EXAMINING THE FEDERAL 

GOVERNMENT’S PARTNERSHIP 

WITH AMERICA’S PHARMACISTS 

HEARING 

BEFORE THE 

SUBCOMMITTEE ON HEALTH 

OF THE 

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED NINTH CONGRESS 

SECOND SESSION 

MAY 23, 2006 

Serial No. 109-102 

Printed for the use of the Committee on Energy and Commerce 

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

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WASHINGTON : 2006 

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29-793PDF 
COMMITTEE ON ENERGY AND COMMERCE 

JOE BARTON, Texas, Chairman 

RALPH M. HALL, Texas 

MICHAEL BILIRAKIS, Florida 

 Vice Chairman 

FRED UPTON, Michigan 

CLIFF STEARNS, Florida 

PAUL E. GILLMOR, Ohio 

NATHAN DEAL, Georgia 

ED WHITFIELD, Kentucky 

CHARLIE NORWOOD, Georgia 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

HEATHER WILSON, New Mexico 

JOHN B. SHADEGG, Arizona 

CHARLES W. “CHIP” PICKERING, Mississippi 

 Vice Chairman

VITO FOSSELLA, New York 

ROY BLUNT, Missouri

STEVE BUYER, Indiana 

GEORGE RADANOVICH, California 

CHARLES F. BASS, New Hampshire 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO, California 

GREG WALDEN, Oregon 

LEE TERRY, Nebraska 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

C.L. “BUTCH” OTTER, Idaho 

SUE MYRICK, North Carolina 

JOHN SULLIVAN, Oklahoma 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

JOHN D. DINGELL, Michigan 

 Ranking Member 

HENRY A. WAXMAN, California 

EDWARD J. MARKEY, Massachusetts 

RICK BOUCHER, Virginia 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

SHERROD BROWN, Ohio 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

BART STUPAK, Michigan 

ELIOT L. ENGEL, New York 

ALBERT R. WYNN, Maryland 

GENE GREEN, Texas 

TED STRICKLAND, Ohio 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MIKE DOYLE, Pennsylvania 

TOM ALLEN, Maine 

JIM DAVIS, Florida 

JAN SCHAKOWSKY, Illinois 

HILDA L. SOLIS, California 

CHARLES A. GONZALEZ, Texas 

JAY INSLEE, Washington 

TAMMY BALDWIN, Wisconsin 

MIKE ROSS, Arkansas 

BUD ALBRIGHT, Staff Director 

DAVID CAVICKE, General Counsel

REID P. F. STUNTZ, Minority Staff Director and Chief Counsel

SUBCOMMITTEE ON HEALTH 

NATHAN DEAL, Georgia, Chairman 

RALPH M. HALL, Texas 

MICHAEL BILIRAKIS, Florida 

FRED UPTON, Michigan 

PAUL E. GILLMOR, Ohio 

CHARLIE NORWOOD, Georgia 

BARBARA CUBIN, Wyoming 

JOHN SHIMKUS, Illinois 

JOHN B. SHADEGG, Arizona 

CHARLES W. “CHIP” PICKERING, Mississippi 

STEVE BUYER, Indiana 

JOSEPH R. PITTS, Pennsylvania 

MARY BONO, California 

MIKE FERGUSON, New Jersey 

MIKE ROGERS, Michigan 

SUE MYRICK, North Carolina 

MICHAEL C. BURGESS, Texas 

JOE BARTON, Texas 

 (EX OFFICIO)

SHERROD BROWN, Ohio 

 Ranking Member 

HENRY A. WAXMAN, California 

EDOLPHUS TOWNS, New York 

FRANK PALLONE, JR., New Jersey 

BART GORDON, Tennessee 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

GENE GREEN, Texas 

TED STRICKLAND, Ohio 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

TOM ALLEN, Maine 

JIM DAVIS, Florida 

TAMMY BALDWIN, Wisconsin 

JOHN D. DINGELL, Michigan 

 (EX OFFICIO)

(II)
CONTENTS 

Page 

Testimony of: 

Norwalk, Leslie, Deputy Administrator, Centers for Medicare & Medicaid Services ..... 19 

Merritt, Mark, President and CEO, Pharmaceutical Care Management Association ........ 48 

Hopkins, Timothy, Vice President, Retail Mail Service, Operation for Pharmacy 

Management, WellPoint, Inc. ........................................................................................ 56 

Couch, Kenneth, President, Smith Drug Company ............................................................ 60 

Harden, Dr. Buddy, Executive Vice President and CEO, Georgia Pharmacy 

Association ..................................................................................................................... 65 

Wirth, Gary, Director of Professional Services, Ahold USA, on behalf of National 

Association of Chain Drug Stores.................................................................................. 70 

Galluzzo, Dr. Larry, President, Skilled Care Pharmacy ..................................................... 76 

Hallberg, Charles E., President, MemberHealth, Inc. ........................................................ 81 

(III) 

(1) 

EXAMINING THE FEDERAL 

GOVERNMENT’S PARTNERSHIP WITH 

AMERICA’S PHARMACISTS 

TUESDAY, MAY 23, 2006 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON ENERGY AND COMMERCE, 

SUBCOMMITTEE ON HEALTH, 

Washington, DC. 

The subcommittee met, pursuant to notice, at 11:04 a.m., in Room 

2123 of the Rayburn House Office Building, Hon. Nathan Deal 

(chairman) presiding. 

 Members present: Representatives Upton, Norwood, Shadegg, 

Ferguson, Burgess, Barton (ex officio), Brown, Waxman, Pallone, 

Eshoo, Allen, Baldwin, and Dingell (ex officio). 

 Staff present: David Rosenfeld, Chief Health Counsel; Melissa 

Bartlett, Counsel; Bill O’Brien, Legislative Analyst; Brandon Clark, 

Policy Coordinator; Chad Grant, Legislative Clerk; John Ford, Minority 

Counsel; Jessica McNiece, Minority Research Assistant; and Jonathan 

Brater, Minority Staff Assistant. 

MR. DEAL. Subcommittee will come to order. The Chair will 

recognize himself for an opening statement. 

 Today, we are holding a hearing entitled “Examining the Federal 

Government’s Partnership with America’s Pharmacists.” As we all 

know, pharmacists are an integral and irreplaceable component of our 

healthcare delivery system, and we are here this morning to explore the 

prominent issues facing these healthcare professionals. To assist us in 

this task, I am proud to say that we have two expert panels of witnesses 

appearing before us, and I would like to sincerely thank each of them for 

taking the time out of their schedules to be with us. 

 Since the focus of this hearing is on the major issues facing 

pharmacists, we felt that it was important to include all the major players 

in the pharmacy delivery system in order to gain a full perspective of the 

issues. To this end, we have representatives from the Centers for 

Medicare and Medicaid Services, community pharmacists, chain drug 

store pharmacists, long-term care pharmacists, prescription drug plan 

distributors, and pharmacy benefit managers. It is important to note that 

the Minority has requested a witness from a beneficiary advocacy 

organization, but instead of expanding the focus of an already robust 
2

hearing, we have confirmed our intent to hold another pharmacy hearing 

where the beneficiary input will be of focus. Of course, we have had 

beneficiary input in the past in previous hearings. We appreciate the 

Minority’s willingness to work with us to put together this multi-faceted 

hearing here today. 

 There is no doubt that one of the major topics of discussion at 

today’s hearing will be the provisions within the Medicare 

Modernization Act and the impact of the new Medicare prescription drug 

benefit. As my colleagues are aware, on January 1 of this year, 

prescription drug coverage for our seniors became more than just 

something we talked about in Congress. It became a reality for every 

single person eligible for Medicare. This legislation accomplished a very 

important thing. It helped tens of millions of senior citizens save 

thousands of dollars on their prescription drugs. For years before 

enactment of this new benefit, we heard the horror stories of seniors 

having to choose between buying groceries or their medicines, and 

pharmacists having to advise patients which drugs on their lists were the 

most important because the patient simply could not afford to buy all of 

their prescribed medications. Now, all the beneficiaries have the option 

to have good drug coverage and to have the quality of life that we want 

for our American seniors. In fact, more than 38 million people with 

Medicare now have good secure prescription drug coverage and 

enrollment in Medicare Part D related coverage accounts for over 32 

million of these beneficiaries. These truly are astounding numbers that 

have exceeded almost everyone’s expectations, and the unparalleled 

effort to get this brand new change to Medicare up and running and to 

get people enrolled has been incredible in itself. 

 Of course, the success of the new Medicare prescription drug benefit 

would not have been possible without the many people represented in 

this room today, and no group was more important than our pharmacists 

who truly were the heroes of the implementation of this new benefit. 

 Again, I want to thank our witnesses for taking the time to testify 

before us today, and I look forward to hearing from each of you. 

 At this time, I would like to ask unanimous consent that all 

committee members may have their statements and questions for the 

record submitted. Without objection, so ordered. 

 [The prepared statement of Hon. Nathan Deal follows:] 

PREPARED STATEMENT OF THE HON. NATHAN DEAL, CHAIRMAN, SUBCOMMITTEE ON 

HEALTH

3⁄4 The Committee will come to order, and the Chair recognizes himself for an opening 

statement. 
3

3⁄4 As we all know, pharmacists are an integral and irreplaceable component of our 

healthcare delivery system, and we are here this morning to explore the prominent 

issues facing these healthcare professionals. 

3⁄4 To assist us in this task, I am proud to say that we have two expert panels of 

witnesses appearing before us today, and I would like to sincerely thank each one of 

them for taking time out of their busy schedules to join us. 

3⁄4 Since the focus of this hearing is on the major issues facing pharmacists, we felt that 

it was important to include all of the major players in the pharmacy-delivery system 

in order to gain a full perspective of the issues. 

3⁄4 To this end, we have representatives from 

o the Centers for Medicare and Medicaid Services 

o Community pharmacists 

o Chain drug store pharmacists 

o Long-term care pharmacists 

o Prescription drug plans 

o Distributors 

o Pharmacy benefit managers 

3⁄4 It is important to note that the Minority had requested a witness from a beneficiaryadvocacy organization, but instead of expanding the focus of an already robust 

hearing, we have confirmed our intent to hold another pharmacy hearing where 

beneficiary input will be a focus. 

3⁄4 And we appreciate the minority’s willingness to work with us as we put together this 

multifaceted hearing. 

3⁄4 There is no doubt that one of the major topics of discussion at today’s hearing will 

be the provisions within the Medicare Modernization Act and the impact of the new 

Medicare Prescription Drug Benefit. 

3⁄4 As my colleagues are aware, on January 1, 2006, prescription drug coverage for our 

seniors became more than just something we talked about in Congress – it became a 

reality for every single person eligible for Medicare. 

3⁄4 This legislation accomplished a very important thing – it helped tens of millions of 

senior citizens save thousands of dollars on their prescription drugs. 

3⁄4 For years before enactment of this new benefit we heard the horror stories of our 

seniors having to choose between buying groceries or their medicines and 

pharmacists having to advise patients which drugs on their list were the most 

important because the patients could not afford to buy all of their prescribed 

medication. 

3⁄4 Well, now all beneficiaries have the option to have good drug coverage and have the 

quality of life that we wish for all of America’s seniors. 

3⁄4 In fact, more than 38 million people with Medicare now have good, secure 

prescription drug coverage, and enrollment in Medicare-Part D-related coverage 

accounts for over 32 million of these beneficiaries. 

3⁄4 These truly are astounding numbers that have exceeded almost everyone’s 

expectations, and the unparalleled effort to get this brand new change to Medicare 

up and running and get people enrolled has been incredible. 

3⁄4 Of course, the success of the new Medicare Prescription Drug Benefit would not 

have been possible without the many people represented in this room, and no group 

was more important than our pharmacists who truly were the heroes of the 

implementation of this new benefit. 

3⁄4 Again, I want to thank our witnesses for taking the time to testify before us today. I 

look forward to hearing from each of you. 

3⁄4 At this time, I would also like to ask for Unanimous Consent that all Committee 

Members be able to submit statements and questions for the record. 
4

3⁄4 I now recognize the Ranking Member of the Subcommittee, Mr. Brown from Ohio, 

for five minutes for his opening statement. 

 MR. DEAL. I am now pleased to recognize our Ranking Member of 

the subcommittee, Mr. Brown, for his opening statement. 

 MR. BROWN. Thank you, Mr. Chairman. I would like to thank the 

witnesses for joining us. I want to extend a special welcome to the three 

witnesses from my home State, Charles Hallberg from Cleveland, and 

Dr. Larry Galluzzo and Timothy Hopkins, both from Mason, Ohio, 

Warren County. Thank you for being here. 

 Unfortunately, as you pointed out, Mr. Chairman, there is one key 

witness missing. There is no beneficiary here. I am perplexed by that. 

My guess is that the Majority and the Minority are aligned when it comes 

to the issues of what we do to help pharmacists, even though as this bill 

went and made its way through Congress previously many of us raised 

alarms about how pharmacists were not as major a part of this bill, as 

important a part of this new law, as they should be. We can agree today 

that pharmacists should be paid fairly and paid properly. We can agree 

today that benefit cards should not be used as billboards. We can agree 

today the use of cost-saving generic drugs should, in fact, be promoted. 

We can agree today that medication therapy services should be 

encouraged, and we can agree that nursing home residents should be able 

to secure the coverage they need from the pharmacies best equipped to 

serve them. But again, I am concerned the majority feels justified in 

denying any beneficiary their right to come before this panel. I 

appreciate the fact, Mr. Chairman, that you invited witnesses from my 

home State, but the witness list was chosen by the Majority, and again, 

excluded beneficiaries. At any hearing that we have about Medicare Part 

D, beneficiaries obviously should--at least one beneficiary should be 

included to enter in this discussion with pharmacists and with others. 

 The supply chain and the coverage chain are well represented, but 

the customer chain isn’t represented at all. Medicare obviously begins 

and ends with the beneficiaries. When pharmacies are underpaid, they 

can’t promptly serve Medicare beneficiaries. When benefit cards turn 

into advertisements, Medicare beneficiaries become just a marketing 

statistic. When generic drugs aren’t dispensed, Medicare beneficiaries 

pay more out of pocket. When medication therapy is given short shift, 

Medicare beneficiaries lose ground against chronic conditions. And 

when the unique circumstances of nursing home residents are dismissed 

as insignificant, Medicare beneficiaries get a firsthand look at why a 

program like Medicare fee-for-service, which is comprehensive and 

flexible enough to probably carry the moniker “one size does, indeed, fit 

all,” why a program like Medicare fee-for-service makes a lot more sense 
5

than doing it the way we are doing it through Medicare Part D, which 

tells seniors to find the least imperfect fit and keep your fingers crossed. 

 Pharmacy issues are beneficiary issues. Members of this 

subcommittee are expected to work for Medicare beneficiaries, not 

around them. In his written testimony, Dr. Galluzzo raised some 

important issues that have bearing on access to medicine for nursing 

home residents. His concerns inevitably lead to serious beneficiary 

concerns. If residents must choose a plan that covers their long-term 

care pharmacy, how do they also choose a plan that covers all of their 

medicines? How often do those two variables collide, and how often do 

they coincide? It would useful to hear from a beneficiary representative 

who could actually address this concern. 

 This hearing is important. I am glad we are holding it. I am a proud 

cosponsor of H.R. 5182, bipartisan legislation introduced by Walter 

Jones and Marion Barry that addresses important issues raised by 

pharmacists and by those representing the pharmacy community, 

including prompt pay rules, co-branding medication therapy, and generic 

dispensing fees. I am glad we are discussing the serious issues raised by 

Dr. Galluzzo, specific to long-term care pharmacy. I am confident that 

all of our witnesses will provide valuable input. But this hearing is about 

access and cost and quality. It has everything to do with the beneficiary. 

It is a sad statement that everyone but Medicare beneficiaries will have 

their say today. 

 Thank you, Mr. Chairman. 

 MR. DEAL. I recognize Dr. Burgess for an opening statement. 

 MR. BURGESS. Thank you, Mr. Chairman. 

 For once in this committee, I find myself in agreement with the 

Ranking Member. This is an important hearing and I am glad we are 

having it today. Now, my understanding is we are going to have a 

similar hearing that will be devoted purely to beneficiaries forthcoming 

in the near future. I know the gentleman from Ohio was retiring, but 

maybe we will get that done before he leaves. 

 Timely reimbursement for healthcare providers is an essential 

component to maintain the health of the healthcare delivery system. 

When payment levels are negatively impacted or payment timelines are 

altered, it can adversely impact the delivery of healthcare, the health of 

the provider, and ultimately the health of the patient. With the 

implementation of the Medicare Part D prescription drug program, the 

Government became a major payer of senior’s medications, and the plans 

that have been contracted to do so must meet minimum requirements. 

 At the outset of the program, I heard from pharmacists in my area 

about the difficulties that they were having with the program, many of 

which impacted their bottom line. I am thankful that CMS and HHS 
6

worked to resolve many of these problems. Some we took on as just 

simply constituent cases and were able to get a satisfactory resolution in 

every time we asked. I urge the Department to remain diligent and 

ensure that this program doesn’t become a burden for frontline 

pharmacists who are small business owners. 

 For years, prompt payment was a major issue pitting physicians 

against health insurers in the State of Texas. I hope that the health plans 

will have learned important lessons from that example, as well as 

numerous other prompt pay battles around the country. I, for one, never 

understood why it was necessary to have a law that required people to 

pay their bills on time. I was always required to pay my bills on time 

when I ran a medical practice. 

 Mr. Chairman, I do thank you for holding the hearing today. I look 

forward to the witnesses’ testimony, and I will yield back. 

 MR. DEAL. I thank the gentleman. 

 Mr. Waxman is recognized for an opening statement. 

 MR. WAXMAN. Thank you, Mr. Chairman. I am pleased that the 

subcommittee is holding a hearing today to examine the issues that have 

been faced by America’s pharmacists since the implementation of 

Medicare Part D benefit and the enactment of the Deficit Reduction Act. 

Certainly, the initial months of implementation of the Medicare drug 

benefit have put many pressures and tasks on our pharmacists. They 

have been close to the front lines in dealing with the complications and 

difficulties in that program. It is indeed critical that we examine these 

issues and take steps to remedy some of the obvious problems, but the 

fact is that the pharmacists have faced many of these problems because 

they were on the front line trying to help the beneficiaries deal with the 

complications and frustrations of this program. 

 So to get a more complete picture of what has gone wrong and what 

needs to be changed, we should be hearing today from both pharmacists 

and beneficiaries. Both of them have important stories to tell. I know 

we have been promised an opportunity to hear from beneficiaries. This 

is not the first time we have been promised that. In fact, the Minority, 

the Democrats, have submitted a petition which requires another hearing 

on this subject, and that is supposed to come about under the rules we 

have been promised. It is inexplicable that we don’t have time to hear 

from the beneficiaries, as well as all the others that we are going to hear 

from today. Beneficiaries are the ones who want to be able to access the 

program through their own pharmacists. They are the ones who suffer if 

the pharmacists can’t afford to spend the time to wait hours on the phone 

to see if someone is covered, who have to seek their pharmacist’s help to 

deal with prior authorization and set therapy requirements, and who need 

their pharmacist to work with their physician to be sure the proper 
7

approvals are received so their drug can be covered. And it is going to 

be the beneficiaries and the pharmacists who will be dealing with the 

confusion and the anger and frustration that will inevitably occur when 

people start hitting the so-called donut hole in coverage where they must 

pay the full bill out-of-pocket. The pharmacists have indeed been in the 

middle of these problems. They have been made worse by the fact that 

some plans make them wait months for payment, putting tremendous 

cash flow problems on them. Some plans don’t pay adequately for the 

cost of providing drugs, particularly low-cost generic drugs whose use 

we want to encourage. We know that the pharmacists may have to spend 

more time explaining why the generic is appropriate, yet their 

reimbursement is sometimes miniscule for these drugs. We know 

pharmacists will be on the front line trying to deal with the differing 

requirements among the plans for prior authorization. This can be timeconsuming for them and frustrating for them and the beneficiaries they 

are trying to serve. 

 Finally, we know that some plans engage in the practice of putting a 

specific pharmacy chain logo on their cards, causing beneficiaries to 

think that is where they must go to get their drugs. This surely 

disadvantages the community pharmacy. We hope that what we hear 

today will be used to form an appropriate legislative response. 

 MR. DEAL. I thank the gentleman. 

 As you can tell by the bells, we have votes that have started. Mr. 

Upton, I am going to try to get your opening statement in, and then we 

will recess for the votes. 

 MR. UPTON. The thing is, Mr. Chairman, I won’t take my full 

allotment of three minutes. 

 I want to thank you for having this hearing. I do look forward to 

having the hearing with the beneficiaries later on. I also want to thank 

my pharmacists in southwest Michigan, those both large organizations, 

the Walgreen’s, et cetera, as well as the small mom and pop shops as 

well. I know that I spent much of my recess time in March and 

throughout the weekends stopping at a number of pharmacies throughout 

my district, checking in on them, finding out how things were going. I 

was very pleased with the response that I got. I know that for many 

seniors signing up for Part D, it was a confusing process. We had in 

Michigan some 42 different plans that beneficiaries were able to pick and 

choose from, and I have to say that as I went through my different 

communities, whether it be my hometown of St. Joe or Kalamazoo, a 

much larger city, our pharmacists were on the front line and they did a 

wonderful job in terms of trying to find the right program, the right fit for 

those seniors that wanted to participate in the plan. I know that in our 

district we had about 70-some percent of eligible seniors sign up. I think 
8

that the satisfaction rate was pretty good. We did a lot of outreach to 

help with our pharmacists, as well as our beneficiaries, to make sure that 

they had the right plan, trying to ease that transition, and I again thank 

them for the work that they do and that they did. I know that this plan 

isn’t perfect. We need to look at a number of different things where we 

can help facilitate it even better, which is one of the reasons why I have 

endorsed and signed on as a cosponsor of Nancy Johnson’s legislation to 

ease the penalty, to take away the penalty for those that did not sign up 

for the Part D plan by the May 15 date, and I would like to think that this 

House, in a bipartisan basis, will be able to push that legislation through 

the House floor in the coming weeks. 

 With that, Mr. Chairman, I yield back the balance of my time. 

 MR. DEAL. I thank the gentleman. 

 I am going to make an exception to what I just said. The Ranking 

Member of the Committee, Mr. Dingell, is here, and he is a little bit 

incapacitated. We don’t want to have him to have to move around too 

much on his crutches. I am going to recognize him for his opening 

statement, and then we will recess. 

 MR. DINGELL. Mr. Chairman, thank you for your courtesy, and I am 

grateful to you. 

 Mr. Chairman, Medicare Part D and the changes to payments for 

prescription drugs under Medicaid have significantly affected 

pharmacies and the beneficiaries they serve. For some, these changes 

have created such severe ramifications that some pharmacists are 

uncertain if they can continue to serve the patients in their communities. 

Therefore, I am pleased that we will hear today about the impact of the 

Part D program and the Medicaid changes on pharmacies. 

 I am, Mr. Chairman, much disappointed that the Majority refused to 

allow the committee to hear from any witnesses who would give 

beneficiary perspective on pharmacy issues. We will hear various 

perspectives from the business community and the Administration, but 

not one word from the people who these programs are designed to help 

and whom the pharmacists serve. We will also hear from the 

Administration, for the second time this year, on Part D, and its efforts to 

work out all the problems that this program has caused, but we will again 

not hear from the seniors and the persons with disabilities most affected 

by them. We will hear from WellPoint, for the second time this year, 

about their work as the backup contractors in Medicare Part D, but we 

will not hear from the beneficiary’s perspective about how well that has 

worked. We will hear from the wholesalers, who have no direct link 

either to Part D or Medicaid, as they do not get reimbursement from 

these programs, but again, we will not hear from the beneficiaries. We 

will hear a pharmacist’s perspective on helping beneficiaries to 
9

determine whether their drugs are covered by the prescription plan they 

have chosen, or how to file an appeal if they aren’t, but again, we will 

not hear from the beneficiary’s perspective on that interaction. We will 

hear about the burdensome plan restrictions that have caused problems 

for pharmacies in delivering medicines to patients in the long-term care 

setting, but we will again not hear from those who are at the receiving 

end of the restrictions, the patients. 

 The fact is that the Minority requested only one witness at this 

hearing. We asked only one witness, compared to the seven categories 

from which the Majority chose their witnesses. It is indeed a shame that 

the Majority is not interested in the concerns of the beneficiaries to the 

point of excluding them from this hearing. Our goal in this hearing was 

to hear all perspectives, so that we can find out what is working and what 

is not, and why. 

 I also note that the Minority has not been afforded the opportunity to 

have its hearing on Medicare Part D which we requested under the House 

Rules in March, when a balanced and complete hearing on this program 

was also denied by the Chairman. Beneficiaries come with many 

different needs and circumstances. Congress has an obligation to hear 

from as many as possible to better understand how this program affects 

the people who deserve the help, and how it is working, not just how it is 

going to serve the interests of the insurance companies and providers. 

When the Chairman provides the minority hearing as required under the 

House Rules, I hope the beneficiaries will be heard and we will at last 

have a clear, comprehensive, and decent picture of the situation before 

us. 

 Thank you, Mr. Chairman. 

 MR. DEAL. We are going to stand in recess. There are three votes 

on the floor and we will resume as soon as those votes are concluded. 

 [Recess.] 

 MR. DEAL. I recognize Mr. Allen for his opening statement. 

 MR. ALLEN. Mr. Chairman, thank you for calling this important 

hearing to examine the vital role of pharmacists in our healthcare system. 

 Over the past 7 months, pharmacists have worked tirelessly to help 

Medicare beneficiaries navigate the Part D labyrinth. While it is 

appropriate to focus on the pharmacist’s perspective in today’s hearing, I 

am disappointed that the Majority would not allow us to invite a 

Medicare beneficiary to testify. I have heard from hundreds of seniors 

and people with disabilities in Maine about their experiences with the 

new Medicare Part D plan. Some found the process fairly easy to 

navigate and say they are paying less for their prescriptions than they did 

before, but the vast majority describe their problems choosing and 

signing up for a plan or dealing with the complicated appeals process if a 
10

drug is not in their plans formulary. One area of agreement is the 

tremendous assistance that beneficiaries have received from their local 

pharmacists. Pharmacists in Maine did not allow beneficiaries to leave 

the store without their prescriptions, even if payment was to be delayed 

or not received at all. Pharmacists in Maine tell me that Medicare D is 

running more smoothly than earlier this year, but about 25 percent of 

prescription drug claims still need special attention. This can entail 

additional calls to CMS or the PBM that is running the plan, which can 

take 30 minutes to an hour. Pharmacists are not reimbursed for their 

time dealing with problems like these, and they are not paid for the true 

costs of dispensing care in either the Medicare or Medicaid programs. 

 Maine pharmacies are struggling right now with cash flow. They are 

waiting for 30 to 45 days to get paid, compared to 7 to 10 days when the 

State was paying for medications under Medicaid. It is estimated that 25 

percent of an average Maine pharmacy’s cash flow is tied up in this 

process. Maine has lost 17 community pharmacies in just the past 2 

years. These pharmacies closed not because of competition or poor 

management, but rather due to reimbursement cuts at both the State and 

Federal level. 

 I look forward to hearing from our distinguished panelists today. I 

hope their testimony will highlight the unique role pharmacists play in 

meeting the healthcare needs of Americans, as well as the challenges that 

they face, both financial and administrative. 

 With that, Mr. Chairman, I yield back. 

 MR. DEAL. I am pleased to recognize the Chairman of the Full 

Committee, Mr. Barton, for an opening statement. 

 CHAIRMAN BARTON. Thank you, Mr. Chairman. Thank you for 

holding this hearing. I apologize to our witnesses for the interruptions. 

We have got votes on the floor and all this kind of stuff, and we do 

apologize for having to suspend the hearing. 

 I look forward to hearing our witnesses’ perspectives today on the 

issues that are facing America’s pharmacists. Pharmacists have been on 

the front line, providing the new Medicare prescription drug benefit to 

our seniors. There have been some problems. That is to be expected, 

unfortunately, with any large new government program. I am told that 

things are improving now, but we must remain vigilant to ensure the 

program continues to be a success. 

 The witnesses today are going to provide their insight regarding 

payment concerns expressed in recent months by some pharmacists. For 

example, back in January and February, many members of this 

committee heard stories about how pharmacists experienced delay in 

payments by Medicare drug plans. I have been told repeatedly by the 

Administration that this issue is being addressed, that the cash flow 
11

crunch experienced by pharmacists at the beginning is getting better. I 

look forward to hearing from CMS and other witnesses today on this 

issue. 

 I want to echo the remarks of Chairman Deal regarding our 

commitment to holding an additional hearing where beneficiaries will be 

provided a separate forum to discuss any overall concerns regarding the 

underlying benefit program itself. As technical problems arise, this 

committee will remain committed to making sure that they are addressed 

quickly if a legislative solution is needed. Some may exploit minor 

problems that have surfaced during the initial implementation of the new 

benefit program in an attempt to discredit the overall program. We 

should not lose sight, however, that more than 38 million people now 

have a prescription drug benefit program under Medicare. This is due in 

large part to the efforts of the witnesses appearing here today: CMS, the 

pharmacists, plan providers, and other payers, all who have helped to 

make this benefit accessible to any beneficiary who wants it. Please 

keep up the good work as we work together to address the outstanding 

startup glitches that still remain. I am committed to making the program 

work. 

 Again, I want to thank Chairman Deal for calling the hearing, and 

thank the witnesses for being here today. We look forward to hearing 

their testimony. 

 With that, Mr. Chairman, I yield back. 

 [The prepared statement of Hon. Joe Barton follows:] 

PREPARED STATEMENT OF THE HON. JOE BARTON, CHAIRMAN, COMMITTEE ON ENERGY 

AND COMMERCE

Good morning. I would like to welcome all of our witnesses here today. I look 

forward to hearing your perspectives on Medicare prescription drug coverage payment 

issues for America’s pharmacists. 

Pharmacists have been on the front lines of providing the new Medicare prescription 

drug benefit to our seniors. There have been some growing pains, but they were hardly 

unexpected. Every new, large program has them. Things seem to be improving, but I 

also believe that success will depend on us keeping a close eye on the program’s 

progress. 

 The witnesses today will help us better understand payment concerns expressed in 

recent months by many pharmacists. Back in January and February, we all heard stories 

about how the mechanism to pay pharmacists was stalled. I have been told that CMS is 

untangling that knot, and pharmacists are beginning to get the money they are owed. I 

look forward to hearing from CMS and the other witnesses today on this issue and echo 

the remarks of Chairman Deal regarding our commitment to hold an additional hearing 

where beneficiaries will be provided a forum to discuss their experiences. 

As challenges arise in Medicare Part D, this Committee will deal with them. Now, 

it’s also true that a handful of people prefer to celebrate the glitches. To some of us, it 

almost looks like they want political benefits in the next election more than prescription 

drug benefits for Medicare patients. Yet the public doesn’t seem to have much taste for 

politics. More than 38 million people now have prescription drug coverage, and they 
12

give it increasingly high marks on satisfaction surveys. This is due, in large part, to the 

efforts of the witnesses appearing here today – thanks to CMS, pharmacists, plans and 

other payers, and to everyone who has helped make this benefit accessible to all 

Medicare beneficiaries. 

I want to thank Chairman Deal for calling this hearing, and reiterate my thanks to all 

the witnesses for coming today. I look forward to their testimony. 

 MR. DEAL. I thank the Chairman. 

 Mr. Pallone is recognized for an opening statement. 

 MR. PALLONE. Thank you, Mr. Chairman. I don’t want to beat a 

dead horse, but I do want to mention that I was disappointed that we 

didn’t have a beneficiary representative here today, and I did hear you in 

the beginning acknowledge the role of the beneficiaries and say that a 

hearing would be held separately with their testimony. But I do want to 

stress that I really think that not only in this case, dealing with 

pharmacists, but in any case where we are dealing with Medicare Part D, 

whenever we do have a hearing, I really think that beneficiaries should 

be included in each of those hearings because of the impact on them. 

