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OIG Releases Review of Medicare Part D Contracting


Email Alert

August 8, 2008
By Dorman Walker*

The Office of the Inspector General (OIG) has released the results of its review of Medicare Part D pharmacy contracting. The review was conducted at the request of 33 senators, who in 2006 asked OIG to look at contracting issues related to the participation of local community retail pharmacies in the Medicare Part D program. OIG's report includes recommendations with respect to the issues it identified.

According to the report, local pharmacies and their pharmacy services administrative organizations (PSAOs) expressed concerns about contracting with prescription drug plan (PDP) sponsors. These concerns included:

  • PDPs' network development methods, such as the use of contract addenda to existing contracts which bind the pharmacy unless expressly rejected by it, and some PDPs' refusal to contract with PSAOs;

  • Standard terms and conditions offered by PDP sponsors, including reimbursement rates lower than commercial and Medicaid rates and undisclosed maximum allowable charge (MAC) pricing for generics;

  • Varying PDP definitions of what constitutes an "extended-day supply," and extended-day supply reimbursement terms which pharmacies considered unacceptable;

  • Many PDPs' unwillingness to negotiate contract terms with pharmacies and PSAOs; and

  • Some PDP sponsors' requirements that pharmacies participate in the sponsors' commercial networks in order to participate in the Part D network, and vice versa.

OIG's report includes ten recommendations, including that CMS:

  • Consider issuing guidance requiring PDP sponsors to make available procedures for opting out of contract addenda (CMS did not concur with this, on the basis that it would constitute interference in negotiations contrary to Section 1860D-11(i) of the statute);

  • Determine whether PDP sponsors are complying with the "any willing pharmacy" provision as it related to PSAOs (CMS concurs);

  • Consider proposing legislation requiring PDP sponsors to specify how they define similarly situated pharmacies relative to the any-willing-provider terms they offer and the data sources, basis, and methodology used to develop reimbursement rates (including MACs; CMS does not concur);

  • Consider requiring PDP sponsors to make available to pharmacies the PDP sponsors' definition of an extended-day supply (CMS stated OIG's original recommendation that CMS define an extended-day supply would be inconsistent with the noninterference provisions of the statute);

  • Review participation by retail pharmacies in offering extended-day supplies and, if participation is low, consider eliminating the option that allows PDP sponsors to pay retail pharmacies the same rate as that paid to network mail-order pharmacies (CMS disagreed with OIG's original recommendation to review whether extended-supply rates are adequate to ensure enrollees have adequate access to extended supplies at retail); and

  • Encourage PDP sponsors to communicate to pharmacies the criteria for enhanced rates for certain categories of pharmacies (e.g., rural pharmacies; CMS does not concur).

Access the OIG report.

*We would like to thank Dorman Walker (Balch & Bingham LLP, Montgomery, AL) for providing this email alert.

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