty-four percent of all formulary changes were positive 

Positive formulary changes enhanced formularies by adding drugs, 

decreasing cost sharing, or deleting utilization controls. Among the 

7,886 positive changes in our sample, 60 percent decreased cost sharing 

or removed utilization controls, such as step therapy, prior 

authorization, or quantity limits. 

The remaining 40 percent of positive changes added drugs to the 

formulary. On average, positive formulary changes added twice as 

many drugs as negative changes removed (the average number of drugs 

added to each formulary was 46; the average number of drugs removed 

was 22). 

Thirty-six percent of all formulary changes were negative, and most 

negative changes involved generic substitution 

Negative changes involved removing drugs, moving drugs to higher 

cost-sharing tiers, or adding utilization controls. However, as Table 1 

shows, 62 percent of negative changes involved substituting or adding 

generic drugs. Because generic drugs cost less than brand-name drugs, 

CMS considers sponsors’ efforts to reduce beneficiaries’ drug costs to be 

a part of routine formulary management. 

Table 1: Formulary Changes, 2008 

Type of Change Percentage 

(n=11,827) 

Percentage That Added 

or Substituted Generics

Positive changes 64% N/A 

Negative changes 36% 62% 

 Total changes 100% 

Sample includes positive and negative changes. 

Source: Office of Inspector General (OIG) analysis of Medicare Part D 2008 midyear formulary changes. 

Eighty-seven percent of changes that removed brand-name drugs from 

the formularies replaced them with generic versions. Among changes 

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FINDINGS 

that increased cost sharing for brand-name drugs, 78 percent added 

generic drugs to the formularies at the lowest cost-sharing tiers. 

Medicare regulations require sponsors to promote cost savings by 

managing drug utilization in a medically appropriate manner.27 

Replacing brand-name drugs with less expensive generic drugs and 

placing generic drugs in the lowest cost-sharing tiers are two methods 

sponsors can use to meet this requirement. Thus, the focus on generic 

drugs in midyear changes reflects expectations in Medicare regulations. 

Table 2 shows that removing drugs and moving drugs to higher 

cost-sharing tiers were the most common negative changes and that 

these changes also had the highest rates of generic drug substitution. 

Changes that added utilization controls, such as prior authorization, 

step therapy, and quantity limits, had lower rates of generic drug 

substitution. Rather, sponsors used these changes to adhere to new 

clinical guidelines or drug safety warnings. 

Table 2: Negative Changes That Promoted Generic Drug 

Substitution, 2008 

Type of Change 

Type of Change as a 

Percentage of Negative 

Changes 

(n=3,941)

Percentage of This 

Change That Promoted 

Generic Substitution 

Remove drugs 56% 87% 

Move drugs to higher cost-sharing 

tiers 17% 78% 

Add step therapy 7% 1%* 

Add prior authorization 5% 1%* 

Add quantity limit 4% N/A 

Other changes† 11% N/A 

 Total negative changes 100% 

* We were unable to project these estimates to the population of negative changes. See Appendix C, 

Table C-9. 

† Other changes include removing or discontinuing drugs or adding utilization controls to promote drug safety 

or to determine Part B vs. Part D reimbursement. Quantity limits and “other” changes generally do not involve 

generic substitution; therefore, we have no estimates on generic substitution for these changes. 

Source: OIG analysis of Medicare Part D 2008 negative midyear formulary changes. 

Forty-six percent of negative changes affected drugs most commonly 

prescribed to Medicare beneficiaries, as defined by CMS.28 Sixty-nine 

27 42 CFR § 423.153(b). 

28 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, Appendix D. 

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FINDINGS 

percent of these changes involved substituting generic drugs for 

brand-name drugs or altering cost sharing or utilization controls to 

encourage generic drug use. For example, Fosamax (alendronate 

sodium), a drug that treats osteoporosis, became available in generic 

form in 2008. Not surprisingly, because Fosamax was the second most 

commonly prescribed drug among Medicare beneficiaries in 2008, 

53 percent of sponsors requested changes that added the generic version 

of Fosamax to their formularies or added utilization controls to 

encourage use of the generic form.29

Negative formulary changes that involved generic drugs also affected 

the six protected classes that sponsors must include in their 

formularies.30 Thirty-nine percent of negative changes affected drugs in 

protected classes. Among these negative changes, 69 percent 

substituted generic drugs for brand-name drugs or altered cost sharing 

or utilization controls to encourage generic drug use. 

Although most negative changes promoted generic substitution, more than 

a third did not 

Thirty-eight percent of negative changes increased cost sharing, 

removed drugs without providing a lower cost alternative, or added 

utilization controls.31 Forty-six percent of changes that did not involve 

generic substitution removed drugs from the formulary, and 17 percent 

added step therapy. Overall, these changes accounted for only 

14 percent of all midyear formulary changes. Table 3 shows the types of 

changes that did not involve generic substitution. 

29 OIG analysis of CMS Prescription Drug Event Data, October 2008. 

30 The six protected classes are anticonvulsants, antidepressants, antineoplastics, 

antipsychotics, antiretrovirals, and immunosuppressants. 

