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21–036 PDF 2005

S. HRG. 109–36

IMPLEMENTATION OF THE MEDICARE

MODERNIZATION ACT: DELIVERING PRESCRIPTION

DRUGS TO DUAL ELIGIBLES

HEARING

BEFORE THE

SPECIAL COMMITTEE ON AGING 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

WASHINGTON, DC

MARCH 3, 2005

Serial No. 109–3

Printed for the use of the Special Committee on Aging

(

SPECIAL COMMITTEE ON AGING 

GORDON SMITH, Oregon, Chairman 

RICHARD SHELBY, Alabama 

SUSAN COLLINS, Maine 

JAMES M. TALENT, Missouri 

ELIZABETH DOLE, North Carolina 

MEL MARTINEZ, Florida 

LARRY E. CRAIG, Idaho 

RICK SANTORUM, Pennsylvania 

CONRAD BURNS, Montana 

LAMAR ALEXANDER, Tennessee 

JIM DEMINT, South Carolina 

HERB KOHL, Wisconsin 

JAMES M. JEFFORDS, Vermont 

RUSSELL D. FEINGOLD, Wisconsin 

RON WYDEN, Oregon 

BLANCHE L. LINCOLN, Arkansas 

EVAN BAYH, Indiana 

THOMAS R. CARPER, Delaware 

BILL NELSON, Florida 

HILLARY RODHAM CLINTON, New York 

CATHERINE FINLEY, Staff Director 

JULIE COHEN, Ranking Member Staff Director 

(II) 

C O N T E N T S 

Page 

Opening Statement of Senator Gordon Smith ....................................................... 1

Opening Statement of Senator Herb Kohl ............................................................. 3

PANEL I 

Mark McClellan, M.D., Ph.D., administrator, Centers for Medicare and Medicaid Services, Washington, DC .......................................................................... 4

PANEL II 

Tina C. Kitchin, M.D., medical director, Oregon Department of Human 

Services, Salem, OR ............................................................................................. 32

Carl Clark, M.D., chief executive officer, Mental Health Center of Denver, 

Denver, Co ............................................................................................................ 45

Wendy Gerlach, director of Pharmacy Operations, Roeschen’s Omnicare 

Pharmacy, Milwaukee, WI; on behalf of the Long Term Care Pharmacy 

Alliance ................................................................................................................. 57

APPENDIX 

Prepared Statement of Senator Jay Rockefeller ................................................... 73

Questions from Senator Kohl for Mark McClellan ............................................... 74

Statement for the Record from Robert Hayes, president, The Medicare Rights 

Center .................................................................................................................... 75

(III) 

(1)

IMPLEMENTATION OF THE MEDICARE MODERNIZATION ACT: DELIVERING PRESCRIPTION DRUGS TO DUAL ELIGIBLES 

THURSDAY, MARCH 3, 2005 

U.S. SENATE, 

SPECIAL COMMITTEE ON AGING, 

Washington, DC. 

The committee convened, pursuant to notice, at 2:48 p.m., in 

room 628, Dirksen Senate Office Building, Hon. Gordon H. Smith 

(chairman of the committee) presiding. 

Present: Senators Smith and Kohl. 

OPENING STATEMENT OF SENATOR GORDON SMITH, 

CHAIRMAN 

The CHAIRMAN. Ladies and gentlemen, we welcome you. We 

apologize to you for the Senate voting schedule that has delayed 

our arrival. Hopefully, between my colleague and I, we can proceed 

with this hearing. If another vote is called, we will sort of ‘‘Mutt 

and Jeff’’ it between us. 

This is an important hearing. I believe it will prove to be quite 

informative. We are going to hear from a variety of witnesses, all 

of whom have an expertise that can inform our decisions about the 

implementation of Medicare modernization, and more specifically, 

the transition of the so-called dual eligibles from the Medicaid program to the new Medicare drug benefit that is slated to begin on 

January 1, 2006. 

I strongly believe that our ability to successfully transition the 

6.3 million Americans who are the poorest and most vulnerable 

citizens into Medicare drug benefits ultimately will prove the overall success or failure of this new program. That is why I have 

called this hearing on this day, March 3, and by looking at this program today and evaluating the regulations that have been developed by the Centers for Medicare and Medicaid Services, known as 

CMS, we have ample time to act, if necessary, to make administrative improvements. 

Now, before we get started, I would like to commend the CMS 

staff for their dedication and outstanding work to develop these 

policies. I have heard from many constituents, and I believe we will 

hear from many of our witnesses today, they have done an outstanding job. They have labored for the past year in their effort to 

meet with a wide array of stakeholders, provide opportunities for 

public comment, and incorporate many of the comments received 

into the final product, which was released on January 21. 

2

However, as I have learned throughout my many years as a legislator, no bill or other legislative product is ever perfect. I have 

yet to vote on a perfect bill. Given time and opportunity, improvements can be made, and that is the focus of today’s hearing, to determine if improvements are critical to the successful implementation of the Medicare drug benefit, whether adequate safeguards 

have been built into the system to protect the poorest and most 

vulnerable, in fact, to be able to protect these dual eligibles. 

I look forward to learning more detail about the process that 

CMS used to develop its regulations and to come to understand 

more fully the rationale behind their final decisions. 

I also eagerly await the testimony of our second panel, who will 

offer their insight based on their expertise in serving this population in how best to organize the program. As many people know, 

this population is very diverse. It includes young disabled children, 

middle-aged persons with significant medical challenges, and, of 

course, the elderly poor. 

At present, Federal and State combined spending on prescription drugs for dual eligibles totals almost $15 billion. However, to truly 

get an accurate picture of this population, let us look at who are 

the dual eligibles. Seventy-seven percent have annual incomes 

below $10,000, and nearly 25 percent are in nursing homes. Over 

50 percent are classified as being in fair to poor health. Most have 

multiple chronic conditions, and 33 percent have significant limitations on activities of daily living, such as self-care, cooking, and 

even cleaning. 

Therefore, as we begin to shape the Medicare prescription drug 

program to ensure it is properly serving this high-need population, 

it is clear to me that additional safeguards will be necessary. The 

question that I will look to Dr. McClellan and our other witnesses 

to answer today is whether the regulations, as drafted, get the job 

done, or whether improvements can and should be made. I also will 

look to our witnesses to assess the benefit added by each of their 

recommendations, because while improvements can be made, we 

also must be reasonable in our expectations. 

On January 1, 2006, millions of Americans who previously had 

nothing will begin receiving prescription drug coverage. In Oregon 

alone, that means 129,000 people will be helped. While many have 

differing views of the benefit, there is no question that the relief 

that will be felt by America’s poorest and most needy seniors will 

certainly be there. 

I believe it is time to come together and to get the job done properly and I hope my colleagues feel the same. I look forward to 

working together with them on this and other components of implementation, and I am confident we will continue to have a constructive dialog within the Aging Committee. 

I now turn to my colleague, Senator Kohl of Wisconsin, the ranking member of this committee, for his comments.

3

OPENING STATEMENT OF SENATOR HERB KOHL 

Senator KOHL. I thank you, Mr. Chairman, and we welcome all 

our witnesses who will be testifying here today. 

The new Medicare drug benefit will be a big change for the 6.3 

million beneficiaries nationwide, including 110,000 in Wisconsin 

who are known as dual eligibles. These are seniors and people with 

disabilities who qualify for both Medicare and Medicaid. They typically have incomes below $10,000 and are considered to be the 

most vulnerable beneficiaries. 

Today, their drugs are paid for )by Medicaid, but as of 

January 1, 2006, Medicaid will no longer cover them and they must 

all switch to a new Medicare private drug plan. Now, I did not support the Medicare drug bill for many reasons. While I support adding a real drug benefit to Medicare, the new law, in my judgment, 

fails to take common sense steps to lower drug prices by allowing 

Medicare to negotiate for the best prices and allowing less expensive imports to appear in our market. I also felt that instead of setting up a straightforward drug benefit in Medicare, the new law 

sets up a confusing and inconsistent patchwork of private drug 

plans. 

I believe Congress should still act to fix these problems, but as 

long as the law is going forward in its current form, then it is critical that when these low-income seniors and people with disabilities are switched to Medicare that we get it right. If we do not, 

they face disruptions in drug coverage that could result in serious 

harm to their health. 

I appreciate the steps CMS has taken to ensure a smooth transition from Medicaid to Medicare for these people, but several concerns remain and we must address them quickly as the Medicare 

drug benefit takes effect in only ten short months. 

Most dual eligibles do not understand their Medicaid coverage 

will end and they need to select a private Medicare plan. While 

CMS plans to automatically enroll them in a plan and give them 

time to switch plans, many may end up in plans that do not cover 

medicines that they had under Medicaid and many will be unaware 

of or confused by their new choices. 

In addition, private Medicare drug plans will be able to limit the 

drugs covered by having closed formularies, and this will cause 

confusion and could result in elderly and disabled patients not getting the drugs prescribed by their physician. 

Also, with one in four dual eligibles living in a nursing home, we 

must be careful with the transition of these vulnerable patients. 

They require specialized services through long-term care pharmacies that provide 24-hour service, custom drug packaging, and 

specialized monitoring. The move from Medicaid to Medicare is 

going to present many challenges for them, and I am looking forward to hearing from Wendy Gerlach from Milwaukee to help educate us on this issue. 

