This morning's WorkCompCentral had a piece by Greg Jones noting complaints by medical specialty groups about the study on physician prescribing of opioids recently released by CWCI.

I received a copy of the letter as well, and frankly was surprised - for several reasons.

What was most troubling was the statement that "Alone, the report's findings do not indicate that there is anything inappropriate."

I would argue that the findings absolutely indicate there is something very, very wrong going on here. In fact, a relatively few physicians are "handling the bulk of the prescriptions"; that was amply demonstrated in the analysis and results provided in the report, the details of which were discussed in detail therein.

In addition, the statement that "we are not surprised by these early findings" was quite troubling. I certainly was surprised.

Why was this not surprising to the medical society? Was it not surprising that a relatively few physicians were treating patients with low back sprains and strains for extended periods with relatively high doses of narcotics, when all evidence-based clinical guidelines do not support such treatment?

The letter suggested CWCI conduct a deeper analysis to determine whether the treatment was appropriate based on treatment guidelines.

Huh?

Every treatment guideline I've heard of, including ODG, ACOEM, Washington State - none of them supports extended use of opiods for treatment of musculoskeletal issues. None.

I would also note that the letter called into the question the methodology itself. The author of the letter's statement "it is clearly misleading to use
the initial diagnosis" is inaccurate. Even a cursory review of the study
methodology reveals the researchers used a rather sophisticated clinical grouper to identify the PRIMARY diagnosis, which may well not be the initial diagnosis.

Finally, the letter asserted that others had mis-cited or misinterpreted the CWCI work, and requested CWCI somehow correct, clarify, or take steps to correct those misinterpretations. Studies are cited and discussed and reviewed and analyzed in the media and by individuals all day every day; I just don't think CWCI has the time, resources, or obligation to monitor what everyone says about their research.

I guess is the net is I'm really taken aback by the letter.

There's clearly abuse going on here, along with bad medicine and out of control prescribing of very addictive, dangerous medications that are ripe for diversion and abuse. I'm just very surprised that instead of taking this seriously, a medical society would attack the messenger. There's something very rotten going on, and denying it is the wrong approach.

Posted by Joe Paduda at 10:15 AM | Link to this post | Comments (2)

I'm up at zero-dark-thirty this am to catch a flight to St Louis, where the International Association of Industrial Accident Boards and Commissions (IAIABC) is hosting a meeting addressing many of the biggest issues confronting workers comp. The three-hour session I'll be wrapping up today focuses on managing narcotics in work comp, and I'm hoping to learn what works and how.

Unfortunately, it looks like there'll be a lot more discussion of the size, extent, and impact of the problem of overprescribing of narcotic opioids as there aren't a lot of long term success stories out there.

There are myriad reasons for the huge growth in the volume of narcotics prescribed in the United States, many of which are way outside the control of those of us in the work comp space. As happens so often in comp, we're buffeted by societal, economic, cultural, and demographic factors, often left to wonder how the world changed so quickly, and so dramatically, and what, if anything, we can do about it.

Fortunately, there are a couple models out there that hold out significant promise, that appear well-designed to help moderate the growth in the use of narcotics.

Perhaps the best is from Washington State, where the state fund (known as L&I) has long been aware of the issue, and under the leadership of Gary Franklin, has been working diligently to develop and implement intelligent solutions.

I'm going to be listening hard today to the other speakers, and will report back on what I learn.

Thanks to IAIABC for dedicating the time this issue so desperately requires.

Posted by Joe Paduda at 5:30 AM | Link to this post | Comments (1)

Yesterday I posted on the most recent CWCI study on Opioids in the California Work Comp system, noting that fewer than a hundred docs were responsible for prescribing 42% of the narcotic spend.

If that isn't troubling enough, in an email conversation with lead author Alex Swedlow, I learned that the top ten physicians prescribe 17% more drugs than their peers in the top one percent of prescribing docs (93 docs are in the top one percent).

And, these top ten docs prescribe 34% more morphine equivalents than the others in the top one percent.

Recall that the top one percent of docs who prescribe narcotics are already prescribing far more than the average prescriber, so the top ten are outliers to the outliers.

Is it possible these outliers to the outliers are doing the right thing? Are they just treating the sickest, most pain-ridden claimants? Doing their best to alleviate high levels of chronic pain?

Highly doubtful. It is much, much more likely that these docs, who represent a mere one-tenth of one percent of all docs who prescribed Schedule II narcotics are a major problem, massively contributing to the addiction problem, adding huge costs to the system, and doing little to help their patients. As I said last fall in a post about CWCI's research on narcotic usage in California's work comp system;

"CWCI analyzed the impact of these drugs on claim costs, and found a strong correlation between increasing levels of Schedule II payments and adverse effects on injured worker recovery. Swedlow reported claimants that received the highest narcotic dosage levels had 200% higher medical costs than claimants receiving lower dosages."

An earlier study reported by Business Insurance' Roberto Ceniceros had similar findings:

"temporary disability claimants treated with opioids average 105 paid days off in contrast to the average of 30 days, than when narcotics are not prescribed.

The preliminary findings also show that when opioids are present in a claim, there is a 322% greater likelihood for litigation, a 264% greater likelihood for lost time from work, and 38% more likely for a claim to remain open longer and incur additional costs." [emphasis added]

Kudos to CWCI for continuing to shine a very bright light on a very ugly problem, one that should be the highest priority for PBMs, regulators, payers, and prosecutors working in California.

Posted by Joe Paduda at 7:06 AM | Link to this post | Comments (1)

The Pareto Principle states that 20% of the causes generate 80% of the effects.

The Pareto Principle doesn't apply to physicians prescribing opioids, at least not in California. It's far worse than that.

CWCI just released a report that indicates three percent of prescribing physicians accounted for 65% of Schedule II narcotic costs.

Just as striking, the top one-tenth of the claimants receiving Schedule II narcotics got their scripts from 3.3 different docs compared to an average of 1.9 across all claims.

These expensive, potentially addictive, and physically debilitating drugs aren't just prescribed for claimants with serious, complex injuries such as burns, multiple trauma, crushing injuries and the like. In fact, nearly half the Schedule II opioid scripts in California are for minor back injuries.

The report, by well-respected - and highly experienced researchers Alex Swedlow, John Ireland, and Greg Johnson, provides a most compelling picture of the prescribers, claimants, and conditions at the center of the explosion in narcotic usage in workers comp. As always, this isn't a workers comp-specific issue; in fact we're only now beginning to come to grips with a problem that has reached its tentacles into nearly every community in the nation.

Six percent of the US adult population admits to abusing prescription drugs - far outweighing the abuse of all non-prescription drugs. And a large proportion of that abuse is centered on Schedule II narcotics; while there's been a 61% growth in use of all medications in the decade ending in 2008, the growth in Schedule IIs has been six times that at 380%, leading to more deaths from prescription drugs than illicit drug use, alcohol-induced deaths, or firearm-related deaths.

The study itself was based on an analysis of almost seventeen thousand CA WC claims incurred between January 1993 and December 2009, claims that had a total of 9,174 prescribing physicians. Remember that number...

93 physicians wrote a third of all scripts for Schedule II narcotics, scripts that accounted for 42% of narcotic dollars, or $36.6 million.

There's a lot more information in the study by Swedlow et al, much of it equally alarming. The increase in narcotic opioid usage certainly leads to increased risk of addiction and diversion, reduced ability to return to functionality and work, higher cost, and potentially poor medical outcomes.

One of the tools necessary to control over-prescribing of Schedule II drugs is a Prescription Drug Monitoring Program. Unfortunately, the state with, arguably, the worst diversion problem in the nation - Florida - has Governor who is unable, or unwilling, to grasp the severity of the problem.

For more info on the study, click here.

