Prospect Medical Holdings taking major step forward: purchase of Alta Healthcare System may help change minds of investors
PROSPECT Medical Holdings Inc. took a big step last week toward its goal of becoming a vertically integrated regional managed care specializing in HMO patients and the elderly.
The publicly held Culver City-based physician management company said it was buying Alta Healthcare System Inc., a private Los Angeles company that operates four small community-based hospitals, in a cash-and-stock deal valued at $104 million.
In June, Prospect closed a similarly structured $46 million deal to buy ProMed Healthcare, which owned independent physician associations in Riverside and San Bernardino counties. Bank of America financed that deal and has made a commitment for the Alta acquisition.
Prospect, bolstered by the ProMed deal, has 9,000 affiliated physicians that care for its 250,000 Southern California HMO members, including Los Angeles and Orange counties. Combine that with the Alta Healthcare acquisition, and the company is now able to provide care for its HMO members from the doctor’s office to the surgical suite.
That kind of vertical integration, including its 38 percent interest in Culver City’s Brotman Medical Center, should give the company more leverage with government and private insurance companies.
However, investors have yet to be convinced. Over the last several months, the company has taken on debt to fund its acquisitions, with Prospect reporting a $1.1 million net loss in the second quarter. Prospect shares, which had drifted since a $7 high in January 2006, dropped to $4 after the earnings announcement and were trading last week at around $5.78.
Prospect Chief Executive Jacob Terner said in a statement that Alta, which had $107 million in revenue and $16.9 million in operating income last year, will operate as a stand-alone entity, enabling each facility. to retain their local identities.
Included in the deal are three general hospitals–Norwalk Community Hospital, Hollywood Community Hospital, and Los Angeles Community Hospital–and a psychiatric hospital, Van Nuys Community Hospital.
Terner said that Alta Chief Executive David Topper and President Sam Lee have signed multi-year agreements to stay with the company. Lee also will joint Prospect’s board of directors.
Teledyne contract
The Air Force is betting that Thousand Oaks-based Teledyne Technologies Inc. can help them see the light.
The aerospace and electronics company’s imaging subsidiary, Teledyne Scientific & Imaging, announced last week it was awarded a five-year $15 million contract to develop infrared sensor technology for the Air Force Research Laboratory.
The company will develop the technology for use in future missile defense systems under the research laboratory’s High Stare program.
Teledyne Chief Executive Robert Mehrabian said the program was a natural fit for the company, which has experience developing imaging technology for space defense systems, including so-called focal plane arrays.
Hard to swallow: companies seek strategies to control pharmacy benefit premiums
With the cost of health care, and prescription drugs in particular, rising faster than just about any other expense, business owners are grappling with two widely divergent approaches in providing drug benefits.
Consider Verizon Communications Inc., which is seeking to rein in costs by pushing employees to try Motrin or other over-the-counter remedies to relieve their arthritis before taking pricey drugs such as Vioxx.
But at DirecTV Group Inc., it’s just the opposite: employees willing to pay slightly higher co-insurance are not only free but encouraged to use Lipitor to keep their cholesterol down, if that’s what it takes to keep them healthy.
“There are two sides to the coin,” said Peter Lee, chief executive of the Pacific Business Group on Health, a benefits coalition of large California employers to which both businesses belong. “The real issue is what does it do to (total) health care costs?”
The problem of rising drug costs will only get worse. Pharmacy benefit costs have risen an average of 17.2 percent for each of the past five years, according to Mercer Human Resource Consulting, and those numbers are likely to increase as super expensive biotech drugs get introduced.
All of which has resulted in a full-fledged national debate, spurring the issue to the forefront of the presidential campaign, prompting Congress to pass a Medicare drug benefit, and even sending older folks to Canada to buy drugs at a fraction of the U.S. price.
Employers are grasping for solutions, too.
Some are moving to more restrictive drug benefits, such as the so-called step therapy that Verizon requires its employees to undergo before they can access some brand names. But a handful of others are loosening drug restrictions on the theory that keeping patients healthy and out of the hospital is a better long range solution, even if it costs more up front.
“As more and more medical costs are moving into pharmacy, it’s catching the attention of upper management,” said Lee Exton, vice president of healthcare for Keenan & Associates, a commercial insurance brokerage.
Tighter restrictions
By far the most common new approach that employers are pursuing is the further tightening of drug “tiering” policies that have become popular as overall health care costs have accelerated.
A decade ago it was not uncommon for employees to pay only a single $5 co-pay to get any type of prescription drug, generic or brand name. But that policy was abandoned as prescription drug costs have risen more than 15 percent annually for the last five years.
Employers first responded by tiering prescription drugs into three categories–generic, preferred (and cheaper) brand name, and non-preferred brand name–and requiring progressively higher co-pays.
As drug costs have continued to rise, employers have raised the average co-pay from a range of $7 to $17 in 2000 to $9 to $29 in 2003, according to the Kaiser Family Foundation annual survey of employer health costs.
But now some employers are trying even more radical plans.
Their solution? Step therapy and more aggressive prior authorization policies, especially with chronic illnesses such as heart disease, asthma and diabetes, where many generic and over-the-counter remedies are available.
Verizon, which has 16,500 employees in California, is using a carrot and stick approach. Medco Health Solutions Inc., which manages the company’s pharmacy benefits, tracks employee prescription drug usage and attempts to move them to cheaper ones.
