Pharmacy Benefit Managers – if they report, why doesn’t everyone?

Last week’s post on the recent release of Annual Reports by PBMs Progressive, PMSI, and Express Scripts, got me thinking (spurred by a friend’s query); if PBMs produce these reports as a matter of course, why don’t other specialty medical management companies?
The wealth of information contained in these reports provides readers with insights into cost drivers; pricing; changes in prescribing and treatment patterns; differences due to geography, claim duration, and diagnosis; new treatment options; and changes over time in all of these categories/metrics.
It strikes me that industry/speciality appropriate information would be pretty valuable and help differentiate as well.
PBMs have raised the annual report to an art form; PMSI’s is extremely detailed and clinically robust; Cypress Care’s upcoming report differentiates between older (> 3years) and new claims; Express focused on opportunities to reduce costs thru increased use of step therapy and generics; Progressive’s discussion of regulatory changes was comprehensive and thorough.
The short answer is “it takes a lot of resources.” True, but the payoff is likely commensurate with the investment. Others are concerned that somehow competitors will learn the ingredients of their “secret sauce” and use it against them. Possibly, but not if you’re smart and careful.
There’s precious little real differentiation in the managed care services industry. Clearly it’s working for PBMs; undoubtedly it will work in other sectors as well.
and a “thanks for the thinking” to Peter Rousmaniere.

Coventry’s Q1 2012 earnings report – the work comp story

While Coventry’s work comp division revenues were pretty much flat quarter over quarter, the company views the results as better than expected. .
In comments during this morning’s Q1 2012 earnings call, CFO Randy Giles said Coventry had experienced “higher than expected revenue from the workers comp business”; he went on to note that the overall improvement in Coventry’s overall SG&A (sales, general, and administrative) expenses was driven by workers comp (I’m paraphrasing here).
(Coventry broke out work comp revenues separately from other lines this quarter)
While revenues may have been higher than expected, comparing Q1 2012 to the same quarter in 2011, workers comp revenues were flat. As there was considerable growth in the governmental businesses, comp as a percentage of overall revenues declined to 5.2% from 6.3% from Q1 2011. Sources indicate comp is still extraordinarily profitable, with margins at least double overall operating margins of 7.5%.
The impact of recent customer defections has yet to be felt; it remains to be seen if Coventry can make up for the losses by adding new customers and increasing pricing and selling more services to current ones. Given today’s more competitive work comp services environment this may be a ‘heavy lift.’
The macro factors affecting work comp are well-known, but perhaps misunderstood in terms of their impact on Coventry. For example, work comp claim frequency may have leveled off last quarter or perhaps even declined. This affects bill review, network, and UR volume.
Work comp medical costs are increasing due to pharmacy and facility drivers,while disability duration – and attendant medical costs – also looks to be increasing. The consolidation among health care systems and hospital has increased providers’ negotiating leverage, making it ever-harder for WC network staff to squeeze discounts out of providers. These drive bill review and network business.
Coventry PBM FirstScript generates a disproportionately large portion of the division’s revenue, and has been benefiting from industry-wide drug price increases. More detail on this next week.
The earnings call this morning was preceded by release of the Q1 earnings report

