The Impact On States Of The Medicare Drug Benefit: Information For State Administrators

The Impact on States of the Medicare Drug Benefit Information for State Administrators

Prepared by Linda Schofield, BSN, MPH President, Schofield Consulting Mary Kay Owens, RPh, CPh President, Southeastern Consultants, Inc. April 2005

Summary

The MMA has established an important new benefit for senior and disabled Medicare beneficiaries, thereby assuring their access to a full array of medical services. States have numerous policy decisions to make in implementing the Part D drug benefit, including several options to enhance the Part D program. These decisions must be made quickly in order to be ready for the January 1st, 2006 implementation date. As the safety net provider for many vulnerable individuals, the state’s choices on these matters are important to the future well-being of the elderly and disabled. A brief summary of potential state actions and legislation includes:

Medicaid • • • • • • • •

Cover non-Part D drugs, non-formulary drugs and/or copayments for dual eligibles. Incentivize or mandate pharmacies to waive copayments for dual eligibles that cannot pay. Establish a dedicated unit for education and assistance for dual eligibles related to plan selection, benefit use, and appeals. Re-evaluate existing and planned cost containment policies. Re-evaluate current DUR program structure and objectives. Re-evaluate disease and case management program structure and vendor contracts. Review current managed care program structure and benefit design. Review current and proposed LTC programs and alternative structures.

State Pharmaceutical Assistance Plans • • • • • • • •

Become a bona fide SPAP within CMS rules or forfeit federal SPAP status. Mandate that SPAP enrollees apply for low-income subsidies and enroll in Part D plans, if eligible. Provide a mechanism to enroll eligible individuals in a Part D plan if they fail to do so voluntarily. Provide assistance to enrollees to apply for low-income subsidies. Revise current benefit design to become a wraparound or premium assistance program, or continue as a full benefit program. Use program savings to expand program benefits or eligibility. Designate the SPAP as the authorized representative for purposes of appeals. Amend program rules related to use of mail order drug services and out-of-network providers.

State Pharmacy Plus Demonstration Waiver Programs • • • •

Review limitations of waiver’s current structure. Consider restructuring waiver program into an SPAP. Determine program design and consider offering wraparound benefits. Determine how to use savings to expand benefits.

Other • • • •

Fund training and education for other affected agencies. Fund contingency drug supplies for high risk patients. Fund a program evaluation to inform future policy decisions. Decide how to structure retiree drug benefits to produce savings.

For more information, follow these links: Centers for Medicare and Medicaid Services (CMS) at www.cms.hhs.gov/pdps or www.cms.hhs.gov/medicarereform Kaiser Family Foundation at www.kff.org Academy Health (for state coverage initiatives) at www.statecoverage.net/pdf/medicarepartd.pdf

The new drug benefit established by Part D of the Medicare

cost of Medicare drug coverage for the dual eligibles. The

Modernization Act (MMA) assures that all older and disabled

states must also establish new processes and enhance their

persons have access to affordable prescription drug coverage

infrastructure to accept and process applications for Part D

and will subsidize many low-income persons who previously

low-income subsidies. In the course of processing these appli-

had no access to drug benefits through Medicaid or state

cations, they must screen for eligibility for Medicare savings

pharmaceutical assistance programs. It also will result in

programs available under Medicaid (QMB, SLMB, QDWI and

significant changes in state programs that currently provide

QI), thereby potentially discovering and enrolling significant new

drug benefits to other populations. While the major decisions

numbers of dual Medicaid/Medicare beneficiaries at new

about the federal program’s design are now finalized and

expense to the state. Additionally, states are assessing the

codified, there are many important decisions that states will

impact of MMA on Medicaid cost containment initiatives and

make in the next few months regarding how state programs

other programs such as disease management, drug utilization

will adapt to the new MMA benefit.

review, Medicare subsidies, and managed care benefit structures. While these requirements are finalized and will not

States will see both significant savings opportunities (especially

likely be changed, states do have a number of opportunities to

in their state pharmaceutical assistance plans [SPAPs] and

influence the effectiveness of the new Part D program and re-

retiree benefits; possibly in Medicaid) as well as significant new

evaluate future Medicaid policy and program design decisions.

costs (especially in Medicaid) as a result of the Part D program. The decisions states make can affect both.

