Monday, December 31, 2012

What are Affordable Care Organizations (ACOs)?

Affordable Care Organizations or ACOs are part of a larger effort by the federal government to move gradually away from the more expensive fee-for-service model, in which providers are rewarded for each additional treatment.  With ACOs, the goal is to replace the FFS model with an integrated system that uses evidence-based standards to coordinate care to avoid unnecessary expenses such as duplicated diagnostics and hospital readmission.

ACOs require that providers and insurers share both financial and quality data - something that each side has been highly reluctant to do in the past.  The reward will be that all will share in savings generated by the system.  Personally, I'm not sure there will be any savings to share or if this is the primary point in the first place (see my earlier post on Defragmentation).  While many healthcare theorists believe ACOs may be a major way for the nation to reduce its healthcare costs, it is not a simple fix.

In today's competitive environment it is impractical, at best, to get hospitals, doctors and insurers to work together.  Unless of course these entities decide to become vertically integrated, which we're already seeing.  Behemoth hospital networks around the country have been purchasing physician practices then hiring the staff as a prelude to setting up ACOs, and insurers, too, are starting to get involved.

Earlier this month Aetna announced a new partnership with Baycare in Tampa, Florida.  Another example, Florida Blue has set up a bundled payment system with the Mayo Clinic -- paying for an episode of care rather than for each individual service.  More widespread is its move that has put more than 700,000 patients in medical homes -- generally with a primary care physician coordinating their care, offering extended hour and other benefits -- so that basic care is easily available, reducing the need for expensive emergency room trips.

Unlike the old HMO model, the new medical home involves the insurer paying PCPs more so they spend more time with patients.  The limited data available thus far offers encouraging results. Physicians make more money, but overall costs go down.  The idea is too invest more money upfront to get better outcomes in the long-run.  Medical homes and ACOs are now separate concepts, but they're likely to dovetail in the near future.  Both concepts are emphasized in the Affordable Care Act.

The healthcare cost trend was employers must weigh the impact of future trends and plan accordingly.      

Tuesday, December 11, 2012

An Uncertain Future: Healthcare Reform Moves Forward

Believe it or not, like it or not, we are 2.5 years into the largest social and financial transition of our lifetimes. Of course, this refers to Healthcare Reform.  HCR will affect every person in the USA. Some rejoice and others lament but its implementation moves forward.  Not all is going according to plan; there have been many bumps in the road. Implementation has been trying but not traumatic up to now; however, the year 2014 will be a test for all.

In 2014, two big changes happen. First, community rating begins; carriers will no longer underwrite policies as they do now.  There will be little or no rate differentiation for the risk associated with your group compared to others.  In 2014, industry, sex and health conditions will have nothing to do with the specific rates charged.

There will be limited consideration given to age, smoking status, and geography.  If your group is historically a low risk, we expect your cost to increase, if high risk, you may get a breather from rate increases but we don't expect them to decrease.  It is expected that community rating will place significant upward pressure on costs for all in the future.  The second and most significant change will be the introduction of healthcare exchanges or buying pools.  The path of implementation is not clear.


The availability of healthcare exchanges will mean the biggest changes yet.  Businesses will have decisions to make.  Do they stick with the old tried and true group model of providing benefits to their employees or do they drop existing health plans, give employees some cash, and send them to the health care exchange to buy coverage?  Will they do some combination of the two? 

For some, the decision may be easy, but for most it will be complicated.  Lower paid employees will qualify for huge federal tax subsidies if they buy coverage from the type of exchange defined by the law. Higher paid employees may see their costs go up considerably.  This is especially true since benefits will be paid with after tax money rather than pre-tax dollars.

Some employees may get $1000's in subsidy and others may pay $1000's in tax because of reform.  This is all very complicated. The decisions made will affect every employee in your company.  Some may like the new way and some may be devastated.  Calculators available online allows you to check your cost:

Unfortunately, the results are hypothetical.  The actual implementation of exchanges is up in the air. The law places this responsibility in the hands of the state governments. Many states have pushed back and decided not to implement a healthcare exchange.  When states choose not to participate, the federal government is supposed to provide that state’s exchange.  A federal exchange isn't close to being developed.

More importantly, the huge federal subsidies are only available if employees buy coverage from state exchanges.  Federal exchanges do not qualify.  Unless this changes, it will be difficult for businesses that had planned to off load their benefit plan to do so.

Businesses may find the cost for employees is just too great without those federal dollars to offset the initial sticker shock as employees pay the real cost of health coverage.  Without a qualified exchange, healthcare reform will grind to a tortuously slow pace if not be halted altogether.


So, the future of group health insurance is not clear.  Will the private market for group health insurance be dismantled?  If so when...3, 5, 10 years?  What will that mean for your employees? How do you, as a decision maker, capitalize on any opportunities that exist?

