Urban Cardiology layout

Volume 31, Number 4 July/August 2005

Examining the Lack ofDiversity in Federally-

Funded CardiologyTraining Programs

(p. 10)

A Primer on Medicareand the New

Medicare PrescriptionDrug Benefit (p. 14)

THE ABC DIGEST OF URBANCARDIOLOGYA Publication of the Association of Black Cardiologists, Inc.

Dedicated to Equity in Cardiovascular Diagnosis and Treatment

4 ABC DIGEST OF URBAN CARDIOLOGY July/August 2005

OUR EDITORIAL MISSIONThe ABC Digest of Urban Cardiology, published bimonthly, is an official publication of the

Association of Black Cardiologists, Inc. (ABC). The ABC is a non-profit organization of healthprofessionals dedicated to the reduction of cardiovascular and related diseases, especially inminority populations, wherein lies a burden of excessive morbidity and mortality. This publica-tion is provided as an educational service to all health professionals who share this dedication.

The mission of this publication is to assist such clinicians to deliver the best of care topatients with cardiovascular and related diseases and to do so in a culturally competent anddemographically appropriate manner. We do so by providing—in a compact, easily compre-hensive journalistic style—up-to-date information of immediate applicability to the uniqueclinical setting of urban medicine. This information consists of:

• Original, evidence-based, clinical and research main articles (including CME self-assessment).• “Tidbits”—a regular column of useful clinical knowledge gleaned from recent clinical

research trials and other information drawn from the medical literature.• “Developments”—a regular column covering newsworthy recent events such as new drug

and device market introductions, new controversies in medicine, new trends in healthcare, new scientific insights, and new demographic, economic, and governmental activityaffecting the practice of medicine.

• Commentary from the president of ABC, the publication’s editor in chief, and the publisher.

We strive continually to improve upon the execution of our editorial mission and thereforeencourage and welcome your suggestions on how we can serve you, our reader, better.

In this issue you will observe product advertisements from AstraZeneca, Bristol-Myers SquibbMedical Imaging, Fujisawa Healthcare, McNeil-PPC and Schwarz Pharma. These pharmaceuticalfirms are providing educational grant support to the Association of Black Cardiologists, Inc. toenable us, among other things, to provide you with this publication without a subscription chargeto you.

We encourage you—as you deem appropriate—to acknowledge and show appreciation forthis support, as well as for these supporters’ recognition of the special health challenges facedby minority and underserved populations and by the clinicians who treat them.

EDITORIAL BOARDEditor in Chief: Elizabeth Ofili, M.D., M.P.H.

Morehouse School of MedicineAtlanta, GA

Anekwe Onwuanyi, M.D., Assistant EditorMorehouse School of Medicine

Atlanta, GA

Michelle Albert, M.D., M.P.H.Brigham & Women’s Hospital

Harvard Medical SchoolBoston, MA

John Fontaine, M.D.Drexel University College of Medicine

Philadelphia, PA

Kenneth Jamerson, M.D.University of Michigan Health System

Ann Arbor, MI

Stephanie Kong, M.D.MetroHealth Group of America

Atlanta, GA

Laurence Watkins, M.D., M.P.H.Healthy Heart Center

Port St. Lucie, FL

Karol Watson, M.D., Ph.D.University of California—Los Angeles

David Geffen School of Medicine Los Angels, CA

Deborah Williams, M.D.Howard University Hospital

Washington, D.C.

Jackson Wright, Jr., M.D., Ph.D.Case Western Reserve University

School of MedicineCleveland, OH

Clyde Yancy, M.D.University of Texas

Southwestern Medical Center Dallas, TX

THE ABC DIGEST OFURBANCARDIOLOGYA Publication of the Associationof Black Cardiologists, Inc.

6849 B-2 Peachtree Dunwoody RoadAtlanta, GA 30328

Urban Cardiology is a bimonthly publica-tion of the Association of Black Cardiologists,Inc., a non-profit organization of medicalprofessionals dedicated to the reduction ofcardiovascular and related diseases in minor-ity and underserved populations. The ideasand opinions expressed in this publication donot necessarily reflect those of theAssociation, editors, or publisher.

Correspondence should be addressed to:URBAN CARDIOLOGYAssociation of Black Cardiologists, Inc.6849-B2 Peachtree Dunwoody Rd., N.E.Atlanta, GA, 30328

For advertising information, contactImquest, Inc.590 S. Lenola Road, Suite 3121Maple Shade, NJ 08052856–489–7550

Roslyn DanielsThe Daniels Network11 Fieldstone CourtOakland, NJ 07436201–337–3593

PublisherHilton M. Hudson, II, M.D., F.A.C.P.

Editor in ChiefElizabeth Ofili, M.D., M.P.H., F.A.C.C.

Editorial StaffMeredith Carter, Association of Black

CardiologistsDebra Teague, Morehouse School of

Medicine

© Copyright The Association of BlackCardiologists, Inc. 2005. All rightsreserved. No part of this publication in anyform may be reproduced or transmittedwithout the expressed written permissionof the publisher. Library of CongressISSN# 1096-3863

Hilton Publishing, Inc.P.O. Box 737Roscoe, IL 61073

PICNICS IN THE PARK WITHHAMBURGERS, FRIEDCHICKEN, POTATO SALAD,AND ICE CREAM

Summertime conjures up so many All-American images. Pickup baseball and basketball games, hot dogs, and beer. The Fourthof July and fireworks, celebrated with spare ribs slathered in barbe-cue sauce and cole slaw made with mayonnaise. Picnics in the parkwith hamburgers, fried chicken, potato salad, ice cream. Swimmingin the pool or at the shore and amusement parks teeming withsnacks of pizza, fried dough, fried clams, and cool soda pop.Summertime, as the song goes, “And the livin’ is easy.”

And it truly is. Summertime indeed is a wonderful time. Wefeel great over all for the weather is good, days are pretty, vaca-tions are taken and family get-togethers are meaningful. But withregard to our health, as well as the health of our loved ones andpatients, let’s not let our guards down completely. We need toremember not to overindulge in unhealthy lifestyle behaviors.This false sense of security is dangerous.

When wishing your patients a well-deserved rest and goodvacation, don’t forget to tell them to take basic precautions:

• Eat healthy, nutritious, fresh foods at this time of peak harvestand cut back on the fried foods

• Don’t over-exercise and be sure to check with you or anotherphysician to be sure the exercise is safe and properly designedfor their lifestyle

• Wear a hat and sunglasses• Drink plenty of water and other hydrating fluids

With common sense and some basic precautions, we can allenjoy this wonderful time of year safely and healthfully. And at thesame time, enjoy this issue of Urban Cardiology with its importantinformation on Medicare and the lack of diversity in federally-funded cardiology training programs. So go ahead and live that easylife. We all need rest and relaxation. It really is good for us!

Hilton M. Hudson II, M.D., F.A.C.S., F.C.C.P.Director of OutreachDept of Cardiothoracic SurgeryUniversity of ChicagoPresident and C.E.O., Hilton Publishing Company, Inc.President, Health Literacy Foundation, Richmond, IN

From the Publisher

C O N T E N T S

Message from the President 8

Letter from the Editor 9

Examining the Lack of Diversity in Federally-Funded Cardiology Training Programs 10

A Primer on Medicare and the New Medicare Prescription Drug Benefit 14

Vol. 31, No. 4July/August 2005

Cover: Inset Illustration by Joel Gresham

The paintings used on the cover of the Digest ofUrban Cardiology depict teachable moments

between children and their grandparents.The dialogue here is:

Al: Keep on going baby. It looks like its going inGramps: Yeah, that’s it, right in the hole.Gramps: Great shot! You made that putt look

easy.Al: I’m getting pretty good like grandpa.Gramps: You surely are Al. If you keep playing

like this, we may have the next Tiger Woods!Al: I’m not that good yet. I’m just learning.Gramps: If you keep coming out to the links

with your old Grand Pa, who knows the poten-tial you may reach.

Al: Do you really believe I have what it takes?Gramps: Well Al, everything has a starting, mid-

dle, and an end point. If you follow throughfrom the beginning to the end, you are des-tined for success.

Al: I’m glad that you have so much confidencein me. It’s good to know I’ll always have youin my corner.

Gramps: Come on “Tiger.” Lets go to the nexthole.

To “Talk Back” write to:B. Waine Kong, Ph.D., J.D.

Chief Executive OfficerAssociation of Black Cardiologists, Inc.

6849-B2 Peachtree Dunwoody Rd., N.E.Atlanta, GA 34328678–302–4222

THE ABC DIGEST OFURBANCARDIOLOGYA Publication of the Associationof Black Cardiologists, Inc.

ILLUMINATING CRISIS:MANPOWER IN CARDIOLOGY

Manpower in Cardiology and Part D of theMedicare Modernization Act are two topics theDigest will focus on in this issue.

For the past four years, we have taken anaggressive stance concerning the need toincrease the number of cardiologists in theUnited States and in particular, the number ofAfrican American cardiologists. A dozen yearsago, the American College of Cardiology (ACC)conferred on the “Future Personnel Needs forCardiovascular Care” (1993) and wrote that theoutput of cardiologists exceeded the nationpresent and future needs and mandated thenumber of trainees be decreased. As a result,about twenty cardiology training programs wereclosed (including one that was near and dear tous—Harlem Hospital) and most programs wererequired to reduce the number of cardiologistsin training they could accommodate.

Then in 2003, another ACC Taskforce onWorkforce chaired by Dr. Bruce Fye came tothe conclusion that our Nation is confronting agrowing shortage of cardiologists that will hin-der access to care and undermine our vitalresearch effort. This was no surprise to themany practices that are trying to recruit part-ners and not finding anyone. As a result,salaries for cardiologists have risen and patientsoften must wait for the care they need.

Unfortunately, even with the reduction intraining slots and the closure of several trainingprograms, 77 percent of training program direc-tors report that they cannot fill the slots that areallocated because of lack of funds. Last year, morethan 300 training positions were left unfilled thatcould have been filled with underrepresentedminorities. It turns out that we could train 327more cardiologists per year if cost was not an

issue. So, we havebeen lobbying forthe government toincrease the fund-ing that wasfrozen at the 1995level with thecaveat that thesenew slots can onlybe filled by under-represented minorities. We have also lobbiedwith training programs to increase the enroll-ment of African Americans. After making WakeForest University aware that in fifty years oftraining cardiologists they have never trained anAfrican American. Dr. William Little, Chief ofCardiology, has now accepted two AfricanAmericans who will start next month. An Africanproverb says, you only build a bridge if you knowthere is a river. Congratulations to Dr. Little andto the Wake Forest/Bowman Grey family.

Finally, physicians can expect to be bom-barded with questions relating to the prescrip-tion drug benefit (Part D) from the MedicareModernization Act that will go into effect inJanuary. This is extremely confusing for bothphysicians and patients. BUT, we have a con-densed answer. This article is a must read forall physicians. If you want to understand theprogram, we are providing the best explanationfor you. This explanation was commissioned byNovartis and we persuaded them to make itavailable for you. Just as you have with “Pay-for-Performance”, you must avail yourself ofthis important information.

Paul Underwood, M.D.PresidentAssociation of Black Cardiologists, Inc.


Message from the President

DR. EUGENE STEED FIRST TO DIVERSIFYCARDIOLOGY PROGRAM

ABC DIGEST OF URBAN CARDIOLOGY July/August 2005 9

It is timely that we dedicate some of thisissue to Manpower in Cardiology and to ensur-ing that sufficient numbers of AfricanAmerican cardiologists are available to meetthe growing and expanding needs of our com-munity. The man who engineered racial inclu-siveness in the training of physicians and cardi-ologists died on June 12, 2005, he was96-years-old.