Someone taking a non-preferred statin that lowers cholesterol, receives letters encouraging a switch to Zocor or Lipitor, preferred brands that provide Verizon with rebates. Better still would be a switch to generic lovastatin, which the company pushes by offering six months of free coverage.
For those who don’t want to switch, Medco requires the employee’s doctors to call in for a coverage review to show why a cheaper drug wouldn’t work. “We are out there testing to see if people will work with us to switch, but if you continue on you need a note from your doctor,” said Jim Astuto, a regional healthcare manager for Verizon.
The policy can be even tougher for employees just starting treatment for conditions like arthritis, where non-steroidal remedies such as ibuprofen are available over the counter for pennies and cheap generics are abundant. Under the Verizon coverage, a doctor cannot write a prescription for a brand name without prior approval from Medco, which wants the patient to “step up” from over-the-counter and generic drugs first.
Verizon, which has been gradually implementing these policies, saw its drug benefit costs rise by 19 percent last year, better than an astronomical 27 percent increase in 2002. “I think it is helping,” Astuto said.
The city of Ventura is also tentatively trying step therapy. Last year it stopped buying its health benefits through the California Public Employees Retirement System and signed up with Kaiser Permanente and PacifiCare Health Systems Inc.
The company is still studying the data but says that initial calculations show that median total health care costs for those patients are down by about 10 percent, as emergency room visits and hospital stays dropped.
“It’s a somewhat different paradigm but what I have tried to tell people is that it is our job to make it easy for the employee to do the right thing,” Mahoney said.
DirecTV in El Segundo has tried a similar, though not quite as aggressive approach through its self-insured preferred provider organization.
It maintains only two drug tiers, one for generics and one for brand names, and specifically does not require its employees to get pre-authorizations for medications so they can take the ones they want.
“You don’t want to limit people to a certain formulary. That is where you get non-compliance,” said Dr. Pam Hymel, who led the benefit design but has since left the company and is now advocating it as a senior vice president at Sedgwick CMS, a claims management firm.
“I don’t think a lot of companies try to look at it. They say, ‘I lowered my pharmaceutical costs.’ But they don’t do the full circle look at what it did to medical claims experience,” she said.
Last year, the company saw only a 4 percent rise in its PPO costs, much less than the double-digit increases from its eight HMOs, separately administered by outside insurers.
Lee said that more companies are exploring approaches like those of Pitney Bowes and DirecTV as some of the disadvantages of tighter drug policies become apparent.
A recent study by the Rand Corp. published in the Journal of the American Medical Association found that rising prescription drug co-payments led to a rise in emergency room visits and hospital stays as patients with three chronic conditions became less compliant in following drug regimens.
“Prescription drug costs are 13 percent of premium costs. It’s not insignificant but it pales in comparison to hospital costs,” he said.
But many employers do not have the data management tools needed to measure the relationship between drug and hospital costs. Moreover, it often takes two years to get any results, which can be a long time frame in the world of health benefits.
“Your initial costs on pharmacy have to go up as you identify patients that are under-treated or undiagnosed. Your return on your investment doesn’t come back that initial year,” said Dr. Sophia Chang, director of chronic disease management at the California Healthcare Foundation, a think tank.
Moreover, those who advocate step therapy and other aggressive policies to hold down costs note that it doesn’t have to be an either-or approach.
Verizon may make it difficult for patients to get brand name drugs, but it also launched a program in which it had its pharmacy benefits manager search for employees who had suffered heart attacks and were not taking their beta blockers, medication that can stave off future attacks but which can cause sexual dysfunction and other side effects.
Bush discount card plan overturned, shifting balance of Medicare Rx battle - Pharmacy News
WASHINGTON — Pharmacy leaders are expressing relief over a judge’s decision to block the Bush administration’s plan for a federal prescription discount card administered by privately run pharmacy benefit managers.
“We see this as a win-win for seniors and for everyone else, including the administration and Congress,” said Crystal Wright, a spokeswoman for the National Association of Chain Drug Stores. “It shifts the debate on prescription benefits back to Congress, where it belonged in the first place … and opens the door for constructive dialogue.”
In a quick ruling from the bench at a Jan. 29 hearing, U.S. District Judge Paul Friedman halted the White House’s second bid to launch its Medicare-endorsed prescription drug discount card program. The ruling marked a major, if expected, victory for NACDS and the National Community Pharmacists Association, and a setback for advocates of a PBM-based prescription benefit program for uninsured seniors.
“This is truly good news for community pharmacy and senior citizens interested in a real drug benefit,” noted NACDS. “The government itself estimated that the ‘discount card’ would save seniors an average of only about 10 percent to 13 percent … [and] would cost community pharmacies up to $2 billion per year and cause between 2,500 and 10,000 pharmacies to go out of business.”
In a joint filing, NCPA and NACDS had sued secretary of Health and Human Services Tommy Thompson and Tom Scully, administrator of the Centers for Medicare and Medicaid Services, to halt the discount card initiative. The original lawsuit, filed in July 2001 in response to the administration’s original proposal, charged that the White House didn’t have legislative authority to implement a national card program. The suit also charged that the plan violated the Administrative Procedures Act and the Federal Advisory Committee Act, and delegated too much power to a private consortium of PBMs in designing the plan.
The judge agreed. In a statement, NCPA hailed Friedman’s “surprisingly rapid” decision and vowed to continue its fight for a workable drug benefit for Medicare recipients.
