There's a good bit of activity on the regulatory front as states with work comp pharmacy fee schedules consider possible changes to address the myriad issues inherent in AWP.

A little background will help frame the issue.

First, it's important to understand the fee schedule amount is only paid if the script doesn't go thru a PBM, and the vast majority of scripts do go thru a PBM, ensuring the carrier/employer/fund pays substantially less than the fee schedule.

My firm's survey of large payers indicates network penetration was 82% in 2008. Therefore, fewer than one in five scripts are paid at fee schedule.

Some think setting a fee schedule at Medicaid solves the problem neatly. Were it only that simple.

Let's look at California, which is the only state using Medicaid (known as Medi-Cal in CA). In point of fact, drug costs per claim are up 72% despite a fee schedule reduction that cut price more than 25%. Clearly, the lower fee schedule did NOT control cost.

I believe what has suffered is the clinical management of drugs; as evidenced by CWCI's recent report narcotic opioid usage is up 600% over the last few years. In addition, cost per claim is up dramatically - driven primarily by utilization.

Medicaid could be used as the basis for a reimbursement calculation, however Medicaid has several inherent problems.

First, it is a political football, subject to the political winds. This has caused significant problems in New York already, and has led regulators in California to prevent implementation of the lower MediCal reimbursement rates for work comp. As state budgets become increasingly constrained and as Medicaid greatly expands, we will undoubtedly see more states seek to reduce program costs by price reductions - simple, politically palatable, and score-able.

Second, Medicaid doesn't cover a some drugs used in comp, especially pain meds and drugs that are not on individual states' Medicaid formularies. As states seek cost reductions beyond those available from simple across-the-board fee cuts, they will move to tighter formularies covering far fewer medications, reference pricing, and other mechanisms that will effectively limit the drugs on the 'fee schedule'.

As a result, a Medicaid-based fee schedule would be the subject of ongoing lobbying activity and legislative/regulatory action as it requires constant 'maintenance'; legislators change reimbursement, drugs came on and off formulary, prices go up and down.

In terms of alternatives, WAC, AWP, and some of the other methodologies are inherently flawed. However there are other standards - standards such as Federal Supply Schedule, Average Manufacturers' Price that are not subject to the same flawed processes as AWP. Examining these may help stakeholders assess their usefulness as an alternative.

(for a synopsis of the various pricing metrics, click here.

What does this mean for you?

1. Fee schedules for drugs are not applicable to most drugs paid under workers comp as PBM rates apply.

2.States will move away from AWP; it will be important to understand the alternatives, their pros and cons.

Posted by at 10:07 AM | Permalink | Comments (1)

There's a bit of confusion in the comp pharmacy management space, as there appears to be contradictory evidence from two respected sources about the use of narcotic opioids in workers comp.

First, everyone agrees there's just far too many claimaints getting far too many far too potent narcotics. Perhaps not in those exact terms, but close enough. Heavy duty, potent, potentially addictive, divertable, high-street-value drugs are dispensed far too often in comp.

But there is a bit of disagreement about exactly what's going on.

First, CWCI, the always-authoritative California Workers Comp Institute, has been researching and reporting on this problem for several years, and their data shows the use of narcotic opioids is increasing. Dramatically.

In contrast, one of the largest work comp PBMs, PMSI, recently published their results which indicate a decline in usage of this type of drug early on in the claim cycle. I asked Maria Sciame, PharmD, PMSI's Director of Clinical Services what she thought might account for the decrease in the use of opioid analgesics in the acute phase of injury.

Here's her take (and I quote):

1. increased physician awareness of the potential negative effects of opioids

2. additional organized opioid monitoring strategies (mandatory reporting) associated with opioids may have reduced "off the cuff" opioid prescribing

3. increased awareness of pain management guidelines that call for non-opioids for the initial treatment of mild to moderate pain

4. decreased prescriber fear regarding the use of non-steroidal anti-inflammatory agents over the past year...remember the FDA warnings that have been issued within the past few years regarding the negative cardiovascular affects associated with NSAID use...started with Vioxx...physicians are becoming less cautious and have regained their comfort level with the use of NSAIDs again; thus, replacing narcotics for acute injuries with NSAIDS.

There are a couple other factors worth considering.

a) PMSI's business all flows thru a PBM, whereas CWCI's script data is from payers that use PBMs and some that don't (even in this day and age, some payers don't use PBMs; go figure). PBMs have clinical management programs in place to address things like early usage of narcotics.

b) CWCI's data isn't specific to early usage, whereas PMSI's is (in this instance)

c) CWCI is specific to California; PMSI's is national and as NCCI has reported, there are dramatic differences in prescribing patterns across states. NCCI's research also indicates narcotic usage across the country has stabilized somewhat of late after several years of consistent increases.

So, what does this mean for you?

If you aren't using a PBM, get with the program. If you are, find out if they are actively, assertively, and effectively managing narcotic opioid scripts and claimants on those scripts. If they aren't, find out why not (hint, it may be because you're not able to provide data or support their efforts, if that's not it, they've got some explaining to do)

Ask for data on narcotic usage for claims less than a year old, and older ones as well, and decide if your results are acceptable.

Posted by at 2:00 PM | Permalink | Comments (2)

The work comp pharmacy benefit management industry is growing increasingly sophisticated, and the release of PMSI's Annual Drug Trends Report this morning adds to the trend.

Many of the larger work comp PBMs produce similar reports, providing deep insights into cost drivers, the effectiveness of solutions, and trends that anyone with any responsibility for med loss would be well advised to read.

Here are the quick takes from my admittedly not in-depth read of PMSI's effort.

1. Price was up significantly last year, climbing 4.7%. This is heavily influenced by the price increases pushed thru by big pharma on brand drugs last year in anticipation of health reform.

2. Utilization was up only slightly, driven by more days supply per script.

3. Mail order utilization was up 3.6%, which undoubtedly contributed to the higher utilization as mail order scripts tend to include more days' supply than those dispensed by retail stores.

4. The average number of scripts per injured worker was 11.1 in 2009. Yep, eleven point one. That's a lot of drugs.

5. The report includes an interesting chart graphically illustrating the impact of the age of the claim on scripts per claimant; claims a year old typically had around three scripts at an average price per script of thirty bucks or so; in contrast ten year old claims had 23 scripts averaging over $180 each.

6. Generic efficiency (the percentage of scripts that could have been filled with a generic version) remained at 92%. This is driven by several factors, including state regulations (some have mandatory generic language and others are considering adopting it), PBM and payer intervention and outreach, and the 'macro' pharmacy market's introduction of new brands. Generic efficiency and 'conversion' is key to cost management; according to PMSI (and consistent with other reports) each one point increase in generic utilization reduces cost by 1.4%.

7. Pharmacy in comp remains primarily, and I'd argue overwhelmingly, driven by pain. PMSI's data suggests over three-quarters of drug spend was for pain management - one of the key differences between work comp pharmacy and group/Medicare pharmacy.

8. Our old nemesis OxyContin again accounted for a lot of comp dollars, with 9.9% of spend allocated to the brand and generic versions. On the good news side, Actiq and Fentora usage declined significantly (type 'actiq' into the 'search this site' text box above and to the right for plenty of reasons why this is a very good thing).

9. Finally, the average days supply of narcotic analgesicvs was up 6.4% while the number of claimants getting those drugs actually declined. This may be due to those claimants who could use alternative meds getting off narcotics (or not starting on them in the first place). As a result, the claimants still taking these drugs are more likely to need more meds.

There's a lot more meat in the report, lots of detail on which drugs are driving how much utilization, changes in utilization by class of drug, and most importantly, the impact of clinical programs on utilization and drug mix.

What does this mean to you?

Two things.

While PMSI is one of the largest PBMs, remember that these data refer to their customers' experience and therefore may not be exactly equivalent to your book of business. That said, don't use that as an excuse if your stats aren't up to snuff - instead look for ways to get better.

As you pack for that summer vacation, grab a copy of your PBM's report (go to their site and find it there, or call your rep and have them send it over) and perhaps a couple others.

You know you want to, and you can always hide it inside a Cosmo or Men's Health to prevent mocking stares from the knuckleheads on the next beach towel.

Posted by at 8:08 AM | Permalink | Comments (0)

Wolters-Kluwer, publisher of the Medi-Span pharmaceutical pricing database, just announced it will not stop publishing that database at the end of 2011, or any other date certain.

The reasoning behind the decision appears to be the lack of consensus around a replacement for the AWP standard.

According to W-K's press release, "discontinuation of AWP before development and industry-wide acceptance of a viable alternative price benchmark to replace AWP could create significant customer problems and confusion or disruption throughout the entire healthcare industry. We also recognize that changes to the data published in our drug information products may impact our customers' businesses and require significant lead time for them to make corresponding technical and contractual adjustments. It appears that consensus around a comprehensive alternative pricing standard will not be reached this year..."

Included in the release is a rather detailed discussion of precisely what the 'AWP' is - and is not. W-K has obviously taken notice of the litigation surrounding AWP, and the release, and further details provided in an accompanying document [opens pdf], provide a pretty very thorough primer on AWP and the W-K database's development, methodology, and limitations.

The rationale - there is no consensus on a replacement for AWP. rings true As flawed as AWP is, there are inherent problems with alternate pricing methodologies, problems that are not dissimilar from those associated with AWP. The most significant issue is the fact that AWP is NOT an Average nor a Wholesale Price. The MediSpan database is comprised of self-reported data, does not include all 'wholesalers' nor rebates and other behind-the-scenes financial transactions, and therefore does not reflect actual pricing. Similar issues plague Average Sales Price, Wholesale Acquisition Cost, and other metrics.

What does this mean for you?

This may motivate buyers and other stakeholders to get cracking on an alternate - either one of the current options or perhaps something new and different. What is abundantly clear is AWP remains flawed - at best. The failure of the industry to find a suitable alternative shows just how opaque the entire pharma pricing/rebate/cost picture is.

Posted by at 7:29 AM | Permalink | Comments (0)

The public spat between retail drug giant Walgreens and PBM/retail giant CVS Caremark ended last week. The first question most will ask is 'who won'? After asking that myself, I realized that's not the most important issue.

From here, it looks like the winners will be employers and members, who should be able to continue to access Walgreens thru Caremark (the giant PBM has some 2200 corporate clients and claims 53 million lives. As the financial details of the deal weren't (publicly) disclosed, we don't know if:

a) Caremark agreed to stop shifting Walgreens customers to Caremark mail order;

b) Caremark will stop trying to move members from Walgreens stores over to CVS (one of Walgreens' allegations)

c) Walgreens decided the pain was going to outweigh the benefits of dropping Caremark

d) the execs decided to set aside their concerns when their stock prices took a hit.

This last likely had some influence, as both companies (in theory) exist to serve their shareholders. Both entities' share prices declined after the spat became public; when the resolution was announced share values jumped 5% for each company.

Sources indicate that the deal included compromise on two key points - Caremark will continue to market PBM options that favor CVS stores and Walgreens will get their concerns about pricing inconsistencies addressed.

There's no question the loss of Walgreens, the nation's largest pharmacy chain with 7000+ stores, would have significantly hurt Caremark's marketing efforts, especially in New York, San Francisco, and other key markets where Walgreens is the dominant chain. And the timing was tough for the big PBM, coming just as large employers were making decisions about their 2011 benefit plans. Perhaps Caremark felt a bit of pressure from current customers, and decided to compromise rather than risk losing significant share to competitors Medco and Express Scripts.

Conversely, although Caremark's prescription business only accounted for 7% of revenues, the people picking up scripts also bought cosmetics, batteries, toiletries, and other products that probably accounted for a few more percentage points of revenue for Walgreens. In the low-margin retail pharmacy business, the loss of these profitable dollars would be very, very hard to offset.

What does this mean for you?

The takeaway for me is a renewed realization of just how interdependent providers and payers are.

As you think about markets in health care, it is helpful to remember most are highly mature with significant barriers to entry especially for payers.

Posted by at 9:00 AM | Permalink | Comments (0)

I attended a meeting of work comp insurance execs in DC yesterday that addressed, among other topics, the dynamic situation in Texas, fee schedules for drugs, pending Federal legislation and the potential impact on comp, and the Gulf oil spill and its potential ramifications for Jones Act and Longshore/Harbor workers coverages.

While there wasn't a common theme (beyond the obvious) at the outset, by the end of the morning I was struck (as were several others in attendance) by the unintended consequences of past actions, and potential adverse consequences of future legislation and regulation.

As an example.

California slashed the work comp pharmacy fee schedule just about in half six years ago. Since that time, the number of scripts per claimant has increased 25% and costs per claimant are up 31% (CWCI stats). And that's not the worst of it. Schedule II narcotics have gone from less than one percent of scripts to almost six percent, a six-fold increase.

Why? How could costs go up if the fee schedule cut prices so deeply?

Simple. Some bad actors figured out how to game the system by repacking drugs and inventing their own prices, prices that were several times higher than they should have been. OK, that was fixed, albeit several years, and several hundred million dollars, later.

But there's another problem, one highlighted by the huge growth in narcotic dispensing - PBMs could not afford to effectively manage the drugs dispensed to claimants.

PBMs make their margin on the delta between what payers pay the PBM for scripts and what the PBM pays the pharmacy. When that delta is negative, as it is in California, there isn't any money to pay for data mining to identify potentially problematic prescribers; pharmacies that have low generic fill rates; claimants taking multiple narcotics and/or other meds that may conflict with those narcotics. And if they can identify the issues, they can't pay pharmacists and physicians to review medical records, contact the treating physician, discuss the issues, and resolve any disagreement.

Sure, PBMs and payers could decide to operate on a cost-plus basis, but there are business reasons payers prefer bundled pricing - its easier to assign it to a file, simpler to administer, and easier to report to clients and regulators.

That's not to say all PBMs don't try to clinically manage claimants' drugs - many do, and do a pretty good job given their severely limited resources. The payers that operate in multiple jurisdictions know that the PBM's fees in other states subsidize their California drug spend...and as long as California is the only state with a catastrophically low pharmacy fee schedule, that's OK (unless you're a California only payer, in which case good luck finding a PBM that will handle your pharmacy at fee schedule). But if other states decide to use a similarly low fee schedule, the wheels fall off the system.

This is but one example of unintended consequence of a seemingly obvious and easy way to reduce comp costs - costs actually increased dramatically, and I'd argue that length of disability did as well for those claimants on narcotics that otherwise would not have been.

The pending sunset of pharmacy networks in Texas is another example; due to the wording of Texas' comp reform legislation (as interpreted by the decision makers in Texas), PBMs can't operate in the state after 12/31/2010. There's a good bit of activity in Austin as various entities attempt to resolve this situation before the end of the year, and there's some hope those efforts will be successful. That said, there's no question a lot of work is being done by a lot of people who are tasked with cleaning up the 'unintended consequence' of unfortunately-worded legislation.

What does this mean for you?

As some smart person said years ago, "What makes you think you'll have time to fix it if you don't have the time to do it right to begin with". Lest readers construe this as a 'blame the regulator/legislator' rant - it isn't. Rather, stakeholders must engage with the people tasked with addressing these issues - before the laws are passed and regulations written. And yes, regulators and legislators would be well served to listen to those who live these issues every day.

Posted by at 10:02 AM | Permalink | Comments (1)

The evidence is pretty clear - low fee schedules don't have much, if any, impact on drug costs. Sure, they give the appearance of action, and some actuaries and politicians are able to claim future cost reductions based solely on slashing drug fee schedules from some multiple of AWP to some fraction of AWP, or perhaps even a state's Medicaid rate. But the data - whether from NCCI, CWCI, or my own firm's surveys, suggest that the price per pill (with some notable exceptions) is much less important in the scheme of things than how many and what type of pills are dispensed to claimants.

Exhibit One is CWCI's recent analysis of drug costs post implementation of MediCal as the basis for the work comp fee schedule. Alex Swedlow (one of the best and brightest analysts in the business) and John Ireland's analysis found "significant post-reform growth in both the average number of prescriptions and the average payments per claim for prescription medications. Between calendar years 2005 and 2007, the number of prescriptions per claim in the first year following a work injury increased 25 percent, while first-year pharmaceutical payments per claim increased 36 percent." [emphasis added]

Yes, after slashing the fee schedule from AWP+40% for generics and AWP+10% for brand (plus dispensing fees) to something closer to AWP-50% Generic /AWP-20% Brand, drug costs per claim went up. A lot. But that's not the worst of it.

The biggest percentage gainer? Schedule II narcotics - the heavy-duty stuff, associated with significant risk of addiction and abuse - went from less than one percent of scripts to almost six percent - a 600% jump in three years.

Why? One theory, which I've tested in conversations with several clinical pharmacists, is the drastic decrease in reimbursement in the Golden State left PBMs with no funds to do any real Drug Utilization Review (DUR), and even less to intervene on potentially high-cost, high-impact claims. PBMs make their money on the delta between what they charge the payer and what the retail pharmacy charges them; in almost all cases, PBMs' retail contracts call for reimbursement above the CA MediCal rate.

Tough to make that up on volume...

I'm meeting with interested folks in DC tomorrow to discuss this issue, and perhaps to think thru some potential alternatives to AWP, or God forbid, Medicaid as the basis for comp Rx fee schedules.

And as I prepare for the conversation, I'm thinking that a fee schedule based on Usual and Customary has some appeal.

U&C in pharmacy is the cash price for that drug on that day at that pharmacy; think $4 for the long list of generics pioneered by Walmart (which, by the way, is lower than what Walmart charges comp PBMs for the same drugs). Unlike other U&Cs, it is tougher to game, can be reported and collected electronically, and bears some relevance to market price - unlike AWP, which is known as 'Ain't What's Paid' as it doesn't factor in rebates, volume discounts, and other price-reducing mechanisms. True work comp drug geeks will know that 33 states currently use AWP as the basis for their fee schedules.

U&C isn't perfect - any time you base reimbursement on a rate that can be set by the payee, you open yourself up to abuse. But risk of abuse or gaming is likely pretty low - pharmacies see very few work comp scripts, and aren't likely to play games with their cash price customers just to make a few more bucks on a comp patient. And pharmacy chains do tend to alter pricing to respond to market demands, making U&C at least somewhat credible.

Perhaps best of all, U&C is going to be around for the long term - unlike the version of AWP that is most popular which will disappear within a year.

Posted by at 7:47 AM | Permalink | Comments (3)

This morning's announcement by CVS Caremark that they are terminating their contracts with Walgreens in 30 days ups the ante in the ongoing battle between the two huge pharmacy firms. The decision came after Walgreen's earlier announcement that it was not going to renew its contracts with the big PBM/retailer due to 'irreconcilable differences'.

After Walgreen's shot across CVS Caremark's bow earlier this week, Caremark's stock took a hit, dropping to its 52-week low after an 8% decline. Walgreens' valuation has also suffered, altho less than CVS/Caremark's.

There are a lot of moving parts here, which we'll try to briefly summarize.

First, retail pharmacy chains have been suspicious of CVS Caremark ever since the two companies merged several years ago, concerned that the PBM (Caremark) would favor the retail chain (CVS) over other retail chains, such as Walgreens, Rite-Aid, and independents and food/drug combos including WalMart. Walgreens isn't the only retailer complaining.

Second, we're in the bidding and contracting phase for next year's PBM contracts, and the loss of Walgreens' 7500 stores will throw a rather large X factor into big buyers' decision matrices. How that plays out has certainly been thought through at both companies; what actually happens will determine who ends up on top.

Third, Caremark will also terminate Walgreens from at least one of their Part D offerings. The fallout from this will be much less clear-cut; seniors may well stick with the retail store where they're comfortable and feel taken care of, and move to a competing PBM that includes Walgreens.

Fourth, staff are likely dancing in the halls at Caremark competitors Express and Medco; both companies have seen a slight uptick in their stock prices, and the timing couldn't be better for their sales efforts.

What's going to happen?

Some think Walgreens is going to blink. Caremark's business accounts for 7% of Walgreens' revenue, and that doesn't include the additional sales from Caremark members who pick up essentials along with their scripts. That's a lot of revenue. Walgreens has a bit of a history of backing down; we'll see.

Others are of the mind that Walgreens wouldn't have pushed it this far, this publicly, if they weren't fully prepared to end the relationship. Walgreens has certainly calculated the margins on this revenue, estimated how much they'll keep, and decided they are better off losing lower margin business today, and certainly have assessed Caremark's future strategy and decided things were only going to get worse. Better to cut their losses now and move on than to slowly bleed.

If the latter is indeed the outcome, Walgreens will certainly have to push retail and one-to-one marketing much harder. They will have to convince consumers that they are better served by Walgreens than any other pharmacy. That will take a significant investment on the marketing and promotion side over and above what's been spent historically.

UPDATE - moments ago Walgreens released the following - it is increasingly clear that if there's any blinking to be done, it isn't going to be on the part of the pharmacy chain.

"We are disappointed but not surprised that CVS Caremark has taken this action. In making our decision not to participate in any new and renewed plans by CVS Caremark, we sought to minimize any disruption to existing relationships between pharmacists and patients. CVS Caremark's move plainly contradicts its own statement on June 7 that their mission is to provide broad access and choice for consumers. Their patent disregard for patient choice and broad access reflected in today's decision reinforces our conviction that it would not have been in the best interests of our patients, pharmacists or shareholders to grow our business with CVS Caremark. Regardless of CVS Caremark's decision, we are confident of our ability to continue to grow our business as a provider in hundreds of other pharmacy benefit networks and as a direct provider to employers."

Interestingly, no one thinks Caremark is likely to back down.

What does this mean for you?

A window into the coming battles between insurers and providers, with insights into employer- and consumer-driven buying.

Posted by at 9:21 AM | Permalink | Comments (1)

Walgreens announced this morning it will sever ties with PBM giant CVS Caremark.

The news came in an announcement from Walgreens that identified several reasons for the decision including pricing inconsistencies, movement of patients frm Walgreens to caremark's mail order program, and other business practices that appeared to favor CVS over Walgreens.

While I have no inside information on this, it undoubtedly came after a series of escalating discussions between the two companies, the last of which may have been ultimatums from both parties.

While some may see this as the last step in a game of brinksmanship, Walgreens would not have made this decision lightly; the change pushes a lot of buyers out of their stores, buyers who also purchase toiletries electronics and other goods that make up the majority of Walgreens retail sales.

What does this mean for you?

If Caremark is the network used by your PBM, start looking. Walgreens' actions may inspire smaller pharmacy chains to rethink their Caremark relationships.

Posted by at 8:46 AM | Permalink | Comments (1)

Mike Whitely of WorkCompCentral's article [sub req] on Florida Governor Charlie Crist's veto of the bill limiting reimbursement for physician-dispensed repackaged drugs illustrates just how confusing the weird world of work comp can be to the uninitiated - like Mr Crist.

For those unfamiliar with repackaged drugs, here's a quick primer.

First, recall drug costs in comp are driven more by utilization than by price, except in instances like this where price gouging is rampant.

Work comp drug fee schedules peg the amount paid for drugs to a multiple of AWP (except CA, which uses Medi-Cal); Florida's is set at 100% of AWP plus a $4.18 dispensing fee for both generics and brand drugs. (As I've noted previously, there are major issues with the use of AWP.) But AWP is based on the drug's NDC number, a code that can be created by the wholesaler. Thus, if a company wants to buy a million 800 mg ibuprofen tablets and repackage them into lots of 27, it can create it's own NDC, and thus set its own AWP.

CWCI (California) research showed that the repackaged drug ranitidine (generic Zantac) was priced at $255.56 for 150 mg. pills, compared to a retail pharmacy's cost of $25.90 and Drugstore.com's $19.71; the difference in markup on the ingredient cost between physician dispensing and pharmacy dispensing was about 1700%. Naproxyn (Aleve) markup averaged 1000%, Vicodin 750%.

Since California figured out how to prevent entrepreneurs making a fortune by repackaging drugs, the repackagers moved into other states. Florida is the current target; the latest Survey of Prescription Drug Management in Workers Comp indicated this is also a big problem in the upper midwest and southwest. Some states, including Texas and New York, specifically prohibit physician dispensing.

Florida's drug costs were recently analyzed by WCRI, which reported:

"...the average payment per claim for prescription drugs in Florida's workers' compensation system was $565--38 percent higher than the median of the study states.

The main reason for the higher prescription costs in Florida was that some physicians wrote prescriptions and dispensed the prescribed medications directly to their patients. [emphasis added] When physicians dispensed prescription drugs, they often were paid much more than pharmacies for the same prescription.

The WCRI study, Prescription Benchmarks for Florida, found that some Florida physicians wrote prescriptions more often for certain drugs that were especially profitable. For example, Carisoprodol (Soma®, a muscle relaxant) was prescribed for 11 percent of the Florida injured workers with prescriptions, compared to 2 to 4 percent in most other study states.

Financial incentives may help explain more frequent prescription of the drug, as the study suggested. The price per pill paid to Florida physician dispensers for Carisoprodol was 4 times higher than if the same prescription was filled at pharmacies in the state. [emphasis added]

The study reported that the average number of prescriptions per claim in Florida was 17 percent higher than in the median state. [emphasis added] Similar results can be seen in the average number of pills per claim."

Physician dispensing is not all bad; there's something to be said for ensuring the patient receives the right drug on the way out of the office, improving compliance and reducing the patient's hassle factor.

Crist, who is going to be running as an Independent for re-election this fall, may have bowed to pressure from lobbyists working for physicians and repackagers. He certainly wasn't trying to ingratiate himself with business; several larger employers were reportedly behind the measure.

So, what do you do about this?

Some payers are rewriting their provider contracts to specifically ban physician dispensing. Others are unilaterally cutting reimbursement to the 'non-repackaged' level. Another tactic is to notify contracted physicians that no new patients will be directed to them if they bill for repackaged drugs.

As Florida is an employer-direction state, payers have a lot of control and influence over physicians.

Use it.

Posted by at 6:38 AM | Permalink

As CMS seeks to ensure taxpayers don't pay for care due to comp, liability, or other causes, Medicare Set-Asides will become more common. And as we've seen recently, one of - if not the - biggest cost areas is pharmaceuticals.

NCCI's studies show that the older claims are, the greater percentage of spend is for drugs, which can account for as much as forty percent of spend in older claims. That, and the recent news that CMS is revising its position re some issues related to projecting future drug costs, have brought much-needed attention to this issue.

My read on the drug-cost-projection issue is simple: to a large extent, the problem is self-inflicted by the work comp industry. With some notable exceptions, most payers have simply not done enough to manage the long term drug therapies of their long term claimants. Understanding that in some states this can be problematic; that many claimants have legal representation; that evidence-based guidelines and research on the science of pain is not as robust as we'd wish; and that patients drive much of the decision making and big pharma has huge dollars to influence physicians and consumers, there's still much that can be done.

Here, in no particular order, are a few strategies worth considering.

1. Partner with a PBM that has a strong clinical orientation coupled with data mining expertise.

2. Motivate adjusters and case managers to identify potentially problematic drug usage and give them the tools and clinical back-up to do something to forestall issues.

3. Put in place early warning processes and flags to identify claims that appear to be heading towards questionable drug use or use of medications with uncertain benefits for the comp injury.

4. Assess the various evidence-based clinical guidelines and determine if they can help your claims staff.

5. Identify physicians with appropriate and potentially inappropriate prescribing patterns, assess those patterns, and determine how best to use that information to direct claimants and 'mange' physicians.

6. Encourage treating physicians to use opioid contracts and drug testing in their normal course of practice.

Most importantly, be proactive. Don't whine, complain, and blame the system, pharma, bad docs. They all may be contributors, but blaming them doesn't solve the payer's problem - action does.

What does this mean for you?

Addressing drug usage early and intelligently can dramatically reduce MSA settlement costs. Oh, and it can certainly help cut indemnity and reduce disability duration as well.

Posted by at 8:23 AM | Permalink | Comments (1)

This morning ended with Medco's annual Drug trends report, which focused on their top 200 clients that account for the vast majority of Medco's annual spend. As one of the big three PBMs (along with Caremark/CVS and Express Scripts), their numbers are a good indication of overall industry trends, and provide a benchmark for program evaluation.

