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April 2, 2007
(updated June 5, 2007)

MAXIMIZING RETIREE DRUG SUBSIDY INCOME

Update: The Centers for Medicare & Medicaid Services (CMS) has now published rules for the Retiree Drug Subsidy (RDS) reconciliation process discussed in this Capital Checkup. For a summary of this guidance, see Sibson Consulting's June 2007 Bulletin, “CMS Announces Final RDS Reconciliation Process.”

For several months, plan sponsors that applied for the Medicare Part D Retiree Drug Subsidy (RDS) and submitted estimated Part D drug costs to CMS have been receiving payments from the Centers for Medicare & Medicaid Services (CMS). The receipt of these federal funds from CMS comes with the obligation for plan sponsors to present CMS with a final reconciliation of all eligibility, claims and rebate information. CMS has been providing the money based on estimated eligibility, claims and rebate information contingent on this final reconciliation.

All plan sponsors that have applied for the RDS should review recent developments in the subsidy program by visiting the RDS Web site.¹ Plan sponsors need to assure that they are up-to-date on all of the announcements from the CMS regarding RDS, and that they have talked to their eligibility and claims service providers to make sure that they are properly implementing the subsidy program.

This Capital Checkup will highlight recent announcements and provide information on how to get ready for the final reconciliation of RDS payments for the 2006 plan year.

Get Ready for Reconciliation

The RDS statute requires that plan sponsors submit the total prescription drug costs of all qualifying covered retirees, along with the final value of all rebates, to CMS for reconciliation within 15 months after the end of the plan year. Reconciliation is necessary to make sure that eligibility lists were accurate and claims include both the cost at the time the drug is dispensed and the value of rebates.

While reconciliation policies and processes have not been announced and RDS functionality is not yet available, CMS is likely to release this guidance and Web site functionality in April 2007. Plan sponsors should begin now to prepare for reconciliation by taking the following steps:

• Determine the plan's reconciliation deadline (discussed in the next section).
• Review eligibility reporting processes and determine the extent to which the plan's retiree list does not match Medicare's list. Begin working now with the RDS center to reconcile any differences in eligibility. If the plan eligibility list does not match the pharmacy benefit manager's (PBM) list, make sure that the PBM has the correct RDS eligibility to report costs.
• Confirm that the PBM or other prescription drug administrator will be available to perform reconciliation reporting in the same way that they are performing claims reporting now. If the plan sponsor is reporting claims directly, meet with the PBM/prescription drug administrator to find out when final reports that can be used for reconciliation will be provided.
• Review with the plan's PBM/prescription drug administrator(s) how they are reporting certain discretionary fields, such as amount of rebates or drugs that could be payable under either Part B or Part D (discussed later in this article).
• If there are any changes in service providers (e.g., the PBM or the third party administrator is replaced) assure that the previous service provider will make all necessary information available to their successor. Assurances need to be made that the outgoing provider will (1) maintain records and coordinate the reconciliation with the new service provider; and (2) report cost data and eligibility changes to the plan sponsor, the new service provider and/or CMS via the RDS secure Web site.
• Review contracts with service providers to determine if any updates are required.

Reconciliation Deadlines Relaxed for Some Non-Calendar Year Plan Sponsors

All 2006 RDS claims must be reconciled within 15 months after the end of the plan year (the plan year for purposes of the RDS is the 12-month period for which the application was filed). For calendar year plans, the reconciliation deadline is March 31, 2008.

Because of the 15-month rule, there will be different and earlier dates for non-calendar year plans. For example, a plan with an April 1 RDS plan year that collected the subsidy for the plan year April 1, 2005 to March 31, 2006 will need claims reconciled 15 months after March 31, or by June 30, 2007.

As noted above, CMS has not yet announced the rules for the reconciliation process, but has said informally that it expects to issue rules in April of this year. Obviously, because the rules are not yet available, meeting the deadline for a non-calendar year plan may be difficult.