“This proposal would have caused considerable harm to many of the nation’s community pharmacies, possibly restricting seniors’ access to the personal service and medication advice they often seek from our [independent pharmacy] members,” said NCPA executive vice resident and chief executive Bruce Roberts. “We look forward to working with the industry, the administration, and lawmakers to find a solution that meets the needs of our nation’s seniors and its community pharmacists.”
Also praising the ruling was John Gans, executive vice president of the American Pharmaceutical Association. “This flawed program was a false promise, and one that would have cost both pharmacists and our patients,” said Gans. “This is a significant victory for the patients we serve.”
Ironically, the judge’s decision came in the same week that President Bush outlined his vision for a limited overhaul of Medicare in his State of the Union address. The plan would give seniors a choice of maintaining their current Medicare benefit, or choosing a managed care plan with prescription drug coverage.
Pharmacy leaders argue that the plan is “short of specifics,” in NACDS’ words, as well as limited in scope and far too reliant on private managed care firms to provide prescription coverage to uninsured seniors.
Indeed, the latest White House proposal could be toxic to community drug stores. The plan–which Fuller charges was hatched by a “small secretive health care working group in the White House”–would provide Medicare drug benefits through private health plans subsidized by the federal g government. Seniors would have the option of staying in the traditional fee-for-service Medicare program, but would have to join a government-subsidized health insurance plan if they want prescription drug benefits.
As such, the proposal would cede more power to prescription benefit managers, health maintenance organizations and other private insurers. As outlined, it would allow those entities authority to determine much of the scope, structure and reimbursement levels of prescription drug services provided by community pharmacies.
Details of the proposal remain unclear, but its heavy reliance on managed care operators has already met with some opposition from both sides of the aisle in Congress. Nevertheless, the President has long advocated market competition among private insurers as a way to limit the massive costs that any Medicare drug benefit would impose on the federal budget. Drug retailers, meanwhile, assert that the most cost-effective way to deliver prescription therapy to seniors is to restrict the role of insurance middlemen, elevate the role of the pharmacist to counsel patients on their drug therapy, and provide reimbursement for additional pharmacy services that improve patient compliance and disease management.
Pharmacy Records Found in Public Restroom
Storing customer records in an unlocked file cabinet in a public restroom is not a wise legal or public relations move. But that’s where a Walgreens in Creve Coeur, Missouri, was reportedly storing hundreds of prescription records more than a decade old.
According to the St. Louis Post-Dispatch, at least one customer informed managers about the possible privacy violation after noticing the worn four-drawer file cabinet in the women’s restroom. The unlocked cabinet sat beneath the paper towel dispenser, between the sink and a full-length, padlocked locker. Looking for toilet paper, the customer pulled on one of the cabinet’s rusty handles and found prescriptions bundled by date, about a month’s worth in each file. When she returned to the store a few days later, however, she found the cabinet and its contents were still there, despite management’s assurances to her that it would be taken care of.
Allowing prescriptions to be accessible by the general public is a violation of federal privacy laws. Under the Health Insurance Portability and Accountability Act (HIPAA) of 1996, any entity covered by the law must adopt safeguard measures to keep patient information confidential and protected from individuals who have no reason to access it.
Kevin Kinkade, executive director for the Missouri Board of Pharmacy, told the Post-Dispatch that the state of Missouri requires pharmacies to maintain records for five years in a way that protects patient privacy. Physical paper records can be transferred onto microfilm, microfiche, CD, or other electronic format after three years, and after five years, prescription records can be destroyed. Kinkade could not comment on whether an investigation had been launched into the Creve Coeur Walgreens, but he told the Post-Dispatch that any violation confirmed by the pharmacy board could result in discipline ranging from a warning letter to probation or revocation of a pharmacy’s license.
Retailers ‘get smart’ with new pharmacy technology - Pharmacy Automation - Chain store pharmacy retailers expand into innovative directions with pharmacy technology
Chain store pharmacy retailers, encouraged by the significant increases in productivity that pharmacy technology delivers, are expanding into a variety of innovative directions, including experimenting with technologies that allow pharmacists to know exactly where a prescription is after it’s been dispensed.
Pharmacy retailers also are continuing to upgrade stores with automated pill counters; to add more sophisticated pharmacy management software systems that enable the transfer of electronic prescription information; and to install add-ons, such as electronic signature pads that facilitate cost-efficient compliance with HIPAA regulations.
And there is a slow but steady continuation of the trend to supplement the in-store prescription fulfillment process with central-fill facilities.
The trend to networking pharmacies by linking them to online information services, such as the National Association of Chain Drug Stores’ ChainDrugStore.net and CommunityDrugStore.net, is escalating.
Retailer gets smart
Later this year, CVS has plans to implement Auto-ID Center technology standards enabling the use of smart tags” and “smart readers” to track products and packages throughout the supply chain system, including product movement within a retail pharmacy.
CVS will place smart tags manually on prescriptions early in the dispensing process. Those tags, embedded with the Auto-ID Center’s electronic product code, will give each prescription its own unique identification number, making it possible for CVS pharmacists to know exactly where a prescription is from the time it has been dispensed to the moment it is picked up and checked out. And if the medication is not picked up, CVS will know that, too.