As these vulnerable individuals transition from the Medicaid program they know to the uncertainties of the Medicare drug plans, 

we run the risk of serious glitches that could disrupt their care. So 

I am glad we are having this hearing so that we can identify the 

challenges and solutions now and minimize disruptions in drug 

coverage for these very vulnerable people. 

4

Again, I thank you, Mr. Chairman, for this hearing and I look 

forward to hearing from our witnesses. 

The CHAIRMAN. Thank you, Senator Kohl. 

Our first panel consists of the administrator for the Centers for 

Medicare and Medicaid Services, Dr. Mark McClellan. Thank you, 

Mark. It is great to have you here and we look forward to your testimony. 

STATEMENT OF MARK McCLELLAN, M.D., PH.D., ADMINISTRATOR, CENTERS FOR MEDICARE AND MEDICAID SERVICES, WASHINGTON, DC 

Dr. MCCLELLAN. Thank you, Mr. Chairman and Senator Kohl. I 

really appreciate this opportunity to discuss how we can use the 

new Medicare prescription drug benefit to provide the best possible 

assistance for our dual-eligible beneficiaries, and I want to 

acknowledge the hard work of my staff at CMS and the constructive input that we have received from so many health professionals, advocates, and other experts on providing care to these 

most vulnerable beneficiaries in support of our effective implementation of this law. 

This is important. The new Medicare drug benefit will provide 

vital new help with drug costs for all Medicare beneficiaries, however they get their Medicare. But it is especially important for almost a third of our beneficiaries with low incomes, beneficiaries 

who are living on their Social Security check and who, until the 

Medicare Modernization Act was passed, were too often having to 

choose between drugs and other basic necessities. Under the Medicare law, these beneficiaries will have a comprehensive drug benefit that will pay for 95 percent or more of their prescription drug 

costs. This includes all dual-eligible Medicare beneficiaries, many 

of whom have faced limits on their coverage as States have struggled to maintain their Medicaid coverage. 

Mr. Chairman, the over six million full-benefit dual eligibles will 

qualify automatically for the comprehensive low-income subsidies 

in the new Medicare benefit, as you mentioned. Under Medicare, 

these beneficiaries will have no premiums or deductibles, and copayments of just a few dollars, and those residing in institutions 

will have no cost sharing at all. 

We are working hard to make sure that low-income seniors, including all the dual eligibles, get the comprehensive help that the 

Medicare benefit is intended to provide. We have been working 

hard with States, the Social Security Administration, other Federal 

agencies, and many other partners to meet the challenge of moving 

the dual eligibles to the new comprehensive Medicare benefit. We 

are implementing protections to make sure that no dual eligible 

beneficiaries have any gaps in their drug coverage as they move 

from Medicaid to Medicare. 

We are taking new steps to make sure that the drug benefit 

works well for beneficiaries, pharmacists, and the health care providers who work with them through an ongoing dialog. Throughout 

this year, we are going to continue to listen and to collaborate to 

implement this new benefit effectively, and I appreciate the opportunity to continue that dialog and to identify further steps and 

issues that we need to address through your hearing here today. 

5

As an example of the work that we are doing now, since the regulations were issued, I am pleased to announce that today, CMS 

is issuing a request for proposals for a contract to assist us in coordinating benefits and facilitating an accurate accounting of a 

beneficiary’s true out-of-pocket spending in near to real time. This 

system, which we will be implementing on schedule with the full 

drug benefit, will enable pharmacies and plans to process a beneficiary’s prescription smoothly, even for a beneficiary who shows up 

at a pharmacy in January 2006 and doesn’t have the plan card or 

doesn’t even remember the plan’s name. 

The system will enable plans to inform beneficiaries when they 

have reached coverage limits or when they can expect even greater 

financial relief for catastrophic coverage or from other wrap-around 

assistance. It will tell them how much they can save by switching 

to a generic version of their medicine. They will have their claims 

processed correctly without the need for bringing in receipts or submitting other documentation if they have wrap-around coverage, 

and they won’t even need their drug benefit card. 

Mr. Chairman, the transition to the Medicare drug benefit has 

already started. We are getting data from the States to identify 

dual eligible beneficiaries and we will begin personal outreach to 

them through mailings and other contacts this summer and will 

provide follow-up details in the fall. Early in the fall, about three 

months before the drug benefit begins, we will let them know what 

drug plan they have been assigned to if they don’t select one themselves by the end of December. We will also notify the plan so that 

the plan can assist in ensuring a smooth transition. 

We will be conducting a major education and outreach effort. 

Beneficiaries will get help through our 1–800–MEDICARE 24/7 

bilingual support line and through local outreach activities involving our regional offices and partners in State health insurance assistance programs, Area Associations on Aging, and many other 

public and private partners. 

I am especially pleased to be working closely with the Access to 

Benefits Coalition, a coalition of almost 100 beneficiary and patient 

support organizations who have had very different political views, 

very different views about the Medicare law itself, but who all have 

one thing in common. They want to make sure that we are implementing this benefit, this crucial new benefit for low-income seniors, as effectively as possible. 

We are also working with pharmacists, physicians, and other 

health professionals on simple steps they can take to help make 

sure their patients get the most out of the new drug benefit. 

Of course, we deeply appreciate the assistance and support of 

Members of Congress in reaching your constituents. We have already prepared some basic materials on Medicare’s new benefits 

and they can be used in town hall meetings or in staff interactions 

with Medicare beneficiaries back home. 

Of course, our support for dual-eligible beneficiaries doesn’t 

end with getting them transitioned to a Medicare drug plan on 

January 1. We are paying close attention to make sure the new 

drug formularies provide access to medically necessary treatments 

at the best possible price. The Medicare drug benefit will cover virtually all types of FDA-approved drugs and biologics. It is imporVerDate 0ct 09 2002 15:08 Jun 07, 2005 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 H:\DOCS\21036.TXT SAGING1 PsN: JOYCE
6

tant to note that CMS is going to ensure that when plans develop 

their formularies, they recognize the special needs of many of our 

beneficiaries, such as patients with mental illnesses, those with 

HIV or AIDS, people with disabilities, those living in nursing 

homes, and other beneficiaries who have been stabilized on certain, 

very specific and sensitive drug regimens. 

CMS regulations also require each plan to submit a transition 

plan for moving enrollees currently taking a drug that is not on the 

formulary to a medication that is on the list. This process must address the clinical situations where a beneficiary seeks to fill a prescription that is not on the formulary but isn’t aware of what is 

covered by the plan or isn’t aware of the exceptions process. We are 

going to review these plans as part of our approval process and we 

are not going to approve any drug plan unless its transition plan 

is adequate to protect Medicare beneficiaries, all of our beneficiaries. 

Under our published guidance on prescription drug plan oversight, we will be looking to see if the transition plans are consistent 

with widely used best practices, retiree drug coverage, and Medicaid plans today. 

CMS has also tightened and streamlined the process for exceptions and appeals for the formularies, and beneficiaries can get 

help from their doctor or a designated representative in this 

quicker process. 

There also are some special protections in place for beneficiaries 

who live in long-term care facilities. These beneficiaries as you 

mentioned, are a large part of our dual eligible population. Every 

plan must provide coverage to all its enrollees who live in any 

nursing home in its region, and we will have specific performance 

and service criteria that pharmacies will need to meet in order to 

serve nursing home beneficiaries. These criteria will address delivery and packaging and urgent access and those other critical needs 

that you all have mentioned to guarantee there will be no change 

in drug safety and no change in drug availability for this fragile 

population. 

In addition to all this, if a dual-eligible beneficiary finds that 

their plan is not the best fit for them, they may change plans at 

any time. 

On all of these transition issues for dual-eligible beneficiaries, we 

are working with the States to anticipate possible problems and 

will work together to deal with the transition challenges as they 

arise. We have already issued a set of guidance documents. We 

have specific State-by-State contacts, and we have an active work 

group that focuses on addressing all of the State issues. This involves representation from the States, CMS, and the Social Security Administration. This group has listed out the issues that the 

States need to address in handling the transition and it has 

worked to develop a checklist for the steps that States can take 

with assistance from CMS to execute the transition effectively. We 

will keep working together until we get the job done. 

Thank you for the opportunity to talk about the transition to this 

important new benefit, which is going to greatly enhance the quality of life for our beneficiaries in greatest need. I am looking forward to working with you as we continue to reach out to review 

7

and to examine the best ways to provide this critical new help to 

our most vulnerable beneficiaries on time on January 1, 2006. I am 

happy to answer any questions that you all may have. Thank you. 

The CHAIRMAN. Thank you very much, Doctor. 

[The prepared statement of Dr. McClellan follows:]

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The CHAIRMAN. On the last recess from which we just returned, 

I spent a lot of time with different provider groups on this very 

issue and one of them was the assisted living folks. As you probably know, in the State of Oregon, the State regulates assisted living, to a standard similar to nursing homes; however they are 

being treated differently than nursing homes in the new drug benefit. I just wonder if you can speak to that. Would you include them 

if there were certain standards met that would ensure safety and 

continuity of care for the patients? 

