Department of Health and Human Services 

OFFICE OF

INSPECTOR GENERAL

 

 

AUDITS OF MEDICARE 

PRESCRIPTION DRUG PLAN 

SPONSORS 

Daniel R. Levinson 

Inspector General 

December 2011 

OEI-03-09-00330 
 

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EXECUTIVE SUMMARY EXECUTIVE SUMMARY

OBJECTIVES

To determine:

(1) the extent to which stand-alone Medicare prescription drug plan 

(PDP) sponsor contracts were audited between 2006 and 2009, 

(2) the extent to which these audits identified problems, and

(3) whether the Centers for Medicare & Medicaid Services (CMS) had 

evidence to show that corrective actions were taken to resolve these 

problems. 

BACKGROUND

CMS contracts with private companies, known as plan sponsors, to offer 

Part D coverage to beneficiaries. One of CMS’s oversight activities is to 

audit plan sponsors to ensure that they comply with Part D laws and 

regulations. CMS staff identified seven types of audits, other than

financial audits, that CMS used for auditing stand-alone PDP contracts

in the first 4 years of the Part D program (2006 through 2009): 

autoenrollment readiness audits, benefit integrity audits, bid audits, 

compliance plan audits, long-term-care pharmacy contract audits, 

pharmacy access audits, and program audits. CMS selects auditees 

based on risk analysis and other factors. It is not required by law to 

conduct any of these audits. 

In this report, we provide a broad overview of CMS’s use of the seven 

types of audits from 2006 through 2009. The Office of Inspector General 

(OIG) is conducting a separate review of CMS’s use of financial audits. 

A stand-alone PDP is a Part D insurance plan that covers only 

prescription drugs. We focused on stand-alone PDPs because the 

majority of the 27 million beneficiaries who enrolled in Part D in 2009 

were in stand-alone PDPs. In this report, PDPs refer to stand-alone 

PDPs. 

We requested that CMS provide us with a list of all PDP audits it 

completed for the seven audit types during the first 4 years of the 

Part D program. We also collected information from CMS on the audits 

that found problems. We then selected a sample from the audits that 

identified problems for a more detailed review. 
 

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EXECUTIVE SUMMARY

FINDINGS

Some PDP sponsor contracts were never audited between 2006 and 

2009. CMS had 125 active, unique PDP sponsor contracts during the 

first 4 years of the Part D program. Fifty of these contracts, which 

covered 1.1 million beneficiaries, were never audited in any way. PDP 

contracts were active between 1 and 4 years. Of the 68 contracts that 

were active for all 4 years, 13 (19 percent) were never audited. CMS 

had no parameters regarding the number of audits it should conduct 

and did not complete any compliance plan audits during the 4-year 

period. 

Seventy-nine percent of the 245 PDP audits completed between 

2006 and 2009 identified problems. Two-thirds of the 673 problems 

reviewed involved beneficiaries’ coverage status or payment issues. For 

example, 41 percent of problems identified through program audits 

involved plan sponsors’ enrollment and disenrollment processes. 

Forty-two percent of the problems identified through bid audits involved 

issues such as adjustments to cost-sharing amounts and the 

categorization of direct and indirect costs that might affect beneficiaries’ 

Part D premiums. 

CMS did not have evidence to show that all corrective actions were 

implemented for two audit types. CMS did not document that 

corrective action was taken for 88 of 506 problems (17 percent) 

identified by program audits and autoenrollment readiness audits. 

Most of these problems were identified through program audits. 

RECOMMENDATIONS

CMS is responsible for overseeing the Part D program. Auditing is one

way CMS ensures that plan sponsors comply with laws and regulations 

related to the Part D program. Although CMS is not required to 

conduct the seven types of audits in our report, it developed them to 

identify problems and correct deficiencies within the Part D program. 

However, CMS did not have parameters regarding the number of audits 

it should conduct. In addition, CMS did not always have evidence to 

show that all problems were addressed for certain audit types. 

Prior OIG reports have shown that CMS delayed beginning some types 

of audits. This report shows that some PDP contracts were never 

audited, and that CMS completed no compliance plan audits between 

2006 and 2009. This report also shows that when audits were 
 

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EXECUTIVE SUMMARY

conducted, they frequently identified problems that may directly affect 

beneficiaries’ coverage status or payments. Audits can potentially 

identify problems that might not be detected through other forms of 

oversight. 

We recommend that CMS:

Establish a comprehensive Part D auditing strategy that ensures that each

plan sponsor will be audited in some way within a certain timeframe. 

Ensure that evidence is available to show that corrective actions have been 

implemented. 

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS partially concurred with the first recommendation, stating that it 

believes all sponsors should undergo a bid audit and that it plans to 

complete a bid audit by 2013 of every PDP parent organization in the 

program since 2006. CMS is not in favor of establishing a comprehensive 

Part D auditing strategy. It believes a comprehensive oversight strategy, 

developed in coordination with offices responsible for the management of 

Part D, is more effective than an auditing strategy. CMS also believes 

that its heavy reliance on monitoring, defined as systematic evaluation of 

the complete universe of sponsors, allows it to assess key performance 

indicators across 100 percent of PDP sponsors. CMS stated that 

monitoring is the only efficient approach for assessing critical 

performance areas across all PDP contracts. 

OIG stands by its first recommendation, to establish a comprehensive 

Part D auditing strategy. This recommendation is not meant to be a 

substitute for a comprehensive oversight strategy or a substitute for 

monitoring.