31 CMS refers to these changes as “nonmaintenance” changes. Beneficiaries who are 

taking drugs affected by these changes are exempt from the changes for the remainder of 

the plan year. See Appendix A for further details. 

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FINDINGS 

Table 3: Formulary Changes That Did Not Promote Generic 

Substitution, 2008 

Type of Change Percentage of Nongeneric Changes 

(n=1,572)

Remove drugs 46% 

Add step therapy 17% 

Add prior authorization 13% 

Add quantity limit 11% 

Move drugs to higher cost-sharing tiers 10% 

Other changes* 3% 

 Total 100%

* Other changes include unapproved changes or those that did not require CMS approval. 

Source: OIG analysis of Medicare Part D 2008 negative midyear formulary changes. 

With few exceptions, sponsors met 

beneficiary notification requirements 

for formulary changes 

 

 

Generally, sponsors used a 

combination of methods to notify 

beneficiaries of midyear changes. 

Sponsors used either form letters 

or explanation of benefits forms (EOBs) as written notice of formulary 

changes and also included formulary changes on their Web sites. CMS 

provides guidelines for notification letters and EOBs as forms of written 

notice. 

Over half (59 percent) of the sponsors we spoke with have policies of 

sending written notices only to beneficiaries who are affected by 

changes, per CMS rules.32 If no beneficiaries are taking the affected 

drugs, sponsors do not generate notification letters. 

Notification letters largely met both timing and content requirements 

CMS requires sponsors to provide 60 days’ notice to beneficiaries for any 

negative changes. The notification letters we reviewed gave 

beneficiaries more advance notice than required, with a median of 

74 days. This means that half of the changes in the letters gave more 

than 74 days’ advance notice. Overall, 89 percent of the changes had 

notification times of 60 days or more. However, 9 percent of changes 

had between 30 and 59 days, and 2 percent had less than 30 days. 

32 42 CFR § 423.120(b)(5)(A). 

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11
FINDING S 

In addition to meeting timing requirements, notification letters must 

include six elements that describe upcoming formulary changes. 

Table 4 indicates the percentage of letters that contained each element. 

Overall, 88 percent of the notification letters contained all the required 

elements. However, 12 percent of the letters contained five or fewer 

elements. 

Although notification letters contained the required elements nearly all 

of the time, information on cost sharing was missing in 5 percent of 

letters. Three sponsors submitted letters that did not contain 

information on the changes in cost sharing, but instead included 

statements directing enrollees to call the plans’ customer service 

departments to find out the new cost. 

Table 4: Percentage of Notification Letters Containing 

Required Elements, 2008 

Element Percentage of Letters 

Containing Element

Name of the affected drug 100%* 

Type of change 100%* 

Reason for the change 100%* 

Alternative drugs in the same class 100%* 

Information on obtaining a coverage determination or 

exception for coverage of the affected drug 100%* 

New expected cost sharing 95% 

* We were unable to produce confidence intervals for these elements because all sample letters contained the 

element. Therefore we cannot produce a measure of variability. We concluded that compliance with these 

requirements is very high. 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes.

Among other issues with notification letters, two sponsors reported 

difficulties with subcontractors that produced their letters. Sponsors 

may contract with pharmacy benefit managers to send notification 

letters to beneficiaries on their behalf. However, one sponsor told us 

that its pharmacy benefit manager failed to send letters between 

August and October 2008 because of a data error; another sponsor’s 

subcontracted mailing service went out of business, making it 

impossible for the sponsor to retrieve the letters for our request. Part D 

regulations state that sponsors are ultimately responsible for 

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FINDINGS 

downstream contractors, such as pharmacy benefit managers and their 

failure to send or retain notification letters.33

In a few instances, sponsors misinterpreted CMS guidance on which 

types of changes require approval. Two sponsors’ responses suggested 

that they did not consider changes involving generic substitution or 

other routine negative changes to require CMS approval. However, in 

2006, CMS issued guidance clarifying that these types of negative 

changes require approval.34

Web sites we reviewed did not consistently reflect midyear changes 

We reviewed formularies posted on 20 sponsors’ Web sites to identify 

midyear changes approved by CMS. None of the formularies reflected 

every change, and all online formularies varied in the extent to which 

they reflected changes. Overall, we could not readily identify 630 of 

1,046 approved changes (60 percent) from the NCR file in the online 

formularies. For example, online formularies were available in PDF as 

suggested in CMS’s guidelines, but they were not easily searchable or 

they listed drugs by generic rather than brand names that beneficiaries 

might recognize. CMS’s guidelines for Part D marketing materials state 

that sponsors must update their online formularies at least monthly 

and that their Web sites must reflect midyear changes. 

Although we found that midyear changes were not readily accessible on 

sponsors’ Web sites, CMS lists formulary information on the Medicare 

Prescription Drug Plan Finder (hereinafter, Plan Finder) Web site. 

