United States Government Accountability Office

GAO Report to Congressional Requesters

MEDICARE PART D

Challenges in 

Enrolling New 

Dual-Eligible 

Beneficiaries 

May 2007 

 

GAO-07-272 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

May 2007

MEDICARE PART D

Challenges in Enrolling New Dual-Eligible 

Highlights of GAO-07-272, a report to Beneficiaries 

congressional requesters 

Since January 1, 2006, all dualeligible beneficiaries—individuals 

with both Medicare and Medicaid 

coverage—must receive their drug

benefit through Medicare’s new 

Part D prescription drug plans 

(PDP) rather than from state

Medicaid programs. GAO analyzed

(1) current challenges in identifying 

and enrolling new dual-eligible

beneficiaries in PDPs, (2) the 

Centers for Medicare & Medicaid

Services’ (CMS) efforts to address 

challenges, and (3) federal and 

state approaches to assigning dualeligible beneficiaries to PDPs. GAO 

reviewed federal law, CMS 

regulations and guidance and 

interviewed CMS and PDP officials, 

among others. GAO also made site

visits to six states to learn about 

the enrollment of dual-eligible

beneficiaries from the state

perspective. 

What GAO Recommends

GAO made six recommendations to 

CMS. CMS has taken steps to

implement some of them, including

notifying beneficiaries of their right 

to reimbursement and monitoring

the number of individuals provided 

retroactive coverage. However, 

CMS disagreed with GAO’s other 

recommendations, including

monitoring PDP reimbursements to 

beneficiaries, mitigating the risks 

of information system changes, and 

facilitating states’ access to certain 

drug-related information. GAO

maintains its support for these 

recommendations. 

CMS’s enrollment procedures and implementation of its Part D coverage 

policy generate challenges for some dual-eligible beneficiaries, pharmacies,

and the Medicare program. A majority of new dual-eligible beneficiaries—

generally those on Medicare who have not yet signed up for a PDP and who 

become eligible for Medicaid—may be unable to smoothly access their drug 

benefit for at least 5 weeks given the time it takes to enroll them in PDPs and 

communicate information to beneficiaries and pharmacies. Pharmacies also 

may be affected adversely when key information about a beneficiary’s dual 

eligibility is not yet processed and available. When dispensing drugs during 

this interval, pharmacies may have difficulty submitting claims to PDPs and 

accurately charging copayments. In addition, Medicare pays PDPs to provide 

these beneficiaries with several months of retroactive coverage but, until 

March 2007, CMS did not inform beneficiaries of their right to be reimbursed

for drug costs incurred during these periods. CMS does not monitor its 

payments to PDPs for retroactive coverage or the amounts PDPs have 

reimbursed dual-eligible beneficiaries. Medicare paid PDPs millions of 

dollars in 2006 for coverage during periods for which dual-eligible 

beneficiaries may not have sought reimbursement for their drug costs. 

CMS has taken steps to address challenges associated with enrolling dualeligible beneficiaries in PDPs. CMS has implemented a policy to prevent a

gap in prescription drug coverage for those new dual-eligible beneficiaries 

whose Part D eligibility is predictable—Medicaid beneficiaries who 

subsequently qualify for Medicare. We estimate this group represents about 

one-third of new dual-eligible beneficiaries. In August 2006, CMS began 

operating a prospective enrollment process that should allow the agency and 

its Part D partners time to complete the enrollment processes and notify 

these beneficiaries before their effective enrollment date. Also, CMS is 

making changes to improve the efficiency of key information systems 

involved in the enrollment process. While the agency is performing some

information systems testing, it is not planning to perform testing of the 

interactions of key information systems collectively, which is crucial to 

mitigating the inherent risks of system changes. 

Under federal law, CMS is required to assign dual-eligible beneficiaries to 

PDPs based on PDP premiums and geographic area. State Medicaid agency 

officials and others assert that this assignment method often places dualeligible beneficiaries in PDPs that do not meet their drug needs. With CMS 

approval, Maine officials considered beneficiary-specific data to reassign 

nearly half of their dual-eligible beneficiaries to PDPs that better met their 

drug needs in late 2005. After the reassignment, the number of these dualeligible beneficiaries whose PDP covered nearly all of their prescription 

drugs increased significantly. States choosing to make such reassignments in 

the future would need ready access to key information from PDPs. CMS 

contends that reassignments are not needed because beneficiaries may 

switch to drugs of equivalent therapeutic value or change plans at any time. 

www.gao.gov/cgi-bin/getrpt?GAO-07-272.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Kathleen King 

at (202) 512-7119 or kingk@gao.gov or

David Powner at (202) 512-9286 or

pownerd@gao.gov. 
Contents 

Letter 1

Results in Brief 5

Background 8

Enrollment Processes and Coverage Policy Generate Challenges 

for Dual-Eligible Beneficiaries, Pharmacies, and the Medicare 

Program 17

CMS Has Taken Actions to Address Challenges Faced by New 

Dual-Eligible Beneficiaries and Pharmacies 31 

CMS Randomly Assigns Dual-Eligible Beneficiaries to PDPs; Some 

States Assigned Individuals Using a More Tailored Approach 35 

PDP Transition Process Compliance Improved but Beneficiary 

Confusion Remains; 2007 Contracts More Specific 44 

Conclusions 49

Recommendations for Executive Action 50 

Agency Comments and Our Evaluation 51 

Appendix I Steps Involved in the Identification and 

Enrollment of Dual-Eligible Beneficiaries into 

Medicare Part D 56 

Appendix II Comments from the Centers for Medicare & 

Medicaid Services 59 

Appendix III GAO Contacts And Staff Acknowledgments 66 

Tables 

Table 1: Maine Analysis of the Match Rate between Dual-Eligible 

Beneficiaries’ Drugs and Their CMS-Assigned PDP 

Formularies, 2005 39 

Table 2: Match Rates by PDP before and after Intelligent Random 

Assignment for Those Reassigned Dual-Eligible 

Beneficiaries 40

Page i GAO-07-272 Dual-Eligible Beneficiaries and Part D
Figures 

Figure 1: Overview of the Major Systems and Steps Used to Enroll 

Dual-Eligible Beneficiaries in PDPs 14 

Figure 2: Mr. Smith, a Hypothetical Example of the Enrollment 

Process for a Newly Identified Dual-Eligible Beneficiary 

Who Was Medicare-Eligible but without Previous Part D 

Coverage 18

Figure 3: Mrs. Jones, a Hypothetical Example of the Enrollment 

Process for a Newly Identified Dual-Eligible Beneficiary 

Who Was Medicare-Eligible and Had Previous Part D 

Coverage 21

Figure 4: Steps Pharmacies Take When a Dual-Eligible Beneficiary 

Lacks Evidence of PDP Membership 24 

Abbreviations 

CMS Centers for Medicare & Medicaid Services 

DI Disability Insurance 

IRA Intelligent Random Assignment 

IT information technology 

MA Medicare Advantage

MMA Medicare Prescription Drug, Improvement and 

 Modernization Act of 2003 

NASMD National Association of State Medicaid Directors 

OIG Office of Inspector General 

PAAD Pharmaceutical Assistance to the Aged and Disabled 

PDP prescription drug plan 

SPAP state pharmaceutical assistance program 

SSA Social Security Administration 

SSI Supplemental Security Income 

TRR Transaction Reply Report 

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Page ii GAO-07-272 Dual-Eligible Beneficiaries and Part D
United States Government Accountability Office

Washington, DC 20548 

May 4, 2007

The Honorable Max Baucus 

Chairman 

The Honorable Charles E. Grassley 

Ranking Member 

Committee on Finance 

United States Senate 

The Honorable John D. Rockefeller IV 

Chairman 

The Honorable Orrin G. Hatch 

Ranking Member 

Subcommittee on Health Care 

Committee on Finance 

United States Senate 

The Medicare Prescription Drug, Improvement and Modernization Act of 

2003 (MMA) established a voluntary outpatient prescription drug benefit 

for Medicare—the federal health insurance program for elderly and certain 

disabled individuals—known as Medicare Part D.1

 This benefit is provided 

through prescription drug plans (PDP) sponsored by contracted private 

companies.2

 These private companies, termed sponsors, offer one or more 

benefit packages, through individual PDPs that charge monthly premiums 

that cover different drugs and have different beneficiary cost-sharing 

arrangements (such as copayments and deductibles). Medicaid is a jointly 

funded federal-state health care program that covers certain low-income 

families and low-income individuals who are aged or disabled. Medicaid 

beneficiaries receive their prescription drugs at no or low cost as part of 

 1

MMA, Pub. L. No. 108-173, tit. I, §101, et seq., 117 stat. 2066, 2071-2152 (2003) (adding new 

sections 1860D-1, et seq. and 1935 to the Social Security Act, to be codified at 42 U.S.C. 

§1395w-101, et seq. and 42 U.S.C. §1396u-5). For the remainder of the report, we will refer 

only to provisions of the Social Security Act when referencing MMA requirements. 

2

Drug coverage may also be provided through Medicare Advantage (MA) prescription drug

plans. MA plans are Medicare’s private health plan option, providing coverage of benefits 

beyond prescription drugs.

Page 1 GAO-07-272 Dual-Eligible Beneficiaries and Part D
their Medicaid benefits.3

 About 6 million people were eligible for both full 

Medicare and Medicaid benefits in December 2005 and more become 

eligible each month. For those who are dually eligible for both Medicare 

and Medicaid, known as full-benefit dual-eligible beneficiaries,4

 the MMA 

required that drug coverage transition from Medicaid drug coverage to 

Medicare Part D drug coverage on January 1, 2006.5

 Dual-eligible 

beneficiaries are generally poorer, are more likely to have extensive health

care needs, and use more medications than other Medicare beneficiaries. 

To help dual-eligible beneficiaries and other low-income Medicare 

beneficiaries with the costs of prescription drug coverage, the MMA 

provided these individuals with a low-income subsidy that covers most of 

their out-of-pocket costs for Part D prescription drugs.6

The Centers for Medicare & Medicaid Services (CMS)—the agency that 

administers the Medicare program—has responsibility for assisting in the 

transition of dual-eligible beneficiaries’ drug coverage from Medicaid to 

Medicare. In October and December 2005, CMS assigned each dual-eligible 

beneficiary who had not already signed up for a Part D plan to a PDP and 

notified these beneficiaries of their assignment. Part D prescription drug 

coverage for these beneficiaries was effective January 1, 2006. CMS also 

provided state pharmaceutical assistance programs (SPAP) with the ability 

to enroll or reassign their members to PDPs using additional criteria, with 

prior approval from CMS.

7

The agency also developed contingency measures to help with 

administrative difficulties that could arise with the change in coverage. It 

established an enrollment contingency option to ensure that dual-eligible

beneficiaries not yet enrolled in a PDP could get their prescriptions and 

that pharmacies would be reimbursed for those prescriptions. Also, CMS 

required PDPs to provide beneficiaries with a short-term supply of needed 

 3

While drug coverage is an optional Medicaid benefit, all state Medicaid programs cover

prescription drugs as part of their benefit package. In 2004, 40 state Medicaid programs and 

the District of Columbia had copayments for prescription drugs and 17 states had limits on

the number of prescriptions that could be filled by the beneficiary.

4

In this report, the term dual-eligible beneficiaries refers to full-benefit dual-eligible 

beneficiaries unless otherwise noted. 

5

Social Security Act §§ 1860D-1(a)(2), 1935(d). 

6

Social Security Act § 1860D-14. 

7

SPAPs are state-funded programs that provide financial assistance for prescription drugs 

to low-income elderly and disabled individuals. 

Page 2 GAO-07-272 Dual-Eligible Beneficiaries and Part D
drugs, known as a transition supply, if they were prescribed a drug that 

was not on their PDP’s list of covered drugs, or formulary. 

Shortly after the start of the program, the media reported that some dualeligible beneficiaries encountered difficulties that limited their access to 

needed drugs. These included reports of dual-eligible beneficiaries not 

enrolled in a PDP, enrolled in more than one PDP, not correctly identified 

as a low-income beneficiary, charged incorrect copayments at the 

pharmacy, and unable to obtain drugs because of inadequate transition 

coverage. In February 2006, the Secretary of Health and Human Services 

reported that these problems potentially affected several hundred 

thousand dual-eligible beneficiaries.8

 Some of these problems were the 

result of data transmission difficulties among the states, CMS, and PDP 

sponsors. Responding to a February 2006 survey by The Kaiser Family 

Foundation, 31 state Medicaid directors reported widespread problems 

affecting a significant number of dual-eligible beneficiaries.9

 In response to 

the problems, 29 state Medicaid agencies and the District of Columbia’s 

Medicaid agency interceded and provided temporary coverage to ensure 

dual-eligible beneficiaries had access to prescription drugs. 

Each month CMS randomly assigns and enrolls new dual-eligible 

beneficiaries who are not already in a Part D plan.

10 Of the 633,614 new 

dual-eligible beneficiaries that CMS automatically enrolled in 2006, most 

were Medicare beneficiaries who subsequently qualified for Medicaid, 

generally due to a loss of income and resources.11 Others were Medicaid 

beneficiaries who subsequently qualified for Medicare, typically due to age 

or disability. In addition to new dual-eligible beneficiaries, some 

previously assigned dual-eligible beneficiaries may be reassigned each 

benefit year. In fall 2006, CMS reassigned about 193,000 dual-eligible 

 8

See Mike Leavitt, Secretary’s One Month Progress Report on the Medicare Prescription 

Drug Benefit (Washington, D.C.: Department of Health and Human Services, Feb. 1, 2006).

9

See Vernon Smith, Kathleen Gifford, Sandy Kramer, and Linda Elam, The Transition of 

Dual Eligibles to Medicare Part D Prescription Drug Coverage: State Actions During 

Implementation (Washington, D.C.: The Henry J. Kaiser Family Foundation, Feb. 2006). 

10In addition to assigning and enrolling new dual-eligible beneficiaries on a monthly basis,

CMS assigns and enrolls existing dual-eligible beneficiaries who have disenrolled from a

Part D plan without re-enrolling in another one. 

11The 633,614 excludes those Medicare beneficiaries who were previously enrolled by CMS 

prior to becoming full-benefit dual-eligible beneficiaries. In 2006, CMS chose to enroll 

about 1.5 million of these Medicare beneficiaries in PDPs under CMS’s facilitated 

enrollment process, which is outside the scope of this report. 

Page 3 GAO-07-272 Dual-Eligible Beneficiaries and Part D
beneficiaries to new PDPs for the 2007 benefit year. Consequently, the

challenges of ensuring prompt and accurate Part D enrollment are 

ongoing. 

Given the reported problems that occurred during the early months of the 

Part D program, you raised questions about whether difficulty obtaining 

prescription drugs could continue to be a problem for many newly 

identified dual-eligible beneficiaries. In this report, we examine (1) current 

challenges in identifying and enrolling new dual-eligible beneficiaries in 

PDPs, (2) CMS’s efforts to address challenges in enrolling dual-eligible

beneficiaries, (3) federal and state approaches to assigning dual-eligible

beneficiaries to PDPs, and (4) CMS’s actions to ensure that PDPs 

implement effective transitional drug coverage following enrollment. 

To address these issues, we reviewed relevant federal laws and regulations 

and guidance provided by CMS to state Medicaid agencies, PDPs, and 

pharmacies on their respective roles in the Medicare Part D benefit, CMS 

documents on the interaction of key information systems, and the model 

contract between CMS and PDP sponsors.12 We also interviewed CMS 

officials, including those responsible for information systems, CMS 

contractors responsible for maintaining key information systems, Social 

Security Administration (SSA) officials,13 state Medicaid officials, and 

representatives of pharmacy associations and long-term care provider 

associations.14 We also interviewed representatives from five PDP 

sponsors that represented about 54 percent of dual-eligible PDP 

enrollment as of June 3, 2006.

15 Each of these sponsors offered a PDP that 

was eligible to receive assignments of dual-eligible beneficiaries in 2006. 

To learn about alternative methods of assigning Medicare beneficiaries to

PDPs, we also interviewed representatives of SPAPs. 

 12See also GAO, Medicare: Contingency Plans to Address Potential Problems with the 

Transition of Dual-Eligible Beneficiaries from Medicaid to Medicare Drug Coverage, 

GAO-06-278R (Washington, D.C.: Dec. 16, 2005). 

13The SSA pays retirement, disability, and survivors’ benefits to workers and their families.

14For purposes of this report, we use the term pharmacy associations to include both

associations that represent pharmacies and those that represent pharmacists. 

15Although dual-eligible beneficiaries may obtain drug coverage through either PDPs or MA 

plans, we focused on stand-alone PDPs. More than 90 percent of dual-eligible beneficiaries

are enrolled in PDPs, rather than MA plans. In addition, CMS only enrolls dual-eligible 

beneficiaries into stand-alone PDPs, unless the individual was previously enrolled in a MA

plan. 

