Medicare Part D: Plan Sponsors' Processing and CMS Monitoring of Drug Coverage Requests Could Be Improved
Released: 2008-02-21T00:00:00

Letter

Background

The Medicare Part D Program

The Medicare Part D benefit is provided through private organizations that offer one or more drug plans with different levels of premiums, deductibles, and cost sharing. Plan sponsors must offer the standard Part D benefit established under MMA or an actuarially equivalent benefit. The standard benefit includes an annual deductible, coverage up to a level of spending, a coverage gap—the period when beneficiaries pay all of the costs of their drugs—and catastrophic coverage above a specified out-of- pocket limit. Sponsors may also offer enhanced benefit plans that provide a lower deductible and coverage in the coverage gap in exchange for higher premiums. Certain low-income beneficiaries are eligible for subsidies to defray most of their out-of-pocket costs.

Part D sponsors offer drug coverage either through stand-alone PDPs for those in traditional fee-for-service Medicare, or through Medicare Advantage prescription drug (MA-PD) plans for beneficiaries enrolled in Medicare’s managed care program. As of September 2007, CMS had contracts with 101 PDPs and 461 MA-PDs. The majority of Part D enrollees, about 71 percent, are in PDPs. PDP enrollment across contracts varies widely, ranging from fewer than 20 enrollees to more than 3.3 million enrollees, and is highly concentrated—the four largest contracts account for about 53 percent of total PDP enrollment in September 2007.

Sponsors’ Use of Formularies and Utilization Management Restrictions

For the drugs included on their formularies, Part D sponsors decide which drugs will have utilization management restrictions and which type of restriction they will apply. Utilization management restrictions may include prior authorization, quantity limits, and step therapy requirements. Sponsors may apply utilization management restrictions to prevent the overuse of expensive medications by requiring lower-tier drugs be tried first. The restrictions may also serve to ensure that proper dosages are dispensed, to protect against adverse drug interactions, and to control the use of medications with potential for abuse. Each sponsor has discretion to decide under which circumstances it will apply utilization restrictions.

Research conducted for The Kaiser Family Foundation has shown that sponsors’ use of formularies and utilization management restrictions varies significantly. The study reported that the 2007 formularies of the 10 largest PDPs differed in their coverage of a sample of commonly used drugs and their use of utilization management restrictions on those drugs. Four PDPs included on their formulary all of the 152 sampled drugs commonly used by Medicare beneficiaries. Among the remaining 6 PDPs, 1 covered between 90 and 100 percent, and 5 covered between 70 and 80 percent of the sampled drugs. The authors also found that the 10 PDPs placed prior authorization requirements on between 3 and 14 of the 152 sampled drugs. While 3 of the 10 PDPs did not have a step therapy requirement on any of the 152 drugs, 2 PDPs had the requirement on 8 of the drugs. The number of the 152 sampled drugs with quantity limits ranged from 3 to 62.

Types of Coverage Determinations and Appeals

Beneficiaries can use the coverage determination and appeals processes to challenge a utilization management restriction on a drug on the sponsor’s formulary or to request coverage for a Part D drug that is not on the sponsor’s formulary. Table 1 describes types of requests.

Coverage Determination Processes Allow for Prompt Decisions, Apply a Range of Criteria, and Have Resulted in Approvals for the Majority of Requests

Study sponsors have designed their coverage determination processes to allow for prompt decision making within CMS-required time frames. They obtain patient information needed to make their decisions using drug- specific coverage determination request forms and enter this information into a computer for analysis of whether coverage criteria have been met. When coverage requests cannot be approved by technical staff, they are decided by clinical staff. Sponsors apply drug-specific coverage criteria that incorporate the requirements established by MMA and CMS as well as factors that they have discretion to apply, such as evidence of trial and failure of lower- cost drugs. In the sample of coverage determination case files we reviewed at the seven study sponsors, coverage of the requested drug was approved in approximately two-thirds of the cases.

Streamlined Processes Make Expeditious Coverage Determination Decisions Possible

The sponsors we studied developed coverage determination processes designed to produce decisions within the CMS-required time frames—72 hours for standard requests and 24 hours for expedited requests. To collect the patient information needed to make coverage determination decisions, study sponsors generally rely on drug-specific request forms. These forms typically ask a series of questions based on the sponsor’s established coverage criteria for a given drug. Prescribing physicians are asked to use these forms to submit clinical information about a beneficiary that generally includes the diagnosis associated with the requested drug, and may include the beneficiary’s other medical conditions and drug history. For instance, to process a coverage determination request for the osteoporosis drug Forteo, a sponsor may ask whether the beneficiary has a diagnosis of osteoporosis, has multiple risk factors for fractures, and has tried and failed other specific osteoporosis therapies. Some study sponsors had dozens of different forms for drugs in different classes, with a varying number of questions. For example, one sponsor asked 5 questions for the sleep medications Ambien and Lunesta and 23 questions for the injectible drug Pegasys, used to treat hepatitis. If a physician makes a coverage determination request over the phone, sponsor staff have on-line access to the drug-specific questions they need to ask.