CMS concurred with the second recommendation. CMS stated that in 

2010, it began a more comprehensive process for validating corrections 

made by sponsors as a result of deficiencies found during audits. CMS 

stated that it now maintains, and will continue to maintain, 

documentation of corrective actions implemented for all audits. 
 TABLE OF CONTENTS

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

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

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

Some PDP sponsor contracts were never audited between 

2006 and 2009 ......................................... 11

Seventy-nine percent of the 245 PDP audits completed 

between 2006 and 2009 identified problems.................. 13

CMS did not have evidence to show that all corrective 

actions were implemented for two audit types ................ 16

 

RECOMMENDATIONS ..................................... 17

Agency Comments and Office of Inspector General Response.... 17

APPENDIXES ............................................. 19

A: Categories of Problems Identified Through Sampled 

 Audits, 2006–2009 ................................... 19

B: Categories of Corrective Actions Taken To Address 

 Problems Identified Through Sampled Audits, 2006–2009 ... 21

C: Agency Comments ................................... 23

ACKNOWLEDGMENTS ..................................... 26 
 

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 INTRODUCTION

OBJECTIVES 

To determine:

(1) the extent to which stand-alone Medicare prescription drug plan 

(PDP) sponsor contracts were audited between 2006 and 2009, 

(2) the extent to which these audits identified problems, and

(3) whether the Centers for Medicare & Medicaid Services (CMS) had 

evidence to show that corrective actions were taken to resolve these 

problems. 

BACKGROUND

This report adds to the Office of Inspector General’s (OIG) body of work 

regarding CMS’s oversight of the Medicare Part D program, also known 

as the Voluntary Prescription Drug Benefit Program, which went into 

effect on January 1, 2006.1

This report provides a broad overview of seven types of audits—

excluding financial audits—that CMS planned to use to audit plan 

sponsors of stand-alone PDPs between 2006 and 2009. We did not 

include financial audits in this report because OIG reviewed these 

audits separately. 

 One of CMS’s oversight activities is to audit 

plan sponsors to ensure that they comply with laws and regulations 

related to the Part D program. Plan sponsors are private companies 

under contract with CMS to provide Part D coverage to beneficiaries. 

OIG’s previous work has found that CMS delayed beginning various 

types of Part D audits. Audits can identify problems that might not be 

detected through other forms of oversight. This report examines the 

extent to which CMS has completed audits and identified problems in 

the first 4 years of the Part D program. 

Two types of plans provide Part D coverage. Medicare Advantage 

prescription drug plans cover a variety of medical services, including

prescription drugs, while stand-alone PDPs cover only prescription 

drugs. We focused on stand-alone PDPs because the majority of 

beneficiaries in the Part D program were enrolled in stand-alone PDPs. 

In 2009, 17 million of the 27 million beneficiaries enrolled in Part D 

1 Social Security Act § 1860D-1, 42 U.S.C. § 1395w-101.
 

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INTRODUCTION

were in stand-alone PDPs.2 In this report, PDPs refer to stand-alone 

PDPs.

PDP Contracts

A plan sponsor’s PDP contract with CMS may include more than one 

plan. As of February 2011, plan sponsors had 84 PDP contracts that 

included a total of 1,304 plans.3

Part D Expenditures

 Plans within a contract may differ in 

coverage and copayments. 

In 2009, total expenditures for Part D were $60.8 billion.4

CMS Offices That Conduct Part D Audits 

 CMS makes 

monthly prospective payments to plan sponsors to provide drug 

coverage to Medicare beneficiaries. These payments are based on bid 

amounts approved by CMS. Bid amounts are cost estimates that plan 

sponsors provide to CMS prior to the beginning of each plan year. After 

the close of the plan year, CMS reconciles these payments with the plan 

sponsors’ actual costs to determine whether plan sponsors owe money to 

Medicare or Medicare owes money to them. 

Several CMS offices audit plan sponsors with PDP contracts. Some 

offices have overlapping responsibilities for the same type of audit. 

The following CMS offices were responsible for the audits in this report

during the period we reviewed: 

• the Office of the Actuary (OACT), 

• the Program Compliance and Oversight Group (PCOG), 

• the Program Integrity Group, and

• the Medicare Drug Benefit and C & D Data Group (MDBG). 

Offices may conduct offsite or onsite Part D audits. The teams that 

conduct the audits may include CMS central office staff, CMS regional 

office staff, or CMS contractors, including the Medicare Drug Integrity 

2 CMS, Monthly Contract and Enrollment Summary Report, June 2009. Accessed at 

http://www.cms.gov/MCRAdvPartDEnrolData/ on July 14, 2009. 3 CMS, Monthly Enrollment by Contract, Monthly Enrollment by Plan, February 2011. 

Accessed at http://www.cms.gov/MCRAdvPartDEnrolData/ on July 12, 2011.

4 The Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary 

Medical Insurance Trust Funds, 2010 Annual Report, August 5, 2010, p. 135. Accessed at 

http://www.cms.gov/ReportsTrustFunds/downloads/tr2010.pdf on February 22, 2011.
 

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I N TRODUCTION

Contractors (MEDIC). MEDICs perform specific program integrity 

activities in the Part D program.5

Seven Types of Audits 

 

In addition to financial audits, CMS began conducting seven types of 

audits between 2006 and 2009. Although CMS is required by law to 

conduct financial audits, there are no legal requirements for it to

conduct any of these seven types of audits.6 CMS conducts these audits 

at the plan sponsor’s parent organization, contract, or plan level, 

depending on the audit type. Each CMS office that conducts Part D 

audits selects plan sponsors to audit based on certain criteria, including

enrollment levels, recommendations from other CMS offices, risk 

analysis, and resource limitations. 

Autoenrollment readiness audits. MDBG and PCOG were the CMS 

offices responsible for this type of audit. Autoenrollment readiness 

audits assess a plan sponsor’s automated systems and processes to 

ensure that the plan is ready to receive autoenrollments of beneficiaries 

who qualify for low-income subsidies. When beneficiaries qualify for 

such subsidies but fail to enroll in Part D plans, CMS automatically 

enrolls them in a PDP. Each year, CMS identifies PDPs qualified to 

accept autoenrollees and selects plan sponsors from this group to audit. 

The audit measures the plan sponsors’ readiness to autoenroll 

beneficiaries in the coming contract year and to provide timely notices 

and evidence of enrollment to beneficiaries so they can immediately use 

the plan services. 

Benefit integrity audits

Benefit integrity audits may be performed on any entity in the Part D 

program. CMS, a MEDIC, or a plan sponsor can recommend and 

conduct a benefit integrity audit. With CMS’s approval, MEDICs may 

participate in plan sponsors’ audits of pharmacies. 

