Third party billers and usual and customary

My post of a couple weeks ago on Third Party Billers (TPBs) generated a good bit of heat and even some light amongst interested readers. It has also caused a few payers to examine their own reimbursement policies in some detail. Caution – Most regular visitors will find this a touch too esoteric, but for interested parties nothing could be more intriguing.
Reminder – TPBs are “factors”; companies that buy workers comp scripts from retail pharmacies and try to collect from payers such as insurance companies. Seems pretty straightforward – pay a discounted price, the pharmacy gets their money quickly and then the TPB makes money on the margin between what they pay and what they collect. There are a few nuances and twists that make this a lot more complicated, and therefore a lot more frustrating for payers.
In about half the states, there is a fee schedule mandated by the state government which sets the maximum reimbursement amount for most drugs. Thus, when TPBs request reimbursement from payers, they ask for the fee schedule amount. So far, so good.
Except when the pharmacy is in the payer’s Pharmacy Benefit Management vendor’s network of contracted pharmacies. In this instance, some payers and payers/PBMs have reduced the amount payable to that owed under the terms of the contract rate at the dispensing pharmacy. TPBs do not approve of this interpretation, and in some instances have aggressively pursued additional payments.
A different situation arises in the non-fee schedule states. Most of these require reimbursement to be at “usual and customary”, which is defined by the NCPDP (standard field 426-DQ) as the “amount charged cash customers for the prescription exclusive of sales tax or other amounts claimed”. It appears that this definition is not used by the TPBs, who are actually billing at rates that appear to be based on a multiple of the Average Wholesale Price, or AWP. (Various sources within payer organizations have indicated that the multiple is in the range of AWP + 15% to AWP + 20%.).
Some payers pay the requested amount while others pay the bills at what they deem to be “U&C”. In some instances TPBs have threatened to initiate legal action against payers failing to pay what the TPBs have stated they are owed.
The net is this – there appears to be a disagreement as to what constitutes “usual and customary”. After reviewing research on drug fee schedules and reimbursement arrangements in the individual states, there does not appear to be a consistent, clear definition of usual and customary.
There have been some court cases that at least part involved this issue; to my knowledge there have not been any precedents set or definitive rulings written. If any reader is aware of more conclusive information please let me know.
What does this mean for you?
Confusion and different interpretations are never helpful and can lead to excess costs and hassles for all involved. The sooner this is publicly resolved the better for all parties.
Note to reader – I contacted executives at third party billers in an effort to get their perspective on this issue; none have returned my calls as of this morning. This despite the request from one (Third Party Solutions) in a comment on a previous post that I contact them to get their input.


Suit filed against drug manufacturers for price manipulation

A suit has been filed by Arizona’s Attorney General accusing 42 drug manufacturers of inflating Average Wholesale Prices on drugs sold to physicians. According to an article in the Arizona Republic, at least 14 other states are also pursuing action against foreign and domestic pharmaceutical firms.
The pharmas are accused of artificially inflating the AWP reported to payers and data aggregators, setting prices that are many times higher than what they “actually charge some doctors and pharmacies.” As Medicare, Medicaid, group health plans, and group health and workers comp pharmacy benefit managers often base their reimbursement on AWP, the effect of the alleged price inflation is to generate enormous profits for the retailers and physicians paying the real wholesale prices.
In one example, the Republic noted:
“Abbott Laboratories Inc. lists a price of $382.14 for a 1-gram vial of the antibiotic vancomycin, which is used for severe infections. But the providers, the doctors and pharmacies, are charged only $4.98 for the drug, leaving a profit of $377.16, or 7,547 percent. Some drug firms sell the salt solution sodium chloride to pharmacies and physicians for about $4, with the average wholesale price listed at about $670.
The complaint also says that drug manufacturers provide financial incentives to physicians and suppliers to stimulate drug sales, such as volume discounts, rebates and free goods, at the expense of Medicaid and Medicare. The incentives were not offered to government or consumers.”
AWP is universally derided as “Ain’t What’s Paid”, and this is yet more proof that the pejorative definition of the acronym is more realistic than the industry definition. Transparency is a critical issue in the industry, and this shows why.
Not mentioned in the article is the growing trend in dispensing of drugs by physicians for workers comp patients in many states, particularly California. According to some of our clients, almost half of all drugs dispensed to WC claimants are through physician offices. I’ll comment in depth about this in a future post.
What does this mean for you?
Yet more evidence that the “discount” is meaningless. Too many payers assess their program based not on total drug costs but on the discount received. This is proof that the system is ripe for manipulation.
If you aren’t measuring your drug costs based on total expenditures, you are not doing your job.