Dr. MCCLELLAN. Yes. Assisted living facilities are now providing 

an important part of long-term care assistance on this now very 

broad spectrum of long-term care assistance that we have. It is a 

very effective way of delivering long-term care services, medical 

services and other support that beneficiaries need to stay in the 

community. We absolutely envision beneficiaries in these settings 

being fully supported in meeting their prescription drug needs. 

The CHAIRMAN. But aren’t dual-eligible beneficiaries currently 

living in assisted living facilities excluded under the regulations 

from receiving the same level of coverage as these in nursing 

homes. 

Dr. MCCLELLAN. Well, they are not treated as nursing homes 

under the regulations, but our regulations focus on beneficiary 

needs. If there is a plan that discriminates against any class of 

beneficiaries, including those living in assisted living facilities, we 

would not approve that plan. 

So as with these other aspects of care, what we have tried to do 

in our regulations is lay out the conditions, the best practices that 

we think need to be met to serve all of our beneficiaries regardless 

of setting. If there are any specific concerns about assisted living 

facilities that you have that you think we haven’t fully addressed, 

we would be delighted to hear from your staff about it. We want 

to make sure that beneficiaries, regardless of setting, have access 

to the drugs that they need, and we think we have a good set of 

guidances in place to do that, but we are going to keep working on 

this to make sure we get it right. 

The CHAIRMAN. It does seem to me that often, the people that are 

obviously writing the regulations, they are at work and they are 

healthy and they probably take one or two prescriptions at the 

most, but the people who are likely to receive these may take a lot 

more than that. Can you explain the methodology that was used 

in terms of formulating what would be available to them? 

Dr. MCCLELLAN. Well, there have been a comprehensive set of 

steps and approaches that we have used to make sure that we are 

using all of our authorities effectively to provide access to medically 

necessary treatments at the lowest possible cost. This includes everything from how we set up the price negotiation under this drug 

program, and according to our actuaries and independent Congressional Budget Office the projections are that we are going to get 

the lowest possible prices for the drugs. An add-on government negotiation wouldn’t save any more. To ensure how we are actually 

overseeing the formularies, to how we are overseeing implementation of exceptions and appeals processes. 

So there has been a comprehensive process. As we issued the 

regulations, we also held a whole series of open-door forums for 

27

public participation on particular topics, provided opportunities for 

written comment—we got over 7,000 substantive comments on our 

drug benefit regulation—and held many other meetings with key 

stakeholder groups. Those activities are still ongoing. We have 

issued the final regulations, but those activities are still ongoing. 

I also want to emphasize that in addition to the regulations, we 

have tried to be as clear as possible about the standards that we 

are going to use to oversee the drug benefit, that including standards for the formulary. It includes standards for the so-called P&T 

committee that helps make sure that the formularies are covering 

all medically necessary treatments. It includes standards for the 

use of prescription drug management techniques, like prior authorization. 

In all these areas, we are looking for the adoption of best practices. There are good benefits being provided today to these very 

vulnerable populations and we want to bring in the best practices 

used in retiree plans or Medicaid plans to the Medicare population 

that will be served under the new comprehensive benefit. This 

process is ongoing, but we have taken a lot of steps already to 

make sure we are doing it effectively. 

The CHAIRMAN. Let us say you have got someone currently on 

Medicaid and they have a full panoply of drugs to choose from, but 

in transitioning to this Medicare drug benefit program, they have 

got real complex health needs and let us say the plans that are out 

there don’t cover all of their drugs. Would it be advisable to have 

a phase-in period, a transition period of six months or so? I think 

some of our witnesses on the second panel may testify to that effect. 

Dr. MCCLELLAN. We have heard some of these ideas about transition periods. Let me start out by just making clear that we intend 

to implement this law so that the beneficiaries can get access to 

medically necessary treatments from the start under this new program, and we view that as including effective transition plans for 

managing their medications. 

While it is true that some Medicaid plans provide comprehensive 

access to a broad range of drugs today, many plans do impose limits already, and, in fact, there are good models out there from Medicaid plans that use preferred drug lists as to how transitions can 

be managed effectively. 

We would require our plans to have effective transition plans in 

place for managing the benefits. This is going to be particularly important at the start of this program, when many beneficiaries may 

be on particular drugs, that are not covered on the formularies. For 

that period in particular, we will have some extra efforts and we 

are going to be paying extra attention to make sure there is a 

smooth transition. 

There have been ideas about whether the State programs could 

continue during this period. One option that we have been discussing with a lot of States would involve filling a 90-day prescription in December to allow the beneficiary to continue to have access 

to their current drugs through the first part of 2006. Now, we have 

some limits on what we can do. Our authority to pay Federal 

matching funds for Medicaid drugs that are covered under the 

Medicare drug benefit ends on December 31. But this is another 

28

step, in addition to the transition plans and the effective use of 

proven approaches to managing medications, which we will be pursuing as we implement the new drug benefit. 

The CHAIRMAN. Thank you, Doctor. 

Senator Kohl. 

Senator KOHL. Thank you very much, Mr. Chairman. 

Dr. McClellan, as you know, for many people, if treatment is interrupted for even just a few days, it could result in hospitalization, 

disease progression, drug resistance, or even death. So we need to 

make sure that nobody falls through the cracks during this transition. 

Let us assume a senior or a person with a disability walks into 

their local pharmacy on January 1, 2006, tries to fill a prescription 

for the drug that they have been taking for years, and they find 

that it is not covered. How will they know how to proceed, and how 

long will it take for their case to be resolved, and is there any guarantee that they will be able to get the drug that has worked for 

them for years? 

Dr. MCCLELLAN. Senator, we absolutely want to make sure that 

they can continue to get access to the drugs that they need. In fact, 

that is why this drug benefit implementation is so important. I saw 

in my own medical practice before coming into this job a lot of my 

patients who didn’t have access to drug coverage in Medicare having more complications, more visits to the doctor and more visits 

to the hospital. So preventing that is what we absolutely want to 

do with this transition to prevent any gap in coverage for beneficiaries who have coverage now. 

There are a number of steps that are going to help make sure 

that we don’t run into that problem of a gap in coverage for full 

benefit dual-eligible beneficiaries on January 1. First of all, as I 

mentioned, beneficiaries will find out about the plan they have 

been assigned to, if they don’t choose one on their own in early 

October, three months before the start date. We will also notify the 

plan of that assignment so that there can be steps during that period to make sure the beneficiary knows specifically what is coming, what drugs are going to be covered and whether there is any 

transition needed. There may or may not be, many of these plans 

will continue to cover drugs that have been proven to be medically 

effective to make sure there are no problems with coverage. 

In addition, as I announced earlier, we are implementing a new 

program, one that I just announced today, that will make sure that 

if a beneficiary shows up at a pharmacy on January 1, even if they 

don’t have a drug card, even if they don’t know which drug plan 

they are assigned to, if they know their name, date of birth, just 

some basic identifying information, we will be able to find them 

and the pharmacist will be able to tell them in real time what their 

coverage is and what they have to pay. They will be able to fill that 

prescription without a gap. 

Finally, our drug plans are going to have to have transition plans 

in place so that if a beneficiary comes in on January 1 needing a 

medication refill, an effective mechanism is in place to deal with 

that. We are basing our approach on what has been proven to work 

already for managing medication transitions, and a usual approach 

is to provide a one-month supply or some supply of that current 

29

medication while the plan sorts out the appropriate management 

of that patient with the patient’s physician over the next month. 

In many cases, there may be a need for a medical exception so 

that the patient can continue that current medication longer. That 

is built into our program, too. We absolutely do not want there to 

be any gap in coverage for our dual-eligible beneficiaries. 

Senator KOHL. So you are saying that if an individual shows up 

at a pharmacy needing a particular specific drug, in no case will 

they be turned away, that they will be able to get that drug? 

Dr. MCCLELLAN. What I am saying, Senator, is that we are going 

to make sure that our beneficiaries have access to all the medical 

treatments they need, all the drug treatments they need without 

a gap. If there is a good reason for a transition—remember that 

having the formularies and the price negotiation that comes from 

that is going to help us keep the cost of the drug benefit down and 

it is also going to help save the beneficiaries some money, too—the 

plan must have an effective, proven approach in place to make sure 

that any transition is managed effectively, that the patient gets the 

drug that they need. 

One approach to doing that would be to let the patient know 

months ahead of time, in October or November, after they know 

that this person is going to be assigned to the plan, that certain 

drugs are not on the formulary and to work out a transition ahead 

of time. If that doesn’t happen before January 1 and the patient 

just shows up in the pharmacy, as you said, the plan has to have 

an effective, proven approach in place to make sure that patient 

can be managed effectively. Often, that will include filling the prescription there for some period of time while the coverage issues 

are sorted out and it is determined whether that patient needs to 

continue on a specific medication or could do fine with the alternative treatment that is covered on the formulary. 

There may be other approaches, too. There are approaches that 

have been proven to handle these situations effectively in Medicaid 

plans, in many retiree plans and FEHB plans; Those are the kinds 

of approaches that we are going to require in the Medicare drug 

benefit. 

Senator KOHL. As you know, Doctor, States will initially save 

money, since they will no longer have to cover drugs for Medicaid. 

States are then required to pay back most of those savings to the 

Federal Government and this claw-back provision, as you know, is 

based on how much each State spent on prescription drugs in 2003 

and is increased by the annual growth of drug spending. 

