Feds probe Humana over Rx drug patients

Federal officials are investigating whether one health-insurance company that sells prescription-drug coverage to Medicare beneficiaries inappropriately diverted its most expensive customers to a competitor.
Sierra Health Services, which offers Medicare Part D prescription-drug plans under the brand name SierraRx, alleges that Humana Inc. telephoned its highest-cost customers and recommended they purchase coverage from Sierra instead.

Humana counters that it merely passed along information to its customers about a competing product that might better suit their needs, and said federal regulators approved its actions.

The dispute between the two companies, and the involvement of the Centers for Medicare and Medicaid Services (CMS), highlights the difficulty of offering comprehensive prescription-drug coverage to the oldest, sickest and costliest Medicare participants.

Sierra executives met with CMS officials at the agency’s headquarters in Baltimore last Wednesday. CMS spokesman Jeff Nelligan would only comment: “We’re aware of this issue and reviewing it.”

Questions about health insurers’ marketing practices resonate with the deep skepticism many congressional Democrats feel about the increasing involvement of private companies in Medicare.

Democratic leaders fought hard against the Bush administration-backed Part D legislation and have vowed to intensify their scrutiny this year of the health insurance companies that do business with Medicare.

Sierra made its accusations during a hastily arranged conference call with investment analysts last Tuesday. The company had looked in January at its drug claims and did not like what it saw.

In 30 states and the District of Columbia, Sierra sells three drug plans, including SierraRx Plus, which provides full coverage of brand-name and generic medicines during the Part D coverage gap known as the “doughnut hole.” The plan carries a hefty monthly premium of about $85.

Under the standard Part D prescription-drug plan (PDP) designed by Congress, beneficiaries must pay 100 percent of their drug costs between $2,400 and $3,850, but Part D providers are permitted to modify the model.
During the conference call, Sierra President and Chief Executive Anthony Marlon delivered the bad news: “As we looked at the first month’s results, it became apparent that the pharmacy costs on this product were much higher than we and our independent actuaries had projected.”

Sierra will discontinue the money-losing plan next year, Marlon assured the analysts. In the meantime, the company is on the hook for the drug claims of its 42,000 SierraRx Plus customers for the remainder of the year, he added.
The number of enrollees and the amount and cost of their drugs are wildly different than anything Sierra has experienced in the past, Marlon said.

“I just know that [the beneficiaries] use an extraordinary amount of drugs and, when I look at the list of drugs, it is unfamiliar to me. It is nothing like I have ever seen before on any population,” Marlon, who is a medical doctor, said.
SierraRx Plus suffers from an extraordinary level of “adverse selection,” Marlon said, meaning the plan attracted too many high-cost beneficiaries and too few low-cost ones.

Sierra blames Humana, although Marlon and Sierra’s vice president of public and investor relations, Peter O’Neill, declined to refer to their competitor by name.

According to Marlon, “We believed our level of adverse selection was in part due to certain high-utilizing members being referred to us by another PDP provider. We did not agree to these referrals.”

O’Neill said 4,000 to 7,000 of SierraRx Plus enrollees “may have come” as a result of a Humana telephone call. Sierra engaged in no active marketing or promotion of the product, he added.

Medicare rules do not prohibit one Part D provider from referring customers to another, Sierra concedes. But the company believes Humana overstepped its bounds.

The Sierra executives who met last week with CMS officials left with a “clear impression” that Humana’s actions were different from what CMS believed it had approved last year, O’Neill said.

“We are working very closely with Sierra in examining their claims experience so far,” Abby Block, director of CMS’s Center for Beneficiary Choices, said.

Nevertheless, O’Neill said, “We have no idea how this will be resolved at this point.”

Humana acknowledges that some of its customers were told about Part D plans sold by Sierra and other companies.
During the first year of Part D in 2006, the Humana PDP Complete plan was the only one in the country that offered coverage for brand-name drugs during the doughnut hole; the premium was about $50 a month.

Complete was a failed experiment for Humana, which attracted more than 400,000 enrollees but paid out $1.159 for every dollar it took in for the product.

Sierra developed its SierraRx Plus product despite early evidence that Humana’s Complete plan was losing money, Sierra conceded. Sierra wanted to expand its Part D customer base and please administration officials who “were encouraging plans to really look and see if this was a viable option,” O’Neill said. “We thought this was an opportunity to step up to the plate.”

Humana redesigned its Complete product for 2007 by eliminating brand-name doughnut hole coverage and raising the premium to about $80. Humana says about two-thirds of its 2006 beneficiaries re-enrolled in the scaled-down plan for 2007.

All Part D plans are required to send letters by Oct. 31 to beneficiaries explaining any changes in their drug coverage for the coming year, which Humana did.

Humana went one step further. In December 2006, Humana customer-service representatives contacted an undisclosed number of Complete customers by telephone.

During the call, Humana employees again explained that the brand-name doughnut hole coverage was being cut out. They also told beneficiaries that other insurance companies were offering that benefit in 2007, including Sierra Health Services.

“Our goal was to make sure these people continued to have access to prescription coverage,” Humana’s director of media and public relations, Dick Brown, said. Humana also asserts that CMS approved the script the company used for these calls.

Brown would not explain, however, whether the company contacted each of the more than 400,000 Complete customers with the same information or if Humana targeted the calls to a subset of these beneficiaries  such as those with the highest drug costs, as Sierra implied.

Humana’s face-off with Sierra is not the first time its Medicare marketing practices have come under scrutiny. Last year, Rep. Pete Stark (D-Calif.) called for an investigation into whether independent insurance brokers working on commission for Humana were pushing Medicare Advantage managed-care plans to beneficiaries inquiring about Part D without adequately explaining the difference.