Page 4 GAO-07-272 Dual-Eligible Beneficiaries and Part D
We also conducted site visits in six states—California, Maine, Maryland, 

Michigan, New Jersey, and Texas—to learn about the transition of dualeligible beneficiaries from the perspective of state Medicaid agencies, 

pharmacies, and long-term care providers. Together, these states 

accounted for 28 percent of all dual-eligible beneficiaries enrolled in a PDP 

in May 2006. In selecting the states, we chose states that represented a 

range in the number of dual-eligible beneficiaries, the number of PDPs to 

which CMS assigned dual-eligible beneficiaries, state involvement with 

PDP assignment, and state size.16 Information from the six states cannot be

generalized to every state’s experience with the Part D program because 

each state Medicaid program is different. To assess the reliability of 

Maine’s data on the reassignment of dual-eligible beneficiaries—the only 

state in our sample to have such information—we talked with Maine 

Medicaid agency officials and state contractors about how the analyses 

were conducted and reviewed documentation of the methodology. We 

determined that the data were sufficiently reliable for the purposes of this 

report. We conducted our work from March 2006 through April 2007 in 

accordance with generally accepted government auditing standards. 

CMS’s enrollment procedures and implementation of its Part D coverage 

policy generate challenges for some dual-eligible beneficiaries, 

pharmacies, and the Medicare program. A majority of new dual-eligible

beneficiaries enrolled by CMS—generally those on Medicare who have not 

yet signed up for a PDP and who become eligible for Medicaid—may be 

unable to smoothly access their drug benefit for at least 5 weeks given the 

timing of the steps to enroll dual-eligible beneficiaries in PDPs and 

communicate information to beneficiaries and pharmacies. Pharmacies 

also may be affected adversely when key information about a beneficiary’s 

dual eligibility is not yet processed in the appropriate eligibility and 

enrollment systems. When dispensing drugs to dual-eligible beneficiaries 

during this interval, pharmacies may have difficulty submitting claims to 

PDPs and accurately charging beneficiaries for copayments. In addition, 

under CMS policy, Medicare pays PDPs to provide these dual-eligible 

beneficiaries with retroactive coverage that extends for several months. 

However at the time of our review, CMS did not inform beneficiaries of 

Results in Brief 

 16We also considered the degree of difficulty with the January 2006 transition as reported in

a survey of state Medicaid agencies conducted for The Henry J. Kaiser Family Foundation. 

See Vernon Smith, Kathleen Gifford, Sandy Kramer, and Linda Elam, The Transition of 

Dual Eligibles to Medicare Part D Prescription Drug Coverage: State Actions During 

Implementation (Washington, D.C.: The Henry J. Kaiser Family Foundation, Feb. 2006). 

Page 5 GAO-07-272 Dual-Eligible Beneficiaries and Part D
their right to be reimbursed for drug expenses incurred during retroactive 

coverage periods. After reviewing a draft of this report, CMS revised the 

enrollment notification letters informing dual-eligible beneficiaries of their 

eligibility for reimbursement. Also, CMS does not monitor its payments to 

PDPs for providing retroactive coverage or the amounts PDPs have 

reimbursed dual-eligible beneficiaries. GAO found that Medicare paid 

PDPs millions of dollars in 2006 for coverage during periods for which 

dual-eligible beneficiaries may not have sought reimbursement for their 

drug costs. 

CMS has recently taken steps to address identified problems associated 

with enrolling dual-eligible beneficiaries. The agency has implemented a 

change in policy that should prevent a gap in drug coverage for those new 

dual-eligible beneficiaries whose Part D eligibility can be predicted. This 

group—about one-third of new dual-eligible beneficiaries enrolled by CMS 

in a PDP—consists of Medicaid beneficiaries whose drug coverage ends 

under Medicaid when they also become Medicare eligible. In August 2006,

CMS began operating a prospective enrollment process that allows the 

agency and its Part D partners the time needed to complete the enrollment 

processes and notify this group of beneficiaries before PDP enrollment 

becomes effective. CMS has also taken steps to improve the information 

available to pharmacies when serving dual-eligible beneficiaries who do 

not have evidence of PDP enrollment. In addition, CMS is redesigning and 

integrating key information systems to reduce redundancies, synchronize 

data, and increase the efficiency of the systems involved in the enrollment 

process. While the agency is performing certain types of systems testing to

ensure that these changes are effectively implemented, it is not planning to

test the interactions of key information systems collectively and their 

interfaces (commonly referred to as end-to-end testing). 

As required under the MMA and implementing regulations, when a dualeligible beneficiary has not chosen a Part D plan, CMS randomly assigns 

and enrolls dual-eligible beneficiaries to a PDP. The only criteria CMS may 

use in assigning these dual-eligible beneficiaries are the PDP’s monthly 

premium and the geographic location of the PDP. This is designed to 

ensure that PDP sponsors enroll an approximately equal number of 

beneficiaries. In a small number of cases, beneficiaries were enrolled in a

PDP that did not serve their geographic location because CMS used an 

address from SSA that did not accurately reflect where they lived. In 

response to a draft of this report, CMS made changes to correct this 

problem. In late 2005, with approval from CMS, officials in Maine 

reassigned nearly half of the state’s dual-eligible beneficiaries for the initial 

transition to Medicare Part D using additional criteria they believed to be 

Page 6 GAO-07-272 Dual-Eligible Beneficiaries and Part D
more appropriate for beneficiaries’ individual needs. A 2005 state analysis

showed that CMS’s random assignment resulted in about one in five dualeligible beneficiaries having formulary match rates—the percentage of a 

beneficiary’s medications that appeared on the PDP formulary—of less 

than 20 percent. After reassigning beneficiaries to eligible PDPs using drug 

utilization and pharmacy preference information, these beneficiaries’ 

match rates approached 100 percent. Maine officials noted that, to conduct 

yearly reassignments for the dual-eligible population, they needed up-todate beneficiary drug utilization and formulary information from PDP 

sponsors. CMS and PDP sponsors informed us, however, that reassigning 

dual-eligible beneficiaries to PDPs using additional criteria is not 

necessary because beneficiaries may switch to medications of equivalent 

therapeutic value or change plans at any time during the year.

CMS actions to address problems associated with PDP implementation of 

pharmacy transition processes led to a more uniform application of 

transition processes; however, some dual-eligible beneficiaries remain 

confused. Under PDP transition processes, beneficiaries should be 

provided temporary coverage of existing prescriptions, regardless of 

whether the drug is on the PDP’s formulary, to allow them time to contact 

their physician about switching to a medication on their PDP’s formulary 

or obtaining a formulary exception from their PDP. In early 2006, CMS 

officials learned that the way in which some PDP sponsors implemented 

their transition policies adversely affected beneficiaries’ ability to obtain 

transition drug supplies. CMS responded by issuing a series of memoranda 

to PDP sponsors to clarify its expectations. Representatives of pharmacy 

and long-term care associations, state Medicaid agencies, and PDP 

sponsors told us that the problem of uneven availability of transition drug 

coverage has largely been resolved. They noted, however, that dualeligible beneficiaries remain unaware of the implications of the transition 

supply and are not using the transition period to address formulary issues. 

As a result, after receiving a transition supply, these beneficiaries often 

return to the pharmacy the following month and may encounter problems 

refilling these same prescriptions. For 2007, CMS has added specific 

requirements to its contract with PDP sponsors with respect to providing 

transition drug coverage to new enrollees and for notifying beneficiaries 

and pharmacists about transitional coverage. 

We recommend that, to improve the process of enrolling dual-eligible 

beneficiaries in PDPs, the CMS Administrator take actions to inform dualeligible beneficiaries of their right to reimbursement, track the number of 

new dual-eligible beneficiaries receiving retroactive coverage, determine

the magnitude of payments to PDPs for retroactive coverage periods and 

Page 7 GAO-07-272 Dual-Eligible Beneficiaries and Part D
monitor PDP reimbursements to dual-eligible beneficiaries, mitigate the 

risks associated with implementing changes to Part D information systems 

by conducting additional testing, ensure dual-eligible beneficiaries are 

enrolled in a PDP that serves the geographic area where they live, and 

facilitate data sharing between PDPs and authorized states that choose to 

reassign their dual-eligible beneficiaries using alternative methods. 

In comments on a draft of this report, CMS objected to what it perceived 

as the overwhelmingly negative tone of our findings and stated that our 

discussion of retroactive coverage was overly simplified. Nevertheless, the 

agency stated that it was implementing three of our six recommendations 

to improve existing procedures; it disagreed with the remaining 

recommendations. We believe that our findings are balanced and accurate

and our recommendations are appropriate. To clarify our message and to

reflect information obtained through agency comments, we have modified

portions of the first finding concerning the intervals associated with 

processing dual-eligible beneficiaries’ enrollments and the fact that 

Medicare pays plans during periods when dual-eligible beneficiaries may 

be unlikely to seek reimbursement for drug costs. 

Medicare Part D coverage is provided through private plans sponsored by 

dozens of health care organizations that may charge premiums, 

deductibles, and copayments for the drug benefit.17 All Part D plans must 

meet federal requirements with respect to the categories of drugs they 

Background 

The Medicare Part D 

Program 

 17The number of health care organizations sponsoring private plans was 79 in 2006 and 

more than 90 for 2007. 

Page 8 GAO-07-272 Dual-Eligible Beneficiaries and Part D
must cover and the extent of their pharmacy networks.18,19 They must offer 

the standard Medicare Part D benefit, or an actuarially equivalent benefit.

20

Beyond these requirements however, the specific formulary and pharmacy 

network of each PDP can vary. 

Under the MMA, drug coverage for all dual-eligible beneficiaries 

transitioned from Medicaid to Medicare Part D, on January 1, 2006.21 The 

MMA requires CMS to assign dual-eligible beneficiaries to a PDP if they 

have not enrolled in a Part D plan on their own.22 CMS may only assign 

dual-eligible beneficiaries to PDPs serving their area with premiums at or 

below the low-income benchmark amount and must randomly assign 

individuals if there is more than one eligible PDP.23 During October and 

December 2005, CMS randomly assigned to PDPs dual-eligible

beneficiaries who had not already enrolled in a Part D plan. The agency 

 18Under the MMA, PDPs must cover drugs within each therapeutic category and class of

Part D drugs. PDPs may not cover the following nine categories of drugs as the MMA

excluded these categories from Medicare Part D coverage: (1) agents used for anorexia, 

weight loss, or weight gain; (2) agents used to promote fertility; (3) agents used for 

cosmetic purposes or hair growth; (4) agents used for the symptomatic relief of coughs or

colds; (5) prescription vitamins and minerals, except prenatal vitamins and fluoride 

preparations; (6) nonprescription drugs; (7) outpatient drugs for which the manufacturer 

seeks to require associated tests or monitoring be purchased from the manufacturer or

their designee as a condition of sale; (8) barbiturates; and (9) benzodiazepines. State 

Medicaid agencies may provide coverage of drugs in these excluded drug categories to 

their dual-eligible beneficiaries under the Medicaid program. Social Security Act §§1860D2(e), 1860D-4(b)(3)(C), 1935(d)(2). 

19All PDPs must have a contracted pharmacy in their network that is within 2 miles of 

90 percent of urban beneficiaries, 5 miles of 90 percent of suburban beneficiaries, and 

15 miles of 70 percent of rural beneficiaries. Social Security Act §1860D-4(b)(1)(C); 

42 C.F.R. §423.120. 

20The Part D standard benefit for 2007 includes a $265 annual deductible, 25 percent 

coinsurance for total covered drug costs between $265 and $2,400, and 100 percent 

coinsurance for drug spending between $2,401 and $5,451.25. After a beneficiary incurs 

$3,850 in covered out-of-pocket costs, catastrophic coverage begins and the beneficiary is

responsible for modest cost-sharing. Each year the standard benefit is adjusted to account

for the increase in average total drug expenses of Medicare beneficiaries. Actuarially 

equivalent coverage is coverage that is at least the same in value as the standard benefit,

but may be structured differently, as approved by CMS. 

21Social Security Act §1860D-1(a)(2). 

22Social Security Act §1860D-1(b)(1)(C). The formal name for this process is automatic 

enrollment. 

23Social Security Act §1860D-1(b)(1)(C); see also 42 C.F.R. § 423.34. The low-income 

benchmark is the average monthly beneficiary premium for all PDPs in a region, weighted

by each plan’s enrollment. 

Page 9 GAO-07-272 Dual-Eligible Beneficiaries and Part D
mailed notices to these beneficiaries informing them of their assignment 

and also that they could select a different PDP if they wished. If they did 

not switch from their assigned PDP by December 31, 2005, their 

assignment took effect, with coverage beginning January 1, 2006. CMS 

enrolled 5,498,604 dual-eligible beneficiaries during this first round of 

assignments and continues to assign new dual-eligible beneficiaries into 

PDPs on a monthly basis, when these beneficiaries do not independently

enroll in a Part D plan. 

For some dual-eligible beneficiaries, some drugs that were previously 

covered under Medicaid might not be covered by their Medicare PDP’s 

formulary. Subject to certain parameters,24 PDPs have the flexibility to set 

their own formularies and, as a result, PDPs vary in their inclusion of the 

drugs most commonly used by dual-eligible beneficiaries. According to a 

2006 report by the Department of Health and Human Services, Office of 

Inspector General (OIG), one-fifth of dual-eligible beneficiaries were 

assigned to PDPs that provide coverage of all of the most commonly used

drugs and one-third were assigned to PDPs that provide coverage of less 

than 85 percent of these drugs.25 However, dual-eligible beneficiaries are 

allowed to switch to a different PDP at any time with coverage under a 

new PDP effective the following month. 

In addition, to help ensure a smooth transition to Part D, CMS requires 

PDP sponsors to provide for a transition process for new enrollees whose 

 24PDP formularies generally must cover at least two Part D drugs in each therapeutic 

category and class, except when there is only one drug in the category and class or when 

CMS has allowed the plan to cover only one drug in that category or class. 42 C.F.R.

§423.120(b)(2). CMS may require coverage of more than two drugs in each category or 

class when the drugs provide therapeutic advantages or absence from a formulary may 

discourage enrollment in a plan. For example, CMS has designated six categories of drugs 

(antidepressant, antipsychotic, anticonvulsant, anticancer, immunosuppressant, and 

HIV/AIDS drugs) for which PDPs must cover “all or substantially all” of the drugs. See 

Centers for Medicare & Medicaid Services, Medicare Modernization Act 2007 Final 

Guidelines – Formularies, posted at 

http://www.cms.hhs.gov/PrescriptionDrugCovContra/03_RxContracting_FormularyGuidan

ce.asp#TopOfPage, accessed January 19, 2007. 

25In its comments on the OIG report, CMS stated that the methodology OIG used was 

flawed because it was based on a list of 178 drugs commonly used by dual-eligible 

beneficiaries rather than an examination of actual use of drugs at the individual beneficiary

level. CMS also stated that because all formularies cover multiple drugs in each therapeutic

class, all beneficiaries have access to drugs that are very similar to their current

medications. See Department of Health and Human Services, Office of Inspector General, 

Dual Eligibles’ Transition: Part D Formularies’ Inclusion of Commonly Used Drugs, 

OEI-05-06-00090 (Washington, D.C.: Jan. 2006). 

Page 10 GAO-07-272 Dual-Eligible Beneficiaries and Part D
current medications may not be included in their PDP’s formulary.26 For 

2006, CMS recommended that PDP sponsors should fill a one-time 

transition supply of nonformulary drugs in order to accommodate the 

immediate need of the beneficiary. In particular, CMS suggested that PDPs

provide at least a 30-day transition supply to all beneficiaries and a 90- to 

180-day transition supply for residents in long-term care facilities. 

Dual-Eligible Beneficiaries Dual-eligible beneficiaries are a particularly vulnerable population. 

Totaling roughly 6.2 million in January 2006, they account for about 

15 percent of all Medicaid beneficiaries and 15 percent of all Medicare 

beneficiaries. In general, these individuals are poorer, tend to have far 

more extensive health care needs, have higher rates of cognitive 

impairments, and are more likely to be disabled than other Medicare 

beneficiaries. A majority of dual-eligible beneficiaries live in the 

community and typically obtain drugs through retail pharmacies. Nearly 

one in four dual-eligible beneficiaries reside in a long-term care facility and 

obtain their drugs through pharmacies that specifically serve long-term 

care facilities. 

While most Medicare beneficiaries enrolled in a PDP pay monthly 

premiums, deductibles, and other cost-sharing as part of their benefit 

package, the Medicare Part D program pays a substantial proportion of 

dual-eligible beneficiaries’ cost-sharing obligations through its low-income 

subsidy program.27 For dual-eligible beneficiaries, Medicare pays the full

amount of the monthly premium that nonsubsidy eligible beneficiaries 

normally pay, up to the level of the low-income benchmark premium. 