The technology, to be tested in two CVS pharmacies, has the potential to increase customer medication compliance, increase revenues in the pharmacy, eliminate inefficient processes and reduce expensive inventory levels, said Jack DeAlmo, CVS vice president of store replenishment and inventory management.
DeAlmo said that concerns about patient health care was one of the primary reasons CVS launched its beta test of EPC-enabled smart tags.
“We feel that this technology, when it is deployed, will have enormous impact on our customers, on our patients and on the outcomes of their therapies,” DeAlmo noted.
Once CVS knows that a patient has not picked up his or her prescriptions, DeAlmo said, the pharmacists will have a chance to call the patient to discuss possible health care risks when medications are not taken as prescribed.
Increasing compliance, he noted, also has the potential to increase the number of prescriptions dispensed each year.
“If you improve patient compliance by 5 percent to 10 percent,” DeAlmo said, “that equates to an additional 136 million to 273 million prescriptions annually. That’s a huge opportunity for the top line.”
Meanwhile, on the manufacturer front, Pfizer, after two years of testing, is putting an innovative new barcode technology on hospital unit doses of Dilanton 100 milligram.
Bryon Bond, director of trade operations and customer service for Pfizer, said the barcode, which has room for a lot number and an expiration date, as well as the standard National Product Code, will be extended to all Pfizer’s products in institutional distribution this year.
In addition, Bond said Pfizer plans to consult with retailers to determine whether they would like to use the same technology in retail pharmacy settings.
In a hospital setting, the new barcode system could help reduce dispensing errors and improve health care outcomes.
In a retail setting, Bond said, it would have similar health care benefits, plus it could help retailers, particularly those who warehouse pharmaceuticals, manage their inventories better.
“It will expedite recalls in a timely and efficient manner and help retailers locate products that are close to expiration much more effectively,” Bond said. “Instead of having to read labels, you simply scan the barcode.”
One of the most pressing issues facing pharmacy this year is finding ways to efficiently and cost effectively comply with new patient privacy regulations that will go into effect on April 14 as a result of the Health Insurance Portability and Accountability Act of 1996. The fear is that pharmacists will be overwhelmed by all the new paperwork the law will require and will have even less time to consult with patients.
One solution, now available from Pineville, La.-based McKesson APS, is an electronic signature pad called AccuSign that gives pharmacies an electronic method of managing their third party transaction logs and HIPAA privacy acknowledgments. AccuSign, which eliminates the need for bulky paper logs, can be used in a stand-alone setup, or it can interface with McKesson’s pharmacy management host system, Pharmaserv For Windows, or productivity workflow system, Pharmacy 2000.
McKesson also is addressing the privacy issue with the introduction of an automated will-call system. In addition to automating the prescription storage and retrieval process, the system makes it impossible for patients to see prescriptions pertaining to other customers, preserving the privacy of every customer.
Online partnerships
In other developments, ChainDrugStore.net, an NACDS subsidiary, has a number of technological initiatives in the works, including a new marketing partnership that will partner its sister company, CommunityDrugStore.net, with the National Council of State Pharmaceutical Association Executives.
Through the partnership, CommunityDrugStore.net next quarter will launch a new product-related and merchandising information service that will deliver key pharmaceutical information, such as new product launches, recalls, dosage changes and product discontinuations, to independent pharmacists.
The program will be tested first in Texas, Virginia, Illinois, Indiana, Maryland, Ohio and Washington.
Brad Mitchell, ChainDrugStore.net’s president and chief executive officer, said having the service available through CommunityDrugStore.net as part of a co-branding effort with state pharmacy associations will make it possible for the 33 pharmaceutical manufacturers and six diabetic care companies who are CommunityDrugStore.net members to send pharmaceutical product merchandising information to all 33,200 CommunityDrugStore.net pharmacy members in one keystroke.
“There is no way currently for manufacturers to reach a large body of independent pharmacists in a timely and cost-efficient manner,” Mitchell said. “This also will ensure that independent pharmacists get the information they need about new products, product recalls, price changes, etc., quickly, easily and efficiently.”
Unlike ChainDrugStore.net, where a password is required to access information services, pharmacists who use CommunityDrugstore.net simply will log on to their respective state pharmacy association’s Web site, and after being authenticated, will be able to click a tab that will hyperlink them to CommunityDrugStore.net. Manufacturers will pay a fee to use the service, but it will be free to state associations and pharmacies.
‘Smart’ selling
In a unique instance that manifested as a new selling opportunity for the front end, CVS has added a new “smart” pill bottle to its OTC planogram.
The item, called the Pill Timer, from Med Time Technology, is an “active reminder system for medications.” CVS is selling the device as a “smart cap” that can be used to replace the lid of most standard prescription bottles. In essence, the cap is a small computer that monitors the opening and closing of the bottle and compares that usage to a pre-programmed schedule and dose information.
The cap beeps to remind patients to take their medication and keeps beeping every hour until the patient removes the cap. Once the cap has been removed and replaced, the Pill Timer resets itself and begins counting to the next dose.
A large display on the cap provides both time and missed dosage information, as well as an indication of the last time a dose was taken, helping to prevent overmedication. The reusable unit can be reprogrammed by doctors, pharmacists, care givers or patients.
CVS spokesman Todd Andrews describes the Pill Timer, which CVS is retailing for $9.99, as “a little product that makes a big difference to people.”