Consequently, CMS recently announced on the RDS Web site that if a 2006 plan year reconciliation deadline would have been on or before November 30, 2007, the deadline will be changed to November 30, 2007. For plan years with a reconciliation deadline after that date, the deadline will not be changed.

This means that plan sponsors with a non-calendar year plan year beginning after January 1, 2005, and before September 1, 2005 (generally plan years beginning February 1 through August 1) will get an extension of their reconciliation deadline until November 30, 2007. Plan sponsors with plan years beginning on September 30 or later will still have a reconciliation deadline of 15 months after the end of the plan year for which the subsidy is obtained.

Eligibility Status must be Resolved for Each Qualifying Covered Retiree

When a plan sponsor applies for the RDS, it must file an initial retiree list of all Medicare-eligible participants and dependents for whom it is claiming the RDS subsidy. CMS sends regular electronic updates to the plan sponsor, indicating which retirees on the list are considered Qualifying Covered Retirees² that can get a subsidy. Many plan sponsors have noted significant discrepancies between their list of retirees and the Medicare retiree list. Some plan sponsors have had rejection rates as high as 20 or 30 percent.

Sibson Consulting has worked with plan sponsors to resolve retiree eligibility problems. Some of the most frequent problems are:

• Enrolled in Part D (Rejection Code 10): Retirees may have been enrolled in Part D, either intentionally or automatically. For example, retirees eligible for the Part D Low-Income Subsidy may have been automatically enrolled in a Part D plan. Auto-enrollment may have also affected those retirees in nursing homes. Or a retiree may have enrolled in a Medicare Advantage HMO. In these cases, the plan sponsor cannot receive the subsidy for such retirees.
• Not a valid Medicare beneficiary (Rejection Code 16): If the retiree's and spouse's Social Security Numbers (SSNs) do not exactly match CMS's information, the retiree will be rejected. In some cases, spouses are being reported by a plan sponsor with the retiree's SSN. If this happens, plan sponsors will need to collect either the correct SSN or Medicare Health Insurance Claim Number (HICN) – a number assigned by CMS to each Medicare beneficiary that appears on the beneficiary's Medicare card – directly from the retiree and their spouse and then resubmit to CMS. CMS is recommending collecting and reporting the HICN as this is the surest way to achieve a "match."

For each of these problems, it is critical to be able to effectively communicate with the retirees, service providers/PBMs and RDS to assure that the plan has sufficient information to resolve the eligibility problem. RDS staff capacity is limited, so starting the process of correcting eligibility lists sooner rather than later is a good idea.

It is likely that eligibility lists will need to be reconciled prior to submitting final claims information. Therefore, even though the reconciliation deadline is November 30, 2007 or later, a timeline should be developed to assure that all eligibility problems are resolved in time to deal with prescription drug claim issues.

Review Part B vs. Part D Drug Expenses

Only Part D drugs are eligible for subsidy reimbursement, however claims data may contain some Part B drug payments along with Part D eligible drugs. CMS recently published a simplified methodology for separating Part B from Part D drug costs for RDS payment requests.³ The simplified methodology is optional, so it is important to find out what the plan's PBM/prescription drug administrator is doing to help sort eligible from ineligible types of drugs.

The simplified methodology addresses the following three categories of Part B drugs, which could also be Part D eligible depending on how they are administered. It allows RDS claims to be submitted without prior determination of whether the drug is payable under Part B or D. This means that the Plan Sponsor does not have to separate these claims for purposes of submitting costs.

• Drugs that are covered by Medicare Part B when used for immunosuppressive therapy following a Medicare-covered transplant,
• Oral drugs that are covered by Medicare Part B when used for cancer treatment, and
• Oral anti-emetic drugs (to help prevent nausea/vomiting) that are covered by Medicare Part B when administered within 48 hours of chemotherapy.

The simplified methodology allows a plan sponsor to reduce costs by 0.3 percent rather than identifying drugs that could be payable under Part B or D, and determining which applies. This amount is intended by CMS to be an approximate measure of the costs of these three drugs, and the number may be indexed in the future. After the costs are reduced by 0.3 percent, any other Part D excluded drugs (e.g., benzodiazepines) would be subtracted from the gross retiree costs.

