Tuesday, February 3, 2009

Insurers overcharged Medicare for prescriptions, report finds

Insurers overcharged Medicare for prescriptions, report finds

If you buy medicine through Medicare's prescription drug program, you could be paying too much.

The taxpayers who finance Medicare aren't doing too well, either.

Insurance companies involved in the Medicare prescription drug benefit have overcharged subscribers and taxpayers by several billion dollars, according to the inspector general for the Department of Health and Human Services. Eighty percent of the participating insurance companies owe the program an estimated $4.4 billion for 2006 alone.

Medicare, however, has been slow to do something about it. In fact, the agency doesn't even know how much money the insurance companies owe taxpayers because it hasn't begun most of the financial audits needed to determine that.

"It shows a mindset that could care less about wasting taxpayer money, that has no problem with padding profits of drug companies with hard-earned taxpayer dollars," said Sen. Claire McCaskill, a Missouri Democrat.

McCaskill, a former state auditor, has asked the Centers for Medicare and Medicaid Services, which administers the program, to explain why so many audits haven't been done and how it plans to collect the $4.4 billion.

Medicare is the federal health insurance program for people 65 and older. The optional prescription drug benefit, which subsidizes the costs of medicine for subscribers, was the subject of an intense political debate before Congress enacted the program in 2003.

The program's nearly 27 million beneficiaries generally pay for the coverage, known as Medicare Part D, through a monthly premium that's deducted from their Social Security checks. That and Medicare subsidies paid for by taxpayers pay for the $60 billion program.

CMS contracts with private insurance companies to provide the drug coverage. Each 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.

Medicare 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, the first year of the program, Medicare was required to perform 165 audits. However, the inspector general found that, as of April, it had begun only seven, or 4 percent.

With 158 other audits from 2006 remaining to be done and audits for 2007 and 2008 waiting in the wings, problems found in the first year of the program aren't likely to be fixed before 2010, according to the inspector general's report.

The financial fallout could snowball "to the detriment" of beneficiaries and the program.

"Delaying financial audits increase the risk that (the companies) will use inaccurate and unsupported ... data to estimate the cost of providing Part D benefits in future plan years," the report said.

In response to the findings, the Medicare agency issued a statement indicating that as of Jan. 28, it had either begun or completed 103 of the 165 required audits for the plan in 2006.

Medicare officials said they limited the initial financial audits to seven to "test the audit protocol." The agency waited until April to begin the others because insurance companies had until March 31 to submit all of their 2006 contract data.

Critics find that less than reassuring.

"I think they're not minding the store," said Paul Precht, director of policy for the Medicare Rights Center, a national nonprofit group that counsels Medicare subscribers. "I think that if there's a political will to hold the plans accountable, and if resources would be devoted to conducting these audits, you're going to get money back for the taxpayers."

Robert Zirkelbach, a spokesman for America's Health Insurance Plans, an association that represents insurance companies, defended how they managed the program in 2006.

"Health plans based their bids on the best projections available at the time," he said. "Since that was the first year, health plans did not have experience projecting Part D expenditures. As plans have gotten experience, they've been able to have more accurate projections."

Inspector General Daniel Levinson found a number of problems. Among them:

A quarter of all bid audits done for the years 2006 and 2007 had errors that resulted in higher profits for the insurance companies, higher costs for Medicare and higher premiums or fewer benefits for the beneficiaries.

One mistake, if corrected, would have lowered monthly premiums by about $9. In another, one plan priced the co-pay for a generic drug at $5 instead of $4, the correct amount.

Another financial error occurred when an insurance company overcharged for mail-order prescriptions. Some administrative and marketing costs also were "unreasonably high."

Costs charged by companies in some cases were questionable because the supporting financial data was "poor" and "inadequate."

However, none of the findings resulted in changes to the program, the inspector general found, because the bid audits are done after the contracts with the insurance companies are signed and beneficiaries are enrolled.

The insurance companies never faced penalties for their mistakes and overcharges because the bid audits don't say whether errors are "misrepresentations" or honest mistakes.

That means problems haven't been fixed, the inspector general said.

"Bid audits are not designed to lead to sanctions," the report says. "However, without any consequences ... their deterrent effect is limited."

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