Medicare Part D’s challenges and problems

It will come as no surprise that the war over the Medicare Part D program (free subscription required) is continuing to heat up, with Republicans touting the benefits for seniors while Democrats describe the program as a giveaway to the large pharmaceutical firms on the backs of the taxpayers.
As I have noted before, the entire Medicare Part D program, from the original budget estimates (remember the Medicare Chief Actuary was threatened with dismissal by the Administration (subscription required) if he revealed the true cost of the program before the Congressional vote) to the hold-harmless provisions protecting private companies from losses to the failure of the legislation to allow the Feds to negotiate drug prices to the cumbersome, complex, confusing program itself to the likelihood for adverse selection due to the benefit design is enough to make your head spin. And that’s exactly what is happening amongst potential beneficiaries.
An article in the New York Times on Part D describes the problems politicians of all stripes are facing when attempting to educate their constituents about this program


Workers Comp pharmacy management and third party billers

I had a very interesting conversation yesterday with an executive at a large workers compensation third party biller. For those unaware, third party billers (TPBs) are entities that buy WC scripts from retail pharmacies and then try to collect from the insurance companies. Think of them as factoring agents; the retail pharmacy gets their cash fast, and the TPB gets to make a margin on the difference between what they pay the retail pharmacy and what the insurer pays the TPB.
By the end of the conversation, it was abundantly clear that the TPBs are out to take over the WC PBM (pharmacy benefit management) business. This TPB claims to have spent several years trying to collect what they believe they are owed from numerous payers, wtih very limited success. As a result, they are now pursuing aggressive legal action to try to force the payers to pay them the full amount for each script.
Many payers have been reducing their reimbursement to the TPB based on the rate that the retail pharmacy has agreed to. The TPB claims that since they bought the script, they now own it, and therefore the payer has to reimburse them at fee schedule.
The payers believe that since the script was filled by a retail pharmacy that is in their pharmacy network, they only have to pay the contracted amount.
Woven throughout the conversation was the statement that the TPBs exist to improve the injured workers’ life; by getting access to the drugs, they are helping to speed healing and reduce lost work time. A noble goal to be sure.
What does this mean for you?
The PBM-payer-TPB mix is going to have a huge impact on WC medical expenses, systems, and workflows.


Mississippi sues drug companies

The State of Mississippi has filed lawsuits alleging 86 pharmaceutical companies have defrauded the state’s Medicaid program of hundreds of millions of dollars through deceptive and fraudulent pricing and marketing of drugs.
The core of the issue appears to be that old pretense for pricing, Average Wholesale Pricing, or AWP. According to Insurance Journal,
“From fiscal 1999 to 2002, Mississippi’s prescription drug costs for its Medicaid beneficiaries shot up an average of 26 percent a year, (Attorney General Jim) Hood’s lawsuit said.
So the state first limited the number of prescriptions that its Medicaid enrollees could get each month to 7 from 10 — and then cut the number to 5, Hood added.
Mississippi charged the drug companies set so-called average wholesale prices artificially high. The state uses the prices to calculate reimbursement rates for physicians, pharmacies and other providers, the suit said.
“The Defendants have reinforced this tactic with other deceptive tactics such as covert discounts, kickbacks and rebates to providers, and the use of other devices,” the suit said.”
Mississippi has a well-deserved reputation as a litigation happy state but that is not to say Mr. Hood does not have a point about AWP, which has long been recognized as a meaningless basis for estimating drug pricing.
Firms involved in the dispute include Abbot Labs, Novartis, GlaxoSmithKline, and Pfizer.
What does this mean for you?
Watch closely, as Mississippi’s discovery process may uncover some interesting aspects of the whole drug pricing methodology.


Race, genetics, and medicine

A fascinating article about the role of genetics, race, and societal interactions is in today’s New York Times. Before you blow this off, consider the following points.
1. so-called “personalized medicine” is touted by some as the next big breakthrough in medicine, using genomics to customize therapies for individuals
2. there has been a considerable increase in the investment in and marketing of drugs that are targeted to distinct “racial groups”.
3. there is some evidence that this makes sense, and other evidence that it makes no sense whatsoever.
4. the push to unravel the human genome is both supporting and detracting from the “race-based drug development” effort.
5. billions will be invested in research in these areas


