March 2005

New Medicare Part D - A Prescription for Industry-wide Change

By Marie C. Infante RN, MBA, JD and Karen S. Lovitch, JD

Effective January 1, 2006, Medicare coverage for prescription drugs under the new Medicare Part D becomes effective. At that time, Medicare will become the predominant purchaser of prescription drugs in this country. Because nursing home residents have some of the highest rates of prescription drug utilization among the elderly population with a mean monthly average of eight prescription drugs,1 this change will have significant effects on the long term care (LTC) community. For beneficiaries whose care is covered by Medicare Part A, all drug costs will continue to be bundled into the Prospective Payment System (PPS) rate because Part D covers only those drugs for which no other credible drug coverage is available under Medicare or any other plan. However, the majority of nursing home residents who have “spent down” their assets for medical care and are dually eligible for both Medicare and Medicaid benefits will see vast changes in their prescription drug coverage.

Full benefit dual eligibles currently receive prescription drug coverage through the state Medicaid programs. A LTC pharmacy typically provides the drugs and a number of other items and services under contract with the nursing home and bills the state Medicaid program directly for residents who qualify for such benefits. With some exceptions, the state Medicaid programs offer unrestricted access to all prescription and other drugs deemed medically necessary and ordered by a physician or other appropriate prescriber under state law. However, as of January 1, 2006, all Medicaid reimbursement and coverage of prescription drugs for nursing home residents will cease when all dually eligible nursing home residents will migrate “cold turkey” to Medicare Part D coverage. For the reasons discussed below, this change will result in significant operational and potential reimbursement issues for every nursing home in the country.

The plans must submit bids to the Centers for Medicare & Medicaid Services (CMS) on or before June 6, 2005, and CMS expects to award contracts in September 2005. CMS will evaluate many factors to determine the adequacy of the drug benefit offered by the plans. Of particular concern to CMS are the following plan features:

• formulary structure (evidence-based decision making; cost considerations based on total health costs not just drug costs; a balance of clinical and cost considerations);
• utilization review methods (prior authorization, step therapy, generic substitution, quantity limits);
• exceptions process (more favorable cost-sharing, access to non-formulary drugs), and
• appeals process.

CMS anticipates that, to be commercially viable and to make a profit, the PDPs will negotiate favorable price concessions with both drug manufacturers and their network pharmacies. PDPs also can use drug formularies to control costs. Part D formularies will vary by plan, but all must meet certain minimum requirements in the law and regulations. A formulary need not include all drugs that could be covered under Part D - the minimum number is, wherever possible, two drugs per therapeutic class and category. PDPs also may use cost management techniques such as prior authorization, step therapy, and quantity limitations.

Auto-enrollment of Dual Eligibles
In recognition of the issues presented by the vulnerable long term care population and in an effort to ensure the continuation of prescription drug coverage on and after January 1, 2006, all dually eligible beneficiaries who live in nursing homes will be automatically enrolled by CMS in a basic PDP beginning in October 2005. As institutionalized dual eligibles, these beneficiaries will incur no out-of-pocket costs for deductibles or co-payments and no gaps in coverage related to the so-called “donut hole” that is part of the standard Part D benefit. In contrast, other subsidy-eligible beneficiaries living in the community, including those in assisted living facilities, will be subject to these out-of-pocket costs on a somewhat sliding scale.

If the assigned PDP is not acceptable to the resident or his or her legal representative (e.g., the plan does not cover a sufficient number of the resident’s drugs or the formulary or utilization management programs make it too restrictive), he or she can change plans during the special enrollment period (SEP), assuming that another basic plan is available in that region and the facility contracts with an accessible LTC pharmacy in the plan network. Also, newly admitted residents who qualify for or are enrolled in Part D can elect a new plan at the time of admission to ensure network pharmacy access. This fact is important because the resident can only access Part D drugs covered by his or her plan through a pharmacy that participates with that PDP. No out-of-network pharmacy access is permitted under the Part D regulations.