Medicare Part D also covers most or all of the prescription copayments: 

dual-eligible beneficiaries pay from $1 to $5.35 copayments per 

prescription filled in 2007, with the exception of those in long-term care 

facilities who have no copayments. In addition, dual-eligible beneficiaries 

are not subject to a deductible or the so-called “donut hole.”28

In addition to dual-eligible beneficiaries, the Part D low-income subsidy is 

available to other low-income Medicare beneficiaries. Some of these other 

 2642 C.F.R. § 423.120(b)(3). 

27See Social Security Act §1860D-14. 

28This refers to the fact that the standard Part D benefit provided no coverage for total 

covered drug expenditures between $2,251 and $5,100 for 2006, shifting to between $2,401

and $5,451.25 in 2007. 

Page 11 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Medicare beneficiaries must apply for the subsidy through the SSA or a 

state Medicaid agency. The subsidy is available on a sliding scale, 

according to income and resources. Dual-eligible beneficiaries are 

automatically entitled to the full subsidy amount and do not need to apply 

independently for the subsidy. 

An individual can become a dual-eligible beneficiary in two main ways. 

First, Medicare beneficiaries can subsequently qualify for Medicaid. This 

occurs when their income and resources decline below certain thresholds, 

and they enroll in the Supplemental Security Income (SSI) program,29 or 

they incur medical costs that reduce their income below certain

thresholds. CMS data indicate that roughly two-thirds of the 633,614 dualeligible beneficiaries the agency enrolled in 2006 were Medicare 

beneficiaries who subsequently qualified for Medicaid, and had not already 

signed up for a PDP on their own.30 According to CMS officials, it is not 

possible to predict the timing of dual-eligibility for these individuals 

because determining Medicaid eligibility is a state function. 

Second, Medicaid beneficiaries can subsequently become eligible for 

Medicare by either turning 65-years-old or by completing their 24-month 

disability waiting period.31 This group represents approximately one-third 

of the new dual-eligible beneficiaries enrolled by CMS in PDPs. State 

Medicaid agencies can generally predict when this group of individuals 

will become dually eligible. 

 29In most states, beneficiaries who qualify for cash assistance from SSI—a cash assistance 

program for aged, blind, and disabled individuals with limited income and resources—

automatically qualify for full Medicaid benefits. In 39 states and the District of Columbia, 

SSI eligibility assures an individual’s eligibility for Medicaid benefits. Eleven state Medicaid 

agencies either (1) use more restrictive income or asset requirements than SSI for Medicaid 

eligibility or (2) require a separate Medicaid application/determination than the SSI 

application/determination. 

30Beneficiaries already enrolled in a PDP are allowed to stay in the same PDP after they

become dually eligible. They are not included in the two-thirds number because CMS did 

not enroll them when they became dually eligible for Medicare and Medicaid. 

31Under Social Security Disability Insurance (DI), which assists people who worked but 

became disabled before their retirement age, individuals are eligible for Medicare coverage

after they have received DI cash benefits for 24 months. 

Page 12 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Multiple parties and multiple information systems are involved in the 

process of identifying and enrolling dual-eligible beneficiaries in PDPs. In 

addition to CMS, the SSA, state Medicaid agencies, and PDP sponsors play

key roles in providing information needed to ensure that beneficiaries are 

identified accurately and enrolled. SSA maintains information on Medicare

eligibility that is used by CMS and some states. State Medicaid agencies 

are responsible for forwarding to CMS lists of beneficiaries who the state 

believes to be eligible for both Medicare and Medicaid. PDP sponsors 

maintain information systems that are responsible for exchanging 

enrollment and billing information with CMS. 

Systems and Steps 

Involved in the 

Identification and 

Enrollment of DualEligible Beneficiaries 

For the most part, CMS adapted existing information systems used in the 

administration of other parts of the Medicare program to perform specific 

functions required under Part D. In addition, CMS worked with the 

pharmacy industry to develop a tool specifically to aid pharmacies in 

obtaining billing information needed to process claims for dual-eligible 

beneficiaries without enrollment information. The principal systems 

supporting the Part D program are as follows: 

• The Medicare eligibility database.

32 This system serves as a repository for 

Medicare beneficiary entitlement, eligibility, and demographic data. In the 

enrollment process for dual-eligible beneficiaries, the database is used by

CMS to provide up-to-date information to verify the status of dual-eligible

beneficiaries, as well as to determine subsidy status and make 

assignments to PDPs. It also provides data to other CMS systems, SSA, 

state Medicaid agencies, PDPs, and pharmacies. 

• The enrollment transaction system.

33 This system is used to enroll 

beneficiaries in PDPs. In addition, it informs PDPs about a beneficiary’s 

subsidy status and copayment information, calculates Medicare payments

to PDPs for each covered enrollee, and processes changes in PDP 

enrollment, including those elected by the beneficiary. 

• The eligibility query.

34 This tool is used by pharmacies to obtain Part D 

billing information from the Medicare eligibility database. When filling a 

prescription for a beneficiary who does not have proof of Part D 

enrollment or eligibility, a pharmacy submits a request for billing 

 32This system’s official name is the Medicare Beneficiary Database. 

33This system’s official name is the Medicare Advantage Prescription Drug system. 

34This tool’s official name is the E-1 query. 

Page 13 GAO-07-272 Dual-Eligible Beneficiaries and Part D
information using the eligibility query. In response, the pharmacy receives 

information on the beneficiary’s PDP enrollment, including the data 

necessary to bill the beneficiary’s PDP for the drugs dispensed. 

The process of enrolling dual-eligible beneficiaries requires several steps; 

it begins when the state Medicaid agency identifies new dual-eligible 

beneficiaries and ends when PDPs make billing information available to 

pharmacies. (For more detailed information on the steps involved in 

identifying and enrolling dual-eligible beneficiaries, see app. I.) The key 

information systems (see fig. 1) and steps in identifying and enrolling dualeligible beneficiaries are the following. 

Figure 1: Overview of the Major Systems and Steps Used to Enroll Dual-Eligible 

Beneficiaries in PDPs 

Source: GAO.

1

6

3

4

5

Medicare 

eligibility 

database

CMS

7

Drug plan

sponsor

systems

CMS’s enrollment 

transaction 

system

State

Medicaid

systems

SSA

Pharmacy

systems

CMS’s

eligibility

query

Drug plan sponsor mails out 

ID cards and PDP information 

to the enrolled beneficiary.

1

1 2

Page 14 GAO-07-272 Dual-Eligible Beneficiaries and Part D
1. State Medicaid agencies obtain Medicare eligibility information from 

SSA or request data from CMS’s Medicare eligibility database and 

match that information against their own Medicaid eligibility files. The 

state Medicaid agencies compile comprehensive files identifying all 

dual-eligible beneficiaries, known as the dual-eligible files.35 CMS 

receives Medicare eligibility information from SSA daily. 

2. State Medicaid agencies send CMS the dual-eligible files and CMS 

matches the files against data in its Medicare eligibility database to 

verify each individual’s dual eligibility. The agency sends a response 

file back to each state that includes the results of the matching process 

for each submitted individual. 

3. Those dual-eligible beneficiaries who were matched are considered 

eligible for the full low-income subsidy and the Medicare eligibility 

database sets the copayment information accordingly. This process is 

referred to as deeming. The Medicare eligibility database also assigns 

beneficiaries not already enrolled in a Part D plan to PDPs that operate 

in regions that match the beneficiary’s official SSA address of record. 

Both the deeming and assignment information are sent to the

enrollment transaction system to be processed. 

4. The enrollment transaction system processes the deeming and 

assignment information in order to complete the enrollment and 

notifies the PDPs of those dual-eligible beneficiaries who have been 

enrolled in their PDP and their copayment amounts. 

5. PDPs process the resulting enrollment, assign the standard billing 

information, and send this information to the Medicare eligibility 

database. In addition, the PDPs mail out ID cards and PDP information 

to the enrolled beneficiary. 

6. The Medicare eligibility database transmits the PDP’s billing 

information to the eligibility query system. 

7. Using the eligibility query, pharmacies can access the billing 

information needed to fill prescriptions and bill them to the assigned 

PDP if beneficiaries lack their enrollment information. 

 35Dual-eligible files contain both newly identified dual-eligible beneficiaries and those who 

were previously identified. 

Page 15 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Under tight time frames, CMS and its partners integrated information 

systems to support the Part D program. To support the Part D program, 

CMS pieced together existing information systems that had related 

Medicare functions.36 In addition, information systems belonging to state 

Medicaid agencies and PDPs had to integrate with CMS information 

systems and CMS did not establish formal agreements with these partners

until the time of implementation. Final regulations for the program were 

not issued until January 28, 2005, and business requirements for the 

program were not finalized until March 2005. Thus, there was little time for 

testing given that requirements and agreements were so late in being 

solidified. 

A number of information systems problems surfaced in the early months 

of the program. These problems included logic errors in the enrollment 

process which generated cancellations to PDPs instead of enrollments, the 

eligibility query being overwhelmed by the number of pharmacy inquiries, 

and CMS difficulties matching data submitted by the state Medicaid 

agencies to information in the Medicare eligibility database. These 

problems can be attributed, in part, to poor systems testing. Because of 

tight time frames associated with implementing Part D, robust systemlevel and end-to-end testing did not occur.37

In January 2006, CMS contracted with EDS, an information technology 

consulting company, to identify opportunities for improvement in the 

information systems and services for Medicare Part D. EDS’s report 

findings and observations addressed many overarching challenges in the 

information systems infrastructure supporting the program, including the 

observation that the aggressive time frame for implementation did not 

allow sufficient time for end-to-end testing.38 CMS is redesigning key 

information systems involved in the enrollment process in order to 

improve the efficiency of these systems. 

Implementation of Part D 

Information Systems 

 36According to CMS, an effort to design, test, and implement a system specifically designed 

to support a program of the magnitude of Part D would take years. 

37End-to-end testing is performed to verify that a defined set of interrelated systems that 

collectively support an organizational core business function interoperate as intended in an

operational environment. The interrelated systems include not only those owned and

managed by the organization, but also the external systems with which they interface. 

38See Claude H. Snow, Jr., Opportunities for Improving Enrollment and Eligibility 

Processes and Systems in the Medicare Part D Prescription Drug Program: An 

Assessment (prepared by EDS for the Centers for Medicare & Medicaid Services, Mar.

2006). 

Page 16 GAO-07-272 Dual-Eligible Beneficiaries and Part D
CMS’s enrollment processes and implementation of its Part D coverage 

policy generate challenges for some dual-eligible beneficiaries, 

pharmacies, and the Medicare program. Because the interval between 

notification of Medicaid eligibility and completion of the Part D enrollment 

process can extend at least 5 weeks, some dual-eligible beneficiaries—

those previously on Medicare who subsequently become eligible for 

Medicaid—may be unable to smoothly access their Part D benefits during 

this interval. At the same time, pharmacies that are unable to obtain up-todate information about a dual-eligible beneficiary’s enrollment are likely to 

experience difficulties billing PDPs. In addition, CMS has tied dual-eligible 

beneficiaries’ effective date of Part D eligibility to the date of Medicaid 

eligibility, providing for several months of retroactive Medicare benefits. 

Although the Medicare program pays PDP sponsors for the period of 

retroactive coverage, beneficiaries were not informed of their right to 

reimbursement for drug costs incurred during this period. GAO found that

Medicare paid PDPs an estimated $100 million in 2006 for coverage during 

periods for which dual-eligible beneficiaries may not have sought 

reimbursement for their drug costs. 

The timing of steps to enroll dual-eligible beneficiaries in Part D and to 

make billing information available to pharmacies generates a gap between

the date beneficiaries are notified of their dual eligibility status and the 

date they receive their enrollment information. As a result, some new dualeligible beneficiaries may have difficulty obtaining their drugs at the 

pharmacy counter or may pay higher than required out-of-pocket costs. 

Among Medicare beneficiaries who subsequently become eligible for 

Medicaid, Medicare-only beneficiaries not previously enrolled in a PDP are 

likely to experience more difficulties compared with those who had 

enrolled in a PDP prior to becoming eligible for Medicaid. Because the 

information systems used are not real-time processing systems, the 

enrollment process takes place over a period of about 2 months. 

Given the time involved in processing beneficiary data under current 

procedures, pharmacies may not have up-to-date PDP enrollment 

information on new dual-eligible individuals. This may result in 

beneficiaries having difficulty obtaining medications at the pharmacy. To

illustrate why this occurs, we present the hypothetical example of Mr. 

Smith, who, as a Medicare beneficiary did not sign up for the Part D drug 

benefit and, therefore, upon becoming Medicaid-eligible, must be enrolled 

in a PDP. (Fig. 2 shows the steps in Mr. Smith’s enrollment process.) 

Enrollment Processes 

and Coverage Policy 

Generate Challenges 

for Dual-Eligible 

Beneficiaries, 

Pharmacies, and the 

Medicare Program 

CMS’s Enrollment 

Processes Can Create 

Difficulties for Some DualEligible Beneficiaries 

Page 17 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Figure 2: Mr. Smith, a Hypothetical Example of the Enrollment Process for a Newly Identified Dual-Eligible Beneficiary Who 

Was Medicare-Eligible but without Previous Part D Coverage 

Source: GAO.

Range of dates action could occur

Date that action occurred for Mr. Smith

August 11: Mr. Smith, who is on Medicare but not enrolled 

in a Part D plan, submits his Medicaid application to the state.

September 11: Mr. Smith is notified that he is eligible 

for Medicaid back to May 1, 2006.a

September 15: State submits Mr. Smith’s information 

on its dual-eligible file for September and includes

retroactive records for May, June, July, and August.b

September 16: CMS matches the state-submitted 

information on Mr. Smith against the data in the Medicare 

eligibility database and sends a response file to the state 

confirming Mr. Smith’s dual-eligibility status.

October 2: CMS determines that Mr. Smith is eligible for

the low-income subsidy and sets his copayment level.

October 8: CMS assigns all newly identified dual-eligible 

beneficiaries to a PDP if they are not already enrolled. 

Mr. Smith is randomly assigned to a PDP sponsored by 

ABC Corp.

October 9: The Medicare eligibility database sends a file 

with all of the new PDP assignments, including Mr. Smith’s, 

to the enrollment transaction system for processing.

October 14: The enrollment transaction system notifies

ABC Corp. of Mr. Smith’s assignment in their PDP via

the weekly enrollment update report. The report includes

information on Mr. Smith’s subsidy level and that his

coverage is effective back to May 1, 2006. Also, 

plan assignment information is available through the 

eligibility query.

October 15: ABC Corp. sends the billing information 

for Mr. Smith to the Medicare eligibility database.

October 15: ABC Corp. sends an enrollment letter 

to Mr. Smith.

October 16: The Medicare eligibility database updates its

enrollment information with Mr. Smith’s billing information 

and pharmacists can now access Mr. Smith’s billing 

information through an eligibility query. 

1

3

4

5

6

7

8

9

17

142128354249566370

Time between 

notification of 

Medicaid eligibility 

and when 

pharmacy can 

access billing 

information

2

August 11

August 18

August 25

September 1September 8

September 15September 22September 29

October 20

October 6

October 13

1

2

3

4

5

6

7

8

9

10

11

All grey bars indicate 

range of dates 

action could 

occur

11

Mr. SMITH #34012704

Effective: 5/1/06

10

elapsed day

NOTE: The dates presented in this example of enrollment for Mr. Smith generally represent the bestcase scenario. The range of dates represent the minimum and maximum length of elapsed time 

allowed for processing and notification, based on information provided by CMS. GAO makes no 

assurances that the events described would occur on the dates provided for any specific dual-eligible 

beneficiary. 

Page 18 GAO-07-272 Dual-Eligible Beneficiaries and Part D
a

The scenario presented reflects an application to Medicaid based on a reason other than disability.

State Medicaid agencies have 45 days to make eligibility determinations not based on disability and 

90 days for eligibility determinations based on disability, subject to extensions in certain 

circumstances. 

b

If the state Medicaid agency did not determine that Mr. Smith was eligible for Medicaid before it 

submitted its September dual-eligible file, his information could not be submitted until October. This 

scenario is not presented in this figure. 