Posted by Joe Paduda at 12:04 PM | Link to this post | Comments (2)

An article about opioids and chronic pain featured in WorkCompCentral's [subscription required] professional columns section this week should be required reading for anyone involved in comp.

The explosive growth in the use of opioids among the general population, and specifically among workers comp claimants, is well-documented. When drug seeking hits the front page of USAToday, you know it's well past the point of becoming a national disaster.

The piece, authored by Dr Steven Feinberg, provides an excellent overview of the issues inherent in managing pain with opioids - here are a few notable insights.

- there's been a "dramatic increase in accidental deaths associated with the use of prescription opioids and also an increasing average daily morphine equivalent dose..."

- the lowest effective dose of opioids should be used along with patient agreements, random periodic and targeted urine testing

- at this time there is no clear evidence that long-term opiate therapy for chronic back pain is efficacious. (about half of work comp narcotic scripts are for claimants with back issues)

- ACOEM's 2008 pain chapter guidelines suggest "opioids should not be used when there is no evidence they provide increased function." Read this again - functionality is the key to prescribing, not pain.

There are a wealth of sources of information about appropriate usage of opioids freely available on the web. All the reputable ones are pretty much in agreement - for non-cancer patients, opioids may be helpful in facilitating a return to functionality, but long term usage is fraught with problems, many of them serious.

What does this mean for you?

If you don't have a opioid strategy, now may be a good time to put one together, or ask your PBM for guidance.

Posted by Joe Paduda at 8:33 AM | Link to this post | Comments (4)

Several states have implemented prescription drug monitoring programs designed to identify potentially problematic pharmacies, physicians, or patients - those dispensing/prescribing/getting drugs that could cause significant problems.

Florida's new Governor, the health care expert Rick Scott, thinks Florida shouldn't have one, and is trying to repeal the law passed last year that got more sunshine into the Sunshine State.

Evidently Scott's complaints are the cost, privacy, and effectiveness of the program.

These complaints appear to be based on ignorance - at best.

- 34 states already have such programs up and running

- the annual cost runs about a half-million dollars, but all the start up money has already been raised from private donors.

- privacy is guaranteed as the program - already developed - is HIPPA compliant.

So, for a half million dollars, much of it already committed from private funds, the state would be able to help prevent some of the 2500 deaths associated with prescription drugs that occur each year in Florida.

For those inclined to do the math, that's two hundred bucks per death.

Instead, Florida continues to be a destination spot for out of state tourists seeking drugs, drugs they can't get in their own states that have implemented prescription drug monitoring programs. This from an article in the EWall Street Journal: "According to Frank Rapier, director of the Appalachia High Intensity Drug Trafficking Area, highway patrol officers in hot spots like eastern Tennessee routinely stop vanloads of people returning from Florida with fresh stockpiles of prescription drugs.

In West Virginia, state Sen. Evan Jenkins said flights on discount airlines between Huntington, W. Va., and Fort Lauderdale, Fla., have been dubbed the "Oxycontin Express."

But the problem isn't just the pills. The devastation wrought by prescription addicts getting pills from Florida is crushing towns far away from Rick Scott's home state. According to the Sheriff of one small county in Kentucky, "98 percent of the crimes his office works are related to oxycodone and 80 percent of those involve pills from Florida." The county coroner says two-thirds of his deaths are from pills.

For some of those tourists, the trip is only one way. Drug-seeking people from states as far away as Ohio routinely drive to the Sunshine State to get their fix, occasionally dying on the way home from the meds they've scored in Florida.

I stopped doing research on this as the story is so big, the tragedy so wide-spread - and so preventable - that I couldn't continue.

Scott's effort to repeal the law is unconscionable.

What does this mean for you?

Elections have consequences.

Posted by Joe Paduda at 6:13 AM | Link to this post | Comments (3)

Narcotic manufacturer Cephalon is back in the news, once again facing an investigation focused on the use of Fentora, a Schedule II narcotic, in workers comp cases.

Fentora is only FDA approved for breakthrough cancer pain - a condition quite rare in workers comp. The investigation apparently stems from allegations around Cephalon's efforts to promote the use of Actiq(r) and Fentora(r), their highly potent narcotics for workers comp patients.

Those efforts were quite successful, estimates indicate " in the first half of 2006 approximately 99% of the 187,076 Actiq prescriptions filled in the U.S. were not for cancer patients."

Cephalon recently disclosed the following: "In January 2011, we received a subpoena ... in connection with an investigation relating to Postal Service employees' workers' compensation claims. The subpoena requests that we provide to the Postal Service documents pertaining to FENTORA. We understand that this investigation is being conducted by the Postal Service in conjunction with the Civil Division of the United States Attorney's Office in Philadelphia." (from Cephalon's latest SEC filing).

This latest investigation is not exactly the first instance of this type of conduct. In fact, in an earlier court ruling, the judge said "data suggested that more than 80% of patients using Actiq did not have cancer," and "oncologists accounted for only 1% of Actiq prescriptions filled at retail pharmacies in the U.S." [emphasis added] It is possible that oncologists are dispensing Actiq from their offices, although that's rather difficult and complicated due to rules and regulations about storage and protection of Schedule II narcotics.

In 2007 Cephalon paid $425 million in fines and interest stemming from its promotion of off-label use of another narcotic opioid - our old nemesis Actiq, and another $6+ million to the state of Connecticut for similar reasons. They are also facing RICO (racketeering) and other charges related to allegations Cephalon's promotion of Actiq and other drugs violated several laws.

As recently as 2008, Actiq was one of the top five drugs in workers comp measured by dollars spent for many payers; Fentora appears on most PBM's lists of the top 25 drugs.

But it's not just about the dollars. Actiq has been linked to dozens of deaths from overdose, including one case in Kansas where a doctor operating what can only be described as a 'pill mill' was indicted for involvement in fifty-six patients.

Roy Poses wrote four years ago that Cephalon had admitted Actiq was involved in the deaths of 127 people.

It is indeed possible more have died since then...

Thanks to Mike Whitely writing in this am's WorkCompCentral for the tip.

Posted by Joe Paduda at 6:47 AM | Link to this post | Comments (3)

The debate is on, and it is going to get even more nasty, heated, and divisive.

If we're serious about cutting Federal health care expenditures over the long term, here are two changes that will do just that.

1. Requiring HHS to negotiate with pharma for Part D drug costs would reduce annual expenditures by over $20 billion.

As I've noted repeatedly(but unfortunately few in the mass media have), Part D's perhaps the biggest deficit problem we have - the ultimate unfunded liability is now over $20 trillion. Of course, we could solve the majority of our budget problems by just canceling Part D, but neither the Democrats nor the Republicans ) will do that.

So, as long as we're stuck with the damn thing, we ought to make it as inexpensive as possible. The best way to do that is to use the buying power of Part D to negotiate with manufacturers to get the best possible price for drugs that you - the taxpayer - are paying for. Believe it or not, the original Part D legislation expressly forbids negotiation with manufacturers for pricing.

In a 2006 House analysis, a report "showed that under the new Medicare plan, prices for 10 commonly prescribed drugs were 80% higher than those negotiated by the Veterans Department [emphasis added], 60% above that paid by Canadian consumers and still 3% higher than volume pharmacies such as Costco and Drugstore.com."

Another study indicated "An annual savings of over $20 billion could be realized if FSS [Federal Supply Schedule] prices could be achieved by the federal government for the majority of drugs used by seniors in 2003-2004..."

Are there problems with this? Absolutely. Reducing prices may impact R&D expenditures and will affect pharma margins - effects that must be balanced against the nation's long-term financial viability.

2. Stop paying for medical 'bridges to nowhere'; Require HHS to base reimbursement for devices and therapies on efficacy and effectiveness.

