California’s work comp formulary

California’s work comp pharmacy formulary process is moving ahead, but I have grave concerns in two areas – timing and cost.  (these are my personal concerns and are not intended to represent the views of CompPharma, LLC.)

First, timing.

The rules writing process is ongoing, while the formulary is slated to be implemented January 1, 2018. 

The rules aren’t even finalized yet, and it’s August.

That’s less than five months away.  Five months for PBMs, payers, prescribers, patients and pharmacies to make massive changes to processes, internal formularies, IT systems, contracts, call scripts, and a thousand other things.

Next, cost.

I’ve talked with regulators, PBMs, payers, employers, about this issue, and tried to re-engage w regulators, without a whole lot of any success.

Regulators have told me that the drastic cut to the fee schedule won’t be a problem because:

a) Payers can pay for clinical and program management costs separately
Well, no.
Unbundling pharmacy management services is a non-starter.
 Most payers don’t have the ability to do pharmacy management inhouse, so they rely on their PBMs. Regardless the payers would have to figure out what should cost how much, and how to charge their employer customers for clinical and program management services. Payers don’t have any way to do this without massive IT changes plus re-doing their internal cost-allocation processes, and/or re-negotiating contracts and policy terms.

b) Payers can just pay above the fee schedule
Again, highly unlikely.
Most payers can and/or will NOT pay above fee schedule. Many TPAs and insurers are precluded from doing so in their contracts with employers, and most would have to re-program IT, reporting, and bill review systems. Plus, many employers just flat-out refuse to pay above fee schedule.

Now there’s a new formulary in the offing, one that will demand even more from PBMs. There remains much uncertainty around implementation details while the implementation date draws ever closer. Setting aside the very real problems inherent in unbundling clinical and program management services, there’s no way PBMs, payers, and pharmacies could plan for and implement all the things they’d need to do to implement an unbundled or above-fee-schedule pricing methodology by January 1.

The bigger issue is this – California employers’ drug costs have declined for several years, opioid and compound usage is down significantly, and the drastic cuts to the fee schedule plus increased costs to implement and manage the formulary are going to:

  • make it harder for all parties to implement the formulary; and
  • make pharmacy management a huge money-loser. 

I don’t understand the logic here.

PBMs have been instrumental in cutting opioid usage in California every year for the last five years, investing huge sums in work that dramatically increases patient safety, reduces employers’ costs, but actually reduces PBM revenues and profits. 

Now, regulators want to further cut PBM revenues while adding a LOT more work to pharmacy management…

That’s not to say the formulary in and of itself isn’t a potential positive.

From Alex Swedlow…

This formulary is an important step forward.  The legislative intent was to increase quality of care and lower the high cost of drugs and the huge frictional costs associated with managing those drugs.

The formulary and regs that link prescriptions to the standard of care (MTUS) will raise quality of care.  The exempt, special fill and perioperative drug lists will reduce some of the dispute resolution costs.  UR is supposed to be for low frequency, high cost treatment like inpatient services, less so for high frequency low cost care such as pharmacy.  That said, those who seek to exploit the new rules and regulations have the incentive and creativity to do so. 

Solution:

  1. Delay the implementation of the formulary and related changes for at least six months after the rules and regs are finalized.
  2. Significantly increase the drug fee schedule.

What does this mean for you?

Adding a lot of complexity to the drug approval and delivery process while continuing to slash reimbursement will lead to unintended and potentially adverse consequences.

 

Note – I’m president of CompPharma, a trade group for work comp PBMs, but fee schedule changes and the like have no financial impact on CompPharma or me personally.

 

Random news from workers’ comp services

Couple quick items from the never-boring world of workers’ comp services…

First up, OneCall is kinda/sorta taking over Spreemo’s workers’ comp imaging business. Not sure how to characterize the “deal”, but it sounds like OCCM is just going to handle the operations, and isn’t paying Spreemo. While Spreemo had done a credible job entering the imaging market, establishing a brand image and gaining some traction, there have been reports of provider payment challenges of late.  The continuing price pressure from lowered fee schedules has made the imaging business less attractive as well.