From the time Mr. Smith applies for his state’s Medicaid program on 

August 11, it takes about 1 month for him to receive notification from the 

state that he is eligible for Medicaid. It takes until October 15 before the 

PDP notifies Mr. Smith of his enrollment and until October 16 before all 

the necessary information is available to his pharmacy. If Mr. Smith had 

sought to obtain prescription drugs prior to October 16, the pharmacy 

would have had difficulty getting the PDP billing information needed to

process claims on his behalf.39

The reason this gap occurs is that some of the enrollment and PDP 

assignment processing steps are done at scheduled intervals, such as once 

a month or once a week. According to CMS, because of the challenges 

some state Medicaid agencies have in compiling the dual-eligible file, CMS 

requires the file be submitted just once a month. CMS waits until it 

receives the monthly dual-eligible files from all state Medicaid agencies 

before determining each individual beneficiary’s subsidy level and making

the PDP assignment for these beneficiaries. State Medicaid agencies that 

submit their dual-eligible file to CMS early in the monthly cycle do not 

have their beneficiaries’ subsidy levels determined or the assignments to a 

PDP made any sooner than the last state to submit its file. Deeming and 

PDP assignment can take up to 10 days. Similarly, CMS’s system of 

notifying the PDP of a beneficiary assignment is on a weekly cycle, 

beginning on Saturday. Thus, regardless of what day in the week CMS’s 

enrollment transaction system receives a beneficiary’s PDP assignment 

and processes that enrollment, the information is not communicated to the

PDP until the following Saturday. It takes up to another week before the 

beneficiary receives a membership card or other membership 

documentation from the PDP or the pharmacy has computerized access to 

the Part D information needed to properly process a claim if an eligibility 

query is used to obtain billing information. Thus, the time elapsed from the 

date the state notified Mr. Smith of his eligibility for Medicaid to the date

 39The pharmacy would be able to fill Mr. Smith’s prescription and bill a PDP serving as a

contingency option if Mr. Smith produced evidence of entitlement to both Medicare and 

Medicaid at the pharmacy. 

Page 19 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Mr. Smith was notified by his assigned PDP of his Part D enrollment was 

at least 35 days. 

Other new dual-eligible beneficiaries may incur out-of-pocket costs at the

pharmacy that are too high for their dually eligible status because of the 

time it takes information on the beneficiary’s new status to reach their 

PDP. To illustrate this case, we present the hypothetical example of 

Mrs. Jones, a Medicare beneficiary who becomes eligible for Medicaid but 

had already enrolled in a PDP. (See fig. 3.) When Mrs. Jones, who also 

applied for Medicaid on August 11, goes to the pharmacy on September 12, 

the pharmacy charges Mrs. Jones the same copayments that she was 

charged as a Medicare-only Part D beneficiary instead of the reduced 

amount for dual-eligible beneficiaries. This occurs because the PDP, and

consequently the pharmacy, does not have up-to-date information on Mrs. 

Jones’s status as a dual-eligible beneficiary; this information must go 

through processing steps similar to those for Mr. Smith. That is, the state 

Medicaid agency must first submit Mrs. Jones’s name to CMS on its dualeligible file, which is done monthly. Subsequently, CMS must determine 

Mrs. Jones’s level of subsidy according to the agency’s schedule for the 

deeming process. Mrs. Jones’s PDP will change her copayment

information only after it receives CMS’s weekly notification of enrollment 

transactions on October 7. 

Page 20 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Figure 3: Mrs. Jones, a Hypothetical Example of the Enrollment Process for a Newly Identified Dual-Eligible Beneficiary Who

Was Medicare-Eligible and Had Previous Part D Coverage 

Source: GAO.

Range of dates action could occur

Date that action occurred for Mrs. Jones

August 11

August 18

August 25

September 1September 8

September 15September 29

October 20

October 6

October 13

August 11

August 18

August 25

September 1September 8

September 15September 29

October 6

October 13October 20

1

2

3

4

5

6

17

142128354249566370

Mrs. JONES

#14685402 Effective: 5/1/06

7

September 22

August 11: Mrs. Jones, who is on Medicare and enrolled 

in a PDP, submits her Medicaid application to the state.

September 11: Mrs. Jones is notified that she is eligible 

for Medicaid back to May 1, 2006.a

September 15: State submits Mrs. Jones on its dualeligible file and includes retroactive records for May, 

June, July, and August.b

September 16: CMS matches the state-submitted 

information on Mrs. Jones against the data in the 

Medicare eligibility database and sends a response file to 

the state confirming Mrs. Jones’s dual-eligibility status.

October 2: CMS determines that Mrs. Jones is eligible for 

the low-income subsidy and sets her copayment level.

October 3: The Medicare eligibility database sends

Mrs. Jones’s updated information to the enrollment 

transaction system for processing.

October 7: CMS notifies Mrs. Jones’s PDP via the weekly 

enrollment update report that Mrs. Jones is eligible for 

reduced copayments as part of the low-income subsidy 

program back to May 1, 2006. Mrs. Jones’s PDP updates

its own systems accordingly.

1

2

3

4

5

6

7

All grey bars indicate 

range of dates 

action could 

occur

elapsed day

Note: The dates presented in this example of enrollment for Mrs. Jones generally represent the bestcase scenario. The range of dates represents the minimum and maximum length of elapsed time 

allowed for processing and notification, based on information provided by CMS. GAO makes no 

assurances that the events described would occur on the dates provided for any specific dual-eligible 

beneficiary. 

a

The scenario presented reflects an application to Medicaid based on a reason other than disability.

State Medicaid agencies have 45 days to make eligibility determinations not based on disability and 

90 days for eligibility determinations based on disability, subject to extensions in certain 

circumstances. 

b

If the state Medicaid agency did not determine that Mrs. Jones was eligible for Medicaid before it 

submitted its September dual-eligible file, her information could not be submitted until October. This 

scenario is not presented in this figure. 

Any dual-eligible beneficiary who has a change in subsidy status, such as

dual-eligible beneficiaries who enter a nursing home, may temporarily face 

higher than required out-of-pocket costs for drugs due to processing 

Page 21 GAO-07-272 Dual-Eligible Beneficiaries and Part D
delays. Residents of nursing homes who are dual-eligible beneficiaries are 

not required to pay any copayments, but they could be charged until the 

PDP updates its own data based on information provided by CMS. 

Recognizing the time lags that pharmacies encounter in receiving 

complete Part D information on dual-eligible beneficiaries, CMS issued a 

memorandum in May 2006 requiring PDP sponsors to use the best 

available data to adjust a beneficiary’s copayment, meaning that PDPs 

need not wait for CMS to notify them of a status change but can make 

adjustments based on notification received from a nursing facility or state 

agency. However, according to some we spoke with, PDPs vary in terms of 

their willingness to act on information provided by a party other than 

CMS.40

The time intervals associated with the Part D enrollment process for new 

dual-eligible beneficiaries can lengthen when data entry errors occur or 

when a dual-eligible beneficiary is identified by the state after the state has

submitted its monthly dual-eligible file. For example, if CMS cannot match 

information from its Medicare eligibility database with a beneficiary’s 

information listed in the state’s dual-eligible file, the state must find the 

source of the problem and resubmit the beneficiary’s information in the 

following month’s dual-eligible file. State Medicaid agency officials told us 

that generally mismatches occurred in 2006 because of errors in a birth 

date or Social Security number. CMS reported that for the month of June 

2006, about 17,000 to 18,000 names in state Medicaid agencies’ dualeligible files could not be matched against information in the Medicare 

eligibility database. This number of mismatches is down from 26,000 

mismatches earlier in the program. 

Tools Designed to Help 

Pharmacies Have Not 

Worked Well

CMS has provided pharmacies with certain tools to help process a claim 

when a beneficiary does not present adequate billing information or has 

not been enrolled in a PDP. The eligibility query was designed to provide 

billing information to pharmacies when dual-eligible beneficiaries do not 

have their PDP information, but pharmacies report problems using the 

tool. The enrollment contingency option was designed to ensure that dualeligible beneficiaries who were not yet enrolled in a PDP could get their 

medications, while also providing assurance that the pharmacy would be 

 40In commenting on a draft of this report, CMS officials noted that they updated this

guidance to PDPs in December 2006. 

Page 22 GAO-07-272 Dual-Eligible Beneficiaries and Part D
reimbursed for those medications. Problems with reimbursements have 

led some pharmacies to stop using the enrollment contingency option. 

The eligibility query was developed by CMS to help pharmacies determine 

which plan to bill when a dual-eligible beneficiary lacks proof of 

enrollment, but about half of the time the query system returns a response 

indicating a match was not found (see fig. 4). To obtain billing information 

on individuals without a PDP membership card or other proof of Part D 

enrollment, pharmacies have modified their existing computer systems to 

allow them to query CMS’s Medicare eligibility database. Using the Part D 

eligibility query, pharmacies can enter certain data elements—such as an 

individual’s Social Security number, Medicare ID number, name, and date

of birth—to verify whether the individual is a dual-eligible beneficiary and 

whether the individual has been assigned to a PDP. Ideally, when a match 

occurs, the pharmacy receives an automated response within seconds 

showing codes that contain the standard billing information necessary to

file a claim—such as the identity of the PDP sponsor and the member ID 

number. According to CMS, of all the eligibility queries pharmacies 

initiated in September 2006, about 55 percent enabled them to match data 

identification elements with an individual in the Medicare eligibility 

database. In comments on a draft of this report, the agency explained that 

pharmacies had used the eligibility query for nonenrolled individuals 

whose data would not otherwise be in the system. 

Page 23 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Figure 4: Steps Pharmacies Take When a Dual-Eligible Beneficiary Lacks Evidence of PDP Membership

Pharmacy does

not dispense 

medication.

Pharmacy 

dispenses

medication and 

beneficiary pays

out-of-pocket.

Pharmacy 

dispenses

medication and 

bills to enrollment 

contingency 

option.

Pharmacy 

dispenses

medication and 

hopes to locate 

billing information 

at a later time.

Eligibility query 

response 

includes billing 

information for 

beneficiary’s

assigned PDP.

Eligibility query 

response 

includes 1-800 

number for 

beneficiary’s PDP.

Pharmacy 

dispenses

medication 

and bills

appropriate PDP.

Pharmacy calls

1-800 number to 

determine billing 

information for 

beneficiary.

Pharmacy 

dispenses

medication and 

bills appropriate 

PDP.

If beneficiary’s data are not matched: If beneficiary’s data are matched:

Pharmacy performs an eligibility query to check for PDP billing information.

Source: GAO.

Dual-eligible beneficiary arrives at pharmacy without PDP member ID card or PDP information.

In cases where the PDP has not yet submitted standard billing information 

to CMS, the pharmacy must spend additional time contacting the PDP. In 

cases where the dual-eligible beneficiary has been assigned to a PDP, but 

the PDP has yet to submit the standard billing information, the eligibility 

query response contains only a 1-800 phone number for the assigned PDP. 

In these cases, pharmacies must spend additional time contacting the 

1-800 number to obtain needed billing information. In April 2006, about 

Page 24 GAO-07-272 Dual-Eligible Beneficiaries and Part D
13 percent of the eligibility query responses that matched a beneficiary did 

not contain the standard billing information. 

Pharmacy association representatives and individual pharmacists we met 

with told us that improvements to the eligibility query were needed. They 

said the eligibility query would be more useful if the responses pharmacies 

receive contained such information as the name of the PDP in which the 

beneficiary is enrolled, the effective date of the beneficiary’s enrollment in 

the PDP, and the beneficiary’s low-income subsidy status, rather than just

a 1-800 number or the standard billing information that is now provided. 

They also noted that the frequency with which the eligibility query 

responds without the standard billing information is also problematic; 

without adequate billing information the pharmacy has to make a 

telephone call to obtain the appropriate billing information. 

In cases where the eligibility query does not produce a match but the 

pharmacy has other evidence that the individual is dually eligible for 

Medicare and Medicaid, such as ID cards or a letter from the state, CMS 

has provided pharmacies with an enrollment contingency option. That is, 

the pharmacies can submit their claims to a nationwide PDP sponsor—

WellPoint—which CMS has contracted with to provide pharmacies with a 

source of payment for prescriptions filled for dual-eligible beneficiaries 

who have yet to be enrolled in a PDP. The WellPoint enrollment 

contingency option was intended for use in cases where the pharmacy can 

confirm that an individual is dually eligible for Medicare and Medicaid but 

cannot determine the beneficiary’s assigned PDP through the eligibility 

query. In such cases, claims are screened for eligibility, and if the 

beneficiary is indeed dually eligible, but has not yet been enrolled in a 

PDP, the beneficiary gets enrolled in a PDP offered by WellPoint. 

The WellPoint enrollment contingency option has often not functioned as 

intended. For example, WellPoint was billed for a number of claims where 

the beneficiary was enrolled in another PDP. As of November 26, 2006,

46.0 percent of the 351,538 Medicare ID numbers with claims that were 

billed to WellPoint had already been assigned to a PDP. CMS and 

WellPoint officials told us WellPoint reconciles payment for these claims 

directly with the beneficiary’s assigned PDP. However, pharmacy 

association representatives told us that, in some cases, WellPoint required

the pharmacies to refund payments for these claims to WellPoint and then

Page 25 GAO-07-272 Dual-Eligible Beneficiaries and Part D
submit the claim to the appropriate PDP.41 In other cases, pharmacies bill 

WellPoint without supplying the necessary beneficiary data elements. For 

instance, rather than entering the individual’s actual Medicare ID number, 

the pharmacy may enter dummy information into the Medicare ID field. As

of November 26, 2006, CMS reported that, roughly 35 percent of the 

Medicare ID numbers submitted to WellPoint were invalid, requiring 

pharmacies to refund their outlays on claims using these numbers. In 

addition, about 4 percent of the Medicare ID numbers were valid but the 

individual was either not eligible for Medicaid or was not eligible for Part 

D enrollment (for instance due to incarceration). WellPoint required 

pharmacies to refund money for these claims as well. According to one 

state pharmacy association representative, some pharmacies in the state 

have discontinued using the WellPoint contingency option because of the

reimbursement difficulties. Only about 15 percent of Medicare ID numbers 

with claims filed through the WellPoint option were associated with 

individuals eligible for enrollment in the WellPoint PDP. 

Pharmacy association representatives noted that some pharmacies 

dispense medications to individuals without proof of Part D enrollment, 

hoping to get needed billing information at a later date that will allow them 

to properly submit a claim. One state pharmacy association representative

noted that pharmacies serving only long-term care facilities dispense 

medication without assurance of reimbursement because they are required 

to do so under the contractual arrangements they have with the long-term 

care facilities. 

Pharmacy association representatives told us that after-the-fact 

reimbursement of drug claims is problematic. According to the pharmacy 

association representatives, it can be burdensome for staff to determine 

where to appropriately resubmit the claim. They also noted that PDPs will 

sometimes reject retroactive claims that are submitted after a certain 

period of time has elapsed. 

 41In commenting on a draft of this report, CMS indicated that once it implemented plan-toplan reconciliation in early 2006, WellPoint reconciled claims for beneficiaries already 

enrolled in another PDP with the appropriate PDP. 

Page 26 GAO-07-272 Dual-Eligible Beneficiaries and Part D
With the current combination of policies and requirements under which 

CMS operates, Medicare pays PDPs to provide retroactive coverage to 

Medicare beneficiaries newly eligible for Medicaid. However, until March 

2007, CMS did not inform these beneficiaries of their right to seek 

reimbursement for costs incurred during the retroactive period that can 

last several months. Given the vulnerability of the dual-eligible beneficiary 

population, it seems unlikely that the majority of these beneficiaries would 

have contacted their PDP for reimbursement if they were not notified of 

their right to do so. GAO found that Medicare paid PDPs millions of 

dollars in 2006 for coverage during periods for which dual-eligible 

beneficiaries may not have sought reimbursement for their drug costs. 

Medicare Pays PDPs to 

Provide Retroactive 

Coverage but Beneficiaries 

Have Not Been Informed 

of Their Right to 

Reimbursement 

Retroactive coverage for dual-eligible beneficiaries stems from both CMS’s 

Part D policy and from Medicaid requirements. Under the MMA, once an

individual who is not enrolled in a plan qualifies as a dual-eligible 

beneficiary, CMS is required to enroll the individual in a PDP.42 However, 

the MMA does not precisely define when Part D coverage for these 

beneficiaries must become effective.

43 As initially written, when enrolling a 

Medicare beneficiary without Part D coverage who became eligible for 

Medicaid, CMS’s policy set the effective coverage date prospectively as the 

first day of the second month after CMS identified the individual as both 

Medicare and Medicaid eligible.44 In March 2006, CMS changed this policy, 

making coverage retroactive to the first day of the month of Medicaid 

eligibility. In making this change, CMS cited concerns about enrollees 

experiencing a gap in coverage under its prior enrollment policy. Federal 

Medicaid law requires that a Medicaid beneficiary’s eligibility be set 

retroactively up to 3 months prior to the date of the individual’s

application if the individual met the program requirements during that 

 42Social Security Act § 1860D-1(b)(1)(C). 

43Federal regulations also do not clearly define the effective date of coverage for dualeligible beneficiaries and instead only require individuals who are Part D eligible and 

subsequently become eligible for Medicaid to be enrolled in a PDP by CMS as soon as

practicable in a process to be determined by CMS. See 42 C.F.R. § 423.34(f)(3). 

44However, in response to a draft of this report, CMS officials notified us that, beginning 

with those dual-eligible beneficiaries identified by states in February 2006, coverage for 

dual-eligible beneficiaries was effective January 1, 2006, or the effective date of Medicaid 

coverage, whichever was later. 