Access: As safety net providers, states want to assure that dual

Therefore, state legislators and administrators will need infor-

eligibles enjoy appropriate access to necessary medications

mation and analyses about all the options and decisions

after their transfer to a prescription drug plan (PDP). Because

before them.

PDPs will have different formularies and prior authorization requirements than the Medicaid programs, as well as higher

However, the decisions made by state policy makers must not

copays in some cases, some beneficiaries will face new barriers

only reflect budget considerations, but also recognize the lead

in obtaining needed medications. Although Medicaid programs

role that states have and always will have in providing a safety

cannot claim federal matching funds for coverage of copays or

net to the poorest, frailest, and most vulnerable of our citizens.

for Part D drugs not available under a PDP’s formulary, the

Related state policy decisions have the potential to influence

states do have the option to use state funds to subsidize this

the perceived success of the Part D program implementation.

access. Indeed, some Medicaid programs are considering

If states act to supplement and coordinate effectively with the

enrolling their duals into their state pharmaceutical assistance

Part D program, they may prevent future demands upon safety

program (SPAP) as a vehicle for providing them such coverage.

net services. Thus, the states have an essential role, comple-

In addition, states may continue coverage of non-part D drugs

menting the federal role, to address the access and

(benzodiazepines, barbiturates, vitamins, over-the-counter

information needs of older and disabled persons who have

drugs, etc.) under Medicaid and may receive federal matching

Part D benefits, but who also rely, and may continue to rely, on

funds for those costs.

various other state services.

Medicaid

The Centers for Medicare and Medicaid Services (CMS) has also indicated that pharmacies may waive copayments for dual

The MMA makes its most sweeping impact on the Medicaid

eligibles at their own expense. Under federal Medicaid rules, in

program, carving out the coverage of drugs for dual eligibles

states that have Medicaid drug copayments, the pharmacists

and transferring this responsibility to the Medicare program.

may not refuse to supply a prescription to a beneficiary who

Federal matching funds will no longer be available for Medicaid

cannot afford the copayment. States may want to work with

drug benefits provided to dual eligibles, except for drugs that

their state pharmacies to incentivize them to extend this same

are not included in the list of Part D drugs. However, the

protection to dual eligibles enrolled in Part D plans.

transfer of program responsibility is not a complete hand-off.

Alternatively, states may want to determine if they can extend

The states are still largely financially responsible for the cost of

their current mandates for pharmacists to serve those dual

drugs for dual eligibles, in the form of the “clawback.”

eligibles who cannot pay, even though the duals are covered

“Clawback” is the popular term for the mandatory payment

by Part D plans.

each state must make to the federal government toward the

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Education and Assistance: Although CMS will be

Cost Containment Initiatives: States have implemented

responsible for enrolling duals (voluntarily or randomly) into

many cost containment initiatives such as preferred drug lists

PDPs, there are likely to be many individuals who do not

(PDLs), monthly prescription limits, and copayments for drugs.

understand their benefits, who are enrolled in a plan not best

It is important for states to realize that each of these cost

suited to their needs, or who in some way need further

containment initiatives must be re-evaluated for policy modifi-

assistance once they are initially enrolled. The final regulations

cations in light of the MMA Part D shift of prescription

enable dual eligibles to switch plans as often as they like, but

coverage for dual eligibles out of the Medicaid program.

many individuals may not recognize that they have this right, or 1. Preferred Drug Lists: Preferred Drug Lists (PDLs) are lists

that they may be able to gain access to a drug that is not covered by the PDP in which they initially enrolled.

of specific drugs that can be prescribed without prior

Furthermore, they may not have the technical ability to

authorization based on the decision of a manufacturer to

evaluate plan options against their personal needs in order to

offer state supplemental rebates for those products. The

determine best fit. Similarly, the federal regulations provide for

savings from a PDL are dependent on:

an exception and appeal process that enables enrollees to a. The total volume of prescriptions (particularly in chronic

pursue coverage of a denied drug. But the process will be unfamiliar and the duals may need assistance to navigate their

use drug classes) that are subject to therapeutic substi-

way through it. If the state does not establish a dedicated

tution with higher supplemental rebate products, and

resource unit for providing such assistance, the duals will b. The state’s current federal medical assistance percentage

inevitably contact their case workers, case managers, and

(FMAP) or “federal match.”