As noted in a recent piece in Health Affairs, "with only very rare exceptions, Medicare does not use comparative effectiveness information to set payment rates. Instead, it links reimbursement in one way or another to the underlying cost of providing services." CMS is prohibited from considering benefit to the patient when developing reimbursement formulae and levels.

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.

It is amazing that we pillory the Feds when they spend taxpayer dollars on services or items that (some opine) don't work at all or don't work as they are supposed to, yet prohibit CMS from doing precisely that.

Cutting costs while improving outcomes is absolutely possible. Whether it is politically feasible is another question entirely.

Posted by Joe Paduda at 7:33 AM | Link to this post | Comments (3)

A commenter (thanks Greg) on my post yesterday re NCCI's research on physician dispensing noted "Going after the physicians, who are making efforts to recoup their steadily declining reimbursements, does not seem like the best strategy."

Greg's got a good point. There are many docs and occ med clinics that are dispensing medications for the right reasons, and not looking to make exorbitant profits. While their intentions are honorable, there are a couple concerns that bear mentioning.

First, as noted yesterday (and other times here on MCM) the proponents of physician dispensing often cite increased patient compliance, reduced hassle for the patient, and increased generic dispensing as justification/rationale for dispensing meds to the patient from the doctor's office. I've not seen any studies that support the claim of increased compliance (I've seen claims that refer to studies but not the studies themselves. That said,I'll stipulate that compliance is likely better when docs dispense drugs.

But, in addition to the higher costs perpetuated by repackagers and physician dispensing technology/services companies, there's another potential concern with physician dispensing. Work comp claimants are usually treated by docs that haven't seen the claimant before the occupational injury. While the WC doc certainly asks about prior medical history, current medications and the like, it is not uncommon for patients to forget which meds they take or be unable to accurately identify their drugs.

Not so big an issue if the claimant goes to their usual pharmacy, where the system will identify any potential conflicts and notify the dispensing pharmacist (assuming the claimant doesn't go to a new pharmacy).

Potentially a bigger issue arises if the treating doc doesn't get the full story, prescribes and dispenses meds that conflict with the claimants' other meds. While there are some databases and sources of prescription data that docs may be able to tap into (or so I'm told), I don't know if many of the physicians dispensing meds are doing so today - or, for that matter, even know of these resources.

That's not to say the pharmacist's database is foolproof - it most certainly isn't. However, it's a lot better than no database - or not accessing a database - at all.

In my view, physician dispensing can be appropriate if:

a) the price is pegged to the original manufacturer's AWP, not some fabricated price from a repackager or dispensing services company;

b) the medications are appropriate and consistent with generally approved standards of care; and

c) the physician accesses the appropriate databases to verify the medication prescribed is safe for that particular patient.

Posted by Joe Paduda at 8:54 AM | Link to this post | Comments (3)

For a couple weeks now there's been a rumor that PBM Progressive Medical is acquiring third party biller Stone River.

There is a grain of truth in this.

In reality Stone Point Capital is acquiring Progressive which will operate as an independent company, reporting up thru a holding company structure to be called Progressive Enterprises. PE will include Stone River.

A highly placed source indicated current Progressive Chairman Dave Bianconi will remain with PE and has invested in the company. I'm betting Dave has a somewhat much greater ability to do that - or will when the deal closes. Dave is very well regarded in the comp world and well liked by all. I may be a bit biased as Dave is a friend as well, so I'm happy for him personally, as well as the rest of the Progressive folks.

As to how this will be perceived in the market, that's a very good question. SR is not well liked by most payers. It remains to be seen if the new alliance will help Progressive add market share, a task that has been somewhat daunting of late for the 24-year old company.

The official announcement will be released tomorrow; like most it's pretty obtuse and lacks any substantive details.

Posted by Joe Paduda at 4:09 PM | Link to this post

For those who were following with bated breath the efforts of many to forestall the end of PBMs in Texas, Friday brought official confirmation of the rumors that we reported last week: the Division of Workers Comp published emergency regs [opens pdf of actual rules] that:

- make the Attorney General's opinion moot;

- enable PBMs to operate in Texas after 1/1/11; and

- call on the legislature to pass a permanent fix.

So, on 1/1/11, PBMs can continue operating just as they do today.

Hallalooya.

Here's the key language from DWC's memo [opens pdf]:

"The rule amendments may remain in effect for a maximum of 180 days if renewed.
The adopted amendments permit insurance carriers to continue to reimburse prescription drugs dispensed on or after January 1, 2011 at rates either above or below the fees determined by the Division's fee guideline using written contracts between insurance carriers and pharmacies or their processing agents, if applicable."

I'm waiting for guidance on the 180 day issue: you'll know when I do.

Posted by Joe Paduda at 8:23 AM | Link to this post

After mulling over Texas Attorney General Greg Scott's just-released opinion [opens pdf] on the use of PBMs in workers comp, I'm still confused.

That wouldn't be so bad, except so is everyone else.

The opinion appears to contradict itself, with declarative statements about the legality of paying less than fee schedule for drugs in one place, and apparently contrary statements a few sentences later.

Then, the opinion concludes ""...although a WCHCN [work comp Health Care Network] must not provide prescription medication or services, an insurance carrier may enter into a contract with a WCHCN to obtain a contract with a health care provider to pay for prescriptions at a negotiated rate after January 1, 2011".

Sounds great, right?

Except experts opine that PBMs don't meet the definition of 'providers' under Texas law.

So, does this mean an HCN will have to contract with pharmacies directly? In the next two weeks? Because that's when PBMs turn into pumpkins under the involuntary network 'sunset' provisions.

Or does it mean that HCNs can actually subcontract with PBMs? In which case the dominant HCN - Coventry - may well require its customers use FirstScript - Coventry's inhouse PBM.

The DWC has prepared two different regulations in anticipation of the AG's opinion - one in case the opinion killed PBMs, which reduces the fee schedule to a rate that, according to Bill Kidd of WorkCompCentral, "to adjust fees in an attempt to maintain overall costs in the workers' compensation system."

I'd emphasize Bill's use of the word "attempt".

Drug prices are NOT the same as costs.

Drug COSTS are driven more by the type and quantity of drugs than the the price of the pill. If low fee schedules controlled costs, we wouldn't have seen pharmacy costs in California explode after adoption of the lowest fee schedule in the country.

In fact, CA's drug 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)

So, where does this leave us?

1. The opinion doesn't provide enough clarity to ensure PBMs can legally operate after January 1 2011.

2. The penalty for operating an involuntary network in Texas is huge - $25,000 per day plus loss of license to operate.

3. Pharmacy costs in Texas account for around 15% of loss costs - with PBMs operating. I don't see how PBMs can continue to operate in Texas, which means they won't be able to address either the price of the pill, the types of pills, or the quantity of pills, dispensed to injured workers.

4. Realistically, legislation to 'fix' the problem won't be completed until sometime this spring. Which means employers, insurers, governmental entities, and taxpayers are going to have to foot the bill for higher drug costs - for at least several months - until this gets fixed.

Posted by Joe Paduda at 5:59 AM | Link to this post | Comments (2)

Greg Abbott, Texas' Attorney General, has released his opinion re "Whether a workers' compensation carrier may pay for a prescription drug at a rate lower than the fee rate allowed under the guidelines of the DWC..."

I'm no attorney. And being an attorney would be very helpful in this instance.

The key part of the four-page pronouncement is on page 3 and reads, in part:

"...although a WCHCN (work comp Health Care Network) must not provide prescription medication or services, an insurance carrier may enter into a contract with a WCHCN to obtain a contract with a health care provider to pay for prescriptions at a negotiated rate after January 1, 2011"

I'm not sure what this says. One interpretation I've heard is that payers must contract with an HCN, which then contracts with a PBM to provide pharmacy management services. However, a PBM may not qualify as a "provider".