Page 27 GAO-07-272 Dual-Eligible Beneficiaries and Part D
time.45 Therefore, for this group of dual-eligible beneficiaries, Part D 

coverage may extend retroactively for several months prior to the actual 

date of PDP enrollment by CMS. 

The mechanics and time frames for Part D retroactive coverage can be 

illustrated by the hypothetical case of Mr. Smith, a Medicare beneficiary 

who was not enrolled in a PDP when he applied for Medicaid. On 

September 11, Mr. Smith’s state Medicaid agency made him eligible for 

Medicaid benefits as of May 11, 3 months prior to his August 11 program 

application, as he met Medicaid eligibility requirements during that 

retroactive period. In October, CMS notified Mr. Smith of his enrollment in 

a PDP and indicated that his Part D coverage was effective retroactively as 

of May 1, the first day of the month in which he became eligible for 

Medicaid. 

Medicare’s payment to Mr. Smith’s PDP, beginning with his retroactive

coverage period, consists of three major components, two of which are 

fixed and a third that varies with Mr. Smith’s cost-sharing obligations. 

• The first component is a monthly direct subsidy payment CMS makes to 

Mr. Smith’s PDP toward the cost of providing the drug benefit.

• The second component is the monthly payment CMS makes to Mr. Smith’s 

PDP to cover his low-income benchmark premium. 

• The third component covers nearly all of Mr. Smith’s cost-sharing 

responsibilities, such as any deductibles or copayments that he would pay 

if he were not a dual-eligible beneficiary. CMS makes these cost-sharing 

payments to his PDP based on the PDP’s estimate of the typical monthly 

cost-sharing paid by beneficiaries. CMS later reconciles Mr. Smith’s costsharing payments with the PDP based on his actual drug utilization as 

reported by the PDP to CMS.46

 45Social Security Act §1902(a)(34) (codified, as amended, at 42 U.S.C. §1396a(a)(34)). 

Under section 1115 of the Social Security Act, the Secretary of Health and Human Services

may waive this requirement for demonstration projects that are likely to assist in 

promoting the objectives of the Medicaid program. Social Security Act §1115 (codified, as

amended, at 42 U.S.C. §1315). If a state receives approval of such a waiver, the state only 

needs to extend Medicaid eligibility back to the date of application for the population

covered under the demonstration. 

46For the 2006 benefit year, CMS is requiring PDP sponsors to submit all utilization 

information by the end of May 2007 and will begin the reconciliation process in August 

2007. 

Page 28 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Under CMS’s retroactive coverage policy, Mr. Smith’s PDP receives all 

three components of payments for the months of May, June, July, August, 

and September, although Mr. Smith was not enrolled in the PDP until 

October. Medicare pays Mr. Smith’s PDP sponsor about $60 a month for 

the direct subsidy and another monthly payment for the low-income 

premium up to the low-income benchmark, which ranges from $23 to $36 

depending on Mr. Smith’s location.47 We estimate that for all dual-eligible

beneficiaries enrolled by CMS with retroactive coverage, Medicare paid

PDPs about $100 million in 2006 for these two monthly payment 

components for the retroactive period.48 Unlike the cost-sharing 

component of Medicare’s payments, the two monthly payment 

components are not subject to a reconciliation process tied to utilization 

of the benefit.49 This means that if Mr. Smith’s PDP did not reimburse 

Mr. Smith for any prescription drugs purchased during the retroactive 

coverage period, the PDP would have to refund Medicare the cost-sharing 

payment, but would keep the direct subsidy payments and the low-income 

premium payments.50

 47In 2006, the direct subsidy payment was $60.10 (subject to adjustment based on the

beneficiary’s health) and $53.08 for 2007. The low-income benchmark is a regional amount

that ranged from $23.25 to $36.39 in 2006 and ranges from $20.56 to $33.56 in 2007. 

48This total represents only Medicare payments to PDPs associated with the retroactive 

coverage policy for beneficiaries enrolled by CMS after becoming dually eligible. Based on

data provided by CMS, we estimated that roughly 256,000 dual-eligible beneficiaries 

enrolled by CMS from April through December 2006 were provided retroactive coverage.

We assumed that most of these beneficiaries were provided up to 5 months of retroactive 

coverage from the date they were notified of their PDP enrollment—a period that includes 

both their retroactive Medicaid coverage and PDP enrollment processing time. We

estimated that, for each month, PDP sponsors received approximately $90 per beneficiary 

in direct subsidy and low-income premium payments. 

49CMS conducts a separate reconciliation for all payments made to PDPs, termed risk 

sharing, in which CMS may recoup a share of Medicare payments made to a Part D sponsor 

that exceed the sponsor’s actual costs. Recoupment may occur if actual costs are less than

the sponsor’s estimates of revenue necessary to provide Part D benefits to all its enrollees. 

CMS performs risk sharing with Part D sponsors at the end of each coverage year. 

50As consistent with federal requirements, Medicare pays PDPs the same monthly premium

amounts for periods of retrospective coverage as for prospective coverage, although 

evidence suggests that beneficiaries’ drug purchases are likely to be significantly lower 

during the retrospective periods. On average, beneficiaries without drug insurance use 

25 percent fewer prescriptions and spend 40 percent less on drugs than do insured

beneficiaries. See John Poisal and George Chulis, “Medicare Beneficiaries and Drug

Coverage,” Health Affairs, vol. 19, no. 2, March/April 2000, pp. 248-256. 

Page 29 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Medicare makes the direct subsidy and low-income premium payments for 

the retroactive coverage period because CMS requires PDP sponsors to 

reimburse beneficiaries for covered drug costs incurred during this period. 

However, we found that CMS did not inform dual-eligible beneficiaries 

about their right to seek reimbursement or instruct PDP sponsors on what

procedures to use for reimbursing beneficiaries or others that paid on the 

beneficiary’s behalf for drugs purchased during retroactive periods. The 

model letters that CMS and PDPs used until March 2007 to notify dualeligible beneficiaries of their PDP enrollment did not include any language

concerning reimbursement of out-of-pocket costs incurred during 

retroactive coverage periods.51 After reviewing a draft of this report and 

our recommendations, CMS modified the model letters that the agency

and PDPs use to notify dual-eligible beneficiaries about their PDP 

enrollment. The revised letters let beneficiaries know that they may be 

eligible for reimbursement of some prescription costs incurred during 

retroactive coverage periods. 

Given the vulnerability of the dual-eligible beneficiary population, it seems 

unlikely that the majority of these beneficiaries would have contacted

their PDP for reimbursement if they were not notified of their right to do 

so nor would they likely have retained proof of their drug expenditures.52

In the case of Mr. Smith, for example, he would need receipts for any drug

purchases made during the retroactive period—about 5 months preceding 

the date he was notified of his PDP enrollment—at a time when he could 

 51In commenting on a draft of this report, CMS noted that it had educated its partners—

organizations that assist Medicare beneficiaries with enrollment—about this policy, so that 

they could help dual-eligible beneficiaries understand their right to reimbursement for 

retroactive drug costs. The agency pointed to an April 2006 fact sheet for partners on how 

Medicare beneficiaries, in general, should seek repayment of out-of-pocket costs incurred 

while their plan enrollment was being processed. However, the guidance did not make

specific reference to the rights of dual-eligible beneficiaries who are provided several 

additional months of retroactive coverage nor did it define which drug costs are covered.

52PDPs must also reimburse beneficiaries in cases such as Mrs. Jones—a Medicare 

beneficiary previously enrolled in a PDP who subsequently became eligible for Medicaid, 

and thus the low-income subsidy (see fig. 3). CMS would make the payments for the lowincome benchmark premium to the PDP retroactive to the date Mrs. Jones had a change in 

subsidy status and the PDP would reimburse Mrs. Jones for that period up to the same 

premium amount. For the cost-sharing payment, the PDP has the prescription drug claims

for the retroactive period, which include the amount Mrs. Jones paid at the pharmacy. The

PDP would resolve differences between the amount she actually paid and the amount she

would have paid given the low-income subsidy. If the PDP has automated systems to 

amend claims and pay accordingly, Mrs. Jones would not have to contact the PDP to be 

refunded for her costs. 

Page 30 GAO-07-272 Dual-Eligible Beneficiaries and Part D
not foresee the need for doing so. Finally, Mr. Smith or someone helping 

him would have to find out how and where to claim reimbursement from 

his PDP. Under CMS’s 2006 policy, even if Mr. Smith had submitted proof 

of his drug purchases, he would not be eligible for reimbursement if CMS 

had enrolled him in a PDP that did not cover his prescriptions or did not 

have Mr. Smith’s pharmacy in its network.53 Nevertheless, Mr. Smith’s PDP 

would have received monthly direct subsidy and low-income premium 

payments for Mr. Smith for the retroactive coverage period. 

For 2006, CMS did not calculate aggregate payments made to PDP 

sponsors for retroactive coverage. Further, the agency did not monitor 

reimbursements to dual-eligible beneficiaries for drug purchases made 

during the retroactive period. Agency officials told us that they have data

to determine the PDP payments and beneficiary reimbursements. As a 

result of not tracking this information, CMS does not know how much of 

the roughly $100 million in direct subsidy and low-income premium 

payments for retroactive coverage in 2006 was used by PDPs to pay for 

drug expenses claimed by dual-eligible beneficiaries for drugs purchased 

during retroactive coverage periods. 

Given the experience of early 2006, CMS has taken several actions to 

improve the transition of dual-eligible beneficiaries to Part D. First, the 

agency has taken steps to facilitate the change in drug coverage for 

Medicaid beneficiaries whose date of Medicare eligibility can be 

predicted—about one-third of new dual-eligible beneficiaries enrolled by

CMS. In August 2006, CMS implemented a new prospective enrollment 

process that state Medicaid agencies may use to eliminate breaks in 

prescription drug coverage for these beneficiaries. Second, CMS is taking 

steps to improve tools pharmacies use when dual-eligible beneficiaries 

seek to fill a prescription, but do not have their PDP enrollment 

information. Third, CMS has plans to integrate the agency’s information 

CMS Has Taken 

Actions to Address 

Challenges Faced by 

New Dual-Eligible 

Beneficiaries and 

Pharmacies 

 53Under CMS’s 2006 policy, PDP sponsors were responsible for compensating dual-eligible 

beneficiaries, or those that paid on their behalf, for out-of-pocket costs incurred during the 

retroactive period for drugs covered by the PDP. Similarly, if a pharmacy provided 

medications to Mr. Smith without charge during this time period, the PDP sponsor would 

also be required to reimburse the pharmacy for covered drug costs if the pharmacy was in

the PDP’s network. Under CMS’s 2007 policy, the agency requires that PDP sponsors

reimburse third-party payers for allowable drug charges during a retroactive eligibility 

period of up to 7 months, including charges for nonformulary drugs or formulary drugs

with prior authorization requirements. 

Page 31 GAO-07-272 Dual-Eligible Beneficiaries and Part D
systems to increase the efficiency of the systems involved in the 

enrollment process. 

CMS implemented a new prospective enrollment process in August 2006 to 

help Medicaid beneficiaries who become Medicare eligible transition to 

Part D without a break in coverage. Under the prospective enrollment 

process, state Medicaid agencies voluntarily can include on the monthly 

state dual-eligible file those Medicaid beneficiaries predicted to become 

Medicare eligible, for instance Medicaid beneficiaries who are nearing

their 65th birthday. Two months prior to the date the beneficiary will 

become Medicare eligible, CMS assigns the beneficiary to a PDP. By 

completing the assignment process prior to when these beneficiaries 

become Medicare eligible, CMS officials told us that these beneficiaries 

should have all their PDP enrollment information when their Medicare 

Part D coverage begins. 

Prior to the prospective enrollment process, Medicaid beneficiaries who 

became Medicare eligible experienced a gap of up to 2 months during 

which they were no longer eligible for Medicaid prescription drug 

coverage but had yet to receive information on their Medicare Part D drug 

coverage. This is because state Medicaid agencies were allowed to include 

in the monthly state dual-eligible file only those dual-eligible beneficiaries 

who were known to be eligible for Medicaid and Medicare at the time the 

file was sent. State Medicaid agencies were required to end Medicaid 

coverage for prescription drugs when the beneficiary became Part D 

eligible. 

Because prospective enrollment was in its very early stages during our 

audit work, we cannot evaluate how effectively the new process is 

working to mitigate the gaps in coverage some new dual-eligible 

beneficiaries faced. In the first month of implementation, 38 state 

Medicaid agencies submitted records identifying at least some prospective 

dual-eligible beneficiaries. CMS officials attributed the lack of submission 

of the names of prospective dual-eligible beneficiaries by some state 

Medicaid agencies in August 2006 to the short time frame state Medicaid 

agencies were given to change how they compiled the dual-eligible file. As 

of November 2006, the state Medicaid agencies for all 50 states and the 

District of Columbia have included prospective dual-eligible beneficiaries 

in their monthly file. While it is too early to gauge the impact of the 

process on beneficiaries, we believe that prospective enrollment has the 

potential to provide continuous coverage for those beneficiaries who can 

be predicted to become dually eligible. State Medicaid officials also told us 

CMS Instituted 

Prospective Enrollment to 

Help Ease Challenges of 

Certain New Dual-Eligible 

Beneficiaries 

Page 32 GAO-07-272 Dual-Eligible Beneficiaries and Part D
that prospective enrollment is a beneficial change to the process of 

identifying and enrolling new dual-eligible beneficiaries. 

CMS is taking steps to improve the eligibility query and the billing 

contingency option. CMS worked with the pharmacy industry to change 

the format of the eligibility query to include more complete information. 

Also, CMS officials said they planned to make changes to the enrollment 

contingency contract to institute a preliminary screen of Medicare 

eligibility and Part D plan enrollment before a claim goes through the 

system. 

In response to requests from pharmacies that more information be 

provided through the eligibility query, CMS officials told us that agency 

staff worked with the National Council for Prescription Drug Programs, 

Inc.—a nonprofit organization that develops standard formats for data 

transfers to and from pharmacies—to change the format of the eligibility 

query and increase the amount of information pharmacies could get from 

the responses. As part of the planned improvements, eligibility query 

responses for beneficiaries identified in the database will include—in 

addition to the data elements previously included—the beneficiary’s name

and birth date, the PDP’s identification number, and the beneficiary’s lowincome subsidy status. The new specifications for the eligibility query 

were released December 1, 2006. Pharmacies have to work with their own 

software vendors to implement the changes to their own systems. 

CMS is also taking steps to improve the availability of the information 

pharmacies access through the eligibility query. CMS officials told us that, 

after being notified of a confirmed enrollment by CMS via a weekly 

enrollment update, PDPs should submit standard billing information to 

CMS within 72 hours. However, sometimes PDPs hold the information for 

longer than 72 hours. According to CMS, the time it takes PDPs to submit 

billing information to the agency has improved since the beginning of the 

Part D program. While CMS does not monitor the amount of time it takes 

for PDPs to submit billing information, the agency has begun monitoring 

Medicare’s eligibility database to identify PDPs that have a large number 

of enrollees for whom billing information is missing. As part of this effort, 

CMS sends a file monthly to each PDP that lists enrollees without billing 

information. CMS guidance to PDPs states that each PDP should 

successfully submit standard billing information for 95 percent of the 

PDP’s enrollees each month. According to CMS data, as of October 1, 2006, 

about 27 percent of PDPs with CMS-assigned, dual-eligible beneficiaries 

had billing information for less than 95 percent of their CMS-assigned, 

CMS Working to Improve 

Utility of Eligibility Query 

and Billing Contingency 

Option 

Page 33 GAO-07-272 Dual-Eligible Beneficiaries and Part D
dual-eligible beneficiaries. Of those that did not meet the 95 percent 

threshold, most had fewer than 20 CMS-assigned, dual-eligible 

beneficiaries. 

CMS has implemented certain changes for 2007 to address the large 

number of problematic claims going through the WellPoint enrollment 

contingency option. It has directed WellPoint to check an individual’s 

Medicare eligibility and Part D enrollment before the claim is approved, 

using a new daily update report from Medicare’s eligibility database. This 

is expected to allow WellPoint to deny claims at the point-of-sale that 

should not be paid through this option, thereby reducing the number of 

claims that must be reconciled at a later date. 

CMS is now making changes to improve the efficiency of key information 

systems involved in the enrollment process. It is redesigning and 

integrating these information systems to reduce redundancies and to 

synchronize data currently stored in different systems, which should lead 

to a more efficient enrollment process. While CMS is performing unit, 

system, and integration testing on these changes, it has no definitive plans 

to perform end-to-end testing on the changes to the overall information 

systems infrastructure.54 CMS is pursuing contractual help to determine 

the extent of testing that it can perform in the future. 