PBMs have handled the B vs. D problem in a variety of ways. Some PBMs charge for services to determine whether drugs are payable under B or D. Other PBMs will not submit these drugs at all, and others have left it up to the plan sponsor to choose what to do.

It is important to determine which method the PBM is using, and whether the plan sponsor's administrative fees can be reduced because of this new simplified methodology. In some cases, it may be necessary to coordinate this claims submission process with the administrator that is handling the medical plan's Part B claims submissions to assure consistency.

Determine How Rebates Are Being Calculated

Interim cost reports that plans have been submitting to CMS for payment are required to include an estimate of expected rebates and other price concessions. This estimated cost adjustment is made, in part, based on a plan's historical data. CMS has issued guidance allowing a specific rebate percentage to be used for gross retiree cost submission. The plan sponsor could determine rebates received under the plan as a percentage of incurred drug costs, and then apply that percentage to the gross retiree costs of each qualifying covered retiree between the cost threshold ($250 in 2006) and the cost limit ($5,000 in 2006). CMS provides the following example:

If a sponsor incurred $1 million in drug costs in a plan year and received $30,000 in rebates for the same plan year, the rebate amount is 3 percent of drug costs ($30,000/$1 million). The sponsor then applies a 3 percent reduction in the gross retiree costs between the cost threshold and cost limit of each qualifying covered retiree to determine the allowable retiree cost for each retiree.

Plan sponsors should review with their PBM how rebates are being calculated and assure that the procedure is in accordance with CMS guidance.

Consider Adopting a Compliance Plan

CMS recently published a Common Question about whether a plan sponsor applying for the RDS needs a "Compliance Plan" for audit purposes. The answer said that although a Compliance Plan is not required by either the law or regulations, it is a good practice to have one. No further information was published about what type of Compliance Plan CMS recommends.

CMS has however, published extensive guidance about what constitutes a Compliance Plan for commercial Medicare Part D Prescription Drug Plans. This guidance lists the core elements of a compliance plan, including:

• The requirement to have in place a comprehensive fraud, waste and abuse program,
• Policies to detect fraud and abuse,
• Written policies and procedures,
• Monitoring and auditing policies, and
• A compliance officer who is responsible for monitoring compliance with CMS regulations.⁴

CMS is likely to issue additional direction regarding how plan sponsors should assure that their RDS program is in compliance with CMS rules. Plan sponsors may want to assure that their eligibility and claims administrators provide certification that they have reviewed the Medicare Part D RDS rules and are submitting both eligibility and claims information in compliance with such rules. Ultimately, it is the plan sponsor that will be liable for any noncompliance with these RDS rules.

Conclusion

Plan sponsors should prepare for RDS reconciliation, which is likely to be a complicated and time-consuming process. Reconciliation is required under the Medicare law to assure that any federal payments have been reviewed for accuracy. CMS also intends to audit plan sponsors who receive RDS payment and compliance with reconciliation is likely to be a factor in those audits. It is important to revisit RDS processes now and discuss the issues listed above with both eligibility and claims administrators in order to assure that reconciliation will proceed smoothly and effectively, and that the plan sponsor's RDS income is maximized.

As with all matters involving the interpretation or application of laws and regulations, clients should rely on their attorneys for authoritative advice on the latest CMS guidance. Sibson Consulting can be retained to work with plan sponsors on maximizing RDS income.

1	To visit the RDS Web site, click here. (To return to the Capital Checkup text, click here.)
2	In general, a Qualifying Covered Retiree is a Part D eligible individual who is not enrolled in a Medicare Part D plan but who is covered (as the participant or as the participant's spouse or dependent) by actuarially equivalent employment-based retiree health coverage that is eligible for the RDS. (To return to the Capital Checkup text, click here.)
3	To see the simplified methodology, click here. (To return to the Capital Checkup text, click here.)
4	To see the CMS guidance, click here. (To return to the Capital Checkup text, click here.)

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