Department of Health and Human Services

OFFICE OF 

INSPECTOR GENERAL 

 

Daniel R. Levinson 

Inspector General 

March 2009 

OEI-05-07-00610 

 

EFFECT OF THE PART D 

COVERAGE GAP ON MEDICARE 

BENEFICIARIES WITHOUT 

FINANCIAL ASSISTANCE IN 2006
Office of Inspector General 

http://oig.hhs.gov 

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

amended, is to protect the integrity of the Department of Health and Human Services (HHS) 

programs, as well as the health and welfare of beneficiaries served by those programs. This 

statutory mission is carried out through a nationwide network of audits, investigations, and 

inspections conducted by the following operating components: 

Office of Audit Services 

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

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

the performance of HHS programs and/or its grantees and contractors in carrying out their 

respective responsibilities and are intended to provide independent assessments of HHS 

programs and operations. These assessments help reduce waste, abuse, and 

mismanagement and promote economy and efficiency throughout HHS. 

Office of Evaluation and Inspections 

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

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

issues. These evaluations focus on preventing fraud, waste, or abuse and promoting 

economy, efficiency, and effectiveness in departmental programs. To promote impact, OEI 

reports also present practical recommendations for improving program operations. 

Office of Investigations 

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

of fraud and misconduct related to HHS programs, operations, and beneficiaries. With 

investigators working in all 50 States and the District of Columbia, OI utilizes its resources 

by actively coordinating with the Department of Justice and other Federal, State, and local 

law enforcement authorities. The investigative efforts of OI often lead to criminal 

convictions, administrative sanctions, or civil monetary penalties. 

Office of Counsel to the Inspector General 

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

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

legal support for OIG’s internal operations. OCIG represents OIG in all civil and 

administrative fraud and abuse cases involving HHS programs, including False Claims Act, 

program exclusion, and civil monetary penalty cases. In connection with these cases, OCIG 

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

opinions, issues compliance program guidance, publishes fraud alerts, and provides other 

guidance to the health care industry concerning the anti-kickback statute and other OIG 

enforcement authorities. 
Δ EXECUTIVE SUMMARY 

OBJECTIVES

1. To determine the number of Medicare beneficiaries who did not 

receive financial assistance with prescription drugs during the 

Part D coverage gap in 2006. 

2. To determine changes in prescription drug purchases and payments 

by these beneficiaries. 

BACKGROUND 

Medicare Part D provides an optional drug benefit to Medicare 

beneficiaries. The Centers for Medicare & Medicaid Services (CMS) 

contracts with private insurance companies, known as plan sponsors, to 

provide prescription drug coverage for beneficiaries who choose to enroll 

in the program. 

During the coverage year, the financial responsibilities of beneficiaries, 

plan sponsors, and CMS vary during each of four distinct coverage 

phases for the standard benefit: annual deductible, initial coverage, 

coverage gap, and catastrophic coverage. The coverage phase 

determines a beneficiary’s share of the drug cost at the point of sale. 

After reaching the initial coverage limit, beneficiaries enter the 

coverage gap phase and are responsible for 100 percent of drug costs. 

Beneficiaries may receive financial assistance for drug costs during the 

coverage gap phase from their plans; from low-income subsidies; or from 

other approved third-party payers, such as State Pharmacy Assistance 

Programs.

We used Medicare Part D prescription drug data to determine the 

number of Medicare beneficiaries who did not receive financial 

assistance with prescription drug costs during the coverage gap in 2006. 

We also assessed beneficiary changes in drug purchasing behavior and 

payments during the coverage gap. Finally, we conducted a national 

beneficiary survey to further enhance our analysis of beneficiary 

changes in drug purchasing and use behaviors during the coverage gap. 

FINDINGS 

Seven percent of Part D beneficiaries entered the coverage gap and 

did not receive financial assistance with prescription drug costs. Of 

the more than 22 million Part D beneficiaries who filled at least one 

prescription in 2006, 1.5 million beneficiaries had gross covered drug 
EXECUTIVE SUMMARY 

costs exceeding the initial coverage limit of $2,250 and did not receive any 

financial assistance in paying for drugs during the coverage gap. 

During the coverage gap, drug purchasing behavior changed for 

almost all beneficiaries who did not receive financial assistance. 

Of the beneficiaries who did not receive financial assistance during the 

2006 coverage gap, 98 percent made some changes in their drug 

purchasing behavior. Sixty-nine percent of beneficiaries decreased the 

average number of drugs purchased during the coverage gap. This 

decrease could have represented a strategy that beneficiaries used to 

reduce their financial burden during the coverage gap, or it could have 

represented appropriate reductions due to changes in their health 

status. 

The greater the average number of drugs per month that beneficiaries 

purchased before entering the coverage gap, the more they reduced the 

average number of drugs per month that they purchased during the 

coverage gap. Beneficiaries who purchased an average of at least nine 

drugs per month had the largest decrease at 18 percent. 

When a sample of beneficiaries similar to those included in the above 

analysis was surveyed, they identified specific types of changes in drug 

purchasing behavior and use. Thirty-eight percent of beneficiaries 

reported seeking at least one less-costly alternative to purchasing drugs. 

On the other hand, 20 percent of the beneficiaries surveyed may have been 

eligible for but not enrolled in a low-income subsidy that could have 

assisted them with purchasing drugs during the coverage gap. 

Additionally, one-third of the beneficiaries surveyed appeared to have 

compromised their drug regimens with changes in use. 

RECOMMENDATIONS 

CMS should support outreach and education activities targeted at 

beneficiaries who make more prescription drug purchases before 

entering the coverage gap. CMS could encourage plan sponsors to 

augment their outreach and education efforts by using drug utilization 

data to target beneficiaries who purchased nine or more drugs per month 

during the initial coverage phase. CMS could also supplement plan 

sponsors’ outreach and education efforts by working directly with these 

beneficiaries to explore cost-saving strategies for prescription drugs and 

the tools available for choosing different benefit packages (in which they 

could enroll during the next open season).

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE ii 
EXECUTIVE SUMMARY 

CMS should target low-income subsidy outreach to 

beneficiaries who entered the coverage gap without financial 

assistance. Targeting the population of beneficiaries who entered the 

coverage gap without financial assistance in previous years might be 

one way to identify eligible beneficiaries for enrollment in the 

low-income subsidy program. In addition, beneficiaries who enter the 

coverage gap without financial assistance for prescription drug costs 

might benefit from more education about applying for the low-income 

subsidy that can assist them throughout the rest of the benefit year, 

including during the coverage gap. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS generally agreed with our findings and stated that it appreciated 

the additional information provided through the beneficiary survey. 

CMS noted that our findings were similar to the results of CMS’s 

analysis presented at the Medicare Drug Benefit Symposium, held in 

October 2008. However, CMS indicated a concern about the lack of a 

control group with which to compare our results. As a result, CMS 

pointed out that this evaluation does not provide a true causal analysis. 

This is accurate, as the report does not present a true causal analysis. 

Rather, it presents data about drug purchases with a number of 

plausible explanations of those data, including the possibility that the 

decrease in drug purchases was the result of the coverage gap. 

CMS did not concur with our first recommendation. CMS stated that it 

believed its current outreach to all beneficiaries is sufficient. However, 

we found that beneficiaries who made more prescription drug purchases 

before entering the coverage gap had the largest drop in the number of 

drugs purchased during the coverage gap. Because these beneficiaries 

take more prescription drugs, they are likely in poorer health and are 

the most vulnerable to negative health consequences from 

nonadherence to drug regimens. Therefore, additional outreach and 

education about efficient and effective drug purchasing options targeted 

at this group of beneficiaries could have far-reaching health benefits. 

