United States Government Accountability Office

Washington, DC 20548 

December 16, 2005 

The Honorable Max Baucus 

Ranking Minority Member 

Committee on Finance

United States Senate 

Subject: Medicare: Contingency Plans to Address Potential Problems with the 

Transition of Dual-Eligible Beneficiaries from Medicaid to Medicare Drug 

Coverage 

Dear Senator Baucus:

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 

(MMA) established a voluntary outpatient prescription drug benefit, known as 

Medicare Part D.1

 The Centers for Medicare & Medicaid Services (CMS) is 

responsible for implementing this benefit. This new drug coverage will be provided 

through competing private Part D plans sponsored by health care organizations, 

which may charge premiums, deductibles, or copayments for drugs.2

 As a result of 

MMA, on January 1, 2006, drug coverage for dual-eligible beneficiaries will transition 

from Medicaid to Medicare Part D. This transition will occur for approximately 

6 million full-benefit dual-eligible beneficiaries—Medicare beneficiaries who receive 

full Medicaid benefits for services not covered by Medicare.3

CMS is in the process of implementing this transition. During May and June 2005, 

CMS mailed notices to these beneficiaries informing them of the transition in 

coverage and that they will receive a subsidy to cover their entire deductible and help 

cover any prescription drug plan (PDP) premiums. During October and November 

2005, CMS automatically assigned dual-eligible beneficiaries to PDPs and mailed 

 1

Pub. L. No. 108-173, § 101, 117 Stat. 2066, 2071-2152.

2

MMA and CMS regulations require that each Part D plan meet standards as to the categories of drugs 

it must cover, or include on its formulary, and the extent of its pharmacy networks. Within these 

standards, the specific formulary and pharmacy network of each plan may vary. However, CMS

required all plans to cover all or substantially all drugs in six categories, including antidepressants, 

antipsychotics, anticonvulsants, anticancer drugs, immunosuppressants, and human 

immunodeficiency virus and acquired immunodeficiency syndrome drugs. 

3

Of these 6 million beneficiaries, approximately 0.6 million are enrolled in managed care organizations 

and other plans and will not be addressed in this report. There are also approximately 1 million other 

dual-eligible beneficiaries, known as partial-benefit dual-eligible beneficiaries, who do not receive 

Medicaid drug coverage, and thus, are not involved in this transition. 

 GAO-06-278R Dual-Eligible Beneficiaries and Part D 
notices to these beneficiaries informing them of the assignment and also that they 

may select a different PDP if they wish.4

 If they do not switch from their assigned 

PDP by December 31, 2005, CMS will automatically enroll them in that drug plan with 

coverage effective January 1, 2006. MMA provides that, after that date, dual-eligible 

beneficiaries may switch PDPs at any time.5

 

Dual-eligible beneficiaries are poorer and tend to have far more extensive health care 

needs than other Medicare beneficiaries.6

 They are also more likely to be disabled, at 

least 85 years old, or to have cognitive impairments.7

 You raised concerns that the 

single-day transition from one type of drug coverage to another could create 

difficulties in ensuring that prescriptions for this vulnerable population are filled. 

You asked us to review (1) the potential problems that may arise during the transition 

and (2) the contingency plans that CMS, PDPs, and states have developed to respond 

to potential problems with the transition. Enclosure I contains information we 

provided during our November 14, 2005 briefing to your staff. You also expressed 

concerns that dual-eligible beneficiaries in the areas affected by Hurricane Katrina 

may not be able to obtain necessary drugs on and after January 1, 2006.8

 Enclosure II 

contains information we provided during our briefing to your staff on contingency 

plans related to this concern. 

To address these objectives, we interviewed officials from CMS and from Medicaid 

agencies in California, Montana, and Texas—states with large urban or rural 

populations. We interviewed representatives from three organizations offering

Medicare PDPs, eleven drug-store chains, and the CMS contractor responsible for 

implementing the Eligibility Transaction—a contingency plan designed to identify the 

PDP in which a beneficiary is enrolled. In addition, we reviewed CMS’s plan for 

managing the transition and the transition plans of three organizations offering PDPs, 

which outline their plans to assist beneficiaries who are transitioning to Medicare 

drug coverage. We spoke with officials from the American Association of Homes and 

Services for the Aging, the Center for Medicare Advocacy, the Commonwealth Fund, 

the Kaiser Family Foundation, the Long Term Care Pharmacy Alliance, the Medicare 

Rights Center, the National Association of Chain Drug Stores, and the National 

Community Pharmacists Association. We also spoke with two independent 

 4

According to CMS, as of November 2005, the agency had identified approximately 6.1 million dualeligible beneficiaries. Of these, approximately 5.5 million individuals have been automatically assigned

to a PDP. Most of the remaining 0.6 million beneficiaries are enrolled in and will receive drug

coverage through managed care organizations or other plans.

5

According to CMS, beneficiaries’ choices will only be effective the first day of the month following the

month in which their new PDP receives their completed application. 

6

Medicare Payment Advisory Commission, Report to the Congress: New Approaches in Medicare

(Washington, D.C.: June 2004). Includes all dual-eligible beneficiaries, both full- and partial-benefit. 