other state resource people in the Medicaid agency and elsewhere. Therefore, states may want to fund an education and assistance unit, especially during the early phase of tran-

The shift of dual eligibles out of the Medicaid pharmacy

sition to the new program in order to assure that beneficiary

program significantly reduces the total volume of

needs are met to the best degree possible. They may also

prescriptions by at least 50 percent for most states and

want to coordinate their efforts with Area Agencies on Aging,

more in states with a high percentage of dual prescription

State Health Insurance assistance Programs (SHIPs), and

users. The reduction of prescription volume reduces the PDL

other non-profit organizations that provide outreach and infor-

savings by reducing the volume of prescriptions subject to

mation services to older and disabled populations.

the supplemental rebate. The MMA shift also affects the utilization mix of different drug classes, since the dual

In addition to educating and assisting members, the Medicaid

eligibles tend to use more chronic use medications, which

agency and/or health department might also consider sending

contribute the greatest savings from a PDL. States with a

information to or holding seminars for other providers who will

higher federal match rate must return that percentage of

be affected by the Part D program. Nursing homes,

savings to CMS, further reducing the state savings from PDL

Intermediate Care Facilities for Persons with Mental

supplemental rebates.

Retardation (ICFs-MR), and other residential treatment facilities will be affected by provisions pertaining to long-term care

For these reasons, states will need to consider, post-MMA,

pharmacies and copayment exemptions for institutionalized

whether different drug classes should be included or

dual eligibles. These facilities can and should play a role in

excluded from their PDLs and also how the shift in volume

assisting their clients to apply for subsidies, select PDPs, and

and utilization mix will affect the PDL structure and policies.

effectively use the Part D benefits to which they are entitled.

States will also need to consider the return on investment of continuing a PDL, based on the extensive administrative costs and resources required to administer it. For states that have not already implemented a PDL, it may not be cost effective or generate enough savings to justify pursuing the program. 2. Monthly Prescription Limits: States have implemented monthly prescription limits based on current utilization data,

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which includes claims for both the Medicaid-only and the

Managed Care Benefit Structure: In response to the transition

dual population. The dual population is more likely to need

of dual eligibles to Medicare Part D, many states are considering

multiple drugs and specifically those drugs used to treat

changes to their managed care Medicaid program benefit

chronic diseases. Once the dual eligibles transition to

structures. States that originally allowed the managed care

Medicare, states will need to conduct a cost/benefit analysis

organizations (MCOs) to include prescription drugs in their capi-

of limiting the number of prescriptions. The administrative

tation rates are concerned that the significant reduction in claim

costs that result from manual reviews and prior authori-

volume for their fee-for-service (FFS) drug program will reduce

zations for overrides above the limit may not be justified by

their base CMS rebates, as well as any PDL supplemental

the savings from the monthly limit policy on the Medicaid-

rebates and savings. They are considering carving out the drug

only population.

benefit from the MCOs and moving it back into the FFS drug program in order to increase total prescription volume. This will

3. Prescription Copayments: In recent years, states have

serve to increase the state’s base CMS rebates because the

implemented or increased copayments for prescriptions to

states obtain better rebates than the MCOs, and to increase PDL

generate savings to the drug program. The post-MMA

supplemental rebates and savings because of the volume

significant reduction in the volume of prescriptions will

increase which they believe offers better leverage when nego-

reduce the effects of this cost containment strategy. In

tiating manufacturer rebates. Other states have viewed the MMA

addition, the population under federal law that is exempt

dual shift differently and propose expansion of managed care by

from copayments, i.e., pregnant women and children, will

transferring all remaining non-dual eligibles into MCOs, eliminating

represent a large proportion of the remaining Medicaid

the FFS drug program completely. They believe this will reduce

population.

the administrative costs of the Medicaid drug program and simplify the delivery of services through the MCOs. To reduce

Drug Utilization Review Programs: States are required

total program costs, several states propose allowing MCOs to

under federal Medicaid law to conduct both prospective and

offer various levels of benefit packages that better fit the health

retrospective drug utilization review (DUR) programs to identify

care needs of a younger, healthier post-MMA population.