(as a cautionary note, be careful with semantics here, as trend, inflation, and increase can mean the same or slightly different things depending on context)

In 2009, overall trend (cost inflation) was 3.7%. This was driven by a utilization increase of 1.3%, cost increase of 2.4%. In turn, the cost inflation was primarily affected by a brand drug price increase of 9.2% compared to a mere 0.3% for generics. Also contributing to the cost inflation result was a positive change in generic mix, where generic usage increased 3.2%.

Here's an important take away - Medco's clients where mail order accounted for more than 50% of their spend saw much lower cost increases - 0.1%, versus over 5% for those w less than 50% of spend obtained via mail order..

The most disturbing note regarded children.

20% of kids are on a chronic maintenance drug. Medco is seeing significant growth in Type 2 diabetes among kids - more among adolescent girls v boys. Their sense is this is probably driven mostly by obesity, as they are also seeing kids with lipid reduction and hypertension meds. According to Medco, there's "Lots of adult drugs popping up in children."

When asked about the brand drug price increase, CEO Dave Snow credited health care reform as the most likely driver. Specifically, Snow noted the tax on brand pharma contained within the reform bill may well be correlated with the higher brand drug prices, as pharma passes these taxes through to consumers. He believes the price jump is evidence of this 'pass through' occurring.

I'm a bit confused about this as the price increases occurred before the passage of reform, and likely some prices on individual drugs were raised while it was unclear whether reform would go thru. When asked about this, Snow noted that pharma had agreed to the $80 billion tax early on in the process, so went ahead under the assumption that this tax would occur. Makes one wonder if prices would have been reduced if reform hadn't occurred... (he said with tongue firmly in cheek)

Asked about any data on usage or trends of narcotic opioids, Schedule drugs - more to come on that.

Posted by at 11:25 AM | Permalink

CompPharma LLC, a consortium of workers comp PBMs, has just published a glossary of terms commonly used in the comp pharmacy business, the press release is here and the glossary, which entitled CompPharmaPedia, is here.

Why a glossary?

Several reasons.

Regulators and legislators are working feverishly to figure out what they will use as a basis for their pharmacy fee schedules when AWP is no longer published by First DataBank. While they are working on fees, they may well want to tweak other provisions of the comp code; CompPharmaPedia can help provide a standard definition of terms so stakeholders have a consistent understanding of what, for example, a 'claim' is.

(in comp, a claim is the injury and all the activity surrounding that activity; in group and governmental programs a claim is the bill for a specific medical procedure(s) or prescription or service)

Many payers are looking to improve the results of their pharmacy programs, and there's a good deal of confusion out there as different PBMs use different definitions in their reports and marketing literature. CompPharmaPedia is an attempt at standardization, so payers can do the proverbial "apples to apples" comparison.

Researchers are looking deeper into comp pharmacy, and CompPharmaPedia should help them use standardized terms to improve understanding across the entire community.

A couple of disclaimers.

CompPharmaPedia is a service; there is no 'requirement' that PBMs, or anyone else, use the definitions. PBMs may and some likely will continue to use their own definitions.

CompPharmaPedia is also a work-in-progress, and will evolve as the comp pharmacy business does. Expect more terms to be added and current definitions to be 'tweaked'.

(Note - CompPharma is owned by myself and Helen Knight.)

Posted by at 7:13 AM | Permalink

As industry insiders have known for almost a year, Average Wholesale Price as published by First DataBank, is going away. Triggered by a settlement in a lawsuit filed in Boston in 2006, as of March 2011 FDB will no longer publish their version of AWP. (There's a bit of disagreement as to timing, as one authoritative source indicates FDB is scheduled to discontinue the publishing of AWP in October 2011 (not March). I'll find out what I can find out)

Regardless, FDB's publication of AWP is going to cease. Sources indicate the National Association of Chain Drug Stores (NACDS) is suggesting a move to a new pricing methodology based on Wholesale Acquisition Cost, or WAC.

What's with WAC?

WAC is the manufacturer's list price for drug wholesalers and direct purchasers, excluding prompt pay or other discounts. (Note WAC may not bear much resemblance to the actual price paid, a problem it shares with AWP...)

NACDS and drug retailers would like to see a conversion to WAC; in fact NACDS has been advocating WAC for at least five years. WAC is generally accepted in broad swaths of the payer community; around ten states use WAC in their Medicaid pricing; the huge TriCare program is also WAC-based.

Here's a bit of history.

The original legal case rested on FDB's selection of McKesson as the sole source of drug pricing data. FDB's AWP was based on the actual price that McKesson paid for the drug, plus a margin. For years the typical margin was 20%; six years ago McKesson changed the margin to 25% to make it 'simpler to administer pricing internally'.

The price increase also earned McKesson points with its customers, retail pharmacies, who saw an immediate increase in profitability - profits on Lipitor immediately jumped three-fold after the 2002 increase. As part of the settlement in the 2006 case, FDB agreed to stop publishing prices two years after the finalization of the settlement (which is March of next year).

As cognoscenti are well aware, the suit has already had repercussions. On September 26, 2009, First DataBank and MediSpan, the firms that publish Average Wholesale Pricing tables changed their methodology to revert to the 20% margin, thereby reducing the drug's AWP cost by almost four percent.

Wait, it gets more complicated. FDB is not the only publisher of AWP, and AWP, as published by RedBook and MediSpan, may be around in some markets for a while. The case for the persistence of AWP is that it is broadly used today, and RedBook and Medispan have not been charged with the kind of pricing manipulation that led to the FDB settlement.

Conversely, for some time AWP has been disappearing in generic pricing, where it is being replaced by MAC (maximum allowable cost), FUL (Federal upper limit), and other methodologies that seem to provide a more objective and less fungible baseline.

There's another reason AWP may be on life support; it is broadly reviled as few payers believe, and with good reason, it has any real objective basis.

Implications for workers' comp

As I reported several months ago, work comp regulators are wrestling with the issue, as 33 states base their work comp fee schedule on AWP (California doesn't). Where they end up will be heavily influenced by the metric chosen by group/Medicare/Medicaid; drug spend in comp is about 2% of the nation's total bill of $220 billion.

Posted by at 7:25 AM | Permalink | Comments (1)

The decrease in the workers comp drug cost inflation rate that persisted for five years appears to be over. According to HSA's Sixth Annual Survey of Prescription Drug Management in Workers Compensation, the five-year 'decrease in the rate of drug cost increase' is over, as drug costs across the industry were up 7.5% in 2008, compared to 7.7% the year before.

Workers comp payers, including large and mid-tier insurers and TPAs, are increasingly knowledgeable about drug costs, utilization, drug management approaches and programs, and cost drivers. However, while some are quite sophisticated, a few continue to exhibit little understanding of this cost area; unsurprisingly these are the payers with the highest drug cost inflation rates.

In contrast to prior years, the drug cost inflation rate tended to be lower at smaller payers than their larger competitors, as smaller payers seem to be 'faster to market' with utilization controls, adjuster education, and data sharing with their PBM partners.

Once again, utilization is seen as the key driver, with respondents citing over-prescribing, over-use of pain medications, and physician prescribing patterns as key reasons for cost increases.

The recent URAC initiative to 'certify' work comp PBMs met with mixed reviews; twice as many respondents considered URAC certification 'not important at all' as viewed it as 'extremely important'.

To combat cost inflation, savvy payers are increasing their investment in data mining and analytics, adopting step therapy programs, enforcing mandatory generics, and calling on their PBMs to provide clinical support for drug management. Payers are more knowledgeable about and 'on top of' their drug cost and utilization data, with most having ready access to generic fill rates, generic efficiency, network penetration, price changes, and other summary information. First fill capture statistics are also more widely captured, as payers seek to gain control over drug usage as early in the claim cycle as possible.

Continuing a five year trend, no one PBM has established a dominant position in the market as the leading PBM. However, PBMs are all rated much higher than Third Party Billers.

In partnership with the good people at WorkCompCentral, I'll be providing an overview of the most recent findings from the in a webinar scheduled for Tuesday, January 12 from 1:00 - 2:00 pm eastern. The cost for the webinar is $149.

Webinar registrants will receive a copy of the Survey results, to register click here and enter the code 'Hsarx'.

The public version of the Survey will be released on Monday, January 18. If you would like a copy, email info AT healthstrategyassoc DOT com. Seminar participants will receive a separate, detailed version of the Survey.

Posted by at 6:30 AM | Permalink

The five year downward trend in drug cost inflation appears to be over, driven by excessive utilization, pain management, and price increases on a couple key drugs. But not all payers are experiencing increased costs; some actually saw costs decline in 2008, due to strong clinical management, a solid understanding of underlying cost drivers, and a willingness to engage with treating physicians.

Those are among the findings of the Sixth Annual Survey of Prescription Drug Management in Workers Comp, completed late last year.

In partnership with the good people at WorkCompCentral, I'll be providing an overview of the most recent findings from the in a webinar scheduled for Tuesday, January 12 from 1:00 - 2:00 pm eastern. The cost for the webinar is $149.

Webinar registrants will receive a copy of the Survey results, to register click here and enter the code 'Hsarx'.

Posted by at 12:01 PM | Permalink

Just in time for Christmas, the good folks at NCCI have released their study of Narcotics in Workers Compensation, providing readers with just what they want - more evidence that the workers comp industry has a long way to go to get prescription drug use under control.

Sorry to spoil your pre-holiday glee, but the news is pretty troubling. Here, according to Barry Lipton et al, are the 'highlights':

- Narcotics account for nearly one quarter of all workers compensation Rx costs
- The share of drug costs attributed to narcotics increases as claims age
- Narcotics are used mostly for back injuries in workers compensation
- and perhaps most troubling, the use of narcotics early in the life of claims is increasing

NCCI's report (which uses 2007 data) comes on the heels of my firm's Sixth Annual Survey of Prescription Drug Management in Workers Comp, which found drug cost inflation jumped top 7.5% in 2008, marking the first increase in the inflation rate in the six years the Survey has been conducted.

The 'good news' is that the percentage of drug dollars spent on narcotics has stayed relatively flat for the last eight years, this despite the rapid, and close to complete, penetration of PBMs into the work comp space. While that good news may not appear to reflect well on PBMs (and payers' efforts too), NCCI found that average narcotic costs per claim stabilized several years ago after several years of rapid growth. (I'm a big believer in cost per claim as a metric, as it does away with the influence of variations in claim frequency and is thus a better way to assess drug management performance)

The net? Cost increases have flattened out, but to this non-pharmacist's eye there appears to be a lot more narcotic spend than necessary.

There are some rather interesting geographical nuances here as well; states with above average use of narcotics include CA, OK, TX, LA, AL, SC, MA, DE, and NH, proving that it isn't just the deep South that has a narcotics problem.

What does this mean for you?

Time to get focused and get after your drug problem. This isn't just a drug cost issue; the extended use of narcotics is also associated with longer duration of disability and higher claims costs.

And a note of compliments to NCCI on the study - this is precisely the kind of information payers need to know.

Posted by at 8:16 AM | Permalink

In 2004, California implemented a set of far-reaching reforms to its workers comp system, including several specifically aimed at cutting medical costs. One of the more drastic changes changed the pharmacy fee schedule from one based on a significant multiple of AWP to one tied directly to the Medi-Cal fee schedule (California's name for the state Medicaid program). Medi-Cal's fee schedule is actually lower than most comp PBMs' contracted rates with retail pharmacy chains; as a result most PBMs are 'under water' on their business in California or are at best at break-even.

While medical costs have come down dramatically after reform, especially in physical medicine, that has not been the case for pharmaceutical expenses.

In fact, costs increased significantly, driven by significant increases in both the average number of prescriptions per claim and the average payments per claim for prescriptions. In addition, payments for Schedule II narcotics, categorized as having a high potential for abuse and addiction, increased nine-fold after reform. Schedule II drugs are also strongly associated with extended disability duration, driving up both medical and indemnity costs.

According to the California Workers Compensation Institute, the average number of first-year prescriptions per claim increased 25 percent after the implementation of the Medi-Cal link, while the average drug cost per claim went up 37 percent. (Changes in Pharmaceutical Utilization and Reimbursement in the California Workers' Compensation System, September 2009)

The problem with physician repackaging/dispensing has largely been addressed, yet costs continue to escalate. From conversations with PBMs that dominate the state, it is clear that California's reimbursement levels don't allow them to invest in utilization management and clinical programs, both of which are keys to controlling total drug cost. Studies conducted by NCCI clearly indicate the primary importance of utilization as the driver of comp drug costs; surveys conducted by my firm have confirmed this as well, as those payers focused on managing utilization have seen their drug costs drop while payers without strong utilization controls consistently see drug cost inflation rates well above average.

Clearly, the linkage to Medi-Cal has not reduced drug costs for California's employers.

What does this mean for you?

If California doesn't rethink its approach to drug fee schedules, expect your costs to continue to increase.

Posted by at 7:12 AM | Permalink | Comments (1)

The chances of some variety of health insurance reform passing are looking more likely and big pharma is getting ready.

By raising branded drug prices nine percent (so far) this year., and this at a time when the Consumer Price Index fell by 1.3%.

You may recall the big press event when pharma and the White House announced their 'agreement' whereby pharma would agree to not fight reform in exchange for reductions of about $8 billion a year in pharma costs. That deal is either off the table, or it wasn't carefully enough crafted on the front end, because drug companies have been steadily raising prices for brand drugs this year, evidently in anticipation of big changes in the future. In fact, it looks like the increase so far this year more than compensates for the agreed-upon 'cuts' announced earlier.

Readers will remember the last time drug prices jumped significantly was just after the Medicare Part D program went into effect, when the largest quarterly increase in years just happened to coincide with the beginning of the program.

There are political as well as practical implications of these price increases. From a political perspective, pharma may be doing to itself exactly what healthplans did with the disastrous release of the PwC 'report'. Health plans thought they had a deal with the Administration, only to infuriate the White House and Congressional Democrats with the flawed and incomplete 'analysis' (even though the concept was right and conclusions accurate, the presentation killed any chance of objective consideration).

With the release of this analysis, Congressional Democrats have yet more evidence of the profit-driven mentality that many believe is directly responsible for our dysfunctional health care system. Do not be surprised if the reaction from Congress is loud, fast and brutal.

What does this mean for you?

This is more of an issue for group and Medicare/caid operations than for workers comp, as comp has a greater percentage of generic fills. But there's no doubt all payers' drug costs are going up significantly this year.

If you're a PBM, get ready to explain higher drug prices.

Posted by at 6:50 AM | Permalink | Comments (3)

No one knows just yet, not even the regulators and legislators who are the ones tasked with coming up with a mechanism to replace AWP - which is going away in less than eighteen months.

More accurately, the First Databank/Medispan version is going to disappear; the Redbook version will still be around.

One option is to use Redbook as the standard, and there are some indications from some states that they are looking at Redbook. But Redbook has its issues - folks who know more than I about these things say it is not updated as frequently as Bluebook, and while it covers more medications, this 'delay' may make it problematic for PBMs who may well get into disagreements with retail pharmacies over the reimbursement level.

Beyond that 'quick fix', here's how the changes may roll out. States with fee schedules set by their legislatures may well find themselves hard-pressed to meet the deadline; some, like Texas, aren't due to meet until 2011, and others have a rather full legislative agenda with a lot more important stuff to deal with than work comp drug fee schedules. Thus, it is entirely possible that some states may not be able to address the issue before the clock runs out.

In that case, PBMs and payers will likely have to use the last version of the FDB AWP file for repricing pharma bills. That's fine if the delay in selecting a new benchmark is a matter of days or perhaps weeks, but if it goes much beyond that we'll see problems as prices charged by pharmacies will change while the reimbursement levels don't. Litigation will likely ensue...

States that manage fee schedules via regulatory process are (likely) going to be a bit better off, as these processes are not dependent on the legislative process and complications thereof. Several states are already carefully evaluating alternative methodologies, and from my interaction with a number of regulators at the IAIABC conference last month, they are goign about this thoughtfully and with their eyes and ears wide open.

The real risk is if fee schedules are changed to match the Medicaid reimbursement rates.

This would be a disaster, as it was in California when physician dispensing exploded, and drug costs actually increased after the fee schedule was linked to Medi-Cal. In NY, where the State also set WC reimbursement at Medicaid, every PBM sent letters to the Chairman of the Workers Comp Board relaying their intention to exit the state if rates were not revised. Fortunately for all parties, they were successful in their efforts.

Unlike workers comp, there is no eligibility problem with medicaid - all recipients have a card. The formulary and DUR processes are well known and electronically administered. In comp, many claimants don't know who their PBM is, and the only drugs that are approvced have to be directly related to the occupational injury or illness. These are just a couple of the distinctions, but they serve to illustrate the fundamental, and real, differences between comp and Medicaid.

Stay tuned - it is likely the big group PBMs and payers will move to another pricing benchmark, and like it or not, that will become the de facto 'standard'.

Posted by at 12:32 PM | Permalink | Comments (2)

My post yesterday about the coming changes to the AWP pricing formula for drugs included the statement

Understandably, the pharmacies, both independents and chains, are asking the big PBMs to change their contracts to account for the change by reimbursing the pharmacies a few points higher then their current rate.

Word is the big PBMs - Medco, Express - have politely declined.

The second sentence is wrong. Sources indicate the pharmacy chains/independents and the big PBMs are working thru the issue, or have already agreed to terms intended to preserve "cost neutrality" for the pharmacies.

I don't have all the details on this yet, but wanted to correct my mistake as quickly as possible. More information to follow...

I apologize for the error.

Posted by at 5:01 PM | Permalink

My firm, Health Strategy Associates, has conducted a survey of prescription drug management each year for the last five. I'm well into the survey portion of the Sixth Annual Survey, and here are some preliminary findings.

1. Drug cost inflation appears to show signs of rebounding after five years of decreases in the rate of increase. The data is by no means complete, but most of the respondents to date reported cost inflation was higher in 2008 than the previous year.

2. More respondents are tracking their first fill capture rate this year than last. There appears to be a significant focus on this metric, based at least in part on the sense that the earlier the PBM can get involved in a claim, the more likely it will be able to minimize over-prescribing and inappropriate dispensing.

3. Respondents are more aware of the actual strengths and weaknesses of specific PBMs than they were in the past; the buyers with strong knowledge of and experience in this niche are pretty savvy.

4. The primary cost driver remains utilization - too many of the wrong type of drugs dispensed by too many physicians, especially for pain.

5. Clinical management programs are increasingly important to payers (see 5. above), and they are getting smarter about these programs, what works and what doesn't, and why. Marketing pitches aren't cutting it any more; these folks want to see programs in action, study the reports, and understand the logic.

The report will be out next month. If you'd like to download copies of the previous reports, click here.

Posted by at 10:14 AM | Permalink

Well done, RiteAid.

Industry sources indicate RiteAid and workers comp PBM FirstScript have worked out their differences; RiteAid is again accepting FirstScript claimants.

While no one would speak on the record, reliable sources reported that the deal came together when FirstScript agreed to stop accessing group health reimbursement contracts for their claimants (in comp, patients are claimants, not members). This was the very large bone of contention that led RiteAid to boot FirstScript out of their stores several weeks ago.

This is good news - not only for FirstScript, but also for all retail pharmacy chains. As I noted in an earlier post, retail stores charge more for comp scripts because it costs them significantly more to identify the correct payer, establish eligibility, and comply with utilization review edits and processes. That's entirely reasonable and appropriate.

Price compression in the comp PBM business has driven down margins, and is likely behind the RiteAid-FirstScript 'disagreement'. As PBMs compete for business in what is a rapidly-maturing market, they make price concessions to get new deals. This drive for share has come smack up against the reality that the PBMs' cost of goods sold is pretty consistent across all PBMs; thus the ones that want to continue to slash price to gain share have to figure out another way to reduce their cost.

In violation of their contacts with the chains, some (but by no means all) PBMs have been accessing group health/Medicare contract rates.

RiteAid's tough stance has paid off for the retail giant; good for them. Now we'll see if other retail chains also do the right thing and get tough with WC PBMs that are circumventing their contract obligations.

If they do, we'll see a level - and fair - playing field for WC PBMs. If the retail chains don't get tough with the PBMs using group contracts they'll lose revenue and force the PBMs that are complying with their contracts to either lose business to the unethical PBMs or join the 'bad guys'.

Note - as mentioned ad nauseum I'd welcome a response from firstscript or their parent but my requests have been ignored.

Posted by at 8:44 AM | Permalink

I had a chance to speak with the PR folks from RiteAid this morning, who were responding to my request for additional information about RiteAid's decision to terminate its relationship with work comp PBM FirstScript.

RiteAid is still participating with other work comp PBMs, just not with FirstScript. Sources also indicate that California-based work comp PBM WorkComp Rx has also been terminated by RiteAid for the same reason - processing comp scripts through group health contracts.

As this is a contracting matter, RiteAid will not comment on it publicly, and I won't characterize my conversation with their corporate PR staff.

However, other internal sources have confirmed that RiteAid has term'ed their relationship with FirstScript. And I'm also hearing that FirstScript has told at least some of their payer customers that they should have their claimants start using other pharmacy chains. FS is obviously doing this in an effort to force RiteAid back into their network; by threatening to pull customers out of stores, FS is trying to hit the big retailer where it hurts most.

Other PBMs are watching very, very closely - as are other retail chains. If RiteAid backs down (which to date it has shown no intention of doing) expect other PBMs to start using group health contracts to process work comp scripts. If they hold firm, and if other chains follow their lead rather than seeking to benefit from RiteAid's principled position, order will be restored to the market, rule-abiding PBMs will no longer be penalized, and rule-ignoring PBMs will get their comeuppance.

Hang in there, RiteAid. And to the rest of the chains, do the right thing.

Posted by at 1:07 PM | Permalink | Comments (3)

Retail pharmacy giant RiteAid is no longer accepting work comp claimants administered by PBM FirstScript. RiteAid, which owns almost ten percent of all retail pharmacies in the nation, decided to terminate their relationship with FirstScript due to a dispute over processing of work comp scripts.

Despite reports to the contrary, RiteAid is still working with other work comp PBMs.

FirstScript uses CVS/Caremark's network of pharmacies;FirstScript was allegedly processing work comp scripts through the CVS/Caremark group health network, thereby getting lower prices than if the scripts had been identified as workers comp. This has long been a bone of contention among PBMs and retail chains alike, as those PBMs that use work comp contracts typically pay significantly more for their drugs than they would pay under group health (or Medicare) contracts. PBMs that play by the rules (only processing comp scripts via their comp contracts) contend that some PBMs do not play by the same rules, a situation that puts the 'rule-abiding' PBMs at a distinct disadvantage.

Retail stores charge more for comp scripts because it costs them significantly more to identify the correct payer, establish eligibility, and comply with utilization review edits and processes. That's entirely reasonable and appropriate.

Price compression in the comp PBM business has driven down margins, and is likely behind this alleged conflict. As PBMs compete for business in what is a rapidly-maturing market, they make price concessions to get new deals. This drive for share has come smack up against the reality that the PBMs' cost of goods sold is pretty consistent across all PBMs; thus the ones that want to continue to slash price to gain share have to figure out another way to reduce their cost.

RiteAid is still in the business of filling work comp scripts - just not for FirstScript claimants.

The chain continues to work with other workers comp PBMs, including ScripNet, Progressive, Cypress Care/Healthcare Solutions, Express Scripts/MSC, Aetna, Modern Medical, PMSI/Tmesys, Cogent Health, and MyMatrixx.

Of note, FirstScript claims their network includes 61,000 retail pharmacies. This may not have been updated to reflect the RiteAid termination, as it is next to impossible to have that many retail outlets without RiteAid.

Sources indicate other chains are closely monitoring this situation, as they too have been frustrated by PBMs processing work comp scripts under their group health pricing arrangements. Industry watchers (including your author) have been waiting...and waiting...and waiting for the chains to actually do something to stop this practice. Perhaps other chains will follow RiteAid's lead and force compliance with their contracts.

Their failure to do so has - and continues to - penalize(d) those PBMs and payers that complied with their contracts.

Kudos to RiteAid for stepping up. About time.

Posted by at 6:51 AM | Permalink

This is more of a question than anything else.

AWP (average wholesale price) as a pricing mechanism for drugs will eventually go away (due to a court order). There is an intense, if not very objective or helpful, debate re what should replace AWP.

In a conversation this morning with Jim Andrews of Cypress Care, he provided more insights into the options on the table (MAC, WAC, etc) and opined that getting rid of AWP may sound good, but the real question is, "so...then what?"

The Feds will cut reimbursement for Medicare/Medicaid, likely to the same rates the VA pays, or instead require a substantial rebate (15% - 20%) on all purchases. That's going to happen, as Obama et al need to create savings to fund the expansion of coverage (which will cost about $1.2 trillion).

Pharma and the various intermediaries between manufacturers and patients (wholesalers, PBMs, retail stores, distributors) will have to figure out how to make up for the lost margin/revenue and/or get more efficient to reduce costs. But no matter how efficient they get, we are still looking at reduced profits for manufacturers, which they will look to make up by increasing prices to non-governmental entities. (admittedly that's conjecture, but pretty educated conjecture)

Which brings us back to pricing. When AWP goes away, the issues inherent in pricing based on some 'standard' will not. However, the standard that is selected may result in more, or perhaps less, confusion than that already existing with AWP.

What does this mean for you?

Likely a headache and desire for Friday afternoon to come even faster.

Posted by at 8:20 AM | Permalink | Comments (5)

Drug utilization declined slightly in 2009, while prices for brand drugs jumped eight percent. And specialty drugs, although a tiny portion of the total number of scripts, drove sixty percent of the overall growth in drug costs.

The net? Medco's overall drug spend grew 3.3 percent in 2008. Removing specialty drugs from the calculation results in a 1.3% trend rate.

The decline in utilization appears to be driven in large part by two factors - drugs that were only available by prescription (think Claritin, Zyrtec, Prilosec et al) are now over the counter, and some folks are avoiding other prescription drugs over concerns about safety,

These results are contained in PBM giant Medco's 2009 Drug Trend Report, released this morning. The company has sixty million members, so the data does provide insight into broader, national trends.

Over the next two years, Medco is projecting annual spending growth of 4% - 7%, with specialty drugs' inflationary influence overcoming significant patent terminations for brand drugs. That said, illnesses such as diabetes, hypertension, hyperlipidemia, and the resulting heart disease are having a major impact on drug spend, as well as overall medical inflation.

These are all heavily influenced by obesity, a problem that continues to get worse - and worse.

Notably, Medco's analysts don't believe the weak economy had as much of an impact as these other factors, although there was a bit of an uptick in generic utilization (now at 64.1% of all scripts). As noted above, the big driver was specialty drugs, which rose at an annual rate of 15.8%. Their influence is going to increase, as about a third of all medicines in the pipeline are specialty drugs. Their share of total spend, driven by price increases more than utilization, is now at 12.8%; one-eighth of all drug costs are for these highly-specialized medications.

Of interest to those in the work comp space, narcotics and anti-seizure meds each accounted for about 2.7% of total spend, a marked contrast to their overwhelming presence in the comp space.

Nationally, drug costs were projected to increase 3.5% in 2008; in contrast physician expenses were up 6.2% and hospital costs jumped the most - 7.2%.

Posted by at 10:24 AM | Permalink | Comments (4)

A couple weeks ago the good folks at PMSI sent a copy of their excellent Drug Trends Report over for a preview before the 'official' release at RIMS. There's some interesting stuff in the Report, lots of good info about cost drivers, the impact of re-branding OxyContin; the effects of price and utilization on total drug costs, and other wondrously fascinating material (I know, get a life...)

A few days ago the fine people at ExpressComp (the workers comp PBM unit of PBM giant Express Scripts) published their Drug Trend Report - and while it is noticeably shorter than their friendly competitor's, it is nonetheless packed with insights and information.

But don't make the mistake of trying to compare the two PBMs' reports, as their client bases, analytical methods, data definitions, and analytical methodologies tend to be different - in some ways, quite different.

Here's a couple ways the Express Scripts business may show different results from PMSI's.

1. ESI services some of the largest state funds - including California and New York. With significant variation in prescribing and dispensing patterns across the country, it would be surprising if their data did NOT show differently than PMSI's (which has some significant market share in the southeast as well as extensive national coverage).

