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Newsletter Article


CMS Predicts $4 Billion Returned from Medicare Drug Plans

By CQ Staff

October 9, 2007 – The Centers for Medicare and Medicaid Services (CMS) anticipates that the agency will collect $4 billion from Medicare Part D drug plan sponsors due to lower-than-expected drug costs in 2006, the first year of the Medicare drug program.

In a news release, CMS said that for the 2006 contracting year, Medicare will collect the funds from plans because their actual drug costs for almost all Part D plans were below expected levels in their 2006 bids. A number of factors, including that it was the plans' first year of bidding and the use of generic drugs was higher than anticipated, led to the lower spending.

As part of the Medicare drug law (PL 108-173), CMS is required to pay the plan sponsors prospectively based on their bids and can only complete a final reconciliation of accounts after the end of the calendar year. The law also limits the unanticipated losses or unexpected gains by Part D plans. For the first two years of the drug program, if a plan's drug spending is 2.5 percent or higher than projected, Medicare makes additional payments to cover a portion of the unanticipated costs. If drug spending in 2.5 percent or more below the levels projected in a Part D plan's bid, Medicare recoups a portion of the unanticipated cost savings.

CMS said it expects that as plans gain more experience with the Part D program, their future bid submissions will more accurately reflect their actual costs of providing prescription drug coverage. In the release, issued Oct. 5, CMS added that the 2007 bid submissions were significantly lower than those submitted in 2006, a reflection of 2006 experience with the drug program. With that in mind, CMS expects that amounts collected from or paid to plans in future years as a result of the final reconciliation and risk sharing process will be significantly lower than the reconciliation for the 2006 plan year.

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