Another part of Mr Abbott's opinion holds that there is no statutory minimum requirement for reimbursement under workers comp - and he's pretty definitive about that. Then again, a later section appears to directly contradict this statement...

More to come - much more.

Posted by Joe Paduda at 1:58 PM | Link to this post

The Texas Division of Workers Comp (DWC) recently released proposed rules for work comp pharmacy billing. Along with the rules are what can perhaps best be described as an 'extensive' list of data elements DWC is looking to collect, a list that includes information that - in the view of most PBMs, retail pharmacies, and chains - is extremely sensitive and proprietary.

This effort is driven by provisions within the Texas Labor Code that, according to DWC, require DWC to adopt CMS' most current reimbursement policies etc.

The draft - and I want to emphasize the form is still a draft - form requires submission of a comprehensive list of data elements, including the actual price paid for the script.

There are a number of concerns with this requirement. Here's a quick list.

- revealing prices paid for individual scripts would potentially enable PBMs - and others - to determine the PBM's contracted reimbursement rates with specific chains and retail stores. This is highly proprietary, extremely sensitive information.

- pharmacies will be quite concerned about release of data that would enable outside parties to find out what they charge specific PBMs. Many, if not most, PBM - pharmacy contracts employ a single rate nationwide, thus any entity that can access the Texas reporting information will quickly be able to determine reimbursement rates not only for that state, but likely all states.

- PBMs are not the only managed care entities that make their margin on the delta between what they receive from the payer and what they pay the service provider. Imaging and physical/occupational therapy networks, durable medical equipment/home health care vendors, designated doctor firms - all are reimbursed by the payer at one rate and pay their service providers - imaging centers, PTs/OTs, suppliers, physicians - another.

Given DWC's current interpretation of the Labor Code, it would not be surprising if these other entities were required to reveal their pricing.

Anyone looking to provide comments on the proposed regs can do so by emailing rulecomments@tdi.state.tx.us. Of course, make sure you read the material on DWC's website and consult counsel before taking up the virtual pen.

Posted by Joe Paduda at 6:58 AM | Link to this post

I has the honor of co-presenting with CWCI's Alex Swedlow at the Casualty Actuary Society's annual meeting this morning. Alex shared the results of CWCI's latest research into California's work comp system, and in particular the impact of Schedule II narcotics.

Some of the news was pretty frightening - and some was encouraging.

For example, the percentage of drug dollars from repackaged drugs dropped by 95% after the loophole was closed in early 2007. Repacks cost two to four time more than the same script purchased at a retail pharmacy, so this was good news indeed for comp payers.

Sticking with the positives, CWCI's analysis indicated the reforms drove don system costs by $13 - 25 billion between 2005 and 2008. Unfortunately costs have once again resumed their upward trend, driven in part by pharma, which now accounts for 13% of work comp medical costs in California.

Notably, dollars spent on potent Schedule II narcotics grew by 414% from 2005 to Q2 2009 while the number of scripts jumped by over 500%.

CWCI analyzed the impact of these drugs on claim costs, and found a strong correlation between increasing levels of Schedule II payments and adverse effects on injured worker recovery. Swedlow reported claimants that received the highest narcotic dosage levels had 200% higher medical costs than claimants receiving lower dosages.

My bet is the majority of the problem is due to the inappropriate prescribing habits of relatively few physicians. And I'd give odds.

What does this mean for you?

Reviewed your CA drug cost and utilization reports recently?

Posted by Joe Paduda at 2:09 PM | Link to this post

First, I'd be remiss if I didn't note that advocates for physician dispensing cite a couple of advantages. It is certainly easier for the patient to pick up their drugs on the way out of the doctor's office than to make another stop at the pharmacy.

Some also contend that handing the patient their medication on the way out of the doctor's office increases "compliance" - the chance that the patient will actually take the medication. This may well be true, but I haven't found any solid research that proves this to be the case.

However, the cost per script is usually much higher than the same prescription dispensed by a retail pharmacy; details on that are provided below.

There is another potentially significant issue with physician-dispensed medications: patient safety. The dispensing physician may not always have access to, or check the retail pharmacy prescription database which includes information about the patient's other medications. Some drugs can cause problems when they are combined with others, so a lack of information can be a problem.

When physicians dispense repackaged drugs, costs are often much higher than the same script purchased at a retail pharmacy.

A July 26, 2010 Business Insurance article written by Roberto Ceniceros, summarized the cost problem rather succinctly:

"An increase in pharmaceuticals dispensing by doctors in several states is likely driving up workers compensation costs, [emphasis added] experts say. As more doctors link with companies that provide repackaged drugs with irregular identity codes to physician offices, the arrangements add extra costs and bypass established means of capping drug costs, they say..." According to Boca Raton, Fla.-based NCCI Holdings Inc., physician-dispensed pharmaceuticals accounted for 17% of workers comp drug costs in 2008, the latest year for which data is available, up from 8% the prior year..."We think it may be increasing costs," said John Robertson, an NCCI director and senior actuary... the nonstandard NDCs used on repackaged drugs often facilitate charging prices above those allowed by state fee schedules, several sources agreed...

A report by the Workers Compensation Research Institute (WCRI) found that the average payment per claim for prescription drugs in the Massachusetts workers' compensation system was $289--30 percent lower than the median of the study states. The main reasons for the lower prescription costs in Massachusetts include lower prices paid to pharmacies due to a lower pharmacy fee schedule, more frequent use of less expensive generic drugs, and a ban on physicians dispensing medications directly to their patients.

WCRI also found the average payment per work comp claim for prescription drugs in Florida was $565--38 percent higher than the median of the 16 states in the study. The main reason for Florida's higher than average prescription costs was that some physicians wrote prescriptions and dispensed them directly to the patient at their offices. When physicians dispensed, they often were paid much more than pharmacies for the same prescription. [emphasis added.]"

In a Research Update published by the California Workers Compensation Institute in September of 2009, authors Alex Swedlow and John Ireland reported repackaged drugs had grown to account for 54.7% of prescriptions, and 59.2% of dollars spent on drugs by 2006. The problem has shrunk dramatically since the passage of legislation n California addressing the issue, but alas, it has moved on to other states.

According to the Workers' Compensation Research Institute's March 2010 Prescription Analysis, "the prices paid to physicians [in Florida] were often much higher for common drugs. The most striking examples are Ranitidine HCL (more than double what pharmacies were paid), Carisoprodol (five times higher), Hydrocodone-Acetaminophen (one and a half times higher)."

But this isn't just a Florida problem. In fact, most other states allow physician dispensing.

WCRI also reported that 22% of prescriptions in Illinois were physician-dispensed, and that prices per pill were "often 25-50 percent higher than the price paid to pharmacies for the same prescription."

WCRI's analysis of Pennsylvania data showed "when physicians dispensed commonly used drugs, the average price paid was often 20-80 percent higher than what pharmacies would be paid for the same prescription."

What does this mean for you?

Higher costs. Potentially problematic drug interactions.

Posted by Joe Paduda at 11:50 AM | Link to this post

I'm part way through the Seventh Annual Survey of Prescription Drug Management in Workers Comp, and have a couple of initial impressions worth sharing.

First, and no surprise, is the increased concern about the growth of narcotic opioid usage in comp. Every respondent save one has specifically mentioned opioid usage as a significant problem, contributor to drug costs, and/or area of focus. Many have, or are about to, implement programs designed specifically to address narcotic opioids, with some taking rather aggressive positions to attack off-label usage.

Second, respondents are more concerned about drug costs this year than last, and believe executives in their companies are also tracking drug costs with more interest.