2. PMSI doesn't include out of network transactions; others do. Neither methodology is good or bad, they just reflect a different approach. Yet this can skew the data significantly, and make a PBM look 'better' or 'worse' depending on how you view the data.

3. Some payer clients are more sophisticated, employing strong prior auth and clinical drug management programs, and thereby reducing utilization for expensive drugs. Other payers are lazy and/or indifferent. PBMs don't control payer behavior, rather they have to adapt to that behavior. I'm NOT saying ESI's customers or PMSI's are more or less savvy, just that they are undoubtedly different. And that difference is reflected in the results delivered by each PBM.

On the positive side, both companies use the same title for their publication..."Drug Trend Report" - demonstrating that consistency can actually lead to more confusion!

What does this mean for you?

When comparing two programs, or two vendors, dig deep into the data to make sure you really understand the methodologies and definitions. Otherwise you'll not have the right info to make the correct decision.

PostScript

CompPharma LLC has been asked to help develop standardized data definitions and methodologies to enable PBMs to produce reports that will allow inter-company comparisons. If the PBM members agree to pursue this, expect the standards will be out in time for next year's Reports.

(note I am affiliated with CompPharma)

Posted by at 6:31 AM | Permalink

In one of those all-but-unnoticed moves that could have a dramatic effect on workers comp, the FDA has moved to ban a number of currently-dispensed pain medications, medications that are currently prescribed to many work comp claimants.

These aren't the wildly expensive, oft-abused drugs like Actiq and Fentora, rather the list includes many old stand-bys, drugs that have long been used to manage chronic and acute pain. The list covers drugs "that include high concentrate morphine sulfate oral solutions and immediate release tablets containing morphine sulfate, hydromorphone or oxycodone." The FDA's concern appears to be that these drugs were in use before the current approval process became mandatory. The "Agency has serious concerns that drugs marketed without required FDA approval may not meet modern standards for safety, effectiveness, quality, and labeling."

George Rontiris, PharmD and partner at Titan Pharmacy in New York gave me the heads' up. George has been a strong advocate for injured workers for years; he's one of the good guys. Here's his take:

"There will be some manufacturers still able to make some of these drugs. The majority will be gone. This has already created huge shortages. A bottle of Oxycodone 30 mg that we used to be able to buy for $5.14 per bottle of 100 is now up to $ 39.50.

The so called increase in price due to a lack of supply is just the tip of the problem. Many of the people who have been handling their pain with these cheap generics, now cannot find them anywhere. The alternative that their doctors have come up with is switching them to other forms of medication, and unfortunately the ones that they go for are very expensive.

Our dispensing of Oxycontin (both brand and generic) has exploded. Worse yet is the explosion of Opana and Opana Er that we have been dispensing. I have even had the Endo Lab Opana Reps come into the the pharmacy 3 times telling me that they have been detailing all the MD's about the "availability" of Opana since there is a National shortage of Roxicodone and other generic narcotics. And of course, the MD's are eating it up.

Our wholesaler's bill for the past two months has been up over 15% of what it usually is, and when we went over our ordering, it was clearly because of all the Opana Er, Oxycontin and Avinza that we have been forced to order.

We have been also getting hit with non-control generic problems. For example, Nitoglycerin tablets (put under tongue when a heart attack is happening) were $ 2.08 per 100, and are now $ 13.45. Toprol Xl 50mg generic which used to cost us $ 28.99 is now $84.95 . These are huge difference."

What does this mean for you?

Mr Rontiris' experience bodes ill for the work comp industry. The loss of these drugs will certainly drive up costs, may lead to adverse events as patients try other medications to replace their now-banned drugs, and may make it harder for patients to get medications.

Posted by at 6:12 AM | Permalink

Workers comp PBM and medical services company PMSI released its annual Drug Trends Report at RIMS earlier this week. I noted a couple highlights in an earlier post; you can download a copy here.

One of the more notable findings is the increase in the rate of inflation in drug costs, this coming after several years of decreasing inflation rates. A key contributor was per-script price increases which amounted to 6.1% in 2008.

There's lots of good information in the Report, and you can't beat the price.

My firm will be conducting the Sixth Annual Survey of Prescription Drug Management in Workers Comp next month; this survey focuses on tools and techniques employed to manage costs as well as payer executives' views on cost drivers and PBMs.

For the fourth consecutive year the Survey is sponsored by Cypress Care.

Send an email to infoAThealthstrategyassocDOTcom if you'd like a copy of the report.

Posted by at 7:43 AM | Permalink

Today we take a deep dive into the very tiny pool of workers comp pharmacy benefit management - where there's a recent development worthy of note.

The latest iteration of factoring company Third Party Solutions recently unveiled their new marketing strategy - at least it's new to parent Stone River.

Stone River Pharmacy Solutions (SRPS) is repeating a strategy employed in the past by previous owners of TPS and WorkingRx - partner with retail pharmacies while simultaneously selling itself as a pharmacy benefit manager.

The pharmacy partnership's value proposition is straight forward; less paperwork, faster pay, fewer hassles for the retail shops if they'll sell their work comp scripts to SRPS.

Here's their pitch to pharmacies:

"The bottom line is your bottom line. StoneRiver Pharmacy Solutions helps you build your business by containing administrative costs, increasing revenue and therefore profits..."

No mystery who their customer is - the retail pharmacy. Nothing new there.

What is somewhat new, well, at least new to SRPS, is the boldness of their approach to employers and other work comp payers. Remember, these are the folks who have been driving up pharmacy costs, reducing network penetration, suing insurance companies and PBMs, hassling adjusters and employers for payment, and otherwise making payers' lives miserable for years.

But all that's changed...

Here's how SRPS puts it...

"Helping employers and payors care for injured employees while managing and reducing pharmacy-related cost is more than our mission. It is a commitment we live daily by delivering our industry-leading solution in workers' compensation pharmacy care management.

We Ask. We Listen. We Carefully Consider. We Deliver!"

There's a logical disconnect here; on the same webpage, SRPS claims to deliver "improved revenue and profits" to retail pharmacies. How, pray tell, can a vendor increase a provider's revenues and profits while reducing payers' pharmacy-related costs?

Anyone?

There's more.

"Despite participation in workers’ compensation prescription programs, many employers and payors fail to achieve anticipated cost savings. Injured worker’s routinely don’t know or fail to identify the pharmacy program through which to process their workers’ compensation prescriptions; therefore, the pharmacy uses a default billing service. Until now default billing services have been unable to apply financial or clinical controls to these prescriptions. Without these controls prescriptions are processed out-of-network and higher priced medications or medications unrelated to the patient’s injury are dispensed."

Hmmm, perhaps the copywriters haven't kept abreast of the latest information on drug trends in workers comp. In fact, the trend rate for pharmacy has decreased each year for the last five years, and was below 5% last year. This at a time when PBM penetration was growing dramatically, clinical management programs were starting to deliver real results, and payers were aggressively contesting third party biller business practices.

Oh, and SRPS' predecessor organizations were claiming they could apply 'clinical and financial controls' to scripts years ago. What's different now? Well, SRPS has cleared out all the old management, so perhaps they have some new whiz-bang process, or, more likely, they don't have the benefit of knowing what was tried - and failed - in the past.

What does this mean for you?

You've got to admire their chutzpah. Just make sure to keep your hand on your wallet.

Posted by at 10:15 AM | Permalink | Comments (1)

PMSI will be releasing their annual Drug Trends Report at RIMS in a couple weeks; they were kind enough to send a pre-release copy and give me permission to highlight a couple note-worthy items.

The lead story is cost. After moderating significantly in 2007, drug costs were up by over five percent in 2008, driven primarily by increased price. That is, while each injured worker got more drugs in 2008 than they received in 2007, most of the cost increase was driven by higher prices. But not for generics.

AWP, which remains the basis for drug unit pricing, went up over nine percent for brand drugs last year. (Generic inflation was negligible) With brand accounting for almost two-thirds of spend, the effect was rather significant in overall price inflation.

Interestingly, the introduction of new drugs had almost no impact on drug cost inflation in 2007 - but neither did the release of new generics.

There's a lot more detail in the report, which should be available shortly. I'll post a link as soon as it is.

Posted by at 6:09 PM | Permalink

Friend and colleague Peter Rousmaniere sent the following to me; with his permission I'm posting his note in its entirety.

"I want to alert people to a case of criminal fraud by a drug company affecting pretty much every self insured employer and workers compensation, auto and health insurer. If you work for or advise one of them, you should learn about this case and know what to do. [emphasis added]

In 2007 Purdue Pharma pled guilty to criminal charges that it mislead physicians about the risks of addiction to Oxycontin. It paid a large fine to the Federal government. Now, a federal court is in the process of implementing a class action settlement, which enables any party that paid for Oxycontin between 1995 and 2008 to recover some of its payments.

This case is not just about Purdue misleading physicians to promote this drug. It is also about using deception to increase the probability that thousands of patients, many of them injured workers, will become psychologically and physically dependent on pain medication

The settlement is not designed to recompense injured workers whose lives were up-ended by addiction to Oxycontin. That would require another suit on behalf of these workers.

At this moment, is it incumbent on self insured employers and insurers to file by May 19 in order to recover from Purdue some of their Oxycontin outlays. [emphasis added] Go to www.oxycontintppsettlement.com. I’d appreciate your keeping in touch with me on this matter."

You can reach Peter at pfr@rousmaniere.com.

Posted by at 11:33 AM | Permalink

Last week's announcement that the FDA is considering requiring physicians' to obtain additional training in order to prescribe certain Schedule II narcotics is welcome news - for payers and patients. Physicians aren't so welcoming.

The list of drugs includes several varieties of morphine (e.g. Avinza, MS Contin), fentanyl (including Duragesic patches), methadone, and that old favorite, OxyContin. As a group, the listed drugs accounted for 21 million prescriptions written for 3.7 million patients in 2007.

The rationale behind the FDA's move is concern over the adverse consequences suffered by many patients on the medications - consequences the FDA - and others - believe could be reduced by more thorough training of prescribing physicians. The FDA's move came as a result of a law passed in 2007 enabling the agency to selectively address certain medication issues utilizing 'Risk Evaluation and Mitigation Strategies'. In the past, the FDA's powers were sort of all-or-nothing; they could either require warnings or pull a drug off the market.

According to the NYTimes, the head of the FDA's initiative, Dr. John K. Jenkins, said:
“What we’re talking about is putting in place a program to try to ensure that physicians prescribing these products are properly trained in their safe use, and that only those physicians are prescribing those products..."

This is good news for many payers, who have expressed concern over physicians' apparent willingness to prescribe very powerful drugs for conditions that didn't appear to merit them. Workers comp payers have long held that prescribing patterns are a major driver of extended disability as well as high costs. I'd cite the use of OxyContin as a major issue for comp payers. Purdue Pharmaceuticals, OxyContin's manufacturer, has been hammered by the FDA and others for its egregious, and illegal, marketing activities. While Purdue was fined $600 million, reports indicate the manufacturer's OxyContin revenues totaled almost $3 billion during the time it was illegally marketing the drug.

What does this mean for you?

Unfortunately, it looks like in some instances, crime does pay. The good news is the FDA's new initiative will likely help reduce not only costs, but more importantly adverse outcomes.

Posted by at 10:32 AM | Permalink | Comments (3)

Friday will be Dale Wolf's last day at Coventry. After diversifying the company into workers comp, Medicare Part D, Medicare Advantage and private fee for service, and individual insurance, he leaves behind a much different Coventry than the one he took over in 2005. Don't shed too many tears for Mr Wolf, he leaves after earning over $13 million last year alone.

The health world is also much different. Insurance itself is rapidly approaching the unaffordable level, participation rates are dropping (fewer employees signing up at companies that offer insurance), the Bush administration's massive attempt to privatize Medicare and Medicaid will likely be reversed, hospital costs are exploding, and national health reform is around the corner.

And Coventry's stock is a quarter what it was a year ago, while solutions to the company's problems look ever further away.

Lots to consider, but I offer these thoughts.

The CEO is out, two weeks before the company releases its 2008 earnings report. The 65 year old former CEO is back. The company is not looking for a new CEO. Coventry's commercial business is hamstrung by the factors noted above. It is not doing so well in Medicaid and Medicare growth will likely slow considerably. The company has not shown any expertise in managing care; it appears to rely solely on price increases to manage medical inflation. It has stumbled badly twice in the last year, both times failing to accurately forecast medical costs.

There is some thought that the company may be for sale. I'm one who leans in that direction. Recent news makes it more likely the company will not be sold in its entirety, but rather sell off pieces/markets/health plans. There are just too many moving parts in the 2009 version of Coventry; this complexity would make a comprehensive due diligence effort long and miserable - and given Coventry's historical inability to predict health costs, potentially inaccurate.

But it is cheap.

Never one to forgo an opportunity to say something that will come back to haunt me in the future, I'm going to go out on a thin and ice-bound limb and opine that Coventry will sell off some health plans, and perhaps the work comp and other specialty businesses (e.g. mental health). A little less likely is a sale of the entire company.

What is unlikely is Coventry is essentially unchanged a year from now.

Posted by at 7:49 AM | Permalink | Comments (7)

From the world of workers comp comes a crystal clear picture of what's wrong with America's health care system, and how difficult it will be to get it right.

WorkCompCentral has a piece this morning about California's proposal to not recommend topical analgesics - creams and ointment that are compounded at the pharmacy.

The pharmacy community doesn't like the proposal, claiming "there's [sic] prescriptions for these medications, patients have been getting relief, and we think that they should continue to be reimbursed for the medications that are being prescribed for them".

Opponents of the proposed language also noted that it "conflicts with the DWC's written policy stating that only “evidence-based, peer-reviewed research concerning the efficacy of a treatment can be the basis for recommending or not recommending a treatment.”

I'd suggest the opposite is the real issue - there is no evidence-based peer reviewed research documenting the effectiveness or efficacy of compounded medications. The pharmacists want to be paid for preparing and dispensing a medication which has not been shown to work. And they are pulling out the lobbyists and PR folks and 'inhouse experts' in an attempt to get California to back down.

Further. compounded medications are outside the scope of the the FDA's authority.

About a third of US health care dollars are spent on treatments that are likely not effective. One has only to look at the history of MRIs, carotid endarterectomy, and angioplasty to identify billions of dollars that have been wasted on treatments that did not help, and may well have harmed, thousands of patients. These treatments, devices, and providers make money for their purveyors and manufacturers, dollars that they are loathe to give up.

Yet the approval process for these treatments/drugs/devices is is almost laughably low. Here's how a UK researcher put it:

"the FDA dossier showed that the average improvement produced by drugs introduced in the 1960s was 17%, whereas with the drugs introduced in the 1990s it was 16%![emphasis added]...If one looks at the medical interventions we have for many diseases, whether they be psychiatric or neurological disorders, cancer, cardiovascular or respiratory or gastrointestinal problems, or almost any type of illness other than bacterial infections, what evidence-based medicine shows is that, as my colleague found, many of our interventions are pitifully inadequate. Our studies, although beautifully conducted, have been done on patient populations that bear only a limited relationship to those patients we actually see. The number needed to treat to achieve one success over and above that which could be achieved by placebo may be 10, 20, or even as high as 50. Thus, the trials actually give us almost no guidance as to the likely outcome of an intervention in the individual patient who sits in front of us. For many conditions, therapeutic effects are so small that neither the patient, nor the relative, nor the doctor is likely to be able to recognize any differences in the patient's state as a result of our intervention. We pride ourselves on our large, well-conducted, immaculately analyzed trials that give significant results. But we have forgotten that we need to conduct such enormous trials only because our interventions are so minimally effective. If we were making a really large difference to the outcome, small trials would suffice and provide clearly significant results."

That's one side of the argument. Here's the other.

I give you the condition known as 'chronic lyme disease'. This tick borne ailment is pretty common in my area (central coast of Connecticut), in fact I live about twenty miles from Lyme. Walk down the main street in Madison and chances are you'll encounter at least one person who has had recurrent Lyme disease - the mechanic, artist, college student, mom. Yet try to find a doctor who will treat chronic Lyme and you'll find very few who will risk their reputation and medical license, as several physicians have been disciplined for just that.

The battle over chronic Lyme (and it is a battle) has been brutal, nasty, and vicious. Nay sayers claim no such disease exists, and cite research and articles in prestigious publications such as the New England Journal of Medicine as support for their opinions. Their opponents decry the poor quality and selective nature of that 'research', accuse the authors and study leaders of conflicts of interest, and note the successes - patients treated for chronic Lyme that get better.

Anecdotally, I know at least a half-dozen friends and neighbors who have suffered from some condition that robbed them of their energy, caused great pain, and prevented them from doing many of the things the rest of us take for granted. After extensive treatment (we're talking over a year) with antibiotics, all have gotten better. Much better.

It is abundantly clear that medicine is an art as much as a science, and art is, as famously described, in the eye of the beholder.

And that's one reason health reform, which must attack cost, will be so very difficult.

Posted by at 7:38 AM | Permalink

I've gotten several queries about the future of work comp if/when health reform occurs. The real answer is - no one knows. But I'm happy to take an educated guess.

I very much doubt comp will be directly impacted by or addressed in any health reform bill. It is going to be difficult at best to pass health reform legislation; adding comp is unlikely to increase support but would almost certainly drive work comp stakeholders to lobby against the bill. There's just no upside for including comp in health reform.

Back in the Clinton health reform days, comp was part of health care reform, where it ran into objections (most warranted) from employers, industry types, insurers, and providers. Work comp was addressed in Title X, which "would have required that employees receive all of their health care through the same insurance plan, regardless of whether the injury or illness occurred at home or at work." For lots of reasons, this was a non-starter.

President Elect Obama may well have learned from his future Secretary of State's errors: nowhere do the words 'workers compensation' or similar terms appear in President Elect Obama's website, policy papers on health reform, or in the several speeches he has made on the subject.

Finally comp is not linked to/mentioned in the Baucus plan, Wyden/Bennett Healthy Americans Act, or on Sen. Kennedy's policy pages. These should be viewed as drafts of final bills; if policymakers were actively considering incorporating work comp it is likely we'd have seen it appear in one or more of these bills.

What does this mean for you?

Don't expect to see work comp directly addressed in reform legislation on the Federal level.

But, any reform initiatives will undoubtedly affect workers comp. Here are a couple specifics.

Physician reimbursement
The fall will be highlighted by a debate over Medicare physician compensation. With docs scheduled to see their reimbursement drop by around 20% in 2010, the caterwauling will be heard loud and clear inside the Beltway. Don't look for a major policy change, but rather something to satisfy the physician community and build a little equity for the future. My sense is CMS will increase reimbursement for E&M codes (cognitive services). Almost all WC fee schedules are based on Medicare, so any change in Medicare directly and immediately impacts comp reimbursement. Watch Capitol Hill carefully; if Congress passes legislation signed by future President Obama affecting Medicare reimbursement, clinic companies may be big winners.

This will also be good news over the long term for comp in general. Good work comp medical care requires physicians to spend time listening to patients, and talking with employers, adjusters, and case managers. Docs don't get paid (at least not adequately) for this time, therefore any increase in reimbursement for office visits will encourage docs to spend time with claimants instead of doing procedures. Well, at least not discourage doctor-patient discourse...

Medical care delivery
If there is a major reform initiative passed, there will likely be fundamental changes in the way health care is delivered, the virtual ‘location’ delivering that care, and the evaluation of care.

And that would dramatically affect workers comp.

Today, health care is delivered episode by episode; diagnosis, care plan, treatment, assessment, and repeat steps 2-4 until the situation is resolved. This episodic model of care will (over time) change to one based on functional outcome management – care focused on returning the patient to functionality, and maintaining that functionality.

This will be in large part driven by the growing influence of chronic care and need to develop a better care model to address chronic care, one that will heavily emphasize patient education and monitoring. It will also require a different ‘location’ of care – the medical home.Dr Kathryn Mueller of the University of Colorado sees the medical home model as a big part of the solution in workers compensation, as the medical home may well be the dominant model for delivery of care throughout the health system in years to come. Studies indicate the home decreases medical errors and improves the quality of care delivered. Notably, the medical home model is NOT a primary-care gatekeeper model – but rather a model wherein the physician is tasked with and responsible for coordinating care and educating the patient.

Drugs
If Congress calls for the Feds to negotiate drug prices, this will affect comp in one of two ways. Either comp payers will be able to piggyback on the Feds' negotiated rates, in which case per-pill prices will come down, or (more likely) comp payers find their per-pill prices increase due to cost shifting.

Posted by at 8:33 AM | Permalink | Comments (2)

is exemplified by drug manufacturer Cephalon's drug pricing strategy. The company's narcolepsy drug Provigil is coming off patent in 2012. So, like any good corporation seeking to maximize shareholder wealth, it has developed a replacement drug - Nuvigil, that is a longer-acting version of the same medication.

But Cephalon is not content with just doing what other pharma companies do - patenting a long-acting version of an old standby, and releasing that LA version just as the older drug goes off patent. Instead, the fine folks at Cephalon are jacking up the price of Provigil now, to make it even more expensive. Then, when Nuvigil comes out, it will be priced less than Provigil, encouraging patients to switch.

And because there won't be a generic for Nuvigil for years, Cephalon holds on to a nice revenue stream.

Cephalon is the poster child for sleazy pharma marketing practices. Just a couple months ago Cephalon pled guilty to illegally marketing Provigil and pain drug Actiq, and paid a $444 million fine for their criminal behavior. The company has been shoving Actiq down the throats of workers comp patients for years, despite the drug not being FDA approved for anything but breakthrough cancer pain.

No matter to the profit-at-any-cost execs at Cephalon. In their dedicated, unending quest for more shareholder wealth, they have proven they will do anything to gain more revenue.

Realists will understand that Cephalon's strategy is short-sighted at best. With national health reform coming, one of the earliest items on the agenda is likely to be legislation encouraging/allowing the Feds to negotiate prices with big pharma. Although few industries are as adept at marketing as big pharma, there's a new sheriff in town.

House Energy and Commerce chair Henry Waxman's record on pharma is mixed. Co-author of the landmark 1984 Hatch-Waxman Act in 1984, which has had the effect of speeding up the introduction of generics while offering some protections for branded drugs, Waxman has more recently taken a more aggressive stance, putting drug development firms on notice that their attempts to circumvent patent expiration terms is unacceptable.

In a speech in 2005, Waxman stated:

"Current law does not strike the right balance. We cannot continue to have a system that
effectively enshrines permanent monopoly status for some of our most important medicines. Of course, some intellectual property protections are needed to encourage innovation by brand-name manufacturers. But permanent monopolies are neither needed nor wise."

Waxman has been a loud and consistent critic of pharma's reaction to Part D. Here's an excerpt from the Congressman's letter to the GAO in January 2006:

"A report I released in November showed that prices for brand-name drugs under the new Medicare drug benefit are 84% higher than the prices that the Department of Veterans Affairs negotiates for the federal government.[13] An analysis that GAO did for me in October 2000 showed that on average, Medicaid's prices for brand-name drugs were 43% higher than the prices negotiated by the VA."

What does this mean?

Cephalon's shareholder-wealth-maximization strategy is short-sighted. There will be a major push in the next Congress to find the money to do something big in health care reform, and pharma profits may be a very attractive source. Cephalon's blatantly greedy practices make it even more likely the Feds will negotiate price.

Posted by at 6:43 AM | Permalink | Comments (3)

If you've been wondering why your company is paying so much for high-powered pain medications, here's why.

Cephalon, manufacturer of Actiq and Fentora, has:

"agreed to plead guilty to promoting off label use of its painkiller Actiq--which was widely used for purposes outside of its original FDA approval--as well as narcolepsy pill Provigil and epilepsy treatment Gabitril. Cephalon has admitted that it had been marketing Actiq, a highly addictive narcotic lollipop produced to treat certain cancer patients, for off-label uses including migraines, sickle-cell pain crises and injuries.[emphasis added] (Fierce Healthcare)

Cephalon is the poster child for everything that is wrong with medicine in this country. They make me-too drugs; reformulate drugs to extend the patent life (fentora); aggressively market their drugs to docs who have no business prescribing them for purposes the drugs were never approved, nor are appropriate for; bribe docs to promote their drugs; and charge unbelievably high prices. Then, when the drugs do go off patent, they manipulate the price of the brand (doubling it in the case of Actiq), raising it and thereby creating a very high price for the generic. Oh, and their drugs have awful side effects - Actiq, which rots patients' teeth is but one example.

In my work with workers comp insurers, TPAs, and self-insured employers, I see a lot of data on prescription drugs. Actiq and Fentora are almost always in the top five in terms of drug spend - (a month of Actiq easily runs $2500). Why is Actiq a big part of workers comp, you ask, because it is only FDA approved for breakthrough cancer pain, a medical condition that for all intents and purposes does not exist in workers comp? Because Cephalon has been pushing the drug to general practice docs.

In fact, only 1% of Actiq scripts were written by oncologists during the first half of 2006. So who's dispensing the drugs?

Physical medicine and rehabilitation specialists were the second highest-dispensing specialty, accounting for 16 percent of scripts during the first six months of 2006, when oncologists and pain specialists accounted for less than 3 percent.

Cephalon will have to pay a $425 million fine, and (here's the good part), publish the names of physicians it has paid to promote/research its drugs. The fine resulted from acase brought after a Cephalon employee refused to promote Actiq and Fentora to general practice docs, a decision that led to his termination by the company. That's not chump change, but that shouldn't be the end of Cephalon's penance.

I'm hoping, really hoping, that payers will evaluate the settlement and perhaps (selectively) use the physician list to determine if they should disqualify docs from their networks, flag them in their published physician ratings, and carefully scrutinize their practice patterns.

Thanks to FierceHealthcare for the heads up on the settlement.

Posted by at 8:16 AM | Permalink | Comments (5)

In today's earnings announcement, AmerisourceBergen, parent company of work comp PBM/ancillary services firm PMSI, detailed the financial impact of the deal.

ABC carried PMSI on the books at about $260 million; by selling the property for $40 million (plus a $10 million contingency) ABC will be taking a $222 million hit as a result of the transaction. On an earnings per share basis the result is 1.37 per share, giving ABC a net loss of $108 million, or 67 cents per share.

Observers who are confused about the recent on-again, off-again status of the PMSI sale can be forgiven for that confusion; ABC has been somewhat schizophrenic about its dealings with PMSI. After putting PMSI on the market early this year, ABC announced last month that the company was not going to sell PMSI after the initial offers came in well under expectations. According to ABC's CEO David Yost, "We look to PMSI to be on track in the September quarter and into fiscal '09."

Contrast this with Yost's announcement today - “We were very disappointed with PMSI’s performance in this quarter, and after re-evaluating our alternatives, we decided to sell the PMSI workers’ compensation business in order to focus our full attention on our pharmaceutical distribution and related businesses and allow H.I.G. to focus on the opportunities at PMSI."

ABC's impatience with the turnaround may have played a role, but from here it looks like the hammering Yost took over ABC's overall financial performance to date may have been more of a motivator.

HIG, the investment firm that bought PMSI does have some experience in this space with investments in Align Networks and Gould and Lamb. They have been quite successful in selling properties and generating rich returns for their investors, a history that bodes well for PMSI. And for the PMSI employees who add value, are flexible, focus on customers, and don't buy into the "we do it that way because that's the way we've always done it" nonsense.

Posted by at 8:16 AM | Permalink | Comments (2)

PMSI, the workers comp PBM and ancillary services provider, will announce today that it has been sold to investment firm HIG. Sources within PMSI indicate the stock deal is worth $50 million, of which $10 million is contingent on achieving certain performance measures. Current management will likely remain in place after the deal closes in about 60 days.

The timing of this transaction is coincident with Express Script's announcement of the closing (sub req) of their acquisition of MSC's Pharmacy Benefit Management business. Express Scripts is now poised to become one of, if not the largest workers comp PBMs.

These deals are the latest in a series of financial transactions and potential transactions involving work comp PBMs. Cypress Care was recapitalized by investor Brazos Private Equity in November, 2006; Fiserv sought to sell its third party biller/PBM business early last year; Coventry purchased First Script as part of the Concentra transaction, and MSC itself was purchased by Monitor Clipper early in 2005.