With the information submitted by the prescribing physician, study sponsors used computer algorithms—a series of questions with yes/no answers—in order to make expeditious, consistent decisions. Technical staff, such as pharmacy technicians or call center representatives, enter the patient information into the computer system. The algorithms are used to assess the information to determine whether the beneficiary meets the sponsor’s coverage criteria for the specific drug in question. This process generates rapid, consistent decisions if sponsors receive sufficient information from prescribing physicians. When the technical staff cannot approve the drug, coverage determination requests are forwarded for a decision by clinical staff with more expertise, such as staff pharmacists. One sponsor reported that, on average, a standard coverage determination involving prior authorization takes about 40 minutes after the prescribing physician provides the needed information.

However, the pressure to make a coverage determination within the CMS- mandated time frames increased the likelihood that sponsors may deny requests when complete information is not at hand or can not be obtained quickly. Two study sponsors told us that if they were not successful in getting information they requested, they made decisions based on the information they had at the time. For example, if physicians are asked to provide a patient’s medical records as part of their request but do not provide that information quickly, the sponsor may deny the request in order to meet the required time frame. Among the coverage determination case files we reviewed at the study sponsors, the sponsor requested additional information from the physician in about 13 percent of the cases and about 30 percent of the denials were for lack of requested medical information. One sponsor noted that there would probably be fewer denials at the coverage determination stage if sponsors had more time to acquire needed information.

Sponsors Apply a Range of Coverage Criteria in Making Coverage Decisions

Sponsors apply a range of coverage criteria to evaluate requests for drugs with restrictions. Their criteria are used, in part, to determine whether a requested drug can be covered under Part D program rules set by MMA or CMS. Sponsors consider a number of factors in reviewing a request, including the following: Should the drug be covered under another part of the Medicare program? There are an estimated 6,000 unique drug products that potentially could be covered under either Part B or Part D of the Medicare program. Which part of the Medicare program is the appropriate payer depends on factors such as the patient’s diagnosis, when the beneficiary is taking the drug, or the setting in which the drug is being administered. For instance, immunosuppressive drugs suppress the body’s immune response and are used to treat autoimmune diseases—diseases in which the body attacks its own tissues—and to prevent rejection of a transplanted organ. Immunosuppressives are covered by Part B when the physician prescribes them after a Medicare-covered organ transplant and by Part D for all other outpatient uses.

Is the requested drug in a Part D-excluded drug class? Although sponsors generally can not cover drugs in 1 of 10 statutorily excluded drug categories, beneficiaries or prescribing physicians may request a coverage determination for a drug that is in an excluded drug category. For such coverage determinations, the physician must show that the drug is prescribed for a purpose that is not excluded under the law or that it has been mistakenly classified by the sponsor as excluded. For instance, medications for coughs and colds are generally excluded from Part D. However, CMS has issued guidance to plan sponsors that cough and cold medications are eligible to meet the definition of a Part D drug in clinically relevant situations. For example, if a physician prescribes a cough suppressant to a beneficiary because the beneficiary has osteoporosis and may break a bone if the cough is not controlled, then the cough suppressant would be considered a Part D-covered drug.

Is the requested drug medically necessary? Part D sponsors must approve coverage when the requested drug at the requested dosage is medically necessary. In order to show medical necessity, the prescribing physician must provide a statement that the requested drug is medically necessary because (1) all of the covered Part D drugs on the sponsor’s formulary for treatment of the same condition would not be as effective for the beneficiary, would have adverse effects for the beneficiary, or both; (2) the prescription drug alternatives on the formulary have been ineffective in the past, are likely to be ineffective, or are likely to cause an adverse reaction for the beneficiary; or (3) the number of doses available under a quantity limit for a requested drug has been ineffective or is likely to be ineffective. In addition, sponsors are required to approve a tiering exception if they agree with the prescribing physician’s statement that treatment of the beneficiary’s condition using the preferred alternative drug would not be as effective for the beneficiary as the requested drug, would have adverse effects for the beneficiary, or both.

Is the requested drug being prescribed for a medically accepted indication? Under Medicare Part D, a drug is considered to be prescribed for a medically accepted indication if the drug is FDA-approved for that use. Any off-label use—one not approved by FDA—is considered medically accepted only if it is supported by a citation in one of the three designated drug reference guides. Beneficiary advocates have argued that the coverage restrictions on those off-label drug uses not listed in the designated drug reference guides cause beneficiaries to be denied coverage for needed drugs, some of which beneficiaries had been previously taking successfully. For instance, a beneficiary without cancer may have a condition which causes severe pain. After trying several medications, the beneficiary may have less pain with the use of Actiq, a medication approved only for breakthrough pain in cancer patients. Under Part D, the beneficiary would be denied coverage for the drug, even if the beneficiary’s physician stated that the medication was medically necessary, because the drug was not prescribed for a medically accepted indication, and this use is not listed in one of the three drug reference guides.

Beyond ensuring compliance with MMA and CMS coverage rules, sponsors have discretion to develop their own drug-specific coverage criteria. Sponsors in our study also considered the following factors.

Has the beneficiary tried and failed on a generic or preferred alternative drug? To reduce costs, sponsors may require beneficiaries to try and fail on generic or preferred alternative drugs before approving coverage for higher-cost drugs. Sponsors told us, and CMS has affirmed, that beneficiaries generally can switch to a therapeutically equivalent drug without disruption to their care. Therefore, although a beneficiary has been stable on a particular drug for a period of time, sponsors may require the beneficiary to switch to a generic or preferred alternative drug.