How do you prepare and explain to employees all the changes that will occur as the implementation begins to affect their paycheck? This is all very complicated.

Of course, there have been anxious moments at TransparentRx as this has unfolded.  The debate, the drama in congress, the signing by President Obama, the Supreme Court decision and now the decision by governors that many states will not have exchanges. It has been interesting.

What will the future hold....I'm not sure.  But it is crystal clear that employers will need help deciding what to do.  There are decisions to make and your employees’ moral and productivity will suffer if not done properly. Moral and productivity affect profit.

Friday, December 7, 2012

9 Key Questions to Ask Your Potential (new) PBM

A good PBM will successfully deliver on your expectations…which will essentially be minimal disruption for your employees, greater overall savings and, ultimately, a shared vision. The fear of the unknown during a PBM implementation is unnecessary and can be avoided. How? By asking the right questions.

1. Are all network pricing and pharmaceutical manufacturer rebate and financial benefit improvements immediately passed through to us over the contract term?

2. Is the PMPM (per member per month) administrative fee your only revenue stream?

3. How will our implementation begin?

4. Who will be on our team and will we be provided with an Executive Sponsor who can escalate issues?

5. Do you limit the percentage of time committed to servicing your clients?

6. Will you provide some key references and testimonials?

7. Are you URAC-accredited? If so, what does this mean to me, as a client?

8. Based on our claims data, what types of clinical programs do you recommend at the outset?

9. Which clinical programs and initiatives do you recommend in the short and long-term? Tell us how we can collaborate to create a long-term strategy.

The bottom line is that you must choose a PBM that validates the big picture up-front, shares your pharmacy benefit philosophy, exudes the passion and commitment required to do the job, and presents a plan for dealing with potential issues and the future.

Monday, November 26, 2012

Generic Prescription Drugs by Mail can be a Bad Deal

In an attempt to rein in its employees' fast-rising prescription drug costs, some employers require its workers to fill prescriptions for maintenance medications (typically chronic conditions like type 2 diabetes) through mail-order pharmacies.

Some simple comparison shopping shows that despite formidable bargaining clout, many employers are paying far higher prices for some drugs than ordinary individuals can get walking into retail pharmacies.  Consider the price for Ranitidine 75 mg, the generic form of the popular anti-ulcer medication Zantac.

One of my clients paid Express Scripts $36.22 for 90 pills mailed to a worker, who pays an additional $5 co-pay, bringing the total cost to $41.22, according to a re-pricing we completed.  If this same employee had simply walked into their local pharmacy and bought the same Ranitidine prescription it would've cost as little as $10.00 for the same 90 pills.  This is a 400% difference in cost!

That this employer pays ESI higher prices for many generic drugs than regular pharmacies charge customers without insurance illustrates the complexities, and potential pitfalls, of prescription drug coverage. It's also a rare glimpse into how such plans work.

Traditional pharmacy benefit managers, such as ESI and CVS/Caremark, administer the drug benefits of large employers, acting as the middlemen between the employers and the pharmacies. Such PBMs create large networks of participating pharmacies and use their size to drive down prescription drug prices.

Some, including ESI and CVS/Caremark, also own their own mail-order pharmacies, and guilt employers to move more of their workers' prescriptions into the mail business.  Traditional PBMs promise to realize savings for their corporate customers by keeping the overall cost of prescription medications down.  But, they also preserve large profit margins for themselves, as the above prices clearly indicate.

Some companies say they are satisfied with the overall savings Medco is providing. But others simply aren't aware of the vast price discrepancies on generic drugs.  How can a company say it is satisfied with the overall savings when they don't even know the actual costs?

Too many companies are spending tens of thousands of dollars on products for which they were never given a price list!  These assumed savings are based upon colorful PowerPoint presentations, delivered by PBM account managers, designed to tell you exactly what you want to hear.

Because generic drugs are so cheap to begin with, PBMs and retail pharmacies alike typically make big margins on generic drugs, which account for about half of prescriptions filled in the U.S.  That's why pharmacies have a big incentive to switch prescriptions for branded drugs to their generic versions.  Aggressively switching of branded prescriptions to generics does help reduce employers' drug costs.

Employers also believe they are getting better prices on branded drugs through PBMs, which is why they are willing to pay bigger markups on generic medications. Mail-order pharmacies generally fill a three-month's supply of medication at once. 

Traditional PBMs, like ESI and CVS/Caremark, benefit greatly from its mail-order pricing system.  When a patient fills a prescription through the mail pharmacy, the full profit belongs to the PBM, rather than having to split it or get very little when the transaction happens at the retail store.