. These audits are conducted on an ad hoc basis to 

identify and investigate Part D fraud cases. At the time of our review, 

the CMS office with oversight responsibility for these audits was the 

Program Integrity Group, then operating within the Office of Financial 

Management. 

5 CMS, Prescription Drug Benefit Manual, Rev. 2, April 25, 2006, ch. 9, § 10.1. Accessed at 

http://www.cms.gov/PrescriptionDrugCovContra/12_PartDManuals.asp on September 22, 2011.

6 Social Security Act § 1860D-12, 42 U.S.C. § 1395w-112. 
 

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INTRODUCTION

Bid audits

Once a bid is approved, CMS may conduct a bid audit, i.e., an audit of 

the plan sponsor’s bid development for selected plans offered by the 

sponsor. The bid development includes the bid amount, which is the 

plan sponsor’s per-member, per-month estimated cost of providing drug 

coverage. Bid audits are reviews of the reasonableness of the data and 

the support for actuarial assumptions used to develop the plan sponsor’s 

bid. Bid audits review base period data, which are a previous year’s 

actual utilization, drug cost, and administrative fee data that help 

determine the bid amount.

. OACT is the CMS office responsible for reviewing, 

approving, and auditing bid amounts. Before it approves a sponsor’s 

bid, CMS conducts a review to ensure that the bid meets CMS’s 

requirements. 

CMS categorizes deficiencies found through bid audits as findings or 

observations. Findings are deficiencies that, if corrected, could lead to 

reduced payments from CMS, additional benefits to enrollees, or 

reduced enrollee premiums. Observations are inconsistencies, errors, 

omissions, and unreasonable assumptions and practices that do not 

significantly affect the bid.7

CMS reviews plan sponsors’ subsequent bids to determine whether 

issues identified by previous bid audits were addressed. Findings and 

observations identified through bid audits are forwarded to MDBG to be 

used in performance analysis of those plan sponsors. 

 

Compliance plan audits. Late in 2009, the responsibility for compliance 

plan audits was transitioned to PCOG. Prior to that time, the Program 

Integrity Group was responsible for these audits. All sponsors are 

required to have a compliance plan. Compliance plans detail sponsors’ 

policies and procedures regarding fraud, waste, and abuse. The 

compliance plan must include certain elements such as “procedures for 

effective internal monitoring and auditing” and “procedures for ensuring 

prompt responses to detected offenses.”8 Compliance plan audits

determine whether sponsors have these elements in their plans and the 

extent to which their compliance plans are effective. 

Long-term-care pharmacy contract audits

7 CMS, Audit Procedures for Calendar Year 2008 Bids, p. 3.

. MDBG was responsible for 

this type of audit at the time of our review. Long-term-care pharmacies 

8 42 CFR § 423.504(b)(4)(vi). 
 

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INTRODUCTION

dispense prescription drugs to beneficiaries in institutional settings 

such as nursing homes. Long-term-care pharmacy contract audits were 

performed on plan sponsors with the largest number of beneficiaries in 

long-term institutional settings. These audits reviewed agreements 

between the plan sponsors and long-term-care pharmacies to ensure 

that they met CMS requirements, such as convenient access to 

long-term-care pharmacies for institutionalized enrollees. CMS 

conducted these audits in response to complaints about long-term-care 

pharmacy negotiations.

Pharmacy access audits. Pharmacy access audits were another type of 

audit for which MDBG was responsible. These were audits of contracts 

between plan sponsors and pharmacies and pharmacy benefit managers

that administer sponsors’ prescription drug benefits. The audits 

determined whether the contracts met CMS requirements. These 

requirements include, but are not limited to, meeting retail pharmacy 

access standards, abiding by privacy regulations, and charging the 

correct cost-sharing amount. CMS did not conduct pharmacy access 

audits after 2007 because it began requiring PDPs to submit analyses of 

Part D pharmacy access to CMS each year. 

Program audits. Also known as program compliance audits, program 

audits examine a broad array of policies, procedures, and operations 

related to sponsors’ Part D plans.9

Corrective Action Plans

 These audits are conducted by 

PCOG and examine areas such as enrollment and disenrollment; 

marketing; coordination of benefits; formularies; and enrollee coverage 

determinations, grievances, and appeals. 

CMS requires plan sponsors to develop and implement corrective action

plans to address problems identified through most types of audits. 

Within certain types of audits and for certain types of problems, CMS 

takes corrective actions, such as warning or monitoring the sponsor. 

For bid audits, CMS does not use a corrective action plan process. 

Instead, CMS determines whether the problems identified through bid

audits are resolved when it reviews plan sponsors’ bids for the following 

contract year. 

9 We use the term program audit instead of program compliance audit throughout this report 

to distinguish program audits from compliance plan audits.
 

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INTRODUCTION

Problems identified through benefit integrity audits conducted by plan 

sponsors are addressed through a corrective action process that is 

controlled by the sponsor. 

During our review, CMS described the corrective action plan process as 

an iterative one that begins when the plan sponsor submits an initial 

corrective action plan. After it reviews the corrective action plan, CMS 

can require the plan sponsor to modify it and resubmit it until CMS is

satisfied that the corrective action plan addresses the audit findings and 

approves it. 

Monitoring

According to CMS, audits are just one part of its strategy to ensure that 

PDP sponsors are in compliance with Part D laws, regulations, and 

guidance. CMS reported that although its initial approach was to use 

auditing to ensure compliance, it was faced with a number of urgent 

issues surrounding Part D that drove the creation of a more intensive 

monitoring program. CMS stated that as day-to-day monitoring has 

become more sophisticated, particularly in the past few years, it has not 

had to rely as heavily on audits as a source of information about PDP 

sponsor performance. The new monitoring program includes the 

collection of measurements from all plans on key issues, e.g., beneficiary 

complaints, call center response times, disenrollment rates, and Part D 

pricing accuracy. CMS reported that monitoring provides more timely 

information than audits and also results in compliance actions. 

Related OIG Work 

OIG has issued several reports concerning CMS’s oversight of the 

Part D program that have included information about audits. 

Three reports found delays in starting financial audits.10 Two of these 

reports, issued in 2007, found that financial audits had not yet begun. 