Senate moves to allow negotiation for pharma prices

Sen Wyden (D-OR) claims he has enough votes in the Senate to pass legislation authorizing the Secretary of Health and Human Services to negotiate for Medicare drug prices with pharmaceutical companies. Critics were quick to decry the move, with the pharma industry claiming such a move would not reduce prices, would be counter-productive, and unfair.
Which begs the question, if it would not reduce prices, why are they so concerned?
In any event, despite the present budget crunch and moves by the HHS Secretary to reject providing access to Medicaid for victims of Katrina and Rita due to the increased expense, pundits claim the measure is not likely to pass because “it faces strong opposition from the Bush administration, Republican leaders and the pharmaceutical industry” (Las Vegas Sun)
In a related development, a study was released that compared pricing under the Veteran’s Administration’s negotiated pharma arrangement to the new Medicare Part D card. The net –
– prices for 49 out of the 50 most common drugs were higher under the Medicare program than the VA; and
– the average annual cost of drugs would be $220 higher under Medicare than the VA.
The VA is the only Federal governmental unit that is permitted to negotiate directly wtih pharma firms. The study was conducted by Families USA.
What does this mean for you?
Higher taxes to pay higher prices for drugs, but perhaps that is better than the cost-shifting that would occur if the Feds got tough with pharma and squeexed them for lower prices.


Medicare Part D participating plans

Medicare’s Part D program is gaining momentum with several large for-profit health plans expanding on their plans to offer the program to seniors. Among the plans, Aetna, United Health Group, and Cigna are launching programs nationally, with Humana doing so in over 40 states.
According to the Detroit Free Press,
“Goldman Sachs projects that nearly 17.5 million seniors — about 41% of those eligible to participate — will enroll in the drug plan in 2006….Participating seniors will spend an average $792 for prescription drugs in 2006, excluding premiums, or 37% less than the $1,257 cost without the benefit, according to a July 2004 report by the Congressional Budget Office.”
That begs the question – why won’t the other 59% enroll? The reason is simple – their premiums will be higher than the anticipated costs. Thus, the seniors that will join up will be those who will financially benefit, and the ones who won’t see savings won’t enroll.
Doesn’t sound like a money maker for the PBMs, unless their losses are subsidized by Uncle Sam.
I still can’t figure out what makes this so attractive to private health plans.


Why Medicare Part D will not succeed

The Medicare Part D marketing wagon train has hit the road, with CMS Director Mark McClellan leading the effort to convince skeptical seniors to enroll in the program. By all accounts, the effort has yet to hit its stride (free subscription required), as some seniors are confused about the coverage, while healthy seniors appear uninterested in the benefit, and the chronically ill are concerned that the benefits will not be rich enough.
I have been saying for some months now that Medicare Part D is a bad idea primarily because it does not take into account adverse selection. Simply put, the only people who will sign up are those who need the benefit. Others will not sign up until they get sick; while there is a financial penalty for delayed entry into the program, it is so small that it is unlikely to act as a deterrent. In fact, a study by Brandeis University of seniors using drug discount cards indicates the cards were purchased disproportionally by seniors who were already significant drug consumers.
It is therefore difficult to see how this program will be a financial success. Yes, the government will subsidize money losing plans (where those funds will come from is somewhat of a mystery), yes there will be some price concessions on individual drugs as pharmacy benefit managers negotiate better deals with manufacturers, yes some employers will save money by having the Feds pick up their retirees’ Rx costs. But the fundamental flaw is that seniors will only sign up if they get more out of it then they pay in premiums.
Unless and until someone figures out how to overturn human nature, Medicare Part D is a dead duck.


Selling Vioxx

Jon Coppelman at Workers’ Comp Insider has a great post on the influence of lunches, meetings, and sales reps (detailers) on prescribing habits of physicians. The quick take – MDs who attended Vioxx lunches prescribed four times more than those who just met with detailers. Oh, they weren’t consuming vioxx at the lunches, just hearing about their wonders.
MDs were also paid $750 – $1000 to present at these educational gastronomic events. The presenters talked about related conditions, indications, etc. Jon notes:
“the participating doctors insisted that they are not flacks for the drug companies — they say that they answer questions at these sessions honestly and candidly. In the example of the migraine headaches above, the lead doctor mentioned the availability of generic medications, in addition to those made by the sponsoring company.”
These are pretty common events – almost a quarter million of these doctor presentations took place last year, compared to under 140,000 detailer sales calls. Figure 237,000 events x $750 honorarium per presenter, that’s $178 million.
While the investment was huge, “The return on investment for the presentations involving a doctor was twice that of the other sessions.”
What does this mean for you?
If you are seeking ways to “counter-detail”, you better have a big budget.