CMS Penalizes Providence Health Plan for Improvident Drug & Appeal Compliance

Providence Health Plan, a Medicare Advantage (MA) health plan, violated formulary and benefits regulations, as well as grievance and appeal process regulations, according to a letter notifying the plan of the results of a CMS audit. The letter notifies Providence of CMS’ intention to impose on Providence a civil money penalty (CMP) in the total amount of $164,600. The CMP is being imposed to address the regulatory violations that CMS discovered as a result of a June 16, 2014, through June 27, 2014, audit.

Drug Benefits

Part D prescription drug plan sponsors use certain methods, known as utilization techniques, to lower costs and ensure the appropriate use and dispensation of medications. Prior authorization is one such utilization technique, where enrollees must acquire preliminary approval before obtaining a prescription. Quantity limits and step therapy are also used to limit the amount or kind of a drug that enrollees have access to initially, in order to increase optimal use of drugs and decrease costs associated with clinical risks. Additionally, Part D sponsors are required to provide enrollees with a transition process where an enrollee can obtain access to certain drugs not on the plan’s formulary.

Formulary Violations

According to the CMS audit, Providence violated 42 CFR Sec. 423.120(b)(2) by failing to effectuate a prior authorization or exception request. The CMS letter also indicates that Providence violated 42 CFR Sec. 423.120(b)(3) for improperly administering the CMS transition policy.

Grievance and Appeal

Under CMS regulations, Medicare enrollees have a right to express dissatisfaction with a plan sponsor or dissatisfaction with a particular coverage determination. As part of that process, plan sponsors are obligated to classify complaints about organization and coverage determinations by whether they apply to Part C (medical services) or Part D (drug benefits). Additionally, enrollees are entitled to appeal dissatisfactory coverage determinations by seeking a reconsideration or redetermination from the plan sponsor. After an unfavorable reconsideration or redetermination, enrollees can appeal to an independent review entity (IRE) contracted by CMS.

Grievance Violations

According to the letter, the CMS audit identified several violations of the grievance and appeal rules. The violations included failures to adequately notify enrollees of coverage decisions and the failure to forward coverage determinations to IREs within the regulatory timeframe. Other noncompliance stemmed from failing to make significant outreach to beneficiaries and subscribers, and improperly classifying coverage redeterminations as customer service inquiries.


The CMS letter notified Providence of CMS’s conclusion that the Part C and Part D regulatory violations adversely affected enrollees and demonstrated that Providence failed to carry out the terms of its contract with CMS. The letter indicates that the health plan is entitled to a hearing to appeal CMS’s determination. Providence must request an appeal hearing by March 9, 2015. If a request is not made by that date, the CMP amount will become due on March 10, 2015.