Has the physician conducted specific tests to confirm the beneficiary’s diagnosis or condition? Study sponsors sometimes also ask for information from specified tests or studies that document a patient’s diagnosis or condition. For instance, one sponsor told us that it requires genotype tests for hepatitis drugs because the length of time a patient should be on the drug is determined by the genotype.

Is the beneficiary already stable on the requested drug? Sponsors may consider whether the beneficiary is stable on the requested drug when deciding whether to approve or reapprove coverage.

Does the beneficiary have other medical conditions or take other medications that may contraindicate the use of the requested drug? For instance, one sponsor’s criteria for the drug Actiq—used to treat breakthrough cancer pain—stipulated that the enrollee must not have severe asthma or chronic obstructive pulmonary disease, which are contraindications to Actiq. This same sponsor’s criteria for the antidepressant Ensam noted that the medication should not be approved if the enrollee is taking other types of antidepressants, such as monoamine oxidose inhibitors or tricyclic antidepressants.

Duration of the approval period depends upon the drug requested and on plan policies. In general, sponsors told us they approve coverage of a requested drug for either the duration of the year or a 12-month period. Some sponsors also approve requests for as long as the beneficiary remains enrolled in the plan in cases where the drug treats an illness that can last for the duration of a person’s life (such as multiple sclerosis). All sponsors said that certain drugs, such as those with a specified length of treatment for safety reasons, may be approved for shorter time periods. For example, some injectible drugs are approved for 24 weeks. If coverage criteria are not met, study sponsors’ denial letters generally included the reason for the decision. For instance, denial notices may state that the requested drug was not covered because the preferred alternative drug must be tried first. Some, but not all, sponsors that we visited sent notification letters to prescribing physicians that identified which preferred drug should be tried. The IRE told us that some sponsor denials are vague. For instance, sponsors may not do a good job of explaining which specific requirements have not been met.

Study Sponsors Approved Two-Thirds of Coverage Determination Requests in Sample Month

Study sponsors approved about 67 percent of the coverage determination requests among the October 2006 requests that we reviewed. Approval rates varied among sponsors, ranging from 57 percent to 76 percent. We also found that coverage determinations in MA-PD plans were more likely to be approved than coverage determinations in PDPs; the approval rate for MA-PD plans was 72 percent, compared to 63 percent for PDPs. Sponsors in our study approved standard requests more often than expedited requests. The approval rates for standard and expedited requests were 67 percent and 53 percent, respectively.

We found that nearly all requests for coverage determinations were made by physicians on behalf of their patients. Approximately 94 percent of the coverage determinations in our case file review were requested by a physician or a physician’s office staff. At the coverage determination stage, we also found that only a small proportion of requests were expedited. Of the coverage determination case files we reviewed, just 4 percent of the requests were expedited.

We found that the most commonly requested drug class and category combinations were, in order of decreasing frequency, (1) blood modifier agent/hematopoietic, (2) endocrine-metabolic agent/antidiabetic, (3) central nervous system agent/analgesic, (4) dermatological agent/antifungal, (5) gastrointestinal agent/antiulcer, (6) anti-infective agent/antifungal, and (7) musculoskeletal agent/antirheumatic. These seven drug class and category combinations accounted for about half of the requested drugs in the 421 cases we reviewed. At the individual drug level, the five most requested drugs—collectively accounting for about one-quarter of our sampled coverage determination requests—were Procrit, Lamisil, Byetta, Celebrex, and Omeprazole.

Appeals Processes Allow for Better Informed Decisions, Have Often Resulted in Coverage Approvals, and Are Impeded by AOR Requirement

The appeals process allows for individuals not involved in the previous case review to make better-informed decisions by considering additional supporting evidence. In making redeterminations—the first level of appeal—sponsor staff evaluate any corrected or augmented evidence to see if coverage criteria have been met. In conducting reconsiderations— the second level of appeal—IRE officials consider the information the sponsor reviewed, along with any additional support that may be available. In many cases, appeals result in new interpretations of whether the requested drug should be covered. CMS appeals data show that, from July 2006 through December 2006, the median approval rate across all Part D sponsors was 40 percent; from July 2006 through June 2007, appeals to the IRE received full or partial approval in 28 percent of cases. We found that, for some standard appeals, missing AOR documentation contributed to delays in study sponsor redetermination decisions and dismissals of IRE reconsideration cases. Some study sponsors have developed “workarounds” to eliminate the need for a completed AOR form.

Appeals Processes Involve Clinical Evidence and Patient Information Not Previously Available

Appeals processes at both the study sponsors’ level and the IRE typically involve (1) reviewing more information than was available for the previous decision level and (2) different decision makers.

First-Level Appeals to Sponsors

In conducting redeterminations—the first level of appeal—sponsors typically receive corrected or augmented patient information that was not submitted within the allotted time frame for the coverage determination. For example, prescribing physicians may not have identified the beneficiary’s conditions with sufficient specificity or included a complete drug use history when making the coverage determination request; for redeterminations, physicians often provide new information on the reason for the requested drug and a list of drugs the beneficiary had previously tried but were found to be ineffective or not well tolerated. Physicians may forward laboratory test results or chart notes that sponsors had requested previously. In addition, our reviews of sponsors’ redetermination case files showed that physicians revise the statements they had provided originally to address issues raised in the sponsors’ coverage denial letters.

