Since 2006, CMS has contracted with private companies, referred to as plan sponsors, to provide outpatient prescription drug plans for Medicare beneficiaries. In 2014, there were 3,455 prescription drug plans offered nationwide. Every time a Medicare beneficiary fills a prescription covered under Part D, the sponsor must submit a prescription drug event (PDE) record to CMS. These records include drug cost and payment information that enables CMS to administer and monitor the Part D benefit. Plan sponsors are required to have comprehensive compliance programs that include a plan to safeguard the program from fraud, waste, and abuse. Plan sponsors are required to offer plans that provide a minimum set of benefits to beneficiaries—the standard benefit—or an actuarially equivalent benefit. Beneficiaries pay monthly premiums and cost sharing—such as coinsurance—for drug purchases. The amount of cost sharing varies over the course of the year as beneficiaries move through the phases of the benefit. As shown in figure 1, the standard benefit in 2014 featured a $310 deductible and an initial coverage period during which beneficiaries pay coinsurance of 25 percent of the cost for prescription drugs until they reach the initial coverage limit of $2,850. After the initial coverage period, beneficiaries enter a coverage gap, during which beneficiaries pay a large share of drug costs. After reaching the catastrophic threshold, beneficiaries pay a small share of total drug costs. Under Part D, certain individuals are also entitled to a low-income subsidy, through which they pay reduced premiums and generally have zero or nominal cost sharing. In addition to the subsidy for certain low-income individuals, Medicare also provides Part D plans with direct subsidy payments and reinsurance payments. The direct subsidy is a monthly prospective capitated payment to plans adjusted for the health status of beneficiaries expected to enroll, among other things. Reinsurance payments are monthly subsidies Medicare pays to plans that cover 80 percent of plans’ estimates for beneficiaries that incur costs above the catastrophic threshold. CMS has a goal to reduce improper payments in the Medicare Part D program and conducts a number of activities to protect the integrity of the program—that is, to ensure that payments are made correctly the first time and to identify, investigate, and recoup payments made in error. CMS’s Center for Program Integrity oversees Part D program integrity. Within the Center for Program Integrity, the Division of Plan Oversight and Accountability is responsible for administering the Part D RAC program. The Division of Plan Oversight and Accountability coordinates its efforts with components in CMS’s Center for Medicare and the Office of Acquisition and Grants Management. The Part D RAC is required under PPACA to conduct post-payment reviews to identify improper payments in the Part D program. In addition, the RAC is required to conduct three additional activities: ensure that each Part D prescription drug plan has an antifraud plan in effect and review the effectiveness of each plan; examine Part D prescription drug plans’ claims for reinsurance payments to determine whether costs were incurred in excess of the costs allowed; and review Part D prescription drug plans’ estimates for the enrollment of high-cost beneficiaries and compare to the numbers of high-cost beneficiaries actually enrolled. The RAC uses a CMS-approved audit methodology to identify potential improper payments, takes steps to have its work validated by another contractor, and provides plan sponsors with an opportunity to appeal its findings, prior to CMS collecting any confirmed improper payments. The RAC may use data from CMS and the HHS Office of Inspector General, such as CMS’s Medicare Exclusion Database or the Office of Inspector General’s List of Excluded Individuals/ Entities, among other sources, and compare those data to Medicare Part D claims data that plan sponsors submit in PDE records to identify potential improper payments. The RAC reviews all contracts that fall within a particular year for a particular plan sponsor unless directed to do otherwise by CMS, and may identify potential improper payments on PDE records within 4 years of the plan sponsor’s current plan year. After the RAC has identified potential improper payments in PDE records, a data validation contractor confirms the results and works with the RAC to resolve any discrepancies, for example in the amount of improper payments identified or the number of PDE records containing potential improper payments. Once the RAC’s results are finalized, the results are sent to the plan sponsor to give it an opportunity to appeal the RAC’s results, that is, to request a reconsideration of the identified potential improper payments and provide additional documentation to support its request. After all appeals are considered and final decisions are made, CMS collects improper payments from plan sponsors. The RAC is paid on a contingency fee basis from amounts recovered, as required by law. This payment is a percentage of the improper payments that CMS collects after the appeals process has been completed. CMS implemented the Part D RAC program in January 2011 by undertaking various activities, including establishing a statement of objectives and conducting a solicitation process to select a RAC to identify improper payments. CMS officials told us the agency addresses