7

Medicare Payment Advisory Commission, Report to the Congress. Includes all dual-eligible 

beneficiaries, both full- and partial-benefit. 

8

On August 29, 2005, Hurricane Katrina made landfall on the U.S. Gulf Coast, causing widespread

devastation, particularly in Alabama, Louisiana, and Mississippi. 

2 GAO-06-278R Dual-Eligible Beneficiaries and Part D
researchers. We conducted our work from September 2005 through December 2005 

in accordance with generally accepted government auditing standards. 

Results in Brief 

We identified three potential problems that may leave some dual-eligible beneficiaries 

facing difficulties immediately obtaining necessary drugs beginning January 1, 2006. 

The likelihood and magnitude of these potential problems is not known. First, some 

individuals may not be identified for automatic enrollment in a PDP due to potential 

inaccuracies in state or federal data. Second, not all beneficiaries who become dually 

eligible in late 2005 and beyond may be identified and automatically enrolled by the 

date they become dually eligible. Third, given that MMA and implementing 

regulations require that dual-eligible beneficiaries be randomly enrolled in PDPs 

using two criteria—the region in which the beneficiary resides and the amount of the 

PDP premium—beneficiaries’ prescription drugs may not be on their PDP formulary 

or their customary pharmacy may not be in their PDP pharmacy network. 

CMS, PDP, and state contingency plans address potential problems with the 

transition. Although each of these contingency plans is useful in mitigating risks for 

dual-eligible beneficiaries, their effectiveness is uncertain. 

• For dual-eligible beneficiaries who do not have Medicare drug coverage 

because they were either not identified and enrolled on January 1, 2006 or are 

newly qualified dual-eligible beneficiaries, CMS has developed a point-of-sale 

enrollment mechanism designed to enable pharmacies to assist these 

beneficiaries in obtaining immediate Part D coverage. The agency signed a 

contract with a designated PDP on November 22, 2005 to implement this 

mechanism. Because these arrangements were completed less than 6 weeks 

before the transition is to occur, limited time remains to educate all 

pharmacies about its availability and details of its operation. 

• For beneficiaries who were enrolled in a PDP but do not have their PDP 

information, CMS has facilitated a new information-technology process, 

known as the Eligibility Transaction, that will allow pharmacies to identify a 

beneficiary’s PDP and provide the beneficiary with the PDP’s contact 

information. As with the point-of-sale enrollment mechanism, it is unclear to 

what extent pharmacies are informed about the Eligibility Transaction and will 

use it. Despite CMS efforts to publicize this tool to industry organizations, a 

pharmacy industry association representative stated that it is unclear how 

many independent drug stores, which dispense the majority of the nation’s 

retail prescription drugs, plan to use the Eligibility Transaction. 

• To assist dual-eligible beneficiaries with prescriptions for drugs not on their 

PDP’s formulary, according to CMS, all PDPs will offer dual-eligible 

beneficiaries at network pharmacies first fills of prescriptions for drugs not 

covered by formularies. First fills will give beneficiaries time to work with a 

physician to switch to a formulary drug, file an appeal for a formulary 

exception with their PDP, or switch PDPs. However, in order to obtain a first 

3 GAO-06-278R Dual-Eligible Beneficiaries and Part D
fill without paying out-of-pocket, beneficiaries must be at a network 

pharmacy.9

 CMS officials stated that PDP formularies are robust and access to 

PDP pharmacy networks is broad. However, they noted that PDP formularies 

typically include upwards of 80 percent of the 100 most commonly used drugs. 

We did not evaluate the extensiveness of PDP formularies or pharmacy 

networks. 

• To provide beneficiaries with time to resolve problems they may encounter 

and thereby minimize disruptions in treatment, state Medicaid agencies have 

the option to offer early or extended drug refills to dual-eligible beneficiaries 

prior to January 1, 2006. However, because of financial disincentives 

associated with the transition, state officials indicated that not all states are 

expected to provide such refills. 

Agency Comments and Our Response 

CMS reviewed a draft of this report and provided written comments, which appear in 

enclosure III. 

In its comments, CMS objected to any implication that it has not taken all steps to 

keep potential problems to a minimum. Furthermore, the agency asserted that its 

contingency plans fully address the problems we describe and that they will ensure 

that dual-eligible beneficiaries will have immediate access to needed drugs. While we 

credit CMS for taking steps to mitigate potential risk for dual-eligible beneficiaries, 

we believe that the agency’s complete confidence in contingency plans that have yet 

to be fully tested, publicized, or implemented may be premature. Our report provides 

valid reasons why the effectiveness of these plans is uncertain at this time. 

CMS also suggested that we restructure the report. It proposed that (1) the 

discussion of potential problems be provided as set-up or background information, 

(2) the finding on potential problems focus on the efforts CMS has taken that ensure 

continuity of coverage for dual-eligible beneficiaries, and (3) the “Results in Brief” 

section be expanded to more fully describe CMS contingency plans. We organized 

this report to address the two objectives set forth by our requester—to review 

potential problems associated with the transition and to review contingency plans 

developed to address them. In this way, the reader is first given information on 

anticipated problems that may arise from MMA transition provisions as context for 

understanding the strengths and weaknesses of various contingency plans. Our 

“Results in Brief” provides a balanced description of what each contingency plan is 

designed to do and its potential effectiveness. 