When sponsors update their formularies each month, CMS posts the 

formulary and pricing files to the Plan Finder. However, OIG has also 

raised concerns about the accuracy of pricing information on the Plan 

Finder.35

As stated previously, CMS 

approved 79 percent of sponsors’ 

negative change requests. 

Sponsors withdrew 18 percent of change requests because they 

contained errors. CMS denied 3 percent of negative change requests. 

CMS reviewed nearly all formulary 

changes listed in notification letters 

33 42 CFR § 423.505(i)(4)(ii-iii). 

34 CMS, Memorandum, “CY 2006 and CY 2007 Formulary Changes—New October 

Submission Window and Policy on Enhancements Added Between the October and 

February Submissions,” October 5, 2006. 

35 OIG, Accuracy of Part D Plans’ Drug Prices Provided on the Medicare Prescription 

Drug Plan Finder, OEI-03-07-00600, July 2009. 

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FINDINGS 

In addition, CMS canceled less than 1 percent of change requests 

because they were incomplete or approval was not required.

CMS uses systematic checks to monitor sponsors’ formulary change 

requests and monthly updates to formulary files. For example, CMS’s 

Web-based file systems do not allow sponsors to obtain approval for new 

formulary files if those files contain unapproved negative changes. CMS 

staff also review all negative change requests by hand and deny changes 

that lack sufficient clinical justification. In addition, CMS uses its own 

threshold to limit changes that restrict access to certain drugs without 

offering cost-saving alternatives or promoting drug safety. If plans 

exceed this threshold, CMS denies the change requests and follows up 

with the plan. 

Even though these checks were in place, we detected some 

noncompliance whereby sponsors failed to seek approval for midyear 

changes. Overall, only 1 percent of changes listed in the notification 

letters required CMS approval but were not in the original change 

request file. Nearly all (94 percent) of these unapproved changes 

involved substituting or adding generic drugs. The remaining 6 percent 

of unapproved changes involved moving drugs to higher cost-sharing 

tiers, adding utilization controls, or removing drugs from the formulary. 

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14
This study found that sponsors and CMS are managing midyear 

formulary changes in compliance with Part D program requirements. 

The data in this report show that 36 percent of 2008 midyear formulary 

changes restricted the formularies, but the majority of these changes 

also promoted cost savings through generic substitution. Part D 

regulations require sponsors to promote cost-effective use of prescription 

drugs where medically appropriate, and it appears that sponsors 

adhered to these rules. 

 CONCLUSION 

CMS provides sponsors with various forms of guidance on formulary 

change requests and beneficiary notification. Although some sponsors 

may need more specific guidance on notification practices, we found that 

most sponsors complied with CMS regulations and provided even more 

advance notice than the 60-day standard requires. CMS could provide 

additional guidance to sponsors regarding cost sharing in notification 

letters and on managing subcontractors that provide notification 

services. 

We reviewed a limited number of sponsors’ Web sites to identify 

midyear changes and found that these Web sites did not reflect all the 

changes approved by CMS. These discrepancies are of concern because 

they deny beneficiaries accurate coverage information. CMS’s guidance 

states that online formularies must reflect midyear changes. 

Beneficiaries should be able to rely on the formulary on a sponsor’s Web 

site to reflect the drugs actually covered and the cost-sharing amount 

owed. Further analysis may be warranted to determine the full extent 

of consistency between approved changes to sponsors’ formularies and 

the changes that appear on their Web sites and to determine whether 

additional guidance is needed to address any inconsistencies. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS generally agreed with our findings. It noted that it is working 

with a contractor to review sponsors’ online formularies to assess 

consistency between their Web versions and CMS’s approved formulary 

files. Also regarding sponsors’ Web sites, CMS asked whether it is 

possible that sponsors’ failure to implement negative changes could 

explain why we did not find those changes on the Web sites. We did not 

determine whether, in fact, sponsors implemented the changes that we 

could not find on their Web sites or whether sponsors sent notification 

letters for these specific changes. 

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CONCLUSION 

We made two changes in response to CMS’s comments. First, we 

clarified that beneficiaries taking medications subject to changes 

unrelated to generic substitution are protected from disruptions in 

therapy. We also corrected the text to show how we defined our sample 

strata. 

Finally, we will provide to CMS, under separate cover, the names of 

sponsors we identified that either misinterpreted or appeared not to 

comply with formulary change notification requirements so that CMS 

can provide additional guidance to these sponsors. 

The complete text of CMS’s comments appears in Appendix D. 

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 APPENDIX~A 

Maintenance and Nonmaintenance Changes in the Negative Change 

Request File 

The Centers for Medicare & Medicaid Services (CMS) divides negative 

formulary changes into maintenance changes and nonmaintenance 

changes.36 Sponsors notify CMS and request approval for these changes 

by uploading them into CMS’s online Health Plan Management System 

(HPMS). CMS uses HPMS to review the proposed changes and 

communicate its approval or disapproval. 

