Medicare Part D coverage is provided through private plans sponsored by dozens of health care organizations that may charge premiums, deductibles, and copayments for the drug benefit. All Part D plans must meet federal requirements with respect to the categories of drugs they must cover and the extent of their pharmacy networks. They must offer the standard Medicare Part D benefit, or an actuarially equivalent benefit. Beyond these requirements however, the specific formulary and pharmacy network of each PDP can vary. Under the MMA, drug coverage for all dual-eligible beneficiaries transitioned from Medicaid to Medicare Part D, on January 1, 2006. The MMA requires CMS to assign dual-eligible beneficiaries to a PDP if they have not enrolled in a Part D plan on their own. CMS may only assign dual-eligible beneficiaries to PDPs serving their area with premiums at or below the low-income benchmark amount and must randomly assign individuals if there is more than one eligible PDP. During October and December 2005, CMS randomly assigned to PDPs dual-eligible beneficiaries who had not already enrolled in a Part D plan. The agency mailed notices to these beneficiaries informing them of their assignment and also that they could select a different PDP if they wished. If they did not switch from their assigned PDP by December 31, 2005, their assignment took effect, with coverage beginning January 1, 2006. CMS enrolled 5,498,604 dual-eligible beneficiaries during this first round of assignments and continues to assign new dual-eligible beneficiaries into PDPs on a monthly basis, when these beneficiaries do not independently enroll in a Part D plan. For some dual-eligible beneficiaries, some drugs that were previously covered under Medicaid might not be covered by their Medicare PDP’s formulary. Subject to certain parameters, PDPs have the flexibility to set their own formularies and, as a result, PDPs vary in their inclusion of the drugs most commonly used by dual-eligible beneficiaries. According to a 2006 report by the Department of Health and Human Services, Office of Inspector General (OIG), one-fifth of dual-eligible beneficiaries were assigned to PDPs that provide coverage of all of the most commonly used drugs and one-third were assigned to PDPs that provide coverage of less than 85 percent of these drugs. However, dual-eligible beneficiaries are allowed to switch to a different PDP at any time with coverage under a new PDP effective the following month. In addition, to help ensure a smooth transition to Part D, CMS requires PDP sponsors to provide for a transition process for new enrollees whose current medications may not be included in their PDP’s formulary. For 2006, CMS recommended that PDP sponsors should fill a one-time transition supply of nonformulary drugs in order to accommodate the immediate need of the beneficiary. In particular, CMS suggested that PDPs provide at least a 30-day transition supply to all beneficiaries and a 90- to 180-day transition supply for residents in long-term care facilities. Dual-Eligible Beneficiaries Dual-eligible beneficiaries are a particularly vulnerable population. Totaling roughly 6.2 million in January 2006, they account for about 15 percent of all Medicaid beneficiaries and 15 percent of all Medicare beneficiaries. In general, these individuals are poorer, tend to have far more extensive health care needs, have higher rates of cognitive impairments, and are more likely to be disabled than other Medicare beneficiaries. A majority of dual-eligible beneficiaries live in the community and typically obtain drugs through retail pharmacies. Nearly one in four dual-eligible beneficiaries reside in a long-term care facility and obtain their drugs through pharmacies that specifically serve long-term care facilities. While most Medicare beneficiaries enrolled in a PDP pay monthly premiums, deductibles, and other cost-sharing as part of their benefit package, the Medicare Part D program pays a substantial proportion of dual-eligible beneficiaries’ cost-sharing obligations through its low-income subsidy program. For dual-eligible beneficiaries, Medicare pays the full amount of the monthly premium that nonsubsidy eligible beneficiaries normally pay, up to the level of the low-income benchmark premium. Medicare Part D also covers most or all of the prescription copayments: dual-eligible beneficiaries pay from $1 to $5.35 copayments per prescription filled in 2007, with the exception of those in long-term care facilities who have no copayments. In addition, dual-eligible beneficiaries are not subject to a deductible or the so-called “donut hole.” In addition to dual-eligible beneficiaries, the Part D low-income subsidy is available to other low-income Medicare beneficiaries. Some of these other Medicare beneficiaries must apply for the subsidy through the SSA or a state Medicaid agency. The subsidy is available on a sliding scale, according to income and resources. Dual-eligible beneficiaries are automatically entitled to the full subsidy amount and do not need to apply independently for the subsidy. An individual can become a dual-eligible beneficiary in two main ways. First, Medicare beneficiaries can subsequently qualify for Medicaid. This occurs when their income and resources decline below certain thresholds, and they enroll in the Supplemental Security Income (SSI) program, or they incur medical costs