In addition, CMS contended that we did not adequately take into account new 

information provided to us on November 18, 2005. The agency referred specifically to 

our discussion of its point-of-sale enrollment mechanism to guarantee immediate 

access to needed drugs for any dual-eligible beneficiary not already enrolled in a 

 9

At out-of-network pharmacies, beneficiaries may pay the retail price out-of-pocket for their drugs and 

submit a claim for reimbursement to their PDP. However, CMS acknowledged that it is unlikely that 

dual-eligible beneficiaries will be able to pay the retail price out-of-pocket. 

4 GAO-06-278R Dual-Eligible Beneficiaries and Part D
PDP. At our meeting on November 18, agency officials reported that negotiations for 

the point-of-sale enrollment mechanism had not been finalized and details about the 

prospective contract could not be discussed. Our draft described the design and 

prospective nature of this contingency plan. While the draft report was at CMS for 

review, the agency signed and publicly announced the contract with its designated 

point-of-sale PDP. We have revised our report to reflect this new information. 

CMS provided technical comments which we incorporated as appropriate. Also, the 

agency asked us to publish several informational documents attached to its 

comments. We reviewed these documents and determined that they did not address 

our findings and conclusions. 

- - - - - 

We are sending a copy of this report to the Administrator of CMS and appropriate 

congressional committees. We will also make copies available to others on request. 

In addition, the report is available at no charge on GAO’s Web site at 

http://www.gao.gov. 

If you or your staff have any questions, please contact me at (202) 512-7119 or 

kingk@gao.gov. Contact points for our Offices of Congressional Relations and Public 

Affairs may be found on the last page of the report. GAO staff who made major 

contributions to this report are listed in enclosure IV. 

Sincerely yours, 

Kathleen M. King 

Director, Health Care 

Enclosures—4 

5 GAO-06-278R Dual-Eligible Beneficiaries and Part D
1

Contingency Plans to Address Potential

Problems with the Transition of Dual-Eligible

Beneficiaries from Medicaid to Medicare 

Drug Coverage

Briefing to the Staff of Senator Max Baucus

Ranking Minority Member

Committee on Finance

United States Senate

Enclosure I

6 GAO-06-278R Dual-Eligible Beneficiaries and Part D 
2

Introduction

• The Medicare Prescription Drug, Improvement, and Modernization 

Act of 2003 (MMA) created a voluntary outpatient prescription drug

benefit, known as Medicare Part D, to begin on January 1, 2006. 

• The Centers for Medicare & Medicaid Services (CMS) is

responsible for implementing this benefit.

• Drug coverage will be provided through competing private Part D 

plans sponsored by health care organizations, which may charge 

premiums, deductibles, or copayments for drugs. 

• As a result of MMA, on January 1, 2006, drug coverage for dualeligible beneficiaries will transition from Medicaid to Medicare

Part D.

1

1This transition will occur for the approximately 6 million full-benefit dual-eligible beneficiaries—Medicare beneficiaries 

that receive full Medicaid benefits for services not covered by Medicare. Of these 6 million beneficiaries, 

approximately 0.6 million are enrolled in managed care organizations and other plans and will not be addressed in this

report. There are also approximately 1 million other dual-eligible beneficiaries, known as partial-benefit dual-eligible

beneficiaries, who do not receive Medicaid drug coverage and are not involved in the transition.

Enclosure I

7 GAO-06-278R Dual-Eligible Beneficiaries and Part D
3

Introduction (continued)

• CMS is currently working to help dual-eligible beneficiaries 

transition from Medicaid to Medicare drug coverage. 

• During May and June 2005, CMS mailed notices to these 

beneficiaries informing them of the transition in coverage and 

that they will receive a subsidy to cover prescription drug plan

(PDP) premiums and deductibles.

• During October and November 2005, CMS automatically

assigned dual-eligible beneficiaries to a PDP and mailed

notices to these beneficiaries informing them of the 

assignment. 

• Beginning November 15, 2005, beneficiaries can switch to a 

PDP other than their assigned PDP. If they do not switch by December 31, 2005, CMS will automatically enroll them in 

their assigned plan, effective January 1, 2006.

Enclosure I

8 GAO-06-278R Dual-Eligible Beneficiaries and Part D
4

Introduction (continued)

• Dual-eligible beneficiaries are poorer and tend to have far 

more extensive health care needs than other Medicare

beneficiaries.2

• They are also more likely to be disabled, at least 85 years

old, or to have cognitive impairments.

3

2Medicare Payment Advisory Commission, Report to the Congress: New Approaches in Medicare (Washington, D.C.: 

June 2004). Includes all dual-eligible beneficiaries, both full-benefit and partial-benefit. 3Medicare Payment Advisory Commission, Report to the Congress. Includes all dual-eligible beneficiaries, both fullbenefit and partial-benefit. 

