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Part D: Effective Management to Optimize Your Bottom Line

Chris Merenda and Thomas T. Reinckens, for HealthLeaders Media, May 6, 2009

Understanding and properly managing Prescription Drug Events (PDEs) is vital to a Medicare Part D plan's financial success, as good PDE data allows for accurate reconciliation with the Centers for Medicare and Medicaid Services (CMS), and ultimately, revenue optimization for the plan. A Pharmacy Benefits Manager (PBM) that is aligned with a plan sponsor can provide the tools and guidance necessary—along with solid business processes—to improve PDE management and optimize plan reimbursement.

PDE Background
As of November 2008, the industry average PDE unresolved reject rate for the 2008 plan year was 1.3% across Part D plans, resulting in more than 11 million unreimbursed claims, many of which could have been reconciled. By following best practices, and working closely with an expert in the industry, a plan can significantly improve PDE accuracy and reduce the reject rate percentage.

The PDE is central to CMS reimbursement and year-end prescription drug plan financial reconciliations. Through the PDE, CMS calculates cost-sharing subsidies for qualifying low-income individuals (low income subsidies), federal reinsurance subsidies, and risk sharing (through the risk corridor structure). A PDE rejection rate above CMS' threshold can trigger an audit or other regulatory action.

Because CMS relies on accepted PDE data to determine payments to plans, effective processing is a cornerstone of financial success for Medicare Part D plans. Well-managed PDE programs optimize the plan's CMS reimbursement for incurred claims. On the other hand, in cases of unreconciled PDEs, the plan pays the claim, but the rejected PDE will not be factored into any reimbursement from CMS.

Consider this:

  • Effectively processing PDEs can result in significant returns—for every dollar of PDE reject avoided, a plan can increase reimbursement by $0.40 to $0.80.
  • For a health plan with 100,000 Part D members, this could translate into $680,000-$1.5 million annually.

Strategies to increase PDE accuracy, avoid rework, and optimize CMS reimbursement
1. Take command of critical timeframes.
Because reconciliation covers an 18-month window, a plan needs to keep three plan years open simultaneously to reconcile rejected PDEs from a prior plan year, the immediate past year, and the current plan year. Delayed PDE processing may result in last minute resubmissions and missed CMS deadlines. To avoid these issues, timely management of PDE rejects is essential.

2. Monitor open enrollment activity. Plans need to be aware of their enrolled members in relation to members processed/accepted by CMS. In Medco Health Solutions' experience, more than 90% of all PDE rejects are related to enrollment issues, making PDE a lagging indicator of other "upstream" processes. Focusing on PDE-related success drivers—in this case quality of enrollment data reconciliation with CMS—at the very outset of the plan year will be beneficial over the ensuing 12-18 months.

3. Incorporate pre-edits into PDE generation. In many cases, PDE issues may be a result of basic information processing or data quality gaps. For example, a blank health insurance claim number (HICN) on the PDE will result in a 603 reject code that could have been addressed prior to submitting to CMS. Plans using vendors for PDE processing should make sure those business partners incorporate the necessary pre-edits.

4. Identify root causes for rejected PDEs. Rather than resubmitting rejected PDEs, first have reporting mechanisms in place that will analyze PDE rejects so you can address their root cause and communicate that information to senior management. Vendors supporting a plan's PDE process should offer this service, along with the expertise to advise on an appropriate course of action.

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