Third, more and more payers are using more and more sophisticated programs to deal with drug utilization - involving pharmacists in the prior authorization process, providing access to physicians for review of selected high cost cases, getting tighter and more restrictive formularies, and implementing step therapy programs.

Fourth, most respondents believe compound medications are a very significant problem; several have developed or are working on programs to address compound meds.

Details on these and other findings will be provided in the final report; as always respondents get a detailed copy of the report; there will also be a summary report available to the public.

If you are interested in participating in the survey (insurers, TPAs, self-insured employers, and managed care firms), send an email to infoAThealthstrategyassocDOTcom.

And thanks to those folks who've agreed to participate this year - your insights and understanding will help all of us get better at managing drug costs.

You can download copies of past reports here.

Posted by Joe Paduda at 7:39 AM | Link to this post

Mike Whitely of WorkCompCentral's piece [subscription required] this morning about Miami-Dade Schools' solution to the high cost of repackaged drugs should be required reading for any employer or insurer operating in the Sunshine State.

As noted here and elsewhere, a loophole in the Florida workers comp law allows drug repackagers and their affiliated technology and billing companies to set the price for drugs at whatever amount they desire. As the law requires payers to reimburse at AWP + $4.18 for dispensing, if the AWP for a repackaged drug is 5 times what the same drug would cost at a retail pharmacy, too bad - for the payer.

However, there's another law on the Florida books that provides a solution - simply stated, employers and insurers that contract with a PBM or a retail pharmacy for drugs can pay that contracted amount for any script from any dispenser. That's correct - the payer's liability to the dispenser is the same as if that drug was dispensed through one of the payer's contracted pharmacies.

Miami-Dade Schools began implementing this policy September 15 of 2009. Since that time, the Schools have saved an estimated $700,000 - the equivalent of about eight teachers' pay and benefits.

A letter [opens .pdf] from Florida CFO Alex Sink (currently a candidate for Governor) cites the specific statute:

section 440.13(12)(c), Florida Statutes, which provides: As to reimbursement for a prescription medication, the reimbursement amount for a prescription shall be the average wholesale price plus $4.18 for the dispensing fee, except where the carrier has contracted for a lower amount. Fees for pharmaceuticals and pharmaceutical services shall be reimbursable at the applicable fee schedule amount. Where the employer or carrier has contracted for such services and the employee elects to obtain them through a provider not a party to the contract, the carrier shall reimburse at the schedule, negotiated, or contract price, whichever is lower. No such contract shall rely on a provider that is not reasonably accessible to the employee.

and makes this recommendation:

The Division urges employer/carriers providing reimbursement for prescription medication under Chapter 440, Florida Statutes, to take section 465.0267(1), Florida Statutes, into consideration when making prescription provider reimbursement decisions.

What does this mean for you?

Well, what are you waiting for? Talk with your PBM, ask them to implement Ms Sink's recommendation, and start reducing your drug costs.

Disclosure - I gave $250 (or something like that) to Ms Sink during her campaign for CFO some years ago. She's been a strong advocate for Florida's employers - and workers - and I remain a supporter.

(Note - I received this in an email from a Florida Insurance consulting firm. I appreciate their correction.

"In reading your most recent article about physician repackaging, I noted an incorrect statutory reference. The referenced "section 465.0267(1)" does not exist in Florida Statutes. I am quite certain that it should read "465.0276(1).". The mistake appears to not be yours as it actually originates from Alex Sink's letter which had the numbers in the citation transposed in one place, but correct in another.")

Posted by Joe Paduda at 6:33 AM | Link to this post | Comments (2)

A couple days ago my evening was interrupted by a call from a reporter, who wanted my comment on 'the suit'. I had to confess I didn't know what he was talking about, whereupon he somewhat incredulously asked if I hadn't seen 'it'.

I said I didn't know what 'it' was, whereupon he proceeded to tell me that he had just got off the phone with Ron Sachs, who evidently was hired to do PR for Automated Healthcare Solutions. (Later, after other, similar calls, I learned that Sachs had evidently been hitting the phone pretty hard, informing all about the suit that AHCS had filed naming me and my consulting firm, Health Strategy Associates LLC, as defendants.)

By the way, Ron Sachs Communications' website has this to say: "Sachs also distinguished himself by serving as former Florida Governor Lawton Chiles' Director of Communications. The deeply experienced senior management team includes two communications directors to two governors (Bush and Chiles), a seven-time Emmy Award-winning producer, a former Senate staff director, and communications directors to state agencies, the Cabinet and a Senate President...Serving clients with 25 full-time professionals and offices in Tallahassee and Orlando"

Pretty impressive resumes, AND Mr Sachs has 24 times more staff than I do, and that's just the PR firm...

Now, I still haven't been 'served', but I've been informed that the suit charges me with a variety of offenses related to my blog posts of September 2 and 9. And I do know that the AHCS folks are plenty mad, and have lots of money - my guess is Ron Sachs doesn't come cheap.

Here's a bit of history. AHCS sent me a letter and email a week or so ago calling me out on a number of issues related to the afore-mentioned posts. Here's a bit of what I wrote back:

"...I'm only too happy to publicly acknowledge and correct any errors in the two posts. In the six years I have been writing MCM, I've worked hard to establish and maintain a reputation for veracity; on occasion that effort has required a correction and I've been more than willing to write one. I'd note that in the past I've left my mistakes on the blog as I believe it's important for readers to be able to see the entire span of my work, warts and all. Happy to discuss this further as the situation dictates."

I then went on to address each of their issues point by point, again offering to review any materials and correct and apologize for any errors,

Apparently that good-faith offer wasn't good enough, as they spent loads of time last weekend hitting my blog, then filed what I understand is a 21-page charge in Federal District Court on Monday. In fact, AHCS still hasn't responded to my letter - Perhaps they were going to file no matter what I said...

The main point in the suit appears to revolve around my characterization of AHCS as a 'repackager'. According to AHCS, they are NOT a repackager, but a healthcare IT company. My mistake; from reading their website they sure sounded like a repackager to me. I'll discuss this in more detail in a later post.

What I want to talk about now is what ISN'T in the suit, and why that's important.

There were at least two statements in the letter that evidently aren't in the suit.

One involved a statement questioning Paul Zimmerman MD's claim to have been a Medical Director for several firms. In the letter, they demanded I retract that statement; that demand evidently isn't in the suit itself.

My guess - and this is only a guess - is Zimmerman et al decided they couldn't prove that he was a 'Medical Director'. However, as of today, their site still says:

"Dr. Zimmerman is considered an expert in workers' compensation who has served as medical director for a number of workers' compensation insurers, third party administrators, and self-funded employer programs including Liberty Mutual, The Home Depot, Pan American Airlines, Baxter Healthcare and Sears."

What's my point? AHCS' letter was pretty, well, demanding. Strident. Threatening - really threatening. It also didn't include any documentation, materials, or evidence supporting these claims. AHCS was demanding I retract my posts on the basis of nothing more than their say-so. Then, when they decided to file charges in Federal Court, they didn't include their assertions that Zimmerman was a 'Medical Director' at Sears, Liberty, Baxter, etc.

Why? Was this an error or oversight? Highly doubtful.

Next, the letter said that Zimmerman had sued Dr Richard Dolsey (since deceased) for slander and won. That claim is apparently not contained in the suit either. I could not find any record in the Miami-Dade or Broward court records of Zimmerman suing Dolsey for slander (I'm not a legal researcher, so perhaps it's in there somewhere). Again, in my letter I asked AHCS for documentation; I'm still waiting.

And my point is...?

AHCS attempted to bully me into retracting my statements on the basis of nothing more than their say-so. When I offered to review any materials they'd provide, retract any statements in error and apologize publicly, they ignored my letter and filed suit.