Enclosure I

9 GAO-06-278R Dual-Eligible Beneficiaries and Part D
5

Purpose and Key Questions

• The Ranking Minority Member of the Senate Finance 

Committee raised concerns about potential problems

associated with a complex transition process that shifts

approximately 6 million beneficiaries from one type of drug 

coverage to another with no overlap in coverage between the 

two.

Enclosure I

10 GAO-06-278R Dual-Eligible Beneficiaries and Part D
6

Purpose and Key Questions (continued)

• The Ranking Minority Member requested that we respond to

the following key questions:

(1) What potential problems may arise during the transition?

(2) What contingency plans have CMS, states, and PDPs

developed to respond to potential problems with the 

transition?

Enclosure I

11 GAO-06-278R Dual-Eligible Beneficiaries and Part D
7

Methodology

• In conducting this study, we interviewed officials from CMS and 

from Medicaid agencies in California, Montana, and Texas—states

with large urban or rural populations.

• We interviewed representatives of three organizations offering

Medicare PDPs, two beneficiary advocacy groups, two research

organizations, three pharmacy industry organizations, eleven drug 

store chains, and a long-term care facility industry organization. We also spoke with two independent researchers.

• We reviewed CMS’s plan for managing the transition and the 

transition plans of three PDPs, which outline their plans to manage

beneficiaries transitioning to Medicare drug coverage.

• We conducted our work in accordance with generally accepted 

government auditing standards from September 2005 through 

December 2005.

Enclosure I

12 GAO-06-278R Dual-Eligible Beneficiaries and Part D
8

Results In Brief

• Some dual-eligible beneficiaries may face difficulties in immediately obtaining necessary drugs beginning January 1, 2006, (1) if they are not 

identified and automatically enrolled in a PDP, (2) if they are newly qualified dual-eligible beneficiaries, or (3) if their drugs are not on their 

PDP’s formulary or if their customary pharmacy is not in their PDP’s

network. The likelihood and magnitude of these potential problems is not 

known.

• CMS’s, PDPs’, and states’ contingency plans address potential problems

with the transition, but the effectiveness of these plans is uncertain.

• For dual-eligible beneficiaries who do not have Medicare drug

coverage because they were either not identified and enrolled on

January 1, 2006 or are newly qualified, CMS recently developed a

point-of-sale enrollment mechanism designed to enable pharmacies to 

assist these beneficiaries in obtaining immediate Part D coverage. 

• Given the limited time remaining before the transition occurs, educating pharmacies about the availability and details of this

mechanism could present implementation challenges.

Enclosure I

13 GAO-06-278R Dual-Eligible Beneficiaries and Part D
9

Results In Brief (continued)

• For enrolled beneficiaries who do not have their PDP information, 

CMS has facilitated a new information-technology process, known 

as the Eligibility Transaction, that will allow pharmacies to identify a beneficiary’s PDP. 

• The extent to which independent pharmacies are aware of the 

Eligibility Transaction is unclear.

• To assist dual-eligible beneficiaries with prescriptions for drugs not 

on their PDP’s formulary, CMS stated that all PDPs will offer a first 

fill of drugs not covered by formularies to beneficiaries. To obtain a 

first fill, beneficiaries must be at a network pharmacy.

• To provide beneficiaries with time to resolve problems they

encounter and thereby minimize disruptions in treatment, state 

Medicaid agencies may choose to offer early or extended drug

refills to dual-eligible beneficiaries prior to January 1, 2006. Not all 

states are expected to provide these refills.

Enclosure I

14 GAO-06-278R Dual-Eligible Beneficiaries and Part D
10

Background

Dual-Eligible Beneficiaries

• In 2005, there are approximately 6 million dual-eligible beneficiaries. 

• About 77 percent of dual-eligible beneficiaries live in the community

and about 23 percent live in long-term care facilities.

4

• A community-based dual-eligible beneficiary filled, on average, at 

least 10 more prescriptions than other Medicare beneficiaries with 

supplemental drug coverage.

5

• Dual-eligible beneficiaries are much poorer and tend to have far more

extensive health care needs than other Medicare beneficiaries. In 

addition, in 2001, over 33 percent were disabled, about 14 percent 

were age 85 or older, and about 38 percent had a cognitive or mental

impairment.6

4Medicare Payment Advisory Commission, Report to the Congress. Includes all dual-eligible beneficiaries, both fulland partial-benefit. 5The Henry J. Kaiser Family Foundation, Medicare Chartbook (Third Edition, Summer 2005). 6Medicare Payment Advisory Commission, Report to the Congress. Includes all dual-eligible beneficiaries, both fulland partial-benefit.

Enclosure I

15 GAO-06-278R Dual-Eligible Beneficiaries and Part D
11

Background

Dual-Eligible Beneficiaries (continued)

• Dual-eligible beneficiaries who reside in the community typically

obtain drugs through retail pharmacies, although a limited number

use mail-order pharmacies. Dual-eligible beneficiaries who reside 

in long-term care facilities generally obtain drugs through 

pharmacies that specifically serve such facilities.

• Beneficiaries typically obtain 30-day supplies of drugs, although 

some state Medicaid programs currently allow for extended 

prescriptions of 90 to 100 days for certain drugs.