You know, obviously there is a lot of controversy over Part D and 

Democrats, including myself, feel that it is very confusing and that it is 

not being implemented in a fashion that is helpful to beneficiaries. So I 

do think it is always important whenever we have a hearing on Part D to 

include the beneficiaries, and I would just make that request once again. 

I know you are going to have the separate hearing, but I think we need to 

include them in every hearing. 

 I wanted to say with regard to the subject matter of the hearing 

today, whether it is revisions to Medicaid payment policies to the rollout 

of Medicare Part D, whatever the issue is, I can’t remember a time when 

pharmacists were so directly impacted by changes in Federal health 

policy. I have been hearing from them constantly, and as these policies 

are implemented, it is important that members of the committee hear 

from pharmacists about how they are being affected. For most of us, this 

will not be the first time we hear from our pharmacists about Part D. 

Since the beginning of January, I have received numerous calls, mostly 

from community pharmacists, about the challenges that they faced under 

the new program, and I have heard all the horror stories about those 

pharmacists who were on the phone for hours with private drug 

companies or CMS, desperately seeking to fill the prescriptions that their 

customers needed. These problems are not just startup problems, as 

many of my Republican friends contend. They are systematic problems, 

from late payments to unfair marketing practices. I think that the 

pharmacists have been uniquely disadvantaged by Medicare Part D. 

 Now, I have introduced a bill that attempts to provide relief on the 

payment issue that would require prompt payment for the medications, 
13

and secondly, that would prohibit the practice of co-branding, which 

levels the playing field between the large chain drug stores and 

independently owned pharmacies. In New Jersey, under Medicaid the 

rule was that you get paid electronically within 15 days and 30 days with 

written. Most pharmacists have testified here, many before this 

committee, that they are waiting 60 to 90 days, and the co-branding issue 

is just outrageous. I mean, the Medicare recipients and seniors are now 

getting cards that have major chain stores on the cards, and they think 

that they can’t go to their independent pharmacists. So these problems 

need to be addressed, and that is why I introduced that bill. 

 Thank you, Mr. Chairman. 

 MR. DEAL. I thank the gentleman. 

 Mr. Ferguson is recognized for an opening statement. 

 MR. FERGUSON. Thank you, Mr. Chairman. Thank you for holding 

this hearing and giving us an opportunity to hear the concerns of 

pharmacists about the implementation of Medicare Part D. 

 We are now almost five full months into have a prescription drug 

benefit in Medicare, and as a result, there are 39 million people who are 

Medicare beneficiaries. That is representing more than 90 percent of 

Medicare beneficiaries now have coverage for prescription drugs. That 

is extraordinary. Almost 40 million people in this country are now 

paying less for their live-saving, life-enhancing drugs than they were 

before. I think that when you talk to them, and certainly when I hear 

from beneficiaries in my district who have worked through many of 

these implementation issues and problems that we have seen, they are 

absolutely delighted with the cost savings that they are seeing. I have 

heard a number that the average beneficiary is saving $1,100 a year on 

their medication, which is fabulous. 

 But I think anybody involved in this implementation would say that 

this has been a long and difficult process in implementing this benefit, 

and our pharmacists have literally been on the front lines of that effort. I 

have spoken with many of the pharmacists in my district. I met with 

some this morning, and I have seen that these dedicated professionals are 

working as hard as they can. I have heard one instance of a pharmacist 

who didn’t pay himself for the first two months of this year because of 

problems in payment issues that they have seen. These are folks who are 

working as hard as they can to make this benefit work, and they should 

be commended for that. The pharmacists that I have met with also have 

a lot to say about how to make the program better, how to address these 

problems. These are folks who are vital to the healthcare needs of our 

seniors. These are folks who are trusted by their customers, by our 

seniors. 
14

 I look forward to hearing from our panelists today. They represent 

the breadth of participants in the drug delivery system for Medicare Part 

D, and I look forward to working with our pharmacists in order to make 

sure that this program continues to get better and continues to serve the 

needs of those who need these medications the most. 

 Thank you so much. I yield back. 

 MR. DEAL. I thank the gentleman. 

 Ms. Baldwin is recognized for an opening statement. 

 MS. BALDWIN. Thank you, Mr. Chairman. I thank the witnesses for 

joining us today. 

 Pharmacists play a unique role in our healthcare system. For many 

people, and I think this is especially true for our seniors, pharmacists are 

their main point of contact with our healthcare system. It is a pharmacist 

who knows what drugs they are taking and who will take a little time to 

ask how things are going with a new prescription medication. 

Pharmacists certainly have had to hear a lot and bear a lot of the burden 

in dealing with the problems with Part D. So I am happy that we are 

going to have the chance here today to hear more about the pharmacists’ 

perspective on Part D and the changes that were made as part of the 

Medicaid cuts passed into law last year. 

 I do have to join with my colleagues in noting it is a loss to our 

subcommittee that there are no witnesses on either of the panels today 

who are here to represent the beneficiary perspective, and certainly if we 

are talking about pharmacy issues, beneficiaries have a lot to say. For so 

many beneficiaries, all they know of Part D is their experience at the 

pharmacy. They don’t have any direct interaction with CMS or with 

PBM, but they do know what has happened when they have gone to their 

pharmacy to get a prescription filled. Not having that perspective as part 

of this discussion is unfortunate, and I regret that it hasn’t been included. 

 I hope that our friends from pharmacy will do their best to give us an 

idea of what their clients’ experiences have been, as well as what their 

own experiences have been, especially as they relate to Part D. Just 

yesterday, a pharmacist from Stouten, Wisconsin, came to my office and 

told me about all of the issues he has encountered with Part D, and there 

have been a lot. Slow reimbursement, confusion over prior 

authorization, and constant formulary changes have made Part D a real 

challenge for pharmacists. I am afraid that that challenge will only grow 

as time passes and seniors find themselves falling into the donut hole 

where they have no prescription drug coverage and the pharmacists are 

the ones who get to bear that bad news and explain that to confused 

senior citizens. 

 But to sum up, I would like to tell you what this pharmacist from 

Stouten, Wisconsin, told me of his opinion on Part D. He said that Part 
15

D was such a convoluted program, it was like, and I quote, “using your 

attorney to hire the neighbor’s kid to mow the lawn.” It is convoluted, 

and the rollout has been fraught with issues, and as I suspect we will hear 

today, pharmacists have been on the front lines. 

 I look forward to hearing about their experiences, and I thank you, 

Mr. Chairman, for the time. 

 MR. DEAL. Ms. Eshoo is recognized for an opening statement. 

 MS. ESHOO. Mr. Chairman, I will submit my opening statement for 

the record. 

I would just like to ask a question of you. Why isn’t there someone 

representing the beneficiary community? I understand that there were 

requests that were made, and I know that you are very respectful of 

hearings. 

 MR. DEAL. I appreciate the question. 

 MS. ESHOO. Many of the hearings that I come to, there are very few 

here. Of course, you are here because you are the Chairman, but they are 

important, and we learn from those that come in and offer their views. It 

seems to me that it creates a hole in the panel. I mean, I don’t think that 

that speaks well for any of us. 

 MR. DEAL. May I respond? 

 MS. ESHOO. Can you maybe enlighten us? Certainly. 

 MR. DEAL. Thank you for asking the question. 

 I think it is a criticism without merit. As you may recall, on March 

the 1st we had a hearing on Medicare Part D. We had two beneficiaries 

and a beneficiary advocate that testified. The purpose of this hearing is 

to examine the distribution chain of pharmaceuticals. We invited your 

side to ask for PBM directors, representatives of the pharmacy 

community, et cetera, et cetera, but no one was invited by your side to do 

that. We are going to have another hearing where beneficiaries will be 

heard from, but I think there are enough concerns about the issues in this 

very complex contractual relationship of how drugs get from the 

manufacturer to the pharmacist, and quite frankly, that is the purpose of 

the hearing. 

 I think it is a legitimate purpose. I seriously doubt that any 

beneficiary, other than the one I will introduce in a few minutes, really 

knows anything about those issues. So it was intended to be restricted to 

the pharmaceutical distribution chain. 

 MS. ESHOO. Well, Mr. Chairman, I appreciate what you just said, 

but I think that we need to keep in mind that the hearing that you 

referenced, the chain drugs were there, independent pharmacists were 

there, plants were there, Administration was there, WellPoint was there, 

and so I don’t think it would have hurt. But you know, I will go with 
16

what you said, and I think maybe part company with the explanation, but 

I respect you and I appreciate your addressing it-- 

 MR. DEAL. Thank you. 

 MS. ESHOO. --as best you could. 

 MR. DEAL. I believe we have exhausted our members who are here 

to make opening statements, so we will proceed to the first panel. I am 

very pleased to be able to introduce our first panel which is made up of 

Ms. Leslie Norwalk, who is the Deputy Administrator of the Centers for 

Medicare and Medicaid Services. We appreciate you being here. For all 

witnesses, I will say to you that your written testimony is being made a 

part of the record. We would ask you during the 5 minutes to summarize 

your general testimony and we are pleased to have you here. We will 

recognize you at this time. 

STATEMENT OF LESLIE NORWALK, DEPUTY 

ADMINISTRATOR, CENTERS FOR MEDICARE & 

MEDICAID SERVICES 

 MS. NORWALK. Thank you, Chairman Deal, members of the 

committee. It is good to be with you here this afternoon to discuss how 

wonderful, frankly, we all agree that pharmacists have been in 

implementing the new prescription drug benefit. That is, without a 

doubt, nice that we can agree on something, certainly. 

 They have been instrumental in our success in being able to ensure 

that over 38 million beneficiaries have prescription drug coverage in the 

Medicare program, over 90 percent of beneficiaries with coverage; 

certainly, not where we were a year ago, and it is a remarkable 

accomplishment, something that the pharmacists have played an 

important role in. 

 Do you realize that we are actually filling three million prescriptions 

a day? Without the pharmacy and the pharmacists, we certainly 

wouldn’t be here. Pharmacists were there in January when we had 

systems break down. They made sure that our most vulnerable 

beneficiaries got the drugs they needed. We have come a long way since 

January, and most of these problems are behind us, but let us face it. We 

could not have done it without the pharmacies. They ensure that 

beneficiaries get scripts that are safe and effective for them. They 

promote lower costs and higher quality. 

 I have personally been around the country and met with a significant 

number of pharmacists throughout town hall meetings and so forth and 

visited with them and appreciate that they have experienced real 

challenges in this implementation. We have worked very closely with 

them to solve their problems. We have made significant progress in 
17

resolving data handoff issues between the States, the prescription drug 

plans, and CMS so that pharmacists could get accurate information on 

beneficiaries at the pharmacy counter without having to call us at 1-800-

Medicare or the plans, and then would be able to build a correct plan 

with the correct co-payment, even when the beneficiary forgets his or her 

drug card. 

 We have engaged in extensive and varied outreach. The Secretary, 

the Administrator, and I, along with numerous CMS pharmacists and 

regional office staff, we visited pharmacies firsthand to see the problems 

that they have had. We have provided online resources in particular for 

pharmacies. We have worked closely with the pharmacy associations on 

both systemic issues and individual complaints. We have held open door 

calls so that individual pharmacists have an opportunity to let us know 

their concerns directly. We have also facilitated the interaction between 

plans and pharmacists to simplify a number of important business issues, 

business processes, and to minimize pharmacy administrative costs and 

burden, including standardized coding and messaging, and providing an 

E-1 query system, a dedicated pharmacy line at 1-800-Medicare. We 

have expanded the billing window to 180 days so that pharmacists could 

get claims payment when there was coordination of benefits issues, and 

we have extended the transition period for beneficiaries. 

 Finally, we will be announcing, hopefully later on today, that all 

plans for 2007 cannot provide co-branding material on their prescription 

drug cards, and they will need to provide those cards to beneficiaries 

brand new in 2007 with no co-branding of pharmacy. Now, we did that 

initially so that AARP, employers, and the PACE program in 

Pennsylvania so that co-branding could be on the cards. That can 

continue, but no pharmacy information can be on that card so that 

beneficiaries aren’t confused about their options that are available to 

them, and again, new cards will be sent out in ‘07. 

 The next complaint that we heard about from independent 

pharmacies in particular is that they are not being paid quickly enough, 

particularly because the pharmacists often will pay their wholesalers on a 

weekly basis, and they do that in order to receive payment concessions, 

such as discounts, from the wholesaler. The time lag between payment 

from the plans and their payments to the wholesalers was causing a cash 

flow problem. However, I point out that under the Medicare 

Modernization Act, CMS is prohibited from interfering with the 

negotiations between the prescription drug plans and the pharmacies, and 

due to this, we cannot require that payment be made within a particular 

timeframe. But we are concerned about reports, and I think one was 

mentioned earlier here this morning, that payment is often maybe taking 

longer than it is in the standard contracts between these plans, and 
18

whenever we have received specific information about a plan not paying 

a pharmacy in accordance to its contract, we have investigated them. We 

haven’t found all that many problems. Our research has found that 

delays in payments generally resulted from typical startup issues, such as 

miscommunication around billing addresses, for example, or if there is a 

group purchasing organization or other intermediary often getting the 

check, it is unclear to the pharmacy which plan has made the payments 

for what. Our own survey found that 18 of the top 20 prescription drug 

plans paid pharmacy claims on a 15-day payment cycle or less, which 

lines up well with private industry norms with which the pharmacy is 

accustomed. The MMA, however, does include some protections for 

pharmacies, including access standards and any willing provider 

provisions. 

 Competition for the Medicare business has helped keep those costs 

down. The estimates are $8 billion cheaper in 2006 alone, and $58 

billion cheaper over 10 years when compared to last year’s--the baseline 

last year to this year’s President’s budget. So we are pleased the 

taxpayers and beneficiaries alike can share in these savings. 

 But pharmacists are healthcare professionals. They provide 

incredibly valuable services to our beneficiaries and to patients of all 

kinds. Often, they are paid for these services indirectly through the 

purchasing and selling price of their prescription drugs. But these days, 

purchasers are looking to separate the acquisition costs of prescriptions 

from other services that are provided, as is evidenced in the DRA 

changes to Medicaid payments. As this change occurs, it is critically 

important for us to consider how to value the quality of services that 

pharmacists as healthcare professionals provide, and to that end, we have 

been working with the Pharmacy Quality Alliance, which includes 

pharmacists and insurers to work together to develop and evaluate 

quality measures. Pharmacists need to be a part of this discussion of how 

to value their services, because we all know that they do much more than 

simply sell prescription drugs. With value-based purchasing, 

pharmacists will have an opportunity to be rewarded for providing 

quality care. 

 In closing, I would like to reiterate my sincere appreciation for 

pharmacists across the country, and look forward to continuing to work 

with them and the public to help them understand the nature and real 

value of the services they provide. I look forward to answering any 

questions you or the committee may have. 

 [The prepared statement of Leslie Norwalk follows:] 
19

PREPARED STATEMENT OF LESLIE NORWALK, DEPUTY ADMINISTRATOR, CENTERS FOR 

MEDICARE & MEDICAID SERVICES

Chairman Deal, Representative Brown, I thank you for inviting me here this 

morning to talk about how the Centers for Medicare & Medicaid Services (CMS) has 

worked with pharmacists to implement the Medicare prescription drug benefit. CMS has 

fully engaged with the pharmacy community in this effort and they have been key 

partners in the success of this benefit so far. We greatly appreciate their efforts and 

appreciate receiving their feedback and input on how to improve our operations. We 

look forward to continuing to work with them in meeting the needs of people with 

Medicare. 

The Secretary, the Administrator and I have all traveled the country and listened to 

the concerns that pharmacists have about the Medicare prescription drug program. To 

this point, among other things, CMS has improved its data systems, provided extensive 

education and outreach, hired pharmacists and worked with the prescription drug plans to 

simplify business processes between them and the pharmacists who actually serve our 

Medicare beneficiaries. Before the benefit began, we worked with pharmacy associations 

to inform their members about what was coming, and we established electronic systems 

to assist them in verifying eligibility of enrolled beneficiaries. Since the benefit became 

available in January, we have issued multiple guidance letters to Medicare prescription 

drug plans on topics ranging from the need to improve their customer service to 

pharmacists, to allowing the pharmacists to submit bills for a longer than typical period, 

many of which have been aimed at streamlining plan/pharmacist/beneficiary interactions 

– so that pharmacists can continue with the outstanding job they have been doing. We 

are continuing to work closely with pharmacists to address further issues as they arise. 

Pre-Implementation Work with Pharmacists 

We knew early on that pharmacists would be key players to the success of the 

Medicare Prescription Drug benefit. As front-line providers, pharmacists are the health 

care professionals to whom many patients turn to for advice and counseling on a broad 

range of issues, from minor aches and ailments, to medication therapy management, to 

decisions on what drug plans may be best for them. Interaction and a strong partnership 

with the pharmacists and the pharmacy community has been a top priority for CMS. 

In preparing for implementation of the Medicare Drug benefit, CMS made a point of 

hiring pharmacists. We hired at least one pharmacist in each of our ten regional offices. 

And we added ten more pharmacists in our central office, including pharmacists in senior 

leadership positions inside the Center for Beneficiary Choices and a pharmacy expert 

within the immediate office of the Administrator. They effectively brought the pharmacy 

perspectives to bear throughout CMS during our preparation and implementation phases. 

We also contracted with 125 additional pharmacists to review plan formularies for the 

2006 benefit year, and to ensure that plans continued compliance with our regulations and 

formulary guidance after the drug benefit went into effect. 

From the beginning of our implementation efforts, we have engaged in rigorous 

outreach to the pharmacy community. This included an effort beginning in May of 2005 

when we partnered with chain and independent pharmacies in an education and outreach 

program for beneficiaries likely to qualify for the low income subsidy. The effort 

reached over 30,000 stores. Those communications between CMS and pharmacies 

marked the beginning of an extensive and lasting effort to exchange information with the 

pharmacy community. We continued our regular communications with pharmacies 

through the Medicare Rx Update. Since last May, we have sent 42 updates to 

pharmacists and pharmacy associations. With over 2,700 subscribers and its known 

multiplying effect (state and national organizations distribute it as well) these updates 

have gone a long way toward informing the pharmacy community about the procedures 
20

surrounding Part D. Indeed, we have provided outreach through national, state and local 

pharmacy organizations and their newsletters and email lists, as well as their standardssetting organization and technical societies. 

CMS’ regional office pharmacists traveled the country and presented to tens of 

thousands of pharmacists in 2005 – and they remain in constant contact with pharmacists 

all over the nation. One part of these outreach efforts involved hundreds of town hall and 

state pharmacy association meetings around the country – including our participation in 

27 National Community Pharmacists Association (NCPA) Part D town hall events, with 

attendance approaching 7,000 independent pharmacists. We have held numerous 

national conference calls and posted extensive information on a page of the CMS web 

site dedicated to pharmacists. 

All of our efforts are in addition to the tremendous work that pharmacy associations 

and individual pharmacies have done with our support. These efforts have resulted in 

over 50,000 pharmacists and pharmacy technicians receiving continuing education 

related to Part D, several Part D centered websites with millions of hits, numerous 

conferences, and in-store efforts that have educated thousands of pharmacists and 

engaged millions of people. These efforts to provide outreach to pharmacists continue 

through the present day, and we are grateful to the pharmacy community for doing so 

much to make a difference for Medicare beneficiaries. 

Recognizing some of the difficulties that pharmacists have in administering private 

third party programs, CMS collaborated with pharmacists starting in 2004 to create a 

system that would help them identify beneficiary plan information through their existing 

pharmacy systems. This collaboration has yielded an electronic eligibility and enrollment 

query system that has now become part of most pharmacies’ work flow. If a Medicare 

enrollee does not have a card or proof of enrollment in a prescription drug plan, 

pharmacists can use this eligibility system (the E1 system) to obtain information needed 

to determine the beneficiary’s Part D plan and fill the prescription. Retail pharmacists 

now generally have the ability to perform real-time eligibility determinations for 

Medicare beneficiaries on their existing computer systems, which has resulted in new 

efficiencies at the pharmacy counter. 

To assist pharmacists in learning to use this tool, CMS produced a CD-ROM that 

was distributed to national associations and placed on our Pharmacy website. We also 

held special training events conducted by CMS pharmacists from our ten regions in 

connection with that tool. 

The E1 system is working as designed, providing rapid responses to pharmacists’ 

queries. Response times since January 2 have consistently been less than one second. In 

addition, the number of queries is decreasing, because more people with Medicare are 

enrolling early in the month and have accurate billing information with them when they 

go to the pharmacy. Pharmacies have also been able to obtain that information from the 

individual’s plan, in most cases. As a result, inquiries to the system have declined 

markedly from the opening days of the benefit. For example, on January 4, the E1 

system received nearly 1.5 million inquiries. On January 31st, it dropped to around 

300,000 and then to just over 120,000 on May 1st. While the need for the E1 system has 

been reduced remarkably, it nevertheless has provided many pharmacies with critical 

information to ensure that beneficiaries received drug coverage from the appropriate plan. 

Since January 1, using the E1 system, pharmacists have been able to identify plan 

information for beneficiaries more than 14 million times. 

Post-Implementation Work with Pharmacists 

CMS has taken many steps in order to ensure that accurate enrollment and payment 

information was available when people with Medicare prescription drug coverage went to 

the pharmacy to obtain their medications. However, during the first weeks of January, it 

became apparent that certain beneficiaries, particularly some dual-eligible beneficiaries 
21

who switched or joined plans late in the month, had difficulty accessing their coverage 

when they went to the pharmacy. Working with an independent experts and the drug 

plans and states, CMS refined data quality and availability to enhance system 

performance. For example, CMS has made available twice-monthly summaries on 

eligibility and copay status for all enrollees in the limited income subsidy in each plan, 

and is monitoring plan use of these data to assure their coverage records are up to date. 

As a result of these steps, more complete, accurate, and timely information has been 

available to pharmacists when they fill prescriptions for people with Medicare drug 

coverage. 

In addition to refining data systems related to coverage, we also provided expanded, 

direct customer support to pharmacists by modifying our call centers to include dedicated 

lines for pharmacists. We provided a toll-free number exclusively for pharmacists and 

worked to ensure that answer times were well under a minute. Pharmacists could call 

that line to obtain beneficiary enrollment information if they were unable to access it 

through the E1 system. We also increased funding for customer service representatives 

(CSR) to assist our beneficiaries and the professionals who serve them. 

In addition to this significant strengthening of our 1-800-MEDICARE capabilities, 

we have issued guidance to the plans, instructing them to increase the numbers of CSRs 

in their own call centers, expand call center hours, and take other necessary steps to 

provide timely and effective responses to inquiries from enrollees and health 

professionals, including pharmacists. Plans have responded and as a result, call handling 

and wait times have improved significantly. 

In addition to bolstering customer service efforts on our own part and through the 

plans, on February 2, we issued guidance calling on plans to extend the length of time 

during which they supplied a transitional supply of off-formulary medications from 30 

days, to 90 days to ensure that pharmacists were able to readily help beneficiaries access 

their medically necessary prescription drugs during the initial transition period. We then 

encouraged plans to aggressively work to identify their enrollees who needed assistance 

to transition to on-formulary medications, or obtain an exception with the help of their 

provider. These steps made it possible for pharmacists to more easily fill prescriptions 

during the initial startup of the benefit and helped ease the burden of the transition on 

beneficiaries and pharmacists. Additionally, we issued guidance to plans on formulary 

changes, specifying that patients who had been stabilized on a medication that was 

covered by a plan when they enrolled could continue to be covered for that medication, 

even if the plan took their drug off of the formulary, unless the change was made because 

of a new generic coming on the market, an FDA safety warning, or new clinical 

guidelines becoming available. This move reduced concerns and confusion for both 

patients and pharmacists. 

We also asked the Part D plans to work with pharmacists to resolve claims for 

medications dispensed when the pharmacist could not obtain adequate information on 

coverage for an enrolled beneficiary. Many pharmacists did provide medications to their 

patients, even when they could not verify coverage through a plan, and we are grateful to 

them for being willing to support their patients in this difficult position. We expect plans 

to appropriately compensate pharmacists for medications the pharmacists properly 

dispensed to plan enrollees, but due to systems issues were not initially covered by the 

plan. 

Because implementation challenges delayed payment of claims or verification of 

beneficiary eligibility for a percentage of Medicare enrollees, CMS has instructed plans 

that their typical window for submission of claims by pharmacies must be expanded. 

Ordinarily plans have a time period of between 30 and 90 days during which a pharmacy 

can submit claims. We have required plans to expand that to 180 days for claims 

incurred during the first half of the year in recognition of the fact that pharmacies may 
22

not have been able to obtain appropriate or adequate billing information even though they 

have dispensed medications to meet their patients’ needs. 

For beneficiaries who were for any time covered by two different plans, CMS is 

facilitating plan-to-plan reconciliation of claims paid, so that pharmacists will not have to 

resubmit claims or sort out issues of coverage once the beneficiary’s coverage status is 

resolved. CMS has also developed a process for state-to-plan reconciliation for claims 

incurred by States and State Pharmaceutical Assistance Programs between January 1 and 

March 31, 2006 which provided coverage to dual eligible and other low-income subsidy 

eligible individuals through state payment systems  again providing an alternative 

process for recouping costs that avoids pharmacies having to reverse and re-bill claims. 

To ensure that quality service by plans to their network pharmacists is a continuing 

part of the Medicare prescription drug program, in addition to the various pieces of 

guidance we have issued during 2006, we have indicated to plans that their customer 

service to pharmacies will be used as a measure of their effectiveness and compliance 

with contractual requirements. 

In its 2006 marketing guidelines, CMS permitted Part D plans to co-brand. Many 

plans took advantage of this opportunity and have co-branded with a number of 

organizations, including state pharmaceutical assistance programs and the AARP. Some 

plans co-branded with pharmacies, and placed the name or logo of the pharmacy on the 

prescription drug insurance card. CMS and the plans are providing complete information 

on participating pharmacies. This is available through plan pharmacy network directories 

provided to plan enrollees, through our respective websites, and also by calling plan 

phone numbers. Nonetheless, to assure that beneficiaries do not conclude that they could 

only get their prescriptions covered at co-branded pharmacies, for 2007 and beyond CMS 

will prohibit plans from placing pharmacy logos on beneficiary cards. Doing so should 

alleviate any potential for beneficiary confusion over which pharmacies they can use, and 

better ensure that they know they are able to access all pharmacies that participate in their 

plan’s pharmacy network. 

Working with Long Term Care Pharmacies 

Early in preparations for implementation of the prescription drug benefit,CMS 

identified long-term care residents as a particularly vulnerable population, and created a 

long-term care "campaign within a campaign" to address their special needs. In the LTC 

population, 70 percent are full-benefit dual eligibles, beneficiaries that are entitled to 

Medicare Part A and/or Part B, and are also eligible for Medicaid benefits. The Medicare 

Modernization Act required that all dual eligible beneficiaries receive prescription drug 

coverage from Medicare, rather than Medicaid. CMS needed to ensure that nearly six 

million dual eligibles would continue to be covered under the new program. 

Adding to the challenge of switching coverage for so many beneficiaries, many 

nursing home residents have cognitive and/or other impairments which make 

communication a challenge. To address this issue, CMS worked with the nursing home 

industry and related advocacy associations to get information to their members and 

caregivers. We communicated directly to the staffs of the more than 16,800 nursing 

homes throughout the nation. Further, since January 2006, CMS has kept nursing homes 

up-to-date on policy clarifications and recommendations that directly impact nursing 

home patient care and participation in Part D. These include: 

• Continuation of a dedicated fax/express mail program that allowed nursing 

homes to obtain residents’ Part D enrollment data from Medicare, with more 

than 500,000 records processed, to ensure continuity of care; 

• Continuation of Part D auto-enrollment of full-benefit dual eligibles in nursing 

homes; 
23

• Weekly calls with industry representatives to help troubleshoot individual Part 

D cases, fine-tune our procedures, address anticipated questions and concerns, 

and receive feedback; 

• Identification of CMS Regional Office long-term care leads to troubleshoot 

Part D nursing home cases in their respective regions; 

• Providing industry groups with Part D plan contacts for the exceptions and 

appeals processes; 

• Issuing written guidance for differentiating Part B and Part D drugs in the LTC 

setting, thereby eliminating confusion, speeding prescription fulfillment and 

reducing physician call backs on transitions, exceptions and appeals; 

• Distribution of a model Part D Exception & Prior Authorization trigger form to 

assist with exceptions requests; 

• Distribution of mid-year Part D formulary request information; 

• Issuing guidance to plans charging them with using best available information 

to adjust subsidy levels in the event that data received from CMS does not yet 

reflect full dual eligible institutionalized status and the corresponding $0 copayments for beneficiaries in this population. This guidance also advised plans 

to reimburse LTC pharmacies directly for underpaid cost sharing subsidies 

when those pharmacies have refrained from billing their residents. 

• Clarifying that $0 co-payments for full benefit dual eligibles are effective the 

first day of the first month that the individual is expected to remain in a LTC 

facility for the entire calendar month; and 

• Allowing those entering a nursing home as a resident after May 15 to enroll in 

a prescription drug plan without having to wait until the next open enrollment 

in November 2006. 

Standardizing Business Procedures and Practices 

Efforts to reduce administrative burdens associated with health insurance coverage 

and payments have the potential to reduce pharmacists’ costs by shortening the amounts 

of time they have to spend in resolving problems at the pharmacy counter. CMS has 

strongly supported collaborative efforts undertaken by the plans and pharmacists to 

reduce the day-to-day costs of working with different health insurance plans. This is one 

of many examples of how various parties are working together not only to improve the 

Medicare drug benefit for pharmacists, but also to use this opportunity to reduce 

administrative costs more generally for pharmacists. 

In January we heard concerns from pharmacists about different claims processing 

and administrative systems and protocols used by the various Medicare prescription drug 

plans. While pharmacists have long had to deal with multiple health insurance plans, the 

new drug benefit provided an opportunity to streamline administrative procedures across 

insurance plans. We have made plans aware of the challenges posed by their varying 

requirements, and supported external industry discussions involving both plan and 

pharmacy representatives. As a result, in early April, a group of pharmacy and plan 

organizations, including America’s Health Insurance Plans (AHIP), the NCPA, and the 

National Association of Chain Drug Stores (NACDS), announced an unprecedented joint 

effort to simplify and standardize the steps that most affect service for Medicare 

beneficiaries filling prescriptions at pharmacies. 

NACDS, NCPA, and AHIP worked together, along with the American Pharmacists 

Association (APhA) and the Pharmaceutical Care Management Association (PCMA) and 

others, to simplify and standardize the electronic claims processing messages going from 

Medicare Part D drug plans to pharmacies. The initial step in this effort was to provide 

pharmacists electronic message clarity regarding the coverage status of certain drugs. 
24

Coverage denials can be grouped into many categories: drugs that are denied 

because they are excluded from Part D coverage as mandated by the Medicare 

Modernization Act, and drugs that are denied because they are covered under Medicare 

Part B, the drug is not on a plan formulary, or requires some prior authorization. 

Pharmacists need clarity about why a particular drug is not covered, and they need it in a 

format that is recognized and consistent between plans. This information will help the 

pharmacist guide the beneficiary to the appropriate next step, whether that is contacting 

his or her physician for an alternative prescription, billing Medicare Part B, or paying out 

of pocket. 

To alleviate some of this concern, AHIP, NACDS, and NCPA developed and 

presented joint recommendations to a Work Group of the National Council for 

Prescription Drug Programs (NCPDP), the organization that creates and promotes 

standards for transferring data to and from pharmacies. NCPDP then approved a process 

for using standardized coding and electronic messages notifying pharmacists of claims 

rejections when the prescription is excluded from Medicare, or may be covered under 

Medicare Part B. 