Let us look at a State like Wisconsin. After facing high drug 

costs through 2003, Wisconsin Medicaid began aggressive cost containment and then saved money. However, their claw-back payment will be based on the higher drug costs that they face in 2003 

and it will increase every year as drug spending increases. Conceivably, Wisconsin could owe the Federal Government more in clawback payments than they would save by no longer having to provide a Medicaid drug benefit. 

So what can be done to change this? Shouldn’t there be flexibility 

to make a more accurate determination of a State’s payment back 

to the Federal Government? 

30

Dr. MCCLELLAN. Senator, we absolutely want to make sure that 

States are saving money, as was intended under the Medicare 

Modernization Act. There are several reasons that I think even the 

State of Wisconsin is going to come out ahead. By the way, it has 

been a real pleasure to work with your State on expanding its Medicaid coverage of prescription drugs. As you know, we approved a 

Pharmacy Plus program that allowed Medicaid coverage to expand 

in 2002 and we implemented the steps to make it possible under 

Medicaid for the State to negotiate those better prices for drugs. It 

has been a pleasure to work with the States that do that and we 

are going to keep working with the State of Wisconsin to make 

sure that the State does get savings as we make this transition in 

Medicaid. 

As you mentioned, there is a pay-back provision for a portion of 

the cost projected forward from 2003. That fraction starts out at 90 

percent and it goes down over time to 75 percent. So there is some 

room there, even if the State did get some additional savings since 

2003, to make sure they still come out ahead. 

We have asked every State to make sure we have the most upto-date data from their own experience to use as we calculate their 

payments under this program and we will be going over the numbers with each State, including Wisconsin, to make sure that there 

are benefits for the States. 

Our independent actuaries have looked at this again in the context of our final rules and we are projecting a total of over $8 billion in savings for the States over the next 10 years. It is going to 

come from the savings they will get on a per capita basis for their 

beneficiaries. It is also going to come from the savings that they 

will get from Medicare picking up more of the costs for what has 

been covered under Pharmacy Plus in Wisconsin. It is also going 

to come from the Federal Government picking up the costs of all 

the State of Wisconsin’s retirees. You have some very good retirement benefits for your State workers in Wisconsin and we are 

going to be providing subsidies worth about $1,000 per retiree. 

If you add all that up, I am confident the State is going to come 

out ahead, but we want to work closely with the State of Wisconsin 

and any other State, going over their numbers to make sure we get 

it right. 

Senator KOHL. Thank you, Doctor. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thanks, Senator Kohl. I have been advised the 

next vote is in about five minutes, so we will figure out how to proceed. 

But Doctor, a couple follow-ups. Would CMS consider having 

drug plans cover the current drugs during the transition period, 

also requiring coverage through the appeals process, for example, 

in addition, where these plans will not cover the non-formulary 

drugs? 

Dr. MCCLELLAN. We will require the plans to have an appropriate transition program, and again, this is not something that we 

have to invent anew here. There are programs that have been 

adopted in State Medicaid plans where they have preferred drug 

lists and managed transitions and retiree plans and the like. DeVerDate 0ct 09 2002 15:08 Jun 07, 2005 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6633 H:\DOCS\21036.TXT SAGING1 PsN: JOYCE
31

pending on the medication, it may be appropriate for providing 

some continuation of coverage. 

As you know, we have tightened up our appeals timeframe so 

that for an urgent medical need, an exception to termination must 

be done within 24 hours. We want to make sure that there is no 

gap in access to medically necessary treatments. 

We will keep considering other ideas about how to implement 

this effectively, but again, I think if we base our approach on proven effective approaches from the private sector and from effective 

Medicaid drug benefit plans, that is the best way to go, to use the 

experiences that are already out there to manage transitions effectively and to deal with appeals and exceptions in a timely way. 

The CHAIRMAN. Very good. In a Finance Committee hearing, I 

asked you when we were discussing the USP standards about specifically covering antidepressants, a class of drugs that treat mental illnesses. Can you give us an update on this issue and explain 

how this class of drugs is going to be provided to people with mental illnesses? 

Dr. MCCLELLAN. Well, mental illnesses is one of the groups of 

beneficiaries that we are going to be looking at especially closely 

as we review formularies and the whole structure of the drug benefit to make sure it doesn’t discriminate against some of the people 

who can most benefit from prescription drug coverage. 

In addition to the USP process, which had a number of categories 

for antidepressants in their final guidance—that is one factor that 

may go into our reviews for the plans that want to use the USP 

approach—we are also going to be looking at whether a plan is providing coverage for antidepressants in ways that are similar to effective plans that exist today. We will be using comparisons to 

some of the most popular FEHB plans, which provide access to a 

broad range of antidepressants. We will also look at comparisons 

to existing Medicaid plans with their preferred drug lists for their 

access provisions. And again, for tiering approaches, for the use of 

other tools, we will be looking at comparisons to best practices in 

successful plans today. 

We will keep in close touch with you. I know this particular area 

is of great interest to you. 

The CHAIRMAN. It is. 

Dr. MCCLELLAN. We absolutely intend for the Medicare benefit 

to be effective for coverage of antidepressants. This is a very common condition, an undertreated condition in our senior population, 

and it is one that contributes to a lot of reduced quality of life and 

premature deaths in Medicare beneficiaries and I really want to 

take that on as we implement the new drug benefit. 

The CHAIRMAN. Dr. McClellan, thank you for being our first witness and thanks to you and your staff for the way you take on a 

very Herculean job. We will turn now to our second panel with our 

appreciation to you. 

Dr. MCCLELLAN. Thank you for your support and we look forward to continuing to work closely with both of you and the committee. Thank you very much. 

The CHAIRMAN. Thank you. 

The CHAIRMAN. We will now call up our second panel, Dr. Tina 

Kitchin, medical director of the Oregon Department of Human 

32

Services in Salem, OR; Dr. Carl Clark, CEO, Mental Health Center 

in Denver, CO; and Wendy Gerlach, the director of Pharmacy Operations from Milwaukee, WI. We welcome you all. We thank you for 

your time with us and we again apologize to you for the delay in 

this hearing. Hopefully, it won’t be much interrupted with any 

delay. 

Why don’t we start with Dr. Kitchin. 

STATEMENT OF TINA C. KITCHIN, M.D., MEDICAL DIRECTOR, 

OREGON DEPARTMENT OF HUMAN SERVICES, SALEM, OR 

Dr. KITCHIN. Chairman Smith, members of the committee, I 

would like to first thank you for giving me this opportunity to testify on this very important matter. I would also like to thank the 

Congressional members who helped pass this momentous legislation that guarantees access to medications for a very needy population. 

I also would like to emphasize that I do believe that CMS has 

done an incredible job in some very tight timeframes, has done a 

wonderful, professional job of reaching out to numerous people and 

has attempted to make this the best possible situation that they 

can. 

However, Oregon continues to have some significant concerns 

about what this will mean for dual eligibles. The initial choice 

counseling period, or what people have been calling the transition, 

I think, is a special concern to us. If you think about this, it is 

going to be a very complicated process requiring beneficiaries to 

compare their current medications to brand new formularies, their 

current pharmacies to networks of pharmacies, potential for enhanced benefits, potential for changes in premiums, et cetera, and 

it is going to be a very complicated choice process. 

However, within the duals, we are dealing with people with dementia, developmental disabilities, significant mental illness, some 

that are homeless, et cetera. The bottom line is that this population 

is not going to successfully navigate the Internet and the 1–800 

numbers. They are going to require the assistance of others and in 

a lot of situations, that means that Oregon, as the State Unit on 

Aging, the State Medicaid Office, and the State Mental Health Authority, is going to have to assist people in some of those very difficult choices. 

When you look at the timeframes, I don’t know how we are going 

to do it within the current timeframes. I appreciate the fact that 

people are going to be auto-enrolled as soon as the plans are available and will be notified of that auto-enrollment. Unfortunately, a 

random process maximizes their chance that they will be in a plan 

that won’t meet their needs and they will still require being walked 

through that very complicated process to get to a place where this 

drug benefit is of assistance to them. 

I don’t know how Oregon will be able to successfully do that 

within this timeframe. I think that there are some mechanisms 

under both regulation and potentially statute that could assist with 

this. I also remain concerned about the fact that under the current 

regulations, States are required to set up a parallel low-income 

subsidy determination system for a newly eligible group, parallel to 

Social Security. That is going to divert our attention from a very 

33

important process of assisting people to be transitioned into these 

plans. 

The CHAIRMAN. Doctor, did you hear anything from Dr. McClellan that gave you any comfort, or do—the fears you just described, 

remain just as real? 

Dr. KITCHIN. Chairman Smith, I know that they really want to 

make this as beneficial as possible and as smooth as possible. 

When we moved the Medicaid eligibles into managed care, mandatory managed care, I know that it took Oregon well over a year of 

planning plus then a year to roll out the process, and at the same 

time, it was a very intensive workload and it was very difficult to 

do. I think those choices are small compared to the choices that 

beneficiaries are going to be faced with this year. 

