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CMS Expands Penalties in 2017

By July 7, 2017October 10th, 2017CMPs, CMS, Medicare, Part C, Part D, PBM

One-Third Financial Audit Findings Will Cost You More This Year

The Centers for Medicare & Medicaid Services (CMS) is now considering deficiencies found
from one-third financial audits for potential enforcement actions, including Civil Money
Penalties (CMPs), according to a memo published in late June and the 2017 Call Letter.

CMS is required to audit the financial records of at least one-third of Medicare Advantage (MA)
and Prescription Drug Plans (PDPs) each year. Financial records, internal controls over payment
disbursements, Medicare utilization and costs, and the computation of Parts C and D bids are
within the scope of the one-third financial audit. Financial audits continue to use the plan’s
prescription drug event (PDE) records as the ‘source of truth’ for all Part D claim information.

The PDE record is a summary of the claim transaction at the pharmacy that is used for payment
consideration during the annual PDE reconciliation. CMS continues to scrutinize plans over the
accuracy of the PDE data and plans continue to struggle to implement an effective monitoring
process to validate the accuracy of the PDE record. In the past several years, CMS has released
multiple pieces of guidance requiring plans to ensure pharmacy adjustments are accurately
reported on the PDE record causing plans and PBMs to revisit their adjustment processes. A
PDE reopening process has been finalized for any CMS overpayments which plans should avoid
at all costs based on the complex requirements as well as the risk of further compliance action.
The bottom line is plans must have a robust process to ensure PDE records are accurate and
any adjustment activity is expedited to avoid any CMS overpayment situations.

Applying their CMP methodology, CMS will take enforcement actions on deficiencies found in
one-third financial audits that adversely or have the substantial likelihood of adversely affecting
enrollees, such as those that impact enrollees’ out-of-pocket cost (OOPC) and cost sharing.
CMS has outlined six different areas for CMP consideration causing plans to focus all efforts to
ensure the area as well as the source data is accurate and can sustain a financial audit at any
time during the plan year. BluePeak has outlined each condition below along with a
recommended approach for plans to audit and mitigate their CMP liability.

Condition # 1: Failure to transfer total out of pocket cost balances to the new plan of record
(Part D TrOOP). This may result in enrollees paying increased out of pocket costs before their
catastrophic coverage begins

Recommended Review Approach
Plans should be performing a comprehensive review of beneficiaries who transferred into their
plan during the plan year. Plans should validate a FIR transaction was processed for the
beneficiary and ensure the accumulator amounts were accurately applied in the claims
processing system and the beneficiary correctly advanced through the Part D benefit. Plans
should also review each beneficiary’s PDE records and validate the accuracy of the PDE record’s
reported accumulator and beginning and ending benefit phases.

Condition #2: Incorrectly calculated enrollee cost sharing for claims in accordance with the plan
benefit design or not processing them appropriately according to the enrollee’s position in the

Review Approach
Plans should audit their Medicare Part D paid claims and validate calculated cost-sharing
amounts are consistent with the CMS approved bid. Claim activity should include a wide variety
of claim scenarios including claims that processed across all Medicare Part D Benefit phases in
addition to claims with one month or extended day supplies. Plans should also validate the
product’s formulary tier and ensure all claim and formulary information is accurately reported
on the PDE record.

Condition #3: Overstated prescription drug costs due to inappropriately charging sales tax,
which results in increased enrollee cost sharing amounts.

Review Approach
Plans should audit their Medicare Part D claims and validate calculated state tax amounts are
consistent with state and Medicare Part D rules and regulations. Validate the applied tax
amounts are accurately being reported on the PDE record.

Condition #4: Incorrectly calculated and overbilled Part D Late Enrollment Penalties (LEP).

Review Approach
Plans should review beneficiaries with Late Enrollment Penalties (LEP) and validate the LEP
amount is accurately calculated. Plans should review enrollment information to validate if the
LEP amount should be applied to the beneficiary and review premium information to validate
the LEP amount is charged to the beneficiary.

Condition #5: Incorrectly tracked enrollee Part D Low-Income Cost-Sharing Subsidy (LICS) levels
leading to additional enrollee cost sharing.

Review Approach
Plans should audit their Medicare Part D claims and validate low income cost sharing is
consistent with the CMS Call letter. Plan should also review their enrollment and eligibility
processes to ensure low income eligibility is being updated timely and claims are being
reprocessed within CMS defined timeframes. Plans should also review the calculation of the
low-income subsidy and validate the cost sharing and subsidy amounts are accurately being
reported to CMS on the PDE record.

Condition #6: Charged Part C copayments in excess of the Plan’s summary of benefits.

Review Approach
Plans should validate Part C Claims are applying cost-sharing amounts consistent with the Part C
approved bid. Include a review of claims that processed through several Part C services and
final cost-sharing calculation is consistent with CMS rules and regulations.

CMS will impose CMPs for one-third financial audit deficiencies on a per enrollee basis. If CMS
does not have enrollee-specific data, then they will calculate the CMP for the deficiency on a
per determination basis.

Help Is Just a Phone Call Away
BluePeak’s senior consultants can conduct a mock one-third financial audit to prepare your
team and/or provide support during the actual audit. We hope you find this helpful and please
contact us with any questions or a free consultation.

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