CMS is currently integrating information from the Medicare eligibility 

database with information from the enrollment transaction system 

because duplicative demographic and other data are stored in both 

systems. According to CMS information technology (IT) officials, because 

these data are not stored in one place and a huge amount of enrollment 

traffic is moving back and forth between these two systems, it has been a 

very large burden for the agency to synchronize and maintain a single set 

of data. CMS IT officials told us that they spent the first 6 months of Part D 

implementation stabilizing the supporting information systems and have 

only now begun to look at efficiencies that can be achieved through 

CMS Is Attempting to 

Address Information 

Systems Issues, but 

without Adequate Testing, 

Problems May Continue 

 54In unit testing, each module is tested alone in an attempt to discover any errors in its 

code. System testing is performed to discover defects that are properties of the entire 

system rather than of its individual components. Integration testing is performed to verify 

that multiple applications that work together to accomplish a system function, when 

combined, work correctly. Because the separate applications being integrated have already 

been tested successfully, integration testing focuses on ensuring that the interfaces work 

correctly and that the integrated software meets specified requirements. 

Page 34 GAO-07-272 Dual-Eligible Beneficiaries and Part D
integration and mergers that can reduce maintenance and processing 

times. In the long term, the agency hopes to integrate all beneficiary, 

entitlement, and enrollment information into one database. 

CMS IT officials contend that true end-to-end testing of these current 

changes may not be feasible given the agency’s limited time and resources 

and the number of scenarios that would have to be tested in the more than 

600 different PDPs. In addition, true end-to-end testing would involve

thorough interface testing with SSA, and state Medicaid agency and PDP 

systems, which are not standardized and vary widely. While we agree that

end-to-end testing will be difficult given the multiple partners involved and 

the complexity of the program’s systems infrastructure, it is crucial to 

mitigate the risks inherent in CMS’s planned changes. End-to-end testing is 

a highly recognized systems development best practice and is considered 

essential to ensure that a defined set of interrelated systems, which 

collectively support an organizational core business area or function, 

interoperate as intended in an operational environment. These interrelated 

systems include not only those owned and managed by the organization, 

but also the external systems with which they interface. Because end-toend testing can involve multiple systems and numerous partner interfaces, 

it is typically approached in a prioritized fashion taking into consideration 

resources, test environments, and the willingness of external parties to 

participate. CMS IT officials acknowledge that there are risks associated 

with implementing these changes but still do not plan to conduct end-toend testing even on a limited basis. 

As required under the MMA and implementing regulations, for dual-eligible

beneficiaries who have not enrolled in a Part D plan, CMS makes random 

assignments to PDPs based only on the premium amount and the 

geographic location of the PDP. This method ensures that PDP sponsors 

enroll an approximately equal number of beneficiaries. However, state 

Medicaid officials and others assert that dual-eligible beneficiaries 

assigned to PDPs by CMS are often enrolled in PDPs that do not meet their 

drug needs. For the initial PDP assignments for January 2006, some SPAPs 

used additional criteria—including drugs used by beneficiaries—to enroll 

or reassign beneficiaries to PDPs that were more appropriate to their 

individual circumstances. SPAP officials reported that these alternative 

methods produced beneficial results. However, CMS and PDP sponsors 

pointed out that random assignment works to enroll beneficiaries into 

PDPs, and that there is no need to use additional criteria. 

CMS Randomly 

Assigns Dual-Eligible 

Beneficiaries to PDPs; 

Some States Assigned 

Individuals Using a 

More Tailored 

Approach 

Page 35 GAO-07-272 Dual-Eligible Beneficiaries and Part D
CMS assists in the enrollment of dual-eligible beneficiaries who have not 

enrolled in a Part D plan on their own by randomly assigning them in 

approximately equal numbers among eligible PDP sponsors in each region.

Under the MMA, the agency may only consider the premiums of the PDPs 

in the region when making these assignments.55 CMS first distributes 

beneficiaries randomly among those PDP sponsors that offer one or more 

PDPs at or below the low-income benchmark—the average premium in a 

region—if there is more than one eligible PDP serving the beneficiary’s 

geographic location. It then assigns the beneficiaries randomly among all 

eligible PDPs offered by each PDP sponsor. Following the first round of 

enrollments, CMS has assigned new dual-eligible beneficiaries to PDPs 

monthly. 

Dual-eligible beneficiaries may change PDPs at any time during the 

enrollment year.56 When dual-eligible beneficiaries change PDPs, coverage

under the new PDP becomes effective the following month. As of 

November 2006, 29.8 percent—1,703,018—of dual-eligible beneficiaries 

initially enrolled by CMS subsequently made a PDP election of their own 

choosing. 

During the original assignments for 2006, CMS assigned some dual-eligible

beneficiaries to PDPs that did not serve the area where they lived. This 

occurred for about 107,000 dual-eligible beneficiaries, 1.9 percent of the 

population randomly assigned to PDPs at that time. In these cases, CMS 

made inappropriate assignments because it used address information from 

SSA that was out-of-date or that corresponded to the individual’s 

representative payee—the individual or organization who manages the 

beneficiary’s money on the beneficiary’s behalf—rather than to the 

beneficiary.57 For example, if a beneficiary resides in Arizona and their 

representative payee resides in Virginia, CMS would have assigned that

beneficiary to a PDP serving Virginia. CMS officials pointed out that this 

problem was relatively minor because most of these dual-eligible 

beneficiaries (about 98.1 percent of those affected) were either enrolled in 

When Enrolling DualEligible Beneficiaries, CMS 

Considers PDP Premiums 

and Geographic Location 

 55Social Security Act § 1860D-1(b)(1)(C). 

56Social Security Act §1860D-1(b)(3)(D); see also 42 C.F.R. § 423.38. 

57CMS only receives one address per beneficiary, which may be that of a representative 

payee. A representative payee is an individual or organization that receives Social Security 

or SSI payments for someone who cannot manage or direct the management of his or her

money. The file CMS receives from SSA contains information indicating that an individual 

has a representative payee. 

Page 36 GAO-07-272 Dual-Eligible Beneficiaries and Part D
a PDP offered by a PDP sponsor that offered coverage in the beneficiary’s 

actual region or that had a national pharmacy network. CMS officials told 

us that PDP sponsors serving the remainder of these beneficiaries were 

instructed to provide benefits to this group in accordance with their outof-network benefits.58 CMS officials also told us that the fact that dualeligible beneficiaries can switch PDPs at any time addresses the issue. 

PDP sponsors were still required to notify all affected beneficiaries of the 

out-of-area assignment. CMS instructed PDPs to notify those dual-eligible

beneficiaries living in an area not served by the PDP sponsor that they 

would be disenrolled at some future point and must contact Medicare to 

enroll in an appropriate PDP. 

Under the MMA, SPAPs may enroll Part D beneficiaries into PDPs as their 

authorized representatives.59 Although CMS encouraged SPAPs to follow 

the same enrollment process CMS uses for dual-eligible beneficiaries, CMS 

has allowed certain SPAPs to use additional assignment criteria. Qualified 

SPAPs may use alternative assignment methods—often referred to as 

intelligent random assignment (IRA)—to identify PDP choices for their 

members that meet their individual drug needs. IRA methods consider 

beneficiary-specific information, such as drug utilization, customary 

pharmacy, and other objective criteria to narrow the number of PDP 

options to which a member could be assigned. With CMS approval, SPAPs 

may enroll members randomly among PDPs that meet these given criteria. 

However, SPAPs may not discriminate among PDPs by enrolling members 

into a specific or preferred PDP—a practice referred to as steering.60

Some States Have 

Assigned Individuals to 

PDPs Using a More 

Tailored Approach 

 58PDPs are required to cover the cost of prescriptions filled at pharmacies that are outside 

of the PDP’s pharmacy network; however, the beneficiary may have to pay more of the

cost. 

59Qualified SPAPs must attest to CMS that they meet five criteria established by CMS, 

including a prohibition on discriminating against any PDP when enrolling beneficiaries.

SPAPs must also qualify as authorized representatives of beneficiaries under state law in 

order to enroll beneficiaries in PDPs. See Social Security Act §1860D-23(b); 42 C.F.R.

§423.464(e)(1). As of May 17, 2006, SPAPs in 25 states had attested to their qualified status. 

60Social Security Act §1860D-23(b)(2); 42 C.F.R. § 423.464(e)(1)(ii). CMS informed us that it 

has coordinated enrollment processes with SPAPs, in which SPAPs have assigned dualeligible beneficiaries to a PDP, eliminating the need for CMS to assign these individuals to a 

PDP. 

Page 37 GAO-07-272 Dual-Eligible Beneficiaries and Part D
The SPAP in Maine is one example of an organization that took steps to 

reassign noninstitutionalized, dual-eligible beneficiaries, with CMS 

approval, by aligning their drug needs with PDP formularies, ultimately 

reassigning nearly half of its dual-eligible population to PDPs other than 

those assigned by CMS. In June 2005, state legislation was enacted that 

authorized the inclusion of all dual-eligible beneficiaries in Maine’s 

existing SPAP membership.61 Maine officials sought to pass this legislation 

in response to concerns that this population could experience coverage 

disruptions during the transition to Medicare Part D as implemented by 

CMS. They reported that, although these individuals may switch PDPs at 

any time, it could take months for beneficiaries to transfer to a more 

appropriate PDP. Thus, after CMS had randomly assigned dual-eligible

beneficiaries to PDPs, Maine reassigned certain noninstitutionalized, dualeligible beneficiaries to different PDPs prior to January 1, 2006. 

The state found support for its decision to reassign dual-eligible 

beneficiaries in a state analysis, which indicated that CMS assignments 

resulted in a poor fit for many dual-eligible beneficiaries in Maine. (See 

table 1.) According to the analysis, CMS had assigned roughly one-third of

dual-eligible beneficiaries to PDPs that covered all of their recently used 

drugs. However, nearly half of dual-eligible beneficiaries in the state had a

match rate—the percentage of a beneficiary’s medications that appeared 

on the CMS-assigned PDP formulary—lower than 80 percent. The analysis

also showed that about one in five dual-eligible beneficiaries had match 

rates below 20 percent. 

Using Additional Criteria, 

Maine Switched PDP 

Assignments to Accommodate 

Drugs Used by Dual-Eligible 

Beneficiaries 

 61Me. Rev. Stat. Ann. tit. 22, § 254-D (2006). 

Page 38 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Table 1: Maine Analysis of the Match Rate between Dual-Eligible Beneficiaries’ 

Drugs and Their CMS-Assigned PDP Formularies, 2005 

Match rate 

(percentage) 

Number of dual-eligible 

beneficiaries 

Percentage of full 

dual-eligible beneficiaries

100 10,778 34.0

80 to 99.99 6,393 20.1

60 to 79.99 5,103 16.1

40 to 59.99 2,211 7.0

20 to 39.99 860 2.7

Less than 20 6,384 20.1

Total 31,729 100.0

Source: Maine Department of Health and Human Services. 

Notes: Maine officials calculated match rates for each dual-eligible beneficiary by comparing each 

beneficiarys recent drug use with the formulary of the CMS-assigned plan. These match rates were 

generated by a computer program that used a system that scored two points if a drug was covered 

without prior authorization, one point if a drug was covered but required prior authorization, and no 

points for drugs not covered. To calculate the match rate, the program divided the total score by the 

potential beneficiary maximum score. 

As an alternative to random assignment based on PDP premiums and 

location, Maine officials developed an IRA method that considered a 

beneficiary’s drug utilization and customary pharmacy to make new PDP 

assignments. Officials developed a computer program that generated 

scores used to rank PDPs in order of best fit for each beneficiary. The 

program included the 10 PDPs in the state with premiums at or below the 

low-income benchmark that provided their formularies to the state. It 

compared the drugs on these PDPs’ formularies to the beneficiary’s drug 

utilization history compiled from Medicaid claims for the 3 months prior to 

the date of assignment (September, October, and November 2005) and 

assigned an aggregate score to each PDP. The scoring system 

differentiated between instances where a drug was on the formulary with 

and without prior authorization requirements.62 For PDPs with identical 

scores, the program assessed pharmacy location. If more than one PDP 

had the beneficiary’s customary pharmacy in their network, the program 

randomly assigned the beneficiary among those PDPs with the highest 

scores. Although Maine officials conducted this analysis for all of its 2005 

dual-eligible beneficiaries, after they conferred with CMS officials they 

reassigned only those dual-eligible beneficiaries who had lower than an 80 

 62Prior authorization is the requirement to obtain authorization from the PDP sponsor

before the PDP will cover a drug. 

Page 39 GAO-07-272 Dual-Eligible Beneficiaries and Part D
percent formulary match, accounting for 14,558 individuals, about 

46 percent of the state’s dual-eligible population.

Maine officials reported that IRA resulted in a marked improvement in 

match rates for beneficiaries compared to CMS’s PDP assignments. For 

each PDP, officials calculated the match rate before and after IRA for 

reassigned beneficiaries. (See table 2.) This analysis showed that before 

the use of IRA, the weighted average match rate for all participating PDPs 

was 34.14 percent, and ranged from 20.59 percent to 38.64 percent across 

PDPs. Following the application of IRA, the weighted average match rate

rose to 99.86 percent, with little variation across PDPs. 

Table 2: Match Rates by PDP before and after Intelligent Random Assignment for 

Those Reassigned Dual-Eligible Beneficiaries 

Average formulary match rate for reassigned

dual-eligible beneficiaries (percentage) 

PDP 

Number of dual-eligible 

beneficiaries 

reassigned using IRA Before reassignment After reassignment

A 233 20.59 98.71

B 3,125 33.18 99.90

C 473 29.65 99.79

D 946 29.17 99.58

E 740 29.18 99.86

F 5,306 38.64 100.00

G 426 25.99 99.53

H 64 28.67 98.44

I 2,706 34.79 100.00

J 539 24.67 99.07

All PDPs 14,558 34.14 99.86

Source: Maine Department of Health and Human Services, GAO.

Note: To calculate the average match rate before reassignment for each PDP, Maine officials 

averaged the individual match rates based on the CMS-assigned PDP formulary for all dual-eligible 

beneficiaries the state subsequently reassigned to that PDP. To calculate the average match rate 

after reassignment for each PDP, Maine officials averaged the individual match rates based on the 

reassigned PDP formulary for all dual-eligible beneficiaries the state reassigned to that PDP. To 

calculate an average match rate for all plans before and after reassignment, we took a weighted 

average of the average match rates calculated for each plan before and after reassignment. 

Maine officials noted that their continued use of IRA for dual-eligible 

beneficiaries is contingent on their access to key data. To make the initial

assignments for dual-eligible beneficiaries effective January 1, 2006, the

Page 40 GAO-07-272 Dual-Eligible Beneficiaries and Part D
state had drug utilization information from its own Medicaid claims 

system. However, if the state chooses to reassign individuals again, it must 

obtain up-to-date utilization information. To help ensure that it would have 

the data needed to perform another round of IRA in the future, Maine’s 

SPAP included in its contract with PDP sponsors a requirement to 

exchange with the SPAP information on pharmacy networks, formularies, 

and drug utilization on an ongoing basis.63 For 2007, Maine reassigned 

10,200, about 22 percent of dual-eligible beneficiaries, to a new PDP. 

The state of New Jersey’s SPAP—known as the Pharmaceutical Assistance 

to the Aged and Disabled (PAAD) Program—developed and implemented 

an IRA method, with CMS approval, that allowed it to enroll its members 

in PDPs that best served their drug needs.64 PAAD officials designed their 

IRA to simulate the decision process that would occur if beneficiaries had 

received assistance from a State Health Insurance Assistance Program65

counselor or had used CMS’s Web-based formulary finder on their own.66

PAAD officials engaged a contractor to develop a computer program that 

would identify PDPs that cover each individual’s prescription drug needs. 

The program matched information on members’ maintenance drugs with 

formulary and pharmacy network information for all PDPs offered in New 

Jersey at or below the low-income benchmark.67 The program treated 

married couples as one member in the assignment process to ensure that 

New Jersey’s SPAP Used Drug 

Utilization Data to Identify 

Optimal PDP Assignments 

Prior to CMS Enrollment 

 63CMS currently receives drug claims data from PDPs for the purpose of adjusting 

payments made to PDP sponsors. The MMA provides that these data may only be used by

CMS for purposes of determining subsidies to PDPs. Social Security Act §1860D-15(d). In

October 2006, CMS issued a proposed rule that would permit the agency to share claims 

data with other governmental and outside entities for purposes of research and evaluation 

of the Medicare Part D program. See Medicare Program; Medicare Part D Data, 71 Fed. Reg.

61445 (Oct. 18, 2006). 

64PAAD did not include any dual-eligible beneficiaries in its assignment process.

65This program has counselors in every state and several territories who offer free

individualized help with a beneficiary’s Medicare questions or problems.

66CMS developed a Web-based “Formulary Finder” that allows a user to enter the drugs 

they are using to find out which PDPs in an area match their drug list. This tool is available 

online at: http://formularyfinder.medicare.gov/formularyfinder/selectstate.asp

67Maintenance drugs are used to treat medical conditions that are considered chronic, long 

term, and stable. 