AHIP, NACDS, and NCPA have transmitted to CMS and NCPDP a second set of 

recommendations to further improve service to Medicare beneficiaries filling 

prescriptions at community pharmacies. That proposal for additional standardized 

electronic claims processing messages to pharmacists addresses prior authorization 

requirements, daily dose limitations, quantities that may be dispensed for a given 

prescription, and age and gender contraindications. 

On February 7, CMS posted to its website a model form for beneficiaries to use in 

requesting a coverage determination. The form was developed with input from the 

American Medical Association (AMA), AHIP and others and is accompanied by 

instructions. Cooperation between the plans and physician organizations led to a form 

that will receive wider adoption and use and will help reduce confusion for providers, 

plans and our beneficiaries. 

CMS has also posted contact information on our web site for every drug plan for 

those wishing to pursue an appeal. To facilitate communications between pharmacists 

and physicians, we recently posted a form for pharmacists to use to inform physicians 

that their patient’s plan is requiring use of another drug, step therapy, or prior 

authorization. To ensure access to these forms and other important exceptions and 

appeals information, we required plans to create exceptions and appeals web pages with 

this information. We have also encouraged plans to accept prior approval requests by 

fax, rather than requiring phone calls from physicians, since that is less time consuming 

for the physicians. 

CMS also sent information to plans which will expedite their processes for making 

sure they are not inappropriately paying for drugs that should be covered under Medicare 

Part B, and we have worked with Epocrates, an electronic prescribing software company, 

to ensure that their product provides accurate and easy access to plan formularies. We’ve 

also held weekly prescribers’ conference calls and bi-weekly meetings with the AMA and 

other organizations to find out what prescribers are experiencing, to supply them with 

information on our activities and answer their specific questions. 

Current Conditions 

Many pharmacists expressed concerns that they are not being paid in a timely 

fashion. Interruptions in cash flow occurred as pharmacies switched from the system 

used by their respective state Medicaid payment systems to those of the Medicare 

prescription drug plans. However, a clear majority of PDPs are paying pharmacies well 

within the industry standard of 30 days from the time a clean electronic claim is 

submitted to the time a pharmacy receives payment. A recent CMS survey found that up 

to 18 out of the top 20 PDPs pay pharmacy claims on a twice-a-month billing cycle of 15 
25

days or less. A 15-day billing cycle generally provides pharmacies with payment within 

21-25 days. These top plans account for more than 90 percent of the drug coverage for 

Medicare beneficiaries. 

Because resolving specific pharmacy complaints is a top priority for CMS, we have 

investigated a number of complaints from pharmacists that they have not been paid in a 

timely manner. The result of the vast majority of these investigations has been that the 

plan has paid the pharmacy in accordance with the terms of its contract. In some cases, a 

plan sent a check to the wrong address or to the pharmacy’s claims payment 

representative (e.g., a pharmacy buying group or Group Purchasing Organization (GPO), 

etc.). Additionally, we discovered situations where plans may have printed checks that 

were held several days before mailing. In these cases, the plans quickly remedied any 

problems to ensure pharmacies are paid as expeditiously as possible. 

The Medicare prescription drug benefit represents a new line of business for the 

pharmacies, but it does not differ substantially from the private commercial market with 

which they are already familiar. Thus, the contract terms require that claims for 

medications dispensed to people with coverage under the Medicare prescription drug 

benefit are being paid in a timeframe with which pharmacies are accustomed and within 

which they know how to operate. 

In addition to expressing concerns about prompt payment and cash flow issues, 

smaller pharmacies have complained to CMS that low Medicare payment rates may 

threaten access to a robust pharmacy network for Medicare beneficiaries. We are very 

sympathetic to the concerns of small pharmacies. In particular, the MMA creates a 

competitive environment that provides constraints on how aggressive plans can be in 

negotiating pharmacy rates. CMS will not approve a plan for participation in the 

Medicare program unless it can demonstrate that it can meet the TriCare access standards 

for pharmacy network participation. This provides small independent pharmacies, 

particularly those in underserved areas, with bargaining power that they can use to 

negotiate favorable rates with the plans. Plans are also required to accept into their 

network any pharmacy that is willing to participate and hence, cannot selectively exclude 

specific pharmacies. 

Congress specifically included these provisions to assure beneficiary access to 

pharmacies in the Medicare program. However, a corollary benefit to pharmacies is that 

these standards assure that pharmacy payment rates remain acceptable to pharmacies. 

For example, if a plan is overly aggressive in its contracting, and enough pharmacies 

independently decide not to accept the network rate, the plan will not be able to 

participate in the program because it does not meet the TriCare Access standards. On the 

other hand, if a plan can meet the TriCare Access standard because a sufficient number of 

pharmacies accept the plan’s network contract rate, this is a strong indication that 

pharmacy network rates are acceptable to most pharmacies and that competition is 

working to keep premiums and prices low for beneficiaries while preserving access to an 

adequate number of pharmacies for the beneficiary. Aggressive contracting by plans, 

while meeting the TriCare Access requirements, has contributed to more affordable 

prescription drug costs for Medicare beneficiaries and taxpayers while preserving 

convenient access to pharmacies. 

Supporting Quality in the Pharmacy Environment 

While the new drug benefit has led to greater access to needed prescription 

medicines for our beneficiaries, CMS believes that further steps can be taken to support 

high-quality pharmacy care, that may result in better health and lower overall health care 

costs. In line with CMS’ extensive efforts to improve and promote quality across the 

health care settings we serve, in April we announced the formation of the Pharmacy 

Quality Alliance (PQA). The goal of the PQA will be to agree on a strategy for 

measuring and reporting data that will help consumers make informed choices and 
26

appropriate healthcare decisions. The founding members of the PQA include leading 

pharmacy organizations, health plans, consumer and employer groups. 

CMS has implemented quality measurement programs in other payment systems 

within Medicare, and now it is time for a similar consensus effort to support pharmacy 

services in order to promote higher quality care and lower overall costs. We would like 

to like to place more emphasis on providing better support for high quality innovative 

healthcare. The PQA is the vehicle that can help us do this. We cannot do it by 

ourselves at CMS, but we will assuredly support and promote a collaborative effort 

across the healthcare system. 

While the primary goal of the PQA is to develop strategies for defining and 

measuring pharmacy performance, CMS expects that this will lead to greater interest in 

plans that promote high-quality pharmacy services and potentially new pharmacy 

payment models to help improve patient outcomes at a lower cost. We are very 

interested in supporting the testing and development of those payment models. Private 

sector expertise, working in collaboration with the other key stakeholders in our program, 

is absolutely essential for making this happen soon. 

Thanks to the Ambulatory Care Quality Alliance and to the leadership and hard 

work of the health plans and many physician organizations involved in ambulatory care, 

we have made substantial progress in creating consensus around meaningful measures of 

quality of physician care. We are now in the process of implementing physician payment 

demonstration programs that tests whether we can obtain higher quality care at a lower 

overall cost to our healthcare system. 

We believe that through the PQA we can make a similar kind of progress in the 

development of pharmacy-care quality measures and the development of better support 

for high quality pharmacy care. Encouraging higher quality and less costly care is a 

critical priority for us at CMS, just as providing high quality care and avoiding 

preventable complications is a top priority for our nation’s health professionals. 

Pharmacists and other health professionals want to do everything in their power to 

provide the best care for their patients. When we provide consumers with better 

information about quality and when our payment systems encourage better quality, we 

enable health professionals to focus on what they do best. 

This is part of a fundamental strategy in Medicare and Medicaid today. For 40 

years, our programs have focused on paying the bills without really taking into account as 

much as we should, whether what we are buying really improves beneficiary outcomes, 

at the lowest possible cost. 

Pharmacists and pharmacies have already demonstrated the tremendous value they 

provide in their work through the implementation of the Medicare drug benefit. They 

have shown that they can add much more as well, including helping people find lower 

cost drugs like generic medicine. 

They can help people who have multiple illnesses understand how to use their 

medication thus improving patient compliance with treatment plans and preventing 

complications. All of these things can improve quality and reduce overall healthcare 

costs, to achieve a healthcare system that provides the right care for each patient every 

time. 

A recent CMS analysis indicated that a beneficiary with common chronic conditions 

who enrolls in a Medicare prescription drug plan can save, on average, more than 55 

percent compared to what they would pay without drug coverage. If they switch to 

lower-cost generic medications, which have exactly the same active ingredients as the 

brand-name medicines they had been taking, they could achieve savings of up to 70 

percent over what they would pay without drug coverage. 

Even larger savings are possible on a very broad range of drug plans for 

beneficiaries who also switch to lower-cost “therapeutically equivalent” drugs – drugs in 

the same drug class that have very similar effects. Those who switch to less expensive 
27

brand-name therapeutic equivalents can save even more— with savings of up to 83 

percent for the plan with the lowest cost. 

Pharmacists can provide a valuable service through coordination of care with respect 

to prescription medications. This could help reduce adverse drug interactions and the 

accompanying expenses and risks to beneficiaries. Their participation in medication 

therapy management programs has the potential to help patients better understand how 

their medications work and what to expect. Promoting continuity and coordination of 

care and medication therapy management may lead to appropriate utilization of 

prescription drugs and better health for Medicare beneficiaries at a lower cost. 

Deficit Reduction Act of 2005 (DRA) 

In conjunction with concerns about payment rates in the Medicare drug benefit, 

pharmacists have also raised concerns about reimbursement rates in state Medicaid and 

other programs. Specifically, they cite recent changes in the Deficit Reduction Act 

(DRA) that will affect the way the Medicaid program calculates the Federal Upper Limit 

(FUL), which is used by many states to determine the maximum level of reimbursement 

at which a state will reimburse a pharmacy for multiple source drugs, including generic 

drugs. The goal of these DRA provisions is to capture the most accurate pricing data 

possible to assure that the Federal government and State Medicaid programs are not 

overpaying pharmacies for generic drugs. 

While the DRA represents an opportunity for state and the federal governments to 

save money on generic product costs, actual savings will be dependent upon the actions 

that states take in implementing the new FUL. For example, if states do not maintain the 

right incentives for encouraging generic utilization, potential savings on generic 

reimbursement will be lost to higher and more expensive brand name utilization. For this 

reason, CMS has consistently encouraged states to align incentives for optimizing generic 

utilization and consider paying pharmacists more in dispensing fees if they can assist the 

state in saving money through greater generic utilization. 

In its “Road Map to Medicaid Reform”, CMS also encourages states to “Re-align 

Medicaid prices on prescriptions drugs with other purchasers and protect community 

pharmacists.” Specifically, CMS said: 

... States retain the overall authority for pharmacy reimbursement and may target 

reimbursement to providers, for example, through higher dispensing fees for 

independent pharmacies, pharmacies serving a large share of low-income 

beneficiaries, or pharmacies in rural areas to assure access. States can also adjust 

payments to provide more financial support to pharmacists that improve quality 

and reduce costs of drug coverage and chronic disease management... 

Private and public payers, including Medicaid, do not want to pay more for products 

and supplies than is reasonable or necessary. They are, however, willing to pay for a 

high level of service that promotes quality and the very best health outcomes. We believe 

that the states should have the tools and options to promote a value-based approach to the 

delivery of health care, and specifically the delivery of prescription drug benefits, and 

CMS intends to continue to support the implementation of such steps in pharmacy care. 

Conclusion 

CMS worked hard to resolve the early challenges of implementing the Medicare 

prescription drug benefit. We greatly appreciate the way in which the pharmacy 

community has stepped up to the challenge and how they have worked with us and the 

plans to identify and resolve these issues. Plans are now paying for millions of 

prescriptions every day, and pharmacies are receiving those payments in a timely fashion. 

Competition among plans has resulted in prices for beneficiaries and the government that 
28

are substantially lower than originally expected, and we have already seen important 

improvements in the delivery of the drug benefit to reduce costs for pharmacists and to 

promote more effective use of prescription drugs. We look forward to continuing to 

work closely with the pharmacy community to ensure that our beneficiaries receive the 

highest quality of care at the lowest cost, and that pharmacies are able to operate freely in 

a market setting, running their businesses as they see fit, without the necessity of 

complying with a cumbersome regulatory structure. 

I thank the Committee for its time and look forward to answering any questions you 

may have. 

 MR. DEAL. Thank you very much. 

 First of all, let me pass on some thank you’s from my congressional 

office and I think probably from many other congressional offices where 

we have asked for your assistance in assisting our local pharmacists. We 

found that your organization has been very willing to do so and we 

appreciate that. 

 I think probably without exception, most who are in the supply chain 

would say that CMS has done an excellent job of putting on the number 

of people necessary to respond to the calls. It was a dramatic increase in 

personnel, I know, on your part to be able to do that, and I think some of 

the criticism would be that maybe the insurance companies haven’t done 

a like job of being able to respond to inquiries and questions and calls. 

 Let me talk about a few things that I think all of us are mutually 

concerned about. One of the issues is the so-called enrollment lag. That 

appears to be where some of the confusion at the outset and will 

continue, I suppose, to be a problem as we have people enrolling every 

day and as we have renewals of those taking place. Would you address 

that issue, and is there a good solution for somebody who enrolls on the 

next to the last day of the month with a new plan and then the first day of 

the next month comes in and expects their prescription to be filled under 

that plan? 

 MS. NORWALK. Right. We have done a number of things. The 

Medicare Modernization Act tells us that when someone enrolls on the 

last day of the month, that their enrollment is effective the next day, if 

that is the beginning of the month. That has, in fact, caused some 

difficulty for us, and what we have done is a couple of things. 

 The first thing is we implemented something called the E-1 system, 

or the E-1 query, and as soon as the computer programs can talk to each 

other between the plans and CMS, the pharmacy will have access to 

computer information so they don’t have to make a phone call to 

determine what plan the beneficiary is in, as soon as that enrollment can 

be processed. Now, enrollment processing can take a week or so, 

depending on how it comes in. If it is done through an agent or a broker, 

if it is done online, the timing may change a little bit. What we have 

done, given that there is a time lag in information flow, is we have tried 
29

to let the beneficiary know to bring to the pharmacy whatever 

information he or she may have so the pharmacist can determine what 

plan is the appropriate plan to bill and what co-payments and so forth are 

associated with that plan. We have had some limited success with that, 

but given the Medicare Modernization Act dictates that what we have 

done thus far is really tried to educate beneficiaries. It was a significant 

problem when 20 million people joined the system on one day. It is a 

problem that we have seen significantly less of, but since a quarter of a 

million people are eligible for the Medicare benefit every month, it will 

continue to be an issue if people sign up late. So we encourage people to 

sign up early and bring with them whatever information they have to the 

pharmacy to minimize the issues once they get there. 

 MR. DEAL. All right. 

 One of the issues that we are going to hear talked about by the panel 

that follows you is the loophole. We will have the opportunity to discuss 

with the industry itself, but your statistics were rather revealing. The 

majority appears that the major plans are on a 15-day cycle. Is that 

right? 

 MS. NORWALK. Yeah, that is what our own research has found. 

 MR. DEAL. All right. Let me go to another one. The co-branding 

issue has been a big one, and you have said that you are not going to 

allow co-branding next year? 

 MS. NORWALK. Right. 

 MR. DEAL. They can’t just carry those same cards with the branding 

on it. Will they have to issue new cards? 

 MS. NORWALK. That is correct. 

 MR. DEAL. Okay. I think that goes a long way toward taking care of 

that. 

 Let me ask you about medication management therapy. Where is 

that issue in the overall scheme of things, and what is CMS 

contemplating there? 

 MS. NORWALK. Well, for 2006, medication therapy management is 

something new for us, at least, obviously the whole thing is new. What 

we wanted to do was allow plans to develop their own best practices to 

figure out what we could do on a go forward basis, as opposed to 

requiring and mandating something in particular. It is one of the things 

that the Pharmacy Quality Alliance will be looking at to help determine 

what makes sense for plans and the pharmacists alike to ensure that 

beneficiaries receive the most value for the services, particularly for 

those beneficiaries who have chronic drug needs and are taking many, 

many prescriptions and spend thousands of dollars on drugs a year. In 

order to ensure that those beneficiaries are well taken care of and have 

the appropriate medication therapy management, we would like to see 
30

what can develop in a number of the plans and then develop a best 

practice approach. I believe on your next panel you have someone 

testifying from Georgia, who, in fact, they are working on that issue in 

Georgia to also develop best practices, and that is the sort of thing that 

we would like to continue to encourage, whether it is through our QIO 

program, our Quality Improvement Organizations, or the Pharmacy 

Quality Alliance, we think there are lots of ways that this may be 

successful. We didn’t want to stifle those ways in going forward, but 

want to encourage best practices as we learn more about those programs. 

 MR. DEAL. Real quickly, formulary changes. Dr. McClellan on 

March the 1st I believe said that there had been no requests for formulary 

changes. Has that status changed? 

 MS. NORWALK. That is not accurate. There are 450,000 formulary 

drugs in the Medicare program, if you look at all the formularies. We 

have had a request for under one percent of them. The last number that I 

saw, we had approved--of the 450,000 drugs, we had approved changes 

in 3,000 of them. Two-thirds of those changes, roughly 2,000, were 

because generics became available on the market. The other third were 

because either the drug was withdrawn from the market or there were 

other safety concerns, or there was an issue with the prescription possibly 

being covered by Medicare Part B. The physician benefit and the statute 

require that that be paid under the physician benefit, continue to be paid 

there, and that they may have had some prior authorization. So that is 

the majority of the things that we approved. After that--during that or 

shortly thereafter that hearing, we required that any changes in formulary 

that are made for 2006, and frankly, beyond, would have to grandfather 

the beneficiary in. We are very concerned about the bait and switch. So 

beneficiaries who relied on a particular formulary when they signed up 

for that plan and take a particular prescription on that formulary must be 

allowed to continue to take that prescription for the rest of the year, and 

then when they change plans the next year that formulary would be able 

to change. 

 MR. DEAL. Thank you. 

 MS. NORWALK. Thank you. 

 MR. DEAL. Mr. Allen is recognized for questions. 

 MR. ALLEN. Thank you very much, Ms. Norwalk, for being here. 

 I want to ask you some questions about the low-income subsidy. As 

of April 28, which is the last data that we have, anyway, the Families 

USA study shows that about one-quarter of the 7.2 million people, lowincome seniors that qualify for the low-income subsidy are actually 

receiving the subsidies. The number may have changed since April 28, 

but that was their number. In Maine, the estimate was 45,000 are 

estimated to eligible for the low-income assistance, but as of April 28, 
31

only 16 percent had received it. My understanding is some hadn’t signed 

up, some had not been approved by CMS, and some had been approved 

but the system hadn’t recognized that they qualified. If we can get those 

people into the system and get the extra help they need, I am sure you 

understand that would be better for them and better for the pharmacists 

and everyone. 

 So several questions. I wondered if you could provide a final tally 

on the number of beneficiaries who have signed up for extra help as of 

May 15, compared to how many are eligible, and I don’t know if you 

might have that now, but the second part of that question is break that 

down for the number of people with disabilities. So the overall group, 

and then the number of disabilities. How many have signed up as 

compared to how many are eligible? 

 MS. NORWALK. From the best numbers that we have thus far, there 

are about 4.5, 4.2 million beneficiaries as of today. We continue to get 

enrollments coming in, so that is sort of where we are now. There are 

about 4.5 million that have not signed up for the benefit. While I am not 

sure that we have the same numbers that Families USA does, I am not 

sure that we use the same baseline. We estimate about 3 million of the 

4.5 million are LIS beneficiaries, so a significant portion of those 

beneficiaries are LIS. I don’t have a breakdown as to disabled versus 

aged beneficiaries, I am sorry. I don’t know that I have ever actually 

seen those numbers. I can see if we can run them for you. 

 MR. ALLEN. That would be helpful. 

 MS. NORWALK. We will take a look at that. 

 If your point is, we need to reach out to these beneficiaries and get 

them enrolled in this plan in 2006, I could hardly agree with you more. 

There are a couple of things that we are doing and we have been doing 

since the beginning. Certainly, one is to reach out the community health 

centers; 90 percent of the community health center population tends to be 

the limited income subsidy individual, and reaching out through the 

community health centers to make sure that they know and understand 

what is available to them, even after this enrollment deadline has passed, 

because we have allowed a special election period for those who have 

LIS who qualify after May 15 who will be able to enroll in the plan for 

the rest of this year without a late enrollment penalty. So reaching out to 

them now is really our number one concern from an outreach perspective 

and beneficiaries. 

 In addition, we have issued a grant to the National Council on Aging 

to do more specific and targeted outreach and determine what methods 

work the best to find these people and to let them know about the benefit. 

They are, without a doubt, the hardest group to reach that we have, and 

we are looking forward to as many ways to get them as possible to at 
32

least give them the option, help them with their Social Security 

paperwork, and allow them to join a prescription drug plan. 

 MR. ALLEN. Have you thought about working through hospital 

emergency rooms, for example? 

 MS. NORWALK. Also a terrific idea, and I will go back and see if 

that is another way that we have approached it, and if we haven’t, I think 

it is something that we can at least get the hospitals and work with them 

to put information in their waiting rooms and the like. It is an excellent 

idea. 

 MR. ALLEN. Okay. 

 MS. NORWALK. I don’t know if that is a part of our plan or not. 

 MR. ALLEN. I am told that the disabled tend to not use the same 

sources of information as others, and I think--don’t you have to reach out 

in somewhat different ways to find the disabled population? 

 MS. NORWALK. Absolutely. We have-- 

 MR. ALLEN. There are, I guess, some who might show up at 

community health centers, but-- 

 MS. NORWALK. Right. 

 MR. ALLEN. --they might not. 

 MS. NORWALK. Right. From an LIS perspective, that is one of our 

targets, but one of the things that we have done generally with outreach 

is really done an unprecedented campaign to find people, as we say, 

where they live, work, play, and pray. We have worked with church 

organizations, religious organizations generally. We have done all 

different types of media advertisements. I am sure you have heard about 

the bus that toured around the country. I know it spent some time in 

Maine. 

 MR. ALLEN. It did. 

 MS. NORWALK. So we have done a lot of things. We have tens of 

thousands of partners who have been fantastic and instrumental in 

helping us find the 32 million people who have coverage through 

Medicare, separate and apart from the six million with other coverage, in 

order to make sure that people didn’t miss the May 15 opportunity. We 

wanted to be sure that they knew about it and they were able to make a 

choice by May 15. 

 MR. ALLEN. It would be very helpful--I thank you for all the work 

you are doing, and will do. It would be very helpful if you could give us 

as much data as possible on who signed up, who may still be out there 

among those who are eligible for the low-income subsidy, because I 

think that is the way that we can all work together to address the problem 

most effectively. So I would appreciate following this hearing-- 

 MS. NORWALK. Sure. 

 MR. ALLEN. --that data as soon as you have it available. 
33

 MS. NORWALK. No problem. 

 MR. ALLEN. Thank you. 

 MR. DEAL. Dr. Norwood. 

 MR. NORWOOD. Thank you very much, Mr. Chairman. 

 Ms. Norwalk, welcome. We are thankful and glad that you are here. 

Over the last 12 years, I don’t suppose I know many people that have 

been more critical of CMS than I have been, but I have got to tell you, I 

think you folks have handled this Part D prescription drug part rather 

admirably. I have watched carefully, waiting and watching, and you 

have not made too many mistakes. I appreciate that fact. 

 Tell me this about your authority. CMS generally has a lot of 

authority, and I wonder about your authority to pace these Part D plans 

and their payment practices. How much leeway do you have in that? 

 MS. NORWALK. Well, we do have a significant amount of authority, 

particularly to ensure that the plans can implement the benefit as written 

and follow our guidelines, so we have authority to ensure that, obviously, 

the plan is not either prescribing the prescription or dispensing it, but that 

is actually done through a pharmacy, and if that part fails, then we have 

great problems. So we do--and the plans have been very helpful in 

working with us, so if we come up with a problem, they are willing to 

take a look and try to resolve that issue without question, because they, 

too, appreciate that this, in order to be successful, that the pharmacists 

need to play an important role. You certainly have a number of plans on 

the next panel that you can ask about that specifically, but we have found 

them to be, as a general rule, helpful. 

 But inasmuch as they are not abiding by their own contracts, and 

beneficiaries don’t have access to prescriptions, which at the end of the 

day, even though you don’t have a beneficiary representative, it is what I 

care most about. Can beneficiaries have access to their prescriptions at a 

price that is affordable for both the beneficiary and the taxpayer? 

 MR. NORWOOD. Well, we all care about that part of it. I also happen 

to care about particularly the community pharmacists, too, that have 

spread all over Georgia. I am curious at a remark you made in your 

opening statement where you said that you didn’t have much authority 

over payment being made in a particular timeframe. I am not seeing you 

all have any trouble having authority at making rules. It seems to me it is 

pretty important that these plans pay the pharmacists in a timely manner. 

 The reason I bring that up is that may be going on today, because all 

this is new, but history would tell us that that did not happen very well 

over the years with health insurance. Plans just typically would run 

rough shod over people, particularly at the end of the month, making sure 

they didn’t get paid, et cetera, et cetera. I think maybe you know the 

story. I want to know why you couldn’t use your authority to say--and I 
34

am not trying to term up a time, but let us just say 30 days. Why 

couldn’t you insist that if you want to participate in this program, you 

must pay your bills in 30 days? 

 MS. NORWALK. Well, I think that generally you are correct. 

Medicare has a significant amount of authority to do any number of 

things. However, in this particular instance, the statute is clear that we 

are not permitted to interfere with the negotiations between plans and 

pharmacies, or plans and manufacturers, for that matter. One of the most 

critical things are payment terms within those negotiations, and payment 

terms both include the rate of payment as well as the timing of payment. 

 Now, you did ask an important question, and I think it is somewhat 

of a distinction. We do need to ensure that plans pay pharmacies and 

they pay so in a timely manner. How timely is defined is a matter of 

negotiation between the pharmacist and the plan. It is nice to know that 

18 of the top 20 plans do pay within a 15-day cycle. That is helpful. 

 MR. NORWOOD. What if they don’t? What can you do? 

 MS. NORWALK. It is a matter of contract between the pharmacy and 

the plan. So if the pharmacy determines that that is not sufficient amount 

of time, the pharmacy has the option of not--during renegotiation. 

 MR. NORWOOD. Probably I don’t have that option if I am in Watley, 

Georgia. You know, the single pharmacist out there doesn’t have many 

options. The big plan has all the options, and if they may agree in their 

contract to pay in 15 days, there is no reason on earth to believe that will 

continue. What can you do at CMS to kick them out if they don’t do 

that? 

 MS. NORWALK. Well, other than requiring them to pay according to 

their contract terms between the two, which is something that we have 

offered to do. Typically, it is an issue between the two private parties, 

but if you know of pharmacists who are not being paid in accordance 

with their terms of the plans, we would appreciate it if you would let us 

know so that we can investigate and ensure that those plans meet the 

obligations of their contracts. 

 MR. NORWOOD. I would in a minute, but I am more concerned 

because I don’t hear you saying this is automatically something we at 

CMS are aware of. We know this can happen. As more or smaller plans 

drop out, there are going to be fewer plans. They are going to 

consolidate. I mean, I can just sort of see it 5 years from now, and I am 

really trying to make sure you have the authority to do something about 

it. 

 MS. NORWALK. One thing the Medicare Modernization Act does do 

is it requires that the plans adhere to the Tricare Access Standards for 

pharmacies, which means that 90 percent of beneficiaries have to have 

access to a pharmacy within two miles if they live in an urban area, 90 
35

percent of beneficiaries have to have access within five miles in a 

suburban area, and 70 percent of beneficiaries in the plan have to have 

access to rural pharmacies within 15 miles. 

 I do know that in certain instances, pharmacies have used that to 

their advantage in negotiating, although I hear the same complaints that 

you do, is that independent pharmacies, particularly smaller ones, have a 

difficult time negotiating with the plans and feel that they have little 

negotiating leverage. So I don’t want to diminish that-- 

 MR. NORWOOD. No, don’t. 

 MS. NORWALK. --but the Medicare Modernization Act, other than 

the Tricare Access Standards, does not have any additional protections 

that help the pharmacy in that particular way. 

 MR. NORWOOD. Mr. Chairman, I see my time is up. I hope we will 

be able to submit in writing the many questions. I have a long list I 

would like to get answered. 

 MR. DEAL. Yes, that has already been agreed to by unanimous 

consent, so you may do so. 

 Ms. Baldwin, you are recognized for questions. 

 MS. BALDWIN. Thank you, Mr. Chairman. 

 On March 1, our subcommittee had a hearing entitled “Medicare Part 

D: Implementation of the New Drug Benefit.” At that subcommittee 

hearing, Dr. McClellan appeared and Ranking Member Dingell had a 

series of questions that he presented on prior authorization and appeals 

procedures under Part D plans. And we were, in offering those 

questions, interested to know how many beneficiaries had not been able 

to fill needed prescriptions or have had to go through complicated 

administrative hoops. 

 So first, Ranking Member Dingell asked for data on the number of 

appeals filed to date, the types of appeals filed, whether it was resolved 

in favor of the beneficiary or in favor of the plan, and the most 

commonly appealed drugs. I am wondering whether you have the data 

that was requested here with you today. 

 MS. NORWALK. I don’t, but I am happy to get it for you. 

 MS. BALDWIN. Okay. 

 A second area of inquiry was a request for a listing of the different 

medicines across plans that are subject to restrictions, what sort of cost 

sharing is charged for those medications that are restricted. And I don’t 

know if you have any of that data with you today-- 

 MS. NORWALK. It is available on our website, Medicare.gov, so if 

you have someone in the office, I am happy to print it off for you, but it 

is one of those things that you can look at by plan and actually with each 

of the plans--there is another way, as well, but let me finish the 

Medicare.gov. It is important for beneficiaries or anyone who is looking 
36

at which prescription plan to choose, for example, what requirements 

there would be. Is there step therapy, prior authorization, other 

utilization management techniques that help keep the cost down? And if 

they exist, they are actually on our website by drug with an asterisk so 

that you can find out--if you are interested in a particular--drug, you can 

find out what plans in your area, in Wisconsin, for example, have 

varying requirements. Not all the plans do, but many do. 

 MS. BALDWIN. Well, we are certainly interested in aggregate data, 

and I-- 

 MS. NORWALK. I will see if we have-- 

 MS. BALDWIN. In terms of-- 

 MS. NORWALK. I don’t know that we have aggregate, but I will 

check. 

 MS. BALDWIN. In terms of propriety, I certainly hope that the 

Ranking Member Dingell’s specific questions will be responded to 

before they are posted on the web. I mean, there was a series of 

questions, the last area, by the way, being on plan performance with 

respect to appeals, which plans in each State were the best and worst 

with respect to meeting CMS-required appeals time frames, and which 

plans did beneficiaries have to appeal the most, et cetera. 

 MS. NORWALK. My understanding is the plans have to submit the 

specific data to us by the end of this month. We haven’t seen that data 

yet. We do have some preliminary data from the appeals that went to the 

Center for Health Dispute Resolution, our contractor who looks at the 

second level. 

 MS. BALDWIN. But my understanding is that CMS requires 

reporting on a quarterly basis, and the end of the quarter would have 

been March 31-- 

 MS. NORWALK. We certainly hope that we can promptly get--

because of our transition policy, we expect to have very few appeals 

because we required plans to cover those drugs for the first 90 days. I 

wouldn’t expect a whole lot for the first quarter. The second quarter is 

really going to be important. 

 MS. BALDWIN. We certainly hope that in a timely fashion these 

questions that were posed on March 1 by Ranking Member Dingell can 

be reported to us on the committee. 