To determine whether the sponsor’s drug-specific coverage criteria have been met, study sponsor staff reassess the submitted information, along with any additional support not previously considered. For redeterminations that involve requests for off-label uses of drugs, study sponsors said they make an effort to look for citations in one of the three Part D-designated drug reference guides to see if one of them supports use of the drug for the indication for which it was prescribed. In reviewing requests for dosage limit exceptions, in addition to considering a beneficiary’s medical record, study sponsors may also examine medical research literature for evidence not included in the reference guides. In addition, sponsors may discuss a case directly with the prescribing physician. We found that study sponsors contacted prescribing physicians to obtain additional information in 31 percent of the redetermination case files we reviewed.

CMS requires that redetermination decisions be made by individuals not previously involved in reviewing the drug request. Study sponsors’ redetermination decision staff making clinical decisions consist largely of pharmacists or staff medical directors. If the staff pharmacist does not approve a decision, a medical director makes the final decision. CMS additionally requires that decisions concerning the medical necessity of the requested drug be made by a physician with expertise in the field of medicine appropriate to the condition being treated. Some of the study sponsors contract with external physicians or utilization review companies for this function.

Second-Level Appeals to the IRE

Along with the information in the sponsor case file, IRE staff review any new supporting information they receive or solicit from the prescribing physician as well as relevant medical literature. In making a reconsideration decision—the second level of appeal—the IRE is likely to have more information than did the sponsor at the first level of appeal. It not only has information from the sponsor’s case file, but also information in the physician’s letter or beneficiary correspondence that may be submitted with the reconsideration request. In addition, IRE staff told us that they contact the physician or beneficiary to obtain specific details about the beneficiary’s health or to clarify the information submitted, such as adverse effects the beneficiary has experienced or contraindications to the preferred formulary drugs. During its review, the IRE may also perform additional research in the drug reference guides on the reason the physician is prescribing a particular drug or dosage. For instance, IRE staff may be successful in researching the Part D-designated drug reference guides for a specific off-label drug use that a sponsor had not identified.

As Medicare’s independent external appeals contractor, the IRE employs medical professionals subject to conflict-of-interest prohibitions, which bar them from having certain relationships with any health insurance utilization review company, provider network, or drug supply company. The IRE staff conducting most reconsiderations are predominantly physicians credentialed in various medical specialties. For example, according to IRE officials, appeals cases involving opioids are handled by pain management specialists because these cases need a specialty review. IRE officials also said that, when necessary, the IRE contracts with external specialists to review cases.

First-Level and Second- Level Appeals Approved Drug Coverage in 40 Percent and 28 Percent of Cases, Respectively

Consideration of new evidence during the appeals process often leads to decisions that reverse the sponsors’ decisions. At the first level of appeal, CMS appeals data show that, from July 2006 through December 2006, the median approval rate across all Part D sponsors was 40 percent. Across Part D sponsors, approval rates ranged from 0 percent to 100 percent for all appeals during that period. PDP sponsors were somewhat more likely to approve coverage; the median rate of approvals for PDPs was about 45 percent, compared to about 38 percent for MA-PDs.

At the second level of appeal, IRE appeals data show full or partial coverage approvals of the requested drug in about a quarter of the 11,679 reconsideration cases decided from July 2006 through June 2007. IRE data for this period show that the IRE either fully or partially approved coverage in 28 percent of appeals and denied coverage in 36 percent of appeals. A significant proportion of IRE cases, 34 percent, were dismissed for various reasons, such as the lack of AOR documentation. (See fig. 1.)

The 11,679 cases reviewed by the IRE addressed a variety of issues. From July 2006 through June 2007, about one-third of IRE cases concerned a drug utilization restriction, such as a prior authorization requirement or quantity limit. Another 33 percent of IRE cases were requests for a drug not covered under Part D, such as a drug in one of the 10 Part D-excluded categories. Twenty-eight percent of cases were requests for Part D drugs not on the sponsor’s formulary. The remaining 5 percent of IRE cases involved issues such as requests to pay a lower cost-sharing level and reimbursement for drugs provided outside of the sponsor’s pharmacy network.

IRE approval rates for Part D appeals were highest for disputes involving drug utilization restrictions and lowest for cases involving Part D-excluded drugs. The IRE fully or partially approved coverage in 39 percent of the appeals concerning a drug utilization restriction, 30 percent of appeals involving nonformulary drugs, and 18 percent of appeals for coverage of a drug that sponsors denied as an excluded drug under Part D. (See fig. 2.)

As part of the decision process, the IRE determines whether the sponsor has met its obligation for coverage under the Part D rules. IRE staff told us that during the first year of the program, some sponsors denied requests because they did not fully consider the beneficiary’s overriding medical need for the requested drug, as CMS requires. In contrast, at the IRE, the beneficiary’s medical condition is the determining factor when the sponsor’s coverage criteria cannot be met. For example, in one case, a sponsor denied a physician’s request for the drug Celebrex—a drug used to treat arthritis and other conditions—because the physician did not provide documentation of the beneficiary’s trial and failure of the sponsor’s formulary medications—Naproxen, Ibuprofen, or Ketoprofen. In this case, the sponsor did not cover the requested drug because its step therapy requirement had not been met. However, in reviewing the case, the IRE applied medical necessity criteria because the prescribing physician stated that use of the sponsor’s preferred formulary alternatives were contraindicated for treatment of his patient’s condition. As a result, the IRE overturned the sponsor’s decision, stating that an exception to the sponsor’s step therapy requirement was warranted and that the sponsor should provide coverage of the drug until the end of the plan year.