I also think that the part of the regulations that currently require the plans to have adequate transition plans doesn’t give 

many details or specifics upon what that is going to look like, and 

I know that working with managed care plans in Oregon, we have 

plans that go above and beyond what is required of them, but we 

also have plans where it is a struggle to get them to do the minimal. I am afraid that some of these plans will do the minimal or 

less, and without the detail in those regulations, that concerns me. 

I am also concerned a bit about access to long-term care pharmacy services, including those that are in our home and community-based system. You mentioned the adult foster homes and the 

group homes. Long-term care pharmacies provide very needed services and these regulations don’t protect that access for beneficiaries. 

I think my red light is on. 

The CHAIRMAN. OK. Thank you very much, Dr. Kitchin. 

[The prepared statement of Dr. Kitchin follows:]

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The CHAIRMAN. I think there is a vote starting. Would you like 

to go and vote, and I will—I want you to be here for your constituent. 

Senator KOHL. I will be right back. 

The CHAIRMAN. OK. Carl Clark, please proceed. 

STATEMENT OF CARL CLARK, M.D., CHIEF EXECUTIVE 

OFFICER, MENTAL HEALTH CENTER OF DENVER, DENVER, CO 

Dr. CLARK. Thank you, Chairman Smith. I am Dr. Carl Clark. 

I am the CEO of the Mental Health Center of Denver. I have been 

practicing psychiatry for over 20 years and I am an assistant professor at the University of Colorado School of Medicine. 

The mental health center that I administer serves thousands of 

uninsured and indigent people every year, most of which have serious mental illnesses, like schizophrenia and bipolar disorder. 

My testimony today reflects the consensus views of the National 

Council for Community Behavioral Health Care, the American 

Psychiatric Association, the National Alliance for the Mentally Ill, 

the National Mental Health Association, the Treatment Effectiveness Now Project, the American Association for Geriatric Psychiatry, and the National Association for State Mental Health Program Directors. Although each of these organizations is strongly 

committed to the successful implementation of MMA, we are concerned about the required transition of dual eligibles to the new 

Part D drug benefit and here is why. 

MedPAC recently estimated almost 40 percent of the 6.5 million 

dual eligibles have cognitive impairments and mental illnesses. 

Dual eligibles are twice as likely as others to have Alzheimer’s disease, and thus, many of these people may lack the capacity to manage the automatic enrollment process and ensure that they get the 

medications that they need. 

At MHCD, I am personally responsible for the mental health 

care of a man who is dually eligible. Because of confidentiality, I 

will call him Peter. He is in his 50’s, late 50’s. He was homeless 

for many years, wandering the streets because of untreated schizophrenia. Through a combination of intensive services and the latest 

psychotropic medications, we got him off the streets. He is living 

independently in the community. He has gone back to school and 

connected with his family. He also has diabetes and coronary artery disease. Mr. Chairman, I can tell you that he has a complicated medication regimen. 

Because of the special health care needs of dual eligibles, CMS 

included the provision in the final MMA rule requiring this population to be automatically enrolled in Part D plans, and the mental 

health community applauds Dr. McClellan for taking this critically 

important step. However, even with this, we have concerns. 

CMS has stated that dual eligibles randomly assigned to plans 

that don’t reflect their current medications can re-enroll into PDPs 

that do. Based on my clinical experience, I have serious doubts 

about this approach. 

Let us go back to Peter. Even though he is doing well with his 

schizophrenia, he still has trouble with his memory and speech and 

information process and decisionmaking. He is going to need a lot 

of help to negotiate these plans from our case manager and his 

46

mom, who is in her 80’s and actually doesn’t even live in Colorado. 

Coverage gaps for particular medications are going to happen, and 

what we want to do is really minimize that. 

So specifically, this is what we propose. People that are clinically 

stabilized on antipsychotic medications or other psychotropic medications should maintain access to those same medications regardless of the PDP they are enrolled in. This exception to the plan’s 

formulary or utilization process would be automatically granted 

without prospective review by the PDP when the attending physician provided written certification that the patient is clinically stable, the medication is medically necessary to maintain the functioning, and the physician would also be required to certify that 

mandatory switching to an alternative drug formulary would be 

medically contradicted. Plans should defer to the physicians’ medical determination. 

The CHAIRMAN. Carl, did you hear Dr. McClellan speak to this 

sufficiently? Did it allay your fears? You are making the point I 

was trying to make——

Dr. CLARK. Yes. My fears are not allayed because, like Peter as 

the example, he has three chronic conditions that need to be treated. If he does not get all the medicines for each one of those conditions, he is at risk for hospitalization, emergency room care, and 

those sorts of things. 

The CHAIRMAN. Are you seeing any of the plans out there that 

would accommodate someone like Peter? 

Dr. CLARK. I say that there are lots of people like Peter that are 

going to be faced with which plan will cover all my medications. 

The CHAIRMAN. Just for the record, your point is there needs to 

be an override of the plan for people like this——

Dr. CLARK. Exactly. 

The CHAIRMAN [continuing]. So that their unusual circumstances 

can be accommodated. 

Dr. CLARK. Exactly. Since this final MMA rule requires plans to 

have an appropriate transition process for dual eligibles during the 

initial enrollment period, CMS should employ its review authority 

to ensure that these key continuity of care principles are followed. 

Let me note that the agency in its own strategy on formulary reviews noted that formularies should contain the majority of 

antidepressant and antipsychotic medications, and further stated, 

when medically necessary, beneficiaries should be permitted to continue utilizing a drug that is providing beneficial outcomes. 

So the regulatory approach that we are proposing should combine a robust outreach and an education program designated to 

educate consumers while helping State agencies, patient and family organizations, and community mental health providers furnish 

one-to-one counseling that clearly will be required. 

What is at stake here is that if CMS fails to adopt a common 

sense approach, like we have outlined, the clinical consequences 

are serious. A very large percentage of folks will fail on switched 

medications and this will result in decompensation, hospitalizations, ER visits, and, of course, always the threat of suicide. 

For States, the consequences are tough, also. If people don’t successfully navigate the transition to Part D, they can wind up destitute, homeless, State prison, State hospitals. So, Chairman, it is 

47

my goal for my staff and myself, who have worked really hard to 

get Peter off the streets, that we keep it that way. 

[The prepared statement of Dr. Clark follows:]

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The CHAIRMAN. Maybe you don’t have a percentage, but there is 

also a public safety component to this. For some of these in this 

category of people, if they don’t have continuity of care, is there a 

percentage of them that become dangerous? 

Dr. CLARK. Well, I will just give an example. 

The CHAIRMAN. To themselves, as well? 

Dr. CLARK. Yes. At our center, we take care of about 4,500 people——

The CHAIRMAN. Forty-five hundred? 

Dr. CLARK. Forty-five hundred, and most of those folks are in voluntary treatment. But we do have 350 people who are in involuntary treatment because they don’t have the insight that they have 

an illness and they actually do become dangerous to the community. So there is a public safety issue here, also. 

The CHAIRMAN. What incidents of suicide might there be if they 

don’t have access, if they fall through the cracks, if there isn’t continuity of care? I mean, a lot of these people will become unusually 

depressed, I suspect, may become a danger to themselves. Do you 

see that in your practice? 

Dr. CLARK. Yes, we do. For folks with major depression, bipolar 

disorder, schizophrenia, the lifetime incidence of suicide is around 

15 percent, and that risk goes up when people are not in treatment 

or if they are not adherent with their treatment. 

Just to make a different kind of point, it sounds like drugs are 

interchangeable, and it is certainly true that some drugs may have 

similar efficacy, but for the individual person, that may not be true. 

For the individual person, side effects, which can be severe, can be 

very bad on one drug and not another, and that often leads to people saying, ‘‘I am not taking this medicine anymore.’’ 

THE CHAIRMAN. Wendy, I am not ignoring you. I am just waiting 

for Senator Kohl. [Laughter.] 

I would love to hear your testimony, too, because I know you are 

going to say many of the same things. Don’t do your testimony, but 

if you would like to chime in on any of what the other two witnesses have had and save your testimony for Senator Kohl, if you 

have a comment to make on that. 

Ms. GERLACH. Thank you. I will. 

The CHAIRMAN. Tina, you mentioned that in the last transition 

that you went through, it took a year. Is that what I understood 

you to say? 

Dr. KITCHIN. Chairman Smith, yes. It took a year of working 

with the population to help them understand their choices and 

move into care. It took a good year before that of the planning with 

everybody around the table. 

The CHAIRMAN. I think what I heard Dr. McClellan say is that 

they are contemplating a 3-month transition period. I was suggesting in my discussion with him a 6-month transition period. 

That isn’t a year, but with a running start that we have before 

January 1, 2006, can you envision being up to speed? 

Dr. KITCHIN. Senator Smith, given the three months before plus 

an additional six months, I feel—I will sleep at night. I am not sure 

that without that additional six months, it will go smoothly. 

The CHAIRMAN. Can you speak to the authorizations given to 

nursing homes but not necessarily assisted living facilities? 

54

Dr. KITCHIN. Senator Smith, I would be glad to. As you know, as 

you are well aware, Oregon uses a very extensive community-based 

system. CMS in the current regulations has really focused on nursing facilities and their access to long-term care pharmacies, the 

services, and prevention of those institutionalized people from having to pay copays. However, when you have an extensive community-based system, such as assisted living facilities or Developmental Disability group homes, they also need the access to longterm care pharmacies and they need—it is going to be very difficult 

for the people who are already paying into their cost of their service to come up with the additional amount of money to pay copays. 