 I wanted to just move to a different topic briefly, and that is the 

donut hole. You know, when Congress was debating this legislation, I 

certainly was very concerned about this particular policy, and I know 

many of my colleagues are. Just to remind everyone, the donut hole is 

the point at which the beneficiaries reach $2,251 in drug spending and 

once they reach this point, there is no drug coverage at all for them until 

they surpass $5,100 in spending. I guess one of my concerns is how we 
37

are going to educate beneficiaries and pharmacists about this. Many of 

our constituents will be affected. I think many will walk into their 

pharmacies one day to have their prescription filled and suddenly 

discover that their prescription is no longer covered because they have 

fallen into the donut hole. I know I am trying to get the word out so that 

people are fully educated, but I would like to hear what CMS is doing to 

work with pharmacists and beneficiaries to prepare everyone for this. 

 MS. NORWALK. Well, there are a number of different things. In 

terms of some statistics, you might find it interesting that of the 

beneficiaries, of the 38 million beneficiaries with prescription drug 

coverage, 75 percent, for whatever reason, don’t have a donut hole at all. 

Either they have employer coverage, they have chosen a plan that doesn’t 

have a donut hole, because it was an option for beneficiaries to choose a 

plan without one. Twenty percent of beneficiaries who chose plans 

chose a plan with coverage in the gap, either brand or generic, or generic 

only. So many beneficiaries won’t have that, because that is the choice 

they made before May 15. Of the remaining 25 percent, we anticipate 

now probably between 10 to 15 percent of them would actually reach a 

gap in coverage. Beneficiaries are required by CMS policy to ensure that 

beneficiaries know where they are from an EOB perspective so they 

know how much they have spent in prescription drugs, how much they 

have, and so forth. 

 So really, it is up to the plan to ensure that the beneficiary knows 

where they are on that coverage and the plans are required to let them 

know what they have spent thus far in terms of prescriptions and have 

that available to them, say, if they were to call their 1-800 number at the 

plan, how much is left before I reach the coverage gap, for example. So 

there are lots of different ways. I appreciate that this is going to be a 

very important point for beneficiaries who don’t understand what this 

means, that it is a second deductible and what happens if they were to get 

there. 

 One of the other things that we have been doing is working very 

closely with patient assistance programs, and we appreciate that many 

beneficiaries who didn’t have coverage often look to these patient 

assistance programs to get help. The Senate Finance Committee had a 

hearing not too long ago, and many of the companies pledged to work 

with CMS and the Federal government to continue those programs, even 

when beneficiaries do have prescription drug coverage under Medicare. 

So we are hopeful to work with a number of different ways to ensure that 

those beneficiaries at least understand that they do get discounts once 

they reach the coverage gap, something they may not have had before if 

they didn’t have coverage, or that they can have access to other help 

through pharmaceutical manufacturers’ assistance programs. 
38

 MR. DEAL. The Gentlelady’s time has expired. 

 Mr. Shadegg is recognized for questions. 

 MR. SHADEGG. Thank you, Mr. Chairman. I apologize that I could 

not get here earlier. I commend you for holding this hearing. 

 Ms. Norwalk, I think CMS is performing a very important role here, 

and I am encouraged that your study has found progress in this area. I 

am, however, concerned. I come to this kind of from the earlier debates 

over patients’ rights and the issue of prompt pay. I am concerned, and I 

would like to know whether when you looked at billing errors as the 

reasons for delay in payment, when I hear from doctors back home, I 

hear doctors in the billing context with doctors tell me well, the errors 

were minute. The errors were not really the kind of thing that prevented 

the insurance company from paying the bill, or the information they 

claimed they needed was new and added on. 

 One question I would like you to briefly address is in your study 

when you found, in fact, that it wasn’t part billing errors or lack of 

information which caused the pharmaceutical industry perhaps to delay 

in paying the pharmacies, were they legitimate absences of information 

supplied by the pharmacists, or did you look at the character of the 

missing information? 

 MS. NORWALK. I don’t know that we studied in particular whether 

or not something was a clean claim, which was the vernacular, of course, 

for what information is missing, although I understand anecdotally that it 

is pretty consistent with what is seen in the commercial market. You 

might want to ask the second panel their impression about this, but that 

has been my understanding. I don’t know that we did a systematic study 

of why claims were denied as opposed to paid late. We looked more 

specifically at claims that were paid beyond the billing cycle that the plan 

had contracted for. 

 MR. SHADEGG. Although I understand that part of the reason for 

them being delayed late is that there were errors or lack of 

communication? 

 MS. NORWALK. Right. 

 MR. SHADEGG. One of the problems is that in this situation, late 

payment means more money in the pocket of one party and less money 

in the pocket of the other party, because of time value of money. 

 My second question is when I negotiate with my credit card 

company, and quite frankly, I don’t do much negotiating, they tell me 

that there is a very stern late fee, and if I pay my bill with the credit card 

company late, they don’t discuss with me whether or not there was some 

dispute, they just impose the fee. You mentioned earlier that you are 

prohibited from injecting yourself in the negotiation between the 

pharmacist and the plan. I guess one of my questions would be do you 
39

know why? And is it, I suppose, a lack of bargaining power, the 

pharmacies do not insert automatic late penalties, late fees, for late 

payment of fees as a contractual matter? 

 MS. NORWALK. And I don’t know. I haven’t looked at enough 

contracts to say definitively whether or not--some may, in fact, have a 

late fee. Some may not. I really can’t speak to that. It wasn’t a part of 

what we look through, but again, maybe some of the next panel may 

have some idea whether that is included. It certainly is up to the 

pharmacy and the plan to negotiate that, and it could be incorporated in 

the contractual requirement if they wanted. 

 MR. SHADEGG. I appreciate all your planning and the report you did. 

 I would yield the balance of my time to my colleague from Georgia, 

Mr. Norwood. 

 MR. NORWOOD. Thank you, Mr. Shadegg. I appreciate that. 

 Ms. Norwalk, just a quick follow-up on preauthorization. Explain to 

us exactly--when I walk in with a prescription and I have got a 

temperature of 105 and I am ready to get that prescription filled and I 

hand it to the pharmacist, and he says, hey, I have got to get this 

preauthorized. Take us from there. 

 MS. NORWALK. Well, it depends. One of the things that we have 

been working on is to allow the pharmacy to have information at the 

pharmacy counter through the NCPDP standards so they can get a 

standard message as to what the problem is with a particular prescription. 

Does it require prior authorization and do you need to call the plan? Is a 

generic available? With prior authorization, one of the issues that we 

found, for the most part, was that if the Medicare Part B program, the 

physician benefit was intended to pay for this drug, in many instances 

under Part B, sometimes it did not pay for it under Part D and so on. 

 MR. NORWOOD. Well, how long does that--excuse me, the time is 

running out. How long does that take, and how many plans require 

preauthorization on prescription drugs? 

 MS. NORWALK. I don’t have the exact number. A significant 

number of plans do it, particularly for B versus D. Sometimes they do it 

for safety reasons. In terms of how long it takes will probably depend on 

the issue for prior authorization, whether it is Part B versus Part D, 

whether it is a safety issue, whether it is gee, don’t they want to take the 

generic question, and if they can call the plan and so forth. 

 So a lot of that can be adjudicated online, which means little time, 

sometimes over the phone. 

 MR. NORWOOD. Does the pharmacist or the physician have to get 

the preauthorization? 

 MS. NORWALK. Well, typically the pharmacist will need to get it in 

order to bill, but in certain instances they may need to call the physician, 
40

which is why we have allowed physicians to write a diagnosis on the 

script to shortcut that step. 

 MR. NORWOOD. But is this out of hand? Is it going too far? That is 

the last question. 

 MS. NORWALK. We haven’t heard so many complaints thus far to 

lead me to believe it has gone out of hand. We do pay attention to this 

sort of complaint, so I don’t think so. I do think we could make it more 

smooth, which is something that we are working on, and it is one of the 

things that the Pharmacy Quality Alliance is working on. I don’t think 

that it is out of hand. We do allow an emergency exception, of course, so 

that beneficiaries can get an emergency fill if necessary, even without 

prior authorization. 

 MR. NORWOOD. Thank you, Mr. Shadegg, thank you, Mr. 

Chairman. 

 MR. DEAL. Thank you. 

 Ms. Eshoo is recognized for questions. 

 MS. ESHOO. Thank you, Mr. Chairman. Ms. Norwalk, welcome. 

 I would like to examine the area of those that change over from one 

plan to another. Since the benefit has been available to America’s 

seniors, can you give us an outline of approximately how many changes 

there are every month in switching from one plan to another? 

 MS. NORWALK. We do have the numbers; I don’t think I have them 

with me, but we do have the numbers of those who are dually eligible 

who switch from one plan to another. Sometimes they switch-- 

 MS. ESHOO. Those as well. 

 MS. NORWALK. Yes, there are others. I will have to see if we 

actually--I have seen the numbers on duals. I will have to see if we can 

find the others. Of course, after May 15, while the duals can continue to 

switch month after month, other beneficiaries will need to wait until the 

November 15 open enrollment period-- 

 MS. ESHOO. I understand, but dual eligibles are not the only ones 

that-- 

 MS. NORWALK. No, that is true. 

 MS. ESHOO. --that have changed. 

 MS. NORWALK. I will see if we have got them. 

 MS. ESHOO. The title of the hearing is “Examining the Federal 

Government’s Partnership with America’s Pharmacists,” and so my 

question goes to that partnership. If, in fact, and it is fact that individual 

insurers put out their plans and then have a relationship with those that 

they insure, it seems to me that the Federal government needs to 

understand very well and know the movement of those plans and where 

some of the glitches might be. So I would very much appreciate getting 

a number on not only the dual eligibles, but on everyone. 
41

 I want to continue in this vein. Whatever that number is, say 

someone changes, walks into a pharmacy on the 27th and they are 

changing, that becomes a burden for the pharmacist in order to be able to 

track, to know what they have moved to, what is included, what is 

excluded. And that is the real point of my question, but we need to 

examine what the changes are and then take a look at what we might be 

able to do about it. Going into my local pharmacy--and I have a mix of 

chains and small pharmacies in my district--this is a real issue for them. 

They have to be kind of the--not kind of, you know, the doctor, the 

pharmacist, the social worker, the good neighbor, and the business 

person at the counter all at once. 

 MS. NORWALK. Absolutely. 

 MS. ESHOO. So it does present a problem. We are going to say we 

have examining the Federal government’s partnership with them, we are 

all extolling pharmacists. They are the trenches. So this is an area I 

think we need to not only know what the numbers are, but then how 

smoothly it can go. 

 I mean, what I am struck with is I can go into any department store 

and I like to use just one credit card, but they always want to have you 

open an account at their store. They are going to give you an additional 

15 percent off, so open an account with us. They can issue a store credit 

card. Now, has CMS looked at being able to help pharmacists and 

seniors with faster data transactions? 

 MS. NORWALK. We have, actually. One of the things that I 

mentioned earlier was something called the E-1 system, and this system 

was designed specifically for the problem that you mentioned, to address 

that problem so that a pharmacy-- 

 MS. ESHOO. Is it in place? 

 MS. NORWALK. It is in place. 

 MS. ESHOO. And where is it? 

 MS. NORWALK. It is in place at every pharmacy counter across the 

country. Almost all pharmacies do use this transaction. It has been used 

over 14 million times thus far to figure out what plan is the beneficiary 

in, even if they switched. 

 Now, as I was talking with you-- 

 MS. ESHOO. And the data, I mean, the system functions within what 

period of time? Is it-- 

 MS. NORWALK. Split seconds. 

 MS. ESHOO. Split second? 

 MS. NORWALK. If all the data-- 

 MS. ESHOO. Why are my pharmacists complaining, then? 

 MS. NORWALK. Well, it may well be-- 

 MS. ESHOO. They don’t know about it, or-- 
42

 MS. NORWALK. --they may not know about it. We have done a 

significant amount of outreach, but we are more than happy to work with 

your office to make sure that they do know about it and do know what 

sorts of questions to use to query the system, whether it is the Social 

Security number of the beneficiary, whether it is their birthday, their last 

name, and so forth. We have tried to make it as easy as possible just by 

putting in a few patient identifiers that the system will tell them exactly 

what plan that beneficiary is in instantaneously. 

 We have also been working diligently with the plans to ensure that 

they submit that information to us as quickly as possible so that we can 

put it into the system. 

 MS. ESHOO. But that is where it originates. 

 MS. NORWALK. There--we have-- 

 MS. ESHOO. Wait a minute. How much time is there between a 

requirement for them to report the change so that it can go into this 

system? 

 MS. NORWALK. It typically happens within days of the enrollment. 

 MS. ESHOO. Well, but that is my very point. I mean, if Mrs. Smith 

goes to the pharmacy, she has changed who she is insured by, and you 

are saying that it is split second information for the pharmacist but it is 

not entered, how is it split second? 

 MS. NORWALK. Well, as soon as it is entered it is split second. That 

is one of the-- 

 MS. ESHOO. Wait a minute, that is a little misleading, though. Wait 

a second here, all right. I mean, the system has to be able to record it in 

order for the pharmacist to get split second information. So it is not split 

second information first, it has to be processed. That is really the heart 

of my question, and I mean, I am not fabricating this. This is an area of 

great discomfort, and the pharmacists are the ones that are caught in this 

glitch. So tell me what you propose to do about it and by when, or what 

we can look forward to, or what I say back to them? 

 MS. NORWALK. As Chairman Deal pointed out earlier, in fact, his 

first question looked at the enrollment lag and what does that mean. If 

you sign up for the benefit on, let us say, April 30 and it is in effect May 

1, there will be a time lag before that information is actually input into 

the system. It typically is about a week for that lag to occur. What we 

suggest and what we tell beneficiaries is to bring in information so that 

the pharmacist knows what plan that beneficiary has either changed to, 

what is the name, and we have required the plans in sending letters to 

beneficiaries to ensure that it has something called a bin PCN number so 

the pharmacist knows exactly what to input and what plan to use. 

 So we have done an effort-- 
43

 MS. ESHOO. I appreciate your response. I have to tell you that I 

think that people look for answers that are a bit more nimble than that, 

but this is really a function of such a complex system that, you know, it 

renders these problems. 

 So thank you. I didn’t make an opening statement, Mr. Chairman, 

but I think I am still being held to having made one. Thank you. 

 MR. DEAL. Dr. Burgess is recognized for questions. 

 MR. BURGESS. Thank you, Mr. Chairman. 

 Ms. Norwalk, if we could just stay on that for just a second, the 

enrollment lag. Is the Part D system any more or less nimble than other 

insurance products that are already out there? 

 MS. NORWALK. It depends on the date in which they can enroll 

versus the date in which the enrollment is effective. The statute tells us 

that you can enroll--they specifically define a time period and also tell us 

when the enrollment is effective, so it is a matter of when the beneficiary 

signs up. I would suspect in most employer plans, they have an 

opportunity to choose between two or three plans and are often given--

even, I think, under FEHB I would be willing to bet--I can’t remember 

when our open enrollment period ends. So FEHB ended December 9 

this year, so there was a three-week lag between the time in which you 

chose a plan and the time in which the beneficiaries--or, you know, the 

Federal employees had that enrollment effective. So I suspect that is 

pretty standard that Medicare is unusual. 

 MR. BURGESS. Medicare is unusual? 

 MS. NORWALK. Yes. 

 MR. BURGESS. How long is your enrollment lag? If FEHB is three 

weeks-- 

 MS. NORWALK. Zero. Which is to say if you would sign up at April 

30 at 11:59 p.m., at 12:01 a.m., two minutes later, your enrollment is 

effective in the plan you chose. 

 MR. BURGESS. But there is still a lag until somebody inputs the data, 

correct? 

 MS. NORWALK. But in terms of--that is the coverage begins then, 

which is to say, let us say you have got a prescription and you went to 

the pharmacy after midnight on the first day of the month. You could 

submit your claim and get reimbursement, so you do have coverage. I 

think the point being made was that may be difficult for the pharmacy to 

determine well, what plan are you in if you don’t remember. 

 MR. BURGESS. But is that degree of difficulty any more or less than 

people encounter when they change insurances and jobs? 

 MS. NORWALK. No. 
44

 MR. BURGESS. January seems to me to be a time when a lot of that 

happens, and people encounter that every day in other insurance 

products. This is not unique to Part D. 

 MS. NORWALK. I would even argue the opposite, that because of the 

E-1 query system that we do have, we make it significantly easier for 

pharmacists because we provide for almost all of our beneficiaries split 

second information for them to determine what plan a beneficiary is in. 

 MR. BURGESS. Okay. Now, we heard from one of the pharmacists 

when we had this hearing earlier in the year, one of the complaints was 

that when they would get a coverage denial, there would be no 

explanation that came along with that, which left them then having to 

phone back to the physician’s office and try to figure out what the 

appropriate next steps would be. Are we working on that? 

 MS. NORWALK. Absolutely. It is one of the top priorities of the 

Pharmacy Quality Alliance, which is a combination of plans, 

pharmacists, and CMS, as well as ARC so that we can ensure that the 

pharmacist knows why something is denied. Is it an excluded drug, is it 

a barbiturate or benzodiazepine? Is it something that requires prior 

authorization? Is it a drug that is not on the formulary because there is a 

generic available? Standardized messaging is one of the most common 

complaints and burdens that I heard from pharmacists, particularly early 

on, and it is something that the PQA has already begun to address so that 

through the same type of system, this E-1 query, similar type of HIPAA 

standard, standard messages can be passed from plans to the pharmacist 

in order to reduce the burden at the pharmacy and provide instantaneous 

messaging, the same for each plan. 

 MR. BURGESS. But I would also offer that that is not a whole lot for 

those who haven’t been in the business of writing prescriptions and 

holding on 800 numbers from PBMs. That is not unusual in the real 

world, even before Medicare Part D came along. 

 MS. NORWALK. Right. 

 MR. BURGESS. Dr. Norwood was asking some questions about the 

authority you have to police Part D plans and their payment practices. 

Have you got a big enough stick to police the plans? 

 MS. NORWALK. We do have pretty significant authority. At the end 

of the day, of course, if we don’t think the plans are meeting up to our 

expectations, we won’t renew their contracts for the following year. 

Typically, if you look at the past, most of the problems we have had with 

our Medicare Advantage plans have been in the marketing arena, and we 

would not permit new enrollment, for example. We also have, under 

certain circumstances, civil monetary penalties that we can do. 

 MR. BURGESS. You do? 

 MS. NORWALK. We do. It depends on the violation. 
45

 MR. BURGESS. Now, the coverage gap was also brought up, and I do 

feel obligated to mention that there are a number of plans, at least in my 

State, where if, in particular, is willing to select a generic product, there 

is no coverage gap, and I think I would like to encourage more people to 

look at that when they sign up. In fact, there is one plan in my State that 

has branded and generics in the gap. I hope that product is still available 

next year. I don’t see how it is possible, but presumably they have a 

business model they think will work. 

 In the coverage gap, though, some of the large pharmaceutical 

companies have made their patient assistance plans available, but there 

was concern from the Office of Inspector General that this may be 

regarded as an illegal inducement for them to continue doing that. Have 

we got that squared away? 

 MS. NORWALK. Well, the OIG has put out something called an 

advisory opinion for a company. I think it is widely known to be 

Schering-Plough, that allows Schering-Plough to provide coverage for 

beneficiaries without regard to the fact that they are in the prescription 

drug program. So there is a way to go about that. I understand that other 

companies have submitted to the OIG advisory opinion requests. So 

some ways are problematic, other ways are not, and I know that the 

companies are working with the OIG to ensure that if they do have a 

patient assistance program, they are not getting Federal reimbursement 

for the drugs that are provided under that program, and that is really the 

key to ensure it is not a kickback. 

 MR. BURGESS. Finally, are there any areas of the country where you 

have identified that people have trouble obtaining a prescription, whether 

it be through mail order, mom and pop, or a large name pharmacy? 

 MS. NORWALK. Not that I am aware of. I don’t think that we have 

heard complaints about people being able to obtain prescriptions 

anywhere. We were very serious when we went through the Tricare 

Access Standards to ensure that plans would not be approved unless they 

had met those standards that pharmacies were available for beneficiaries, 

and not just mail order, but also retail. 

 MR. BURGESS. Okay. Mr. Chairman, thank you. You have been 

very helpful. I will yield back. 

 MR. DEAL. Well, thank you, Ms. Norwalk. We appreciate your 

presence here today, and I am sure there will be some follow-up that you 

will have on written questions. Thank you very much. 

 MS. NORWALK. Thank you. 

 MR. DEAL. May I ask panel two if they would take their seats at the 

table? I thank the gentlemen for being here today, and I will introduce 

the second panel. 
46

 First of all, Mr. Mark Merritt, President and CEO of Pharmaceutical 

Care Management Association; Mr. Timothy Hopkins, Vice President of 

Retail Mail Service Operation for Pharmacy Management of WellPoint; 

Mr. Kenneth Couch, President of Smith Drug Company in Spartanburg, 

South Carolina; Dr. Buddy Harden, Executive Vice President and CEO 

of the Georgia Pharmacy Association, and my token beneficiary on the 

panel; Mr. Gary Wirth, the Director of Professional Services of Ahold, 

USA, and on behalf of the National Association of Chain Drug Stores; 

Dr. Larry Galluzzo, am I pronouncing that close enough? That is 

correct, all right. 

 MR. GALLUZO. I am a little bit embarrassed by being called a 

doctor. There is a doctorate program for the college of pharmacy. I have 

not taken that, so I am not a physician. I am not a Doctor of Pharmacy, I 

am Mr. Larry Galluzzo. 

 MR. DEAL. Well, Mr. Galluzzo, we are pleased to have you here. 

He is the President of Skilled Care Pharmacy in Mason, Ohio. And Mr. 

Charles Hallberg, President of MemberHealth, Inc. of Cleveland, Ohio. 

 Gentlemen, we are pleased to have you here. As I said at the outset 

of the first hearing, your written testimony has already been made a part 

of the record. We would ask you in the 5 minutes allotted if you would 

summarize that. 

 Mr. Merritt, we will begin with you. 

STATEMENTS OF MARK MERRITT, PRESIDENT AND CEO, 

PHARMACEUTICAL CARE MANAGEMENT 

ASSOCIATION; TIMOTHY HOPKINS, VICE PRESIDENT, 

RETAIL MAIL SERVICE OPERATION FOR PHARMACY 

MANAGEMENT, WELLPOINT, INC.; KENNETH COUCH, 

PRESIDENT, SMITH DRUG COMPANY; DR. BUDDY 

HARDEN, EXECUTIVE VICE PRESIDENT AND CEO, 

GEORGIA PHARMACY ASSOCIATION; GARY WIRTH, 

DIRECTOR OF PROFESSIONAL SERVICES, AHOLD USA, 

ON BEHALF OF NATIONAL ASSOCIATION OF CHAIN 

DRUG STORES; LARRY GALLUZZO, PRESIDENT, 

SKILLED CARE PHARMACY; AND CHARLES E. 

HALLBERG, PRESIDENT, MEMBERHEALTH, INC. 

MR. MERRITT. Thank you, Chairman Deal, and other distinguished 

members. We appreciate this opportunity to testify before you today. 

My name is Mark Merritt. I am President of the Pharmaceutical Care 

Management Association. I am pleased to be here to discuss how 

pharmacy benefit managers and Part D plans are working with 
47

pharmacists to deliver safe and affordable prescription drugs to 

America’s seniors. 

 Over the past two decades, private and public purchasers have turned 

to PBMs to help them manage drug spending and ensure that enrollees 

have access to the medicines that they need. Typically, we save clients 

25 percent of what they would otherwise spend without our help. PBMs 

are now helping to administer the Part D benefit. So far, the results are 

promising. Part D premiums are coming in 30 percent lower than 

originally projected and discounts on drugs being almost twice as deep as 

originally projected. In this regard, we are exceeding expectations set by 

Congress and continuing to move forward. Recent surveys show that 

seniors like the program as well, once they actually begin to use it. 

 Retail pharmacists play a crucial role in the success of Part D. PBMs 

understand this and contract with over 50,000 pharmacies across the 

country. Our member companies directly employ well over 4,000 

pharmacists in our own industry. We realize that the business 

environment for retail pharmacies has changed in recent years. The 

advent of large chains like Wal-Mart and Walgreen’s, the increase in 

third party coverage of drugs, the decrease in the number of cash-paying 

uninsured customers and reduced Medicaid payments are all forces at 

work here. We understand that. To their credit, in spite of these 

challenges, pharmacies continue to grow. Just this Sunday, NCPA, the 

group representing the community pharmacists, said that of their 25,000 

independent pharmacies across America, that while 12 had closed their 

doors since the beginning of the year, 200 new independent pharmacies 

have opened in the past year. Another recent article quoted a pharmacist 

repeating what many have said today, in that the early startup problems 

have largely been resolved. There is always more to be done. We 

understand that, but we think that we are moving ahead in the right 

direction. 

 Nonetheless, to address the concerns expressed by the pharmacies 

and others, PCMA member companies recently pledged to pay pharmacy 

claims within 30 days. This is the same standard used for doctors and 

hospitals in Medicare’s Part A and B. It is used by most of the 

commercial market, not just healthcare, but business generally in 

America, along with individual payments, and it is also the standard used 

by the community pharmacies own Medicare PDP, the CCRX. 

 PCMA member companies process tens of millions of claims a 

month, and make payments to over 50,000 different pharmacies. With 

such large volume, a 30-day standard helps improve quality, ensure 

accurate payments, reduce fraud and abuse, all of which cost the system 

billions of dollars each year. 
48

 It is not clear that the legislative proposals to address pharmacists’ 

concerns about prompt pay and medication therapy management would 

add value to seniors. We do know that they cost a lot more money. 

Recently, PCMA commissioned a cost estimate of one proposal S. 2263, 

and found that the bill would increase costs by $9.4 billion over 10 years. 

Of that amount, $7.7 billion would be new costs to the Federal 

government, while $1.7 billion would come from increased beneficiary 

premiums. Other proposals go even further. H.R. 5182 includes many 

of the same provisions as the Senate bill, but would also mandate sharply 

increased dispensing fees. PCMA believes that these measures would 

increase costs even more than $9 billion mentioned by the study of the 

other bill, the Senate bill. The payment and design of clinical services 

we believe should be left to the private sector, not micromanaged by the 

Government. Micromanagement would increase costs to the Medicare 

program, to beneficiaries, and taxpayers with no corresponding benefit to 

consumers. 

 PCMA member plans are proud of our achievements of the first few 

months of this new program. We have faced hurdles along the way, but 

have worked collaboratively with pharmacists and others to address 

them. The services we provide and the results we are seeking show the 

high standards that we place on quality and affordability. In short, we 

believe that we are doing the job that Congress and America’s seniors 

have asked us to do, although, of course, we can always do more and are 

willing to do so. 

 I appreciate the opportunity to testify today, and I am happy to 

answer any questions you might have. 

 [The prepared statement of Mark Merritt follows:] 

PREPARED STATEMENT OF MARK MERRITT, PRESIDENT AND CEO, PHARMACEUTICAL CARE 

MANAGEMENT ASSOCIATION

Good Morning Chairman Deal, Ranking Member Brown and all the Members of the 

Health Subcommittee. I am Mark Merritt, President and CEO of the Pharmaceutical Care 

Management Association (PCMA). I’m pleased to be here today to discuss how 

pharmacy benefit management (PBMs) companies and Medicare Part D plan sponsors 

are working together with pharmacies across America to deliver safe and affordable 

drugs to patients. 

PCMA is the national association representing America’s PBMs and Medicare 

Prescription Drug Plans (PDPs.) PCMA represents both independent, stand-alone PBMs 

and health plans’ subsidiaries. Together, PCMA member companies administer 

prescription drug plans that provide access to safe, effective, and affordable prescription 

drugs for more than 200 million Americans in private and public health care programs, 

including five of the ten national Medicare Part D PDPs. 

MARKET CHANGE AND CONSUMER DEMAND 

By way of background, I want to share with you some information about what plans 

and PBMs do, and why we exist in today’s marketplace. 
49

As Members of this committee know, the pharmaceutical marketplace has changed 

significantly in the last 20 years with an unprecedented number of new drugs coming to 

market, many with “blockbuster” sales potential. A significant growth in utilization of 

prescription drugs began in the mid-1980s as a result of the availability of new 

medicines. As more and more people demanded access to these medicines, employers 

and the government expanded insurance coverage to include prescription drugs. In 1990, 

31 percent of payments for prescriptions came from third-party payers and Medicaid; by 

1999, that figure grew to almost 70 percent.1

 Health care payers soon realized that 

prescription drug cost growth was outpacing other areas of health benefits and began 

looking for solutions. The PBM industry as we know it today was born out of this need. 

PBMs’ track record for delivering quality prescription drug benefits with generous 

savings for consumers and employers is a good one and one in which we are proud. 

PBMs do this by using cost containment, clinical and utilization management tools 

designed to balance the payers’ need for affordability with the beneficiary’s need for 

choice and access. Such tools include: 

3⁄4 Pharmacy and therapeutic (P&T) committee formulary development and 

review; 

3⁄4 pharmacy network management; 

3⁄4 negotiation and administration of product discounts, including manufacturer 

rebates; 

3⁄4 mail-service pharmacy; 

3⁄4 drug utilization review (DUR); 

3⁄4 generic substitution; 

3⁄4 clinical prior authorization and step therapy; 

3⁄4 consumer and physician education; 

3⁄4 disease management; and 

3⁄4 consumer compliance programs. 

The results cannot be denied. A recent study published in Health Affairs by CMS 

actuaries revealed that prescription drug spending in 2004 slowed to its lowest growth 

rate in the past 10 years, rising 8.2 percent. Overall, health spending grew in 2004 at a 7.9 

percent clip, down from 8.2 percent in 2003.2

 The study’s authors cited four key reasons 

for the slowdown in prescription drug spending: 

3⁄4 Rapid growth in the use of lower-price generic drugs; 

3⁄4 Increased use of over-the-counter medications; 

3⁄4 A shift toward greater mail-order dispensing; and 

3⁄4 Reduced consumption of certain drugs over safety concerns. 

MEDICARE PART D: NEW CHALLENGES AND OPPORTUNITY 

Now plans and PBMs are bringing to Medicare the knowledge and experience 

developed through managing drug benefits in the commercial marketplace. The new Part 

D benefit approved by Congress in the Medicare Modernization Act of 2003 presents 

new opportunities and unique challenges for our industry. 

The opportunities lie in the ability to extend the cost-saving and clinical 

management tools used so successfully in private plans to millions of seniors and the 

 

1

 U.S. Department of Health and Human Services, Report to the President: Prescription Drug 

Coverage, Spending, and Prices (Washington: DHHS, April 2000). 2

 Smith, Cowan, Heffler, et al, CMS National Health Accounts Team, National Health Spending in 

2004: Recent Slow-Down Led By Prescription Drug Spending, Health Affairs, 25, no. 1 (2006: 186 

– 196. 

 
50

disabled in Medicare. In this regard, I believe we have met and are exceeding 

expectations set by Congress and Medicare beneficiaries. 

Cost Savings 

In a recent analysis of prescription drug spending trends, CMS actuaries found that 

program-wide Medicare prescription drug plans (PDPs) are achieving deeper-thanexpected discounts of 27 percent – up markedly from the 15 percent discount projection 

they made a year earlier. In turn, these discounts are driving overall estimates of 

prescription-drug trend lower. According to the report, total prescription drug 

expenditure growth for 2006 is revised downward from 8.1 percent to 7.7 percent to 

reflect actual Part D discounts available.3 

PCMA conducted its own survey of five member plans discounts on the top 100 

drugs used by seniors. Our own data shows that PCMA member PDPs are saving 

beneficiaries an average of 35 percent on medications purchased at retail pharmacies and 

46 percent for drugs dispensed through mail-service pharmacies when compared to 

pharmacy usual and customary prices.4

 

And seniors like the program. A recent Washington Post/ABC News Poll reported 

that 63 percent of seniors said they were saving money with the new program and 74 

percent said they had an easy time enrolling in the program.5

 Another recent poll 

performed by AARP found that 78 percent of those enrolled in a Medicare drug plan are 

satisfied with their plan.6 

As we are all well aware, these results have not come without some effort. 