I find this, well, weird. Here they had the opportunity to get me to publicly acknowledge errors, publish a retraction, and apologize for those errors, yet they decided to hire Ron Sachs and a high-powered law firm to file suit against me. If they had provided that documentation, and we had a chance to discuss their issues, this might well have been a post of apology and correction, which would have resolved the entire issue in a couple of weeks at zero expense.

Posted by Joe Paduda at 7:38 AM | Link to this post | Comments (1)

Update - parts of this post may be incorrect or mischaracterize the nature of AHCS' business. I'm trying to get AHCS to respond to my request for information and help me better understand their business model.

Original post follows

It's amazing what you can find out about a company these days. After my post on drug repackager Automated Healthcare Solutions last week, a couple calls inspired me to do a bit more checking.

First, how does AHCS make its money? Simple - by taking advantage of a loophole in workers comp drug fee schedules to bill exorbitant amounts for drugs, bills insurers and employers are required to pay.

An audit of Miami-Dade County Public Schools' workers comp program determined AHCS-affiliate Prescription Partners, LLC was paid over a quarter million dollars for drugs in 2008. That's a lot of money, but even more striking is the average cost per script; Prescription Partners; average script was $423.25, by far the highest per script cost of any supplier. Miami-Dade's PBM had an average cost of $188.52.

Let's talk specifics. An analysis of pharmacy data indicated Prescription Partners, LLC (AHCS billing entity) bills from 125% to 720% of fee schedule for the same drugs, with an average of about 175%. Yes, that's right - AHCS was paid up to 6 times more than the fee schedule amount. The loophole lies in the way prices are set for drugs. As a repackager, AHCS can set its own price for drugs; repackagers are considered 'manufacturers' by the rate publishers and thus determine what the Average Wholesale Price is for the medications they sell.

In theory, AHCS, and other repackagers for that matter, could set their prices at a million bucks a pill. Given the rampant greed exemplified by some (again, not all) of these folks, it's a bit surprising this hasn't happened yet.

Its not as if AHCS or the physician practices dispensing their drugs are adding six times' more value to the injured worker. While there is some benefit in ensuring the patient gets their drug quickly, it's hard to see how that is worth the huge extra cost. Unless you happen to be one of AHCS' owners, that is.

Turns out a Boston-based private equity firm bought a minority stake in AHCS earlier this year. I don't know the folks at ABRY Partners, but I'm kinda wondering if they did their due diligence before plopping down their millions.

For example.

Gerald Glass advertises himself as a 'medical doctor'. Which he isn't. Glass, Founder and 'Co-CEO', claims he got a medical degree from Windsor University, a Caribbean academic institution. However, I found no evidence that Glass had ever been licensed as a physician in the US...

A little more investigation confirmed that AHCS was a major, if not THE MAJOR, contributor to the GOP in Florida. (this may well have occurred after ABRY's investment) An article in the Florida Independent noted the following:

" June 16, three LLCs -- Durable Medical, Orthopaedic Fellowship Group and Green Solar Transportation -- with the same managers as the founders and co-CEOs of Automated Healthcare, Paul Zimmerman, M.D., and Gerald Glass, M.D., donated $500,000 to the Florida Liberty Fund. On June 22, $487,000 was transferred to the Florida First Initiative. Automated Healthcare LLC also donated $100,000 to the Florida Liberty Fund on Aug. 3; on Aug. 5, $124,000 was transferred to FFI. (Automated Healthcare did not respond to a request for comment.

H.B. 5603, a bill vetoed by Gov. Crist but supported by Florida CFO and Democratic candidate for governor Alex Sink, included provisions aiming to reduce the cost of prescription drugs in the state's worker-compensation program. Automated Healthcare opposes the legislation, since it would likely cut into their business."

So, less than a month after Crist vetoed a bill that would have killed AHCS' business in Florida, AHCS contributes $600,000 to a PAC that supports Crist.

Loyal readers may recall my article last week noted AHCS gave a hundred thousand bucks to the Florida Liberty Fund; shame on me for not knowing the total was much closer to six hundred thousand dollars...

What does this all add up to?

Some repackagers are raping the system. This is nothing less than legalized theft. It is growing rapidly, and payers, and most importantly regulators, have to act.

Posted by Joe Paduda at 7:03 AM | Link to this post

If there's one area of work comp pharmacy management that's making payers crazy, it's physician dispensing (followed closely by compounding).

The number of physicians and clinics dispensing drugs is growing; as one state seeks to reel in abusive practices, the purveyors move to the next. I first examined the business four years ago and found 18 companies in the business; a recent search turned up over fifty (I stopped counting there). This despite California's belated move to rein in the practice that had, at one time, accounted for over half of the work comp drug costs in the 'Golden State' (an appelation likely invented by dispensing firms...)

The problem lies not in the actual practice, but in the opportunity for abuse - an opportunity that far too many 'entrepreneurs' have grabbed onto with both hands. (Details on this, and specifically the high cost of drugs in Florida, are provided below)

That's not to say all clinics and practices dispensing drugs are unethical - some bill appropriately, charging perhaps slightly more than usual but nothing outrageous. That's OK, as handing the patient their meds on the way out fo the office can help increase compliance and reduce patient hassles.

Unfortunately, those good actors are the exception rather than the rule. The Investigative Reporting staff here at Managed Care Matters recently uncovered some rather alarming information about one physician dispensing firm - Automated Healthcare Solutions.

Automated Healthcare Solutions, located in south Florida, has one of the slicker websites, full of platitudes about improving patient care, ensuring access, improving outcomes, reducing payers' administrative workload...

Sounds great. Before you sign up, you may want to do a quick check on the folks behind AHCS.

Let's start with Paul Zimmerman, M.D. 'practicing orthopedic surgeon' and CEO of AHCS.

Impressive bio - including claims that he was formerly Medical Director at "Liberty Mutual, The Home Depot, Pan American Airlines, Baxter Healthcare and Sears". Knowledgeable sources have informed me that Zimmerman was never a 'Medical Director' at Liberty Mutual. And there's no evidence he filled that role at the Home Depot either. I've asked AHCS to provide substantiation for Zimmerman's claims...no response yet...

There's much more to the Zimmerman bio, information that for some reason the good doctor hasn't included on the AHCS site.

We'll leave aside his rather modest rating on healthgrades, as the sample size is so small as to be unreliable.

There are two other issues that may provide insight into Dr Z's policies and practices.

Allegedly, some years ago Zimmerman decided to go into practice in South Florida. He was taken under the wing of the late Dr Richard Dolsey, one of the best occ med physicians I've ever come across. Dr Dolsey ran an excellent practice (Physicians' Health Centers in Miami), dealt ethically and honorably with patients and payers alike, and was widely respected in the physician community. In the course of their association, Zimmerman practiced at Dolsey's clinic, at least until he allegedly decided to open his own office. According to sources knowledgeable about the events, Zimmerman was accused of attempting to interfere in Dolsey's practice, specifically by taking patients, clients, and staff from Dolsey to help Dr Z's new practice hit the ground running.

Instead, Dr Dolsey found out about Dr Z's plans, and right about the time Zimmerman was about to execute his plan, confronted him. According to sources, the confrontation allegedly involved Zimmerman being escorted out of the office in restraints.

Dolsey subsequently sued Dr. Zimmerman and won his case.

More recently, Zimmerman's decided to become heavily involved in Florida's political scene, contributing heavily to GOP candidates and campaigns. Among the candidates Dr Z has supported is Charlie Crist, the ex-GOP and current independent candidate for Senate. In fact, the Zimmermans have maxed out their individual contributions to Crist - who happens to be the current governor.

The dollars didn't stop there - at a measly $9600. Zimmerman's company, AHCS, also plopped down a check for $100 grand on the desk of the Florida First Committee, Inc., a Florida PAC controlled by GOP veteran Bill McCollum.