PMSI has been struggling of late, losing the Hartford's business (while retaining SRS (Hartford's TPA)) to ESI and CNA late last year to Coventry. While PMSI's parent company, Amerisource Bergen, was somewhat of a distant parent and may not have provided the attention and resources necessary for PMSI to maintain its historical leadership position, there's no question HIG's focus and attention will be intense and constant. Private equity management can be quite helpful; it can also be overbearing and short-sighted. And sometimes all three - which may be exactly what PMSI needs to recover its leadership position.

At risk of being accused of burying the lead, here's what has me puzzled. Sources indicate Express looked closely at PMSI - recently . Yet they plunked down $248 million for MSC's pharmacy business, when they could have paid a fifth of that for all of PMSI (which includes a robust ancillary services division).

PMSI has been somewhat damaged goods lately due to customer losses, yet MSC was in a similar position less than two years ago after it lost its largest PBM customer, Liberty Mutual, to rival Progressive Medical (PM had half of Liberty and was awarded MSC's portion).

From here, it looks like a pretty good deal - although PMSI's financials have been pretty bad lately, $50 million is a very good deal for one of the top two companies in a growing market.

Posted by at 7:24 AM | Permalink

Bowing to the reality of the market, the New York Work Comp Board has issued a revised pharmacy fee schedule for workers comp.

The previous fee schedule based WC pharmacy fees on Medicaid - a linkage that was problematic for at least a dozen reasons. Here are the major ones.

1. Medicaid has 'positive enrollment' - members' eligibility is determined instantly, electronically. In WC, there is no upfront enrollment, therefore retail pharmacies don't know where to send the claim, or even if the claim has been accepted by an insurer. Work comp requires a lot of manual work, while Medicaid is electronic and instant.

2. The Medicaid reimbursement schedule has been a political football of late, as state legislators, under pressure from declining revenues and increasing service demands, have looked to cut Medicaid costs by cutting prices paid for drugs. California's decision to cut reimbursement by 10% has resulted in a political/judicial back and forth that is apparently still not resolved. By tying WC reimbursement to Medicaid, pharmacies, PBMs, and payers would be batted back and forth, not knowing from day to day what they should pay for drugs.

3. Medicaid has a formulary which reduces the cost of the drugs to the pharmacies. There is no such formulary in WC (except in a very few states such as Washington), and therefore drug manufacturers won't give discounts in return for preference in a therapeutic class.

4. The Medicaid FS is actually significantly lower than the contracted prices PBMs pay retail pharmacies. Thus there is no benefit to payers, or retail pharmacies, in working with PBMs. This despite the strong evidence that PBMs, properly implemented and managed, can dramatically reduce utilization (the volume of scripts dispensed).

What drove NY to make the change? Access issues. Claimants were not able to get their scripts filled as pharmacies could not afford to do so under Medicaid reimbursement, and PBMs could not afford to operate in the state while losing money on every script.

That's not to say the revised FS is much better. In fact, as the second lowest fee schedule in the nation, it represents an incremental improvement at best, and may not be sufficient to keep all stakeholders participating.

Cynics may point to California, and note that PBMs and pharmacies stayed in that market after the FS was based on Medicaid. True, but each state's Medicaid FS is unique, and CA's is significantly more reasonable than NY's.

Posted by at 10:21 AM | Permalink

So the purchase of MSC Pharmacy Services by Express Scripts will be finalized within a few weeks; what's next?

It is way too early to tell, as the announcement hit the street just last Friday. That said, from discussions with sources from both Express and MSC Pharmacy Services it is clear that some heavy thinking has been going on for some time.

(Note I'm using MSC Pharmacy Services as that is the entity that was purchased by ESI; the other part of legacy company MSC remains 'behind' and will keep the MSC brand identity)

There's the usual corporate-PR speak in the companies' press releases, but folks involved in the discussions point to a few areas that bear watching. First out of the gate is MSC's Oasis web portal. Their web app enables customers to access information in summary and drill down format, create reports, and keep track of specific claimants. ESI's customers may be moved onto Oasis as systems integration efforts progress; this will not be an overnight move as it will require back- and front-end integration with customer, clinical, and processor applications.

MSC Pharmacy Services currently uses processor Restat as their network administrator; I'd expect to see the combined company move quickly onto Express' platform and use Express' network contracts. This would reduce MSC's admin expense and likely improve rebate income as well.

Expect to see some consolidation of clinical programs; neither legacy company has a complete suite of services and the combined offering will almost certainly be stronger than each firm's solo effort.

Something that has not been discussed, but has been alluded to in public statements is the possibility of cross selling ESI/MSC's core offerings to their respective customers. This would entail ESI helping MSC sell DME, home health, imaging, etc to their customers and MSC cross selling PBM services to ESI's customers.

Finally, while it is likely there will be a few folks looking for employment elsewhere, those decisions have not been finalized. MSC Pharmacy Services' executive management is solid and well-regarded, as is ESI's. I'd expect the headhunters are already circling...

Posted by at 6:34 AM | Permalink

The Fifth Annual Survey of Prescription Drug Management in Workers Comp has been completed, and copies of the Public version of the report are available at no charge. (email infoAThealthstrategyassocDOTcom)

A few late respondents contributed significantly to the report, and their data also moved the figures around a bit. Here are a few key statistics.

Drug inflation for 2007 was 4.9% (looking at the increase in total dollars for 2007 over 2006).

Generic utilization was in the high seventies, with generic efficiency in the ninety-percent range.

Essentially all larger payers are now using PBMs, although are many are not using them as effectively as they could be. PBMs' clinical, reporting, outreach, paper bill processing, and related capabilities are not being utilized to their fullest by all but a very few payers.

The use of home delivery has jumped and is close to 5% across all respondents. This is a major improvement over a couple years ago, when it was in the 2% range for most payers.

And finally, the first fill capture rate is in the low twenties - although half of the respondents did not have the figure readily available.

Copies of past surveys are available here.

Posted by at 2:26 PM | Permalink | Comments (3)

It's minutiae time again!

That is, if pricing in a $216 billion industry is minutiae.

Readers interested in pharmaceutical pricing may recall the court case 18 months ago wherein pharma pricing publisher First Databank was accused of intentionally inflating drug prices. (FDB's version of AWP results in prices that are about 5% higher than those provided by the other sources.)

There's a new lawsuit alleging drug distributor McKesson illegally manipulated brand name drug pricing by increasing the spread between WAC (wholesale acquisition cost) and AWP (average wholesale price) - a practice that increased the prices paid by insurers, consumers, and employers.

The suit was filed by the City of San Francisco in US District Court in Boston - the same court that heard the 2006 case.

The 2006 case involved FDB's selection of McKesson as the sole source of drug pricing data. FDB's AWP was based on the actual price that McKesson paid for the drug, plus a margin. For years the typical margin was 20%; six years ago McKesson changed the margin to 25% to make it 'simpler to administer pricing internally'. (this is the same allegation referenced in the most recent suit)

The price increase also earned McKesson points with its customers, retail pharmacies, who saw an immediate increase in profitability - profits on Lipitor immediately jumped three-fold after the 2002 increase. As part of the settlement in the 2006 case, FDB agreed to stop publishing prices two years after the finalization of the settlement.

Surprise! The settlement is not yet final, thus FDB continues to publish its version of AWP, the version that inflates payer drug costs by 5%.

Both suits, along with a number of other legal actions, have been filed by the Prescription Access Litigation Project, a Boston-based group funded by several foundations and charitable organizations.

The PAL folks are tenacious, well-funded, and allied with, among other heavy hitters, AARP. While tiny, their ability to win cases, highlight possible illegal activity and focus attention on their cause is impressive.

What does this mean for you?

At a time when more Americans than ever are taking drugs regularly, every penny matters. Watch PAL and their progress carefully - their work will likely have a significant impact on pharmaceutical pricing methodologies.

Thanks to California HealthLine for the tip.

Posted by at 7:50 AM | Permalink

I've just about completed compiling results of the Fifth Annual Survey of Prescription Drug Management in Workers Comp. While the report won't be completed for a couple weeks, here are a few factoids that are rather compelling.

Drug trend continues to moderate, with inflation in 2007 coming in at 4.3%. That's a big improvement over last year's 6.5%, which was a big improvement over the previous year's 9.5%...

Generic fills (the percentage of scripts that are filled with generics) looks to be in the high seventy percent range, with generic efficiency around 90% (that's the percentage of scripts that could be filled with generics that are).

New this year is a question about first fill capture rate, defined as the percentage of initial scripts that are routed through the PBM's network. This is starting to get attention, with the average respondent rating it just under 'very important'. That doesn't mean they have the data - about half of the twenty payers surveyed couldn't identify their first fill rate. Of those who could, the numbers indicate about one-fifth of initial scripts are in-network.

Many of the survey respondents (primarily large and mid-size carriers, state funds, and TPAs) have a lot more insight into their drug spend, know what the cost drivers are, and the ones with the lowest inflation have all put programs in place to clinically manage drugs.

Thanks to all the folks who set aside time to help with the survey - you know who you are.

Posted by at 6:47 AM | Permalink | Comments (2)

I'm knee deep in my annual survey of pharmacy management in workers' comp, and if I look at one more column of data I'm going to need a few class 2's myself.

So in the interest of my sanity, here are a few early findings from the survey.

Inflation looks to be down from last year's 6.5%, marking the fifth consecutive year of 'decreases in the rate of increase'. More detail to follow on what's causing the decline, but preliminary review indicates the focus on utilization is continuing to reduce the volume and type of drugs dispensed. As NCCI has noted, utilization is significantly more important cost driver than price.

Clinical programs are getting better, more targeted, more sophisticated, and more effective. A focus on addressing high cost claimants is almost universal among the best performing payers - this may seem blindingly obvious, but requires one to have data, know what to look for, and be able to develop and implement programs to attack the issue.

I try to use the same questions each year so we can track trends and changes in the industry. But new things, points of interest, and queries come in each year which requires that some old and not-as-interesting-any-more questions have to get dropped to make room for the new stuff.

This year we added questions on generic efficiency and fill rates. While the analysis is not yet complete, and a couple more respondents are going to send their data in, the preliminary figures indicate the average generic fill rate is right around 70%, with generic efficiency (the percentage of scripts that could be filled with generics that are) around 90%.

This is an average - types of business written and managed, jurisdictional nuances, data availability, accuracy, and consistency all make this stat somewhat questionable.

That said, better to start asking then to wait for perfection.

Thanks to Cypress Care for sponsoring the survey for the third consecutive year.

Posted by at 8:41 AM | Permalink

Here, in no particular order, are some findings gleaned from my wanderings around the show floor at RIMS in San Diego.

MSC has rebounded nicely from the loss of Liberty Mutual's pharmacy business last year (awarded entirely to Progressive Medical). Sources indicate MSC's run rate is back above where it was when Liberty terminated the business, primarily from a few wins and no appreciable losses in the interim. Kudos to CEO Joe Delaney, COO Mitch Freeman et al - while the ship may not be altogether righted, they have done a remarkable job in turning the company around.

Progressive Medical is also doing well, adding some incremental business while maintaining its reputation for stellar customer service.

Cypress Care (an HSA consulting client) is on a strong growth track, closing major deals with the California Insurance Guarantee Ass'n and Pennsylvania's state fund (SWIF). Sources indicate Cypress is close to a couple other significant deals.

Express Scripts has released its annual workers comp drug trends report. Here's the link. Maybe that's why all the red-shirted ESI staff were plastered with smiles.

Larry Marsh of Lehman Brothers issued a scathing report on AmerisourceBergen, taking company management to the woodshed for their inability to sell off sub PMSI/Tmesys. Marsh hammered ABC, lowering his eps forecast by $0.05 on the basis of the no-sale of PMSI alone. The PMSI folks are doing their best to ignore the goings-on at Corporate HQ; as noted earlier today their MSA division is pressing ahead and delivering solid results despite downward pressure on pricing in that fast-maturing sector.

Finally, one of the last remaining third party billers, Third Party Solutions, is reportedly on the block - again. Loyal readers (and industry geeks) will recall TPS was for sale about a year ago, with no takers. Now that TPS has bought WorkingRx, it looks like owner Fiserv is thinking someone will pony up big bucks to own a monopoly in that space.

Posted by at 11:19 PM | Permalink

I reported last week that workers comp pharmacy benefit manager/DME supplier PMSI/Tmesys was near a deal to transfer the company from Amerisource Bergen to a new owner. Citigroup's investment banking arm was retained to sell the property, and PMSI was put up for sale in late January.

Firm bids were requested from interested parties in early March.

Sources indicate Amerisource Bergen and Citigroup were in the final stages of negotiating the transaction with a financial buyer late last week, with the deal slated to be announced yesterday.

That deal is off, and Amerisource has pulled the plug on any sale. Evidently they were not able to get the price they wanted, and have decided to hold onto PMSI - for the time being.

Here's how Amerisource characterized the situation:

The Valley Forge, Pennsylvania-based company said it will focus its efforts on turning around PMSI.

President and Chief Executive Officer David Yost said in a prepared statement, "Because the final bids did not reflect the turnaround value of the business (bold added), which we expect to capture, we will focus on significantly improving the business and delivering that value to shareholders."

He said he expects PMSI to improve in the second half of this fiscal year and show improvement in fiscal year 2009.

Posted by at 10:14 AM | Permalink

Drug costs now account for 15% of total medical expense in workers comp, a percentage that has grown dramatically over the last few years. My firm has conducted the only survey of payers focused on prescription drug management in workers comp, and we're in the midst of the fifth annual survey.

This year's survey is sponsored by Cypress Care, marking the third consecutive year of their support.

Early findings (subject to change) include:

• Costs for some payers have stabilized
• Utilization continues to be the main cost driver
• There is an increasing recognition of the importance, and potential impact, of clinical management programs

If you are with a workers comp payer and interested in participating in the survey, email infoAThealthstrategyassocDOTcom. Respondents receive a comprehensive, detailed Survey report.

Summaries of the previous four Surveys are available here.

Posted by at 8:07 AM | Permalink | Comments (1)

Health care costs are higher because of waste fraud and abuse. How much higher is a subject of debate, but common wisdom suspects we're paying hundreds of billions more each year than we should.

There are big frauds and abuses and small ones, but my bet is that together the small ones add up to more than all the big ones.

One example - pharmacy. CVS just settled a suit brought by CMS regarding alleged Medicaid fraud. The issue? There are two version of antacid ranitidine, a generic version of Zantac. The tablet form which is much cheaper than the capsule form. CVS allelgedly had a corporate policy of filling Medicaid scripts with the more expensive capsule form, a practice that, if true, would be a direct violation of the law.

While not admitting guilt, CVS did agree to pay the Feds and 15 states almost $37 million, and to stop the practice. The huge pharmacy chain refused to admit guilt, instead an exec gave the usual mumbo-jumbo. But their public comments are revealing - here's how it was reported in the Florida Sun-Sentinel (March 19)

In a statement, CVS Caremark said, "For many years, the company purchased and stocked the capsule form of ranitidine across its chain of retail stores for dispensing to all patients, not just Medicaid recipients, due to the fact that the acquisition cost of capsules was lower than the cost of tablets".

Reads like an admission that CVS knew darn well that the capsule version was generating a lot more profit.

What does this mean for you?

Private payers - check those NDC codes, and check 'em carefully. Chances are you're also paying for versions your docs didn't order.

Thanks to California HealthLine for the heads up.

Posted by at 7:09 AM | Permalink | Comments (2)

You've been working hard and smart for five plus years, building your managed care company from a small niche player in a couple of states to a national company with an impressive client list. After all that work, the angel investors are looking to cash in on their investment and you'd like to take a few dollars off the table as well.

Before contacting potential buyers, there are a few things to consider. First, find an investment banker that knows your general business and marketplace. This will speed things up dramatically, reduce the amount of time you have to spend educating, and reduce the likelihood of mistakes due to misunderstanding or misinterpretation. It will also make for a fair and reasonable valuation - one that, in all likelihood, will be less than you think your company is worth.

Second, be brutally honest. Don't claim your company has customers and/or revenue it doesn't. Obvious, I know, but rare nonetheless. Potential investors are quite used to exaggerated promises and inflated numbers; surprise them with your honesty and they will be
much more comfortable.

Third, don't dramatically change your staffing, pricing, or sales process in an effort to 'clean up' the company unless you have at least a year before you go to market. These changes are obvious; they serve as a flashing red light warning investors that the business they are looking at today is (perhaps) significantly different from the business that grew so successfully. If the model and processes worked before, don't change them just to look good for a sale.

Unless, of course, something bad is happening in the market and you are just trying to get out from under before the roof caves in.

Finally, don't think that just because the bankers on the other side of the table aren't expert in your space that they won't learn everything there is to know about your company, your business model and operations, customers, competitors, regulatory landscape, and potential issues over the horizon. They may not be experts, but they can, and will, find experts who know the space, your customers, and the market as least as well as you do.

Done right, the process although time consuming and occasionally maddening, will result in a big payoff and a stronger company. Handled poorly, it will degenerate into an endless back and forth that may well result in a withdrawal of an offer.

Posted by at 4:29 PM | Permalink

Regulators are increasingly seeking politically low-cost ways to reduce workers comp costs. Some have decided to use the Medicaid reimbursement rate for drugs for Workers Comp, evidently figuring that if pharmacies accept it for Medicaid, they'll do the same for WC. Same 'logic' evidently goes for PBMs.

The only problem is it is dead wrong.

1. Unlike Medicaid, there are no copays, restrictive formularies, or other cost- and utilization containment measures. Thus all cost containment efforts in WC for drugs involve resource-intensive Drug Utilization Review processes; pharmacists and clinicians reviewing scripts for appropriateness, medical necessity, potential conflicts and adverse outcomes, and relatedness to the WC medical condition.

2. PBMs pay pharmacies more for WC drugs than for Medicaid drugs; a lot more.

3. Unlike Medicaid, to the extent they exist at all, rebates are much lower in WC. Medicaid rebates are a minimum of 11% of the Average Manufacturer’s Price per unit (and even higher in many states). The rebate revenue significantly reduces states’ costs for drugs. As these rebates are much lower or nonexistent in WC, PBMs do not have rebate dollars to offset their drug costs.

Unlike Medicaid, most workers comp claimants have no idea how WC works, much less who their insurer is; the chances of the claimant presenting with a card is therefore quite low (less than 25% of all WC first fills go to the appropriate PBM). When a Medicaid recipient shows up at a pharmacy, they have been enrolled and thus have a card, and the transaction process is instantaneous and very low cost.

There is no positive enrollment in WC, unless the claimant presents a card, the pharmacy has no way to identify the appropriate PBM. This presents pharmacies with a high level of risk, a level that is not balanced by a reimbursement that makes that risk level tolerable. Specifically;

1. pharmacies are 'at risk' for initial fills where they cannot be sure the carrier/employer will accept the claim - this higher risk level requires a higher reimbursement. There is nothing preventing an individual from writing ‘WC’ on a paper script, thereby perpetrating fraud on the pharmacy.

2. the current regs pay pharmacies 25% more for scripts that are 'controverted'; that is, where the carrier/employer has said they will not (yet) accept the claim

3. The 'controverted' situation is very similar to first fills - the carrier/employer has not indicated they will accept the claim, yet the pharmacy is required to fill it, without guarantee of reimbursement

4. the additional risk forced upon the pharmacies may lead them to:
• not fill scripts without a claim number/specific notice from the carrier/employer
• use the claimant’s existing profile (usually a group health PBM card) to fill the script, thereby increasing group health costs
• require the claimant to pay cash which they may, or may not, be able to do

We're all for reducing work comp medical expense, but the blunt instrument of deep, and inappropriate, cuts in reimbursement for drugs is also counterproductive.

The key driver of prescription drug cost inflation is not the price per pill but utilization – the volume and type of drugs dispensed. The National Council on Compensation Insurance’s recent study on drug costs in workers comp stated “Utilization changes are the driving force in drug cost changes for WC…Utilization is the biggest reason for cost differences between states” (Workers Compensation Prescription Drug Study, 2007 Update; Barry Lipton et al; NCCI, p. 4, 6).

PBMs have adopted and are continuously improving programs designed to address inappropriate utilization. These programs include
• development of clinical evidence-based guidelines for the use of drugs for musculoskeletal injuries
• outreach by PBM physicians in specific cases where the drug treatment plan may be inappropriate
• data mining to identify potentially questionable prescribing patterns including off-label usage of drugs such as Actiq and Fentora
• Prior Authorization of specific drugs (e.g. narcotic opioids, cardiovascular medications).

What does this mean for you?
If PBMs don't operate in a state or can't generate any margin, they'll eliminate any and all utilization control measures.

And drug costs will increase.

Posted by at 10:47 PM | Permalink | Comments (3)

Because they can.

Brand drug prices went up yet again last year, by over 7%. This on the heels of a similar price increase in 2006, which 'coincidentally' occurred after Part D went into effect and millions of seniors suddenly could buy drugs.

But this isn't the whole story. Price is only part of the equation, the other parts being frequency (what percentage of the population takes drugs) and utilization (how many pills they take).

The frequency and utilization problem is just as bad. But lets focus on price.

Continue reading "Why drug costs are going up." »

Posted by at 12:22 PM | Permalink | Comments (1)

No, Coventry has not bought PMSI. And I don't think they will.

As of today, there are still several entities looking at the deal, and as near as I can tell the process is nowhere near complete. Is Coventry looking at PMSI? Probably - as the owner of a competing PBM they'd be foolish not to.

But buying PMSI wouldn't materially strengthen Coventry's WC offering. Yes, they'd pick up even more MSA business (which they appear to value); yes, they'd get a major position in the DME/Home health business, but they'd also get a PBM business that is deteriorating, due in no small part to Coventry's ability to take customers from PMSI.

If I'm Coventry (and both parties are glad that's not the case) why would I pay a couple hundred million bucks for a property that is deteriorating and I'm beating in the market?

That said, stranger things have happened...

Posted by at 5:57 AM | Permalink | Comments (4)

Sometimes the good guys do win.

Posted by at 12:39 PM | Permalink

So you're interested in buying PMSI/Tmesys?

Here's what you'll get, and my guess as to what you'll have to pay.

Continue reading "PMSI - what's for sale? and how much will it cost?" »

Posted by at 7:20 AM | Permalink | Comments (3)

SInce I learned of PMSI's pending sale, I've been digging thru financial reports and talking with customers and industry folk to find out more.

Turns out FY 2007 (ended 9/30/07) was a down year for both revenue and profit at PMSI-Tmesys (PMSI). Although top-line increased 1%, that was primarily due to the acquisition of Health Advocates (HA) for $83 million (about 4.2x revenues). When you consider the overall WC Rx inflation rate was 6.5% and add in HA's revenue, PMSI's core business actually declined by about $50 million, or around 11% from 2006 to 2007.

The news was worse for profits, which dropped by 45%, while reserves for bad debt increased by $3.7 million. Notably, the MSA business contributed a whopping $12.4 million in gross profit - although that number looks awfully high. Given what they paid for it, I would not be surprised if dollars were shifted around to make the acquisition look good - 4.2 times revenues is awfully expensive.

It should also be pointed out that 2006 was not a stellar year; although revenues increased 4% from the previous year (while WC Rx inflation was close to 10%), profits had declined by 11% from 2005.

Clearly the company's owners have not acted precipitously.

Competitive pressure certainly played a part in ABC's decision to sell off the firm; as noted here Coventry has been aggressively pursuing new business, and PMSI has already lost one large customer that by itself will cut 2008 revenues by another 10%.

Despite what some commenters think (and write), I don't think it is fair to hammer the (relatively) new management at PMSI. The company had started declining years ago, and had started to turn itself around under the prior president, David Weidner. The company also lost its best spokesperson, Phil Walls PharmD, who has since moved onto another PBM. Weidner was replaced by Mark Hollifield, who brought in a new sales and marketing team (can't speak to the sales side, but the marketing has been rather uninspired).

What does not appear to have changed is the complacent culture at PMSI - although the company had done innovative work in several areas, it was very slow to market, could not move quickly, and seemed more interested in having meetings than delivering on commitments to customers.

Cultures are notoriously hard to change, and this may well be a case in point.

We'll get into what a buyer would get when next we meet.

Posted by at 3:16 PM | Permalink | Comments (2)

The FDA has issued a warning notice for off-label use of Fentora after three deaths were linked to off-label usage of the fentanyl tablet.

One issue may be related to the substitution of Fentora for another powerful pain medication, Actiq. Both are manufactured by Cephalon, but Fentora is absorbed more quickly than is Actiq. Therefore, the same dosage of Fentora may result in more of the drug being absorbed into the bloodstream.

Cephalon has been plagued by accusations of aggressive detailing, including encouraging physicians to prescribe the drug off-label. Another recent article indicates the pharma industry has been aggressively lobbying the FDA to allow this type of detailing, which evidently has been going on for two years despite restrictions against the practice.

Of note to workers compensation insurers, Fentora appears to be becoming increasingly popular for treatment of back pain in some areas.

What does this mean to you?

If you are a WC payer, find out which claimants are taking Fentora and figure out why and if it is appropriate. Not only is the drug dangerous, it is also very expensive.

Posted by at 3:08 PM | Permalink | Comments (2)

WorkingRx lost a court case in Utah recently, in yet another setback to the third party biller industry.

This comes on the heels of other successful legal challenges to WRx, which was recently acquired by its only real competitor - Third Party Solutions.

Continue reading "Another blow to third party billers" »

Posted by at 7:10 AM | Permalink

"Utilization changes are the driving force in drug cost changes for WC."

That's the key takeaway from the expanded version of NCCI's annual WC Prescription Drug Study; this 2007 edition goes well beyond prior editions to include more detailed information on cost drivers, stat-by-state variations, generics, and the growth in drug spend during the life of the claim.

But the key is utilization.

The key takeaway? Utilization, not price, is driving drug spend.

Continue reading "It's Utilization, &^%())!!" »

Posted by at 7:59 AM | Permalink | Comments (1)

Roy Poses MD is one of the more intelligent and thoughtful commenters on the conflicts of interest that are rife in the world of healthcare. Roy's latest discusses the issue of comparative effectiveness - evaluating and comparing different drugs to see which does a better job treating specific conditions.

Not surprisingly, big pharma is no fan.

Continue reading "Which drugs work? And why don't we know that?" »

Posted by at 6:58 AM | Permalink | Comments (4)

OK, we're now going to abruptly transition from the broad interest (Canadian health care policy) to the hairs-breadth narrow - this is for the folks who deal with workers comp pharmacy issues.

One of the biggest challenges facing WC payers is getting claimants into their PBM program. My firm has surveyed payers about WC pharmacy management each spring for four years, and this is the one issue where there has been no change over that time.

Retail pharmacies' difficulties in determining eligibility is the key reason per-script costs are so much higher in WC than in group health, Part D, or individual heath insurance.

Here's why.

Continue reading "The first fill conundrum" »

Posted by at 5:02 AM | Permalink | Comments (1)

TPS, the last third party biller standing, has wasted no time. Just hours (well, perhaps a couple days) after their acquisition of rival WorkingRx was announced, TPS launched their new strategy. They are positioning themselves as a vertically-integrated pharmacy solution integrating first fill capture with a full-service PBM.

Continue reading "Third Party Solutions' new strategy" »

Posted by at 6:11 AM | Permalink | Comments (2)

When WalMart introduced the $4 prescription program, my commentary headline was "much ado about not much". In retrospect, too strong a statement that early on.

The initial program covered less than 1% of the scripts filled at WalMart, and was widely seen as a more of a marketing ploy than major new program. To WalMart's credit, they quickly increased the number of drugs covered and participating stores; before the latest news fully one-fifth of scripts filled at wallyworld were for $4 drugs.

With the benefit of hindsight, it looks like the program has had two rather significant effects - dramatically reducing drug costs for some individuals, and (possibly) driving down drug costs nation-wide.

Now I'm thinking this may just be the start of a major expansion of WalMart into the health care sector.

Continue reading "Will WalMart change US healthcare?" »

Posted by at 8:12 AM | Permalink | Comments (7)

Fiserv's Third Party Solutions sub is acquiring competitor WorkingRx. As a result, if/when the deal closes, there will be only one third party biller.