Implementing a program of this scale is a massive undertaking. I give Dr. Mark 

McClellan, Leslie Norwalk and all those at CMS great credit for the hard work they’ve 

done. Even with all the hard work, however, it would be unrealistic not to expect some 

challenges in the beginning. 

Challenges 

We were faced with data problems from the onset of enrollment. Some Medicare 

beneficiaries, particularly the low-income and dual-eligibles, were inadvertently enrolled 

in two different plans at the same time; due to late enrollment or incomplete files, some 

seniors did not get their enrollment information on time for the January 1 start date. 

These issues alone, as pharmacists and Members of this Committee are aware, created a 

lot of problems when beneficiaries showed up at the pharmacy counter without their drug 

card or with the wrong drug card. This, in turn, created long waits on telephone lines to 

clear up eligibility issues and link the right benefit with the right person. 

Most of these start up problems have been resolved and operations are moving much 

more efficiently now. Part D plans have had to maintain significant flexibility in 

 

3

 Borger, Smith, Truffer, et al, CMS National Health Accounts Team, “Health Spending Projections 

Through 2015: Changes on the Horizon,” Health Affairs, 25, no. 2 (2006): w61-w73. 4

 See “PCMA Analysis Finds Medicare Prescription Drug Discounts ‘Real & Holding Steady’ in 

First 30 Days” at http://www.pcmanet.org/newsroom/2006/pr_1_06/pr_2_06/pr_20706.htm. NOTE: 

PCMA’s study compared only PCMA Member plan PDPs prices for the top 100 drugs used by 

seniors to average retail usual and customary drug prices found on the New York Attorney General’s 

prescription Drug website at: http://www.nyagrx.org/. This study is not meant to be a 

comprehensive actuarial analysis of Medicare savings but a snap shot of possible savings available 

to beneficiaries compared to cash-paying customers. 5

 “Most Seniors Enrolled Say Drug Benefit Saves Money,” Jeffrey Birnbaum, Claudia Deene, The 

Washingoton Post, April 12, 2006 at http://www.washingtonpost.com/wpdyn/content/article/2006/04/11/AR2006041101685.html 6

 “New Medicare Drug Benefit is Meeting or Exceeding Expectations,” AARP News Release, April 

12, 2006 at http://www.aarp.org/research/press-center/presscurrentnews/medicare_drug_benefit.html 
51

partnering with the government to resolve these issues and adjust to changing rules. For 

example, plans were initially asked to provide 30-days of transitional medicines to new 

enrollees; we ultimately provided 90-days of transitional medications. Plans waived copays or automatically placed individuals in low-copay tiers when information on 

eligibility and formulary status was missing. PCMA member Part D plans hired 

hundreds of additional staff to answer pharmacist and customer call lines that were 

beyond the scope of our initial contract requirements. All these activities added unreimbursed costs to our plans. Throughout it all, our industry has worked collaboratively 

with CMS and has adapted to this changing environment. As a result, we have seen 

significant improvement in data file accuracy and ease of enrollment. 

Aside from the practical details of signing up beneficiaries and getting their 

prescriptions filled, Part D represents a significant departure for PBMs from normal 

business practices. In our commercial business, we typically contract directly with 

employers or health plans to provide services to their employees and members. In Part 

D, we are selling our services directly to the consumer. What’s more, we are making all 

our drug prices and formulary information available to consumers to help them make 

informed choices. This is the first time this type of information has ever been available 

on such a massive scale and it speaks to our member company’s commitment to engage 

the consumer directly and incentive to ensure people are happy with the coverage they 

choose. 

PLANS AND PBMs WORKING WITH PHARMACY 

The increase in third-party coverage of prescription drugs, including the new 

Medicare Part D benefit, coupled with increasing competition from large retail chain 

pharmacies and recent Congressional action to reduce Medicaid payments for 

prescription drugs has challenged many pharmacists. As such, it is not possible to tie the 

financial woes some pharmacists are experiencing to any one source. Nor is it accurate to 

assume that the more competitive reimbursement that has accompanied these marketplace 

changes and government actions has had a universally negative impact on pharmacists. 

PBMs have great respect for America’s pharmacists. In fact, collectively, PCMA 

member companies employ over 4,000 pharmacists nationwide. We need pharmacists to 

help reach the consumers we serve. We believe pharmacists benefit in return. For 

example, today plans and PBMs contract with about 95 percent of the 55,000 pharmacies 

nationwide, meaning that virtually all pharmacies are in plan and PBM networks. By 

increasing access to drug coverage, we have also increased volume of prescription sales 

in pharmacies. Our electronic claims processing systems have ensured that claims can be 

paperless and receive fast and efficient adjudication. Finally, we provide vital 

information to pharmacies that they may not have about individual patients and the drugs 

they take, such as possible drug-to-drug interactions and drug recall notices. 

It is important to note all the elements of payment to pharmacies for filling 

prescription orders. Pharmacists are reimbursed for the ingredient cost of the drug, a 

dispensing fee for filling the order, and the patient co-pay (this is retained by the 

pharmacy.) PBM and plan contracts with pharmacists include all these components 

which make up pharmacy reimbursement and therefore it is important to view 

compensation as a whole as opposed to its individual elements. 

Working with pharmacists, we believe we have brought value to payers and 

consumers and improved the efficiency of pharmacy transactions. But pharmacy today is 

about more than individual prescription fills at the drug counter; it is about coordinated 

patient care management that provides: 

3⁄4 Integrated data systems that allow for an understanding of a patient’s complete 

drug history; 

3⁄4 Flexibility to design and tailor different clinical services to specific disease 

states and patient needs; and 
52

3⁄4 Accountability for both the cost of care and quality of patient outcomes. 

Prompt Pay 

Much has already been said regarding prompt payment of Medicare Part D claims to 

pharmacists. In light of the expressed concerns that pharmacists were not being paid in a 

timely manner under Part D, PCMA member companies recently publicly pledged to pay 

pharmacies submitting clean electronic Part D claims within 30 days.7 

For some perspective on the issue, it helps to understand what is considered standard 

payment cycles in other health and pharmacy benefit programs. The industry standard 

for payment of clean claims filed electronically for doctors, hospitals, and other providers 

in Medicare Parts A & B is 30 days. A 30-day timeframe is the pharmacy-claims 

standard in 43 states and is the standard applied to the Federal Employee Health Benefit 

Plan (FEHBP), Members of Congress’ own health plan. The 30-day standard is applied 

to medical providers in the commercial marketplace and for business transactions and 

payments associated with credit cards and utilities. A 30-day standard helps improve 

quality, ensure accurate payments, and prevent fraud and abuse, which costs the health 

care system billions of dollars annually and increases costs for consumers and purchasers. 

It also helps to understand how payment systems work. Because we are processing 

literally millions of claims per day for over 55,000 pharmacies, it is extremely inefficient 

to pay on a per-claim basis. Consistent with how other health providers are paid, Part D 

plans batch process claims in order to write one check per payment cycle to pharmacies. 

This is a system pharmacy is very familiar with as it is how payment works in the private 

sector today. 

Finally, it helps to understand the activities plans and PBMs engage in to adjudicate 

claims. Claims adjudicating involves more than simple verification of plan eligibility and 

formulary status. Plans and PBMs review individual claims not only to ensure they are 

“clean” from an auditing standpoint, but also for clinical management purposes. This 

typically involves large system audits that match claims against certain criteria to identify 

outliers that may indicate possible fraud or other abuses. Audit criteria include claims 

that have a high cost, involve excessive quantities, and/or may have incorrect dosages or 

days of supply. Claims that raise red flags require an auditor to contact the pharmacy to 

resolve. If there are recurrent red flags in auditing for a particular pharmacy, further 

more intensive reviews are needed that may include involving the prescribing physician. 

Such programs are important tools to ensure plans and PBMs are accountable to health 

payers. 

Medication Therapy Management and Quality Improvement 

Part D plans and PBMs support the inclusion of Medication Therapy Management 

(MTM) programs in the Part D benefit. All PDPs included MTM programs in their bids 

that were approved by CMS. In fact, we believe that many of the services PBMs helped 

pioneer, such as drug utilization review, disease and therapeutic management and drug 

compliance programs, meet many of the goals of this program. However, we are 

concerned about efforts to establish rigid rules for MTM participation and services that 

would create a one-size-fits-all standard for this program. 

MTM requires a coordinated effort between payer, providers and beneficiary to truly 

be of value. With the average senior taking five or more medications and visiting two or 

more different doctors and multiple pharmacies per year, a complete drug history is 

critical to an effective MTM program. Individual pharmacists often do not have this 

history, but the drug plan does and therefore can ensure patients are not taking drugs that 

conflict with one another or that may have deadly interactions. 

 

7

 See “PCMA Member Companies Pledge to Pay Medicare Pharmacy Claims Within 30 Days,” at 

http://www.pcmanet.org/newsroom/2006/Pr_5_06/pr_05_05.htm 
53

MTM requires flexibility in design as no single model meets the needs of different 

patients and disease states. Models may include working directly with a retail pharmacist 

or utilizing the pharmacist or health care professionals in a plan or PBM. Many clinical 

programs offered by plans and PBMs today have produced impressive results because 

they are able to refine and improve programs with experience and innovate around 

services that work and rid the program of those that don’t. CMS intentionally allowed for 

flexibility and discretion in MTM services in Part D for this reason. 

FLEXIBITY REMAINS KEY TO THE SUCCESS OF PART D 

As businesses that negotiate many contracts with employers and pharmacists, we 

believe matters of payment and design of clinical services should be left to contractual 

agreements between plans and pharmacies, not micromanaged by the government. Doing 

so will only add additional costs to the Medicare program, its beneficiaries and taxpayers. 

PCMA commissioned a cost-estimate of S. 2563 a bill recently introduced by 

Senator Thad Cochran (R-MS). This legislation would establish a prompt payment rule 

for Part D that would require pharmacy payment within 14 days for clean claims filed 

electronically and 30 days for clean claims filed on paper. Penalties would be assessed 

for claims not paid in that time frame. In addition, this legislation would place new 

requirements on the Part D MTM program, such as: mandating (as opposed to allowing 

flexibility, as current law does) what services MTM programs must provide; mandating 

the setting these services must be provided in (i.e., “face-to-face”); adding new network 

adequacy standards on health plans to ensure community-based pharmacies provide 

MTM services; and adding new requirement regarding fees paid to pharmacists. 

This legislation is estimated to cost a total of $9.4 billion over ten years. Of that 

amount, $7.7 billion would be new federal Medicare outlays while $1.7 billion would 

come from increased beneficiary premiums. 

While the Cochran bill would add substantial costs to the Medicare program, PCMA 

requested an examination of this proposal because it appears to be less onerous than 

other, more expansive measures pending in Congress that would, among other things, 

mandate dispensing fees that must be paid to pharmacists. PCMA believes strongly that 

theses measures would increase costs even more than the Cochran bill and that $9 billion 

is the minimum price tag of the various pharmacy proposals. 

We believe this is an unacceptable and unneeded new cost burden on both taxpayers 

and Medicare beneficiaries and would urge Members to carefully consider this as they 

evaluate legislative proposals before them. 

CONCLUSION 

PCMA and its member plans are proud of our achievements in the first five months 

of this historic new program. We’ve faced hurdles along the way, but have worked 

collaboratively with consumers, pharmacists, doctors, CMS and others to address them 

and put many of them behind us. We believe the services we provide and the results we 

are seeing speak to the high standards we place on quality and affordability. In short, we 

believe we are doing the job Congress and America’s seniors have asked us to do. 

I appreciate the opportunity to testify and am happy to answer any questions 

Members may have. 

 MR. DEAL. Thank you. Mr. Hopkins. 

 MR. HOPKINS. Chairman Deal, Representative Brown, and 

distinguished members of the subcommittee, thank you for the 

opportunity to discuss WellPoint’s perspective regarding the Federal 

Government’s partnership with America’s pharmacists in the Part D 

program. I am Tim Hopkins, Vice President in charge of Retail and Mail 
54

Service Operation for the Pharmaceutical Benefits Management Division 

of WellPoint, Inc. 

 WellPoint is the largest publicly traded commercial health benefits 

company in terms of membership in the United States. I am a licensed 

pharmacist in the State of Ohio, and prior to joining WellPoint, served as 

a pharmacist with a national pharmacy chain. My background in 

pharmacy practice is diverse, with 15 years experience in pharmacy 

benefits administration, retail chain pharmacy practice, independent 

community pharmacy practice, and hospital pharmacy services. I played 

an integral role in developing the pharmacy provider network utilized by 

WellPoint for Part D beneficiaries. 

 WellPoint is proud to include in its network Anthem Blue Cross and 

Blue Shield of Georgia, which employs 2,700 Georgians and serves 2.4 

million members in the State, including 155,000 who live in your district, 

Mr. Chairman. WellPoint is also proudly represented by Anthem Blue 

Cross and Blue Shield of Ohio, with 4,000 employees serving 2.2 million 

members, 81,000 who live in your district, Congressman Brown. For 

other members of the committee, WellPoint serves members in 

California, Colorado, Illinois, Indiana, Maine, New Hampshire, Texas, 

and Wisconsin. 

 WellPoint currently offers the prescription drug benefits through our 

Medicare Advantage prescription drug plans in many parts of the 

country, including the newly available regional preferred provider 

organization in three regions, as well as stand-alone prescription drug 

plans in 34 regions encompassing the 50 States and the District of 

Columbia. WellPoint also administers the facilitated enrollment program 

for CMS. Over 238,000 individuals have been served through this 

program, including 24,000 dual eligibles missed or in the auto enrollment 

program process. Our pharmacy network encompasses 56,437 

pharmacies nationwide, representing 98 percent of available retail 

pharmacies. To date, we have dispensed over 18.5 million prescriptions 

for 1.4 million Part D enrolled members. 

 WellPoint is committed to supporting the effective implementation 

of Part D. WellPoint’s primary goal is to ensure that beneficiaries 

receive all the benefits of their health coverage, including access to 

prescription drugs in a timely and beneficiary-friendly manner, and that 

pharmacists are paid promptly for the prescriptions they fill. 

 WellPoint realizes that Part D program success requires extensive 

communication between plans and pharmacies. To this effort, we have 

taken the following steps: adopted an inclusive network development 

strategy to contract a range of pharmacies, including independent and 

rural pharmacies; enhanced outreach programs through constant 

communication with pharmacies through Faxblast, conference calls with 
55

independent pharmacy associations, and chain drug stores; engaged in 

active trading through our PBM for pharmacists when they call in; and 

provided direct technical assistance to pharmacies and their vendors as 

needed to address software issues. WellPoint has agreed to the 

standardization efforts of AHIP, NACDS, and NCPA to address issues 

involving pharmacy claims transactions. 

 We recognize that pharmacies are concerned about prompt 

reimbursement. In response to these concerns, we have made a strong 

commitment to promptly pay all Part D pharmacy claims. Although 

legacy Anthem and legacy WellPoint are currently paying on two 

separate claims systems, legacy Anthem uses a weekly cycle and legacy 

WellPoint uses a bimonthly cycle. Payment is received by the 

pharmacies within seven to ten days of the cutoff date; thus, if a 

pharmacy files a clean claim, the longest time that elapses between 

claims submission and payment receipt is 17 days for legacy Anthem and 

25 days for legacy WellPoint. The claims submission and payment 

process for Part D program is virtually identical to that used by 

pharmacies for commercial business. We make electronic payment 

available to all pharmacies, which enables pharmacies to receive 

payment more quickly. However, many independent pharmacies do not 

take advantage of this option. 

 WellPoint’s payment policy is consistent with or better than the 

industry standard. The industry standard is a 30-day cycle. Plans 

generally pay on a two-week cycle, and depending on when a claim is 

processed in that cycle, it is paid between 15 and 30 days from the date 

of submission. This standard is consistent with the commercial sector, 

Medicare fee-for-service, mandates in 43 States, the Federal Employees’ 

Health Plan, and the Community Pharmacy Association’s own Part D 

plan. Plans typically batch payments to pharmacies, resulting in greater 

efficiency and cost savings that are passed through to the Federal 

government and the beneficiaries in lower premiums. 

 In conclusion, Congress entrusted the private sector to administer the 

Part D benefit in the same manner in which it has successfully 

administered drug benefits in the commercial sector, driving down costs, 

improving efficiency, and enhancing care and safety for beneficiaries. 

We recommend Congress stay consistent with this policy. 

 The January 1 effective date for the launch of the Medicare Part D 

program brought with it a surge of business operations activity. 

WellPoint did extensive advanced implementation planning and outreach 

with pharmacists as well as other stakeholders. Our hope was that we 

anticipated and addressed the major barriers that might arise as seniors 

navigated the enrollment system and pharmacists attempted to fill 

prescriptions and receive payment. While it was not possible to foresee 
56

all the challenges that this enormous undertaking would pose, WellPoint 

is committed to being part of the solution. 

 Thank you for your time today. I would be happy to answer any 

questions that you have. 

 [The prepared statement of Timothy Hopkins follows:] 

PREPARED STATEMENT OF TIMOTHY HOPKINS, VICE PRESIDENT, RETAIL MAIL SERVICE 

OPERATION FOR PHARMACY MANAGEMENT, WELLPOINT, INC. 

Introduction 

Chairman Deal, Representative Brown, and distinguished members of the 

Subcommittee, thank you for allowing me the opportunity to discuss WellPoint’s 

perspective regarding the federal government’s partnership with America’s pharmacists 

and the Part D program. 

I am Tim Hopkins, Vice President in charge of Retail and Mail Service Operations 

for the Pharmaceutical Benefits Management division of WellPoint, Inc. WellPoint is the 

largest publicly traded commercial health benefits company in terms of membership in 

the United States. WellPoint was formed on November 30, 2004 from the merger of 

Anthem Inc. and WellPoint Health Networks. WellPoint is an independent licensee of 

the Blue Cross Blue Shield Association and serves its members through Blue Cross and 

Blue Shield plans in fourteen states. WellPoint’s UniCare brand serves members in all 

50 states. 

I am a licensed pharmacist and, prior to joining WellPoint, served as a practicing 

pharmacist with a national pharmacy chain. My background in pharmacy practice is 

diverse, with fifteen years experience in pharmacy benefits administration, retail chain 

pharmacy practice, independent community pharmacy practice, and hospital pharmacy 

services. At WellPoint, I am building on my experience by developing pharmacy 

products, programs and services that meet the needs of our beneficiaries. A key focus of 

mine over the last year has been the planning and application processes associated with 

the participation of WellPoint companies in the new Medicare Part D program. I played 

an integral role in developing the pharmacy provider network utilized by WellPoint Part 

D beneficiaries. 

WellPoint Participation in Part D Prescription Drug Benefit Program 

WellPoint has a long history of providing services to Medicare beneficiaries, 

including offering Medicare supplemental insurance and Medicare Advantage programs. 

We serve over 1.2 million beneficiaries in these programs across the country. Prior to the 

launch of Part D, we offered the interim prescription drug card. WellPoint currently 

offers the prescription drug benefit through our Medicare Advantage-Prescription Drug 

Plans (MA-PDs) in many parts of the country, including the newly available Regional 

Preferred Provider Organization (PPO) in three regions, as well as stand-alone 

Prescription Drug Plans (PDPs) in all 34 regions, encompassing the 50 states and the 

District of Columbia. WellPoint also administers the Facilitated Enrollment Program for 

CMS. To date, over 238,000 individuals have been served through this program, 

including 24,000 dual eligibles missed during the auto-enrollment process. 

Our pharmacy network includes 56,437 pharmacies nationwide, representing 98% of 

available retail pharmacies. To date, we have dispensed over 18.5 million prescriptions 

for 1.4 million Part D enrolled members. 

WellPoint Commitment to Part D Success 

WellPoint is committed to supporting the effective implementation of Part D. 

WellPoint’s primary goal is to ensure that beneficiaries receive all the benefits of their 
57

health coverage, including access to prescription drugs, in a timely and beneficiaryfriendly manner, and that pharmacies are paid promptly for the prescriptions they fill. 

As all stakeholders work to continually improve the implementation of this program, 

we must all keep in mind the tremendous value of adding a comprehensive prescription 

drug benefit to the Medicare program. Millions of seniors will not only see cost savings, 

but true improvements in their quality of life. The mindset at WellPoint is to focus on 

enabling seniors and disabled beneficiaries to receive their prescriptions. The recent 

report that nearly 38 million now have prescription drug coverage is great news, but it is 

also a reminder that we must keep our full attention on resolving barriers to service. As 

Part D members begin using their new prescription drug coverage, the confusion in the 

marketplace is abating and a solid foundation for the Part D program is taking hold. 

Part D Success Requires Collaboration and Communication

The level of collaboration required between CMS, plans, pharmacies, and other 

stakeholders to make the Medicare Part D program operate successfully is unprecedented. 

Continuing to improve on the progress we’ve made requires maintaining this collective 

effort. A shared approach to problem solving is the essential ingredient for making this 

new program work for all beneficiaries. Stakeholders are stepping up to the plate and 

accepting mutual accountability for meeting the challenges and ensuring the success of 

the Part D program. When all parties are bound by a common interest in putting the 

beneficiary first, an environment is created that allows for constructive criticism and open 

dialogue, the result being timelier implementation of the steps needed to achieve a 

smooth transition, faster identification of new issues, and smarter problem resolution. 

WellPoint realizes that Part D program success requires extensive communication 

between plans and pharmacies. To this effort, we have: 

• Adopted an inclusive network development strategy to contract with a range of 

pharmacies, including independent and rural pharmacies, to increase pharmacy 

access to network advantages and to enhance beneficiary access to affordable 

prescription drugs. 

• Enhanced outreach through constant communication with pharmacies through 

fax blasts, conference calls with independent pharmacy associations (e.g. 

National Association for Independent Pharmacies and other independent chain 

groups) and chain drug stores (e.g. National Association of Chain Drug Stores 

and smaller work groups formed from major chains). 

• Engaged in active training through our PBM for pharmacists when they call in. 

• Provided direct technical assistance to pharmacies and their vendors as 

necessary to address software issues. 

• Agreed to the standardization efforts of AHIP, NACDS, and NCPA to address 

issues involving pharmacy claims transactions. 

WellPoint Pharmacy Payment Policies 

WellPoint has made a strong commitment to promptly pay all Part D pharmacy 

claims and has a payment system that exceeds the industry standard. Although legacy 

Anthem and legacy WellPoint are currently paying on two separate claims systems, 

legacy Anthem uses a weekly cutoff cycle and legacy WellPoint uses a biweekly cutoff 

cycle. Payment is received by the pharmacy within 7 to 10 days of the cutoff date. This 

means that if a pharmacy files a clean claim, the longest time that elapses between claim 

submission and payment receipt is 17 days for legacy Anthem and 25 days for legacy 

WellPoint. The claims submission and payment process is, in fact, little different for the 

Part D program than that used by pharmacies for commercial business. We make 

electronic payment and 835 claims reconciliation detail available to all pharmacies, 

which, in turn, enables them to receive payment and claims detail information more 

quickly. However, many independent pharmacies do not take advantage of this option. 
58

We stand ready to provide assistance to independent pharmacies interested in converting 

to an electronic payment system. 

The Importance of the Standard Payment Cycle 

The industry standard is a 30-day cycle. Plans generally pay on a two-week cycle, 

and, depending on when a claim is processed in that cycle, it is paid between 15 and 30 

days from the date of submission. This standard is consistent with the commercial sector, 

Medicare Parts A & B, mandates in 43 states, the federal employees’ health plan, and the 

Community Pharmacy Association’s own Part D plan. Along with the rest of the 

members of the Pharmaceutical Care Management Association (PCMA), WellPoint 

recently pledged to pay pharmacists for Medicare Part D pharmacy claims within 30 days 

of receipt of clean claims. This pledge signals WellPoint’s continued commitment to fair 

and timely claims payments to America’s pharmacists, who have provided tremendous 

assistance to seniors since the start of the Part D program. 

Plans using standard pay cycles typically “batch” payments to pharmacies resulting 

in greater efficiency and cost savings that are then passed along to both the federal 

government and the beneficiary in the form of lower premiums. Arbitrary payment 

requirements, such as those proposed in legislation currently before Congress, will 

increase the likelihood of fraud by decreasing the breadth and depth of claims audits. 

These audits control costs and improve safety by flagging claims that have incorrect 

dosage, days supply, or higher than usual quantities. Reducing the 30-day cycle will 

ultimately result in higher costs for the federal government and beneficiaries. 

Congress Intended for Part D Program to Operate Like Commercial Sector

Congress entrusted the private sector to administer the Part D benefit in the same 

manner in which it has successfully administered drug benefits in the commercial sector: 

driving down costs, improving efficiency, and enhancing care and safety for 

beneficiaries. We recommend Congress stay consistent with this policy. 

Conclusion 

The January 1st effective date for the launch of the Medicare Part D program brought 

with it a surge of business operations activity and customer service requests. Knowing 

that the program was complex, WellPoint did extensive advanced implementation 

planning and outreach with pharmacists as well as other stakeholders. Our hope was that 

we had anticipated and addressed the major barriers that might arise as seniors navigated 

the enrollment system and pharmacists attempted to fill prescriptions and receive 

payment. While it was not possible to foresee all the challenges that this enormous 

undertaking would pose, WellPoint is committed to being a part of the solution. We will 

continue to strive to get past the hurdles because the Medicare Part D prescription drug 

program is worth it. 

Thank you for your time. I would be happy to answer any questions you may have. 

 MR. DEAL. Thank you. Mr. Couch, you are recognized. 

MR. COUCH. Thank you, Mr. Chairman and members of the 

subcommittee, for inviting me to testify today on behalf of the 

Healthcare Distribution Management Association, HDMA. 

My name is Ken Couch. I am President of Smith Drug Company 

located in Spartanburg, South Carolina, with a second distribution center 

in Paragould, Arkansas. I am a former chairman of HDMA, and 

currently serve on the Association’s Board of Directors. 
59

 HDMA represents the Nation’s primary full-service healthcare 

distributors. These 40 distributor members include large and regional 

companies, some of which are family owned and employee owned. 

Smith Drug Company is a distributor of pharmaceuticals and other 

healthcare sundry products that you would find in a community 

pharmacy. Our customers are overwhelmingly community professional 

pharmacy practitioners that own or work for family-owned businesses. 

They are the corner drug stores of rural areas, towns, cities, and inner 

cities of the Southeast. Most people taking medications give some 

thought to the pharmaceutical company that made the product or to the 

pharmacy or pharmacist that dispensed that product, but few patients 

understand how that product moves through the system, starting with the 

manufacturer and ending with the patient. A typical distribution center 

will store 24,000 products purchased from 800 manufacturers and 

distribute to 900 pharmacies on a daily basis. On an average day, a 

single distribution center will ship out 60,000 products. Industry-wide, 

we deliver nine million products to the Nation’s 142,000 pharmacy 

settings every day. By providing daily delivery with extremely high 

service levels and business efficiencies in this intricate supply chain, 

distributors save the healthcare system $10.5 billion per year, and we do 

it with razor thin margins, as evidenced by our industry net profit margin 

of 0.75 percent. 

 While distributors are not reimbursed by Medicare and therefore not 

directly impacted by the Medicare Modernization Act, the impact it has 

on our pharmacy customers is directly felt by our distributors. It is 

important for you to understand that some distributors, like Smith Drug, 

community pharmacies constitute in excess of 90 percent of our 

customer base. Our industry sought to help prepare community 

pharmacists through education and awareness so that they would be more 

knowledgeable and comfortable in answering the Medicare beneficiaries’ 

questions. Distributors provided thousands of pharmacists with a variety 

of learning and outreach tools. HDMA members, for example, 

developed and sponsored continuing education programs, focusing on 

the benefit, drafted fact sheets, provided calendars with key 

implementation dates and milestones, sponsored brochures and 

advertisements reminding beneficiaries that their pharmacists are a 

valuable information resource and some established well-based resource 

centers. 

 However, since implementation, a recurring problem for many of our 

pharmacy customers has revolved around cash flow issues, and again, 

my industry has stepped up. On a case-by-case basis, distributors have 

worked individually with their pharmacy customers to reach mutually 

acceptable agreements on payment plans. In some cases, credit may 
60

have been extended, in other cases, payment terms may have been 

adjusted. Let me cite my company as an example. By background, 

Smith Drug submits weekly manufacturer purchase orders for the 

upcoming forecasted need of our pharmacy customers. We usually 

receive that product within a few days, or up to several weeks. It is our 

job to balance that inventory. Our pharmacy customer places an 

electronic order daily, usually at the close of their business. We deliver 

their requested products the next morning. Even though Smith Drug has 

better than a 99 percent service level on pharmaceuticals, to break even, 

we must have better than 13 inventory turns per year. In other words, we 

must sell and pay for the value of our warehouse and inventory in less 

than one month. Out of my customer base, approximately 60 percent of 

them have payment terms that require them to pay us twice a month. 

About 20 percent pay us weekly, 15 percent pay us daily, and the 

remainder have some variation. 

 To help those customers who are facing significant cash flow 

challenges due to Part D implementation, our company has been working 

with our community pharmacy customers by providing payment 

concessions to help them through these hard times. Most of these are at 

no interest or with no fees charged; however, there is a cost to Smith 

Drug Company. We went to our bank and asked for an extended line of 

credit to ride us through our customers’ cash flow shortfall. We 

explained that we needed to prepare for a 15-day setback in cash flow, 

and that number that that bank would have to give us for our small 

company is $100 million. 

 As the members of this committee know, community pharmacists are 

an essential component of our Nation’s healthcare system. Their 

viability is important to ensure that all patients are able not only to 

receive their medicines, but for the counseling and medication therapy 

management services that pharmacists can provide. The challenge now 

is to ensure that community pharmacies be continued to keep their doors 

open to serve the millions of Americans who depend upon them for their 

prescription medications. 

 Thank you very much for your attention. I will be glad to answer 

any questions. 

 [The prepared statement of Kenneth Couch follows:] 

PREPARED STATEMENT OF KENNETH COUCH, PRESIDENT, SMITH DRUG COMPANY

Introduction

Thank you, Mr. Chairman and members of the subcommittee for inviting me to 

testify today on behalf of the Healthcare Distribution Management Association (HDMA). 

My name is Ken Couch, and I am President of the Smith Drug Company, located in 

Spartanburg, South Carolina with a second distribution center in Paragould, Arkansas. I 
61

am a former chairman of HDMA and currently serve on the association’s Board of 

Directors. 

HDMA represents the nation’s primary, full-service healthcare distributors. These 

40 distributor members include large and regional companies, some of which are familyowned. HDMA member distributors work to secure a safe, efficient and reliable 

healthcare supply chain that is able to provide life-saving health products and services. 

These distributors are responsible for ensuring that billions of units of medication are 

safely delivered to tens of thousands of community retail pharmacies, hospitals, 

nursing homes, clinics and other provider sites in all 50 states in the safest and most 

efficient manner possible. 

Smith Drug Company is a distributor of pharmaceuticals and other health and 

sundry products that you find in a community pharmacy. Smith Drug Company 

distributes products to 14 states and services more than 1,200 pharmacies. Our customers 

are overwhelmingly community professional pharmacy practitioners that own or work for 

family-owned businesses. They are the corner drug stores of rural areas, towns, cities, 

and inner cities of the Southeast. 

Most people taking medicines give some thought to the pharmaceutical company 

that made the product, or to the pharmacy and pharmacist that dispensed that product. 