The third report found that only 4 percent of the required number of 

financial audits for contract year 2006 had begun as of April 2008. 

10 OIG, CMS’s Implementation of Safeguards During Fiscal Year 2006 To Prevent and Detect 

Fraud and Abuse in Medicare Prescription Drug Plans, OEI-06-06-00280, October 2007; OIG, 

Tracking Beneficiaries’ True Out-of-Pocket Costs for the Part D Prescription Drug Benefit, 

OEI-03-06-00360, December 2007; and OIG, Centers for Medicare & Medicaid Services Audits of 

Medicare Part D Bids, OEI-05-07-00560, November 2008. 
 

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I N TRODUCTION

Two reports, issued in 2008 and 2010, found weaknesses in the bid 

audit process.11

Three other OIG reports contained information regarding plan sponsors’ 

compliance plans.

In 2008, OIG found that one-quarter of all bid audits 

for 2006 and 2007 identified at least one finding. However, bid audits 

were not designed to lead to sanctions, such as civil monetary penalties 

or suspension of enrollment. OIG recommended that CMS modify the 

bid audit process so that plan sponsors can be held more accountable 

and subject to corrective actions when bid audits identify findings. CMS 

responded that it would carefully consider modifying the bid audit 

process to hold plans more accountable for findings. In 2010, OIG found 

that the bid review and audit process needed improvements, including 

consideration of bid audit findings in the year-end reconciliation 

process. 

12

In its comments on several of these reports, CMS cited budget shortfalls 

and lack of necessary data as reasons that audits had not begun. 

 These reports found delays in starting compliance 

plan audits and that CMS did not have information on Part D fraud and 

abuse that would help it determine the effectiveness of sponsors’

compliance plans. OIG also found that although MEDICs were 

prepared to conduct compliance plan audits, CMS did not give MEDICs 

approval to do so in fiscal year 2008.

METHODOLOGY

Data Collection and Analysis 

For this review, we included all PDP audit types identified by various 

CMS offices, with the exception of financial audits. We collected all audit 

information from CMS’s central office, whether the audits were conducted 

by the central office, CMS regional offices, or contractors. We collected 

information in two phases. Data collection for this study began in 

December 2009. However, after receiving responses for both phases of 

data collection from CMS, we had to request clarifying information. For 

11 OIG, Centers for Medicare & Medicaid Services Audits of Medicare Part D Bids, 

OEI-05-07-00560, November 2008; OIG, Medicare Part D – Prescription Drug Event

Reconciliation Process, A-18-08-30102, June 2010.

12 OIG, Oversight of Prescription Drug Plan Sponsors’ Compliance Plans, OEI-03-08-00230, 

October 2008; OIG, Medicare Drug Plan Sponsors’ Identification of Potential Fraud and Abuse, 

OEI-03-07-00380, October 2008; OIG, Medicare Drug Integrity Contractors’ Identification of 

Potential Part D Fraud and Abuse, OEI-03-08-00420, October 2009. 
 

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INTRODUCTION

some audit types, we made repeated requests for clarification. We 

completed data collection in August 2010. 

First phase. In the first phase of data collection and analysis, we collected 

the following information on plan sponsors for each of 4 years, 2006

through 2009: 

• CMS’s audit protocols;

• CMS’s criteria for selecting PDPs to be audited;

• a list of PDP contracts; and 

• a list of the PDPs for which audits were completed for each of the 

seven audit types in this study, the date each audit was 

completed (i.e., final report issued), and whether these audits 

identified problems. We defined “problem” as any audit finding 

that CMS determined needed to be addressed by plan sponsors.

We reviewed the audit protocols and the criteria CMS used for selecting 

PDPs to audit for each of the audit types. 

From the lists of PDP contracts and completed audits, we summarized the 

number of contracts CMS had with plan sponsors each year, and 

calculated the percentage of contracts for which CMS completed each of 

the seven types of audits. If a parent organization was audited, we 

deemed that all contracts under that parent organization were audited. 

We also summarized the number of audit types completed each year and 

across all 4 years. Finally, we calculated the number and percentage of 

audits that identified problems. 

Data stratification and sample selection

Table 1 shows the population of audits that identified problems, the 

number of sample audits from this population, and the number of 

problems in sample audits.

. From the population of 194 audits 

that identified problems, we selected a stratified random sample of 

129 to review in more detail. Each stratum of the sample represents an 

audit type. For each audit type, if there were 35 or fewer audits that 

identified problems in 4 years, we reviewed all of the audits. As a result, 

we reviewed the entire population of autoenrollment readiness audits, 

benefit integrity audits, long-term-care pharmacy contract audits, and 

pharmacy access audits that identified problems. Bid audits and program 

audits were the only two audit types for which we did not review the entire 

population. 

 
 

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INTRODUCTION

 

 

Second phase

Table 1: Sample Audits and Problems in Sample Audits, 

2006–2009 

Stratum Type of Audit

Population

of Audits 

That 

Identified 

Problems 

Sample 

Audits 

Number 

of 

Problems 

in Sample 

Audits

1 Autoenrollment readiness audits 19 19 51

2 Benefit integrity audits 27 27 38

3 Bid audits 72 37 107

4 Compliance plan audits NA1 NA1 NA1

5 Long-term-care pharmacy contract audits 9 9 9 

6 Pharmacy access audits 2 2 2 

7 Program audits 65 35 466

 Total 194 129 673

Source: OIG analysis of CMS responses to 2010 OIG data request.

1 Compliance plan audits were not completed during our review period.

. In the second phase of data collection and analysis, we 

collected the following information for all problems identified though our 

sample audits: 

• a description of each problem and each corrective action used to 

address it,

• the date that CMS accepted the corrective action plan to address 

each problem and the date the problem was resolved, and

• a description of the evidence CMS used to determine that the 

problem was resolved. 

We also collected CMS’s policies and procedures for implementing 

corrective actions.

We calculated the number of problems identified by each type of audit and 

across audit types. We categorized the types of problems and corrective 

actions and determined the frequency of each category by audit type. 