Some traditional PBMs derive more than half of its corporate profits just from selling generic drugs from its own mail order unit.  For example, Ranitidine 75 mg x 30 pills usually cost pharmacies about $2.  At retail, customers can pay $10.  I've seen mail-order prices as high as $181.00!  ESI can show its customers a great savings because the list price, called the average wholesale price, quotes Ranitidine at about $214 for 90 pills.

The complex system of drug pricing makes it difficult for employers to know whether they are getting the best prices.  Generic drug prices in mail programs are based on average wholesale price, or AWP.  AWP is considered an inflated price among those in the drug industry.  For example, the average wholesale price for Fluoxetine 20 mg x 100, the generic drug for Prozac, is $240.12 but pharmacies can pay less than $2.00!

Not all mail-order pharmacies are deceptive.  A truly transparent mail-order pharmacy, one willing to contractually accept the role of fiduciary, will deliver a significant savings for employers compared to retail.  Don't hire a PBM because of its long history, big offices, or colorful presentations.  Hire a PBM because of the value it is contractually willing to deliver its clients.  It is really quite simple; if the PBM isn't willing to sign on as a fiduciary then walk away.

Tuesday, November 13, 2012

Healthcare Reform: “A Peek at the Cost”

Effective January 1, 2014, the community rating provision of Healthcare Reform goes into effect for small employers. Experience tells us that costs will increase. Lets take a look at what it may mean to you in dollars and cents.

Most have heard that the new Healthcare Reform bill was projected to cost $850 billion. Many of us have heard the revised estimate of $1.2 trillion. Not many of us can explain $1.2 trillion in layman’s terms. The government hasn’t shared specifics about the cost in any meaningful way. So for many, the “cost of healthcare reform” becomes a point of conversation without much reality connected to it.

We know the reform will level the playing field in terms of cost. Generally, rating will be based on broad geographical areas with little ability to modify the rates to account for differences in risk. This rating strategy is called “community rating”. Let’s compare community rating to the way groups are currently rated in Ohio (our primary warehouse location).

There is general scuttlebutt that the Blue Cross plans will fare the best and gain the most in the healthcare reform implementations. It may or may not be a coincidence that Blue Cross of Michigan also “community rates” their coverage. In Ohio, many groups fall under a formula of rating that takes employee and dependent health into the formula to calculate rates for insurance coverage. In Ohio there are 36 rating tiers. Tier 1 is reserved for the healthiest risk. Tier 36 is the maximum rate applied to the worst risk.

Let’s compare the same company as if it were located in Toledo, Ohio, on Alexis Road (1/2 mile south of the Ohio/Michigan border) and then re-rate the same group, except assume the company is located in Lambertville, Michigan, on Smith Road (1/2 mile north of the Ohio/Michigan border). In Ohio they could have a range of rates, from Tier 1 to Tier 36, depending on the health risks present. In Michigan … just one mile north, all companies would pay the same rate because of the community rating system.

Here is a rate comparison for a $3000 deductible HSA plan:

                                                             Ohio Tiered Rate                               Michigan
                                               Best Risk                      Worst Risk           Community Rating
Employee Only:

Calculate the total premiums of your group to see the cost comparison between tiered and community rating. Most find that community rating is about 50% more expensive than the Tier 1 (best risk) rate and almost 7% higher than the Tier 36 (worst risk) rates in Ohio. Of course, the employer’s dependent status will vary by employer. It is difficult to understand how costs will be less under the new healthcare reform program. This comparison is a casual look at what employers may expect in term of costs.

Poor procedures cost thousands…

The price of health insurance is important during this era of tight labor and customer demands to reduce cost. Companies spend many hours and much effort competitively bidding their health insurance each year in order to have the best cost available to them.

After all the effort to reduce cost, some companies give back much of the savings because of poor administration and accounting procedures. Poor internal practices for handling employee terminations from benefit plans are the main culprit.

For example, without good communication between the “plant” and “accounts payable” with regard to employees quitting or being removed from the benefit plans, extra premiums can be paid and never recovered. With just one late or “non-communicated employee termination” per month, a company could easily pay $8,000 to $10,000 more per year for medical insurance than they need to pay. Most insurers will only give credit for 30 to 60 days of back premiums, making recovery of funds almost impossible.

Another area that is difficult for some employers to monitor is the “accounts payable” function. Most insurers require that their invoice be paid in full each month. This means that you’ll pay for all employees listed on the invoice even if they are terminated from employment. The insurer will then give credit in future months for terminated employees. Without good procedures to track the credits that are owed to your company, it is easy to forget or overlook them.

TransparentRx recommends that employers develop written procedures and checklists for termination of employees. The procedure should outline all steps to be taken from the moment an employee is terminated to the time credit is received from your insurance company. A little extra supervision of your employees that are new to the positions responsible for employee terminations and insurance bills is also a really good idea.

Monday, November 5, 2012

It's News to me!