the potential inappropriate use of medications. The transition of all dual eligibles out of the Medicaid drug program will dramat-

Long-Term Care Costs and Benefit Structures: Medicaid

ically reduce the volume of prescriptions identified by DUR

programs fund almost 50 percent of all long-term care (LTC)

edits and subject to intervention. This volume reduction may

costs nationally. This tremendous resource burden consumes

necessitate changes to the way resources are allocated and to

about 35 percent of most state Medicaid budgets and is

the primary objectives of DUR programs. States may find it

increasing each year. In recent years, states have sought to

more cost efficient to conduct more detailed retrospective case

restructure their long-term care programs by obtaining CMS

reviews, which integrate medical and pharmacy claims data in

waivers for demonstration projects that allow patients to

order to identify statistical outliers. The detailed medical case

remain in less costly home and community-based envi-

reviews could shift to a smaller, more targeted intervention

ronments, assisted living facilities (ALFs), and all inclusive care

group of patients with chronic disease rather than conducting

programs such as PACE (Program of All-Inclusive Care for the

large numbers of superficial drug claim reviews and sending

Elderly). The provisions of MMA Part D provide prescription

providers DUR generated form letters. It should be noted that

cost-sharing exemptions for institutionalized dual eligibles,

the dual eligibles are required to undergo traditional DUR, but

such as those residing in skilled nursing facilities and inter-

that function will be provided by the PDPs, not Medicaid. The

mediate care facilities. However, under MMA Part D, dual

MMA calls for implementation of a new program for PDP

eligibles that reside in home-based environments will be

plans, defined as Medication Therapy Management Programs

subject to increased prescription cost-sharing above their

(MTMPs). This program will require more intensive, targeted

currently low or non-existent Medicaid cost-sharing

medication therapy management of individual patients that

requirements. There is some concern among states that these

meet CMS’s defined criteria for high total drug costs and the

provisions will deincentivize patients from remaining in their

presence of multiple chronic diseases. States may want to use

existing, alternative LTC environments and promote their

a similar model for their modified DUR/medical case review

movement into traditional, more costly institutional care

programs with the Medicaid-only population.

facilities in order to obtain free medications. This could serve to further increase the Medicaid budget.

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Disease and Case Management Programs: Disease and

In exchange for meeting these requirements, SPAP payments

case management programs have been implemented and

of Part D deductibles and copayments are granted special

expanded in many states during the past several years. There

treatment: they count towards “true out-of-pocket costs”

are a few ways that the MMA will affect how states structure

(TrOOP). Note: SPAP payments for drugs not covered by the

these programs in the immediate future. States that have dual

PDP’s formulary or for drugs not covered by Part D of

eligibles enrolled in disease and case management programs

Medicare do not count towards TrOOP and therefore do not

will need to reassess their participation in these programs and

assist beneficiaries in reaching their catastrophic benefit level.

whether changes should be made to existing vendor contracts.

Likewise, payments made by most other third party payors do

States and their vendors currently have access to all drug claim

not count towards TrOOP, however payments made by

information enabling them to perform the detailed drug

relatives and bona fide charities, including patient assistance

utilization and medical care reviews vital to the success of

programs supported by pharmaceutical manufacturers, will

disease and case management activities. However, once the

count towards TrOOP.

dual eligibles shift to PDPs, there are no requirements that the PDPs share drug utilization data with the states. This will create

Several states are considering whether the special treatment of

a significant challenge for states and vendors performing

their payments is sufficient incentive to give up their desire to

Medicaid disease and case management. Since many of the

auto-enroll all of their members into a preferred PDP, since

physicians serving these patients with chronic disease are

CMS has indicated that such action would constitute “discrimi-

Medicare enrolled providers (not affiliated with the Medicaid

nation” and cause them to lose their bona fide SPAP status.

program), there will be no opportunity for Medicaid to share the

Thus, the first option a state has is whether to continue its

dual eligibles’ drug utilization data with the multiple prescribing

SPAP program as a recognized or unofficial SPAP under CMS

physicians for those patients as part of the disease and case

rules. It should be noted that the decision to continue the

management coordination efforts. States and vendors will have

SPAP as such could have a negative impact on the SPAP’s

to decide if this will severely impede their efforts and whether

potential savings from the Part D program if the SPAP includes

they should exclude dual eligibles for those programs.