CMS concurred with our second recommendation. However, the actions 

CMS stated it would take do not address our recommendation to use 

drug utilization data to identify potential beneficiaries for the subsidy. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE iii 
ΔEXECUTIVE SUMMARY TABLE OF CONTENTS 

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

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

FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 

Seven percent of Part D beneficiaries entered the coverage gap 

without financial assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 

During the coverage gap, drug purchasing behavior changed . . . 12 

RECOMMENDATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 

Agency Comments and Office of Inspector General Response . . . 20 

APPENDIXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 

 A: Detailed methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 

 B: Beneficiary survey responses . . . . . . . . . . . . . . . . . . . . . . . . . . 27 

 C: Nonresponse analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 

 D: Estimates and confidence intervals . . . . . . . . . . . . . . . . . . . . . 34 

 E: Agency Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 

ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Δ INTRODUCTION 

OBJECTIVES 

1. To determine the number of Medicare beneficiaries who did not 

receive financial assistance with prescription drugs during the 

Part D coverage gap in 2006. 

2. To determine changes in prescription drug purchases and payments 

by these beneficiaries. 

BACKGROUND 

Research suggests that the Medicare Part D coverage gap may affect 

beneficiaries’ prescription drug use behaviors. A 2006 national survey 

of noninstitutionalized Medicare beneficiaries found that rates of 

nonadherence to a drug regimen because of costs were greater for 

Part D beneficiaries than for seniors with the Veterans Administration 

or an employer-sponsored prescription drug plan.1 The study suggested 

that beneficiaries who entered the Medicare Part D coverage gap may 

have changed their prescription drug use behaviors because they were 

responsible for 100 percent of their drug costs during the coverage gap.2 

Additional research suggests that Medicare beneficiaries whose benefits 

were capped use fewer prescription drugs overall and fewer drugs for 

treatment of chronic diseases.3 

The Medicare Part D Prescription Drug Benefit 

Medicare Part D provides an optional outpatient prescription drug 

benefit to Medicare beneficiaries.4 The Centers for Medicare & 

Medicaid Services (CMS) contracts with private entities, known as plan 

sponsors, to provide prescription drug coverage for beneficiaries who 

choose to enroll in the program. These plan sponsors may offer a 

stand-alone prescription drug plan or they may offer prescription drug 

coverage as part of a managed care plan, known as a Medicare 

Advantage prescription drug plan (hereinafter referred to collectively as 

plans). 

1 Patricia Neuman, et al., “Medicare Prescription Drug Benefit Progress Report: 

Findings From a 2006 National Survey of Seniors.” Health Affairs, vol. 26, no. 5, 

August 21, 2007. 

2 Ibid. 

3 John Hsu, et al., “Unintended Consequences of Caps on Medicare Drug Benefits.” The 

New England Journal of Medicine, vol. 354, no. 22, June 1, 2006. 

4 The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), 

P.L. No. 108-173 § 101, Social Security Act, § 1860D, 42 U.S.C. § 1395w-101(a). 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 1 
INTRODUCTION 

Part D Coverage 

During the coverage year, the financial responsibilities of beneficiaries, 

plan sponsors, and CMS vary during each of four distinct coverage 

phases for the standard benefit: annual deductible, initial coverage, 

coverage gap, and catastrophic coverage.5 The coverage phase 

determines a beneficiary’s cost.6 In general, beneficiaries are 

responsible for a monthly premium; a deductible; and cost-sharing at 

the point of sale, which can be either percentage-based coinsurance or a 

fixed copayment. 

To determine the coverage phase, plan sponsors must track prescription 

drug costs and payments every time a beneficiary fills a prescription 

under Part D. Cost data include the cost of the drug, dispensing fee, 

and sales tax. Payment data include all payments made by plan 

sponsors; beneficiaries; and other approved third-party payers, such as 

State Pharmacy Assistance Programs (SPAP).7 

Part D Coverage Types 

The MMA permits plan sponsors to offer plans with either standard 

prescription drug coverage or alternative prescription drug coverage.8 

Alternative prescription drug coverage may be either actuarially 

equivalent to standard prescription drug coverage or enhanced.9 Plan 

benefits, including formularies, premiums, deductibles, and beneficiary 

cost-sharing requirements, vary according to coverage type. 10

Standard coverage. In 2006, standard plans had an initial deductible of 

$250.11 In all standard plans, after paying the deductible, beneficiaries 

enter the initial coverage phase. During initial coverage, beneficiaries 

pay a 25-percent coinsurance toward Part D drug costs. Initial coverage 

continues until gross covered drug costs reach the initial coverage limit 

5 CMS, “2007 Prescription Drug Event Data Training Participant Guide,” Module 4 – 

Calculating and Reporting the Basic Benefit, p. 4-3, 2007. 

6 Ibid. 

7 Other approved third-party payers include health savings accounts, flexible spending 

accounts, medical savings accounts, and certain charities. 

8 MMA, P.L. No. 108-173 § 101, Social Security Act, § 1860D, 42 U.S.C. § 1395w-102(a). 

9 42 CFR § 423.104(e) and (f). 

10 MMA, P.L. No. 108-173 § 101, Social Security Act, § 1860D, 42 U.S.C. § 1395w-102(b) 

and (c). 

11 42 CFR § 423.104(d)(1). 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 2 
INTRODUCTION 

established by law.12 Gross covered drug costs are the total cost of 

drugs (including dispensing fee and sales tax) regardless of payer. 

After reaching the initial coverage limit, beneficiaries in most plans 

enter the coverage gap phase and are responsible for 100 percent of 

drug costs. The coverage gap continues until beneficiaries’ true 

out-of-pocket (TrOOP) spending reaches the annual TrOOP threshold.13 

Generally, TrOOP spending includes all beneficiary payments 

(excluding monthly premiums) and any payments made by approved 

third-party payers.14

After reaching the TrOOP threshold, beneficiaries enter the 

catastrophic coverage phase. During catastrophic coverage, 

beneficiaries pay approximately 5 percent in coinsurance toward Part D 

drug costs,15 plans pay approximately 15 percent, and CMS pays plans 

the remaining 80 percent. 

The maximum amount that beneficiaries pay out of pocket for the 

deductible and during the initial coverage and coverage gap phases are 

adjusted yearly.16 The 2006 standard coverage thresholds are shown in 

Table 1. 

Table 1: 2006 Standard Coverage Cost-Sharing Thresholds by Benefit Phase 

 Cost-Sharing 

Beneficiary Plan CMS 

Benefit Phase Gross Drug Costs 

Maximum 

Total Cost* 

Percentage 

of Drug Cost 

Maximum 

Total 

Cost 

Percentage 

of Drug 

Cost 

Maximum 

Total 

Cost 

Percentage 

of Drug 

Cost 

Deductible $250 $250 100% $0 0% $0 0% 

Initial coverage > $250 to $2,250 $500 25% $1,500 75% $0 0% 

Coverage gap > $2,250 to $5,100 $2,850 100% $0 0% $0 0% 

Catastrophic coverage generally > $5,100 ** 

 approximately 

5% ** 15% ** 80% 

* The beneficiary’s maximum total cost does not include monthly premiums. 

** The amount paid depends on the amount of drugs purchased during catastrophic coverage. 

Source: “CMS 2007 Prescription Drug Event Data Training Participant Guide,” 2007. 

12 MMA, P.L. No. 108-173 § 101, Social Security Act, § 1860D, 

42 U.S.C. § 1395w-102(b)(3)(A). 

13 42 CFR § 423.104(d)(5)(iii). 

14 CMS, “Prescription Drug Benefit Manual,” ch. 5 § 30. 

15 42 CFR § 423.104(d)(5)(B). 

16 42 CFR § 423.104(d)(1)–(5). 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 3 
INTRODUCTION 

Actuarially equivalent coverage. Actuarially equivalent plans offer 

coverage that is at least equal to the value of standard coverage.17 

Actuarially equivalent plans may contain a coverage gap phase. 

However, they may increase the initial coverage limit, which could 

make the entry point into the coverage gap different from the entry 

point under standard coverage. Actuarially equivalent plans can also 

offer lower or no deductibles and copayments instead of coinsurance at 

the point of sale. 

Enhanced coverage. Enhanced plans must provide supplemental 

benefits in addition to providing standard prescription drug coverage.18 

As part of their supplemental benefits package, enhanced plans must 

offer coverage of drugs that are specifically excluded as Part D drugs or 

at least one feature that increases the value above the actuarial value of 

standard coverage.19 Features that can be used to increase the 

actuarial value of benefits include lower deductibles, an increase in the 

initial coverage limit, or reductions in cost sharing at the point of sale. 