that reduce their income below certain thresholds. CMS data indicate that roughly two-thirds of the 633,614 dual- eligible beneficiaries the agency enrolled in 2006 were Medicare beneficiaries who subsequently qualified for Medicaid, and had not already signed up for a PDP on their own. According to CMS officials, it is not possible to predict the timing of dual-eligibility for these individuals because determining Medicaid eligibility is a state function. Second, Medicaid beneficiaries can subsequently become eligible for Medicare by either turning 65-years-old or by completing their 24-month disability waiting period. This group represents approximately one-third of the new dual-eligible beneficiaries enrolled by CMS in PDPs. State Medicaid agencies can generally predict when this group of individuals will become dually eligible. Multiple parties and multiple information systems are involved in the process of identifying and enrolling dual-eligible beneficiaries in PDPs. In addition to CMS, the SSA, state Medicaid agencies, and PDP sponsors play key roles in providing information needed to ensure that beneficiaries are identified accurately and enrolled. SSA maintains information on Medicare eligibility that is used by CMS and some states. State Medicaid agencies are responsible for forwarding to CMS lists of beneficiaries who the state believes to be eligible for both Medicare and Medicaid. PDP sponsors maintain information systems that are responsible for exchanging enrollment and billing information with CMS. For the most part, CMS adapted existing information systems used in the administration of other parts of the Medicare program to perform specific functions required under Part D. In addition, CMS worked with the pharmacy industry to develop a tool specifically to aid pharmacies in obtaining billing information needed to process claims for dual-eligible beneficiaries without enrollment information. The principal systems supporting the Part D program are as follows: The Medicare eligibility database. This system serves as a repository for Medicare beneficiary entitlement, eligibility, and demographic data. In the enrollment process for dual-eligible beneficiaries, the database is used by CMS to provide up-to-date information to verify the status of dual-eligible beneficiaries, as well as to determine subsidy status and make assignments to PDPs. It also provides data to other CMS systems, SSA, state Medicaid agencies, PDPs, and pharmacies. The enrollment transaction system. This system is used to enroll beneficiaries in PDPs. In addition, it informs PDPs about a beneficiary’s subsidy status and copayment information, calculates Medicare payments to PDPs for each covered enrollee, and processes changes in PDP enrollment, including those elected by the beneficiary. The eligibility query. This tool is used by pharmacies to obtain Part D billing information from the Medicare eligibility database. When filling a prescription for a beneficiary who does not have proof of Part D enrollment or eligibility, a pharmacy submits a request for billing information using the eligibility query. In response, the pharmacy receives information on the beneficiary’s PDP enrollment, including the data necessary to bill the beneficiary’s PDP for the drugs dispensed. The process of enrolling dual-eligible beneficiaries requires several steps; it begins when the state Medicaid agency identifies new dual-eligible beneficiaries and ends when PDPs make billing information available to pharmacies. (For more detailed information on the steps involved in identifying and enrolling dual-eligible beneficiaries, see app. I.) The key information systems (see fig. 1) and steps in identifying and enrolling dual- eligible beneficiaries are the following. 1. State Medicaid agencies obtain Medicare eligibility information from SSA or request data from CMS’s Medicare eligibility database and match that information against their own Medicaid eligibility files. The state Medicaid agencies compile comprehensive files identifying all dual-eligible beneficiaries, known as the dual-eligible files. CMS receives Medicare eligibility information from SSA daily. 2. State Medicaid agencies send CMS the dual-eligible files and CMS matches the files against data in its Medicare eligibility database to verify each individual’s dual eligibility. The agency sends a response file back to each state that includes the results of the matching process for each submitted individual. 3. Those dual-eligible beneficiaries who were matched are considered eligible for the full low-income subsidy and the Medicare eligibility database sets the copayment information accordingly. This process is referred to as deeming. The Medicare eligibility database also assigns beneficiaries not already enrolled in a Part D plan to PDPs that operate in regions that match the beneficiary’s official SSA address of record. Both the deeming and assignment information are sent to the enrollment transaction system to be processed. 4. The enrollment transaction system processes the deeming and assignment information in order to complete the enrollment and notifies the PDPs of those dual-eligible beneficiaries who have been enrolled in their PDP and their copayment amounts. 5. PDPs process the resulting enrollment, assign the standard billing information, and send this information to the Medicare eligibility database.