Dual-eligible beneficiaries are a particularly vulnerable population. These individuals are typically 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. About three out of four dual-eligible beneficiaries live in the community and typically obtain drugs through retail pharmacies. Other dual-eligible beneficiaries reside in long-term care facilities and obtain drugs through pharmacies that specifically serve these facilities. In general, individuals become dual-eligible beneficiaries in two ways. One way is when Medicare-eligible individuals subsequently become Medicaid eligible. This typically occurs when income and resources of beneficiaries fall below certain levels and they enroll in the Supplemental Security Income (SSI) program, or they incur medical costs that reduce their income below Medicaid eligibility thresholds. If these Medicare beneficiaries did not sign up for a Part D plan on their own, they have no drug coverage until they are enrolled in a PDP by CMS. CMS data show that this group represented about two-thirds of new dual-eligible beneficiaries the agency enrolled in PDPs in 2006. According to CMS, it is not possible for it to predict which Medicare beneficiaries will become Medicaid eligible in any given month because Medicaid eligibility determinations are a state function. Another way individuals become dually eligible is when Medicaid beneficiaries subsequently become eligible for Medicare by reaching 65 years of age or by completing the 24-month disability waiting period. Once they become dual-eligible beneficiaries, they can no longer receive coverage from state Medicaid agencies for their Part D-covered prescription drugs. In 2006, this group represented approximately one- third of the new dual-eligible beneficiaries enrolled in PDPs by CMS. CMS can generally learn from states when these individuals will become dually eligible. For dual-eligible beneficiaries, Medicare provides a low-income subsidy that covers most of their out-of-pocket costs for Part D drug coverage. This subsidy covers the full amount of the monthly premium that non- subsidy-eligible beneficiaries normally pay, up to the low-income benchmark premium. The subsidy also covers most or all of a dual-eligible beneficiary’s prescription copayments. In 2007, these beneficiaries are responsible for copayments that range from $1 to $5.35 per prescription, depending on their income and asset levels, with the exception of those in long-term care facilities, who pay no copayments. Given the number of entities, information systems, and administrative steps involved, it takes a minimum of 5 weeks for CMS to identify and enroll a new dual-eligible beneficiary in a PDP. As a result, two out of three new dual-eligible beneficiaries—generally those who are Medicare eligible and then become Medicaid eligible—may experience difficulties obtaining their prescription drugs under Part D during this interval. For other new dual-eligible beneficiaries—those switching from Medicaid to Medicare drug coverage—CMS instituted a prospective enrollment process in late 2006 that enrolls these individuals before their date of Medicare eligibility and offers a seamless transition to Part D coverage. Multiple parties and information systems are involved in identifying and enrolling dual-eligible beneficiaries in PDPs. As shown in figure 1, CMS, the Social Security Administration (SSA), state Medicaid agencies, and PDP sponsors play key roles in providing information needed to ensure that new dual-eligible beneficiaries are identified and enrolled properly. 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 whom the state believes to be eligible for both Medicare and Medicaid. CMS is then responsible for making plan assignments and processing enrollments. PDP sponsors maintain information systems that are responsible for exchanging enrollment and billing information with CMS. The process of enrolling dual-eligible beneficiaries requires several steps. It begins when state Medicaid agencies identify new dual-eligible beneficiaries and ends when PDPs make billing information available to pharmacies and send enrollment information to dual-eligible beneficiaries. We estimate that it takes at least 5 weeks to complete the process under current procedures. During this interval, pharmacies may not have up-to-date PDP enrollment information on new dual-eligible individuals. This may result in beneficiaries having difficulty obtaining Part D-covered drugs at their pharmacies. To illustrate why this occurs, we present the hypothetical example of Mr. Smith, who as a Medicare beneficiary did not sign up for the Part D drug benefit and, therefore, upon becoming Medicaid eligible, was enrolled in a PDP by CMS. (Fig. 2 shows the steps in Mr. Smith’s enrollment process.) From the time Mr. Smith applies for his state’s Medicaid program on August 11, it takes about 1 month for him to receive notification from the state that he is eligible for Medicaid, thus beginning the enrollment process. From there, Mr. Smith’s new status is submitted by his state to CMS in a monthly file transmittal. Once CMS receives the lists of dual- eligible beneficiaries from all of the states, it verifies eligibility for Medicare and sets each beneficiary’s cost-sharing level. Then, around October 8, CMS assigns Mr. Smith to a PDP randomly, based