Although enhanced plans may provide lower beneficiary cost-sharing 

obligations or full coverage during the coverage gap, most enhanced 

plans did not in 2006. 

Part D Enrollment 

In 2006, 22.5 million Medicare beneficiaries were enrolled in Part D 

plans.20 Enrollment varied among coverage types: 17 percent of Part D 

beneficiaries were enrolled in standard coverage plans, 52 percent in 

actuarially equivalent coverage plans, and 30 percent in enhanced 

coverage plans.21 22 

17 MMA, P.L. No. 108-173 § 101, Social Security Act, § 1860D, 

42 U.S.C. § 1395w-102(c)(1)(A). 

18 42 CFR § 423.104(f). 

19 42 CFR § 423.104(f)(1)(ii). 

20 The Henry J. Kaiser Foundation, “Medicare Data Update: Prescription Drug Coverage 

Among Medicare Beneficiaries,” June 2006. Available online at 

http://www.kff.org/medicare/upload/7453.pdf. Accessed on August 1, 2008. 

21 Juliette Cubanski, Patricia Neuman, “Status Report on Medicare Part D Enrollment 

in 2006: Analysis of Plan-Specific Market Share and Coverage,” Health Affairs, 26, p. w6, 

2007. 

22 Percentages do not add to 100 percent because of rounding. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 4 
INTRODUCTION 

Part D Drugs 

Covered Part D drugs are the subset of Part D drugs that are included 

on a Part D plan’s formulary.23 Part D excludes drugs for which 

payment is available under Medicare Parts A or B and drugs that may 

be excluded from coverage or otherwise restricted under Medicaid, 

except for smoking cessation agents. 

Subject to a plan’s formulary, Part D covers both generic and 

brand-name drugs. A generic drug is chemically identical to its 

brand-name counterpart, with the same therapeutic effect and 

risk-benefit profile. Generally, generic drugs are cheaper than 

brand-name drugs. According to the National Association of Chain 

Drug Stores, in 2006 the average brand-name prescription drug cost 

$107.48, while the average generic prescription drug cost $31.39—a 

71-percent difference.24 Although the use of generic drugs may help 

reduce costs, this reduction is possible only when a physician prescribes 

a generic drug or a pharmacist substitutes a generic drug if one is 

available for the prescribed brand-name drug. 

Part D Low-Income Subsidy 

To be eligible for a low-income subsidy, a beneficiary must meet an 

income and asset test. A beneficiary’s annual income must be less than 

150 percent of the Federal poverty level (FPL) ($14,700 for an individual 

and $19,800 for a married couple living together in 2006). The value of 

assets, including bank accounts, stocks, bonds, and real estate other 

than the beneficiary’s primary residence, must be below $10,000 for 

individuals and $20,000 for married couples. 

Beneficiaries with such limited income and assets are eligible to receive 

assistance to pay the out-of-pocket costs associated with their 

prescription drug coverage. The fewer financial resources an eligible 

beneficiary has, the lower his or her out-of pocket costs will be in all 

coverage phases, including the coverage gap. Some beneficiaries receive 

drug coverage with no monthly premium, no annual deductible, and no 

copayments at the point of sale. Other beneficiaries pay copayments 

ranging from $1 to $5 but do not pay monthly premiums or annual 

5 

23 Covered Part D drugs also include those that are on a Part D plan’s formulary as a 

result of a coverage determination or appeal. 

24 National Association of Chain Drug Stores, “Industry Facts at a Glance: 

Pharmaceutical Pricing.” Available online at 

http://www.nacds.org/wmspage.cfm?parm1=507. Accessed on June 6, 2008. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 
INTRODUCTION 

deductibles. Still other beneficiaries have a sliding-scale monthly 

premium, a $50 deductible, and a coinsurance of 15 percent at the point 

of sale. Beneficiaries who receive the low-income subsidy are not 

subject to the coverage gap. 

Previous Office of Inspector General Work 

The Office of Inspector General (OIG) has conducted many studies 

related to Part D, including generic drug utilization in Part D,25

identifying beneficiaries for the low-income subsidy,26 CMS’s tracking of 

beneficiaries’ TrOOP costs,27 and dual eligibles’ transition from 

Medicaid to Medicare.28 

METHODOLOGY 

Scope 

This study explores the effect of the coverage gap on beneficiaries’ drug 

purchases during 2006 by focusing on beneficiaries without financial 

assistance (i.e., from plans; low-income subsidies; or other approved 

third-party payers, such as SPAP). During the coverage gap, 

beneficiaries with financial assistance did not face the same financial 

burden related to purchasing prescription drugs as beneficiaries without 

financial assistance. Thus, our analysis excludes beneficiaries who had 

financial assistance during the coverage gap. In addition, this study 

included only Part D-covered drugs in our analysis, as only those 

purchases count toward the initial coverage limit and beneficiaries’ 

TrOOP costs. 

Data Sources 

We used 2006 Prescription Drug Event (PDE) data to conduct this 

study. CMS requires plans providing prescription drug coverage to 

submit PDE data for payment purposes. Each drug event included in 

these data represents the dispensing of a drug or medical supply for the 

injection of insulin. 

25 OIG, “Generic Drug Utilization in the Medicare Part D Program,” OEI-05-07-00130, 

November 2007. 

26 OIG, “Identifying Beneficiaries Eligible for the Medicare Part D Low-Income Subsidy,” 

OEI-03-06-00120, November 2006. 

27 OIG, “Tracking Beneficiaries’ True Out-of-Pocket Costs for the Part D Prescription 

Drug Benefit,” OEI-03-06-00360, December 2007. 

28 OIG, “Dual Eligibles’ Transition: Part D Formularies’ Inclusion of Commonly Used 

Drugs,” OEI-05-06-00090, January 2006. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 6 
INTRODUCTION 

We used two drug data compendia to supplement the PDE data. For 

each claim, these compendia indicated whether the prescribed drug was 

a brand-name or generic drug and whether the drug was typically 

prescribed to treat a chronic or an acute condition. 

In addition, we conducted a national survey of beneficiaries. Using 

the PDE data, we selected a simple random sample of 

300 beneficiaries who had gross covered drug costs greater than the 

initial coverage limit of $2,250. We excluded all beneficiaries with 

low-income subsidies or those who were enrolled in enhanced plans 

from our sample to remove beneficiaries who might have received 

assistance during the coverage gap. The survey was distributed by 

mail in February 2008 and data collection lasted through March 2008. 

Upon receiving the surveys, we removed beneficiaries who appeared 

to have received financial assistance during the coverage gap. We 

used 2006 PDE data to determine which beneficiaries did not pay 

100 percent of their drug costs during the coverage gap. After 

removing any beneficiary who did not pay 100 percent of drug costs, 

we had a sample of 176 beneficiaries. Of these 176 beneficiaries, 

142 responded to our survey, for an 81-percent response rate. 

Because the survey was conducted in 2008, beneficiaries may have 

also been in the coverage gap in 2007. Therefore, we asked 

beneficiaries about their general experiences while in the coverage 

gap and did not ask them to tie their experiences to a specific year. 

The survey asked beneficiaries to identify, from predetermined lists of 

options, changes they made in how they used and purchased 

prescription drugs after entering the coverage gap. It also requested 

information such as marital status and income range. 

For a complete list of the data sources and other aspects of the 

methodology, see Appendix A. For a copy of the beneficiary survey 

and for the total responses, see Appendix B. 

Data Analysis 

Determining the number of beneficiaries in the coverage gap. To establish 

how many beneficiaries entered the coverage gap and did not have 

financial assistance, we summed the appropriate cost and payment 

fields in the PDE data for Part D-covered drugs to determine which 

beneficiaries had gross covered drug costs exceeding the initial coverage 

limit. After identifying this population of beneficiaries, we selected all 

of their 2006 PDE claims for Part D-covered drugs (hereinafter referred 

to as drugs). Using the date when each beneficiary entered the coverage 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 7 
INTRODUCTION 

gap and the date each became eligible for catastrophic coverage (if 

applicable), each claim was assigned to the proper coverage phase for 

that beneficiary: initial coverage (including deductible phase), coverage 

gap, and catastrophic coverage.29 We then excluded beneficiaries who 

did not pay 100 percent of their drug costs during the coverage gap to 

remove beneficiaries who had financial assistance in the coverage gap. 