Page 41 GAO-07-272 Dual-Eligible Beneficiaries and Part D
they would be enrolled in the same PDP. In all, PAAD matched 210,000

beneficiaries among six PDPs.68

Following the application of IRA and prior to enrolling individuals, PAAD 

sent one of two letters to beneficiaries that explained the results of the 

IRA method. PAAD sent a letter to some beneficiaries indicating that one 

PDP best met their needs in terms of its formulary match and inclusion of

their customary pharmacy. Other beneficiaries were sent letters informing 

them that their needs would be equally met by multiple PDPs and 

identified those PDPs. To satisfy CMS’s requirement that the state not 

steer beneficiaries to a particular PDP, New Jersey included a full list of all 

eligible PDPs in the state on the back of the letter. 

PAAD staff sent these letters in October 2005 and offered to enroll these 

beneficiaries if they did not receive a response by November 2005. 

Individuals were asked to notify PAAD of the PDP that they wanted to join 

and PAAD moved to enroll them in that PDP. For beneficiaries who did 

not respond to their letters, PAAD enrolled them into the PDP identified as

the best fit by the IRA, or randomly among PDPs that equally met their 

needs. Of the roughly 210,000 letters sent to SPAP members, PAAD 

received about 130,000 letters requesting enrollment in the suggested PDP 

within the first month or two after PAAD sent the letters. In total, PAAD 

enrolled 165,207 beneficiaries, about 78.7 percent of those sent letters, into

PDPs identified as the best fit by the IRA. 

While CMS has allowed certain SPAPs to use IRA methods to assign or 

reassign their members, CMS does not support the use of IRA methods to 

assist dual-eligible beneficiaries with Part D enrollment. CMS officials told

us that any proposal to add drug utilization as a criterion for PDP 

assignments assumes that a beneficiary should remain on the same drugs. 

They contend that beneficiaries can change prescriptions to a similar drug 

that is on their CMS-assigned PDP’s formulary and receive equivalent 

therapeutic value. Moreover, the officials pointed out the ability of dualeligible beneficiaries to switch PDPs. Overall, CMS officials maintained the 

position that its PDP assignment method for dual-eligible beneficiaries 

used in fall 2005 worked well. 

Stakeholders’ Reactions to 

States’ Use of Intelligent 

Random Assignment 

Protocols Are Mixed 

 68The 210,000 includes about 20,000 members of another SPAP in the state that PAAD 

included in the process.

Page 42 GAO-07-272 Dual-Eligible Beneficiaries and Part D
In contrast, state Medicaid officials we met with generally support the use 

of IRA methods to assist beneficiaries in choosing a PDP that meets their 

individual circumstances. State Medicaid officials we met with maintained

that overall, dual-eligible beneficiaries would have been in a better 

position during the initial transition to Medicare Part D if drug utilization 

information were considered in the PDP assignment process. A 

representative of the National Association of State Medicaid Directors 

(NASMD)69 asserted that while CMS’s assignment process was fair to PDP 

sponsors, it did not ensure that beneficiaries were enrolled in appropriate 

PDPs. The representative reported that CMS referred individuals who 

wanted to take their drug usage into account in selecting a PDP to the 

Medicare.gov Web site, which most dual-eligible beneficiaries are not able

to use. 

Some state Medicaid agencies indicated their support for IRA in the 

months prior to Part D implementation. At that time, 15 state Medicaid 

agencies made commitments to a software vendor to use a free software 

package designed to match beneficiaries’ drug utilization history with PDP 

formularies as an educational tool to help them choose the PDP best 

aligned to their individual drug needs. However, litigation over use of the 

IRA software led to delays, at the end of which CMS had already assigned

dual-eligible beneficiaries to PDPs. State Medicaid agencies reported that

they then did not have the time to match beneficiaries, send out 

scorecards, and allow beneficiaries to switch PDPs before the January 1,

2006, implementation date. 

Executives of PDP sponsors we spoke with stated that CMS’s assignment

method generally worked well; however, some executives raised concerns 

about IRA methodology. Two PDP sponsors raised concerns that IRA 

methods misinterpret formulary information. Executives from one PDP 

sponsor contended that there is not a need to look at drug utilization 

information because of the requirements for broad formularies. These 

executives also told us that using this method could increase the 

program’s costs by making PDPs cover more drugs. 

 69NASMD is a professional, nonprofit organization of representatives of all state Medicaid 

agencies (including the District of Columbia and territories). 

Page 43 GAO-07-272 Dual-Eligible Beneficiaries and Part D
CMS actions to address problems associated with PDP implementation of 

pharmacy transition processes led to a more uniform application of 

transition processes. Pharmacy transition processes allow new PDP 

enrollees to obtain drugs not normally covered by their new PDP while 

they contact their physician about switching to a covered drug. In 

response to Part D sponsors’ inconsistent implementation of transition 

drug coverage processes in early 2006, CMS issued a series of memoranda 

that clarified its expectations. PDP sponsors, pharmacy groups, and 

beneficiary advocates told us that since then, beneficiaries’ ability to 

obtain transition drug coverage has substantially improved. However, they

also report that dual-eligible beneficiaries remain unaware or confused 

about the significance of receiving a transition drug supply at the 

pharmacy and are not using the transition period to address formulary 

issues. CMS made the transition process requirements in its 2007 contracts 

with PDP sponsors more specific. 

After receiving complaints that Part D enrollees experienced difficulties 

obtaining their medications, CMS took steps to address issues related to 

the availability of transition drug supplies. Federal regulations require PDP 

sponsors to provide for a transitional process for new enrollees who have 

been prescribed Part D-covered drugs not on the PDP’s formulary.70 CMS 

instructed PDP sponsors to submit a transition process, which would be 

subject to the agency’s review, as part of the application to participate in

Part D. 

Although CMS specified its expectations for a transition process in March 

2005 guidelines for Part D sponsors, the sponsors had discretion in 

devising their processes. The March 2005 guidelines specified that Part D 

sponsors should consider filling a one-time transition supply of 

nonformulary drugs to accommodate the immediate need of the 

beneficiary. The agency suggested that a temporary 30-day supply would 

be reasonable to enable the relevant parties to work out an appropriate 

therapeutic substitution or obtain a formulary exception, but it allowed 

Part D sponsors to decide the appropriate length of this one-time 

transitional supply. For residents in long-term care facilities, CMS 

guidance indicated that a transition period of 90 to 180 days would be 

PDP Transition 

Process Compliance 

Improved but 

Beneficiary Confusion 

Remains; 2007 

Contracts More 

Specific 

CMS Guidance on 

Transition Drug Coverage 

Improved PDP 

Performance 

 7042 C.F.R. § 423.120(b)(3). New enrollees include beneficiaries who (1) transitioned to

Medicare Part D on January 1, 2006, (2) transitioned to Medicare Part D after the initial 

implementation, and (3) switched from one plan to another after implementation of the

Part D program.

Page 44 GAO-07-272 Dual-Eligible Beneficiaries and Part D
appropriate for individuals who require some changes to their medication 

in order to accommodate PDP formularies. 

During the early weeks of the program, CMS received reports that the way

in which some PDP sponsors implemented their transition processes 

adversely affected beneficiaries’ ability to obtain transition supplies. 

Sponsors differed in the time period set for providing transition coverage;

some PDPs provided the suggested 30-day supply, while other PDPs 

provided beneficiaries with as few as a 15-day initial supply. Some PDP 

sponsors did not apply their transition coverage processes to instances 

where a formulary drug was subject to utilization restrictions. For 

example, CMS received complaints that individuals were not given a 

transition supply when their medications had prior authorization, step 

therapy, or quantity limit restrictions.71 Additionally, PDP sponsors’ 

customer service representatives and pharmacies were generally unaware

of the transition processes and how to implement them. Pharmacy 

association representatives also told us of problems overriding the usual 

pharmacy billing system in order to process a claim when dispensing a 

transition supply. 

CMS responded to the reported problems concerning the uneven 

application of transition processes by issuing a series of memoranda to 

PDP sponsors to clarify its expectations. 

• On January 6, 2006, CMS issued a memorandum to PDP sponsors 

highlighting the need for beneficiaries to receive transition supplies at the 

pharmacy. The memorandum emphasized that PDP sponsors should 

(1) train customer service representatives to respond to questions about 

the PDP’s transition process, (2) provide pharmacies with appropriate 

instructions for billing a transition supply, and (3) ensure that enrollees 

have access to a temporary supply of drugs with prior authorization and 

step therapy requirements until such requirements can be met. 

• On January 13, 2006, CMS issued guidance stating that PDP sponsors 

should establish an expedited process for pharmacists to obtain 

authorization or override instructions, and authorize PDP customer 

 71Under step therapy restrictions, the PDP requires that the beneficiary first try a less 

expensive drug for their condition before it will cover the beneficiary’s prescribed drug. 

Under quantity limit restrictions, the PDP limits the amount of the drug it covers over a 

certain period of time. 

Page 45 GAO-07-272 Dual-Eligible Beneficiaries and Part D
service representatives to make or obtain quick decisions on the 

application of transition processes. 

• In a January 18, 2006, memorandum, CMS reiterated its policy that PDP 

sponsors should provide at least an initial 30-day supply of drugs and that

PDPs should extend that coverage even further in situations where a 

longer transition period may be required for medical reasons. In addition, 

CMS asked PDP sponsors to consider contacting beneficiaries receiving

transition supplies of drugs to inform them that (1) the supply is 

temporary, (2) they should contact the PDP or physician to identify a drug

substitution, and (3) they have a right to request an exception to the 

formulary and the procedures for requesting such an exception. 

• When many beneficiaries continued to return to the pharmacy for refills 

without having successfully resolved their formulary issues, CMS issued a 

memorandum on February 2, 2006, calling for an extension of the Part D 

transition period to March 31, 2006.72 The agency asserted that the 

extension was needed to give beneficiaries sufficient time to work with 

their provider to either change prescriptions or request an exception. 

• In another memorandum to PDP sponsors on March 17, 2006, CMS 

reemphasized the objectives of the transition process and highlighted the 

need to inform beneficiaries of what actions to take to resolve formulary 

issues following the receipt of a transition supply. 

Since CMS clarified its transition process guidance to PDP sponsors, many

of the issues surrounding transition processes have been resolved. Some 

of the pharmacy and long-term care associations, and Medicaid officials 

we spoke with, told us that problems with providing transition drug 

coverage have largely been addressed. They noted that the issues 

surrounding the implementation of the transition processes have 

significantly improved. 

To oversee PDP compliance with transition coverage processes, CMS 

tracks complaints and monitors the time it takes Part D sponsors to 

resolve complaints. CMS officials said that they rely on beneficiary and

pharmacy complaints for information about problems with transition 

coverage. The agency also assigns case workers to ensure that PDPs 

 72The extension of the transition period to March 31st was limited to those beneficiaries 

who were enrolled in the first few months of the program. For those who enrolled on

March 1, 2006, or after, the 30-day transition period remained in effect. 

Page 46 GAO-07-272 Dual-Eligible Beneficiaries and Part D
resolve these issues. Although CMS can issue monetary penalties, limit 

marketing, and limit enrollment for PDPs, officials reported that no such

punitive actions have been taken against any PDP regarding transition 

process compliance. 

Despite PDP sponsors’ efforts to communicate with beneficiaries receiving

transition supplies, beneficiaries do not always take needed action during 

the transition period. Consequently, some dual-eligible beneficiaries return 

to the pharmacy without having worked with their physician to apply to

get their drugs covered or find a substitute drug. 

While three PDP sponsors told us how they conveyed information about 

the transition period, two of these PDP sponsors acknowledged that dualeligible beneficiaries often do not use the transition period as intended. 

For example, one PDP executive told us that beneficiaries often do not 

realize that a transition supply has been provided and that they have to 

apply to the PDP to continue receiving coverage for that particular drug. 

Representatives from some pharmacy associations and long-term care 

groups that we spoke to also agreed that, even when notified, dual-eligible

beneficiaries are unaware of the implications of the policy. Some 

pharmacy representatives we spoke with noted that when dual-eligible

beneficiaries receive a transition supply, they are often unaware that this 

supply is temporary and therefore return to the pharmacy the following 

month in an effort to refill the same prescription without having tried to 

switch to a formulary medication or obtain permission to continue to have 

the drug covered. Two other pharmacy association representatives noted 

that beneficiary understanding of transition supplies is a particular 

problem for dual-eligible beneficiaries in the long-term care setting who 

often do not open or read the notification letter sent from the PDP. Staff in

long-term care facilities often find unopened mail for the beneficiary sent 

from their PDP. 

Dual-Eligible Beneficiaries 

Often Confused about 

Implications of Receiving 

Transition Fills 

Page 47 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Unlike the discretion allowed PDP sponsors under the guidance for 2006, 

CMS’s 2007 contract incorporates specific requirements.73 For example, 

the guidance for 2006 stated that, “we expect that PDP sponsors would 

consider processes such as the filling of a temporary one-time transition 

supply in order to accommodate the immediate need of the beneficiary.” 

As part of the 2007 contract, PDP sponsors must attest that the PDP will 

follow certain required components of a transition process. These 

components require that, among other things, PDPs 

For 2007, CMS Added 

Specific Transition Process 

Requirements to Its 

Contracts with PDP 

Sponsors 

• provide an emergency supply of nonformulary Part D drugs for long-term 

care residents,74

• apply transition policies to drugs subject to prior authorization or step 

therapy, 

• add a computer code to their data systems to inform a pharmacy that the 

prescription being filled is a transition supply, 

• ensure that network pharmacies have the computer codes necessary to bill 

transition supplies, and 

• notify each beneficiary by mail within 72 hours of a transition supply of 

medications being filled.

To educate beneficiaries about the purpose of transition supplies, CMS 

also added a requirement for PDP sponsors in its 2007 contracts to instruct 

beneficiaries about the implications of a transition supply and alert 

pharmacies that they are supplying a transition supply. Beginning in 2007,

PDP sponsors are required to notify each beneficiary of the steps they 

should take during the transition period when they receive a transition 

supply of a drug. In addition, PDP sponsors are required to add a computer 

code to their systems so that after a pharmacist fills a transition supply, a 

message back to the pharmacist will alert them that the prescription was 

filled on a temporary basis only. The pharmacist will then be in a better 

 73In referring to 2007 contracts with PDP sponsors, we are reporting on the attestations 

PDPs must provide to CMS on transition processes for contract year 2007.

74For long-term care residents that are beyond the 90-day transition period afforded to

these individuals, the plans must still provide a 31-day emergency supply of nonformulary

Part D drugs, including Part D drugs that are on a plan’s formulary but require prior

authorization or step therapy, while approval is being sought to remain on the drug. 

Page 48 GAO-07-272 Dual-Eligible Beneficiaries and Part D
position to inform the beneficiary of the need to take appropriate steps 

before the transition period ends. 

Some challenges regarding the enrollment of new dual-eligible

beneficiaries have been resolved, while others remain. In particular, CMS’s 

decision to implement prospective enrollment for new dual-eligible 

beneficiaries who are Medicaid eligible and subsequently become 

Medicare eligible should alleviate coverage gaps this group of beneficiaries 

previously faced. However, because of inherent processing lags, most 

dual-eligible beneficiaries—Medicare beneficiaries new to Medicaid—may 

continue to face difficulties at the pharmacy counter. In addition, because 

of CMS’s limited oversight of its retroactive coverage policy, the agency 

has not been able to ensure efficient use of program funds. Until March 

2007, the letters used to notify dual-eligible beneficiaries of their PDP 

enrollment and their retroactive coverage did not inform them of the right 

to be reimbursed and how to obtain such reimbursement. CMS monitoring 

of retroactive payments to PDPs and subsequent PDP reimbursements to 

beneficiaries is also lacking. We found that Medicare paid PDPs millions of 

dollars —we estimate about $100 million in 2006—for coverage during 

periods for which dual-eligible beneficiaries may not have sought 

reimbursement for their drug costs. 

After spending many months stabilizing the information systems 

supporting the Part D program, CMS is now making changes to improve 

the efficiency of its key information systems involved in the enrollment 

process. While CMS officials are aware of the risks involved in these 

changes, they are not planning to perform end-to-end testing because of 

the complexity of the systems infrastructure, the multiple partners 

involved, and time and resource constraints. While we agree that end-toend testing will be difficult, it is important to perform this testing to 

mitigate risks and avoid problems like those that occurred during initial 

program implementation. 

CMS’s assignment of dual-eligible beneficiaries to PDPs serving their 

geographic area with premiums at or below the low-income benchmark 

generally succeeded in enrolling dual-eligible beneficiaries into PDPs. The 

experience of SPAPs in Maine and New Jersey, while limited, 

demonstrates the feasibility of using IRA methods to better align 

beneficiaries’ PDP assignments with their drug utilization needs. However, 

continued use of these methods is contingent on access to beneficiary 

drug utilization and formulary information from PDPs. In addition, some 

dual-eligible beneficiaries—those with representative payees—were 

Conclusions 

Page 49 GAO-07-272 Dual-Eligible Beneficiaries and Part D
assigned to PDPs that did not serve the area where they lived. Since CMS 

receives a file from SSA that includes an indicator showing that an 

individual has a representative payee, the agency could use this 

information to assign these beneficiaries to PDPs that serve the area 

where they live. 