Terms were not disclosed.

Implications follow.

Continue reading "It's official - TPS is buying WorkingRx" »

Posted by at 9:03 AM | Permalink

Here's another one of those posts that is really really interesting to very very few people.

Third party billers are factors - they buy WC script receivables from pharmacy chains and try to collect from WC payers.

The two TPBs have been on (and off) the selling block for some time; it now appears they are working on a merger.

Continue reading "Consolidation in the third party biller business" »

Posted by at 7:31 AM | Permalink

Sometimes it takes a few deaths for people to wake up. That appears to be the case with Fentora, the powerful narcotic manufactured by Cephalon. Four deaths have now been linked to Fentora, deaths that are all the more troubling because they appear to be from off-label use of the drug.

I'm not surprised.

Continue reading "The killer drug" »

Posted by at 8:40 AM | Permalink

My firm has conducted a survey of pharmacy benefit management in workers comp each year for the past four, and the latest has been completed. Executives in managed care and claims as well as program managers from 20+ payers responded to the Survey, some for the fourth time.

Here are a few of the highlights.

Continue reading "Pharmacy benefit management in Workers Comp - Survey results" »

Posted by at 7:45 AM | Permalink | Comments (2)

Here's a shocker - quoted from a FierceHealthcare piece last November.

"oncologists accounted for only 1 percent of the 187,076 Actiq prescriptions filled at retail pharmacies in the U.S. during the first six months of 2006, The Wall Street Journal reported."

Actiq is only FDA approved for breakthrough cancer pain.

My firm's research indicates that Actiq is among the top three drugs in dollar volume dispensed to workers comp patients. The incidence of cancer in WC is so low as to be unmeasurable.

Posted by at 7:09 AM | Permalink | Comments (3)

If you're wondering why your company's drug costs are going up, one likely contributor is the dramatic increase in the use of pain medications. Retail sales of five leading pain drugs jumped 90% from 1997 to 2005 led by oxycodone's six-fold increase.

Continue reading "Pain meds are driving drug costs" »

Posted by at 7:26 AM | Permalink

As part of my ongoing effort to educate myself about pharmaceutical pricing, pricing strategies, marketing, and the various components of the distribution channel, I found PharmaFraud - a relatively new blog 'penned' by a self-described whistleblower from within the industry.

And now I know I don't know squat.

I'm not a fan of anonymous blogs, blog posts, or comments, but PharmaFraud's author looks to know of what s/he speaks.

For a biting condemnation/explanation of pricing, read PF's piece on Distribution Channels.

Posted by at 6:49 AM | Permalink | Comments (1)

We’re getting a clearer picture of the implications of NY’s adoption of a (very low) fee schedule for WC prescription drugs. As I’ve noted before, the WCB has clearly stated its opinion that the regs do not allow for reimbursement above the fee schedule.

The initial reaction to the news from several large pharmacy chains (at the National Association of Chain Drug Stores conference in Boston) ranged from disappointed acceptance to belligerent rejection.

Continue reading "The NY WC Rx Update" »

Posted by at 1:31 PM | Permalink

The recent imposition of a work comp pharmacy fee schedule in New York has shaken the industry - and that's not hyperbole. The latest news out of Albany is likely to intensify the aftershocks.

The preliminary guidance from the State is PBMs cannot charge more than the fee schedule, and cannot pay pharmacies more than the fee schedule.

Continue reading "NY's workers comp fee schedule - further developments" »

Posted by at 6:24 AM | Permalink | Comments (2)

The latest shot in the battle against drug costs comes from the Centers for Medicaid and Medicare Services, which is reported to be denying coverage for off-label use of drugs such as Actiq and Fentora.

Whenever CMS moves, the healthcare world shakes, and this is no exception. There are a host of possible 'downstream implications' in areas as diverse as workers comp, formulary management, and hospice.

Continue reading "CMS denies off-label Actiq coverage" »

Posted by at 6:35 AM | Permalink | Comments (2)

New York's new fee schedule for drugs dispensed to workers comp claimants is among the lowest in the nation.

How low?

Continue reading "How low is the NY WC Rx fee schedule?" »

Posted by at 5:56 AM | Permalink | Comments (1)

The regulators in NY have decided that drugs for work comp claims will be reimbursed at the Medicaid fee schedule plus a dispensing fee.

That is a huge change from the prior reimbursement level of usual and customary, which in the Rx world is defined as the actual cash price in that pharmacy for that drug on that day.

Here's the legal language.

Continue reading "NY's new WC Rx fee schedule" »

Posted by at 4:41 PM | Permalink | Comments (4)

From the big big world of national health care reform, we're heading to the tiny niche of drugs in workers comp, where some pretty interesting things are happening.

Well, interesting to the six or eight people who are remotely interested in WC drug management.

Continue reading "It's utilization!" »

Posted by at 9:54 AM | Permalink | Comments (13)

My post on the efforts by WCPA and others to roll back parts of the NY workers comp reforms has generated a lot of criticism by individuals who appear to consider themselves advocates for the injured worker.

My motives, intelligence, experience, and perspective have all been questioned, with varying degrees of civility. The personal assaults are not helpful nor are they constructive.

Continue reading "PBMs and retail pharmacies" »

Posted by at 8:11 AM | Permalink | Comments (4)

The efforts by third party billers and their partners to overturn a key part of the NY workers comp reform package appear to be gathering strength. Two legislators have introduced a bill that would kill the ability of payers to direct injured workers to specific pharmacies.

The rationale, that the pharmacies would somehow deny scripts, is ludicrous.

Continue reading "Rollback of NY WC reforms?" »

Posted by at 12:59 PM | Permalink | Comments (10)

If you want to know why you are getting more physician bills with meds on them, it's simple - physician dispensing generates big profits.

Continue reading "Physician dispensed meds" »

Posted by at 8:44 AM | Permalink | Comments (3)

Pharmacy and Therapeutics committees have been around for ages in the provider community - they are the "link between medicine and pharmacy". In the managed care world, P&T committees take on a somewhat different role, establishing formularies, reviewing medical device reimbursement (at some health plans), contributing to coverage determinations and benefit design.

Mostly, they provide the health plan or insurer with an expert opinion on most things pharmacy-related. Without a P&T Committee, these decisions often are left to a medical director, or worse, claims adjuster (in the P&C world), individuals who are not equiped to make educated decisions about pharmaceuticals.

Continue reading "You need a P&T Committee" »

Posted by at 6:31 AM | Permalink

The manufacturer of oxycontin agreed to pay $20 million in penalties for encouraging docs to prescribe the drug more often than approved by the FDA.

And that's just for starters.

Continue reading "Really expensive off label shenanigans" »

Posted by at 10:46 AM | Permalink | Comments (1)

Actiq has hit the big-time.

Newsweek's latest edition will feature an article on the off-label prescribing of the highly potent narcotic lollypop, an article noting that as much as 80% of scripts for Actiq are for off-label use.

Sources indicate this was brought to the reporter's attention by an unusual source - the risk management department of The Washington Post, Newsweek's sister publication, noticed a high incidence of Actiq scripts among its workers comp patients, and started digging into the issue.

Continue reading "UPDATE - The lollypop story gets big" »

Posted by at 7:25 AM | Permalink | Comments (5)

Pharmacy chains demand higher payment for workers comp scripts. WC takes more work, as the pharm tech has to determine eligibility and do more work to get a script processed. Therefore, it's logical that the chains charge more for WC.

Except that isn't what's happening.

Continue reading "Group rates, comp claims" »

Posted by at 8:45 PM | Permalink | Comments (1)

Dozens of brand spanking new workers comp pharmacy benefit managers (PBMs). Last year at RIMS every aisle was packed with shiny new booths staffed by folks who, as swiftly became painfully obvious, were rather new to WC.

Either they didn't want to come to New Orleans (they are definitely missing out) or they are out of business, or out of the comp business. Most likely they found their group health contracts, systems and processes, and cost management techniques just didn't work in the highly-regulated, state-specific, first-dollar-every-dollar world of WC.

We'll miss their enthusaism and humor-generating ability ("and how many members do you have? what kind of tiered copays are you using? let me tell you about our unique formulary that controls costs!") and trinkets.

Sort of.

Posted by at 8:22 AM | Permalink

Big pharma woos docs with free food, trips, and samples. Now that's a "dog bites man" story. The reason for the ongoing marketing to docs is obvious - more contact, more drugs sold.

But the world is starting to look much more closely at the pharma-physician relationship, and that examination is likely to bring changes.

Continue reading "Direct to Doc marketing" »

Posted by at 7:16 AM | Permalink | Comments (2)

OK, another trip down Esoteric Lane, into the wierd world of WC drug management...

When states set high workers comp fee schedules for drugs, WC medical costs go up, and too many dollars are taken from employers and given to pharmacies and PBMs.

That's exactly what an organization with the seemingly innocent title "Workers Comp Pharmacy Alliance" is working towards.

Continue reading "Working to increase your drug costs..." »

Posted by at 12:03 PM | Permalink | Comments (1)

Insurance companies, employers, and TPAs rely on vendors to process bills, build and operate networks, manage prescriptions and PT, support litigation, and provide expert advice on problematic medical issues. In many instances the vendors are selected thru a competitive bidding process, wherein the lowest bidder gets the deal, or at the least has a much better chance of landing the business than their more costly competitors.

But in others, the selection process goes on seemingly without end.

Continue reading "those damn vendors" »

Posted by at 8:20 AM | Permalink | Comments (6)

If watching the legislative process in DC is akin to watching sausage made, the passage of the Medicare Drug bill might be akin to the composting process. Roy Poses at Health Care Renewal reflects on "60 minutes'" recent piece on the making of Part D; Roy's deep experience with big pharma adds a good bit of perspective.

Health care reform is coming; read Roy's piece for a heads' up on what the legislative process may look like.

Posted by at 10:47 AM | Permalink

Sources indicate Fiserv has terminated its efforts to sell third party biller Third Party Solutions thru Bank of America. This despite Fiserv's interest in shedding non-core assets, begun under CEO Jeff Yabuki. While Fiserv may still entertain offers, it is unlikely any will approach the rumored goal of $275 million Fiserv was asking for TPS.

While more than a few private equity/venture firms assessed TPS, evidently no term sheets approached the desired valuation. Issues may have included concern about TPS' "complicated" A/R situation.

Meanwhile, competitor WorkingRx is still for sale...

What does this mean for you?

A temporary continuation of the current awkward third party biller-pharmacy-PBM-payer struggle/business relationship.

Posted by at 9:13 AM | Permalink

The state of Washington is a monopolistic workers comp state; unless an employer is large enough to be self-insured, it has to buy workers comp insurance from the state itself.

As a monopolistic state, the regulators have even more power than in the highly regulated but non-monopolistic states. One area of particular interest is how the state deals with the WC drug formulary, which specifically excludes Actiq and Lyrica.

Washington's Health Dept. just released new guidelines on the use of narcotic opioids; the guidelines, their development process, and the impact of same should be watched carefully by regulators, insurers, managed care firms and most of all prescribing physicians.

Continue reading "Washington's smart policy on opioids" »

Posted by at 7:14 AM | Permalink

The two major third party billers have been on the block for a few months. The first round of queries went out to financial buyers and lately they've opened the process up to potential strategic buyers as well. Why?

Continue reading "What's up with the third party biller auction?" »

Posted by at 10:16 AM | Permalink | Comments (2)

Jim Andrews of Cypress Care (a consulting client and WC PBM) gave a talk yesterday about some of the differences between drug spend in WC and group health. Here are a few of the main points I picked up.

Continue reading "More fun facts about drugs in workers comp" »

Posted by at 5:47 AM | Permalink | Comments (1)

URAC, the accreditation body that seems to be into every aspect of managed care, is now looking to certify PBMs. In a presentation at the PBMI conference in Phoenix last week, a representative provided an overview of the process, modules, timing and certification levels contemplated by URAC.

While the process is only for health lines today, URAC is seriously looking into accrediting WC PBMs...

Brace yourselves.

Continue reading "URAC's foray into pharmacy benefit management" »

Posted by at 6:33 AM | Permalink | Comments (1)

How drugs make it on to formularies has always puzzled me. After listening to a talk on the process, I'm even more mystified.

Continue reading "How DO those drugs get on formularies?" »

Posted by at 7:26 AM | Permalink | Comments (10)

I'll be releasing the fourth annual survey of prescription drug management in workers comp in a few weeks. Here are a few early findings.

Continue reading "Managing drugs in workers comp - the 4th annual survey" »

Posted by at 5:41 PM | Permalink

Actiq is a narcotic taken in lollypop form, a technique that gets the drug to the pain centers quickly. Developed for break-through cancer pain, evidence now suggests that only 10% of Actiq users have cancer.The high-powered narcotic has been the subject of several recent reports and a state attorney general investigation concerning off-label use.

Continue reading "Actiq - the off-label poster child" »

Posted by at 7:23 AM | Permalink | Comments (1)

Despite what some Congressional Dems say, requiring CMS Secretary Mike Leavitt to negotiate drug prices with big pharma is not going to save us gazillions of dollars.

It also won't lead to a sudden decline in pharmaceutical research (sorry, Manhattan Institute). It's good political theater, but the real impact will be minimal.

Unless...

Continue reading "How to make negotiating drug prices pay off" »

Posted by at 11:25 AM | Permalink | Comments (2)

In response to my post on new narcotic Fentora, which was picked up by Kevin, M.D. over at his blog, a physician reads the riot act to a commenter who said that docs should be blamed for any misuse.

Posted by at 7:06 PM | Permalink | Comments (4)

Pundits and experts on the right side of the political spectrum are claiming that giving CMS the authority to negotiate drug prices will cost Americans $500 billion in lost productivity due to an annual loss of five million life years.

There are so many flaws in their arguments it's hard to know where to start, but let's plunge in.

Continue reading "Drug price negotiation and lousy research" »

Posted by at 7:44 AM | Permalink | Comments (2)

Workers comp payers will be seeing a new drug on their top 25 lists soon - Fentora. While it may take a couple of years to attain Actiq's top-five status, it will.

Continue reading "The next Actiq" »

Posted by at 6:27 AM | Permalink | Comments (68)

The outcome of the "can we or can't we negotiate with drug manufacturers?" discussion is becoming clearer, as political realities appear to be saying "we can in some limited circumstances."

Continue reading "Will we or won't we negotiate drug prices?" »

Posted by at 9:10 AM | Permalink | Comments (3)

Bob says it better than I could.

Posted by at 4:35 PM | Permalink

Boston's Mayor is outraged at Humana's decision to raise premiums on it's basic Part D plan by 130%. Humana's stockholders should be equally upset.

Continue reading "Humana's Part D problems" »

Posted by at 6:57 AM | Permalink | Comments (8)

The pharma industry is still in a bit of a tizzy about the lawsuits alleging improprieties in pricing, with some saying there will be wholesale changes (pun intended) while others ho-hum the notion. But, as more information comes out regarding the McKesson - First DataBank suits, there appears to be more to the notion that changes are in the wind.

This is not just an item of passing interest; the plaintiffs in the suit alleged that these pricing practices have cost payers upwards of $6 billion over a three-year period.

Continue reading "AWP suits - what, if any impact?" »

Posted by at 10:19 AM | Permalink | Comments (1)

Third party billers WorkingRx and Third Party Solutions may be for sale. The two pharmacy factoring companies together own the work comp script factoring business, a sector that has been under some pressure lately. According to several industry sources, the owners of both entities (Fiserv for TPS and investment firm Arcapita for WorkingRx) have engaged investment bankers to shop their respective companies.

Continue reading "Third party billers on the block" »

Posted by at 11:15 AM | Permalink | Comments (3)

Walmart will be introducing their discount program for selected generics to shoppers in California shortly, causing much gnashing of teeth and rending of clothes by pundits, independent pharmacies, and generic manufacturers.

What's really going on here?

Continue reading "Wal-Mart's drug deals hit California" »

Posted by at 2:38 PM | Permalink | Comments (3)

Wal-mart's $4 generic program is growing - more stores, more states, and more scripts are now covered. The latest information has the giant retailer's cheap program operating in over 3000 in-store pharmacies in 32 states. And, the list of drugs has expanded to include 331 prescriptions.

I've received some flak from readers who seem to object to my past posts questioning why Wal-mart is doing this.

Continue reading "Wal-mart's rapidly growing $4 plan" »

Posted by at 12:26 PM | Permalink | Comments (2)

Yawn.

It didn't take the HHS Secretary Mike Leavitt long to start in with the tired rhetoric about the evils of government-run health care(free reg req). Leavitt does not want the Feds to negotiate drug prices. Heck, he doesn't even want Congress to give the Feds the power to do so.

Why not? What's the Secretary scared of?

According to him, it's the old archenemy of all things good - government-run health care. While I too am a firm believer in the power of the free market, Leavitt's logic falls apart upon even the most rudimentary exam.

Continue reading "Why Mike Leavitt needs Dale Carnegie" »

Posted by at 7:52 AM | Permalink | Comments (1)

Cypress Care, one of the leading Workers Comp Pharmacy Benefit Management firms, has just announced the company has received a "strategic investment" from Dallas-based Brazos Private Equity Partners. The company has also added David George (former President of AdvancePCS) to the management staff; George will be taking over the CEO spot from co-founder Hank Datelle and has also made an investment in Cypress Care.

The press release contains the typical comments about all parties' delight at the deal and enthusiasm for the future. As one who has been directly involved, I can attest that in this case, the PR has it right. David George is a highly experienced and very well respected managed care pro with stints at United Healthcare and on the Board of Concentra, Inc. Bart Hester, a former colleague of George's at AdvancePCS will be joining Cypress as EVP Account Management and Strategy; the rest of the Cypress senior management team including co-founder Lisa Datelle and President Marc Datelle are all staying with the company.

Note - Cypress Care is a Health Strategy Associates consulting client an dsponsors our annual Survey of Prescription Drug Management in Workers Compensation.

Posted by at 10:39 AM | Permalink

By any accounting, Part D has been a boon to the pharmaceutical industry (free registration required). Revenues and profits at Pfizer, Lilly, and other manufacturers have jumped. This will undoubtedly lead to more research dollars available to search for cures for awful diseases, an effort exclusively funded by the US taxpayer that will benefit the entire world.

Aren't we generous?

Continue reading "Drugs, profits and politics" »

Posted by at 6:40 AM | Permalink

Retail pharmacy chain CVS is buying pharmacy benefit manager Caremark in a deal that will create a really big vertically integrated drug company.

Here's what is behind the deal.

CVS wants more control over its customer base, and with more and more consumers buying their drugs through PBMs, they get more control by creating the industry's biggest PBM. As I've noted before, the market power of PBMs will only increase as Part D becomes the primary force driving retail drug purchasing behavior.

CVS decided that rather than be at the end of the supply chain, it had to move up if it was to control its destiny.

Continue reading "The CVS - Caremark deal - why?" »

Posted by at 6:20 AM | Permalink | Comments (1)

The world (at least the very small part of it that I inhabit) has been buzzing about Wal-Mart's announcement that it will be pricing almost 300 generic drugs at $4 for a 30 day supply. Newspapers, private equity firms, PBMs, drug manufacturers, insurers, policy makers, and politicians are all rambling on about the various significant impacts this will have on the world, among them improving the lives of the uninsured.

I don't get it.

Continue reading "Wal-Mart's $4 drugs - much ado about not much" »

Posted by at 7:16 AM | Permalink | Comments (23)

In what has to go down as perhaps the least surprising news of the political season, big pharma is panicked that Democrats are going to take over Congress.

Panicked may be too mild a word.

Continue reading "Congressionally-induced nightmare" »

Posted by at 6:45 AM | Permalink | Comments (1)

There is quite a bit of interest among private equity and venture capital firms in the work comp managed care "space". These investors seek to buy into companies that are poised for growth, that have a "sustainable competitive advantage", solid management, long term contracts with customers, and a profitable business model.

A key to success for these investors is to find these firms before the other investors do, which means identifying good companies quickly. Analysts spend lots of time, energy, and brain power analyzing, assessing, and interpreting data. looking for the wheat among the chaff.

A much faster, and probably more accurate way, is to pick up the phone and call the company. Talk to the receptionist, someone in customer service and someone in billing. What they say doesn't matter nearly as much as how they say it.

Good companies have energy, enthusiasm, and a desire to help that comes through the phone. Not so good ones have none of the above.

Posted by at 6:24 AM | Permalink | Comments (1)

I'm suffering from a severe case of cognitive dissonance, brought on by completely conflicting statements in articles from a single source, the New York Times. In Friday's business section, Alex Berenson notes that big pharma, led by Pfizer, Lilly, Novartis and Wyeth all enjoyed strong profit gains (free registration required) in the third quarter.

The profits were generated, in large part, by price increases in the US, where Lilly's prices were up 11%, contributing to a 14% gain in US revenues. Fair enough, prices went up, so did profits.

In the next (virtual) breath, another NYT article quotes the Congressional Budget Office's as concluding that a Democratic Congress' efforts to reduce Medicare drug spending by negotiating directly with pharmaceutical manufacturers will not work because private industry is so darn good at negotiating prices. (polemics are mine, but you get the point)

Continue reading "Drug-induced dissonance" »

Posted by at 7:07 AM | Permalink | Comments (2)

If this continues, big box and discount retailers will be giving drugs away. With the recent announcements that Target is matching Wal-Mart's $4 drug price deal, Wal-Mart is speeding up the roll-out of their $4 script program, and K-Mart has had a 90 day supply of 184 generics for $15 offer since May, the price war has started.

Among the criticisms of the Wal-Mart initiative is that only one of the 20 drugs most commonly prescribed is on the discount list. Regardless, the Wal-Mart move has shaken up the pharma market, and forced retail outlets to quickly figure out their stance.

Continue reading "Big sale on drugs!" »

Posted by at 5:19 PM | Permalink | Comments (3)

The announcement that healthplan semi-giant CIGNA is getting into the workers comp pharmacy benefit management business is stirring up a good bit of interest.

I don't get it. Further, the press release has so many factual and inferential errors that it makes me wonder what CIGNA was thinking.

Continue reading "CIGNA's entrance into WC drug management" »

Posted by at 8:36 AM | Permalink | Comments (2)

If you're still wondering why drug costs are going up so far so fast, here's another reason. Direct to consumer advertising costs. Big pharma increased their spending on advertising by 9% in the first half of 2006.

Expect total spending on DTC advertising to hit $5 billion this year.

No wonder prices have jumped this year.

Posted by at 8:23 AM | Permalink | Comments (6)

AWP has long stood for "ain't what's paid", and the old saw has been validated by documents made public during litigation in Boston earlier this year. First DataBank, one of the publishers of Average Wholesale Price data, had been sued by several plaintiffs alleging that First DataBank's benchmarking process was seriously flawed.

Continue reading "What's happening with AWP?" »

Posted by at 6:43 AM | Permalink | Comments (1)

As a drugstore.com customer, I received an email (along with a few hundred thousand other folks) from the company's CEO last week. The email was their response to the recent announcement by Wal Mart that they were cutting prices to below $4 for a month's supply of almost three hundred generic drugs.

The net is the folks at drugstore.com claim to provide prices that are already lower than Wal Mart's for the equivalent supply.

Continue reading "Drugstore.com's consumerism efforts" »

Posted by at 6:13 AM | Permalink

Actiq, the lollypop pain killer, is rapidly becoming the biggest problem drug in workers comp. FDA approved only for treating cancer pain, the potent narcotic is now on most payers' top 5 drug list (ranked by dollars spent).

There are likely several factors that have enabled a drug clearly not approved for musculo-skeletal conditions to achieve this high "honor".

Continue reading "Workers comp's top problem drug" »

Posted by at 7:20 AM | Permalink | Comments (14)

Part D's implications will be many, far-reaching, and complex. Why? the sheer size of the market...One-twelfth of all scripts dispensed in retail pharmacies were for Part D recipients.

Here's a snapshot of the crystal ball.

Continue reading "Part D - where next?" »

Posted by at 7:06 PM | Permalink | Comments (2)

Mark McClellan is leaving his post as head of the Center for Medicare and Medicaid Services. He served long and loyally, sticking to the Administration's line even when facts indicated otherwise, remaining a calming force when Part D enrollment was going nowhere. McClellan is also known for listening hard to suggestions and criticism from all sides, and working diligently to address problems.

Here's what's happened during his tenure.

Part D was passed, implemented, and operational. This was a monumental task, and one McClellan was instrumental in accomplishing. It's not his fault it is a fatally flawed program; well, maybe it is, in some small part, as he was probably involved in writing/editing/opining on the legislation. Nevertheless, under McClellan the program became reality, with the initial enrollment problems addressed (in large part).

Continue reading "McClellan's legacy" »

Posted by at 6:35 AM | Permalink

With the news that Aetna has entered into the work comp pharmacy benefit management business, there are now officially a bazillion WC PBMs doing business. Maybe even two bazillion.

Aetna has been in and out of the WC business in the past, and now appears to be in it, at least as a managed care vendor. Aetna Workers Comp Access is the brand name for the company's PPO network, one that is gaining some traction in certain jurisdictions. The new PBM venture appears to be an attempt to use Aetna's group health-oriented PBM to deliver drugs to comp patients. But the WC PBM business is much much different than group health. There are no deductibles or copays in comp, identifying the patient's PBM is much more of a challenge, and the country is a crazy quilt of different regulations, as each state sets its own rules, reimbursement levels, and operating standards.

The strategy is to cross sell the PBM to Aetna's (group health) employer clients. One of the touted benefits is the ability to identify potentially harmful drug interactions across both group health and WC medical treatment. Aetna has landed their first customer, CostCo, and are also bidding on carrier business (several of the larger insurers have been or are out to bid for PBM services).

Aetna is not doing this on their own, but has contracted with Rockville, MD based CatalystRx to provide the WC expertise needed to operate in the comp market. This is a somewhat puzzling choice; Catalyst is not a big player in WC and does not have a lot of experience in the space. Their contribution will be key if Aetna's newest venture is to become a viable option for comp drug buyers.

What does this mean for you?

Another option in the already-crowded WC PBM industry, albeit one with a different twist.

Posted by at 1:44 PM | Permalink

As a public service, I've put together a (partial) list of firms that repackage drugs for physician dispensing. This is primarily a workers comp issue, as comp insurers and TPAs are increasingly concerned about the cost of drugs dispensed by physicians. In some circumstances, the billed and payable amount can be several times higher than the cost for the same type of drug dispensed through a pharmacy.

Continue reading "Drug repackagers and physician dispensing" »

Posted by at 3:39 PM | Permalink | Comments (10)

The Hartford's annual study of drug costs provides insights into what drugs are driving costs, and the results a carrier can expect if they work hard at managing drugs. The big insurer enjoyed a reduction (!) in drug costs year-over-year of one percent, driven largely by the demise of the COX-2 drugs and the emergence of generics for Oxycontin and Neurontin.

Heavy-duty pain med Actiq continues to be a big problem for the Hartford, as it is for other payers. Of note, one payer I work with has been able to sharply curtail the use of Actiq through a targeted clinical management program involving physicians doing peer review. And, Actiq is coming off patent next year, which may reduce the price per dose. (but the manufacturer has developed a "new and improved" version that will likely be used as a substitute...)

The Hartford's results are not surprising. Payers with aggressive, integrated approaches to managing drug costs are experiencing modest increases in drug expenses, while those without a strong focus on managing pharmaceutical expense have been hammered by costs increasing upwards of 15% annually. The Hartford participated in my firm's third Annual Survey of Prescription Drug Management in Workers Compensation; their results, and the results of several other large payers, helped keep the industry's overall inflation rate to 10%.

The keys to success? Managing utilization. A strong clinical management approach. The intelligent use of prior authorizations. And a company-wide commitment, backed up by the resources needed to attack the problem.

What does this mean for you?

You too can control drug costs - by focusing on utilization and clinical management.

Posted by at 7:12 AM | Permalink | Comments (2)

News reports indicate Amerisource Bergen (ABC), the hospital supply firm, is unloading its Pharmerica subsidiary. Actually, it is forming a joint venture with Kindred Healthcare to combine both companies' long term care businesses in a new entity.

