Insight, analysis & opinion from Joe Paduda
Health policy expert (and good friend) Bob Laszewski was interviewed on NPR this morning about the Part D program, bringing a little much-needed perspective to this over-spun topic. The net – if enrollment among “voluntaries” (those without present coverage) does not increase 500% the program is a disaster.
Here are the quotes from Judy Rovner’s piece:
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One of the emerging issues in workers comp is the dispensing of drugs by physicians on a grand scale. Clients (big WC payers) are seeing over half of their drug costs in California coming from doc-dispensed drugs. While that sounds great; injured workers get their meds quickly and without having to drive to a store and argue with a clerk over who pays, there are a few problems – and a couple really really big problems.
Drugs are reimbursed according to a fee schedule in work comp in many states. But, the fee schedule only applies to drugs that are “standard”; i.e. have an NDC number. So, when the fee schedule was slashed in CA two years ago creative capitalists simply repackaged the drugs, which now did not have an NDC number and therefore no state-set fee (showing the futility of price controls).
Actually, there is no state set fee, but there is a reimbursement methodology that results in drug costs much higher than the “regular” drug packages. CA law required payers to pay for these repackaged drugs according to the old OMFS fee schedule. And this is one generous fee schedule – 140% of AWP plus a $7.50 dispensing fee for generics and 110% plus $4 for brand. The margins on this for docs must be amazing.
BY way of reference, the new WC drug fee schedule in CA is about 90% of AWP…
Lesson here is price fixing creates opportunities for creative entrepreneurs; my bet is while this gaming has been going on, drug utilization in California WC has been increasing.
What does this mean for you?
If you are a WC payer in California, headaches (that may get treated with doc-dispensed drugs!).
A reader asked why I’m in favor of allowing the Feds to negotiate prices with pharmaceutical manufacturers. The reader’s colleagues had the idea that since the PBMs and health plans in Part D are already negotiating, why have the Feds involved?
Here’s my response.
First, the whole Part D mess is a great example of how overcomplicated programs generate huge problems. Medicaid claimants were getting their drugs just fine before Part D went into effect, and are now having all kinds of problems. While those problems will likely go away in the near future, the problems did occur when the claimants were switched from a governmental to a private program. A little ammunition for the single payer advocates, if nothing else…
1. “price” is an elusive concept in pharma. The AWP and most other pricing mechanisms are based on the price but do not factor in rebates or any other funds transfer mechanisms that effectively reduce the actual, real “price”. So, while PBMs are in fact negotiating for “price”, we do not know in most cases what the actual real price is.
2. PBMs by definition have much less purchasing power than governments. As an example, the Veterans Administration is the only federal entity that is allowed under the law to negotiate drug prices. The VA is entitled under the law to receive either the minimum 24% discount off the non-federal average manufacturer price or the “best price” the manufacturer gives anyone, whichever is lower. These rates are much more favorable than any PBM gets.
3. The PBMs make money on the delta between what they buy the drugs for and what they charge CMS. So, while the PBM is incented to get the lowest possible price, they are more concerned w maximizing the price to CMS.
More on the adverse selection problems with Part D from a research study by DSS Research. The study indicates more than half of eligible seniors have no plans to enroll in a Part D program. And, their characteristics should set alarm bells ringing at every Part D sponsor:
“Disinterested, non-buyers are lowest users of medical services. Those who said they had not chosen a plan and had no plans to do so take fewer prescriptions; spend less on prescriptions; go to the doctor less often; and make fewer ER, inpatient hospital and outpatient clinic / surgery center visits.”
In other words, they are healthy, aren’t likely to need the coverage any time soon, and aren’t interested in subsidizing the costs of their less-healthy fellow seniors. This is exactly why Part D is a really bad idea, poorly executed too.
No, it is not going well. Despite what the spokespeople at HHS claim, enrollment in Medicare Part D has been a failure to date. Perhaps not a dismal failure, but certainly a lot further towards the “failure” end of the spectrum than the “exceeding our expectations” end. Here’s why, with thanks to Bob Laszewski for boiling down a complex topic to an understandable conclusion.
Enrollment goals
Only 21.3 million Medicare enrollees have the ability to make a decision on enrollment in Part D. Sure, there are a lot more Medicare eligibles, but many are covered under their employer’s plan (11 million), Medicaid (6.2 million of the so-called “dual eligibles”), and 4.5 million under MedicareAdvantage programs.
Of the 21.3 million, 17% have signed up so far. That’s right, 17%. As I have been noting for months, the stage is now set for big problems with Part D. You can read about the issues inherent in adverse selection here; briefly it is what happens when only sick people sign up for insurance.
In general insurers need at least 70% of eligibles to sign up to get a good spread of risk. If there is not a good spread of risk, it is highly likely that the only people who signed up are the ones who will gain more in benefits than they will pay in premiums. Result – insurers will lose money hand over fist on this deal (although their losses will be covered by the government, i.e. the taxpayer, for a period of about two years).