enrollees who are above the low-income subsidy levels. The

State Pharmacy Assistance Programs

loss of special status for SPAP payments as counting toward TrOOP will result in the delay of a member reaching the out-ofpocket threshold for catastrophic benefits. This delay in reaching federal catastrophic benefits will leave the SPAP’s

State Pharmacy Assistance Programs (SPAPs) enjoy special

responsible for continued higher copayments in an extended

treatment in the MMA and will reap savings as Medicare takes

“donut hole.” Furthermore, CMS has indicated that it will not

on primary payor status for many members. SPAPs have

approve certain aspects of some of the specific proposals that

several options to consider in how they will coordinate with the

states have considered as non-qualified SPAPs.

Part D program in the future: Enrollment Options: If an SPAP elects to be a bona fide SPAP Status: In order to be recognized as an SPAP under

SPAP under CMS rules, it may encourage or require its

the MMA, an SPAP:

enrollees to enroll in a PDP of their choice and, if they fail to enroll voluntarily, the SPAP may randomly assign them to a

• Must provide financial assistance for the purchase or

PDP or evaluate which plan is best for each individual and

provision of supplemental benefits, i.e., benefits that wrap

enroll them accordingly. The SPAP may not, however, enroll

around the Part D benefits,

everyone who fails to choose their own PDP into a single “preferred” PDP. This is considered a violation of the rule noted

• May not discriminate in the treatment of their enrollees

in SPAP Status above regarding discrimination.

based upon which Part D plan they enroll in, and Because the SPAP will be paying for some or all of the • Must meet coordination of benefits requirements related to

deductible, coinsurance, and “donut hole” that might apply to its

the Part D plans as primary payors.

enrollees, as well as potentially any non-formulary drugs not covered by the PDP, the SPAP has a financial interest in assisting its enrollees in obtaining the most extensive PDP coverage

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April 2005

possible for the needs of each individual. Therefore, SPAPs may

Program Design: Each state can decide how it wants to

want to consider developing a tool for matching individuals to

design its program in relation to the Part D program. They

PDPs on the basis of their formularies and copayments, rather

have a variety of options, which all comport with federal

than simply randomly assigning people to plans.

requirements and enable SPAP payments to count towards TrOOP. Their options most simply are:

Note that, regardless of how the SPAP decides to assist a. To continue as a full benefit plan and simply act as a

enrollees in signing up for a PDP, the state may want to pass legislation changing the eligibility rules for the SPAP to require

secondary payor. This means they need not change their

SPAP enrollees who are eligible for Part D to enroll in Part D

benefits and everyone enrolled in their program receives the

plans and apply for low-income subsidies as a condition of

same or better benefits in total than they received before

their SPAP enrollment. This will help to assure that the SPAP is

Part D implementation. The SPAP simply deducts what the

reaping all of the possible savings from the Part D program.

PDP paid from what the SPAP would otherwise pay. If the SPAP has an open formulary, it would pay when the PDP

Eligibility Applications for Low-income Subsidies: It is in

denies coverage of a drug that is not on the PDP formulary.

the SPAP’s financial interest to get its enrollees promptly

The SPAP would also pay for “covered” drugs during the

signed up for Part D low-income subsidies. Although SPAPs

donut hole and deductible periods, and might pay part of

cannot make eligibility determinations, they can submit appli-

the copayments due under the Part D plans, depending on

cations on behalf of their enrollees using the information they

the relative copayment structures of each plan.

already obtained during the eligibility process. The Part D b. To provide only “supplemental” or “wraparound” coverage,

application also requires information about assets, so SPAPs will need to gather that information from their enrollees. To

like a Medigap plan. This means they would pay only the

facilitate the application process, SPAPs will want to develop

copayments and deductibles for PDP-covered drugs, and

an information technology solution to map their eligibility infor-

would pay nothing for drugs denied by the PDPs.

mation to the application form required by the Social Security c. To purchase wraparound coverage for SPAP enrollees from

