New Jersey State Legislature Office of Legislative Services Office of the State Auditor

Transcription

1 New Jersey State Legislature Office of Legislative Services Office of the State Auditor Richard L. Fair State Auditor

2 .EGISLAllVE SERVICES COMMISSION SENATE BYRON M BAER ANTHONY R BUCCO RICHARDJ CODEY NIA H Gll.L BERNARD F KENNY, JR LEONARD LANCE ROBERT E LITrELL ROBERT W SINGER GENERAL ASSEMBLY CHRISTOPHER "KIP" BATEMAN FRANCIS J BLEE JOHN J BURZICHELLI ALEX DECROCE GUY R GREGG JOSEPH J ROBERTS, JR ALBIO SIRES LORETTA WEiNBERG OFFICE OF LEGISLATIVE SERVICES OFFICE OF me STATE AUDITOR 125 SOUTH WARREN STREET PO BOX 067 TRENTON NJ ALBERT PORRONI Executive Director (609) RICHARD L. FAIR State Auditor (609) FAX (609) The Honorable James E. McGreevey Governor of New Jersey The Honorable Richard J. Codey President of the Senate The Honorable Albio Sires Speaker of the General Assembly Mr. Albert Porroni Executive Director Office of Legislative Services Enclosed is our report on the audit of the Department of Health and Senior Services, Office of Support Services to the Aged, Pharmaceutical Assistance to the Aged and Disabled, Senior Gold, Lifeline, and Hearing Aid Assistance for the period July 1, 2002 to March 19, If you would like a personal briefing, please call me at (609) Thomas R. Meseroll Assistant State Auditor June 21, 2004

3 PHARMACEUTICAL ASSISTANCE TO THE AGED AND DISABLED, SENIOR GOlD, LIfELINE, AND HEARING AID ASSISTANCE Page Scope. 1 Objectives. 1 Methodology. 1 Conclusions. 2 Background. 2 Findings and Recommendations Accounts Receivable. 4 Dual Eligibility 8 Discount Rate. 9 Appendix 1 PAADStatistics 11 Appendix 2 Chart of P AAD Benefits Received for Fiscal Year Appendix 3 Comparison of Pharmaceutical Assistance Programs 13 Appendix 4 Listing of PAAD Drug Type Usage Over $1 MillionforFiscaIYear

4 Department of Health and Senior Services Office of Support Services to the Aged Pharmaceutical Assistance to the Aged and Disabled, Senior Gold, Lifeline, and Hearing Aid Assistance Scope Objectives We have completed an audit of the Department of Health and Senior Services, Office of Support Services for the Aged (the Office), Pharmaceutical Assistance to the Aged and Disabled (PAAD), Senior Gold, Lifeline, and Hearing Aid Assistance programs for the period July 1, 2002 to March 19, Fiscal year 2003 expenditures for these programs were $522 million and were accounted for in the state's General Fund and Casino Revenue Fund. Pharmaceutical rebates were excluded from the scope of this audit. The objectives of our audit were to determine whether expenditure transactions were related to the selected programs, were reasonable, and were recorded properly in the accounting systems. We also tested for resolution of significant conditions noted in our prior report dated January 14,2000. This audit was conducted pursuant to the State Auditor's responsibilities as set forth in Article Vll, Section 1, Paragraph 6 of the State Constitution and Title 52 of the New Jersey Statutes. Methodology Our audit was conducted in accordance with Government Auditing Standards, issued by the Comptroller General of the United States. In preparation for our testing, we studied legislation, administrative code, circular letters promulgated by the State Comptroller, and policies of the Office. Provisions that we considered significant were documented and compliance with those requirements was verified by interview, observation, and through our samples of expenditure transactions. We read the budget message, reviewed financial trends, and interviewed Office personnel to obtain an understanding of the programs and the internal controls. We also reviewed the policies of 16 selected states which have a pharmaceutical assistance program. Page 1

