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CMS Releases Final Regulations on Medicare Drug Benefit, Dual Eligibles to Be "Auto-Enrolled"

January 28, 2005

The Centers for Medicare and Medicaid Services (CMS) has issued final regulations implementing the new Medicare prescription drug benefit – part of the Medicare Modernization Act of 2003 (MMA). The regulations are an attempt to balance access and costs for the new drug benefit that will go into effect on January 1, 2006. The final regulations make some needed improvements in the draft rules that were issued this past summer. At the same time, the final regulations appear to fall short of the protections for vulnerable beneficiaries that were advocated by NAMI and many other groups representing people living with chronic illnesses and severe disabilities. These efforts were aimed at ensuring that the private sector prescription drug plans (PDPs) and Medicare Advantage (MA) plans that will be administering the new drug benefit are held accountable for providing uninterrupted and broad access to the full range of treatments needed by beneficiaries.

Automatic Enrollment for Dual Eligibles

The biggest improvement in the final regulations is a declaration by CMS that the agency intends to automatically enroll all persons concurrently eligible for Medicare and Medicaid (dual eligibles) into the new Medicare drug benefit (known as Medicare Part D). This auto-enrollment will ensure that no one who is a dual eligible is subject to a gap in coverage on January 1, 2006 – the date on which Medicaid coverage of prescriptions will end for dual eligibles.

Under the regulations, CMS states that dual eligibles will receive notice in mid-November 2005 of which prescription drug plan they will be enrolled in. They will then have the opportunity to choose a different plan through special enrollment procedures. Facilitated enrollment procedures will also be available to beneficiaries below 150% of poverty who are not Medicaid eligible. Likewise, special enrollment periods will also be available to beneficiaries in institutional settings such as nursing homes.

This auto-enrollment process responds to concerns that NAMI and others had expressed that relying on state Medicaid agencies and state and local mental health authorities to find all dual eligibles and get them enrolled in a timely manner was simply unrealistic. Most dual eligibles are extremely low-income SSI beneficiaries living with severe disabilities and chronic illnesses. A large proportion could be expected to experience difficult challenges in qualifying and accessing public benefits. Auto-enrollment will minimize many of the problems in their transition of duals into Medicare Part D.

It is important to note that the final regulations will require PDPs and MA plans to have a transition plan in place for enrollees to ensure that access to the medications that are part of their current treatment. Specifically, the final rules state that "all Part D plans will be required to have transition policies (subject to CMS review and approval) that specify how they will meet the drug regimen needs of dual eligibles and other vulnerable populations during the initial period of their enrollment."

NAMI had pushed hard for a specific requirement for "continuity of care" for dual eligibles, i.e. explicitly requiring plans to continue covering medications when a dual eligibles transitions to a Part D plan. NAMI pushed hard for such a requirement. While this requirement is not in the final regulations, the requirement for Part D plans to have transition policies in place should help ensure uninterrupted access to medications for most dual eligibles with mental illness. Nevertheless, NAMI will continue to press CMS to enforce such a requirement on drug plans beginning in 2006.

Another victory in the final regulations will allow states to use their Medicaid programs to "wrap around" limits in Medicare prescription drug coverage for dual eligibles. This will allow a state use Medicaid to continue covering medications that might be excluded from a Medicare PDP’s formulary, including classes such as benzodiazepines that are excluded from the Medicare drug benefit.

Among the other key provisions in the final regulations:

Dissemination of Plan Information – The final rules clarify that each PDP and MA plan will be required to disclose to all enrollees and prospective enrollees: the actual list of covered drugs, tiered cost sharing for all covered drugs, formulary functions and exception processes (i.e., how drugs not on the formulary can be accesses). CMS notes that it will also be reviewing all marketing materials.

Eligibility & Enrollment – The final rule keeps in place penalties for late enrollment, i.e. individuals enrolling after May 2006 could face penalties that that stay in place over time. However, dual eligibles and institutionalized persons are eligible for special enrollment status that allows them to avoid late enrollment penalties and switch plans without having to wait for the next once a year annual enrollment period.

Pharmacy & Therapeutics (P&T) Committees – The final regulations keep in place nearly all of the standards in the draft regulations on the P&T Committees that each PDP and MA plan will be establishing. The P&T Committees will be responsible for developing plan formularies and the placement of individual medications within a formulary (i.e., whether or not it is placed at a higher tiered co-payment level). While the decisions of P&T Committee regarding whether to include a drug on a formulary is binding, the decision on tiering is only advisory. This is disappointing in that the decisions made by P&T Committees (as well as the rationale used) will not have to be made public. The final rules note that CMS is planning to issue additional guidance clarifying that if a P&T Committee decides to use cost as a criteria for excluding or tiering a specific medication, it must consider total costs. This is important since it would allow for consideration of not just the cost of the medication, but the potential cost to the entire Medicare program (e.g., higher hospitalization that might occur if an innovative product is excluded).