Work comp drug trends reports – tis the season

Tis the season for drug trend reports. Recent releases from PMSI, Express Scripts (ESI), and Progressive Medical show an ever-increasing level of sophistication and growing insight into cost drivers in workers comp pharmacy. Moreover, the layout, graphics, use of charts and layout are far superior across the board.
I’d caution readers against using these reports to directly compare PBMs; mix of business/client base, average age of claim, jurisdictional market share, and other factors make direct comparison of statistical results inappropriate. For example, one PBM might have significant share of the state funds, other PBMs typically service large carriers; some may have a large book of older claims (with higher spend, more opioids, and lower generic fills) while other, newer PBMs will have fewer legacy claims.
Here are some of the highlights from each.
Industry founder PMSI has been producing reports longer than most; their latest release includes chief clinician Maria Sciame, PharmD’s video discussion of the report. It needs a bit of highlighting, as at 72 pages, it is by far the most voluminous of the studies. PMSI saw an average cost increase of 3.2% with a higher cost per script somewhat mitigated by lower utilization. (in fairness, PMSI’s book likely has a higher proportion of legacy, long-term claimants than other PBMs, again making direct comparisons inappropriate; their average claim is 4.9 years old)
Average blended prices (weighted brand and generic) were up 6.3%, driven almost entirely by an 8.3% jump in brand AWP. These increases were somewhat mitigated by PMSI’s high mail order penetration and the attendant lower customer pricing; due in part to their mix of business, 27.5% of their scripts were home delivered. Narcotic utilization per claimant also declined.
Of particular interest is the lengthy discussion of differences in drugs used by claimants as claims age. In general, costs, and the number of scripts, go up rapidly over the first six years, level off somewhat, then cost trends upwards again after ten years while the volume of scripts stays level.
ESI released their drug trends report a couple weeks back. The big news is spend – measured on a cost per user-per year basis – decreased by 1.8%, driven primarily by a drop in utilization. Notably, narcotic spend decreased 3.6%, influenced by a 6.2 percent decline in OxyContin(r) spend. Overall costs could have dropped further if claimants had taken full advantage of home delivery/mail order, maximized generic substitution, eliminated physician dispensing, and used in-network pharmacies.
Express focused their report on opportunities for payers to reduce costs by addressing unnecessary spend, or waste. Their estimates indicate payers could reduce costs by some $2.1 billion by eliminating “waste”. While most of this reduction would come from greater use of generics, ESI also noted a significant increase in the cost of compounds; over the last four years costs have more than doubled. Substituting commercially-available alternatives for compounds would save hundreds of dollars per script…
Progressive Medical reported a 1.3% drop in spend per claim for 2011 as well, with narcotics down 3.9%, this despite an average increase in AWP of almost six percent on a per-claim basis. PMI’s report provided detailed explanations of legislative/regulatory changes during 2011, as well as a lengthy, and informative forecast of issues including new drug approvals, FDA activities and societal issues affecting pharmacy management. Unlike other PBMs, PMI does not see third party biller activity as an issue. This is unsurprising, as their ownership by Stone River enables PMI to apply their negotiated discounts to all bills coming thru Stone River Pharmacy (the leading third party biller).
As with other PBMs, Progressive focused on compounded medications, with their data indicating a very small (1.2%) increase in the average cost of compounds, offset by a 3.9% decline in the percentage of claimants using compounds driven by PMI’s requirement that all retail-dispensed compounds go thru a prior-authorization process.
There should be a couple more reports out shortly; when they are we’ll get them out to you as well.

Broadspire’s new CEO

With the appointment of Danielle Lisenby as CEO, Broadspire’s board affirmed the TPA’s focus on medical management, and served notice that the company will compete based on that focus.
Lisenby’s replacement as Broadspire SVP medical management is Erica Fichter, who has been with the company in various roles in and around medical management for years. Fichter’s reputation is one of a steady, seasoned professional with long experience in the industry.
With the re-emergence of medical cost as a primary driver of workers comp losses, the focus makes eminent sense. However, some “traditionalists” may view that focus as misplaced.
They’d be mistaken.
Managing medical is a whole lot more complicated than it was even a decade ago. Selecting and employing evidence-based clinical guidelines, meshing those guidelines with state rules and regulations, coordinating utilization review with bill review, knowing when and where to employ physician advisers, understanding the role of networks, and how and why they can be cost drivers (not cost reducers), employing speciality vendors who know dealing with PT requires a much different approach than managing facility expenses, these all require a level of sophistication and deep knowledge of medical trends that few pure claims execs or underwriters have.
When one adds to this the understanding that “medical drives indemnity”, it becomes obvious why medical management expertise is critically important.
For far too long, medical management has been an afterthought, a revenue generator, necessary evil, vendor-delivered function designed on the fly, poorly coordinated and haphazardly managed.
What does this mean for you?
Time to re-evaluate with an objective eye.