For each type of audit, we determined whether CMS had evidence that 

corrective actions were taken to address the problems. If CMS’s

description of evidence lacked specifics or did not correspond specifically to

the corrective action, we determined that there was no evidence that the 

corrective action was taken.

We did not project findings from our sample because we could not make 

reliable projections for bid and program audit problem types. Therefore, to
 

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INTRODUCTION

present all the findings in a consistent manner, we provide information 

based only on our review of the sample data. 

Limitations 

We did not independently verify data provided by CMS. We also did not 

evaluate whether the audit types described by CMS met general 

accounting or auditing standards.

Standards

This study was conducted in accordance with the Quality Standards for 

Inspection and Evaluation issued by the Council of the Inspectors 

General on Integrity and Efficiency.
 

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Some PDP sponsor contracts 

were never audited between 

2006 and 2009 

 FINDINGS

CMS had 125 active, unique PDP 

sponsor contracts over the first 

4 years of the Part D program. As 

shown in Table 2, 50 of the 

125 contracts were never audited 

in any way. These 50 contracts covered 1.1 million beneficiaries.13

 

 PDP 

contracts were active between 1 and 4 years. Of the 68 contracts that 

were active for 4 years, 13 (19 percent) were never audited. Table 2 

shows the number and percentage of contracts never audited.

Table 2: Number of Contracts That Were Never Audited, 

2006–2009

Number of 

Years Contracts

Were Active

Number of 

Contracts

Number of 

Contracts Never 

Audited

Percentage of 

Contracts Never 

Audited

4 68 13 19%

3 28 13 46%

2 5 1 20%

1 24 23 96%

 Total 125 50 40%

Source: OIG analysis of CMS responses to 2010 data request.

CMS did not set parameters regarding the number of audits to conduct 

Whether a plan sponsor is audited depends on selection criteria developed 

by the different CMS offices responsible for conducting the audits. None of 

these offices had requirements regarding the number of audits to conduct.

As shown in Table 3, in some years, CMS did not complete any audits for 

certain audit types. Audits can identify problems that might not be 

detected through other forms of oversight. 

Autoenrollment readiness audits. CMS completed autoenrollment readiness 

audits in all 4 years. Thirty-four autoenrollment readiness audits were 

completed between 2006 and 2009.

13 The enrollment estimate for these 50 contracts is based on the number of enrollees in 

December of the most recent year each contract was active between 2006 and 2009. As of 

February 2011, 19 million beneficiaries were enrolled in PDPs.
 

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FINDINGS

Benefit integrity audits. Plan sponsors completed benefit integrity audits of 

pharmacies in 3 of the 4 years we reviewed. The number of audits

completed varied from as few as 1 in 2007 to as many as 18 in 2009. 

Bid audits. The number of bid audits CMS completed each year ranged

from 41 for contract year 2006 to 14 for contract year 2008. Because bid 

audits are always begun in October of the contract year and completed in 

April of the following year, the bid audits that were begun in 2009 were 

not completed in 2009. 

Compliance plan audits

Table 3: Types of Audits Completed Each Year, 2006–2009

Type of Audit 2006 2007 2008 2009

Total for All 

4 Years

Autoenrollment readiness audits 7 11 8 8 34

Benefit integrity audits1 0 1 17 18 36

Bid audits 41 24 14 NA2 79

Compliance plan audits3 0 0 0 0 0 

Long-term-care pharmacy contract 

audits NA4 NA4 NA4 10 10

Pharmacy access audits 0 9 NA5 NA5 9 

Program audits 0 21 31 25 77

 Total 48 66 70 61 245

Source: OIG analysis of CMS responses to 2010 data request. 

1 Benefit integrity audits were conducted by sponsors. They were audits of pharmacies in sponsors’ networks. 2 Fourteen bid audits begun in 2009 were not completed in 2009.

3 Although CMS did not complete any compliance plan audits between 2006 and 2009, it did begin a number of these

audits in 2010. 

4 CMS did not begin conducting long-term-care pharmacy contract audits until 2009. 5 CMS discontinued pharmacy access audits after 2007.

. CMS did not complete any compliance plan audits 

in the first 4 years of the Part D program. CMS began 10 compliance plan 

audits in 2008 and another 7 in 2009. Sponsors were selected for 

compliance plan audits based on performance data, risk factors, and 

enrollment levels. Although the selected sponsors presented the greatest 

risk, the compliance plan audits begun in 2008 and 2009 were never 

completed. CMS began conducting compliance plan audits in 2010 and 

completed a number of these audits. 
 

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FINDINGS

Long-term-care pharmacy contract audits. CMS did not conduct this type of 

audit in the first 3 years of the Part D program. It began conducting 

long-term-care pharmacy contract audits only after receiving complaints 

from plan sponsors about negotiations with long-term-care pharmacies. 

CMS selected plan sponsors with the largest number of enrollees living in 

long-term-care settings for these audits. Ten audits of this type were 

completed in 2009. CMS reported that after 2009, it did not conduct these 

audits because it did not receive similar complaints in subsequent years. 

Pharmacy access audits. In the first year of the Part D program, no 

pharmacy access audits were conducted because all plan sponsors’ 

pharmacy access networks were reviewed as part of the Part D application 

process. CMS completed nine audits of this type in 2007. For these 

audits, CMS selected 10 percent of plan sponsors that made changes 

between 2006 and 2007 regarding the first-tier entity (e.g., a pharmacy 

benefit manager) performing key functions on their behalf. After 2007, no 

pharmacy access audits were conducted because CMS began requiring 

plan sponsors to submit an analysis of Part D access under new annual 

reporting requirements. 

Program audits. CMS did not conduct program audits in the first year of 

the Part D program. It completed 21, 31, and 25 program audits in 2007, 

2008, and 2009, respectively. 

Seventy-nine percent of the 245 PDP audits 

completed between 2006 and 2009

identified problems 

For six of the seven audit types 

in our review, 245 audits were 

completed between 2006 and 

2009. Of those, 194 (79 percent) 

identified problems. For four audit types, at least three-quarters of the 

audits identified problems. 

Table 4 shows, by audit type, the total number of audits completed and 

the number and percentage of audits that identified problems. 
 