Missing AOR Forms at Study Sponsors and the IRE Cause Appeals to Be Delayed or Dismissed

At our study sponsors and at the IRE, we found evidence that decisions on standard appeals submitted by prescribing physicians—redeterminations and reconsiderations—had been delayed and sometimes dismissed due to missing AOR forms. Without written authorization from the beneficiary, sponsors and the IRE may begin collecting relevant documentation to support a physician-submitted standard request, but they cannot complete their review. Also, the time frame for making the decision does not begin until the completed AOR form is received. According to most study sponsors and the IRE, if they do not receive the signed AOR form within a reasonable amount of time—which ranges from about a week to about a month after receiving the request—they deny or dismiss the request. Of the cases we reviewed at the study sponsors, missing AOR forms generated processing delays in 7 percent of cases. These delays were typically about 14 days, but could stretch to 67 days. At the IRE, missing AOR forms caused dismissals of about 9 percent of appeals, which is about one in every five reconsideration cases that were dismissed.

Data on the prevalence of delays in processing redetermination requests attributable to missing AOR forms mask the fact that some sponsors in our study have developed “workarounds” to eliminate the need for a completed AOR form. For example, one sponsor told us it treats all physician appeals as expedited, regardless of the priority level indicated by the physician. Our review of a sample of sponsors’ case files showed that 26 percent of redetermination requests were classified as expedited compared to 4 percent of the coverage determination case files we reviewed. Although expediting requests precludes the need for an AOR form, one sponsor stated that because these requests may not be truly urgent, it may not be in the beneficiary’s best interest for the appeal to be rushed. Expedited appeals allow less time—72 hours versus 7 days—for reviewers to consider the evidence at hand or to request additional information, which might affect the outcome of the appeal. For the case files we reviewed, the denial rate for expedited redeterminations was 73 percent compared with a denial rate of 67 percent for standard redeterminations.

In another workaround, sponsors obviate the need to obtain two signatures—the beneficiary’s to appoint the physician to act as a representative and the physician’s to accept the appointment—by arranging for the redetermination request to be made by the beneficiary. For example, one sponsor reported contacting beneficiaries to ask whether they want to initiate the redetermination instead of their physicians, who had contacted the sponsor first. Our case file reviews showed that beneficiaries made requests in about 36 percent of redetermination cases compared to 2 percent of coverage determination cases. This approach was designed to identify those beneficiaries who wish to initiate an appeal rather than having their physician appeal on their behalf, thus reducing the need for the AOR paperwork.

Most sponsors in our study and IRE officials reported that the requirement that prescribing physicians be formally appointed beneficiary representatives with a signed AOR form in order to initiate standard appeals is an administrative impediment. The only actions prescribing physicians without explicit authorization cannot take are initiating the appeal, opening discussions with a sponsor or the IRE about an ongoing appeal requested by the beneficiary, or receiving notices of adverse standard redeterminations or reconsiderations. In practical terms, prescribing physicians’ involvement in a standard appeal does not differ significantly whether they are appointed representatives or not.

CMS Efforts to Inform Beneficiaries about Sponsors’ Performance Have Improved; Oversight Hindered by Poorly Defined Reporting Requirements

CMS has improved its efforts to inform beneficiaries about sponsors’ performance, but its oversight of sponsors is hindered by poorly defined reporting requirements. CMS publicly reports information on two performance metrics: the rate at which sponsors met required time frames for decision making and the rate at which the IRE concurs with sponsors’ redetermination decisions. In November 2007, for one of these metrics, CMS modified the way it informs beneficiaries by grading sponsors’ performance against absolute benchmarks, rather than relative rankings as it had done previously. To oversee sponsors’ processes, CMS requires that sponsors report data on several coverage determinations and appeals measures; however, the agency provided minimal guidance on the information to be included in each coverage determination measure. As a result, our study sponsors have reported data differently to CMS, hindering the agency’s ability to monitor sponsors’ activities adequately. In its audits of PDP sponsors, CMS found that most of the sponsors it audited were noncompliant with many of the coverage determination and appeals requirements.

CMS Improved Its Use of Performance Metrics to Inform Beneficiaries

Using quarterly IRE data, CMS has developed two performance metrics to gauge how well sponsors’ coverage determination and appeals processes are operating. CMS calculates metrics on (1) the rate at which sponsors met required time frames for coverage determinations and redeterminations, as measured by the number of cases, per 10,000 beneficiaries, automatically forwarded to the IRE because of delays in sponsors’ decision making; and (2) the rate at which the IRE concurs with sponsors’ redetermination decisions, as measured by the percentage of cases in which the IRE upheld, or agreed with, sponsors’ coverage denials. CMS officials told us that the agency selected these two performance metrics, in part, because beneficiaries could interpret their meaning easily. CMS includes the two metrics in information made available to the public on the Medicare Prescription Drug Plan Finder—a Web site designed to help beneficiaries compare drug plans.