Dr. Eugene Stead served as Chief ofMedicine at Duke University from 1947-1969and is known to the world as the man who cre-ated the country’s first program for physicians’assistants. We celebrate his life because heaccepted the first African American (Dr.Charles Curry) to be trained and to becomeboard certified as a Cardiologist in this country.Dr. Curry went on to serve as Chief ofCardiology at Howard University Hospital for30 years and in turn participated in the trainingof more than 100 African AmericanCardiologists. Dr. Stead did not stop with thisremarkable decision, given the racial climate ofthe 1960’s in the South, but went on to encour-age Duke to adopt a bold diversity policy thatwould eventually result in 25 percent of Duke’semployees, faculty, students, residents, and fel-lows are African American. Duke has now

trained 30 AfricanAmerican cardiol-ogists and hasmore AfricanAmericans onstaff than anyother majoritymedical institu-tion in the United States. Where are thechange agents like Dr. Eugene Stead who canengineer these achievements?

Academically, Dr. Stead was known for hispioneering work with cardiac catherization andheart failure and was instrumental in the estab-lishment of the Duke Clinical ResearchInstitute which now maintains diagnostic andtreatment data on more than 250,000 patients.Thank you Dr. Stead, we owe you a great debtof gratitude.

A memorial service will be held for Dr.Stead on Sunday, October 30, 2005 from9:00–11:00 am at the Washington Duke Inn onthe Duke University Campus.

With my Best Personal Regards,Elizabeth Ofili, M.D., M.P.H., F.A.C.C.Editor

Letter from the Editor


The cost of training cardiologists in theUnited States is subsidized by federal tax dol-lars through the Medicare program. In overfifty years of training cardiologists in theUnited States, these funds have been used pri-marily to train white men and foreign medicalgraduates. This has resulted in a cardiologypool consisting of only two percent AfricanAmerican, five percent Hispanic and six per-cent women. Several programs have exclusivelytrained only white men. The consequences ofthis lack of diversity have operated to the detri-ment of a significant portion of cardiologypatients that these cardiologists were trained toserve. A reexamination of the allocation ofthese public funds is in order.

The Extent of the Problem: Lack ofDiversity Results in Less Than OptimalPatient Care

It is well documented that minorities sufferdisproportionately from cardiovascular disease,and experience greater difficulty in accessingquality health care services. A similar disparityexists in the limited number of programs totrain specialists to treat these patients—minor-ity medical graduates are admitted to a dispro-portionately smaller number of cardiovasculartraining programs each year.

Training programs vary greatly in thedemographics of their residents. For example,

Special Feature

EXAMINING THE LACK OF DIVERSITYIN FEDERALLY-FUNDED CARDIOLOGYTRAINING PROGRAMSB. Waine Kong, Ph.D., J.D.Chief Executive Officer, The Association of Black Cardiologists, Inc.

SULLIVAN COMMISSION 2004

• Access to health professions remain separate andunequal . . . The ghosts of pre civil rights continueto haunt the health professions

• The problem of racial and health disparities, andthe lack of minorities in the health professions areinescapably linked.

• Without more diversity in the health workforce, ournation’s minority population will continue to suffer

• The cullture of the health professions must change

Contrary to common belief, there is noshortage of African American andother under-represented minoritieswho are ready, willing and able to beaccepted into cardiology training pro-grams. In fact, the program sponsoredby Vanderbilt University, MeharryMedical College and the Association ofBlack Cardiologists received 32 appli-cations for the one position available.


Duke University consistently recruits and trainsa class consisting of 25% African Americans,while Wake Forest University, an equally pres-tigious institution that is 75 miles away, hastrained no African Americans. Contrary tocommon belief, there is no shortage of AfricanAmerican and other under-represented minori-ties who are ready, willing and able to beaccepted into cardiology training programs. Infact, the program sponsored by VanderbiltUniversity, Meharry Medical College and theAssociation of Black Cardiologists received 32applications for the one position available.

Is it outright discrimination that is occur-ring at these institutions? Hopefully not, as fed-eral law prohibits such discrimination for pro-grams that receive federal funding. But,perhaps the objective criteria on which resi-dents are selected at some institutions reflects abias that disfavors minorities and undervaluesthe criteria needed to actually fulfill the needsof the community suffering from cardiovascularillness. Admittedly, it is difficult to measurecertain factors such as the likelihood of laterpracticing in an underserved community orbetter understanding the peculiar needs andstresses of minority patients, but in a publiclyfunded program dedicated to better health forall Americans, these should be important con-siderations.

Perhaps, in addition to the standard objec-tive criteria, it would be rational to count a can-didate’s membership in a minority or under-

served population as a point in that candidate’sfavor for a training position. The very fact ofbeing a member of an underserved populationlikely correlates most highly with practicing inan underserved community and dedication tominority populations that it could becomeproxy for the measures themselves.

To be sure, optimal health status can not bemaximized by doctors who are merely excellentat their craft. A significant part of the solutionlies in the diversity of cardiologists. Our healthis best ensured by doctors who have a nuancedunderstanding of what we need and who canempathize with us. Doctors who live in ourcommunities with us, see what we see andspeak our language put us at ease and establish

continued on the next page

ASSOCIATION OF PROFESSORS OF MEDICINE(2/2004)

Chairs of departments of internal medicine and otherleaders in academic medicine must take specificsteps to increase diversity among students, residents,fellows, and faculty, not only because it is the rightthing to do but the smart thing to do . . . The APMstrongly supports the use of all legally permissiblestrategies to achieve this goal.

HISPANICS/AFRICAN AMERICANS IN CALIFORNIA

EDUCATION PIPELINE FOR AFRICAN AMERICANS


trust. Where there is diversity, there is inter-change, new ideas and new priorities. It can beexpected that increased and more effectiveinteraction with minority cardiologists willresult in increased treatment efficacy forminority patients.

Public Dollars for Public Benefit

The Medicare program is financed withtaxpayer dollars to benefit Medicare beneficiar-ies. Consistent with this goal, graduate medicaleducation is subsidized with these funds tomake competent medical professionals avail-able for patients in the United States. Becausetaxpayer funds intended to increase the healthstatus of all Americans are being used, every-thing done with these funds should be viewedthrough this framework. During the allocationprocess, decisions must be rationed and priori-tized. The standard is that the expendituremust serve the public interest in some tangibleand efficient way.

There is no doubt that the current trainingsystem produces very fine doctors and cardiolo-gists—by many standards the world’s finest. Butthe people did not allocate funds to producethe world’s finest cardiologists; these fundswere allocated to reduce mortality and morbid-ity from cardiovascular disease in the popula-tion. These goals are similar but not the same.Training is not subsidized out of lofty scientificmotives or even for bragging rights. It is alsoimportant to recognize that this subsidy is not aprize or reward for past achievement or toensure brilliant careers to promising people.Nor is this program meant for the redress ofpast discrimination. Rewarding achievementand redressing discrimination are worthy goals,but not the goals of this program. Medicaresubsidizes cardiologist training so cardiologistswill be available to provide for the needs ofAmerican citizens.

So, where the people, the taxpayers, pledgemoney to serve their health care needs, as theydo when subsidizing post graduate educationfor cardiologists, they must do so by the mosteffective means. The present system producescardiologists who, in the aggregate, are notaddressing the nation’s needs. The system failsin large part because the pool is too homoge-nous. The pool is too homogenous because

HEALTH PROFESSIONS PARTNERSHIP INITIATIVE(AAMC) 2004

• Deficiencies in educational opportunities for URMpersist

• Comprehensive educational remediation shouldbegin earlier than high school

• Among college bound high school students, thereare few differences in intended majors across eth-nic groups. Students show little or no difference byrace or ethnicity in their math, science, and engi-neering interest.

SULLIVAN COMMISSION 2004

We recommend that accrediting bodies evaluatediversity to ensure that not only the health staff butthe administrators are culturally diverse.

There is no doubt that the currenttraining system produces very finedoctors and cardiologists—by manystandards the world’s finest. But thepeople did not allocate funds to pro-duce the world’s finest cardiologists;these funds were allocated to reducemortality and morbidity from cardio-vascular disease in the population.


doctors are selected into these programs on thebasis of criteria that do not represent the actualvirtues ethnic communities require in cardiolo-gists.

Remedies Should Encourage Diversity inCardiology Training Programs

Medicare subsidization of cardiology train-ing programs should be reexamined to imple-ment policies and requirements to ensure theenrollment of more minorities. TheDepartment of Health and Human Servicesand the Centers for Medicare and MedicaidServices should investigate programs that donot enroll minority candidates for any possiblediscriminatory behavior. Programs that havedenied under-represented minorities andwomen access to cardiology training should berequired to repay the federal funds used totrain representatives from only one group, andshould be ineligible for further subsidies fromMedicare. Also, the Medicare regulations forgraduate medical education subsidies shouldinclude, as a condition of receiving federalfunds, a requirement that institutions certify tohaving in place a program to encourage therecruitment and placement of minority cardio-vascular training residents.

These measures, together with a realizationthat an increased number of minority cardiolo-gists will benefit overall cardiovascular healthcare in the United States, will begin to reversea trend that has led to a significant disparity inminority cardiologists.

CURRENT SITUATION—CARDIOLOGISTS IN TRAINING(2002). TOTAL 2223

CURRENT DISTRIBUTION OF CARDIOLOGISTS (21,726)WHAT A DIFFERENCE A DECADE MAKES

ACC Conference on “Future Personnel Needs forCardiovascular Care” (1993): The output of cardiolo-gists exceeds the nation’s needs. The number oftrainees should be decreased.

ACC Taskforce on Workforce (2003): The Nation isconfronting a growing shortage of CVD specialiststhat will hinder access to care and undermine ourvital research effort.

Boosting the number of African Americans, Hispanicsand Native American in health care is critical to meet-ing the needs of America’s increasingly diverse soci-ety as well as raising the cultural competence of allpractitioners.

Contents

I. History and Overview of MedicareII. Medicare Financing, Covered Services,

and Program AdministrationIII. Medicare Part D—The New Medicare

Outpatient Prescription Drug Benefit:Benefit Structure and Key ProgramElements

IV. Changes to Medicare Managed CareProgram (Medicare Advantage)

V. Quality Improvement Initiatives inMedicare

VI. AppendixVII. Key Acronyms

VIII. Glossary of Key Terms

Foreword

When Medicare was created in 1965, it didnot cover outpatient prescription drugs becausethese therapies were not a significant compo-nent of healthcare services provided toAmerica’s senior population. Over the past 40years, prescription drugs have fundamentallychanged healthcare in the United States, play-ing an increasingly important role in the pre-vention and treatment of disease.

In November 2003, Congress enacted, andthe President later signed, the Medicare

Prescription Drug, Improvement, andModernization Act of 2003 (MMA). This lawmakes a number of significant changes to theMedicare program, including adding a newoutpatient prescription drug benefit for seniorsand younger persons with disabilities who arecovered by Medicare. On August 3, 2004, theCenters for Medicare and Medicaid Services(CMS) published a proposed regulation to clar-ify some aspects of the law and to solicit publiccomment on the huge number of policy andimplementation issues involved in theMedicare drug benefit. Numerous entities sub-mitted detailed comments and recommenda-tions responding to the proposed regulation.CMS reportedly received 7,600 comment let-ters from concerned stakeholders.