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FINDINGS

Table 4: Percentage of Audits That Identified Problems, 

2006–2009

Audit Type

Number of 

Audits 

Completed

Number of 

Audits 

That 

Identified 

Problems

Percentage 

of Audits 

That 

Identified 

Problems

Bid audits 79 72 91%

Long-term-care pharmacy contract audits 10 9 90%

Program audits 77 65 84%

Benefit integrity audits 36 27 75%

Autoenrollment readiness audits 34 19 56%

Pharmacy access audits 9 2 22%

Compliance plan audits 0 NA NA

 Total 245 194 79%

 Source: OIG analysis of CMS responses to 2010 OIG data request.

Two-thirds of the problems identified involved beneficiaries’ coverage

status or payments

Between 2006 and 2009, the 129 audits reviewed identified 

673 problems. As shown in Table 5, two-thirds of these problems (447 of 

673) may directly affect beneficiaries’ coverage status or payments. 

Table 5: Total Number of Problems by Audit Type, 2006–2009

Audit Type Number of 

Problems 

Number of Problems 

That May Directly 

Affect Beneficiaries

Program audits 466 358

Bid audits 107 45

Autoenrollment readiness audits 51 23

Benefit integrity audits 38 21

Long-term-care pharmacy contract audits 9 0 

Pharmacy access audits 2 0 

Compliance plan audits No audits completed No audits completed

 Total 673 447

Source: OIG analysis of CMS responses to 2010 data request. 
 

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F INDINGS

Appendix A lists all categories of problems identified through the audits 

and the number of problems in each category.

P

Another 36 percent of the problems identified through program audits

were deficiencies in plan sponsors’ coverage determination, grievance, 

and/or appeals processes. Examples of deficiencies of this type include 

failure to notify a beneficiary of a coverage determination or decision 

regarding a grievance within required timeframes. Problems in these 

processes could affect beneficiaries’ ability to obtain the prescription 

drugs they need. 

. Forty-one percent of the problems identified through 

program audits were deficiencies in the plan sponsors’ enrollment and 

disenrollment processes. Examples of these deficiencies include failure 

to provide beneficiaries with membership materials prior to the effective 

date of enrollment, failure to notify beneficiaries of denial of enrollment 

requests, and failure to disenroll beneficiaries who move out of the 

sponsor’s service area. Problems in these processes may affect 

beneficiaries’ understanding of their coverage and, therefore, affect their 

decisions about obtaining needed prescriptions. 

rogram audits

Bid audits. Forty-two percent of problems identified through bid audits 

involved adjustment, calculation, or categorization errors. These errors 

included inappropriate adjustments to cost sharing amounts, 

inappropriate calculation of indirect costs, and inappropriate

categorization of direct and indirect costs. Problems in plan sponsors’ 

bids can affect the premiums beneficiaries pay for Part D coverage and 

the amount CMS pays plan sponsors to administer the Part D benefit. 

As stated previously, CMS categorizes problems identified by bid audits 

as either findings or observations, and findings are more serious than 

observations. Of the 107 problems identified through bid audits, 

13 were findings. Of the 13 findings, 5 involved adjustment, calculation, 

or categorization errors.

Autoenrollment readiness audits. Two categories of problems represented 

45 percent of problems identified through autoenrollment readiness 

audits. The two problem categories were deficiencies in testing the 

systems for processing enrollment transactions and deficiencies in 

processes for handling four types of identifying information, called 

4Rx data, needed to route prescription drug claims. If a plan sponsor is 

unable to autoenroll low-income subsidy beneficiaries or route their 

claims correctly, these beneficiaries could be left without Part D 

coverage. 
 

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FINDINGS

Benefit integrity audits. Fifty-five percent of problems identified through 

benefit integrity audits involved inappropriate billing by pharmacies, 

such as pharmacies billing for services not rendered. When pharmacies 

bill inappropriately, the Part D program and beneficiaries may be 

harmed. 

CMS did not have evidence to show that all 

corrective actions were implemented

for two audit types 

CMS did not document that 

corrective action was taken for 

88 of 506 problems 

(17 percent) identified by

program and autoenrollment readiness audits.14

For two problems identified by autoenrollment readiness audits, CMS 

did not have evidence to show that corrective actions were taken. The 

corrective actions for these two problems were to submit policies and 

procedures and take corrective action under a different audit type.

 Eighty-six of these 

eighty-eight problems (98 percent) were identified by program audits. 

The categories of program audit problems for which there was no 

evidence of correction varied and included deficiencies in enrollment

and disenrollment processes and deficiencies in coverage determination, 

grievances, and appeals processes. 

15

Appendix B lists all the categories of corrective action used to address 

problems identified through each type of audit.

 

14 For this calculation, we excluded 11 sample problems from the 517 problems identified 

through these 2 audit types either because the problems were unresolved or the PDP contracts 

were not renewed. 

15 There was no evidence to show that corrective action was implemented under the 

other audit, which was a program audit.
 

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EXECUTIVE SUMMARY RECOMMENDATIONS

CMS is responsible for overseeing the Part D program. Auditing is one 

way CMS ensures that plan sponsors comply with laws and regulations 

related to the Part D program. Although CMS is not required to 

conduct the seven types of audits in our report, it developed them to 

identify problems and correct deficiencies within the Part D program. 

However, CMS did not have requirements regarding the number of 

audits it should conduct. Nor did CMS always have evidence to show 

that all problems were addressed for certain audit types. 

Prior OIG reports have shown that CMS delayed beginning some types 

of audits. This report shows that some PDP contracts were never 

audited, and that no compliance plan audits were completed between 

2006 and 2009. This report also shows that when audits were 

conducted, they frequently identified problems that may directly affect 

beneficiaries’ coverage status or payments. Audits can identify 

problems that might not be detected through other forms of oversight. 

The sooner audits are performed and problems identified, the sooner 

problems can be addressed. 

We recommend that CMS:

Establish a comprehensive Part D auditing strategy that ensures that each

plan sponsor will be audited in some way within a certain timeframe 

The strategy should include parameters for conducting each audit type. 