CMS account managers—staff responsible for overseeing sponsors’ performance—review sponsors’ scores on these performance metrics to monitor how well their coverage determination and appeals processes are operating. Sponsors with the highest rates of cases forwarded automatically to the IRE and the lowest percentages of cases in which the IRE agreed with their decisions are viewed as problematic. When a sponsor is identified as an outlier, the assigned account manager contacts the sponsor to discuss its coverage determination and appeal procedures and works with the sponsor to identify ways to improve its performance, such as conducting additional training sessions.

Both the IRE and the sponsors in our study noted certain limitations in the data underlying each of these metrics. The number of automatically forwarded cases used for the timeliness metric may understate sponsors’ timeliness. According to IRE officials, some sponsors have forwarded cases to the IRE believing they had exceeded the required decision time frames when they had not. According to the officials, these sponsors automatically forwarded cases when they had not yet received a signed AOR form or a physician statement to support a coverage request. In such cases, the required time frames have not yet expired and the IRE returns the case to the sponsor for processing. Because these sponsors automatically fowarded cases to the IRE inappropriately, their rates of missed time frames are higher than they should be.

Another limitation is that the performance metric on the IRE’s concurrence with sponsors’ decisions can be misleading. In discussing this measure with the sponsors in our study, one sponsor commented that a low rate of IRE agreement with their decisions implies, unfairly, that the sponsor’s decisions were flawed. They contend that the IRE often receives additional supporting evidence that results in an overturn, as we found by interviewing IRE officials. They state that had they received the same information within their time frame for processing the case, they may have approved the request. In their view, a low percentage of cases in which the IRE agrees with the sponsor’s decisions does not necessarily mean that the sponsor was not performing well. However, a CMS official asserted that sponsors are responsible for collecting all the information needed to adjudicate a request in the time allotted and are accountable if they do not obtain the same information available to the IRE.

CMS uses these performance metrics to inform beneficiaries of sponsors’ performance and to encourage poor performing sponsors to do better. In an effort to improve the information shared with beneficiaries for the 2008 open enrollment period, the agency changed the manner in which it calculates and displays these metrics—using a star designation system. For the 2007 open enrollment period, CMS used 2006 data from the IRE to rank order sponsors’ rates, classify sponsors into groups based on sponsors’ relative performance, and assign a star designation to each group. For example, CMS chose to assign three stars, indicating very good performance, to 90 percent of sponsors for each metric. The next 5 percent of sponsors were assigned two stars, indicating acceptable performance, while the remaining sponsors were given one star, indicating poor performance.

By setting the star designations using relative comparisons rather than defined benchmarks for different levels of performance, CMS implied that those sponsors receiving the most stars had superior performance while those with fewer stars were not meeting a CMS-set standard. The clustering of 90 percent of sponsors in the three-star designation could have been misinterpreted by beneficiaries as identifying those sponsors with superior performance when, in fact, by definition, 90 percent of sponsors received three stars. Moreover, the performance of sponsors in the top category varied significantly. For example, among the 26 PDP sponsors receiving three stars, the percentage of cases where the IRE concurred with sponsors’ redetermination decisions ranged from 39 to 75 percent. At the same time, the remaining categories were quite compressed. A relatively small difference in rates could have placed a sponsor in the lowest category rather than the highest category. CMS designated an IRE concurrence rate of 39 percent to be very good performance, but a 36 percent rate as acceptable performance, and 34 percent as poor performance.

Recognizing the value of comparing sponsor performance against absolute standards (benchmarks), CMS changed its star designation system in time for the 2008 open enrollment period. For the performance metric on IRE concurrence, the agency now assigns sponsors to one of five star categories using fixed benchmarks rather than a percentile ranking. Table 2 shows how sponsors are assigned to different performance categories for the metric on IRE concurrence. For example, under the new designation system, only those sponsors with IRE concurrence rates better than 95 percent receive five stars, indicating excellent performance. Also, stars are only displayed for sponsors that have at least five appeals cases reviewed by the IRE.

For the 2008 open enrollment period, CMS expanded its star designation system for the timeliness metric from three stars to five stars. Although it retained the relative ranking approach, CMS more evenly distributed the sponsors across the star categories. For example, whereas previously CMS assigned the top 90 percent of sponsors—those with the lowest rates of cases forwarded to the IRE because of missed time frames—the highest rating, the agency now assigns the highest rating to the top 15 percent of sponsors. Previously, CMS assigned 5 percent of sponsors the lowest rating, but now it assigns the lowest rating to 15 percent of the sponsors. The remaining sponsors are distributed more evenly across the two-, three-, and four-star designations. CMS continues to include among the top performing sponsors those with no cases forwarded to the IRE due to missed time frames. In our examination of 2006 publicly reported performance data, we found that, among the 60 PDP sponsors receiving three stars for making timely decisions, 21 did not forward any cases to the IRE because of missed time frames.

CMS Monitoring Hampered by Lack of Specificity in Reporting Requirements; Audits Identified Sponsors Needing Improvement

CMS’s oversight of sponsors’ coverage determination and appeals processes include both monitoring and auditing.

CMS’s Monitoring Efforts

In monitoring the coverage determination processes, CMS reviews quarterly data reported by sponsors. The coverage determination measures selected for reporting capture information about the extent to which beneficiaries use the coverage determination process and the outcomes of that process. An agency official involved in selecting the measures to be reported noted that CMS sought to minimize the administrative burden on sponsors by selecting measures for which data were likely to be readily available. For 2006, the first year of the Part D program, CMS required sponsors to submit data on the following types of coverage determination cases: the number of requests and the number of approvals for formulary drugs requiring prior authorizations; the number of requests and the number of approvals for formulary exceptions, such as for nonformulary drugs; and the number of requests and the number of approvals for tiering exceptions.