On January 21, 2005, CMS released itsfinal regulations, which addressed some stake-holders’ concerns. However, there are stillmany uncertainties that will be addressedthrough sub-regulatory guidance that CMS willrelease throughout the year. Other unknowns,such as which plans and beneficiaries will par-ticipate in the benefit, will become clearer asthe program is implemented and evolves overtime. Certainly, the new Medicare drug benefitwill transform the way in which prescriptiondrugs are delivered to and paid for by (or onbehalf of) Medicare beneficiaries.


Special Feature

A PRIMER ON MEDICARE AND THENEW MEDICARE PRESCRIPTIONDRUG BENEFITValerie Barton, M.A., Tanisha Carino, Ph.D., Lovisa Gustafsson, HeidiReester, M.P.H., Elizabeth Hinshaw, Chiquita Wuite, M.P.P., DanyelHenry, M.P.A., Lindy Hinman, M.H.S.A., John Richardson, M.P.P.

I. History and Overview of Medicare

Medicare was created by the federal gov-ernment in 1965 as a medical insurance pro-gram for individuals age 65 and older.Medicare shields elderly Americans from thecatastrophic costs of long hospital stays andexpensive medical procedures. Since its estab-lishment, Medicare has expanded the scope ofits benefits, the populations it covers, and, con-sequently, its cost.

Medicare originally covered hospital staysand related physician services; now it coversmany more kinds of services provided in arange of healthcare settings, and it offers otherhealth insurance plan options, such as HealthMaintenance Organizations (HMOs) andPreferred Provider Organizations (PPOs). Themost recent benefit addition is a significantlyexpanded outpatient prescription drug benefit,which will begin in 2006. As further describedbelow, Medicare previously covered some pre-scription drugs in limited circumstancesthrough physician services and throughMedicare managed care plans.

The size of the Medicare program hasgrown dramatically since it was created.Medicare covered 20.1 million Americans in1970; today, there are approximately 41.7 mil-lion Medicare beneficiaries, including over 6million persons under age 65 with disabilities.1,2

Federal spending on Medicare services hasgrown from $7.5 billion in 1970 to $308.9 bil-lion (including administrative costs) in 2004.3

There are three ways that an individual canbecome eligible for Medicare. First, most ben-eficiaries (approximately 35 million) qualify forMedicare based on their age and their (or theirspouse’s) work history.4 Second, people underage 65 who have one or more permanent dis-abilities may become eligible for Medicareafter receiving disability insurance paymentsfrom Social Security for at least two years.5

Third, people of any age who develop EndStage Renal Disease (ESRD), or irreversiblekidney failure, may also become eligible for

Medicare. The federal government created thisMedicare eligibility category in 1972 in recog-nition of the very high costs associated withkidney transplants and dialysis treatments.Approximately 6 million Medicare beneficiariesfall into the disabled or ESRD eligibility groups(about 5.6 million are persons with disabilitiesand about 400,000 are persons with ESRD).6,7

Medicare Enrollment and SpendingDue to demographic trends, Medicare

enrollment will continue to grow at an increas-ing rate over the next 30 years. After the “BabyBoom” generation starts reaching age 65 in2010, the federal government expectsMedicare’s enrollment to increase rapidly. By2030, it is estimated that there will be 78.3 mil-lion Medicare beneficiaries—up from 41.7 mil-lion in 2004.8

Over the past twenty years, there has beena growing concern that the revenues cominginto the federal government to fund Medicarewill be insufficient to cover the growing costs ofthe program. The coming Medicare eligibility


Medicare originally covered hospitalstays and related physician services;now it covers many more kinds ofservices provided in a range of health-care settings, and it offers other healthinsurance plan options, such as HealthMaintenance Organizations (HMOs)and Preferred Provider Organizations(PPOs). The most recent benefit addi-tion is a significantly expanded outpa-tient prescription drug benefit, whichwill begin in 2006.


of the Baby Boom generation brings additionalurgency to these concerns.

In 2004, Medicare spent an estimated$302.5 billion on healthcare services, making itthe second largest public health insurance pro-gram in the country (second only to spendingfor the Medicaid program).9 The majority ofMedicare spending is for hospital services.Physicians, managed care plans, and nursinghome care also make up a significant portion ofspending. Because coverage of prescriptiondrugs has been limited in the Medicare pro-gram, spending on this category comprises asmall fraction of total spending. This willchange significantly when the Medicare pre-scription drug benefit is implemented in 2006.

II. Medicare Financing, CoveredServices, and Program Administration

Medicare is a federal program administeredby the Centers for Medicare and MedicaidServices (CMS). CMS is responsible for allaspects of Medicare’s program administration,including making decisions about whether cer-

tain items and services will be covered, deter-mining payment rates and policies, administer-ing claims, educating beneficiaries and health-care providers, and conducting research onalternative healthcare delivery systems.

The Medicare program is organized,administered, and funded in four distinct parts:

• Part A—Acute inpatient hospital and post-acute care (skilled nursing facility and homehealth) services, including prescription drugsused in inpatient settings;

• Part B—Physician services, hospital outpa-tient services and other kinds of ambulatorycare, ancillary services such as clinical labo-ratory tests and durable medical equipment,and limited coverage of outpatient prescrip-tion drugs including physician-administered(i.e., injectable) drugs, immunosuppressives,oral anti-cancer drugs and oral anti-emetics,blood clotting factors, and the drug erythro-poietin (EPO) administered to dialysispatients;

• Part C—Managed care plans that offer PartA and Part B services together; and


Source: 2005 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds,Table III.A3., p. 30. © The Health Strategies Consultancy

PROJECTED MEDICARE ENROLLMENT, 2005-2030

• Part D—Outpatient prescription drug cover-age, scheduled to take effect in January 1,2006.

PART A—HOSPITAL INSURANCEThe Medicare Hospital Insurance program,

also referred to as Part A, is funded throughpayroll taxes and beneficiary cost-sharing. PartA covers benefits provided in:

• Acute inpatient hospitals,• Skilled nursing facilities (SNFs),• A Medicare beneficiary’s residence (home

health and some hospice services), and• A hospice.10

Beneficiaries pay no monthly premium forPart A; it is offered to most U.S. citizens whohave been employed for a sufficient number ofyears (currently 10 years) to qualify for full SocialSecurity benefits. However, beneficiaries whouse Part A covered services, such as inpatienthospital and SNF services, must pay significantcost-sharing amounts for those services (e.g., anannual deductible and certain copayments).

Inpatient hospital services account for thevast majority of all spending in Medicare.There are approximately 12 million Medicaredischarges from hospitals each year.11 Medicarecoverage for non-acute long-term care servicesis limited, but under certain limited conditions,Medicare will pay for short-term nursing homecare for beneficiaries who require skilled nurs-ing or rehabilitation services. As in inpatienthospitals, pharmaceuticals that are provided toinpatients of SNFs are paid for under MedicarePart A.

PART B—SUPPLEMENTARY MEDICALINSURANCE

Unlike Part A, Part B is not funded by aspecific payroll tax, but rather from general taxrevenues from the U.S. Treasury and frommonthly premiums paid directly to Medicare bybeneficiaries. In paying providers, beneficiariesalso make per-service coinsurance payments.For most Part B services, Medicare will pay 80


Source: Calculation by Health Strategies Consultancy based on the 2005 Annual Report of the Board of Trustees of the Federal Hospital Insurance andFederal Supplementary Medical Insurance Trust Funds, Table II.B1., p. 4. © The Health Strategies Consultancy

MEDICARE SPENDING BY TYPE OF PROVIDER, 2004


percent of allowed charges and the beneficiaryis responsible for the remaining 20 percent.

Persons who become eligible for Part A areeligible for Part B at the same time, but theymust voluntarily enroll in Part B at that time,or a “late enrollment” penalty will be assessedfor as long as they are enrolled. To enroll inPart B, a beneficiary agrees to pay a monthlypremium, which is the same for all beneficiar-ies in the United States regardless of wherethey live, but which increases each year. ThePart B premium in 2004 was $66.60 per monthand is $78.20 per month in 2005. Althoughenrollment in Part B is voluntary, nearly allbeneficiaries choose to enroll.12 In 2002,approximately 93 percent of the total Medicarepopulation was covered by both Part A andPart B.13

• Part B covers a variety of services, including:• Physician services and non-physician practi-

tioner (e.g, physician assistant and nursepractitioner) services

• Hospital outpatient and ambulatory surgicalcenter services

• Durable medical equipment (DME)• Prosthetics and orthotics (P&O)• Clinical laboratory services• Pharmaceuticals used in conjunction with a

physician service and certain oral products,including immunosuppressive agents andsome oral anti-cancer drugs

• Vaccines• Limited preventive screenings• Ambulance services

PART B COVERAGE OF PRESCRIPTIONDRUGS

Medicare currently covers a limited num-ber of prescription drugs that are provided“incident to” a physician service (i.e., the drugsare administered via injection or infusion in aphysician office or hospital outpatient setting).There are certain other types of orally-adminis-tered drugs that are covered through specific

legislation (e.g., coverage of oral anti-emeticsand immunosuppressives). Also, drugs adminis-tered with durable medical equipment (DME),such as infusion pumps and nebulizers, are cov-ered by Medicare. In 2002, Medicare paid anestimated $8.4 billion for the 450 drugs cov-ered by Medicare Part B. Over 77 percent ofMedicare spending for drugs was for cancerdrugs.

Until 2004, payment for drugs was basedon 95 percent of the drug’s average wholesaleprice (AWP), as published in major commercialdrug pricing compendia (e.g., Red Book, FirstDataBank). However, the MMA authorizedCMS to make dramatic changes to reimburse-ment for drugs covered by Part B:

• In 2004, subject to certain exceptions,Medicare’s payment rate for most drugs wasapproximately 85 percent of the drug’s aver-age wholesale price (AWP).14

• In 2005, Medicare implemented lower pay-ment rates based on each drug’s average salesprice (ASP), which is calculated by CMSusing sales data submitted by manufacturers(so the policy imposes new price/discount


AAvveerraaggee WWhhoolleessaallee PPrriiccee ((AAWWPP))—As used in thisMedicare primer, the term "AWP" or "Average WholesalePrice" constitutes a reference for each product, set as apercentage above the price at which each product isoffered generally to wholesalers. Notwithstanding theinclusion of the term "price" in "Average WholesalePrice," AWP is not intended to be a "price" charged by amanufacturer for any product to any customer.

AAvveerraaggee SSaalleess PPrriiccee ((AASSPP)) –ASP is defined in law as theprice that is net of all discounts and rebates andincludes volume discounts, prompt pay discounts, cashdiscounts, chargebacks, short-dated product discounts,free goods, rebates, and all other price concessions pro-vided by any relevant purchaser. Direct sales to hospitalsare excluded from ASP.

reporting requirements on pharmaceuticalmanufacturers): – For a multiple-source drug, the reimburse-

ment rate generally will be 106 percent ofthe drug’s ASP, with ASP calculated usingsales data for all of the drug products, bothbrand and generic, available in the marketfor that drug. Thus, the ASP for brandproducts that have generic competitionwill be very low.

– For single-source drugs, the reimbursementrate will be the lower of 106 percent of ASPor wholesale acquisition cost (WAC).