Diagnosis-based risk adjustment for Medicare prescription drug plan payments
INTRODUCTION
The 2003 MMA created Medicare Part D, a voluntary prescription drug benefit program. The benefit is a government subsidized prescription drug benefit within Medicare and is administered by private sector plans. Such plans may be standalone prescription drug plans (PDPs) or Medicare Advantage prescription drug plans (MA-PDs). While there are numerous important components determining how these plans are paid, this article focuses on the development of the prescription drug risk-adjustment model used to adjust payments to reflect the health status of plan enrollees. According to the MMA, payments are based on a standardized plan bid that represents the estimated cost for an enrollee with average risk and a score of 1.0. payments for each enrollee are risk adjusted by multiplying the standardized bid by a person-level risk factor so that plan payments reflect the projected health of actual enrollees. Higher standardized bids result in higher per enrollee revenues, but also higher premiums in the competitive market. The process of developing the prescription drug risk-adjustment model, CMS prescription drug hierarachical condition categories (RxHCC) are also described in this article.
BACKGROUND
The basic Medicare prescription drug benefit structure partially covers the expenses of the majority of plan enrollees and has a catastrophic benefit for very high users. A Part D enrollee pays a premium, which was expected to be approximately $35 (1) a month. Enrollment is on a voluntary basis. There is a premium increase for those who enroll after their initial opportunity, as there is in Medicare Part B. Enrollees are responsible for the first $250 in drug expenditures. The standard benefit package covers 75 percent of the next $2,000 in drug expenditures. Once total expenditures reach $2,250, the beneficiary is responsible for all costs in what has become known as the “donut hole.” The 100 percent coinsurance continues until total drug expenditures reach $5,100 ($1,500 plan liability plus $3,600 out-of pocket expenses). The catastrophic portion of the benefit covers 95 percent of any additional drug expenditures: 15 percent of the cost is the plan’s responsibility; 80 percent is reinsurance paid by Medicare. In the early years there is also plan-Medicare risk sharing for the difference between Medicare payments and actual plan operational costs computed in a year-end reconciliation. The coverage thresholds are to be indexed for inflation in future years. PDPs and MA-PDs have some flexibility in offering plans that differ from the standard benefit. In addition, formularies are set by the plans, subject to legislated requirements, and may vary across plans.
Payments to PDPs and MA-PDs are risk adjusted, since payments are based on a standardized bid amount, which assumes an enrollee with a risk factor of 1.0. Using a standardized bid to determine the beneficiary premiums insulates the beneficiary from the variation in health status of plan enrollees. Medicare pays the adjustment for risk. The starting point for the bid is the projected monthly revenue requirements to provide defined standard drug coverage for an enrollee with the plan’s projected average risk factor. The standardized bid is computed by dividing monthly revenue requirements by the plan’s projected average risk factor. Payment adjustments above the risk-adjusted rate are made for low-income and long-term institutionalized beneficiaries due to their higher expected utilization.
The risk factor is derived from the model presented in this article. The CMS-HCC model used for the MA program served as the basis for our work here and is prospective. It uses diagnoses in a base year to predict medical costs in the following year. The CMS-HCC model groups the approximately 15,000 International Classification of Diseases, Ninth Revision Clinical Modification (ICD-9-CM) codes into 178 disease groups (Centers for Disease Control and Prevention, 2006). The 70 disease groups that are most predictive of future costs are included in the final 2005 payment model. Pope et al. (2004) discuss the primary criteria for grouping diseases together and for deciding on which diseases comprise the final model.
There are several prescription drug risk-adjustment models that have been developed. Some are based on the prior use of drugs to predict future medical costs or future prescription drug use. We could not use such a methodology to develop our model. In order to implement the program, we needed to compute risk scores for all Medicare beneficiaries. Since we lacked drug utilization data for most beneficiaries, we were unable to implement this type of model. Once the drug benefit is established, data on prior utilization will be available for use in calibration.
Gilmer et al. (2001) developed a model that predicts prospective Medicaid medical costs based on base year prescription drug utilization. Drug claims were analyzed, with national drug codes (NDCs) grouped together based on the disease they are typically used to treat. Thus, it is similar to other risk-adjustment models in that it uses diseases to predict future costs, but infers the diagnoses from prescription drug use, not ICD-9-CM codes.
The BCBS plan data provided to CMS contain annual prescription drug expenditures for each enrollee and annual copayments by enrollees. We converted the BCBS plan costs to total pharmacy costs for each beneficiary by adding the beneficiary’s cost sharing amounts to the BCBS plan costs. The BCBS plan offered two different types of benefits in 2002: standard benefits and basic. The standard pharmacy benefit included a 25 percent coinsurance on retail pharmacy purchases, while the mail order benefit had a two-tiered copayment. The basic benefit included a two-tiered copayment on retail purchases, and no mail order benefit. Retail pharmacy costs for enrollees in the standard BCBS plan were imputed using the BCBS plan costs and the 25 percent coinsurance.
Medicaid was more difficult, however. The Medicaid Program is very complex, varying across States. To create a reliable data file we removed individuals when uncertain about the completeness of diagnostic or cost data. We excluded individuals living in Arizona, Hawaii, and Tennessee due to high managed care penetration. We also removed managed care enrollees from other States, and individuals with other insurance coverage, since Medicaid is the payer of last resort. We also excluded individuals who did not have prescription drug coverage through their Medicaid Program. For example, some individuals eligible for Medicaid as qualified Medicare beneficiaries (QMBs), specified low-income Medicare beneficiaries (SLMBs), or qualifying individuals (QIs) did not receive prescription drug coverage through Medicaid.