CMS used the submitted coverage determination data to calculate an overall request rate and an overall approval rate. In its analysis of the 2006 sponsor-reported data, CMS identified sponsors with relatively high overall rates of coverage requests and low overall rates of approvals. The agency wrote to these sponsors requesting that they confirm whether their submitted data were accurate and not the result of clerical errors.

We found that our study sponsors submitted information differently to CMS because the agency provided limited guidance on the information to be included in each coverage determination measure. CMS defined the coverage determination measures sponsors are required to report too broadly, thus allowing each sponsor to use its existing data categorizations for each of the measures. After examining data reported for the third and fourth quarters of 2006, and following up with our study sponsors, we found substantial discrepancies in how sponsors reported these overall data for requests and approvals, as the following illustrate.

While four of our seven sponsors said their measure of formulary drug requests requiring prior authorizations included requests for quantity limit exceptions, three sponsors included only a portion or none of these types of cases. For example, one sponsor told us that it omitted 6,032 requests for quantity limit exceptions in reporting the formulary drug request measure in the fourth quarter of 2006. These cases accounted for about 22 percent of the sponsor’s total coverage determination requests during that period. Another sponsor did not include 4,608 requests involving quantity limit exceptions in reporting the formulary drug request measure. These cases accounted for about 25 percent of all its coverage determination requests in the fourth quarter of 2006.

Some, but not all, study sponsors included other types of cases in the requests and approvals for formulary drug measures. For example, three of our seven study sponsors included cases disputing coverage under Part B or Part D in their formulary drug measures, and four study sponsors included requests for drugs excluded from coverage under Part D.

One of our seven study sponsors stated that, while it included all prior authorization requests in the formulary drug request measure, it included all requests for step therapy and quantity limits in the nonformulary drug request measure, based on a definition for nonformulary drugs in the Medicare Part D manual. In contrast, another sponsor in our study reported in the nonformulary drug category requests for drugs that it inadvertently did not include when designing its open formulary.

We identified two sponsors that double counted the number of requested and approved tiering exceptions by reporting them in two different measures. For example, one of our study sponsors included 13,986 requests for tiering exceptions in its count of prior authorization requests for formulary drugs reported to CMS. The inclusion of these tiering exceptions in the number of requests for formulary drugs increased the requests for formulary drugs reported by about 43 percent.

For the 2007 contract year, CMS made a number of modifications to its reporting requirements. CMS instructed sponsors to begin reporting data on the number of requests and approvals for quantity limit exceptions measures and renamed the other measures to better convey the types of coverage determinations to include in their reporting. CMS also instructed sponsors to exclude cases related to Part B versus Part D coverage from their data submissions. However, because CMS has yet to address categorization issues, such as whether the measures should be mutually exclusive, sponsors’ data reporting may remain inconsistent. Until data reliability issues are addressed, CMS may not be in a position to use these measures to oversee sponsors’ coverage determination process effectively.

CMS’s Auditing Efforts

In it 2007 compliance audits of five PDP sponsors, CMS found numerous violations of Part D standards. The agency used an audit protocol that examined 13 elements related to the coverage determination process and 13 elements of the appeals processes. CMS auditors reported that the number of violations across sponsors ranged from 15 to 26 specific coverage determination and appeals process requirements. CMS has required sponsors to fix the violations by adopting corrective action plans.

Areas of sponsor noncompliance ranged from incomplete written policies and procedures to delays in authorizing drug coverage after the IRE approved an expedited request. Auditors found that some sponsors did not notify beneficiaries of coverage decisions within the required time frames. Several sponsors were cited for not using CMS-approved decision notices; such notices must explain the reasons for denying requests or inform beneficiaries of their appeal rights. Other sponsors did not have policies to use physicians to review appeals of coverage requests denied for a lack of medical necessity. Table 3 shows those audit elements for which CMS found at least four of the five sponsors noncompliant. As of October 2, 2007, each of the five sponsors had submitted to CMS corrective action plans to remediate the identified deficiencies, which CMS was in the process of reviewing.

A number of the audit findings indicate that the publicly reported performance metric on sponsor timeliness may not accurately reflect sponsors’ adherence to the requirement to automatically forward cases to the IRE. In reviewing case files, for example, CMS found that sponsors inconsistently forwarded standard coverage determination cases to the IRE when they did not meet the required CMS time frame, with one of the sponsors providing CMS with a written statement acknowledging that it had not forwarded any cases to the IRE for review during the audit period. Another two sponsors inappropriately allowed themselves more time to process certain coverage determination requests by starting their coverage determination review only after they received a supporting statement from the physician.

In a separate initiative, CMS has worked with a selected group of sponsors to improve their performance on coverage determinations and appeals. Using a collaborative approach to performance improvement, CMS has conducted evaluations of two sponsors with comparatively high reversal rates at the IRE level of appeal to identify reasons why the IRE often did not agree with these sponsors’ prior coverage decisions. After examining a random sample of IRE case files for each sponsor in 2006, CMS identified several process-related issues that each sponsor could improve and provided feedback in the form of recommendations to each sponsor. For example, at one sponsor, CMS found that in about two-thirds of the reviewed cases, the sponsor should have done a better job of obtaining and assessing documentation of the evidence to support the request. The agency recommended that the sponsor revise certain forms in order to obtain all the information needed to make appropriate coverage determination decisions. CMS officials told us that both sponsors improved their performance by increasing the number of cases in which the IRE agreed with their decisions. As of September 2007, CMS was completing its evaluation of a third sponsor that did not receive a three- star designation for the performance metric based on the 2006 data.