• In 2006, Medicare payment for Part B-cov-ered drugs will be based on either the “106percent of ASP” policy described above, or ona completely new “competitive acquisitionprogram” (CAP). Each physician will have tochoose whether to purchase drugs themselvesand obtain payment from Medicare based on106 percent of ASP, or purchase drugs fromthird-party vendors that will contract withMedicare on a competitive basis to providedrugs to physicians. CAP could fundamen-tally change the drug distribution chain forphysicians who choose this method to pur-chase Part D covered drugs. Physician behav-ior could change based on financial incentivesunder the CAP. On February 25, 2005, CMSreleased its proposed rules for the CAP, pre-senting multiple policy options and solicitingpublic comments on various aspects of theprogram. The final CAP regulations areexpected to be released prior to October 2005.

As with drugs provided in the physicianoffice setting, coverage for drugs provided in

the hospital outpatient setting is limited to onlydrugs used in conjunction with physician serv-ices or DME. Previously, Medicare paid forprescription drugs provided in the hospital out-patient setting on a “reasonable cost” basis, butover the past five years, CMS has moved topaying for hospital outpatient services, includ-ing prescription drugs, through the hospitaloutpatient prospective payment system(HOPPS). Some pharmaceuticals may receiveseparate, and higher, payment.

PART C—MEDICARE ADVANTAGE (FOR-MERLY MEDICARE+CHOICE)

Medicare+Choice (also referred to as PartC) was established by Congress in the BalancedBudget Act of 1997 to provide Medicare bene-ficiaries with access to managed care planoptions, in addition to the traditional fee-for-service program (FFS). The Medicare+Choiceprogram was designed to control costs, offeradditional benefits to enrollees, encouragehealth plans to expand to markets whereMedicare beneficiaries had little or no access tomanaged care plans, and offer a wider varietyof managed care plans, including health main-tenance organizations (HMOs), point of service(POS) plans, preferred provider organizations(PPOs), and private fee-for-service (PFFS)plans. Similar to commercial health plans,Medicare managed care plans are paid a “permember per month” payment for eachMedicare beneficiary that they enroll, and inreturn must provide at least the full range ofPart A and Part B healthcare services coveredby regular Medicare.

From 2000 to 2004, enrollment in Part Csteadily declined due to a limited choice ofplans in many areas, instability in provider par-ticipation compared with fee-for-serviceMedicare, and increased out-of-pocket costs forbeneficiaries who choose to enroll. In 2004, 79percent of Medicare beneficiaries had access to


WWhhoolleessaalleerr AAccqquuiissiittiioonn CCoosstt ((WWAACC))—The list price paidby a wholesaler for drugs purchased from the whole-saler's supplier, typically the manufacturer of the drug.Publicly disclosed or listed WAC amounts are not net ofdiscounts which may be available to the wholesaler orcustomers.


the 155 existing Part C plans, but only about4.6 million Medicare beneficiaries, or about 11percent, were enrolled in managed care.15 TheMMA includes provisions designed to reversethe trends of declining plan participation andPart C enrollment.

The MMA replaces the Medicare+Choiceprogram with “Medicare Advantage” (MA).Under both Medicare+Choice and MedicareAdvantage, private health plans contract withMedicare to provide basic Medicare benefitsplus extra healthcare services, often includingprescription drugs. However, the MMAincreases the government’s payments toMedicare Advantage plans in 2004 and 2005, inan effort to reverse the exodus of private healthplans from Medicare over the past four years.Also, in 2006, Medicare Advantage will beexpanded to include regional “preferredprovider organization” (PPO) plans.16 TheMMA and the final rule include special incen-tives to attract and retain regional PPOs inrural areas. Policymakers hope that the addi-tion of regional PPOs will provide beneficiaries,particularly those in rural areas, with moreoptions when selecting a health plan. CMSprojects that in 2005, over 90 percent ofMedicare beneficiaries will have access toMedicare Advantage plans.17

PART D—OUTPATIENT PRESCRIPTIONDRUG BENEFIT

Medicare will begin to pay for outpatientprescription drugs through private plans begin-ning in January 2006. This new program isfinanced through what is called Medicare Part D.

III. Medicare Part D—The New MedicareOutpatient Prescription Drug Benefit:Benefit Structure and Key ProgramElements

Drug Discount Card and TransitionalAssistance: 2004-2005

The MMA mandates the implementation ofa Medicare-endorsed prescription drug dis-count card program in 2004 and 2005.18

Participation in the discount card program isvoluntary, and the program was implementedthrough private “card sponsors,” primarilyPBMs and health plans. The discount card isintended to serve as an interim measure tooffer substantial discounts off of cash prices forprescription drugs (with estimated savings of 15to 25 percent from cash prices) for the severalmillion beneficiaries who currently have noprescription drug insurance coverage. The dis-count card program is scheduled to end uponimplementation of the prescription drug bene-fit in January 2006.

All beneficiaries are eligible for the drugdiscount card so long as they do not haveMedicaid prescription drug coverage. Eligiblebeneficiaries began enrolling in the drug dis-count card program in May 2004 and beganreceiving discounted drug prices on June 1,2004. CMS announced in September 2004 thatit would automatically enroll 1.8 million low-income beneficiaries currently enrolled inMedicare Savings Programs. These additionswere estimated to bring the March 2005 dis-count card enrollment to 6.2 million beneficiar-ies19, many of whom were automatically enrolled


continued on page 22

From 2000 to 2004, enrollment inPart C steadily declined due to a limited choice of plans in many areas,instability in provider participationcompared with fee-for-serviceMedicare, and increased out-of-pocketcosts for beneficiaries who choose to enroll.

through Medicare Advantage plans and StatePharmaceutical Assistance Programs (SPAPs).

Beneficiaries may enroll in only oneMedicare-endorsed drug discount card pro-gram at a time and may be charged up to a $30enrollment fee, but they may also use any non-endorsed drug discount card, as well, if theychoose to do so. Beneficiaries enrolled in aMedicare managed care plan were able toenroll only in that plan’s discount card program,if it offers one. Beneficiaries were permitted toswitch from one Medicare-endorsed discountcard plan to another during the coordinatedelection period from November 15 throughDecember 31, 2004. There are exceptions tothis “lock-in” policy under certain circum-stances, e.g., if a beneficiary moves outside hisor her original card sponsor’s service area or if acard sponsor terminates its program.

Certain low-income beneficiaries (i.e., ben-eficiaries with incomes below 135 percent ofthe federal poverty level (FPL), or $17,320.50for a family of two in 2004) also may be eligiblefor a “transitional assistance” credit of $600 peryear to help them purchase prescription drugs.When applying the transitional assistance, ben-eficiaries must still pay coinsurance of between5 and 10 percent per prescription, but do nothave to pay the card’s annual enrollment fee, ifone applies. State pharmaceutical assistanceprograms can also “wrap around” the drug ben-efit by covering the drug coinsurance amountsfor low-income discount card enrollees.

There are over 40 Medicare-approved drugdiscount cards currently offered to beneficiar-ies. The discount card regulations require that,at a minimum, all card sponsors must provideaccess to at least one discounted drug in eachof 209 specified therapeutic categories.Sponsors must offer a generic drug alternativein more than half of the therapeutic categories,

which make up 95 percent of all drugs used bythe Medicare population.

Card sponsors must negotiate rebates, dis-counts, or other price concessions from manu-facturers and retail pharmacies on covereddrugs and must pass a “share of such conces-sions” to discount card enrollees. The price dis-counts given to the Medicare prescription drugplans are excluded from Medicaid best pricecalculations.

Card sponsors are required to report drug-specific pricing information to CMS, as well asaggregate data on savings passed on to discountcard enrollees. CMS established a drug pricecomparison Web site for beneficiaries (locatedat www.medicare.gov), which includes the max-imum “negotiated prices” (including dispensingfee) for all of the individual drugs offered bythe card sponsor. Beneficiaries may also callMedicare’s national number (1-800-MEDICARE) to obtain drug price comparisoninformation for different discount cards.

New Outpatient Prescription DrugBenefit: 2006

Beginning in 2006, the Medicare prescrip-tion drug benefit will transform the way thatMedicare beneficiaries pay for and receivetheir prescription drugs.

STANDARD DRUG BENEFIT DESIGNThe MMA specifies certain minimum stan-

dards for Part D coverage—the “standard PartD benefit,” which is structured as follows:

• To enroll, a beneficiary must pay a monthlypremium that is projected to be approxi-mately $37 per month (or $448 annually) in2006 (late enrollment penalties will be


A Primer on Medicare and the New MedicarePrescription Drug Benefitcontinued from page 20

TTrraannssiittiioonnaall AAssssiissttaannccee ((TTAA))—The $600 federal subsidyfor prescription drug spending,provided in 2004 and2005 to Medicare drug discount card enrollees withincomes below 135% FPL.

assessed for individuals who enroll in Part Dafter the initial enrollment period)

• The beneficiary must pay an annualdeductible of $250 before Medicare coveragebegins

• For drug expenses between $251 and $2,250,Medicare and the plan will share 75 percentof costs and the beneficiary must pay theremaining 25 percent

• For drug expenses between $2,251 and$5,100, the beneficiary must pay all costs—this is commonly referred to as the gap inPart D coverage (“doughnut hole”)

• For drug expenses beyond $5,100, Medicarewill pay 80 percent, the plan is at risk for 15percent, and the beneficiary will pay theremaining 5 percent

In 2006, beneficiaries must spend out-of-pocket $3,600 on Part D drugs (including the$250 deductible, 25% coinsurance in the initialcoverage stage, and the coverage gap) to reachthe catastrophic threshold. The Part D premiumis not included in these true out-of-pocket(TrOOP) costs. Drugs that are not on a plan’s for-mulary do not count toward TrOOP. Assistancefrom SPAPs, bona fide charities, and familymembers will be included in the calculation of

TrOOP, but employer wraparound benefits willnot count toward incurred out-of-pocket costs forthe purposes of reaching the catastrophic cap.

Plans may alter certain aspects of the bene-fit design (e.g., lowering the annual deductibleor reducing cost-sharing above the catastrophicthreshold) as long as the design provides bene-fits at least “actuarially equivalent” to, or richerthan, the standard Part D benefit.

The premium, deductible, initial coveragelimit, and catastrophic threshold will all beincreased after 2006 by the rate of growth inMedicare prescription drug spending.Depending on how fast total Medicare spend-ing on prescription drugs grows each year,these amounts could grow substantially fromone year to the next. Medicare beneficiarieswill be acutely aware of these year-to-yearchanges in out-of-pocket expenses and cover-age limits for the Medicare drug benefit. The2005 Medicare Trust Fund Trustees’ reportestimates that the benefit gap will increasefrom $2,850 in 2006 to $4,605 in 2013.

ADMINISTRATION OF DRUG BENEFITAs noted above, private-sector entities will

administer the Medicare Part D benefit. Theseentities, which could include established man-aged care organizations or prescription drugonly plans, may use many of the standard cost-containment tools. These tools include drugformularies, tiered copayment structures,generic drug substitution, therapeutic substitu-tion, and restricted pharmacy networks.

TYPES OF PLANSThere are three types of plans that may

administer the Part D benefits:

1. A “Medicare Advantage” managed careprescription drug plan (MA-PD plan),

2. A stand-alone “prescription drug plan”(PDP), and


NNeeggoottiiaatteedd PPrriicceess——Prices for covered Part D drugs thattake into account discounts, subsidies, rebates, andother price concessions and include any dispensing fees.PDP sponsors and MA organizations are required to pro-vide their enrollees with access to negotiated prices forcovered Part D drugs included in the plans’ formularies.