Additional modifications to the data were necessary to remove certain drug claims from the data because Part D specifically does not cover certain drugs. Only prescription drugs are included, but with Medicare Part B covered drugs removed. Drugs covered by Part B, such as immuno-suppressives, will continue to be covered by Part B Medicare. Removal of the Part B drugs was straightforward in the Medicaid data as each claim has both an NDC and amount paid. Adjusting the BCBS plan data was more complex. We had only total spending for each person, with no paid amount on the claims to be excluded. Using the Medicaid data we estimated the percentage reduction in spending associated with removal of Part B drugs for beneficiaries with conditions associated with high use, such as cancers and transplants. We then reduced spending for similar beneficiaries in the BCBS plan files in the same proportion. Other non-covered drugs, benzodiazepines, and barbiturates, were intentionally left in the file because their costs proxy for the costs of substitutes. This was deemed preferable to removing the claims and costs altogether.
At the conclusion of the data compilation, for each beneficiary we had demographic, programmatic, and diagnostic information for the base year along with prescription drug cost information for the payment year. Descriptive statistics for the BCBS plan and Medicaid samples are provided in Table 1. Given beneficiary cost sharing, a plan offering the standard benefit is liable for less than one-half total drug expenditures. The Medicaid sample is younger on average than the BCBS plan sample because all ages, including the disabled under age 65 can be dually eligible beneficiaries, while there is no equivalent group in the BCBS plan data. Consequently, disease prevalence is different for the two samples.
Low-Income Subsidy
The populations eligible for the LIS subsidies are defined in the MMA. CMS’ Office of the Actuary estimated multipliers for two groups spanning the LIS population (Table 7). They are 1.08 for Group 1 individuals and 1.05 for Group 2 individuals. Eligibility is defined on a concurrent basis. For example, if an individual is not defined as low income for January 2006, but is determined to be a Group I beneficiary for February 2006, the plan would receive the low income multiplier for February (and beyond), but not for January.
CONCLUSION
This article has presented the development of the CMS-RxHCC prescription drug risk-adjustment model implemented in 2006. A major challenge to the work was finding and adapting data that would span the Medicare population and be reasonably geographically representative. Future work, using actual program data, is needed to evaluate the performance of the model, to recalibrate on program data, and to develop next generation models that may incorporate prior drug use. One of the issues for any model for drug spending is the change of available products over time. New high-priced drugs are being brought to market as older drugs are becoming cheaper generics. How robust this type of model is in a dynamic market is a topic of great interest. The fact that the model is used for only a portion of the total payments to plans makes its absolute accuracy less critical and allows time to develop potential improvements.
Get the most out of your PBM - pharmacy benefit managers can improve employee health insurance benefits and control costs
More employers are considering and implementing stand-alone pharmacy benefit programs. As carved-out drug programs become more common, employers are learning how to get the most out of what PBMs have to offer.
Companies are asking for–and most of the time receiving–better prices and better managed care services, such as drug utilization review, from their PBMs. The opportunities for savings are so great, it’s probably worth the time for an employer to ask for new bids or renegotiate an existing contract, notes Pam Bertranb, Pharm.D., a consultant with Towers Perrin in Atlanta.
At the same time, PBMs are able to offer more managed care programs than ever before. “So much can be done with the pharmacy benefit to prevent hospitalizations, to make patients feel better or to prevent adverse interactions. It is a big part of the therapeutic arsenal,” says Paul Wernick, M.D., a managed care consultant in Minneapolis. “I’d like to see employers drive the PBM to really manage the pharmacy process rather than be satisfied with discounts only,” he says.
The basic services that once distinguished one PBM from another–such as on-line claims adjudication and low-priced and quick mail-order service–are now offered by them all, notes Bertranb. She urges clients to consider both financial savings and quality-enhancement programs when selecting a vendor. “Employers need to look down the road at total health care costs. They need to look at vendors that are taking it a step beyond the basics with preventive programs, wellness programs, outcomes studies that are documented with hard data, preferably from the plan sponsor, and disease management.”
THE “SHOE BOX”
Consultants tend to be ahead of their clients when it comes to trying new programs. Indeed, many employers still aren’t sure whether to sign up with a PBM, let alone which PBM to use. They fear loss of what is known as the “shoe-box effect” of unfiled retail pharmacy claims when a carve-out program is launched. When employees file indemnity claims by mail, prescription receipts frequently end up in shoe boxes, waiting for employees to submit claims. Sometimes shoe boxes never are emptied. With a PBM, however, most claims are adjudicated at the pharmacy, and the employer ends up paying for claims it never had to pay for in the past.
Just how big is the shoe box? Campbell Soup Co., a food manufacturer in Camden, N.J., found out when it implemented a retail pharmacy carve-out in January 1994. Because the company was concerned about the shoe-box effect, says Diane Linke, benefits project coordinator, Campben’s drug-program is based on two claims–one electronic, one paper. At the point of sale, the pharmacy creates an electronic claim that is sent to the PBM, but the employee pays 100% of the cost. The employee then submits a paper claim, which the PBM matches with the electronic claim. Then the claim is released to the major medical carrier, which pays it.