These companies provide drugs and supplies to nursing homes around the country, have annual combined sales of $1.9 billion and rather thin profits of $75 million.

Pharmerica also was the parent company of workers comp PBM Tmesys/PMSI, which evidently is staying within the ABC company fold.

Last week PMSI/Tmesys also made several changes in management, including promoting Mark Hollifield to president to replace Dave Weidner, who moved on to another senior position within the parent company. Hollifield, who was promoted to COO at the end of March 2006, is a well-regarded manager. Tamara Wagner, the long-time head of sales departed as well, and an interim sales leader was appointed from within.

Other sources indicate Coventry's First Health unit is looking into entering the WC PBM business, likely by going the acquisition route.

Posted by at 12:04 PM | Permalink | Comments (1)

Drugs account for over one-eighth of workers compensation medical expenses, and that number continues to increase. The data from NCCI's latest research paper on workers compensation drug costs is consistent with the findings of my firm's research, and provides additional detail on the specific drugs that account for the majority of dollars spent.

NCCI's report includes results up to 2003; while there have been several significant changes since then (the disappearance of most of the COX-2s, patent expiration on Oxycontin, and the explosive growth of Actiq), the report's year-over-year trend data is sobering.

Of note, experience indicates that the most sophisticated payers are holding increases in the 2-5% range through the use of clinical management programs, data mining, adjuster training, strong EDI connections, and intelligent third party biller strategies.

Their less-sophisticated colleagues are at the other end of the spectrum, experiencing 15% and higher annnual inflation rates.

What does this mean for you?

If you aren't working hard on this, you may want to get started.

Posted by at 10:26 PM | Permalink

My firm's third annual survey of prescription drug management in workers comp has been completed, and here are a few of the findings.

1. Drug costs increased slightly more than 10% last year, a "decrease in the rate of increase" over prior years.

2. Respondents, which ranged from small regional payers to the largest national insurers, are getting more sophisticated about drugs and drug management. This is evidenced by respondents' increasing focus on clinical management programs; access to more and better data about their programs and results thereof; and greater attention on utilization vs. price.

3. Third party billers continue to frustrate payers, with almost 90% viewing TPBs as problematic. Concerns included reduced data quality, increased administrative problems and workload, and increased costs.

4. Drug repackaging is also high on respondents' lists of problems, with particular emphasis on the California situation and physician dispensing.

A copy of the survey report can be obtained by emailing me at jpaduda@healthstrategyassoc.com

Posted by at 9:42 AM | Permalink

Prices on branded drugs increased 3.9% in Q1 2006(registration required), the largest increase in six years. Coincidentally, the Medicare Part D drug coverage program went into effect 1/1/2006. Part D has resulted in somewhere around ten million new customers for insurers, who will now pay 4.7% more for Lipitor and 13.3% more for Ambien.

In terms of dollars, AARP calculates the average senior's costs will increase by almost $20 per month, as the Part D providers are passing the cost increases along to their subscribers.

There has been the usual rash of outraged protests from various mouthpieces for big pharma, all of which are either disingenuous, outrageously self-serving, misleading, or poor attempts at deflecting blame towards insurers et al.

So what happens when pharma decides to increase prices?

Well, the mass media starts looking at what the Veterans Administration pays for drugs. Compared to the VA, the only federal entity allowed to negotiate prices, Part D prices are now 46% higher on average.

Here are a couple examples, quoted from the Families USA report.

"For Zocor (20 mg), the lowest VA price for a year’s treatment was $127.44, while the lowest Part D plan price was $1,275.36, a difference of $1,147.92 or 901 percent.

For Fosamax (70 mg), the lowest VA price for a year’s treatment was $265.32, while the lowest Part D plan price was $727.92, a difference of $462.60 or 174 percent."

So here we have big government, in the form of the VA, delivering prices that are about half of what private industry can obtain. While that's kind of interesting, it gets way more than "kind of" interesting when you consider that Part D has added $8 trillion to the nation's long term debt. That's a quarter of the entire Medicare deficit...

Tell me again how privatizing health care for seniors is a good deal for taxpayers, seniors, and the country?

Posted by at 6:20 AM | Permalink | Comments (3)

URAC, the national body that is the self-described "leader in promoting health care quality through its accreditation and certification" of managed care firms, processes, and programs, is getting into the PBM certification business. According to a recent press release, URAC has formed a standards committee to "advise the organization on the creation of requirements for the first-ever accreditation programs addressing pharmacy benefits management in the Medicare, commercial insurance and health plan arenas".

URAC has gotten into the managed care approval business in a big way of late, and now provides accreditation in 15 areas, including call center operations, consumer directed health, UR, workers comp UR, and claims processing. While the accreditation process can be onerous, some industry sources question the diligence, precision, and rigor of the process itself. According to one highly experienced workers comp clinical manager, the accreditation of one vendor was "shocking; I don't know what they (URAC) were looking at...my audit clearly showed some major deficencies in (the vendor's) QA, documentation, timeliness of communications, and feedback to the (clinical) staff."

This echoes other comments I have heard from entities evaluating vendors; it appears that URAC certification/accreditation, which serves as a seal of approval, demonstrating the vendor has met rigorous standards, may be losing a bit of its "gold seal" status. This would be unfortunate, as many state regulators, employers, public entities, and vendors rely on URAC to be the expert in evaluating potential vendors for quality and consistency of operations.

What does this mean for you?

If URAC develops a PBM evaluation process that is rigorous, appropriate, and sensitive to both vendors' and purchasers' needs and requirements, your job should be easier. That doesn't mean you shouldn't do your own due diligence, and do it diligently.

Posted by at 8:46 AM | Permalink | Comments (1)

Part D’s enrollment deadline came and went, and along with it the orgy of claims, counter claims, blames and counter blames. So now that at least a bit of the dust has settled, where are we?

Confused.

Depending on whom you read or watch or listen to, the program has either been a success or a failure, is working or is not, is profitable or a loser, has enrolled “enough” people or has fallen well short.

The reality is as confusing as the perceptions appear to be. In any effort to cut through the spin, I checked in with Bob Laszewski of Health Policy and Strategy Associates. His take is it is too early to tell how things are going, and in the absence of truly meaningful metrics, we’re just going to have to wait and see.

Here’s why there is so much confusion.

There is no consensus on how many seniors have signed up for Part D or have alternate drug coverage under other plans. For starters, health plans and the Feds can’t agree on who is signed up by whom. Some health plans have been told they have thousands more members than they can account for, while others are being told large numbers of their “enrollees” actually signed up for Part D when they already had coverage under Medicare Advantage or another plan.

As near as I can figure it, there are between 8 million and 4.5 million seniors still without coverage. More details to follow...

Meanwhile, Humana, one of the more “successful” health plans in terms of signing up seniors for its Part D programs, recently saw its debt ratings outlook downgraded by AM Best from ‘stable” to “negative” in part due to large Part D enrollment and associated reliance on government contracts and increased capital requirements.

And AM Best may be on to something. The Medicare Trustees recently projected that the Part D program’s costs would increase by 11.5% annually over the next ten years. If those projections hold true, early claims about the currently “favorable” loss ratios may be short-lived.

We'll have to wait until at least mid-July for reasonably accurate enrollment figures, and accurate financials will take another five months or so. If someone provides numbers in either category before those dates, be skeptical.

Posted by at 6:49 AM | Permalink

CMS' head Mark McClellan believes that over 90% of Medicare beneficiaries will have drug coverage after Monday's deadline for Part D enrollment. That may be true, but that does NOT mean Part D enrollment is at 90%.

As has been ably reported in many places including this blog, before Part D most Medicare-eligible folks already had coverage from their Medicare Advantage plan, their employer, through their retirement plan, Tricare, or another source.

That left about 16 million without any drug coverage (out of the 43 million total eligibles). With the latest stats indicating there remain 4.5 million seniors without drug coverage, it looks like Part D will just pass the "adverse selection test" of a minimum of 70% of eligibles enrolled (my sense is a program of this type actually requires much higher enrollment, near 90%, to mitigate the risk of adverse selection).

Where does that leave us? There is a complex risk share program in place designed to protect Part D plan sponsors from adverse selection, a program that is in large part subsidized by taxpayers. However, there remains significant risk inherent in the program, a risk that private insurers would not have taken on without the taxpayers< backing them up.

So, we have a self-described conservative government using public funds and public policy to support private industry's entrance into a new market.

Doesn't sound very "conservative" to me. If Part D isn't attractive enough for private companies to enter into on their own, why are we bribing them to do so? Are we not implicitly agreeing to commit public funds to this program? And if so, why didn't we just cover drugs under Medicare, thereby avoiding all the doughnut hole, enrollment, dual-eligible and associated troubles?

Posted by at 3:04 PM | Permalink | Comments (2)

Marketplace, public radio's daily business show, ran a short piece on Medicare Part D enrollment today, with comment by Bob Laszewski and I. Not sure how we ended up disagreeing; or if we were...

Posted by at 4:19 PM | Permalink | Comments (3)

A new study released by Part D advocacy group Medicare Today makes a compelling case for seniors' enrollment in Part D. Authored by the Lewin Group (an excellent and unbiased health care reseach and analysis firm) the study makes a compelling case for seniors to enroll.

It makes an equally compelling case for adverse selection.

The only seniors who are signing up are those that can make money on the program. They make money because their premiums will be less than what they are spending on drugs today (or would be tomorrow). The Lewin report provides details on who benefits the most, what the average cost is ($37.43/month), and what benefits accrue to individuals with which conditions. It's really well done.

Make no mistake; this is not insurance.

The Part D program is akin to an ATM card where you can withdraw any amount you want, as long as you pay a set minimum price. So, seniors, no dummies when it comes to managing money, can pretty quickly figure it out.

What's missed in the discussion about Part D is the better off seniors are, the worse off taxpayers are. The ATM account has to be funded by someone, and that someone is the beleagured taxpayer.

This is nothing short of bizarre. The Feds are actively and aggressively encouraging enrollment in a program that will cost three-quarters of a trillion dollars over the next ten years, while cutting taxes that will be needed to pay for this program.

What does this mean for you?

Really high taxes in a few years. Followed by a taxpayer revolt. After which Congress will likely authorize the Feds to negotiate pricing with big pharma. Because the only other choice is to cut benefits, and seniors would never allow that.

Posted by at 11:05 AM | Permalink | Comments (4)

Rather than do the 'reinvent the wheel' thing, I'll just refer you to other folks who have been "fact checking" the Administration's claims about the 30 million who have "signed up for" Medicare Part D.

The net is this - out of the 21.3 million eligibles (not covered under some other Medicare or other Rx program), a bit over one-third have signed up for stand-alone Part D.

Matt Holt replays a Wall Street Journal article that (finally!) breaks down the actual enrollment stats by source (something Kate Steadman, Matt, and I have been blogging on for months...).

This makes me nuts because it will be used by some to make the point that governmental approaches to health care coverage do not work. And in this case, they'll be dead on.

Posted by at 6:16 AM | Permalink | Comments (1)

The workers comp drug management landscape is getting even more complicated, with new entities and renamed ones entering the space seemingly every day. One of the latest to hit the radar is Innoviant, a subsidiary of Fiserv.

Remember Fiserv owns Third Party Solutions as well as DirectCompRx, a third party biller and PBM respectively.

It appears that an Innoviant unit that specializes in marketing to injured workers and their attorneys, telling them that Innoviant will eliminate out of pocket costs and hassles, delivering drugs quickly via mail order etc. Sources on the payer side indicate that Innoviant then bills at rates above what is usually deemed appropriate, claiming that their requested reimbursement levels are reasonable.

Moreover, one payer in Florida has seen a recent and rather large influx of bills from the Innoviant mail order folks; this payer is concerned that TPS bills are finding themselves inserted into the "mail order" category, thereby circumventing existing processes for capturing these scripts and redirecting to network pharmacies.

Innoviant also goes so far as to recommend attorneys to those injured workers who are in need of a little legal assistance. One wonders if there is a quid pro quo here...

So, Fiserv owns a third party biller, PBM, and home delivery company (marketed to physicians and attorneys); it does appear that they are seeking to serve all masters, even competing ones.

Posted by at 1:31 PM | Permalink | Comments (1)

The Washington Post published results of a study that indicate a generally modest level of satisfaction with Part D among enrollees. According to the Post, "Three-fourths of Medicare beneficiaries enrolled in the drug benefit say paperwork to sign up was easy to complete, and almost two-thirds say the program saves them money..."

I'd just point out that seniors are pretty sharp consumers, and the ones who signed up for Part D are likely those who did the math to figure out the cost-benefit.

This is called adverse selection, and is the main reason the program will not be successful over the long term. Simply put, the ones who sign up are the ones who will get more in benefits than they will pay in premiums.

Matt Holt's Fierce Healthcare points out that the Post erred in stating that 29 million had signed up for Part D - this number actually included all seniors with some form of drug coverage from Medicaid, Medicare Advantage, or other sources, and grossly overstates the actual enrollment - which is about 30% of eligibles.

Also of note is this stat - among all seniors surveyed, (those with and without Part D coverage), 41% approve of the benefit and 45% don't. Leaving aside the health policy issues of Part D, it sure does not look like a political win for the current Administration.

Posted by at 3:05 PM | Permalink | Comments (3)

My firm, Health Strategy Associates, is conducting the Third Annual Survey of Prescription Drug Management in Workers Comp, and I'm hoping to have the final report completed before the end of April. Here are a couple of interesting bits that have come up in the 20+ interviews conducted to date.

1. There is a rather striking difference in the pharmacy inflation rate between what I would characterize as less- and more-sophisticated payers. Some payers have held their inflation rates down in the lower single digits, others are seeing trend rates above 15%.

2. Claim frequency decreases get part of the credit for low pharmacy inflation, but not all of it.

3. The number of PBMs is growing, but no PBM has a dominant market position. In fact, many senior execs don’t know much about the PBMs beyond their names.

4. Cost inflation tends to be attributed to more “designer” drugs, e.g. more expensive branded drugs being prescribed when a cheaper generic would likely work; direct to consumer advertising’s impact on consumers, and more claimants getting more drugs for longer periods.

5. This last is probably the most consistent thread running throughout the interviews – a heightened awareness of and concern about the sheer volume of drugs prescribed.

I’ll post additional highlights when they make themselves apparent. If you want a copy of the survey report, email me at jpaduda@healthstrategyassoc.com.

Posted by at 8:12 AM | Permalink | Comments (3)

For the dozen folks who find this remotely interesting - A few factoids and interesting tidbits from around the WC PBM world.

The legislative efforts in California to address repackagers and dispensing of drugs by physicians appears to be stalled, and may not progress this year. This is bad news for payers and policyholders, as repackaged drugs account for over 50% of drug costs in California and that number is heading up.

Third party billers pay pharmacies about what most PBMs do, thus the reason pharmacies send their scripts to TPBs is because it is less work.

Sources indicate about 2% of all workers comp scripts are never picked up. If the pharmacy billed the script through a PBM, it will be reversed and the PBM and payer credited. This does not appear to be happening with third party billers. Anyone out there ever had a third party biller come back to them and reverse a charge? Anyone???

One third party biller strategy being discussed by a major comp payer is to require the biller to verify that each script was picked up. This could be in the form of a photocopy of the signature log or attestation by an officer of the TPB.

A source's billing and payment data indicate that many payers, including at least two of the top five national WC insurers, pay third party billers at or close to billed charges in states without fee schedules. Meanwhile, other payers are cutting those bills to AWP-10% +$3.00 and not getting much pushback.

Word has it that Kroger's is getting paid at straight AWP by their third party biller...no wonder they are not contracting with any workers comp PBMs.

Meanwhile, Medco is forcing pharmacies to accept group health reimbursement for their (very few) workers comp clients. Workers comp does not appear to be anything more than an accomodation for a very few of Medco's largest customers, as Medco does not actively sell into the comp sector. My sense is if Medco did have more WC business, they very likely would have a lot more pushback from the pharmacy chains.

Posted by at 7:41 AM | Permalink

I noted a couple weeks ago the problems pharmacies in Texas have been encountering with Part D - slow pays, no pays, missing information, higher staffing costs, and the like. Now word comes that California pharmacies seem to be suffering the same side effects of Part D.

The news comes from the Sacramento Bee (free registration required), and was triggered by reports of a home-delivery pharmacy shutting its doors, at least in part due to payment problems associated with Part D. According to the Bee;

"In a CPA (California Pharmacy Association) survey about Medicare Part D, 55.8 percent of independent pharmacies said the drug program's timing of payments has created a "significant negative financial impact" on their business."

Ohio pharmacies, especially the independents, are also experiencing financial troubles they attribute largely to Part D. While many of these issues were recognized early this year, the financial impacts are only now really starting to be felt.

The independents don't have large chains' financial backing nor buying power; this will make it very difficult for those in anything less than excellent financial shape to survive while Part D is sorted out. As independents account for 43% of all pharmacies, this is no small issue.

The good news is few eligible seniors have signed up for Part D. This presents us with an interesting picture - the success of a program designed to get more drugs to more people may well have killed off many independent pharmacies.

Only in Washington could they have come up with something so creatively destructive.

Posted by at 2:21 PM | Permalink | Comments (3)

It’s not often the President of the United States does health benefit plan enrollment meetings, so Bush’s recent national tour touting Part D stands out as one of the more unique moments in health benefits history. But this is more than an interesting factoid, because Bush’s speaking tour came about because of the dismal enrollment rates seen to date. And with the enrollment period ending in less than two months, it does not look like things will get much better.

While the President touts the enrollment of 25 million seniors into the program so far, 20 million of those had coverage before the program started. That leaves a total of 23 million seniors eligible for enrollment – out of which 5 million, or less than 22% have taken the plunge.

As I’ve been saying all along, any voluntary benefits plan with participation under 70% is in trouble – so Part D looks to be in big trouble.

If enrollment stays slow and low, Congress may well have to extend the enrollment period. While Bush has said that is a non-starter, he also threatened to veto any Congressional action on the Dubai Ports deal. This turned out to be a hollow threat, and with Congress increasingly independent of the White House, and Republicans seeking to salvage anything from the ashes of Part D, an extension could well be in the works.

(Bob Laszewski was the first to characterize Bush's role in enrollment meetings)

Posted by at 7:28 AM | Permalink

The law of unintended consequences continues to dog the much-maligned Part D program. So far, seniors and states have been depicted as the primary victims of the program's operational, structural, and marketing faults. Now there's news that the program's impact on pharmacists is resulting in political fallout for the White House.

The New York Times reported yesterday that a (free registration required) group of pharmacists from Texas met with White House political boss Karl Rove to voice concerns about Part D. While their complaints include the additional time required of pharmacists to explain the program to seniors and advise them on which of the myriad offerings works best for them, by far the more significant issue appears to be the financial fallout.

Pharmacies' problems include slow payment by Part D vendors; lower reimbursement rates; extra labor costs incurred while (free registration required) pharmacists wrestled with administrative nightmares; and the cost of free scripts given away to seniors lost in the bureaucratic mess.

According to a pharmacist in California: "It's really bad and it's been a disaster for us...Our reimbursement rates have gone down. Medicare Part D has really hurt us."

While the administrative and operational issues look to be solvable, the reimbursement issue will not go away. Pharmacists are discovering that in many cases their reimbursement under Part D is less than it was under Medicare, making Part D significantly less attractive. And that comes on top of a reduction in Medicaid drug dispensing fees that went into effect last year.

According to the pharmacists from Bush's home state, these problems have combined to push many pharmacies, especially the mom-and-pops, to the financial brink. The result is these independent business people, many of which have been ardent supporters of the President, feel victimized by the program. Bush's recent comment that "It's not immoral to make sure that prescription drug pharmacists don't overcharge the system" further alienated pharmacists.

The winners in Part D look to be big pharma, PBMs, managed care firms, and employers. In addition to taxpayers, seniors and pharmacies, losers may include the President and his allies on Part D.

Posted by at 7:29 AM | Permalink | Comments (4)

Reports out of Washington indicate Pres. Bush's plans to expand HSAs by increasing the amount individuals can set aside tax-free are not gaining much traction on Capitol Hill. Sen. Chuck Grassley (R Nebraska) and other Republicans are not in favor of the move.

This is not Bush's only problem related to health care. Some 60 House Republicans have refused to back the Bush Medicare budget cuts, breaking wiith the President despite calls for fiscal prudence. One wonders if election year politics has anything to do with this. Actually, there's no wondering.

Republicans, faced with a President with historically low approval ratings (well, pretty close to historical lows) look to be scrambling for cover - and with seniors particularly upset with the GOP over the Part D mess, a cut to Medicare would increase their problems.

The situation on the Hill makes CMS Director McClellan's recent pronouncements about adding HSAs to Medicare (Part G?!) somewhat...puzzling? Faced with concerns about both HSAs and Medicare among their own party leaders, why is McClellan floating this trial balloon? One can only imagine the reaction among seniors who have been tearing their hair out over Part D. If we thought Part D was complicated and hard to explain, I can't wait to see our nation's political leaders on a bus traveling around talking to seniors about HSAs.

What are these people thinking? Or rather, are these people thinking?

What does this mean for you?

Politics in an election year can be good and bad - killing the ill-conceived HSA expansion while not addressing some of the real concerns with Medicare are two great examples.

Posted by at 8:32 AM | Permalink

It will come as no surprise to most that a significant number of people do not take their medications as recommended. In fact, the number appears to be about 20%, at least according to a study funded by pharmaceutical company GlaxoSmithKline covering 429,000 Ohio health insurance claims for conditions such as diabetes, congestive heart failure and asthma. GSK's study indicates that non-compliance adds over $700 million to the state's health care costs.

Again not surprisingly, GSK has a plan to fix this problem. It involves eliminating copays for individuals if they agree to talk with a pharmacist at least once a month, and have the pharmacist check their blood sugar, pressure, and feet for sores. The extra payment to the pharmacist for their time, as well as the employees' copays, will be funded by insurance companies or employers.

And last in this "dog bites man" story is the rather obvious note that although GSK et al will benefit by selling more drugs, they don't appear to be contemplating any financial contribution to this noble cause.

What does this mean for you?

Two things.

One, another study that demonstrates the positive financial impact of reducing or removing copays for medications for chronic conditions. This has been documented previously, and calls into question what sems to be the main premise of the consumer-directed health plan - the theory that individuals will spend their money in such a way as to maximize their health.

Two, yet another example of big pharma shooting themselves in the foot. To look both smart and magnanimous, all GSK had to do was offer to partially fund the pharmacists' extra time, provide the blood pressure monitors, reduce prices for insulin by $3 for those employers participating in the plan (either directly or through rebates) or otherwise do something altruistic. Instead, they fund a study (yay) that shows it makes sense for the rest of us to buy and use more drugs, thereby generating more revenue and profit for GSK et al.

Posted by at 6:59 AM | Permalink | Comments (1)

For the dozen or so people in the workers comp business who follow these things, the recent win by ScripNet in its ongoing legal battle with third party biller (TPB) WorkingRx was excellent news - at least for the payers.. The court threw out WorkingRx's lawsuit, noting that it had "no greater right to reimbursement from ScripNet than a pharmacy would have."

WorkingRx and its competitor Third Party Solutions have been working two fronts in their effort to stabilize their businesses; suing payers who refuse to pay their bills in full, while attempting to sign deals with pharmacy benefit managers and payers in return for a "discount" off the TPB's (inflated) charges.

The court win is by no means the final word; TPBs have proven to be remarkably resilient and are proof that businesses that can evolve quickly can survive.

What does this mean for you?

More clarity from the courts re the legal position of TPBs.

Posted by at 9:14 AM | Permalink

Physicians and clinics are finding that dispensing drugs to patients can be a very profitable venture. Advocates are claiming that the practice improves the quality of care and ensures the patient receives the necessary scripts.

Let's take the quality of care issue first. No question - an obstacle to compliance is the requirement that the injured worker has to get the script filled. Therefore, the dispensing of meds by docs makes sense. The right drug gets into the patient's hands quickly.

OK. That's a good thing. But at what price?

An analysis by Alex Swedlow (data provided by Alex to me) et al at the California Workers Compensation Research Institute on 2004 data indicates the price for repackaged drugs is from two times higher than the fee schedule (for ibuprofen) to twelve times higher (generic Zantac). (CWCI will publish the full study in the near future)

And, repackaged drugs accounted for less than a third of all scripts, but over half of all dollars paid. This is especially troubling when one considers the overwhelming majority of the top 20 drugs are generic.

Sources indicate that the problem grew even worse last year, with some payers indicating a majority of scripts were for repackaged drugs.

What does this mean for you?

Higher costs for WC payers, businesses, and taxpayers in California.

Posted by at 7:13 AM | Permalink | Comments (1)

From Jim Andrews of Cypress Care comes a heads-up of an article by a former California state representative who's endorsing the doctor-dispensing trend, noting that it has "small costs and huge benefits."

Perhaps to his consulting clients, who include the drug repackagers that supply the drugs to docs.

Here's the deal. The CA fee schedule drastically reduced the amount paid for drugs under workers comp by requiring compliance with the Medi-Cal fee schedule. I have issues w the drastic reduction, but that's for another post.

So, entrepreneurs sensed an opportunity. The new fee schedule applied to drugs speicfically listed under Medi-Cal; drugs that were not listed were to be paid at the old fee schedule, which was much much much more generous.

Surprise - these wily entreprenueurs figured out that if they repackaged drugs from lots of 100 into 90 or 50 or 101, they fell outside the fee schedule. And, there was no Average Wholesale Price per se, as these creative business folk were creating a whole new drug/dosage/count combination. Voila, they came up with their own "AWP".

In the article on Workers Comp Exec, the ex-legislator (Thomas Calderon) notes that "The drug debate has centered on the so-called "loophole" created by SB 228 allowing doctors to bill at the pre-SB 228 fee schedule, which is 140 percent of the average wholesale price (AWP). But has this loophole raised rates to employers? Absolutely not (no proof statement provided by Calderon)...We could do as I suggested above by using 90 percent of AWP. Another way would be to increase the handling fee to reflect the costs of dispensing."

Well, gee Tom, if your clients are setting the AWP, and then you are offering a 10% "discount" off that AWP, how exactly does that reduce payers' costs? I should note that several of my payer clients are seeing costs for these repackaged scripts that are five to ten times higher than for scripts that are covered under the Medi-Cal fee schedule.

Calderon is disingenuous at best, and advocating cheating the system, patients, and employers at worst.

Repackagers could add value, patients could get their drugs faster, and docs could make a few bucks on the side, and everyone would be happier. But the only people making out on this deal are Calderon's clients and a few docs who are taking advantage of the system.

What does this mean for you?

We need to fix this loophole.

Posted by at 3:13 PM | Permalink | Comments (3)

Should insurance companies or patients pay $6000 to $10,000 a month for a cancer drug that extends life five months on average? Should oncologists be marking the drug up to make money on it? Should the drug manufacturer keep the price so high it keeps it out of the reach of many potential patients ?

Avastin is a drug approved by the FDA for colorectal cancer and is used primarily in advanced stages of the disease. Manufactured by Genentech, it works in conjunction with other, tumor-fighting drugs to slow the spread of cancer by reducing the blood flow to tumors. And it does appear to do this pretty well. This success has led physicians to consider using it in early stages, but there are two problems with this.

First, it has not been approved by the FDA for that usage. As a result, many insurance companies may not pay for it. Therefore this leaves doctors and patients facing the all-too-common financial conundrum - is it worth it? An article in the New York Times (free subscription required) describes the decision making process of several cancer victims, some of whom cannot afford the drug and are not taking it due to cost.

Before we start hurling invective at the insurance companies, remember that they are spending your dollars. So ask yourself the question - do you want your personal funds paying for these drugs?

Another medication, Gleevec, has shown excellent results for leukemia patients, extending life significantly albeit at a very high price.

Genentech's executives describe Avastin's pricing methodology as value-based; according to William M. Burns, the chief executive of Roche's pharmaceutical division and a member of Genentech's board; ""The pressure on society to use strong and good products is there." And this pressure allows/enables pharma companies to charge what they want, knowing payers will face incredible pressure to cover the cost.