Enclosure I

16 GAO-06-278R Dual-Eligible Beneficiaries and Part D
12

Background

Medicare Part D

• Currently, state Medicaid programs pay for drugs provided to 

dual-eligible beneficiaries using a combination of state Medicaid 

funds and federal matching funds. 

• As of January 1, 2006, Medicaid will no longer provide coverage 

for Part D covered drugs for these beneficiaries. Instead, 

Medicare will provide coverage.

Enclosure I

17 GAO-06-278R Dual-Eligible Beneficiaries and Part D
13

Background

Medicare Part D (continued)

• MMA and CMS regulations require that each PDP meet standards

as to the categories of drugs it covers, or includes on its

formulary,

7 and the extent of its pharmacy networks.

• Within these standards, however, the specific formulary and 

pharmacy network of each PDP may vary.

Enclosure I

7All PDPs are required to cover all or substantially all drugs in six categories, including antidepressants, 

antipsychotics, anticonvulsants, anticancer drugs, immunosuppressants, and human immunodeficiency virus and

acquired immunodeficiency syndrome drugs .

18 GAO-06-278R Dual-Eligible Beneficiaries and Part D
14

Background

Medicare Part D (continued)

• Under Part D, dual-eligible beneficiaries will pay reduced 

copayments8 and receive a low-income subsidy to cover their

entire deductible and help cover any PDP premiums. 

• In addition, according to law and regulations, dual-eligible 

beneficiaries will be able to switch PDPs at any time. However,

according to CMS, beneficiaries’ choices will only be effective the 

first day of the month following the month in which their new PDP 

receives their completed application. 

Enclosure I

8Dual-eligible beneficiaries who reside in an institution are not required to make copayments.

19 GAO-06-278R Dual-Eligible Beneficiaries and Part D
15

Finding 1: Potential Problems May Leave Some DualEligible Beneficiaries Facing Difficulties in Immediately

Obtaining Necessary Drugs Beginning January 1, 2006

• The transition of dual-eligible beneficiaries from Medicaid to 

Medicare drug coverage requires two major steps: identifying 

these beneficiaries, and assigning them to PDPs.

• We identified three potential problems with these steps that may

leave some dual-eligible beneficiaries facing difficulties in 

immediately obtaining necessary drugs beginning January 1, 

2006.

• The likelihood and magnitude of these potential problems is not

known.

Enclosure I

20 GAO-06-278R Dual-Eligible Beneficiaries and Part D
16

Finding 1: Potential Problems

Identification of Dual-Eligible Beneficiaries

• First, dual-eligible beneficiaries may be at risk of not obtaining 

necessary drugs because they may not be identified by CMS for

automatic enrollment into a PDP. 

• To identify dual-eligible beneficiaries, CMS is obtaining monthly

lists of these beneficiaries from states; however, any beneficiary

who is not identified will not be automatically enrolled into a PDP.

Enclosure I

21 GAO-06-278R Dual-Eligible Beneficiaries and Part D
17

Finding 1: Potential Problems

Identification of Dual-Eligible Beneficiaries (continued)

• Research organizations and advocacy groups are concerned about 

the accuracy of state enrollment data, noting, for example, that

discrepancies exist between state and CMS lists of dual-eligible 

beneficiaries.

• CMS has asserted that it is confident the state data are reliable.

• A CMS contractor performed validation tests on state data 

identifying dual-eligible beneficiaries. CMS specified that the 

contractor would follow up with states to determine the reason 

for any anomalies or unexpected results.

• CMS reported that state lists have varied little from month to 

month and have been statistically consistent with data states

have historically reported to CMS.

• We did not assess the accuracy of the state lists. 

Enclosure I

22 GAO-06-278R Dual-Eligible Beneficiaries and Part D
18

Finding 1: Potential Problems

Coverage Gaps

• Second, newly qualified dual-eligible beneficiaries may

experience coverage gaps. 

• State Medicaid agency officials expressed concerns that 

beneficiaries who become dually eligible in late 2005 

and beyond may face a 1- to 2-month gap before

Medicare drug coverage takes effect.

• These coverage gaps would result from time lags with 

the process of a state submitting its monthly eligibility file 

and the dual-eligible beneficiary’s coverage becoming 

effective.

Enclosure I

23 GAO-06-278R Dual-Eligible Beneficiaries and Part D
19

Finding 1: Potential Problems

Coverage Gaps (continued)

• For Medicaid beneficiaries who states anticipate will become 

Medicare-eligible, CMS is developing a process to assign 

prospective dual-eligible beneficiaries to PDPs prior to the end of 

their Medicaid coverage.

• For Medicare beneficiaries not already enrolled in Part D who 

subsequently qualify for Medicaid, CMS is developing a process

to automatically enroll them in a PDP. 

• However, until this process is implemented, CMS will not be able

to identify, automatically enroll, and notify all newly qualified dualeligible beneficiaries by the time their dual-eligible status begins.

Enclosure I

24 GAO-06-278R Dual-Eligible Beneficiaries and Part D
20

Finding 1: Potential Problems

PDP Formularies and Networks

• Third, beneficiaries may not be in the PDP that best meets their needs

because their drugs may not be on their PDP formulary and their 

customary pharmacy may not be in their PDP pharmacy network.