As a valued reader of the Payors Guide to Pharmacy Benefit Managers, we are happy to provide you with this week's newsletter - It's News to me!  We are focused on your success and thankful for the partnership to provide helpful cost-saving solutions and information.  Have a great day!

Discount Prescription Drug Coupons No Bargain
With the popularity of daily-deal sites such as Groupon, it probably shouldn't be surprising another industry is capitalizing on the concept.  As the cost of prescription drugs soars, more patients are turning to online coupons, drug company discount cards and promotional offers in magazines to save money. Read more (USA Today)

Top 100 Drug Store Markets: Dueling formats
In the battle for market share among chain drug retailers, store formats are pre-empting numbers.  Rather than seeking to dominate metropolitan areas by saturating them with new stores, drug chains are seeking to draw shoppers with distinctive retail concepts.  Read more (Chain Drug Review)

Healthcare Collaboration Strategies Gaining Ground
With looming budget, pressures and payment penalties, one would think most executives of high-performing organizations wouldn't eagerly share their “secret sauce” for better outcomes and lower costs, lest it give competitors an edge.  Read more (Health Leaders)

Medication Bar-Coding Reduces Errors, Ushers Big Savings
A newly implemented medication bar-coding system at the Michigan-based Beaumont Health System helped the organization prevent some 23,500 possible drug errors within a six-month time period, officials announced Friday.  Read more (Healthcare IT News)

Emerging Trends Shaping the Future of Medication Adherence
Based on recent patient and prescriber research and extensive experience in implementing comprehensive adherence solutions, the trends identified suggest that effective solutions must address the underlying barriers to adherence with integrated solutions designed to modify behavior.  Read more (Journal of Patient Compliance)

Monday, October 29, 2012

Telemedicine: a Step in the Right Direction

Large employers and insurers such as Blue Cross & Blue Shield, United Healthcare and Aetna are offering telemedicine as a way to lower overall healthcare costs.  Specifically, physician visits are cheaper thus reducing the total costs for new and refill prescriptions, if applicable.  Supporters also see it as a way to fight the impending doctor shortage.  Some, however, are concerned about the trend.

Opponents say getting medical advice over a computer or telephone is appropriate only when patients already know their doctor.  Others are concerned that lower co-payments, and other incentives, will spur consumers to see doctors or nurses online just too save money.  The argument is that people will choose the more economical option, even if it is not the option they want.  Employers, however, will reap the most benefit.

Employees appreciate the low cost, convenience and efficiency.  Online consultations can run as low as $10 compared to $100 for a face-to-face visit.  The global telemedicine business is projected to almost triple to $27 billion in 2016, according to BBC Research.  Virtual care is a form of communication whose time has come and can be instrumental in lowering costs.

One major obstacle remains.  Many state medical boards make it difficult for doctors to practice telemedicine, especially interstate care, by requiring a prior doctor-patient relationship, sometimes involving a prior medical exam.  The situation in these states is getting worse, not better.  In 2010, the Texas Medical Board effectively created a rule which blocks a physician from treating new patients via telemedicine.

The only exception is if the patient has been referred by another physician who evaluated him or her in person.  The Texas Medical Board insists on licensing doctors in their state so that if something goes bad, a patient is injured, they have means to help.  From my point of view, this is a fair argument provided it is true.  Some medical boards are reducing restrictions, in mostly rural states, such as Nevada and New Mexico easing the licensing process.

The most common problems treated online are routine sinus and bladder infections, pinkeye, upper respiratory illness and minor skin rashes.  The patient completes a questionnaire (takes about 15 minutes) then connects with a physician via webcam, Internet connection and microphone.  The physician then sends an electronic prescription to the pharmacy that can be picked up in minutes. NowClinic and Virtuwell are just two companies that currently offer this type of service to employers.

Telemedicine is not intended to replace the intimacy of a patient-doctor relationship instead the intent is to supplement it through efficiency and lower costs.  Every self-insured employer should be taking a serious look into telemedicine for both its employees and bottom line.

Sunday, October 21, 2012

Health Insurers and the classic "Bait and Switch"

Of all the deceptive practices employed by health insurers, affecting both patients and plan sponsors, out-of-network coverage or lack there of may stand high above the rest.  In 2009, health insurers were accused of manipulating data which ultimately resulted in overpayments [patient] amounting too several hundred million dollars.

The insurers settled and agreed to set up an objective database of doctors' fees that patients and plan sponsors could rely upon.  However, the settlement didn't require insurers to use it.  Instead of using the new $95 million database, all of which was paid for by insurers, they pulled the classic bait and switch.  Insurers began determining out-of-network reimbursement rates based upon Medicare rates.

In most instances, a policy mimicking Medicare rates reduces reimbursement more drastically than the initial rates regulators were trying to increase.  Doctors receive lower payments for services rendered and patients have significantly higher out-of-pockets costs.  I don't defend insurers' exorbitantly low out-of-network rates, but can you can see the hypocrisy from regulators in so far as Obamacare?    