CCoovveerraaggee GGaapp——The portion of the Part D benefit structurein which beneficiaries pay 100% of their Part D drugexpenditures. In 2006, there will be a $2,850 coveragegap in the standard benefit between the initial coveragelimit ($2,250) and the catastrophic threshold ($5,100). Thisgap corresponds to $3,600 in out-of-pocket spending forthe beneficiary. (Also referred to as the “doughnut hole”)


24 ABC DIGEST OF URBAN CARDIOLOGY July/August 2005ABC DIGEST OF URBAN CARDIOLOGY July/August 2005

Notes: MMA=Medicare Modernization Act; NPRM=Notice of Proposed Rule-Making.

* CMS notice of 2006 rate methodology and assumptions. © The Health Strategies Consultancy

TIMELINE FOR IMPLEMENTATION OFMEDICARE DRUG BENEFIT

* Equivalent to $3,600 in “true out-of-pocket” (TrOOP) spending (= $250 + $500 [25% coinsurance on next $2,000] + $2,850 [100% coinsuranceduring coverage gap]).

Sources: Kaiser Family Foundation, March 2005.2005 Medicare Trustees Report. © The Health Strategies Consultancy

STANDARD MEDICARE PART D DRUG BENEFIT STRUCTURE

3. A “fallback” prescription drug plan, whichwill be offered only in regions where thereare not at least two private plans willing tooffer Part D coverage.

These plans will derive payments from anumber of sources, including:

• Monthly premium subsidies from the federalgovernment, which will be risk-adjusted toreflect variation in drug costs among benefi-ciaries,

• Monthly premiums and per script copay-ments paid by beneficiaries,

• Reinsurance payments for high-cost benefici-aries, and

• Risk-sharing payments from the federal gov-ernment if a plan’s total drug costs are unex-pectedly high in a given year (conversely, aplan must share with the federal governmentsome of the savings realized if its drug costsare significantly lower than expected in agiven year).

MA-PD plans and PDPs will contract withMedicare to deliver Part D benefits and willbear the financial risk for the costs within cer-tain risk corridors. Potential plan sponsors mayapproach other entities with proposals tospread risk to other players (e.g., manufactur-ers). Fallback plans will be offered only if tworisk-bearing plans (including at least one stand-alone PDP) are not willing to offer Part D cov-erage in the region. Fallback plans will contractwith Medicare to provide administrative serv-ices (e.g., claims payment) only. Fallback planswill bear only performance risk while the fed-eral government will bear the financial risk ofproviding the drug benefit.

TTrruuee OOuutt ooff PPoocckkeett CCoossttss ((TTrrOOOOPP))—The portion of cost-sharing incurred by the individuals in a health plan.Under Medicare Part D, TrOOP will be counted to deter-mine when a beneficiary reaches the coverage gap andwhen a beneficiary qualifies for catastrophic coverage.

* Assumes that growth in drug costs significantly exceeds CPI. Source: 2005 Annual Report of the Boards of Trustees of the Federal HospitalInsurance and Federal Supplementary Medical Insurance Trust Funds, Table V.C2., p. 156. © The Health Strategies Consultancy

SIZE OF THE “DOUGHNUT HOLE” INCREASES DRAMATICALLY OVER TIME



MA-PD plans and PDPs will negotiate withmanufacturers to secure discounts. Plans willbe required to report the “aggregate” priceconcessions negotiated between plans andmanufacturers that are passed through to bene-ficiaries in the form of lower subsidies, lowermonthly beneficiary prescription drug premi-ums, and lower prices through pharmacies andother dispensers. This information will beexempt from Medicaid best price reportingobligation.

PLAN REGIONSThe MMA required CMS to establish

between 10 and 50 service regions in whichMA-PD plans and PDPs must compete. OnDecember 6, 2004, CMS announced the estab-lishment of 34 PDP regions and 26 MA regions.In CMS’ configuration, each state is assigned toonly one region (i.e., no state is split betweenregions), and each of the PDP service areas“nest” within the MA service areas (i.e., no MAregion is split between two PDP regions. MA-PD plans and PDPs will bid to serve beneficiar-

ies living in these regions. Plans may bid toserve only one region or every region in thecountry. PDPs and regional MA-PD plans mustoffer coverage to all eligible individuals whoreside in the region(s) they serve.

The regions design is critical in determiningthe degree of success of the Medicare drug ben-efit. The regional structure will also influence theamount of rebates (and other price concessions)plans seek from manufacturers. Plans servinglarger regions with larger populations may bemore aggressive in seeking volume-related priceconcessions. By designating more and smallerregions, CMS has attempted to induce plan par-ticipation and competition by minimizing thepotential risks associated with managing expendi-tures for very large populations.

The following graphics depict the PDP andMA regions announced by CMS on December6, 2004:

PLAN BIDDING AND CONTRACTINGPROCESS

Beneficiary premiums for the new drugbenefit will be determined through a competi-tive bidding process. All prescription drugplans and Medicare Advantage plan sponsorswill submit bids to CMS for the cost of provid-ing the drug benefit in the service area to a typ-ical beneficiary. Plans must submit bids by June6, 2005 for each of the Part D plans they pro-pose to offer in 2006. CMS will review thebids, and the portion of all the approved bidsfor basic benefits will be compiled into anational weighted average, which will serve as abenchmark for purposes of setting premiums.

There will be considerable uncertainty dur-ing the first years of the prescription drug pro-gram so CMS is implementing a system ofaggregate risk corridors and individual reinsur-ance to encourage plans to enter the new mar-ket. The risk corridors will protect plans andlimit the total amounts of their potential losses



MMeeddiiccaarree AAddvvaannttaaggee PPrreessccrriippttiioonn DDrruugg PPllaann ((MMAA--PPDD))—Medicare Advantage plans that choose to offer the PartD prescription drug benefit.

PPrreessccrriippttiioonn DDrruugg PPllaann ((PPDDPP))—Prescription drug cover-age that is offered to beneficiaries enrolled in FFSMedicare by a plan sponsor under a contract with CMS.PDP sponsors may offer more than one plan.

FFaallllbbaacckk PPrreessccrriippttiioonn DDrruugg PPllaann——A Part D prescriptiondrug plan that will not bear insurance risk. If beneficiar-ies do not have a choice of at least two plans under PartD in a region, CMS may assume insurance risk andadminister the drug benefit through plans bearing per-formance risk only.


NOTE: Each territory is its own PDP.

SOURCE: CMS, http://www.cms.hhs.gov/medicarereform/mmaregions/, December 6, 2004. © The Health Strategies Consultancy

PDP REGIONS

SOURCE: CMS, http://www.cms.hhs.gov/medicarereform/mmaregions/, December 6, 2004. © The Health Strategies Consultancy

MA REGIONS

if drug expenses for their enrollees greatlyexceed their expectations. In 2008 and beyond,the risk corridors will be widened and planswill be put at more risk.

The federal government will also protectPart D plans from “catastrophic” drug costsassociated with extremely high-cost individualbeneficiaries. Through a reinsurance subsidy cal-culated on an individual beneficiary basis, thegovernment will cover 80 percent of the cost ofa beneficiary’s Part D drugs once he has reachedthe out-of-pocket threshold. These paymentswill be estimated in CMS’ up-front monthly pay-ments to plans and reconciled at the end of theyear to reflect actual reinsurance costs. Thus,plans bear risk for only 15 percent of a benefi-ciary’s catastrophic spending. The following dia-gram graphically depicts this reinsurance policy:

FORMULARIES AND OTHER COSTCONTAINMENT TOOLS

The MMA required the United StatesPharmacopeia (USP)20 to develop model thera-

peutic categories and classes that may be usedby MA-PD plans or PDPs as part of their drugbenefit formularies. USP’s mission in develop-ing the Model Guidelines was to create a list ofcategories and classes that protect Medicarebeneficiaries’ access to the drugs they need andsupports the United States Government’sefforts to implement the Medicare prescriptiondrug benefit.

The Model Guidelines will play a role inthe implementation of the Part D benefit,because plans adopting the Model Guidelinesare given a “safe harbor.” That is, those planschoosing to adopt the Model Guidelines aregiven protection from scrutiny of their thera-peutic classification system (TCS) by CMS. Theclassification systems of plans choosing todepart from the Model Guidelines will be sub-ject to CMS review.21 It is important to notethat a classification system is just one compo-nent of a formulary and that CMS will review


continued on page 30

* Plans also begin establishing systems connectivity with CMS at this time. © The Health Strategies Consultancy

PLAN BIDDING AND CONTRACTING PROCESS

all plans’ formularies to ensure that they do not“discriminate” against certain types of patients(e.g., impose unreasonable prior authorizationor cost-sharing requirements for only certainkinds of medications). For this reason, theimportance of the Model Guidelines has beendiminished.

The Final Model Guidelines released onJanuary 3, 2005 consist of:

• 41 broad therapeutic categories, based onsimilar groups of diagnosis codes;

• 137 pharmacologic classes, generally basedon similar mechanisms of action or chemicalstructure; and

• A total of 146 unique therapeutic categoriesand pharmacologic classes. (32 categories aresubdivided into 137 unique classes; 9 cate-gories have no associated classes.)

USP also suggested a list of “FormularyKey Drug Types” that CMS could use as part ofits evaluation of formularies submitted by drugplans and released a comprehensive listing ofindividual drugs that would fit into the ModelGuidelines. This listing may be used by plansintending to use the Model Guidelines as a safeharbor, but—like the listing of key drugtypes—is not required.

The MMA allows plans to develop and useformularies in administering the Part D drugbenefit. A plan’s formulary must include at leasttwo drugs in each therapeutic category or classunless there is only one drug in a given class.CMS may require more than two drugs perclass in cases where additional drugs presentunique and important therapeutic advantagesin terms of efficacy and safety. CMS will reviewall classification systems to ensure that the for-mulary offers sufficient breadth of necessarydrugs and is non-discriminatory.

Plans are also permitted to use tiered costsharing structures and other mechanisms to


A Primer on Medicare and the New MedicarePrescription Drug Benefitcontinued from page 28

* Plans also begin establishing systems connectivity with CMS at this time. © The Health Strategies Consultancy

PLANS SHARE AGGREGATE RISK WITH THE GOVERNMENT THROUGH RISK CORRIDORS

control costs, such as prior authorization, steptherapy, and therapeutic interchange. CMS willlook to best practices in existing drug benefitsand expects that the types of formularies inwidespread use today would receive approval.The MMA contains several measures, such asdrug utilization management programs, whichencourage plans to include incentives to reducecosts where medically appropriate and to pre-vent over- and under-utilization of prescribedmedications..

On January 21, 2005, CMS released guide-lines that it will use to evaluate PDPs’ and MA-PD plans’ formularies and drug cost contain-ment procedures. CMS views the guidelines(along with requirements in the final Part Dregulations for formularies, appeals, and excep-tions) as a method to “assure that beneficiariesreceive clinically appropriate medications at thelowest possible cost” by providing access tomedically necessary treatments, ensuringnondiscrimination, and encouraging the use ofdrug benefit management tools currently inwidespread use. The final guidelines specifythat CMS will evaluate Part D plans’ proposedformularies for potentially discriminatory prac-

tices in its P&T committee meetings, formula-ries, and use of benefit management tools.

CMS will use four principles to guide itsevaluations:

• Review existing “widely recognized” bestpractices of plans that currently provide pre-scription drug benefits for seniors and peoplewith disabilities,

• Provide access to medically necessary drugs,• Provide flexibility for plans to design bene-

fits that “promote real beneficiary choicewhile protecting beneficiaries from discrimi-nation,” and

• Use an administratively efficient process forformulary reviews at CMS.