So they need those additional benefits. 

The CHAIRMAN. Is there something that CMS should do to get assisted living facilities some standards so that they can qualify like 

nursing homes to provide for prescription drugs onsite? 

Dr. KITCHIN. Senator Smith, I think that CMS has looked at it 

from a regulatory point of view, and if instead they looked at it 

from a beneficiary point of view, I think that their regulations 

could require that the new drug plans allow access to those services and allow the long-term care pharmacies to actually deliver 

those services in those varied settings. 

The CHAIRMAN. To assisted living facilities? 

Dr. KITCHIN. To assisted living facilities and the rest——

The CHAIRMAN. Mark is not here anymore, but I want to, 

through the record, encourage him to do that. I think that that is 

very important. 

Wendy, do you have any comment on any of this so far? 

Ms. GERLACH. I do. In the past, the skilled facilities that we see 

now are becoming very acute settings. The assisted livings are taking over where the skilled has left off. These people have multiple 

diseases—diabetes, asthma, high blood pressure. They need to have 

the specialized services that a long-term care pharmacy can provide 

to them—specialized packaging which cuts down on medication errors, 24-hour-a-day pharmacy services, a pharmacist who is always 

available for these assisted livings to call with any questions, emergency deliveries. So I think it is very important that we are able 

to provide these services as long-term care pharmacies to assisted 

living. 

The CHAIRMAN. Any other comment, Carl? 

Dr. CLARK. Oh, I could make a lot of comments. [Laughter.] 

The CHAIRMAN. Go ahead. We have got time. 

Dr. CLARK. OK. Great. I mean, one of the things about the consequences if somebody is on a medicine that works for them, and 

I can say right now that in psychiatry in particular, we have some 

medicines that work better than we have ever had in the past and 

it is so gratifying to see people actually have a life again and be 

in the community. Like Peter the example, when he reconnected 

with his mother after being on the streets for 10 years, that is a 

tremendous thing to see happen. 

The CHAIRMAN. What are those drugs? What are the names of 

them? 

Dr. CLARK. His particular drugs? Well, I am sure some of the 

drug companies would really enjoy my saying the names—— 

[Laughter.] 

55

But he is on Zyprexa. He is also on lithium, which is a medicine 

that has been around for a long time. Then he is on a variety of 

medicines for his diabetes and his coronary artery disease. 

But the point is that if somebody has a disruption in care after 

they have found something that works, that is difficult and the cost 

can be enormous. In Colorado—I don’t know what the cost is in 

other States, but our State hospital costs about $95,000 a year for 

a person. So if we have an influx of people that are hospitalized 

into the system, there are these kinds of costs that are going to 

occur. 

For me, one of the issues is that PDPs are managing a pharmacy 

budget, but they are not managing the risk for the other types of 

care that are going to be provided. 

The CHAIRMAN. You are shaking your head, Tina. Do you want 

to say anything about that? 

Dr. KITCHIN. Senator Smith, I agree. One of the ways that managed care works the best is that the plan is at risk if they deny 

a cheaper service and somebody goes into more expensive service, 

whereas these new drug plans are only at risk for the cost of the 

medications. 

The CHAIRMAN. Let me just tell you publicly, I mean, we are 

talking here about a Part D corrections bill, things that we could 

do legislatively, but I will be honest with you. That is a tall order 

before this is implemented, because I think the Bush administration and perhaps a majority in Congress, and I think many in the 

leadership of Congress, want to see what the problems are before 

we start promoting fixes. So part of the reason for this hearing is 

to get CMS to do as much as they feel they have latitude to transition this smoothly. 

But if they don’t, can you already envision things that you would 

like to see in a Medicare Part D corrections bill? Is there something 

legislative you think that is really missing at this point? 

Dr. KITCHIN. Senator Smith, if I could start, it would depend 

upon the timeframe of it. Obviously, if this could occur before we 

start rolling out this new drug benefit, a lengthening of the time 

that States were eligible for Federal participation, so although at 

one time never are both Medicaid and Medicare at risk for the drug 

cost, but that we could slow the phase-in process down. 

The second of which is that I think having the minimum of two 

drugs per class works for several different types of drugs, but there 

are exceptional drugs, or exceptional conditions where really they 

need to offer the entire gamut of drugs. Those that are treating 

AIDS, antipsychotics, antidepressants are one of the classes that 

really come to mind. 

In addition, I think that there should be an ability to grandfather 

in certain people with certain conditions. It is very dangerous to 

transition somebody with a significant seizure disorder off of their 

current medications and the attempt to do that can actually cause 

a seizure that will end somebody’s life, although most seizures 

don’t. 

In addition, I think that the current framework is based upon assuming that these Medicare beneficiaries can work through an appeals and a grievance process and I have serious concerns about 

the people that I know being able to respond and say, ‘‘No, this 

56

drug is not covered but I have these rights and I can appeal and 

I need to get my doctor to do this and I need to go through this 

process.’’ I think that that is beyond a lot of people’s ability that 

I know in this system. 

The CHAIRMAN. OK. I am going to go vote and I am going to turn 

this hearing over to my colleague. But Carl, I would like to just tell 

you, I have a particular personal reason to make sure that the 

mental health component of this is done right, and so if it isn’t 

being done right, I want you to yell at me to make sure we use our 

influence to get it right, because I think the focus of your practice 

is truly life and death. 

Dr. CLARK. Thank you, Senator Smith. It is also quite personal 

for me, too. 

The CHAIRMAN. Thank you. 

Ms. GERLACH. Senator Smith, may I address that question? 

The CHAIRMAN. Yes. Sure. 

Ms. GERLACH. One of the biggest concerns that I have, if there 

could be a fix, if there are excluded drugs, such as over-the-counter 

drugs, benzodiazepines, barbiturates, and drugs for weight management. Those we see as a big concern in the long-term care setting. Benzodiazepines can be given for anxiety, and I will throw 

this example out. 

Somebody in the last days of their life are anxious about what 

is happening to them. One of the drugs that is given to them is 

called Atavan or Lorazapan, which is a benzodiazepine. Who wants 

to be sitting in that room and be denied benzodiazepines or the 

Lorazapan that can give comfort to your loved one while you are 

watching them pass away? 

The CHAIRMAN. Yes. I understand. 

Senator KOHL [presiding]. I thank you, Senator Smith. 

I am going to introduce Wendy Gerlach right now for her testimony. She is director of Pharmacy Operations in Wisconsin for 

Roeschen’s Omnicare in Milwaukee. For the last eight years, she 

has worked at Wisconsin’s largest long-term care pharmacy, serving nursing homes, assisted living facilities, and correctional care. 

We are very fortunate to have you here today to describe the 

unique challenges long-term care pharmacists will face with this 

new Medicare drug law. We look forward to your testimony.

57

STATEMENT OF WENDY GERLACH, DIRECTOR OF PHARMACY 

OPERATIONS, ROESCHEN’S OMNICARE PHARMACY, MILWAUKEE, WI; ON BEHALF OF THE LONG TERM CARE 

PHARMACY ALLIANCE 

Ms. GERLACH. Thank you, Senator. Chairman Smith, Ranking 

Member Kohl, and members of the committee it is a privilege to 

appear before you today and especially before my own Senator. My 

name is Wendy Gerlach and I am the director of Pharmacy Operations in Wisconsin for Omnicare Pharmacy. Omnicare’s experienced staff of pharmacists, nurses, and technicians serve approximately one million patients in 47 States. I am grateful for the opportunity to testify today on behalf of the Long Term Care Pharmacy Alliance, whose members provide pharmacy services to more 

than 60 percent of the 1.6 million nursing home beds in the United 

States. 

The average resident is approximately 84 years of age, suffers 

from eight distinct diseases, and consumes nine or more different 

medications concurrently. The instance of cognitive impairment 

among these individuals is nearly 75 percent. Nationwide, Medicaid currently provides prescription drug coverage for approximately 70 percent of the nursing home residents. It is important 

to recognize that these residents are not your typical cash-andcarry customers and the specialized pharmacy services they receive 

are different from retail pharmacy services. 

As I noted, they are typically frail elderly and often cognitively 

impaired. Their pharmacy needs are quite different from those of 

the average ambulatory Medicare beneficiary who does not reside 

in an institutional care setting. 

As long-term care pharmacies, we provide a large range of specialized services. These services represent the standards of practice 

developed to assure patient safety and quality care for nursing 

home residents. 

The primary payer for pharmacy services for nursing home residents is Medicaid, which establishes consistent rules for coverage. 

While States may impose access restrictions, such as preferred 

drug lists and prior authorization, Medicaid beneficiaries are entitled to access to all medically necessary drugs. 

Given the different structures of current Medicaid and future 

Medicare drug coverage, we remain concerned about the operational impact of multiple plans in each region competing for Medicare beneficiaries. An average-sized nursing facility of 150 beds 

could conceivably have residents of two or more plans, all operating 

under different formularies and exception processes. The resulting 

confusion could increase the risk of medication errors. 