Administration, allowing the forms to be completed in an

the PDPs and simply pay them an extra premium for

automated fashion.

covering copayments and deductibles, rather than processing claims directly as an SPAP. Medicare Part D Drug Plan Cost Sharing© Beneficiary Income Group

Coinsurance

Copayment

Premium

Deductible

Donut Hole

Institutional Dual Patients

0%

$0

$0

$0

N/A

Full Duals with Income up to 100% FPL

0%

$1/$3 (generic/brand) and $0 after $3,600

$0

$0

N/A

Income 100% up to 135% FPL*

0%

$2/$5 (generic/brand) and $0 after $3,600

$0

$0

N/A

Income 135% up to 150% FPL*

15% Up to $3,600

$2/$5 (generic/brand) and after $3,600

$0 to 100% full premium (sliding scale monthly premiums)

$50

N/A

“Standard Benefit” Income Greater than 150% of FPL

25% (up to $2,250 drug expenses) Greater of 5% or Standard Copayment (after $3,600 OOP spending)

$2/$5 (generic/brand) after $3,600 OOP spending

$0 to $35/mo. (full monthly premium)

$0 to $250

100% beneficiary payment (between $2,250 and $3,600)

*Income up to $12,560 and assets < $6,000 for individual; income up to $16,862 and assets < $9,000 for couple (2004) **Income between $12,569 and $13,965 and assets < $10,000 for individuals; income between $16,862 and $18,735 and assets < $20,000 for couples (2004) ©2005 Southeastern Consultants, Inc.

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April 2005

need to decide whether to change their SPAP rules to allow their

d. To subsidize any beneficiary premium due for those beneficiaries who do not qualify for full federal Part D low-income

beneficiaries to obtain SPAP secondary coverage for out-of-

premium subsidies. This would assist all SPAP beneficiaries to

state/out-of-network pharmacies and home infusion pharmacies.

State Pharmacy Plus Demonstration Waiver Programs

enroll in PDPs, but provide them no additional SPAP benefits. e. A combination of the above options, in which the SPAP both subsidizes the PDP premium and also provides full or

Pharmacy Plus demonstrations are 1115 waivers that were

wraparound SPAP benefits.

designed for states to expand coverage for prescription drugs under the Medicaid program using enhanced federal matching

Use of Savings: Because the SPAPs will have a significant

funds to seniors and individuals with disabilities who have

portion of their previous benefit costs offset by Part D plan

income exceeding that permitted for Medicaid eligibility.

benefit payments, there will be program savings. Each state will need to decide how to use those savings. One state, for

Pharmacy Plus Status: CMS has approved four Pharmacy

example, is considering expanding their SPAP program eligibility.

Plus demonstration waivers in Florida, Illinois, South Carolina and Wisconsin. The Florida Pharmacy Plus program covers

SPAP Authority to Appeal: If a state is planning to provide a

seniors between 88 and 120 percent of the federal poverty

full benefit and cover drugs that are denied by the PDP, then the

level (FPL). The remaining three states cover individuals up to

state will want authority to act as the “authorized representative”

200 percent FPL. These four states provide prescription

of the enrollee for purposes of appeal. Indeed, even if the SPAP

benefits to approximately 312,000 individuals, most of whom

only plans to cover wraparound benefits, the SPAP may want

are Medicare eligible. Two other states, Vermont and Maryland,

the authority to appeal for lower copayments on behalf of bene-

have low-income prescription benefit expansion programs that

ficiaries whose only medication options are in a high copayment

are not defined as pharmacy plus waiver programs but are

tier. The enrollees themselves may have no incentive to appeal if

somewhat similar in funding and benefit structure to the

they can still get their drug covered at the SPAP benefit level, so

pharmacy plus programs.

the SPAP needs to be able to take the lead in pursuing an exception. States can either require each SPAP enrollee to sign

Structure Options: States have two options for their Pharmacy

a legal document designating the SPAP as their authorized

Plus waiver and similar expansion programs. They are:

representative, or they can pass legislation designating the SPAP as such, with or without the enrollee’s signature.

a. States may continue to operate a Pharmacy Plus demonstration or expansion waiver program, but must

Mail Order Drug (MOD): Most SPAPs do not allow their

demonstrate that these programs will still be cost effective

enrollees to obtain benefits through a MOD facility, as they are

after January 1, 2006 by submitting a revised budget

usually licensed out-of-state and the SPAPs usually only cover

neutrality calculation for the demonstration.

in-state pharmacies. Furthermore, most SPAPs do not cover three-month supplies typically provided by MOD facilities.

b. States can restructure their waiver programs into State

States will need to decide whether to change their SPAP rules

Pharmacy Assistance Programs (SPAPs).

to allow their beneficiaries to obtain SPAP secondary coverage for MODs or extended supplies.

