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HCCA’S Medicare Prescription Drug Part D Compliance Congress

Baltimore, Maryland -- September 11, 2006

New “Subcontractor” Oversight and ComplianceResponsibilities for Medicare Part D Plan Sponsors

Lynn Shapiro Snyder, Esq.Marci Handler, Esq.

Epstein Becker & Green, P.C.b l

esentation Overview

• Who is a “subcontractor” to Part D plans?

• CMS guidance on “subcontractor”oversight

• Part D plan compliance program requirements affecting “subcontractors”

• Differences between “first tier” and “downstream entity” oversight and compliance obligations

• Quizzes, discussion topics, hypotheticals

akeholders defined

• CMS’s proposed Chapter 9 Part D Program to Control Fraud, Waste and Abuse (“FWA Guidance”) used the term “subcontractor”

• The final FWA Guidance (Apr. 25, 2006) omits “subcontractor” and uses the defined terms:

• Contractor• 1st Tier Entity• Downstream Entity• Related Entity

z question: Downstream Entity defined

True or False:

• ABC Health Plan offers a Part D drug benefit managed by PBM. ABC’s senior management is concerned about ABC’s performance in 2006 and believes a more aggressive Part D marketing strategy should be conducted for 2007.

• ABC hires Marketing Company to work with PBM to develop ABC’s 2007 benefit year marketing strategy, prepare and mail marketing materials to prospective enrollees, develop an aggressive ad campaign and to staff community outreach programs. ABC knows that all of Marketing Co.’s proposed marketing materials are subject to CMS prior review.

• Because Marketing Company is not a health care provider, however, ABC does not believe that the arrangement is subject to CMS’s “downstream entity” requirements in the FWA Guidance.

• Is that position true or false?

swer to Quiz question

The answer is False.

ontractor defined

“Contractor” means:• Person or entity that directly

contracts with CMS to provide items or services or perform tasks related to the Medicare Program

• Includes PDPs and MA-PDs(“Sponsors”), MEDICS, Fallbacks, Cost Plans and others

(see FWA Guidance s. 10.1)

rst Tier Entity defined

“First tier entity” means:• Any party that enters into a written

arrangement acceptable to CMS with a Part D Sponsor to provide administrative services or health care services for a Medicare eligible individual under Part D.

(FWA Guidance s. 40)

ownstream Entity defined

“Downstream entity” means:• Any party that enters into a written

arrangement acceptable to CMS below the level of the arrangement between the Sponsor and first tier entity.

• These written arrangements continue down to the level of ultimate provider of both health and administrative services.

(FWA Guidance s. 40).

elated Entity defined

“Related Entity” means:• Any entity related to the Sponsor by

common ownership or control; and– Performs some of the Sponsor’s

management functions under contract or delegation;

– Furnishes services to Medicare enrollees under oral or written agreement; or

– Leases real property or sells materials to Sponsor at a cost more than $2,500 per contract period.

• Example: Sponsor is the parent company of its own in-house PBM

(FWA Guidance s. 40).

akeholder Relationship Flow Chart

CMS Contractor(Part D Plan Sponsor)

CMS Subcontractor/First Tier Entity

(PBM)

Subcontractor/ownstream

EntityPharmacy)

CMS Subcontractor/Downstream

Entity(Pharmacy)


Entity(Pharmacy)


Entity(Marketing Firm)


Entity(Quality Assurance

Firm)


Entity(Claims Processing

Firm)


Entity(Pharmacist)

CMS SubcontractorDownstream

Entity(Pharmacist)

CMS SubcontractorDownstream Entity

(Healthcare Marketing Consultant)

Source: CMS’s Prescription Drug Manual, Chapter 9 – Part D Program to Control Fraud, Waste and Abuse

z question: First tier entity contract uirements

• ABC Health Plan (again) is in the process of re-negotiating its PBM agreement for 2007.

• Under the contract, PBM is responsible for all network contracting and credentialing, medication delivery to enrollees,drug claims processing and compliance with HIPAA. Health Plan is responsible for maintaining its contract with CMS to participate in Part D, enrollment verification and prompt payment of clean claims by pharmacies.