Using these claims data, we calculated a number of descriptive 

measures. We determined the average number of days it took 

beneficiaries to enter the coverage gap, how long they remained in the 

coverage gap, and when they left the coverage gap for catastrophic 

coverage. 

Analyzing changes in beneficiary drug purchases. To measure 

prescription drug purchasing in each coverage phase, we calculated 

three measures: (1) average number of prescription drugs purchased 

per month, (2) percentage of prescription drugs purchased to treat 

chronic and acute conditions, and (3) generic drug utilization rate. 

To calculate the average number of prescription drugs purchased per 

month by coverage phase, we calculated the unique number of drugs by 

beneficiary by month. Then, for each coverage phase, we divided the 

total number of unique drugs by beneficiary by the total number of 

months. 

For purposes of this analysis, in all prescription data, we normalized the 

data by the number of days that the prescription covered. We 

considered PDE data with a supply of less than or equal to 44 days as 

one prescription; greater than 44 days but less than or equal to 74 days 

as two prescriptions; and greater than 74 days as three prescriptions. 

Analyzing changes in beneficiary drug payments. To analyze payment in 

each coverage phase, we computed the average and median beneficiary 

payment per phase and the average beneficiary payment per month. To 

determine the average and median beneficiary payment per phase, we 

used the PDE data field “patient pay amount” for each beneficiary. 

“Patient pay amount” is the amount that the beneficiary paid for each 

drug. We calculated the average beneficiary payment per month by 

29 For purposes of this analysis, the deductible and initial coverage phases were 

combined. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 8 
INTRODUCTION 

dividing the total beneficiary payment by the total number of months in 

that phase. 

Analyzing beneficiary survey responses. To analyze beneficiary survey 

responses, we calculated basic frequencies on the key questions related 

to beneficiaries’ changes in drug purchases and use during the coverage 

gap. We conducted a nonresponse analysis to see how our survey 

estimates might be affected by potential nonresponse bias and found no 

evidence of bias. Appendix C provides details of the nonresponse 

analysis. 

We projected all survey statistics to beneficiaries who entered the 

coverage gap, were not enrolled in enhanced plans, did not receive 

low-income subsidies, and paid 100 percent of drug costs during the 

coverage gap based on their 2006 PDE claims. See Appendix D for a 

list of 95-percent confidence intervals for all statistical projections. 

Data Limitations 

Our analysis of PDE data covered only prescription drugs purchased 

through Part D. Because PDE data do not capture prescription drug 

purchases outside Part D, we could not capture the full extent of 

beneficiaries’ prescription drug purchases. In addition, SPAP 

assistance with prescription drug costs would only have been visible in 

the PDE data if the SPAP coordinated with Part D. However, our 

survey analysis asked beneficiaries about the use of free medication 

samples and purchases made outside their Part D plans in an attempt 

to gather this information. 

Because we chose to base our analysis of the PDE data on the number of 

months in which beneficiaries filled a prescription, not enrollment 

months, our results are not comparable to standard industry 

per-member-per-month measures, which are based on enrollment 

months. For example, our analysis of the average number of drugs per 

month may be higher than industry averages. However, this analytic 

choice does not change the relative decrease in the average number of 

drugs purchased per month after entering the coverage gap. 

The population to which we project our survey sample is different from 

the population used to conduct the PDE analysis. Both populations 

excluded beneficiaries who received financial assistance during the 

coverage gap. The survey population, however, excluded all 

beneficiaries enrolled in enhanced plans, some of whom may not have 

received assistance during the coverage gap. In other words, the survey 

population, because of the means used to target beneficiaries, may not 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 9 
INTRODUCTION 

represent all beneficiaries who did not receive assistance during the 

coverage gap. 

Standards 

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

Inspections” issued by the President’s Council on Integrity and 

Efficiency and the Executive Council on Integrity and Efficiency.

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 10 
INTRODUCT FINDINGS ION 

Of the 22 million Part D 

beneficiaries who filled at least one 

prescription in 2006, 7 percent had 

gross covered drug costs exceeding 

the initial coverage limit of $2,250 and did not receive any financial 

assistance during the coverage gap. This represents approximately 

1.5 million beneficiaries. In contrast, 26 percent, or approximately 

5.6 million beneficiaries, had gross covered drug costs exceeding the 

initial coverage limit but had some assistance during the coverage gap. 

This assistance could have come from their plans; low-income subsidies; 

or other approved third-party payers, such as SPAP. In total, 

33 percent of beneficiaries had gross covered drug costs exceeding the 

initial coverage limit in 2006. 

Of the 22 million Part D 

beneficiaries who filled at least one 

prescription in 2006, 7 percent had 

gross covered drug costs exceeding 

the initial coverage limit of $2,250 and did not receive any financial 

assistance during the coverage gap. This represents approximately 

1.5 million beneficiaries. In contrast, 26 percent, or approximately 

5.6 million beneficiaries, had gross covered drug costs exceeding the 

initial coverage limit but had some assistance during the coverage gap. 

This assistance could have come from their plans; low-income subsidies; 

or other approved third-party payers, such as SPAP. In total, 

33 percent of beneficiaries had gross covered drug costs exceeding the 

initial coverage limit in 2006. 

Seven percent of Part D beneficiaries entered 

the coverage gap and did not receive financial 

assistance with their prescription drug costs 

Δ FINDINGS 

Time spent before the coverage gap. Beneficiaries who did not have 

financial assistance during the coverage gap took an average of 

7 months to enter the coverage gap. In fact, 36 percent entered the 

coverage gap in the third quarter of the year, and 45 percent entered 

the coverage gap in the fourth quarter. Thirteen percent of beneficiaries 

who did not have assistance during the coverage gap entered the 

coverage gap in December. 

Time spent in the coverage gap. Most beneficiaries who did not have 

financial assistance (83 percent) spent less than 6 months in the 

coverage gap. Approximately 17 percent spent 6 to 8 months in the 

coverage gap, and less than 1 percent spent 9 to 12 months. 

Money spent during the coverage gap. While in the coverage gap, 

beneficiaries who did not have financial assistance spent an average 

total of $979, with a median total of $675. On average, these 

beneficiaries spent $108 per month before entering the coverage gap 

and $290 per month during the coverage gap. 

Beneficiaries who left the coverage gap. Twelve percent (178,717) of 

beneficiaries without financial assistance during the coverage gap left it 

and entered catastrophic coverage. Beneficiaries who entered 

catastrophic coverage spent an average of 4.5 months in the coverage 

gap and 2.7 months in catastrophic coverage. Overall, 59 percent of 

beneficiaries who entered catastrophic coverage did so in the last 

quarter of 2006. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 11 
FINDINGS 

Of the beneficiaries who did 

not receive financial 

assistance during the 2006 

coverage gap, 98 percent 

made some changes in their drug purchasing behavior. During the 

coverage gap, 69 percent of beneficiaries decreased the average number 

of drugs purchased, while 29 percent increased the average number of 

drugs purchased. 

During the coverage gap, drug purchasing 

behavior changed for almost all beneficiaries who 

did not receive financial assistance 

For those beneficiaries who decreased the average number of drugs they 

purchased during the coverage gap, the number dropped from an 

average of 4.5 drugs per month to 3.8 drugs per month. This decrease 

could represent a strategy that beneficiaries used to reduce their 

financial burden during the coverage gap, when they were responsible 

for 100 percent of drug costs. This explanation is consistent with 

research suggesting that beneficiaries decrease prescription drug use 

when they encounter a gap in coverage. The decrease could also reflect 

nonadherence to prescribed drug regimens. On the other hand, the 

reduction could be the result of medically appropriate changes in 

beneficiaries’ drug regimens due to changes in health status. 

For those beneficiaries who increased the average number of drugs they 

purchased, the number rose from an average of 4.3 drugs per month to 

5.6 drugs per month during the coverage gap. This increase is most 

likely explained by changes in the beneficiaries’ drug regimens due to 

changes in health status. 