After the first eight months of the program, Campbell calculated that employees were failing to file about $100,000 worth of claims on an annual basis. “Not a lot,” says Linke, when compared with the company’s annual cost of $11.4 million in pharmacy benefits. The extra cost of duplicating claims amounted to half of the shoe-box savings, so the company saved only $50,000. The duplicate claims program, cumbersome to administer, will end on Dec. 1.
GOING BEYOND DISCOUNTS
At the same time, Campbell’s pharmacy program is producing significant savings. “So far this year, we’ve had only a two-tenths of a percentage point increase in our active employee drug costs,” says Linke. Historically, the trend has been an 8% to 10% annual increase. The savings has come mostly from discounted prices. But she notes that discounts offer a big one-time savings and may not continue to be as generous. In the future, Linke says she is depending on the managed care aspects of her plan–such as calls to physicians to switch to lower-cost therapies and drug utilization review–to continue to keep costs in check.
Despite the concern with the shoe box, a growing number of companies are carving out their pharmacy plans. A research report published by the New York consulting firm of Sanford C. Bernstein & Co. notes that the number of covered lives in employer-funded PBM services has grown from 85 million in 1992 and 100 million in 1993 to an estimated 115 million this year. Major corporations that have launched or are about to launch plans include Chemical Bank, Ball Corp., GTE Corp., Chrysler Motor Co., Ford Motor Co., Banker’s Trust, and Delta Air Lines.
PERFORMANCE GUARANTEES
The sheer volume of new drug plans being implemented has created one strong employer demand: service. Several employers and consultants have noted that service has eroded as PBMs scramble to handle all their new business. “At least with my clients, there has been a slippage in service because of the rapid growth,” says Wernick.
Andrew Loyst, manager of U.S. benefits planning and development for Joseph E. Seagram & Sons Inc. of New York, tried to avoid service problems by including performance guarantees when the company signed a contract with Medco to provide the pharmacy benefit to 1,500 active non-union workers. The benefit cards had to be out by Jan. 1; otherwise Mexico was required to pay an undisclosed amount for each full week the cards were missing. There were also deadlines and penalties for late delivery of brochures and other materials to the covered population. Loyst wouldn’t cite figures, but says there are penalties for poor customer service and low scores on customer satisfaction surveys. “We have a penalty for each second beyond 20 seconds that an employee has to wait until his phone call is picked up,” Loyst says. “When you switch vendors at the start of the year, they have a lot of other contracts going on at the same time. They are very busy,” he says. “We wanted to get our two cents in that we didn’t want to be held up by other people’s contracts.”
Loyst says having these penalties in writing did the trick. “We still had problems. We had to enforce our penalties. But it heightened their awareness, and most people had their cards by the end of the first week of January. Without the penalties, and the awareness of the penalties, it might have gone on longer.”
Performance guarantees are required of all health benefit vendors at United Technology Corp. (UTC) a diversified manufacturer of high technology products in Hartford, Conn. “A vendor’s service is an extension of UTC. If something goes wrong, employees will see it as a reflection of UTC, not the vendor,” says Debbie Rourke, benefits associate. UTC’s PBM, ValueRx, in Bloomfield Hills, Mich., has pledged to provide timely mail-order dispensing and 24-hour-a-day customer service, among other things. Roughly 42,000 active and retired employees are eligible for the drug plan.
One area that employers should focus on is negotiating better PBM discounts. It’s a buyer’s market and PBMs are competing fiercely to sign up as many covered lives as possible. The mergers and alliances between pharmaceutical manufacturers and PBMs have shifted the vendors’ basic business-strategy. “This is not a profit business anymore. This is a volume business,” says Bertranb. Through acquisitions and strategic alliances, the drug companies are financing the growth of PBMs.
Campbell initially received proposals that offered drugs at average wholesale price (AWP) minus 10% at retail, says Linke. But when Campbell chose finalists, the discount increased to 12%. It is not uncommon, says Jim Norton, a principal at The Wyatt Co., in Toronto, for large employers to be offered discounts for retail brands in the 12% to 15% range.
Administrative fees are tumbling, too. “Because their services are commodities, because they are so streamlined now, administrative costs are coming down,” says Bertranb. “If a proposal comes in around $1 a claim, it is outdated. The competitive rates are running somewhere between 50 cents and 80 cents a claim.”
Rebates, too, can be structured to favor the plan sponsor. Many knowledgeable benefits people believe that rebates will disappear once the consolidation between the drug makers and PBMs is completed, and once the vendors feel they’ve bought all the market share they can. But today, rebates can return significant dollars to employers. “While rebates are still around, why not take advantage of pennies from heaven?” Bertranb asks.
Bertranb sees a trend among PBMs to offer to guarantee a set rebate on each prescription, say $1. That can amount to large savings if your population base is large. But the average rebate per claim is really $1.25 or $1.50, according to Bertranb, so the PBM is still keeping 20% to 50% of the rebate. “Clients should want to see the whole pool of debate money and take a negotiated rate out of that, or ask for a higher guarantee,” she says.
SEARCHING FOR QUALITY
In the future, pharmacy benefits may be a way to improve quality and reduce overall medical costs, some corporate benefit managers believe. Today, drug utilization review, both concurrent and retrospective, is the one must–have managed care aspect when implementing a pharmacy program. “We weren’t concerned only with cost savings. Our concern is the cost effectiveness of dollars spent and quality of care,” explains Neil Austin, director, health and welfare plans, Pacific Telesis Group, in San Francisco. The telecommunications company carved out drug benefits in August for 23,000 retirees who remain in indemnity plans. “With this population, whose average age is 71, we’re trying to prevent hospitalization” from drug-related causes, he says.