5 ,.,--"..,_.c"c..~,,~,..,.c,c""" ", '" I ' f C DEPARTMENT OF HEALTH AND SENIOR SERVICES A statistical and nonstatistical sampling approach was used. Our samples of expenditure transactions were designed to provide conclusions about the validity of transactions as well as internal control and compliance attributes, Sample populations were sorted and transactions were randomly and judgmentally selected for testing. To ascertain the status of findings included in our prior report, we identified corrective action, if any, taken by the Office and performed tests on the system to determine if the corrective action was effective. Conclusions Background We found that the expenditure transactions included in our testing were related to the selected programs, were reasonable, and were recorded properly in the accounting systems. In making this determination, we noted certain internal control weaknesses, a matter of compliance with laws and regulations, and opportunities for cost savings meriting management's attention. We also found that the Office has resolved the significant issues noted in our prior report. The P AAD program provides prescription drug benefits to persons over 65 years of age or disabled individuals as defined by the Federal Social Security Act. The program has an income limitation of $20,437 if single or $25,058 if married for fiscal year 2004 and a $5 co-payment per prescription. The Senior Gold program which began June 1, provides prescription drug benefits to a similar population whose annual income is $10,000 above the applicable P AAD income limits for single and married persons. However, the co-payment is $15 plus 50 percent of the remaining cost for each prescription covered with a maximum out-of-pocket annual expense of $2,000 for single persons and $3,000 for married couples. Lifeline is a utility assistance program that offers $225 per year to persons who meet the P AAD eligibility requirements or who receive Supplemental Security Income. Hearing Aid Assistance provides a $100 reimbursement per year to P AADeligible persons who purchase a hearing aid. Page 2

6 OffiCE OF SUPPORT SERVICES TO THE AGED PHARMACEUTICAL ASSISTANCE TO THE AGED AND DISABLED. SENIOR GOLD. LIFELINE. AND HEARING AID ASSISTANCE The Office has been proactive in containing costs by initiating a policy mandating generic drug substitution for brand name drugs that have an approved generic available. However, the prescribing physician may request prior authorization for a beneficiary to receive a brand name drug even though there is an approved generic drug available. Despite this effort, P AAD program prescription costs have increased from $170 million in fiscal year 1996 to $433 million for fiscal year During this periqd income eligibility limits have increased from $17,056 to $20,016 for single persons and from $20,913 to $24,542 for married persons. The $5 co-pay has remained unchanged since fiscal year The cost per beneficiary has increased 190 percent from fiscal year 1996 to fiscal year 2003, as shown in the following graph. Cost Per Beneficiary. Page 3

7 PHARMACEUTICAL ASSISTANCE TO THE AGED AND DISABLED. SENIOR GOLD, LIFELINE. AND HEARING AID ASSISTANCE Accounts Receivable I ncreasing accounts receivable balance needs to be addressed. As of March 9, 2004, a total of 7,444 beneficiaries owed $15.8 million for benefits incorrectly paid on their behalf. This represents a dramatic increase from the prior audit in both dollars and number of beneficiaries as illustrated by the table below. Estimated current year income rather than actual income from the preceding year is used in determining eligibility. Other states with similar drug programs, such as New York and Pennsylvania, determine eligibility for their prescription drug programs based on the applicant's previous calendar year actual income. A policy utilizing actual income would significantly reduce the amount of receivables. For example, Pennsylvania, whose program costs totaled $440 million, has a receivable balance of less than $1 million. Redetermination of beneficiaries' eligibility is usually conducted every one or two years when the beneficiary reapplies. During the redetermination process, the prior year's reported estimated income is compared with actual earnings from the Department of the Treasury, Division of Taxation files. If the actual income exceeds the eligibility income limits, the beneficiary is liable for repayment of benefits paid on their behalf from the beginning of their eligibility period. If a beneficiary does not reapply, a redetermination is not performed and estimated and actual income is not compared. At our request, a match as of February 19, 2004 was performed by P AAD personnel and it was determined that 3,000 beneficiaries had not reapplied and had exceeded the income eligibility limits. During fiscal year 2003, P AAD paid $3.6 million of prescription benefits for these individuals. Page 4