Overall, changes in drug purchasing behavior did not alter the type of 

drugs purchased as measured by chronic versus acute drugs. 

Beneficiaries used chronic and acute drugs in the same proportions 

before and during the coverage gap, at a rate of approximately 

80-percent chronic and 20-percent acute drugs. The high percentage of 

drugs that beneficiaries purchased to treat chronic conditions indicates 

that beneficiaries’ prescription drug needs remain mostly stable over 

time, regardless of purchasing patterns. Because the percentage of 

acute drugs did not decrease during the coverage gap, the decrease in 

the average number of drugs is likely not explained by the cessation of 

acute medical conditions. 

In addition, beneficiaries increased their utilization rate of generic 

drugs by 8 percent during the coverage gap, from 49 to 53 percent. 

Although the generic utilization rate increased during the coverage gap, 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 12 
FINDINGS 

it remained lower than the 2006 Part D national generic utilization rate 

of 56 percent.30

Beneficiaries with more drug purchases before entering the coverage gap 

made greater changes in their drug purchasing behavior during the 

coverage gap 

The greater the average number of drugs per month that beneficiaries 

purchased before entering the coverage gap, the more they reduced the 

average number of drugs per month that they purchased during the 

coverage gap. Beneficiaries who purchased an average of 1 to 4.9 drugs 

per month had a 9-percent decrease in the average number of drugs 

purchased per month, while beneficiaries who purchased an average of 

5 to 8.9 drugs had a 10-percent decrease. Beneficiaries who purchased 

an average of at least nine drugs per month had the largest decrease, at 

18 percent. See Table 2 for the changes in average monthly drug 

purchasing for all beneficiaries. 

Table 2: Average Number of Drugs Purchased per Beneficiary per Month 

Beneficiaries by Average 

Drugs Purchased per 

Month Before Entering 

the Coverage Gap 

Number of 

Beneficiaries 

Average Monthly 

Number of Drugs 

Purchased Before 

Entering the 

Coverage Gap 

Average Monthly 

Number of Drugs 

Purchased During 

the Coverage Gap Percent Change 

Beneficiaries purchasing 

1–4.9 drugs 959,075 3.5 3.2 -9% 

Beneficiaries purchasing 

5–8.9 drugs 527,738 6.2 5.6 -10% 

Beneficiaries purchasing 

9 or more drugs 43,975 10.1 8.3 -18% 

Source: OIG analysis of 2006 PDE data, 2008. 

The greater the average number of drugs per month that beneficiaries 

purchased before entering the coverage gap, the greater their average 

monthly payments both before and during the coverage gap. However, 

beneficiaries who purchased an average of nine or more drugs per 

month before entering the coverage gap had a smaller percentage 

increase in their average monthly payments when comparing costs 

before and after entering the coverage gap than beneficiaries who 

purchased, on average, fewer drugs per month. See Table 3 for the 

changes in average monthly payments for all beneficiaries. 

30 OIG, “Generic Drug Utilization in the Medicare Part D Program,” OEI-05-07-00130, 

November 2007. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 13 
FINDINGS 

Table 3: Average Payment per Beneficiary per Month 

Beneficiaries by Average 

Drugs Purchased per 

Month Before Entering 

the Coverage Gap 

Number of 

Beneficiaries 

Average Monthly 

Payment Before 

Entering the 

Coverage Gap 

Average Monthly 

Payment During 

the Coverage 

Gap Percent Change 

Beneficiaries purchasing 

1–4.9 drugs 959,075 $100 $258 158% 

Beneficiaries purchasing 

5–8.9 drugs 527,738 $120 $319 166% 

Beneficiaries purchasing 

9 or more drugs 43,975 $181 $432 139% 

Source: OIG analysis of 2006 PDE data, 2008. 

Beneficiaries who purchased an average of nine or more drugs per 

month saw a 139-percent increase in average monthly payments 

compared to more than 150 percent for other beneficiaries. This smaller 

percentage increase is likely explained by the fact that this group of 

beneficiaries most dramatically reduced the average number of drugs 

purchased during the coverage gap, thereby mitigating the full financial 

burden of the coverage gap. 

The smaller percentage increase is not explained by a change in generic 

drug utilization. In fact, the more drugs beneficiaries purchased on 

average before the coverage gap, the less likely that they were to 

increase their utilization of generic drugs during the coverage gap. 

Beneficiaries purchasing an average of 1 to 4.9 drugs per month 

increased their generic utilization rate from 44 percent before entering 

the coverage gap to 49 percent during the coverage gap. However, 

beneficiaries who purchased an average of five or more drugs per month 

before entering the coverage gap did not change their generic utilization 

rates. See Table 4 for rates of generic utilization before and during the 

coverage gap. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 14 
FINDINGS 

Table 4: Rates of Generic Utilization 

Beneficiaries by Average 

Drugs Purchased per 

Month Before Entering the 

Coverage Gap 

Number of 

Beneficiaries 

Generic Utilization 

Rate Before 

Entering the 

Coverage Gap 

Generic 

Utilization Rate 

During the 

Coverage Gap Percent Change 

Beneficiaries purchasing 

1–4.9 drugs 959,075 44% 49% 11% 

Beneficiaries purchasing 

5–8.9 drugs 527,738 55% 55% 0% 

Beneficiaries purchasing 9 

or more drugs 43,975 59% 59% 0% 

Source: OIG analysis of 2006 PDE data, 2008. 

For the beneficiaries who purchased an average of five or more drugs 

per month before the coverage gap, increasing generic utilization rates 

may not have been an option. Their generic utilization rates before they 

entered the coverage gap were already higher than those of other 

beneficiaries. Further, their generic utilization rate was at or above the 

Part D national generic utilization rate.31

Although decreasing the average number of drugs that beneficiaries 

purchased during the coverage gap may have helped them reduce their 

financial burden, it may have kept them in the coverage gap longer. For 

example, beneficiaries who purchased an average of nine or more drugs 

per month before the coverage gap spent an average of 4.5 months in 

the coverage gap, compared to 4 months or less for other beneficiaries. 

See Table 5 for the average amount of time before beneficiaries entered 

the coverage gap and the average amount of time beneficiaries spent in 

the coverage gap. 

 Table 5: Average Time in the Coverage Gap in Months 

Beneficiaries by Average Drugs 

Purchased per Month Before 

Entering the Coverage Gap 

Number of 

Beneficiaries 

Average Amount of 

Time To Enter the 

Coverage Gap 

Average Amount 

of Time in the 

Coverage Gap 

Beneficiaries purchasing 

1–4.9 drugs 959,075 7.9 3.0 

Beneficiaries purchasing 

5–8.9 drugs 527,738 6.8 4.0 

Beneficiaries purchasing 9 or 

more drugs 43,975 4.5 4.5 

Source: OIG analysis of 2006 PDE data, 2008. 

31 OIG, “Generic Drug Utilization in the Medicare Part D Program,” OEI-05-07-00130, 

November 2007. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 15 
FINDINGS 

Beneficiaries who purchased an average of nine or more drugs per 

month were possibly in the coverage gap longer, on average, than other 

beneficiaries. Because these beneficiaries purchased a greater average 

number of drugs per month, they entered the coverage gap earlier than 

other beneficiaries. It took this group of beneficiaries approximately 

4.5 months to enter the coverage gap, compared to over 6.5 months for 

other beneficiaries. Thus, they had a longer time to spend in the 

coverage gap. Beneficiaries who entered the coverage gap later in the 

coverage year may have had their time in the coverage gap cut short by 

the end of the benefit year. 

Surveyed beneficiaries identified specific types of changes in drug 

purchasing behavior and use 

Changes in drug purchasing. When we surveyed a sample of 

beneficiaries similar to those included in the analysis above,32 

38 percent of the beneficiaries reported seeking at least one less-costly 

alternative to purchasing drugs, including free medication samples, 

comparison shopping, and switching to mail-order pharmacies. Table 6 

lists changes that beneficiaries reported making in drug purchasing 

behavior during the coverage gap. 