on the premium level and the geographic area served by the PDP. CMS next notifies the PDP sponsor, which then has to enroll him in its plan and assign the necessary billing information. This billing information, such as a member identification number, is necessary for pharmacies to correctly bill the PDP for Mr. Smith’s prescriptions. The PDP also has to inform Mr. Smith of his enrollment information. By the time this process is completed, it is the middle of October. CMS has developed some contingency measures to help individuals like Mr. Smith during the processing interval. However, we found that these measures have not always worked effectively. For instance, CMS designed an enrollment contingency option to ensure that dual-eligible beneficiaries who were not yet enrolled in a PDP could get their medications covered under Part D, while also providing assurance that the pharmacy would be reimbursed for those medications. However, representatives of pharmacy associations we spoke with reported problems with reimbursements after using this option, which has led some pharmacies to stop using it. To avoid a gap in coverage for beneficiaries transitioning from Medicaid to Medicare prescription drug coverage, CMS has implemented a prospective enrollment process. Because states can predict and notify CMS which Medicaid beneficiaries will become new dual-eligible beneficiaries and when, CMS begins the enrollment process for these individuals 2 months before the their anticipated dual-eligible status is attained. By conducting the processing steps early, the prospective enrollment used for this group of new dual-eligible beneficiaries should ensure a seamless transition from Medicaid drug coverage to Medicare Part D coverage. Fully implemented in November 2006, prospective enrollment applies to about one-third of the new dual-eligible beneficiaries enrolled in PDPs by CMS. For the majority of new dual-eligible beneficiaries, CMS requires PDPs to provide drug coverage retroactively, typically by several months. During 2006, Medicare paid PDPs millions of dollars to provide coverage to dual- eligible beneficiaries for drug costs that may have been incurred during the retroactive coverage period. However, we found that CMS did not fully implement or monitor the impact of this policy. CMS made the effective date of Part D drug coverage for Medicare beneficiaries who become Medicaid eligible coincide with the effective date of their Medicaid eligibility. Under this policy, Part D coverage for these beneficiaries is effective the first day of the month that Medicaid eligibility is effective, which generally occurs 3 months prior to the date an individual’s Medicaid application was submitted to the state, if the individual was eligible for Medicaid during this time. Thus, the Part D coverage period can extend retroactively back several months from when the actual PDP enrollment takes place. Medicare makes payments to the PDPs for providing drug coverage retroactively. Specifically, PDPs are paid approximately $90 per month for the retroactive coverage period. PDPs, in turn, are responsible for reimbursing their members (or another payer) for Part D drug costs incurred during the retroactive months. For instance, in the case of Mr. Smith, while he applied for Medicaid in August and learned of his PDP assignment for Part D in October, his coverage was effective May 1. If Mr. Smith incurred any costs for Part D-covered prescription drugs from May—when he became eligible for Medicaid—through October, he could submit his receipts to his assigned PDP and be reimbursed by the PDP, less the copayments he would pay as a dual-eligible beneficiary. We found that CMS’s implementation of this policy in 2006 was incomplete. While dual-eligible beneficiaries were entitled to reimbursement by their PDPs in 2006, neither CMS nor PDPs notified dual- eligible beneficiaries of this right. The model letters used until March 2007 to inform dual-eligible beneficiaries of their PDP enrollment did not include any language concerning reimbursement of out-of-pocket costs incurred during retroactive coverage periods. In response to a recommendation in our report, CMS modified the model letters that the agency and PDPs use to notify dual-eligible beneficiaries about their PDP enrollment. The revised letters let beneficiaries know that they may be eligible for reimbursement of some prescription costs incurred during retroactive coverage periods. Given the vulnerability of this population, it seems unlikely that many dual-eligible beneficiaries would have contacted their PDPs for reimbursement if they were not clearly informed of their right to do so and given information about how to file for reimbursement, neither would they likely have retained proof of their drug expenditures. Mr. Smith, for example, would need receipts for drug purchases made during a 5-month period preceding the date he was notified of his PDP enrollment—at a time when he could not foresee the need for doing so. Further, CMS did not monitor how many months of retroactive coverage PDPs provided, nor did it monitor PDP reimbursements to beneficiaries for costs incurred during retroactive coverage periods. Based on data provided by CMS, we estimate that Medicare paid about $100 million to PDP sponsors in 2006 for retroactive coverage.