Medicare Part D Market Dynamics

Through our industry-leading Dynamic Claims™ product collection, we were able to see the impacts of Medicare Part D on payers, particularly in the areas of approvals, rejections and reversals during this first quarter, showing that the promise of this program may be further out than expected.

Approximately 28 million people elected to enroll in one of the available Medicare Part D plans by the end of the first quarter 2006, dramatically under the original 39.1 million estimate published in the Federal Register as part of the final regulations implementing the Part D program in January 2005 , but in line with the revised estimate of 28 to 30 million released at the end of 2005 .

The majority of the 28 million enrollees (64%) were dual eligibles. Dual eligibles are persons who are entitled to Medicare Part A and/or Part B as well as some form of Medicaid benefit. Of the 64% of dual eligibles enrollees, 21% were actually new dual eligibles and the other 43% were regular Medicare beneficiaries who had to voluntarily enroll in the Medicare Part D.

The remaining 36% were retirees who had coverage from private sector or the federal government. About 23% of those enrollees were part of their employer group programs, with the remaining 13% being part of Tricare, the US Department of Defense (DoD) health care entitlement program for active duty and retired military, or the Federal Employee Health Benefit (FEHB) program, which supports the health care needs for federal employees and retirees. On average, these enrollees’ existing prescriptions programs and services provide equivalent or better coverage than the Medicare Part D program.

The growth rate for third-party claims submitted in pharmacies between the fourth quarter of 2005 and first quarter of 2006 was 5%, due to patients filling, trying to fill, and changing and filling their prescriptions - approvals, rejections, and reversals.

An Expected Increase in Claims Approvals

An approved claim is one that results in a person receiving the prescription. The first full quarter of the new Medicare Part D benefit drove over a 3% growth in approved third-party claims volume. In comparison, the existing Medicare Advantage plans and Medicare discount card programs averaged 2.5% of total approved third-party claims in the last quarter of 2005 and rose to 15.1% by March 2006 as illustrated in Figure 1.

Figure 1 – Percentage of Approved Third Party Claims for Q4 2005 to Q1 2006
Source: Wolters Kluwer Health Dynamic Claims

Medicare activity in 2005 was related to Medicare Advantage programs, and Medicare discount cards that were created as a stop gap in the Medicare Modernization Act of 2003 until the full prescription benefit enacted in 2006. This 2006 approved claim activity clearly shows the “ramp up” of Medicare Part D prescription benefit as more and more eligibles signed up for the benefit through the 1st quarter. Conversely Medicaid and Commercial approved claims volume dropped as Medicaid dual eligibles and patients utilizing other traditional commercial pharmacy benefits moved into Medicare Part D.

An Unanticipated Claim Rejection Rate

An unexpected result in the introduction of the MPD benefit was the substantial rise in the amount of rejected claims. Rejected claims grew by 24% from the fourth quarter of 2005 to the first quarter of 2006, accounting for 14% of all rejections by March 2006 as illustrated in Figure 2.

Figure 2 - Percentage Rejected Third Party Claims for Q4 2005 to Q1 2006
Source: Wolters Kluwer Health’s Dynamic Claims

Rejected claims are those that are refused for payment by a payer and the prescription is not dispensed to the patient. When the payer rejects a claim, the payer sends a transaction message to the pharmacist that outlines the reason why the claim is being rejected. These rejection messages include:

• PRODUCT/SERVICE NOT COVERED = A specific drug prescribed to a patient that is not covered by the health plan or is a non-formulary drug. This category can also be utilized to state that the patient does not have a pharmacy benefit for the submitted card information that was input at the point of service in the pharmacy.
• REFILL TOO SOON = A patient tries to refill a prescription before the allotted amount of time has elapsed between previous fill of the drug and the new refill. Traditionally, for a normal 30-day prescription this is approximately 24 to 28 days.
• DUR REJECT ERROR = Drug Utilization Review (DUR) is utilized to avoid adverse drug interactions for patients on multiple medications. Also, it can be utilized for managing which drug gets dispensed to a patient within a therapeutic class. For example: Before a patient can receive a proton pump inhibitor such as Nexium, has the patient tried changes to their diet or a generic equivalent.
• NON_MATCHED CARDHOLDER ID = Eligibility issue where the payer receives a request for payment from a pharmacy for a patient (cardholder), but the payer does not have the patient as eligible for coverage.
  