Table 6: Beneficiaries’ Reported Changes in Drug Purchasing During 

the Coverage Gap 

Changes in Purchasing Prescription Drugs Percentage of Beneficiaries* 

Used free medication samples 25% 

Shopped around and compared prices 23% 

Switched to a mail-order pharmacy 11% 

Purchased drugs outside their plan 8% 

*Choices are not mutually exclusive 

Source: OIG analysis of beneficiary survey responses, 2008. 

In addition to seeking less-costly alternatives to purchasing prescription 

drugs, beneficiaries sought help from informal sources to help pay for 

drug purchases. Fifteen percent of beneficiaries who reported entering 

the coverage gap reported receiving help to pay for their prescription 

32 For a discussion of the sampling methodology used to select this sample of 

beneficiaries, please see the methodology, p. 7. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 16 
FINDINGS 

drug purchases during the coverage gap; 2 percent reported more than 

one type of help. Table 7 lists sources that beneficiaries reported 

receiving help from during the coverage gap. 

Table 7: Beneficiaries’ Reported Sources of Financial Help During the 

Coverage Gap 

Sources of Financial 

Assistance Percentage of Beneficiaries 

Family member or friend 8% 

SPAP* 4% 

Private pharmaceutical 

company 4% 

Charitable organization 1% 

*We removed all beneficiaries who received financial assistance during the 2006 coverage 

gap based on 2006 PDE data. This would include assistance from SPAPs. Beneficiaries may 

be referring to help from SPAPs in the 2007 coverage gap or may be confusing premium 

assistance with help paying for drugs at the point of sale. 

Source: OIG analysis of beneficiary survey responses, 2008. 

Twenty percent of the beneficiaries surveyed may have been eligible 

for but not enrolled in a low-income subsidy that could have assisted 

them with purchasing prescription drugs during the coverage gap. 

These beneficiaries reported annual incomes below 150 percent of the 

FPL and therefore met the income eligibility requirements for a 

low-income subsidy; whether they would have passed the asset test as 

well is unknown.

Changes in drug use. Surveyed beneficiaries also identified changes in 

the ways in which they used prescription drugs. One-third appeared to 

have compromised their drug regimens, indicating that they used 

medications less often, stopped taking medications, or did not start new 

medications. In addition, 20 percent reported not consulting a medical 

professional before making changes to their drug regimens. Table 8 

lists changes that beneficiaries reported making in the way they used 

prescription drugs during the coverage gap. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 17 
FINDINGS 

Table 8: Beneficiaries’ Reported Changes in Drug Use During the 

Coverage Gap 

Changes in Prescription Drug Use Percentage of Beneficiaries* 

Used a medication less often than prescribed 21% 

Switched to a different prescription drug 18% 

Stopped taking one or more medications 16% 

Did not start a new medication 14% 

Switched to an over-the-counter drug 4% 

*Choices are not mutually exclusive 

Source: OIG analysis of beneficiary survey responses, 2008. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 18 
ΔRECOMMENDATION RECOMMENDATIONS 

Seven percent of beneficiaries entered the coverage gap without 

financial assistance. Almost all of these beneficiaries made changes in 

their drug purchasing behavior during the coverage gap. In particular, 

69 percent decreased the number of drugs that they purchased. In 

addition, the more drugs per month that beneficiaries purchased before 

entering the coverage gap, the more they reduced the number of drugs 

per month that they purchased during the coverage gap. 

When surveyed, beneficiaries identified specific changes in the ways 

they purchased or used drugs during the coverage gap. Thirty-eight 

percent reported seeking at least one less-costly alternative to 

purchasing drugs, and one-third appeared to have compromised their 

drug regimens, potentially compromising their health. 

Given that some beneficiaries appeared to decrease the number of drugs 

that they purchased during the coverage gap and the potential health 

consequences of those actions, we make the following recommendations 

to CMS: 

CMS Should Support Outreach and Education Activities Targeted at 

Beneficiaries Who Make More Prescription Drug Purchases Before Entering 

the Coverage Gap 

CMS could accomplish this by encouraging plan sponsors to augment 

their current outreach and beneficiary education efforts. CMS could 

encourage sponsors to use drug utilization data to target beneficiaries 

who purchase more drugs per month during initial coverage for more 

education about efficient and effective drug purchasing options. 

Medication Therapy Management programs (MTMP) could be expanded 

to discuss drug purchasing options and strategies. 

CMS could also supplement plans’ outreach and education efforts by 

working directly with beneficiaries who historically have purchased 

more drugs per month during initial coverage. These beneficiaries could 

be targeted using the previous year’s PDE data. CMS could start by 

targeting beneficiaries who purchased nine or more drugs per month 

during initial coverage; our analysis shows that they had the most 

dramatic drop in the number of drugs purchased monthly during the 

coverage gap. 

CMS could educate beneficiaries who purchased more drugs during 

initial coverage about cost-saving strategies for purchasing prescription 

drugs. This could include such strategies as talking to a doctor about 

switching to lower-cost, therapeutically equivalent drugs or comparison 

shopping to get the lowest prices on current drugs. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 19 
RECOMMENDATIONS 

In addition, CMS could provide targeted education to these beneficiaries 

about the various tools available for choosing the most cost-effective 

prescription drug plan for the next year. Given that beneficiaries who 

purchased more drugs during initial coverage had a high rate of generic 

utilization, changing beneficiary purchasing behaviors within the same 

plan, in some cases, may not be enough to reduce the financial burden 

during the coverage gap. 

CMS Should Target Low-Income Subsidy Outreach to Beneficiaries Who 

Entered the Coverage Gap Without Financial Assistance 

Targeting the population of beneficiaries who entered the coverage gap 

without financial assistance in previous years might be one way to 

identify eligible beneficiaries for enrollment in the low-income subsidy 

program; 20 percent of the beneficiaries surveyed may have been 

eligible. As a 2006 OIG report demonstrates, there is no effective way to 

identify the pool of beneficiaries who may be eligible for the subsidy.33 

That report concluded that legislation is needed to allow CMS and the 

Social Security Administration to more effectively identify beneficiaries 

who are potentially eligible for the subsidy. We continue to support this 

conclusion. 

In addition, CMS should continue targeting beneficiaries to promote the 

low-income subsidy and assist eligible beneficiaries. Beneficiaries who 

enter the coverage gap without financial assistance for prescription 

drug costs might benefit from more education about the low-income 

subsidy that can assist them throughout the rest of the benefit year. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS generally agreed with our findings and stated that it appreciated 

the additional information provided through the beneficiary survey. 

CMS noted that our findings were similar to the results of CMS’s 

analysis presented at the Medicare Drug Benefit Symposium, held in 

October 2008. For example, we found that 7 percent of beneficiaries 

entered the coverage gap and did not receive financial assistance with 

their prescription drug costs. CMS found that almost 10 percent of 

beneficiaries who did not have a low-income subsidy and were not in a 

plan with gap coverage reached their plan’s specific initial coverage 

33 OIG, “Identifying Individuals Eligible for the Medicare Part D Low-Income Subsidy,” 

OEI-03-06-00120, November 2006. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 20 
RECOMMENDATIONS 

limit. The difference in results can be explained by different analytic 

approaches, as CMS correctly noted. 

Although CMS generally agreed with our findings, it indicated a 

concern about the lack of a control group with which to compare our 

results. As a result, CMS pointed out that this evaluation does not 

provide a true causal analysis. This is accurate, as the report does not 

present a true causal analysis. Rather, it presents data about drug 

purchases with a number of plausible explanations of those data, 

including the possibility that the decrease in drug purchases was the 

result of the coverage gap. This explanation is consistent with research 

described in the body of the report suggesting that beneficiaries 

decrease prescription drug use when they encounter a gap in coverage. 

In addition, CMS questioned whether the decrease in drug purchases 

could be attributed to the coverage gap. CMS stated that it had 

conducted a similar analysis using beneficiaries who received a 

low-income subsidy as a comparison group. CMS found that the 

comparison group decreased the number of drugs purchased per month 

despite the fact that they did not face a coverage gap. However, it is 

unclear whether the extent of the decrease was as sharp for this group 

as it was for beneficiaries without financial assistance during the 

coverage gap. 