• The contract expressly states that PBM is responsible for “complying with all applicable statutes, regulations and CMS instructions pertaining to the Part D benefit, as may be modified by CMS from time to time.”

• ABC Health Plan believes that its contract meets CMS requirements for downstream entities.

• Is ABC Health Plan right?


The answer is No. Health Plan’s contract does not meet Part D requirements for first tier and downstream entity contracts.

legating compliance functions

• Sponsors have flexibility over the scope of delegation of compliance and contract functions.

• But remember: Sponsors maintain “ultimate responsibility” for complying with statutory, regulatory and other requirements.

• Compliance Officer and Compliance Committee functions may not be delegated or subcontracted.

(FWA Guidance s. 40.1)

equired contract terms

Part D regulations require that:

• Written arrangements must either provide for revocation of delegated activities - or - specify other remedies

• Required in instances where CMS or the Sponsor determines that the parties have not performed satisfactorily

• 42 C.F.R. 423.505(i)(4)(ii); FWA Guidance s. 40.2.

z question: Contract remedies

What are examples of “other remedies” that a Part D plan might consider including in its contracts that would apply in the event of non-compliance by first tier or downstream entities?

equired contract terms

Contracts with first tier and downstream entities must include regulatory required provisions pertaining to:

• Inspections• Enrollee protection• Sponsor accountability• Record retention

(42 C.F.R. 423.505; FWA Guidance 40).

ata submission

• Sponsors are responsible for all data submitted to CMS– Including data generated and/or submitted

by related entities, first tier entities and downstream entities.

• Sponsors are responsible for exercising oversight of Part D data generated or submitted by first tier, downstream or related entities – Sponsors need to ensure accuracy of data

so that they receive appropriate payments.

z question: Data submission

What are the types of data that a Part D Sponsor might collect from a first tier or downstream entity for purposes of submitting to CMS?


• Enrollment/Disenrollment• Reversals• Medication Therapy Management Programs• Generic Dispensing Rate• Grievances• Pharmacy & Therapeutics (P&T) Committees• Transition• Prior Authorization, Step Edits, Non-Formulary Exceptions, and Tier Exceptions• Appeals• Call Center Measures: Beneficiary Service line and Pharmacy Support line • Overpayment• Pharmaceutical Manufacturer Rebates, Discounts, and Other Price Concessions• Pharmaceutical Manufacturer Access/Performance Rebates Received by LTC

Pharmacies • Licensure and Solvency, Business Transactions and Financial Requirements • Drug benefit analyses

Source: CMS’s CY07 Part D Reporting Requirements

mpliance program elements affecting first and downstream entities

Basic principle:All of the required components of an effective compliance program for a Part D Plan Sponsor apply to the Sponsor’s arrangements with first tier and downstream entities.

uiz question

What are the required elements of a Medicare Part D compliance program?

swer to quiz question

• The basic elements of a Medicare Part D compliance program are:– Code of conduct– Compliance officer/compliance committee– Education and training– Effective lines of communication– Enforcement of standards– Monitoring and auditing– Prompt responses to detected offenses– Corrective actions

mpliance program elements: Code of duct

Each Part D Sponsor must have written policies, procedures and standards of conduct that articulate the Sponsor’s commitment to comply with all applicable federal and state standards.

(FWA Guidance 50.2.1, 42 C.F.R. 423.504)

mpliance program elements: Code of duct

• Code of conduct – Clearly articulates Sponsor’s commitment to

comply with applicable statutes, regulations and other part D program requirements

– Delineates Sponsor’s expectations that first tier and downstream entities act in an ethical and compliant manner

– Includes ramifications for failure to comply(FWA Guidance 50.2.2.1)

mpliance program elements: Policies and cedures

• Policies and procedures– Should address day-to-day risks– Purpose to help reduce prospect of

fraudulent, wasteful or abusive activities– Modified periodically as risk areas evolve

and change– CMS lists many examples of p&p in its FWA

Guidance at 50.2.1.2– Sponsors are responsible for identifying

potential fraud, waste and abuse in their networks

mpliance program elements: Exclusion cks

• OIG/GAO exclusion checks

– FWA Guidance specifically states that Sponsors should receive certifications from first tier, downstream and related entities regarding OIG and GAO exclusions checks

– Initial hire plus annual checks

– Commitment to remove any employees found on such lists

(FWA Guidance 50 2 1 2)

cussion topic

What are some mechanisms a Sponsor might use to ensure that first tier and downstream entities are complying with the exclusion check requirements?

mpliance program elements: Compliance cer and compliance committee

The Part D Sponsor must designate a compliance officer and compliance committee that is accountable to senior management.