Maintenance changes. Sponsors make maintenance changes to 

encourage use of new, lower cost drugs or to restrict access to a drug 

because of safety concerns. Generally, maintenance changes provide 

alternatives for drugs that are removed or restricted. In cases in which 

maintenance changes do not provide alternatives or beneficiaries cannot 

take alternative drugs, sponsors must provide a process whereby 

beneficiaries may request coverage of the original drugs.37 Examples of 

maintenance changes include: 

 removal or placement in a less preferred tier of a brand-name drug 

because of the addition of a generic or brand-name equivalent at a 

lower tier or cost to the beneficiary; 

 addition of utilization controls when the Food and Drug 

Administration issues a safety warning for the drug; and 

 addition of utilization controls when necessary to effect other 

approved formulary changes (e.g., prior authorization for a 

brand-name drug when a generic becomes available on a formulary 

at a lower cost).38

Nonmaintenance changes. Nonmaintenance changes remove or restrict 

access to drugs without providing new alternatives. Sponsors make 

such changes to remove drugs from formularies, add utilization controls, 

or change cost-sharing tiers. CMS allows sponsors to make these 

changes only if beneficiaries currently taking the affected drugs are 

exempt from the changes for the remainder of the contract year. 

Nonmaintenance changes include, but are not limited to: 

36 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, §§ 30.3.3.2 and 30.3.3.3, July 

18, 2008. 

37 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, § 30.3.4.1. 

38 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, § 30.3.3.2. 

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APPENDIX~A 

 changing preferred or nonpreferred formulary drugs, adding 

utilization controls, or increasing cost sharing on preferred drugs 

without the addition of a lower cost or generic drug; and 

 removing dosage forms (e.g., removing the liquid form of a drug but 

keeping the tablet form).39

Because CMS generally approves maintenance changes, sponsors may 

send the 60-day notification to beneficiaries without waiting for CMS’s 

explicit approval.40 For nonmaintenance changes, sponsors must wait 

for explicit approval before sending the notification.41

39 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, §30.3.4.2. 

40 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, §30.3.3.2. 

41 CMS, Medicare Prescription Drug Benefit Manual, ch. 6, §30.3.3.3. 

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 APPENDIX~B 

Detailed Methodology

Scope 

This study analyzed the extent and nature of midyear formulary 

changes made by Medicare prescription drug sponsors in 2008 and the 

Centers for Medicare & Medicaid Services’ (CMS) monitoring of these 

changes. It also analyzed the extent to which sponsors of prescription 

drug plans complied with CMS notification requirements. This study 

did not review year-to-year formulary changes or analyze specific types 

of drugs that sponsors included in their formularies. 

Data Sources 

We used a stratified random sample of 120 formularies to identify and 

analyze all midyear formulary changes (both positive and approved 

negative changes) and to identify sponsors that sent notification letters 

for negative changes to beneficiaries. From the sample of 

120 formularies, we also drew a convenience sample of 20 formularies 

that we downloaded from sponsors’ Web sites. 

We used the Negative Change Request (NCR) file in CMS’s Health Plan 

Management System (HPMS) to identify changes that sponsors 

requested. We also used the Formulary Change Notification Report in 

HPMS to identify positive formulary changes. In addition, we used the 

Approved Formulary file for 2008 to identify unique drug codes for 

drugs most commonly prescribed to Medicare beneficiaries as well as 

drugs in protected classes. 

Methodology for Drawing a Stratified Random Sample of Formularies 

Before drawing a stratified random sample of formularies, we created a 

file containing the universe of all Part D formularies in 2008 using the 

following files from HPMS: 

 2008 Approved Contracts: This file contains approved 2008 

contract numbers and sponsor information. 

 2008 Approved Plan Information: This file contains plan-level 

data for each approved 2008 contract, including a formulary 

identification number for plans that offer prescription drug 

coverage. 

 2008 Plan Enrollment Information: This file contains enrollment 

data for plans offered under each 2008 Part D contract. 

Calculating the Total Number of Sponsors and Formularies in 2008. 

We used information from two CMS data files to create a complete list 

of all Part D formularies. Because these files serve different purposes 

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APPENDIX~B 

and because CMS updates them during different periods, the number of 

observations in each file did not always match. 

The Plan Enrollment file had 6,010 unique plans and 821 unique 

contracts. The file was current as of October 2008. We removed uniononly plans, plans with no enrollment, and plans that did not offer 

Part D benefits. This left 723 contracts and 4,986 plans with total 

enrollment of 25,886,069. 

The Approved Plan Information file contained 6,874 plans and 

809 unique contracts. The file was current as of October 2008. Once 

again, we removed inactive contracts, union-only contracts, and those 

that did not offer Part D benefits. This left 5,609 plans, 769 contracts, 

and 342 formularies. 

We merged the Plan Enrollment file with the Approved Plan 

Information file by unique plan identifiers. This produced our 

population file of 329 eligible formularies from which we selected our 

random sample. This file has 329 unique formularies associated with 

4,906 unique plans, 671 unique contracts, and 204 unique sponsors. 