To resolve problems associated with the uneven application of transition 

policies, CMS clarified its previous guidance to plans and added 

requirements to its 2007 contracts with PDP sponsors. The 2006 

experience with plans’ uneven implementation of CMS’s transition policy

guidance demonstrated how inconsistent interpretations can lead to 

problems for beneficiaries and pharmacies. CMS officials recognized that

the agency needed to be more directive by including specific procedures in 

its 2007 PDP contracts. Even with consistent implementation of transition 

policies and notification requirements, however, without assistance, dualeligible beneficiaries—a highly vulnerable population—are likely to have 

difficulty resolving problems that they encounter with the transition. 

We make the following six recommendations. 

To help ensure that dual-eligible beneficiaries are receiving Part D 

benefits, the Administrator of CMS should require PDP sponsors to notify 

new dual-eligible beneficiaries of their right to reimbursement for costs 

incurred during retroactive coverage periods. 

To determine the magnitude of Medicare payments made to PDPs under 

its retroactive coverage policy, the Administrator of CMS should track 

how many of the new dual-eligible beneficiaries it enrolls each month 

receive retroactive drug benefits and how many months of retroactive

coverage the agency is providing them. 

To determine the impact of its retroactive coverage policy, the 

Administrator of CMS should monitor PDP reimbursements to dualeligible beneficiaries, and those that paid on their behalf, for costs 

incurred during retroactive periods through an examination of the 

prescription utilization data reported by PDP sponsors. 

To mitigate the risks associated with implementing Part D information 

systems changes, especially in light of initial systems issues caused by the 

lack of adequate testing, the Administrator of CMS should work with key 

partners to plan, prioritize, and execute end-to-end testing. 

Recommendations for 

Executive Action 

Page 50 GAO-07-272 Dual-Eligible Beneficiaries and Part D
To help ensure new dual-eligible beneficiaries are enrolled in PDPs that 

serve the geographic area where they live, the Administrator of CMS 

should assign dual-eligible beneficiaries with representative payees to a 

PDP serving the state that submits the individual’s information on their 

dual-eligible file. 

To support states with the relevant authority that want to use alternative 

enrollment methods to reassign dual-eligible beneficiaries to PDPs, the 

Administrator of CMS should facilitate the sharing of data between PDPs 

and states. 

CMS reviewed a draft of this report and provided written comments, 

which appear in appendix II. In addition to comments on each of our 

recommendations, CMS provided us with technical comments that we 

incorporated where appropriate. 

CMS remarked that we did an excellent job of outlining the complex 

systems and steps involved in identifying, assigning, and enrolling new 

dual-eligible beneficiaries into PDPs. However, the agency objected to 

what it perceived as an overwhelmingly negative tone in our findings and 

stated that our discussion of retroactive coverage was overly simplified. 

CMS did note that the agency was in the process of implementing three of

our six recommendations to improve existing procedures. 

CMS’s main concern regarding the draft report for comment centered on 

our characterization of the interval between the effective date of Part D 

eligibility and the completed enrollment process as a “disconnect.” Also, 

CMS officials noted that “it is not new or unusual for individuals to pay out 

of pocket for their prescription drug or other healthcare services, and then 

subsequently be reimbursed.” The agency explained that its policy of tying 

the effective Medicare Part D enrollment date to the first day of Medicaid

eligibility is intended to ensure that dual-eligible individuals receive Part D 

benefits for the period that they were determined by their state to be 

eligible for this coverage. CMS asserted that it is the retroactive eligibility 

requirement under Medicaid, not CMS policy, which causes the “space and 

time conundrum” over which it has no control. 

Regarding this broad concern from CMS, we note that our discussion of 

the time to complete the enrollment process and the period of retroactive 

coverage experienced by a majority of newly enrolled dual-eligible 

beneficiaries was intended to describe CMS’s implementation of the 

enrollment process for new dual-eligible beneficiaries; we did not evaluate 

Agency Comments 

and Our Evaluation 

Page 51 GAO-07-272 Dual-Eligible Beneficiaries and Part D
CMS’s policy. Recognizing the desirability of providing drug coverage as

soon as beneficiaries attain dual-eligible status, we do not object to CMS’s 

policy of linking the Part D effective coverage date to Medicaid’s 

retroactive eligibility date. However, our review found that CMS had not 

fully implemented this policy and, as a consequence, neither beneficiaries 

nor the Medicare program are well served. Therefore, we have

recommended actions that CMS should take to better protect beneficiaries 

and ensure efficient use of Medicare program funds. To clarify our 

message and to reflect information obtained through agency comments, 

we modified portions of this discussion and provided the revised sections 

to CMS for supplemental comments. 

In its supplemental comments, CMS again objected to what it believed is 

our implication that retroactive coverage for dual-eligible beneficiaries is 

inappropriate or that CMS has put the Medicare program at unwarranted 

risk. As stated above, we do not disagree with the policy of retroactive 

coverage for dual-eligible beneficiaries; rather we are concerned with how 

CMS implemented this policy in 2006. Only by monitoring the amounts 

paid to PDP sponsors for retroactive coverage periods and the amounts 

PDP sponsors reimbursed dual-eligible beneficiaries will CMS be in a 

position to evaluate the effectiveness of its retroactive coverage policy. 

Also, CMS asserted that we incorrectly imply that CMS had the 

information needed to monitor reimbursements to dual-eligible 

beneficiaries when such information is not expected to be available until 

after May 31, 2007. During the course of our audit work in 2006, CMS 

indicated no current or planned efforts to monitor or enforce PDP sponsor

reimbursements to dual-eligible beneficiaries. Only after receiving our 

draft report did CMS state its intention to analyze the data necessary to 

monitor plan compliance and evaluate agency policy. In fact, we were told 

that CMS decided to conduct this analysis as a direct result of our draft 

report’s findings and recommendations. 

CMS agreed with our recommendation to require PDP sponsors to notify 

new dual-eligible beneficiaries of their eligibility for reimbursement for 

costs incurred during retroactive coverage periods. To be consistent with 

its retroactive coverage policy, CMS is in the process of adding language to 

this effect in the notices that the agency and PDP sponsors send to dualeligible beneficiaries enrolled in a PDP. The revised letters advise 

beneficiaries to tell their PDP if they have filled prescriptions since the 

effective coverage date because they “may be eligible for reimbursement 

for some of these costs.” However, contrary to comments CMS made on 

our draft report—that dual-eligible beneficiaries will be told they should 

Page 52 GAO-07-272 Dual-Eligible Beneficiaries and Part D
submit receipts for previous purchases of Part D drugs—the revised letters 

do not explicitly tell beneficiaries of the steps they would need to take to 

access their retroactive coverage. The agency also reported that it plans to

inform its partners about the changes to the enrollment notification 

letters. 

In response to our recommendation that CMS determine the number of 

beneficiaries and the magnitude of payments made to PDP sponsors for 

dual-eligible beneficiaries subject to retroactive coverage, CMS indicated

that it intends to continue to track the number of new dual-eligible 

beneficiaries provided retroactive coverage. Although this monitoring is 

important to managing the enrollment process for new dual-eligible 

beneficiaries, it would be even more useful if CMS tracked the number of 

months of retroactive coverage provided to beneficiaries it enrolls in 

PDPs. 

CMS disagreed with our recommendation that it monitor PDP 

reimbursement of beneficiary expenses incurred during retroactive 

coverage periods. We maintain that the agency should actively monitor its 

retroactive coverage policy by examining data that plan sponsors routinely 

submit to the agency. In their drug utilization records, sponsors must 

indicate the amounts paid by the plan and by the beneficiary for each 

claim. If it became evident that dual-eligible beneficiaries were not filing 

claims for retroactive reimbursements while PDPs received Medicare 

payments for their coverage, CMS would be in a position to evaluate its 

effective coverage date policy. 

Regarding our recommendation that the agency work with key partners to

plan, prioritize, and execute end-to-end testing, CMS disagreed and 

questioned whether the benefits of doing so justify the associated costs. 

We find this position on end-to-end testing to be inconsistent with systems 

development best practices. Establishing end-to-end test environments 

and conducting such tests is widely recognized as essential to ensure that 

systems perform as intended in an operational environment. CMS was 

alerted to this issue in a March 2006 CMS contractor report that identified

the lack of comprehensive end-to-end testing as a weakness of the Part D

program. We acknowledge that, given the complexity of the program’s 

infrastructure and the multiple partners involved, end-to-end testing will 

be difficult. However, other forms of testing, including integration and 

stress testing, should be conducted in addition to, not as a replacement 

for, end-to-end testing. 

Page 53 GAO-07-272 Dual-Eligible Beneficiaries and Part D
CMS concurred with our recommendation that it ensure all new dualeligible beneficiaries are enrolled in PDPs that serve the geographic area

where they live. CMS reported that it has completed the underlying 

changes necessary to implement this recommendation. Beginning in April

2007, the CMS auto-assignment process enrolls dual-eligible beneficiaries 

into PDPs that operate in the state that submits that individual in its dualeligible file. 

CMS disagreed with our recommendation that the agency facilitate 

information sharing between PDPs and states that wish to use additional 

information to reassign beneficiaries yearly. The agency asserted that, for 

a number of reasons, efforts to match beneficiaries’ customary drugs to 

PDP formularies are not necessary or desirable. Furthermore, CMS noted 

that it lacks the statutory authority and the drug utilization data needed to 

assign beneficiaries to PDPs on anything other than a random basis. We 

did not propose that CMS change its assignment method and we did not 

take a position on the desirability of states’ use of intelligent random 

assignment methods. However, we maintain that states wishing to reassign 

beneficiaries should have access to PDP data once beneficiaries have been 

enrolled. 

As agreed with your offices, unless you publicly announce the contents of

this report earlier, we plan no further distribution of it until 30 days from 

the date of this report. We will then send copies to the Administrator of 

CMS, appropriate congressional committees, and other interested parties. 

We will also make copies available to others upon request. This report is 

also available at no charge on GAO’s Web site at http://www.gao.gov. 

If you or your staffs have any questions about this report, please contact 

Kathleen King at (202) 512-7119 or kingk@gao.gov. Questions concerning

information systems issues and testing should be directed to David 

Powner at (202) 512-9286 or pownerd@gao.gov. Contact points for our 

Page 54 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Offices of Congressional Relations and Public Affairs may be found on the 

last page of this report. GAO staff who made contributions to this report 

are listed in appendix III. 

Kathleen M. King 

Director, Health Care 

David A. Powner 

Director, Information Technology 

 Management Issues 

Page 55 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Appendix I: Steps Involved in the 

Identification and Enrollment of Dual-Eligible Appendix I: Steps Involved in the Beneficiaries into Medicare Part D 

Identification and Enrollment of DualEligible Beneficiaries into Medicare Part D 

The process of enrolling dual-eligible beneficiaries requires several steps: 

It begins when the state Medicaid agency identifies new dual-eligible 

beneficiaries and ends when PDPs make billing information available to 

pharmacies. 

1. States are responsible for identifying their Medicaid enrollees who 

become dual-eligible beneficiaries. They combine data obtained from 

SSA or requested from CMS on individuals eligible to receive Medicare 

benefits with their own information on Medicaid enrollees to compile 

the dual-eligible files. CMS receives Medicare entitlement information 

daily from SSA. 

2. After the 15th of the month and before midnight of the last night of the 

month, states transmit their dual-eligible files to CMS. These files 

contain information on all individuals identified by the states as dualeligible beneficiaries, including those newly identified and those 

previously identified. Generally within 48 hours of receipt, CMS 

processes state submissions. Within the Medicare eligibility database, 

edits of the state files are performed. Based on the results of the edits, 

the Medicare eligibility database transmits an e-mail to each state 

telling the state its file was received and the results of the edits. Files 

that fail the edits must be resubmitted. Once a file passes the edits, the 

Medicare eligibility database matches the file against the Medicare 

eligibility database to determine if it is a valid (matched) beneficiary, 

eligible for Medicare, and passes business rules for inclusion as a dual

eligible. The results of this processing for each transaction on the 

states’ file are added to the response files, which are sent back to the 

states. 

3. After CMS has performed the matching process, the Medicare 

eligibility database processes these files through two additional steps: 

(a) Deeming. Deeming takes the input from the matching process and 

a monthly input file from SSA on beneficiaries receiving Social 

Security Supplemental Income (SSI) to determine the copayment 

level for the dual-eligible beneficiaries. Deeming is performed 

against these data according to the business rules. 

Page 56 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Appendix I: Steps Involved in the 

Identification and Enrollment of Dual-Eligible

Beneficiaries into Medicare Part D 

(b) Auto-assignment. Auto-assignment takes the results of deeming 

and assigns each beneficiary to a PDP within the region that 

includes the beneficiary’s official address.1

 Auto-assignment takes 

the total dual-eligible population and eliminates records using 18 

exclusions rules resulting in the final set of beneficiaries to be

auto-assigned. Exclusions include beneficiaries who are already 

enrolled in a Part D plan, currently incarcerated, and not a U.S. 

resident (residing outside the States and territories). Autoassignment uniformly assigns qualified dual-eligible beneficiaries 

to designated PDPs across each region. 

The resulting deeming and assignment information is sent to CMS’s 

enrollment transaction system for processing. In addition, a mail tape 

is prepared by CMS containing beneficiary names and addresses so 

that mail can be generated that informs beneficiaries of the pending 

enrollment and identifies the PDP to which they were assigned. A file 

also is sent to each of the plans identifying the beneficiaries assigned 

to their PDP. 

4. Upon the receipt of the deeming and assignment information from the 

Medicare eligibility database, CMS’s enrollment transaction system 

facilitates the changes in the copayments and the enrollment of the 

beneficiaries into their assigned PDP. The enrollment transaction 

system informs the PDP of the enrollment and copayment transactions 

via a weekly Transaction Reply Report (TRR) that summarizes all 

transactions that the enrollment transaction system has performed for 

the respective PDP during the prior week, beginning on Saturday. 

5. PDPs then process the resulting assignment and copayment changes, 

assign standard billing information, and send the information to CMS’s 

Medicare eligibility database. The Medicare eligibility database 

performs edits, such as matching each submitted beneficiary’s 

information with Part D enrollment information. For each match, the 

standard billing information is added to the Medicare eligibility 

database and a response is generated for the PDP, confirming that the 

information was accepted. The PDPs mail out ID cards and plan 

information to the enrolled beneficiary. 

 1

CMS uses the beneficiary’s official address as contained in SSA data. This address

represents the beneficiary’s residence or where the beneficiary’s representative payee is 

located. 

Page 57 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Appendix I: Steps Involved in the 

Identification and Enrollment of Dual-Eligible

Beneficiaries into Medicare Part D 

6. Nightly, the eligibility query receives billing information from the 

Medicare eligibility database, making the updated standard billing 

information available for use in the eligibility query system. 

7. Pharmacies can use their computer systems to access billing 

information needed to bill the assigned PDP for the beneficiary’s 

prescriptions if a beneficiary does not have their enrollment 

information. 

Page 58 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Appendix II: Comments from the Centers Appendix II: Comments from the Centers for for Medicare & Medicaid Services 

Medicare & Medicaid Services 

Page 59 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Appendix II: Comments from the Centers 

for Medicare & Medicaid Services 

Page 60 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Appendix II: Comments from the Centers 

for Medicare & Medicaid Services 

Page 61 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Appendix II: Comments from the Centers 

for Medicare & Medicaid Services 

Page 62 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Appendix II: Comments from the Centers 

for Medicare & Medicaid Services 

Page 63 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Appendix II: Comments from the Centers 

for Medicare & Medicaid Services 

Page 64 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Appendix II: Comments from the Centers 

for Medicare & Medicaid Services 

Page 65 GAO-07-272 Dual-Eligible Beneficiaries and Part D
Appendix III: GAO

A

 Contacts And Staff 

cknowledgments 

Page 66 GAO-07-272

Appendix III: GAO Contacts And Staff 

Acknowledgments 

GAO Contacts Kathleen King, (202) 512-7119 or kingk@gao.gov

David A. Powner, (202) 512-9286 or pownerd@gao.gov 

In addition to the contacts named above, Rosamond Katz, Assistant 

Director; Lori Achman; Diana Blumenfeld; Marisol Cruz; Hannah Fein; 

Samantha Poppe; Karl Seifert; Jessica Smith; Hemi Tewarson; and Marcia

Washington made major contributions to this report. 

Dual-Eligible Beneficiaries and Part D

Acknowledgments 

(290518) 
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