(FWA Guidance 50.2.2, 42 C.F.R. 423.504)

mpliance program elements: Compliance cer

• Part D Compliance Officer– Responsible for ensuring that first tier and

downstream entities follow Part D sales and marketing rules

– Coordinates downstream exclusion checks– Coordinates internal investigations into

potential non-compliance by plan and downstream

– CMS recommends full-time dedicated Part D compliance officer, preferably different from corporate compliance officer

mpliance program elements: Compliance mmittee

• Compliance Committee– Oversees internal controls– Confirms that training and education

are completed– Ensures that Sponsor has a system

for first tier and downstream entities to ask compliance questions and report potential non-compliance

cussion topic

How might a Sponsor confirm that employees of its first tier and downstream entities understand the processes for asking compliance questions and reporting instances of non-compliance?

cussion topics

1. What should a Sponsor do if it finds that a first tier or downstream entity has not created a “culture of compliance” in its organization that complements the Sponsor’s own compliance program efforts?

2. What if a first tier or downstream entity thinks that the Sponsor lacks an appropriate “culture of compliance”?

3. How about if a downstream entity (that contracts to participate in a Part D plan through a first tier entity) has concerns about the first tier entity’s compliance culture?

mpliance program requirements: Training education

The Part D Sponsor must provide effective training and education between the Part D Compliance Officer and organization employees, subcontractors, agents and directors who are involved in the Part D benefit.

(FWA Guidance 50.2.3, 42 C.F.R. 423.504)

mpliance program elements: Training and cation

• Training and education– Sponsor must provide effective training and

education to subcontractors, as well as employees, agents and directors

– Sponsor can make its training programs available to first tier and downstream entities

– Also may consider whether to have first tier and downstream entities conduct their own training

– General compliance training plus specialized compliance training

cussion topic

What are some areas where a Part D plan might require specialized compliance training for a first tier or downstream entity?

mpliance program elements: Effective s of communication

The Part D Sponsor must have effective lines of communication between the Compliance Officer and organization’s employees, contractors, agents, directors and members of the compliance committee.

(FWA Guidance 50.2.4, 42 C.F.R. 423.504).


• Effective lines of communication

– Sponsors need system to receive, record and respond to compliance questions and reports of potential non-compliance

– Effective communication standard applies to first tier and downstream entities

cussion topic

What are some methods for fostering “effective lines of communication” between a Part D plan and a first tier entity?

What about for downstream entities?


• Sponsors can develop their own mechanisms for fielding questions about compliance

• Hotline is a common method• Should be easily available to access• Posters, routine reminders are helpful• Hotline number should be prominently

posted(FWA Guidance 50.2.4.2)

cussion topic

• How can a Sponsor ensure that first tier and downstream entities publicize the compliance hotline?

• Whose hotline number should be used – the Sponsor’s, the first tier entity’s or the downstream entity’s? What are the advantages and disadvantages of each approach?


• Sponsors should implement prompt follow-up procedures in response to hotline inquiries and other complaints

• Follow-up investigations from hotline reports should be initiated within 2 weeks of receiving the report

• Sponsors need a process to document and track reported concerns, status of investigation and corrective actions

(FWA Guidance 50 2 4 2)

uiz question

What 4 factors support the effectiveness of a compliance hotline?

swer to quiz

According to CMS, the effectiveness of a hotline relies on several criteria, namely:– Confidentiality– Accessibility– Intake – Follow-up

(FWA Guidance 50.2.4.2)


• Sponsors must provide meaningful procedures for timely hearing and resolving enrollee grievances concerning delivery of Part D benefits

• Sponsors should have a complaint tracking system

• At a minimum, Sponsors need a call center with an explicit process for handling customer complaints

• Customer service phone number should not be the same as the hotline number

• Log of complaints must be made available to CMS or MEDIC upon request



• FWA Guidance also proposes enrollee education as a measure to prevent fraud, waste and abuse

• Suggested methods include flyers, letters or pamphlets in mailings to members

• Communications to be made available to CMS and MEDICs upon request


mpliance program elements: Enforcement tandards

The Part D Sponsor must enforce standards through well-publicized disciplinary guidelines.