The number of unique formularies dropped from 342 on the Plan 

Enrollment file to 329 because approved plans associated with 

13 formularies had no enrollment. The number of unique plans 

decreased from 4,986 to 4,906 because 2 plans with a total enrollment of 

3 people were not on the Approved Contracts file and 78 plans had no 

formulary identification information available. Together these 80 plans 

consisted of less than 0.05 percent of total enrollment. 

These 329 formularies are associated with plans having total 

enrollment of 25,874,153, which is over 99.95 percent of total 

enrollment. 

Drawing a Stratified Random Sample of Formularies. We used SAS to 

merge the list of sponsors with the NCR file to determine which 

sponsors had submitted negative changes in 2008.42 To select our 

sample, we used a simple one-stage cluster sampling plan with changes 

clustered within formularies. 

We used the list of 329 formularies eligible for the study and then 

divided these formularies into two strata: those that did not appear in 

the NCR file and those that did. Stratum 1 contained 94 formularies 

42 Copyright, SAS Institute Inc. SAS and all other SAS Institute Inc. product or service 

names are registered trademarks or trademarks of SAS Institute Inc., Cary, NC, USA. 

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APPENDIX~B 

and stratum 2 contained 235 formularies. We then drew 50 formularies 

from stratum 1 and 70 formularies from stratum 2. 

We chose this sampling design to enable us to make ratio estimates of 

the number of changes with certain characteristics over the number of 

all changes for key areas of interest with expected absolute precision of 

+/-10 percent at the 95-percent confidence level when expressing the 

ratios as percentages. 

Methodology for Analysis of Negative Formulary Changes 

We used SAS to analyze the NCR file, which contains changes that 

sponsors requested between January 1 and July 31, 2008. The NCR 

system allows sponsors to choose from 25 types of changes. We 

categorized these types of changes according to whether they added or 

substituted generic drugs, added utilization management to encourage 

generic drug use, and other types. The entire NCR file contained 

14,991 negative change requests. The 120 formularies in our stratified 

random sample had 4,333 negative change requests, 3,425 of which 

CMS approved. We identified an additional 516 negative changes from 

sponsors’ letters that CMS did not approve or that did not require CMS 

approval, as explained below. Together, approved NCR changes and 

unapproved changes from the letters accounted for all negative changes 

(3,941). 

To identify drugs in protected classes, we used the 2008 Approved 

Formulary file. We created a list of the unique drug codes for drugs that 

fell into the classes that covered anticonvulsants, antidepressants, 

antineoplastics, antipsychotics, antiretrovirals, and immunosuppressants. 

We compared this list to the NCR file to identify requested changes that 

involved protected drugs. 

Similarly, we identified drugs most commonly prescribed for Medicare 

beneficiaries using the list of classes from the Medicare Prescription Drug 

Benefit Manual, chapter 6, Appendix D. We used the 2008 Approved 

Formulary file to create a list of the unique drug codes for drugs that fell 

into these classes. We then compared this list to the NCR file to identify 

requested changes that involved drugs most commonly prescribed to 

Medicare beneficiaries. 

Methodology for Analysis of Positive Formulary Changes 

To analyze positive changes to formularies in 2008, we used data from 

the Formulary Change Notification Report (hereinafter, the report) in 

HPMS. Sponsors may submit new versions of their formularies each 

month, and HPMS assigns a new version number to the formulary each 

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APPENDIX~B 

time sponsors resubmit it. For each formulary in our sample, we used 

the report to compare drugs included in the first approved formulary 

version in or around the end of October 2007 with drugs in the last 

approved version in 2008. CMS aims to approve all formularies by this 

time each year so sponsors may post them on their Web sites prior to 

the Annual Election Period, which begins November 15. CMS first 

approved the majority of formularies in our sample on or around 

October 29, 2007. The 120 formularies in our sample had 7,886 positive 

changes. 

We also used the report to identify changes that added new drugs to the 

formulary, reduced cost sharing, or removed utilization controls. Because 

that report does not assign a type to each change, we looked at the 

differences between the formulary versions and assigned positive change 

types, as shown in Table B-1. We added positive changes to the file of 

negative changes to create a file of all formulary changes. 

Table B-1: Types of Positive Changes 

Type of Change Description 

Decrease quantity limit day The sponsor decreased the number of days before 

a beneficiary may obtain a refill on the drug 

Decrease step group 

The sponsor decreased the number of drugs that 

must be tried in step therapy before the beneficiary 

can obtain this drug 

Move drug to lower cost-sharing tier The sponsor placed the drug in a tier with a lower 

copayment 

Delete prior authorization The sponsor removed prior authorization 

for the drug 

Delete quantity limit The sponsor removed the quantity limit on the drug 

Delete step therapy The sponsor removed step therapy for the drug 

Increase quantity limit The sponsor increased the quantity of drugs that 

may be dispensed at one time 

Source: Office of Inspector General analysis of Medicare Part D 2008 midyear formulary changes.