In addition, we are very concerned that the MMA specifically disallows coverage of certain drug classes. The excluded classes include over-the-counter drugs, benzodiazepine, barbiturates, and 

drugs for weight management. Although State Medicaid programs 

have the option of continuing coverage of these drugs, it is unclear 

whether they will. Impeding access to these products will almost 

certainly result in increased hospitalization and higher cost to the 

program. 

Therefore, we believe dual eligibles must be assured access to 

these excluded drugs. We recommend that Congress strike the 

58

MMA’s prohibition on coverage of these drug classes or ensure the 

States remain obligated to cover the excluded drugs for this population. 

While we applaud CMS’s commitment to enrollment, the nursing 

facility staff and the long-term care pharmacy must be involved for 

enrollment to be successful. The nursing facility can ensure that its 

residents know which plans include the long-term care pharmacy 

in their network of providers. In addition, nursing facilities and 

long-term care pharmacies must be notified of the plan in which 

the resident is enrolled so that caregivers understand which plan 

will be responsible for each resident. 

Further, moving medically complex patients from a list of welltolerated and effective drugs to alternatives required by a plan formulary would pose serious challenges. Imagine a common scenario 

in which a nursing home resident is on eight different drugs covered by Medicaid and three of those are switched at once and there 

is an adverse event. It would be difficult, if not impossible, to determine which drug caused the adverse event. We strongly encourage 

CMS to issue very specific guidelines that plans must follow in this 

regard. 

The preferred option is to require a robust formulary for residents of long-term care facilities consistent with the current Medicaid benefit. In addition, an exception process must exist to allow 

a pharmacist to override formulary restrictions, subject to retrospective review. This option assures that the patient, at least initially, gets the prescribed drug without delay. A pharmacist would 

dispense a drug and be assured payment from the plan until the 

retrospective review could be conducted. 

To summarize, we make the following recommendations to CMS 

and to Congress. First, ensure continued access to medically necessary drugs, either by striking the MMA provision excluding coverage of certain drug classes or by requiring States to maintain 

current coverage. 

Second, facilitate enrollment of nursing home residents by notifying beneficiaries, nursing facilities, and long-term care pharmacies of the plan in which the beneficiaries are enrolled. 

Third, create a clear standard for plans that will assure access 

to medically necessary drugs for nursing home residents and will 

mitigate the risk of switching multiple medications at once. 

We believe CMS is diligently working to ensure that beneficiaries 

are not jeopardized during the transition to Part D and look forward to working closely with CMS, the Congress, and this committee to identify and work through potential areas of concern. 

Again, thank you for the opportunity to provide testimony for 

this very important hearing. 

[The prepared statement of Ms. Gerlach follows:]

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Senator KOHL. Ms. Gerlach, there has been some discussion 

about creating a transition period where nursing home residents 

could slowly transition from Medicaid plans which cover their current drugs to the new private Medicare drug plans which may or 

may not cover all their drugs. In your opinion, how long of a period 

would you recommend, and what other factors should be considered 

and included in this transition period? 

Ms. GERLACH. Sir, I think that the transition period should be 

six months to one year. This would allow us to move people slowly 

to the preferred drug. Maybe we could go by categories so that it 

is easier for the facilities, the pharmacies, the physicians, so that 

they know which medications we are supposed to be working on. 

I just think that we need at least six months to a year to make 

a smooth transition, to make sure those people that are in those 

nursing home beds aren’t prone to medication errors or go without 

their medication. 

Senator KOHL. So I would take it from your answer and your testimony that you are very, very concerned if this whole process is 

supposed to commence, period, on the first of January with no 

transition, that regardless of whatever preparation they think they 

are making, there will be problems that become insurmountable if 

this is supposed to occur on the first of January without a transition? 

Ms. GERLACH. Yes, sir. We have thousands of residents that we 

currently serve in Wisconsin and I am very concerned about the 

transition on January 1, if it is immediate. How hard is it if you 

have a 150-bed facility and you have 100 people that are dual eligibles now and on January 1, you have all these different medications. Are the nurses going to remember to pull the card? Is a new 

order going to be written in the chart? It is not only a concern on 

the pharmacy part, but also the nursing part and the facilities. 

They are very busy. They are understaffed. We don’t want to overwhelm the facility nursing staff, either, which could lead to medication errors on their part. 

Senator KOHL. Mr. Clark, do you have an opinion about 

January 1 and whether or not that should be just the beginning 

of a transition period? 

Dr. CLARK. I think it should just be the beginning. I mean, 

switching is not an automatic process. It is—when you were out of 

the room, I talked a little bit about how drugs are not necessarily 

interchangeable. There is a time period for adjustment. There may 

be side effects that the person experiences with one drug that they 

didn’t with another and all those things need to be addressed. It 

is a very short time line to accomplish all this. 

My center takes care of 4,400 people. We have 1,400 people that 

this is going to be an issue for. It is going to be a big burden for 

case managers and the staff to help people with the transition, select plans, and a variety of things like that. In our group, we have 

some folks that definitely have cognitive impairments and need 

help with executive decisions and making decisions. 

Senator KOHL. Dr. Kitchin. 

Dr. KITCHIN. Senator Kohl, I also would concur that a 6- to 12-

month period would be the best. I think that 6 months would be 

a minimum in which this would happen safely. 

69

Senator KOHL. Do you have any indication that Dr. McClellan 

understands what you are saying and is coming from the same direction, or are you concerned that they are not interested in this 

six-month transition? Wendy? Or don’t you have a sense of it at 

this point? 

Ms. GERLACH. Sir, I don’t have a sense regarding that, but what 

I would like to say is that we want to work with CMS to make sure 

that this benefit works smoothly and that the people that we are 

serving are not in danger. All we want to do, as long as we know 

the rules, we can work within those rules. But we need to work 

with the people making the rules to make sure that they benefit 

the beneficiaries. 

Senator KOHL. Mr. Clark, any sense of what CMS is thinking at 

this moment? 

Dr. CLARK. I thought there was one disconnect for me, which is 

when you asked the question about somebody going to the pharmacy and now their medicine is no longer on the formulary for 

their plan, what would happen, and the response was that these 

PDPs needed to be able to have a plan in place to assure a transition. Well, the reality is that the pharmacy plans aren’t doing the 

transition. The providers are doing the transition. So there is a disconnect there for me about how that is actually going to occur. 

When CMS says that there are good practices out there about 

transitioning people from one drug to another, I am glad there are. 

I think most providers don’t know what those are. 

Ms. GERLACH. Can I make a brief——

Senator KOHL. Yes, Wendy? 

Ms. GERLACH. In the nursing home, it is a three-way communication. It is not just between the physician and the pharmacy. It is 

between the physician, the nurse at the nursing home, and the 

pharmacy. So the physician will write an order, he will communicate that to the nursing staff, the nursing staff will communicate 

it to us. Then if the drug is not covered, we have to backtrack, go 

back to the nurse so that she will know this is not covered so that 

she can contact the physician and get it covered so that it will get 

switched to the correct medication. 

It is an administrative nightmare for everyone, and who is going 

to do the work for the prior authorizations? Who is going to take 

all the work that is required to submit all that information to the 

PDPs? That is not answered. There is no clear-cut plan that has 

been told to us, these are the steps you are going to follow. 

Senator KOHL. OK. Dr. Kitchin? 

Dr. KITCHIN. Senator Kohl, I think that CMS has been working 

within very, very tight timeframes. I think they have done a heroic 

effort to reach out and get input from lots of people. However, I 

don’t think that they have had some of the day-to-day experience 

of doing these transitions and understand some of the implications. 

Senator KOHL. All right. Does anybody else want to make comments about anything that you feel needs to be brought to the table 

and put under the lights, any issues at all? Wendy, do you want 

to speak first? 

Ms. GERLACH. Yes, I will. There is another concern that we have. 

What happens to the residents that are switching over from Medicare Part A or coming directly from the hospital and they have 

70

been stabilized on their medications and then they transition into 

Medicare Part D? Is there going to be a transition period for those 

residents, also, three months, six months, so that we can switch 

those people over appropriately and not take them off their medications as soon as they leave the hospital? 

Senator KOHL. All right. That is a good question. 

Tina, do you have anything else you would like to bring to the 

table? 

Dr. KITCHIN. Senator Kohl, yes, I would like to make a couple 

more comments that I don’t feel I had time to do, one of which is 

I think that the appeals and the grievance process is still—it has 

been tightened tremendously, but it is still cumbersome for a lot 

of people in this population and I think that CMS needs to require 

that the drug plans cover the medications during the time that the 

person is going through their appeals or grievance. 

I am also concerned about the coordination of benefits requirement. Right now, CMS has said that it doesn’t believe that CMS 

has the authority to share detailed drug information with the 

States if the State is not also at cost risk for that medication, and 

yet we will still be providing a significant number of medical services to those dual eligibles and we need to have access to that information without states paying the drug plans for it. 

Senator KOHL. All right. What we will do, if you would like, in 

the absence of Dr. McClellan—I wish he were here right now. I 

think it would be great to give you a chance to ask him some of 

these questions and get the answers from him. But if you want 

us—and we will, I would like very much to present your questions 

directly to him and get an answer from him so we can get back to 

you with some of these comments and thoughts that you have had. 

Carl, do you want to make any comments yet? 