There continue to be problems with dual eligibles enrolled in the wrong plans, missing information, coverage issues, etc. But, as Bob points out, that is not the real problem (although it certainly is to those folks who can’t get their meds.) The real problem is taxpayers are going to foot the bill for a program that is a poster child for adverse selection.
What does this mean for you?
If you are a drug company, lots of profits. Eligibles, a great benefit. Taxpayers, bad news.
The news about the debacle that is the Medicare Part D roll-out has been well-publicized, along with the details that the individuals most heavily impacted are the 6 million dual-eligibles; those folks covered under both Medicaid and Medicare. They should have been automatically enrolled as of 1/1/06, but many states are experiencing big problems.
The key issue appears to be pharmacies are not able to access eligibility information in government databases through the normal EDI links, requiring the pharmacists to call Medicare where they spend hours on hold. Meanwhile, patients aren’t getting their drugs.
If this was just a case of a few scripts for Propecia or Viagra going astray, no big deal. But we’re talking beta blockers, insulin, cancer drugs, pain meds, scripts for Parkinson’s and the like. Life and death stuff.
Many states have provided emergency funding to enable these people to get their scripts. And this will get ironed out at some point.
The larger issue is the canary-in-the-mine nature of the problem. Many health care experts, politicians, and even some politicians who claim to be experts are putting a lot of faith in technology to root out fraud and abuse, enable better delivery of medical care, enhance evidence-based medicine and streamline the delivery of electronic health records. The Bush Administration in particular is highlighting technology as a big part of the “solution” to the health care crisis.
While there is no doubt technology can help address some of the problems in health care, history is also replete with examples of how solutions made problems worse.
Here’s hoping Sec. Leavitt and his colleagues at Health and Human Services get their act together before this gets really ugly.
What does this mean for you?
If you are a pharmacist, you don’t have time to read blogs unless you do so while on hold.
Several industry sources have provided additional insights into third party billers, their billing practices and the fallout from same.
One apparently well-informed source provided additional detail on the billing practices relative to U&C, noting:
“…As far as the U&C discussion goes the only consideration given by the TPB is what the pharmacy is reimbursed. TPB’s contracts usually state the pharmacy is reimbursed the lesser of U&C or a contracted amount… As you can imagine the TPB’s profit margins increase dramaticaly when the U&C pricing is used to reimburse the pharmacy and then billed at fee schedule or the selected amount billed for non fee schedule states. I do not know the exact percentage of pharmacy reimbursements that calculate from U&C but I can assure you that it is somewhere in the neighborhood of sixty to seventy percent of the processed prescriptions for TPB’s if not higher.” See the full comment .
Another industry expert referred me to the ongoing Texas Mutual – Third Party Solutions litigation. Apparently the suit, filed several years ago by Texas Mutual, was ruled upon by the Texas Appelate Court early in 2005. TM’s contention was that the third party billers are not medical providers and therefore coudl not avail themselves of the administrative process; TM lost at the appellate level. For more information on the specific allegations made by Texas Mutual, read the entire article on TM’s website (above).
The Court ruled narrowly on Texas Mutual v. Eckerd et al, determining that TM first had to exhaust the statutory process as all billing issues must be addressed through the established administrative process. The case is now before the Texas Supreme Court.
I have been in conversations with third party billers recently, and hope to get their perspectives shortly. If and when those conversations occur, I’ll report on them if the parties are amenable.
What does this mean for you?
If you are a WC payer, PBM, or third party biller, quite a bit. This year may well see a sea change in this industry, one that will have significant implications for years to come. And with Rx in WC accounting for 12% of the medical spend, these implications will gain importance over time.
Several readers have asked why insurance companies are so interested in the Medicare Part D program. While there are several reasons, the most significant one is they are protected from losses for a defined period of time.
Buried within the 2003 Medicare law was a provision that allotted $10 billion to cover potential losses incurred by insurers who provided Medicare Part D drug coverage plans. Yes, there is a time limit for claims against this fund, but it provides insurers with enough time to figure out how to make money and protects them from losses while they are learning.
What a great deal. I wish someone had allocated money to me to help me get my consulting firm started nine years ago; many other businesses could have benefited from Federal and taxpayer largesse as well. But we don’t qualify for these huge subsidies; we have to succeed or fail on our own. The invisible hand has a fistful of cash for selected “entrepreneurs”.
I continue to be mystified by the apparent willingness of the present administration and the conservative Republican majority to try to solve big problems with taxpayer funds. The $10 billion subsidy is a big-government, fiscally “liberal” approach.
What does this mean for you?
Higher taxes to subsidize corporations while they learn from their mistakes.
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.
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.