Methodology for Notification Letter Request and Analysis 

We used a file of compliance officer contacts to identify 150 compliance 

officers associated with the formularies within our sample. The number 

of compliance officers is greater than the sample of formularies because 

some sponsors had more than one compliance officer. We sent letters to 

the compliance officers requesting copies of letters they sent to their 

enrollees notifying them of negative midyear formulary changes in 

2008. To avoid duplicative letters, we did not request a copy of every 

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APPENDIX~B 

letter sent to every enrollee; rather, we asked for letters that covered all 

negative changes. We achieved a 100-percent response. However, 

10 compliance officers told us that they no longer oversaw the 

formularies we referenced in our request. Therefore, we obtained all the 

required letters and information on the sampled formularies from 

140 compliance officers. We later followed up with these compliance 

officers to collect more information on sponsors’ notification policies. 

Sixty percent of respondents included notification letters, while 

40 percent said that they did not make any negative changes to their 

formularies or did not send letters because none of their enrollees was 

affected by the negative changes. 

CMS does not require sponsors to send notification letters to 

beneficiaries who are not taking the affected drugs, and sponsors do not 

send letters for changes that CMS disapproves. Thus, sponsors could 

not send us notification letters covering every approved negative change 

they made. The letters we received covered 55 percent of requested 

changes. 

We reviewed 853 letters covering 2,197 formulary changes. Of these 

changes, 516 were not approved by CMS or did not require CMS 

approval. We calculated the total number of formulary changes by 

adding unapproved changes (516) to the total positive changes (7,886) 

and total approved changes from the NCR file (3,425). This summed to 

11,827. 

To analyze changes listed in sponsors’ letters, we first determined 

whether the changes were in the NCR file and then determined the 

presence or absence of each of the six required elements in the letters, 

the date the letter was sent, and the date the change became effective. 

Some letters lacked dates because sponsors redacted parts of the letters 

to protect enrollees’ privacy. Therefore, we omitted these letters when 

analyzing notification time. For letters that did not appear in the NCR 

file, we also determined whether the changes required CMS approval. 

Methodology for Analysis of Sponsors’ Web Sites 

We selected a convenience sample of 20 formularies from our stratified 

random sample of 120 formularies. We identified the sponsors that 

used those formularies using our list of 2008 sponsors. In 

December 2008, we went to each sponsors’ Web site and downloaded the 

PDF version of each formulary. 

Using data from the report, we identified negative changes that CMS 

had approved for the 20 formularies. We reviewed each online 

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APPENDIX~B 

formulary, focusing on four negative changes: (1) added prior 

authorizations, (2) drugs moved to higher cost-sharing tiers, (3) added 

step therapy, and (4) added quantity limits. We searched the 

20 formularies for the brand and the generic names to determine 

whether the changes were accurately reflected in the formularies. 

Methodology for Analysis of CMS Staff Interviews

We interviewed CMS staff responsible for monitoring and approving 

midyear formulary change requests and updates. We asked them for 

detailed information on the databases they use to track formularies, and 

we clarified technical aspects of our data collection to ensure we 

analyzed midyear changes appropriately. We also collected descriptive 

data from members on the processes they use to review change requests 

and the criteria they used to approve or disapprove changes. 

Limitations 

We could not assess whether sponsors sent a notification letter to every 

enrollee who should have received one. CMS requires sponsors to notify 

only those enrollees affected by negative formulary changes. However, 

we could not determine which enrollees were affected by each change 

and whether they received letters. Rather, we examined the content of 

the notification letters and checked to see whether CMS had approved 

negative changes for the drugs listed in the letters. 

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 APPENDIX~C 

Data Tables 

Table C-1: Population Counts of 2008 Part D Sponsors 

Population of Part D 

Sponsors 

Sponsors That Requested 

Negative Changes 

Sponsors of Sampled 

Formularies 

204 156 (76%) 87 

Source: Office of Inspector General (OIG) analysis of Medicare Part D 2008 midyear formulary changes. 

Table C-2: Sample Design Information, 2008 Part D Formularies 

Stratum Population Size Sample Size 

1 – Formularies without 

negative change requests 94 50 

2 – Formularies with negative 

change requests 235 70 

 Total 329 120 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

Table C-3: Percentage of Requested Negative Changes by CMS* 

Approval Status, 2008 

Approval Status 

Point Estimate 

(n=4,333) 95% Confidence Interval 

Approved 79.0% 68.8%–89.2% 

Denied 2.7% 1.4%–4.0% 

Withdrawn 17.9% 7.3%–28.5% 

 Total 100% 

*Centers for Medicare & Medicaid Services (CMS). 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

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APPENDIX~C 

Table C-4: Percentage of Positive and Negative Formulary 

Changes, 2008 

Type of Change Point Estimate 

(n=11,827) 95% Confidence Interval

Positive 63.6% 59.4%–67.7% 

Negative 36.3% 32.2%–40.5% 

 Total 100% 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

Table C-5: Percentage of Positive Changes by Type, 2008 

Type of Positive Change Point Estimate 

(n=7,886) 95% Confidence Interval

Decreased cost-sharing or removed 

utilization management 59.9% 55.4%–64.3% 

Added drugs to the formulary 40.0% 35.6%–44.5% 

 Total 100% 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

Table C-6: Mean Number of Drugs Added to or Removed From 

Formularies, 2008 

Type of Change Point Estimate 95% Confidence Interval

Added drugs to formularies 46.0 41.5–50.4 

Removed drugs from formularies 22.1 17.5–26.6 

Ratio of drugs added to drugs removed 2.1 1.8–2.4 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