The strategy should also ensure coordination among the CMS offices 

responsible for auditing activities so that no contract goes 4 successive 

years without an audit of some type.

Ensure that evidence is available to show that corrective actions have been 

implemented

CMS should maintain documentation that corrective actions were

implemented.

AGENCY COMMENTS AND OFFICE OF INSPECTOR GENERAL 

RESPONSE 

CMS partially concurred with the first recommendation, stating that it 

believes that all sponsors should undergo a bid audit and that it plans to 

complete a bid audit by 2013 of every PDP parent organization in the 

program since 2006. CMS is not in favor of establishing a comprehensive 

Part D auditing strategy. It believes a comprehensive oversight strategy, 

developed in coordination with offices responsible for the management of 

Part D, is more effective than an auditing strategy. CMS also believes 
 

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RECOMMENDATI ONS

that its heavy reliance on monitoring, defined as systematic evaluation of 

the complete universe of sponsors, allows it to assess key performance 

indicators across 100 percent of PDP sponsors. CMS stated that 

monitoring is the only efficient approach for assessing critical 

performance areas across all PDP contracts. CMS added that in 2011, it 

systematically monitored PDP sponsors’ performance across more than a 

dozen topic areas, e.g., call center wait times and complaint rates. 

CMS also stated the 2010 program audits and compliance plan audits 

were conducted on sponsors that posed the most risk to the program, and 

that these sponsors were identified through risk assessments using

information gathered through monitoring efforts. 

OIG stands by its first recommendation, to establish a comprehensive 

Part D auditing strategy. This recommendation is not meant to be a 

substitute for a comprehensive oversight strategy or for monitoring. It is 

meant to be a tool CMS can use to ensure that parameters are 

established and followed regarding the auditing of Part D plan sponsors, 

regardless of the types of audits CMS chooses to conduct from year to 

year. 

CMS concurred with the second recommendation. CMS stated that in 

2010, it began a more comprehensive process for validating corrections 

made by sponsors as a result of deficiencies found during audits. CMS 

stated that it now maintains, and will continue to maintain, 

documentation of corrective actions implemented for all audits. For the 

full text of CMS’s comments, see Appendix C. 
 

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 APPENDIX ~ A

Table A-1: Categories of Problems Identified Through Sampled Audits, 2006–2009

Audit Type Problem Category Number of 

Problems

Autoenrollment readiness audits Deficient systems testing 12

Deficient system for handling the identifying 

information needed to route claims 11

Deficient beneficiary call center 5 

Deficient formulary transition process 5 

Technical concerns including inappropriate use of 

Transaction Reply Report weekly files1 4 

Deficient system for correcting low-income subsidy 

data with best available evidence of Medicaid 

eligibility

4 

Deficient autoenrollment process 3 

Deficient low-income subsidy process 2 

Deficient point-of-sale process 2 

Deficient process for providing beneficiary 

confirmation notices and/or ID cards 2 

Inadequate or insufficient documentation 1 

 Subtotal 51

Benefit integrity audits2 Inappropriate billing 21

Inappropriate transfer, storage, disposal, or 

processing of drugs 8 

Inappropriate dispensing of drugs 6 

Inappropriate technician-to-pharmacist ratio 2 

Owner indicted for Medicaid fraud and sponsor not 

notified 1 

 Subtotal 38

Bid audits Adjustment, calculation, or categorization error 45

Inadequate or insufficient documentation 24

Inconsistent, missing, or questionable information 22

Bid not developed according to instructions from 

Centers for Medicare & Medicaid Services (CMS) 15

Inconsistent development of rebates among plans 1 

 Subtotal 107

continued on next page
 

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APPENDIX ~ A

Table A-1: Categories of Problems Identified Through Sampled Audits, 

2006–2009 (Continued)

Audit Type Problem Category Number of 

Problems

Long-term-care pharmacy contract audits Deficient contracts 9 

 Subtotal 9 

Pharmacy access audits Deficient contracts 2 

 Subtotal 2 

Program audits Deficient enrollment and/or disenrollment process 189

Deficient coverage determination, grievance, and/or 

appeals process 169

Deficient marketing process 21

Deficient formulary transition process 17

Deficient notices and/or materials for beneficiaries 13

Deficient process for true out-of-pocket costs and/or 

coordination of benefits 12

Deficient provider communications 11

Deficient policies and procedures 10

Deficient contracts with first-tier or downstream 

entities 6 

Deficient compliance plan 4 

Deficient claim processing and/or payment system 4 

Deficient pharmacy access for beneficiaries 3 

Deficient documentation of reviews by Pharmacy and 

Therapeutics Committee 2 

Deficient drug utilization review process 2 

Deficient in providing CMS information on its quality 

assurance program to reduce medication errors 1 

Deficient process for employer group plans' 

low-income premium subsidy 1 

Deficient process for revising its Medication Therapy 

Management Program 1 

 Subtotal 466

 Total 673

Source: Office of Inspector General (OIG) analysis of CMS’s responses to 2010 OIG data request.

1Weekly Transaction Reply Reports contain information on changes in beneficiary enrollment information.

2 Benefit integrity audits, conducted by sponsors, were audits of pharmacies in sponsors’ networks.
 

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 APPENDIX ~ B

Table B-1: Categories of Corrective Action Taken To Address Problems Identified 

Through Sampled Audits, 2006–2009

Audit Type Corrective Action Category

Number of 

Problems 

Addressed1 

Autoenrollment readiness audits Centers for Medicare & Medicaid Services (CMS) 

requested additional information 16

CMS monitoring 10

Sponsor submitted policies and procedures 9 

CMS denied autoenrollees or reassignments 7 

CMS conducted followup audit 6 

Sponsor submitted audit, compliance, performance, or 

other reports to CMS 3 

CMS warning letter 2 

Sponsor established or revised policies and 

procedures 2 

Sponsor implemented policies and procedures 2 

Sponsor conducted training 1 

Sponsor submitted documentation of training to CMS 1 

Sponsor took corrective action under a different audit 1 

Benefit integrity audits2

 Pharmacy terminated from network 22

Pharmacy referred to Office of Inspector General (OIG) 19

Pharmacy put on corrective action plan 4 

Pharmacy under investigation by Medicare Drug 

Integrity Contractor 2 

Sponsor pursued internal corrective action 2 

Pharmacy notified of overpayment 1 

Bid audits

Rather than using a corrective action process for 

problems identified by bid audits, CMS determined that 

problems found in bid audits were resolved when it 

reviewed the sponsor’s bid for the next contract year

943

Long-term-care pharmacy contract audits Sponsor submitted revised contracts to CMS 7 