Plan Formularies – In the final rules, CMS declined to mandate special rules applicable to certain classes of Part D enrollees. NAMI had advocated for inclusion of a requirement of an open alternative formulary for Part D enrollees with severe mental illnesses. The final regulations retain the minimum requirement for at least two drugs in each therapeutic class. However, if there are only 2 distinct drugs in a particular class, the plan could elect to cover only one. The final rules note that CMS will not require plans to cover off-label uses of FDA approved drugs. Instead, the final rules allow plans to require documentation for off-label use. In a positive development, CMS extended the advance notice period for mid-year changes to a plan’s formulary from 30 days to 60 days. The final rules also state that a plan must transition enrollees on a product being removed from a formulary, to a product on the formulary. However, CMS declined to impose a binding "grandfather" requirement in cases where a product is removed from a formulary in the middle of a plan year.

True Out of Pocket Costs (TrOOP) – TrOOP is a critically important provision in the MMA that govern how plan enrollees will become eligible for more generous catastrophic coverage. TrOOP establishes the rules by which a plan enrollee can meet the requirement of spending $3,600 of out-of-pocket costs, and thereby access significantly lower their co-payments. On the positive side, assistance from most charitable programs and certain state assistance programs (including programs offered by drug manufacturers) will be included in the calculation of TrOOP. Likewise, in cases where a pharmacy waives co-payment requirements, the amount of the waived co-payment will count as TrOOP. Unfortunately, the final rules maintain CMS’s position that payments for a drug not on a plan’s formulary will NOT count towards TrOOP. Likewise, payment for drugs as part of a Medicaid waiver program will not count toward TrOOP.

Adverse Coverage Decisions, Appeals & Exceptions – The final rules make a number of improvements to the exceptions and appeals processes that each PDP and MA plan will be required to have in place. The most important of these is a significant shortening the timeframe for consideration of exceptions and appeals. For example, the final rule states that determinations must be as expeditious as the enrollee’s health requires. In other words, an acute episode of an illness will require an immediate decision. Expedited appeals must be resolved within 24 hours and expedited re-determinations within 72 hours. For standard coverage determinations (i.e., requesting an exception to access a non-formulary drug) a decision must come within 72 hours. Further, an outside independent review can be requested, with a decision required within 7 days. The final rule also clarifies that a prior authorization denial is subject to appeal.

One area of concern is that CMS declined to require PDPs and MA plans to cover the drug in question on an interim basis while an appeal or exception request is pending. Another retreat in the final rules relates to the initiation of exception and appeals. Specifically, the final regulations prevent a denial at the pharmacy counter, i.e. a plan enrollee cannot launch an exception or appeal request at the point at which they are likely find out that a drug is not covered. Instead, the final rules require an enrollee to request the denial in writing from the plan. This requirement is likely to discourage many enrollees from pursuing appeals and will allow plans to delay imposition of the strict timelines in the regulations for resolving exceptions and appeals. Finally, the final rules clarify that the independent review entities will not be able to examine the validity of the exceptions criteria used by each plan, and will only be able scrutinize the application of that criteria.

Revised Formulary Guidance Issued

The final regulations were accompanied by guidance to all PDPs and MA plans on the formularies they must put in place. This guidance establishes standards that CMS will impose on plans for their formulary to ensure that each plan meets the MMA’s mandate for non-discrimination and prevention of adverse selection with respect to beneficiaries with chronic illnesses and disabilities. These final guidelines also cover tiering of medications within a formulary (i.e., imposition of higher co-payments for certain drugs on a formulary), prior authorization and "fail first" requirements and most utilization review programs.

NAMI supports these CMS guidelines as integral to ensuring that drug plans offer sufficient coverage for the full range of treatments for severe mental illnesses (including all co morbid medical illnesses) and do not place restrictions on access to medications to disfavor enrollment of beneficiaries with disabilities.

More Information Available

The full text of the final MMA regulations can be viewed at:

The CMS Formulary Guidance can be viewed at:

NAMI’s comments on the Draft MMA Regulations can be viewed here.

NAMI’s comments on the CMS formulary guidance can be viewed here.