One can envision the operational issues that will come up at admission when admissions staff who are knowledgeable about the Part D program requirements diligently query and evaluate the source of prescription drug coverage for each new resident and advise him or her and the legal representative about the possible need to enroll in another plan that includes an accessible LTC pharmacy and appropriate coverage of the resident’s prescriptions. If a prospective resident must use the SEP option to change plans, nursing home staff must ensure the availability of prescription drugs until the resident’s change in enrollment becomes effective and drugs are delivered from the new plan. CMS may address this timing issue in future sub-regulatory guidance. Clarification also is needed on whether the nursing home can include an authorization to switch plans in its admissions agreement or whether the facility can otherwise “steer” residents to its preferred LTC pharmacy.

Contract Issues
All contracts between nursing homes and their LTC pharmacies will require renegotiation and revision before January 1, 2006. Facilities that are accustomed to contracting with a single specialized LTC pharmacy are likely to find themselves dealing with several pharmacies that participate in the PDPs available in their CMS Part D region. Multi-facility chains that have a single national or regional pharmacy contract in place may find that this arrangement is no longer feasible. Moreover, many of the items and services typically found in a contract between a nursing home and its LTC pharmacy are not covered under Part D. For example, Part D does not cover drug carts, consultant pharmacy services, emergency boxes, stat and off-hours deliveries, fax machines, medication administration records and other forms, med-pass observations, attendance at quality assurance and care plan meetings, and participation during surveys. Such items and services, which are now typically bundled into LTC pharmacy contracts, must be priced and paid for separately by the nursing home. Further, acceptable unit dose packaging and dosage forms may be available under the PDP, but nursing homes must check to see precisely what is covered under the dispensing fee paid by the PDP to the LTC pharmacy so as not to pay for such costs. CMS sees benefit in the increased competition among LTC pharmacies, resulting cost transparency, and competition to offer noncovered services, but such benefits may not outweigh the fact that there is, at this time, no obvious source of third-party reimbursement for any non-covered costs.

The Medicare statute and final regulations implementing Part D do require PDPs to have a medication therapy management program (MTMP) for beneficiaries that incur high drug costs, and the design of the MTMP is up to each plan. These programs may satisfy the requirement for monthly drug regime reviews that is included in the nursing home Conditions of Participation, but only some residents will qualify because MTMPs are limited by statute to beneficiaries with certain conditions. This area is yet another where additional guidance from CMS likely will be forthcoming.

The final regulations require PDPs to contract with any willing LTC pharmacy as long as the pharmacy is prepared to meet as yet undefined performance and service criteria. CMS is working to develop these criteria, which are expected to be published as sub-regulatory guidance. Modeled on LTC pharmacy best practice standards, these criteria will become a required feature of contracts between PDPs and LTC pharmacies. They likely will cover important issues such as the following:

• drug packaging, labeling, and delivery systems;
• drug delivery service for routine and emergencies;
• pharmacist on-call coverage;
• emergency drug boxes and systems for off-hours access;
• standard ordering systems and inventories; and
• drug disposition systems for controlled substances.

Hospital-based skilled nursing facilities (SNFs) serving only Medicare Part A residents will see little, if any change, as a result of Part D’s implementation because, as mentioned above, prescription drug coverage will remain bundled into the Part A PPS rate. However, if the unit has a long term resident population or if the facility is part of a hospital-based system, obtaining prescription drugs from the hospital pharmacy may not be an option unless the pharmacy contracts with all PDPs in the region or unless CMS issues a policy on this issue before Part D implementation in 2006.

Resident Support and Assistance
Nursing homes will need to assist residents who cannot choose or evaluate the merits of one or more PDPs on their own behalf. The cognitive and physical impairments of this population will complicate this already complex choice for residents and their legal representatives, particularly if a number of PDPs are approved to operate in a region. In particular, physician consultation may be necessary to evaluate the therapeutic adequacy of a formulary for a particular resident. CMS is counting on the provider community to assist in the education of beneficiaries. For dually eligible nursing home residents, this task will begin in Fall 2005 when CMS sends enrollment information to the beneficiaries and/or their legal representatives. With 6.4 million dual eligibles in the country, the likelihood that someone will fall through the cracks is very real so nursing homes should monitor the automatic enrollment process to ensure that all residents have their prescription drugs available on and after January 1, 2006.

