CMS guidance on Part D prescription drug expenses and spenddown

Revised date
Purpose statement

This is an overview of guidance given by CMS regarding Medicare D and spenddown expenses. The same guidance can be applied to reducing LTC participation by a Medicare D related expense.

  • When are prescription drugs for Medicare beneficiaries an allowable expense under spenddown?

For the purposes of Medicaid spenddown, incurred Part D pharmacy costs are treated in the same manner as any other costs incurred for medical care. All usual rules for determination of an applicant’s liability, insurance coverage and spenddown eligibility is applicable. Costs paid in whole or in part by a State Pharmaceutical Assistance Program (SPAP), or other public program of the state or a political subdivision of the state, which involves no federal funds may be counted as an incurred medical expense to establish eligibility for a Medicaid spenddown.

Note

If a State’s Medicaid program provides coverage of any of these costs, they are not allowable under spenddown.

Enrollment in Part D is voluntary, therefore not all Medicare beneficiaries will be enrolled in a Medicare Part D plan (PDP) or a Medicare Advantage plan (MA-PD). For those enrolled in a PDP or MA-PD, not all drugs will be covered. Each plan may have a different combination of deductibles, copays and coverage gaps. To determine if drug costs incurred by Medicare beneficiaries are allowable under spenddown, apply the following rules:

  • If the Medicare beneficiary was not enrolled in a PDP or MA-PD on the date of service, allow the prescription drug cost.
  • If the Medicare beneficiary was enrolled in a PDP or MA-PD on the date of service, the plan must issue a periodic (at least monthly) statement to the beneficiary explaining all benefits paid and denied, and amounts attributed to cost sharing. If the drug charge is identified on this statement as a beneficiary liability, i.e. part of a deductible, copay, or coverage gap, allow the expense under spenddown.
  • When a plan denies coverage of a prescription the beneficiary has the right to request an exception for coverage of the drug. The beneficiary is notified in writing of the decision. If the drug charge appears on the statement as a denial, and no exception was requested, do not allow the charge.
  • If the drug charge appears on the statement as a denial, and an exception was requested and denied, allow the charge.

These procedures will help ensure that legitimate part D cost sharing expenses are allowed under spenddown, as well as expenditures for drugs not covered by the PDP or MA-PD. By relying on the statements and exception notices, eligibility workers will not need to be concerned with knowing the cost sharing rules for each plan, the plan formularies or nonformulary drugs covered under a transition plan or under the exception process. Applicants should be advised to retain their statements and other related documentation for consideration under spenddown.

Clarifying information

If the Medicare beneficiary is not enrolled in a Part D plan (PDP or MA-PD) on the date of service allow the prescription drug cost toward spenddown. It doesn't matter why the beneficiary is not enrolled. The reverse would also be true if a Medicare beneficiary is enrolled in a PDP or MA-PD on the date of service, we would not allow the prescription drug cost, whether self-paid or not, because the drug is covered drug under the beneficiaries' Medicare Part D plan.

Enrollment in Medicare Part D is voluntary. A Medicaid individual could tell Medicare that they are "affirmatively declining Medicare Part D coverage" but this would not make them eligible for Medicaid to cover their prescription expenses. We could, however, apply the costs they incur for prescription drugs towards a spenddown liability upon confirmation from SSA that the individual had affirmatively declined coverage.

Since Medicare is primary payer for drugs covered under Part D and not Medicaid, there is no prescription drug coverage available to full benefit dual eligible individuals, including those not enrolled in a Part D plan—for (1) Covered Part D drugs; or (2) any cost-sharing obligations under Part D relating to covered Part D drugs. This means that if a CN or MN Medicaid individual with Medicare chooses to "affirmatively decline" Medicare Part D coverage, Medicaid will still not pay for any prescription drug costs that would have been covered under Medicare Part D or any Part D cost-sharing.

Disenrollment from a current Part D plan will not prevent Medicare reenrollment in the same or a different plan. To prevent reenrollment individuals must get their Medicare records documented with their statement that they are "declining prescription coverage under the national Medicare Part D prescription drug program". 

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