(FWA Guidance 50.2.5, 42 C.F.R. 423.504)


• Goal is to communicate a strong and explicit organizational commitment to compliance

• Requires involvement by Sponsor’s governing body and senior officials (CEO, COO, GC, CFO)

• Sponsor should consider methods to publicize disciplinary guidelines

• Procedures for asking questions and reporting potential non-compliance should be disseminated to employees and to first tier, downstream and related entities


uiz question

Name examples of methods for publicizing disciplinary guidelines to staff at first tier and downstream entities.

swer to quiz

CMS suggests the following methods for publicizing disciplinary guidelines:– Newsletters– Discussing compliance topics at staff

meetings– Posting information on company

Intranet site– Prominently displaying posters,

cafeteria tents


• Sponsors should disseminate procedures to ask questions and report potential non-compliances

• Procedures should include:– Description of methods to make reports, ask

questions– Anonymous reporting– No retaliation policy– How to report to MEDIC or law enforcement



• Sponsors should have provisions in contracts with first tier, downstream and related entities that violations may result in termination of the contractual relationship.


cussion topics

1. What practical considerations arise for Sponsors with first tier or downstream entities that fail to comply?

2. What factors come into play if a first tier entity believes that a downstream entity is out of compliance?

3. What if the downstream entity thinks the first tier entity, with which the downstream entity has contracted, is out of compliance?

mpliance program elements: Monitoring auditing

The Part D Sponsor must have procedures for effective internal monitoring and auditing.

(FWA Guidance 50.2.6, 42 C.F.R. 423.504)

mpliance program elements: Monitoring auditing

• Monitoring and auditing– Sponsors must have procedures for

effective internal monitoring and auditing

– Audit workplan to be developed– Workplan to include processes to

oversee compliance by first tier and downstream entities

– Internal audit department

ecific monitoring and auditing guidance for tier, downstream and related entities

• FWA Guidance (50.2.6.1.3) states that Sponsors should develop a strategy to monitor and audit first tier, downstream and related entities

• Specific data should be analyzed from first tier, downstream and related entities, as applicable, and reviewed regularly

• Routine and random auditing should be part of the contractual agreements

• Sponsors’ audit workplans should include the number of first tier, downstream and related entities that will be audited each year and how they will be identified

• Some number of on-site audits should be a priority

• Sponsors must ensure that first tier, downstream and related entities require record retention and provide rights of access to CMS


• According to CMS, audits of first tier, downstream and related entities should include:

– Documentation such as prescriptions, invoices, pharmacy licenses, claim transaction records, signature logs, purchase records, negotiated prices

– Verification that network providers are in compliance with minimum standards of pharmacy practice under State law

– Confirmation that network pharmacies post or distribute notices instructing enrollees to contact their plans about obtaining a coverage determination or exception

– Review of contracts, including rebate, discount and other relevant agreements with supporting data

– Interviews with first tier, downstream and related entity staff to gauge compliance with Part D requirements


To aid in monitoring and oversight of first tier and downstream entities, CMS recommends that Sponsors generate or receive reports such as:

– Payment reports– Drug utilization reports– Prescribing patterns by physician reports– Geographic zip report

(FWA Guidance 50.2.6.1.3)


In the event that first tier, downstream or related entities perform their own audits, CMS recommends:

– Sponsors seek assurances that entities have adequate audit workplan in place

– Sponsors regularly receive these audit results

– Sponsors seek assurances that corrective actions have been taken

(FWA Guidance 50 2 6 1 3)

cussion topics

1. What are examples of auditing activities that Sponsors might request from first tier or downstream entities?

2. What requests for auditing activities are reasonable? What are unreasonable?

3. To what extent should first tier and downstream entities be expected to incur the costs of enhanced auditing programs?

mpt responses to detected offenses

• Part D Sponsors must conduct timely, reasonable inquiryinto potential misconduct