The necessary demise of Usual & Customary

As insurers abandon the traditional “usual and customary” metric in favor of Medicare’s rates for out of network reimbursement, consumers are getting hit with higher bills, and many are protesting.
That’s understandable; it’s also necessary.
The usual and customary reimbursement methodology is used to pay providers that aren’t in the member’s ‘network’; it is based on what other providers in the same area charge for the same procedures during the same time frame. For decades providers have gamed the system by charging more and more every year for the same procedure, thereby ensuring they’ll get paid more next time for the same procedure.
Health plans, struggling to hold down costs, have finally given up, switching from U&C to a methodology based on Medicare’s RBRVS system, albeit one paying at 150% – 250% of Medicare – again for out of network care.
Many members have been surprised/shocked/dismayed/furious when they discover their share of the cost is much higher than they expected, and they’re blaming their insurer. While that’s understandable, it is also anger misplaced.
Members going out of network do so because they are either a)ignorant (our son just went to an OON provider for his elbow MRI…) or b) they want care from a specific physician(s). In the case of a), shame on us for not educating the young man on the intricacies of health plan contracts.
For b), it’s not quite so straightforward.
These folks chose to go out of network for the care they wanted, and that’s entirely their right. In so doing, they forewent the binding rates negotiated – on their behalf – by their insurer with in-network providers. If they’d stayed in network, their out-of-pocket costs would have been much, much lower.
I’ve pilloried insurers for years for their inability to do what they’re supposed to do as a matter of course – deliver quality care at a manageable cost. The change from the easily-gamed U&C system to one based on Medicare is an appropriate and necessary one. Yes, it’s also painful, but controlling health care costs is going to be ever-more-painful, requiring all of us to choose between increasingly-distasteful choices – higher premiums or more access.

Now I’ve got to go spend some quality time with our son explaining all this. Yippee.

Sex on the road – compensable!

You’ve probably heard about this – an individual – traveling on employer business – was injured while having intercourse, filed a work comp claim, and will receive benefits.
I kid you not.
Now gifts like these show up in a blogger’s inbox rarely – if ever. Like all precious gifts, one has to be very, very careful handling them, lest the gift is squandered, crushed by heavy handling or allowed to slip thru one’s fingers. So, I’ll try to preserve this gift, giving it the care it so richly deserves…
So, you’re in the throes of passion, when the light fixture over the hotel bed comes crashing down, smacking you in the face hard enough to cause some significant injuries. Rather than allow this to kill the mood, you rejoice, knowing you’ll be able to stick your employer with the bill for this unfortunate event.
This actually happened, and no, it wasn’t in California…it was in Australia.
(and no, no Secret Service agents were involved…)
According to press reports, the unidentified woman (a human relations (!) worker) was traveling on business, called a gentleman friend, went out to dinner, came back, and one thing led to another. Well, rather than me trying to explain, let’s go right to the source (which in this case is a man referred to by the victim as an “acquaintance” she’d met a few weeks previously:
“the man said they were “going hard” and he did not know if they bumped the light or if it “just fell off”.
“I think she was on her back when it happened, but I was not paying attention because we were rolling around.”
Wait, did he just say he wasn’t paying attention? Was the telly on too?
This description came to light (pun intended) in testimony before one of several judges who’ve been involved in the case. After the initial judge ruled that the “victim’s” injuries were not compensable, the appellate judge demurred, determining
“If the applicant had been injured while playing a game of cards in her motel room she would have been entitled to compensation, even though it could not be said that her employer induced or encouraged her to engaged in such an activity,” he said.
“In the absence of any misconduct or an intentionally self-inflicted injury, the fact that the applicant was engaged in sexual activity rather than some other lawful recreational activity does not lead to any different result.”
With all due respect, one could argue that yanking a fixture off a wall while in the throes of passion is indeed a “self-inflicted injury”, especially if it results in injuries to the nose, mouth, and teeth, as well as a psychiatric injury, specifically an “adjustment disorder”. (Uh, what adjustment was disordered?)
We may well find out; the work comp folks have 28 days to appeal the ruling.
We’ll keep you posted.