Today, most health plans have one level of benefits for care rendered by an in-network provider and a lower benefit for services from an out-of-network provider.  Insurance carriers encourage use of in-network providers because doing so helps control claim costs.

In-network providers have contracted with the insurance companies to provide medical care at reduced prices.  In exchange, the insurance companies direct patients to the in-network providers.  The arrangement increases business for the providers and decreases claims cost for the insurance company.

Treatment out-of-network is a different story.  Out-of-network providers have no agreement or incentive to reduce prices and control cost.  At times, however, they may provide a level of care or service that a particular patient needs or wants.  Patients seeking care out-of-network need to be aware of the way their benefits will be calculated.  There is more to it than the out-of-network deductible and co-insurance.

Insurance policies have clauses and exclusions against treatment that is not medically necessary. There are also provisions that the carrier only allows the Usual, Customary, and Reasonable (UCR) charge for a service provided.  Over the last few years, many carriers have begun to define their allowable charge or UCR limit as the amount negotiated with in-network providers.  The difference can be substantial.  For instance, if the retail price of a surgery is $4000, the discounted amount could be $2500, a $1500 discount.

When his son, Ethan, was a baby, doctors said he had a rare liver disease.  The family, which was in a health maintenance organization, had to appeal three times to get approval for the out-of-network surgery that saved the boy, now 10.  So Mr. Glaser was overjoyed two years ago when his employer switched to a PPO that promised out-of-network coverage.  Including premiums and deductibles, he and his employer paid about $14, 600 a year for family coverage.  But he discovered that at 150% of Medicare rates, it still fell far short.  In the case of a $275 liver check up, for example, the balance due was $175. (NY Times 4/24/2012)

Jennifer C. Jaff said she maintained out-of-network coverage with $14,000 in annual premiums because she has Crohn's disease and is at high risk of colon cancer, which killed three of her grandparents.  Last year, after a terrible experience with an in-network doctor, she said, she returned to a top specialist who had performed her colonoscopy and upper endoscopy.   Even with 250% Medicare rates as the benchmark Ms. Jaff owed $3,137 of a $4,200 doctor's bill.  (NY Times 4/24/2012)

If in-network benefits were paid at 80%, the patient would owe $500 for the surgery (20% of $2500).  A patient receiving care out-of-network would not receive the benefit of the discount.  Out-of-network benefits may be paid at 60%.  The patient’s responsibility is 40% of the UCR amount of $2500 or $1000, plus the difference between retail and the UCR amount ($4000 - $2500) or another $1500.  The total owed by the patient would be $2500 on a $4000 surgery.

To avoid surprises, it is important that your employees understand how out-of-network benefits are calculated.  Some providers will agree to write off all or part of the balance.  A financial agreement before receiving services is critical.  After services are rendered, many providers are not willing to discuss discounts.

Tuesday, October 9, 2012

PBMs: Traditional vs Fiduciary Repricing Report (Actual)

Express Scripts – Incumbent PBM

Total Retail Retail

Brand Generic

RX COUNT 7,257 2,769 4,488
AWP $809,015.64 $513,092.61 $295,923.03
INGREDIENT COST $587,723.37 $429,827.37 $157,896.00
DISPENSE FEE $8,799.05 $4,065.80 $4,733.25
GROSS COST $596,522.42 $433,893.17 $162,629.25
MEMBER COPAY $50,959.29 $29,030.77 $21,928.52
PLAN COST $545,563.13 $404,862.40 $140,700.73
AVG. DISCOUNT 27.00% 16.00% 47.00%

TransparentRx, LLC

Total Retail Retail

Brand Generic

RX COUNT 7,257 2,769 4,488
AWP $809,015.64 $513,092.61 $295,923.03
INGREDIENT COST $517,006.90 $432,483.51 $84,523.38
DISPENSE FEE $17,672.50 $6,712.50 $10,960.00
GROSS COST $534,679.40 439.196.01 $95,483.38
MEMBER COPAY $50,959.29 $29,030.77 $21,928.52
PLAN COST $483,720.11 $410,165.24 $73,554.86
AVG. DISCOUNT 36.00% 16.00% 71.00%

SPREAD SAVINGS $61,843.02 Identified spread (the difference between the PBM pharmacy contract and the PBM plan contract) typically retained by the PBM.

REBATES $18,142.50 The average expected Rebate is $2.00 to $3.00 per claim.

GENERIC UTILIZATION RATE 62.00% $34,000.00 Estimated savings on four targeted Generic/Therapeutic Switches.

MAIL-ORDER DISPENSING RATE 25.00% $29,000.00 Estimated savings when 35% of Rx's dispensed via retail change to our mail-order program.