• Applies to misconduct at plan level and by first tier, downstream and related entities

• Corrective actions may be appropriate

• Elements of CAP for misconduct by first tier, downstream or related entities should be detailed in written agreement

– Should include ramifications for failure to satisfy the CAP

• CAPs should be monitored to ensure that they are effective


commended procedures for reporting ations

• Reporting potential fraud is an important mechanism for protecting beneficiaries and the Medicare trust fund

• Self-reporting is voluntary, but CMS believes it is a “critical element” of an effective compliance program

• CMS believes that Sponsors should report potential fraud at all levels

– CMS says reporting is “especially encouraged” when potential fraud is discovered at first tier, downstream or related entity level

– Concern is that conduct may be “systemic” and MEDIC may have information across sponsors to compare


• Sponsors are encouraged to investigate potentially fraudulent activity to determine whether “potential fraud or misconduct” has occurred

• If Sponsor lacks time, resources or experience to adequately investigate, the matter should be referred to MEDIC within 2 weeks from discovery


• If after “reasonable inquiry” by the Sponsor, it is determined that “potential fraud or misconduct”related to Part D has occurred, conduct should be referred to MEDIC

– Report should be made promptly but no later than 60 days after determination that a “violation may have occurred”

– Where potential fraud is discovered at first tier, downstream or related entity level, Sponsor should refer conduct to MEDIC sooner, so MEDIC can identify and address any scams or schemes

• Sponsors also encouraged to consider reporting conduct to government authorities like OIG or DOJ

cussion topic

What kinds of misconduct by a first tier, downstream or related entity warrant reporting to CMS, a MEDIC or law enforcement?

amples of Part D Risk Areas

PBM risk areas include:

– Prescription drug switching– Unlawful remuneration– Inappropriate formulary decisions– Prescription drug splitting or shorting– Failure to offer negotiated prices

(FWA Guidance 70.1.2)


Pharmacy risk areas include:

– Inappropriate billing practices– Prescription drug shorting– Bait and switch pricing– Prescription forging or altering– Dispensing expired or adulterated drugs– Refill errors– Illegal remuneration schemes– TrOOP manipulation– Failure to offer negotiated prices



Prescriber risk areas include:

– Illegal remuneration schemes– Drug switching– Script mills– False information– DEA or prescription pad theft



Wholesaler risk areas include:

– Counterfeit and adulterated drugs– Diverters– Inappropriate documentation of

pricing information



Pharmaceutical manufacturer risk areas include:

– Lack of data integrity– Kickbacks, inducements, illegal

remuneration– Formulary and formulary support activities– Inappropriate relationships with physicians– Illegal off-label promotion– Illegal use of free samples



Beneficiary risk areas include:

– Misrepresentation of status– Identify theft– TrOOP manipulation– Prescription forging, altering– Diversion– Resale on black market– Stockpiling– Doctor shopping– Improper COB– Marketing schemes


ypothetical

• ABC Health Plan receives a compliance hotline call from an anonymous person, who alleges several items of non-compliance relating to ABC's network pharmacies under Part D. Specifically, the caller claims that:

– One network pharmacy employs a person who has been excluded from government contracting

– Another network pharmacy has on several occasions filled only 1/2 of a covered Part D prescription and told the customer to come back "next week" to get the rest of the medication

– There is a rumor going around that one of the LTC pharmacies in the network filled out, and possibly even signed, enrollment forms for institutionalized Part D beneficiaries choosing ABC Health Plan because its rates are higher than the competing Part D plans in the area.

• ABC Health Plan has contracted with PBM for all network pharmacy contracting and oversight functions.

ypothetical questions

Questions:

1. As counsel to the Health Plan, what actions do you take?

2. As counsel to the PBM, after receiving a phone call from Health Plan's counsel about these allegations, what actions should take place?

3. PBM then calls each of the pharmacies about the allegations. As manager for each of the respective pharmacies involved in the alleged activities, what should you do?

Lynn Shapiro SnyderEpstein Becker & Green, P.C.

Phone: (202) [email protected]

Marci HandlerEpstein Becker & Green, P.C.

Phone: (202) [email protected]

www.ebglaw.com

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