In contrast, or perhaps contradiction of Burns' position, Dr. Desmond-Hellmann, the Genentech product development chief, was quoted in the Times as saying "I don't think any patient should go without a Genentech drug for an inability to pay," she said. "If this is about money, that would disturb me."

(I can see the PR types at Genentech cringing...)

Avastin, with annual treatment costs around $100,000, provides about $7 billion in revenues for the company annually.

It is about money - who gets it and who pays it. And therefore it is about choices. Remember a significant portion of medical expense is for treatment of people in their last six months of life. Are we as a society willing to pay $40,000 for five more months of life for people with this horrible disease?

What does this mean for you?

More tough thinking and very uncomfortable debate.

Posted by at 7:11 AM | Permalink | Comments (12)

A post at "over my med body" (grahamazon.com) about the correlation between copays and adverse health outcomes pointed me to an interesting study published in the American Journal of Managed Care on the correlation between raising drug copays and decreased compliance.

Here's the net - increasing copays for people on cholesterol-lowering drugs led to lower compliance. Lower compliance led to increased hospitalizations and other bad and costly outcomes. According to the report:

"Although many obstacles exist, varying copayments for CL )cholesterol lowering) therapy by therapeutic need (reducing them for those who would benefit the most) would reduce hospitalizations and ED use�with total savings of more than $1 billion annually"

This is one of a growing series of reports, studies, and analyses that indicate increasing patient costs at point of service can have negative effects on total costs and patient health status.

Or, saving a few bucks on scripts costs lots more in hospitalizations.

What does this mean for you?

Helpful data to consider when considering the impact of consumer-directed health plans and high deductibles/Health Savings Accounts (HSAs). When you remember that half of all the HSA accounts opened to date have no funds in them, it becomes clear that these plans may do as much, or more, harm than good.

Posted by at 3:56 PM | Permalink | Comments (9)

Director of the Center for Medicare/Medicaid Services Mark McClellan was up on Capitol Hill yesterday testifying on Part D, conveying the message that all was going better, improvements were being made, and the cost of the program was lower than anticipated.

When one remembers that McClellan is the brother of White House press secretary Scott, his facile comments and ability to re-interpret reality are more understandable.

I'm reminded of the comments whispered to me by the mother of the young lad named "most improved" at a youth football dinner: "he was so bad at the start of the season that just running without falling down was a huge improvement". While the Part D program is nowhere near running, and has yet to even advance beyond the crawling stage, it is likely to improve. That's the good news. The bad news is the fatal flaw of adverse selection, discussed here ad nauseum, but still eluding the denizens of Capitol Hill.

One highly contentious issue continues to be the law preventing HHS from negotiating directly with pharmaceutical companies on drug prices. According to ABC News; Sen. Snowe (R ME) and what a great name for a senator from Maine...

"questioned the way the program was working and pushed for legislation that would allow the government to negotiate for better drug prices. The initial legislation included no such provision, an omission that at the time was seen as a boon to drug companies.

Snowe and Sen. Ron Wyden, D-Ore., have drafted bipartisan legislation that would give government the power to negotiate prices.

"I can't imagine why we'd spend $700 billion on this benefit and not allow the secretary to maximize the taxpayers' money," Snowe said.

Me neither.

Posted by at 8:04 AM | Permalink

A June 2005 CMS Office of the Actuary report estimated there would be a total of 36.8 million enrolled in Part D in fiscal year 2006. Thus HHS Sec. Leavitt's stated goal of 28-30 million enrolled in Part D by the end of 2006 either reflects an updated guesstimate or indicates the previous goal is now viewed as unreachable, or perhaps both. (remember almost 22 million seniors were automatically enrolled in Part D on 1/1/06) Especially when one recalls that the calendar year has three more months than the fiscal one.

As Bob Laszewski points out, historically the big enrollment date for employee benefits and health plans has been January 1. With all the hype, publicity, politicians-on-the-road-show circuit and marketing leading up to that date, and with that date well behind us, it looks very doubtful that enrollment numbers will even come close.

The well-publicized enrollment mess surely has not encouraged seniors to jump into a plan that had already confused them.

So, despite the taxpayer funding 75% of the costs of the program, millions of dollars in advertising and strong support from elected leaders (sell, some of them at least) and six weeks into the program, we have enrolled a grand total of less than 4 million into the voluntary program.

Not exactly a ringing endorsement of a privatized health care plan based on competition in the private sector.

What does this mean for you?

Bad news for advocates of national health insurance provided by private payers. That was me too, but I'm not nearly as convinced today as I was this time last year...

Posted by at 2:50 PM | Permalink | Comments (3)

There is an excellent objective review of the role of PBMs in managing Part D costs at California HealthLine. While I hesitate to summarize what is already a summary, here are the main points.

1. The absence of any "transparency" requirements in the Part D enabling legislation makes it impossible to determine without legal investigation how PBMs may benefit from rebates and other confidential financial transactions.

2. There was an amendment proposed that would have addressed this but it was shot down due to the administrative expense ($40 billion over ten years).

3. Self-dealing, namely the direction of patients to a PBM-owned pharmacy, is not illegal, and is a likely fallout from Part D. This is not bad per se, as mail order costs are significantly cheaper, and the home delivery service means folks do not have to get out of the house to get their scripts (which may actually be a good or bad thing).

4. Not noted is the failure of the legislation to allow CMS to negotiate drug prices, not even as a last resort. I don't get this.

PBMs Medco, Express Scripts, and Caremark have been besieged by allegations of impropriety, civil complaints, and customer action. While this PBM-pharmacy manufacturer-pharmacy-CMS-employer-patient thing is enough to make your head spin, this will confuse you even more -

If PBMs screw up really badly and lose a lot of money during the next two years, the taxpayers will bail them out .

What does this mean for you?

less faith in "free-market" capitalism?

Posted by at 8:03 AM | Permalink

Health policy expert (and good friend) Bob Laszewski was interviewed on NPR this morning about the Part D program, bringing a little much-needed perspective to this over-spun topic. The net - if enrollment among "voluntaries" (those without present coverage) does not increase 500% the program is a disaster.

Here are the quotes from Judy Rovner's piece:

"�(HHS Secretary) Leavitt said new enrollment numbers show the efforts are working. "In the last 30 days more than 2.6 million people have enrolled in the plan, bringing the total to 24 million," he said. "We're on track to meet the 28 to 30 million goal this year."

But others say those numbers aren't as impressive as they sound. "They talk about well on their way to 30 million being covered," says Robert Laszewski, a political analyst and insurance industry health consultant, "but in fact 22 million people already had drug coverage before Part D went into effect."

Laszewski says the more important statistic is what the 21 million Medicare patients who didn't have drug coverage have done. "Only 3.6 million have signed up through Jan. 15. that's only 17 percent. And that's after more than 2 months of hype, of advertising, of the president going around the country giving speeches about it," he says.

In fact, judging from the early signup, Laszewski says he thinks the program is on track to enroll between 30 and 40 percent of seniors who previously lacked drug coverage, "and that's certainly not a public policy success. It's clearly not a political success for the president and Republicans because so many seniors are upset about the way this thing's been handled."

And Laszewski says the program could be on its way to being a business failure as well. "Because it's important in a voluntary program like this to get a good cross section of people, the sick and healthy both, coming together to finance the program. If we're getting just 30 to 40 percent of seniors, chances are we're getting just the ones who think they can make money on it, which means the insurance companies won't make money on it," he says.

Which means the taxpayers will have to subsidize it. Either the taxpayers or the Chinese, and they are looking increasingly reluctant to keep paying for our profligate government's excesses.

Here's what HHS said about the program's issues.

"Leslie Norwalk, deputy administrator of the Centers for Medicare and Medicaid Services, told the Kaiser Foundation forum yesterday that the Medicare program itself suffered some of the same growing pains when it began 40 years ago. "We probably have a stack over a foot long of newspaper articles between 1965 and 1966 that read almost identical to the articles we see on the front page of every paper today about the difficulty of implementation and confusion and so forth," Norwalk said."

Ms. Norwalk, does that mean you learned nothing in the last 40 years?

What does this mean for you?

As presently constructed, Part D is a loser - for insurers, tax payers, and so far for beneficiaries. It has a fundamental flaw - the only people who will sign up are those who will gain more financially then they will pay in premiums. In fact, the more "successful" CMS and friends are at getting enrollees (up to Bob's 70% number) the more money the program will lose.

What a great country.

Posted by at 2:14 PM | Permalink | Comments (2)

One of the emerging issues in workers comp is the dispensing of drugs by physicians on a grand scale. Clients (big WC payers) are seeing over half of their drug costs in California coming from doc-dispensed drugs. While that sounds great; injured workers get their meds quickly and without having to drive to a store and argue with a clerk over who pays, there are a few problems - and a couple really really big problems.

Drugs are reimbursed according to a fee schedule in work comp in many states. But, the fee schedule only applies to drugs that are "standard"; i.e. have an NDC number. So, when the fee schedule was slashed in CA two years ago creative capitalists simply repackaged the drugs, which now did not have an NDC number and therefore no state-set fee (showing the futility of price controls).

Actually, there is no state set fee, but there is a reimbursement methodology that results in drug costs much higher than the "regular" drug packages. CA law required payers to pay for these repackaged drugs according to the old OMFS fee schedule. And this is one generous fee schedule - 140% of AWP plus a $7.50 dispensing fee for generics and 110% plus $4 for brand. The margins on this for docs must be amazing.

BY way of reference, the new WC drug fee schedule in CA is about 90% of AWP...

Lesson here is price fixing creates opportunities for creative entrepreneurs; my bet is while this gaming has been going on, drug utilization in California WC has been increasing.

What does this mean for you?

If you are a WC payer in California, headaches (that may get treated with doc-dispensed drugs!).

Posted by at 7:48 AM | Permalink

A reader asked why I'm in favor of allowing the Feds to negotiate prices with pharmaceutical manufacturers. The reader's colleagues had the idea that since the PBMs and health plans in Part D are already negotiating, why have the Feds involved?

Here's my response.

First, the whole Part D mess is a great example of how overcomplicated programs generate huge problems. Medicaid claimants were getting their drugs just fine before Part D went into effect, and are now having all kinds of problems. While those problems will likely go away in the near future, the problems did occur when the claimants were switched from a governmental to a private program. A little ammunition for the single payer advocates, if nothing else...

1. "price" is an elusive concept in pharma. The AWP and most other pricing mechanisms are based on the price but do not factor in rebates or any other funds transfer mechanisms that effectively reduce the actual, real "price". So, while PBMs are in fact negotiating for "price", we do not know in most cases what the actual real price is.

2. PBMs by definition have much less purchasing power than governments. As an example, the Veterans Administration is the only federal entity that is allowed under the law to negotiate drug prices. The VA is entitled under the law to receive either the minimum 24% discount off the non-federal average manufacturer price or the "best price" the manufacturer gives anyone, whichever is lower. These rates are much more favorable than any PBM gets.

3. The PBMs make money on the delta between what they buy the drugs for and what they charge CMS. So, while the PBM is incented to get the lowest possible price, they are more concerned w maximizing the price to CMS.

Posted by at 5:49 AM | Permalink | Comments (1)

More on the adverse selection problems with Part D from a research study by DSS Research. The study indicates more than half of eligible seniors have no plans to enroll in a Part D program. And, their characteristics should set alarm bells ringing at every Part D sponsor:

"Disinterested, non-buyers are lowest users of medical services. Those who said they had not chosen a plan and had no plans to do so take fewer prescriptions; spend less on prescriptions; go to the doctor less often; and make fewer ER, inpatient hospital and outpatient clinic / surgery center visits."

In other words, they are healthy, aren't likely to need the coverage any time soon, and aren't interested in subsidizing the costs of their less-healthy fellow seniors. This is exactly why Part D is a really bad idea, poorly executed too.

Posted by at 7:54 AM | Permalink

No, it is not going well. Despite what the spokespeople at HHS claim, enrollment in Medicare Part D has been a failure to date. Perhaps not a dismal failure, but certainly a lot further towards the "failure" end of the spectrum than the "exceeding our expectations" end. Here's why, with thanks to Bob Laszewski for boiling down a complex topic to an understandable conclusion.

Enrollment goals
Only 21.3 million Medicare enrollees have the ability to make a decision on enrollment in Part D. Sure, there are a lot more Medicare eligibles, but many are covered under their employer's plan (11 million), Medicaid (6.2 million of the so-called "dual eligibles"), and 4.5 million under MedicareAdvantage programs.

Of the 21.3 million, 17% have signed up so far. That's right, 17%. As I have been noting for months, the stage is now set for big problems with Part D. You can read about the issues inherent in adverse selection here; briefly it is what happens when only sick people sign up for insurance.

In general insurers need at least 70% of eligibles to sign up to get a good spread of risk. If there is not a good spread of risk, it is highly likely that the only people who signed up are the ones who will gain more in benefits than they will pay in premiums. Result - insurers will lose money hand over fist on this deal (although their losses will be covered by the government, i.e. the taxpayer, for a period of about two years).

There continue to be problems with dual eligibles enrolled in the wrong plans, missing information, coverage issues, etc. But, as Bob points out, that is not the real problem (although it certainly is to those folks who can't get their meds.) The real problem is taxpayers are going to foot the bill for a program that is a poster child for adverse selection.

What does this mean for you?

If you are a drug company, lots of profits. Eligibles, a great benefit. Taxpayers, bad news.

Posted by at 12:21 PM | Permalink

The news about the debacle that is the Medicare Part D roll-out has been well-publicized, along with the details that the individuals most heavily impacted are the 6 million dual-eligibles; those folks covered under both Medicaid and Medicare. They should have been automatically enrolled as of 1/1/06, but many states are experiencing big problems.

The key issue appears to be pharmacies are not able to access eligibility information in government databases through the normal EDI links, requiring the pharmacists to call Medicare where they spend hours on hold. Meanwhile, patients aren't getting their drugs.

If this was just a case of a few scripts for Propecia or Viagra going astray, no big deal. But we're talking beta blockers, insulin, cancer drugs, pain meds, scripts for Parkinson's and the like. Life and death stuff.

Many states have provided emergency funding to enable these people to get their scripts. And this will get ironed out at some point.

The larger issue is the canary-in-the-mine nature of the problem. Many health care experts, politicians, and even some politicians who claim to be experts are putting a lot of faith in technology to root out fraud and abuse, enable better delivery of medical care, enhance evidence-based medicine and streamline the delivery of electronic health records. The Bush Administration in particular is highlighting technology as a big part of the "solution" to the health care crisis.

While there is no doubt technology can help address some of the problems in health care, history is also replete with examples of how solutions made problems worse.

Here's hoping Sec. Leavitt and his colleagues at Health and Human Services get their act together before this gets really ugly.

What does this mean for you?

If you are a pharmacist, you don't have time to read blogs unless you do so while on hold.

Posted by at 10:19 AM | Permalink | Comments (9)

Several industry sources have provided additional insights into third party billers, their billing practices and the fallout from same.

One apparently well-informed source provided additional detail on the billing practices relative to U&C, noting:

"...As far as the U&C discussion goes the only consideration given by the TPB is what the pharmacy is reimbursed. TPB's contracts usually state the pharmacy is reimbursed the lesser of U&C or a contracted amount... As you can imagine the TPB's profit margins increase dramaticaly when the U&C pricing is used to reimburse the pharmacy and then billed at fee schedule or the selected amount billed for non fee schedule states. I do not know the exact percentage of pharmacy reimbursements that calculate from U&C but I can assure you that it is somewhere in the neighborhood of sixty to seventy percent of the processed prescriptions for TPB's if not higher." See the full comment .

Another industry expert referred me to the ongoing Texas Mutual - Third Party Solutions litigation. Apparently the suit, filed several years ago by Texas Mutual, was ruled upon by the Texas Appelate Court early in 2005. TM's contention was that the third party billers are not medical providers and therefore coudl not avail themselves of the administrative process; TM lost at the appellate level. For more information on the specific allegations made by Texas Mutual, read the entire article on TM's website (above).

The Court ruled narrowly on Texas Mutual v. Eckerd et al, determining that TM first had to exhaust the statutory process as all billing issues must be addressed through the established administrative process. The case is now before the Texas Supreme Court.

I have been in conversations with third party billers recently, and hope to get their perspectives shortly. If and when those conversations occur, I'll report on them if the parties are amenable.

What does this mean for you?

If you are a WC payer, PBM, or third party biller, quite a bit. This year may well see a sea change in this industry, one that will have significant implications for years to come. And with Rx in WC accounting for 12% of the medical spend, these implications will gain importance over time.

Posted by at 7:17 AM | Permalink

Several readers have asked why insurance companies are so interested in the Medicare Part D program. While there are several reasons, the most significant one is they are protected from losses for a defined period of time.

Buried within the 2003 Medicare law was a provision that allotted $10 billion to cover potential losses incurred by insurers who provided Medicare Part D drug coverage plans. Yes, there is a time limit for claims against this fund, but it provides insurers with enough time to figure out how to make money and protects them from losses while they are learning.

What a great deal. I wish someone had allocated money to me to help me get my consulting firm started nine years ago; many other businesses could have benefited from Federal and taxpayer largesse as well. But we don't qualify for these huge subsidies; we have to succeed or fail on our own. The invisible hand has a fistful of cash for selected "entrepreneurs".

I continue to be mystified by the apparent willingness of the present administration and the conservative Republican majority to try to solve big problems with taxpayer funds. The $10 billion subsidy is a big-government, fiscally "liberal" approach.

What does this mean for you?

Higher taxes to subsidize corporations while they learn from their mistakes.

Posted by at 7:04 AM | Permalink | Comments (1)

My post of a couple weeks ago on Third Party Billers (TPBs) generated a good bit of heat and even some light amongst interested readers. It has also caused a few payers to examine their own reimbursement policies in some detail. Caution - Most regular visitors will find this a touch too esoteric, but for interested parties nothing could be more intriguing.

Reminder - TPBs are "factors"; companies that buy workers comp scripts from retail pharmacies and try to collect from payers such as insurance companies. Seems pretty straightforward - pay a discounted price, the pharmacy gets their money quickly and then the TPB makes money on the margin between what they pay and what they collect. There are a few nuances and twists that make this a lot more complicated, and therefore a lot more frustrating for payers.

In about half the states, there is a fee schedule mandated by the state government which sets the maximum reimbursement amount for most drugs. Thus, when TPBs request reimbursement from payers, they ask for the fee schedule amount. So far, so good.

Except when the pharmacy is in the payer's Pharmacy Benefit Management vendor's network of contracted pharmacies. In this instance, some payers and payers/PBMs have reduced the amount payable to that owed under the terms of the contract rate at the dispensing pharmacy. TPBs do not approve of this interpretation, and in some instances have aggressively pursued additional payments.

A different situation arises in the non-fee schedule states. Most of these require reimbursement to be at "usual and customary", which is defined by the NCPDP (standard field 426-DQ) as the "amount charged cash customers for the prescription exclusive of sales tax or other amounts claimed". It appears that this definition is not used by the TPBs, who are actually billing at rates that appear to be based on a multiple of the Average Wholesale Price, or AWP. (Various sources within payer organizations have indicated that the multiple is in the range of AWP + 15% to AWP + 20%.).

Some payers pay the requested amount while others pay the bills at what they deem to be "U&C". In some instances TPBs have threatened to initiate legal action against payers failing to pay what the TPBs have stated they are owed.

The net is this - there appears to be a disagreement as to what constitutes "usual and customary". After reviewing research on drug fee schedules and reimbursement arrangements in the individual states, there does not appear to be a consistent, clear definition of usual and customary.

There have been some court cases that at least part involved this issue; to my knowledge there have not been any precedents set or definitive rulings written. If any reader is aware of more conclusive information please let me know.

What does this mean for you?

Confusion and different interpretations are never helpful and can lead to excess costs and hassles for all involved. The sooner this is publicly resolved the better for all parties.

Note to reader - I contacted executives at third party billers in an effort to get their perspective on this issue; none have returned my calls as of this morning. This despite the request from one (Third Party Solutions) in a comment on a previous post that I contact them to get their input.

Posted by at 6:05 AM | Permalink | Comments (1)

A suit has been filed by Arizona's Attorney General accusing 42 drug manufacturers of inflating Average Wholesale Prices on drugs sold to physicians. According to an article in the Arizona Republic, at least 14 other states are also pursuing action against foreign and domestic pharmaceutical firms.

The pharmas are accused of artificially inflating the AWP reported to payers and data aggregators, setting prices that are many times higher than what they "actually charge some doctors and pharmacies." As Medicare, Medicaid, group health plans, and group health and workers comp pharmacy benefit managers often base their reimbursement on AWP, the effect of the alleged price inflation is to generate enormous profits for the retailers and physicians paying the real wholesale prices.

In one example, the Republic noted:

"Abbott Laboratories Inc. lists a price of $382.14 for a 1-gram vial of the antibiotic vancomycin, which is used for severe infections. But the providers, the doctors and pharmacies, are charged only $4.98 for the drug, leaving a profit of $377.16, or 7,547 percent. Some drug firms sell the salt solution sodium chloride to pharmacies and physicians for about $4, with the average wholesale price listed at about $670.

The complaint also says that drug manufacturers provide financial incentives to physicians and suppliers to stimulate drug sales, such as volume discounts, rebates and free goods, at the expense of Medicaid and Medicare. The incentives were not offered to government or consumers."

AWP is universally derided as "Ain't What's Paid", and this is yet more proof that the pejorative definition of the acronym is more realistic than the industry definition. Transparency is a critical issue in the industry, and this shows why.

Not mentioned in the article is the growing trend in dispensing of drugs by physicians for workers comp patients in many states, particularly California. According to some of our clients, almost half of all drugs dispensed to WC claimants are through physician offices. I'll comment in depth about this in a future post.

What does this mean for you?

Yet more evidence that the "discount" is meaningless. Too many payers assess their program based not on total drug costs but on the discount received. This is proof that the system is ripe for manipulation.

If you aren't measuring your drug costs based on total expenditures, you are not doing your job.

Posted by at 8:21 AM | Permalink

It will come as no surprise that the war over the Medicare Part D program (free subscription required) is continuing to heat up, with Republicans touting the benefits for seniors while Democrats describe the program as a giveaway to the large pharmaceutical firms on the backs of the taxpayers.

As I have noted before, the entire Medicare Part D program, from the original budget estimates (remember the Medicare Chief Actuary was threatened with dismissal by the Administration (subscription required) if he revealed the true cost of the program before the Congressional vote) to the hold-harmless provisions protecting private companies from losses to the failure of the legislation to allow the Feds to negotiate drug prices to the cumbersome, complex, confusing program itself to the likelihood for adverse selection due to the benefit design is enough to make your head spin. And that's exactly what is happening amongst potential beneficiaries.

An article in the New York Times on Part D describes the problems politicians of all stripes are facing when attempting to educate their constituents about this program�Here are a few excerpts from the NYT article followed by my comments.

"The Medicare drug plan was devised to reflect central Republican tenets: that private companies, and private market forces, are the best way to deliver drug benefits to the nation's elderly; that the government's role should be sharply limited, particularly when it comes to exerting price pressure on the drug companies; and that the nation's retirees ought to have a full array of options for their drug coverage.

Comment - It is somewhat strange that our elected representatives find it necessary to spend their time talking to people to educate them about a social service program, especially when the program itself is supposed to be run by the private sector, thereby benefiting from the private sector's inherent capabilities in marketing.

Nevertheless, that's what's happening.

Some are arguing that the very number of health plans participating indicates the program is a success.

"In fact, Medicare beneficiaries have many more choices than officials had expected. In Kentucky and Illinois, for example, they can choose from 42 free-standing prescription drug plans, with different premiums, deductibles, co-payments and lists of covered drugs. Many recipients say they simply feel overwhelmed.

"So many choices!" said Virginia R. Potempa, 80, after a Medicare forum held last week by Representative Judy Biggert, a Republican, in Bolingbrook, Ill., outside Chicago. "The government seems to think everybody works a computer. Well, we do not."

Comment - while it is clear that many private-sector firms are very interested in Medicare Part D, they would not be unless they were quite comfortable that their potential losses were minimal and profits not. Remember the people deciding to enter the market are likely veterans of the Medicare + Choice and Medicare Advantage programs; previous (and ongoing) managed care approaches that burned some companies and benefited others. The senior management at private companies is obviously expecting to do well financially from the program.

"Still, Mrs. Potempa, who spends $300 a month for six prescription drugs, said she intended to enroll in the plan. "We are very concerned," she said. "We need coverage. We need insurance."

Comment - And Mrs. Potempa is right - and therein lies the problem for taxpayers in the Medicare Part D program. Only those beneficiaries who will benefit financially will sign up; that means their present and near-term costs are higher than they would be under a Part D program. The result - adverse selection - an insurance program that is built to attract people who are likely to claim more in benefits then they will pay in premiums.

So, the plan providers benefit, and the beneficiaries profit, and the politicians are making hay. Who loses?

Taxpayers who will have to foot the bill.

Here's a quick summary of the potential financial impact of the program from California HealthLine.

"total expenditures for the prescription drug benefit will reach $1.2 trillion between 2006 and 2015.

However, according to (presidential spokesman) McClellan, that figure reflects "gross costs" and does not take into account income Medicare will collect during that period (Pear, New York Times, 2/9). He said that the amount does not account for premiums paid by beneficiaries or payments from states for beneficiaries dually eligible for Medicare and Medicaid.

McClellan also said the Bush administration anticipates saving about $190 billion by eliminating federal matching payments to states for dual-eligibles who will begin to receive their prescription drug coverage through Medicare (Lueck, Wall Street Journal, 2/9). Together, the savings will reduce the net costs of the prescription drug benefit to $720 billion, McClellan said (Washington Post, 2/9). "

As a post script, I find it nothing short of bizarre that Republicans find themselves defending a major national social insurance program while Democrats decry it.

What does this mean for you?

The focus on Part D will mean private health plans' efforts to develop and market new programs and products will be concentrated on this market. Yes, there will continue to be resources focused on consumer directed plans, but don't expect many other programs to emerge for some time.

Posted by at 8:50 AM | Permalink | Comments (1)

I had a very interesting conversation yesterday with an executive at a large workers compensation third party biller. For those unaware, third party billers (TPBs) are entities that buy WC scripts from retail pharmacies and then try to collect from the insurance companies. Think of them as factoring agents; the retail pharmacy gets their cash fast, and the TPB gets to make a margin on the difference between what they pay the retail pharmacy and what the insurer pays the TPB.

By the end of the conversation, it was abundantly clear that the TPBs are out to take over the WC PBM (pharmacy benefit management) business. This TPB claims to have spent several years trying to collect what they believe they are owed from numerous payers, wtih very limited success. As a result, they are now pursuing aggressive legal action to try to force the payers to pay them the full amount for each script.

Many payers have been reducing their reimbursement to the TPB based on the rate that the retail pharmacy has agreed to. The TPB claims that since they bought the script, they now own it, and therefore the payer has to reimburse them at fee schedule.

The payers believe that since the script was filled by a retail pharmacy that is in their pharmacy network, they only have to pay the contracted amount.

Woven throughout the conversation was the statement that the TPBs exist to improve the injured workers' life; by getting access to the drugs, they are helping to speed healing and reduce lost work time. A noble goal to be sure.

What does this mean for you?

The PBM-payer-TPB mix is going to have a huge impact on WC medical expenses, systems, and workflows.

Posted by at 8:48 AM | Permalink | Comments (3)

The State of Mississippi has filed lawsuits alleging 86 pharmaceutical companies have defrauded the state's Medicaid program of hundreds of millions of dollars through deceptive and fraudulent pricing and marketing of drugs.
The core of the issue appears to be that old pretense for pricing, Average Wholesale Pricing, or AWP. According to Insurance Journal,

"From fiscal 1999 to 2002, Mississippi's prescription drug costs for its Medicaid beneficiaries shot up an average of 26 percent a year, (Attorney General Jim) Hood's lawsuit said.

So the state first limited the number of prescriptions that its Medicaid enrollees could get each month to 7 from 10 -- and then cut the number to 5, Hood added.