• More detailed information on P&T commit-tee, formulary, and benefit managementreviews can be found in the Appendix.

GRIEVANCES AND APPEALSPart D plans not only have to have well-

designed formularies, but they are also requiredto have in place meaningful grievance proce-dures and appeals processes that conform to



* True out-of-pocket spending (TrOOP) © The Health Strategies Consultancy

DESCRIPTION OF “INDIVIDUAL REINSURANCE” FOR HIGH COST ENROLLEES

Medicare managed care standards. CMS’ rulesfor grievances and appeals are very complicated,and this primer provides only a high-leveloverview of the policies and procedures thatPart D plans must have in place for handling:

• Appeals (for beneficiaries who dispute deci-sions regarding their entitlement to services),

• Coverage determination requests (whichallow enrollees to ask for coverage),

• Requests for exceptions (for beneficiaries whoare requesting access to a non-formularydrug, continued coverage of a drug removedfrom the formulary, or an exception to steptherapy or other utilization managementtechniques), and

• Grievances (which cover situations that donot involve coverage determinations or dis-putes involving enrollment or eligibility forPart D).

The MMA defines a complex formularyexceptions process, including external review,for decisions related to the application of cost-sharing and coverage of non-formulary drugs.Part D enrollees or their authorized represen-

tative must be allowed to request coverage fora non-formulary drug if the drug they need isnot on the formulary, has been removed fromthe formulary, or requires step therapy or dos-ing restrictions. Beneficiaries can request anexpedited review to receive a decision from theplan within 24 hours. If the initial exceptionsrequest is denied, it becomes a “redetermina-tion,” and if the redetermination request is alsodenied, the process can leave the plan, and thedecision can be passed on to an IndependentReview Entity (IRE) and other external com-mittees.

ELIGIBILITY AND ENROLLMENTIn order to be eligible for Part D coverage,

an individual must be enrolled in MedicarePart A or Part B. Beneficiaries will be able tochoose from at least two private Part D plansper geographic region, except in areas wherethere is only a fallback plan. Beneficiaries willbe permitted to change plans annually duringan open enrollment period, similar to theprocess used in the current Medicare managedcare program. The first open enrollment period


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CMS’ regulations address the potential gap in coverage for dual eligible beneficiaries. By January 1, 2006, CMS

will automatically enroll full benefit dual eligibles who fail to enroll in a PDP or MA-PD plan into a PDP offering

basic prescription drug coverage. If there is more than one qualifying plan in a region, CMS will enroll individuals in

plans on a random basis. CMS will begin enrolling dual eligibles in qualified plans as soon after November 15,

2005 as participating plans are known. After 2006, any Medicare individual who is a qualifying full dual eligible will

beauto-enrolled into a qualifying PDP as soon as possible. CMS provides for a “special enrollment period” in which

full dual eligible individuals may elect to switch into another PDP or MA-PD plan at any time.

Though CMS has the legal authority to automatically enroll full benefit duals into PDPs, it has concluded that it

does not have the legal authority to automatically enroll them into MA-PD plans—even if the beneficiary is enrolled

in an MA plan during 2005. CMS will, instead, “facilitate enrollment” by assigning these individuals to an MA-PD

plan with the lowest premium offered by the same MA organization. CMS will inform the beneficiary in advance of

the assignment. If the dual eligible individual does not affirmatively elect a different plan or decline enrollment, he

or she will be enrolled in the MA-PD plan.

will begin on November 15, 2005 and will endon May 15, 2006. Part D coverage is scheduledto begin on January 1, 2006. There will be lateenrollment penalties for beneficiaries who areeligible but do not initially enroll in the pro-gram when it is first available to them.

SHIFT OF MEDICAID DRUG COVERAGETO MEDICARE FOR “DUAL ELIGIBLES”

The over 6 million individuals who are eli-gible for both Medicare and Medicaid(referred to as “dual eligibles”) will, beginningin 2006, receive drug coverage through Part Dinstead of through their state’s Medicaid pro-gram. There is still some uncertainty surround-ing how dual eligibles will fare under theMedicare Part D prescription drug benefitwhen it is implemented in 2006. In some cases,depending on income level and state of resi-dence, these individuals may receive a drugbenefit under Medicare that is less generousthan their existing Medicaid drug benefits.They will be required to make small copay-ments for all prescriptions, which is notrequired in some Medicaid programs. (Dualeligibles who live in a nursing home, however,will not have to pay any copayments.) Similarly,the Medicare Part D plan that they choose maynot allow access to all of the same drugs thatwere offered under Medicaid.

Although dual eligibles represent only asmall portion of all Medicaid beneficiaries, theyaccount for over 50 percent of drug expendi-tures in Medicaid.22 The new Medicare law willeffectively shift a significant portion of

Medicaid prescription drug market away fromthe state administered programs to privateMedicare Part D plan sponsors. According toCMS’ final regulations, any dual eligible benefi-ciary who has not enrolled in Part D byDecember 31, 2005 will automatically beenrolled by CMS.

SUBSIDIES FOR LOW-INCOMEMEDICARE BENEFICIARIES

In an effort to ensure that Medicare bene-ficiaries with low incomes can afford prescrip-tion drugs under Part D, the federal govern-ment will pay for all or most of the cost-sharingthat these beneficiaries would otherwise berequired to pay. For most low-income benefici-aries, Medicare will pay the monthly premi-ums, annual deductible, and almost all of thecoinsurance amounts. Most low-income benefi-ciaries will pay nothing except for “per pre-



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Individuals eligible for various levels of premium and cost-sharing subsidies are those residing in a state and eligi-

ble for Part D with incomes below 150% of the federal poverty level (FPL) and with resources at or below defined

thresholds. All full benefit dual eligible individuals, regardless of income and assets, and individuals with incomes

below 135% FPL and with resources at or below the defined thresholds will qualify as full subsidy individuals with

no premium and minimal cost-sharing.

The over 6 million individuals whoare eligible for both Medicare andMedicaid (referred to as “dual eligibles”) will, beginning in 2006,receive drug coverage through Part Dinstead of through their state’sMedicaid program.


scription” copayments of between $1 and $5.SPAPs, which served 1.3 million elderly anddisabled beneficiaries in 2002, will be permit-ted to supplement Part D coverage. CMS will“facilitate” enrollment into Part D plans forlow-income subsidy-eligible beneficiaries whodo not qualify for automatic enrollment.

IMPACTS ON LONG-TERM CAREPHARMACIES AND LONG-TERM CAREFACILITY RESIDENTS

The MMA and the final regulations recog-nize that the needs of Medicare beneficiaries inlong-term care (LTC) facilities are differentfrom those of other Medicare beneficiaries.Long-term care residents’ health and economicsituations may create additional challenges toenrolling in prescription drug plans. They mayhave fewer options than other Medicare bene-ficiaries as the pharmacies they use might notbe included in plans’ pharmacy networks.Although CMS disallows the use of specialLTC formularies, it encourages plans to ensureaccess to necessary medications through formu-lary inclusion, utilization management tools,and exceptions processes.

CMS has also directed that plans’ transitionprocesses should take into account the uniqueneeds of LTC facility residents who enroll in anew Part D plan.

SUBSIDIES FOR EMPLOYERSPROVIDING RETIREE DRUG COVERAGE

The MMA also includes incentives toencourage employers to continue to offer andpay for prescription drug coverage for theirretirees. Employer- and union-sponsored planscould qualify for federal subsidy payments ofup to 28 percent of the prescription drug costsbetween $250 and $5,000 per person that areincurred for their plan members who areretirees and Medicare beneficiaries. It isimportant to note that these subsidized plansare not true Part D plans and are not subject toPart D bidding and other procedures (i.e., rein-

surance and risk corridor payments) that areapplicable to Part D plans. These subsidy pay-ments, which will be exempt from federal taxa-tion, are estimated by CBO to equal $71.1 bil-lion over the next ten years.23

INTERACTIONS WITH MEDICARE PARTB DRUG COVERAGE

Drugs that are covered already underMedicare Part A or B are excluded from PartD coverage. This definition of covered Part Ddrugs could create some confusion as Part Bcoverage can vary from area to area dependingon local coverage decisions. CMS’ regulationsdid not clarify how the agency will deal withsituations in which Part B coverage is not uni-form. CMS has released further guidance onthe interaction with Part B coverage and willcontinue to clarify these issues.

IV. Changes to Medicare Managed CareProgram (Medicare Advantage)

Medicare Managed Care Since 1997The Medicare+Choice (M+C) program was

created as Part C of Medicare by the BalancedBudget Act of 1997 (BBA). The M+C program

The MMA also includes incentives toencourage employers to continue tooffer and pay for prescription drugcoverage for their retirees. Employer-and union-sponsored plans couldqualify for federal subsidy payments ofup to 28 percent of the prescriptiondrug costs between $250 and $5,000per person that are incurred for theirplan members who are retirees andMedicare beneficiaries.


* Source: CBO, Letter to Sen. Don Nickles, Nov. 20, 2003, Table 4.

FPL= Federal Poverty Level. The FPL for a family of two in 2004 is an annual income of $12,490. © The Health Strategies Consultancy

PART D COST-SHARING AND BENEFITS FOR LOW-INCOME MEDICARE BENEFICIARIES

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Federal and state regulations require nursing homes to provide all necessary drugs to residents and to manage

medication safely. To help meet these requirements, nursing homes generally contract with a single long-term care

pharmacy (LTCP). Often, in exchange for exclusive access to a nursing home’s residents, LTCPs provide medication

therapy management services, consultant pharmacist services, 24-hour emergency services, and specially pack-

aged pharmaceuticals. LTCP formularies have heavily influenced prescribing patterns in long-term care facilities

through such techniques as consultant pharmacist chart reviews and medication recommendations. As a result of

Part D, LTCPs may have to develop new relationships with PDPs and MA-PD plans since prescription drug plans

will have primary control over access to drugs in the LTC setting and the Part D formulary will govern reimburse-

ment. LTCPs must join PDP networks to participate in the Medicare Part D program and Part D plans must accept

“any willing” LTCP that wishes to join their network.

CMS has indicated that it will establish a special enrollment period (SEP) for institutionalized beneficiaries, includ-

ing nursing home residents. This SEP will allow beneficiaries to change Part D plans and will allow nursing homes

to steer beneficiaries toward the Part D plans that have their LTCPs in their Part D plan network. This will help

ensure continuity of care for beneficiaries and reduce barriers to access.



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In addition to the subsidy option for employers who continue to offer their own drug coverage outside of Medicare,

the MMA also offers employers options under Part D for retirees choosing to enroll in Part D. An employer may:

1. Provide coverage that supplements, or “wraps-around” coverage offered under the PDPs or MA-PD plans in

which their retirees enroll;

2. Subsidize the monthly beneficiary premium for the PDPs or MA-PD plans in which the employer or union’s

retirees elect to enroll; or

3. Provide a PDP or MA-PD plan, either under contract with a PDP sponsor or MA organization or by directly

sponsoring a PDP or MA-PD plan.

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The Part D benefit does not alter Part B coverage, and the distinction between a Part D and a Part B drug is how

the drug is prescribed, dispensed, or administered to an individual. Part D drugs may include injectables and vac-

cines dispensed by a network pharmacy. However, these same drugs administered in a physician’s office will con-

tinue to be paid under the Part B benefit.