Older populations are prone to suffer from more prescription drug complications than other population groups for two reasons. First, they tend to take more drugs, including over-the-counter medications, and thus are more likely to experience adverse interactions. Second, drugs that work without side effects in younger individuals may induce serious side effects in older ones.
With the special needs of his retirees in mind, Austin wanted a drug program that could gather and analyze medical information. The vendor he chose, the Prescription Services Division of Caremark International, Northbrook, Ill., will examine drug utilization patterns. It will check the duration of the prescription and the dose, and will identify patients who have been prescribed an extraordinarily high number of drugs.
Once the plan has been in effect for six months or so, Austin intends to send his medical claims data back to Caremark for further analysis and case management.
Caremark is administering both the retail network and mail-order dispensing. Pacific Telesis retirees pay 10% of a generic drug’s price or 20% of a branded drug’s price when purchased from a network pharmacy. Out-of-network purchases require a 20% generic copayment and a 30% brand copayment. Austin declined to disclose the cost of his pharmacy benefit.
Even for younger employee populations, drug utilization review is an important managed care tool. “Retrospective utilization review can identify fraud and abuse, overmedication, and excessive dosage,” says Linke of Campbell Soup, which has about 23,000 active employees who receive benefits in the U.S. and an additional 10,000 retirees. “We’re providing a safety service for our employees.” Her program features concurrent UR, too, complete with mail-order drug history and claims filed with other pharmacies. Caremark handles the mail-order and retail business for the active employees; Campbell kept the retiree population with Mexico Containment Services of Montvale, N.J., which had been providing mail-order service to retirees since 1987 and now handles retail claims for that population, too. The company did not want to disrupt its retiree benefits, Linke says, but wanted the retail and mail-order claims linked together.
TRACKING PATIENTS’ DRUG USE
“One of the good things in having one PBM fill mail-order and retail prescriptions is that all the data is integrated,” she says. “They know what drugs employees have received no matter what pharmacy they’ve used. There are on-line utilization review and edits that alert the pharmacist right then to bad interactions or duplicate therapies.” DUR also saves money. Campbell doesn’t have hard data yet, says Linke, but typically DUR can reduce the cost of drugs by 7% to 10%, says Norton, the consultant. “One vendor has guaranteed one of my clients an overall reduction of 9% of drug costs from the DUR program,” he says.
Campbell has asked for guaranteed cost reductions from one PBM program in which the vendors call physicians to get them to change their prescriptions. Since 1992, Campbell has asked Mexico to call physicians to suggest switching to generic drugs. With the introduction of an open formulary in January 1994, Mexico–and now Caremark–calls to encourage doctors to switch to preferred formulary brands. While declining to be specific, Linke says the “savings are significant.” Caremark’s contract promises a reduction of several percentage points in drug costs through the program.
Suit alleges PBMs inflated prices - Pharmacy News - American Federation of State County and Municipal Employees sues four pharmacy benefit management firms
LOS ANGELES - The nation’s four largest pharmacy benefit management firms have been charged with inflating prescription drug prices in a lawsuit file here by the nation s largest union representing public workers.
The suit, filed by the American Federation of State County and Municipal Employees, alleges that AdvancePCS, Medco, Express Scripts and Caremark Rx conspired to reap profits by steering their members into more costly drugs and by putting rebates ahead of real cost savings. The suit also charges that rebates negotiated by the PBMs with pharmaceutical manufacturers–as well as discounts extracted from retail pharmacies that participate in plan networks–have not been passed on to health plans and consumers as savings.
The union also takes issue with PBMs’ use of the average whole sale price in setting prices charge d to their customers. Such a pricing system is inflated, the AFSCME asserted.
“Through a pattern of illegal, secret dealings with drug companies, the PBMs have forced health plans and health care consumers to pay inflated prescription drug prices,” the suit charges.
AFSCME president Gerald McEntee angrily denounced the current structure of PBM networks, which depend on rebates from drug makers in return for some products’ inclusion in drug formularies for plan members. “The organizations that were created to make prescription drugs more affordable are cutting inside deals with drug companies and driving up costs,” McEntee charged in a statement. “Forty-one million Americans still are without health insurance. The PBMs need to give up this racket and get down to the business they were created to do.”
The union, which represents 1.3 million public employees, teamed up with the Boston consumer group Prescription Access Litigation to launch the suit in mid-March.
Rx insurance training launched
ALEXANDRIA, Va. — Three pharmacy organizations have joined forces to launch a new online training and certification program to help pharmacy staffers deal with complex insurance and third party administration issues.
The 15-hour program, called the Prescription Insurance Specialist Training Program, consists of five continuing education modules that can be accessed online through the National Community Pharmacists Association at www.ncpanet.org/store or through the National Association of Chain Drug Stores Foundation Web site, www.nacdsfoundation.org. Also lending its support is the Institute for the Advancement of Community Pharmacy.
“Resolving third party issues is a major time investment for pharmacists,” said Kurt Proctor, NACDS Foundation president. “This program trains pharmacy staff to understand a complex process and resolve third party issues more efficiently, thus allowing the pharmacist more time with patients.”