Mississippi charged the drug companies set so-called average wholesale prices artificially high. The state uses the prices to calculate reimbursement rates for physicians, pharmacies and other providers, the suit said.

"The Defendants have reinforced this tactic with other deceptive tactics such as covert discounts, kickbacks and rebates to providers, and the use of other devices," the suit said."

Mississippi has a well-deserved reputation as a litigation happy state but that is not to say Mr. Hood does not have a point about AWP, which has long been recognized as a meaningless basis for estimating drug pricing.

Firms involved in the dispute include Abbot Labs, Novartis, GlaxoSmithKline, and Pfizer.

What does this mean for you?

Watch closely, as Mississippi's discovery process may uncover some interesting aspects of the whole drug pricing methodology.

Posted by at 9:01 AM | Permalink

A fascinating article about the role of genetics, race, and societal interactions is in today's New York Times. Before you blow this off, consider the following points.

1. so-called "personalized medicine" is touted by some as the next big breakthrough in medicine, using genomics to customize therapies for individuals
2. there has been a considerable increase in the investment in and marketing of drugs that are targeted to distinct "racial groups".
3. there is some evidence that this makes sense, and other evidence that it makes no sense whatsoever.
4. the push to unravel the human genome is both supporting and detracting from the "race-based drug development" effort.
5. billions will be invested in research in these areas�

The article is an interview with Dr. Troy Duster, a sociologist who is skeptical of the importance of race in medicine. I may be a little harsh in that characterization, but here are a few quotes.

"When you're talking about genetic diseases, there's usually something in the environment that triggers their onset. Shouldn't we be talking about the trigger?
Take the case of black men and prostate cancer. African-American males have twice the prostate cancer rate that whites do. Right now, the National Cancer Institute is searching for cancer genes among black men. They're not asking, How come black men in the Caribbean and in sub-Saharan Africa have much lower prostate cancer rates than all American men?"

"Definitions of race are constantly changing. Not all that long ago, Jews and Armenians were considered separate racial groups. Today, they are white. Genetically, is Strom Thurmond's daughter white or black? Millions of Americans have her mixed genetic history written within them.

In a time when most physicians see their patients for only brief moments, if they're using these definitions of race in prescribing pills or treatments, they're bound to make mistakes."

"There are genetic diseases in population groups. I don't believe they are race based. These diseases are a marker for the regions where certain populations originated. Sickle cell anemia, for instance, is thought of as a black disease. But it's also to be found among Greeks who hail from a swampy area north of Athens and among people from the Arabian Peninsula." (sickle cell anemia is thought to be an evolutionary adaptation to malaria, which attacks red blood cells. While sickle cell anemia is highly debilitating and can be fatal, it reduces the impact of malaria by altering the shape of the blood cell, thereby allowing individuals to live long enough to procreate)

Duster's point is that scientists focusing solely on genetics miss the "messy stuff" that happens when people interact, live in a stressful society, move away from their places of origin, and change lifestyles.

What does this mean for you?

I have no idea.

Posted by at 12:04 PM | Permalink

Sen Wyden (D-OR) claims he has enough votes in the Senate to pass legislation authorizing the Secretary of Health and Human Services to negotiate for Medicare drug prices with pharmaceutical companies. Critics were quick to decry the move, with the pharma industry claiming such a move would not reduce prices, would be counter-productive, and unfair.

Which begs the question, if it would not reduce prices, why are they so concerned?

In any event, despite the present budget crunch and moves by the HHS Secretary to reject providing access to Medicaid for victims of Katrina and Rita due to the increased expense, pundits claim the measure is not likely to pass because "it faces strong opposition from the Bush administration, Republican leaders and the pharmaceutical industry" (Las Vegas Sun)

In a related development, a study was released that compared pricing under the Veteran's Administration's negotiated pharma arrangement to the new Medicare Part D card. The net -

- prices for 49 out of the 50 most common drugs were higher under the Medicare program than the VA; and

- the average annual cost of drugs would be $220 higher under Medicare than the VA.

The VA is the only Federal governmental unit that is permitted to negotiate directly wtih pharma firms. The study was conducted by Families USA.

What does this mean for you?

Higher taxes to pay higher prices for drugs, but perhaps that is better than the cost-shifting that would occur if the Feds got tough with pharma and squeexed them for lower prices.

Posted by at 4:33 PM | Permalink | Comments (1)

Medicare's Part D program is gaining momentum with several large for-profit health plans expanding on their plans to offer the program to seniors. Among the plans, Aetna, United Health Group, and Cigna are launching programs nationally, with Humana doing so in over 40 states.

According to the Detroit Free Press,

"Goldman Sachs projects that nearly 17.5 million seniors -- about 41% of those eligible to participate -- will enroll in the drug plan in 2006....Participating seniors will spend an average $792 for prescription drugs in 2006, excluding premiums, or 37% less than the $1,257 cost without the benefit, according to a July 2004 report by the Congressional Budget Office."

That begs the question - why won't the other 59% enroll? The reason is simple - their premiums will be higher than the anticipated costs. Thus, the seniors that will join up will be those who will financially benefit, and the ones who won't see savings won't enroll.

Doesn't sound like a money maker for the PBMs, unless their losses are subsidized by Uncle Sam.

I still can't figure out what makes this so attractive to private health plans.

Anyone?

Posted by at 6:05 PM | Permalink | Comments (2)

The Medicare Part D marketing wagon train has hit the road, with CMS Director Mark McClellan leading the effort to convince skeptical seniors to enroll in the program. By all accounts, the effort has yet to hit its stride (free subscription required), as some seniors are confused about the coverage, while healthy seniors appear uninterested in the benefit, and the chronically ill are concerned that the benefits will not be rich enough.

I have been saying for some months now that Medicare Part D is a bad idea primarily because it does not take into account adverse selection. Simply put, the only people who will sign up are those who need the benefit. Others will not sign up until they get sick; while there is a financial penalty for delayed entry into the program, it is so small that it is unlikely to act as a deterrent. In fact, a study by Brandeis University of seniors using drug discount cards indicates the cards were purchased disproportionally by seniors who were already significant drug consumers.

It is therefore difficult to see how this program will be a financial success. Yes, the government will subsidize money losing plans (where those funds will come from is somewhat of a mystery), yes there will be some price concessions on individual drugs as pharmacy benefit managers negotiate better deals with manufacturers, yes some employers will save money by having the Feds pick up their retirees' Rx costs. But the fundamental flaw is that seniors will only sign up if they get more out of it then they pay in premiums.

Unless and until someone figures out how to overturn human nature, Medicare Part D is a dead duck.

Posted by at 9:15 PM | Permalink | Comments (1)

Jon Coppelman at Workers' Comp Insider has a great post on the influence of lunches, meetings, and sales reps (detailers) on prescribing habits of physicians. The quick take - MDs who attended Vioxx lunches prescribed four times more than those who just met with detailers. Oh, they weren't consuming vioxx at the lunches, just hearing about their wonders.

MDs were also paid $750 - $1000 to present at these educational gastronomic events. The presenters talked about related conditions, indications, etc. Jon notes:

"the participating doctors insisted that they are not flacks for the drug companies -- they say that they answer questions at these sessions honestly and candidly. In the example of the migraine headaches above, the lead doctor mentioned the availability of generic medications, in addition to those made by the sponsoring company."

These are pretty common events - almost a quarter million of these doctor presentations took place last year, compared to under 140,000 detailer sales calls. Figure 237,000 events x $750 honorarium per presenter, that's $178 million.

While the investment was huge, "The return on investment for the presentations involving a doctor was twice that of the other sessions."

What does this mean for you?

If you are seeking ways to "counter-detail", you better have a big budget.

Posted by at 4:49 PM | Permalink | Comments (3)

There are signs that drug marketing is beginning to change, as the FDA focuses on off-label use and some of the big pharmas cut back on their sales forces. This may well be as part of big pharma's efforts to defuse some of the harsh criticism leveled at them by physicians, consumer groups, and health plans frustrated with pharma's aggressive marketing tactics.

David Wilson's Health Business blog notes that Wyeth and Pfizer have both announced plans to cut sales staff. The reasons are:

1. "Mirrored sales teams --the practice of sending multiple sales reps to the same doctor to talk about the same drug-- are causing a backlash from doctors and also making it hard to measure the effectiveness of individual sales people
2. There is little new to talk about --because of fewer product launches and in the case of Wyeth the curtailment of uses for its hormone replacement therapy. (Could it be that the more a doctor knows about hormone replacement therapy the less they will prescribe?)
3. The availability of efficient, effective outsourced sales forces available from Ventiv, Innovex and PDI have enabled pharma companies to reduce fixed costs."

The issue of pharmaceutical detailing has been extensively addressed in DB's MedRants, a highly entertaining and informative blog authored by physician Robert Centor. Centor has also commented on the recent decision by Bristol-Myers-Squibb to impose "a ban on advertising its new drugs to consumers in their first year on the market, adopting voluntary restrictions that go further than what is anticipated in an industrywide advertising code to be announced next month." Centor notes

"The optimist in me hopes that the outcries from physicians has influenced their policy. The skeptic in me believes that they understand the DTC drug advertising carries both risks and benefits. Big Pharma has a major image problem. TV drug ads generally hurt their image. "

As to the issue of off-label use, this is a significant area of concern for many payers, including workers compensation insurers. In my firm's "Second Annual Survey of Prescription Drug Management in Workers' Compensation", payer respondents noted off-label use as a significant concern. Typical was the use of Actiq as a pain med for musculoskeletal pain. Actiq is a brand drug used for break through pain associated with cancer; thus its use in workers comp is the very definition of "off-label".

What does this mean for you?

If big pharma is finally getting the message, that bodes well for a "decrease in the rate of increase" in pharmaceutical inflation. However, these companies are the ultimate capitalist organizations (that is not intrinsically bad) so they will seek to maximize their returns. And we all know who pays for those "returns".

Posted by at 10:07 AM | Permalink

Well, our officials in Washington have lost their minds. How else to explain the requirement by Medicare officials that the new Medicare Part D programs ""offer a surprisingly generous array of prescription drug choices"?

Pharmaceutical firms are likely ecstatic about the news, as the "open formulary" combined with the prohibition against the Federal government negotiating drug prices means that there is likely to be many drugs offered at what the pharmas will deem to be appropriate prices.

CMS Administrator Mark McClellan,and Babette Edgar, a pharmacist at CMS both claim that the diverse population covered under the Medicare and Medicaid programs necessitates a diverse formulary. According to a New York Times article cited in California HealthLine, the original cost assumptions for the Part D program may have to be reworked, as they assumed a narrower formulary. The result - costs will be higher than previous projections. Here's the quote:

"In 2003, the Congressional Budget Office estimated that the Medicare prescription drug benefit would cost $395 billion over 10 years, but earlier this year, CBO raised the estimated costs of Part D drugs to $849 billion between 2006 and 2015 (California Healthline, 3/11). According to the Times, CBO cited the federal formulary requirements as one factor in its higher estimate.

CBO Director Douglas Holtz-Eakin said the agency's estimates so far have assumed that Medicare drug plans would use "restrictive formularies" to help control spending. He added, however, that with the broader drug lists being required by the government, CBO "now expects that prescription drug plans will be slightly less effective at controlling drug spending than we had previously assumed."

CMS denies costs will be driven up, citing the plans for the Part D vendors to use cost control mechanisms similar to those used by commercial plans. The problem with that statement is that Part D vendors are specifically prohibited from using many of these techniques, such as prior authorization.

The last estimate indicated the program, originally forecast to cost $395 billion over ten years, will actually cost just under $900 billion over the same period. With these "unforeseen changes" costs may get close to the trillion dollar mark.

What does this mean for you?

I'm not sure; but if the Chinese decide to stop providing loans to the Federal government, it is either higher taxes, drastic cuts in other governmental programs (it is tough to get $100 billion by cutting HeadStart or NASA budgets), or cancellation of the program.

Posted by at 7:03 PM | Permalink | Comments (2)

Kevin Piper summarizes the good, the bad, the ugly, the winners and losers from the new Medicare Part D program in his blog "the Piper Report". As more information has become available, it is clear that there will be substantial changes to the pharma supply chain, with most entities seeking to better understand utilization and price drivers and squeeze margins wherever possible.

Piper notes winners will include:

--low income Medicare recipients without Rx coverage today
--private employers with generous retirement medical plans will reap a multi-billion dollar windfall, although legislation may reduce this.
--large national insurers seeking to expand market share in this rapidly growing market of seniors
--lobbyists actuaries and consultants.

That may be true, but the fundamental problem of adverse selection still exists. It is getting lonelier by the day out here in the "but the business model just does not make sense" woods, but I have yet to hear anything that makes it sound like Part D providers will be protected from adverse selection.

What does this mean for you?

I'd be very careful of Part D; just because others seem to believe in this does not mean you should not carefully assess the risks.

Posted by at 5:08 AM | Permalink

Legislation has been introduced in the US Senate that would prevent pharmaceutical companies from including the cost of advertising in calculating drug prices for governmental programs. Moreover, the legislation also requires that the HHS and Veterans Affairs Departments "negotiate reduced prices on drugs that are advertised directly to consumers in other programs" (quote from California HealthLine).

The legislation is sponsored by John Sununu (R NH) and Ron Wyden (D OR), senators that are not exactly on the same philosophical plane on many other issues.

According to Wyden, since companies' advertising expenses are already a tax deduction, "[t]axpayers shouldn't have to further subsidize the drug companies' marketing efforts through Medicare and Medicaid."

My sense is this is a backdoor way for Congress to encourage HHS to negotiate prices with pharma. The Medicare Reform Act specifically prohibits HHS from negotiating prices, a situation that rankles many legislators and taxpayers. Of course, Sununu et al are quick to claim this is not the intent. Regardless, it is a clear indication that some in Congress are looking for creative ways to reduce the cost of pharmaceuticals to the government, and taxpayers as well. With the present budget deficit and focus on same, look for this motivation to result in some meaningful price discussions.

What does this mean to you?

Watch pharma pricing carefully; due to the "flexible" nature of Average Wholesale Price (AWP), (sometimes referred to as "Ain't What's Paid") price reductions in one sector can often be offset by increases to other payers. And as we have noted before, price is but one component of the pharma cost equation of price X utilization X frequency = total cost.

Posted by at 10:22 AM | Permalink

Several readers have noted that there are other reasons for getting involved in the new Medicare drug program, citing the government's "loss prevention" financial arrangements, the sophistication of PBMs in managing formularies, and the desire to enter what will be a growing and eventually huge market.

The Piper Report has an excellent summary of th program and pays particular attention to a partnership between Cigna and NationsHealth. The post also has numerous links to other sources that further explain part D.

While all this is interesting, I sense a "bleeding edge" aspect to these programs. For most entrants into this market, this will be their first large-scale initiative into senior drugs management. The challenges they face will include:

--inexperience about seniors and their drug-consuming habits
--the inherent problems with adverse selection noted in previous posts here
--their inability to control, or even impact, the treating physician, widely acknowledged as the primary driver of pharmaceutical utilization

This last may be the most significant. At the end of the day, PBMs are transactions processors, administering (in large part) what physicians order. If they can't intelligently address and positively impact prescribing behavior in a way that does not put the beneficiary in the middle, they will find themselves caught between the doc and the patient - a very uncomfortable position.

What does this mean for you?

It is highly likely that early adopters will get burned in this deal, and slower movers will glean vital knowledge from observing without entering the fray. This is one of those rare circumstances where I would advise caution.

Posted by at 8:47 AM | Permalink

Workers' Comp Insider has an excellent summary of NCCI's recent report on prescription drug costs in workers' comp. Author Jon Coppelman raises some interesting questions, including:

"why are doctors relying on brand names, when there are very powerful generic drugs available for pain? Why prescribe Oxycontin? Why is Neurontin so popular?

Is this what consumers want?"

Coppelman rightly cites the power of detailers, the armies of attractive, intelligent, well-dressed primarily young men and women who call on physicians to encourage them to write scripts for their particular drugs.

I would also note that PBMs make money only when scripts are filled through their contracted pharmacies. Therefore, while there is indeed an incentive to the PBM to drive network penetration, there is also no incentive to prevent scripts. Certainly some PBMs work hard to "do the right thing" and there are some notable successes, but when they are financially motivated to fill scripts, there is somewhat of a conflict of interest.

Moreover, some PBMs do not understand the WC business, but are jumping into the market because margins are much more attractive than those in group health.

What does this mean for you?

Watch drug utilization growth carefully, learn about this business, and start talking to your PBM about alternative fee structures. There is no quick answer but with drugs accounting for 12% of WC medical spend, it is well worth your time to look for a longer term solution.

Posted by at 7:31 AM | Permalink

The growing popularity of Medicare Part D (the Medicare Drug program) among health plans pharmacy benefit managers (PBMs), is a mystery. As I have noted before, the program as presently conceived is guaranteed to drive adverse selection with only the seniors who will get more from the program than they will pay in likely to subscribe.

I asked national health policy expert Bob Laszewski of Health Policy and Strategy Associates (not affiliated with my firm) if I'm missing something, if there is a good reason why PBMs and health plans are jumping into this business. Bob pointed to a Brandeis University study that indicated those seniors who purchased the drug discount card tended to he high users of drugs. No surprise there - what is revealing is the underlying statistics. Drug card purchasers saved 20% (on average) but used the card twice as often as seniors who received a card automatically from their health plan.

Defenders of the Part D program cite PBMs' expertise in formulary management, bulk pricing arrangements, cost-sharing with seniors (co-pays etc.) as evidence of their ability to control costs.

Perhaps most telling is the Federal government's announcement that they will protect PBMs and health plans from excessive losses incurred as a result of their Part D drug programs.

The net - this is one of those "if everyone else is doing it, we better too" businesses. It is reminiscent of the pricing cycles in property and casualty insurance, where as soon as carriers start losing money they raise prices, and as soon as they start making money they cut prices to capture volume. This pattern has been as consistent as the tides, and likely as inevitable.

What does this mean for you?

For those of us on the sidelines, observing the outcome of the rush into Medicare Part D drug cards will be instructive. It is possible that I am missing something here, that PBM programs actually can address utilization (although I have never seen evidence that they do, and because they traditionally make money only when prescriptions are filled, utilization management is not in their DNA).

But I doubt it.

Posted by at 7:06 AM | Permalink | Comments (2)

While state legislatures and governors are moving to make significant changes in Medicaid programs, a coalition including AARP, pharmaceutical manufacturers, labor unions, pediatricians and lobbying groups are preparing to do battle for their constituents. The impetus behind this nation-wide movement is the agreement between the Bush Administration and Congress on a $10 billion cut in Federal contributions to Medicaid programs (state governments pay somewhat less than half of the costs of Medicaid, with the Federal government picking up the rest). With that historical decision now law, states have to figure out how best to implement the cuts.

Perhaps most telling, there appears to be consensus from politicians of all stripes that something has to be done. And, given the influence that states have over Medicaid decisions, we will likely see a broad array of possible solutions advanced by legislators. Options include:

-- requirements for beneficiaries to share in costs through co-pays and deductibles
-- cuts in reimbursement for certain providers, notably nursing homes
-- "stripped-down" benefit packages, with different benefits for children, the disabled, elderly poor, and working poor
-- negotiations with pharmaceutical manufacturers to reduce drug costs
-- change Federal funding for long-term care to a "block grant", whereby states receive a set amount of money and can make their own decisions as to how to allocate those funds.

This is a good thing. There is no question the US needs to address the exploding costs of Medicaid, and states are excellent "labs" to test various approaches. There is also no question this will be painful for some, with recipients, pharmas, nursing homes, and hospitals among the likely victims. But, we have no choice. Medicaid has grown significantly in recent years, primarily driven by increases in enrollment. Many of the new enrollees are the working poor; individuals who work for employers that do not offer health insurance or cannot afford the employee contribution towards the premium.

What does this mean for you?

This is getting as tiresome for me as it is for you, but prepare for cost-shifting as pharmas and providers seek to recoup lost income by increasing charges and utilization for commercial payers. Especially vulnerable are liability and auto insurers, as their "managed care" programs are in the dark ages.

Posted by at 6:27 AM | Permalink

Back to the detailers v. doctors, if only just for a moment. Dr. Gary Schwitzer of the U. of Minnesota has posted an interesting piece on Rep Henry Waxman's indictment (figurative, not literal) of Merck's behavior related to misleading MDs about Vioxx.

Another blog has a highly entertaining review of some highly embarassing marketing training literature ostensibly used by Merck. Suffice it to say that they are using anatomy as well as physiology in their efforts to "reach" docs...
What does this mean to you?

The dollars pharmas have to spend on convincing MDs to order their drugs are much larger than the dollars managed care firms have to "counter-detail". If managed care firms, insurers, and employers want to stand any chance in this battle, they need to figure out how to do a much better job of educating docs than they have to date.

Posted by at 7:16 PM | Permalink | Comments (2)

The Hartford has just released an internal study of the costs of prescription drugs in Workers' Compensation, and while it only covers the company's own experience, the report does add a little more depth to the research released by Health Strategy Associates last month.

Key findings include the Hartford's Rx trend (inflation) rate of 6%. This is about half of the average increase reported by the 24 respondents to HSA's Survey, and demonstrates what can be accomplished through the vigorous application of intelligent programs.

The report also noted one of the key drivers was the growth in "off-label" use of prescription drugs such as Actiq and Neurontin. The release stated:

"Actiq is a powerful painkiller approved by the FDA for cancer patients with breakthrough pain, but it jumped to number nine from 15 in 2003," said Dr. Bonner (Medical Director of the Hartford). "The drug is a narcotic that comes in a lollipop or lozenge form and takes just a few minutes to enter the bloodstream. The FDA is concerned about its potential for diversion and abuse. Actiq's climb up the chart suggests it is being used for a much wider group of patients than those the FDA originally intended."
Similarly, the drug Neurontin held steady at number two on the list, despite its owner paying more than $430 million to settle state and federal charges relating to the drug's promotion and marketing to physicians. The FDA approved the drug in 1999 to treat seizures in epilepsy, then approved it in 2002 to treat pain following shingles outbreaks (post-herpetic neuralgia). Even so, the percentage of patients for workers' compensation injuries being treated for either condition is dramatically smaller than the usage of the drug suggests."

Not noted in the press release is the name of the entity that is providing pharmacy benefit management services for the Hartford; Tmesys/PMSI. (Sponsor of HSA's survey).

What does this mean for you?

If you are a WC payer, there is hope. Data-driven programs, applied intelligently and appropriately, can and do reduce prescription drug expenses.

Posted by at 11:16 AM | Permalink

After walking the exhibit halls at the RIMS Conference in Philly for two days, it has become apparent that pharmacy management is the new hot business. Here are a few of the indicators�

 there were at least a half-dozen new PBMs in the hall, some of which had apparently only just figured out how to spell " workers compensation", and others that had progressed only marginally beyond that level

 some of the supposed "old hands" had erroneous information, including one "head of the WC division of a regional PBM" that informed, with great authority, that the WC fee schedule in California had just been changed back to the old fee schedule; AWP plus 10% for brand and AWP plus 40% for generics. Much as I tried to diplomatically correct this misinterpretation, this executive could not be swayed. This PBM does provide services to "several hundred WC payers". Woe to them indeed.

 One of the more significant companies in this business has just been acquired by a private equity firm for a price that is rumored to be quite rich. There were other suitors as well; two of them contacted HSA as part of their due diligence process.

Why the interest?

1. Group health PBM margins are thin and getting thinner. In contrast, WC margins are fat fat fat.
2. WC pharmacy is now about $3.5 billion annually, and growing at a rather healthy (or unhealthy, depending on how you look at it) 12% clip.
3. This is just a guess, but I'd have to assume some of the herd mentality is at work here as well.

What does this mean for you?

Be wary of "new" PBMs in WC, whether you are an investment banker, WC payer, or employer. Some of the self-appointed experts I spoke with were clueless.

Posted by at 9:40 PM | Permalink

The latest casualty among drugs falling victim to over-promotion and under-testing is Bextra, Pfizer's COX-2 inhibitor. This time around it is not just cardiovascular issues that are the problem.

Bextra appears to be linked to a significantly higher incidence of a serious skin reaction, a problem not found in the other COX-2s. This skin condition is what led the FDA to "request" that Pfizer pull the drug last week. Earlier, Pfizer was asked to add additional safety warnings to Bextra's labeling, a move that fell short of a withdrawal request.

Reactions ran the gamut from shock and disbelief to "I told you so"; perhaps the most telling appeared in the New York Times:

Thalia Segal, a pain specialist at New York University, said, "We used to just put people on these drugs for life and not think about it, but we can no longer commit them to lifelong therapy with impunity. We have to use these medications judiciously and follow people more closely. We have to rely on a much more individualized approach" (O'Connor, New York Times, 4/8).

It is becoming painfully (no pun intended) obvious that the "side effects" of various medications can not only be quite serious, to the point where people die or suffer debilitating conditions, but also have been under-considered by administrators and big pharma alike. And, the treatment expense and other liability associated with these side effects will contribute to our rising health care costs. Over the short term, financial results of the pharmas will suffer ("Pfizer, which on Wednesday announced plans to reduce costs by $4 billion annually and restated 2005 earnings estimates, might have to make additional cost reductions to return to double-digit earnings growth by 2006�NYT). Over the longer term, lawyers will get richer, insurers of all types will get poorer, and patients will expect someone to pay for their problems, real and potential.

What does this mean for you?

If you are a payer, STOP allowing off-label use of drugs unless and until there is a compelling reason (medical, not marketing) to do so. Sure, some customers will be upset, and some will cry that you are practicing medicine, but their arguments will stand little chance against the potential for financial and health disaster associated with the rampant inappropriate use of drugs. 98% of the people taking COX-2s did not need them as they were not at risk for gastric bleeding. That being the case, why did the PBMs and payers allow those scripts?

Posted by at 8:48 PM | Permalink

I've been in Arizona at the Pharmacy Benefit Management Institute annual conference for the last couple of days, and will be reporting back in more detail later. Here are a few of the interesting take-aways�.

Workers Comp
With margins on group health pharmacy shrinking, there is increasing attention to and interest in workers comp as a product line. Expect to see more new entrants in the WC PBM world, as some of the mid-tier players seek to expand beyond group.

The driver is margin. With WC Rx pricing 30%+ higher than group health, PBM margins are several times higher in WC than in group.

AWP
There is growing dissatisfaction with AWP, known as "ain't what's paid" by some of the pundits here. One of the major pricing sources will stop publishing AWP per se, and will begin using WAC (average wholesale cost) sourced from manufacturers.

AWP is either 25% or 20% more than WAC, but WAC is less "flexible" and more consistent between and among the three pricing publishers.

Transparency
Every presentation (except mine) mentioned transparency, which is a term to describe a desire by payers to understand what PBMs are paying for drugs net net net. The world of rebates, rebate admin fees, marketing expenses, etc. has generated a consulting industry of its own focused on the arcane world of figuring out the intake and outflows in pharmacy funds.

What does this mean for you?

If you are a PBM, a different way to calculate savings, increasing skepticism re how you get paid, and a desire to find niche markets where profits appear promising.

If you are a payer, it is time to get more educated and more expert; if not, you run the risk of paying too much.

Posted by at 2:07 PM | Permalink

HSA has completed the Second Annual Survey of Prescription Drug Management in Workers' Compensation.

Respondents represented a wide range of payers, with annual prescription drug spends ranging from $772,000 to $156 million. Total estimated drug costs provided by the respondents amounted to $645 million, approximately 18% of the annual total workers' compensation drug spend. Together, the carriers participating in the survey represent 35% of all private-payer workers' compensation insurance in the United States.

If anything, awareness of this problem has grown significantly over the last year. In fact, 20% of respondents, mostly from larger payers, indicated that prescription drug costs were "much more" significant than other medical cost issues.

The results of this survey indicate a significant awareness of the importance of prescription drug costs in workers' compensation, a focus on PBMs as the primary solution, but a lack of distinction among the PBMs themselves. Clearly, the workers' compensation industry is looking for solutions that emphasize customer service, utilization control, seamless processes and assistance in working with and educating payer staff and their customers.

There is also a rapidly growing recognition that the treating physician is central to addressing this issue. This recognition has grown drama