• PLAN LIMITATIONS EXCEEDED = A patient has exhausted their pharmacy benefit for the specified time period or quantity limitation on a drug.
• PATIENT IS NOT COVERED = Eligibility issue where the payer receives a request for payment from a pharmacy for a patient, but the payer does not have the patient as eligible for coverage.
• FILLED AFTER COVERAGE TERMINATED = Eligibility issue where the payer receives a request for payment from a pharmacy for a patient, but the payer does not have the patient as actively eligible for coverage. This type of reject usually happens when a patient has moved from one payer to another and the patient tried to utilize the old pharmacy benefit to fill a prescription.
• SUBMIT BILL TO OTHER PROCESSOR OR PRIMARY PAYER = A patient is not eligible for coverage per the payer that the prescription was submitted to or the patient has primary prescription coverage under another payer.
• QMB (QUALIFIED MEDICARE BENEFICIARY) – BILL MEDICARE = The patient’s primary coverage for the prescription should be administered by Medicare.
  Tables One, Two and Three list the top rejection messages from within the first quarter of 2006 in respects to Medicare, Medicaid, and commercial benefit programs.

Table One - Medicare Top Five Rejection Messages: Q1 2006

Source: Wolters Kluwer Health Dynamic Claims

One unique point for Medicare Part D rejected claims was for the Plan Limitations Exceeded category, which was not one of the top five rejection reasons in either commercial or Medicaid. The most rejected therapy for this category was sleep aids, such as Ambien and Lunesta. Patients are managed to only a certain quantity for type of therapy or for a short duration of time. Other highly rejected therapies for Plan Limitations Exceeded were Proton Pump Inhibitors (Aciphex, Nexium, Protonix, etc.) and Sexual Function Disorders (Viagra, Cialis, Levitra, etc.).

The second largest rejection reason for Medicare Part D is DUR REJECT ERROR, which relates to patients having many different drug therapies and the payer wanting to ensure that there are no adverse drug interactions for the patient. Because many Medicare Part D patients take multiple drugs, it is expected that this rejection code will be highly used.

Table Two - Medicaid Top Five Rejection Messages: Q1 2006

Source: Wolters Kluwer Health Dynamic Claims

The over one million rejected claims for Medicaid were mostly related to dual eligibles (previous Medicaid patients) still trying to use their old prescription cards in the pharmacy. The claims are being rejected due to the fact that Medicare became the primary payer for this dual Medicaid/Medicare population and there were system eligibility issues between Medicare Part D plans and CMS.

Table Three - Commercial Top Five Rejection Messages: Q1 2006

Source: Wolters Kluwer Health Dynamic Claims

Through an analysis of the Dynamic Claims data, we were able to determine that in some states the rejection rate actually fell to almost 0%, in part to the states paying for prescriptions because of the significant enrollment issues experienced by some Medicare patients trying to utilize their new benefit.

The penetration of therapeutic classes where Medicare eligibles have a high propensity to be on a medication were impacted more significantly than the entire market. For example, diabetes drugs experienced a 6% growth rate in claims volume from Q4 2005 to Q1 2006. Medicare Part D percentage of all third party claims rose from 5% to 37% from Q4 2005 to Q1 2006 for all diabetes drugs, inclusive of brand and generic drugs, as illustrated by Figure 3.

Figure 3 – Percentage of Diabetes Therapeutic Class Third Party Claims for Q4 2005 to Q1 2006
Source: Wolters Kluwer Health Dynamic Claims

Program Conversion and Migration Resulted in More Reversed Claims

A claim that was declined at the point of service in the pharmacy, usually by the patient, is classified as a reversal. The Medicare Part D program was the main driver of reversals, which grew substantially (19.5%) from the last quarter 2005 to the first quarter 2006. Medicare Part D claims represented approximately 26% of all third party reversals in March 2006 as illustrated in Figure 4.

Figure 4 – Percentage of Reversed Third Party Claims for Q4 2005 to Q1 2006
Source: Wolters Kluwer Health’s Dynamic Claims

This increase in reversals could be attributed to both pharmacies and enrollees testing the new benefit to ensure test drive with the new benefit - enrollees trying either get lower costs or better drug alternatives and pharmacies testing their systems to ensure they can accept the new cards for payment.

Q2 May Help to Reset Expectations

With the majority of the technical implications assumed to be resolved, Q2 may reveal more of the results that most would expect in terms of more enrollees and better prescription drug coverage for those who need it. In the long term, more comprehensive analysis of the data may reveal that we have just begun to see the impacts of Medicare Part D on claims-based activity.

About Dynamic Claims

The Source Dynamic Claims database contains claims-based information from over 24,100 U.S. retail pharmacies, giving a unique, real-time perspective of the essential elements in healthcare prescription activity.

About Wolters Kluwer Health

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