Tuesday, August 28, 2012

Two Ways to Avoid Paying a Premium for PBM Services

This week I was faced with an interesting dilemma. One that I've advised many clients recently, but it takes a different dynamic when it affects you personally.  I pride myself on the do as I do, not as I say philosophy. During the past year, I've been in the market for a new pharmacy management software system. My research has concluded thus two options remain; Mckesson Enterprise or QS/1.

The Mckesson software package offers all the bells and whistles plus the ability to easily scale as our business continues to grow. That a company with over $50 billion in annual revenue offers such a product is not surprising. In addition to the standard features expected in a pharmacy management system, Mckesson Enterprise also has integrated credit card processing, electronic PDMP reporting, and workflow management.  Unfortunately, it also comes with a mandatory cost of $7,000 for on-site training and purchase of one PC workstation.

The QS/1 system is installed with every feature required:  SaaS or web-based, PDMP reporting, DUR, and claims submission. Yet, there is no additional expense for training or purchase of a PC workstation.  The QS/1 account manager recommended on-site training (at an additional cost), but I inquired about remote training and my request was happily granted.  Furthermore, the monthly maintenance fee was almost 50% less than that of the Mckesson product saving us another $4,000/year!

Why does Mckesson not offer remote training?  More important, why would a company pay significantly more for a product it can attain elsewhere at a much more inexpensive price point? Consider the Benefit Pyramid below.
Mckesson has a great deal of brand awareness and equity.  Mckesson's clients will often times pay a premium for this brand recognition. Consequently, Mckesson is able to charge clients a huge premium for two very distinct reasons:  the Benefit Pyramid and Cognitive Modification.    

Managers are burdened with so much work that they often times make poor decisions only to avoid having more work added to their to do list.  Managers fall in the Pain Avoidance and Preservation stages of the benefit pyramid.  They are not as concerned about profitability as say an owner or CEO. As a result, bad purchase decisions are often made which lead to drastically overpaying for products and services.  A person with direct financial interests will balk and many times walk away.  Hence, my decision to go in a different direction.

Companies of all sizes are paying far too much for PBM services; much of it attributed to managers wanting to avoid more work as opposed to looking out for the company's financial performance.  On the other hand a CEO or owner is concerned first about financial performance thus his/her position at the top of the benefit pyramid. A CEO or Lieutenant should always be directly involved, from beginning to end, in the decision to select a pharmacy benefit manager.  

I almost made the decision to purchase Mckesson's product even though it was more costly.  I created, in my mind, all sorts of reasons why their product was better.  Some of the reasons (or excuses) were I'm more familiar with them, they're bigger so the product must be a better, and it is more expensive so the product must be the best of the two. Cognitive modification is the behavior of unknowingly creating reasons to justify a position all though it may not be in one's best interest. 

Is a big company name or wanting to avoid more work enough to warrant paying twice as much for similar services?  Not in my opinion. Decision-makers in the PBM selection process must avoid those two pitfalls and select providers based solely upon the environmental, social and economic return to their organization and its stakeholders.

Monday, August 20, 2012

Medicare Part D Deadline: October 15

Medicare Part D is the prescription drug program that has been in effect since the Medicare Prescription Drug, Improvement, and Modernization Act became law in 2003. Annually, employers offering any type of prescription drug benefit must notify Medicare eligible participants whether their coverage is creditable or not. Additionally, employers must make certain disclosures to the CMS within 60 days of the start of the plan year.

Determining who must receive the notice is a challenge for employers. It is more complicated than simply looking at birth dates. Individuals also become Medicare entitled through disability, having End-Stage Renal Disease or being a qualified railroad retirement beneficiary. 


Required recipients include not only Medicare enrolled employees and retirees, but also COBRA beneficiaries, their spouses and dependents. Thus, in order to avoid overlooking any participants who may be eligible for Part D, prudent employers should send the notice to all participants rather than engage in a time-intensive fact-finding exercise to determine the appropriate distribution list.


These notices must be provided at the following times:


Before the start of each year’s election period (October 15)

Before an individual first enrolls in the employer’s plan
If plan coverage goes from creditable to non-creditable, or vice versa
Upon the individual’s request
Before an individual’s personal Medicare initial enrollment period

For assistance with this obligation, please contact your Benefit Manager.


Tuesday, August 14, 2012

PPACA: Employer Healthcare Coverage Mandate

A recent NFIB Research Foundation article illustrated the Employer Mandate, also known as PPACA’s employer shared responsibility provisions.  Businesses with 50 or more full-time employees or full-time equivalents (FTEs) face potential employer mandate penalties beginning in 2014.

If a business does not provide insurance and if at least one employee receives federal insurance subsidies in the exchange, the business will pay $2,000 per employee (minus the first 30).  Example: a business with 50 employees, two of whom are subsidized, would pay $40,000 in penalty (50 employees – 30 = 20 x $2000).

If a business does provide insurance, and if at least one employee receives insurance subsidies, the business will pay $3,000 per subsidized employee OR $2,000 per employee (minus the first 30)  – whichever is less.  So a providing business with two subsidized employees would be fined $6,000. With 14 or more subsidized employees (above the tipping point for the formula), the penalty for a 50-employee firm would be $40,000.

To qualify for subsidies, an employee must meet two criteria.  First, his or her household income must be less than 400% of the federal poverty level ($89,400 for a family of four in 2011).  Second, the employee’s portion of the insurance premium must exceed 9.5% of household income.

The mandate makes it extremely expensive to cross the 50-employee threshold.  For example, a mid-sized restaurant that goes from 49 to 50 employees could face a $40,000 per year penalty. Businesses will spend resources determining how many employees they have with respect to the employer mandate.  They will face time-consuming, arbitrary administrative burdens associated with employees seeking insurance subsidies in the new insurance exchanges.

Businesses subject to the employer mandate will receive periodic government reports on subsidized employees that inadvertently reveal personal financial data on employees’ spouses and families.  This raises discomforting privacy concerns and exposure to liability for employers.

For some firms, the employer mandate will result in large fines when circumstances change in their employees’ households.  For example, an employee’s spouse losing a job could trigger thousands of dollars in annual employer penalties.  Employers will not be entitled to know the details of what triggered their penalties  – unless they challenge the employee’s honesty before a government agency.  The employer mandate will increase costs, and businesses will pass them along to the consumers.

COBRA Notifications to Medical Providers

The hospital calls to verify benefits for an employee that terminated six weeks ago.  You heard that he had been severely injured in an auto accident the previous night.  He hasn’t elected COBRA; you know he doesn’t have the money to pay for it anyway.  You advise the hospital admitting clerk that unfortunately the employee is not covered by your benefit plan.  Who will pay for his claims?

Probably your company (not your insurance company) will cover the cost of claims for the terminated employee.  Final IRS COBRA regulations require you to disclose information about COBRA status during the election period or premium payment period.  Proper disclosure to a health care provider would allow them to make or facilitate payment of the COBRA premiums so coverage would be in effect to pay the claims.  Because you failed to make the required information available to them, more than likely liability will be decided in the courts.  Employers have not fared well in these cases.