MEDICARE PART D RECONCILIATION PAYMENTS FOR 2006 AND 2007

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The DHHS Office of Inspector General found that Part D sponsors owe a net total of $18 million to Medicare
for the 2007 Part D payment reconciliation, which is significantly less
than the net total of $4.4 billion that sponsors owed for 2006. Despite
this improvement, sponsors continue to submit inaccurate bids and make
large unexpected profits.

CMS makes monthly prospective payments to sponsors for providing
prescription drug coverage to Medicare beneficiaries. These payments
are based on estimates that sponsors provide in their bids prior to the
beginning of the plan year. After the close of the plan year, CMS
reconciles these payments with the sponsors' actual costs to determine
whether sponsors owe money to Medicare or Medicare owes money to
sponsors.

More specifically, sponsors owe Medicare a net total of $600 million
because of unexpected profits or losses that triggered risk sharing for
2007. Many of these sponsors overestimated the costs of providing the
benefit in their bids. As a result, Medicare payments to sponsors and
beneficiary premiums were higher than necessary. Medicare recoups a
portion of these higher payments. However, beneficiaries do not
directly recoup any of the money that they paid in higher premiums. At
the same time, sponsors will receive a net total of $406 million from
Medicare for the low-income cost-sharing subsidy and a net total of $186
million for the reinsurance subsidy because they underestimated these
costs in their bids.

Further, sponsors continue to make large unexpected profits. Based on
OIG calculations, the 179 sponsors that had profits large enough to
trigger risk sharing made at least $1.02 billion in unexpected profits
in 2007. These sponsors owe a portion of these unexpected profits to
Medicare based on the risk-sharing requirements. In addition, sponsors
included an estimated $1.07 billion of expected profits in their bids.

Finally, for 2006, CMS collected almost all of the funds that sponsors
owed to Medicare in November and December 2007. However, CMS has not
collected a total of $14 million from five sponsors for 2006.

Based on these findings, OIG recommends that CMS should: (1) ensure that
sponsors' bids more accurately reflect their costs of providing the
benefit to Medicare beneficiaries, (2) hold sponsors more accountable
for inaccuracies in the bids, (3) determine whether changes to the risk
corridors are appropriate, (4) determine whether alternative
methodologies would better align payments with sponsors' costs for the
low-income cost-sharing and reinsurance subsidies, and (5) follow up
with the sponsors that owe funds for 2006. CMS concurred or agreed with
three of the recommendations but did not state whether it concurred with
OIG's second or third recommendations.

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