Sponsor established or revised policies and 

procedures 3 

Pharmacy access audits CMS requested a corrective action plan 2 

continued on next page
 

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APPENDIX ~ B

Table B-1: Categories of Corrective Action Taken To Address Problems Identified 

Through Sampled Audits, 2006–2009 (Continued)

Audit Type1 Corrective Action Category

Number of 

Problems 

Addressed1

Program audits Sponsor established or revised policies and 

procedures 356

Sponsor conducted training 334

Sponsor submitted documentation of training to CMS 332

Sponsor implemented policies and procedures 162

Sponsor submitted policies and procedures to CMS 102

Sponsor established monitoring and oversight 

procedures 75

Sponsor submitted audit, compliance, performance, 

or other reports to CMS 69

Sponsor implemented monitoring and oversight 

procedures 52

Sponsor conducted internal audits 49

Sponsor submitted template of beneficiary notices to 

CMS 44

Sponsor implemented internal controls 43

Sponsor submitted analysis of deficiency to CMS 42

Sponsor submitted name of staff responsible for 

implementing corrective action to CMS 24

Sponsor revised contracts, contract addenda, or 

agreements 13

CMS conducted followup audit 12

Sponsor submitted accurate data to CMS 11

Sponsor developed internal controls 6 

Sponsor submitted target compliance dates to CMS 5 

Sponsor developed, updated, or implemented a 

tracking system 3 

Sponsor developed provider education materials 2 

Sponsor revised its Web site 2 

Sponsor improved accountability for accuracy and 

completeness of information 1 

Source: OIG analysis of CMS’s responses to 2010 OIG data request.

1 One problem may have been addressed through more than one corrective action. Therefore, the total number of problems addressed by a 

corrective action may be greater than the number of problems in an audit type. 

2 Benefit integrity audits, conducted by sponsors, were audits of pharmacies in sponsors’ networks. 3 The bid audits reviewed identified 107 problems. Of these, only 94 were associated with contracts that were renewed the next contract year. All of 

these 94 problems were resolved. 
A P PEN 0 x c 


Agency Comments 

Centers for Medicare & Medicaid Services 

Administrator 

Washington, DC 20201 

DATE: OCT 2 72011 

TO: Daniel R. Levinson 

Inspector General 

FROM: Donald M. Berwick, M.D. 

Administrator 

SUBJECT: Office of Inspector General (OIG) Draft Report: "Audits of Medicare Prescription 

Drug Plan Sponsors," OEI-03-09-00330 

Thank you for the opportunity to review and comment on the Office ofinspector General's 

(OIG's) draft report, "Audits of Medicare Prescription Drug Plan Sponsors." The Centers for 

Medicare & Medicaid Services (CMS) appreciates the time and resources the OIG has invested 

in examining CMS' use of audits in overseeing Prescription Drug Plan (PDP) sponsors. 

As part ofthis study, the OIG identified seven types of audits that CMS used for auditing standalong PDP's during the first 4 years of the program, 2006 - 2009, and provided an overview of 

CMS' use ofthese types of audits to oversee PDP sponsors. These seven audit types were: 

autoenrollment readiness audits, benefit integrity audits, bid audits, compliance plan audits, longterm-care pharmacy audits, pharmacy access audits, and program audits. As the report notes, 

CMS is not required by law to conduct any of these types of audits, but developed them to 

identify problems and correct deficiencies within the Part D program. 

The OIG identified three findings as a result of their study. First, the OIG found that some PDP 

sponsor contracts were never audited between 2006 and 2009; second, that seventy-nine percent 

of the 245 PDP audits completed between 2006 and 2009 identified problems; and third, that 

CMS did not have evidence to show that all corrective actions were implemented for two audit 

types. 

The OIG made the following recommendations: 

OIG Recommendation 1: 

Establish a comprehensive Part D auditing strategy that ensures that each plan sponsor will be 

audited in some way within a certain timeframe .. The strategy should include parameters for 

conducting each audit type. The strategy should also ensure coordination among the CMS 

offices responsible for auditing activities so that no contract goes 4 successive years without an 

audit of some type. 

OEI-03-09-00330 AUDITS OF MEDICARE PRESCRIPTION DRUG PLAN SPONSORS 23 
 

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APPENDIX ~ C
 

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APPENDIX ~ C
 

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 RECOMMENDATIONS ACKNOWLEDGMENTS

This report was prepared under the direction of Robert A. Vito, 

Regional Inspector General for Evaluation and Inspections in the 

Philadelphia regional office, and Linda M. Ragone, Deputy Regional 

Inspector General. 

Isabelle Buonocore served as the team leader for this study. Other 

principal Office of Evaluation and Inspections staff from the 

Philadelphia regional office who contributed to the report include 

Nancy J. Molyneaux; other central office staff who contributed include 

Kevin Farber, Robert L. Gibbons, and Rita M. Wurm. 
Office of Inspector General http://oig.hhs.gov 

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

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

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

programs. This statutory mission is carried out through a nationwide network of audits, 

investigations, and inspections conducted by the following operating components:

Office of Audit Services 

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

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

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

out their respective responsibilities and are intended to provide independent assessments of 

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

mismanagement and promote economy and efficiency throughout HHS.

Office of Evaluation and Inspections 

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

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

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

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

reports also present practical recommendations for improving program operations. 

Office of Investigations 

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

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

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

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

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

convictions, administrative sanctions, and/or civil monetary penalties.

Office of Counsel to the Inspector General 

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

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

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

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

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

also negotiates and monitors corporate integrity agreements. OCIG renders advisory 

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

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

enforcement authorities.