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APPENDIX~C 

Table C-7: Percentage of Negative Changes by Type, 2008 

Type of Negative Change 

Point Estimate 

(n=3,941) 95% Confidence Interval

Remove drugs 56.1% 47.8%–64.4% 

Move drugs to higher cost-sharing tiers 17.2% 10.4%–23.9% 

Add step therapy 6.6% 3.1%–10.0% 

Add prior authorization 5.0% 3.4%–6.6% 

Add quantity limit 4.2% 2.5%–5.8% 

Other changes* 11.1% 8.9%–13.4% 

 Total 100% 

* Other changes include removing discontinued drugs or adding utilization controls to promote drug safety or to 

determine Part B vs. Part D reimbursement. 

Source: OIG analysis of Medicare Part D 2008 negative midyear formulary changes. 

Table C-8: Percentage of Negative Changes That Promoted Generic 

Substitution, 2008 

Type of Negative Change Point Estimate 

(n=3,941) 95% Confidence Interval

Negative changes that promoted 

generic substitution 62.2% 57.4%–66.9% 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

Table C-9: Percentage of Negative Changes Promoting Generic 

Substitution by Negative Change Type, 2008 

Type of Change 

Percentage of This 

Change That Promoted 

Generic Substitution

Sample Size 95% Confidence 

Interval

Remove drugs/substitute 

generics 86.7% 2,169 81.5%–91.9% 

Move drugs to higher costsharing tiers 77.9% 668 65.8%–90.0% 

Add step therapy 0.7%* 259 N/A 

Add prior authorization 0.5%* 199 N/A 

Add quantity limit 0%* 162 N/A 

Other changes 11.2% 516 8.9%–13.5% 

* We did not project this estimate because the confidence interval contains zero. While we cannot quantify the error in 

this estimate, the fairly large sample size and low incidence rate indicate that this change probably did not promote 

generic substitution very often in the population. 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

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APPENDIX~C 

Table C-10: Negative Changes and Generic Substitution Among 

Drugs Most Commonly Prescribed to Medicare Beneficiaries, 2008 

Type of Negative Change Point Estimate Sample Size 95% Confidence 

Interval

Negative changes affecting drugs 

most commonly prescribed to 

Medicare beneficiaries 

46.3% 3,941 43.0%–49.7% 

Percentage of these changes that 

involved generic drugs 69.3% 1,747 63.0%–75.6% 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

Table C-11: Negative Changes and Generic Substitution Among 

Drugs in Protected Classes, 2008

Type of Negative Change Point Estimate Sample Size 95% Confidence 

Interval

Negative changes affecting drugs in 

protected classes 39.2% 3,941 37.6%–40.8% 

Percentage of these changes that 

involved generic drugs 69.0% 1,475 64.9%–73.0% 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

Table C-12: Percentage of Changes Not Promoting Generic 

Substitution by Change Type, 2008 

Type of Change Point Estimate Sample Size 95% Confidence 

Interval

Negative changes that did not 

promote generic substitution 38.2% 3,941 33.5%–42.9% 

All changes that did not promote 

generic substitution 13.9% 11,827 12.2%–15.6% 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

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APPENDIX~C 

Table C-13: Percentage and Number of Sample Sponsors by Midyear 

Formulary Changes Notification Policies, 2008

Notification Policy 

Percentage 

(n=140) Count 

Notify only affected beneficiaries 58.5% 82 

Notify all beneficiaries 37.1% 52 

Do not make any negative changes 4.2% 6 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

Table C-14: Sponsors’ Notification Time for Negative Formulary 

Changes, 2008

Notice Sample Median 

Days’ notice for midyear formulary changes 74 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

Table C-15: Percentage of Negative Formulary Change Letters by 

Timing of Notification, 2008 

Timing of Notification 

Percentage 

(n=1,557) 

> 60 days 89.4% 

 59 days  30 days 8.7% 

< 30 days 1.9% 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

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APPENDIX~C 

Table C-16: Percentage of Changes With Notification Letters 

Containing Required Elements, 2008 

Element 

Percentage of Changes 

With Letters That 

Contained This Element 

(n=2,197)

95% Confidence Interval

All six required elements 87.5% 86.1%–88.9% 

Five or fewer required elements 12.5% 11.1%–3.8% 

 Total 100% 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

Table C-17: Percentage of Negative Formulary Changes That Did Not 

Promote Generic Substitution, 2008 

Type of Change 

Percentage of Negative 

Changes Not 

Promoting Generic 

Substitution (n=1,572) 

Sample Size 95% Confidence 

Interval

Remove drugs 45.7% 741 37.7%–53.8% 

Add step therapy 17.1% 257 8.8%–25.5% 

Add prior authorization 13.3% 200 9.1%–17.5% 

Add quantity limit 10.9% 162 7.2%–14.7% 

Move drugs to higher 

cost-sharing tiers 10.1% 153 4.5%–15.7% 

Other changes* 3.0% 65 2.3%–4.0% 

 Total 100%

* Other changes include unapproved changes or those that did not require CMS approval. 