In response to our recommendation that CMS support outreach and 

education activities targeted at beneficiaries who make more 

prescription drug purchases before entering the coverage gap, CMS 

stated that it believed its current outreach to all beneficiaries is 

sufficient. CMS stated that the annual open-enrollment campaign 

encourages all beneficiaries to make informed decisions based on cost. 

In addition, CMS indicated that the Medicare Prescription Drug Plan 

Finder tool selects generic alternatives as the default and can substitute 

lower-cost therapeutic alternatives. Thus, beneficiaries can use this tool 

to explore cost-saving options. Lastly, CMS highlighted the additional 

outreach done through Part D sponsors and their MTMPs. 

However, we found that beneficiaries who made more prescription drug 

purchases before entering the coverage gap had the largest drop in the 

number of drugs purchased during the coverage gap. Because these 

beneficiaries take more prescription drugs, they are likely in poorer 

health and are the most vulnerable to negative health consequences 

from nonadherence to drug regimens. Therefore, additional outreach 

and education about efficient and effective drug purchasing options 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 21 
RECOMMENDATIONS 

targeted at this group of beneficiaries could have far-reaching health 

benefits. Current CMS outreach and plan sponsor MTMPs do not target 

this group, nor are MTMPs required to assist with financial decisions or 

provide cost-saving strategies. 

CMS concurred with our second recommendation that CMS target 

low-income subsidy outreach to beneficiaries who entered the coverage 

gap without financial assistance. CMS indicated that it would continue 

to emphasize the financial value of the low-income subsidy to attract 

beneficiaries with significant drug utilization who might benefit from 

the subsidy. However, this action does not address our 

recommendation, which is to use drug utilization data to identify 

potential beneficiaries for the subsidy. Given the recognized difficulty 

in identifying beneficiaries who may be eligible for the subsidy, we 

offered this as an additional approach. 

CMS also offered a few technical comments. They offered the same 

comments when asked to informally comment on the draft report. We 

did not alter our draft report in response to these comments because 

they primarily pointed out how our analysis is different from other 

approaches. Given that we clearly stated our approach, this did not 

seem necessary. For this final version of the report, we have sought to 

make these differences explicit. For the full text of CMS’s comments, 

see Appendix E. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 22 
Δ APPENDIX ~ A 

Detailed Methodology 

This study explores the effect of the coverage gap on beneficiaries’ drug 

purchasing behavior by focusing on those beneficiaries without 

assistance during the coverage gap in 2006. We examined changes in 

drug purchasing behavior and costs for these beneficiaries as they 

moved from initial coverage into the coverage gap. 

Data Sources 

We used 2006 Prescription Drug Event (PDE) data to conduct this 

study. The Centers for Medicare & Medicaid Services (CMS) requires 

plans providing prescription drug coverage to submit PDE data for 

payment purposes. Each drug event included in the PDE data 

represents the dispensing of a drug or medical supply for the injection of 

insulin. These data contain the beneficiary’s identification number; the 

Food and Drug Administration’s National Drug Code (NDC) ;34 the date 

of service; the number of days for which the drug is supplied; and 

payments at point of sale made by plan sponsors, beneficiaries (or on 

behalf of beneficiaries), and other approved third-party payers. Our 

analysis included final action PDE claims submitted by all plans for 

2006 as of July 2007.35

We used two drug data compendia to supplement the PDE data: 

(1) August 2007 First DataBank drug product information data and 

(2) first quarter 2007 Redbook drug product data. The 2007 First 

DataBank and Redbook data contained information on all drugs covered 

by Part D in 2006 but with more up-to-date drug information than 

earlier versions of First DataBank and Redbook. First DataBank is a 

database containing drug product information, such as drug name and 

therapeutic class, for each NDC. Redbook is a database that provides 

pricing and descriptive information for prescription and 

over-the-counter drugs. 

23 

34 An NDC is a three-part universal identifier that specifies the manufacturer, product, 

and package size. 

35 Final action claims are those that CMS uses to reconcile payments to plans. A PDE 

record is submitted each time a beneficiary fills a prescription covered under Part D. The 

PDE records may be amended or deleted up to 6 months after the end of the payment year. 

After that point, CMS considers them to be final action claims. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE
APPENDIX ~ A 

In addition, we conducted a national survey of a random sample of 

beneficiaries. We used the Medicare enrollment database to obtain 

addresses for our sample and public directories to find phone numbers. 

To ensure the construct validity of our cover letter and survey 

instrument, we conducted two focus group meetings at senior centers. 

We asked beneficiaries to read the cover letter and complete the survey. 

After they completed the survey, we conducted brief cognitive 

interviews to determine whether the cover letter and survey were clear 

and understandable. Most beneficiaries interpreted the survey 

questions as we intended. Where necessary, we altered the survey 

based on the feedback we received from the focus groups to make it 

more understandable. 

We conducted the survey primarily by mail. For beneficiaries with valid 

phone numbers, we made three attempts by mail and two attempts by 

phone to obtain their responses. For beneficiaries without valid phone 

numbers, we made five mail attempts. 

We allowed proxy respondents. We asked that the person who made 

health care decisions on behalf of the beneficiary complete the survey. 

Approximately 23 percent of the surveys were completed by someone 

other than the beneficiary. 

Data Analysis 

Determining the number of beneficiaries in the coverage gap. The 

complete final action 2006 PDE data contained nearly 817 million 

claims for over 22 million beneficiaries. To obtain our population of 

beneficiaries who had gross covered drug costs exceeding the initial 

coverage limit and did not have financial assistance, we completed a 

series of steps. 

First, we removed some claims: 

1. We excluded all claims for noncovered Part D drugs because these 

claims do not count toward true out-of-pocket expenses. This 

removed 5,889,021 claims from the PDE data, representing less 

than 1 percent of the total claims. 

2. We removed claims without corresponding drug-identifying 

information. We merged beneficiary claims with First DataBank 

and Redbook data. This removed 166,405 claims because the 

drugs were not listed in at least one of those data sources. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 24 
APPENDIX ~ A 

Then, we determined our population: 

1. We removed all beneficiaries who did not have gross covered 

drug costs greater than the initial coverage limit of $2,250. To do 

this, we calculated cumulative and total spending for each 

beneficiary using these PDE data fields: ingredient cost, 

dispensing fee, and sales tax. This removed 

14,783,703 beneficiaries, representing 66.7 percent of all 

beneficiaries. 

2. We then removed all beneficiaries who received assistance from a 

low-income subsidy. To complete this step, we used the PDE data 

field that records the amount of a beneficiary’s low-income 

subsidy, if any. If this field was greater than zero, we removed the 

beneficiary. This removed 4,257,527 beneficiaries, representing 

19.2 percent of all beneficiaries. 

3. Finally, we removed all beneficiaries who did not pay 100 percent 

of the drug’s ingredient cost, dispensing fee, and sales tax for all 

claims during the coverage gap. To do this, we separated the 

claims into three phases: (1) before the coverage gap, which 

included both the deductible and initial coverage; (2) during the 

coverage gap; and (3) catastrophic coverage (after the coverage 

gap). We then determined which beneficiaries had claims during 

the coverage gap for which they did not pay 100 percent of the 

drug cost. This removed 1,411,446 beneficiaries, representing 

6.4 percent of all beneficiaries. 

We assumed the standard 2006 initial coverage limit of $2,250 as the 

threshold for entry into the coverage gap. While we did not use the 

initial coverage limit specific to each beneficiary’s plan, we did exclude 

all forms of assistance in the coverage gap, which includes additional 

assistance from plans with extended initial coverage limits. 

Finally, we removed additional beneficiaries because of data anomalies 

that made their claims history implausible: 

1. We removed any beneficiary whose entry into catastrophic 

coverage preceded his or her entry into the coverage gap. To do 

this, we calculated the date when each beneficiary entered the 

coverage gap and catastrophic coverage. An additional 

16,808 beneficiaries were removed in this step, representing less 

than 1 percent of all beneficiaries. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 25 
APPENDIX ~ A 

2. We removed any beneficiary who had a claim before the coverage 

gap but not during it or who had a claim during the coverage gap 

but not before. This removed an additional 166,017 beneficiaries, 

representing less than 1 percent of all beneficiaries. 