But few patients understand how that product moves through the system - starting with 

manufacturer and ending with the patient. 

A typical distribution center will store 24,000 products purchased from 800 

manufacturers and distribute to 900 pharmacy customers on a daily basis. On an average 

day, a single distribution center will ship out 60,000 products per day; industry-wide, we 

deliver 9 million products to the nation’s 142,000 pharmacy settings every day. By 

providing daily delivery with extremely high service levels and business efficiencies in 

an intricate supply chain, distributors save the healthcare system $10.5 billion per year. 

 

Preparing for Medicare Part D Implementation

While distributors are not reimbursed by Medicare and are therefore not directly 

impacted by the Medicare Prescription Drug Improvement and Modernization Act of 

2003, the impact it has on our pharmacy customers is directly felt by their distributors. 

That is why last year the distribution industry worked very hard to help prepare the 

nation’s pharmacists for the establishment of the Medicare drug benefit. 

It is important to understand that for some distributors, like Smith Drug, community 

pharmacies may constitute in excess of 80 or 90 percent of their customer base. Their 

problems are our problems. They are more than just customers, they are partners. I am 

proud that my company and my industry have proven to be such a reliable partner 

working together to address the challenges that now confront community pharmacy as a 

result of the implementation of the Medicare drug benefit. 

Our industry sought to help prepare community pharmacists through education and 

awareness so that they would be more knowledgeable and comfortable in answering the 

Medicare beneficiary’s questions. Distributors provided thousands of pharmacists with a 

variety of learning and outreach tools. HDMA members, for example, developed and 

sponsored continuing education programs focusing on the benefit; drafted fact sheets and 

FAQs; provided calendars with key implementation dates and milestones; sponsored 

brochures and advertisements reminding beneficiaries that their pharmacists are valuable 

information resources; and establishing web-based resource centers. 

Post Implementation Cash Flow Issues

As could be expected with such a massive undertaking, there were some significant 

“start-up” problems. It is my sense that many of these problems have been addressed or 

have decreased significantly. I and HDMA commend all those involved – CMS, 
62

pharmacy, prescription drug plans, states and all the other stakeholders – for working 

together in an effort to do what is best for the patient. 

However, a recurring problem for many of our pharmacy customers has revolved 

around cash-flow issues. Again, my industry has stepped up. On a case-by-case basis, 

distributors have worked individually with their pharmacy customers to reach mutually 

acceptable agreements on payment plans. In some cases, credit may have been extended, 

in other cases, payment terms have been adjusted. For anti-trust reasons, our trade 

association has not surveyed the membership as to what they specifically have done in 

this area. However, I can share what my company has done. 

By way of background, Smith Drug submits weekly manufacturer purchase orders 

for the upcoming, forecasted need of our pharmacy customers. We usually receive that 

product within a few days but sometimes it can take weeks. Our pharmacy customer 

places an electronic order daily, usually at the close of business, and we deliver the 

requested products the next morning. Even though Smith Drug has a better than 99 

percent service level, to break even we must have better than 13 inventory turns per year. 

In other words, we must sell and pay for the value of our warehouse inventory in less 

than a month. Our margins are razor thin, as evidenced by our industry net profit margin 

of 0.75 percent. 

Of my customer base, approximately 60 percent of them have payment terms that 

require them to pay us twice a month, about 20 percent pay us weekly, 15 percent daily 

and the remainder have some variation. This twice a month payment terms needs some 

explanation. In our industry it is generally called semi-monthly pay terms. Payment for 

pharmaceuticals purchased by the pharmacy from the 1st through the 15th of the month 

are due in full on the 25th. The payment must be “in hand” or electronically transmitted. 

Products purchased from the 16th through the last day of the month must be paid in full 

by the 10th of the following month. Therefore, a prescription submitted on the 30th of the 

month would contain product that must be paid to the pharmacy’s distributor by the 10th

of the following month. If the payer just changed his payment position to 30 days, the 

pharmacy would most likely have missed two pay periods to his distributor. 

To ease this burden, our company has been working with our community pharmacy 

customers by providing payment concessions to help them through these hard times. 

Most of these are at no interest or with no fees charged. However, there is a cost to Smith 

Drug. We went to our bank and asked for an extended line of credit to ride us through 

our customer’s short fall of cash flow. We explained that we needed to prepare for a 15-

day setback in cash flow. We were asked how much would that be, and we replied $100 

million dollars. 

Conclusion

As the members of this committee know, community pharmacists are an essential 

component of our nation’s healthcare system. Their viability is important to ensure that 

all patients are able to not only receive their medicines, but for the counseling and 

medication therapy management services pharmacists can provide. 

As noted, to help our pharmacy customers prepare for Medicare Part D, HDMA 

distributor members proactively worked to provide educational programs and tools. The 

amount of preplanning on pharmacy’s part was heroic. I believe that had pharmacists not 

prepared themselves for this major paradigm shift for their patients, the program would 

have experienced even more severe problems in the first two weeks. The challenge now 

is to ensure that community pharmacy will continue to be able to keep their doors open to 

serve the millions of Americans who depend on them for their prescription medications. 

I thank you for your attention and will be glad to answer any questions. 

 MR. DEAL. Thank you. Dr. Harden. 
63

 DR. HARDEN. Mr. Chairman and members of the committee, my 

name is Buddy Harden. I am a pharmacist from Georgia. Thank you for 

allowing me the opportunity to tell you some of the positive things that 

happened with Medicare Part D, but also maybe to mention some things 

that could be done to improve it. I would like to talk this morning about 

some of the provisions of the House bill that have been introduced by 

Mr. Brown and Mr. Allen, I believe, that do correct some of the 

problems that we see. 

 I have been privileged to practice pharmacy in a variety of settings, 

including community, chain, and independent, hospital, long-term care, 

and military. For 26 years, I owned and operated two independent 

pharmacies in Albany, Georgia, and Sylvester, Georgia. Currently, I 

serve as CEO of the Georgia Pharmacy Association. 

 I have a personal interest in Part D in that we do have a beneficiary 

on the panel this morning, because I brought my card, and quite frankly, 

I applied for this card because I have helped dozens of my constituents 

and family and friends to apply for cards. I wanted to apply for one that 

I felt like would have the billboard of pharmacies on it that were 

confusing a lot of my patients and friends. I am glad to see that CMS has 

taken some action in that arena. I just wish that it would be immediate 

action rather than waiting until next year. 

 I have a confession, because I have practiced pharmacy for close to 

40 years and I know some of the problems that have been a part of this 

situation. I was interested in hearing that Ms. Norwalk mentioned that 

there were negotiated contracts between PBMs and pharmacies. There 

are no negotiations. They are take it or leave it. I have, myself, on many 

occasions changed contracts to reflect terms that were more friendly to 

me and my business operation, sent them back to a PBM, and to have 

them returned that there are no changes to the contract. You can be a 

part of our network if you will take it or not, if you leave it. So those, I 

think, are some things that enter into this that may not be adequately 

understood, but there are no negotiations on contracts. 

 Basically another thing that had been mentioned that I think that is 

interesting is that pharmacists receive discounts for paying their 

wholesalers on a two-week basis. I think that Mr. Couch has mentioned 

that their business model is set up to be paid on a two-week basis. If the 

pharmacist doesn’t pay in that two weeks, then he is in violation of the 

terms of that contract. So there is no way that we can merge the 30 days 

and the 14 days. 

 Another problem that I would mention on prompt payment, and I 

think is addressed in the bill H.R. 5182, is that we find that yes, a check 

is cut, possibly, at the end of 14 days, or maybe takes 4 or 5 days to 

process, the check is cut on that date to basically come within the terms 
64

of the payment cycle. However, that check may not be mailed for 

another six or eight days, and it may take another five or six days to get 

to the pharmacy. This was the main problem I feel in the beginning with 

what we were experiencing on prompt pay. It is just the processing of 

payment is sometimes slow. My pharmacists tell me that even when 

they get the payment, they don’t get the remittance advice at the same 

time. It is very hard to reconcile payment against remittance advices. 

 One thing that I do want to make sure I have time to talk about this 

morning is quality assurance. You know, I am part of a Georgia 

technical adult education group with the people in the State of Georgia, 

and health literacy is a big issue. One of their slogans is give a man a 

fish and you feed him for the day. Teach a man to fish, and you feed him 

for a lifetime. And I think the medication therapy management part of 

what the H.R. 5182 proposes is exactly that. Quite frankly, medication 

therapy management would be difficult for the PDPs to institute because 

basically, they can’t take the risk management of instituting true 

medication therapy management. In this program, we have done a good 

job of getting to a cheap price on drugs. Quite frankly, in some cases, a 

price that not even pharmacists can obtain those drugs at. But we have 

not proposed cost-effective use of drugs. I included in my written 

statement a study by Lyle Buchman in Arizona that proves that for every 

dollar we spend on drugs, we spend another dollar in correcting the 

problems of that drug as far as adverse drug events. 

 We in Georgia have participated in quality assurance programs with 

local industries, and have proven that we can save up to 40 percent of 

total healthcare costs, but it must allow the pharmacist to do some 

medication therapy management, and in doing so, reduce overall 

healthcare costs. This may increase the cost of pharmacy programs. 

 With that being said, I would be glad to answer any of the questions 

that any of the committee members may have on our recognition of the 

need for medication therapy management and how that should be 

performed. I do, again, highly recommend that this committee look very 

closely at Mr. Brown and Mr. Allen’s bill, because it corrects, I believe, 

the problems we have seen develop. CMS has done an outstanding job 

of implementing a very difficult program, and as we have heard today, 

sometimes they don’t have the authority to correct the problems that are 

needed. I think this legislation gives them that authority. 

 And Mr. Chairman, with that, I will end. My written testimony is in 

and I am glad to answer any questions, either from a beneficiary 

standpoint, a pharmacist’s standpoint, or a personal standpoint. 

 Thank you. 

 [The prepared statement of Dr. Buddy Harden follows:] 
65

PREPARED STATEMENT OF DR. BUDDY HARDEN, EXECUTIVE VICE PRESIDENT AND CEO,

GEORGIA PHARMACY ASSOCIATION

Good Morning, 

Chairman Deal and members of the Committee, my name is Oren Harden and I am a 

pharmacist from Georgia. Thank you for allowing me the opportunity to relate some of 

the positive impact of the Medicare Modernization Act of 2003 (MMA) Part D and to 

voice some of the concerns that patients and pharmacists have expressed to me. 

I have been privileged to practice pharmacy in a variety of settings including 

community chain and independent, hospital, long term care and military. For twenty six 

years I owned and operated two independent pharmacies in Albany, Georgia and 

Sylvester, Georgia. Currently I serve as the CEO of the Georgia Pharmacy Association. 

I have a personal interest in Part D in that I am currently a beneficiary of Medicare 

Part A and D. I have a patient interest in that I have worked with dozens of family, 

friends and neighbors to enroll in Part D. I have a professional interest in that I represent 

some 2500 Georgia pharmacists who have made heroic efforts and personal and business 

sacrifices to see that Medicare Part D accomplishes its purpose in the healthcare of 

beneficiaries, their patients. 

I believe that Part D of the MMA has had a positive impact on the healthcare of 

Medicare beneficiaries. People who were unable to afford medications prior to the 

passage of the MMA Part D can now afford those medications. I also believe that the 

Centers for Medicare and Medicaid Services (CMS) has done an outstanding job of 

implementing a very difficult program to manage. With changes that some House 

members are currently proposing MMA Part D can become significantly more effective 

both in quality of healthcare and cost effectiveness. 

That being said, I would like to share with you some concerns of pharmacists and 

patients about the current structure of Part D and make suggestions that I feel would 

improve the program for the patient, the pharmacist and CMS management. 

For the patient the number of plans should be reduced. There are far too many plans 

that are too similar in benefit design and that only serves to confuse the patient. There 

are 43 different Prescription Drug Plans (PDPs) available in Georgia in addition to the 

Medicare Advantage Plans (MAPDs). The web based tools available from CMS are very 

good but most Medicare beneficiaries are unable to properly utilize those tools. They are 

forced in most cases to consult with insurance agents or other non-healthcare 

professionals who are not aware of the specific therapeutic needs of the patient and how 

to best create a medication management plan in one of the PDPs. I believe the 

pharmacist whom the patient trusts and who is most knowledgeable of the patient’s 

formulary needs should be given the authority to work with the patient to navigate the 

plethora of plans and advise the patient on how to make a choice based on the patients 

medication needs and choice of provider. Issues such as formularies, tiering, utilization 

management, differential co-pays, varying deductibles, co-insurance, “donut holes” and 

differences in grievances and appeals are simply too complex to be made understandable 

to the layperson and therefore limit the help available from friends and family. 

It would be very beneficial in that respect if CMS were given the authority to offer 

and administer a single dependable, defined benefit plan which could combine the 

purchasing power of over 40 million Medicare beneficiaries with that of the VA. This 

would provide greatly reduced product cost allowing CMS to more effectively utilize 

funds for pharmacist management of medication therapy. Why is pharmacist 

management of medication therapy plans so important? Validated studies have been 

published that illustrate we spend as much of our healthcare dollar in correcting 

“medication misadventures” or drug reactions and interactions as we do on drugs 

themselves. To provide proper outcomes patients must have access to the pharmacist’s 

clinical expertise. Under the current commercial plans there is no such provision at this 
66

time. A pharmacy benefit is not a drug product alone at the cheapest price as most PDPs 

or PBMs would have you think. Without the clinical knowledge and guidance of the 

pharmacist the drug product can do more harm than good to patient care while 

dramatically increasing the cost of healthcare. 

Although the MMA provides for medication therapy management (MTM) in Part D, 

there is a disincentive to PDPs to offer proper management. The disincentive being that 

the major indicator of PDP performance is measured in the reduced cost of drug product 

not quality of outcomes. Many PDPs will opt to offer MTM via telephonic or electronic 

means using individuals other than the drug expert, the pharmacist. This is far less 

effective for quality outcomes improvement than face to face interaction between the 

patient and the pharmacist in constructing and managing a medication therapy plan. 

Medication Therapy Management should be defined by CMS, patients identified by the 

pharmacist and management performed by the pharmacist. Currently MTM is defined by 

each PDP differently and may be performed by “others” as stated in the MMA. 

The Georgia Pharmacy Foundation (GPhF) working with the American Pharmacists 

Association and major pharmaceutical manufacturers has implemented a medication 

therapy management patient education model with several industries in our state to prove 

the increased quality of patient outcomes and the cost effectiveness of pharmacist 

directed MTM. One such project with a three year track record has data that illustrates 

that over the first two years of the MTM program, the overall annual healthcare cost for 

diabetic patients was lowered by 41% over the projected cost for those two years. The 

41% per patient savings was in current hard dollar costs. Clinical indicators illustrate that 

future savings will be even more significant by virtue of the prevention of the 

complications of diabetes. In addition the absenteeism for the managed diabetic was 

reduced to almost zero and the workers compensation claims were reduced to absolute 

zero. The quality of life of these patients was so improved that production also increased. 

To accomplish improvement in quality of outcomes and reduction in overall healthcare 

expenditures the cost of physician’s visits, pharmacist’s medication therapy management 

and the expenditure on pharmaceuticals may increase in order to produce a savings in an 

individuals total healthcare costs. This local industry was so impressed by the significant 

improvement in the quality of life of their employees and the healthcare cost savings that 

GPhF is beginning implementation this week of the same type of pharmacist directed 

MTM with hypertensive patients at that plant. GPhF is four months into this type of 

program with five other employers. The structure of MMA Part D, while authorizing 

MTM, has the disincentive I mentioned to the utilization of this approach to medication 

therapy management. 

Currently the Georgia Pharmacy Foundation (GPhF) and the Georgia Medical Care 

Foundation (GMCF), Georgia’s Quality Improvement Organization (QIO) are structuring 

a pharmacy quality improvement pilot project in Georgia in partnership with CMS. The 

purpose of this pilot is to document the healthcare quality improvement and cost 

effectiveness of the previously mentioned method of MTM in the Medicare population. 

We are certain that this pilot will illustrate the benefits to be gained in funding intensive 

MTM performed by a pharmacist not only to dramatically improve quality of care and 

augment positive outcomes but also to produce significant savings in healthcare 

expenditures. 

Far too many plans did not at implementation and still do not have the support 

services to efficiently serve the patient and/or the pharmacist. Many are more interested 

in selling than in servicing. I am aware of and have reported to CMS plans that are 

contacting physicians without the patient’s knowledge to gain access to protected health 

information in order to send medications by mail order. CMS has been very responsive 

to take corrective action when abuses are reported. Another marketing issue that has 

confused many patients is co-branding. My Part D ID card has the names of only six 

major chains on the card itself. Many patients have assumed that they must use only 
67

those pharmacies printed on the card thereby increasing the patient’s confusion and 

decreasing their choice. 

Form letters sent to patients who have applied for Part D can also be confusing. I 

received a form letter from the company with whom I applied that informed me of a 

potential for delay in obtaining confirmation of my enrollment. The letter stated 

“Information we have received indicates one of the following conditions may apply to 

your application which would make you ineligible”. The two situations listed were that 

(1) you are not enrolled in Medicare Part B and/or you are not entitled to Medicare under 

Part A and (2) you have End State Renal Disease (ERSD) or you have had a kidney 

transplant and still require a regular course of dialysis. First of all if I was not very 

familiar with Medicare and Part A, B and D, I would be very concerned that I was not 

eligible for Part D on statement number one. Secondly, if I was not a healthcare 

professional, I would be terrified that I might have End State Renal Disease (ERSD, 

whatever that was). Of course I would surely know that I had not had a kidney transplant 

and did not require dialysis. I called the 800 customer number during the 8 am to 6 pm 

time frame twice and the first time after navigating an extensive menu of options received 

a recording that due to the popularity of their plan and high call volume no customer 

service representatives (CSRs) are available at this time. Upon eventually reaching 

customer service representative Jason on May 18th, I requested information as to why the 

delay. I was told that if I did not have both Part A and B I was not eligible for Part D. 

The most interesting part of this scenario is that I received my card the same day as I 

received the letter concerning the “problem” and was told by Jason ten days later when I 

reached customer service that I was enrolled. This on the same call in which he informed 

me that I was not eligible for Part D unless I had both Part A and Part B. In addition to 

not having sufficient CSRs this plan does not have adequately trained CSRs. This plan 

has one of the highest enrollments nationwide. 

From the pharmacist’s perspective, the main issues in implementation were 

inadequate provider service and customer service from PDPs, too little compensation for 

services and long delays in the payment for medications. Many of the pharmacists that I 

represent borrowed substantial sums to be able to continue to provide service for their 

patients. In rural Georgia, had they not been willing to shoulder the financial burden, 

access for the patient would have been severely restricted. In order to make Part D 

successful, pharmacists devoted the extra time, worked through cash flow problems and 

met patient’s needs when there was no guarantee that they would be compensated. Their 

efforts were recognized by HHS Secretary Leavitt and I quote “The efforts of 

pharmacists over the last month have been nothing short of heroic. I’ve visited with and 

heard from pharmacists all over the country. They have been selfless, compassionate and 

committed to service”. 

Bi-Partisan Legislation has been authored in both the House and Senate at this time 

that addresses many of the issues important to both the patient and pharmacist. The 

House Bill H.R. 5182 allows for prompt payment of pharmacy claims. In regards to 

MTM, H.R. 5182 requires HHS/CMS to define a minimum package of services a plan 

must provide, allows healthcare providers to identify patients who should receive MTM 

and requires plans to pay pharmacists and other providers based on the time and intensity 

of services. Other provisions on MTM assure access to services and establish a Best 

Practices Commission that would ensure a model that would allow for quality outcomes. 

H.R. 5182 also provides access to all pharmacists by eliminating branding on Medicare 

ID cards. This is a giant step toward solving the issues that I have discussed and 

improving the Part D program for patients and for pharmacists and for Medicare. I 

applaud the members of the House for this insightful approach to correcting issues that 

were detrimental to Medicare Part D. At the time of this writing H.R. 5182 has 38 

Republican and 24 Democratic co-sponsors. I would like to thank Representatives 
68

Sherrod Brown and Tom Allen of this Committee for their co-sponsorship of this 

legislation. The Senate Bill addressing these issues is S. 2664. 

I would like to add a final comment on a related issue before Congress at this time. 

If the concerns that are being addressed in Medicare Part D are also addressed prior to the 

implementation of the drug cost provisions affecting Medicaid in the Deficit Reduction 

Act of 2005, then quality of care and cost effectiveness will result immediately upon 

implementation of that legislation. A pharmacy benefit cannot be viewed as a drug 

product alone but must also include provision of the pharmacist’s clinical services to 

ensure the proper utilization of a drug product to avoid costly complications associated 

with drug therapy and to provide for positive outcomes. 

Thank you for the opportunity to share my thoughts how to make Medicare Part D 

more patient friendly, more cost effective and most importantly more focused on positive 

patient outcomes and quality of care. 

 MR. DEAL. Thank you. Mr. Wirth, you are recognized. 

 MR. WIRTH. Good afternoon, Chairman Deal, Ranking Member 

Brown, and members of the subcommittee. My name is Gary Wirth. I 

am the Director of Professional Services at Ahold, USA. Many of you 

might not know that that includes Stop and Shop Supermarkets, Giant 

Supermarkets, and Topps Markets on the Eastern seaboard. Together, 

we operate over 1,100 supermarkets with more than 600 pharmacies and 

employ over 100,000 associates in our stores. My office is at nearby 

Giant’s headquarters in Landover, Maryland. 

 We thank you for your attention to the importance of community 

pharmacies to both the Federal government and neighborhoods 

throughout the United States. I appreciate this opportunity to speak, and 

I am very happy to see that the committee seems to understand many of 

these issues already. 

 Recently, some of your representatives visited one of our stores and 

also saw firsthand how we support the Medicare beneficiaries. I would 

also like to applaud CMS for their hard work in making the Medicare 

program successful. In our view, it is working well for beneficiaries. 

They have solved a lot of problems. They have had regular conference 

calls with pharmacies to help us to understand the program and to hear 

our feedback. We also have worked very hard. At our pharmacies, 

every pharmacy associate, that is 4,000 people, had to go through two 

hours of Medicare Part D training. We provided written materials for 

pharmacists and beneficiaries. We beefed up our own help desks and 

expanded hours of operation and number of people available to answer 

questions. We think that played a large role in our pharmacists being 

able to help beneficiaries to understand the program to enroll properly. 

We also added a link to the CMS Formulary Fnder program directly to 

the pharmacy computers, so when a beneficiary came in and wanted to 

know what plans would be good for them, our pharmacists could click a 

button and get that information for them. 
69

 Day in and day out, our pharmacy teams are working for the 

Medicare beneficiaries; however, there are still some problems. We have 

heard a lot today about the enrollment lag. I would like to do a flip side 

of that of the actual dis-enrollment lag. When a beneficiary is able to 

dis-enroll on the last day of the month and be eligible in a new plan on 

the first day of the month, that dis-enrollment information does not get 

transmitted either as well as the re-enrollment information. So we can 

process a claim on the first of the month to the old plan, receive a paid 

response, go ahead and dispense the medication. Two weeks, four weeks 

later, we get the rejection, the back end, and are being asked to then 

correct the billing, two to four weeks after the fact. That is a severe 

problem for us to do, and we urge policy makers to address this issue by 

establishing an enrollment deadline prior to the end of the month. 

 We are also concerned about the lack of a level playing field in the 

marketplace. The pharmacy benefit managers are controlling the 

everyday implementation of the Part D program. Many of them have 

their own mail order facilities and have an incentive to have prescriptions 

filled at those facilities. This continues today in the Part D benefit. It 

has gone on in the open market as well. 

 We are surprised that given all the work that the community 

pharmacies have done to make this program successful that CMS 

continues to allow steering of prescriptions to mail order pharmacies at 

the expense of the community pharmacy. The community pharmacists 

were there to help with the enrollments, to educate the beneficiaries, and 

we think we should have equal access to fill those prescriptions, so 

eliminate the co-pay steering, eliminate some of the other contractual 

things that are going on. For instance, a mail order rate could apply to 

every maintenance drug, even though it is not dispensed in a 

maintenance quantity. So why should I have to be paid the mail order 

pricing for a 35-day supply when in fact, it should only apply to a 90-day 

supply of drugs? 

 You have already heard a little bit about the formulary issues and the 

standardized messaging. It is very confusing at the pharmacy to get a 

rejected claim message and not know is it because it is non-formulary, 

because it is an excluded product, or if it is because the patient is not 

eligible? There are serious coordination benefit issues that if the 

pharmacist knows, they can take care of. Some plans will, rather than 

reject such a claim, will process that claim at a 100 percent co-pay so it 

looks like a payable claim. We don’t find that out until the patient comes 

in to pick up the medication when they question why did I pay so much 

for that medication? Again, we applaud CMS for working on it. We 

hope they work a little harder to get standardized messaging back to the 

pharmacists so we know what to do with these patients. 
70

 The last thing I would like to point out is that again, we worked very 

hard, and I am surprised that in thanks for our hard work, we receive a 

deficit reduction act with a $10 billion withdrawal from pharmacy 

reimbursement to start next year. We appreciate that CMS has chosen 

not to publish the AMP data this summer, but we urge policy makers to 

tell State Medicaid directors and Governors that they need to provide a 

corresponding increase in the dispensing fee to keep pharmacies whole, 

otherwise, we have no incentive to dispense generic drugs at a loss. That 

will hurt the program and hurt the pharmacies as well. Ultimately, it 

becomes an access issue. 

 Finally, I would just like to mention that Medicare Part D does not 

work in a vacuum. When we have trouble servicing Medicare Part D 

patients, there is a ripple effect to all the other patients who are waiting 

for their medication. Solving these problems helps everyone. In 

addition, when the Federal government makes a stand and says we are 

going to pay pharmacists acquisition costs plus a dispensing fee based on 

AMP, the rest of the industry is going to follow. I am certain the PBMs 

are looking at AMP and trying to determine how can we also follow the 

Federal standard that has been put in place. Therefore, again, we urge 

you to push the States to increase the dispensing fee for their pharmacies. 

 Thank you, and I apologize for going over my time. 

 [The prepared statement of Gary Wirth follows:] 

PREPARED STATEMENT OF GARY WIRTH, DIRECTOR OF PROFESSIONAL SERVICES, AHOLD 

USA, ON BEHALF OF NATIONAL ASSOCIATION OF CHAIN DRUG STORES

Good afternoon Chairman Deal, Ranking Member Brown, and Members of the 

Energy & Commerce Health Subcommittee. I am Gary Wirth, Director of Professional 

Services at Ahold USA. I am pleased and honored to be here today to participate in this 

important hearing. 

Ahold USA, owned by Ahold of the Netherlands, currently operates four prominent 

supermarket companies along the eastern seaboard including The Stop & Shop 

Supermarket Company, headquartered in Boston, MA; Giant Food LLC, based in 

Landover, MD; Giant Food Stores LLC, based in Carlisle, PA and Tops Markets LLC, 

with headquarters in Buffalo, NY. Jointly they operate over 1,100 supermarkets with 670 

pharmacies, and employ over 122,000 associates. Ahold (NYSE: AHO) is a leading food 

provider in the United States and elsewhere in the world with 2004 consolidated net sales 

of approximately USD 50 billion. 

Ahold USA commends you on holding this hearing to examine the federal 

government’s partnership with America’s pharmacists. Indeed, this is a critical time for 

pharmacists and community pharmacy. We face greater demand for our services as a 

result of factors such as the aging of the population and increased prescription drug 

volume. Simultaneously, our industry is challenged by increasing competition within 

community pharmacy as well as from both legitimate mail order facilities and illegal 

prescription drug importation and Internet pharmacies. Furthermore, there is continued 

pressure from both public and private payers to lower reimbursement. 

As the community pharmacy industry continues to evolve in response to these 

changing market forces, we also recognize our relationship with the federal government 
71

is paramount. In addition to its role as our largest payer, the federal government is also 

the architect of public programs and policy changes that dramatically effect community 

pharmacy. I’d like to spend the majority of my time before you today discussing the 

current status of one of these bold policy initiatives, the Medicare Part D prescription 

drug benefit. 

Ahold USA is proud to have played a key role in assuring that millions of additional 

seniors now have access to prescription drug coverage as a result of the Part D benefit. 

As we all know, there were significant problems in the early days of the program, most of 

which stemmed from technological and data integrity failures. Fortunately, while there 

are ongoing challenges, many of these issues from the early days of implementation have 

stabilized. 

There was a striking consistency in many of the reports about the early difficulties of 

the Part D benefit – the unique role of pharmacists and their efforts to serve Medicare 

beneficiaries. The Part D rollout was a strong reminder of community pharmacists’ 

unique position as one of the most accessible and trusted health care providers, and the 

importance of a strong and vital retail community pharmacy infrastructure to our nation. 

As I mentioned, many of the early issues with the Part D benefit have been resolved. 

However, there are ongoing issues that we think can be corrected to continue to ease the 

administrative burdens placed on pharmacists and to facilitate beneficiary access to their 

medications. Ahold USA has several suggestions on how some of the ongoing 

implementation issues can be addressed: 

Fix Enrollment Lag: Individuals become eligible for Medicare every day, and dual 

eligibles have the option of changing plans every month. As a result, there is a 

systematic issue, commonly referred to as the “enrollment lag,” that is problematic for 

pharmacies and beneficiaries. 

Currently, a Medicare beneficiary can enroll in a Part D plan at any time and expect 

their enrollment to be effective the first day of the following month. If a beneficiary 

applies for the Part D benefit in the last few days of the month, it is simply not possible 

for CMS and health plans to process the beneficiary’s application, confirm eligibility 

with CMS, and provide the necessary billing information so that it is available to 

pharmacists in time for the beneficiary to receive their prescriptions the first day of the 

next month. 

Unless policymakers address this “enrollment lag” issue, late-month enrollment or 

plan switches may continue to be the single most challenging issue that beneficiaries and 

pharmacists face with Part D. If pharmacists don’t have the necessary data, they cannot 

fill a prescription. This takes pharmacists away from serving their patients, and forces a 

series of calls to CMS and health plans to obtain billing and enrollment information. 

Pharmacists and other pharmacy staff find this experience very frustrating, but even more 

importantly, so do Medicare beneficiaries, who are forced to wait for extended periods of 

time at the pharmacy or return at a later date to obtain their prescriptions. 

A variety of options exist to address this issue, and Ahold USA and the chain drug 

industry are committed to working with CMS and health plans to find the best solution. 

CMS is trying to address this issue by educating beneficiaries that enrolling late in the 

month will result in delays in activation of prescription drug coverage. This is a step in 

the right direction. Optimally, there should be an enrollment deadline established each 

month so there is sufficient time to process applications and enter the billing information 

in the system. We urge policymakers to address this issue. 

Improve and Reward Quality: Ahold USA welcomes the recent announcement by 

CMS Administrator Mark McClellan on the formation of the Pharmacy Quality Alliance 

(PQA), a collaborative effort among the pharmacy community, health plans, employers, 

government payers, and others to improve health care quality. We believe initiatives like 

PQA are an ideal way to further strengthen the partnership between the federal 
72

government and pharmacists. Identifying tools that result in better health outcomes and 

reduce health care costs for payers benefit pharmacists, the government, and patients. 

 In addition to developing strategies to define and measure pharmacy performance, 

CMS has indicated that PQA could also lead to new pharmacy payment models based on 

optimizing patient outcomes. Ahold USA supports efforts that focus on controlling costs 

by paying for better care and improved outcomes, and not by reducing payment rates to 

providers. 

Level Playing Field: Community pharmacy is a highly efficient, competitive 

industry, operating on an average profit margin of 2 percent. Traditional chain 

pharmacies, supermarkets and mass merchants with pharmacies, and independent 

pharmacies use service, convenience, pricing, and other factors to compete aggressively. 