TOTAL SAVINGS $142,985.52 - $36,461.31 PEPM* = $106,524.21

*PEPM or per employee per month fee.

Tuesday, October 2, 2012

Get your Hand out of my Pocket!

Alecia Beth Moore made an insightful comment during a recent interview.  You may know Alecia better by her stage name Pink, the pop music star.  Alecia recently gave birth to her first child and like most new parents is very protective of her first born. Asked if she would like her child to become a pop star she stated very succinctly, "I just want her to be talented because the world is cruel too those whom lack talent."  

I'll take this one step further and say those who lack information and/or knowledge are at the mercy of the world.  This is true in all walks of life and the pharmacy benefit management industry is no exception.  In the past few days several events have occurred where a lack of knowledge would have deemed me as a patsy.

On Wednesday September 26, 2012 I picked up a rental vehicle from the Cleveland airport.  The original reservation called for a mid-size automobile.  Since I was driving approximately 100 miles to our warehouse, I wanted to keep gasoline costs reasonably low.  Hence the request for a small automobile.  Those of you whom travel quite a bit I'm sure appreciate the Hertz Gold and Avis Preferred services.  As I approached the space where my vehicle was parked I noticed that it was not a Chevy Cruze but instead a SUV!
My first thought was, "wow a complimentary upgrade."  Then it dawned upon me that no one is renting these vehicles due to the high cost of gasoline.  A few years ago I couldn't get a free upgrade even if I got on my knees and begged for it.  Now Avis is giving away free SUV upgrades. I, with a smug, walked to the customer service counter and kindly requested a compact or mid-size automobile.  This saved our company $100 in unnecessary travel cost during the four day rental.
This past Sunday, September 30, 2012, I spent with friends at a local bar watching the football games.  All went as planned including my having to pay for the tab.  Because most of my friends are single women, this isn't a big deal.  All that changed when the bartender handed me the bill.  I knew he was a shady character from the outset and like many people in a business transaction will dupe you if the door is left open.

I had been watching the bartender all evening and noticed he was pouring drinks for customers different from what they originally ordered.  I'm assuming his logic was they've been drinking all day so no one will notice the difference between Smirnoff and Grey Goose.  So, I'll charge you for the Grey Goose and pocket the difference. Nonetheless, my bill was a lot higher than it should have been and included a tip! I told him exactly what I owed -and why- saving myself $75 in the process. 

Lastly, I purchased an 8 x 4 cork board from for $145.00.  I was able to find this product after one of my employees couldn't find it for less than $250.  I was anticipating delivery last week.  Our mail-order pharmacy warehouse has a strict policy of not opening the door for anyone unless we know beforehand to expect you.  It is a safety precaution designed to protect our employees.  The delivery company tried unsuccessfully twice to deliver the cork board. 

It turns out the delivery company was an independent driver without any brand or corporate markings on his vehicle.  As a result, our employees never opened the door and the driver didn't leave a notice.  Also, they were looking for FedEx or UPS to deliver the product.  The delivery company finally called this week to say in order to redeliver the product we would incur an additional charge of $75!  Sorry, but we're not paying it. They agreed to deliver at no cost due to the fact we were able to point out the driver didn't bother to leave a notice.  You would think those systems were already in place. 

I saved more than $400 (on four transactions) in one week by just being diligent and not allowing companies to take advantage of us.  Imagine what could happen when tens of thousands of pharmacy claims are at stake.  You'd be surprised how similar deceptive practices are executed when prescription drug benefit claims are involved. For many companies, during each and every single pharmacy claim, a similar scenario plays out where their PBM "partner" is hiding significant cash flow. 

Traditional PBMs are able to hide cash flow through formulay steering, differential pricing and rebates (or lack thereof), for example.  The traditional PBM is taking advantage of your lack of information and is skimming off the top albeit legally.  Find a PBM willing to sign as a fiduciary.  Get the information or hire someone who has it then tell your traditional PBM, Get Your Hands Out Of My Pockets!

Friday, September 21, 2012

5 New Ways to Cut Employer Prescription Drug Costs

As prescription drug costs continue to increase, plan sponsors are looking for ways to cut said costs such as reducing spouse and dependent coverage.  While total health care is predicted to rise 5.3%, to $11,507 per employee in 2012, the increase is slowing.

More recently, employers have been increasing employee premiums, although this tactic can only be pushed so until diminishing returns begins to rear its ugly head [decreased employee retention]. Also, if healthy employees opt out of coverage self-insured employers might lose money.  That is why most companies keep premium increases in line with their cost increase.