Source: OIG analysis of Medicare Part D 2008 negative midyear formulary changes. 

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APPENDIX~C 

Table C-18: Percentage of Changes With Notification Letters 

Containing Six Required Elements, 2008 

Element 

Percentage of Changes 

With Letters That 

Contained This Element

95% Confidence Interval

Name of the affected drug 100.0%* N/A 

Type of change made to the affected drug 100.0%* N/A 

Reason for the change 100.0%* N/A 

Alternative drugs in the same class 100.0%* N/A 

Information on obtaining a coverage 

determination or exception for coverage of 

the affected drug 

100.0%* N/A 

New expected cost-sharing 94.5% 93.9% - 95.2% 

* We were unable to produce confidence intervals for these elements because all sample letters contained the element. 

Therefore we cannot produce a measure of variability. We concluded that compliance with these requirements is very 

high. 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

Table C-19: Unapproved Implemented Changes, 2008 

Type of Unapproved Change Point Estimate Sample Size 95% Confidence 

Interval 

Changes that required a letter 0.8% 11,827 0.5% - 1.2% 

Changes that required a letter 

and involved generic substitution 93.5%* 117 86.3% - 100.0% 

Changes that required a letter 

and involved increased cost 

sharing or added utilization 

controls 

5.4%** 117 N/A 

* The confidence interval for this estimate contains 100. Therefore, we cannot produce a measure of variability. 

** We were unable to produce confidence intervals for these estimates because of small sample size. 

Source: OIG analysis of Medicare Part D 2008 midyear formulary changes. 

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A P PEN D x D 

Agency Comments 

,......""<1 .... 

( DEPAKrMENT OF HEALTII & HUMAN SERVICF-' Center. for Medicare & Medicaid Services 

S'r Administrator 

Washington, DC 20201 

TO: Daniel R. Levinson 

,Inspector Genqal 

FROM: Charlene Frizzera 

Acting Administrator 

SUBJECT: Office of Inspector General (OIG) Draft Report: "Midyear Formulary Changes in 

Medicare Prescription Drug Plans," (OEI·OI-08-00540) 

Thank you for the opportunity to comment on the OIG Draft Report: "Midyear Formulary 

Changes in Medicare Prescription Drug Plans,"OEI-Ol-08-00540. The Centers for Medicare & 

Medicaid Services (CMS) recognizes the importance of close oversight ofthe midyear formulary 

change process. CMS has developed a midyear formulary change policy and implemented a 

standardized process that not only enables Part D sponsors to continue to offer cost-effective 

prescription drug coverage, but also ensures that Medicare beneficiaries continue to receive their 

necessary medications without disruption in therapy or changes in coverage. 

The OIGdeveloped a sound study methodology to research the degree to which Part D 

formularies change and Part D sponsors' compliance with CMS formulary change notification 

requirements. CMS generally concurs with the OIG regarding its findings. Please note that the 

current draft ofthe report still contains an error in the Data Sources section on page 6. The 

numbers for stratum 1 and stratum 2 are reversed. Based on the OIG report and our own internal 

numbers, the majority of formularies made midyear changes, and we thus believe stratum' I 

contained 235 formularies and stratum 2 contained 94 formularies. 

Based on the sampling method utilized in the study, OIG found that 38 percent of midyear 

formulary changes were not related to generic substitution. Other formulary cbangesthat CMS 

also considers best practice are included in the report. The addition of prior authorization (P A) 

based upon a new United States Food and Drug Administration boxed warning or clinical 

guidelines recognized by CMS, for example, protects the interests of Medicare beneficiaries. As 

currently written, the finding that 38 percent of changes were unrelated to generic substitution 

suggests that these types of changes are not important formulary management techniques. Thus, 

this finding appears to overstate the number of non-maintenance formulary changes. Upon 

clarification ofthis finding in the report, we also respectfully req1,lest restatement in this section 

that beneficiaries currently taking drugs that are subject to a non-maintenance change are exempt 

from that change. CMS feels that this "grandfathering" requirement protects the beneficiary 

from disruptions in therapy. 

OEI·01·08·00540 MIDYEAR FORMULARY CHANGES IN MEDICARE PRESCRIPTION DRUG PLANS 

32 
APPENDIX ~ D 

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 ACKNOWLEDGMENTS 

This report was prepared under the direction of Joyce Greenleaf, 

Regional Inspector General for Evaluation and Inspections in the 

Boston regional office, and Russell Hereford, Deputy Regional Inspector 

General. 

Maria Maddaloni served as the team leader for this study, and Melissa 

Hafner served as the lead analyst. Other principal Office of Evaluation 

and Inspections staff from the Boston regional office who contributed to 

this report include Tim Chettiath; central office staff who contributed 

include Kevin Farber and Kevin Manley. 

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