Conclusions

In the Part D program, beneficiaries’ access to prescription drugs is a function not only of whether a particular drug is on a plan’s formulary and whether it is subject to utilization management tools, but also how plan sponsors make individualized coverage decisions when requested. The Medicare drug benefit allows sponsors to operate in a regulated but flexible environment. Thus, sponsors in our study follow similar procedural steps but apply discretion in making coverage determinations and appeal decisions.

Administrative barriers in the appeals process can have implications for beneficiaries’ drug coverage. Efforts to implement the requirement that prescribing physicians be formally appointed beneficiary representatives with a signed AOR form in order to initiate standard appeals have been cited as an impediment to the appeals process. We found evidence that missing AOR forms have caused delays and some dismissals in cases being considered. A more streamlined approach that reduces AOR paperwork by quickly identifying those beneficiaries who wish to initiate an appeal could improve the process while maintaining physician involvement.

While CMS has improved its efforts to inform beneficiaries about sponsors’ performance, its oversight efforts remain mixed. The agency has begun to hold sponsors accountable for maintaining compliance with coverage determination and appeals requirements. Agency auditors cited sponsors for widespread deficiencies and have required them to revise procedures to better serve beneficiaries. However, CMS lacks the data it needs to routinely monitor coverage determination and appeals requests and approvals across all sponsors. The agency has not taken steps necessary to ensure that sponsors report data consistently.

Recommendations for Executive Action

To improve the Medicare Part D coverage determination and appeals processes, we recommend that the Administrator of CMS: reduce the need for completed AOR forms by requiring sponsors and the IRE, upon receipt of standard appeal requests submitted by prescribing physicians without completed AOR forms, to telephone beneficiaries to determine whether they wish to initiate the appeal, and ensure that sponsor-reported data used for monitoring coverage determination and appeals activities are accurate and consistent by providing specific data definitions for each measure.

Agency Comments and Our Evaluation

In written comments on a draft of this report, CMS remarked that our review presents a balanced evaluation of Part D coverage determination and appeals procedures and the associated data reporting procedures, and does an excellent job of highlighting various challenges in the Part D appeals process. (See app. II.) The agency reported that it is exploring the adoption of one of the report’s recommendations and is in the process of implementing the other. In addition to comments on each of our recommendations, CMS provided detailed, technical comments that we incorporated where appropriate.

CMS stated that it intends to consider our recommendation that the need for a signed AOR form be reduced through a process where sponsors call beneficiaries when physicians request appeals on their patients’ behalf. However, it noted that it was not certain whether any change to the current policy could be implemented without modifying the statutory and regulatory provisions associated with the AOR requirement. The agency pointed out that physician representation of beneficiaries is limited by law because only a Medicare Part D eligible individual can bring an appeal at the IRE level. Therefore, CMS said that it is reviewing the current legal requirements about making appeal requests to determine whether changes are appropriate and necessary. CMS added that it intends to work with physician groups to ensure that physicians promptly submit any needed AOR forms.

We are pleased that CMS is considering how it can implement our recommendation to address the difficulties regarding the AOR requirement. In making this recommendation, we considered relevant statutory and regulatory provisions and found no limitations that would preclude its adoption by CMS. Our recommendation would reduce the need for AOR forms by requiring that sponsors and the IRE determine at the outset whether beneficiaries want to initiate their appeals or have physicians do so on their behalf. If it is determined that the beneficiary is requesting the appeal, an AOR form would not be needed and the sponsor or IRE could immediately process the request. However, if sponsors or IRE find that beneficiaries want their physicians to initiate the appeal for them, then completed AOR forms would still be required. We have slightly reworded our recommendation, to clarify our intent and eliminate any ambiguity, and included the revised language in the final report.

CMS agreed with our recommendation to ensure that sponsor-reported data are accurate and consistent by providing specific data definitions for the coverage determination and appeals measures. The agency noted that it has taken steps to modify the Part D Plan Reporting Requirements guidance on data element definitions. It plans to reinforce this guidance during upcoming calls with Part D sponsors, as well as in memoranda to sponsors, Frequently Asked Questions documents, and conference presentations. In addition, to minimize data entry errors, CMS has implemented data edit rules that will, among other things, reject a value that exceeds an expected range. It also developed procedures for sponsors to correct previously submitted information.

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If you or your staffs have any questions about this report, please contact Kathleen King at (202) 512-7114 or kingk@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made contributions to this report are listed in appendix III.

Appendix I: Steps and Time Frames for Part D Coverage Determination and Appeals

Appendix II: Comments from the Centers for Medicare & Medicaid Services

Appendix III: GAO Contact and Staff Acknowledgments

Acknowledgments

In addition to the contact named above, Rosamond Katz, Assistant Director; Lori Achman; Todd Anderson; Hazel Bailey; Krister Friday; Lisa Rogers; and Jennifer Whitworth made major contributions to this report.