• MMA and its implementing regulations require that dual-eligible 

beneficiaries be randomly enrolled in PDPs using two criteria: the region

in which the beneficiary resides and the amount of the PDP premium.

• PDPs must meet formulary and network standards, but within these

standards the specific formulary and pharmacy network of each PDP may 

vary. PDP formularies may be more restrictive than state Medicaid 

formularies and PDP pharmacy networks may differ from the pharmacies

currently used by Medicaid beneficiaries.

Enclosure I

25 GAO-06-278R Dual-Eligible Beneficiaries and Part D
21

Finding 1: Potential Problems

PDP Formularies and Networks (continued)

• Advocacy groups noted that this method of assignment may disrupt

beneficiaries’ drug regimens or customary pharmacy usage. Specifically, 

beneficiaries’ drugs may be not be on their PDP’s formulary or their 

customary pharmacy may not be in their PDP’s pharmacy network.

• If a beneficiary’s drugs are not on their PDP’s formulary, they may work 

with their physician to switch to a formulary drug or file an appeal for a

formulary exception with their PDPs.9

• Advocacy groups also noted that these processes will take time. 

• If a beneficiary’s customary pharmacy is not in their PDP’s network, they

may pay the retail price out-of-pocket and submit a claim for 

reimbursement to their PDP or they may switch to a network pharmacy. 

• However, CMS acknowledged that it is unlikely that dual-eligible 

beneficiaries will be able to pay the retail price out-of-pocket. 

Enclosure I

9Appeals for a formulary exception must be completed within 72 hours, or 24 hours for expedited cases.

26 GAO-06-278R Dual-Eligible Beneficiaries and Part D
22

Finding 2: Contingency Plans Address Potential 

Problems, But Effectiveness Is Uncertain

• CMS, PDP, and state contingency plans address potential 

problems with the transition of dual-eligible beneficiaries 

from Medicaid to Medicare drug coverage.

• However, the effectiveness of the these plans is uncertain.

Enclosure I

27 GAO-06-278R Dual-Eligible Beneficiaries and Part D
23

Finding 2: CMS Contingency Plan

Point-of-Sale Enrollment Mechanism

• First, to assist dual-eligible beneficiaries who do not have 

Medicare drug coverage—because they were either not 

appropriately identified and enrolled on January 1, 2006 or 

are newly qualified dual-eligible beneficiaries—CMS recently 

developed and contracted for a point-of-sale enrollment

mechanism designed to enable pharmacies to assist these 

beneficiaries in obtaining immediate Part D coverage.

Enclosure I

28 GAO-06-278R Dual-Eligible Beneficiaries and Part D
24

Finding 2: CMS Contingency Plan

Point-of-Sale Enrollment Mechanism (continued)

• Under this mechanism, after a pharmacy determines a 

beneficiary is not enrolled in a PDP, it will ask the beneficiary 

for evidence of dual eligibility.

• If the beneficiary has evidence of dual eligibility, the pharmacy

will submit a bill to a designated PDP, which will provide 

interim coverage to allow the beneficiary to immediately obtain

drugs while a CMS contractor officially verifies their eligibility.

Enclosure I

29 GAO-06-278R Dual-Eligible Beneficiaries and Part D
25

Finding 2: CMS Contingency Plan

Point-of-Sale Enrollment Mechanism (continued)

• CMS finalized its contract with the point-of-sale PDP on

November 22, 2005—less than 6 weeks before the transition is

to occur.

• In December 2005, the agency reported that it is producing a 

CD-ROM containing information on this mechanism for

distribution to pharmacies.

• Given the time remaining before the transition takes place, 

educating pharmacies about the availability and details of this

mechanism could present implementation challenges.

Enclosure I

30 GAO-06-278R Dual-Eligible Beneficiaries and Part D
26

Finding 2: CMS Contingency Plan

Eligibility Transaction

• Second, to assist beneficiaries who were enrolled in a PDP, but

do not have their PDP information, CMS has facilitated a new

information-technology process, known as the Eligibility

Transaction, that will allow pharmacies to identify a beneficiary’s

PDP.

• If that pharmacy is in the beneficiary’s PDP network, the 

prescription will be filled. If the pharmacy is not in their PDP 

network, the pharmacy will provide the beneficiary with their

PDP’s contact information.

• The Eligibility Transaction operates in “real time” and is designed 

to determine in which PDP a dual-eligible beneficiary has been 

enrolled.

• It requires pharmacies to modify a computerized billing transaction 

system that all pharmacies routinely use to bill insurance 

companies and other payers.

Enclosure I

31 GAO-06-278R Dual-Eligible Beneficiaries and Part D
27

Finding 2: CMS Contingency Plan

Eligibility Transaction (continued)

• Interviewees all stated that the Eligibility Transaction will be useful. 

• However, the effectiveness of this process is uncertain.

• For example, the Eligibility Transaction does not alleviate

beneficiaries’ responsibility to locate a network pharmacy.

• If the pharmacy is not in the network the beneficiary will be 

responsible for contacting their PDP to determine the location

of a network pharmacy.