8 II ~ DEPARTMENT OF HEALTH AND SENIOR SERVICES Payments of this type are not included in the accounts receivable and the Office makes no effort to recover these benefits. The Office collected $3.5 million during fiscal year 2003 and has averaged $3.3 million in collections over the past five years. Beneficiaries who received benefits incorrectly are asked to sign a monthly payment agreement. The Office allows beneficiaries to participate in the programs if they meet their eligibility requirements and continue to make their agreed upon monthly payments. Beneficiaries not making payments are referred to the state's Set Off of Individual Liability (SOIL) program and are not permitted to participate in the programs. The Office receives payments from 6,300 beneficiaries. It is the Office's practice to accept a minimum payment of $1 0 per month to avoid causing undue financial hardship on program participants. However, we noted 37 beneficiaries who were paying less than $10 per month. Monthly payment agreements averaged $30 for an average repayment period of 14 years. The following schedule summarizes the billing and payment information for the three beneficiaries with the longest repayment periods. These beneficiaries were billed $80,000 and have repaid only $724 as of March 17, Beneficiary #1 #2 #3 Totals Benefit Period 1/1/99-12/31/99 1/1/00-12/31/00 1/1/98-8/27/99 Monthly Payment Amount $1.00 $5.00 $10.00 Total Repayment Period 1,311 Years 362 Years 354 Years Initial Amount Billed $15, $21, I $42, $79, Total Payments Received Balance Due 1$ $ The Office does not base its detemlination of the monthly payment amount on the income or assets of the beneficiary. We noted one beneficiary who was detemlined to be ineligible for having income of $128,000 and who agreed to Page 5

9 PHARMACEUTICAL ASSISTANCE TO THE AGED AND DISABLED, SENIOR GOW, LIFELINE, AND HEARING AID ASSISTANCE repay $3,100 over the next 13 years at $20 per month. This repayment period is very generous considering the beneficiary's income. The Office has declared $2.4 million as uncollectible during the last five years. These amounts are not included in the accounts receivable balance. The Office's collection policy does not use liens as a recovery method for delinquent accounts although it is legally permitted to use them. A lien is a legal claim that one person has on the property of another as security for debt. Liens would be an additional recovery tool, and if used, might lead to the recovery of otherwise uncollectible debt. Recommendation Auditee Response We recommend that the Office determine eligibility based on prior year's actual income rather than current year estimated income and obtain information from other state agencies in order to verify income on a more frequent basis. We further recommend the Office establish a collection policy based on the income and assets of the beneficiary in order to provide a reasonable repayment period. The policy should include the utilization of liens as an additional recovery tool. P AAD eligibility is determined based upon anticipated annual income for the current calendar year and the eligibility determination is reconsidered when actual income figures become available. If the beneficiary's anticipation is underestimated and the income exceeds the annual income guideline, the beneficiary is found to have been ineligible and to have received benefits incorrectly. PAAD attempts to recover all benefits paid incorrectly. P AAD eligibility has been based upon anticipated income from the inception of the program. Records from the establishment period clearly express a concern that beneficiaries be able to enroll in the program as quickly as possible. Basing eligibility on prior year income forces the applicant to wait until the second year that his income falls below the P AAD threshold. Using anticipated income allows an applicant to qualify for benefits as soon as his income drops such as during the first year after retirement or upon the death of a spouse. Page 6