RIMS wrap up

Okay, now to a few last words.
As one more interested in workers comp than other topics, I found the agenda to be pretty thin. With a couple exceptions (CMS and reform), the topics weren’t timely, the subjects pretty basic, and the number of sessions devoted to comp few in number. The session re the impact of health reform on comp was led by Liberty’s Sam Geraci; his presentation provided an excellent brief on the mechanics and functions of health reform and paid particular attention to the potential issues with access to medical providers inherent in providing coverage to 32 million more Americans.
I would have liked to see several issues addressed: market trends (hard, soft, or what); what’s happening with comp reform in key states; actuarial views of cost drivers (can you spell o-p-i-o-i-d-s?); state of the excess/reinsurance market; frequency v severity, what’s happening and why; will the option to opt-out spread beyond Texas and perhaps Oklahoma and why. Perhaps next year…
With attendance up, a seemingly-endless list of exhibitors, dozens of social events (several at great venues), and the location in downtown Philly, there was plenty to do. While I may be biased, the MedRisk event at the WaterWorks was spectacular. 400+ people, terrific band, tasty food, fireworks, great views of Boathouse Row, an after-party replete with scotch tasting and excellent cigars, and – to cap it all off, I got to ride back to the hotel with Mark Farrell and…(wait for it)…David Young, President of Coventry Workers Comp. And lived to blog the tale.
So far…

The Romney health plan

“Well, if they’re 45 years old, and they show up, and say, I want insurance because I’ve got a heart disease, it’s like, `Hey guys, we can’t play the game like that,’” Romney told Leno. “You’ve got to get insurance when you’re well, and if you get ill, then you’re going to be covered.”
So, if you’re 45, lost your insurance because you lost your job, your COBRA benefits expired and you can’t get insurance in the individual market because you have heart disease and can’t afford the coverage (if you are even lucky enough to live in a state where an insurer offers it) you’re, well, screwed.
Good to know he’s got that all figured out.

Anthem work comp’s selling, ISG/Stratacare’s buying

Anthem workers comp bill review, UR, and case management businesses will be/has been sold to ISG, owner of Stratacare and Bunch. The deal has been in the works for some time, with customer discussions occurring over the last couple weeks. Don’t know the details; Anthem did provide the following comment in response to my inquiry:
“”I want to let you know that Anthem Workers’ Compensation is currently working on a number of projects that will best meet the needs of our clients. As soon as we are in a position to provide a detailed response to your question, we will reach out to you first to let you know.”
The fallout from this will affect Xerox/CompIQ; they provide the platform for Anthem’s bill review and I’d expect StrataWare to supplant CompIQ’s technology when contractual and transition issues are worked out. This is a good move for ISG, as it adds bill volume to their bill review platform, cements a relationship with a very solid network partner, and takes share from a competitor. As ISG owns StrataWare, they will see an immediate (or rather as-soon-as-they-move-to-StrataWare) bump up in operating margin as they don’t have to ‘pay’ for access to a bill review system.
It’s also notable that Anthem decided to exit businesses that have operating margins considerably more modest than those enjoyed by networks. Case management and bill review operations generate 15% – 30% margins; well-run networks should more than double those levels as variable costs are so low. The big healthplan company has been looking to expand its workers comp business into additional jurisdictions; this will generate capital that could be used to help pay for that expansion in addition to reducing the number of issues management has to pay attention to.
I did contact Xerox/CompIQ and ISG earlier but did not hear back.
Details to come as they’re made available.