Among other changes to improve prescription drug costs employers should consider these options for 2013 and beyond:
  • The adoption of account-based health plans, which include health savings accounts and health reimbursement accounts.  The higher deductibles in these plans shifts more of the cost to employees.  In many cases, the only costs are attributed solely to prescription drugs. 
  • Some companies, 38%, will reduce spouse and dependent coverage, while 29% will use spousal waivers or surcharges. As employees have to pay more to cover family members it may be more economical for the husband to be under one plan and the wife under another.
  • Limit company reimbursements for prescription drugs to only generic and specialty medications.  While brand medications help successfully treat many diseases, their generic counterparts prove to be therapeutically equivalent where efficacy is the primary concern. Some might say generics don't work and in this case my suggestion is too try another. A different manufacturer's product will do the job in many cases. 
  • Offer telemedicine consultations next year.  It is cheaper to contact a doctor by phone, e-mail and Skype rather than go to an office.  And an employee doesn't have to leave the workplace.  It's most often used for acute ailments such as flu and allergies.  It is not considered as a substitute to a doctor's visit.  When a prescription is required the doctor may simply forward an e-script to the employee's pharmacy of choice. 
  • Eliminate prescription drug coverage all together and instead pay for access to some sort of discount program or online pharmacy. Web sites like may negotiate significant savings over chain drug stores and discount cards.  Employers could potentially eliminate huge mark-ups, administrative fees and other hidden costs that tend to be significant.  Obviously, PPACA guidelines will have to be considered in this scenario. 
Most employers we surveyed, 90%, are committed to offering health care benefits.  They know it's needed to attract and retain the best employees.  Still that leaves 10% whom are not committed.  If just one multi-national corporation stops offering health benefits then that will trigger other employers to follow suit even though most "say" they are committed to offering it.

Tuesday, September 11, 2012

The Truth about Prescription Drug Discount Cards

You've seen them in junk mail, doctor offices and grocery stores.  Prescription drug discount cards are ubiquitous and said to offer up to 75% savings on prescription drugs at retail pharmacies.  Is this really true?  Of course not.  In fact, prescription drug discount cards are one of the most misleading facets of the consumer drug industry.

Prescription drug discount cards are targeted for two sets of people:  uninsured and under-insured patients. Typically, no personal information is required as the cards are prepared in advance with all the necessary information.  For the purpose of this post, I consider participants of a HSA or other CDHC (consumer-directed health care) plan as under-insured.  

It's not too difficult for drug discount card companies to gain access to large pharmacy networks of 55,000 or more.  Furthermore, many of these drug discount card companies don't have much infrastructure at all.  In some cases, they are run from a home office giving one the impression they're a huge company with hundreds of employees and equal buying power.  Nothing could be further from the truth.

Here is how the prescription drug discount card works.  One simply picks up a card at their doctor's office, grocery store or dry cleaners - there is no registration required.  If a particular card requires registration undoubtedly the information is used for marketing purposes and not to activate the supposed discount guarantee.  At the time of a new or refill prescription, the card is taken to the pharmacy and presented to the pharmacist for any applicable discount.  The pharmacist or pharmacy technician will then enter the BIN, Group and Member ID numbers.    

Now the bait and switch begins.  The discounts promised by the cards are in many cases accurate. But, the starting point (original cost) is misleading.  The discount is based upon AWP or average wholesale price.  AWP is not the cost of the drug for the patient, pharmacy or manufacturer.  It is an arbitrary price used, in my opinion, to mislead the public and other non-informed purchasers of prescription drugs.

For example, the AWP for Metformin 500 mg x 90 is $125.00, but the actual cost to the pharmacy is only $6.50.  Your discount card offers 50% off ($62.50) Metformin and you think wow I saved $62.50 ($125 - $62.50)! Unbeknownst to you is Joe's Corner Pharmacy, without a card, would've agreed to a negotiated price of $12.50.  That difference or $50 is essentially a shared profit between the card issuer and network manager.  You've effectively been hustled.   

In the past, it was hard work; sweat and tears which gave people a big advantage.  Today, it is knowledge.  Those who have it win and those who don't get duped.  Think of the AWP as MSRP or manufacturer's suggested retail price.  Would you ever pay MSRP for a new automobile?  Strive to be well-informed about all your health care purchasing decisions and you'll avoid being a patsy.       


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.

Thursday, July 26, 2012

Which side of the Fence are you on?

Because you follow my blog, my position on traditional PBMs should be clear. They're rent-seekers and should not be given blank checks, which essentially is what most plan sponsors do.  Read the following article by Bruce Shutan. Occasionally, I like to post a peer's work to further illustrate my point(s).  Each party has an agenda, however it's up to you to decide which side of the fence you're going to join.

A battle is brewing to influence public opinion over the drivers of rising prescription drug benefit costs, cost-containment strategies and the path to meaningful health care reforms.

On one side of this spirited debate to win the hearts and minds of HR and benefit practitioners, among other key stakeholders, is the National Community Pharmacists Association (NCPA) in Alexandria, Va., which claims that pharmacy benefit managers drive up health insurance costs and restrict patient choice.

