HHS OIG Report Finds Part D Private Insurers Overcharged for Billions, Lack of CMS Oversight

According to a recent report by the Department of Health & Human Services, Office of Inspector General, private insurance companies that operate plans under the Medicare prescription drug benefit have overcharged Medicare beneficiaries and the program by several billion dollars since the program began in 2006.

According to the report, 80% of health insurers that operate plans under the Medicare prescription drug benefit overcharged the program by about $4.4 billion in 2006 alone. In addition, The McClatchy/Raleigh News & Observer reports that the Centers for Medicare & Medicaid Services (CMS) remains unaware of the total impact of the practice because of its failure to perform required audits.

The prescription drug benefit was established by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). Under the MMA, CMS contracts with private insurance companies to provide drug coverage to Medicare beneficiaries. Each insurer offers a bid, which represents the company's estimate of the average monthly revenue it would need to provide the basic prescription drug benefit to each beneficiary.

CMS is required to complete financial audits of at least a third of all the insurance companies that offer the prescription drug benefit to determine how they set their prices. For 2006, CMS was required to perform 165 audits. However, according to the report, the Inspector General found that, as of April, CMS had begun only seven, or 4 percent.

According to the report, there are 158 other audits from 2006 remaining to be done and audits for 2007 and 2008 waiting in the wings. It is estimated that problems found in the first year of the program aren't likely to be fixed before 2010.

In response to the Inspector General's findings, the News & Observer reports that Sen. Claire McCaskill, a Missouri Democrat, said:

"It shows a mind-set that could care less about wasting taxpayer money, that has no problem with padding profits of drug companies with hard-earned taxpayer dollars."

The Inspector General's report comes as Congressional Democrats last week introduced a bill that would allow Original Medicare to establish one or more plans to compete with private Medicare drug plans.

New Bill to Create Prescription Drug Benefit Through Original Medicare Comes As CMS Expansion of Off-Label Drugs for Cancer Treatment Draws Criticism

Yesterday, Congressional Democrats introduced legislation (HR 684, S 330) that would allow Original Medicare to establish one or more plans to compete with private plans under the Part D prescription drug benefit, according to CQ HealthBeat. The legislation would also require the Secretary of Health and Human Services to negotiate directly with pharmaceutical companies for the prices of medications under Part D.

Additionally, it would strengthen the ability of Medicare beneficiaries to appeal denials of coverage for medically necessary medications under all Medicare Part D plans.

The bill was sponsored by Senate Majority Whip Richard Durbin (D-Ill.) and Reps. Marion Berry (D-Ark.) and Jan Schakowsky (D-Ill.). According to Berry, the plans established by Medicare would have the ability to obtain discounts on medications that private plans could not match.

Rep. Schakowsky claimed:

"Under our bill, seniors and people with disabilities would finally be able to select a Medicare-operated drug plan that provides a guaranteed benefit without having to worry that their premiums will drastically increase or their access to needed drugs will drastically decrease each year."

Pharmaceutical Research and Manufacturers of America Senior Vice President Ken Johnson said that the group had begun to review the legislation and pledged to work with sponsors to help Medicare beneficiaries obtain medically necessary medications. Johnson added that:

"It's important to note, however, that the competitive market approach of the Medicare drug benefit is working well for patients and taxpayers."

Supporters of the bill disagree with this statement, including Medicare Rights Center, which has long advocated for the addition of a drug coverage option to Original Medicare. The organization claims, in its report The Best Medicine, that private prescription drug plans create higher costs, gaps in coverage, instability, and the danger of consumer confusion and marketing fraud.

Rep. Berry added that:

"If this works as we think it will, most of the private plans would drop out [of the Medicare prescription drug benefit]."

This comes as a Centers for Medicare and Medicaid ruling last fall allowing the coverage of drugs for off-label uses to treat cancer patients has begun to draw controversy. The New York Times reports that the new ruling changed the authority of drug compendiums.

Previously, Medicare representatives were supposed to consult compendiums and use their own discretion to interpret recommendations in determining coverage. Under the new ruling, the decision now is based only on the compendiums, "even when there is little clinical evidence behind a particular recommendation," according to The Times.

The problem with the new ruling, says The Times, is that there are possible conflicts of interest because "some of these new compendiums have close financial ties to the drug industry." Additionally, The Times reports that "it is hard to predict how much" Medicare spending on cancer drugs could increase as a result of the new rules because Medicare officials canceled a cost analysis of the changes.

It added:

"[The changes] seem almost certain to raise the federal drug bill," which could make it "more difficult for the new administration to rein in spending on unproven medical treatments."