States that decide to continue their Pharmacy Plus waiver programs must submit a revised budget neutrality calculation

Out-of-Network Benefits: Although most SPAPs have

to account for the reduction in Medicaid spending and less

virtually all in-state retail pharmacies in their networks, they

diversion of dual eligible beneficiaries into the Medicaid

typically do not cover out-of-state pharmacies or home

program due to the implementation of Part D program. CMS

infusion pharmacies. Many PDPs will cover a region that is

will review the revised budget neutrality calculation and

larger than the SPAP’s state, and indeed some PDPs will be

approve or disapprove the continuation of the demonstration

national in scope or will offer affiliated networks in other states

for the period when the prescription drug benefit is effective.

for “snow birds.” In addition, PDPs are required to cover home

States will find compliance with this requirement virtually

infusion pharmacies. Thus, the PDP networks will likely have

impossible to accomplish using reasonable assumptions.

pharmacies that are not in the SPAP network. Again, states will

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April 2005

Under the final rule, Pharmacy Plus program costs, including

leverage in effectuating any necessary future policy

the state share of the program, cannot be counted towards

adjustments. States are in a unique position to collect data as

TrOOP because these programs do not qualify as SPAPs.

a collective consumer in a manner that any individual beneficiary could not do. For example, SPAPs will receive the same

Due to the limitations listed above, it is recommended that

notices as CMS regarding formulary changes. Medicaid and

states restructure their waiver programs into SPAPs so they

the SPAPs will have information about which PDPs their

can realize the maximum amount of savings available under

clients enroll in and disenroll from. If either agency elects to

Part D. States that convert their waivers to SPAPs will be able

pay for non-formulary drugs or copayments, they will have

to enjoy all the benefits offered under MMA to SPAPs, such as

information about denials and cost sharing levels. If either

the ability to have payments count toward TrOOP for enrollees

agency decides to assist beneficiaries to appeal or to appeal

so they reach catastrophic thresholds sooner.

Other State Agencies

on their behalf, they will have information about the turn-

Other state agencies that serve the aged and disabled will

Department of Mental Health, for example, will have infor-

inevitably feel the impact of the MMA in some fashion, as their

mation about use of non-drug benefits that they offer to Part

clients adapt to using their new benefits. At a minimum, case

D enrollees. Given this access to information, states should

managers and direct care workers in agencies such as the

consider funding the ongoing evaluation of the impact of the

departments of Mental Health, Mental Retardation, Aging, and

Part D program on state budgets and on beneficiaries’ access

Health should be given some training about the new program and

to care. The following data elements would be useful to

about where beneficiaries can go for help with enrollment, plan

monitor for purposes of future policy making:

around times and outcomes of exception requests and appeals. And, of course, the Medicaid agency and

selection, premium subsidies, appeals, and benefit information. • Number of claim denials for non-formulary drugs and other In addition, programs serving high risk individuals such as

reasons, and the outcomes (e.g., were exceptions

persons with AIDS or mental illness, should be particularly alert

requested, were alternative drugs prescribed, did patients

during the transition phase for problems their clients may

simply fill no prescription?)

encounter in gaining access to their medications, since those • Turn around times for exception decisions

medications may not be on the formularies of the new PDP in which a dual eligible or other beneficiary may find him or

• Frequency of enrollment changes to different PDPs

herself enrolled. Contingency planning may be appropriate to prevent breaks in therapy, including plans to make available

• Utilization trends in non-drug services that might indicate

short term supplies of certain medications while a patient

failure to follow drug regimens, such as Medicare cross-over

exercises appeal rights.

claims for coverage of copayments, deductibles, or nonMedicare services

State psychiatric hospitals should revise their discharge planning procedures to consider the availability of selected

• Frequency of PDP formulary deletions

medications on an outpatient basis from each patient’s Part D plan. If a patient is being stabilized on a drug during an

• Number of enrollees in Medicare savings programs

inpatient stay, the medication should either be confirmed as

State Retirees

available for outpatient use or the hospital should complete the exception request process before the patient is discharged.