In recent years, mail order pharmacies have also become an increasing source of 

competition for community pharmacy. Confident of our patients’ preference for their 

local pharmacy and the service it provides, we are certain of our ability to compete with 

mail order. Our request to policymakers when considering the use of mail order in public 

programs such as Medicare has always been to ensure a level playing field with 

community pharmacy. 

In private sector contracts, pharmacy benefit managers (PBMs) often restrict the use 

of retail pharmacies in order to drive beneficiaries to use their mail order facilities. For 

example, typical contracts prohibit retail pharmacies from dispensing extended days 

supply (i.e. 90-day supplies) of medication, and require these maintenance supplies of 

drugs to be obtained via the PBMs’ mail order pharmacy. 

Recognizing the importance of patient choice and the value of the community 

pharmacist, the Medicare Modernization Act (MMA) attempted to limit this steering. 

Largely as a result of the efforts of many Members of this Subcommittee and broad 

congressional support, MMA was very clear that retail pharmacies could fill extended 

day supplies of prescription drugs as long as they agreed to the same level of payment as 

a mail order pharmacy. This provision, while not ideal for local pharmacies, at least 

offered them the opportunity to continue to dispense these prescriptions. 

Unfortunately, CMS’ current interpretation of this provision, as well as tactics being 

used by Part D plans, are inconsistent with congressional intent. Seniors are being denied 

the choice of obtaining these prescriptions at community retail pharmacies. 

For example, some plans are telling pharmacies that they can only provide extended 

days supply under Medicare Part D if they accept this mail order rate for the plan’s nonMedicare commercial business. Other PDPs will only allow a retail pharmacy to offer an 

extended days supply if the pharmacy agrees to accept the mail order reimbursement rate 

for all claims that are submitted, for both short term prescription quantities and extended 

days supply quantities. 

Schemes such as these make it more difficult for retail pharmacies to offer an 

extended days supply, and deny the beneficiary the choice between retail and mail. We 

also believe that they are inconsistent with the intent of Congress. 

Formulary Issues: There have been some difficulties for both beneficiaries and 

pharmacists with understanding Part D drug formularies and how they work. Many 

beneficiaries that come into our pharmacies are concerned that in the future a plan could 

remove the drugs they are taking from the Part D plan’s formulary. Our pharmacists are 

also concerned about the quality of care impact of switching beneficiaries from a 

medication they have been taking for a long time to a different medication. There are also 

concerns about whether beneficiaries – especially low income dual eligibles – will be 

able to navigate the exceptions and appeals process. That is why we think that CMS’ 

recent decision to allow a beneficiary to continue taking a formulary medication – even if 

the plan changes the formulary – is good for quality health care and will reduce the 

administrative burdens on beneficiaries, physicians and pharmacists to switch 

medications for Medicare beneficiaries. 
73

Coverage Gaps: We are rapidly approaching the middle of the year when many 

seniors may fall into the “donut hole” or coverage gap. We are concerned that many 

Medicare beneficiaries do not fully understand the issues relating to the “donut hole” and 

how it will affect their Medicare coverage. Many of our pharmacists are concerned they 

will bear the brunt of beneficiary frustrations when they find out they are still paying 

premiums while in the “donut hole,” but not receiving any coverage for their prescription 

medications. 

 We believe another public-private sector collaboration to develop assistance 

programs for beneficiaries when they hit the coverage gap would go a long way toward 

improvement of the program. Community pharmacy is held to charging the beneficiary 

no more than their discounted contract rate and therefore contributes directly to assisting 

beneficiaries in the coverage gap. However, many beneficiaries will undoubtedly need 

additional assistance to assure their access to needed medications, so we believe other 

parts of the system should step forward and do their part as well. 

While the focus of my testimony has been on Medicare, I would like to address 

another critical component of the federal government’s partnership with pharmacists – 

the Medicaid program. 

While Ahold USA and other pharmacies across the country are still making 

adjustments as a result of Part D, we will again be asked to shoulder an incredible burden 

only one year later when drastic changes to the Medicaid program are implemented. We 

are very concerned with the changes to the Medicaid program as part of the Deficit 

Reduction Act (DRA), which will dramatically impact community pharmacy’s ability to 

serve Medicaid patients. 

Community pharmacy worked closely with this Subcommittee on the Medicaid 

provisions of the DRA. We were supportive of the Subcommittee’s goal to pay 

pharmacies fairly and accurately for both the prescription drug product, and the 

professional services associated with dispensing. Recognizing these two, discrete 

components of pharmacy reimbursement, the House version of the Deficit Reduction Act 

included a minimum dispensing fee of $8 for generic drug prescriptions. This provision 

recognized the importance of reimbursing pharmacy for the costs associated with 

dispensing prescription drugs, and also attempted to maintain an incentive for dispensing 

generic medications. Unfortunately, the minimum dispensing fee for generic drugs was 

not included in the conference report. The loss of this important provision makes the 

DRA’s dramatic reductions to product reimbursement event more devastating for 

community pharmacy. 

The DRA reduces payments to pharmacies for generic medications by about $6.3 

billion over the next four years. Beginning January 1, 2007, federal upper limits (FUL) 

for generic drugs will be based on Average Manufacturers Price (AMP), rather than 

Average Wholesale Price (AWP). We believe that the reduction in payment will be so 

severe that it will take away much of the incentive for pharmacists to dispense generic 

medications. This is counterproductive, given that less than 25 percent of the average 

state’s Medicaid pharmacy payments are for generics, even though generics account for 

more than 50 percent of prescription volume. Public and private payers should be doing 

everything they can to increase, not decrease, the dispensing of generic drugs, since 

generic drug utilization is one of the most effective ways to control prescription drug 

costs. 

The Deficit Reduction Act also requires CMS to make Average Manufacturers Price 

data available to states and the public soon. In theory, AMP is supposed to reflect the 

average prices paid to manufacturers by wholesalers for drugs distributed to the retail 

class of trade, which include retail pharmacies. However, we are very concerned that 

since there are no guidelines as to how manufacturers should calculate AMP, the AMP 

data released by CMS will be inaccurate and will not reflect the actual prices that retail 

pharmacy pays for brand and generic medications. As a result, states, Medicare plans, 
74

and consumers could receive a misleading picture about the true acquisition costs of retail 

pharmacies. Medicare plans and other payers could conceivably change their pharmacy 

reimbursement based on faulty AMP data. 

This data will be publicly available before CMS is required to issue a rule 

instructing drug manufacturers on how to calculate AMP. Because of its potential 

damaging impact to community pharmacy, we believe that this data should not be made 

public or shared with the states until AMP is accurately and consistently defined. 

Reductions of this magnitude in Medicaid, coupled with the current economic 

impact of the Medicare Part D program, will unquestionably reduce access to pharmacies. 

We do not believe that policymakers have taken into account the cumulative economic 

impact that changes to Medicare and Medicaid will have on retail pharmacies and the 

communities they serve. We hope that you will continue to partner with America’s 

pharmacists and pharmacies in developing public policy that benefits patients, payers, 

and pharmacies. 

Thank you again for this opportunity to share Ahold USA’s perspective. We look 

forward to continuing to work with Congress and the Administration on these issues. I 

would be happy to answer any questions. Thank you. 

 MR. DEAL. Mr. Galluzzo. 

 MR. GALLUZO. Chairman Deal, Ranking Member Brown, fellow 

Buckeye, and other distinguished committee members, which today right 

now is Mr. Burgess from Texas. I want to thank you for giving me this 

opportunity to testify in front of this committee and representing the 

long-term care pharmacy community. My name is Larry Galluzzo. I am 

a pharmacist and I own a long-term care pharmacy in Mason, Ohio. I 

have owned the company for 25 years, and I have 230 employees, and I 

serve the residents in Ohio, Kentucky, and Indiana. 

 The first thing I wanted to say before I actually get started with most 

of my talk is that I want to thank CMS, and I want to thank them for 

being able to listen and learn about long-term care pharmacy and the 

problems that we have with the new Medicare drug bill. Most of those 

problems have been worked out, but there are three major concerns that 

the long-term care pharmacy community have that I am going to address 

today. 

 It has been quite clear through this whole implementation process 

that long-term care pharmacy and retail pharmacy are totally different 

types of pharmacies. A resident in a long-term care facility does not go 

to the pharmacy, the pharmacy goes to that resident, and when we go to 

that resident, we bring them specialized packaging, drug reviews, 

monthly medical records, e-boxes, stat orders, continuing education for 

the nurses, and other specialized services that you just don’t get from the 

retail pharmacy. Some of them may provide some of those services, but 

normally, you don’t get those from a retail pharmacy. 

 From my experience, I will tell you that when you have a resident in 

a nursing facility, the first thing they expect when they are admitted is to 

get their medicines on time. Now, imagine your mother or your father 
75

being admitted to a nursing facility and not being on the correct plan and 

denied necessary medications that they want. And to go one step further, 

let us suppose that they change the plan that they are on to a new plan 

that is going to give them access to their drugs. Well, guess what? That 

plan doesn’t kick in until the first of the next month. So you can go one 

day or you can go 30 days without having access to the medications that 

you need. That has got to be fixed. The one thing that has to be fixed is 

there is no reason why when you start a new plan in the middle of the 

month, there is no reason why it shouldn’t take effect immediately. I 

mean, we are in the 21st century. The technology is there. As Ms. 

Norwalk said, sometimes it takes a split second to see what that plan is, 

so why can’t we start that plan in the middle of the month instead of 

having to wait until the end of the month? 

 Now, the second thing about this whole thing is if your mom and dad 

are in the facility, how do you know what plan to be on? You may not 

know, but you need to be educated. I can understand where CMS wants 

to protect the beneficiaries against unethical and overzealous marketing 

practices. It may be a conflict of interest. But the problem I have is that 

they have lost the opportunity to have one of the most trusted 

professionals in the United States of America to guide them, to educate 

them on the new prescription drug plans. And who is that? It is the 

pharmacist. If you looked at the Gallup Poll over the last 5 years, who 

was always in the top three? Unfortunately, it is not attorneys, and I 

don’t mean to be disrespectful, but it is the pharmacists. The elderly, 

whether they go to a retail pharmacy or they are in a nursing home and 

their drugs are supplied by a long-term care pharmacy, they depend on 

us. And for us not to be able to advise them, counsel them, with them of 

course having the free choice to use whatever plan they want, but to take 

that away from us is really a sad thing. I don’t think there is anyone on 

this committee that will disagree with me. 

 So the two things that really have to happen, and I think we can do 

this without much hardship to anybody, is to enact the plan as soon as 

they change that plan, and also give the pharmacists a chance to educate 

and counsel the residents and their families. I think that is just extremely 

important. 

 I know when I go out and do drug and resident reviews, I don’t just 

sit at a nursing station. We go into the resident’s rooms. We may take a 

pulse, we may check blood pressures, we may check for edema. We will 

ask them how their new medications are working out. But they are going 

to ask me, Larry, what do you think I should do about Medicare Part D? 

Well, right now, my hands are tied. I can’t say anything to them. In fact, 

in the State of Ohio, State surveyors are going into our facilities, our 

nursing homes, and asking the question, are the pharmacies steering 
76

people to different drug plans? Well, we are not steering anybody, but 

what we would like to do is be able to educate them. That is really pure 

and simple. 

 The last thing that I want to talk about, because I did say there were 

three, and that is co-pays. Dual eligibles in nursing facilities don’t have 

co-pays, but unfortunately there has been a miscommunication from 

CMS to the prescription drug plans, and some of those are harshed with 

co-pays. Now obviously, they are not going to pay them, they are dual 

eligibles. So we are trying desperately to get the right information to the 

prescription drug plans so that we can be paid properly. 

 You heard today that 90 percent of the claims are paid within 15 to 

20 days. In my pharmacy, that is not true. We used to be paid every 21 

days by the State Medicaid program. Now, the time lag is an average of 

45 days. When it comes to mis-billings, it used to be about $175,000 a 

month. Now, it is up to $380,000 a month. So there is a critical shortage 

in cash flow that could be fixed immediately if they just get the 

communication right between CMS and the prescription drug plans so 

they don’t have co-pays on the dual eligibles, which they are not 

supposed to have. 

 That is all I have to say right now. I want to thank you for your time. 

If you have any questions for me later, I will be more than happy to 

answer them. Thank you. 

 [The prepared statement of Dr. Larry Galluzzo follows:] 

PREPARED STATEMENT OF DR. LARRY GALLUZZO, PRESIDENT, SKILLED CARE PHARMACY

Chairman Deal, Ranking Member Brown and distinguished Committee Members: 

Thank you for the opportunity to testify today as a representative of the long term 

care pharmacy community. I am a pharmacist by training and the president of a 

specialized pharmacy company that serves residents of long term care facilities in Ohio 

and Kentucky. Our company’s pharmacists are experts in the field of pharmaceutical 

care for the frail elderly and have been working on the “front lines” to assist in 

implementing the new Medicare prescription drug benefit. 

The long term care pharmacy community strongly supported the goals of the 2003 

Medicare Modernization Act (MMA) to expand access to prescription drug coverage for 

all Medicare beneficiaries. While many of the MMA’s provisions focused on 

beneficiaries who reside outside institutional settings, the Act also included important 

protections for vulnerable residents of nursing facilities. 

Long term care pharmacies have worked in close partnership with the Centers for 

Medicare and Medicaid Services (CMS) to identify and solve the inevitable problems 

associated with the introduction of a major new benefit under the Medicare program. 

Like other pharmacy providers, long term care pharmacies have been severely impacted 

by extended delays in payments from prescription drug plans, as well as a multitude of 

burdensome documentation requirements that vary widely among plans. 

CMS has issued important guidance to implement appropriate protections and 

ensure long term care residents’ access to necessary medications. We commend the 

Agency for its attention to these issues, however, a number of significant concerns 
77

remain unresolved. We look forward to working with this Committee and the 

Agency to address those challenges. 

Overview

The typical nursing home resident is 84 years of age, female, has seven distinct 

diagnoses, and takes approximately eight different drugs at any given time. The patients 

we serve are among the oldest and sickest Medicare beneficiaries, and until January 

2006, a majority received their drug coverage through State Medicaid programs. On 

average, 70 percent of nursing home residents received drug coverage under Medicaid, 

another 15 percent received coverage under Medicare Part A, and the remaining 20 

percent either were private pay patients or covered by a third-party plan. 

This situation changed dramatically on January 1, 2006, when dual eligible 

beneficiaries were auto-enrolled randomly in plans with premiums at or below the 

benchmark amount. The 70 percent of nursing home residents who are dually eligible for 

Medicaid and Medicare may now be enrolled in as few as six or as many as 16 different 

prescription drug plans. As a result, long term care pharmacists face a daunting task in 

attempting to manage these patients’ drug regimens across a wide variety of plans’ 

formularies. 

As implementation of Medicare Part D continues, several “course corrections” 

are needed to ensure that residents of long term care facilities continue to receive 

the specialized pharmacy benefits anticipated under the program. 

Network Access

Unlike beneficiaries residing outside institutional settings, long term care residents 

do not go to the pharmacy – the pharmacy comes to them. For that reason, a “retail” 

standard of access is inappropriate for long term care patients. To ensure access nursing 

home residents’ access to necessary medications, the MMA authorized CMS to establish 

long term care pharmacy network standards for prescription drug plans. 

 However, CMS has not developed an objective standard to evaluate the adequacy of 

a plan’s long term care pharmacy network. As late as November 2005, CMS continued 

to encourage plans to contract with long term care pharmacies to ensure convenient 

access to necessary services. 

Under guidance issued by CMS in March 2005, plans were required to provide a list 

of enumerated services to residents of long term care facilities1

. CMS expected plans to 

contract with pharmacies that could certify their ability to provide these services. In 

theory, each of the participants in these negotiations had equal incentive to compromise: 

the pharmacies needed access to provide services to nursing home residents, and the 

plans needed in-network pharmacies to fulfill their obligations for convenient access. 

As the negotiations progressed, however, it soon became clear that the pharmacies 

had much less bargaining power than the plans. If a nursing home resident was enrolled 

in a plan that did not include the facility’s long term care pharmacy in network, the 

pharmacy was forced to agree to the plan’s standard agreement in order to provide 

services to the beneficiary. Even if the beneficiary changed to a plan that included the 

pharmacy in network, the new assignment would not take effect until the first day of the 

following month. As a result, many pharmacies were forced to accept plans’ default 

provider agreements to avoid a lapse in coverage for beneficiaries in long term care 

facilities, particularly those in rural areas. 

To remedy this problem, CMS should allow changes in beneficiaries’ coverage 

to take effect immediately upon enrollment in a new plan. This approach would 

ensure beneficiaries’ continued access to necessary pharmacy services without 

imposing undue hardship on plans. 

 

1

 Centers for Medicare and Medicaid Services: Long Term Care Guidance (March 16, 2005). 
78

CMS Marketing Guidelines

In implementing Part D, CMS has gone to significant lengths to protect beneficiaries 

from unethical and overly aggressive marketing techniques that raise the potential for 

conflicts of interest. Long term care pharmacies strongly support this objective. At the 

same time, beneficiaries must have access to useful information necessary to select the 

best plan to meet their needs. Unfortunately, efforts by CMS to protect beneficiaries 

have made it almost impossible to help nursing home residents choose an appropriate 

plan. 

CMS issued its guidance on marketing activities last summer.2 This guidance is 

extremely prescriptive and effectively prevents long term care residents from receiving 

specific advice in selecting their drug plans. The simple act of suggesting to a 

beneficiary that certain drug plans are more responsive to the needs of long term care 

residents is, by CMS standards, considered a violation of the marketing guidelines. 

CMS officials have expressed repeated concern that health care providers will 

recommend plans based on their own financial interest rather than on the interest of the 

beneficiary. Yet beneficiaries face a multitude of plan choices, and a recent analysis by 

the Kaiser Family Foundation3

 highlighted significant differences among plan 

formularies. Clearly, some plans are more appropriate for residents of long term care 

facilities. Professional caregivers should be able to communicate this information to 

beneficiaries, while emphasizing that they are free to choose the plan they prefer. 

Compounding this problem, CMS recently issued a letter to state nursing home 

surveyors4

 outlining their responsibility to inspect nursing homes for evidence of 

steering, coaching, or requesting residents to select or change plans for any reason. This 

document has served to raise the stakes among nursing home operators for any wellintended effort to help residents choose an appropriate Part D plan. 

Given the frail medical condition and high level of cognitive impairment among 

residents of long term care facilities, CMS should allow professional caregivers to 

provide recommendations on plan selection to Medicare beneficiaries, while 

assuring them of their right to choose whatever plan they prefer. This simple 

change would enable them to provide effective counseling without undermining 

residents’ freedom to choose any available Part D plan. 

Cost Sharing

Under the MMA’s provisions, dual eligible beneficiaries residing in long term care 

facilities are not required to pay cost sharing for Part D covered drugs. Due to data 

exchange problems between the states and CMS, however, many dual eligibles were 

erroneously assigned co-payments under their Part D plans. 

In these cases, plans have reimbursed pharmacies at a lower amount after wrongly 

deducting the cost sharing amounts. To avoid delay in providing needed medicines, long 

term care pharmacies have typically dispensed the drugs and attempted to resolve the 

problem later. 

CMS continues to work with the states to improve the accuracy of data on dual 

eligible beneficiaries. In addition, CMS has provided guidance to plans that they may 

reimburse long term care pharmacies for inappropriately assigned co-payments. This 

guidance should help resolve historic claims from pharmacies owed reimbursement for 

 

2

 Centers for Medicare and Medicaid Services: Medicare Marketing Guidelines for: Medicare 

Advantage Plans (MA); Medicare Advantage Prescription Drug Plans (MA-PD); Prescription Drug 

Plans (PDP); 1876 Cost Plans (August 15, 2005). 3

 Hoadley, et al.: An In-depth Analysis of Formularies and Other Features of Medicare Drug Plans; 

Kaiser Family Foundation (April 2006). 

4

 Centers for Medicare and Medicaid Services: Memorandum from Director, Survey and 

Certification Group to State Survey Agency Directors (May 11, 2006). 
79

uncollected cost sharing, but not all plans are cooperating with efforts to clear up this 

backlog. 

This problem persists, and long term care pharmacies are now owed millions of 

dollars in improperly-assigned co-payments. While the Agency’s efforts to date are 

commendable, CMS must require plans to act promptly to resolve the significant 

backlog of uncollected, and improperly assigned, co-payments for dual eligible 

beneficiaries residing in long term care. 

Conclusion

Acknowledging the challenges inherent in implementation of a major new 

Medicare benefit, the long term care pharmacy community recognizes the 

importance of the Part D program. We are committed to its success and determined 

to ensuring that the nation’s frail elderly continue to receive the medications they 

need. Again, thank you for the opportunity to testify today, and I would be glad to 

answer any questions you may have. 

 MR. DEAL. Thank you. Mr. Hallberg. 

 MR. HALLBERG. Good afternoon, Chairman Deal, Ranking Member 

Brown, Congressman Burgess, nice to see you again, and other members 

of the committee. I am happy to testify today on the partnership with 

pharmacists and the implementation of Medicare Part D. My name is 

Chuck Hallberg. I am President and the founder of MemberHealth, Inc., 

sponsor of the Community Care RX program, the fourth largest 

standalone Part D program in the country, with about one million 

enrollees. 

 MR. DEAL. Could you pull your microphone a little closer? 

 MR. HALLBERG. I am sorry, is that better? 

 I founded MemberHealth in 1998 as a PBM. We operate now as a 

prescription insurance company and other programs with a national 

network of over 60,000 pharmacies. Prior to the start of Part D, we 

supported a successful Medicare discount card with approximately 

450,000 enrollees. 

 As we approach the MMA, we thought this was a tremendous 

opportunity to align the business, providing prescription drugs to ensure 

that the beneficiaries, pharmacies, physicians, and plans and the 

Government all faced consistent incentives. To help us achieve this goal, 

we did collaborate with the National Community Pharmacists 

Association to build a program that leverages the pharmacist’s skill to 

provide the best clinical outcome and the most financial value for the 

Medicare beneficiary. In designing our program, we focused on the idea 

that meeting the beneficiaries’ needs is paramount. If we do that, 

everything else will follow. 

 We believe that it is in the beneficiariy’s best interest to have the 

most appropriate care at the least cost, so we have implemented a 

program to help our pharmacists ensure that our enrollees take advantage 

of the savings available to them for generic drugs. Our generic incentive 
80

program provides higher dispensing rates to pharmacies that meet 

generic dispensing goals. This payment increase provides an incentive 

for pharmacies to spend extra time helping our enrollees save money, 

and has proven very effective. The CCRX generic dispensing rate is 

about 60 percent and consistently comes in that percentage every day. 

This is well above the industry commercial standards, and we believe it 

is well above the Part D plan averages as well. In addition to saving 

money for our enrollees, the high generic dispensing rate will save 

Medicare money, because as we control costs better, Medicare will save 

through lower bids and reduced risk quarter costs. 

 We believe it is in the beneficiary’s best interest to have a strong 

relationship with their pharmacist, so we designed our medication 

therapy management program to support this relationship. While other 

Part D plans may have chosen to implement MTM programs via remote 

methods, phone calls, and other avenues, our program pays the 

pharmacist to work directly with our enrollees. Once our system 

identifies enrollees who meet the MTM requirements, we send the 

information to the enrollee’s pharmacy to schedule a session where the 

pharmacist reviews the enrollee’s drugs to look for clinical problems or 

savings opportunities. We believe that this close interaction will help our 

enrollees better manage their diseases, their costs, and taps into the 

pharmacist’s expertise. We believe that it is in the beneficiary’s best 

interest to have an opportunity to review their drug use and ways to 

comply with our formulary with a pharmacist is part of their transition 

into the Community Care RX plan. 

 As a result of that, we are currently implementing a change to our 

transition plan under which we will pay pharmacies to perform this 

review for all new enrollees starting June 1. We developed this initiative 

because one of the lessons that we learned during the first months of Part 

D is the importance of ensuring a smooth transition for all new enrollees. 

Many of them do have questions, many of them don’t understand how to 

transition if there is a drug on non-formulary, and many of them simply 

don’t know how to take advantage of the best cost savings. We are 

paying the pharmacists as part of this transition policy to help the 

beneficiary reduce that confusion, answer those questions, and transition 

into the Medicare program. It is our welcome to Medicare medication 

review. 

 While our focus has always been on serving the beneficiary, we 

recognize that our network pharmacies are businesses, and we work hard 

to ensure that we are the best business partners that we can be. As noted 

above, we provided incentives for generic dispensing so that we pay for 

performance. We pay our pharmacists to perform the MTM and 

transition reviews, recognizing that the pharmacists need to make a 
81

commitment to providing these services and must be compensated 

appropriately. 

 We also make timely payment to our pharmacies a priority. We pay 

our pharmacies twice a month, on the 1st and the 15th. These payments 

do correspond to two payment cycles per month. Weekly payments are 

the standard for many of the State Medicaid programs. The first cycle 

that we pay occurs from the 1st to the 15th, and of course, the second is 

from the 15th to the 31st. To further improve the timeliness of our 

payments, we have also implemented EFT, electronic funds transfer, for 

pharmacies electing that option, starting March 31. We currently pay 

about 35 percent of our claims electronically at the very day that the 

payment is due, and we look forward to getting all of our pharmacies on 

to this program in the coming months. 

 Before I close, I would be remiss if I didn’t mention the outstanding 

effort of our network pharmacies in dealing with Part D program’s 

startup troubles. I hope my testimony demonstrates that we at 

MemberHealth have sought consistently to support our pharmacies in 

delivering the best care to our enrollees, but the pharmacists in the 

community went way above and beyond the call of duty, and we will be 

eternally grateful for those efforts. 

 In closing, let me reiterate my thanks for the invitation to address the 

committee, and say that we believe our focus on meeting the 

beneficiary’s prescription drugs needs through strong patient/pharmacist 

relationships will provide tremendous value to the beneficiaries, the 

pharmacies, and the Medicare program for years to come. 

 Thank you. I would be pleased to answer any questions. 

 [The prepared statement of Charles E. Hallberg follows:] 

PREPARED STATEMENT OF CHARLES E. HALLBERG, PRESIDENT, MEMBERHEALTH, INC. 

Good morning Chairman Deal and members of the Committee. I am happy to be 

here today to testify on the partnership with pharmacists to implement Medicare Part D. 

I am the founder and President of MemberHealth, the sponsor of the Community 

Care Rx program, the fourth-largest stand-alone Part D plans in the country with about 

one million enrollees. I founded MemberHealth in 1998 as a pharmacy benefit 

management company, and we operate prescription insurance and discount programs 

through our national network of over sixty thousand network pharmacies. Prior to the 

start of Part D, we supported a successful Medicare Drug Discount Card, with 450,000 

enrollees. 

As we approached the MMA, we thought this was a tremendous opportunity to realign the business of providing prescription drugs to ensure that beneficiaries, 

pharmacies, physicians, plans, and the government all faced consistent incentives. To 

help us achieve this goal, we collaborated with the National Community Pharmacists’ 

Association (NCPA) to build a program that leverages the pharmacists’ skills to provide 

the best clinical outcomes and most financial value for the Medicare beneficiary. 

In designing the CCRx program, we focused on the idea that meeting the 

beneficiary’s needs is paramount – if we do that everything else will work itself out. 
82

We believe it is in the beneficiary’s best interest to have the most appropriate care at 

least cost, so we’ve implemented a program with the help of our pharmacists to ensure 

that our enrollees take advantage of the savings available to them from generic drugs. 

Our generic incentive program provides higher dispensing rates to pharmacies that meet 

generic dispensing rate goals. This payment increase, provides an incentive for 

pharmacists to spend extra time helping our enrollees save money and has proven very 

effective. The CCRx generic dispensing rate is about sixty percent, well above industry 

averages and we believe well above Part D plan averages. In addition to saving money 

for our enrollees, this high generic dispensing rate will save Medicare money because as 

we control costs better, Medicare will save through lowered bids and reduced risk 

corridor costs. 

We believe it is in the beneficiary’s best interest to have a strong relationship with 

their pharmacist, so we designed our Medication Therapy Management (MTM) program 

to support this relationship. While other Part D plans have chosen to implement MTM 

programs via remote methods – phone calls or other avenues – our MTM program pays 

pharmacists to work directly with our enrollees. Once our system identifies enrollees who 

meet the MTM requirements, we send the information to the enrollee’s pharmacy to 

schedule an MTM session, where the pharmacist reviews the enrollee’s drugs to look for 

any clinical problems or savings opportunities. We believe that this close interaction will 

help our enrollees better manage their diseases and their costs by tapping into our 

pharmacists’ expertise. 

We believe it is in the beneficiary’s best interest to have an opportunity to review 

their drug use and ways to comply with our formulary with a pharmacist as part of their 

transition to CCRx. We are now implementing a process to pay our pharmacists to 

perform this review for all new enrollees to CCRx starting next month. We developed 

this initiative because one of the lessons we learned in the first months of Part D is the 

importance of ensuring as smooth a transition as possible for new enrollees, and we’re 

enlisting our pharmacists to look for clinical red flags in our new enrollees’ drug use as 

well as opportunities to move to formulary drugs or generics or to begin formulary 

exception processes early if need be. 

While our focus will always be on serving the beneficiary, we recognize that our 

network pharmacies are businesses and we work hard to ensure that we’re the best 

business partner we can be. As noted above, we’ve provided incentives for generic 

dispensing so that we pay for performance, and we pay our pharmacists to perform MTM 

and transition reviews, recognizing that the pharmacists need to make a commitment to 

providing these services and must be compensated appropriately. 

We also make timely payment to our pharmacies a priority. We pay our pharmacies 

twice per month – on the 1st and 15th of each month. These payments correspond to two 

claims cycles per month. Two cycles per month is the industry standard for the 

commercial marketplace. Weekly payments are the standard for many State Medicaid 

programs. The first cycle covers claims incurred from the 1st through the 15th of the 

month, while the second cycle covers the 16th through the end of the month. Payments 

for each claims cycle are issued 15 days following the end of a cycle. As an example, 

claims incurred from March 1st through March 15th are paid to the pharmacies on April 

1st. We have also issued a payment calendar so that our pharmacies can monitor their 

payments for the remainder of 2006. 

To further improve the timeliness of our payments, we recently began processing 

electronic fund transfers (EFTs), for those pharmacies electing that option for the claims 

cycle ending March 31st. We currently pay electronically for about 35% of our claims, 

and we are working to have the majority, if not all, of pharmacies on our EFT program, 

because this will cut at least five days off of the payment cycle and allow for better 

controls to ensure that the pharmacies are paid the right amount at the right time. 
83

Before I close, I would be remiss if I didn’t mention the outstanding efforts of our 

network pharmacies in dealing with the Part D program’s start up troubles. I hope my 

testimony demonstrates that we at MemberHealth have sought consistently to support our 

pharmacies in delivering the best care to our enrollees, but the pharmacists in the 

community went above and beyond the call of duty and we will be eternally grateful for 

those efforts. 

In closing, let me reiterate my thanks for the invitation to address the Committee and 

say that we believe our focus on meeting the beneficiaries’ prescription drug needs 

through strong patient-pharmacists relationships will provide tremendous value to the 

beneficiaries, the pharmacies, and the Medicare program for years to come. 

 MR. DEAL. Well, thank you. That was interesting testimony. We 

got you all here at one time, now we are going to try to sort some things 

out. 

 Mr. Hallberg just mentioned electronic transfers that he is starting. I 

think you said about 30 percent of your people are now using it. Mr. 

Merritt, what percent of your payments are by electronic transfer? 