10 Using anticipated income also means that from time to time the anticipated income is estimated too low, and then a recovery action is initiated against the beneficiary. However, since the amount of the bill is directly proportional to the seriousness of the beneficiary's illness, the amount of the medication being prescribed and the cost of the medication, there is little support for P AAD to use force in its recovery attempts. P AAD seriously attempts to recover benefits. Upon determining that a beneficiary has received benefits during a period of ineligibility, P AAD sends an initial bill to the beneficiary with a claims profile from the ineligible period, a request for full payment, and an invitation to contact the billing unit to establish a convenient repayment plan. If the beneficiary fails to respond, there are two follow-ups. Finally, the recovery action is forwarded to the Treasury Department for the Set-Off of Individual Liability to capture funds from the beneficiary's income tax refunds or Homestead rebates. We receive repeated requests to reduce and or ameliorate recovery actions, and to provide the most convenient terms. P AAD recovery actions function best as a safeguard to protect the integrity of the program and to discourage fraud. Similarly, when a P AAD beneficiary does not re-apply for benefits, P AAD considers the possibility that the beneficiary may no longer be eligible, for one of several reasons, e.g., Medicaid eligibility, loss of Social Security Title II disability benefits, death, relocation out of the State, or excess income. P AAD has never reached out to a beneficiary to ask why he did not re-apply. Those beneficiaries who are identified on the income tax match report are subject to a rigorous investigation when they submit a renewal application. If they fail to submit a renewal application, P AAD accepts that as cost savings against future benefits. P AAD has never wanted to put undo hardships upon its beneficiaries against whom it has initiated recovery actions. We have cooperated with beneficiaries and their representatives to establish convenient and, sometimes, lenient repayment schedules. P AAD beneficiaries who have Page 7

11 ~ DEPARTMENT OF HEALTH AND SENIOR SERVICES large recovery actions are sick, old, disabled, or some combination of the three. There has not been public support for asset testing. P AAD can not muster public support to place liens against such a vulnerable population. Consistently, there are bills introduced in the Legislature to ease the impact of P AAD recovery actions. On January 1, 2004, one such bill, A712 was enacted into law. It provides that a beneficiary whose income exceeds the guidelines would only have to repay those benefit received after obtaining the unanticipated income. In the Legislature, there were no votes in opposition to the bill. In January 2006, the federal government will initiate prescription benefits under Medicare Part D coverage. Although regulations have not yet been published, there are expectations that eligibility will be based upon anticipated income as it currently is for the Interim Medicare Drug Discount card. P AAD expects to coordinate its complete effort with Medicare coverage. Therefore, P AAD should continue to base its eligibility based on anticipated income. Dual Eligibility T he prescription system should be enhanced to recognize dual eligibility. The current system used to process prescriptions does not recognize beneficiaries with both P AAD and Medicaid eligibility. In these cases, Medicaid should pay for these prescriptions. At our request, a match was performed by the Office personnel which identified 3,000 individuals with dual eligibility. Because of this system limitation, Medicaid has a process which identifies and converts over $4 million in P AAD claims annually to Medicaid claims of which the state receives approximately $1.75 million in federal reimbursements. Medicaid also pays $200,000 annually to a vendor to assist them in this process. Recommendation We recommend that the prescription system be enhanced to automatically recognize dual eligibility and process the prescription as a Medicaid claim. Page 8

12 ~ DEPARTMENT OF HEALnI AND SENIOR SERVICES Auditee Response Medicaid grants 90 days retroactive coverage in some of its programs and in other programs Medicaid provides intermittent coverage. To compensate for these problems, the Medicaid Management Information System captures P AAD payments retroactively and charges Medicaid for periods of dual eligibility. PAAD continually cross-matches its eligibility files with Medicaid to eliminate all persons who are enrolled in a Medicaid program with prescription coverage. In the 2006 Medicare prescription drug program, there will be no Medicaid prescription coverage for Medicare and Medicaid dual eligibles. Therefore, it seems imprudent to designate limited computer staff and financial resources to make a system change which will be unnecessary in 18 months. Discount Rate D iscount rate should be adjusted in a timely manner. During fiscal year 2003, payments to pharmacies for prescription drugs were based on the average wholesale price less a ten percent discount. This discount rate increased to 12.5 percent effective July 1,2003. However, the Office did not adjust claims paid to reflect the greater discount until July 8, As a result of this one week delay in re-programing the drug payment system, the Office incurred costs of $250,000 unnecessarily. Recommendation We recommend that the Office adjust the claims from July 1, 2003 to July 8, 2003 to reflect the 12.5 percent discount. Auditee Response The 2004 Appropriations Act decreased the pharmacy reimbursement rate from A WP-10% to A WP-12.5% effective July 1, The actual adjustment to the claims processing system to reflect this rate change was not made effective until July 8, The P AAD claims processing system and pharmacy provider services are adjunct to the claims processing system contracted to Unisys by the Division of Medical Assistance and Health Services (DMAHS) in the Department of Human Services. Page 9