There are a number of situations that could create ambiguity for plan sponsors in determining whether coverage

should be under Part B or Part D. For instance, drugs used in immunosuppressive therapy for transplants could be

covered under Part B or Part D. In this situation, the pharmacist would bill Part B if the beneficiary had a Medicare-

covered transplant or the Part D plan if the transplant was not covered by Medicare. Another complicated situation

arises when the same drug is covered under Part B if provided as part of a service in a physician’s office and Part

D if dispensed in a pharmacy. Generally, the availability of Part B coverage in a provider setting should not result in

denial of coverage under Part D for drugs dispensed by a pharmacy. Therefore, if a beneficiary receives a prescrip-

tion at a pharmacy, the drug should be covered under Part D.

There are other situations in which the proper billing protocol could be confusing to providers. Stakeholders are

concerned about some important differences that exist between Part B and Part D with respect to:

• Beneficiary cost-sharing,

• Off-label coverage,

• Physicians’ incentives, and

• Therapeutic classification.

provides Medicare beneficiaries with access toprivate health plan choices beyond thoseoffered through traditional fee-for-serviceMedicare. While the BBA expanded the role ofprivate plans to include PPOs, PPO penetrationhas been limited. Before the enactment of theMMA, less than two percent of Medicare man-aged care beneficiaries were enrolled in a PPOplan. Instead, HMOs accounted for the bulk ofMedicare coordinated care enrollment.24

Plan participation and enrollment inMedicare managed care have decreased overthe past several years. M+C plan offerings havedropped since 1998 from 346 plans to only 145in 2004. Enrollment has fallen from 6.3 millionenrollees in 2000 to 4.6 million enrollees in2004 with an increasing share of beneficiariesreturning to traditional fee-for-serviceMedicare.25,26

Impact of the MMA on Medicare ManagedCare

Title II of the MMA renamed the M+Cprogram the Medicare Advantage (MA) pro-gram. Those managed care organizations thatchoose to participate in the MA program mayoffer “required prescription drug coverage” and

be considered a Medicare AdvantagePrescription Drug (MA-PD) plan.

ENHANCED PAYMENTS TO MANAGEDCARE PLANS IN 2004 AND 2005

The new legislation made significantchanges to the Medicare Advantage paymentsystem to encourage managed care plan partici-pation. Specifically, the MMA implementedpayment increases by revising the method inwhich 2004 and 2005 county payment rateswere calculated. The law requires that plansuse these increased payments to enhance bene-ficiary benefits, reduce cost sharing, or improveprovider networks.



Source: Based on data from Kaiser Family Foundation Medicare Advantage Fact Sheet, March 2004. © The Health Strategies Consultancy

MEDICARE MANAGED CARE PENETRATION,2004

MMeeddiiccaarree AAddvvaannttaaggee ((MMAA)) PPrrooggrraamm—The program thatreplaces the M+C program under Part C in Medicare.Similar to M+C, MA offers Medicare beneficiaries theoption of enrolling in a managed care plan to receivetheir Medicare benefits. Private participating plans mustcover all Medicare benefits under Parts A and B. TheMMA makes significant changes to the payment systemin order to encourage participation by managed careplans.

ESTABLISHMENT OF REGIONAL PPOOPTION

The MMA also establishes a new regionalplan program to encourage PPO participationbeginning in 2006. PPOs are reflective of thecommercial market and may provide benefici-aries more provider choice whether in-networkor out-of-network.

In December 2004, CMS defined 26 MAregions in which regional plans can participate.The configuration of regions is intended tobring greater health plan choices to areas notpreviously serviced by the M+C program, par-ticularly rural areas. To encourage regional planparticipation and retain plans that already exist,the MMA created several payment provisions.Risk corridors would be available to regionalplans in 2006 and 2007 to protect plans frombearing full financial risk. From 2008 to 2013, aten billion dollar “stabilization fund” will beavailable to promote regional plan entry andplan retention if needed. These new paymentprovisions will help to provide incentives toplans as they consider entering the regionalMedicare market.

Beginning in 2006, all plans will berequired to competitively bid at the local andregional levels. The competitive bidding systemis intended to encourage plans to compete tooffer the best benefits at the lowest prices forbeneficiaries.

V. Quality Improvement Initiatives inMedicare

The MMA requires PDPs and MA-PDplans to implement ongoing quality improve-ment programs related to managing prescriptiondrugs and the costs associated with those drugs.

Medication Therapy ManagementPrograms

Plans offering the Medicare drug benefitare required to have a medication therapy man-agement program (MTMP) to ensure the

appropriate use of prescription drugs toimprove outcomes and reduce adverse druginteractions. MTMPs will be targeted atpatients who:

• Have multiple chronic conditions (such asasthma, diabetes, hypertension, high choles-terol and congestive heart failure);

• Are taking multiple Part D drugs; and, • Are likely to have high drug expenses (over

$4,000 annually).

MTMPs must be administered by a phar-macist or other qualified provider and mayinclude services in ambulatory and institutionalsettings. MTMPs must be coordinated withother chronic care management and diseasemanagement programs. Specifically, MTMPsmust work with and provide drug claims data toMedicare Health Support programs.

At this time, Part D plans have great flexi-bility in developing these programs becauseCMS does not believe there to be any widely-accepted industry standards. In the future, it isanticipated that CMS will provide furtherrequirements by identifying best practicesamong Part D plans’ quality programs.

Drug Utilization Management Programs Part D providers are also required to pro-

vide Utilization Management programs aimedat improving quality and reducing costs whenmedically appropriate. Drug utilization man-agement programs are required to includeincentives to reduce costs, systems to preventover-utilization and under-utilization, and pro-cedures to report the program’s performance toCMS. CMS plans to compare proposed pro-grams to industry standards widely used by sen-iors and people with disabilities. CMS refer-ences several organizations, including theNational Committee for Quality Assurance(NCQA), the Association of Managed CarePharmacists (AMCP), and the NationalAssociation of Insurance Commissioners(NAIC), as resources for this review.


Quality Assurance ProgramsQuality Assurance (QA) programs devel-

oped by Part D plans are required to focus onpreventing adverse drug events and promotingappropriate drug use for all covered beneficiar-ies. CMS specifies that QA programs mustinclude compliance with minimum standardsfor formulary practice established by States;retrospective drug utilization reviews to iden-tify patterns of medically unnecessary care;internal medication error identification andreduction systems; reporting of plans’ qualityassurance measures and systems to CMS; andconcurrent utilization reviews performedbefore dispensing each prescription. Requiredelements of the concurrent review include thefollowing:

• Screening for potential drug therapy prob-lems due to therapeutic duplications,

• Age- and gender-related contraindications,• Over-utilization and under-utilization,• Drug-to-drug interactions,• Incorrect dosing,• Drug-allergy contraindications, and • Clinical abuse/misuse.

Expanded Responsibilities of QualityImprovement Organizations

Currently, there are 53 state-basedMedicare Quality Improvement Organizations(QIOs) that contract with CMS to assistproviders in improving the quality of care deliv-ered to Medicare beneficiaries by improvingtheir performance on outcome and processmeasures. QIOs are currently responsible formonitoring and evaluating the quality of activi-ties of Medicare providers, including physicianoffices, hospitals, nursing homes, and managedcare organizations. The MMA expands the roleof QIOs to include quality improvement assis-tance for Part D plans. Their new focus will beto encourage the use of evidence-based pre-scribing, develop programs to decrease adversedrug reactions, and assist with MTMP pro-

grams. QIOs will potentially collect prescrip-tion drug data from PDP and MA-PD planproviders.

Electronic PrescribingMedication errors will be reduced drasti-

cally by the electronic prescribing provisions inthe MMA, including standards development,grants, and pilot programs. Electronic prescrib-ing is entirely voluntary for providers, but theMMA authorizes the federal government togive grants to doctors to help them buy com-puters, software, and training to prepare forelectronic prescribing. In its Part D final rule,CMS stated that MA-PD plans (not PDPs) mayoffer financial incentives for Part D providersto encourage e-prescribing adoption.

CMS issued a separate proposed rule on itsinitial or “foundation” electronic prescribingstandards. A final rule on these initial e-pre-scribing standards will be released byNovember 2, 2005, and Part D sponsors musttechnically support and comply with the stan-dards by January 1, 2006. The MMA mandatesCMS to conduct pilot testing of many of its ini-tial standards in 2006. Subsequent to pilot test-ing, CMS will issue a more complete set offinal standards, which will be mandatory forparticipating drug plans by 2009.

Medicare Health Support (FormerlyChronic Care Improvement Programs)

The MMA also provides for chronic careimprovement programs (CCIPs), now calledMedicare Health Support, for beneficiariesenrolled in the traditional fee-for-serviceMedicare. Medicare Health Support will focuson disease management for beneficiaries with“threshold” conditions. Programs will be evalu-ated on how successful they are in improvinghealth outcomes, increasing beneficiary satisfac-tion, and reducing costs to the Medicare pro-gram. Because Medicare Health Support andMTMPs target similar populations, the MMA



requires that PDPs coordinate their MTMPswith Medicare Health Support programs.

Participation in Medicare Health Supportis voluntary and free to beneficiaries who willbe identified by CMS using historical claimsdata. In December 2004, CMS announced theselection of nine organizations that will helpbeneficiaries manage their healthcare, adhereto their physicians’ plans of care, and assurethat they seek or obtain medical care that theyneed to reduce their health risks.27 The organi-zations operating the pilot programs are free tochoose specific interventions during a pilotperiod to increase beneficiary satisfaction andreduce Medicare spending. During the pilotphase (2005-2008), up to 300,000 MedicareFFS beneficiaries with congestive heart failureand complex diabetes may participate. In 2008,Medicare Health Support is expected to beexpanded to all Medicare FFS beneficiaries.

Medicare Advantage Quality ImprovementBy 2006, each Medicare Advantage plan will

be required to have an ongoing chronic careimprovement program and quality improvementprogram. Under the quality improvement pro-gram, MA plans are required to include projectsthat will improve health outcomes and enrolleesatisfaction. MA plans will have some flexibilityin selecting their focus areas based on the needsof their enrolled population as long as it is rele-vant to the Medicare population. Each MA planmust provide for the collection, analysis, andreporting of data that permits measurement ofhealth outcomes and other indices of quality.PPOs will be required to collect, analyze, andreport data that are furnished by providers.

VI. Appendix

More Information on the FormularyReview Guidelines

CMS’ review of plans’ formularies willfocus on the following:

1. Pharmacy and Therapeutics (P&T) com-mittees

2. Formulary lists3. Benefit management tools.

P&T COMMITTEE REVIEW P&T committees rules will help to ensure

that formulary decisions are based on scientificand economic considerations that achieve appro-priate, safe, and cost-effective drug therapy.CMS views the role of the committee as promi-nent—but ultimately advisory, and not bindingon the plan—in defining a Part D plan’s utiliza-tion management policies, including access tonon-formulary drugs, prior authorization, steptherapy, quantity limitations, generic substitu-tion, and therapeutic interchange protocols.

The final guidelines outline specificrequirements for P&T committee membership,conflict of interest, meeting administration, for-mulary management, and formulary exceptions.CMS requires:

• At least one committee member must be apracticing pharmacist and one a practicingphysician independent and free of conflictfrom the plan and pharmaceutical manufac-turers.

• P&T committees must review for clinicalappropriateness all formulary managementactivities, such as use of prior authorization,step therapy, generic substitution, and otherdrug utilization activities that affect access.However, the results of the committee’sreview of those utilization management poli-cies is strictly advisory and is not binding onthe plan.

• CMS states that P&T committees must “makea reasonable effort” to review a new chemicalentity within 90 days but only requires thatcommittees make a decision on each newchemical entity within 180 days. CMS alsoclarifies that these timeframes include thereview of products for which new FDA indi-cations have been approved.