Loyal readers may recall Crist vetoed a bill that would have tightly limited reimbursement for physician-dispensed drugs, a veto that came out of nowhere, surprising many who thought it was a done deal as it would have helped rein in costs in the Sunshine State, where drug costs are 38% higher than other states reviewed by WCRI.

Yep, Crist vetoed a bill that directly, materially, and significantly helped Zimmerman and AHCS. A bill that, had it become law, would have significantly hurt Zimmerman.

What's the net?

What do you think?

Florida's drug cost problem
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. [emphasis added] 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.".

Posted by Joe Paduda at 11:49 AM | Link to this post | Comments (2)

The good folks at CWCI just published a research report (The Cost and Utilization of Compound Drugs, Convenience Packs and Medical Foods in California WC) documenting the rise in spend on medical foods, repackaged drugs, and compound drugs from 2006 - 2009; the highlight is these categories accounted for almost 12% of drug spend in California in Q1 2009.

A couple of the findings that jumped out at me...

- the average amount paid per compound drug as $728 in Q1 2009.

- medical food reimbursement hit $233 per script that quarter

- a new category, 'co-packs' has emerged as a significant therapy; these are combinations of drugs with medical foods dispensed as a single unit.

The story of drug costs and attempts to address same in California is fascinating, with lessons aplenty for regulators and payers.

- A drastic reduction in the fee schedule was followed by explosive growth in repackaged drugs.

- Regulatory changes finally addressed that issue, but meanwhile the use of narcotic opioids increased six-fold, likely negatively impacting disability duration as well as increasing cost.

- New entrants into the therapeutic armamentarium, entrants that are foreign to many adjusters, case managers, and work comp execs alike, are growing in importance, requiring regulators and payers alike to understand their impact and develop policies for coverage and reimbursement.

The list of medical foods includes Theramine, Gabadone, Sentra, Apptrim, Trepadone, and others, with Theramine (pain) and Sentra (sleep aid) accounting for over half of the volume in California. Medical foods are pretty new to me; according to the Orphan Drug Act (1988 Amendment), a medical food is "a food which is formulated to be consumed or administered enterally (orally) under the supervision of a physician, and which is intended for specific dietary management of a disease or condition for which distinctive nutritional requirements, based on recognized scientific principles, are established by medical evaluation."

I'm no pharmacist or clinician, and am certainly not able to comment on the efficacy of medical foods or specific medications. For a primer on medical foods, click here.

There does appear to be evidence supporting the use of medical foods for treatment of pain, osteoarthritis, and other conditions, with one medical food, Limbrel, the subject of large, double-blind, placebo-controlled clinical studies in the United States and Japan. According to one source, "Limbrel administration has resulted in statistically significant improvement in all primary clinical endpoints (functional mobility, functional stiffness and functional joint discomfort)."

What does this mean for you?

If your P&T Committee hasn't looked at medical foods yet, you may want to add it to the agenda for the next meeting. It is highly likely we're going to see more of these scripts, and far better to be ready than to have your adjusters making decisions completely unprepared.

Posted by Joe Paduda at 6:36 AM | Link to this post

California's Senate will be considering AB 2779 today, a bill that would (among other things) require Prior Authorization of compound medications for work comp claimants. While there's no question compound meds are a big issue, the bill would do nothing to solve the Golden State's larger problem - out of control drug utilization.

(thanks to WorkCompCentral for the heads up)

Here's the issue.

The work comp drug fee schedule in California is pegged to Medi-Cal, resulting in the lowest reimbursement for drugs in the nation (with the possible exception of WA).

Pharmacy Benefit Managers (PBMs) operate on the difference between what they pay the pharmacy and what their customers pay them. In California, that delta is tiny, if not negative. If PBMs don't have any operating margin, they can't afford to allocate clinical resources to deal with prior auth requirements; they'll lose even more money in an effort to help their clients. That's neither appropriate nor good for the long term health of the comp business in California.

To those who claim the low fee schedule hasn't caused any problems, I'd suggest a thorough read of CWCI's excellent discussion of the explosive growth of narcotic opioids among comp claimants. Here's the brief takeaway - 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.

But what does that have to do with a bill designed to attack one of the emerging cost drivers - compound meds? Isn't the proverbial half a loaf better than no loaf at all?

No. While the bill enables payers to deny compound meds for medical necessity (a relatively easy call, as I don't know of any evidence-based guidelines that recommend compounded medications, PBMs simply can't afford to develop the workflows, do the research, hire the clinical staff, and manage and monitor the intake/referral to the adjuster/approval-denial/appeal processes. This is a lot of work, requires careful planning and implementation, and must include clinical staffing - nurses, pharmacists, and in some cases perhaps physicians.

We've seen the impact of the low fee schedule on total costs - they've gone up. What we haven't seen is the impact on injured workers - many more are now on narcotic opioids, with some undoubtedly suffering from all the complications linked to these potentially debilitating and addictive drugs.

AB 2779 piles more work on top of an already overburdened industry, while doing nothing to address the underlying problem.

A major step in the right direction would be for California to de-link the comp fee schedule from Medicaid. That would give PBMs the pricing stability they need to help their clients regain control over drug costs.

For a detailed discussion of Medicaid's suitability for work comp drug pricing, click here.

Posted by Joe Paduda at 9:06 AM | Link to this post | Comments (1)

Just in case you thought the problems with abuse of powerful prescription drugs have been overstated, here's a wake-up call.

The CDC's Director is taking this very seriously, saying: "Overdose with prescription drugs is one of the most serious and fastest-growing problems in this country."

The problem is showing up in a doubling of Emergency Room admissions due to prescription drug abuse, driven primarily by oxycodone, methadone, and hydrocodone.

Narcotic use is rampant in workers compensation as well. Studies by NCCI and CWCI point to the frequent use of narcotic opioids for workers comp claimants, with the explosive growth in California particularly troubling.

One of the issues in comp is that unlike group, most Medicare Part D plans, and to a lesser extent Medicaid, claimant copays are nonexistent. There's no financial skin in the game, as medications are free.

Another potential contributor is the potential street value of these drugs; while there isn't conclusive documentation of the percentage of scripts that are diverted, the 'sense of the industry' is that diversion is not uncommon. Add to that the desire on the part of some states to reduce the work comp drug fee schedule to match Medicaid, and there's no surprise use is exploding (if PBMs can't afford to manage utilization, utilization isn't managed).

Here's what some of these drugs are reportedly worth on the street.

The estimated street value of one 40-milligram OxyContin pill is about $40; another report indicates an 80mg dose is going for $30 in the northeast.

Actiq runs about $25 a dose.

Duragesic patches range from $20-$75 depending on brand, location, and dosage.

So, narcotics are ripe for abuse, there's a big - and very profitable - secondary market for them, and use is growing. That's one side of the story.

The other is the inability of many legitimate pain sufferers to get adequate treatment.

Research published by Oregon State University indicates "at least 30 percent of patients with moderate chronic pain and over 50 percent of those with severe chronic pain fail to achieve adequate pain relief."

Some think the inability of those with chronic pain to get treatment thru standard channels is a big component of the overall narcotic diversion issue.

What does this mean for you?

Like so much else in health care, there are no clear problems or easy solutions. This is more evidence of the complexity of one small part of the challenge.

Posted by Joe Paduda at 8:31 AM | Link to this post | Comments (1)

I spent a good part of the morning in a meeting discussing recent research into societal cost of prescription drug abuse. Here are a couple of stats that got my attention.

Prescription drugs are now the most abused drug, surpassing marijuana among young people.

70% of the prescription drugs abused were obtained directly or from a family member (I may have this slightly misquoted, will correct if necessary).