Not sure what Spreemo is going to be doing going forward, as more than one customer told me they were pretty disappointed to hear about the transaction in the form of a press release. Whether this does lasting damage to the brand they so carefully built is the go-forward question.

Looks like Express Scripts paid $250 million or, perhaps, $375 million for myMatrixx. That’s what I get from reading ESI’s latest 10Q.

The $250 million figure comes from financials on pages 10 and 36.

The additional $125 million (+/-) comes from this on page 42…

On May 17, 2017, we issued 2.0 million shares of our common stock in connection with an acquisition. We issued shares in reliance upon the exemption contained in Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction not involving a public offering.

Here’s hoping the price was cash AND stock; Phil Walls, Artemis Emslie, Steve McDonald Craig Rollins and crew built a very good PBM and deserve ample rewards.

Finally, the man behind the OneCall and Genex deals is leaving Apax Partners.  Buddy Gumina is departing for places unknown. While Genex has done pretty well under Peter Madeja’s able leadership, OCCM continues to struggle – and is highly unlikely to generate any kind of a return to Apax (OCCM was one of, if not the, largest single Apax investment).

Sources indicate OCCM’s financials are pretty stagnant, with quarterly earnings flat, debt still in the $1.9 billion range, and gross leverage in the 8 – 9x range. The company has spent a ton of cash on systems changes intended to fix some of the customer service issues that plagued OCCM; final implementation is scheduled for 2018. There are some reports that service is picking up a bit, altho that is spotty.

What does this mean for you?

Good investments pay off.  Bad investments don’t.

Work comp is fading, and that’s a big loss.

Hold on, because this isn’t going to end up where you think it is.

The comp insurance business is shrinking. Insurers are increasingly outsourcing claims function to TPAs, and TPAs are looking to move more claim-related activities in-house to capture more of a shrinking pie.

Sure, carriers including AmTrust and the Berkshire companies are growing by leaps and bounds, but most others are moving in the opposite direction. And yes, our friends in California have seen earned premiums increase – and as the largest state by far we can’t ignore that. However, insurer profits have remained solid while rates while the last two years have seen frequency drop – the first time this has happened since the Bush Recession.

Margins are very healthy, markets are competitive, and the business remains solidly profitable.

Over the last 22 years, only one saw a material increase in claim frequency.

After 2 years of essentially flat trend rates, 2016 saw a 5 percent jump in claim severity.

Work comp premiums have been flat since 2015 as decreasing claims costs and insurer discounts have balanced out higher payrolls. Overall, it looks like more employers have seen their premium rates decrease than increase.

Those aren’t just a jumble of unrelated facts and figures, rather a combination of causes and effects, all leading to an inescapable conclusion – industrial accidents and illnesses are less common than they used to be, and more common then they are going to be.

Implications abound.

Here’s a major one.  More insurers appear to be looking to outsource claims, generating growth and jobs in the TPA industry which is one of the few sectors that’s seeing this.

The service sector has consolidated rapidly with two huge PBMs dominating the pharmacy space; physical medicine owned by two other firms (one of which, MedRisk, is a client); Genex increasing it’s position as the largest case management provider, imaging already the domain of OneCall, and three bill review tech firms where once there were six. Other examples abound, all driven by the inevitabilities of a mature industry.

Yes, smaller companies, innovators, and new entrants can and are doing well, but these are by far the exception rather than the rule. Fact is, external factors and technology are rapidly shrinking workers’ comp.

I’m more than a bit frustrated by this.

I see work comp as one answer to the mess that is health care. We actually care about, and work to restore, functionality, an “outcome” that few in the group health, Medicaid, or Medicare world grasp.

What we do – when we do it right, which is all too uncommon – is what they should do – deliver care that gets the patient healthy again – defined as able to do what they did before, if not do it better.

Those pinheads in DC are arguing over insurance – which is NOT the problem.

They should be talking about why our nation’s healthcare is so crappy, and why healthcare we all pay for, and get, and that our loved ones get, doesn’t work a hell of a lot better than it does today.