Availability of Drugs and Formulary Issues
Availability of appropriate prescription drugs will depend in large part on the formulary structures chosen by each PDP. A LTC pharmacy will be subject to the formulary of each PDP with which it contracts. Nursing homes should educate their medical directors and community-based attending physicians about the formulary issues for each of their patients and the available PDPs in their region well in advance. In the initial automatic enrollment phase, time will be of the essence because CMS does not expect to award the PDP contracts until September. If a drug is not on a PDP’s formulary or is otherwise not covered by Part D (as described below), the physician must order an acceptable substitute from the preferred list, if one is available.

The LTC community should be aware that many types of medications that are commonly prescribed for nursing home residents are excluded from coverage under Part D. Such classes of drugs include:

• drugs for anorexia, weight loss, or weight gain (e.g., Megace®);
• drugs prescribed for cosmetic reasons or hair loss;
• drugs for the symptomatic relief of coughs and colds;
• prescription vitamins and mineral supplements;
• non-prescription (i.e., over-the-counter) drugs (e.g., Tylenol® or other pain relievers, as well as commonly prescribed drugs for constipation, indigestion, and others);
• barbiturates (e.g., Phenobarbital); and
• benzodiazepines (e.g., Klonopin®, Ativan®, Xanax®, Restoril®).

Medicaid coverage for these drugs is currently available in many states. Unless each state exercises the option permitted under the MMA to continue to provide Medicaid coverage, gaps in coverage may result unless residents pay from their meager personal needs allowance or unless nursing homes absorb the costs. Abrupt therapeutic disruptions can cause adverse clinical outcomes, and residents could be at significant risk. Nursing homes will have to manage these issues diligently to avoid quality of care and potential survey problems. Ironically, necessary therapeutic substitution for more expensive drugs that may be included in PDP formularies actually could increase costs unnecessarily. For a number of reasons, residents who are enrolled or elect to join a Medicare Advantage (managed care or “MA”) plan may find that these plans provide more generous coverage for prescription drugs because the MA plans must manage overall healthcare costs, rather than just the cost of covered drugs. However, these coverage issues will be a significant change from the open Medicaid formularies most states have in place.

Part D includes an exceptions process for requesting coverage of noncovered drugs, but only beneficiaries, their legal representatives, and attending physicians may use it. Even in its expedited form, the time to pursue the process may result in temporary gaps in coverage, and there is no guarantee that a request for an exception will be successful. Plans have no obligation to provide a temporary supply of drugs while an exception request is pending.

The long term care community should be aware that nursing home residents, particularly those with cognitive and physical impairments, and their legal representatives likely will look to facility staff for assistance. The exceptions process imposes a number of requirements, including a written or oral certification from the prescribing physician that all choices on a plan formulary are clinically unacceptable and a statement of the reasons why. The plan may then require a more detailed written statement from the physician. This requirement could present problems because most physicians are not inclined or do not have sufficient time to participate in this type of exceptions process.

More important to nursing home operators, attending physicians will have to rewrite all medication orders for submission to the new PDPs to ensure that covered drugs will be available on January 1, 2006. This project alone will require a significant effort by all nursing homes, their medical directors, and community-based attending physicians. PDPs must provide for an “appropriate” transition plan for new enrollees who are taking drugs not included on the formulary. CMS’s forthcoming transition guidance will be very important to nursing homes that must manage these changes while ensuring continued availability of drugs for their residents.

Recommendations and Conclusions
Managing the changes that will occur with the implementation of Medicare Part D will require education, preparation, and collaboration by facilities, physicians and other care providers, pharmacists, residents, and their legal representatives. Nursing facilities have a high duty to provide all the care and services necessary to attain or maintain the highest practicable physical, mental, and psychosocial well-being for all residents. This duty may well override the gaps in coverage under Part D resulting in new activity costs and unreimbursed costs for all facilities. As mentioned, CMS will issue additional regulatory and subregulatory guidance issued in the coming months, and these issuances should be monitored carefully for new developments. Further, the 109th Congress may address some of the issues emerging under Part D. Nursing homes should consult knowledgeable long term care counsel to minimize reimbursement and compliance risks in this new operating environment and to formulate an appropriate advocacy position on behalf of their residents as implementation of Medicare Part D continues to unfold.

1See Stefanacci, R.G., The Cost of Being Excluded: Impact of Excluded Medications under Medicare Part D on Dually Eligible Nursing Home Residents, USIP (Feb. 16, 2005).

©Copyright 2005 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.