Enclosure I

32 GAO-06-278R Dual-Eligible Beneficiaries and Part D
28

Finding 2: CMS Contingency Plan

Eligibility Transaction (continued)

• In addition, it is unclear to what extent pharmacies will use the

Eligibility Transaction.

• Officials from CMS and drug store chains stated that large chain pharmacies are aware of and will use the Eligibility Transaction. 

• CMS officials stated that, to help publicize this system, the

agency has contacted the largest pharmacy industry

organization representing independent drug stores. 

• A pharmacy industry representative told us that independent 

drug stores—which dispense the majority of the nation’s retail 

prescription drugs—are becoming increasingly aware of the 

Eligibility Transaction, but it is unclear how many independent 

pharmacies plan to use the system.

Enclosure I

33 GAO-06-278R Dual-Eligible Beneficiaries and Part D
29

Finding 2: PDP Contingency Plan

First Fills

• Third, CMS officials stated that all PDPs will offer a one-time first 

fill of a prescription for drugs not covered by formularies to dualeligible beneficiaries at network pharmacies.

• PDPs are offering first fills in response to a CMS requirement that 

they address situations where a beneficiary at a network

pharmacy has a prescription for a drug that is not on the 

formulary.

• First fills will give beneficiaries time to work with a physician to 

switch to a formulary drug, file an appeal for a formulary exception 

with their PDP, or switch PDPs.

Enclosure I

34 GAO-06-278R Dual-Eligible Beneficiaries and Part D
30

Finding 2: PDP Contingency Plan

First Fills (continued)

• According to the transition plans of two PDPs, they will provide 

30-day one-time first fills for beneficiaries who have prescriptions

for drugs excluded from their formulary, if the beneficiaries fill their

prescriptions at network pharmacies. A third PDP will provide 60-

day one-time first fills.

• Two PDPs also specified that beneficiaries in long-term care

facilities will receive 30-day first fills; the third specified that 

they will receive 60-day first fills.

• All three PDPs reported that they will extend first-fill supplies

as needed to allow beneficiaries time to switch drugs or file an

appeal for a formulary exception. 

Enclosure I

35 GAO-06-278R Dual-Eligible Beneficiaries and Part D
31

Finding 2: PDP Contingency Plan

First Fills (continued)

• Officials from three state Medicaid agencies, two pharmacy

industry organizations, two advocacy groups, and the long-term

care facility industry organization all stated that the first-fill policy

was a useful contingency plan. 

• However, in order to obtain a first fill without paying out-of-pocket, 

beneficiaries must be at a network pharmacy.

• The beneficiary will have to contact their PDP to determine

the location of a network pharmacy.

• CMS officials stated that PDP formularies are robust and access

to PDP pharmacy networks is broad. However, they also noted 

that PDP formularies typically include upwards of 80 percent of 

the 100 most commonly used drugs. 

• We did not evaluate the extensiveness of PDP formularies or

pharmacy networks.

Enclosure I

36 GAO-06-278R Dual-Eligible Beneficiaries and Part D
32

Finding 2: State Contingency Plan

Early or Extended Drug Refills

• CMS clarified that, to provide beneficiaries with time to

resolve problems they encounter and thereby minimize

disruptions in treatment, state Medicaid agencies, in 

accordance with their transition plans, may choose to offer 

early or extended drug refills to dual-eligible beneficiaries

before January 1, 2006. 

Enclosure I

37 GAO-06-278R Dual-Eligible Beneficiaries and Part D
33

Finding 2: State Contingency Plan

Early or Extended Drug Refills (continued)

• State officials indicated that not all states are expected to provide 

for early or extended refills.

• Medicaid agencies in Texas and California currently offer

extended refills of 90 and 100 days on certain drugs. 

• One state official, however, anticipated that few dual- eligible beneficiaries will plan ahead and obtain extended 

refills. 

• The Medicaid agency in Montana does not plan to offer

extended refills, but currently offers 34-day early refills—refills

when beneficiaries have used 75 percent, or 90 percent for

narcotic drugs, of their previous supply.

Enclosure I

38 GAO-06-278R Dual-Eligible Beneficiaries and Part D
34

Finding 2: State Contingency Plan

Early or Extended Drug Refills (continued)

• Officials from two state Medicaid agencies, advocacy groups, and

two pharmacy industry organizations asserted that if a state offers

extended refills that are filled in late 2005 and used by the beneficiary

in 2006, it would essentially pay twice for these drugs, once for the 

extended refill, and again under the state phased-down contribution.

• This contribution is a monthly payment that states must make to 

the federal government beginning January 2006; it equals a 

percentage of the estimated amount the state would have paid 

had it continued to provide Medicaid drug coverage for dualeligible beneficiaries.

• Therefore, it is unlikely that all states will offer early or extended 

refills.

Enclosure I

39 GAO-06-278R Dual-Eligible Beneficiaries and Part D
35

Concluding Observations

• The complex process for transitioning dual-eligible 

beneficiaries on a single day with no overlap could create

difficulties ensuring that prescriptions for some members of

this vulnerable population are filled.

• The success of the transition will largely depend on the 

extent to which dual-eligible beneficiaries (1) are properly

identified and enrolled in PDPs, (2) do not have to change 

their customary pharmacy, and (3) are enrolled in PDPs that 

cover their medications.