Dr. CLARK. Well, the only comment I would say at the end here 

is that what is the real cost for failure? I mean, there is certainly 

the cost to the individual person about getting ill again or having 

difficulties in that way, but there is a ripple effect. It is not just 

that person. It is also the families, the providers, everyone is affected by things when they go awry, and I think that is what people are most concerned about, is how do we assure that people who 

are already doing well on their current medicines have something 

in place where they continue to do well? 

Senator KOHL. No question. It is crucial. We certainly do not 

want a catastrophe on January 1. That would be a terrible, terrible 

thing. In fact, there is no sense of a deadline on January 1. As you 

are pointing out, that should be the beginning of a process. It is 

not the end, it is the beginning, and there is no need for us to feel 

that this thing has to be fully in place and operational on January 

1. I would like to hope that Dr. McClellan feels that way, but we 

will find out. 

Anything else, guys? Wendy? 

Ms. GERLACH. No, sir. 

Senator KOHL. No? 

Dr. KITCHIN. I would just like to thank you for this opportunity. 

It has been very good to have this occasion to express our concerns. 

Senator KOHL. Thank you. It has been a good hearing and I 

think it gives us the warnings and tells us that we need to be careVerDate 0ct 09 2002 15:08 Jun 07, 2005 Jkt 000000 PO 00000 Frm 00074 Fmt 6633 Sfmt 6633 H:\DOCS\21036.TXT SAGING1 PsN: JOYCE
71

ful and cautious in how we proceed, so your coming here and testifying has been really important. Thank you so much. 

Dr. CLARK. Thank you. 

Dr. KITCHIN. Thank you, sir. 

Senator KOHL. The committee is adjourned. 

[Whereupon, at 4:08 p.m., the committee was adjourned.] 

(73)

A P P E N D I X 

PREPARED STATEMENT OF SENATOR JAY ROCKEFELLER

I am very pleased that Senators Smith and Kohl are holding this important hearing today. The transition of 6.4 million dual eligibles from Medicaid prescription 

drug coverage to Medicare Part D represents the largest transition of beneficiaries 

from one insurance program to another, public or private. It is essential that we in 

Congress work to ensure as smooth a transition as possible so that no senior or disabled individual experiences a gap in prescription drug coverage. 

Medicare beneficiaries who also qualify for full Medicaid are among our nation’s 

most vulnerable citizens. They are disproportionately women and minorities and 

live alone or in nursing homes. Over half are limited in activities of daily living and, 

in comparison to other Medicare beneficiaries, they are much likely to have heart 

disease, pulmonary disease, diabetes, or Alzheimer’s. Therefore, it is crucial that we 

get this transition right the first time. 

The Medicare Modernization Act of 2003 (P.L. 108–173) rightfully included Medicare prescription drug coverage for dual eligibles. Medicare’s universality is something I fought hard for during the Medicare debate. I strongly believe that low-income seniors and disabled individuals should not be excluded from Medicare benefits because of their income levels. While the Medicare law seems to support the 

principle of universality, it simultaneously undermines it by treating dual eligibles 

differently from other Medicare beneficiaries. 

The law provides Medicare beneficiaries who are not dually eligible for Medicaid 

six months to transition to Medicare Part D. Yet, the law only requires a six-week 

transition period for dual eligibles, from November 15, 2005, to January 1, 2006. 

Moving a large number of seniors and people with disabilities to an entirely new 

system for prescription drug coverage is a major undertaking. In its June 2004 report to Congress, the Medicare Payment Advisory Commission (MedPAC) suggested 

that even large, private employers need at least six months to transition their employees’ drug coverage from one pharmacy benefit manager to another. The two 

large employers that MedPAC studied had 25,000 and 75,000 employees, respectively. The states and the federal government are taking on a far more complex task 

with 6.4 million dual eligibles. 

Dual eligibles require adequate outreach, education, and timing in order to adjust 

to major changes in our health care delivery system. The Centers for Medicare and 

Medicaid Services (CMS) has taken several steps to improve the transition of the 

dual eligibles from Medicaid to Medicare. However, I fear these steps do not go far 

enough. Automatic enrollment does not guarantee that beneficiaries will know that 

they have been enrolled in a new Medicare drug plan or know how to access necessary prescription drugs using that drug plan. Once beneficiaries are enrolled, they 

are likely to experience ongoing confusion about covered drugs, authorized pharmacies, and the Medicare appeals process. 

In order to achieve the best possible outcomes for dual eligibles transitioning to 

Medicare, we should extend the transition period to at least six months. An extended timeframe would give states enough time to carry out comprehensive education and outreach initiatives. It would also give seniors and individuals with disabilities time to explore their options and gradually transition to Medicare Part D. 

I have drafted legislation—the Medicare Dual Eligible Coverage Act—which 

would achieve all of the objectives mentioned above. I plan to introduce this legislation next week, and I urge the Members of this Committee to support it. I thank 

the distinguished Chairman and Ranking Member for allowing me to submit a 

statement on this critical issue. 

74

QUESTIONS FROM SENATOR KOHL FOR MARK MCCLELLAN

Question. Today we discussed the challenges with the implementation of the 

Medicare Part D program for dual eligibles. Dual eligibles are also a significant part 

of nursing home populations and the President’s budget includes a $1.5 billion reduction in Medicare payments to nursing homes. As a result, in real terms the payment would be lower per day than it was in 1998 if the President’s budget is enacted. 

When rates dropped in 1998, 15 percent of nursing homes in the country went 

into Chapter 11, and 7 out of the 12 publicly traded companies filed Chapter 11. 

As a result, Congress increased the rates and stabilized the industry. 

In December, you and then Secretary Tommy Thompson held a press conference 

in which you congratulated the industry for its efforts on improving quality. Can 

you assure the Committee that as a result of the implementation of the President’s 

budget there will not be a loss of the quality improvements made, a reduction in 

the nursing home workforce or a disruption in the delivery of nursing home services 

to either Medicare recipients or dual eligibles? 

Answer. We realize that the elimination of the $1.5 billion temporary add-on to 

the skilled nursing facility (SNF) prospective payment system raises concerns about 

how the change will impact the quality of care in our nursing homes. First, I want 

to assure you that quality improvements in nursing home care have been a priority 

for this Administration and we plan to continue our efforts in this direction. 

Second, I want to point out that, while it is true that a number of nursing homes 

filed for bankruptcy shortly after the introduction of the SNF prospective payment 

system, the financial problems these companies experienced were not necessarily related to the SNF prospective payment system. In fact, a Government Accountability 

Office review (‘‘Skilled Nursing Facilities: Medicare Payment Changes Require Provider Adjustments but Maintain Access,’’ GAO/HEHS–00–23, December 1999) of two 

of the largest publicly held chains (Vencor and Sun Healthcare Group) found that 

the financial position of both firms suffered from high capital-related costs; substantial, non-recurring expenses and write-offs; and reduced demand for ancillary services related to several other provisions in the Balanced Budget Act of 1997. Vencor’s 

SNF operations remained profitable after the implementation of the SNF prospective payment system. In addition, there were a number of media reports that cited 

rapid expansion into other lines of business, high capital costs, and inadequate cost 

controls as other factors influencing the financial status of the SNF industry. 

The Department of Health and Human Services’ Office of Inspector General (OIG) 

conducted two studies on beneficiary access under the SNF prospective payment 

system (‘‘Early Effects of the Prospective Payment System on Access to Skilled 

Nursing Facilities,’’ OEI–02–99–00400, August 1999; and, ‘‘Early Effects of the Prospective Payment System on Access to Skilled Nursing Facilities: Nursing Home Administrators Perspective,’’ OEI–02–99–00401, October 1999). These studies, which 

surveyed nursing home administrators and hospital discharge planners, found no 

widespread access problems in placing Medicare beneficiaries in SNFs. The OIG 

confirmed these preliminary findings in a follow-up study, ‘‘Medicare Beneficiary Access to Skilled Nursing Facilities: 2000,’’ OEI–02–00–00330, September 2000, which 

indicated that almost all discharge planners reported being able to place Medicare 

beneficiaries in SNFs. Further, Medicare data show a decrease in the average 

length of hospital stays for beneficiaries prior to a SNF admission, suggesting that 

the hospital stays are not being prolonged by a delay in SNF placement. 

While Congress enacted four add-on payments to the SNF prospective payment 

system rates, the intent was to establish the adjustments as temporary measures 

only. In fact, two of the temporary add-on adjustments expired, according to statute, 

in 2002. At that time, there were also concerns about the negative impact the payment reduction would have on quality. These concerns were not realized, as evidenced by the positive profit margins reported for the SNF industry. In its March 

2005 report, the Medicare Payment Advisory Commission estimated that the estimated aggregate 2005 Medicare margin for freestanding SNFs (the majority of SNF 

providers) is 13 percent. 

The remaining two add-on payments (a 20 percent increase for 12 complex medical payment groups plus a 6.7 percent increase for 14 therapy groups, and an 

across the board 128 percent increase for beneficiaries with AIDS) are scheduled to 

expire when the Centers for Medicare and Medicaid Services implements refinements to the case-mix classification system. The President’s FY 2006 budget request 

assumes the implementation of case-mix refinements in the coming fiscal year. Any 

such proposal would be introduced through the rule-making process and would be 

open for public comment.

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