 MR. MERRITT. You know, I don’t have that number. I can get it for 

you. We do know, again, we deal with about 55,000 different 

pharmacies, many of which are not equipped for EFT. We definitely see 

it as something that is coming down the road as something in the future, 

but for right now I don’t have those particular numbers on the 

percentages. 

 MR. DEAL. But if a pharmacist is equipped to do it on his end, you 

are prepared on your end? 

 MR. MERRITT. Yeah, we are prepared on our end to do that, and it is 

one of the options that we offer. 

 We are a little concerned about mandating it right now, although we 

might be able to work with that. Depending on the context, as well, 

because there are some startup costs to be involved, especially with a lot 

of the independent pharmacies who are not equipped for this and maybe 

aren’t as interested in having it. But certainly, it is something that we see 

coming down the road. 

 MR. DEAL. But it seems to me in this day and age that most 

everything else is done electronically, and we are talking about trying to 

eliminate the delay of getting the money in the hands of the person who 

has already had the drugs. The quicker we do it, the better, and it seems 

to me that that would be an inexcusable delay time between the time the 

claim is submitted and having to wait on a check in the mail. I think we 

can all do better than that. I would just simply encourage everybody to 

move in that direction. 

 Let me talk about some suggestions Mr. Wirth had, and we are 

talking about this enrollment lag issue. Mr. Galluzzo would say we 

ought to be able to do that instantaneously too. I would like to think that 

we at some point can, but we apparently are not there yet. It takes 
84

everybody at this table to cooperate in doing that and achieving that goal, 

but in the meantime, would it be feasible, as Mr. Wirth suggests, that we 

pick a date that if you make your transfer from this company A to B? If 

you do it before the 15th of the month that your changeover would be 

effective the 1st of the next month, but if you do it in that last half of the 

month, that you are going to have to wait maybe until the following 

month? I mean, I know we would like to do it quicker than that, but 

what is a realistic solution to this? It seems to me that the first question I 

asked was on this issue, because I don’t see this one going away. 

Everybody that enrolls new every day, this problem is going to multiply. 

What is a realistic proposal on enrollment lag? Anybody that wants to 

comment, not all at once. 

 MR. WIRTH. Chairman Deal, I would applaud a 15-day time period. 

That certainly works for us as a community pharmacy, but we are not the 

ones who have to implement the changes. There is also a significant 

issue of beneficiary education that they understand. CMS has worked 

hard to try to explain that to beneficiaries to enroll early, but that just 

isn’t enough. 

 MR. DEAL. What about Mr. Hopkins? 

 MR. HOPKINS. One of the things that we have learned through 

facilitating enrollment and working collaboratively with the chains and 

the independent associations, and it has been recommended to CMS, is 

that modified E-1 transaction where you look at Part A, B, and D, and 

generally, when you are doing that, you can determine that if they are 

with WellPoint or Aetna for this service then they are probably with 

them for the drug component. That is currently under discussion, but I 

think that would help the pharmacies determine where the claim is 

supposed to go. 

 In response to your question on the lag time, I think that 15 days is 

the time frame that I have heard to resolve the enrollment issue. 

 MR. DEAL. What is it going to take for us to get there? Can the 

industry do it on its own, or is it going to take somebody telling you to 

have to do it? 

 MR. HALLBERG. Chairman Deal, currently I believe under the 

statute, if someone signs up at 11:59 the last day of the month, we are 

obligated to scramble if we can. 

 MR. DEAL. So we may have to change that if we are going to dictate 

some of the time frame. All right. 

 MR. GALLUZO. Chairman Deal, may I make a comment? 

 MR. DEAL. Sure. 

 MR. GALLUZO. There is approximately four percent of the 

beneficiaries that live in long-term care. Those four percent take, 

depending on what analysis is made, anywhere from 25 to 50 percent of 
85

the drugs that Medicare pays for. That is a lot. So our main concern is 

access to those drugs, and even if they can’t get the pay type right 

immediately, there is no reason why they can’t retroactively pay the 

pharmacy for those prescriptions that the resident needs. The doctor is 

not going to be willingly changing the regimen of those elderly, so the 

pharmacist is going to send that medication out regardless. We just want 

to make sure that the resident has the access, which they will, because we 

will send them out, but we just want to make sure that we are going to be 

paid for those. That has probably been a problem in the past for us, 

because we are not going to deny anybody any medications. We just 

want a proper payment schedule and know that we are going to be paid 

for them. 

 MR. DEAL. Mr. Brown, you are recognized. 

 MR. BROWN. Thank you, Mr. Chairman. 

 Mr. Galluzzo, I caught your comment about we are not in the top 

three. You assume we are all attorneys. We are not all attorneys, but I 

assume probably Congressmen aren’t in the top three, either, so that 

would be a better statement to make. 

 Let me start with you, and then I would like to ask a question sort of 

from everybody, Mr. Hallberg down to Mr. Hopkins, Mr. Merritt, but 

start with a question for you, Mr. Galluzzo. I have talked to pharmacists 

in darn near every part of Ohio, Norton and Troy and Cincinnati and 

Toledo, and one issue that always comes up is the whole issue with dual 

eligibles and the automatic enrollment and putting them in a plan that 

they didn’t necessarily choose, assigned by random. This study in 

Connecticut found that out of pocket costs for a dual eligible could vary 

by thousands of dollars a year, depending on their illness, depending on a 

lot of factors. A study by Department of Health and Human Services, 

the Inspector General found that in California, Nevada, and Arizona, 50 

percent of the dual eligibles were auto-enrolled, were random 

automatically enrolled in the plans that covered less than 85 percent of 

the drugs that were prescribed for them. 

 Comment, if you would, from a long-term care perspective, what has 

happened? Comment, if you would, what it means to long-term care 

pharmacies, and comment, if you would, on what advice you would give 

CMS for how to deal with dual eligibles who will continually hit the 

system and continually be assigned to various plans randomly. 

 MR. GALLUZO. That is an interesting question. I understand why 

they are randomly assigned, but the point of the matter is that there are 

some prescription drug plans out there that just aren’t conducive to longterm care. If you run into those plans, and I have to admit that all the 

dust hasn’t settled yet, but if you run into some of those plans, then it is 
86

best that that resident is switched to a better plan. I will tell you why 

some plans aren’t so good. 

 Some of them aren’t so good because they have a narrow formulary, 

although the first 90 days, 120 days is supposed to cover just about 

everything. Some haven’t taken the time to understand long-term care 

and some of the prior authorization that we have to go through is very 

cumbersome, and the residents aren’t going to get their medication 

timely, or they will get it and then there won’t be proper reimbursement. 

There are some PDPs that you can actually stay on the line for up to an 

hour waiting to get a question answered, and you don’t dare hang up 

because when you call back, it is going to take another hour. So in my 

billing department, we have had to hire four new people just to handle 

the new process. The other problem I have with some PDPs is they just 

haven’t cared to learn about long-term care and how we operate. 

 So my advice to CMS is give the pharmacist an opportunity to sit 

down with not only the resident, because these are the sickest of all of 

them, and some of those you can’t talk to, so what you are going to end 

up talking to is the family. But sit down with the family and discuss the 

drug regimen review, discuss formularies that they are on, because we 

are experts in drug formularies. Then come up with a suggestion that is 

going to help them have better access to their medication. 

 The other thing is if you can start a plan on the last day of the month 

and you can start it on the next day, why can’t you have a new plan on 

the 16th and start it on the 17th? If you can do it on the 31st to the 1st, why 

not the 16th to the 17th? That I don’t understand. 

 MR. BROWN. Nor do I. 

 MR. GALLUZO. All right. 

 MR. BROWN. Thank you for that. 

 Mr. Hallberg, and if everybody would just go down the line, my 

understanding, and I have heard it from some of you, too, there is no 

requirement either in the statute or CMS rules to ensure that plans pay 

pharmacies promptly. I know that some plans have tried. Do we stick 

with voluntary efforts on the part of plans to pay, or should Congress 

change the statute or CMS order some regiment that plans be paid within 

a specific time frame? Just go up and down, give a short answer, if you 

would. 

 MR. HALLBERG. It is an excellent question, and it is a question of 

policy. There are different business solutions out there, as I indicated in 

my testimony. Although the commercial world is typically paid on a 

twice a month basis, many of the States for their Medicaid business have 

historically paid on a weekly basis. As you have heard from some of the 

other folks here, particularly Mr. Couch and from the wholesalers, many 
87

of the business plans for the pharmacies across the country are welldeveloped to work around the existing methodologies. 

 The policy question is really whether or not all of those businesses 

should change to conform to a single commercial environment, or 

whether it is appropriate for Congress to enact legislation that essentially 

says okay, all you PBMs that were in the commercial world, you are now 

playing as a government contractor. When in Rome, do as the Romans 

do. If you are going to be in a government contract environment, and 

that historically has had a weekly type of time period for payment, then 

perhaps it is appropriate that the people who are the contractors adopt 

practices that are consistent with the existing policies that various 

governments across the country have been utilizing. 

 So as you mentioned, it is purely an absolutely appropriate policy for 

this committee and Congress to consider. 

 MR. BROWN. Mr. Galluzzo, should it be required or left voluntary? 

 MR. GALLUZO. Well, are you asking me that question? 

 MR. BROWN. I am asking everybody. 

 MR. GALLUZO. I believe in competition, and I would hope that it 

could be voluntary, but I am not so sure that is going to get done. 

 MR. BROWN. Okay. Mr. Wirth? You are the guy that talks about 

lawyers too, so-- 

 MR. GALLUZO. Some of my best friends are attorneys. 

 MR. BROWN. Mr. Wirth. 

 MR. WIRTH. I would like to see Congress and policymakers define 

what the payment cycle means based upon the day of receipt of a clean 

claim. To say I am going to pay claims once a month does not mean the 

claims are paid in 30 days. To say I pay on the 15th and 30th of the month 

does not mean I pay claims in 15 days. So I prefer to see the standard be 

set by Congress and CMS that the payment cycle is based upon the date 

of receipt of that clean claim. Thank you. 

 MR. BROWN. Thank you. Dr. Harden? 

 DR. HARDEN. Mr. Brown, just a quick example. Georgia Medicaid 

has for several years now paid all claims EFT. Any claim submitted 

prior to Thursday of the week before was paid on Tuesday of the 

following week. Therefore, I would challenge that particularly Georgia 

pharmacies are not equipped to accept EFT payments. They have been 

doing so under Medicaid for several years, and the contract that the State 

had with that particular PBM required that it be done in that manner. No 

other plan that I am aware of has offered to step forward and make that 

kind of access to payment to stop this, so I would think from that 

particular event that probably unless it is required, it will not happen. 

 MR. COUCH. Congressman Brown, I am technically a distributor, 

and that part of the issue. I don’t receive payments. 
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 Congressman Brown, I don’t think it is appropriate for me to be in 

that position, but I will tell you this. The whole system that we have, the 

business model that is producing unbelievably efficient, effective ways 

of getting drugs to patients at a very cost-effective number is based on 

quick turnaround and quick usage of rotating product and getting paid for 

it. As a distributor, I need to be paid promptly. My customers need to be 

paid promptly if I am going to be paid promptly. 

 I will speak to electronic payments. Our company has been using 

electronic payments both ways for years and years, and I would bet that 

well over 80 percent in 14 States use electronic payments, so electronic 

payment is not a problem. 

 MR. BROWN. Thank you. Mr. Hopkins. 

 MR. HOPKINS. WellPoint agrees that pharmacists should be paid 

promptly and accurately. WellPoint has the processes in place to ensure 

that this happens. I was the architect of legacy Anthem’s payment 

process, how the payment process was set up. The electronic fund 

transfers, the electronic reconciliation, and our chain partners, 80 to 90 

percent of them use this process. We have this process in place for our 

high volume independent pharmacies. I think the independents could be 

more effective if more chose to use this process with WellPoint. So I 

think this process or changing the payment rules should be left voluntary. 

 MR. BROWN. Thank you, Mr. Hopkins. Mr. Merritt? 

 MR. MERRITT. I would just harken back a little bit to what the 

purpose of the claims payment process is. There are a number of 

responsibilities that we have, and of course, the question of how we do it. 

It is important that we pay the right amount of the claim, and that we do 

so in an efficient and cost-effective way. We also need to make sure 

there aren’t improper drug interactions of people being prescribed one 

drug from one doctor, another from another doctor, maybe filling it at a 

different pharmacy as well. PBMs have that information where we can 

sort that out. Also, we have to comply with a number of laws from 

Medicare, HHS, OIG, and of course, our private payers and so forth. 

 Now, in terms of prompt pay, we do think it is happening right now 

voluntarily. Our companies pledge to pay it within 30 days because that 

is our standard business practice in the commercial marketplace. That is 

also the way FEHBP does it. That is the way Medicare pays doctors and 

hospitals. So in terms of do in Rome as the Romans, that is the way 

doctors and hospitals get paid, in 30 days, 95 percent clean claims and 

Medicare. So we would ask that as this is being considered, it should be 

viewed as a level playing field and not changing the rules for one 

particular part of healthcare. 
89

 MR. BROWN. Thank you. Mr. Chairman, I apologize for the length. 

I have a unanimous consent request from a beneficiary testimony that we 

would just like to submit, if that is possible. 

 MR. DEAL. Without objection. 

 [The information follows:] 
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MR. DEAL. Dr. Burgess. 

 MR. BURGESS. Thank you, Mr. Chairman. 

 You know, as I hear you all talk, and Dr. Harden, I feel your pain. I 

spent years in private practice of medicine, and yes, I recognize that you 

don’t negotiate a contract with your price takers. 

 We fought the prompt pay issue a lot in Texas with physicians and 

insurance companies, and eventually worked out a program where we 

would be paid within 45 days. Now, most of that was based on 

electronic fund transfers, and I guess I am a little surprised to find that 

with today’s technology, 10 years later, that this isn’t all done on 

electronic fund transfers. I think that would obviate the difficulty with 

having to switch something in the middle of the month, but I mean, we 

have representatives here who tell us is this not a possibility that the 

turnaround on the claim is with 48 to 72 hours after it is submitted 

electronically? 

 MR. MERRITT. I harken back to, again, what our responsibilities are, 

and then I will answer your question directly. 
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 First of all, what happens is we have to detect a lot of things. What 

happens at the pharmacy counter is a person walks up, and before he or 

she pays a co-pay, the pharmacist will plug in to the system to see is this 

person insured. If so, is this drug part of their formulary? If so, what is 

the co-payment? The customer then pays the co-payment and walks out 

the door, but there is a lot of stuff that happens after that that we fit into a 

standard process, because we have such huge volume. Typically-- 

 MR. BURGESS. Well, I guess that really is where I have the question. 

If you have the huge volume, you are making it harder on yourself only 

paying once a month. Oh, my gosh, you must be inundated with claims 

that one payment day. 

 MR. MERRITT. Well, we don’t pay them just once a month. We 

batch often. It depends on the company. Some people batch the claims 

weekly, maybe every two weeks, and then mail out a check when they 

have done the proper fraud checks and making sure that these are correct. 

First of all, a number of companies do sample up to 25 percent of the 

claims to make sure that they are being processed properly, that there 

aren’t doctors who are liars, and pharmacies who are liars-- 

 MR. BURGESS. I will grant you the regulatory environment we have 

given you to work in is probably not conducive to things happening 

quickly, but again, I have always been amazed that there have to be laws 

to tell people to pay their bills. I mean, it used to bug me when I was in 

practice as well. 

 Let me switch gears just for a moment, and Mr. Hallberg, you 

brought up the dispensing fee issue. Now what do you pay your 

pharmacists on your CCRX plan? Do you pay a dispensing fee? 

 MR. HALLBERG. Yes, sir, we do. It does vary by the pharmacy and 

those are negotiated with the various chains and independents. 

 MR. BURGESS. Okay. So you can’t tell us--you don’t have a set 

dispensing fees that you provide? 

 MR. HALLBERG. We have various sets. 

 MR. BURGESS. You also made the statement, which I like to hear, 

that you do encourage and you try to facilitate generic prescribing. 

 MR. HALLBERG. Yes. 

 MR. BURGESS. Has that been a burden for your pharmacists? 

 MR. HALLBERG. Has it been a burden, no. In fact, our pharmacists 

are very, very engaged in the process as I indicated with a generic 

dispensing rate of 60 percent and climbing, it clearly indicates that the 

pharmacies are able and willing to outsurpass the industry standards. 

Generally, they are very committed to, you know--in this environment, 

not only does it save the Federal government sometimes-- 

 MR. BURGESS. I will stipulate that. Have you provided information 

to this committee before? I would appreciate that you have more than 
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one dispensing fee, but is that proprietary information that you can’t 

make available? 

 MR. HALLBERG. Generally speaking it is proprietary information, 

but I would be glad to work with the committee to articulate the concepts 

and methodologies. 

 MR. BURGESS. Well, Mr. Chairman, if it is all right with you, I think 

that would be helpful to look at that. At least, I would like to. 

 Finally, in the time that is allotted to me, we have got 30 seconds. 

Can either Mr. Hopkins or Mr. Merritt define a clean claim for us? 

 MR. HOPKINS. WellPoint defines a clean claim that comes into the 

adjudication system, passes through all the edits that are in place, and the 

pharmacy receives an approved POS response back saying it is 

authorized for payment. 

 MR. BURGESS. And how long does that take? 

 MR. HOPKINS. Generally, if the systems are working appropriately, 

it is within a second, depending on how claims processing systems work. 

 MR. BURGESS. And so that claim would be presented for payment 

within that timeframe? 

 MR. HOPKINS. When WellPoint returns an authorization for 

payment, we are indicating to the pharmacy that the claim has passed 

through the edits and we are authorizing payment. WellPoint will also 

do some analysis on the claims in between when we receive the claim 

and when we produce the electronic information. We do this in case we 

find anything else, but generally, it is approved for payment. 

 MR. BURGESS. Give me an example, what would some of those 

edits be? 

 MR. HOPKINS. We do additional analysis on claims to make sure 

that there is an appropriate relationship between the day’s supply 

dispensed and the dosage. Some pharmacies will submit 100 quantity in 

a 30-day supply when it is a once-a-day drug, so we are looking for 

inappropriate relationships or inappropriate prescription prescribing. 

General safety precautions or precautions around fraud. 

 MR. BURGESS. But none of those edits would involve the 

reimbursement rate? 

 MR. HOPKINS. Some of the edits you can do in a point of sale 

system live which will stop the claim at the beginning, other edits you 

can’t. They are not generally tied around the reimbursement or the rate 

that is applied to the claim, but they are necessary to make sure that we 

are protecting the fiduciary responsibilities of our clients. 

 MR. BURGESS. Can anyone tell me is there any premium paid if a 

claim actually falls outside the agreed 30-day timeframe? Do you then 

bill usual customary rate, or are you still bound by the negotiating rates, 

Dr. Harden? 
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 DR. HARDEN. No, there is no premium paid. 

 MR. BURGESS. There is no penalty or encouragement that CMS has 

to ensure that the payments are promptly received? Obviously, cash flow 

is something that keeps coming up and keeps coming up. 

 DR. HARDEN. Not that I am aware of, and on the clean claims, I 

would say that high 90 percent of the claims are adjudicated 

immediately. The type of review that is done by the PBMs after the 

claim is paid is the type that we have heard about today. So the claim 

goes in basically as a clean claim almost immediately. The patient needs 

the medication at that point. The PBMs do audits later to ensure that the 

claims are, indeed, clean. We found if they find that there may have 

been a mistake in the day’s supply or something like that, a clerical error, 

they will recoup the entire amount of the prescription even though the 

patient had received the medication. The medication was prescribed by 

the physician and they recoup that amount also because basically of a 

clerical error. 

 So clean claims I would say, you know-- 

 MR. BURGESS. Who negotiated your contract for you? I am just 

kidding. 

 Mr. Chairman, I will yield back. 

 MR. DEAL. We are going to go with a real quick second round of 

questions here. Since we didn’t have any beneficiaries I guess 

everybody left, but we have got a few more questions that some of us 

would like to ask. 

 Let us talk about prior approval. That has been one of the issues that 

has come up from time to time. Dr. Harden, how much of an issue is 

prior approval at the pharmacy level? 

 DR. HARDEN. At the pharmacy level, it can be rather burdensome, 

and of course, we have got prior approval. We have got step therapy, 

which means that you must try certain drugs beforehand. Prior approval 

takes a lot of the time of physicians and pharmacists to try to get a prior 

approval through, and it takes the patients’ time. It delays the patient 

getting the needed medication in the proper amount of time. I 

understand possibly why prior approval is needed in order to ensure that 

the drugs that PBMs receive the most rebates on are used first, but it does 

require a lot of time that should be spent with the patient and educating 

that patient on the drug, educating that patient on the management of 

their therapy. 

 MR. DEAL. Mr. Hopkins, Mr. Merritt, is that the basis on which 

prior approval is based is to make sure that the patient is using the drug 

that you have negotiated the best price with the manufacturer on? 

 MR. HOPKINS. There can be several different things that you look at 

for a prior authorization process. One can be a safety program, one can 
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be a formulary medication. There are several different reasons, but you 

know, for Part D, the prior authorizations or the typical programs you 

would have in place in a commercial program have not been in place at 

the beginning of the year to ease the burden on pharmacists. At some 

point this year, they will be put in place, but prior authorizations are not 

just about driving rebates. You have to look at the quality and safety 

aspects of them also. 

 MR. DEAL. Mr. Merritt, do you want to add something? 

 MR. MERRITT. I would agree with that and I would say there are 

other compliance issues as well. For instance, right now it is unclear on 

some drugs that could qualify in Medicare for Part B or Part D. The 

Office of Inspector General has made it very clear they want us to put a 

good faith effort into determining that payments are made in the right 

accounts. That is something that sometimes takes some time. We are 

working with the Pharmacy Quality Alliance too. Some of our member 

companies are involved with pharmacies’ plans, CMS, and so forth, to 

streamline where there are issues in prior approval. I think CMS put out 

a notice this morning that I haven’t had a chance to fully read because we 

have been otherwise engaged on clearing up the messaging process and 

making messaging a little more streamlined between plans and 

pharmacies. But there are good reasons on prior approval that we are 

concerned about. There are other issues, for instance, with addictive 

drugs or narcotics like OxyContin and so forth. We want to make sure 

there hasn’t been doctor shopping going on or pharmacy shopping where 

people get two or three scripts and try to fill them simultaneously at 

different places. We need to guard against that because PBMs have the 

clearinghouse of all this benefit information, and pharmacies and doctors 

don’t have that. 

 MR. DEAL. Let me stop you right there. Suppose you find that that 

is going on. What do you do? 

 MR. MERRITT. Well, Tim may be in a better position to answer it 

from an operational point of view, but that would be something where 

we wouldn’t pay that particular claim and would alert the pharmacist and 

the physician about the situation. 

 MR. HOPKINS. The PBM claims processing systems are generally 

set up with safeguards that will reject those types of claims at the point of 

sale, so if you have somebody who is going to multiple pharmacies on a 

given day getting the same drug, generally most systems will reject that 

claim at the point of sale. 

 MR. DEAL. So you leave it up to Dr. Harden to tell them he can’t fill 

the prescription? Does anybody report this to law enforcement officers? 

Are you allowed to do that? 
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 MR. HOPKINS. Generally from my experience in pharmacy 

practicing as a practicing pharmacist in the State of Ohio, when you have 

something suspicious going on with a patient it is your obligation to 

report it. Either report it to the physician or report it to law enforcement. 

 MR. DEAL. Do you tell the pharmacist why you are not giving 

approval? Do you tell the reason or do you just say it is not approved? 

 MR. HOPKINS. On a situation that Mr. Merritt brought up, we would 

send a message back that said, you know, duplicate drug dispensed at 

multiple pharmacies. 

 MR. DEAL. Okay. 

 DR. HARDEN. Mr. Chairman, I would submit that that is not really a 

question of prior approval. The earlier testimony was that they do track 

drugs and they have a central clearinghouse to ensure that a patient is not 

physician shopping or pharmacy shopping. So that is not really a prior 

approval issue, because they do that on a regular basis as far as payment 

of claims. 

 MR. DEAL. Well, my time is just about gone, but I would say a few 

things that I think the industry needs to work on. One is the prompt 

payment issue, and hopefully electronic transfers average will go up 

from the 30 percent Mr. Hallberg talked about to 90-plus percent. I think 

that will take care of a lot of those issues. The other is the prior approval 

issue, and the next one is the adjudication of appeals in a prompt and 

expeditious fashion. We haven’t had time to talk about that aspect of it, 

but I see those as being three of the major areas where we get the 

complaints and may be put in a position where we have to offer some 

solutions that we would much prefer if you all would offer those 

solutions. 

 Mr. Brown. 

 MR. BROWN. Mr. Chairman, since my round of questions took 10 

minutes rather than 5; I will just relinquish my time to Mr. Burgess. 

 MR. DEAL. Dr. Burgess. 

 MR. BURGESS. Well, I thank the Chairman and Ranking Member for 

yielding. Dr. Galluzzo, you mentioned in your testimony that in a longterm care facility, you are not allowed to talk to patients about signing up 

for the drug plan, is that correct? 

 MR. GALLUZO. CMS considers anything really that we say to the 

residents and their family as steering. 

 MR. BURGESS. That was not the experience we had in Texas. I had 

several nursing homes in Gainesville who complimented me on what a 

good job CMS had done coming in and getting people signed up for their 

plans. Was that because CMS did it and not the nursing home operator? 

 MR. GALLUZO. It is not the nursing home operator. It is the 

pharmacist that is not allowed to really talk to the resident about making 
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suggestions about the prescription drug plans. They consider that 

steering. In Ohio, as I said earlier, State surveyors, when they go into the 

facilities, are actually questioning administrators, DON, and the 

residents--has the pharmacy been in to talk to you about your 

prescription drug plan? They don’t allow us to discuss it with the 

residents and their families. 

 MR. BURGESS. Mr. Chairman, I would just submit-- 

 MR. DEAL. Would the gentleman yield? 

 MR. BURGESS. I would be happy to yield, Mr. Chairman. 

 MR. DEAL. Let me go to the next aspect of that. It was alluded to by 

Mr. Wirth, I believe, and that is steering which is being allowed. That is 

the complaint that is going against some of the companies that you were 

not disqualified from advising people as to how to sign up is my 

understanding. Now some of the information that these people may have 

signed has become the basis for solicitations of those individuals by the 

companies to either go to a mail order plan or selling them other 

alternative insurance proposals. Mr. Hopkins, have you heard that 

complaint? If you haven’t, you have heard it now. 

 MR. HOPKINS. At WellPoint, we have an open network philosophy. 

I don’t see Dr. Harden’s card, but it looks like it has got several chain 

logos on the card. We don’t have logos on the member’s identification 

cards, and we encourage them to use pharmacies they want to use, 

whether it is an independent pharmacy or a chain pharmacy. 

 MR. DEAL. Specifically what I am talking about is when certain 

representatives of certain companies that were writing coverage were 

involved in the signup process. Apparently certain forms may have been 

signed by those individuals so that their personal information now 

becomes a basis for solicitation of other products or alternative delivery, 

such as mail order drugs, rather than going to the local pharmacist to 

have the prescriptions filled. It seems extremely inconsistent that we 

would prohibit these folks from being involved in the process as a 

conflict of interest, and then on the other hand, have their back stabbed 

twice when those who were not so prohibited are using that information 

to try to get people not to go use their services but to go mail order. 

That, to me, is the great inequity here. 

 MR. MERRITT. Congressman, I am not aware of that particular thing. 

We will look into it. I have not heard of that before you bringing it up. 

 MR. DEAL. If you talk to Dr. Harden, I think he can give you some 

specifics. 

 MR. BURGESS. Reclaiming my time, I guess I would just ask the 

Chairman, we are going to fine tune, obviously. There will be a 

Medicare Part D 2.1 and 2.2 going forward, and this may be one of the 

areas where it does make no sense to cut the primary care pharmacist out 
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of the discussions with the patients and their families about how they can 

best be served. 

 I would also offer that in my area of North Texas, I got Mr. 

McClellan to promise me that the next time he rolls up a Part D program 

that he won’t include the dual eligibles until we have been in it for a 

month or six weeks. In retrospect, that may not have been the smartest 

way to go about it, but people who were enrolled in the default program 

where they found that their medicines weren’t covered or were only 

covered at great expense--I am talking about the dual eligible population-

-we were pretty aggressive in my Congressional office about if they were 

willing to let us take that on a constituent case, we would pursue that 

with CMS and got a favorable ruling every time we tried. In fact, it was 

one individual that came to my Medicare events, very bittered about the 

program because now he is paying $300 a month for his daughter’s 

Tegretol, and that didn’t sound right. We pursued it, and sure enough, 

the assignment was probably inappropriate for that individual, but it was 

a bed bound cerebral palsy patient who couldn’t really participate in the 

discussion, and we got that straightened out for them. It really was not 

difficult to do, it was just simply someone being willing to pick up the 

phone and call someone and say this is not working out. 

 I just wondered, have you had similar input from Congressional 

offices in your district, in your area of Ohio? 

 MR. GALLUZO. We really haven’t. The program is only in its fifth 

month, and we are trying desperately to work it out with all the PDPs 

because the way things are going we are going to have to work with 

these PDPs for as long as I am in the business. 

 MR. BURGESS. Sure. 

 MR. GALLUZO. There are always going to be kinks when you start 

something. 

 MR. BURGESS. Exactly right, and that was my point. These won’t 

endure. The things that were inappropriate during the first weeks of the 

program, if we can correct those and get the program working well for 

that patient, after all, that is the bottom line. That is what all of us are 

wanting to do. And I guess, you know, if it takes a Member of Congress 

to be involved in that, then I think that is one of our responsibilities and 

that is one of the things we should do, but if you find cases like that in 

your neighborhood, I would encourage you to get your Member involved 

and have him take it as just a regular constituent inquiry, just like you 

would a Social Security check or a GI benefit that didn’t come around in 

the proper time. 

 Mr. Chairman, just in the time I have left, I guess I would just offer 

the following observation. This program, for all its faults, is something 

that has been necessary and needed by America’s seniors for a long time, 
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and I thank every one of you sitting at the table for the part you are 

playing in getting this thing up and off the ground. To me, it has been a 

real revelation that a government program could, in fact, work as well as 

it did. I don’t know that I was optimistic that HHS Secretary and the 

Administrator would get to this point and have the program functioning 

as well as it is, and I think that is a tribute not only to them, but a tribute 

to everyone that is sitting at this table who has worked with this 

committee over the months and years that it has taken to provide this 

benefit. There are a lot of rough edges that we can continue to knock off. 

I think you have heard the willingness of the Chairman to listen to those 

suggestions. 

 Mr. Chairman, I really don’t have anything else to say, but I think it 

will be helpful if there are suggestions from this group we have in front 

of us that we seriously take those to CMS and I know the Secretary is 

committed to having a better program next year than the program that 

exists this year. 

 DR. HARDEN. Dr. Burgess, if I might add to that. CMS has been 

extremely helpful. We have reported instances that we felt needed 

correction, and they are part of the program, and they have been 

extremely well to respond in a timely manner and to investigate and find 

out where the problems were. We appreciate them very much. 

 MR. BURGESS. CMS or HCFA, not being HCFA anymore, but CMS 

is certainly a kinder and gentler form of government oversight. 

 So thank you, Mr. Chairman. I will yield back. 

 MR. DEAL. I would echo what Dr. Burgess has said. We appreciate 

what all of you have done to make this program as successful as it has 

been. It is not something that in 32 million people that you can enroll 

and get it going in the short timeframe we have been looking at, and we 

know that it was with the cooperation of each of you and the members of 

the groups that each of you represent. We want you to express our 

appreciation for your efforts in that regard, and particularly we express 

our appreciation to each of you for taking time to be a witness today. 

 With that, this hearing is concluded. 

 [Whereupon, at 2:35 p.m., the subcommittee was adjourned.] 

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