Emergency room admissions for prescription drug abuse doubled from 2004 to 2008.

Now let's consider a few other factoids.

Narcotic opioid use in California's work comp system increased dramatically between 2002 and 2008, with several times more claimants receiving these potent, potentially-addictive medications.

Medical severity is also increasing in the Golden State; I'm not saying there's a cause:effect relationship here but rather drug costs and usage changes may be contributing to the problem.

OxyContin accounts for just under ten percent of comp drug costs. This drug has been widely associated with abuse; it can be ground up and eaten, inhaled, smoked, or dissolved and injected.

Sorry to ruin your day.

Posted by Joe Paduda at 3:04 PM | Link to this post

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 Joe Paduda at 10:07 AM | Link to this post | 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 Joe Paduda at 2:00 PM | Link to this post | 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 Joe Paduda at 8:08 AM | Link to this post

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 Joe Paduda at 7:29 AM | Link to this post

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 Joe Paduda at 9:00 AM | Link to this post

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 Joe Paduda at 10:02 AM | Link to this post | 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 Joe Paduda at 7:47 AM | Link to this post | 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 Joe Paduda at 9:21 AM | Link to this post | 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 Joe Paduda at 8:46 AM | Link to this post | 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 Joe Paduda at 6:38 AM | Link to this post

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 Joe Paduda at 8:23 AM | Link to this post | 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 Joe Paduda at 11:25 AM | Link to this post

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 Joe Paduda at 7:13 AM | Link to this post

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 Joe Paduda at 7:25 AM | Link to this post | 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 Joe Paduda at 6:30 AM | Link to this post

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 Joe Paduda at 12:01 PM | Link to this post

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 Joe Paduda at 8:16 AM | Link to this post

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 Joe Paduda at 7:12 AM | Link to this post | 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 Joe Paduda at 6:50 AM | Link to this post | 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 Joe Paduda at 12:32 PM | Link to this post | 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 Joe Paduda at 5:01 PM | Link to this post

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 Joe Paduda at 10:14 AM | Link to this post

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 Joe Paduda at 8:44 AM | Link to this post

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 Joe Paduda at 1:07 PM | Link to this post | 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 Joe Paduda at 6:51 AM | Link to this post

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 Joe Paduda at 8:20 AM | Link to this post | 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 Joe Paduda at 10:24 AM | Link to this post | 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 Joe Paduda at 6:31 AM | Link to this post

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 Joe Paduda at 6:12 AM | Link to this post

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 Joe Paduda at 7:43 AM | Link to this post

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 Joe Paduda at 10:15 AM | Link to this post | 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 Joe Paduda at 6:09 PM | Link to this post

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 Joe Paduda at 11:33 AM | Link to this post

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 Joe Paduda at 10:32 AM | Link to this post | 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 Joe Paduda at 7:49 AM | Link to this post | 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 Joe Paduda at 7:38 AM | Link to this post

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 Joe Paduda at 8:33 AM | Link to this post | 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 Joe Paduda at 6:43 AM | Link to this post | 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 Joe Paduda at 8:16 AM | Link to this post | 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 Joe Paduda at 8:16 AM | Link to this post | 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 Joe Paduda at 7:24 AM | Link to this post

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 Joe Paduda at 10:21 AM | Link to this post

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 Joe Paduda at 6:34 AM | Link to this post

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 Joe Paduda at 2:26 PM | Link to this post | 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 Joe Paduda at 7:50 AM | Link to this post

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 Joe Paduda at 6:47 AM | Link to this post | 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 Joe Paduda at 8:41 AM | Link to this post

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 Joe Paduda at 11:19 PM | Link to this post

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 Joe Paduda at 10:14 AM | Link to this post

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 Joe Paduda at 8:07 AM | Link to this post | 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 Joe Paduda at 7:09 AM | Link to this post | 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 Joe Paduda at 4:29 PM | Link to this post

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 Joe Paduda at 10:47 PM | Link to this post | 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 Joe Paduda at 12:22 PM | Link to this post | 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 Joe Paduda at 5:57 AM | Link to this post | Comments (4)

Sometimes the good guys do win.

Posted by Joe Paduda at 12:39 PM | Link to this post

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 Joe Paduda at 7:20 AM | Link to this post | 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 Joe Paduda at 3:16 PM | Link to this post | 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 Joe Paduda at 3:08 PM | Link to this post | 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 Joe Paduda at 7:10 AM | Link to this post

"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 Joe Paduda at 7:59 AM | Link to this post | 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 Joe Paduda at 6:58 AM | Link to this post | 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 Joe Paduda at 5:02 AM | Link to this post | 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 Joe Paduda at 6:11 AM | Link to this post | 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 Joe Paduda at 8:12 AM | Link to this post | 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 Joe Paduda at 9:03 AM | Link to this post

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 Joe Paduda at 7:31 AM | Link to this post

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 Joe Paduda at 8:40 AM | Link to this post

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 Joe Paduda at 7:45 AM | Link to this post | 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 Joe Paduda at 7:09 AM | Link to this post | 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 Joe Paduda at 7:26 AM | Link to this post

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 Joe Paduda at 6:49 AM | Link to this post | 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 Joe Paduda at 1:31 PM | Link to this post

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 Joe Paduda at 6:24 AM | Link to this post | 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 Joe Paduda at 6:35 AM | Link to this post | 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 Joe Paduda at 5:56 AM | Link to this post | 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 Joe Paduda at 4:41 PM | Link to this post | 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 Joe Paduda at 9:54 AM | Link to this post | 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 Joe Paduda at 8:11 AM | Link to this post | 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 Joe Paduda at 12:59 PM | Link to this post | 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 Joe Paduda at 8:44 AM | Link to this post | 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 Joe Paduda at 6:31 AM | Link to this post

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 Joe Paduda at 10:46 AM | Link to this post | 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 Joe Paduda at 7:25 AM | Link to this post | 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 Joe Paduda at 8:45 PM | Link to this post | 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 Joe Paduda at 8:22 AM | Link to this post

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 Joe Paduda at 7:16 AM | Link to this post | 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 Joe Paduda at 12:03 PM | Link to this post | 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 Joe Paduda at 8:20 AM | Link to this post | 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 Joe Paduda at 10:47 AM | Link to this post

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 Joe Paduda at 9:13 AM | Link to this post

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 Joe Paduda at 7:14 AM | Link to this post

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 Joe Paduda at 10:16 AM | Link to this post | 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 Joe Paduda at 5:47 AM | Link to this post | 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 Joe Paduda at 6:33 AM | Link to this post | 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 Joe Paduda at 7:26 AM | Link to this post | 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 Joe Paduda at 5:41 PM | Link to this post

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 Joe Paduda at 7:23 AM | Link to this post | 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 Joe Paduda at 11:25 AM | Link to this post | 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 Joe Paduda at 7:06 PM | Link to this post | 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 Joe Paduda at 7:44 AM | Link to this post | 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 Joe Paduda at 6:27 AM | Link to this post | 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 Joe Paduda at 9:10 AM | Link to this post | Comments (3)

Bob says it better than I could.

Posted by Joe Paduda at 4:35 PM | Link to this post

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 Joe Paduda at 6:57 AM | Link to this post | 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 Joe Paduda at 10:19 AM | Link to this post | 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 Joe Paduda at 11:15 AM | Link to this post | 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 Joe Paduda at 2:38 PM | Link to this post | 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 Joe Paduda at 12:26 PM | Link to this post | 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 Joe Paduda at 7:52 AM | Link to this post | 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 Joe Paduda at 10:39 AM | Link to this post

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 Joe Paduda at 6:40 AM | Link to this post

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 Joe Paduda at 6:20 AM | Link to this post | 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 thi