Program Evaluation

Like all employers, the states will be able to pursue federal subsidies for drug benefit costs for Part D eligible retirees who

Many states and advocacy groups will closely observe the

are covered by the retiree plan in lieu of a Part D plan. In order

ability of PDPs, most of whom have never traditionally served

to collect these subsidies, states (or their health plan adminis-

low-income populations, to ascertain their ability to sensitively

trators) will need to certify that their plans are at least

serve the needs of low-income individuals. However, without

actuarially equivalent to Part D benefits and will need to report

documentation of patterns and trends, states may have little

their benefit costs. The subsidy is equal to 28 percent of costs

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April 2005

can collect a per retiree subsidy of up to $1,330.

Definitions

Employers, including states, may also pursue an alternative

Part D Drug – Any prescription drug not categorically

approach to maintaining their retiree benefits but collecting

excluded in 1927(k) of the MMA (i.e., benzodiazepines, barbi-

federal revenue: they may seek a waiver to become a PDP. As

turates, drugs used for anorexia, etc.) or any prescription drug

a waivered PDP, they would provide their usual retiree benefits

that is not covered under Part B.

per retiree between $250 and $5,000. In other words, states

as long as they are at least actuarially equivalent to Part D benefits, and they could collect federal premium subsidies and

Non-Part D Drug – Any prescription drug categorically

low-income subsidies like any other PDP. The waiver would

excluded in 1927(k) of the MMA (i.e., benzodiazepines, barbi-

exempt them from certain other PDP requirements, such as

turates, drugs used for anorexia, etc.) or drugs covered under

requirements related to the service area and enrollment of all

Part B.

applicants other than their own retirees. Covered Part D Drug – Any prescription drug that meets the Of course, a state may also decide to drop its retiree benefits

definition of a Part D drug and is also covered under a plan. A

entirely. Or states may require their retirees to enroll in Part D

covered Part D drug is covered because: it is on the plan’s

plans, including Medicare Advantage plans, and provide them

formulary or the beneficiary receives an exception or

only supplemental benefits, such as coverage during the donut

successfully appeals non-coverage; the drug is determined to

hole. It is important to note, however, that such supplemental

be medically necessary by the plan; and the drug is not

coverage will not count toward TrOOP and therefore will not

otherwise excluded by the plan for some reason listed in

assist the retiree in reaching the catastrophic benefit threshold.

section 1862(a) of the Act (i.e., drugs used for cosmetic purposes, foot care, etc.).

States should conduct a fiscal analysis to determine which option yields the greatest savings and make choices

Non-covered Part D Drug – A drug that meets the definition

accordingly.

of a Part D drug but for some reason the plan does not cover it, perhaps because it is off-formulary, because the plan finds the drug not reasonable and necessary, or because the plan believes the drug is excluded under 1862(a). True Out-of-Pocket (TrOOP) – Allowable incurred costs that are payable by the beneficiary or by specified third parties on their behalf (namely qualifying SPAPs; family, friends, or others; and charities) within the limits of the standard benefit. Part D catastrophic benefits become effective when TrOOP reaches $3,600 (this value is specific to 2006 and increases annually each subsequent year as per Sec. 1860D-2(b)(4)(B)(i)). When TrOOP reaches $3,600, we say the beneficiary has reached the “attachment point” or out-of-pocket threshold under the standard benefit. Low-income Cost-sharing Subsidy (LICS) – Medicare payments to plans to subsidize the cost-sharing liability of qualifying low-income beneficiaries, including plan premiums, deductibles, coinsurances, and late enrollment penalties. The statute divides these income-related subsidies into two categories: premium assistance and cost-sharing assistance.

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April 2005

The National Pharmaceutical Council 1894 Preston White Drive Reston, VA 20191-5433 703.620.6390 www.npcnow.org

1MPR0110405