As a result, our population consisted of 1,530,788 beneficiaries with 

81,922,129 claims. We assigned beneficiaries to one of three groups, 

based on the average number of drugs purchased per month during 

initial coverage: 1 to 4.9 drugs, 5 to 8.9, and 9 or more. This allowed 

us to analyze changes in drug purchasing and payment across groups, 

based on the average number of drugs purchased. 

Analyzing changes in beneficiary drug purchases. To measure drug 

purchasing in each coverage phase, we calculated three measures: 

(1) average number of different drugs per month, (2) percentage of 

drugs purchased to treat chronic and acute conditions, and (3) generic 

drug utilization rate. 

We based our count of drugs per beneficiary on the Ingredient List 

Identifier for each drug. This represents a unique combination of active 

ingredients, regardless of manufacturer, package size, dosage form, 

route of administration, or strength. As such, it incorporates multiple 

NDCs. 

Where we refer to months in our calculations, we calculated months 

based on the whether or not a beneficiary filled a prescription. If a 

beneficiary had a claim during a given month, we counted that calendar 

month towards his or her total months. 

To identify the percentage of chronic and acute drugs purchased per 

phase, we used a data field from the Redbook that indicated, at the NDC 

level, whether a drug was considered to be a maintenance drug. 

Maintenance drugs are used to treat chronic conditions. In each 

coverage phase, we counted the total number of maintenance and 

nonmaintenance drugs prescribed and divided that by the total number 

of drugs purchased. 

To identify the generic drug utilization rate per phase, we used a data 

field from First DataBank that indicates, at the NDC level, whether a 

drug is a brand-name or generic drug. We then identified the number of 

prescriptions labeled as generic for each beneficiary. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 26 
Δ APPENDIX ~ B 

Beneficiary Survey Responses 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 27 
 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 28 

APPENDIX ~ B 
APPENDIX ~ B 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 29 
APPENDIX ~ B 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 30 
APPENDIX ~ B 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 31 
 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 32 

APPENDIX ~ B 
ΔAPPENDIX ~ B APPENDIX ~ C 

Nonresponse analysis 

We analyzed how nonresponse to our survey may have affected our 

survey estimates. We examined potential nonresponse bias effects on 

24 key survey questions. Our nonresponse analysis provided no 

evidence that our survey results were biased because of nonresponse. 

Our basic approach was to impute answers for nonrespondents and 

determine whether the survey estimate calculated with the imputed 

values differed significantly from the survey estimate based solely on 

the respondents’ answers. If no statistical difference was found between 

the two estimates, we considered our survey estimates to be unaffected 

by potential nonresponse bias. 

Variables for both respondent and nonrespondent beneficiaries were 

age, sex, race, drug benefit type, and plan type. We determined 

whether respondents and nonrespondents differed based on these 

variables. They did not differ based on sex, race, and drug benefit type. 

However, they differed based on plan type and age. 

Because nonrespondents were different by plan type and age, we 

imputed nonrespondents’ answers based on the response frequencies of 

late responders who shared the same plan type and age characteristics. 

To do this, we classified response time as either “early” or “late” 

depending on how many attempts it took to obtain a response. Late 

responders were those who responded to the survey after our third 

contact attempt. Finally, we conducted statistical tests of significance 

to determine whether the estimates based on both respondents’ answers 

and nonrespondents’ imputed values differed from the estimates based 

only on respondents’ answers. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 33 
Δ APPENDIX ~ D 

Estimates and Confidence Intervals· 

Table D-1: Estimates of Survey Results: Coping Strategies Related to Prescription Drug Purchasing and 

Use During the Coverage Gap by Beneficiaries Who Reported Entering the Coverage Gap 

Estimate Description 

Sample 

Size Point Estimate 

95-Percent 

Confidence Interval

Percentage of beneficiaries who reported entering the coverage gap 

after enrolling in a Part D plan 142 80.3% 73.7%–86.9%

Percentage of beneficiaries who reported seeking less costly 

alternatives to purchasing drugs (i.e., used a medication less often, 

stopped taking a medication, or did not start a new medication) 114 37.7% 28.7%–46.8%

Percentage of beneficiaries who reported using free prescription 

drug samples 114 25.4% 17.3%–33.6%

Percentage of beneficiaries who reported shopping around and 

comparing prices 114 22.8% 15.0%–30.6%

Percentage of beneficiaries who reported switching to a mail-order 

pharmacy 114 11.4% 5.5%–17.3%

Percentage of beneficiaries who reported purchasing drugs outside 

their plan 114 7.9% 2.9%–12.9%

Percentage of beneficiaries who reported receiving at least one type 

of help in purchasing their prescription drugs 114 14.9% 8.3%–21.6%

Percentage of beneficiaries who reported receiving more than one 

source of help in purchasing their prescription drugs 114 1.8% 0.2%–6.2%*

Percentage of beneficiaries who reported receiving help from a 

family member or friend 114 7.9% 2.9%–12.9%

Percentage of beneficiaries who reported receiving help from a 

State Pharmacy Assistance Program 114 4.4% 0.6%–8.2%

Percentage of beneficiaries who reported receiving help from a 

private pharmaceutical company 114 3.5% 0.1%–6.9%

Percentage of beneficiaries who reported receiving help from a 

charitable organization 114 0.9% 0.02%–4.8%*

Percentage of beneficiaries who reported compromising their drug 

regimens (i.e., used a medication less often, stopped taking a 

medication, or did not start a new medication) 114 33.3% 24.5%–42.1%

Percentage of beneficiaries who reported using a drug less often 

than prescribed 114 21.1% 13.5%–28.7%

Percentage of beneficiaries who reported that they stopped taking a 

medication 114 15.8% 9.0%–22.6%

Percentage of beneficiaries who reported not starting a new 

medication 114 14.0% 7.6%–20.5%

* Confidence interval calculated with an exact method based on the binomial distribution.

Source: Office of Inspector General (OIG) analysis of beneficiary survey responses, 2008. 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 34 
APPENDIX ~ D 

Table D-1: Estimates of Survey Results: Coping Strategies Related to Prescription Drug Purchasing and 

Use During the Coverage Gap by Beneficiaries Who Reported Entering the Coverage Gap, continued

Estimate Description 

Sample 

Size Point Estimate 

95-Percent 

Confidence Interval

Percentage of beneficiaries who reported not talking to a doctor, 

nurse, or pharmacist before changing their drug use 110 20.0% 12.4%–27.6%

Percentage of beneficiaries who reported switching to a different 

prescription drug 114 18.4% 11.2%–25.6%

Percentage of beneficiaries who reported switching to an over-thecounter drug 114 4.4% 0.6%–8.2%

Source: OIG analysis of beneficiary survey responses, 2008. 

Table D-2: Estimates of Survey Results: Beneficiaries’ Reported Annual Incomes 

Estimate Description 

Sample 

Size

Point 

Estimate 

95-Percent 

Confidence Interval

Percentage of all beneficiaries who reported that their annual 

household income was below 150% of the Federal poverty level 176 19.9% 13.9%–25.8%

Source: OIG analysis of beneficiary survey responses, 2008.

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 35 
Δ APPENDIX ~ E 

Agency Comments

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 36 
APPENDIX ~ E 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 37 
APPENDIX ~ E 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 38 
APPENDIX ~ E 

 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 39 
 O E I - 0 5 - 0 7 - 0 0 6 1 0 E FFECTS OF MEDICARE PART D C OVERAGE GAP ON BENEFICIARIES WITHOUT F INANCIAL ASSISTANCE 40 

ΔAPPENDIX ~ A APPENDIX ~ D ACKNOWLEDGMENTS 

This report was prepared under the direction of Ann Maxwell, Regional 

Inspector General for Evaluation and Inspections in the Chicago 

regional office, and Thomas Komaniecki, Deputy Regional Inspector 

General. 

Nicole Hrycyk served as the team leader for this study. Other principal 

Office of Evaluation and Inspections staff from the Chicago regional 

office who contributed to the report include Meghan Kearns, Elizabeth 

Kopko, Tamara Perry, Margarita Rodriguez, and Mara Werner; other 

central office staff who contributed include Kevin Farber, Doris 

Jackson, Kevin Manley, and Matthew McMullen.