Enclosure I

40 GAO-06-278R Dual-Eligible Beneficiaries and Part D
36

Concluding Observations (continued)

• Contingency plans developed by CMS, PDPs, and states address potential

problems with the transition of dual-eligible beneficiaries from Medicaid to

Medicare drug coverage.

• Although these contingency plans are considered appropriate and may be

beneficial, it is too soon to know the extent to which they will mitigate potential

risks for dual-eligible beneficiaries.

• CMS’s contract for the point-of-sale enrollment mechanism was signed on 

November 22, 2005, leaving limited time to provided information to

pharmacies concerning its availability and the details of its operation.

• The CMS point-of-sale enrollment mechanism and the Eligibility Transaction rely heavily on the ability and willingness of pharmacies to

assist beneficiaries.

• PDP first fills and state early or extended refills are also useful contingency plans. However, they only “buy time” and rely on the beneficiary, who may be unable to resolve complex problems.

• The use of early or extended refills will likely be limited, due to financial 

disincentives for state Medicaid agencies and the need for dual-eligible 

beneficiaries to plan ahead to obtain the refills.

Enclosure I

41 GAO-06-278R Dual-Eligible Beneficiaries and Part D
Enclosure II 

Potential Problems and Contingency Plans Related to the Transition 

of Dual-Eligible Beneficiaries Affected By Hurricane Katrina

On August 29, 2005, Hurricane Katrina made landfall on the U.S. Gulf Coast, causing 

widespread devastation, particularly in Alabama, Louisiana, and Mississippi. 

Concerns have been raised related to dual-eligible beneficiaries in the areas affected 

by the hurricane and whether they will be able to obtain necessary drugs through 

Medicare Part D on or after January 1, 2006.1

 Specifically, these beneficiaries may 

have evacuated and may no longer live in the region in which they were assigned to a 

prescription drug plan (PDP). Alternatively, certain dual-eligible beneficiaries may 

still reside in the region in which they were assigned to a PDP, but the extent to 

which pharmacies in the hurricane-affected areas will be available to fill prescriptions 

is not known. 

To address problems dual-eligible beneficiaries affected by Hurricane Katrina may 

have in obtaining drugs, the Centers for Medicare & Medicaid Services (CMS) has 

created a system that allows beneficiaries assigned to PDPs in Alabama, Louisiana, or 

Mississippi to immediately obtain drugs from any pharmacy they visit. Under this 

plan, pharmacies will electronically submit a bill for the drugs to the beneficiary’s 

PDP.2

 If the PDP’s network does not include that pharmacy, the PDP will reject the 

bill. In addition, if the PDP serves the hurricane-affected areas of Alabama, 

Louisiana, or Mississippi, it will notify the pharmacy that the beneficiary may be a 

hurricane evacuee and advise the pharmacy to contact the PDP. 

The pharmacy will contact the beneficiary’s PDP and work with it to submit an outof-network bill. Submitting an out-of-network bill may take up to 24 hours, but the 

pharmacy will immediately collect the beneficiary’s copayment and immediately 

dispense their drugs. To compensate the out-of-network pharmacies for the 

additional effort they must make in these cases, PDPs will reimburse them the retail 

price for the drug, with Medicare contributing the difference between the retail price 

and the PDP’s negotiated price for network pharmacies. 

CMS has directed PDPs to follow up with beneficiaries it identifies through this 

process. The agency reported that if the original PDP determines that the beneficiary 

has permanently relocated, that PDP will assist them in switching to another PDP 

that serves their region. If the original PDP determines that the beneficiary may 

return to their home in Alabama, Louisiana, or Mississippi, or never left but cannot 

access a network pharmacy, it will attempt to incorporate the pharmacy that the 

beneficiary accessed into its network. 

 1

Major hurricanes also made landfall in other areas of the United States in 2005. However, contingency 

plans related to the transition are in place only with respect to Alabama, Louisiana, and Mississippi. 

2

If necessary, pharmacies will first use the Eligibility Transaction to determine the PDP to which the 

beneficiary belongs. 

42 GAO-06-278R Dual-Eligible Beneficiaries and Part D 
Enclosure II 

One PDP representative we spoke with stated that this plan was quite feasible. 

Another stated that it was cumbersome, but useful. Two pharmacy industry 

organizations we spoke with did not express concern about this plan, and one stated 

that it was useful and workable. 

43 GAO-06-278R Dual-Eligible Beneficiaries and Part D
Enclosure III 

Comments from the Centers for Medicare & Medicaid Services

44 GAO-06-278R Dual-Eligible Beneficiaries and Part D 
Enclosure II 

45 GAO-06-278R Dual-Eligible Beneficiaries and Part D
Enclosure IV 

GAO Contact and Staff Acknowledgments

GAO Contact 

Kathleen M. King, (202) 512-7119 or kingk@gao.gov. 

Acknowledgments 

In addition to the contact named above, Rosamond Katz, Assistant Director; Joanna 

L. Hiatt; and Grace A. Materon made key contributions to this report. 

(290493) 

46 GAO-06-278R Dual-Eligible Beneficiaries and Part D 
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