• Committees should meet no less frequentlythan quarterly. All decisions must be docu-mented in writing.

• P&T committees can consider and use phar-macoeconomic evidence and should considerdrugs’ therapeutic advantages in terms ofsafety and efficacy when making formularymanagement decisions.

• Committees will only approve inclusion orexclusion of therapeutic classes in the formu-lary on an annual basis, as required by theMMA.

• P&T committees must review for clinicalappropriateness the plan’s protocols and pro-cedures governing timely access to both for-mulary and non-formulary drug products.

FORMULARY LIST REVIEWCMS states that its formulary list review

will incorporate best practices from the privatesector, Medicaid, and the formularies of planswho participate in the Federal EmployeeHealth Benefits Program (FEHBP). Theprocess by which CMS plans to review formu-laries includes:

1. Checking the formulary to ensure inclusionof a range of drugs in a broad distributionof therapeutic categories and classes

2. Consideration of specific drugs3. Analysis of tiered cost-sharing and utiliza-

tion management strategies.

CMS will review all classification systems toassure that plans provide an appropriate

breadth of categories and classes that cover alldisease states. CMS has reaffirmed the role ofthe USP Model Guidelines as a safe harbor.For plans using an alternative classificationstructure, CMS will check the plan’s proposedclassification system to determine if it is similarto USP or other commonly used classificationsystems, such as the American HospitalFormulary Service (AHFS) Pharmacologic-Therapeutic Classification.

Plans must include at least two drugs ineach approved therapeutic category and class,regardless of the classification system used.CMS may require more than two drugs in caseswhere additional drugs present unique andimportant therapeutic advantages in terms ofsafety and efficacy, and their absence may sub-stantially discourage enrollment by beneficiar-ies with certain diseases.

Even if a formulary is granted a safe harborfor its categories and classes, it will stillundergo a thorough review of its drug list andbenefit management tools.

In its review of formularies’ drug lists,CMS will:

1. Review formularies for at least one drug ineach of the Formulary Key Drug Typesidentified by USP.

2. Analyze formularies to determine whetherappropriate access is afforded to drugsaddressed in widely accepted national treat-ment guidelines for the certain conditions,including diabetes, hypertension, depres-sion, end stage renal disease, and HIV.

3. Analyze the availability and cost-sharingtier position of the 40 most commonly pre-scribed drug classes for the Medicare pop-ulation (in terms of cost and utilization).The goal of this assessment is to ensurethat plans cover the most widely used med-ications, or therapeutically similar medica-tions, for the most common conditions.



CMS states that its formulary listreview will incorporate best practicesfrom the private sector, Medicaid, andthe formularies of plans who partici-pate in the Federal Employee HealthBenefits Program (FEHBP).

4. Review cost-sharing tier placement toassure that the formulary does not discour-age enrollment of certain beneficiaries.CMS’ review will focus on identifying drugcategories that may discourage enrollmentof certain beneficiaries by placing drugs innon-preferred tiers in the absence of com-monly used therapeutically similar drugs inmore preferred positions.

5. Use Medicare Part D risk adjustment datato assess whether the formularies includedrugs most commonly used by theMedicare population and are reflectedacross the Drug Hierarchical ConditionCategories (DHCC) used to determineMedicare risk adjustment.

6. Expect that best practice formularies willcontain “a majority” of drugs within the fol-lowing therapeutic classes:• Antidepressants• Antipsychotics• Anticonvulsants• Antiretrovirals• Immunosuppressants• Antineoplastics. For beneficiaries using these drugs, CMSwill check to see that beneficiaries who arebeing treated with these classes of medica-tions have uninterrupted access to all drugsin that class via formulary inclusion, utiliza-tion management tools, or exceptionsprocesses.

Outliers for each area of review will beassessed to determine whether they result inpotential discrimination. If any of the outliersappear to create problems with access, planswill have the opportunity to present reasonableclinical justifications.

Finally, Part D plans will be required toprovide medically necessary prescription drugtreatments to LTC facility residents.

REVIEW OF BENEFIT MANAGEMENTTOOLS

CMS will review plans’ use of utilizationmanagement tools, including prior authoriza-tion, step therapy, quantity limits, and genericsubstitutions. In addition, CMS will reviewplans’ utilization procedures and appeals,exceptions and grievances processes. CMS willalso compare formularies submitted by variousPart D applicants to analyze the comparativeuse of practices such as drug utilization review,prior authorization, step therapy, and quantitylimits. CMS expects that these managementtools will be used consistently with how theyare applied to existing formulary systems. Incases where a plan may fall outside of bestpractices, the plan will be asked to provide areasonable justification for their practices.CMS will look toward current industry stan-dards, as well as appropriate guidelines fromexpert organizations such as the NationalCommittee on Quality Assurance (NCQA),Association of Managed Care Pharmacists(AMCP), and the National Association ofInsurance Commissioners (NAIC), and to theuse of such standards in existing drug benefitplans that are widely used by seniors and peo-ple with disabilities.

CMS will review a plan’s Drug UtilizationReview (DUR) program and techniques, andCMS expects plans to use policies and proce-dures that are currently in place in their com-mercial business, including concurrent,prospective, and/or retrospective utilizationreview. CMS believes that DUR should assureappropriate access and guard against inappro-priate or dangerous utilization of prescriptionmedications.


VII. Key Acronyms

CAP—Competitive Acquisition ProgramCCIP—Chronic Care Improvement ProgramCMS—Centers for Medicare & Medicaid

Services (Formerly HCFA)M+C—Medicare + Choice (Now Medicare

Advantage)MA—Medicare AdvantageMA-PD—Medicare Advantage Prescription

Drug PlanMMA—Medicare Prescription Drug,

Improvement, and Modernization Act of2003

MTMP—Medication Therapy ManagementProgram

NPRM—Notice of Proposed RulemakingPA—Prior AuthorizationPAP—Pharmacy Assistance ProgramPBM—Pharmacy Benefit ManagerPDP—Part D Prescription Drug PlanQIO—Quality Improvement OrganizationSSA—Social Security AdministrationSPAP—State Pharmacy Assistance ProgramTA—Transitional AssistanceTrOOP—True Out of Pocket CostsUSP—United States Pharmacopeia

VIII. Glossary of Key Terms

Actuarial Equivalence—Term used todescribe when two different sets of values havean equal present value under a given set ofassumptions. The concept is applied in differ-ent contexts in the MMA, including determina-tions related to creditable coverage, determina-tions related to the value of drug coverage andbid components, and determinations related tosubsidy payments for employer or union spon-sors of qualified retiree health plans.

Alternative Prescription DrugCoverage—Coverage that meets the require-ments of standard Part D drug coverage.Alternative prescription drug coverage mayinclude supplemental benefits.

Auto-Enrollment—A process by whichcertain individuals may be automaticallyenrolled in a program regardless of whetherthey actively sought enrollment. Full benefitdual eligibles who do not actively choose a PartD plan will be auto-enrolled into a qualifyingMedicare Part D plan.

Centers for Medicare and MedicaidServices (CMS)—The federal agency respon-sible for administering Medicare and parts ofMedicaid. (Formerly the Health CareFinancing Administration)

Chronic Care Improvement Program(CCIP)—The first large-scale quality improve-ment initiative for the chronically ill underMedicare. In the program, which was man-dated by the MMA, organizations will offerself-care guidance and support to chronically illbeneficiaries. They will help beneficiaries man-age their health, adhere to their physicians’plans of care, and assure that they seek orobtain medical care that they need to reducetheir health risks.

Co-insurance—A cost-sharing require-ment in which the insured person pays some ofthe costs of covered services. For example,under the standard Part D benefit, in 2006,beneficiaries will pay 25% of total drug costsbetween $250 and $2,250.

Co-pay—Flat fees or payments that apatient pays for a medical service (i.e., physi-cian visit or prescription).

Competitive Acquisition Program(CAP)—A program scheduled to start in 2006in which physicians are given the opportunityannually to elect to obtain drugs from competi-tively selected contractors rather than beingpaid ASP plus 6 percent and purchasing drugsdirectly.

Cost Indexing—Annual adjustment ofbeneficiary cost-sharing. Beginning in 2007,the cost-sharing amounts for most beneficiar-ies enrolled in the drug benefit will increase



each year based on the increase in Part Dexpenditures.

Coverage Gap—The portion of the PartD benefit structure in which beneficiaries pay100% of their Part D drug expenditures. In2006, there will be a $2,850 coverage gap in thestandard benefit between the initial coveragelimit ($2,250) and the catastrophic threshold($5,100). This gap corresponds to $3,600 inout-of-pocket spending for the beneficiary.

(Also referred to as the “doughnut hole”)Electronic Prescribing—Input devices

that allow physicians to electronically orderprescriptions that are sent directly to the phar-macy, eliminating the need for a “paper” pre-scription. These systems automatically checkfor drug-drug interactions, drug allergies, andinternal inconsistencies in the prescription.

Fallback Prescription Drug Plan—APart D prescription drug plan that will not bearinsurance risk. If beneficiaries do not have achoice of at least two plans under Part D in aregion, CMS may assume insurance risk andadminister the drug benefit through plans bear-ing performance risk only.

Formulary—The entire list of Part Ddrugs covered by a PDP sponsor’s or MA orga-nization’s drug plan. Includes both a therapeu-tic classification system and other elements,such as tiered cost-sharing and fail first pro-grams.

Late Enrollment Penalty—Under cur-rent Medicare law, individuals who do notenroll in Medicare Part B when they are firsteligible to do so must pay a penalty for everyyear they have not participated. A similar lateenrollment penalty will be imposed for eligibleindividuals who enroll in Part D after the initialenrollment period or fail to maintain continu-ous coverage during the period of non-enroll-ment.

Medicare + Choice (M+C) Program—The former name of the program that offersMedicare beneficiaries the option to receivetheir benefits through a private insurance com-

pany, such as a health maintenance organiza-tion. The MMA renamed theMedicare+Choice program “MedicareAdvantage.”

Medicare Advantage (MA) Program—The program that replaces the M+C programunder Part C in Medicare. Similar to M+C,MA offers Medicare beneficiaries the option ofenrolling in a managed care plan to receivetheir Medicare benefits. Private participatingplans must cover all Medicare benefits underParts A and B. The MMA makes significantchanges to the payment system in order toencourage participation by managed care plans.

Medicare Advantage Prescription DrugPlan (MA-PD)—Medicare Advantage plansthat choose to offer the Part D prescriptiondrug benefit.

Medicare Modernization Act (MMA)—Legislation enacted in December 2003 thatmakes significant changes to the Medicare pro-gram, including providing payments for outpa-tient prescription drugs under a Part D benefitstarting on January 1, 2006. The Act also pro-vides for a Medicare-endorsed prescriptiondrug discount card program, which began inJune 2004 and will end on December 31, 2005.The MMA provides for other changes to theMedicare program, including reforms to intro-duce private sector competition, speed entry ofgeneric drugs, and modernize program admin-istration.

Medication Therapy ManagementProgram (MTMP)—Program focused on opti-mizing therapeutic outcomes for targeted bene-ficiaries through appropriate drug use. Theprogram pays pharmacists to spend time coun-seling patients and will be targeted at patientswho have multiple chronic conditions, are tak-ing multiple medications, and are likely to havehigh drug expenses.

Notice of Proposed Rulemaking(NPRM)—Regulations issued in draft form.Stakeholders are given 60 days to provide com-ments. After comments have been analyzed,


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