13 ~ DEPARTMENT OF HEALTH AND SENIOR SERVICES The question was posed directly to DMAHS staff concerning the July 8, 2003 effective date for rate change. This is the reply: "The decision to implement the new pricing policy of AWP-12.5% on Tuesday, July 8,2003 followed our usual practice of implementing new program logic. Management wishes to ensure that there is no interruption in pharmacy services to our beneficiaries. The most safe and effective way to do that is to avoid holidays (July 4, 2003 was a Friday) and Mondays due to the high claim volume. By implementing changes on Tuesdays we accomplish that goal." July 8,2003, was the first day consistent with standard operating policy and the expectations of the market place that the change in reimbursement rates could have been applied. Page 10

14 PHARMACEUTICAL ASSISTANCE TO THE AGED AND DISABLED, SENIOR GOlD, LIFELINE, AND HEARING AID ASSISTANCE Appendix 1 PAAD STAnSnCS Fiscal Year Income Limits S ingle/married Number of Beneficiaries Net Prescriptions Costs Cost per Beneficiary FY 1996 $17,056/$20, ,000 $170 million $759 FY 1997 $17,550/$21, ,000 $183 million $859 FY 1998 $17,918/$21, ,000 $205 million $1,035 FY 1999 $18,151/$22, ,000 $224 million $1,161 FY 2000 $18,587/$22, ,000 $273 million $1,460 FY2001 $19,238/$23, ,000 $305 million $1,614 FY2002 $19,739/$24, ,000 $354 million $1,779 FY 2003 $20,016/$24, ,000 $433 million $2,198 Page II

15 Appendix 2 CHART OF P AAD BENEFUS RECEIVED FOR FISCAL YEAR 2003 Dollar Range Number of Beneficiaries Gross Benefits Received $0 to $999 63,500 $ 28 million $1,000 to $4, ,500 $ 275 million $5,000 to $9,999 19,500 $ 130 million $10,000 to $24,999 4,100 $ 58 million $25,000 to $49, $ 12 million $50,000 to $99, $ 3 million Greater Than $100,000 4 $ 806,000 Page 12