additional PPACA requirements for the Part D RAC program through other activities it conducts. However, unclear expectations about the work the Part D RAC would conduct and unrealistic timelines regarding project milestones hampered Part D RAC program implementation. CMS implemented the Part D RAC program in January 2011 by undertaking various activities, such as establishing a statement of objectives, conducting a solicitation process to select a contractor, and awarding a Part D RAC contract. CMS’s statement of objectives described the outcomes that CMS required a Part D RAC to achieve, such as developing a methodology to identify improper payments. Prospective contractors were to use this statement of objectives to design a performance work statement to describe how they would conduct their work to achieve those objectives. According to CMS officials, the majority of CMS contracts include a statement of work that describes how contractors should conduct their work. However, CMS officials decided that prospective contractors for the Part D RAC program would design their own performance work statements instead because CMS officials said they wanted to give industry the opportunity to shape the program. After CMS created the statement of objectives, it solicited contractors to serve as the Part D RAC using the General Services Administration’s Federal Supply Schedule. Although using the Federal Supply Schedule limited the number of potential contractors that could respond to CMS’s solicitation and from which CMS could choose, CMS officials said the agency chose this solicitation method because it was a streamlined approach to generate interest from contractors already approved to work for the federal government. According to CMS officials, CMS received two proposals from potential contractors, and only one of them was found to be technically acceptable. CMS officials said that they reviewed the potential contractors’ performance work statement and assessed their experience with Medicare Part D and knowledge of Medicare Part D statutes and regulations, along with other qualifications. CMS selected the only contractor whose proposal, including its performance work statement, the agency considered technically acceptable. While this contractor did not have any previous federal experience, CMS determined that its recovery audit experience in the private sector was sufficient. In January 2011, when CMS awarded a contract to the contractor selected to serve as the Part D RAC, the contractor’s performance work statement became part of the contract. As such, the performance work statement established requirements and set expectations for the work the RAC would perform and how the work would be conducted. The RAC’s initial contract period was for 1 base year with four 1-year options for extension, although CMS extended the base period of the contract eight times over a 2-year period through contract modifications. The base period was originally through January 2012; however, it was extended through December 2013. At that time, CMS and the RAC agreed in a contract modification to revise the performance period to reflect a 3-year base period, two 12-month option periods, and a separate nearly 13-month option for administrative and appeals activities. CMS and the RAC exercised the first option period of the modified contract, which ran from January through December 2014, and then the second and final option period, which ends December 31, 2015. CMS officials said they plan to obtain the RAC services on the open market using a full and open competitive solicitation and select a contractor to begin serving as the Part D RAC under new contract terms in January 2016. CMS officials also said the 2016 Part D RAC contract will include a statement of work. According to CMS officials, the RAC cannot perform activities to address the three additional PPACA requirements for the Part D RAC program, and therefore CMS conducts activities that address these requirements. CMS officials told us that the RAC cannot perform activities to address the additional requirements because the fee that CMS is statutorily required to pay the RAC is based on improper payments identified by the RAC, and there is no allowance under the statute for payment for other work done by the RAC. However, CMS conducts certain activities that, according to CMS officials, address the three PPACA requirements: Ensure that each Part D plan has an antifraud plan in effect and review the effectiveness of each plan—According to CMS officials, the agency meets this requirement by conducting program compliance audits of plan sponsors, which include a review of the sponsors’ antifraud plans. According to CMS officials, 96 percent of beneficiaries are enrolled in Part D plans that have been reviewed within a 5-year period as part of these compliance audits. In addition, CMS conducted a pilot study from September 2013 to February 2014 to review the effectiveness of five plan sponsors’ antifraud plans. CMS officials said the findings from this study will be used to inform and, if necessary, improve CMS’s reviews of sponsors’ antifraud plans as part of its compliance audits. Examine Part D plans’ claims for reinsurance payments to determine whether costs were incurred in excess of the reinsurance costs allowed—According to CMS officials, the agency meets this requirement through its reconciliation of Part D plans’ reinsurance estimates to their actual costs.