Just across the Potomac River in Washington, D.C., is the Pharmaceutical Care Management Association (PCMA), which vehemently defends its PBM membership.

A recent salvo fired by NCPA includes a humorous video, “The Third Wheel,” and website (, which cast PBMs as culprits – with the former portraying them as a prescription middleman impediment to patient relations with doctors and pharmacists. 

NCPA describes spread pricing, rebate pumping and mail order as “cost-inflating PBM practices.” The campaign is a response to PCMA’s “That’s What PBMs Do” advertising from earlier in the year, according to a spokesman for that group.

“Too many plan sponsors, policymakers and patients remain unaware of how large pharmacy benefit managers affect their prescription drug benefit and their health care premiums,” NCPA CEO B. Douglas Hoey said in a recent statement.

“For too long,” he continued, “the PBM industry has benefited from a lack of oversight and regulation, which has eroded the value of the prescription drug benefit to consumers. We have seen prescription drug costs rise, insurance premiums and patient co-payments increase, higher PBM profits and diminished patient choice – while reimbursement to pharmacy small business owners for providing prescription drug services continues to decline. It’s fair to ask: Where’s the money going?”

The NCPA credits its more than 23,000 independent community pharmacies for dispensing lower-cost generic drugs and countering a $290 billion problem of non-adherence with prescribed medications. The community pharmacy model also is described as superior to PBM-owned mail-order pharmacies.

Charles Coté, the PCMA’s assistant vice president of strategic communications, counters that “independent drugstores are trying to maximize their own reimbursements” – noting that PBMs are hired by large and small employers, unions, Medicare Part D, the Federal Employees Health Benefits Program and state government employee plans to drive down prescription costs.

He says PBMs will save consumers and payers nearly $2 trillion in prescription drug costs over the next decade and took exception to the NCPA’s portrayal of his group’s members. “Employers want even greater use of proven PBM tools to save money and reject the drugstore lobby’s agenda that would force them to pay more for prescription drugs,” according to Coté.

He says that agenda includes stopping employers from promoting home delivery of 90-day prescription drug refills, forcing plans to include drugstores that overcharge and demanding higher payments from the government and employers.

by Bruce Shutan, a former EBN managing editor, is a freelance writer based in Los Angeles.
Let's break this down...

“Too many plan sponsors, policymakers and patients remain unaware of how large pharmacy benefit managers affect their prescription drug benefit and their health care premiums,” NCPA CEO B. Douglas Hoey said in a recent statement.

Simply put, this statement is true. Ask 100 benefit managers and/or brokers what is Differential Pricing and 75% will get it wrong. The reality is that decision-makers for payors rely heavily on their agents whom either don't know enough about the PBM industry or just don't care enough to get better deals for their clients. Worse yet, many are aligned with PBMs earning fees and commissions!

“For too long,” he continued, “the PBM industry has benefited from a lack of oversight and regulation, which has eroded the value of the prescription drug benefit to consumers. We have seen prescription drug costs rise, insurance premiums and patient co-payments increase, higher PBM profits and diminished patient choice – while reimbursement to pharmacy small business owners for providing prescription drug services continues to decline. It’s fair to ask: Where’s the money going?”

Most every word above from Mr. Hoey is true.  He has exaggerated somewhat with such a broad use of the word PBM.  A truly transparent and pass-through PBM will not engage in any deceptive practices.  Furthermore, it will sign on as a fiduciary.  See my previous blog post titled "Rent-Seeking..."

Charles Coté, the PCMA’s assistant vice president of strategic communications, counters that “independent drugstores are trying to maximize their own reimbursements...” – noting that PBMs are hired by large and small employers, unions, Medicare Part D, the Federal Employees Health Benefits Program and state government employee plans to drive down prescription costs.

Is Charles serious (keep in mind that he works for one of the largest PBM lobbying arms)? Doesn't every business want to maximize revenue? PBMs drive cost down there is no argument here. The problem is that traditional PBMs like Express Scripts and CVS/Caremark do not pass all those cost savings on to clients, which is the case for a PBM signing as a fiduciary. In fact, deceptive practices are far too often utilized by these traditional PBMs to hide cash flow from deserving clients. 

Closing comments...

I would argue that PBMs aren't hired primarily for their ability too drive prescription costs down, but instead too manage the drug benefit; claims adjudication, formulary management, eligibility, DUR etc...Most self-insured companies would hire a PBM (if a drug benefit were offered) as long as the cost wasn't extremely exorbitant, relatively speaking.  PBM services save companies a boat load of time and hassle - this is the real benefit. Any cost reduction is just an ancillary feature. What do cost savings really mean when most payors don't know the actual cost of their drug benefit to begin with? Think about it.