16 COMPARISON OF PHARMACEUTICAL ASSISTANCE PROGRAMS State Maximum Annua' Annua' Asset Income Fee Benefit Test Co-Pa~nt New Jersey 65+ or 18+ and disabled with annual income less than $20,437 single or $25,058 mamed Anticipated None Non. None $5 per prescription.65+ with annual income up to $ if single or up to $27,500 If Connecticut married Actual $30 None None $16.25 per prescription 2 Delaware 65+ or qualify for Social Security disability benefits Anticipated None None None Greater of $5 or 25% of the cost of prescription Illinois 65+ with annual income up to $8,980 if single or up to $12,119 if marriad. Actual None None None Up to $1,750 per yeer -$1 generic brand name end $4 brand neme I After -$1 generic plus 20';' of the cost end $4 65+ annual income $8,981 to $17,960 if single or $12,120 to Illinois $24,240 if married. Actual Non. None None Up 10 $1,750 per year at no cost -after that 20% of the cost 4 Maine 62+ or 19+ and disabled 'annual income less than $16,620 singla..married less than $22,428 Anticipated $30 None None 20% of the cost plus $2 5 Maryland Annual income below $10,428 if single or below $12, 120 if $4,000 5 married Anticipated None None $6,000 M $2.50 for all generics.certain brand names $750 Maryland Medicare and annual income below $15,720 if single or below $4,000 S $21,216 if married Anticipated None None $6,000 M 65% plus. $1 processing 'ee Not receiving Medicaid who are age 65+ or under age 65 6 Massachusetts Anticipated None None None Generics have e lower co-payment than brand-neme -brand name from $23 to disabled and at or below 1 BB'!. of Federal Poverty Level $30 Michigan Income less than 200% of Federal Poverty Level - Anticipated $25 None None Brand name wt1en generic available -$15 co-payment in addition to out-of-pocket share 8 Minnesota 65+ or under 65 with a disability with annual income not greater $10,000 5 than 120% of Federal Poverty Leval Anticipated None None $18,000 M $35 monthly deductible 65+ and annual income between $12,001 and $17,000 il single 9 Missouri...between $17,001 and $23,000 jlmamed Actual $35 $5,000 None 40% of drug costs after deductible of either $250 or $500 is met 65+ have annual income $12,000 and below if single.below Missouri $17,000 if married Actual $25 $5,000 None 40% of drug costs after deductibie of either $250 or $500 is met 62+marriad income $28,660 per year or less.single $22, Nevada per year or less Anticipated None $5,000 None $10 Generic $25 Non-generic 11 New York 65+ annual income up to $20,000 if single or up to $26,000 if married Actual None None None Prescnptions costing up to $15 pay $3, $15.01 to $35 pay $7, $3501 to $55 for $15, Over $55 pay $ annua' income $14,500 or less single. married $17,700 or 12 Pennsylvania less Actual None None Non. $6 generic I $g brand name 65+ annual income $14,500 to $23,500 if single..married Pennsylvenia $17,700 to $31,500 Actual None None Non, After $40 deductible per month -$8 for generic and $15 lor brand name 13 Rh de I I d 65+ annual income less than $37,167 if single..married less o,en 0 s an $42,476 Anticipated None None None Based on income, either 40%, 70%, and 85% of the cost -0% once co-payments reach $1,500 S uth C I 65+ annuel income less o,an $17,960 if singie.married less o,.n 0 em m. $24,240 Anticipated None None None $10 Generic, $15 Brand Name, $21 for Prior Authorization Drugs Wi (1) 65+annualincome$14,176andbelowifsingle.$1g.104and 15 Anticipated $20 None None Isconsln below if married $5 generic! $15 brand name Wi Isconsln (2) 65+annualincame$14.177ta$21.264ifsingle.$19.1D5to $28,656 if married Anticipated $20 None None Discounted price until $500 deductibla is mel.after name $5 generic and $15 brand Wi 3) 65+ annual income $ and higherifsingle..$ and Iscansm ( higher if married Anticipated $20 None None Spend down to Plan 2 income levels then discounted price until $500 deductible is mel.efter $5 generic and $15 brand name 16 Wyoming 65+ and income less than 100% of Federal Poveriy Level Anticipated None None None $10 generic end $25 brand neme Page 10

17 I DEPARTMENT OF HEALTH AND SENIOR SERVICES PHARMACEUTICAL ASSISTANCE TO THE AGED AND DISABLED. SENIOR GOLD, LIFELINE. AND HEARING AID ASSISTANCE Appendix 4 LISTING OF PAAD DRUG TYPE USAGE OVER $1 MllllON FOR FISCAL YEAR 2003 Dru T e Cholesterol Blocker Heartburn Hi h Blood Pressure i Anti Inflammatory Anti-Ps chotic Blood Clots/Heart Attacks Osteo orosis Diabetes DeDression PHin Anemia Asthma Rp.lip.vP.r Antihistamine/Allergy Sleep Disorders Alzheimer's Bacterial Infections Arthritis Glaucoma Seizures ProstatelUrination Overactive Bladder Prostate Cancer Bronchitis Phosphorus Reducer in Blood Chest Pain Number of Beneficiaries 73, (\, I 717 I , Total Gross Cost $41.9 million $36.2 million $23.8 million $16.6 million $14.3 million $12.1 million $11.1 million $10.3 million $9.9 million ~R 7 mi11ion $8.5 million $7.5 million $6.0 million $4.3 million $4.3 million $3.5 million $2.6 million $2.5 million $2.2 million $1.9 million $1.8 million $1.5 million $1.5 million $1.2 million $1.2 million Multiole Sclerosis 143 $1.0 million Page 14